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FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-21509
PROSPECTUS
HEARTLAND WIRELESS COMMUNICATIONS, INC.
OFFER TO EXCHANGE UP TO $125,000,000 OF ITS
14% SERIES B SENIOR NOTES DUE 2004
FOR ANY AND ALL OF ITS OUTSTANDING
14% SENIOR NOTES DUE 2004
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MARCH 21, 1997, UNLESS EXTENDED.
------------------------
Heartland Wireless Communications, Inc. (the "Company") hereby offers, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount of 14% Series B Senior Notes due
2004 (the "New Notes") of the Company for each $1,000 principal amount of the
issued and outstanding 14% Senior Notes due 2004 (the "Old Notes" and the Old
Notes and the New Notes, collectively, the "Notes") of the Company from the
Holders (as defined herein) thereof. As of the date of this Prospectus, there is
$125,000,000 aggregate principal amount of the Old Notes outstanding. The terms
of the New Notes are identical in all material respects to the Old Notes, except
that the New Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and therefore will not bear legends restricting
their transfer and will not contain certain provisions providing for an increase
in the interest rate on the Old Notes under certain circumstances relating to
the Registration Rights Agreement (as defined herein), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offer.
Interest on the New Notes will accrue from December 20, 1996 and will be
payable semi-annually on April 15 and October 15 of each year, commencing April
15, 1997. No interest will be payable on the Old Notes accepted for exchange.
The New Notes will be senior obligations of the Company ranking pari passu
in right of payment to all existing and future indebtedness of the Company,
other than indebtedness that is expressly subordinated to the New Notes. The
Company has no senior indebtedness, other than $115.0 million principal amount
of 13% Senior Notes due 2003 (the "Existing Notes"), and $15.8 million payable
to the Federal Communications Commission for the Company's purchase of licenses
for certain "Basic Trading Areas" ("BTAs") secured by a lien on such licenses
(the "BTA Obligation"). In addition, the Company is a holding company that
conducts substantially all of its business through its subsidiaries. The New
Notes, therefore, will be effectively subordinated to all liabilities of the
Company's subsidiaries, including trade payables. The outstanding liabilities of
the Company's consolidated subsidiaries (including all liabilities of
consolidated subsidiaries that are not wholly-owned by the Company) were
approximately $12.1 million at September 30, 1996. Subject to certain
limitations set forth in the Indenture (as defined herein), the Company and its
subsidiaries may incur additional indebtedness which is secured by assets of the
Company and its subsidiaries.
The Old Notes were not registered under the Securities Act in reliance upon
an exemption from the registration requirements thereof. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The New Notes are being offered hereby in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement. Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such New Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes. Notwithstanding the foregoing, each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by such broker-dealer in connection with any resale of New Notes received
in exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of 120 days after the date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale.
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the New Notes. The Company does not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Company will pay all of the expenses incident to the Exchange Offer.
Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn as provided
herein at any time prior to the Expiration Date (as defined herein). The
Exchange Offer is subject to certain customary conditions.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING OLD NOTES IN THE
EXCHANGE OFFER.
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THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 11, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the New
Notes being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations promulgated by the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed or incorporated by
reference as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Registration Statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material may also be obtained at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed fees. In addition, the
Company is required to file electronic versions of such material with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov. that contains information regarding registrants that file
electronically with the Commission.
The Company is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such material filed by the Company with the
Commission may be inspected, and copies thereof obtained, at the places, and in
the manner, set forth above.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, so long
as the Notes remain outstanding, it will file with the Commission and distribute
to holders of the Notes copies of the financial information that would have been
contained in annual reports and quarterly reports, including management's
discussion and analysis of financial condition and results of operations, that
the Company would have been required to file with the Commission pursuant to the
Exchange Act. Such financial information shall include annual reports containing
consolidated financial statements and notes thereto, together with an opinion
thereon expressed by an independent public accounting firm, as well as quarterly
reports containing unaudited condensed consolidated financial statements for the
first three quarters of each fiscal year. The Company will also make such
reports available to holders considering exchanging their Old Notes in the
Exchange Offer, prospective purchasers of the Notes, securities analysts and
broker-dealers upon their request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus: (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1995; (ii)
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1996; and (iii) the Company's Current Reports on Form
8-K dated (A) February 23, 1996, as amended by Form 8-K/A dated February 23,
1996 (filed with the Commission on April 8, 1996) and Form 8-K/A2 dated February
23, 1996 (filed with the Commission on April 29, 1996), (B) July 1, 1996 (C)
November 22, 1996 and (D) and December 20, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to February 11, 1997 and prior to the
termination of the Exchange Offer shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of filing of such documents. Any statement contained herein or in a document all
or part of which is incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which
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also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to any
person to whom this Prospectus is delivered, upon the written or oral request of
such person, a copy of any and all of the foregoing documents incorporated
herein by reference (excluding exhibits unless specifically incorporated
therein). Such documents are available upon request from J. Curtis Henderson,
Vice President and General Counsel, Heartland Wireless Communications, Inc., 200
Chisholm Place, Suite 200, Plano, Texas 75075, (972) 423-9494. In order to
ensure timely delivery of such documents, any request should be made by March
14, 1997 (five business days prior to the Expiration Date).
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Certain of the matters discussed in this Prospectus include forward-looking
statements that involve risks and uncertainties. Among the risks and
uncertainties to which the Company is subject are the risks inherent in the
Company's limited operating history, the fact that the Company has recorded net
losses since inception, the Company's substantial indebtedness and its historic
inability to realize earnings to cover its fixed charges, the significant risks
associated with managing the Company's growth and the Company's need for
additional financing. As a result, the actual results realized by the Company
could differ materially from the statements made herein. Holders of the Old
Notes considering whether to exchange their Old Notes in the Exchange Offer are
cautioned not to place undue reliance on the forward-looking statements made in
this Prospectus which speak only as of the date hereof.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus or in the documents incorporated herein
by reference. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussions in
"Risk Factors." See "Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995." Unless the context otherwise requires, (i) all
references in this Prospectus to the "Company" refer collectively to Heartland
Wireless Communications, Inc., its predecessors and its majority-owned
subsidiaries and (ii) all information in this Prospectus includes the "Recent
Acquisitions" and assumes consummation of the "Pending Acquisitions" and
"Pending Divestiture" (each as defined herein). See "Recent Events.
THE COMPANY
Heartland Wireless Communications, Inc. develops, owns and operates
wireless cable television systems, primarily in small to mid-size markets
located in the central United States. At December 31, 1996, the Company had
wireless cable channel rights in 95 markets representing approximately 10.3
million households, approximately 9.2 million of which the Company believes can
be served by line-of-sight ("LOS") transmissions (which generally require a
direct, unobstructed transmission path from the central transmitting antenna to
the antenna located on the subscriber's premises).
At December 31, 1996, the Company's 95 markets included 56 markets in which
the Company has systems in operation (the "Existing Systems") and 39 future
launch markets in which the Company has aggregated sufficient wireless cable
channel rights to commence construction of a system or the Company has leases
with or options from applicants for channel licenses that the Company expects to
be granted by the Federal Communications Commission (the "FCC"). At December 31,
1996, the 56 Existing Systems were providing wireless cable service to
approximately 240,700 subscribers.
In addition, the Company owns approximately 21% of the outstanding common
stock of Wireless One, Inc. ("Wireless One") and approximately 37% of the
outstanding common stock of CS Wireless Systems, Inc. ("CS Wireless"). At
December 31, 1996, Wireless One (and a limited liability company which holds
channel rights in 10 markets and in which Wireless One owns a 50% interest) had
channel rights in 80 markets, representing an estimated 7.3 million LOS
households and serving approximately 69,800 subscribers. At December 31, 1996,
CS Wireless had channel rights in 11 markets, representing an estimated 6.0
million LOS households and serving approximately 65,500 subscribers.
BUSINESS STRATEGY
The Company's primary business objective is to develop, own and operate
wireless cable television systems in markets in which the Company believes it
can achieve positive System EBITDA (as defined herein) rapidly after system
launch and then expand such system while ultimately increasing such system's
cash flow.
The Company targets small to mid-size markets with significant numbers of
LOS households that are unpassed by traditional hard-wire cable. Many of these
households, particularly in rural areas, have limited access to local off-air
VHF/UHF channels (such as ABC, NBC, CBS and Fox), and typically do not have
access to pay television service except via satellite receivers. As a result,
the Company believes that its wireless cable television service is an attractive
alternative to existing choices for such households. The Company estimates that,
within its 95 wireless cable markets, approximately 3.7 million households, or
approximately 36% of the Company's total households, are unpassed by traditional
hard-wire cable systems. The Company believes that it will ultimately achieve a
penetration rate of the unpassed households in its markets that is comparable to
the average penetration rate achieved by traditional hard-wire cable operators
nationally, which Paul Kagan Associates, Inc. estimates to be approximately 64%
as of December 31, 1995.
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Rural Market Focus. The Company aggregates wireless cable channel rights
and locates operations in geographic clusters of small to mid-size markets that
have a substantial number of households not currently passed by traditional
hard-wire cable. The Company believes that this size market typically has a
stable economic base, less competition from alternative forms of entertainment
and other conditions conducive to wireless cable transmissions. Within the rural
areas of these small to mid-size markets, the Company's subscribers consist
primarily of single family households, as compared to the non-rural areas of
these markets that are typically passed by hard-wire cable and in which multiple
dwelling units ("MDUs") comprise a much larger percentage of the Company's
subscribers. The Company focuses its marketing primarily on rural, unpassed
single family households because they generate a higher revenue per subscriber
than MDU subscribers. As of December 31, 1995, the Company's subscriber base
consisted of approximately 90% single family units and 10% MDUs. However, in
1996, the Company's MDU subscribers have increased to approximately 18% of the
Company's total subscribers as a result of the substantial existing MDU
penetration of several of the markets acquired by the Company in February 1996.
The Company expects that the percentage of MDU subscribers will decline as the
Company maintains its focus on adding subscribers in rural, unpassed areas.
Managed Subscriber Penetration. The Company attempts to manage system
launch and subscriber growth in order to contain system launch costs and to
achieve positive cash flow rapidly. Typically, the Company's operating systems
achieve positive System EBITDA upon obtaining an average of approximately 1,500
single family household subscribers. Within a system, the Company initially
directs its marketing at unpassed households, which typically have limited
access to local off-air VHF/UHF broadcast channels. Once a system achieves
positive System EBITDA, the Company may expand the channel offering and add
subscribers. "System EBITDA" means net income (loss) plus interest expense,
income tax expense, depreciation and amortization expense and all other non-cash
charges, less any non-cash items which have the effect of increasing net income
or decreasing net loss, for a system and includes all selling, general and
administrative expenses attributable to employees employed in the system. System
EBITDA is not a financial measure determined under generally accepted accounting
principles and should not be considered as an alternative to net income as a
measure of operating results or to cash flows as a measure of funds available
for discretionary or other liquidity purposes.
Low Cost Structure. Wireless cable systems typically cost significantly
less to build and operate than traditional hard-wire cable systems. While both
traditional hard-wire cable operators and wireless cable operators must
construct a transmission facility ("head-end"), traditional hard-wire cable
operators must also install an extensive network of coaxial cable and amplifiers
in order to transmit signals from the head-end to subscribers. Once the head-end
is constructed, the Company estimates that each additional single family
household subscriber currently requires an incremental capital expenditure by
the Company of approximately $410 to $465, consisting of, on average, $225 to
$280 of material (depending upon the type and sophistication of the equipment),
$145 of installation labor and overhead charges and $40 of direct commission,
all of which capital expenditures are variable costs. The Company has recently
launched systems utilizing a more sophisticated type of equipment that costs
approximately $225 per installation and therefore it believes that the average
cost of materials will continue to decline as more systems are launched or
Existing Systems are converted to this equipment. Typically, an MDU subscriber
requires an incremental capital expenditure by the Company lower than that of a
single family household subscriber. Also, without an extensive cable network,
wireless cable operators typically incur lower system maintenance costs and
depreciation expense. Finally, by locating its operations in geographic
clusters, the Company can further contain costs by taking advantage of economies
of scale in management, sales and customer service.
Low Churn Rate. The Company currently experiences a low rate of subscriber
turnover of on average approximately 2% to 2.5% per month. The Company believes
that its churn rate is lower than the industry standard because a majority of
its markets are characterized by (i) limited or no access to affordable pay
television alternatives, (ii) less competition from alternative forms of
entertainment and (iii) a stable population base. All of these factors
contribute to a low level of subscriber disconnects which helps the Company
quickly achieve positive System EBITDA as it reduces installation and marketing
expenses.
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Quality, Value and Customer Service. The Company believes that the key
factors that determine the attractiveness of its service offerings are the
following: (i) programming, (ii) price, (iii) picture quality and reliability
and (iv) customer service.
Programming. In the Existing Systems, the Company believes it has
assembled sufficient channel rights and program agreements to provide
programming competitive with that offered by traditional hard-wire cable
operators and direct broadcast satellite ("DBS") providers. The Company
offers its subscribers a programming package of off-air VHF/UHF channels,
satellite networks and premium programming. In the Existing Systems, the
Company focuses on LOS households that are unpassed by traditional
hard-wire cable, many of which have limited access to local off-air VHF/UHF
channels. These households do not have access to traditional hard-wire
cable service and the Company believes subscribers are likely to focus on
the current inability of DBS operators to offer local off-air channels.
Price. The Company can offer a price to its subscribers for basic
pay-television service that is typically less than traditional hard-wire
cable operators and DBS providers because of lower capital and operating
costs. The Company has greater latitude in pricing its service to
households that are unpassed by traditional hard-wire cable.
Picture Quality and Reliability. Wireless cable subscribers enjoy
substantially outage-free, highly reliable picture quality because there is
no coaxial cable, amplifiers or processing and filtering equipment between
the head-end and the subscriber's household, as in the case of traditional
hard-wire cable. Within the signal range of the Existing Systems, the
picture quality of the Company's service is at least as good as that
typically received by traditional hard-wire cable subscribers because,
absent any line-of-sight obstruction, there is less opportunity for signal
degradation between the Company's head-end and the subscriber.
Customer Service. The Company has established the goal of maintaining
high levels of customer satisfaction. In furtherance of that goal, the
Company emphasizes responsiveness and convenient installation scheduling.
The Company has established customer retention and referral programs in an
effort to obtain and retain new subscribers.
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The executive offices of the Company are located at 200 Chisholm Place,
Suite 200, Plano, Texas 75075. The telephone number of the executive offices is
(972) 423-9494. The Company's operational headquarters are located in Durant,
Oklahoma.
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THE EXCHANGE OFFER
Registration Rights
Agreement.................. The Old Notes were sold by the Company on December
20, 1996 to BT Securities Corporation, Alex. Brown
& Sons, Incorporated and Gerard Klauer Mattison &
Co., LLC (the "Initial Purchasers"), who placed the
Old Notes with institutional investors. In
connection therewith, the Company and the Initial
Purchasers executed and delivered for the benefit
of the holders of the Old Notes a registration
rights agreement (the "Registration Rights
Agreement") providing, among other things, for the
Exchange Offer.
The Exchange Offer......... New Notes are being offered in exchange for a like
principal amount of Old Notes. As of the date
hereof, $125,000,000 aggregate principal amount of
Old Notes are outstanding. The Company will issue
the New Notes to Holders (as defined herein)
promptly following the Expiration Date. See "Risk
Factors -- Consequences of Failure to Exchange."
Expiration Date............ 5:00 p.m., New York City time, on March 21, 1997,
unless the Exchange Offer is extended as provided
herein, in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended.
Interest................... Each New Note will bear interest from December 20,
1996, the date of original issuance. No interest
will be paid on the Old Notes accepted for
exchange.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company reserves the right to amend, terminate or
extend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
condition. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.................. Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, or an
Agent's Message (as defined herein) together with
the Old Notes and any other required documentation
to the exchange agent (the "Exchange Agent") at the
address set forth herein. By executing the Letter
of Transmittal or delivering an Agent's Message,
each Holder will represent to the Company, among
other things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the Holder and
any beneficial owners of Old Notes are being
obtained in the ordinary course of business of the
person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement
with any person to participate in the distribution
of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is
engaging in or intends to engage in a distribution
of such New Notes and (iv) neither the Holder nor
such beneficial owner is an "affiliate," as defined
under Rule 405 promulgated under the Securities
Act, of the Company. Each broker-dealer that
receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired
by such broker-dealer as a result of market-making
activities or other trading activities (other than
Old Notes acquired directly from the Company), may
participate in the Exchange Offer but may be deemed
an "underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "The Exchange
Offer -- Procedures for Tendering" and "Plan of
Distribution."
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Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal or delivering an Agent's
Message and delivering his Old Notes, either make
appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or
obtain a properly completed bond power from the
registered Holder. The transfer of registered
ownership may take considerable time. See "The
Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or an Agent's Message or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders may be withdrawn as provided herein at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes.... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Exchange Agent............. Bankers Trust Company is serving as Exchange Agent
in connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Federal Income Tax
Consequences............. The exchange of Old Notes for New Notes will not be
a taxable exchange for Federal income tax purposes.
See "Certain Federal Income Tax Considerations."
Consequences of Failure to
Exchange................. Holders of Old Notes who do not exchange their Old
Notes for New Notes pursuant to the Exchange Offer
will continue to be subject to the restrictions on
transfer of such Old Notes as set forth in the
legend thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration
requirements of the Securities Act and applicable
state securities laws. In general, Old Notes may
not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws.
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SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $125,000,000 aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes, except that the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions providing for an increase in the
interest rate on the Old Notes under certain circumstances relating to the
Registration Rights Agreement, which provisions will terminate as to all of the
Notes upon the consummation of the Exchange Offer. The New Notes will evidence
the same debt as the Old Notes and, except as set forth in the immediately
preceding sentence, will be entitled to the benefits of the Indenture, under
which both the Old Notes were, and the New Notes will be, issued. See
"Description of Notes."
