<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1996
REGISTRATION NO. 333-5109
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO.1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WIRELESS ONE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 72-1300837 4841
(STATE OR OTHER (I.R.S. EMPLOYER (PRIMARY STANDARD
JURISDICTION OF IDENTIFICATION NO.) INDUSTRIAL CLASSIFICATION
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
11301 INDUSTRIPLEX BOULEVARD
SUITE 4
BATON ROUGE, LOUISIANA 70809-4115
TELEPHONE: 504-293-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MR. HANS J. STERNBERG
CHAIRMAN OF THE BOARD
WIRELESS ONE, INC.
11301 INDUSTRIPLEX BOULEVARD
SUITE 4
BATON ROUGE, LOUISIANA 70809-4115
TELEPHONE: 504-293-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
LANCE C. BALK, ESQ. JEREMIAH L. THOMAS III, ESQ.
KIRKLAND & ELLIS SIMPSON THACHER & BARTLETT
153 EAST 53RD STREET 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
TELEPHONE: 212-446-4800 TELEPHONE: 212-455-2000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 18, 1996
$
WIRELESS ONE(SM)
WIRELESS ONE, INC.
% SENIOR DISCOUNT NOTES DUE 2006
The % Senior Discount Notes due 2006 (the "Notes") are being issued (the
"Offering") by Wireless One, Inc. (the "Company"). The Notes will be issued at
a discount to their aggregate principal amount to generate gross proceeds to
the Company of approximately $125 million. The Notes will accrete in value
until August 1, 2001 at a rate of % per annum, compounded semi-annually, to an
aggregate principal amount of $ million. Cash interest will not accrue on
the Notes prior to August 1, 2001. Thereafter, interest on the Notes will
accrue at a rate of % per annum and will be payable in cash semi-annually on
and of each year, commencing , 2002. The Notes will be
redeemable at the option of the Company, in whole or in part, at any time on or
after , 2001 at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. In addition, in
the event of a sale by the Company prior to , 1999 of at least $25 million
of its Capital Stock or Qualified Subordinated Indebtedness (each as defined)
to a Strategic Investor (as defined), up to a maximum of 30% of the aggregate
principal amount originally issued of the Notes may be redeemed at the election
of the Company; provided that at least 70% of the aggregate principal amount of
the Notes originally issued remains outstanding after the occurrence of such
redemption. See "Description of Notes--Optional Redemption."
Upon the occurrence of a Change of Control (as defined), each holder of Notes
may require the Company to repurchase all or a portion of such holder's Notes
at 101% of the Accreted Value (as defined) thereof, or, in the case of any such
purchase on or after August 1, 2001, at 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the purchase date. See
"Description of Notes--Certain Covenants--Purchase of Notes upon a Change of
Control."
The Notes will be senior obligations of the Company ranking pari passu in right
of payment to all existing and future Indebtedness (as defined) of the Company,
other than Indebtedness that is expressly subordinated to the Notes. However,
subject to certain limitations set forth in the Indenture, the Company and its
Subsidiaries (as defined) may incur other senior Indebtedness, including
Indebtedness that is secured by the assets of the Company and its Subsidiaries.
IN ADDITION, ALTHOUGH THE NOTES ARE TITLED "SENIOR," THE COMPANY IS A HOLDING
COMPANY THAT CONDUCTS SUBSTANTIALLY ALL OF ITS BUSINESS THROUGH SUBSIDIARIES,
AND THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL LIABILITIES OF THE
COMPANY'S SUBSIDIARIES, INCLUDING TRADE PAYABLES. As of March 31, 1996, after
giving effect to the Pro Forma Events (as defined) and the Offering, the
Company would have had $300.1 million of Indebtedness. The outstanding
Indebtedness and trade payables of the Company's Subsidiaries as of March 31,
1996 (on a pro forma basis giving effect to the Pro Forma Events) would have
been approximately $17.4 million. See "Description of Notes." The Company will
complete the TruVision Transaction (as defined) prior to the consummation of
this Offering and this Offering is conditioned upon the occurrence of such
events.
On , 1996, the Company received the consent of the holders of its 13%
Senior Notes due 2003 (the "Existing Notes") to amend the indenture relating
thereto to permit the consummation of the TruVision Transaction (as defined
herein) and certain other amendments.
-------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
-------------------------------------
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (/1/) DISCOUNTS (/2/) COMPANY (/1/)(/3/)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER NOTE % % %
TOTAL $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Plus accretion, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $2,000,000.
-------------------------------------
The Notes are being offered by Chase Securities Inc. ("CSI"), BT Securities
Corporation ("BTSC"), Gerard Klauer Mattison & Co., LLC ("GKM") and Prudential
Securities Incorporated ("Prudential" and, together with CSI, BTSC, and GKM,
the "Underwriters"), subject to prior sale, when, as and if issued by the
Company and delivered to and accepted by the Underwriters, and subject to
certain other conditions. It is expected that delivery of the Notes will be
made in book-entry form through the facilities of The Depository Trust Company
on or about , 1996.
This Prospectus may be used by the Underwriters in connection with offers and
sales related to secondary market transactions in the Notes. CSI may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. No dealer, salesman or
other person has been authorized to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an
offer to sell any of the Notes offered hereby in any jurisdiction to any person
to whom it is unlawful to make such offer in such jurisdiction.
CHASE SECURITIES INC.
BT SECURITIES CORPORATION
GERARD KLAUER MATTISON & CO., LLC
PRUDENTIAL SECURITIES INCORPORATED
, 1996.
<PAGE>
WIRELESS ONE(SM)
[MAP TO COME]
The Company's Intended Service Area includes (i) areas that are presently
served, (ii) areas where systems are not presently in operation but where the
Company intends to commence operations and (iii) areas where service may be
provided by signal repeaters or, in some cases, pursuant to FCC applications.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Prior to the consummation of this Offering, the
Company and TruVision Wireless, Inc. ("TruVision") will have completed a merger
of a subsidiary of the Company with TruVision (the "TruVision Transaction"),
whereupon TruVision will have become a subsidiary of the Company. Unless
otherwise indicated, all information contained in this Prospectus assumes (i)
consummation of the TruVision Transaction and (ii) consummation of all other
pending acquisitions (the "Acquisitions") more fully detailed under
"Acquisitions." Unless the context otherwise requires, references to the
"Company" mean Wireless One, Inc., its subsidiaries (including TruVision) and
predecessors.
THE COMPANY
The Company acquires, develops, owns and operates wireless cable television
systems, primarily in small to mid-size markets located in the southeastern
United States. The Company's 80 markets (including 10 through a limited
liability company which is 50% owned by the Company) are located in Texas,
Louisiana, Mississippi, Tennessee, Kentucky, Alabama, Georgia, Arkansas, North
Carolina, South Carolina and Florida and represent approximately 9.6 million
households (including households in markets held through such limited liability
company). The Company believes that approximately 7.3 million households (1.1
million of which are in markets held through such limited liability company)
can be served by line-of-sight ("LOS") transmissions. LOS transmissions
generally require a direct, unobstructed transmission path from the central
transmitting antenna to an antenna at the subscriber's location. The Company
believes that certain of its Louisiana, Mississippi, Tennessee, Alabama,
Georgia and Florida markets comprise the largest contiguous geographic cluster
in the wireless cable industry, covering approximately 204,000 square miles.
The Company operates in and targets small to mid-size markets with a
significant number of LOS households that are unpassed by traditional hard-wire
cable. The Company estimates that approximately 25% of its LOS households are
unpassed by traditional hard-wire cable. By comparison, in the 20 largest hard-
wire cable markets in the United States, only approximately 2% of all
households are unpassed by traditional hard-wire cable. Many of the households
in the Company's Markets (as defined), particularly in rural areas, have
limited access to local off-air VHF/UHF programming from ABC, NBC, CBS and Fox
affiliates, and typically do not have access to subscription television service
except via satellite television operators, whose equipment and subscription
fees generally are more costly than those of wireless cable, and which are
unable to retransmit local off-air channels. In many of the Company's rural
Markets, the Company believes a significant number of households passed by
cable are served by local cable operators with lower quality service and
limited reception and channel lineups. As a result, the Company believes that
its wireless cable television service is an attractive alternative to existing
television choices for both passed and unpassed households.
The Company's markets include (i) 24 markets in which the Company has systems
in operation (the "Operating Systems"), (ii) 9 markets in which the Company's
systems are currently under construction and in which the Company expects to
begin operations by the end of November 1996 (the "Systems Under
Construction"), (iii) 17 markets in which the Company believes that it has
obtained sufficient wireless cable channel rights to launch commercially viable
systems (the "Near-Term Launch Markets"), and (iv) 20 markets in which the
Company believes that it has obtained sufficient wireless cable channel rights
to launch commercially viable systems subject to the receipt of certain FCC
approvals and third party consents (the "Long-Term Launch Markets" and,
together with the Operating Systems, the Systems Under Construction, and the
Near-Term Launch Markets, the "Markets"). In addition, the Company owns a 50%
interest in a limited liability company which holds channel rights to
1
<PAGE>
serve 10 markets in North Carolina. See "Risk Factors--Need for Additional
Financing for Growth; Certain Covenants", "--Uncertainty of Ability to Obtain
FCC Authorizations" and "Use of Proceeds." During the six months ended June 30,
1996, the Company increased its aggregate number of subscribers through
internal growth and new system launches from approximately 23,725 to 40,253,
representing a 139% annualized growth rate and a penetration rate of
approximately 1.8% of the LOS households in the Operating Systems at June 30,
1996.
While none of the Company's Operating Systems currently generate operating
income or positive cash flow from operations, three of the Company's Operating
Systems, Delta and Jackson, Mississippi, and Huntsville, Alabama currently
generate positive System EBITDA (as defined in "Management's Discussion and
Analysis of Financial Condition and Results of Operations"). EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. EBITDA is not intended to
represent cash flows, as determined in accordance with generally accepted
accounting principles, nor has it been presented as an alternative to operating
income or cash flow from operations or as an indicator of operating performance
and should not be considered as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. Based on
its brief operating history, the Company believes that its Operating Systems,
which are summarized below, will generate positive System EBITDA upon the
achievement of 2,500 to 3,000 subscribers. However, there can be no assurance
that the achievement of this level of subscribers will result in a system
generating positive System EBITDA. As of June 30, 1996, the Company had 40,253
subscribers in its 24 Operating Systems.
<TABLE>
<CAPTION>
AVERAGE MONTHLY
CURRENT ESTIMATED APPROXIMATE REVENUE PER
CHANNELS TOTAL ESTIMATED LOS SUBSCRIBERS AT SUBSCRIBER FOR
OPERATING SYSTEMS DATE OF LAUNCH (1) HOUSEHOLDS(2) HOUSEHOLDS (3) JUNE 30, 1996 JUNE 1996
----------------- -------------- -------- ------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Brenham, TX............. February 1996 20 39,500 32,100 857 $33.69
Bryan/College Station,
TX..................... May 1995 32 102,700 65,600 2,899 33.66
Milano, TX(4)........... October 1995 20 40,900 36,800 1,659 32.34
Wharton, TX............. June 1994 21 102,300 92,000 2,114 34.28
Bunkie, LA.............. December 1995 20 94,700 81,600 1,498 33.17
Lafayette, LA(5)........ January 1994 11 180,300 153,200 697 23.15
Lake Charles, LA........ April 1994 17 111,600 92,500 555 30.66
Monroe, LA(4)........... October 1995 23 114,100 89,600 1,806 30.64
Jackson, MS............. June 1994 29 211,500 176,900 10,745 30.06
Delta, MS(6)............ July 1995 31 100,800 92,800 4,096 28.97
Gulf Coast, MS(7)....... January 1996 24 132,300 121,700 1,672 21.59
Natchez,MS.............. June 1996 20 76,500 60,000 2 --
Oxford, MS.............. June 1996 20 60,100 53,500 23 --
Bucks, AL............... April 1996 20 150,800 113,700 454 33.32
Demopolis, AL........... April 1996 28 17,500 15,600 266 20.25
Dothan, AL.............. June 1996 23 100,500 81,200 1 --
Huntsville, AL(8)....... February 1991 27 196,800 181,900 4,014 31.25
Fort Walton Beach, FL... May 1996 15 64,200 54,600 70 --
Gainesville, FL(9)...... January 1996 24 138,700 115,200 986 26.56
Panama City, FL......... September 1995 23 108,300 83,300 1,751 30.08
Pensacola, FL........... July 1995 28 217,400 157,900 2,041 35.88
Jeffersonville, GA...... March 1996 20 189,300 147,000 247 32.35
Lawrenceburg, TN(8)..... June 1995 20 76,400 44,100 397 30.08
Tullahoma, TN........... November 1995 20 109,600 73,600 1,403 31.36
--------- --------- ------
TOTAL................... 2,736,800 2,216,400 40,253
========= ========= ======
</TABLE>
- --------
(1) Includes wireless cable channels and, where applicable, local off-air
VHF/UHF channels that are not retransmitted by the Company via wireless
cable frequencies.
(2) Estimated Total Households represents the Company's estimate of the total
number of households that are within the Company's Intended Service Area.
Intended Service Area includes (i) areas that are presently served,
2
<PAGE>
(ii) areas where systems are not presently in operation but where the
Company intends to commence operations and (iii) areas where service may be
provided by signal repeaters or, in some cases, pursuant to FCC applications
in some markets.
(3) Estimated LOS Households represents the Company's estimate of the number
of households that can receive an adequate signal from the Company in its
Intended Service Area (determined by applying a discount to the Estimated
Total Households in order to account for those homes that the Company
estimates will be unable to receive service due to certain characteristics
of the particular market). The calculation of Estimated LOS Households
assumes (i) the grant of pending applications for new licenses or for
modifications of existing licenses and (ii) the grant of applications for
new licenses and license modification applications which have not yet been
filed with the FCC.
(4) Acquired from Heartland Division in October 1995 as part of the Heartland
Transaction (as defined). The Milano System was acquired by Heartland
Division in December 1994. The Monroe System was constructed in March
1993. The systems were not actively marketed until being acquired by the
Company as part of the Heartland Transaction.
(5) The Company is not actively marketing, and does not currently intend to
actively market, its service in the Lafayette Market until an increase in
the number of channels is achieved, which the Company expects to occur
within 12 months from the date hereof.
(6) Eight channels currently utilized in the Delta, Mississippi System are
operated under special temporary FCC authorization.
(7) Four channels currently utilized in the Gulf Coast System were granted by
the FCC without acting on an objection filed by a third party.
(8) The Company has entered into an acquisition agreement with respect to this
Market. There can be no assurance that the Company will consummate such
transaction. See "Risk Factors--Inability to Consummate the Pending
Acquisitions" and "Acquisitions."
(9) Ten channels currently utilized in the Gainesville, Florida System are
operated under special temporary FCC authorization.
BUSINESS STRATEGY
The Company's primary business objective is to acquire, develop, own and
operate wireless cable television systems in rural markets in which the
Company believes it can achieve positive System EBITDA upon achieving 2,500 to
3,000 subscribers. The Company intends to accomplish this business objective
through implementation of the following operating strategies.
Rural market focus. The Company obtains wireless cable channel rights and
locates operations in geographic clusters of small to mid-size markets that
have a significant number of households not currently passed by traditional
hard-wire cable. The Company believes that such markets have less competition
from alternative forms of entertainment and are characterized by a relatively
high number of "value conscious" consumers, and that its low-priced service is
the most economical subscription television alternative for many of these
consumers. Further, the Company believes that its Markets typically have a
stable base of subscribers which have allowed it to maintain an average churn
rate below 2.5% per month for the six months ended June 30, 1996, as compared
to a churn rate of approximately 3% per month typically experienced by
traditional hard-wire cable operators, resulting in reduced installation and
marketing expenses.
Contiguous geographic cluster. The Company believes that through its large
contiguous geographic cluster it is able to achieve significant cost savings
through centralization of operations. The Company further believes that its
contiguous cluster simplifies its market launch program by facilitating the
movement of skilled personnel from one launch market to another. The Company
also believes that a contiguous cluster is more attractive to regional
advertisers and offers greater opportunities for telecommunications and other
sources of revenue.
Low cost structure. Wireless cable systems typically cost significantly less
to build and operate than traditional hard-wire cable systems because, unlike
traditional hard-wire cable systems, they do not require an extensive network
of coaxial or fiber optic cable, amplifiers and related equipment (the "Cable
Plant") for the transmission of programming. Once the Company constructs a
headend for a system, the Company estimates that each additional subscriber
requires a capital expenditure of approximately $375 to $475, consisting of,
on average, $240 to $340 of equipment and $135 of installation labor and
overhead charges. The Company also believes that its cost structure compares
3
<PAGE>
favorably with that of direct broadcast satellite ("DBS") operators, which must
incur (i) the fixed cost of a satellite and (ii) the variable cost of
subscriber receive site equipment, that is typically twice the cost of the
Company's receive site equipment.
Focused operating strategy. The Company attempts to manage subscriber growth
in order to make the most efficient use of its assets, assure customer
satisfaction and minimize churn. Within a Market, the Company initially targets
selected geographic sub-markets characterized by a significant number of
households that are unpassed by cable or are served by smaller independent
hard-wire cable operators and focuses marketing on such sub-markets so that
subscribers generally wait no more than ten days from initial inquiry to
commencement of service. The Company seeks to maintain high levels of customer
satisfaction in installation, maintenance and customer service and to minimize
churn by charging up-front installation fees and performing credit checks on
potential subscribers.
Experienced management team. The Company intends to capitalize on its
experienced management to implement its business strategy. The Company's top
four senior managers have an average of 12 years of senior management
experience in both hard-wire and wireless cable systems.
OWNERSHIP
Principal shareholders of the Company include (i) affiliates of The Chase
Manhattan Corporation ("Chase"), (ii) Heartland Wireless Communications, Inc.