The New Notes.............. $125,000,000 aggregate principal amount 14% Series
B Senior Notes due 2004.
Maturity Date.............. October 15, 2004
Interest Rate and
Payment Dates............ The New Notes will bear interest at the rate of 14%
per annum from December 20, 1996 (the "Issue
Date"). Interest on the New Notes will accrue from
the Issue Date and will be payable semi-annually on
October 15 and April 15 of each year, commencing on
April 15, 1997.
Escrow and Disbursement
Agreement................ The Company placed approximately $22.0 million of
the net proceeds realized from the sale of the Old
Notes to the Initial Purchasers, representing funds
sufficient to pay the first three interest payments
on the Notes, into an Escrow Account (as defined
herein) to be held by the Escrow Agent (as defined
herein) for the benefit of the holders of the
Notes. Until disbursed in accordance with the
Escrow and Disbursement Agreement (as defined
herein), the Escrow Account is designed to secure a
portion of the Company's obligations under the
Notes. Funds will be disbursed from the Escrow
Account only to pay interest on the Notes and, upon
certain repurchases or redemptions of the Notes, to
pay principal of and premium, if any, thereon.
Pending such disbursement, all funds contained in
the Escrow Account will be invested in Marketable
Securities (as defined herein). See "Description of
Notes -- Disbursement of Funds -- Escrow Account"
and "Description of Notes -- Security."
Optional Redemption........ The New Notes will be redeemable, in whole or in
part, at the option of the Company at any time on
or after October 15, 2002 at the redemption prices
set forth herein plus accrued and unpaid interest
thereon, if any, to the redemption date. See
"Description of Notes -- Optional Redemption."
Repurchase Upon Sale of
Capital Stock to Strategic
Equity Investor.......... In the event of a sale by the Company prior to
October 15, 1999 of at least $25.0 million of its
Capital Stock (as defined herein) (other than
Disqualified Stock (as defined herein)) to a
Strategic Equity Investor (as defined herein) in a
single transaction, up to 35% of the Notes may be
redeemed at the option of the Company upon not less
than 30 nor more than 45 days' prior notice given
within 30 days after such sale from the net cash
proceeds thereof at the redemption price set forth
herein plus accrued and unpaid interest thereon, if
any, to the date of redemp-
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tion, provided that at least 65% in aggregate
principal amount of the Notes originally issued
remains outstanding immediately after the
occurrence of such redemption. See "Description of
Notes -- Optional Redemption."
Ranking.................... The New Notes will be senior obligations of the
Company ranking pari passu in right of payment to
all existing and future indebtedness of the
Company, other than indebtedness that is expressly
subordinated to the Notes; provided, that in the
event of certain asset sales, the Company will be
required to make an offer to purchase some or all
of the Existing Notes before making an offer to
purchase any Notes. The Company has no senior
indebtedness, other than (i) the Existing Notes and
(ii) the BTA Obligation. The Notes are senior in
right of payment to the Convertible Notes (as
defined herein), which are expressly subordinated
to the Notes. In addition, the Company is a holding
company that conducts substantially all of its
business through its subsidiaries. The Notes,
therefore, are effectively subordinated to all
liabilities of the Company's subsidiaries,
including trade payables. The outstanding
liabilities of the Company's consolidated
subsidiaries (including subsidiaries that are not
wholly-owned by the Company) were approximately
$12.1 million at September 30, 1996. Subject to
certain limitations set forth in the Indenture
governing the Notes (the "Indenture"), the Company
and its subsidiaries may incur additional
indebtedness which is secured by assets of the
Company and its subsidiaries. See "Description of
Notes -- General" and "Description of
Notes -- Certain Covenants -- Limitation on
Indebtedness."
Change of Control.......... In the event of a Change of Control, the Company
will be required to make an offer to purchase all
outstanding Notes at a price equal to 101% of the
principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of
repurchase. See "Description of Notes -- Offer to
Purchase Upon Change of Control."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its subsidiaries to make restricted
payments, to incur additional indebtedness, to
create liens, to issue preferred or other capital
stock of subsidiaries, to consummate certain asset
sales, to permit restrictions on dividends and
other payments by subsidiaries to the Company, to
consolidate, merge or sell all or substantially all
of its assets, to engage in transactions with
affiliates or to engage in certain businesses. See
"Description of Notes -- Certain Covenants."
For additional information regarding the Notes, see "Description of Notes."
RISK FACTORS
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY HOLDERS PRIOR TO TENDERING THE OLD NOTES IN THE EXCHANGE OFFER.
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RISK FACTORS
Holders should carefully consider the following risk factors, as well as
the other information included or incorporated by reference in this Prospectus,
prior to making a decision to tender their Old Notes in the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement with any person to participate in the distribution of such
New Notes and neither such holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 120 days from
the date of this Prospectus, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, the ability of any Holder to resell the New Notes is
subject to applicable state securities laws.
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal or an Agent's Message, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at one
of the addresses set forth below under "The Exchange Offer -- Exchange Agent" on
or prior to the Expiration Date. In addition, either (i) certificates for such
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal or (ii) a timely confirmation of a book-entry transfer of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company pursuant to the procedure for book-entry transfer
described herein, must be received by the Exchange Agent prior to the Expiration
Date or (iii) the Holder must comply with the guaranteed delivery procedures
described herein. See "The Exchange Offer."
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY; INSUFFICIENCY OF EARNINGS TO COVER
FIXED CHARGES
The Company has a substantial amount of indebtedness. As of September 30,
1996, after giving effect to the issuance of the Old Notes, the Company would
have had approximately $315.2 million of Indebtedness (as defined herein) and
the Company's consolidated subsidiaries would have had approximately $12.1
million of total liabilities. The Indenture limits, but does not prohibit, the
incurrence of additional indebtedness, secured or unsecured, by the Company and
its subsidiaries. As a result, although funds sufficient to pay the
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<PAGE> 12
first three interest payments on the Notes will be placed into the Escrow
Account, future interest payments on the Notes and Existing Notes will be
payable from the Company's cash flow. Therefore, a substantial portion of the
Company's future cash flow will be devoted to debt service. In addition,
although the Company's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes") accrete to face value and no cash interest is payable
thereunder prior to the earlier of November 30, 1999 and the occurrence of
certain events of default (the "Applicable Date"), a substantial portion of the
Company's earnings will be reduced by non-cash debt service. A portion of the
proceeds from the Offering will be used to repay borrowings under the Bank
Facility secured by a lien on the Company's assets. The debt service
requirements of any additional indebtedness could make it more difficult for the
Company to make principal and interest payments on the Notes. For the years
ended December 31, 1991, 1992, 1993, 1994 and 1995 and for the nine months ended
September 30, 1995 and 1996, earnings were insufficient to cover fixed charges
by $66,000, $51,000, $0.4 million, $4.6 million, $20.2 million, $12.5 million
and $35.9 million, respectively. The ability of the Company to make payments of
principal and interest will be largely dependent upon its future financial
performance. Many factors, some of which will be beyond the Company's control
(such as prevailing economic conditions), will affect its financial performance.
There can be no assurance that the Company will be able to generate sufficient
cash flow to cover required interest and principal payments. If the Company is
unable to meet interest and principal payments in the future, it may, depending
upon the circumstances which then exist, seek additional equity or debt
financing, attempt to refinance its existing indebtedness or sell all or part of
its business or assets to raise funds to repay its indebtedness. There can be no
assurance that sufficient equity or debt financing will be available, or, if
available, that it will be on terms acceptable to the Company, that the Company
will be able to refinance its existing indebtedness or that sufficient funds
could be raised through asset sales.
The Company's high level of indebtedness has several important
consequences, including, but not limited to: (i) significant interest expense
and principal repayment obligations resulting in substantial annual fixed
charges; (ii) significant limitations on the Company's ability to obtain
financing, make capital expenditures and acquisitions and take advantage of
other business opportunities that may arise; and (iii) increased vulnerability
to adverse general economic and industry conditions. There can be no assurance
that the Company will be profitable in the future. See "Risk Factors -- Holding
Company Structure; Dependence of Company on Subsidiaries for Repayment of New
Notes," "Risk Factors -- Ranking of Notes," and "Description of Notes."
NET LOSSES SINCE INCEPTION
As of September 30, 1996, the Company had recorded net losses of
approximately $43.6 million since inception in April 1992, due primarily to
start-up costs, interest expense and charges for depreciation and amortization
of capital expenditures to develop its wireless cable systems. Until such time
as the Company substantially increases its subscriber base, resulting in higher
subscription fee revenues, it will continue to experience losses. Because of the
costs associated with launching a wireless cable television system and expanding
its subscriber base, continued growth by the Company is anticipated to reduce
net income, if any, or increase net losses. As a result, the Company expects to
continue to experience net losses for an indefinite period while it develops and
expands its wireless cable systems even if mature individual systems of the
Company are profitable.
HOLDING COMPANY STRUCTURE; DEPENDENCE OF COMPANY ON SUBSIDIARIES FOR REPAYMENT
OF NEW NOTES
The New Notes will be obligations of the Company exclusively. Substantially
all of the operations of the Company are conducted through direct and indirect
subsidiaries. The Company's cash flow and, consequently, its ability to service
debt, including the New Notes, is dependent upon the cash flow of its
subsidiaries and the payment of funds by those subsidiaries to the Company in
the form of loans, dividends or otherwise. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the New Notes or to make any funds available
therefor, whether in the form of loans, dividends or otherwise. In addition,
certain of the Company's subsidiaries may become parties to credit agreements,
which may contain limitations on the ability of such subsidiaries to pay
dividends or to make
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<PAGE> 13
loans or advances to the Company. The Indenture limits the ability of the
Company to create or permit restrictions on dividends and other payments by its
subsidiaries. See "Description of Notes -- Certain Covenants -- Dividend and
Other Payment Restrictions Affecting Subsidiaries."
Because the Company is a holding company that conducts its business through
its subsidiaries, all existing and future liabilities of the Company's
subsidiaries, including trade payables, will be effectively senior to the New
Notes. As of September 30, 1996, the Company's consolidated subsidiaries,
including those that are not wholly-owned by the Company, had aggregate
liabilities of approximately $12.1 million. The Indenture limits, but does not
prohibit, the incurrence of additional indebtedness by the Company and its
subsidiaries. See "Description of Notes -- Certain Covenants -- Limitation on
Indebtedness."
RANKING OF NOTES
The New Notes will not be secured by any of the assets of the Company
except to the limited extent provided for by the Escrow and Disbursement
Agreement and will become general unsecured obligations of the Company upon
disbursement in full of the funds in the Escrow Account. The Company's
obligation to pay future installments of its bid amount in the FCC's recently
concluded auction ("BTA Auction") of licenses for certain BTAs is secured by a
lien on the licenses purchased in the BTA Auction. Any holders of secured
indebtedness of the Company would be entitled to payment of their indebtedness
out of the proceeds of their collateral prior to the holders of any general
unsecured obligations of the Company, including the New Notes.
The New Notes will be senior obligations of the Company ranking pari passu
in right of payment as to all existing and future indebtedness of the Company,
other than indebtedness that is expressly subordinated to the New Notes. The
Company has no senior indebtedness, other than the Existing Notes and the BTA
Obligation. The New Notes will be senior in right of payment to the Convertible
Notes, which are expressly subordinated to the New Notes. However, the Company
and its subsidiaries may incur additional indebtedness which is secured by
assets of the Company and its subsidiaries. In the event of any distribution or
payment of the assets of the Company in any foreclosure, dissolution,
winding-up, liquidation or reorganization, holders of secured indebtedness will
have a secured prior claim to the assets of the Company that constitute their
collateral. In the event of bankruptcy, liquidation or reorganization of the
Company, except to the extent assets are available to holders of the New Notes
under the Escrow and Disbursement Agreement, holders of the New Notes will
participate ratably with all holders of indebtedness of the Company which is
unsecured and all other general creditors of the Company, based upon the
respective amounts owed to each holder or creditor, in the remaining assets of
the Company, and there is no assurance that there will be sufficient assets to
pay amounts due on the New Notes.
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of the Company's business requires substantial investment on a
continuing basis to finance capital expenditures and expenses related to
subscriber growth and system development. The Company believes that its cash and
cash equivalent assets and cash generated from operations and available bank
financing will be sufficient to fund the Company's operations and expansion at
least through the end of 1997. Additional funds will be necessary to complete
the launch, build-out and expansion of all of the Company's wireless cable
systems and to bring such systems to a mature state. These activities may be
financed in whole or in part directly by the Company and/or by its existing or
future subsidiaries, through debt or equity financings, joint ventures or other
arrangements. As in the past, the Company may also finance its system
construction, development, launch and expansion activities or the acquisition of
additional markets through the sale and/or exchange of its existing portfolio of
wireless cable channel rights. Although the Company believes that cash provided
by operating activities, the sale of wireless cable channel rights that are not
a part of the Company's current strategic plan and proceeds from additional
public or private debt or equity offerings will be sufficient for the Company to
complete its planned system construction, development, launch and expansion
activities in 1997 and beyond, there can be no assurance that the Company will
achieve positive cash flow from operations, that the Company will consummate the
sale of any wireless cable channel rights or that sufficient debt or equity
financing will be available on satisfactory terms and conditions, if at all. In
addition, there is also no assurance that, subject to certain limitations set
forth in the Indenture, the Company
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will not pursue, from time to time, other opportunities to acquire additional
wireless cable channel rights and businesses that may utilize the capital
currently expected to be available for its current markets. The amount and
timing of the Company's future capital requirements will depend upon a number of
factors, including programming costs, equipment costs, marketing expenses,
staffing levels, subscriber growth and competitive conditions, many of which are
not within the Company's control. Failure to obtain any required additional
financing could materially adversely affect the growth, cash flow or earnings of
the Company.
MANAGEMENT OF GROWTH
The Company has experienced rapid growth in the number of its employees and
the scope of its operating and financial systems. This growth has resulted in an
increased level of responsibility for both existing and new management personnel
and an additional strain on the Company's operating and financial systems. In
particular, certain subscribers in recently acquired systems and in systems
recently converted to new hardware were not billed during portions of the third
quarter due to a billing software problem. The Company has corrected this
problem and is continuing to develop methods to improve its billing systems. To
manage its growth effectively, the Company will be required to implement and
improve its operating and financial systems and controls and to expand, train
and manage its employee base. There can be no assurance that the management,
systems and controls currently in place or any steps taken to improve such
management, systems and controls will be adequate in the future.
COMPETITION
The subscription television industry is highly competitive. Wireless cable
television systems face or may face competition from several sources, such as
traditional hard-wire cable companies, Satellite Master Antenna Television
systems, Direct Broadcast Satellites and other alternative methods of
distributing and receiving television transmissions. In areas where several
local off-air VHF/UHF broadcast signals can be received without the benefit of
subscription television, cable television systems also have experienced
competition from the availability of broadcast signals generally and have found
market penetration to be more difficult. Legislative, regulatory and
technological developments may result in additional and significant competition,
including competition from local telephone companies, from a proposed new
wireless service known as local multi-point distribution and from emerging
trends and technologies. As the telecommunications industry continues to evolve,
the Company may face additional competition from new providers of entertainment
and data services. In particular, there are a rapidly growing number of
information and data service providers serving consumers via on-line services
and communications networks, such as the Internet and World Wide Web. Although
the Company is unaware of any such provider delivering programming like that
available on wireless cable television, there can be no assurance that
continuing advances in technology will not make such delivery possible. Even if
such direct competition does not exist in the future, however, the Company's
services will compete, indirectly, with entertainment services generally,
including those provided by operators using evolving technology. Many actual and
potential competitors have greater financial, marketing and other resources than
the Company. No assurance can be given that the Company will compete
successfully.
GOVERNMENT REGULATION
The right to transmit on wireless cable channels is regulated by the FCC
and the copyright for the retransmission of local off-air VHF/UHF broadcasts is
regulated by the United States Copyright Office (the "U.S. Copyright Office")
pursuant to the Copyright Act of 1976, as amended (the "Copyright Act").
Federal Legislation. Pursuant to the Cable Television Consumer Protection
and Competition Act of 1992, as amended (the "Cable Act"), the FCC adopted rate
regulations exclusively for traditional hard-wire cable systems. Pursuant to the
Telecommunications Act of 1996 (the "Act"), which was enacted in February 1996,
all cable rate regulation will be eliminated after three years, and for "small
systems" as defined in the Act, and under certain other circumstances, rate
regulation will be eliminated immediately. The Company cannot predict precisely
what effect these regulations or other governmental regulations may have on
traditional hard-wire cable operators as to price and service. While current FCC
regulations are intended to
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promote the development of a competitive pay television industry, the rules and
regulations affecting the wireless cable industry may change, and any future
changes in FCC rules, regulations, policies and procedures could have an adverse
effect on the industry as a whole and on the Company in particular.
Copyright Act. Secondary transmission of a broadcast signal is permissible
only if approved by the copyright holder or if subject to compulsory licensing
under the Copyright Act. The United States Congress has adopted legislation
extending the compulsory copyright licensing system to include wireless cable
systems. As a result of this action, wireless cable operators may engage in
secondary transmissions of distant programming without the copyright holder's
approval, provided that such operators file certain reports and pay certain fees
set by copyright arbitration royalty panels.
Regulation of Retransmission. Effective October 6, 1993, pursuant to the
Cable Act, local broadcasters (other than super-stations) may require that cable
operators obtain their consent before retransmitting local off-air VHF/UHF
broadcasts. The FCC has exempted wireless cable operators from the
retransmission consent rules if the receive-site antenna is either owned by the
subscriber or within the subscriber's control and available for purchase by the
subscriber upon the termination of service. In all other cases, wireless cable
operators must obtain consent to retransmit local broadcast signals. The Company
has obtained such consents in each of its Existing Systems where the Company is
retransmitting broadcast signals on a wireless cable channel. Such consents will
be required in the Company's other markets. There can be no assurance that the
Company will be able to obtain such consents on terms satisfactory to the
Company.