("Heartland") and (iii) Mississippi Wireless T.V., L.P. ("MWTV"). Chase
Manhattan Capital Corporation ("CMCC"), an indirect subsidiary of Chase,
presently owns approximately 10.7% of the Company's common stock, $.01 par
value (the "Common Stock") on a fully diluted basis. Chase Venture Capital
Associates, L.P. ("CVCA"), an affiliate of CMCC by virtue of the merger of
Chase with and into Chemical Banking Corporation, which was renamed The Chase
Manhattan Corporation, owns 8.5% of the Company's Common Stock on a fully
diluted basis. In addition, Chase Capital Partners ("CCP"), which is the
general partner of CVCA, has voting discretion with respect to the 2.1% of the
Common Stock of the Company on a fully diluted basis owned by Baseball
Partners. In total, affiliates of Chase own 21.3% of the outstanding Common
Stock on a fully diluted basis.
Also as a result of the TruVision Transaction, by virtue of its previous
investment in TruVision, MWTV owns approximately 10.5% of the Company's Common
Stock on a fully diluted basis. Wireless TV, Inc. ("WTV"), a corporation
controlled by Henry Burkhalter, a Director of the Company who became the
Company's President and Vice Chairman upon the consummation of the TruVision
Transaction on , 1996, is the general partner of MWTV. In addition,
Heartland presently owns approximately 18.1% of the Company's Common Stock on a
fully diluted basis as a result of the transaction in October 1995 in which the
Company acquired the wireless cable assets and all related liabilities of
Heartland with respect to certain of Heartland's markets in exchange for
approximately 3.5 million shares of the Company's Common Stock (the "Heartland
Transaction"). By virtue of the Company's initial public offering of Common
Stock in October 1995, the public owns approximately 18.6% of the Company's
Common Stock on a fully diluted basis.
RECENT DEVELOPMENTS
TruVision Transaction. On April 25, 1996, the Company entered into the
TruVision Transaction. Under the terms of the transaction, which was
consummated on , 1996, a subsidiary of the Company exchanged approximately
3.4 million shares of the Company's Common Stock for all of TruVision's
outstanding shares and merged with and into TruVision, upon which time
TruVision became a wholly-owned subsidiary of the Company. The TruVision
Transaction and certain acquisitions described below have added and will add 21
Markets representing approximately 1.9
4
<PAGE>
million LOS households to the Company's portfolio of wireless cable markets.
See "Acquisitions" and "The TruVision Transaction." Of these Markets, eight are
currently in operation with 21,215 subscribers as of June 30, 1996.
BTA Auction. The Company and TruVision participated in an auction (the "BTA
Auction") conducted by the Federal Communications Commission ("FCC") for the
right to apply for available Multipoint Distribution Services ("MDS")
commercial channels in certain designated Basic Trading Areas ("BTAs"). Winning
bidders for any of the BTA authorizations received the exclusive right to apply
for additional MDS channels in such BTAs, subject to compliance with the FCC's
interference standards and other rules. The Company and TruVision were the
winning bidders for FCC authorizations in 66 BTA markets (the "BTA Markets")
and such authorizations, which primarily increase the number of expected
channels in the Company's Markets upon FCC approval, are reflected in the
information set forth in this Prospectus. Subsequent to the BTA Auction and
consistent with FCC rules, the Company filed applications for authorizations in
each BTA Market. There can be no assurance that the FCC will approve these
applications. See "Risk Factors--Uncertainty of Ability to Obtain FCC
Authorizations." The Company's winning bids in the BTA Auction aggregated
approximately $30.3 million (net of a small business bidding credit), 80% of
which will be financed through indebtedness provided to the Company by the
United States government. See "Description of Certain Indebtedness--
Indebtedness to U.S. Government" and "Wireless Cable Industry--Regulatory
Environment--Licensing Procedures."
Applied Video Acquisition. On May 15, 1996, the Company acquired 100% of the
stock of Applied Video Technologies (the "Applied Video Acquisition") for a
total purchase price of approximately $6.5 million in cash. The Applied Video
Acquisition added wireless cable rights covering one Operating System (Dothan,
Alabama), one System Under Construction (Albany, Georgia) and one Near-Term
Launch Market (Montgomery, Alabama). These three Markets cover approximately
263,100 LOS households.
For a description of certain pending and recently completed acquisitions, see
"Acquisitions."
On , 1996, the Company received the consent of the holders of its 13%
Senior Notes due 2003 to amend the indenture relating thereto to permit the
consummation of the TruVision Transaction and certain other amendments.
THE FINANCING PLAN
The net proceeds from this Offering (after deduction of discounts,
commissions and estimated expenses of the Offering payable by the Company) are
expected to be approximately $118.6 million. The Company currently intends to
apply the proceeds of the Offering to repay $18.0 million of indebtedness of
TruVision and finance the launch and initial development of the Markets with
the $100.6 million of remaining net proceeds. The Company will require
additional financing to finance the launch and initial development of all of
the Markets described in this Prospectus and to continue to add subscribers to
the Markets in accordance with its current business plan. The Company may elect
to invest its capital in building subscriber levels in certain Markets prior to
investing capital in the launch of systems in each of the Markets described in
this Prospectus. The Company reserves the right to reallocate the net proceeds
to different business purposes, as permitted by the Indentures (as defined) as
opportunities arise and business conditions change. See "Use of Proceeds",
"Description of Notes--Certain Covenants--Activities of the Company" and "--
Limitation on Restricted Payments."
The Company's executive offices are located at 11301 Industriplex Boulevard,
Suite 4, Baton Rouge, Louisiana 70809-4115, and its telephone number at such
address is (504) 293-5000.
5
<PAGE>
THE OFFERING
$ aggregate principal amount of % Senior
Securities Offered.............. Discount Notes due 2006.
Use of Proceeds................. The net proceeds to the Company from the
Offering will be approximately $118.6
million. The Company intends to use the net
proceeds to repay $18.0 million of
indebtedness of TruVision, and, to the extent
not used for the foregoing purpose, to
finance the launch and initial development of
the Company's Markets, working capital and
other general corporate purposes.
, 2006.
Maturity Date...................
Principal Amount at Maturity.... $
Interest Rate and Payment
Dates........................... The Notes will accrete in value until August
1, 2001 at a rate of % per annum, compounded
semi-annually. Cash interest will not accrue
on the Notes prior to August 1, 2001.
Thereafter, interest on the Notes will accrue
at a rate of % per annum and will be payable
in cash semi-annually on and of
each year, commencing , 2002.
Optional Redemption............. The Notes will be redeemable at the option of
the Company, in whole or in part, at any time
on or after , 2001 at the redemption
prices set forth herein, together with
accrued and unpaid interest, if any, to the
date of redemption.
In addition, at any time or from time to time
prior to , 1999, up to 30% of the
aggregate principal amount originally issued
of the Notes will be redeemable at the option
of the Company with the Net Cash Proceeds (as
defined) from a sale to a Strategic Investor
of the Company's Capital Stock (other than
Redeemable Capital Stock (as defined)) or
Qualified Subordinated Indebtedness in a
single transaction or a series of related
transactions for an aggregate purchase price
equal to or exceeding $25 million at a
redemption price equal to % of the Accreted
Value of the Notes to the date of redemption
of the Notes; provided, that after giving
effect to any such redemption, at least 70%
of the aggregate principal amount of the
Notes originally issued remains outstanding
thereafter.
Change of Control............... Upon the occurrence of a Change of Control,
each holder of Notes will have the option to
require the Company to repurchase all or a
portion of such holder's Notes at 101% of the
Accreted Value thereof, or, in the
6
<PAGE>
case of any such purchase on or after August
1, 2001, at 101% of the principal amount
thereof, plus accrued and unpaid interest, if
any, to the purchase date. However, certain
highly leveraged transactions may not be
deemed to be a Change of Control.
Additionally, there can be no assurance that
the Company will have the financial resources
necessary to repurchase the Notes upon a
Change of Control. See "Description of
Notes--Certain Covenants--Purchase of Notes
Upon a Change of Control."
Ranking.........................
The 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. However subject to certain
limitations, which may not limit the
Company's ability to engage in certain highly
leveraged transactions, set forth in the
Indenture, between the Company and United
States Trust Company of New York dated
, 1996 (the "Indenture"), the Company and
its Subsidiaries may incur other senior
Indebtedness, including Indebtedness that is
secured by the assets of the Company and its
Subsidiaries. In addition, the Company is a
holding company that conducts substantially
all of its business operations through its
Subsidiaries, and, therefore, the Notes will
be effectively subordinated to all existing
and future Indebtedness and other liabilities
and commitments of such Subsidiaries,
including trade payables. As of March 31,
1996, after giving effect to the Pro Forma
Events and the Offering, the Company would
have had $300.1 million of Indebtedness. The
outstanding Indebtedness and trade payables
of the Company's Subsidiaries as of March 31,
1996 (on a pro forma basis giving effect to
the Pro Forma Events), would have been
approximately $17.4 million. See "Description
of Notes."
Certain Covenants...............
The Indenture will contain certain covenants,
including limitations on the incurrence of
Indebtedness, the making of restricted
payments, transactions with affiliates, sale
and leaseback transactions, the existence and
creation of liens, the disposition of
proceeds of asset sales, the making of
guarantees and pledges by Restricted
Subsidiaries, transfers and issuances of
stock of Subsidiaries, issuance of preferred
stock by Restricted Subsidiaries, the
imposition of certain payment restrictions on
Restricted Subsidiaries, investments in
Unrestricted Subsidiaries, the conduct of the
Company's business and certain mergers,
consolidations and sales of assets. See
"Description of Notes--Certain Covenants."
7
<PAGE>
Original Issue Discount.........
The Notes will be issued with original issue
discount for Federal income tax purposes.
Thus, although cash interest will not accrue
on the Notes prior to August 1, 2001 and
there will be no periodic payments of
interest on the Notes prior to , 2002,
original issue discount (that is, the
difference between the stated redemption
price at maturity and the issue price of the
Notes) will accrue from the issue date of a
Note to August 1, 2001 and will be includable
as interest income for each day during each
taxable year in which the Note is held by a
holder in such holder's gross income for
Federal income tax purposes in advance of
receipt of the cash payments to which the
income is attributable. See "United States
Federal Income Tax Matters."
For additional information concerning the Notes and the definitions of
certain capitalized terms used above, see "Description of Notes".
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes, including, but not limited
to, risks related to the substantial indebtedness of the Company and the
insufficiency of its earnings to cover its fixed charges; the Company's limited
operating history, its lack of profitable operations, its negative cash flow
and the early stage of the Company's development; the Company's need for
additional financing; the holding company structure of the Company and its
dependence on its subsidiaries for the repayment of the Notes; the ranking of
the Notes; the Company's need to manage its growth and successfully integrate
TruVision; the possible inability of the Company to consummate its pending
acquisitions and the uncertainty of the Company's ability to obtain certain FCC
authorizations.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated historical and pro forma
financial and operating data of the Company. The summary consolidated
historical statement of operations data for the period from February 4, 1993
(inception) to December 31, 1993 and the years ended December 31, 1994 and 1995
were derived from the consolidated financial statements of the Company which
were audited by KPMG Peat Marwick LLP, independent certified public
accountants, and which are included elsewhere in this Prospectus. The summary
consolidated historical statement of operations for the three months ended
March 31, 1995 and 1996 and balance sheet data as of March 31, 1996 were
derived from the unaudited consolidated financial statements of the Company,
which are included elsewhere in this Prospectus and which, in the opinion of
management of the Company, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of such
unaudited interim periods. The statement of operations data for interim periods
are not necessarily indicative of results for subsequent periods or for the
full year.
The summary unaudited pro forma combined statement of operations data gives
effect to (each as defined) (i) the completed offerings by the Company in
October 1995 of (A) 150,000 Units consisting of $150 million aggregate
principal amount of its 13% Senior Notes due 2003 and 450,000 warrants to
purchase an equal number of shares of Common Stock and (B) 3,450,000 shares of
Common Stock (collectively, the "Old Offerings"), (ii) the Heartland
Transaction, (iii) the TruVision Transaction, (iv) the Madison Purchase, (v)
the BarTel Purchase, (vi) the Shoals Purchase and (vii) the conversion of the
TruVision convertible preferred stock into TruVision common stock, in each case
as if such transactions had occurred on January 1, 1995. The summary unaudited
pro forma combined balance sheet data gives effect to (i) the TruVision
Transaction, (ii) the Madison Purchase, (iii) the Shoals Purchase, (iv) the
conversion of the TruVision convertible preferred stock into TruVision common
stock, (v) the AWS Purchase, (vi) the Flippin Purchase, (vii) the Jacksonville
Purchase, (viii) the Chattanooga Purchase, (ix) the Gadsden Purchase, (x) the
SkyView Purchase, (xi) the Applied Video Acquisition, and (xii) the channel
rights to be purchased by the Company via the BTA Auction and the incurrence of
associated indebtedness, as if all such transactions occurred as of March 31,
1996 (collectively, the "Pro Forma Events"). In addition, each of the summary
unaudited pro forma combined statement of operations data and the summary
unaudited pro forma balance sheet data are adjusted to give effect to the
Offering as if the Offering had occured on March 31, 1996. The information
contained in this table should be read in conjunction with "Formation of the
Company", "The TruVision Transaction", "Acquisitions", "Unaudited Pro Forma
Condensed Combined Financial Information", "Selected Historical Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements (including the notes thereto)
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------ ----------------------------------------
PERIOD FROM
FEBRUARY 4,
1993
(INCEPTION) PRO FORMA PRO FORMA
TO DECEMBER COMBINED AS COMBINED AS
31, 1993 1994 1995 ADJUSTED 1995(1) 1995 1996 ADJUSTED 1996(1)
----------- ----------- ----------- ---------------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................ $ -- $ 380,077 $ 1,343,969 $ 6,387,670 $ 238,825 $ 940,777 $ 2,510,702
Total operating
expenses............... 162,199 2,489,430 7,056,724 16,944,381 830,629 4,157,500 7,429,836
Operating loss.......... (162,199) (2,109,353) (5,712,755) (10,556,711) (591,804) (3,216,723) (4,919,134)
Interest expense and
other, net............. (411) (152,460) (1,979,719) (4,184,046) (111,488) (2,863,109) (3,397,825)
Net loss................ (162,610) (2,261,813) (7,692,474) (9,772,335) (703,292) (6,079,832) (5,453,738)
Net loss applicable to
common stock........... (162,610) (2,261,813) (8,478,863) (9,772,335) (703,292) (6,079,832) (5,453,738)
OTHER DATA:
EBITDA (2).............. $(134,710) $(1,695,529) $(3,929,689) $ (5,404,662) $(392,285) $(2,252,718) $(2,821,263)
Depreciation and
amortization........... 27,489 413,824 1,783,066 5,152,049 199,519 964,005 2,097,871
Capital expenditures.... 442,977 8,116,896 16,567,472 73,256,958 674,847 11,181,673 12,852,351
Deficiency of earnings
to fixed charges (3)... 162,610 2,261,813 8,478,863 14,740,757 703,292 6,079,832 8,316,959
OPERATING DATA AT END OF PERIOD:
Number of Operating
Systems ............... -- 3 10 14 3 13 18
Estimated LOS households
in Operating Systems... -- 337,700 926,100 1,421,800 337,700 1,220,400 1,837,800
Subscribers in Operating
Systems................ -- 2,504 7,525 23,725 2,610 12,289 30,908
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------
PRO FORMA
PRO FORMA COMBINED
HISTORICAL COMBINED AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital, excluding
restricted cash............. $ 87,773,899 $ 39,435,746 $158,060,746
Restricted cash(4)........... 53,681,589 53,681,589 53,681,589
Total assets................. 213,294,099 308,350,436 423,265,542
Current portion of long-term
debt........................ 384,366 10,469,260 384,366
Long-term debt............... 150,993,259 174,706,139 299,706,139
Total stockholders' equity... 49,569,855 100,586,609 100,586,609
</TABLE>
- --------
(1) The summary pro forma combined as adjusted statement of operations data
gives effect to the issuance of the Notes and the related interest expense
only to the extent proceeds therefrom are to be used to repay $10.1 million
of TruVision indebtedness outstanding as of March 31, 1996. At the time of
the consummation of the TruVision Transaction, there was $18.0 million of
TruVision indebtedness outstanding. No pro forma interest expense has been
reflected on indebtedness incurred to acquire channel rights in the BTA
Auction. Giving full effect to (i) the issuance of the Existing Notes and
amortization of the related debt issuance costs, (ii) the issuance of the
Notes at an assumed rate of 12.5% and amortization of the related debt
issuance costs, and (iii) the incurrence of BTA Auction indebtedness as if
such indebtedness had been incurred, and the Existing Notes and the Notes
had been issued, on January 1, 1995, interest expense on a pro forma basis
would have been $40.5 million and $10.5 million, respectively, for the year
ended December 31, 1995 and for the three months ended March 31, 1996.
(2) "EBITDA" represents operating loss before depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of
a company's ability to service and/or incur indebtedness. However, EBITDA
should not be considered as an alternative to net income as a measure of
operating results or cash flows as a measure of liquidity.
(3) In calculating the deficiency of earnings to fixed charges, earnings
consist of net losses prior to income taxes and fixed charges. Fixed
charges consist of interest expense, amortization of debt issuance costs
and one-third of rental payments on operating leases (such amount having
been deemed by the Company to represent the interest portion of such
payments).
(4) Represents a portion of net proceeds realized from the issuance of the
Existing Notes sufficient to pay interest expense on the Existing Notes
through October 15, 1998, which was deposited by the Company into an escrow
account for the benefit of the holders of the Existing Notes.
10
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to other information contained in this Prospectus, regarding an
investment in the Notes offered hereby.
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY; INSUFFICIENT EARNINGS TO COVER FIXED
CHARGES
After giving effect to the Pro Forma Events and the Offering, the Company
will have approximately $300.1 million of consolidated indebtedness. The
indenture relating to the Existing Notes (the "Old Indenture") and the
Indenture (together, the Old Indenture and the Indenture are referred to as
the "Indentures") limit, but do not prohibit, the incurrence of additional
Indebtedness, secured and unsecured, by the Company and its Subsidiaries.