Other Regulations. Wireless cable operators are also subject to regulation
by the Federal Aviation Administration (the "FAA") with respect to the
construction of transmission towers and to certain local zoning regulations
affecting construction of towers and other facilities. There may also be
restrictions imposed by local authorities. There can be no assurance that the
Company will not be required to incur additional costs in complying with such
regulations and restrictions. No assurance can be given that new regulations
will not be imposed or that existing regulations will not be changed. Any such
new or modified regulations could have a material adverse effect on the wireless
cable industry as a whole and on the Company in particular.
DEPENDENCE ON CHANNEL LEASES; LOSS OF LICENSES BY LESSORS
The Company is dependent on leases with unaffiliated third parties for most
of its wireless cable channel rights. The Company has entered into leases for
substantially all of its wireless cable channel rights with channel license
holders, applicants for channel licenses and applicants that have had
previously-filed applications returned without prejudice by the FCC and which
will be refiled. The Company's channel leases typically cover four ITFS and one
to four MDS channels each. Generally, ITFS channels may only be owned by
qualified non-profit educational organizations and in general must use a minimum
of 20 hours per week per channel for educational programming. The remaining
excess ITFS channel air time, other than 20 hours per channel per week of
reserved recapture time, may be leased to wireless cable operators for
commercial use without further restriction. MDS channels may be owned by
commercial entities and allow full-time usage without programming restrictions.
Under the rules of the FCC, the term of an ITFS channel lease cannot exceed ten
years. There is no such restriction for MDS channel leases. ITFS licenses
generally are granted for a term of ten years and are subject to renewal by the
FCC. MDS licenses granted prior to mid-1996 will expire on May 1, 2001, unless
renewed. The use of such channels by the license holders is subject to
regulation by the FCC and the Company's ability to continue to enjoy the
benefits of its leases with channel license holders is dependent upon the
continuing compliance by the channel license holders with applicable regulations
including the requirement that ITFS license holders must meet certain
educational use requirements in order to lease transmission capacity to wireless
cable operators. The remaining initial terms of most of the Company's channel
leases are approximately 5 to 10 years, although certain of the Company's
channel leases have initial terms expiring during the next several years. Most
of the Company's leases grant the Company a right of first refusal to purchase
the channels after the expiration of the lease if FCC rules and regulations so
permit, provide for automatic renewal of the lease term upon FCC renewal of the
license and/or require the parties to negotiate lease renewals in good faith.
The termination of or failure to renew a channel lease or termination of the
channel license, or the denial by the FCC of an application for an extension of
time to construct an authorized station, would result in the Company being
unable to deliver television programming
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<PAGE> 16
on such channel(s). Although the Company does not believe that the termination
of or failure to renew a single channel lease or license would adversely affect
the Company, several of such terminations or failures in one or more markets
that the Company actively serves could have a material adverse effect on the
Company. Additionally, FCC licenses also specify construction deadlines, which,
if not met, could result in the loss of the license. Requests for additional
time to construct may be filed and are subject to review pursuant to FCC rules.
Certain of the Company's channel rights are subject to pending extension
requests and it is anticipated that additional extensions will be required.
There can be no assurance that the FCC will grant any particular extension
request or license renewal request. There can also be no assurance that the FCC
will not change its current policies regarding such extension application to
require a greater showing or limit the number of extensions one license holder
may request.
UNCERTAINTY OF GRANT OF PENDING APPLICATIONS
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom the Company has entered into leases have filed a
series of applications with the FCC for a number of wireless cable channels and
the Company has entered into leases for additional channels with applicants that
have had previously-filed applications returned without prejudice by the FCC and
which will be refiled. The vast majority of such leases are in the form of lease
agreements with qualified non-profit educational organizations for ITFS
channels. ITFS applications undergo review by the FCC's engineering and legal
staff, and there is no limit on the time that may elapse between filing an
application with the FCC for a modification or new license and action thereon by
the FCC. Once the FCC staff determines that an application meets certain basic
technical and legal qualifications, the staff will then determine whether each
application is proximate to the transmit and receive-site locations of other
applications. Those applications that would result in signal interference to
other pending applications ("Competing Applications") must then undergo a
comparative selection process. The FCC's ITFS application selection process is
based on a set of objective criteria that includes whether an applicant is
located in the community to be served, whether the applicant is an accredited
institution and how many hours of formal educational programming the applicant
proposes to transmit on the channels. The FCC employs a tie-breaking procedure
if two or more applicants receive the same number of points in the initial
comparative review. The tie-break process involves determining the number of
students who will receive the applicant's educational programming. Thus, the
outcome of the selection process when two or more qualified applicants are
competing for the same channels lends itself to a degree of predictability that
varies according to the circumstances. Most of the Company's lease agreements
with applicants for channel licenses involve channel licenses for which
Competing Applications have been filed. In each market, the Company has
carefully considered the FCC's selection criteria in choosing the educational
entities with which it has entered into lease agreements. However, because the
FCC's application review process does not lend itself to complete certainty, and
given the considerable number of applications involved, no assurance can be
given as to the precise number of applications that will be granted. A number of
competing applicants for channel licenses have filed with the FCC petitions to
deny the applications in which the Company has acquired channel rights, based
upon alleged substantive defects in the applicant or in technical or other
aspects of the application. The Company anticipates that the FCC will deny most
of the currently pending petitions to deny the applications in which the Company
has acquired channel rights. However, no assurance can be given as to the
precise number of such petitions that will be granted or denied. Although the
Company does not believe that any single award of a channel license to an
applicant that has filed a Competing Application or the granting of any single
petition to deny an application in which the Company has acquired channel rights
would adversely affect the Company, several of such awards or grants could have
a material adverse effect on the Company.
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS
Wireless cable systems transmit programming over wireless cable channels
that are licensed by the FCC. Generally, the Company believes that a minimum of
12 wireless cable channels is necessary to offer a commercially viable wireless
cable system in most rural markets and that more channels are required in more
competitive markets, such as those well served by traditional cable television
systems. In some of its long-term launch markets, the Company does not currently
have the right to operate 12 channels from the same
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transmitter site. In those markets, the Company is dependent upon (i) the grant
of pending applications for modification of existing licenses for unbuilt ITFS
stations, (ii) the grant of such license modification applications which have
not yet been filed and/or (iii) the grant of applications for new ITFS licenses,
some of which were filed during the FCC's October 1995 filing window but have
not yet been granted, and some of which have not yet been filed. There can be no
assurance that any or all of the modification applications and new license
applications actually made or anticipated to be made by the Company will be
granted by the FCC. Although the Company does not believe that the denial of any
single modification or new license application will adversely affect it, the
denial of several such applications, particularly if concentrated in one or a
few of the Company's markets, could have a material adverse effect on its
growth.
INTERFERENCE ISSUES
Under current FCC regulations, a wireless cable operator may install
receive-site equipment and serve any point where its signal can be received,
subject to the interference protection rights of certain other wireless cable
systems. Interference from other wireless cable systems can limit the ability of
a wireless cable system to serve particular points, in the same manner that
interference from one television station limits the ability of a viewer to
receive another television station broadcasting on the same frequency. In
licensing ITFS and MDS stations, a primary concern of the FCC is avoiding
situations where proposed stations are predicted to cause interference to the
reception of existing or previously proposed station signals. Pursuant to
current FCC regulations, a wireless cable license holder is generally protected
from interference within a 35-mile radius of the transmission site. In September
1995, the 35-mile protected service area of MDS stations became fixed and will
not change if a licensee modifies its facilities to a new transmission location.
The Company's business plan involves moving the authorized transmitter site of
various of its MDS and ITFS licensed stations and obtaining the grant of
licenses to new stations that the Company will use in its wireless cable
systems. The FCC interference protection standards may make one or more of those
proposed relocations or new grants unavailable. In any such event, it may be
necessary to negotiate interference agreements with the licensees of stations
which would otherwise block such relocations or new grants. There can be no
assurance that the Company will be able to negotiate any required interference
agreements on terms acceptable to it. In the event that the Company cannot
obtain interference agreements required to implement its plans for a given
market, the Company may have to curtail or modify operations in that market. Any
substantial modification or curtailment of the Company's operations in its
markets could have a material adverse effect on its growth or financial
performance. In addition, the Company's leases with MDS and ITFS licensees
require their cooperation, it is possible that one or more of the Company's
channel lessors may hinder or delay the Company's efforts to use the channels in
accordance with its plans for a particular market.
DEPENDENCE ON PROGRAM MATERIAL AGREEMENTS
In connection with its distribution of television programming, the Company
is dependent on fixed-term contracts with various program suppliers. Generally,
the terms of the Company's material programming contracts are for periods of one
to five years. Although the Company has no reason to believe that any such
contracts will be cancelled or will not be renewed upon expiration, if such
contracts are cancelled or not renewed, the Company will have to seek program
material from other sources. There is no assurance that other program material
will be available to the Company on acceptable terms or at all or, if so
available, that such material will be acceptable to the Company's subscribers.
The likelihood that program material will be unavailable to the Company is
significantly mitigated by the Cable Act and various FCC regulations issued
thereunder, which, among other things, impose limits on exclusive programming
contracts and generally prohibit cable programmers in which a cable operator has
an attributable interest from discriminating against cable competitors with
respect to the price and terms and conditions of sale of programming. Only a few
of the major cable television programming services carried by the Company are
not currently directly owned by a vertically integrated cable operator, and the
Company historically has not had difficulty in arranging satisfactory contracts
for these services. The Cable Act is the subject of various legal challenges and
if it were found to be unconstitutional, program suppliers might raise their
prices or make their program material unavailable to the Company.
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PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION
Wireless cable programming is transmitted through the air via microwave
frequencies from a transmission facility to a small receiving antenna at each
subscriber's location, which generally requires a direct, unobstructed
line-of-sight from the transmission facility to the subscriber's receiving
antenna. Therefore, in communities with tall trees, hilly terrain, tall
buildings or other obstructions in the transmission path, wireless cable
transmission can be difficult or impossible to receive at certain locations
without the use of signal boosters. Consequently, the Company may not be able to
supply services to certain potential subscribers. In addition, in limited
circumstances, extremely adverse weather can damage transmission and receiving
antennas as well as transmit site equipment.
WIRELESS ONE AND CS WIRELESS MINORITY INVESTMENTS
The Company owns approximately 21% of the outstanding common stock of
Wireless One and approximately 37% of the outstanding common stock of CS
Wireless. Although the Company has the right to designate two directors of each
of Wireless One and CS Wireless, the Company cannot exercise unfettered control
over these substantial investments. The Company does not control the management
of either Wireless One or CS Wireless, and is dependent upon the skill,
expertise and managerial efforts of the management of their respective
management teams to achieve a return on the Company's substantial investment in
each entity. To the extent that Wireless One or CS Wireless proves unsuccessful
in its business, the value of the Company's investment therein will be adversely
affected.
AGREEMENT TO VOTE FOR BOARD DESIGNEE OF JUPITER; CO-SALE RIGHT
David E. Webb, a Director, co-founder and principal stockholder of the
Company, L. Allen Wheeler, interim President, interim Chief Executive Officer,
Vice Chairman of the Board of Directors of the Company, and Hunt Capital Group,
L.L.C. ("Hunt Capital"), a principal stockholder of the Company and affiliate of
J. R. Holland, Jr., the Chairman of the Board of the Company, collectively own
approximately 40.8% of the outstanding Common Stock. Pursuant to the terms of a
Stockholders' Agreement (the "Stockholders' Agreement"), for so long as Jupiter,
the purchaser of $40.0 million gross proceeds of the Convertible Notes, retains
a 25% interest in the Convertible Notes originally purchased by it and/or the
shares of Common Stock issued or issuable upon conversion thereof (the
"Conversion Shares") originally issuable to it, each of Hunt Capital, David E.
Webb and L. Allen Wheeler, have agreed to vote their shares (i) in favor of the
election to the Company's Board of Directors of one designee of Jupiter and (ii)
in favor of the Company's Board of Directors consisting of at least three and
not more than seven members. The agreement of such stockholders to elect
Jupiter's designee to the Board of Directors may restrict the ability of such
stockholders to elect their preferred slate of directors to manage the Company,
which may result in a member of the Board of Directors having interests that
conflict with those of the other stockholders of the Company. In addition, under
the terms of the Stockholders' Agreement, each of Hunt Capital, David E. Webb
and L. Allen Wheeler have agreed that, for so long as Jupiter holds such 25%
interest, in the event of any proposed sale or series of sales of Common Stock
by any such stockholder to a non-affiliate for aggregate consideration greater
than $15.0 million or representing in excess of 5% of the outstanding Common
Stock at such time, such stockholder shall not effect such sale unless Jupiter
is permitted to participate in such sale on a pro rata basis with such
stockholder. The co-sale right may reduce the likelihood of a change in control
of the Company, because any potential purchaser of stock held by the controlling
stockholders may also be required to purchase shares by Jupiter.
FUTURE ACQUISITIONS
The Company anticipates that it will continue to acquire additional channel
rights and systems, both in its existing markets and in other markets, both
directly and indirectly by acquiring other wireless cable television providers.
Such acquisitions may be in geographic areas or markets outside of the Company's
traditional focus of small to mid-size markets principally in the central United
States. Subject to the limitations set forth in the Existing Indentures or the
Indenture, any such acquisitions may be made for Common Stock, cash, notes or
other evidences of indebtedness, property or a combination thereof. The
incurrence of indebtedness in connection with such acquisitions could adversely
affect the liquidity, results of operations and financial
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condition of the Company. On October 22, 1996, the Company registered 1,250,000
shares of Common Stock to be issued from time to time to acquire additional
wireless cable channel rights and businesses.
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The Old Notes are designated for trading in the PORTAL market. There is no
established trading market for the New Notes. Although the Initial Purchasers
have advised the Company that they currently intend to make a market in the New
Notes, they are not obligated to do so and it may discontinue such market-making
at any time without notice. The Company does not currently intend to list the
New Notes on any securities exchange or to seek approval for quotation through
any automated quotation system. Accordingly, there can be no assurance as to the
development of any market or the liquidity of any market that may develop for
the New Notes. If such a market were to exist, no assurance can be given as to
the trading prices of the New Notes. Future trading prices of the New Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
POSSIBLE VOLATILITY OF PRICE OF THE NEW NOTES
The market price of the Common Stock could be subject to wide fluctuations
in response to quarterly variations in the Company's results of operations,
changes in earnings estimates by analysts, conditions in the wireless cable
industry or general market or economic conditions. In addition, in recent years
the stock market has experienced extreme price and volume fluctuations. These
fluctuations have had a substantial effect on the market prices for many
emerging growth companies, often unrelated to the operating performance of the
specific companies. Such market fluctuations could adversely affect the price of
the Common Stock and, to the extent that the Company's business requires
additional financing, the price of the New Notes.
RECENT EVENTS
COOPERATIVE PURCHASING
The Company, CS Wireless, Wireless One and CAI Wireless Systems, Inc.
recently formed a cooperative organization to negotiate and obtain volume-based
programming contracts at a discount from rates currently paid by each of the
parties. The organization may expand its purposes upon approval of each party to
include mutually advantageous endeavors such as volume-based purchases of
equipment and other services. There can be no assurance that any such benefits
will be realized.
RECENT ACQUISITIONS; PENDING ACQUISITIONS AND DIVESTITURE
On January 13, 1997, the Company consummated the acquisition of two
wireless cable operating systems in Oklahoma for an aggregate of approximately
$1.75 million in cash (collectively, the "Recent Acquisitions"). In addition,
the Company has reached an agreement in principle to acquire one wireless cable
operating system in Iowa and wireless cable assets in one market in each of
Nebraska and Montana from CS Wireless for an aggregate of approximately $4.6
million to be paid by an equivalent reduction of the principal balance of a
$15.0 million note payable by CS Wireless to the Company (collectively, the
"Pending Acquisitions"). As part of such agreement in principle, the Company
will sell to CS Wireless for approximately $1.4 million certain channel rights
in Grand Rapids, Michigan which the Company expects to receive from a third
party in exchange for certain existing channel rights of the Company. Such sum
may be paid in cash or the principal balance of the CS Wireless note may be
reduced by $3.2 million rather than $4.6 million. In addition, a subsidiary of
the Company has agreed to sell to CAI Wireless Systems, Inc. ("CAI") certain
wireless cable assets in Portsmouth, New Hampshire (the "Pending Divesture").
The Company will receive approximately 267,000 shares of common stock of CS
Wireless as its portion of the consideration for such assets. Each agreement for
the three markets to be acquired and for the divestiture of the Portsmouth, New
Hampshire market is subject to customary closing conditions. The Company
anticipates that these agreements will be consummated on or before March 31,
1997, although there can be no assurance that any of these transactions will be
consummated.
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RESIGNATION OF DAVID E. WEBB
Effective January 22, 1997, David E. Webb resigned as President and Chief
Executive Officer of the Company to become the President and CEO of CS Wireless.