Subject to the restrictions set forth in the Indentures, the Company expects
that it and its Subsidiaries will incur substantial additional indebtedness in
the future. The ability of the Company to make payments of principal and
interest will be largely dependent upon its future performance. On a combined
basis, since inception the Company has sustained substantial net losses and
therefore has been unable to cover fixed charges. The Company does not
anticipate being able to generate net income until after 2001, and there can
be no assurance that other factors, such as, but not limited to, economic
conditions, inability to raise additional financing or disruption in
operations, will not result in additional time elapsing prior to the Company
generating positive net income. Losses may increase as operations in
additional Markets are commenced or acquired. See "Selected Historical
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Many factors, some of which will be
beyond the Company's control (such as prevailing economic conditions), may
affect its performance. Once the proceeds of the escrow arrangement relating
to the Existing Notes have been fully applied in October 1998, a substantial
portion of the Company's cash flow will be devoted to debt service on the
Existing Notes and on and after , 2002, will also be devoted to debt
service on the Notes. 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 at all or on terms acceptable to
the Company, that the Company will be able to refinance its existing
indebtedness or the Notes or that sufficient funds could be raised through the
sale of all or a part of the Company's business or assets. If no such
refinancing or additional financing or funds were available, the Company could
be forced to default on the Notes and, as an ultimate remedy, seek protection
under the federal bankruptcy laws. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
LIMITED OPERATING HISTORY; LACK OF PROFITABLE OPERATIONS; NEGATIVE CASH FLOW;
EARLY STAGE COMPANY
Other than the Company's limited operating history with the Operating
Systems, it has no wireless cable operations in the Markets where it intends
to operate wireless cable systems. Prospective investors, therefore, have
limited historical financial information about the Company upon which to base
an evaluation of the Company's performance and an investment in the Notes
offered hereby. Since inception, the Company has sustained substantial net
losses and negative consolidated EBITDA, due primarily to start-up costs,
interest expense and charges for depreciation and amortization arising from
the development of its wireless cable systems. After adjusting for the Pro
Forma Events, the Company's accumulated deficit as of March 31, 1996 was $16.2
million. The Company currently has only three Operating Systems which generate
positive System EBITDA. The Company expects to continue to experience negative
consolidated EBITDA through at least the third quarter of 1998, and may
continue to do so thereafter while it develops and expands its wireless cable
systems, even if additional individual systems of the Company become
profitable and generate positive System EBITDA. Prospective investors should
be aware of the difficulties encountered by enterprises in the early stages of
development, particularly in light of the intense competition characteristic
of the
11
<PAGE>
subscription television industry. There can be no assurance that realization
of the Company's business plan, including an increase in the number of
subscribers or the launch of additional wireless cable systems, will result in
profitability or positive consolidated EBITDA for the Company in future years.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business" and "Wireless Cable Industry."
NEED FOR ADDITIONAL FINANCING; CERTAIN COVENANTS
In order to finance capital expenditures and related expenses for subscriber
growth and system development, the Company will require substantial investment
on a continuing basis. The Company will need to obtain additional financing in
1998 in order to continue to complete the launch of Markets and add
subscribers in its new and existing Markets and to cover ongoing operating
losses and debt service requirements. The amount and timing of the Company's
future capital requirements will depend upon a number of factors, many of
which are not within the Company's control, including programming costs,
capital costs, marketing expenses, staffing levels, subscriber growth, churn
and competitive conditions. There can be no assurance that the Company's
future capital requirements will not increase as a result of unexpected
developments with respect to its Markets. For example, the Company's capital
costs may increase due to a need to implement digital technology in certain
Markets to meet competitive demands. There can be no assurance that the
Company's future capital requirements will be met or will not increase as a
result of future acquisitions, if any. The Indentures restrict the amount of
additional Indebtedness the Company may incur. Failure to obtain any required
additional financing could adversely affect the growth of the Company and,
ultimately, could have a material adverse effect on the Company. See "--
Substantial Indebtedness of the Company; Insufficient Earnings to Cover Fixed
Charges," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
HOLDING COMPANY STRUCTURE; DEPENDENCE OF COMPANY ON SUBSIDIARIES FOR REPAYMENT
OF NOTES
The operations of the Company are conducted principally through its direct
and indirect subsidiaries and, as a result, the Company's cash flow and,
consequently, its ability to service debt, including the 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 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 that contain limitations on the ability of such
subsidiaries to pay dividends or to make loans or advances to the Company. The
Indentures limit in certain respects the ability of the Company to create or
permit additional restrictions on dividends and other payments by its
Subsidiaries. See "Description of Notes--Certain Covenants--Limitation on
Dividends and Other Payment Restrictions Affecting Subsidiaries."
Because the Company is a holding company that conducts its business through
its direct and indirect subsidiaries, all existing and future liabilities of
the Company's subsidiaries, including trade payables, will be effectively
senior to the Notes. As of March 31, 1996, on a pro forma basis, the Company's
consolidated subsidiaries had aggregate liabilities, including trade payables,
of approximately $17.4 million.
RANKING OF NOTES
The Notes are not secured by any of the assets of the Company and are senior
unsecured obligations of the Company. Under the terms of the Indenture, the
Company and its Subsidiaries will be permitted to incur additional
indebtedness, including indebtedness secured by the assets of the Company and
its Subsidiaries. See "Description of Notes--Certain Covenants--Limitation on
12
<PAGE>
Indebtedness" and "--Limitation on Liens." 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 which constitute their
collateral. In the event of bankruptcy, liquidation or reorganization of the
Company, holders of the Notes will participate ratably with all holders of
indebtedness of the Company which is unsecured, including the Existing Notes,
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 may not be sufficient assets to pay amounts due on the
Notes.
NEED TO MANAGE GROWTH AND ABILITY TO SUCCESSFULLY INTEGRATE TRUVISION
Successful implementation of the Company's business plan will require
management of rapid growth, which will result in an increase in the level of
responsibility for management personnel. To manage its growth effectively, the
Company will be required to continue 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 to be implemented will be adequate for such
growth or that any steps taken to hire personnel or to improve such systems
and controls will be sufficient. Additionally, there can be no assurance that
the Company will be able to integrate the properties from TruVision
successfully with its existing and contemplated operations.
INABILITY TO CONSUMMATE THE PENDING ACQUISITIONS
The description of the Company included in this Prospectus assumes the
consummation of transactions related to acquisition agreements more fully
described in "Acquisitions." The consummation of each of these pending
acquisitions is subject to certain conditions the satisfaction of which, in
some cases, is beyond the Company's control, including obtaining FCC approvals
and third-party consents. In particular, consummation of the Company's
acquisition of (i) the Jackson and Lawrenceburg, Tennessee Markets, (ii) the
Auburn and Huntsville, Alabama Markets, (iii) the Jacksonville, North Carolina
Market, (iv) certain channel rights in the Valdosta and Vidalia, Georgia
Markets and (v) the Hot Springs, Arkansas Market, are conditioned upon
obtaining consents of channel lessors. Consummation of the acquisition of (i)
the Jackson and Chattanooga, Tennessee Markets and (ii) the Huntsville,
Alabama Market and (iii) the BTAs subject to the Wireless Ventures Transaction
(as defined) are contingent upon the Company being able to obtain certain
consents from the FCC and the acquisition of the Huntsville, Alabama Market is
contingent upon the Company obtaining a waiver of and exemption from FCC
regulations that prohibit operation by a single operator of both wireless and
hard-wire cable television systems in a single market. There can be no
assurance that the Company will be able to obtain such approvals and consents,
and failure to do so could have a material adverse effect on the Company's
ability to consummate the pending acquisitions or on the Company's operations
in the affected Markets. In addition, there can be no assurance that the FCC
will approve the pending applications relating to the lease rights that the
Company is acquiring in the Acquisitions, although the approval of such
applications is not a condition to completing the Acquisitions. The Offering
is not conditioned upon consummation of the pending Acquisitions and there can
be no assurance that, in the case of Valdosta and Vidalia, Georgia and certain
BTA authorizations to be acquired in the Wireless Ventures Transaction,
binding agreements will be entered into, or that in the case of purchase and
sale agreements, such transactions will be consummated. See "--Uncertainty of
Ability to Obtain FCC Authorizations."
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS
Wireless cable systems transmit programming over some or all of the 33 MDS
and instructional television fixed service ("ITFS") 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
service in its Markets. All of the channels comprising a wireless cable system
must
13
<PAGE>
operate from the same transmitter site so that subscribers may receive a clear
picture on all channels offered. In some of its Markets, the Company does not
currently have the right to operate a sufficient number of channels from the
same transmitter site, and in certain other Markets, the Company contemplates
relocating all of its channels to a new transmitter site. In these Markets,
the Company is dependent upon (i) the grant of pending applications for new
licenses or for modification of existing licenses, and (ii) the grant of
applications for new licenses and license modification applications which have
not yet been filed with the FCC. Certain pending applications cannot be
granted by the FCC until interference agreements with nearby license holders
are secured. Eight of the ITFS applications for the Gadsden Market, sixteen of
the ITFS applications for the Baton Rouge Market and twelve of the ITFS
applications for the Natchitoches Market are the subject of competing
applications. There can be no assurance that any or all of these applications
will be granted by the FCC. Although the Company does not believe that the
denial of any single application will adversely affect the Company, the denial
of several of such applications, particularly if concentrated in one or a few
of the Company's Markets, could have a material adverse effect on the ability
of the Company to serve such Market or Markets. See "Wireless Cable Industry--
Regulatory Environment--Licensing Procedures."
In certain cases, FCC approval may be dependent upon the Company's ability
to engineer its use of a wireless cable channel to avoid interference with the
reception of another channel that has been licensed or for which an
application is pending. In addition, intervening license grants and/or
auctions of MDS channels may adversely affect some of the Company's planned
applications due to interference considerations. No assurance can be given
that the Company will be able to engineer all of its channels so as to avoid
interference. See "--Interference Issues."
In addition, there is no limit on the time that may elapse between the
filing of an application with the FCC for a modification or a new license and
action thereon by the FCC. Delay by the FCC in processing applications could
delay or materially adversely affect the Company's plans with respect to one
or more of its Markets. If modification of an unbuilt station license is
anticipated, it is frequently necessary to obtain from the FCC an extension of
the period specified in the license for construction of the station. In such
case, absent FCC grant of such an extension, the license will expire. There
can be no assurance that the FCC will grant an extension in any particular
instance. In addition, FCC licenses must be renewed every ten years and, while
such renewals generally have been granted on a routine basis in the past,
there is no assurance that licenses will continue to be renewed routinely in
the future. The failure of the Company's channel lessors to renew their
respective licenses or of the FCC to grant such extensions could have a
material adverse effect on the Company.
The FCC recently concluded an auction for each of 493 BTAs. Auction winners
obtained the exclusive right to apply for all available MDS channels in such
BTAs, subject to compliance with interference standards and other rules. The
Company filed initial applications for a BTA authorization for channel rights
in each BTA Market by May 10, 1996. Such applications are not subject to
competing applications. As is the case with other MDS and ITFS applications,
in some of the BTA Markets the Company presently lacks the right to use a site
for the location of a transmission facility. In some instances, it may be
necessary for the Company to obtain the consent of other parties to the
acceptance of interference. There can be no assurance that the Company will be
able to secure a transmission site, obtain all necessary interference consents
or secure FCC approval of its applications. See "--Interference Issues."
Furthermore, even though the Company was the successful bidder in the BTA
Markets, the Company may not acquire sufficient channel rights to have a
viable system in each of those Markets. In an objection filed in June, 1996,
the Company was accused of unlawfully colluding with another bidder. Both the
Company and the other bidder have opposed the objection. The objection is
pending before the FCC. If the FCC rules against the Company, certain channel
rights obtained at the BTA Auction would be subject to administrative
sanctions including the loss of such BTA channel rights, a forfeiture of any
payments due and referral to the United States Department of Justice for
further action. Although there can be no assurance that the Company will
prevail, the Company believes that the objection is frivolous and without
merit.
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GOVERNMENT REGULATION
The wireless cable industry is extensively regulated by the FCC. The FCC
governs, among other things, the issuance, renewal, assignment and
modification of licenses necessary for wireless cable systems to operate and
the time afforded license holders to construct their facilities. The FCC
imposes fees for certain applications and licenses, and mandates that certain
amounts of educational, instructional or cultural programming be transmitted
over certain of the channels used by the Company's existing and proposed
wireless cable systems. The FCC also has the authority, in certain
circumstances, to revoke and cancel licenses and impose monetary fines for
violations of its rules. No assurance can be given that new regulations will
not be imposed or that existing regulations will not be changed in a manner
that could have a material adverse effect on the wireless cable industry as a
whole and on the Company in particular. See "Wireless Cable Industry--
Regulatory Environment." In addition, wireless cable operators and channel
license holders are subject to regulation by the Federal Aviation
Administration ("FAA") with respect to construction, marking and lighting of
transmission towers and to certain local zoning regulations affecting
construction of towers and other facilities. There also may be restrictions
imposed by local authorities, neighborhood associations and other similar
organizations limiting the use of certain types of reception equipment used by
the Company and new taxes imposed by state and local authorities. Certain
states, including Florida, have legislated that no resident of a multiple
dwelling unit ("MDU") should be denied access to programming provided by hard-
wire cable systems, notwithstanding the fact that the MDU entered into an
exclusive agreement with a non-hard-wire cable video program distributor. It
is possible that such laws will be enacted in other states in the future. In
several courts, mandatory access laws have been held unconstitutional. Such
laws could increase the competition for subscribers in MDUs. Future changes in
the foregoing regulations or any other regulations applicable to the Company
could have a material adverse effect on the Company's results of operations
and financial condition. See "Wireless Cable Industry--Regulatory
Environment--Other Regulations."
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.
Interference from other wireless cable systems can limit the ability of a
wireless cable system to serve any particular point. In licensing ITFS and MDS
stations, a primary concern of the FCC is avoiding situations where proposed
station signals are predicted to cause interference to the reception of
previously proposed station signals. The Company's business plan involves
moving the authorized transmitter sites of various of its MDS and ITFS
licensed stations and obtaining the grant of licenses for new stations that
the Company will use in its wireless cable systems. The FCC's interference
protection standards may make one or more of those proposed relocations or new
grants unavailable. In that event, it may be necessary to negotiate
interference agreements with the licensees of the stations which would
otherwise block such relocations or grants. There can be no assurance that the
Company will be able to obtain all necessary interference agreements with
terms acceptable to the Company. In the event that the Company cannot obtain
interference agreements required to implement the Company's plans for a
Market, the Company may have to curtail or modify operations in the Market,
which could have a material adverse effect on the growth of the Company. In
addition, while 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 the Company's plans for the particular Market.
COMPETITION
The subscription television industry is highly competitive. Wireless cable
systems face or may face competition from several sources, such as traditional
hard-wire cable systems, DBS systems, satellite master antenna television
("SMATV") systems, other wireless cable systems and other alternative
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methods of distributing and receiving video programming. Further, premium
movie services offered by cable television systems have encountered
significant competition from the home video cassette recorder ("VCR")
industry. In areas where several local off-air VHF/UHF broadcast channels can
be received without the benefit of subscription television, hard-wire and
wireless cable systems also have experienced competition from the availability
of broadcast signals generally and have found market penetration to be more
difficult. In addition, within each market, the Company must compete with
others to acquire, from the limited number of wireless cable channel licenses
issued or issuable, rights to a minimum number of wireless cable channels
needed to establish a commercially viable system. Legislative, regulatory and
technological developments may result in additional and significant
competition, including competition from a proposed new wireless service known
as local multipoint distribution service ("LMDS"). In some areas, exchange
telephone companies offer video programming services via radio communications
without regulation of rates or services, offer hardwire or fiber optic cable
service for hire by video programmers and provide traditional cable service
subject to local franchising requirements.
In the Operating Systems, the Company has targeted its marketing to
households that are unpassed by traditional hard-wire cable and that have
limited access to local off-air VHF/UHF programming. Certain of the hard-wire
cable companies operating in the Company's Markets currently offer a greater
number of channels to their customers than the Company offers. DBS providers
currently offer a substantially greater number of channels than hard-wire or
wireless cable providers with a high picture quality. Aggressive price
competition or the passing of a substantial number of presently unpassed
households by any existing or new subscription television service could have a
material adverse effect on the Company's results of operations and financial
condition.
New and advanced technologies for the subscription television industry, such
as DBS, LMDS, digital compression and fiber optic networks, are in operation
or are in various stages of development. As they are developed, these new
technologies could have a material adverse effect on the demand for wireless
cable services. Many actual and potential competitors have greater financial,
marketing and other resources than the Company. There can be no assurance that
the Company will be able to compete successfully with existing competitors or
new entrants in the market for subscription television services.
DEPENDENCE ON CHANNEL LEASES; NEED FOR LICENSE EXTENSIONS; LOSS OF LICENSES BY
LESSORS
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. The use of wireless
cable channels by the license holders is subject to regulation by the FCC and
the Company is dependent upon the continuing compliance by 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 Company's channel leases typically cover four ITFS channels and/or one
to four MDS channels each. Under a policy adopted by the FCC, the term of the
Company's ITFS channel leases cannot exceed ten years from the time the lessee
begins using the channel. The remaining initial terms of most of the Company's
ITFS channel leases are approximately five to ten years. There is no
restriction on the length of MDS channel leases. The Company's MDS leases are
for substantially longer terms and the Company has acquired options to
purchase a majority of the underlying MDS licenses. Most of the Company's
leases grant the Company a right of first refusal to extend the lease and/or
require the parties to negotiate lease renewals in good faith.
ITFS licenses generally are granted for a term of ten years and are subject
to renewal by the FCC. Existing MDS licenses generally will expire on May 1,
2001 unless renewed. BTA authorizations expire ten years from the grant
thereof, unless renewed. FCC licenses also specify construction deadlines
which, if not met, could result in the loss of the license. Requests for
additional time to construct a channel 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
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required. There can be no assurance that the FCC will grant any particular
extension request or license renewal request. The termination or non-renewal
of a channel lease or of a channel license, or the failure to grant an
application for an extension of the time to construct an authorized station,
would result in the Company being unable to deliver programming on the
channels authorized pursuant thereto.