L. Allen Wheeler has been named as interim President and interim Chief Executive
Officer of the Company. Mr. Webb will continue to serve as a Director of, and
will provide consulting services to, the Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on December 20, 1996 to the Initial
Purchasers who placed the Old Notes with institutional investors. In connection
therewith, the Company and the Initial Purchasers entered into the Registration
Rights Agreement, pursuant to which the Company agreed, for the benefit of the
Holders of the Old Notes, that the Company would, at its sole cost, (i) within
120 days following the original issuance of the Old Notes, file with the
Commission the Registration Statement (of which this Prospectus is a part) under
the Securities Act with respect to an issue of a series of new notes of the
Company identical in all material respects to the series of Old Notes (except
that such New Notes would not contain terms with respect to transfer
restrictions) and (ii) cause such Registration Statement to be declared
effective under the Securities Act within 180 days following the original
issuance of the Old Notes. Upon the effectiveness of the Registration Statement,
the Company will offer, pursuant to this Prospectus, to the Holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
New Notes, to be issued without a restrictive legend and which may, generally,
be reoffered and resold by the holder without restrictions or limitations under
the Securities Act. The term "Holder" with respect to the Exchange Offer means
any person in whose name Old Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties, the Company believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by any holder of
such New Notes (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 promulgated under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holder's business, such Holder has no arrangement or understanding with
any person to participate in the distribution of such New Notes and neither such
Holder nor any other such person is engaging in or intends to engage in a
distribution of such New Notes. Since the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer. Any Holder who is an affiliate of the Company or who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of 120 days after the date of this
Prospectus, it will
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make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer, (ii) the Exchange Offer is not consummated within 210 days of the Issue
Date, (iii) in certain circumstances, the Initial Purchaser so requests within
180 days after the consummation of the Exchange Offer or (iv) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive New
Notes on the date of the exchange that may be sold without restriction under
state and Federal securities laws (other than due solely to the status of such
Holder as an affiliate of the Company within the meaning of the Securities Act)
and so notifies the Company within 60 days after such Holder first becomes aware
of such restriction and provides the Company with a reasonable basis for its
conclusion, in the case of each of clauses (i)-(iv) of this sentence, then the
Company will promptly deliver to the Holders and the Trustee written notice
thereof (the "Shelf Notice") and, at its cost, (a) as promptly as practicable,
file a shelf registration statement covering resales of the Notes (the "Shelf
Registration Statement"), (b) use all reasonable efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act by the
60th day after the delivery of the Shelf Notice (or promptly in the event of a
request by the Initial Purchaser) and (c) use all reasonable efforts to keep the
Shelf Registration Statement effective until three years after its effective
date, or such shorter period ending when (i) all Notes covered by the Shelf
Registration Statement have been sold in the manner set forth and as
contemplated therein or (ii) a subsequent Shelf Registration Statement covering
all unregistered Old Notes has been declared effective under the Securities Act.
The Company will, in the event of the filing of a Shelf Registration Statement,
provide to each Holder of the Old Notes copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement for the Old Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Old Notes. A
Holder of Old Notes that sells such Old Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a Holder (including
certain indemnification obligations). In addition, each Holder of the Old Notes
will be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have its Old Notes included in the Shelf Registration Statement and
to benefit from the provisions regarding liquidated damages set forth in the
following paragraph.
In the event that either (i) the Registration Statement is not filed with
the Commission on or prior to the 120th calendar day following the Issue Date,
(ii) the Registration Statement is not declared effective on or prior to the
180th calendar day following the Issue Date, or (iii) (A) the Exchange Offer is
not consummated, (B) the Shelf Registration Statement is not declared effective
on or prior to the 60th calendar day following the delivery of the Shelf Notice
or (C) the Shelf Registration Statement ceases to be effective (each such event
referred to in clauses (i) through (iii), a "Registration Default"), the Company
will pay increased cash interest to each Holder of the Old Notes during the
first 90 day period immediately following the occurrence of such Registration
Default in an amount equal to 0.50% per annum on the Old Notes. The amount of
the cash interest will increase by an additional 0.50% per annum for each
subsequent 90 day period until the Registration Statement is filed, the
Registration Statement is declared effective, the Exchange Offer is consummated
or the Shelf Registration Statement is declared effective or again became
effective, as the case may be, up to a maximum amount of additional cash
interest of 2.00% per annum. All accrued cash interest shall be paid to record
holders of the Old Notes by wire transfer of immediately available funds or by
federal funds check by the Company on each Interest Payment Date. Upon (x) the
filing of the Registration Statement in the case of clause (i) above, (y) the
effectiveness of the Registration Statement in the case of clause (ii) above or
(z) the consummation of the Exchange Offer or the effectiveness of a Shelf
Registration Statement, as the case may be, in the case of clause (iii) above,
and provided that none of the conditions set forth in clauses (i), (ii) and
(iii) above continues to exist, such additional interest shall cease to accrue
on the Old Notes from the date of such filing, effectiveness or consummation.
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<PAGE> 22
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, Holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes have
been registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
an increase in the interest rate on the Old Notes under certain circumstances
relating to the Registration Rights Agreement, which provisions will terminate
upon the consummation of the Exchange Offer. The New Notes will evidence the
same debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of the Old Notes are outstanding. The Company has fixed the close of business on
February 10, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there were 20 registered
Holders of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law (the "DGCL") or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral notice (confirmed in writing) oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"The Exchange Offer -- Fees and Expenses."
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 21, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "The Exchange Offer -- Conditions" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral notice
(confirmed in writing) or written notice of such delay, extension or termination
to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered Holders, and
the Company will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five- to 10-business-day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from December 20, 1996, the Issue Date. No
interest will be paid on the Old Notes accepted for exchange.
PROCEDURES FOR TENDERING
The tender of Old Notes by a Holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Company will
constitute a binding agreement between such Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent on or about February 17, 1997, to all Holders of Old Notes known
to the Company and the Exchange Agent.
Only a Holder of the Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, or an Agent's Message, including any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) the certificates for such
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Old Notes, Letter of
Transmittal or Agent's Message and other required documents must be received by
the Exchange Agent at the address set forth below under "Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-
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Entry Transfer Facility tendering Old Notes which are the subject of such
Book-Entry Confirmation that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal, and that the Company may
enforce such agreement against such participant.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. If sent by mail, it is recommended that
registered mail, return receipt requested, be used and proper insurance be
obtained. In all cases, sufficient time should be allowed to assure delivery to
the Exchange Agent before the Expiration Date. No Letter of Transmittal or Old
Notes should be sent to the Company.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal or delivering an Agent's Message and delivering such beneficial
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
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By tendering, each Holder will represent to the Company, among other
things, that (i) the New Notes acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the persons receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement with any person to
participate in the distribution of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is engaging in or intends to
engage in a distribution of such New Notes and (iv) neither the Holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated under
the Securities Act, of the Company. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Company),
may participate in the Exchange Offer but may be deemed an "underwriter" under
the Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing the Book-
Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of Old
Notes may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof, or an Agent's Message,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "The Exchange Offer -- Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) or an Agent's Message, together with
the certificate(s) representing the Old Notes, or a Book-Entry
Confirmation, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or an Agent's Message, as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other document
required by the Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange trading days after the Expiration
Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
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<PAGE> 26
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, which determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Properly withdrawn Old Notes may be retendered
by following one of the procedures described above under "The Exchange
Offer -- Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange
Offer.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering Holders (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Old Notes (see "The Exchange
Offer -- Withdrawal of Tenders") or (iii) waive
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<PAGE> 27
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and the Company will extend the Exchange
Offer for a period of five to 10 business days, depending upon the significance
of the waiver and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five- to 10-business-day
period.
EXCHANGE AGENT
Bankers Trust Company has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
To: Bankers Trust Company
By Mail: By Hand: By Overnight Mail or Courier:
BT Services Tennessee, Inc. Bankers Trust Company BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust and Agency Corporate Trust and Agency
P.O. Box 292737 Group Group
Nashville, TN 37229-2737 Receipt & Delivery Window Reorganization Unit
123 Washington St., 1st Floor 648 Grassmere Park Road
New York, NY 10006 Nashville, TN 37211
For information call:
(800) 735-7777
Confirm: (615) 835-3572
Facsimile: (615) 835-3701
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other person) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for
27
<PAGE> 28
accounting purposes will be recognized. The expenses of the Exchange Offer and
the unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the New Notes.
DESCRIPTION OF NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an Indenture,
as supplemented (the "Indenture"), between the Company and First Trust of New
York, National Association, as trustee (the "Trustee"). The terms of the New
Notes are identical in all material respects to the Old Notes, except that the
New Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting their transfer and will not contain certain provisions
providing for an increase in the interest rate on the Old Notes under certain
circumstances relating to the Registration Rights Agreement, which provisions
will terminate upon the consummation of the Exchange Offer. Collectively, the
Old Notes and New Notes are referred to herein as the "Notes." The Indenture
will be qualified under the Trust Indenture Act of 1939, as amended, (the "Trust
Indenture Act") upon effectiveness of the Registration Statement of which this
Prospectus forms a part.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act as in effect on
the date of the qualification of the Indenture under the Trust Indenture Act.
The Notes are subject to all such terms, and holders of Notes (the "Holders")
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "Certain Definitions." As used in this section, the term
"Company" refers only to Heartland Wireless Communications, Inc. and not to its
subsidiaries and the term "Holder" refers to a holder of a Note.
The Old Notes are, and the New Notes will be, secured by a first priority
security interest in the Escrow Account described under "Disbursement of
Funds -- Escrow Account." The Notes are senior obligations of the Company
ranking pari passu in right of payment to all existing and future Indebtedness
of the Company, other than Indebtedness that is expressly subordinated to the
Notes. The Company has no senior Indebtedness, other than the Existing Notes and
the BTA Obligation. The Notes are senior in right of payment to the Convertible
Notes, which are expressly subordinated to the Notes. In addition, the
operations of the Company are conducted through its Subsidiaries and, therefore,
the Company will be dependent upon the cash flow of its Subsidiaries to meet its
obligations under the Notes. As a result, the Notes will be effectively
subordinated to all existing liabilities and future Indebtedness and other
liabilities and commitments of the Company's Subsidiaries. The outstanding
liabilities of the Company's consolidated Subsidiaries (including all
liabilities of consolidated Subsidiaries that are not wholly-owned by the
Company) were approximately $12.1 million at September 30, 1996. Subject to
certain limitations set forth in the Indenture, the Company and its Subsidiaries
may incur Indebtedness which is secured by assets of the Company and its
Subsidiaries. Any right of the Company to receive assets of the Company's
Subsidiaries or any future Subsidiaries of the Company, upon the latter's
liquidation or reorganization (and the consequent right of the Holders to
participate in those assets), will be effectively subordinated to the claims of
that Subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor of such Subsidiary, although other creditors of such
Subsidiary may be secured by certain assets of such Subsidiary.
The New Notes will constitute a new issue of securities for which there is
currently no trading market. See "Risk Factors -- Lack of Public Market for the
New Notes."
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
Bankers Trust Company will act as Paying Agent and Registrar for the Notes. The
New Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which will be the Registrar's corporate trust office.
The Company may change any Paying Agent and Registrar without notice to the
Holders. The Company will pay principal (and premium, if any) on the
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<PAGE> 29
New Notes at the Paying Agent's corporate office in New York, New York. At the
Company's option, interest may be paid by check mailed to the registered
addresses of Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125.0 million and
will mature on October 15, 2004. Interest on the Notes will accrue at the rate
of 14% per annum and will be payable semi-annually in cash on each October 15
and April 15, commencing on April 15, 1997, to the Persons who are registered
Holders at the close of business on the October 1 and April 1 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance.
OPTIONAL REDEMPTION
Optional Redemption. The Notes will not be redeemable at the Company's
option prior to October 15, 2002. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 102.333%
2003 and thereafter......................................... 100.000%
</TABLE>
Optional Redemption Upon Sale of Equity to Strategic Equity Investor.
Notwithstanding the foregoing, in the event of the sale by the Company prior to
October 15, 1999 of at least $25.0 million of its Capital Stock (other than
Disqualified Stock) to a Strategic Equity Investor in a single transaction, the
Company may, at its option, use the net cash proceeds of such sale of Capital
Stock to redeem up to 35% of the Notes at a redemption price equal to 114% of
the principal amount thereof plus accrued and unpaid interest thereon, if any,
to the date of redemption; provided that at least 65% of the initial principal
amount of the Notes remains outstanding immediately after such redemption. In
order to effect the foregoing redemption with the proceeds of any such sale of
Capital Stock (other than Disqualified Stock), the Company shall make such
redemption not more than 120 days after the consummation of any such sale of
Capital Stock.
MANDATORY REDEMPTION
Except as set forth below under "Offer to Purchase Upon Change of Control"
and "Certain Covenants -- Limitation on Asset Sales," the Company will not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee or Registrar in compliance with
the requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate,
provided that no Notes with a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount to be redeemed. A new Note in principal amount
equal to the unredeemed portion will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on the Notes or portions of the Notes called for
redemption.
29
<PAGE> 30
OFFER TO PURCHASE UPON CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase.
Within 30 days following the date upon which a Change of Control occurs,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee and Paying Agent, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the Note
prior to the close of business on the third Business Day prior to the Change of
Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, the Indenture limits
the Company's ability to incur Indebtedness (see "Certain
Covenants -- Limitation on Indebtedness") and there can be no assurance that the
Company would be able to obtain such financing.
The definition of "Change of Control" includes a disposition of all or
substantially all of the property and assets of the Company. With respect to the
disposition of property or assets, the phrase "all or substantially all" as used
in the Indenture (including as set forth under "Certain Covenants -- Merger,
Consolidation or Sale of Assets" below) varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under New York law (which is the governing law under the Indenture) and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the property or
assets of the Company, and therefore it may be unclear as to whether a Change of
Control has occurred and whether the Company is required to make a Change of
Control Offer.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Subsidiaries to incur additional Indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales may also make more
difficult or discourage a takeover of the Company, whether favored or opposed by
the management or Permitted Holders of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Notes, and there can be no assurance that the Company or the acquiring party
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries by the management or
Permitted Holders of the Company. While such restrictions cover a wide variety
of arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities law and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
30
<PAGE> 31
DISBURSEMENT OF FUNDS -- ESCROW ACCOUNT
The Company placed approximately $22.0 million of the net proceeds realized
from the sale of the Old Notes, representing funds sufficient to pay the first
three interest payments on the Notes, in an escrow account (the "Escrow
Account") held by the Escrow Agent for the benefit of the Trustee under the
Indenture in accordance with the Escrow and Disbursement Agreement. The Company
entered into the Escrow and Disbursement Agreement, which provides, among other
things, that funds may be disbursed from the Escrow Account only to pay interest
on the Notes (or, if a portion of the Notes has been retired by the Company,
funds representing the interest payment on the retired Notes may be paid to the
Company) and, upon certain repurchases or redemptions thereof, to pay principal
of and premium, if any, thereon. Pending such disbursement, the Company will
cause all funds contained in the Escrow Account to be invested in Marketable
Securities. Interest earned on these Marketable Securities will be added to the
Escrow Account.
The Notes are secured by a first priority security interest in the Escrow
Account. See "Security" below.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture provides that the Company
and its Subsidiaries may not, directly or indirectly (i) declare or pay any
dividend or make any distribution on account of any Equity Interests of the
Company or any of its Subsidiaries other than dividends or distributions payable
(A) in Equity Interests of the Company that are not Disqualified Stock or (B) to
the Company or any Wholly-Owned Subsidiary of the Company; (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any of its Subsidiaries (other than any such Equity Interests owned by the
Company or a Wholly-Owned Subsidiary); (iii) purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is pari passu or
subordinated in right of payment to the Notes, except in accordance with the
scheduled repayment provisions set forth in the original documentation governing
such Indebtedness; or (iv) in a single transaction or a series of related
transactions, until the date on which the ratio of Annualized EBITDA to
Consolidated Interest Expense equals or exceeds 1.75 to 1.00, make Investments
subsequent to November 30, 1996 in a cumulative amount for the Company and all
of its Subsidiaries, in excess of (A) the sum of (1) $15.0 million, and (2) 100%
of the Net Proceeds received by the Company from the issue or sale of Equity
Interests of the Company subsequent to November 30, 1996 (other than Equity
Interests sold to a Subsidiary of the Company or to an employee stock ownership
plan or similar trust and other than Disqualified Stock) less (B) the cumulative
amount of Net Proceeds received by the Company from the issue or sale of Equity
Interests of the Company that has been applied to make Restricted Payments (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment: (a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; (b) after giving
effect to such Restricted Payment on a pro forma basis as if such Restricted
Payment had been made at the beginning of the applicable fiscal quarter, the
Company could incur $1.00 of additional Indebtedness pursuant to the Annualized
Cash Flow Ratio test described below under "Certain Covenants -- Limitation on
Indebtedness"; and (c) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its Subsidiaries after the
Issue Date, is less than the sum of: (x) 50% of the Consolidated Net Income (or
if Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned from the first day of the fiscal quarter during which the Issue
Date occurs to the end of the most recent fiscal quarter ending prior to the
date of such Restricted Payment, plus (y) 100% of the aggregate Net Cash
Proceeds received by the Company from the issue or sale of Equity Interests of
the Company (other than Equity Interests sold to a Subsidiary of the Company or
to an employee stock ownership plan or similar trust and other than Disqualified
Stock or the Net Proceeds from the sale of Equity Interests applied to make
Investments in accordance with this covenant) since the Issue Date.
Notwithstanding the foregoing, the Company and its Subsidiaries may not,
directly or indirectly, make any Investment in Wireless Cable Related Assets
other than Permitted Assets, except as permitted under clause (x) of the
following paragraph.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit (i) the payment of any dividend within 60
days after the date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of the Indenture; (ii) so long
as no Default
31
<PAGE> 32
or Event of Default shall have occurred and be continuing, the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the net proceeds of, the substantially
concurrent sale for cash or Marketable Securities (other than to a Subsidiary of
the Company) of other Equity Interests of the Company that are not Disqualified
Stock; (iii) so long as no Default or Event of Default shall have occurred and
be continuing, the purchase of Capital Stock of the Company (including options,
warrants or other rights to acquire such Capital Stock) from employees or former
employees of the Company or any Subsidiary thereof pursuant to any employment
agreement, management equity subscription agreement or stock option plan or
similar agreement in effect as of the Issue Date or entered into in the ordinary
course of business for consideration which, when added to all loans made
pursuant to clause (iv) below during the fiscal year and then outstanding, does
not exceed $0.5 million in the aggregate in any fiscal year or $2.5 million in
the aggregate over the life of the Notes; (iv) so long as no Default or Event of
Default shall have occurred and be continuing, the making of loans and advances
to employees of the Company or any Subsidiary thereof in the ordinary course of
business which, when added to the aggregate consideration paid pursuant to
clause (iii) above during the same fiscal year, does not exceed $0.5 million in
any fiscal year or $2.5 million in the aggregate over the life of the Notes;
provided that upon repayment of such loans or advances made after the Issue
Date, such repaid amounts shall no longer be included in the principal amount of
loans and advances made to employees; (v) so long as no Default or Event of
Default shall have occurred and be continuing, a Permitted Refinancing; (vi) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase, retirement or other acquisition of Equity Interests
of a Subsidiary of the Company for (A) Equity Interests of the Company that are
not Disqualified Stock or (B) up to $1.0 million in the aggregate over the life
of the Notes of cash consideration; (vii) the payment of dividends on Preferred
Stock of Subsidiaries outstanding on the Issue Date; (viii) Investments in
Wireless Cable Related Assets made with the Net Cash Proceeds from an Asset Sale
made in compliance with the first paragraph of the "Limitation on Asset Sales"
covenant (whether such Asset Sale shall have been consummated prior to or after
the Issue Date) or otherwise permitted by the "Limitation on Asset Sales"
covenant, provided that if such Investment had been acquired in a simultaneous
swap or exchange for the assets disposed of in such Asset Sale, such swap or
exchange would have complied with the provisions of the third paragraph under
the "Limitation on Asset Sales" covenant; (ix) Investments that constitute part
of an Asset Sale transaction consummated in compliance with or otherwise
permitted by the provisions of the third paragraph under the "Limitation on
Asset Sales" covenant; and (x) Investments in the Wireless Cable Business
acquired in consideration for the issuance of Equity Interests of the Company
(other than Disqualified Stock) and cash paid in lieu of the issuance of
fractional shares and in satisfaction of any applicable dissenter's or appraisal
rights (provided that such Investments need not be in Permitted Assets). The
amounts referred to in clauses (i), (ii), (iii), (iv) and (vi) shall be included
as Restricted Payments in any computation made pursuant to clause (c) above.
Restricted Payments shall be deemed not to include Permitted Payments and
Permitted Investments.
Not later than the making of any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate (as defined in the Indenture)
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed.
Limitation on Indebtedness. The Indenture provides that the Company will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, Guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur") any Indebtedness; provided that the Company (but not its
Subsidiaries) may incur Indebtedness if (i) no Default or Event of Default shall
have occurred and be continuing and (ii) the Annualized Cash Flow Ratio of the
Company as of the date of such incurrence or issuance shall not exceed (x) 7.0
to 1.0 if such incurrence or issuance occurs on or prior to the second
anniversary of the Issue Date and (y) 5.0 to 1.0 if such incurrence or issuance
occurs thereafter.
The foregoing limitation will not apply to: (i) Indebtedness evidenced by
the Notes and the Indenture; (ii) the incurrence by the Company and its
Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company
and its Subsidiaries of Bank Indebtedness in an aggregate principal amount at
any one time
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outstanding not to exceed $50.0 million (less the amount of any then-outstanding
Preferred Stock of Subsidiaries issued to refinance Indebtedness to the extent
such amount has not been applied to reduce the amount of Indebtedness permitted
under clause (vii) below), as such amount may be permanently reduced as
specified in the "Limitation on Asset Sales" covenant described below; provided
that no Default or Event of Default shall have occurred and be continuing at the
time of such incurrence; (iv) the Guarantee by the Subsidiaries of Bank
Indebtedness permitted to be incurred by the Company pursuant to clause (iii)
above; (v) Indebtedness of the Company issued to any Wholly-Owned Subsidiary;
provided that (a) any such Indebtedness is unsecured and is subordinated to the
Notes and (b) that any subsequent issuance or transfer of any Capital Stock
which results in any Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any transfer of such Indebtedness to a Person not a Wholly-Owned
Subsidiary will be deemed an incurrence of such Indebtedness; (vi) Indebtedness
of a Subsidiary issued to and held by the Company or any Wholly-Owned Subsidiary
of the Company; provided that any subsequent issuance or transfer of any Capital
Stock which results in a Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any transfer of such Indebtedness to a Person not a Wholly-Owned
Subsidiary of the Company will be deemed an incurrence of such Indebtedness;
(vii) the incurrence by the Company or its Subsidiaries of additional
Indebtedness subsequent to November 30, 1996 in an aggregate principal amount
not to exceed $15.0 million at any one time outstanding (less the amount of any
then-outstanding Preferred Stock of the Subsidiaries issued to refinance
Indebtedness to the extent such amount has not been applied to reduce the amount
of Indebtedness permitted under clause (iii) above); (viii) the incurrence (a
"Permitted Refinancing") by the Company and its Subsidiaries of Indebtedness
issued in exchange for, or the proceeds of which are used to extend, refinance,
renew, replace or refund Indebtedness incurred pursuant to the Annualized Cash
Flow Ratio test above or pursuant to clauses (ii), (iii), (iv), (v) and (vii)
above ("Refinancing Indebtedness"), provided that: (a) the net proceeds of such
Refinancing Indebtedness shall not exceed the principal amount of and required
premium, if any, and accrued interest on the Indebtedness so extended,
refinanced, renewed, replaced, substituted or refunded (or if such Indebtedness
was issued at an original issue discount, the original issue price plus
amortization of the original issue discount at the time of the repayment of such
Indebtedness) and reasonable expenses incurred in connection therewith; (b) the
Refinancing Indebtedness shall have a final maturity later than, and a Weighted
Average Life to Maturity equal to or greater than, the final maturity and
remaining Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced or refunded; and (c) if the Indebtedness being
extended, refinanced, renewed, replaced or refunded is subordinated in right of
payment to the Notes, the Refinancing Indebtedness shall be subordinated in
right of payment to the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
so extended, refinanced, renewed, replaced or refunded; (ix) the incurrence by
the Company or its Subsidiaries of obligations in respect of Interest Rate
Agreements relating to Indebtedness to the extent that the notional principal
amount of such obligation does not exceed the aggregate principal amount of the
Indebtedness to which such Interest Rate Agreement relates; or (x) the
incurrence by the Company or any of its Subsidiaries of Indebtedness owing to a
Federal governmental authority relating to the purchase of wireless cable
channels in an auction or other sale (or Indebtedness satisfying the
requirements of (viii)(b) above issued in exchange for, or the proceeds of which
are used to extend, refinance, renew, replace or refund, such Indebtedness) in
an amount not to exceed in the aggregate $30.0 million at any one time
outstanding. The Company and its Subsidiaries may incur Acquired Debt only in
compliance with this covenant.
Limitation on Liens. The Indenture provides that neither the Company nor
any of its Subsidiaries may directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or on any
income or profits therefrom, or assign or convey any right to receive income
therefrom, except Permitted Liens.
The Indenture also provides that if the Company or any of its Subsidiaries
shall create, incur, assume or suffer to exist any Lien, other than a Permitted
Lien, on any assets or other property to secure Indebtedness in violation of
this covenant, the Company or such Subsidiary, as the case may be, shall make
effective provision for securing the Notes equally and ratably with such
Indebtedness as to such assets or other property for so long as such
Indebtedness shall be so secured; provided that the provision of such equal and
ratable security in
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favor of the Notes shall not cure any Default or Event of Default arising from
such violation of the provisions of this covenant.
Limitation on Issuance and Sale of Capital Stock of Subsidiaries. The
Indenture provides that the Company will not sell any Capital Stock of a
Subsidiary, and will not permit any Subsidiary to issue or sell any Capital
Stock, or permit any Person, other than the Company and its Subsidiaries, to own
or hold any such interest, other than (i) any interest owned or held on the
Issue Date by, or issuable as of the Issue Date to, a Person other than the
Company and its Subsidiaries in any Capital Stock of any Subsidiary or (ii) any
interest owned or held by a Person at the time that such Subsidiary became a
Subsidiary (other than any such interest created or issued in anticipation of
the acquisition of such Subsidiary by the Company); provided that the foregoing
limitation shall not apply to (i) the sale of 100% of the Capital Stock of any
Subsidiary made in accordance with "Limitation on Asset Sales" and (ii)
issuances of Preferred Stock permitted pursuant to clauses (i) or (iii) of
"Limitation on Preferred Stock of Subsidiaries."
Limitation on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue, directly or
indirectly, any Preferred Stock, except (i) Preferred Stock of Subsidiaries
outstanding on the Issue Date, (ii) Preferred Stock issued to and held by the
Company or a Subsidiary, except that any subsequent issuance or transfer of any
Capital Stock which results in any Wholly-Owned Subsidiary ceasing to be a
Wholly-Owned Subsidiary or any transfer of such Preferred Stock to a Person not
a Wholly-Owned Subsidiary will be deemed an issuance of Preferred Stock; (iii)
Preferred Stock issued by a Person prior to the time (a) such Person became a
Subsidiary, (b) such Person merges with or into a Subsidiary or (c) another
Person merges with or into such Person (in a transaction in which such Person
becomes a Subsidiary), in each case if such Preferred Stock was not issued in
anticipation of such transaction; and (iv) Preferred Stock issued in exchange
for, or the proceeds of which are used to refund Indebtedness or refinance
Preferred Stock referred to in clause (i) or issued pursuant to clauses (ii) or
(iii) (other than Preferred Stock which by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable) is
redeemable at the option of the holder thereof or is otherwise redeemable,
pursuant to sinking fund obligations or otherwise, prior to the date of
redemption or maturity of the Preferred Stock or Indebtedness being so refunded
or refinanced); provided that (a) the liquidation value of such Preferred Stock
so issued shall not exceed the principal amount or the liquidation value of the
Indebtedness or Preferred Stock, as the case may be, so refunded or refinanced
and (b) the Preferred Stock so issued (1) shall have a stated maturity not
earlier than the stated maturity of the Indebtedness or Preferred Stock being
refunded or refinanced and (2) shall have a Weighted Average Life to Maturity
equal to or greater than the remaining Weighted Average Life to Maturity of the
Indebtedness or Preferred Stock being refunded or refinanced.
Limitation on Asset Sales. The Indenture provides that the Company will
not, and will not permit any of its Subsidiaries to, consummate an Asset Sale
unless (i) the Company or the applicable Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the assets sold or otherwise disposed of (as determined in good
faith by the Company's Board of Directors or if the Fair Market Value of such
assets exceeds $20.0 million, the Company shall receive from an investment
banking firm of national standing a written opinion in customary form as to the
fairness, to the Company, of such Asset Sale) and (ii) at least 80% of the
consideration received by the Company or the Subsidiary, as the case may be,
from such Asset Sale shall be cash or Marketable Securities and is received at
the time of such disposition. Upon the consummation of an Asset Sale, the
Company may apply, or cause such Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either to (A)
prepay any Bank Indebtedness and, in the case of any Bank Indebtedness under any
revolving credit facility, to effect a permanent reduction in the availability
under such revolving credit facility, (B) prepay the Existing Notes (to the
extent required by the Existing Indentures), (C) reinvest in Wireless Cable
Related Assets that are Permitted Assets or (D) a combination of prepayment and
investment permitted by the foregoing clauses (A), (B) and (C). On the 271st day
after an Asset Sale or such earlier date, if any, as the Board of Directors of
the Company or of such Subsidiary determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clauses (A), (B), (C) or (D) of the
preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate
amount of Net Cash Proceeds which have not been
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applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (A), (B), (C) or (D) of the preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by the Company to make an offer to purchase (the
"Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 45 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a pro rata basis that amount of Notes equal to
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Notes to be purchased, plus accrued and unpaid interest thereon, if any,
to the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale under the Indenture and the Net Cash Proceeds
thereof shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$5.0 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and its Subsidiaries aggregates at least $5.0 million, at which time the Company
shall apply all Net Cash Proceeds constituting all Net Proceeds Offer Amounts
that have been so deferred to make a Net Proceeds Offer (the first date the
aggregate of all such deferred Net Proceeds Offer Amounts is equal to $5.0
million or more shall be deemed to be a Net Proceeds Offer Trigger Date).
Notwithstanding the two immediately preceding paragraphs, the Company and
its Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent (i) at least 95% of the consideration for
such Asset Sale, other than cash consideration, constitutes assets used in the
business of the Company and its Subsidiaries on the date of such transaction
that are Permitted Assets and (ii) such Asset Sale is for Fair Market Value (as
determined in good faith by the Company's Board of Directors or if the Fair
Market Value of such Assets exceeds $20.0 million, the Company shall receive
from an investment banking firm of national standing a written opinion in
customary form as to the fairness, to the Company, of such Asset Sale); provided
that any consideration received by the Company or its Subsidiaries, as the case
may be, in an Asset Sale permitted to be consummated under this paragraph that
does not constitute assets to be used in the operations of the Company or its
Subsidiaries shall constitute Net Cash Proceeds which are subject to the
provisions of the two preceding paragraphs. In addition, notwithstanding the two
immediately preceding paragraphs, the Company will be permitted (i) to sell the
Call Markets to Wireless One without complying with such paragraphs, (ii) to
sell any or all of the assets acquired in the AWS Transaction, the CableMaxx
Transaction or the TechniVision Transaction on or prior to the first anniversary
of the consummation of each such Transaction without complying with such
paragraphs, (iii) to sell any or all of the assets acquired by way of an
Investment permitted by clause (x) of the second paragraph of the "Limitation on
Restricted Payments" covenant on or prior to the first anniversary of the
consummation of such acquisition without complying with such paragraphs and (iv)
to sell after November 30, 1996, in a single transaction or a series of
transactions, assets for up to $25 million of non-cash consideration without
complying with such paragraphs; provided, in the case of clauses (ii), (iii) and
(iv) that the Company receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets sold or otherwise disposed of
(as determined in good faith by the Company's Board of Directors or if the Fair
Market Value of such assets exceeds $20.0 million, the Company shall receive
from an investment banking firm of national standing a written opinion in
customary form as to the fairness, to the Company, of such Asset Sale).
Each Net Proceeds Offer will be mailed within 25 days following the Net
Proceeds Offer Trigger Date to the record Holders as shown on the register of
Holders, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders
may elect to tender their Notes in whole or in part in integral multiples of
$1,000 in exchange for cash. To the extent Holders properly tender Notes in an
amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will
be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds
Offer shall remain open for a period of 20 Business Days or such longer period
as may be required by law.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company and its Subsidiaries may not, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary (i) to pay
dividends or make any other distributions to the Company or any of its
Subsidiaries on or in respect of its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness or other obligation owed to the Company or any of its Subsidiaries;
(ii) to make loans or advances to the Company or any of its Subsidiaries or
Investments in Subsidiaries; or (iii) to transfer any of its properties or
assets to the Company or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of: (a) any encumbrance or
restriction pursuant to the Notes or the Indenture; (b) applicable law; (c)
Existing Indebtedness; (d) any instrument governing Acquired Debt as in effect
at the time of acquisition (except to the extent such Indebtedness was incurred
in connection with, or in contemplation of, such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired; (e) any encumbrance or restriction pursuant to an agreement effecting
a refinancing of Indebtedness pursuant to an agreement referred to in clause (c)
or (d) or contained in any amendment to an agreement referred to in clause (c)
or (d); provided, however, that the encumbrances and restrictions contained in
any such refinancing agreement or amendment are no more restrictive than
encumbrances or restrictions contained in the refinanced or amended agreements;
(f) with respect to clause (iii) above, by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business; (g) with
respect to clause (iii) above, purchase money obligations for property acquired
in the ordinary course of business, which obligations do not cover any asset
other than the asset acquired; or (h) Bank Indebtedness or Guarantees of such
Bank Indebtedness incurred pursuant to clauses (iii) or (iv) of the second
paragraph of the "Limitation on Indebtedness" covenant.
Merger, Consolidation or Sale of Assets. The Indenture provides that the
Company will not, in a single transaction or a series of related transactions,
(i) consolidate with or merge with or into any other Person, (ii) permit any
other Person to consolidate with or merge into (a) the Company or (b) any of its
Subsidiaries in a transaction in which such Subsidiary (or successor Person)
remains (or becomes) a Subsidiary or (iii) directly or indirectly, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to another Person or Persons or adopt a plan of liquidation, (iv)
directly or indirectly, purchase, lease or otherwise acquire all or
substantially all of the property and assets of any Person or any existing
business (whether existing as a separate entity, subsidiary, division, unit or
otherwise) of any Person or acquire Equity Interests or other ownership
interests of any other Person such that such Person becomes a Subsidiary or (v)
permit any of its Subsidiaries to enter into any such transaction unless (i)
either (A) the Company or such Subsidiary shall be the survivor of such merger
or consolidation or (B) the surviving Person (if not the Company or such
Subsidiary) is a corporation, partnership or trust organized and existing under
the laws of the United States, any state thereof or the District of Columbia and
such surviving Person shall expressly assume all the obligations of the Company
or such Subsidiary, as the case may be, under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (on a pro forma basis,
including any Indebtedness incurred or anticipated to be incurred in connection
with such transaction), the Company or the surviving Person is able to incur at
least $1.00 of additional Indebtedness under the Annualized Cash Flow Ratio test
in compliance with the "Limitation on Indebtedness" covenant; (iii) immediately
before and immediately after giving effect to such transaction (including any
Indebtedness incurred or anticipated to be incurred in connection with the
transaction), no Default or Event of Default shall have occurred and be
continuing; and (iv) the Company has delivered to the Trustee an Officers'
Certificate and Opinion of Counsel, each stating that such consolidation, merger
or transfer complies with the Indenture, that the surviving Person agrees to be
bound thereby and that all conditions precedent in the Indenture relating to
such
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transaction have been satisfied. For purposes of the foregoing, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company. The foregoing will not be deemed to apply to Permitted Investments
or Investments permitted under the covenant "Limitation on Restricted Payments"
above.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity had
been named as such; provided that solely for purposes of computing amounts
described in clause (c) of the first paragraph of the covenant "Limitation on
Restricted Payments" above, any such surviving entity to the Company shall only
be deemed to have succeeded to and be substituted for the Company with respect
to periods subsequent to the effective time of such merger, consolidation,
combination or transfer of assets.