TruVision contracts with Mississippi EdNet Institute, Inc. ("EdNet") for the
commercial use of 20 ITFS channels in each of its Markets in the state of
Mississippi (the "EdNet Agreement"). The term of the EdNet Agreement is 10
years from the date of issuance of certain construction permits, each of which
was granted in 1992. The Company anticipates that, pursuant to the EdNet
Agreement, the lease term will terminate on or about April 1, 2002, unless
renewed prior thereto. The commercial use of these channels represents the
majority of the Company's channels in Mississippi and the termination of, or
inability to renew, the EdNet Agreement would have a material adverse effect
on the Company's operations in its Mississippi markets. Under the EdNet
Agreement, the Company must, at its sole expense, (i) install, operate and
maintain a system sufficient to serve 95% of the population of the licensed
geographic area of Mississippi, (ii) provide, install and maintain up to 1,100
standard receive sites, up to 11 studio transmitter links, up to 11 electronic
classrooms (each at a cost of up to $20,000) and pay up to $1.5 million for 11
duplex, two-channel links, (iii) acquire and install a minimum of five 10-watt
transmitters per transmit site and (iv) apply for CARS Band microwave
authorizations for EdNet use, among other obligations. To date, the Company
has built out five of the required transmit sites, installed a studio-to-
transmitter link connecting the EdNet studio with the Company's transmit
facility in the Jackson System and has begun to install receive-site
equipment. The Company must complete and have operational such system by July
1, 1998. The Company has granted EdNet a security interest in all of its
Mississippi equipment, transmitters and rights to use certain wireless cable
channels (the "EdNet System") in order to secure the Company's performance
under the EdNet Agreement. In the event of a default by the Company under the
EdNet Agreement, EdNet will have the right to operate the EdNet System and
derive all income from its operation. If EdNet assumes the operation of the
EdNet System, the Company will be required to assign its interest in the EdNet
Agreement and the EdNet System or to forfeit its interests in such assets.
Although the Company does not believe that the termination of or failure to
renew a single channel lease, other than that with EdNet, would materially
adversely affect the Company, several of such terminations or failures to
renew in one or more Markets that the Company actively serves could have a
material adverse effect on the Company. In addition, the termination,
forfeiture, revocation or failure to renew or extend an authorization or
license held by the Company's lessors could have a material adverse effect on
the Company.
DEPENDENCE ON PROGRAM SUPPLIERS
In connection with its distribution of television programming, the Company
is dependent on fixed-term contracts with various program suppliers such as
CNN, ESPN and HBO. Although the Company has no reason to believe that any such
contracts will be canceled or will not be renewed upon expiration, if such
contracts are canceled or not renewed, the Company will have to seek program
material from other sources. There can be 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 Television Consumer Protection
and Competition Act of 1992 (the "1992 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 (a "vertically integrated cable
operator") from discriminating against cable competitors with respect to the
price, terms and conditions of the sale of programming. Only a few of the
major cable television programming services carried by the Company are not
directly or indirectly owned by a vertically integrated cable operator. The
program access provisions of the 1992 Cable Act are the subject of a legal
challenge and, if the challenged provisions
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were found to be unconstitutional or unlawful, program suppliers might raise
their prices or make their program material unavailable to the Company. See
"Wireless Cable Industry--Availability of Programming."
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY
Wireless cable is a new industry with a short operating history. Potential
investors should be aware of the difficulties and uncertainties that are
normally associated with new industries, such as lack of consumer acceptance,
difficulty in obtaining financing, increasing competition, advances in
technology and changes in laws and regulations. There can be no assurance that
the wireless cable industry will develop or continue as a viable or profitable
industry.
PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION
Wireless cable programming is transmitted via microwave frequencies from a
headend to a small receive-site antenna at each subscriber's location.
Reception of wireless cable programming generally requires a direct,
unobstructed LOS from the headend to the subscriber's receive-site 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. Consequently, the
Company may not be able to supply service to certain potential subscribers.
While the Company intends to employ low power repeaters to overcome LOS
obstructions, there can be no assurance that it will be able to secure the
necessary FCC authorizations. Based on the Company's installation and
operating experience, the Company believes that its signal can be received
directly by approximately 80% of the households within the Company's signal
pattern in the Markets served by the Operating Systems. The Company also
estimates that its signals in its other Markets will be receivable by an
average of approximately 70% of the households within the Company's expected
signal patterns for such Markets. The terrain in most of the Company's Markets
is generally conducive to wireless cable transmission. In addition to
limitations resulting from terrain, in limited circumstances extremely adverse
weather can damage transmission and receive-site antennas, as well as other
transmission equipment.
DEPENDENCE ON EXISTING MANAGEMENT
The Company is dependent in large part on the experience and knowledge of
existing management. The loss of the services of one or more of the Company's
current executive officers could have a material adverse effect upon the
Company. The Company has employment agreements with and is dependent on
certain senior managers. Such employment agreements provide, among other
things, that the executive will not compete with the Company or its
subsidiaries within a specified area during the period of employment and for
two years thereafter. See "Management--Employment Agreements." The Company has
recently added new members to its management team. See "Management--Executive
Officers and Directors." The Company believes that it will require additional
management personnel as it commences operations in new Markets. The failure of
the Company to attract and retain such personnel could have a material adverse
effect on the Company.
CHANGE OF CONTROL
In the event of a Change of Control, each holder of Notes will have the
option to require that the Company repurchase (subject to compliance with the
requirements of Rules 13e-4 and 14e-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) all or a portion of such holder's Notes
at 101% of the Accreted Value thereof, or, in the case of any such purchase on
or after August 1, 2001, at 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the purchase date. However, certain highly
leveraged transactions may not be deemed to be a Change of Control.
Additionally, there can be no assurance that the Company will have the
financial resources necessary to repurchase the Notes upon a Change of
Control. See "Description of Notes--Certain Covenants--Purchase of Notes Upon
a Change of Control."
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ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing trading market for the Notes. The Company does not
intend to apply for listing of the Notes on a securities exchange or to seek
approval for quotation through an automated quotation system. The Underwriters
have advised the Company that they currently intend to make a market in the
Notes, but they are not obligated to do so and they may discontinue such
market making at any time without notice. Accordingly, no assurance can be
given that an active trading market for the Notes will develop, or as to the
liquidity thereof. If a trading market develops for the Notes, the future
trading prices thereof will depend on many factors including, among other
things, the Company's result of operations, prevailing interest rates, the
market for securities with similar terms and the market for securities of
other companies in similar businesses.
ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a substantial discount from their principal
amount at maturity. Consequently, the purchasers of the Notes generally will
be required to include amounts in gross income for Federal income tax purposes
in advance of receipt of the cash payments to which the income is
attributable. See "United States Federal Income Tax Matters" for a more
detailed discussion of the Federal income tax consequences to the holders of
the Notes resulting from the purchase, ownership and disposition of the Notes.
If a bankruptcy case is commenced by or against the Company under Federal
bankruptcy law after the issuance of the Notes, the claim of a holder of the
Notes with respect to the principal amount thereof may be limited to an amount
equal to the sum of (i) the initial public offering price of the Notes and
(ii) that portion of the original issue discount which is not deemed to
constitute "unmatured interest" for the purposes of Federal bankruptcy law.
Any original issue discount that was not accreted as of such bankruptcy filing
would constitute "unmatured interest."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Notes, (a) incurred such indebtedness with
the intent to hinder, delay or defraud creditors, or (b)(i) received less than
reasonably equivalent value or fair consideration and (ii)(A) was insolvent at
the time of such incurrence, (B) was rendered insolvent by reason of such
incurrence (and the application of the proceeds thereof), (C) was engaged or
was about to engage in a business or transaction for which the assets
remaining with the Company constituted unreasonably small capital to carry on
its business, or (D) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature, then, in each such case,
a court of competent jurisdiction could avoid, in whole or in part, the Notes
or, in the alternative, subordinate the Notes to existing and future
indebtedness of the Company. The measure of insolvency for purposes of the
foregoing would likely vary depending upon the law applied in such case.
Generally, however, the Company would be considered insolvent if the sum of
its debts, including contingent liabilities, was greater than all of its
assets at a fair valuation, or if the present fair saleable value of its
assets was less than the amount that would be required to pay the probable
liabilities on its existing debts, including contingent liabilities, as such
debts become absolute and matured. The Company believes that, for purposes of
the United States Bankruptcy Code and state fraudulent transfer or conveyance
laws, the Notes are being issued without the intent to hinder, delay or
defraud creditors and for proper purposes and in good faith, and that the
Company will receive reasonably equivalent value or fair consideration
therefor, and that after the issuance of the Notes and the application of the
net proceeds therefrom, the Company will be solvent, will have sufficient
capital for carrying on its business and will be able to pay its debts as they
mature. However, there can be no assurance that a court passing on such issues
would agree with the determination of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
AND THE DGCL
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-laws (the "By-laws") and the Delaware
General Corporation Law (the "DGCL")
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contain provisions which may have the effect of delaying, deterring or
preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Company's Board of Directors.
Such provisions may also render the removal of directors and management more
difficult. The Company's Certificate of Incorporation and By-laws provide for,
among other things, a classified Board of Directors serving staggered terms of
three years, removal of directors only for cause and only by the affirmative
vote of the holders of a majority of the voting power of the then outstanding
voting capital stock of the Company, voting together as a single class,
exclusive authority of the Board of Directors to fill vacancies on the Board
of Directors (other than in certain limited circumstances), certain advance
notice requirements for stockholder nominations of candidates for election to
the Board of Directors and certain other stockholder proposals, restrictions
on who may call a special meeting of stockholders and a prohibition on
stockholder action by written consent. Amendments to certain provisions in the
Certificate of Incorporation require the affirmative vote of the holders of at
least 80% of the total votes eligible to be cast in the election of directors,
voting together as a single class. In addition, the Company's Board of
Directors has the ability to authorize the issuance of up to 10,000,000 shares
of preferred stock in one or more series and to fix the voting powers,
designations, preferences and relative, participating, optional and other
special rights and qualifications, limitations or restrictions thereof without
stockholder approval. The DGCL also contains provisions preventing certain
stockholders from engaging in business combinations with the Company, subject
to certain exceptions. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including
in particular, the integration of the Company's recent and pending
acquisitions into the Company's existing operations. Such statement are
subject to various risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors,
including those identified under "Risk Factors" and elsewhere in this
Prospectus.
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FORMATION OF THE COMPANY
The Company's predecessor, (together with its subsidiaries, "Old Wireless
One"), was formed on December 23, 1993 in conjunction with a merger with its
predecessor, Wireless One, L.L.C., a limited liability company. Wireless One,
L.L.C. was formed on February 4, 1993 with six members including Hans J.
Sternberg, Chairman of the Company, and William C. Norris, Senior Vice
President--System Launches and Secretary of the Company. In January 1994, Old
Wireless One completed a private placement of common stock with a group of
investors that included 12 independent telephone companies, certain of which
are based in the Company's targeted Markets, for cash commitments and other
consideration totaling approximately $10 million. Proceeds from that offering
were used primarily to construct the Lafayette, Lake Charles and Wharton
Systems and to purchase additional wireless cable channel rights.
In April 1995, certain investors including CMCC, Premier Venture Capital
Corporation ("PVCC"), affiliates of Advantage Capital Corporation ("ACC"), and
certain members of Mr. Sternberg's immediate family purchased redeemable
convertible preferred stock and warrants to acquire common stock of Old
Wireless One in a private placement resulting in net proceeds of approximately
$14 million to Old Wireless One. All such preferred shares and warrants to
purchase shares of common stock were converted into shares of Common Stock of
the Company in the Heartland Transaction (defined below). Concurrent with the
closing of that private placement, Old Wireless One purchased channel rights
from Heartland in one Texas and four Louisiana markets for approximately $2.8
million. The Company was incorporated in June 1995 for the purpose of
effecting the Heartland Transaction.
In October 1995, Heartland and all the stockholders of Old Wireless One
consummated the Heartland Transaction, whereby the Company acquired (i) all of
the outstanding capital stock of Old Wireless One (which retained all of its
assets and liabilities except its wireless cable television assets and certain
related liabilities with respect to the Springfield, Missouri market which
Heartland acquired) through the merger of a subsidiary of the Company with Old
Wireless One and (ii) the wireless cable television assets and all related
liabilities of certain subsidiaries of Heartland with respect to certain of
Heartland's markets located in Texas, Louisiana, Alabama, Georgia and Florida
(the "Heartland Division"). In connection with the Heartland Transaction, the
contributing subsidiaries of Heartland and the stockholders of Old Wireless
One received an aggregate of approximately 3.5 million and approximately 6.5
million shares of Common Stock, respectively, with an aggregate of 200,000 of
such shares of Common Stock placed in escrow to be distributed to either the
Old Wireless One stockholders or the contributing subsidiaries of Heartland,
but not to the Company.
Also in October 1995, the Company consummated an initial public offering of
3,450,000 shares of its Common Stock and a concurrent offering of 150,000
units consisting of $150 million aggregate principal amount of Existing Notes
and 450,000 warrants to purchase an equal number of shares of Common Stock.
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FORMATION OF TRUVISION
In August 1993, Vision Communications, Inc. ("VCI"), a Mississippi
corporation controlled by Henry M. Burkhalter entered into the EdNet Agreement
with EdNet. Subsequently, VCI assigned its rights under the EdNet Agreement
with respect to certain markets to MWTV. In December 1993, VanCom, Inc.
("VanCom"), a Mississippi corporation controlled by William J. Van Devender,
who became a Director of the Company upon the consummation of the TruVision
Transaction on , 1996, invested approximately $1.1 million in MWTV in
exchange for a limited partnership interest. In June 1994, MWTV commenced
commercial operation of the Jackson System (as defined). TruVision was formed
in April 1994 and, in August 1994, (i) MWTV contributed all of its assets,
including the Jackson System and other assets, to TruVision in exchange for
shares of common stock of TruVision, (ii) VCI assigned to TruVision its rights
under the EdNet Agreement with respect to certain other markets, principally
in exchange for TruVision's agreement to pay $4.5 million upon consummation of
an initial public offering by TruVision in the event development of such
markets had not commenced by the time of such offering (the "Phase II
Payment") and (iii) CVCA made an $8.0 million investment in TruVision in
exchange for shares of TruVision convertible preferred stock. The terms of the
Phase II Payment to VCI were subsequently amended in connection with the
TruVision Transaction. See "The TruVision Transaction." In October 1995, CVCA
and VanCom invested $3.0 million in cash in TruVision pursuant to a prior
commitment in exchange for additional shares of TruVision convertible
preferred stock. In February 1996, CVCA provided TruVision with an interim
financing facility of up to $12.0 million (the "Interim Facility").
THE TRUVISION TRANSACTION
TruVision acquires, develops, owns and operates wireless cable television
systems within the southeastern United States. TruVision (i) operates wireless
cable systems in six Markets located in Jackson, Mississippi, Delta, Natchez,
Oxford and the Gulf Coast regions of Mississippi and Demopolis, Alabama,
(ii) holds wireless cable channel rights for other areas of Mississippi, for
Memphis and Flippin, Tennessee and for Gadsden and Tuscaloosa, Alabama and
(iii) has acquisition transactions pending in a number of additional Markets
including Jackson and Lawrenceburg, Tennessee; Huntsville, Alabama; Hot
Springs, Arkansas; and Jacksonville, North Carolina.
On April 25, 1996, pursuant to an Agreement and Plan of Merger among the
Company, TruVision and Wireless One MergerSub, Inc. (the "TruVision Merger
Agreement"), the Company agreed to acquire all of the outstanding capital
stock of TruVision through the merger of a subsidiary of the Company with and
into TruVision, with TruVision becoming a wholly-owned subsidiary of the
Company. Upon consummation of the TruVision Transaction on , 1996, the
Company issued to the then TruVision shareholders 3,553,333 shares of Common
Stock, subject to certain adjustments and escrow arrangements relating to
TruVision's ownership of certain assets and the closing of TruVision's pending
acquisition transactions. See "Acquisitions". Shares of Common Stock placed in
escrow and not distributed to the then TruVision shareholders will be returned
to the Company.
In connection with the consummation of the TruVision Transaction, the
Company issued to VCI 180,000 shares of Common Stock, and paid to VCI $1.8
million in cash, in each case in satisfaction of the Phase II Payment. Upon
the consummation of the TruVision Transaction, the Company entered into
employment agreements with Mr. Burkhalter and Bill R. Byer, Jr., the former
Executive Vice President and Chief Operating Officer of TruVision who became
Executive Vice President--Operations of the Company. In addition, upon the
consummation of the TruVision Transaction, the Company assumed the non-
qualified stock options issued by TruVision. As assumed by the Company, such
options covered the following number of shares of Common Stock at the weighted
average exercise prices indicated: Mr. Burkhalter--78,105 shares of Common
Stock, $6.82 per share; Mr. Byer--62,411 shares of Common Stock, $6.82 per
share; all other persons--36,467 shares of Common Stock, $6.82 per share. All
such options are fully vested. The then shareholders of TruVision, the persons
who received such options, and VCI are collectively referred to as the
"TruVision Stockholders."
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ACQUISITIONS
TruVision has entered into several definitive agreements with holders of
wireless cable channel rights to expand the Company's markets in the
southeastern United States from Mississippi to western Tennessee and portions
of Alabama and Arkansas. The agreements relating to the Acquisitions include
(i) a purchase and sale agreement with Madison Communications, Inc. and
Beasley Communications, Inc. to acquire a wireless cable system and a hard-
wire cable system currently operating in the Huntsville, Alabama Market (the
"Madison Purchase") for approximately $3.0 million in cash plus a $3.0 million
five-year promissory note, (ii) a purchase and sale agreement with SkyView
Wireless Cable, Inc. to acquire rights to 22 wireless cable channels and a
substantially completed transmission facility in the Jackson, Tennessee Market
for approximately $2.7 million in cash and to acquire rights to 20 wireless
cable channels in the Hot Springs, Arkansas Market for approximately $1.5
million in cash (the "SkyView Purchase"), (iii) a purchase and sale agreement
with Arden Cable, Ltd. ("Arden") to acquire rights to 16 wireless cable
channels in the Jacksonville, North Carolina Market for approximately $820,000
in cash (the "Jacksonville Purchase"), (iv) a purchase and sale agreement with
Arden to acquire rights to 12 wireless cable channels in the Chattanooga,
Tennessee Market for $517,000 in cash (the "Chattanooga Purchase") and (v) a
purchase and sale agreement with Shoals Wireless, Inc. ("Shoals") to acquire
all of the outstanding shares of Shoals, whose principal asset is a wireless
cable system in the Lawrenceburg, Tennessee Market, for approximately $1.2
million in cash and a note (the "Shoals Purchase").