Transactions with Affiliates. The Indenture provides that the Company and
its Subsidiaries may not sell, lease, transfer or otherwise dispose of any of
their respective properties or assets to, or purchase any property or assets
from, or enter into any contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, any Affiliate of the Company or any legal
or beneficial owner of 5% or more of any class of Capital Stock of the Company
or with an Affiliate of any such owner (each of the foregoing, an "Affiliate
Transaction"), unless: (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person; and (ii) the Company delivers to the Trustee: (x) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$250,000 but less than $3.0 million, a resolution of the Board of Directors of
the Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above, (y) with respect to any Affiliate
Transaction involving aggregate payments equal to or greater than $3.0 million
but less than $20.0 million, a resolution of the Board of Directors of the
Company set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested directors of the Board of
Directors of the Company, and (z) with respect to any Affiliate Transaction
involving aggregate payments equal to or greater than $20.0 million, a
resolution of the Board of Directors of the Company set forth in an Officers'
Certificate and certifying to the matters referred to in (i) above and a written
opinion as to the fairness to the Company or such Subsidiary from a financial
point of view issued by an independent investment banking firm of national
standing with respect to any such Affiliate Transaction. Notwithstanding the
foregoing, the following shall not be deemed Affiliate Transactions: (a) any
employment or option agreement entered into by the Company or any of its
Subsidiaries in the ordinary course of business that is approved by the
Compensation Committee of the Board of Directors of the Company; (b) the payment
by the Company of annual fees to Unity Hunt, Inc. for the provision of Mr.
Holland's services to the Company in an amount equal to Mr. Holland's annual
base compensation from the Company, which amount is approved by the Compensation
Committee of the Board of Directors of the Company; (c) transactions between or
among the Company and one or more of its Wholly Owned Subsidiaries provided that
such transactions are not otherwise prohibited; (d) Restricted Payments,
Permitted Payments and Permitted Investments; (e) Affiliate Transactions in
existence on the Issue Date, including, without limitation, channel leases and
options between the Company and any of its Subsidiaries, on the one hand, and
Messrs. Webb and Wheeler and their respective Affiliates, on the other hand, and
the lease with respect to the Company's operating offices in Durant, Oklahoma as
in effect on the Issue Date; (f) channel leases and options with Affiliates
entered into after the Issue Date; provided such leases are no less beneficial
to the Company or the applicable Subsidiary than any such leases in effect on
the Issue Date, meet the standard described in clause (i) above and are approved
by a majority of the disinterested directors of the Board of Directors of the
Company; (g) amendments to or renewals of the agreements and leases referred to
in clauses (d) and (e) above; provided that any such amendments or renewals are
no less beneficial to the Company or the applicable Subsidiary than the
agreement or lease being amended or renewed, meet the standard described in
clause (i) above and are approved by a majority of the disinterested directors
of the
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Board of Directors of the Company; (h) payment of reasonable and customary
compensation for director and Board of Director observer fees, meeting expenses,
insurance premiums and indemnities to the extent permitted by law; and (i) the
issuance of stock options (and shares of stock upon the exercise thereof)
pursuant to any stock option plan approved by the Board of Directors and
stockholders of the Company and loans or advances to employees for relocation or
travel related expenses consistent with ordinary past practices.
Conduct of Business. The Indenture provides that the Company and its
Subsidiaries may not, directly or indirectly, engage in any business other than
the Wireless Cable Business; provided that in the event a Change of Control
occurs in which a Strategic Equity Investor gains control of the Company this
covenant shall no longer be of force or effect.
Provision of Information. The Indenture provides that the Company (at its
own expense) shall file with the Trustee within 15 days after it files them with
the Commission copies of the quarterly and annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) to be
filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to
whether the Company is subject to the requirements of such Section 13 or 15(d)
of the Exchange Act) ("SEC Reports"). Upon qualification of the Indenture under
the Trust Indenture Act, the Company shall also comply with the provisions of
Trust Indenture Act Section 314(a). In the event that the Company is not
required or shall cease to be required to file SEC Reports pursuant to the
Exchange Act, the Company shall nevertheless continue to file such reports with
the Commission and the Trustee. If the Trustee (at the Company's request and
expense) is to mail the foregoing information to the Holders, the Company shall
supply such information to the Trustee at least five days prior thereto. The
Company shall provide to any Holder any information concerning the Company
reasonably requested by such Holder (including financial statements) necessary
in order to permit such Holder to sell or transfer Notes in compliance with Rule
144A promulgated under the Securities Act.
SECURITY
The Notes are secured, pending disbursement pursuant to the Escrow and
Disbursement Agreement, by a pledge of the Escrow Account, which contains
approximately $22.0 million of the net proceeds from the sale of the Old Notes
(the "Collateral"), representing funds sufficient to pay the first three
interest payments on the Notes.
The Company entered into the Escrow and Disbursement Agreement providing
for the grant by the Company to the Trustee for the benefit of the Holders of
security interests in the Collateral. All such security interests will secure
the payment and performance when due of all of the Obligations of the Company
under the Indenture with respect to the Notes and under such Notes, as provided
in the Escrow and Disbursement Agreement. The Liens created by the Escrow and
Disbursement Agreement are first priority security interests in the Collateral.
The ability of Holders to realize upon any such funds or securities may be
subject to certain bankruptcy law limitations in the event of the bankruptcy of
the Company.
Funds will be disbursed from the Escrow Account only to pay interest on the
Notes and, upon certain repurchases or redemptions of the Notes, to pay
principal of and premium, if any, thereon. Pending such disbursements, all funds
contained in the Escrow Account will be invested in Marketable Securities. Upon
the acceleration of the maturity of the Notes or the failure to pay principal at
maturity or upon certain redemptions and repurchases of the Notes, the Escrow
and Disbursement Agreement will provide for the foreclosure by the Trustee upon
the net proceeds of the Escrow Account. Under the terms of the Indenture, the
proceeds of the Escrow Account shall be applied, first, to amounts owing to the
Trustee in respect of fees and expenses of the Trustee and second, to the
Obligations under the Notes and the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default:
(i) the failure to pay interest on any Notes when the same becomes due
and payable and such default continues for a period of 30 days;
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(ii)(a) the failure to pay the principal or premium when due on the
Notes at maturity, upon redemption, upon acceleration or otherwise or (b)
the failure to redeem or purchase the Notes when required pursuant to the
Indenture and the Notes (including, without limitation, failure to make
payments when due pursuant to a Change of Control Offer or Net Proceeds
Offer);
(iii) failure by the Company to comply with the provisions described
under "Offer to Purchase Upon Change of Control" or "Certain
Covenants -- Limitation on Asset Sales," or the failure by the Company to
comply with the first sentence of the provision described under
"Disbursement of Funds -- Escrow Account;"
(iv) failure to comply with the covenant described under "Certain
Covenants -- Merger, Consolidation or Sale of Assets;"
(v) failure by the Company for 30 days after notice from the Trustee
or the Holders of at least 25% in principal amount of the Notes then
outstanding to comply with its agreements in the Indenture or the Notes or
in the Escrow and Disbursement Agreement (other than those referred to in
(i), (ii), (iii) or (iv) above);
(vi) a default in the payment of principal at final maturity under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Company or
any of its Subsidiaries (or the payment of which is Guaranteed now or
hereafter by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists or shall be created hereafter, in a
principal amount of at least $3.0 million (after the expiration of any
applicable grace period with respect thereto);
(vii) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness (including any interest thereon) of the Company
or its Subsidiaries (or the payment of which is Guaranteed now or hereafter
by the Company or any of its Subsidiaries), whether such Indebtedness or
Guarantee now exists or shall be created hereafter, if (i) as a result of
such event of default the maturity of such Indebtedness has been
accelerated prior to its stated maturity and (ii) the principal amount of
such Indebtedness, together with the principal amount of any other
Indebtedness of the Company and its Subsidiaries the maturity of which has
been accelerated, aggregates $3.0 million or more;
(viii) one or more final judgments rendered against the Company or any
of its Subsidiaries (other than any judgment as to which a reputable
insurance company has accepted full liability in writing) aggregating in
excess of $3.0 million which judgments are not stayed within 60 days after
their entry;
(ix) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries; and
(x) repudiation by the Company of its obligations under the Escrow and
Disbursement Agreement for any reason.
The Indenture provides that if any Event of Default occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"). Upon such declaration, the principal
of, and premium, if any, and interest on the Notes shall become due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries, the foregoing amount shall ipso facto become
due and payable without further action or notice. No premium is payable upon
acceleration of the Notes except that in the case of an Event of Default that is
the result of an action or inaction by the Company or any of its Subsidiaries
intended to avoid premiums related to redemptions of the Notes contained in the
Indenture or the Notes, the amount declared due and payable will include the
premium that would have been applicable on a voluntary prepayment of the Notes
or, if voluntary prepayment is not then permitted, the premium set forth in the
Indenture.
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No Holder has the right to institute any proceeding with respect to the
Indenture or any remedy thereunder, unless the Holders of at least 25% in
principal amount of the outstanding Notes have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
the Trustee has failed to institute such proceeding within 15 days after receipt
of such notice, and the Trustee has not within such 15-day period received
directions inconsistent with such written request by Holders of a majority in
principal amount of the outstanding Notes. Such limitations do not apply,
however, to suits instituted by a Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. In case an Event of
Default shall occur and be continuing, the Trustee will exercise such of its
rights and powers under the Indenture, and use the same degree of care and skill
in their exercise, as a prudent Person would exercise or use under the
circumstances in the conduct of his or her own affairs. Subject to certain
provisions of the Indenture, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any of the
Holders unless they have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request. The Trustee may withhold from Holders notice of
any continuing default (except a default in payment) if it determines in good
faith that the withholding of such notice is in the interest of such Holders.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described above, the Holders of a
majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due solely
because of the acceleration, (iii) to the extent the payment of such interest is
lawful, interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in clause (viii) of the description above of Events of Default, the Trustee
shall have received an Officer's Certificate and an Opinion of Counsel that such
Event of Default has been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture, except a continuing Default or Event of Default in the
payment of interest or premium on, or the principal of, the Notes, or in respect
of a covenant or a provision which cannot be amended or modified without the
consent of all Holders.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture and the
Company is required upon becoming aware of any Default or Event of Default to
deliver to the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or the Escrow and Disbursement Agreement or for any claim
based on, in respect of or by reason of such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the Federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that
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the Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for:
(i) the rights of Holders of outstanding Notes to receive solely from
trust funds described below payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, or
on the redemption date, as the case may be;
(ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(iii) the rights, powers, trust, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
reorganization and insolvency events) described above under "Events of Default"
will no longer constitute Events of Default with respect to the Notes. In the
event of Legal Defeasance or Covenant Defeasance, the security interests
described above under "Security" will be released.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust
for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable U.S. Government Securities or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding Notes, on the stated maturity or on
the applicable optional redemption date, as the case may be, without
reinvestment of the deposited U.S. Government Securities and other
deposited monies;
(b) in the case of Legal Defeasance, the Company must deliver to the
Trustee an Opinion of Counsel in the United States reasonably satisfactory
to the Trustee confirming that (x) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (y) since
the date of the Indenture, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such legal defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of Covenant Defeasance, the Company must deliver to
the Trustee an Opinion of Counsel in the United States reasonably
satisfactory to the Trustee confirming that the Holders of the outstanding
Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default with respect to the Indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the Notes
concurrently with such incurrence) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 123rd day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company is a party or
by which the Company is bound;
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(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company under
the Investment Company Act of 1940, (ii) the Holders have a valid first
priority perfected security interest in the trust funds, and (iii) after
passage of 123 days following the deposit (or, with respect to any trust
funds for the account of any Holder who may be deemed to be an "insider"
for purposes of the Bankruptcy Code, after one year following the deposit),
the trust funds will not be subject to the effect of Section 547 of the
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a
case commenced by or against the Company under either such statute, and
either (A) the trust funds will no longer remain the property of the
Company (and therefore, will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally) or (B) if a court were to rule under any such law in any
case or proceeding that the trust funds remained in the possession of the
Trustee prior to such court ruling to the extent not paid to Holders, the
Trustee will hold, for the benefit of the Holders, a valid first priority
perfected security interest in such trust funds that is not avoidable in
bankruptcy or otherwise except for the effect of Section 552(b) of the
Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute and (y) the Holders will be
entitled to receive adequate protection of their interests in such trust
funds if such trust funds are used in such case or proceeding; and
(i) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable or will become due and payable within
one year and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Notes to
the date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums payable
under the Indenture by the Company; and (iii) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel stating that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Trustee or Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company is not required to transfer or exchange any Note selected for
redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed.
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The registered Holder of a Note will be treated as the owner of it for all
purposes.
MODIFICATION OF INDENTURE OR NOTES
From time to time, the Company and the Trustee, without the consent of the
Holders of the Notes, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not adversely affect the rights of any of the Holders. The Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel in executing any supplemental
indenture. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder of the Notes affected thereby, no amendment may:
(i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of or change or have the effect of changing
the fixed maturity of any Note or change the date on which any Note may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price thereof;
(iii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
relating solely to the principal or interest that has become due solely
because of the acceleration);
(v) make any Note payable in money other than that stated in the
Notes;
(vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or interest on the Notes on or after the due date
thereof or to bring suit to enforce such payment;
(vii) waive a redemption payment with respect to any Note (other than
a payment required by one of the covenants described above under the
captions "Offer to Purchase Upon Change of Control" and "Certain
Covenants -- Limitation on Asset Sales");
(viii) amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated or modify any of
the provisions or definitions with respect thereto;
(ix) make any change in the foregoing amendment and waiver provisions;
or
(x) directly or indirectly release Liens on all or substantially all
of the Collateral except as permitted by the Escrow and Disbursement
Agreement.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. The Indenture will contain certain limitations on the rights
of the Trustee, should the Trustee become a creditor of the Company, to obtain
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payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions with the Company; however, if the
Trustee acquires any conflicting interest, it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as Trustee or
resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used herein and in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person, Indebtedness
of any other Person existing at the time such other Person merged with or into
or became a Subsidiary of such specified Person or Indebtedness incurred by such
Person in connection with the acquisition of assets, including, without
limitation, Indebtedness incurred or assumed in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person or the acquisition of such assets, as the
case may be.
"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director or
officer (A) of such specified Person, (B) of any Subsidiary of such specified
Person or (C) of any Person described in clause (i) above or (iii) any Person in
which such Person has, directly or indirectly, a 5% or greater voting or
economic interest or the power to control. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management or policies of such Person whether through the
ownership of voting securities or by contract or otherwise and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Annualized Cash Flow Ratio" with respect to any Person means the ratio of
the Consolidated Indebtedness of such Person to the Annualized EBITDA of such
Person for the relevant period.
"Annualized EBITDA" as of any date of determination means the aggregate
amount of EBITDA for the most recent fiscal quarter for which financial
information has been filed with the Commission multiplied by four; provided,
however, that (i) if the Company or any Subsidiary of the Company has incurred
any Indebtedness (including Acquired Debt) that remains outstanding on the date
of such determination or if the transaction giving rise to the need to calculate
the Annualized EBITDA is an incurrence of Indebtedness (including Acquired
Debt), EBITDA for such fiscal quarter will be calculated after giving effect on
a pro forma basis to (a) such Indebtedness, as if such Indebtedness had been
incurred on the first day of such fiscal quarter and (b) the discharge of any
other Indebtedness repaid, repurchased, defeased or otherwise discharged with
the proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such fiscal quarter, (ii) if since the beginning of such fiscal
quarter the Company or any Subsidiary of the Company has made any Asset Sale,
EBITDA for such fiscal quarter will be (a) reduced by an amount equal to EBITDA
(if positive) directly attributable to the assets which are the subject of such
Asset Sale for such fiscal quarter or (b) increased by an amount equal to EBITDA
(if negative) directly attributable thereto for such fiscal quarter and (iii) if
since the beginning of such period the Company or any Subsidiary of the Company
(by merger or otherwise) has made an Investment in any Person which becomes a
Subsidiary of the Company as a result of such Investment or an Investment in an
existing Subsidiary with the result that such Investment will result in the
consolidation of a greater percentage of such Subsidiary's Consolidated Net
Income (other than a transfer of operating assets from the Company or one
Subsidiary to another Subsidiary) or has made an acquisition of assets (other
than from the Company or another Subsidiary of the Company), including any
acquisition of assets occurring in connection with a transaction causing a
calculation of Annualized EBITDA to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA for such fiscal
quarter will be calculated after giving pro forma effect thereto (including the
incurrence of any Indebtedness (including Acquired Debt)) as if such Investment
or acquisition occurred on the first day of such fiscal quarter. For purposes of
this definition, whenever pro forma effect is to be given to an acquisition of
assets or an Investment, the pro forma calculations will be determined in good
faith by a responsible financial or
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accounting officer of the Company; provided, however, that such officer shall
apply in his calculations the historical EBITDA associated with such assets for
the most recent fiscal quarter for which financial information is available. If
any Indebtedness (including Acquired Debt) bears a floating rate of interest and
is being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Asset Sale" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) of shares of Capital
Stock of a Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction, other
than (i) a disposition of property or assets at Fair Market Value in the
ordinary course of business, (ii) a disposition that constitutes a Restricted
Payment and (iii) a disposition by a Subsidiary to the Company or by the Company
or a Subsidiary to a Wholly-Owned Subsidiary.
"AWS Transaction" means the acquisition by the Company of the capital stock
of American Wireless Systems, Inc., a Delaware corporation, and the acquisition
by the Company of the assets of Wireless Cable TV Associates #38 and Fort Worth
Wireless Cable T.V. Associates for consideration comprised of Equity Interests
of the Company.
"Bankruptcy Code" means Title 11, United States Code, as amended.
"Bank Indebtedness" means loans made by banks, trust companies and other
institutions principally engaged in the business of lending money to businesses
to the Company or a Subsidiary under a credit facility, loan agreement or
similar agreement.
"Beneficial Owner" means a beneficial owner as defined in Rules 13d-3 and
13d-5 under the Exchange Act (or any successor rules), including the provision
of such Rules that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire within 60 days; provided that
a Person will not be deemed a beneficial owner of, or to own beneficially, any
securities if such beneficial ownership (i) arises solely as a result of a
revocable proxy delivered in response to a proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (ii) is not also then
reportable on Schedule 13D or Schedule 13G (or any successor schedule) under the
Exchange Act.
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions are required to close in the State of New York or
Texas.
"CableMaxx Transaction" means the acquisition by the Company of the capital
stock of CableMaxx, Inc., a Delaware corporation ("CableMaxx"), for
consideration comprised of Equity Interests of the Company.
"Call Markets" means Fanning Springs, Florida; Leesburg, Florida; and Lake
City, Florida.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means any and all shares, interests, participations,
warrants, options, rights or other equivalents of or interests in (however
designated and whether voting or non-voting) corporate stock of a corporation
and any and all equivalent ownership interests in a Person (other than a
corporation), in each case whether outstanding on the date of issuance of the
Notes or thereafter issued, including any Preferred Stock.
"Change of Control" means the occurrence of any of the following events:
(i) any Person (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than the Permitted Holders, is or becomes the
Beneficial Owner, directly or indirectly, of (a) more than 35% of the total
Voting Stock or Equity Market Capitalization of the Company and (b) a
greater percentage of the voting power of the total Voting Stock of the
Company than that represented by the voting power of the Voting Stock of
the Company then beneficially owned, in the aggregate, by the Permitted
Holders; or
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(ii) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which immediately after the consummation
thereof the stockholders of the Company immediately prior to the date of
such transaction cease to own, directly or indirectly, a majority of the
Voting Stock of the surviving or transferee corporation, or Persons owning
a majority of the Voting Stock of the Company immediately prior to such
transaction cease to own, directly or indirectly, a majority of the Voting
Stock of the surviving or transferee corporation; or
(iii) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(iv) the Company adopts a plan of liquidation or dissolution.
"Closing Price" on any Trading Day with respect to the per share price of
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on such automated quotation system, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm that is selected from time
to time by the Company for that purpose and is reasonably acceptable to the
Trustee.
"Collateral" has the meaning ascribed to such term in the Escrow and
Disbursement Agreement.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Income Tax Expense" for any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations of such Person and its consolidated
Subsidiaries with respect to such period in accordance with GAAP.
"Consolidated Indebtedness" means, with respect to any Person, as of any
date of determination, the aggregate amount of Indebtedness of such Person and
its Subsidiaries as of such date determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any Person, for any period, the
aggregate of the following for such Person for such period determined on a
consolidated basis in accordance with GAAP: the amount of interest in respect of
Indebtedness (including amortization of original issue discount and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), and the interest component of any Capital Lease Obligation paid,
in each case whether accrued or scheduled to be paid or accrued by such Person
during such period to the extent such amounts were deducted in computing
Consolidated Net Income, determined on a consolidated basis in accordance with
GAAP, provided that each of the foregoing shall only be included in the
calculation of Consolidated Interest Expense to the extent such amounts reduce
Consolidated Net Income for such period. For purposes of this definition,
interest on a Capital Lease Obligation shall be deemed to accrue at an interest
rate reasonably determined by such Person to be the rate of interest implicit in
such Capital Lease Obligation in accordance with GAAP consistently applied.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its consolidated Subsidiaries
for such period determined in accordance with GAAP, provided that there shall be
excluded (i) the Net Income of any Person (other than a consolidated Subsidiary)
in which such Person or any of its consolidated Subsidiaries has a joint
interest with a third party, including, without limitation, interests accounted
for on the equity method, except to the extent of the amount of dividends or
distributions actually paid to such Person or its consolidated Subsidiary during
such period; (ii) except to the extent includable pursuant to the foregoing
clause (i), the Net Income of any Person accrued prior to the date it becomes a
Subsidiary of such Person or is merged into or consolidated with such Person or
any of its Subsidiaries or that Person's assets are acquired by such Person or
any of its Subsidiaries; (iii) the Net Income (if positive), or any portion
thereof, of any Subsidiary of such Person to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary to such Person
or to any other Subsidiary of such Net Income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, except that (A) the Company's equity in the Net Income of any such
Subsidiary for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Subsidiary during
such period to the Company or another Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Subsidiary for such period shall be included in
determining such Consolidated Net Income; (iv) without duplication, any gains or
losses attributable to Asset Sales; (v) Net Income (if positive), arising from
the adoption of changes in accounting policy to comply with GAAP or voluntarily
by the Company with the consent of its independent auditors that so qualify
under Regulation S-X of the Securities Act; (vi) Net Income arising for periods
prior to the date of a transaction in connection with the accounting treatment
for a merger, combination or consolidation under the pooling of interests
method; and (vii) foreign currency translation gains and losses.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date on which the Notes mature; provided, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require the Company to repurchase or redeem such
Capital Stock upon the occurrence of a Change of Control occurring prior to the
final maturity of the Notes shall not constitute Disqualified Stock if (i) the
change of control provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions applicable to
the Notes contained in the covenant described under "Offer to Purchase Upon
Change of Control" and (ii) such Capital Stock specifically provides that the
Company will not repurchase or redeem any such stock pursuant to such provisions
prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to the covenant described under "Offer to Purchase Upon
Change of Control."
"EBITDA" for any period means the Consolidated Net Income for such period
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) Consolidated Income Tax Expense, (ii) Consolidated Interest Expense,
(iii) depreciation and amortization expense determined on a consolidated basis
for such Person and its consolidated Subsidiaries in accordance with GAAP for
such period and (iv) all other non-cash charges (other than non-cash charges
which require an accrual of or reserve for cash charges in future periods), and
less any non-cash items which have the effect of increasing Consolidated Net
Income for such period.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock or that are measured by the value of Capital
Stock (but excluding any debt security that is convertible into or exchangeable
for Capital Stock).
"Equity Market Capitalization" of any Person means, as of any day of
determination, the product of (a) the aggregate number of outstanding shares of
Common Stock of such Person on such day (which shall not include any options or
warrants on, or securities convertible or exchangeable into, shares of Common
Stock of such Person) and (b) the average Closing Price of such Common Stock
over the 20 consecutive Trading Days immediately preceding such day. If no such
Closing Price exists with respect to shares of any such class, the value of such
shares for purposes of clause (b) of the preceding sentence shall be determined
by an independent investment banking firm of national repute.
"Escrow Account" means an escrow account for the deposit of approximately
$22.0 million of the net proceeds from the sale of the Old Notes under the
Escrow and Disbursement Agreement.
"Escrow Agent" means Bankers Trust Company, as Escrow Agent under the
Escrow and Disbursement Agreement, or any successor thereto appointed pursuant
to such agreement.
"Escrow and Disbursement Agreement" means the Escrow and Disbursement
Agreement, dated as of the date of the Indenture, by and among the Escrow Agent,
the Trustee and the Company, governing the disbursement of funds from the Escrow
Account, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations promulgated thereunder.
"Existing Indebtedness" means the Notes and any other Indebtedness of the
Company and its Subsidiaries in existence on the Issue Date, excluding
Indebtedness under a senior secured revolving credit facility that has been
repaid from the proceeds of the sale of the Old Notes.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation or such other Person
(whether arising by virtue of partnership arrangements, or by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposits in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made (unless such Guarantee shall be
expressly limited to a lesser amount, in which case such lesser amount shall
apply) or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.
"Indebtedness" of any Person means, without duplication: (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations
of such Person issued or assumed as the
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deferred purchase price of property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor for any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock (the
amount of Indebtedness represented by any Disqualified Stock will be the
liquidation preference, plus accrued and unpaid dividends); (vi) to the extent
not otherwise included, Interest Rate Agreements; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons and all dividends
of other Persons for the payment for which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; and (viii) all obligations of
the type referred to in clauses (i) through (vii) of other Persons secured by
any Lien on any property or asset of such Person (whether or not such obligation
is assumed by such Person); provided that if recourse with respect to such
Indebtedness is limited to such asset, the amount of such Indebtedness shall be
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured.
"Interest Rate Agreement" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, on any date of
determination, the outstanding amount of (i) all investments by such Person in
other Persons (including Affiliates) in the forms of loans, Guarantees, advances
or capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities of any other Person and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP
and (ii) all acquisitions by such Person of assets to be used in the Wireless
Cable Business (other than any such acquisitions of equipment made in the
ordinary course of such Person's business and other than any acquisition or
lease (and any deposit required to be made in connection therewith) of
additional channel rights on or after November 30, 1996 in any wireless cable
market or "Basic Trading Area" (as defined by Rand McNally) in which the Company
and its Subsidiaries (A) as of November 30, 1996, have channel rights, whether
by way of license, lease with a channel license holder, lease with a channel
license applicant, lease with a qualified, non-profit educational organization
that plans to apply for a channel license or option to acquire any of the
foregoing, or (B) as of the date of such acquisition or lease, have rights with
respect to at least eight wireless cable channels, whether by way of license,
lease with a channel license holder, lease with a channel license applicant,
lease with a qualified, non-profit educational organization that plans to apply
for a channel license or option to acquire any of the foregoing).
"Issue Date" means the date on which Notes are first authenticated and
issued.
"Lien" means, with respect to any asset, any mortgage, deed of trust, lien,
pledge, charge, security interest, lease, easement, restriction, covenant,
right-of-way, charge, encumbrance or other similar lien of any kind in respect
of such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"Marketable Securities" means (i) U.S. Government Securities maturing not
more than two years after the date of acquisition; (ii) any certificate of
deposit maturing not more than 270 days after the date of acquisition issued by,
or time deposit of, an Eligible Institution; (iii) commercial paper maturing not
more than 270 days after the date of acquisition issued by a corporation (other
than an Affiliate of the Company) with a rating, at the time as of which any
investment therein is made, of "A-1" (or higher) according to S&P
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or "P-1" (or higher) according to Moody's; (iv) any banker's acceptances or
money market deposit accounts issued or offered by an Eligible Institution; and
(v) any fund investing exclusively in investments of the types described in
clauses (i) through (iv) above.
"Moody's" means Moody's Investors Service Inc. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (excluding,
without limitation, any consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such property
or assets or received in any other noncash form), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), any relocation expenses
incurred as a result thereof, Federal, state, provincial, foreign and local
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), title and
recording tax expenses, and in each case net of appropriate amounts to be
provided by the Company or its Subsidiaries as a reserve, in accordance with
GAAP, against any liabilities associated with such assets and retained by the
Company or any Subsidiary after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related to
environmental matters and the after-tax cost of any indemnification payments
(fixed or contingent) attributable to the seller's indemnities to the purchaser
undertaken by the Company or any of its Subsidiaries in connection with such
Asset Sale (but excluding any payments, which by the terms of the indemnities
will not, under any circumstances, be made during the term of the Notes) and net
of all payments made on any Indebtedness which is secured by any assets subject
to such Asset Sale, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a release of such Lien or a necessary consent to
such Asset Sale, or by applicable law be repaid out of the proceeds from such
Asset Sale, and net of all distributions and other payments required to be made
to minority interests holders in Subsidiaries or joint ventures as a result of
such Asset Sale. Net Cash Proceeds shall exclude any non-cash proceeds received
from any Asset Sale, but shall include such proceeds when and as converted by
the Company or any Subsidiary to cash.
"Net Income" of any Person for any period means the net income (loss) of
such Person for such period, determined in accordance with GAAP, except that
extraordinary gains and losses as determined in accordance with GAAP shall be
excluded.
"Net Proceeds" means, with respect to any issuance or sale of Equity
Interests, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts and
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Opinion of Counsel" means an opinion in writing signed by legal counsel
reasonably satisfactory to the Trustee.
"Permitted Assets" means Wireless Cable Related Assets related to wireless
cable systems (i) in the United States and containing a maximum of 250,000
households within a 35-mile radius of the licensed transmission site associated
with such system, at least 15% of which households are unpassed by traditional
hard-wire cable (as supported by an Officer's Certificate), (ii) owned by the
Company as of November 30, 1996 or (iii) owned by Television Interactiva del
Norte, SA de C.V. (but only, with respect to Investments in assets named in this
clause (iii), up to the amount of $3.0 million after November 30, 1996).
"Permitted Designee" means (i) a spouse, child or grandchild (whether such
relationship arises from birth, adoption or through marriage) of a Permitted
Holder, (ii) any trust, corporation, partnership or other entity, a majority in
interest of the beneficiaries, stockholders, partners or owners (direct or
beneficial) of which are Permitted Holders and/or Persons of the type referred
to in clause (i) above or (iii) any Person so long as a Permitted Holder owns at
least 50% of the Voting Stock of such Person.
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"Permitted Holders" means Hunt Capital Group L.L.C. and its Affiliates,
David E. Webb and L. Allen Wheeler and their Permitted Designees.
"Permitted Investment" means (a) any Investment by the Company in a
Subsidiary (provided that, in the case of Wholly-Owned Subsidiaries, if such
Wholly-Owned Subsidiary ceases to be a Wholly-Owned Subsidiary (except by reason
of the sale by the Company or its Wholly-Owned Subsidiary of the Equity
Interests therein), then any Investment in such Subsidiary will be deemed to be
a Restricted Payment at the time of such event determined in accordance with the
"Limitation on Restricted Payments" covenant); and (b) any Investments in
Marketable Securities.
"Permitted Liens" means:
(i) Liens on (x) the Escrow Account and all funds and securities
therein securing only the Notes equally and ratably or (y) other assets of
the Company or any Subsidiary thereof securing only the Notes equally and
ratably;
(ii) Liens to secure Bank Indebtedness incurred by the Company or the
Subsidiaries in compliance with the "Limitation on Indebtedness" covenant
and Guarantees incurred by the Subsidiaries in compliance with clause (iv)
of the second paragraph of "Certain Covenants -- Limitation on
Indebtedness" executed in connection therewith;
(iii) Liens on the property of the Company or its Subsidiaries created
solely for the purpose of securing purchase money obligations incurred in
compliance with the Indenture; provided that (a) such property so acquired
is for use in lines of business related to the Company's or its
Subsidiaries' business as it exists immediately prior to the issuance of
the related Indebtedness, (b) no such Lien shall extend to or cover other
property or assets of the Company and its Subsidiaries other than the
respective property so acquired and (c) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such property or assets;
(iv) Liens on the property or assets of a Subsidiary acquired after
the Issue Date or on property or assets acquired in an asset purchase
transaction with a Person that is not an Affiliate created solely to secure
the obligations that financed the acquisition of such Subsidiary or such
property and assets; provided that (a) no such Lien shall extend to or
cover property or assets of the Company and its Subsidiaries other than the
property or assets of the Subsidiary so acquired or the property or assets
so acquired and (b) no such Lien shall extend to the Capital Stock of any
Subsidiary so acquired and (c) the principal amount of Indebtedness secured
by any such Lien shall not exceed the original purchase price of such
Subsidiary or such property or assets;
(v) Liens on the assets of any entity existing at the time such entity
or assets are acquired by the Company or any of its Subsidiaries, whether
by merger, consolidation, purchase of assets or otherwise; provided that
such Liens (a) are not created, incurred or assumed in connection with, or
in contemplation of, such assets being acquired by the Company or any of
its Subsidiaries and (b) do not extend to any other property of the Company
or any of its Subsidiaries;
(vi) Liens to secure the performance of statutory obligations, surety
or appeal bonds or performance bonds or landlords', carriers',
warehousemen's, mechanics', suppliers', materialmen's or other like Liens,
in any case incurred in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
process of law, if a reserve or other appropriate provision, if any, as
required by GAAP shall have been made therefor;
(vii) Liens existing on the date of the Indenture;
(viii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
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(ix) Liens in favor of any Federal governmental authority on any
wireless cable channels or "Basic Trading Area" (as defined by Rand
McNally) licenses acquired by the Company or any of its Subsidiaries in an
auction or other sale, provided that such wireless cable channels or "Basic
Trading Area" licenses are within the United States; and
(x) extensions or renewals of any Liens referred to in clauses (i)
through (ix) above, provided that such extension or renewal does not extend
to any assets or secure any Indebtedness not securing or secured by the
Liens being extended or renewed.
Notwithstanding the foregoing, Permitted Liens may not extend to the Escrow
Account or the Escrow and Disbursement Agreement.
"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (a) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Disqualified Stock); (b)
any dividend, other distribution, loan or advance to the Company by any of its
Subsidiaries or by a Subsidiary to another Subsidiary; (c) any defeasance,
redemption, repurchase or other acquisition for value of any Indebtedness of the
Company with the proceeds from the issuance of (i) Indebtedness which is
subordinate to the Notes at least to the extent and in the manner as the
Indebtedness to be defeased, redeemed, repurchased or otherwise acquired is
subordinate in right of payment to the Notes; provided that (1) such
newly-issued subordinated Indebtedness provides for no payments of principal by
way of sinking fund, mandatory redemption, defeasance or otherwise by the
Company or its Subsidiaries (including, without limitation, at the option of the
holder thereof other than an option given to a holder pursuant to a Change of
Control covenant which (x) is no more favorable to the holders of such
Indebtedness than the provisions in favor of the Holders and (y) such
Indebtedness provides that the Company or its Subsidiaries will not repurchase
such Indebtedness pursuant to such provisions prior to the Company's repurchase
of the Notes required to be repurchased by the Company upon a Change of Control)
prior to the maturity of the Indebtedness being replaced and (2) the proceeds of
such new Indebtedness are utilized for such purpose within 45 days of issuance
or (ii) Capital Stock (other than Disqualified Stock) issued in accordance with
the provisions of the Indenture; and (d) the redemption or repurchase by a
Wholly-Owned Subsidiary of its Capital Stock owned by the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Strategic Equity Investor" means any Person that, both as of the Trading
Day immediately before the day of such sale and the Trading Day immediately
after the day of such sale, has an Equity Market Capitalization of at least $2
billion and is engaged in the business of (i) transmitting video, voice or data
through wireless and other transmission facilities, (ii) creating, developing or
packaging entertainment or communication programming or (iii) evaluating,
participating or pursuing any other activity or opportunity that is related to
those identified in (i) or (ii) above.