In addition, TruVision recently consummated the acquisition of (i) rights to
20 wireless cable channels in the Gadsden, Alabama Market for aggregate
consideration of approximately $950,000 in cash (the "Gadsden Purchase"),
which acquisition closed on July 10, 1996, (ii) rights to wireless cable
channels and equipment in the Memphis, Tennessee Market for aggregate
consideration of $3.9 million in cash (the "AWS Purchase"), which acquisition
closed on May 6, 1996, (iii) the acquisition of wireless cable channels and
certain other related assets in the Flippin, Tennessee Market, for aggregate
consideration of $1.5 million in cash (the "Flippin Purchase"), which
acquisition closed on May 6, 1996 and (iv) all the outstanding shares of
BarTel, Inc., ("BarTel") which held rights to wireless cable channels in the
Demopolis, Alabama and Tuscaloosa, Alabama Markets for aggregate consideration
of $1.7 million in cash and a $652,000 five-year 8% per annum promissory note
(the "BarTel Purchase"), which acquisition closed on February 20, 1996.
The Company has entered into several agreements with holders of wireless
cable channel rights, including (i) a letter of intent with Wireless Ventures,
L.L.C. ("Wireless Ventures") to acquire a fifty percent interest in Wireless
Ventures, which holds BTA authorizations in certain markets in Georgia for
approximately $1.0 million in cash ("Wireless Ventures Transaction") and (ii)
a letter of intent with a court appointed receiver to acquire rights to 11 MDS
channels and filings for 20 ITFS licenses and related transmission tower
leases and approvals in Auburn/Opelika, Alabama for $0.6 million. In addition,
the Company has consummated the acquisition of (i) rights to 11 wireless cable
channels in the Macon, Georgia Market for aggregate consideration of
approximately $0.6 million and (ii) rights to eight wireless cable channels in
the Bowling Green, Kentucky Market for aggregate consideration of $0.3
million.
There can be no assurance that the pending transactions described above will
be completed, or when such transactions will be completed. See "Risk Factors--
Inability to Consummate Pending Acquisitions."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering will be approximately
$118.6 million after deducting discounts and commissions and estimated
expenses of the Offering payable by the Company. The Company currently intends
to use the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Repayment of Interim Facility(1)................................ $ 12.0
Repayment of amounts outstanding under the Revolving Credit Fa-
cility(2)...................................................... 6.0
Finance launch, initial development and expansion of Markets.... 100.6
------
Total......................................................... $118.6
======
</TABLE>
- --------
(1) In February 1996, CVCA provided the Interim Facility in order to fund
certain operating and acquisition costs. Such borrowing is payable by the
Company on demand after June 30, 1996 for the principal sum thereof, plus
accrued and unpaid interest thereon at the rate of 10% per annum. See
"Formation of TruVision," "Certain Transactions" and "Underwriting." The
Company used the borrowings under the Interim Facility to (i) pay a
$350,000 deposit in connection with the acquisition of the Huntsville
System, (ii) pay the $1.7 million cash portion of the purchase price for
the Demopolis and Tuscaloosa Systems, (iii) pay a deposit made in
connection with the BTA Auction and (iv) finance the launch and additional
development of Markets.
(2) On June 11, 1996, the Company entered into the revolving credit facility
with Deposit Guaranty National Bank ("DGNB") in the amount of $6.0 million
(the "Revolving Credit Facility"). The Revolving Credit Facility bears
interest at the DGNB prime floating rate and matured on the consummation
of the TruVision Transaction. The Revolving Credit Facility was cancelled
upon repayment.
The Company expects that under its current plans it will have capital
expenditures of $45.1 million for the last three quarters of 1996 for
subscriber additions, system construction, development, launch, installation
labor and expansion activities. The Company expects to incur $99.5 million and
$96.7 million of capital expenditures in 1997 and 1998, respectively, in
connection with subscriber additions, system construction, development, launch
and expansion activities, including the launch of 20 to 24 additional systems
in 1997 and the remaining 9 to 13 systems in 1998.
The Company will need to obtain additional financing to begin operations in
all the Markets and continue to add subscribers to its new and existing
Markets. The Company may elect to invest its capital in building subscriber
levels in certain Markets prior to investing capital in the launch of systems
in each of the Markets described in the Prospectus. The Company reserves the
right to reallocate the net proceeds to different business purposes, as
permitted by the Indenture, as opportunities arise and business conditions
change. There can be no assurance that the Company will obtain the required
additional financing to complete its current business plan or that its future
capital requirements will not increase as the result of future acquisitions,
if any.
24
<PAGE>
CAPITALIZATION
The following table sets forth (i) the cash and the historical
capitalization of the Company at March 31, 1996, (ii) the pro forma combined
cash and capitalization of the Company at March 31, 1996 and (iii) the pro
forma combined cash and capitalization of the Company at March 31, 1996 as
adjusted to give effect to the Offering. This table should be read in
conjunction with the financial statements of the Company, the Heartland
Division, TruVision, Madison Communications, Inc., Beasley Communications,
Inc. and BarTel (including the notes thereto) appearing elsewhere in this
Prospectus. See "Unaudited Pro Forma Condensed Combined Financial Information"
and "Index to Financial Statements."
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------
PRO FORMA
PRO FORMA COMBINED
HISTORICAL COMBINED AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents, excluding
restricted cash.................... $ 98,964,157 $ 63,627,348 $172,167,454
Restricted cash(1).................. 53,681,589 53,681,589 53,681,589
------------ ------------ ------------
Total cash and cash equivalents... $152,645,746 $117,308,937 $225,849,043
============ ============ ============
Short-term debt..................... $ 384,366 $ 10,469,260 $ 384,366
------------ ------------ ------------
Long-term debt:
Notes offered hereby................ -- -- 125,000,000
Existing Notes(2)................... 148,207,847 148,207,847 148,207,847
Other(3)............................ 2,785,412 26,498,292 26,498,292
------------ ------------ ------------
Total long-term debt.............. 150,993,259 174,706,139 299,706,139
------------ ------------ ------------
Common stock, $.01 par value;
50,000,000 shares authorized;
13,498,752 issued and outstanding on
a
historical basis................... 134,988 -- --
17,052,085 issued and outstanding
pro forma as adjusted.............. -- 170,521 170,521
Additional paid-in capital.......... 65,631,596 116,612,817 116,612,817
Accumulated deficit................. (16,196,729) (16,196,729) (16,196,729)
------------ ------------ ------------
Total stockholders' equity........ 49,569,855 100,586,609 100,586,609
------------ ------------ ------------
Total capitalization............. $200,947,480 $285,762,008 $400,677,114
============ ============ ============
</TABLE>
- --------
(1) Represents a portion of the net proceeds realized from the sale of the
Existing Notes that was placed in escrow to pay interest on the Existing
Notes through October 1998.
(2) Net of unamortized discount.
(3) On a pro forma basis, includes $23,712,880 of BTA Auction indebtedness to
the U.S. government.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
consists of an Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1996 and Unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1995 and the three months ended
March 31, 1996 (collectively, the "Pro Forma Statements"). The Unaudited Pro
Forma Condensed Combined Statements of Operations give effect to (i) the Old
Offerings and the Heartland Transaction, (ii) the TruVision Transaction, (iii)
the Madison Purchase, (iv) the BarTel Purchase, (v) the Shoals Purchase and
(vi) the conversion of the TruVision convertible preferred stock into
TruVision common stock, in each case as if such transactions had occurred on
January 1, 1995. The Unaudited Pro Forma Condensed Combined Balance Sheet
gives effect to (i) the TruVision Transaction, (ii) the Madison Purchase,
(iii) the Shoals Purchase, (iv) the conversion of the TruVision convertible
preferred stock into TruVision common stock, (v) the AWS Purchase, (vi) the
Flippin Purchase, (vii) the Jacksonville Purchase, (viii) the Chattanooga
Purchase, (ix) the Gadsden Purchase, (x) the SkyView Purchase, (xi) the
Applied Video Acquisition, and (xii) the channel rights to be purchased by the
Company via the BTA Auction and the incurrence of associated indebtedness. All
transactions are accounted for under the purchase method of accounting.
The Unaudited Pro Forma Condensed Combined Statements of Operations give
effect to the issuance of the Notes to the extent proceeds therefrom are to be
used to repay $10.1 million of TruVision indebtedness outstanding on March 31,
1996. At the time of the consummation of the TruVision Transaction, there was
$18.0 million of TruVision indebtedness. No pro forma interest expense has
been reflected on indebtedness incurred to acquire channel rights in the BTA
Auction. Giving full effect to (i) the issuance of the Existing Notes and
amortization of the related debt issuance costs, (ii) the issuance of the
Notes at an assumed rate of 12.5% and amortization of the related debt
issuance costs, and (iii) the incurrence of BTA Auction indebtedness as if
such indebtedness had been incurred, and the Existing Notes and Notes had been
issued, on January 1, 1995, interest expense on a pro forma basis would have
been $40.5 million and $10.5 million, respectively, for the year ended
December 31, 1995 and for the three months ended March 31, 1996.
The Pro Forma Statements and accompanying notes should be read in
conjunction with the Company's consolidated financial statements, Heartland
Division's financial statements, TruVision's financial statements, Madison
Communications, Inc. and Beasley Communications, Inc.'s combined financial
statements and BarTel, Inc.'s financial statements, in each case, including
the notes thereto, appearing elsewhere in this Prospectus. The Pro Forma
Statements do not purport to represent what the Company's results of
operations or financial position would actually have been if the
aforementioned transactions or events occurred on the dates specified or to
project the Company's results of operations or financial position for any
future periods or at any future date. The pro forma adjustments are based upon
available information and certain adjustments that the Company believes are
reasonable. In the opinion of the Company, all adjustments have been made that
are necessary to present fairly the Pro Forma Statements.
26
<PAGE>
WIRELESS ONE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
ACQUISITIONS,
TRUVISION LICENSE AND
WIRELESS ONE TRUVISION MADISON SHOALS PRO FORMA CHANNEL RIGHTS PRO FORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PURCHASES COMBINED
------------ ----------- ---------- ---------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 98,964,157 $ 536,411 $ 63,946 $ -- $(6,495,000)(1) $(29,378,220)(3) $ 63,627,348
(63,946)(4)
Marketable
investment
securities-
restricted 17,735,150 -- -- -- -- -- 17,735,150
Other current
assets 1,540,727 380,577 6,818 630 -- 32,000 (5) 1,960,752
------------ ----------- ---------- -------- ----------- ------------ ------------
Total current
assets 118,240,034 916,988 70,764 630 (6,495,000) (29,410,166) 83,323,250
Property and
equipment, net 22,912,095 11,862,038 1,147,827 390,000 580,000 (5) 36,891,960
Intangibles 28,491,658 2,447,387 65,000 21,107 35,853,096 (1) 68,268,443 (5) 142,052,025
6,905,334 (2)
Marketable
investment
securities -
restricted 35,946,439 -- -- -- -- -- 35,946,439
Other assets 7,703,873 4,525,240 1,835 -- (744,186)(1) (1,350,000)(6) 10,136,762
------------ ----------- ---------- -------- ----------- ------------ ------------
Total assets $213,294,099 $19,751,653 $1,285,426 $411,737 $35,519,244 $ 38,088,277 $308,350,436
============ =========== ========== ======== =========== ============ ============
Current
liabilities:
Short-term debt $ 384,366 $10,084,894 $ 100,000 $ -- $ -- $ (100,000)(4) $ 10,469,260
Other current
liabilities 12,346,619 3,336,475 345,245 53,028 -- (398,273)(4) 15,683,094
------------ ----------- ---------- -------- ----------- ------------ ------------
Total current
liabilities 12,730,985 13,421,369 445,245 53,028 -- (498,273) 26,152,354
Deferred income
taxes -- -- -- -- 6,905,334 (2) -- 6,905,334
Long-term debt 150,993,259 -- -- 432,089 (432,089)(4) 174,706,139
23,712,880 (6)
Stockholders'
equity:
Preferred stock -- 11,000 -- -- (11,000)(1) -- --
Common stock 134,988 24,000 1,000 300 24,053 (1) 11,480 (7) 170,521
(24,000)(1) (1,300)(7)
Additional
paid-in capital 65,631,596 10,698,679 2,475,192 17,604 33,650,049 (1) 16,061,080 (7) 116,612,817
(10,698,679)(1) (2,492,796)(7)
1,270,092 (1)
Accumulated
deficit (16,196,729) (4,403,395) (1,636,011) (91,284) 4,403,395 (1) 1,727,295 (7) (16,196,729)
------------ ----------- ---------- -------- ----------- ------------ ------------
Total
stockholders'
equity 49,569,855 6,330,284 840,181 (73,380) 28,613,910 15,305,759 100,586,609
------------ ----------- ---------- -------- ----------- ------------ ------------
Total
liabilities and
stockholders'
equity $213,294,099 $19,751,653 $1,285,426 $411,737 $35,519,244 $ 38,088,277 $308,350,436
============ =========== ========== ======== =========== ============ ============
<CAPTION>
PRO FORMA
OFFERING COMBINED
ADJUSTMENTS AS ADJUSTED
---------------- -------------
<S> <C> <C>
Current assets:
Cash and cash
equivalents $118,625,000 $172,167,454
(10,084,894)(8)
Marketable
investment
securities-
restricted -- 17,735,150
Other current
assets -- 1,960,752
---------------- -------------
Total current
assets 108,540,106 191,863,356
Property and
equipment, net -- 36,891,960
Intangibles -- 142,052,025
Marketable
investment
securities -
restricted -- 35,946,439
Other assets 6,375,000 (8) 16,511,762
---------------- -------------
Total assets $114,915,106 $423,265,542
================ =============
Current
liabilities:
Short-term debt $(10,084,894)(8) $ 384,366
Other current
liabilities -- 15,683,094
---------------- -------------
Total current
liabilities (10,084,894)(8) 16,067,460
Deferred income
taxes 6,905,334
Long-term debt 125,000,000 (8) 299,706,139
Stockholders'
equity:
Preferred stock -- --
Common stock -- 170,521
Additional
paid-in capital -- 116,612,817
Accumulated
deficit -- (16,196,729)
---------------- -------------
Total
stockholders'
equity -- 100,586,609
---------------- -------------
Total
liabilities and
stockholders'
equity $114,915,106 $423,265,542
================ =============
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) Represents the elimination of TruVision's historical equity and the
issuance of 2,405,293 shares (excludes the 1,148,040 shares of Common
Stock described in Note 7 below) of Common Stock, at $14 per share, by the
Company for the purchase of all outstanding common stock of TruVision,
including the payment of $1,800,000 to VCI and other expenses related to
the merger including but not limited to bond holder consent fees with
respect to certain amendments to the Old Indenture. The Company will issue
options to certain TruVision employees in exchange for the TruVision
options as set forth in the TruVision Merger Agreement. A value of
$1,270,092 has been assigned to these options. For purposes of the Pro
Forma Statements the Company has tentatively considered the fair value of
the acquired tangible assets to approximate their historical carrying
value, with the excess acquisition costs being attributable to channel
rights and license agreements. It is the Company's intention, subsequent
to the acquisition, to more fully evaluate the acquired assets and, as a
result, the allocation of the acquisition costs among tangible and
intangible assets acquired may change.
(2) Reflects the recognition of deferred income taxes at an estimated 35%
effective tax rate on the excess of book value over tax basis relating to
the TruVision net assets to be acquired. The related increase in
intangibles will be amortized over an estimated useful life of 20 years.
(3) Reflects cash to be paid in the Madison Purchase ($5.7 million), Shoals
Purchase ($1.2 million), Applied Video Acquisition ($6.5 million) and the
TruVision Transaction, including the AWS Purchase ($3.9 million), the
SkyView Purchase ($4.2 million), the Flippin Purchase ($1.5 million), the
Gadsden Purchase ($1.0 million) and the Jacksonville Purchase ($0.8
million), and the cash portion of the purchase price for rights to be
obtained via the BTA Auction ($4.6 million).
(4) Reflects the elimination of certain assets and liabilities that the
Company will not acquire as part of the Madison Purchase and the Shoals
Purchase as set forth in the respective agreements.
(5) This adjustment represents the estimated fair value of the equipment and
the other assets acquired, and the excess of cost over tangible assets
acquired, as part of the TruVision Transaction ($10.8 million), the
Applied Video Acquisition ($6.5 million), the Madison Purchase and Shoals
Purchase ($7.0 million), the Gadsden Purchase, SkyView Purchase and AWS
Purchase (collectively $14.4 million), and the acquisition of other
channel and license rights primarily through the BTA Auction ($29.6
million). For purposes of the Pro Forma Statements, the Company has
tentatively considered the fair value of the acquired tangible assets to
approximate their historical carrying value, with the excess acquisition
costs being attributable to channel rights and license agreements. It is
the Company's intention, subsequent to the acquisition, to more fully
evaluate the acquired assets and, as a result, the allocation of the
acquisition costs among tangible and intangible assets acquired may
change.
(6) Represents debt to the United States government to finance $23,712,880 of
the purchase price of, and the utilization of $1,350,000 of deposits for,
the channel rights to be purchased via the BTA Auction.
(7) Represents the elimination of Madison's and Shoals' historical equity and
the issuance of 1,148,040 shares of Common Stock, at $14 per share to be
issued in connection with the Madison Purchase, Shoals Purchase and
certain other license and channel rights purchases.
(8) Reflects the issuance of the Notes, net of estimated debt issuance costs
of $6.4 million, and the application of $10.1 million of the proceeds
therefrom to repay TruVision indebtedness outstanding on March 31, 1996.
At the time of the consummation of the TruVision Transaction, there was
$18.0 million of TruVision indebtedness.