"Subsidiary" means any corporation, association or other business entity of
which more than 50% of the total voting power of the outstanding Voting Stock
(or other interests, including partnership interests) is owned directly or
indirectly by any Person or one or more of the other Subsidiaries of that Person
or a combination thereof.
"S&P" means Standard & Poor's Corporation and its successors.
"TechniVision Transaction" means the acquisition by the Company of the
assets of TechniVision, Inc. for consideration comprised of Equity Interests of
the Company.
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"Trading Day," with respect to a securities exchange or automated quotation
system, means a day on which such exchange or system is open for a full day of
trading.
"Transactions" means the AWS Transaction, the CableMaxx Transaction, the
TechniVision Transaction and the Wireless One Transaction, collectively.
"U.S. Government Securities" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of any Person means all outstanding classes of Capital Stock
of any entity entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Preferred Stock, as the case may be, at any date, the number of years
obtained by dividing (i) the then outstanding principal amount or stated value
of such Indebtedness or Preferred Stock, as the case may be, into (ii) the total
of the product obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, or preference in respect
thereof, by (y) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, all of the
outstanding Capital Stock (other than directors' qualifying shares), or in the
case of a non-corporate Subsidiary, other equity interests having ordinary
voting power for the election of directors or other governing body of such
Subsidiary, of which is owned by the Company or another Wholly-Owned Subsidiary
of the Company or a combination thereof.
"Wireless Cable Business" means, when used in reference to any Person, that
such Person, directly or indirectly, is engaged primarily in the business of (i)
transmitting video, voice or data primarily through wireless transmission
facilities, (ii) utilizing wireless cable channels for any commercial purpose
permitted by the FCC, (iii) creating, developing and packaging programming that
may be used to satisfy educational programming requirements for ITFS channels
and advertising, that, in either case, is transmitted over one or more of the
Company's wireless cable channels or (iv) evaluating, participating or pursuing
any other activity or opportunity that is related to those identified in (i),
(ii) or (iii) above.
"Wireless Cable Related Assets" means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used in connection
with a Wireless Cable Business.
"Wireless One Transaction" means the transaction between the Company and
Wireless One Operating Company, a Delaware corporation ("Old Wireless One"),
whereby, among other things, Wireless One, Inc., a newly-formed Delaware
corporation ("Wireless One"), acquired (A) all of the outstanding capital stock
of Old Wireless One (which retained all of its assets and liabilities except its
wireless cable assets and certain related liabilities with respect to the
Springfield, Missouri market which the Company acquired) for consideration
comprised of the Common Stock, $.01 par value per share (the "Wireless One
Common Stock"), of Wireless One and (B) the wireless cable assets and related
liabilities of certain Subsidiaries of the Company with respect to the
Contributed Markets for consideration comprised of Wireless One Common Stock and
promissory notes of Wireless One.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
On November 30, 1994, the Company consummated the private placement of
$40,150,000 in gross proceeds of the Convertible Notes, representing an
aggregate principal amount payable at maturity of $62,351,722 to Jupiter and an
accredited individual pursuant to the terms of the Note Purchase Agreement. The
Convertible Notes were issued with an original issue discount of approximately
35.607% from the principal amount at the maturity thereof. The Convertible Notes
mature November 1, 2004. The yield to maturity of the Convertible Notes will be
9% per annum (computed on a semi-annual bond equivalent basis). No periodic
interest payments are due on the Convertible Notes prior to the Applicable Date,
after which interest will be payable in cash semi-annually in arrears on each
May 1 and November 1, commencing with the first such date after the Applicable
Date, which shall be no later than November 30, 1999. The Convertible Notes may
be converted to Common Stock at the option of the holders thereof at any time
prior to maturity, unless previously redeemed by the Company, into the number of
shares of Common Stock computed by dividing the accreted value thereof (or, if
after the Applicable Date, the principal amount at maturity thereof plus accrued
and unpaid interest) (the "Applicable Amount") by the Conversion Price of
$15.34. The Conversion Price will not be adjusted for accrued original issue
discount, but will be subject to adjustment upon the occurrence of certain
events affecting the Common Stock. The Convertible Notes are redeemable, in
whole or in part, at the option of the Company at any time on or after November
30, 1999, at a redemption price equal to the principal amount at maturity
thereof plus accrued and unpaid interest, except that no such redemption may be
made unless the market price of the Common Stock for 20 trading days within a
period of 30 consecutive trading days ending no later than the fifth trading day
preceding the redemption notice, which 20 trading days must include the
thirtieth trading day of such period, exceeds 150% of the Conversion Price on
each of such 20 trading days. The Note Purchase Agreement contains certain
covenants that, among other things, limit or prohibit the ability of the Company
and its subsidiaries to pay dividends, to liquidate or dissolve, to merge or
sell all or substantially all of its assets, to sell or lease channel rights, to
enter into a new business, to make certain acquisitions and to incur certain
indebtedness.
On April 19, 1995, the Company consummated a private placement of 100,000
Units consisting of $100.0 million principal amount of 13% Senior Notes ("13%
Series A Notes") and 600,000 Warrants to purchase shares of Common Stock. On
March 13, 1996, the Company consummated an exchange offer pursuant to which
$100.0 million principal amount of 13% Series B Senior Notes ("13% Series B
Notes") were issued in exchange for an equal principal amount of 13% Series A
Notes, which were all cancelled. The terms of the 13% Series A Notes and the 13%
Series B Notes are identical in all material respects, except that the 13%
Series B Notes have been registered under the Securities Act and therefore do
not have legends restricting their transfer.
On March 25, 1996, the Company consummated a private placement of $15.0
million principal amount of 13% Series C Senior Notes (the "13% Series C
Notes"). On January 29, 1997, the Company consummated an exchange offer pursuant
to which $15.0 million principal amount of 13% Series D Senior Notes ("13%
Series D Notes") were issued in exchange for an equal principal amount of 13%
Series C Notes, which were all cancelled. The terms of the 13% Series C Notes
and 13% Series D Notes are identical in all material respects, except that the
Series D Notes have been registered under the Securities Act and therefore do
not have legends restricting their transfer. The 13% Series B Notes and 13%
Series D Notes constitute the Existing Notes described elsewhere herein.
The Company was the winning bidder in the BTA Auction in 93 BTAs at a cost
of approximately $19.8 million, of which the Company has paid approximately $4.0
million towards this obligation. The remaining $15.8 million bears interest at
9.5% and is to be paid over a 10-year period commencing in the fourth quarter of
1996. The Company will be required to make quarterly interest-only payments for
the first two years and quarterly payments of principal and interest over the
remaining 8 years. The remaining payments are secured by a lien on the BTA
licenses purchased in the BTA Auction. CS Wireless will reimburse the Company
for all amounts paid in the BTA Auction relating to 12 BTAs at a total cost of
approximately $5.3 million, of which approximately $1.1 million had been
reimbursed as of October 30, 1996, representing all amounts paid by the Company
as of such date in connection with the award of the 12 BTAs.
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After giving effect to these obligations of and payments by CS Wireless, the
Company's remaining obligation associated with the BTA Auction is approximately
$11.6 million.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain Federal income tax
consequences of the exchange of Old Notes for New Notes pursuant to the Exchange
Offer and of the ownership of New Notes. The discussion is based upon the Code,
Treasury Regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
changes may be applied retroactively in a manner that could adversely affect a
holder of the Notes. The following discussion assumes that holders will hold the
New Notes, and have held the Old Notes, as capital assets.
The Company has not sought and will not seek any rulings from the IRS with
respect to the positions of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the Exchange Offer or of the purchase, ownership or disposition
of the New Notes or that any such different position would not be sustained.
The tax treatment of a holder of New Notes may vary depending on his or its
particular situation or status. This summary does not address the tax
consequences to taxpayers who are subject to special rules such as insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign entities and individuals, persons holding New Notes as a part of a
hedging or conversion transaction or a straddle and holders whose "functional
currency" is not the U.S. dollar, or aspects of Federal income taxation that may
be relevant to a holder based upon such holder's particular tax situation. In
addition, the description does not consider the effect of any applicable
foreign, state, local or other tax laws.
EACH HOLDER SHOULD CONSULT HIS OR ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM, HER OR IT OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES
PURSUANT TO THE EXCHANGE OFFER AND OF THE OWNERSHIP OF THE NEW NOTES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Although the matter is not entirely free from doubt, the exchange of an Old
Note for a New Note pursuant to the Exchange Offer should not be treated as an
exchange or otherwise as a taxable event for Federal income tax purposes.
Accordingly, the New Notes should have the same issue price as the Old Notes and
each holder should have the same adjusted basis and holding period in the New
Notes as it had in the Old Notes immediately before the Exchange Offer. It is
assumed, for purposes of the following discussion, that the consummation of the
Exchange Offer will not be treated as a taxable event and that the New Notes and
the Old Notes will be treated as the same instruments for Federal income tax
purposes.
NEW NOTES
Payments of Interest. Holders of the New Notes will be required to include
payments of qualified stated interest (as defined below) received thereon in
taxable income in accordance with their respective methods of accounting.
Acquisition Premium of a Subsequent Purchaser. An acquisition premium will
exist if a subsequent purchaser purchases a New Note at a cost that exceeds the
sum of all amounts payable on the New Notes after the acquisition date (other
than stated interest). In such case, a subsequent purchaser who is treated as
having purchased a New Note at such a premium may elect to amortize such
acquisition premium over the term of the New Note. If a holder makes this
election, each interest payment on the New Note will be offset by the portion of
the acquisition premium allocable to such interest payment, and will therefore,
reduce the amount of interest on the New Note that the holder would otherwise
have to include in income. Acquisition premium is amortized on a constant yield
to maturity basis (except to the extent regulations may provide otherwise).
Amortized acquisition premium will reduce a holder's adjusted tax basis in the
New Note. A holder that elects to amortize acquisition premium on a New Note
will generally be required to amortize
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<PAGE> 56
acquisition premium on all other debt instruments that it acquired at a premium
in such year, and in subsequent years. Additionally, the manner of amortizing
acquisition premium of a New Note may be affected by the Company's rights to
redeem the New Notes prior to maturity. Holders should consult with their tax
advisor before electing to amortize acquisition premium with respect to the New
Notes.
Market Discount of a Subsequent Holder. If a subsequent holder of a New
Note that was purchased at a "market discount" thereafter realizes gain upon its
disposition or retirement, such gain will be taxed as ordinary income to the
extent of the market discount that has accrued on a straight-line basis (or on a
constant interest rate basis, if such basis of accrual has been elected by the
holder under Section 1276(b) of the Code) while the debt instrument was held by
such holder. "Market discount" with respect to a New Note is the amount by which
the stated redemption price at Maturity of a New Note exceeds the holder's basis
in the New Note immediately after acquisition (unless such excess is less than
0.25% of the stated redemption price at maturity of the New Note multiplied by
the number of complete years from acquisition by such holder to maturity, in
which case there is no "market discount"). If a subsequent holder makes a gift
of a New Note, accrued market discount, if any, will be recognized as if such
holder had sold such New Note for a price equal to its fair market value. The
market discount rules also provide that a holder who acquires a New Note at a
market discount may be required to defer a portion of any interest expense that
otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such New Note until the holder disposes of the New Note in a
taxable transaction.
The New Notes provide for optional redemption, in whole or in part, and, in
the case of Change of Control, a mandatory offer to redeem, prior to maturity.
If the New Notes were redeemed, a holder generally would be required to include
in gross income as ordinary income, for Federal income tax purposes, the portion
of the payment that is attributable to accrued market discount on the New Notes,
if any.
A holder of New Notes acquired at a market discount may elect to include
market discount in gross income as the discount accrues either on a
straight-line basis or on a constant interest rate basis. This current inclusion
election, once made, applies to all market discount obligations acquired on or
after the first day of the first taxable year to which the election applies, and
may not be revoked without the consent of the IRS. If a holder of New Notes
makes such an election, the foregoing rules with respect to the recognition of
ordinary income on sales and other dispositions of such debt instruments, and
with respect to the deferral of interest deductions on indebtedness incurred or
maintained to purchase or carry such debt instruments, would not apply.
Sale, Exchange, Redemption, Retirement or Other Disposition of New
Notes. In general, subject to the market discount provisions discussed above,
the holder of a New Note will recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of such debt instrument measured by
the difference between (i) the amount of cash and fair market value of property
received in exchange therefor and (ii) the holder's adjusted tax basis in such
debt instrument.
The holder's initial tax basis in a New Note which is generally equal to
the price paid therefore will be increased from time to time by the accrual of
market discount, if any, that the holder has previously elected to include in
gross income on an annual basis and decreased from time to time to reflect any
amortized premium.
Any gain or loss on the sale, exchange, redemption, retirement or other
disposition of a New Note should be capital gain or loss (except as discussed in
"Market Discount of a Subsequent Holder" above). Any capital gain or loss will
be long-term capital gain or loss if the debt instrument had been held for more
than one year and otherwise will be short-term capital gain or loss.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax
if (i) the payee fails to furnish a taxpayer identification number ("TIN") to
the payor, (ii) the IRS notifies the payor that the TIN furnished by the payee
is incorrect, (iii) the IRS has notified the payor that withholding is required
because the payee has failed to report properly the receipt of "reportable
payments" or (iv) there has been a failure of the payee to certify under the
penalty of perjury that the payee is not subject to withholding under Section
3406 of the
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Code. If any one of the events discussed above occurs, the Company, its paying
agent or other withholding agent will be required to withhold a tax equal to 31%
of any "reportable payment" made in connection with the New Notes. A "reportable
payment" includes, among other things, interest actually paid and amounts paid
through brokers in retirement of a New Note. Any amounts withheld from a payment
to a holder under the backup withholding rules will be allowed as a refund or
credit against such holder's Federal income tax, provided that the required
information is furnished to the IRS. Certain holders (including, among others,
corporations and certain tax exempt organizations) are not subject to the backup
withholding and information reporting requirements. A holder should consult his
or its tax advisor as to his or its qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
PLAN OF DISTRIBUTION
Based on interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to participate
in the distribution of such New Notes and neither such holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes.
Accordingly, any holder who is an affiliate of the Company or any holder using
the Exchange Offer to participate in a distribution of the New Notes will not be
able to rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 120 days from
the date of this Prospectus, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until May 13, 1997 (90 days from the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers, New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker-dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 120 days from the date of this Prospectus, the Company will
send a reasonable number of additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company will pay all the
expenses incident to the Exchange Offer (which shall not include the expenses of
any holder in connection with resales of the New
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Notes). The Company has agreed to indemnify the Initial Purchasers and any
broker-dealers participating in the Exchange Offer against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes and
federal income tax matters will be passed upon for the Company by Arter &
Hadden, Dallas, Texas.
EXPERTS
The consolidated financial statements and schedule of Heartland Wireless
Communications, Inc. as of December 31, 1995 and 1994, and for each of the years
in the three-year period ended December 31, 1995, have been incorporated by
reference herein and in the Registration Statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP related to the
consolidated financial statements of Heartland Wireless Communications, Inc.
refers to a change in 1995 by the Company in the method of accounting for the
direct costs and installation fees related to subscriber installations.
The financial statements of Technivision, Inc. as of May 31, 1995 and 1994,
and for each of the years in the three-year period ended May 31, 1995, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
contains an explanatory paragraph that states that Technivision, Inc.'s
recurring losses from operations and excess of current liabilities over current
assets raise substantial doubt about the entity's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
The balance sheets of Cross Country Division as of December 31, 1993 and
1994, and the related statements of operations and division equity and cash
flows for the year ended December 31, 1993, the period from January 1, 1994 to
August 18, 1994 and the period from August 19, 1994 to December 31, 1994 have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
contains an explanatory paragraph that refers to a business combination in 1994
accounted for as a purchase involving assets comprising a portion of Cross
Country Division. As a result of the acquisition, financial information of Cross
Country Division for periods after August 18, 1994 is presented on a different
cost basis than that for periods before August 18, 1994 and, therefore, such
information is not comparable.
The consolidated balance sheets as of June 30, 1994 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows of
CableMaxx, Inc. for the period December 18, 1992 to June 30, 1993 and the fiscal
years ended June 30, 1994 and 1995, and the consolidated statements of
operations and cash flows of Supreme Cable Co., Inc. and its subsidiaries (the
"Predecessor") for the period commencing July 1, 1992 to December 17, 1992,
incorporated by reference in this Prospectus have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants, as indicated in their
report with respect thereto, which includes an explanatory paragraph which
states that specified circumstances raise substantial doubt about CableMaxx,
Inc.'s ability to continue as a going concern, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
The financial statements of American Wireless Systems, Inc. incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
Reference is made to said report which includes an explanatory paragraph that
describes factors raising substantial doubt about the Company's ability to
continue as a going concern.
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The consolidated financial statements of Fort Worth Wireless Cable T.V.
Associates incorporated by reference in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
Reference is made to said report which includes an explanatory paragraph that
describes factors raising substantial doubt about the Company's ability to
continue as a going concern.
The consolidated financial statements of Wireless Cable T.V. Associates #38
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report which includes an explanatory paragraph that describes factors
rasing substantial doubt about the Company's ability to continue as a going
concern.
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================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Safe Harbor Statement Under the
Private Securities Litigation Reform
Act of 1995......................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 11
Recent Events......................... 19
The Exchange Offer.................... 20
Description of Notes.................. 28
Description of Certain Indebtedness... 54
Certain Federal Income Tax
Considerations...................... 55
Plan of Distribution.................. 57
Legal Matters......................... 58
Experts............................... 58
</TABLE>
---------------------
UNTIL MAY 13, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
================================================================================
================================================================================
---------------------------
PROSPECTUS
---------------------------
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
$125,000,000
14% SERIES B SENIOR NOTES
DUE 2004
FEBRUARY 11, 1997
================================================================================