28
<PAGE>
WIRELESS ONE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HEARTLAND
TRANSACTION
WIRELESS HEARTLAND AND THE OLD
ONE DIVISION TRUVISION MADISON BARTEL SHOALS OFFERINGS TRUVISION
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS ADJUSTMENTS
----------- ---------- ----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $ 1,343,969 $ 632,173 $ 3,081,614 $1,582,147 $150,000 $ 83,867 $ -- $ (486,100)(5)
Operating expenses:
Systems
operations....... 841,819 397,574 2,103,053 888,707 67,720 53,015 194,541 (1) (134,787)(5)
Selling, general
and
administrative... 4,431,839 348,447 2,086,200 404,804 59,485 49,915 -- --
Depreciation and
amortization..... 1,783,066 193,962 1,266,301 577,240 42 61,306 -- (35,131)(6)
421,354 (7)
545,267 (8)
----------- --------- ----------- ---------- -------- --------- --------- ----------
Total operating
expenses....... 7,056,724 939,983 5,455,554 1,870,751 127,247 164,236 194,541 796,702
----------- --------- ----------- ---------- -------- --------- --------- ----------
Operating income
(loss)............ (5,712,755) (307,810) (2,373,940) (288,604) 22,753 (80,369) (194,541) (1,282,803)
----------- --------- ----------- ---------- -------- --------- --------- ----------
Interest income.... 2,024,116 -- 15,063 -- -- -- -- --
Interest expense... (4,070,184) -- (143,505) (17,440) -- (35,137) (668,427)(2) --
Other.............. 66,349 -- -- 36,271 -- -- -- --
----------- --------- ----------- ---------- -------- --------- --------- ----------
Income (loss)
before income
taxes............ (7,692,474) (307,810) (2,502,382) (269,773) 22,753 (115,506) (862,968) (1,282,803)
Income tax
(expense)
benefit.......... -- 113,890 -- -- (5,039) -- (113,890)(3) 4,481,520(11)
----------- --------- ----------- ---------- -------- --------- --------- ----------
Net income
(loss)........... (7,692,474) (193,920) (2,502,382) (269,773) 17,714 (115,506) (976,858) 3,198,717
Preferred stock
dividends and
discount
accretion......... (786,389) -- (687,000) -- -- -- 786,389(4) 687,000 (9)
----------- --------- ----------- ---------- -------- --------- --------- ----------
Net income (loss)
applicable to
common stock..... $(8,478,863) $(193,920) $(3,189,382) $ (269,773) $ 17,714 $(115,506) $(190,469) $3,885,717
=========== ========= =========== ========== ======== ========= ========= ==========
Net loss per
common share..... $ (2.02)
===========
Weighted average
common shares
outstanding...... 4,187,736 2,405,293
=========== ==========
<CAPTION>
ADJUSTMENTS
FOR ACQUISITIONS,
LICENSE AND ADJUSTMENTS PRO FORMA
CHANNEL RIGHTS PRO FORMA FOR COMBINED
PURCHASES COMBINED OFFERING AS ADJUSTED
------------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Revenues........... $ -- $ 6,387,670 $ -- $ 6,387,670
Operating expenses:
Systems
operations....... -- 4,411,642 -- 4,411,642
Selling, general
and
administrative... -- 7,380,690 -- 7,380,690
Depreciation and
amortization..... 338,642 (7) 5,152,049 -- 5,152,049
------------------ --------------- ---------------- ------------
Total operating
expenses....... 338,642 16,944,381 -- 16,944,381
------------------ --------------- ---------------- ------------
Operating income
(loss)............ (338,642) (10,556,711) -- (10,556,711)
------------------ --------------- ---------------- ------------
Interest income.... -- 2,039,179 -- 2,039,179
Interest expense... -- (4,934,693) (1,391,152)(10) (6,325,845)
Other.............. -- 102,620 -- 102,620
------------------ --------------- ---------------- ------------
Income (loss)
before income
taxes............ (338,642) (13,349,605) (1,391,152) (14,740,757)
Income tax
(expense)
benefit.......... 5,039(3) 4,481,520(11) 486,902(11) 4,968,422
------------------ --------------- ---------------- ------------
Net income
(loss)........... (333,603) (8,868,085) (904,250) (9,772,335)
Preferred stock
dividends and
discount
accretion......... -- -- -- --
------------------ --------------- ---------------- ------------
Net income (loss)
applicable to
common stock..... $(333,603) $(8,868,085) $ (904,250) $(9,772,335)
================== =============== ================ ============
Net loss per
common share..... $ (1.15) $ (1.26)
=============== ============
Weighted average
common shares
outstanding...... 1,148,040 7,741,069 7,741,069
================== =============== ============
</TABLE>
29
<PAGE>
WIRELESS ONE, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR ACQUISITIONS,
WIRELESS LICENSE AND
ONE TRUVISION MADISON BARTEL SHOALS TRUVISION CHANNEL RIGHTS PROFORMA
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PURCHASES COMBINED
----------- ----------- ---------- ---------- ---------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $ 940,777 $ 1,286,026 $392,629 $ 8,500 $ 20,967 $ (138,197)(5) $ -- $ 2,510,702
Operating expenses:
Systems
operations....... 555,942 885,711 152,554 5,090 13,254 (36,668)(5) -- 1,575,883
Selling, general
and
administrative... 2,637,553 911,024 191,675 3,351 12,479 -- -- 3,756,082
Depreciation and
amortization..... 964,005 584,544 129,134 17 15,327 (17,566)(6) 84,662 (7) 2,097,871
201,431 (7)
136,317 (8)
----------- ----------- -------- ------- -------- ---------- --------- -----------
Total operating
expenses....... 4,157,500 2,381,279 473,363 8,458 41,060 283,514 84,662 7,429,836
----------- ----------- -------- ------- -------- ---------- --------- -----------
Operating income
(loss)............ (3,216,723) (1,095,253) (80,734) 42 (20,093) (421,711) (84,662) (4,919,134)
----------- ----------- -------- ------- -------- ---------- --------- -----------
Interest income.... 2,126,360 -- -- -- -- -- -- 2,126,360
Interest expense... (5,009,893) (163,998) (2,910) -- (8,784) -- -- (5,185,585)
Other.............. 20,424 -- 19,703 -- -- -- -- 40,127
----------- ----------- -------- ------- -------- ---------- --------- -----------
Income (loss)
before income
taxes............ (6,079,832) (1,259,251) (63,941) 42 (28,877) (421,711) (84,662) (7,938,232)
Income tax
benefit.......... -- -- -- -- -- 2,730,670(11) -- 2,730,670
----------- ----------- -------- ------- -------- ---------- --------- -----------
Net income
(loss)........... (6,079,832) (1,259,251) (63,941) 42 (28,877) 2,308,959 (84,662) (5,207,562)
Preferred stock
dividends and
discount
accretion......... -- (220,000) -- -- -- 220,000(9) -- --
----------- ----------- -------- ------- -------- ---------- --------- -----------
Net income (loss)
applicable to
common stock..... $(6,079,832) $(1,479,251) $(63,941) $ 42 $(28,877) $2,528,959 $(84,662) $(5,207,562)
=========== =========== ======== ======= ======== ========== ========= ===========
Net loss per
common share..... $ (0.45) $ (0.31)
=========== ===========
Weighted average
common shares
outstanding...... 13,498,752 2,405,293 1,148,040 17,052,085
=========== ========== ========= ===========
<CAPTION>
ADJUSTMENTS PROFORMA
FOR COMBINED
OFFERING AS ADJUSTED
--------------- ------------
<S> <C> <C>
Revenues........... $ -- $ 2,510,702
Operating expenses:
Systems
operations....... -- 1,575,883
Selling, general
and
administrative... -- 3,756,082
Depreciation and
amortization..... -- 2,097,871
--------------- ------------
Total operating
expenses....... -- 7,429,836
--------------- ------------
Operating income
(loss)............ -- (4,919,134)
--------------- ------------
Interest income.... -- 2,126,360
Interest expense... (378,727)(10) (5,564,312)
Other.............. -- 40,127
--------------- ------------
Income (loss)
before income
taxes............ (378,727) (8,316,959)
Income tax
benefit.......... 132,551(11) 2,863,221
--------------- ------------
Net income
(loss)........... (246,176) (5,453,738)
Preferred stock
dividends and
discount
accretion......... -- --
--------------- ------------
Net income (loss)
applicable to
common stock..... $(246,176) $(5,453,738)
=============== ============
Net loss per
common share..... $ (0.32)
============
Weighted average
common shares
outstanding...... 17,052,085
============
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(1) Reflects the additional channel lease expense associated with the
Heartland Transaction.
(2) Reflects additional interest expense on the Existing Notes at a rate of
13%, amortization of debt issuance costs and amortization of debt
discount associated solely with the portion of the proceeds of the Old
Offerings utilized to pay $7 million of notes payable to Heartland.
(3) Reflects the adjustment of income tax benefit as a result of the
Heartland Transaction and the BarTel Purchase.
(4) Reflects the elimination of the preferred stock dividends and discount
accretion related to the redeemable convertible preferred stock of Old
Wireless One which was converted to Common Stock at the time of the Old
Offerings.
(5) Reflects the elimination of TruVision's, Madison's and Shoals'
installation revenue and direct commissions from the statement of
operations in order to conform accounting policies for the capitalized
costs of subscriber installations to the Company's accounting policies.
(6) Reflects the reduction in depreciation expense as a result of the
conforming adjustments in Note 5 above.
(7) Reflects the amortization of the intangible assets to be acquired in the
TruVision Transaction, Madison Purchase, Shoals Purchase, and certain
other channel rights purchases. For purposes of these Pro Forma
Statements, lives of 20 years have been used for licenses and channel
rights. Amortization of intangible assets has only been recorded in those
Markets acquired which are Operating Systems.
(8) Reflects the amortization of excess purchase price over the fair value of
net identifiable assets to be acquired in the TruVision Transaction over
20 years.
(9) Reflects the elimination of the preferred dividend requirements as a
result of the conversion of TruVision's convertible preferred stock into
TruVision common stock.
(10) Reflects additional interest expense on the Notes at an assumed rate of
12.5% and amortization of debt issuance costs associated solely with the
portion of the proceeds from the Offering used to repay $10.1 million of
TruVision indebtedness. A 0.125% difference in the stated rate on the
Notes would impact interest expense for the year ended December 31, 1995
and the three months ended March 31, 1996 by $13,400 and $4,000,
respectively. Giving full effect to (i) the issuance of the Existing
Notes and amortization of the related debt issuance cost, (ii) the
issuance of the Notes at an assumed rate of 12.5% and amortization of the
related debt issuance costs, and (iii) the incurrence of BTA Auction
indebtedness as if such indebtedness had been incurred, and the Existing
Notes and the Notes had been issued, on January 1, 1995, interest expense
on a pro forma basis would have been $40.5 million and $10.5 million,
respectively, for the year ended December 31, 1995 and the three months
ended March 31, 1996.
(11) Reflects adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
31
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
WIRELESS ONE
The selected consolidated historical financial data presented below as of
December 31, 1994 and 1995 and for the period from February 4, 1993
(inception) to December 31, 1993 and the years ended December 31, 1994 and
1995 were derived from the consolidated financial statements of the Company
which were audited by KPMG Peat Marwick LLP, independent certified public
accountants, and which are included elsewhere in this Prospectus. The selected
historical consolidated financial data presented below as of March 31, 1996
and for the three months ended March 31, 1995 and 1996 were derived from the
unaudited consolidated financial statements of the Company, which are included
elsewhere in this Prospectus and which, in the opinion of the Company include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results for such unaudited interim periods. The
statement of operations data for interim periods are not necessarily
indicative of results for subsequent periods or for the full year. This
selected consolidated historical financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements (including the notes thereto) of
Wireless One, Inc., contained elsewhere in this Prospectus. See "Index to
Financial Statements".
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------ ----------------------------
PERIOD FROM
FEBRUARY 4, 1993 (INCEPTION)
TO DECEMBER 31, 1993 1994 1995 1995 1996
----------------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ -- $ 380,077 $ 1,343,969 $ 238,825 $ 940,777
Operating expenses:
Systems operations..... 24,429 274,886 841,819 169,981 555,942
Selling, general and
administrative........ 110,281 1,800,720 4,431,839 461,129 2,637,553
Depreciation and amor-
tization.............. 27,489 413,824 1,783,066 199,519 964,005
--------- ----------- ----------- ------------ ------------
Total operating ex-
penses................. 162,199 2,489,430 7,056,724 830,629 4,157,500
--------- ----------- ----------- ------------ ------------
Operating loss.......... (162,199) (2,109,353) (5,712,755) (591,804) (3,216,723)
Interest expense, net... (411) (152,460) (1,979,719) (111,488) (2,863,109)
--------- ----------- ----------- ------------ ------------
Net loss (162,610) (2,261,813) (7,692,474) (703,292) (6,079,832)
Preferred stock divi-
dends and
discount accretion..... -- -- (786,389) -- --
--------- ----------- ----------- ------------ ------------
Net loss applicable to
common stock........... $(162,610) $(2,261,813) $(8,478,863) $ (703,292) $ (6,079,832)
========= =========== =========== ============ ============
Deficiency of earnings
to fixed charges....... $ 162,610 $ 2,261,813 $ 8,478,863 $ 703,292 $ 6,079,832
========= =========== =========== ============ ============
Net loss per share...... $ (0.30) $ (1.21) $ (2.02) $ (0.35) $ (0.45)
========= =========== =========== ============ ============
Shares used in computing
net loss per share..... 538,127 1,863,512 4,187,736 2,013,950 13,498,752
========= =========== =========== ============ ============
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995 MARCH 31, 1996
----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit), excluding restricted cash.............. $(1,537,244) $104,446,672 $ 87,773,899
Restricted cash................................................... -- 53,393,344 53,681,589
Total assets...................................................... 8,914,224 213,799,874 213,294,099
Current portion of long-term debt................................. 1,457,295 376,780 384,366
Long-term debt.................................................... 2,839,602 150,871,267 150,993,259
Total stockholders' equity........................................ 4,343,713 55,649,687 49,569,855
</TABLE>
32
<PAGE>
HEARTLAND DIVISION
The selected financial data presented below as of December 31, 1993 and 1994
and 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 were
derived from the financial statements of Heartland Division, which were
audited by KPMG Peat Marwick LLP, independent certified public accountants,
and which are included elsewhere in this Prospectus. The selected financial
data presented below as of September 30, 1995 and for the period from August
19, 1994 to September 30, 1994 and the nine months ended September 30, 1995
were derived from the unaudited financial statements of Heartland Division,
which are included elsewhere in this Prospectus and which, in the opinion of
the management of Heartland, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for such unaudited interim periods. The statement of operations data for
interim periods are not necessarily indicative of results for subsequent
periods or for the full year. On August 19, 1994, a new cost basis was
established for certain assets comprising a portion of Heartland Division due
to a business combination accounted for as a purchase. As a result of such
acquisition, financial information of Heartland 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.
This selected financial data should be read in conjunction with the financial
statements (including the notes thereto) of Heartland Division contained
elsewhere in this Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
JANUARY
1, 1994 AUGUST 19, AUGUST 19, NINE MONTHS
YEAR ENDED TO AUGUST 1994 TO 1994 TO ENDED
DECEMBER 31, 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1994 1994 1995
------------ --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................................... $ 850,167 $ 616,223 $ 291,012 $ 80,095 $ 632,173
Operating expenses:
Systems operations........................................ 397,503 340,539 197,429 54,601 397,574
Selling, general and administrative....................... 557,466 320,701 184,859 50,065 348,447
Depreciation and amortization............................. 211,464 166,358 77,995 22,659 193,962
---------- --------- --------- -------- ---------
Total operating expenses................................... 1,166,433 827,598 460,283 127,325 939,983
---------- --------- --------- -------- ---------
Operating loss............................................. (316,266) (211,375) (169,271) (47,230) (307,810)
Income tax benefit......................................... -- -- 62,630 17,475 113,890
---------- --------- --------- -------- ---------
Net loss................................................... $ (316,266) $(211,375) $(106,641) $(29,755) $(193,920)
========== ========= ========= ======== =========
Deficiency of earnings to fixed charges.................... $ 316,266 $ 211,375 $ 169,271 $ 47,230 $ 307,810
- --------------------------------------------------
========== ========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 20,830 $ 62,810 $ 240,457
Total assets.................... 2,400,573 9,179,806 14,256,367
Division equity................. 2,302,227 8,857,709 14,044,155
</TABLE>
33
<PAGE>
TRUVISION
The selected financial data presented below as of August 24, 1994 and for
the period January 1, 1994 through August 24, 1994 were derived from the
financial statements of MWTV, and the selected financial data presented below
as of December 31, 1994 and December 31, 1995 and for the period August 25,
1994 through December 31, 1994 and the year ended December 31, 1995 were
derived from the financial statements of TruVision, which in each case were
audited by Arthur Andersen LLP, independent certified public accountants, and
which are included elsewhere in this Prospectus. The selected financial data
presented below as of March 31, 1996 were derived from the unaudited
consolidated financial statements of TruVision, which are included elsewhere
in this Prospectus and which, in the opinion of management of TruVision,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such unaudited interim
periods. The statement of operations data for interim periods are not
necessarily indicative of results for subsequent periods or for the full year.
This selected financial data should be read in conjunction with the financial
statements (including the notes thereto) of TruVision contained elsewhere in
this Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
MWTV TRUVISION
--------------- --------------------------------------------------
JANUARY 1, 1994 AUGUST 25, 1994 THREE MONTHS
TO TO YEAR ENDED ENDED
AUGUST 24, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
--------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenues.......... $ 73,370 $ 430,534 $ 3,081,614 $ 1,286,026
System operating ex-
penses................ 278,000 425,603 2,103,053 885,712
Selling, general and
administrative........ 668,009 534,431 2,086,200 911,024
Depreciation and amor-
tization.............. 82,196 167,990 1,266,301 584,544
----------- ---------- ------------ ------------
Total operating
expenses............... 1,028,205 1,128,024 5,455,554 2,381,280
----------- ---------- ------------ ------------
Operating loss.......... (954,835) (697,490) (2,373,940) (1,095,254)
Interest income
(expense), net......... 6,632 55,728 (128,442) (163,997)
----------- ---------- ------------ ------------
Net loss................ $ (948,203) $ (641,762) $ (2,502,382) $ (1,259,251)
=========== ========== ============ ============
<CAPTION>
AUGUST 24, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
--------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit).............. $(2,696,905) $1,948,892 $ (4,770,468) $(12,504,381)
Total assets............ 4,252,144 7,983,059 12,877,217 19,751,653
Current portion of long-
term debt.............. 3,308,000 -- 4,531,464 10,084,894
Long-term debt.......... -- -- -- --
Convertible preferred
stock.................. -- 8,000 11,000 11,000
Total stockholders'
equity................. 495,040 7,091,917 7,589,535 6,330,284
</TABLE>
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements (including the notes thereto) included elsewhere in this
Prospectus. See "Index to Financial Statements."
THE COMPANY
The Company acquires, develops, owns and operates wireless cable television
systems. The Company has targeted small to mid-size markets, located in Texas,
Louisiana, Mississippi, Tennessee, Kentucky, Alabama, North Carolina, South
Carolina, Georgia, Arkansas and Florida, with approximately 25% of the
households not currently passed by traditional hard-wire cable systems. In
addition, the Company has Operating Systems located in Brenham, Bryan/College
Station, Milano and Wharton, Texas; Bunkie, Lafayette, Monroe and Lake
Charles, Louisiana; Jackson, Delta, Gulf Coast, Natchez and Oxford,
Mississippi; Bucks, Demopolis, Dothan and Huntsville, Alabama; Ft. Walton
Beach, Gainesville, Panama City and Pensacola, Florida; Jeffersonville,
Georgia and Tullahoma and Lawrenceburg, Tennessee.
EXCEPT FOR THE PRECEDING PARAGRAPH AND "--PRO FORMA RESULTS OF OPERATIONS,"
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SOLELY REFLECTS THE HISTORICAL RESULTS OF THE COMPANY AND DOES
NOT GIVE EFFECT TO ANY OF THE PRO FORMA EVENTS, INCLUDING, WITHOUT LIMITATION,
THE TRUVISION TRANSACTION AND THE ACQUISITIONS. DUE TO THE LIMITED OPERATING
HISTORY, STARTUP NATURE AND RAPID GROWTH OF THE COMPANY, PERIOD-TO-PERIOD
COMPARISONS OF FINANCIAL DATA ARE NOT NECESSARILY INDICATIVE OF RESULTS FOR
SUBSEQUENT PERIODS AND SHOULD NOT BE RELIED UPON AS AN INDICATOR OF THE FUTURE
PERFORMANCE OF THE COMPANY.
OVERVIEW
Since inception, the Company has sustained substantial net losses, due
primarily to start-up costs, interest expense and charges for depreciation and
amortization, and has experienced negative consolidated EBITDA. At December
31, 1995, none of the Operating Systems had positive cash flow from
operations, primarily as a result of their early stages of development. There
can be no assurance that any system or the Company as a whole will generate
positive cash flow. The Company expects to continue to experience negative
consolidated EBITDA through at least the third quarter of 1998, and may
continue to do so thereafter while it develops and expands its wireless cable
systems, even if individual systems of the Company generate positive System
EBITDA. As the Company continues to develop systems, positive cash flow from
more mature systems is expected to be partially or completely offset by
operating losses from less developed systems and from development costs
associated with establishing systems in new markets. This trend is expected to
continue until the Company has a sufficiently large subscriber base to absorb
operating and development costs of recently launched systems. The Company does
not anticipate being able to generate positive net income until after 2001,
and there can be no assurance that other factors, such as, but not limited to,
economic conditions, its inability to raise additional financing or
disruptions in its operations, will not result in additional time elapsing
prior to the Company operating on a profitable basis. Losses may increase as
operations in additional systems are commenced or acquired. See "Risk
Factors--Limited Operating History; Lack of Profitable Operations; Negative
Cash Flow; Early Stage Company."
"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,
35
<PAGE>
general and administrative expenses attributable to employees employed in that
system. For the periods presented there are no such non-cash items. Information
with respect to EBITDA is included herein because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. EBITDA is not intended to represent cash flows, as determined in
accordance with generally accepted accounting principles, nor has it been
presented as an alternative to operating income or as an indicator of operating
performance and should not be considered as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE SAME PERIOD ENDED 1995
The table below sets forth for each of the Operating Systems the later of the
date of launch or acquisition by the Company and the approximate number of
subscribers at March 31, 1995 and March 31, 1996.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
LAUNCH OR SUBSCRIBERS AT SUBSCRIBERS AT
MARKET ACQUISITION DATE MARCH 31, 1995 MARCH 31, 1996
- ------ ---------------- -------------- --------------
<S> <C> <C> <C>
Brenham, TX .................... February 1996 -- 268
Bryan/College Station, TX ...... May 1995 -- 2,080
Milano, TX ..................... October 1995 -- 1,501
Wharton, TX .................... June 1994 1,601 1,881
Bunkie, LA ..................... December 1995 -- 667
Lafayette, LA .................. January 1994 436 625
Lake Charles, LA ............... April 1994 573 490
Monroe, LA ..................... October 1995 -- 1,206
Gainesville, FL ................ January 1996 -- 261
Panama City, FL ................ September 1995 -- 1,362
Pensacola, FL .................. July 1995 -- 1,287
Jeffersonville, GA (1).......... March 1996 -- --
Tullahoma, TN .................. November 1995 -- 661
----- ------
TOTAL......................... 2,610 12,289
===== ======
</TABLE>
- --------
(1) System launched at the end of March 1996.
REVENUE INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS APPROXIMATE
ENDED MARCH 31, AVERAGE REVENUE
--------------------- PER SUBSCRIBER FOR
1995 1996 MARCH 1996
---------- ---------- ------------------
<S> <C> <C> <C>
SUBSCRIPTION REVENUES:
Brenham, TX............................ $ -- $ 8,526 $33.83
Bryan/College Station, TX ............. -- 171,891 34.88
Milano, TX ............................ -- 140,578 32.24
Wharton, TX ........................... 167,062 178,988 35.69
Bunkie, LA ............................ -- 34,686 33.10
Lafayette, LA ......................... 23,475 41,207 23.22
Lake Charles, LA ...................... 48,288 42,408 29.86
Monroe, LA ............................ -- 89,861 30.17
Gainesville, FL ....................... -- 6,009 27.72
Panama City, FL ....................... -- 82,456 31.40
Pensacola, FL ......................... -- 110,282 38.87
Jeffersonville, GA (1)................. -- -- --
Tullahoma, TN ......................... -- 33,885 33.41
---------- ----------
TOTAL................................ $ 238,825 $ 940,777
========== ==========
</TABLE>
- --------
(1) System launched at the end of March 1996.
36
<PAGE>
Revenues. Revenues consist primarily of subscription revenues which
principally consist of monthly fees paid by subscribers for the basic
programming package and for premium programming services. Subscription
revenues for the three months ended March 31, 1996 were $940,777 as compared
to $238,825 for the comparable period of 1995, an increase of $701,952 or
294%. This increase is principally attributable to the increase in the average
number of subscribers for the three months ended March 31, 1996 compared to
the same period in 1995. The increase in the average number of subscribers is
due to the launch of eight new systems during the remaining nine months of
1995 and during the first quarter of 1996. In addition, the contributions of
two Operating Systems from Heartland in October 1995, are part of this
increase in the average number of subscribers for the first three months of
1996.
Systems Operations Expense. Systems operations expense includes programming
costs, channel lease payments, tower site rentals, and repairs and
maintenance. Programming costs and channel lease payments (with the exception
of minimum payments) are variable expenses which increase as the number of
subscribers increases. Systems operations expense for the three months ended
March 31, 1996 was $555,942 as compared to $169,981 for the same period of
1995, reflecting an increase of $385,961 or 227%. This increase is
attributable primarily to the increase in the number of subscribers for such
period in 1996 compared to such period in 1995 as a result of the new Markets
launched as described above.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense for the three months ended March 31, 1996 was
$2,637,553 compared to $461,129 for the same period of 1995, an increase of
$2,176,424 or 471%. The Company has experienced increasing selling, general
and administrative expenses as a result of its increased wireless cable
activities and associated administrative costs including costs related to
opening and maintaining additional offices and additional compensation
expense. The increase is due primarily to increases in personnel costs,
advertising and marketing expenses and other overhead expenses required to
support the expansion of the Company's operations. The Company believes such
selling, general and administrative costs will not stabilize until 1998 when
all systems are expected to be launched. At that time, administrative expenses
should remain constant with selling and general expense stabilizing when
desired penetration rates are achieved. In order for such stabilization to
occur within this time period, however, the current system launch schedule
must be met and desired penetration rates must be achieved. There can be no
assurance that the Company will meet the current launch schedule or that
desired penetration and subscriber rates will be achieved or consequently that
such selling, general and administrative expenses will stabilize within this
time period.
Depreciation and Amortization Expense. Depreciation and amortization expense
includes depreciation of systems and equipment and amortization of channel
rights and organizational costs. Depreciation and amortization expense for the
three months ended March 31, 1996 was $964,005 versus $199,519 for the same
period of 1995, an increase of $764,486 or 383%. This increase is due to
additional amortization of channel rights from systems launched plus
amortization of amounts related to systems acquired from Heartland. In
addition, depreciation increased due to costs associated with the increase in
subscribers and purchase of equipment for newly launched markets.
Interest Expense. Interest expense increased to $5,009,893 from $114,090 as
compared to the same period ended in 1995. This large increase in interest
expense is due to the issuance in October 1995 of the Existing Notes.
Interest Income. Interest income includes amounts earned on the Company's
cash equivalents and the escrowed funds required to cover the first three
years' interest payments as required by the terms of the Old Indenture
relating to the Existing Notes. Interest income of $2,126,360 consists of
interest earned on the proceeds from the Old Offerings.
37
<PAGE>
RESULTS OF OPERATIONS SINCE INCEPTION
The results of operations for the years ended December 31, 1993, 1994 and
1995 were prepared based on the historical results of the Company for the
period from February 4, 1993 (inception) to December 31, 1993 and the years
ended December 31, 1994 and 1995. On October 18, 1995, the Company acquired
the Heartland Division in exchange for approximately 3.5 million shares of
Common Stock and $10 million in notes, which were repaid from the proceeds of
the Old Offerings. As a result, the results of operations for the year ended
December 31, 1995 includes the operating results of the Company for the period
from January 1, 1995 through October 18, 1995 and the combined operating
results of the Company and the Heartland Division for the period from October
19, 1995 through December 31, 1995. Period-to-period comparisons of the
Company's financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance due to the acquisition of
the Heartland Division and the development of the Company's business and
system launches during the periods presented.
Historically, the Company subscribers have been located in single-family
homes. The number of subscribers located in multiple-dwelling units ("MDUs")
in the Operating Systems increased as a percentage of total subscribers from
approximately 1.5% at December 31, 1994 to approximately 1.9% at December 31,
1995. MDU subscribers typically generate lower per subscriber revenue than
single-family units.
The table below sets forth for each of the Operating Systems, the later of
the date of launch or acquisition by the Company and the approximate number of
subscribers at December 31, 1994 and 1995 and February 29, 1996.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE APPROXIMATE
LAUNCH OR SUBSCRIBERS AT SUBSCRIBERS AT SUBSCRIBERS AT
MARKET ACQUISITION DATE DECEMBER 31, 1994 DECEMBER 31, 1995 FEBRUARY 29, 1996
- ------ ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Brenham, TX............. February 1996 -- -- 126
Bryan/College Station,
TX..................... May 1995 -- 1,445 1,809
Milano, TX(1)........... October 1995 -- 1,297 1,428
Wharton, TX............. June 1994 1,401 1,579 1,768
Bunkie, LA.............. December 1995 -- 62 463
Lafayette, LA(2)........ January 1994 500 593 610
Lake Charles, LA(3)..... April 1994 603 487 476
Monroe, LA(4)........... October 1995 -- 829 1,045
Gainesville, FL......... January 1996 -- -- 100
Panama City, FL......... September 1995 -- 442 1,039
Pensacola, FL........... July 1995 -- 658 1,086
Jeffersonville, GA...... March 1996 -- -- --
Tullahoma, TN........... November 1995 -- 133 422
----- ----- ------
TOTAL................. 2,504 7,525 10,372
===== ===== ======
</TABLE>
- --------
(1) The Milano System was acquired by the Company from Heartland in October
1995.
(2) The Company is not actively marketing, and does not currently intend to
actively market, its service in the Lafayette Market until an increase in
the channel offering is achieved, which the Company expects to occur
within twelve months from the date hereof.
(3) The Company expects to commence marketing the Lake Charles System in
August 1996.
(4) The Monroe System was acquired by the Company from Heartland in October
1995.
38
<PAGE>
REVENUE INFORMATION
<TABLE>
<CAPTION>
APPROXIMATE
YEAR ENDED DECEMBER 31, AVERAGE REVENUE
------------------------ PER SUBSCRIBER FOR
1993 1994 1995 DECEMBER 1995
---- -------- ---------- ------------------
<S> <C> <C> <C> <C>
SUBSCRIPTION REVENUES:
Brenham, TX....................... $-- $ -- $ -- $ -- (1)
Bryan/College Station, TX......... -- -- 185,195 33.70
Milano, TX........................ -- -- 89,798 31.40
Wharton, TX....................... -- 159,507 620,650 35.90
Bunkie, LA........................ -- -- 554 -- (2)
Lafayette, LA..................... -- 46,057 125,727 22.60
Lake Charles, LA.................. -- 48,739 182,760 30.10
Monroe, LA........................ -- -- 66,124 27.40
Gainesville, FL................... -- -- -- -- (1)
Panama City, FL................... -- -- 11,644 31.90
Pensacola, FL..................... -- -- 59,814 37.50
Jeffersonville, GA................ -- -- -- -- (1)
Tullahoma, TN..................... -- -- 1,703 -- (2)
---- -------- ----------
TOTAL........................... $-- $254,303 $1,343,969
==== ======== ==========
</TABLE>
- --------
(1) Operating System not launched at December 31, 1995.
(2) Number not meaningful due to timing of subscribers being put on service.
Revenues. The Company had no operating revenues for the period from February
4, 1993 (inception) through December 31, 1993. The Company revenues for the
year ended December 31, 1994 were $380,077. Subscription revenues from new
subscribers totaled $254,303 or 67% of revenues. Equipment sales and other
revenues accounted for $103,837 and $21,937, respectively, in 1994. All
revenues were related to the Lafayette, Lake Charles and Wharton Systems, each
of which was launched during 1994.
For the year ended December 31, 1995 revenues, which were all subscription
revenues, were $1,343,969. The increase in subscription revenues of $1,089,666
or 428% over 1994 was primarily attributable to the acquisition of the
Heartland Division in October 1995, the launch of the Bryan/College Station
and Pensacola Systems and the increase in revenues in the Company's existing
Operating Systems. This increase in revenues from existing Operating Systems
was primarily due to the Wharton and Lake Charles Systems being operational
for 12 months in 1995 versus seven and eight months, respectively, for 1994,
and an increase in average monthly subscribers in 1995 over 1994 for the
Lafayette System.
Systems Operations Expense. The Company incurred $24,429 of systems
operations expense during 1993, primarily representing channel lease expense.
For 1994, the Company incurred $274,886 of systems operations expense. The
increase from 1993 to 1994 is attributable to 11 additional months of
operation in 1994.
For the year ended December 31, 1995, systems operations expense amounted to
$841,819 as compared to $274,886 for the prior-year period. The increase was
primarily attributable to the increase in the number of subscribers and new
market launches.
Selling General and Administrative Expense. The Company has experienced
increasing selling, general, and administrative expense since its inception as
a result of its increasing wireless cable activities and associated
administrative costs, including costs related to opening and maintaining
additional offices and additional compensation expense. The Company believes
such selling, general
39
<PAGE>
and administrative costs will not stabilize until 1998 when all systems are
expected to be launched. At that time, administrative expenses should remain
constant with selling and general expense stabilizing when desired penetration
rates are achieved. In order for such stabilization to occur within this time
period, however, the current system launch schedule must be met and desired
penetration rates must be achieved. There can be no assurance that the Company
will meet the current launch schedules or that desired penetration rates will
be achieved or consequently that such selling, general and administrative
expenses will stabilize within this time period. SG&A increased from $110,281
in 1993 to $1,800,720 in 1994, primarily due to a longer operating period in
1994. For the year ended December 31, 1995, SG&A was $4,431,839 as compared to
$1,800,720 for the prior period. The $2,631,119 increase is due primarily to
increases in personnel costs, advertising and marketing expenses and other
overhead expenses required to support the expansion of the Company's
operations.
Depreciation and Amortization Expense. Depreciation and amortization expense
for 1994 amounted to $413,824 as compared to the partial year 1993 of $27,489.
For the year ended December 31, 1995, depreciation and amortization expense
totaled $1,783,066 compared to $413,824 for the same period in 1994. The
increase was primarily attributable to additional costs incurred by the
Company through its acquisition of the Heartland Division and development and
implementation of the Company's operating plan.
Interest Income. For the year ended December 31, 1995, the Company earned
$1,473,432 on its cash equivalents and $550,684 from the escrowed funds.
Interest Expense. Interest expense incurred during 1993 and 1994 amounted to
$411 and $171,702, respectively. During 1994, the Company established a $3.0
million revolving credit facility from a bank secured by subscription
receivables. The revolving credit facility accounted for $52,485 of interest
expense in 1994. The outstanding balance on the facility at December 31, 1994
amounted to $1.1 million. Additionally, the Company has two discount notes
that relate to the acquisition of channel rights in Pensacola and Panama City,
Florida. The discount notes have a face value of $3.7 million and are due in
installments through 1997. Interest expense related to the notes during 1994
amounted to $104,767. Finally, the subsidiary of the Company that owns and
operates the Bryan/College Station System has outstanding a $150,000
convertible debenture that bears interest at the prime rate. The debenture is
convertible at the option of the holder into a 20% minority interest in such
subsidiary and is callable at a fixed price.
On an aggregate basis, for the year ended December 31, 1995, interest
expense totaled $4,070,184. The revolving credit facility was repaid in full
from the proceeds of the private placement of redeemable convertible preferred
stock in April 1995. Interest expense of $41,858 was incurred in 1995 for this
revolving credit facility. In October 1995, the Company issued the Existing
Notes with an aggregate principal amount of $150,000,000. At December 31,
1995, interest expense of $3,683,333 had been accrued for the Senior Notes.
Interest expense for the two discount notes described above was $289,170 for
the year ended December 31, 1995. Interest expense on the convertible
debenture described above related to the Bryan/College Station System was
$13,046 for the year ended December 31, 1995.
Net Loss. During 1993, the Company had no revenues and incurred a loss of
$162,610, primarily due to SG&A. During 1994, the Company had total revenues
of $380,077 and an operating loss of $2,109,353. The net loss for the Company
during 1994 amounted to $2,261,813. For the year ended December 31, 1995, the
Company had an operating loss of $5,712,755 on total revenues of $1,343,969.
The net loss for the Company during 1995 amounted to $7,692,474.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business. The
Company's operations require substantial amounts of capital for (i) the
installation of equipment at subscribers' locations, (ii) the construction of
additional transmission and headend facilities and related equipment
purchases, (iii) the funding of start-up losses and other working capital
requirements, (iv) the acquisition of additional wireless cable channel rights
and systems and (v) investments in, and, maintenance of, vehicles and
administrative offices. Since inception, the Company has expended funds to
lease or otherwise acquire channel rights in various Markets, to construct or
acquire its Operating Systems, to commence construction of operating systems
in different Markets and to finance initial operating losses.
In order to finance the expansion of its Operating Systems and finance the
launch of additional Markets, in October 1995 the Company consummated its
initial public offering of 3,450,000 shares of Common Stock at $10.50 per
share (the "Common Stock Offering"). The Company received approximately $32.3
million in net proceeds from the Common Stock Offering. Concurrent with the
Common Stock Offering, the Company issued 150,000 units (the "Old Units")
consisting of $150 million aggregate principal amount of Existing Notes and
450,000 warrants to purchase an equal number of shares of Common Stock at an
exercise price of $11.55 per share to the initial purchasers. The Company
placed approximately $53.2 million of the approximately $143.8 million of net
proceeds realized from the sale of the Old Units into an escrow account to
cover the first three years' interest payments as required by terms of the Old
Indenture. Additionally, in April 1995, the Company completed a private
placement of 14,781.75 shares of redeemable convertible preferred stock,
receiving net proceeds of approximately $13.8 million. Such preferred stock
was converted into Common Stock at the time of the Heartland Transaction.
The Old Indenture pursuant to which the Existing Notes were issued contains
representations and warranties, affirmative and negative covenants and events
of default customary for financing of this type. As of March 31, 1996, the
Company was in compliance in all material respects with all covenants in the
Old Indenture.
At March 31, 1996, the Company had commitments to purchase approximately
$6.2 million in equipment for existing and future Markets, primarily for set-
top converters and head end equipment.
The Company has experienced negative cash flow from operations in each year
since its formation, and the Company expects to continue to experience
negative consolidated EBITDA due to operating costs associated with system
development and costs associated with expansion and acquisition activities.
Until sufficient cash flow is generated from operations, the Company will be
required to utilize its current capital resources or external sources of
funding to satisfy its capital needs. The Company currently believes that the
aggregate net proceeds from the Company's Old Offerings and this Offering will
be sufficient to meet its expected capital needs at least over the next twelve
months.
The Company does not anticipate immediate reductions in SG&A, including
reductions in its number of employees, as a consequence of the TruVision
Transaction.
Subject to the limitations relating to the Existing Notes and the Notes, in
order to accelerate its growth rate and to finance general corporate
activities and the launch or build-out of additional systems, the Company may
supplement its existing sources of funding with financing arrangements at the
operating system level or through additional borrowings, the sale of
additional debt or equity securities, including a sale to a strategic
investor, joint ventures or other arrangements, if such financing is available
to the Company on satisfactory terms.
As a result of the Old Offering and the Offering, and the possible
incurrence of additional indebtedness, the Company will be required to satisfy
certain debt service requirements. Following the
41
<PAGE>
disbursement in October 1998 of all of the funds in the escrow account
established in connection with the Old Indenture, a substantial portion of the
Company's cash flow will be devoted to debt service on the Existing Notes and
on and after , 2002, on the Notes offered in this Offering, and the
ability of the Company to make payments of principal and interest will be
largely dependent upon its future performance. Many factors, some of which
will be beyond the Company's control (such as prevailing economic conditions),
may affect its performance. There can be no assurance that the Company will be
able to generate sufficient cash flow to cover required interest and principal
payments when due on the Existing Notes, the Notes, or other indebtedness of
the Company, including $23,712,880 of indebtedness to be incurred to the
federal government in connection with the Company's winning bids in the BTA
Auction. If the Company is unable to make 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. The incurrence of additional indebtedness is
restricted by the Indentures.
In managing its wireless cable assets, the Company may, at its option,
exchange or trade existing wireless cable channel rights for channel rights in
Markets that have a greater strategic value to the Company. The Company
continually evaluates opportunities to acquire, either directly or indirectly
through the acquisition of other entities, wireless cable channel rights.
There is no assurance that the Company will not pursue any such opportunities
that may utilize capital currently expected to be available for its current
Markets.
For the three months ended March 31, 1995, cash used in operating activities
was $0.14 million consisting primarily of a net loss of $0.7 million, offset
by an increase in accounts payable and accrued expenses of $0.27 million, non-
cash expenses of $0.07 million and depreciation and amortization of $0.2
million. For the three months ended March 31, 1995, cash used in investing
activities was $0.7 million, consisting primarily of capital expenditures and
payments for licenses and organizational costs of approximately $0.68 million
and $0.02 million, respectively. These capital expenditures were principally
related to the construction of new markets and certain license and
organization costs. For the three months ended March 31, 1995 cash provided by
financing activities was $1.1 million, consisting primarily of $1.0 million in
proceeds from the subscription of Common Stock and $0.04 million in proceeds
from the issuance of long-term debt.
For the three months ended March 31, 1996, cash used in operating activities
was $0.02 million consisting primarily of a net loss of $6 million and an
increase in receivables and prepaid expenses of $0.2 million, offset by an
increase in accounts payable and accrued expenses of $5.4 million,
depreciation and amortization of $0.96 million, non-cash income of $0.29
million and non-cash expenses of $0.15 million. For the three months ended
March 31, 1996, cash used in investing activities was $11.4 million,
consisting primarily of capital expenditures and payments for licenses and
organizational costs of approximately $9.4 million and $1.9 million,
respectively. These investing activities were principally related to the
acquisition of equipment in certain of the Company's Operating Systems, as
well as those Systems Under Construction or Near-Term Launch Markets and
certain license and organization costs related to those Markets. For the three
months ended March 31, 1996, cash used in financing activities was $0.001
million, consisting of $0.001 million from the repayments of long-term debt.
For the year ended December 31, 1993, cash used in operating activities was
$0.11 million, consisting primarily of a net loss of $0.16 million and an
increase in prepaid expenses of $0.01 million, offset by an increase in
accounts payable and accrued expenses of $0.04 million and depreciation and
amortization of $0.03 million. For the year ended December 31, 1993, cash used
in investing activities was $0.44 million, consisting primarily of capital
expenditures and payments for licenses and organizational costs of
approximately $0.28 million and $0.15 million, respectively. These capital
expenditures principally related to the construction of new Markets and
certain license and organization costs related to those Markets. For the year
ended December 31, 1993 cash provided by financing
42
<PAGE>
activities was $0.63 million, consisting primarily of the proceeds from the
issuance of 538,127 shares of Common Stock upon the Company's merger with
Wireless One, L.L.C., and proceeds from the issuance of long-term debt.
For the year ended December 31, 1994, cash used in operating activities was
$1.7 million consisting primarily of a net loss of $2.3 million and an
increase in receivables and prepaid expenses of $0.2 million, offset by an
increase in accounts payable and accrued expenses of $0.2 million,
depreciation and amortization of $0.4 million, and non-cash expenses of $0.16
million. For the year ended December 31, 1994, cash used in investing
activities was $8.2 million, consisting primarily of capital expenditures and
payments for licenses and organizational costs of approximately $3.0 million
and $5.1 million, respectively. These investing activities principally related
to the acquisition of equipment in certain of the Company's Operating Systems,
as well as Systems Under Construction or Near-Term Launch Markets and certain
license and organization costs related to those Markets. For the year ended
December 31, 1994, cash provided by financing activities was $9.8 million,
consisting primarily of $5.6 million from the issuance of 1,475,823 shares of
Common Stock and $4.3 million from the issuance of long-term debt associated
with license acquisition costs in Near-Term Launch Markets.
For the year ended December 31, 1995, cash used in operating activities was
$0.6 million, consisting primarily of a net loss of $7.7 million and increases
in receivables and prepaid expenses of $0.6 million and $0.5 million,
respectively, offset by an increase in accounts payable and accrued expenses
of $6 million, an increase in depreciation and amortization of $1.8 million,
and net non-cash expenses of $0.3 million. For the year ended December 31,
1995, cash used in investing activities was $71.3 million, consisting
primarily of $53.1 million applied to purchase marketable investment
securities to establish the escrow account relating to the Existing Notes and
capital expenditures and payments for licenses and organizational costs of
approximately $9.8 million and $6.8 million, respectively. The capital
expenditures and acquisition costs principally related to the purchase of
equipment in certain of the Company's Operating Systems, as well as Systems
Under Construction or Near-Term Launch Markets and certain license and
organizational costs related to those Markets. For the year ended December 31,
1995, cash flows provided by financing activities was $182.3 million. These
financing activities are described in detail in the second paragraph of this
discussion on liquidity and capital resources.
PRO FORMA RESULTS OF OPERATIONS
The results of operations for the year ended December 31, 1995 and for the
three months ended March 31, 1996 were prepared based on the Unaudited Pro
Forma Condensed Combined Statements of Operations and reflect the pro forma
adjustments made therein. See "Unaudited Pro Forma Condensed Combined
Financial Information." As a result, the pro forma results of operations for
the year ended December 31, 1995 and the three months ended March 31, 1996 are
not directly comparable with the actual results experienced in such periods.
The pro forma results of operations do not purport to represent what the
Company's results of operations or financial position would actually have been
if the aforementioned transactions or events had occurred on the dates
specified or to project the Company's results of operations or financial
position for any future periods or at any future date.
Three Months Ended March 31, 1996
Revenues. For the three months ended March 31, 1996, revenues were
$2,510,702. Subscription revenues from subscribers accounted for $2,331,951,
or approximately 93% of total revenues.
Systems Operations Expense. The Company incurred $1,575,883 of systems
operations expense.
SG&A Expense. The Company recorded SG&A expense in the amount of $3,576,082
for the three months ended March 31, 1996.
43
<PAGE>
Depreciation and Amortization Expense. Depreciation and amortization expense
totaled $2,097,871 for the period.
Interest Income. For the three month period, the Company earned $1,451,035
on its cash equivalents and $675,325 from the escrowed funds.
Interest Expense. Interest expense incurred during the period amounted to
$5,564,312. This amount gives pro forma effect to the issuance of the Existing
Notes and the Notes offered hereby only to the extent that the net proceeds of
such offerings were used to repay indebtedness of the Company. No pro forma
interest expense has been reflected on indebtedness incurred to acquire
channel rights in the BTA Auction. Giving full effect to (i) the issuance of
the Existing Notes and amortization of the related debt issuance costs, (ii)
the issuance of the Notes at an assumed rate of 12.5% and amortization of the
related debt issuance costs, and (iii) the incurrence of BTA Auction
indebtedness as if such indebtedness had been incurred, and the Existing Notes
and Notes had been issued, on January 1, 1995, interest expense on a pro forma
basis would have been $10.5 million for the three months ended March 31, 1996.
Net Loss. As a result of the excess of expenses over revenues detailed
above, the Company incurred a net loss of $5,453,738 for the three months
ended March 31, 1996.
Twelve Months Ended December 31, 1995
Revenues. For the twelve months ended December 31, 1995, revenues were
$6,387,670. Subscription revenues from new subscribers accounted for
$5,901,370, or approximately 92% of total revenues.
Systems Operations Expense. The Company incurred $4,411,642 of systems
operating expenses, primarily related to channel lease payments.
SG&A Expense. The Company recorded SG&A expense in the amount of $7,380,690
for the twelve months ended December 31, 1995.
Depreciation and Amortization Expense. Depreciation and amortization expense
totaled $5,152,049 for the period.
Interest Income. For the twelve months ended December 31, 1995, the Company
earned $1,488,495 on its cash equivalents and $550,684 from the escrowed
funds.
Interest Expense. Interest expense incurred during the period amounted to
$6,325,845. This amount gives pro forma effect to the issuance of the Existing
Notes and the Notes offered hereby only to the extent that the net proceeds of
such offerings were used to repay indebtedness of the Company. No pro forma
interest expense has been reflected on indebtedness incurred to acquire
channel rights in the BTA Auction. Giving full effect to (i) the issuance of
the Existing Notes and amortization of the related debt issuance costs, (ii)
the issuance of the Notes at an assumed rate of 12.5% and amortization of the
related debt issuance costs, and (iii) the incurrence of BTA Auction
indebtedness as if such indebtedness had been incurred, and the Existing Notes
and Notes had been issued, on January 1, 1995, interest expense on a pro forma
basis would have been $40.5 million for the year ended December 31, 1995.
Net Loss. As a result of the excess of expenses over revenues detailed
above, the Company incurred a net loss of $9,772,335 for the twelve months
ended December 31, 1995.
44
<PAGE>
BUSINESS
The Company acquires, develops, owns and operates wireless cable television
systems, primarily in small to mid-size markets located in the southeastern
United States. The Company's 80 markets (including 10 through a limited
liability company which is 50% owned by the Company) are located in Texas,
Louisiana, Mississippi, Tennessee, Kentucky, Alabama, Georgia, Arkansas, North
Carolina, South Carolina and Florida and represent approximately 9.6 million
households (including households in markets held through such limited
liability company). The Company believes that approximately 7.3 million (1.1
million of which are in markets held through such limited liability company)
can be served by LOS transmissions. LOS transmissions generally require a
direct, unobstructed transmission path from the central transmitting antenna
to an antenna at the subscriber's location. The Company believes that certain
of its Mississippi, Tennessee, Alabama, Louisiana, Georgia and Florida markets
comprise the largest contiguous geographic cluster in the wireless cable
industry, covering approximately 204,000 square miles.
The Company operates in and targets small to mid-size markets with a
significant number of LOS households that are unpassed by traditional hard-
wire cable. The Company estimates that approximately 25% of its LOS households
are unpassed by traditional hard-wire cable. By comparison, in the 20 largest
hard-wire cable markets in the United States, approximately only 2% of all
households are unpassed by traditional hard-wire cable. Many of the households
in the Company's Markets, particularly in rural areas, have limited access to
local off-air VHF/UHF programming from ABC, NBC, CBS and Fox affiliates, and
typically do not have access to subscription television service except via
satellite television operators, whose equipment and subscription fees
generally are more costly than those of wireless cable, and which are unable
to retransmit local off-air channels. In many of the Company's rural Markets,
the Company believes a significant number of households passed by cable are
served by local cable operators with lower quality service and limited
reception and channel lineups. As a result, the Company believes that its
wireless cable television service is an attractive alternative to existing
television choices for both passed and unpassed households.
The Company's markets include (i) 24 Operating Systems, (ii) 9 Systems Under
Construction, (iii) 17 Near-Term Launch Markets, and (iv) 20 Long-Term Launch
Markets. In addition, the Company owns a 50% interest in a limited liability
company which holds channel rights to serve 10 markets in North Carolina. See
"Risk Factors--Need for Additional Financing for Growth; Certain Covenants",
"--Uncertainty of Ability to Obtain FCC Authorizations", "Wireless Cable
Industry--Government Regulation" and "Use of Proceeds." During the six months
ended June 30, 1996, the Company increased its aggregate number of subscribers
through internal growth and new system launches from approximately 23,725 to
40,253, representing a 139% annualized growth rate and a penetration rate of
approximately 1.8% of the LOS households in the Operating Systems at June 30,
1996.
While none of the Company's Operating Systems currently generate operating
income or positive cash flow from operations, three of the Company's Operating
Systems, Delta and Jackson, Mississippi, and Huntsville, Alabama currently
generate positive System EBITDA. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. EBITDA is not intended to represent cash flows, as determined in
accordance with generally accepted accounting principles, nor has it been
presented as an alternative to operating income or cash flow from operations
as an indicator of operating performance and should not be considered as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles. Based on its brief operating history, the
Company believes that its Operating Systems, which are summarized below, will
generate positive System EBITDA upon the achievement of 2,500 to 3,000
subscribers. However, there can be no assurance that the achievement of this
level of subscribers will result in a system generating positive System
EBITDA. As of June 30, 1996, the Company had 40,253 subscribers in its 24
Operating Systems.
45
<PAGE>
OPERATING SYSTEMS AND THE COMPANY'S MARKETS
The table below provides information regarding the Company's Markets.
"Estimated Total Households" represents the Company's estimate of the total
number of households that are within the Company's Intended Service Area.
"Intended Service Area" includes (i) areas that are presently served, (ii)
areas where systems are not presently in operation but where the Company
intends to commence operations and (iii) areas where service may be provided
by signal repeaters or, in some cases, pursuant to FCC applications in some
Markets. "Estimated LOS Households" represents the Company's estimate of the
number of households that can receive an adequate signal from the Company in
its Intended Service Area (determined by applying a discount to the Estimated
Total Households in order to account for those homes that the Company
estimates will be unable to receive service due to certain characteristics of
the particular market). The calculation of Estimated LOS Households assumes
(i) the grant of pending applications for new licenses or for modifications of
existing licenses and (ii) the grant of applications for new licenses and
license modification applications which have not yet been filed with the FCC.
The Company holds few FCC channel licenses directly. For a majority of its
channel rights, the Company has acquired the right to transmit over those
channels under leases with holders of channel licenses and applicants for
channel licenses. Although the Company has obtained or anticipates that it
will be able to obtain access to a sufficient number of channels to operate
commercially viable wireless cable systems in its Markets, if a significant
number of the Company's channel leases are terminated or not renewed, a
significant number of pending FCC applications in which the Company has rights
are not granted or the FCC terminates, revokes or fails to extend or renew the
authorizations held by the Company's channel lessors, the Company may be
unable to provide a commercially viable programming package to customers in
some or all of its Markets. In addition, with the cooperation of the Company,
certain channel lessors may file applications with the FCC to modify certain
channel licenses in the Company's Markets to allow for the relocation of some
channels from their currently authorized transmission site. While the
Company's leases with such licensees require their cooperation, it is possible
that one or more of such lessors may hinder or delay the Company's efforts to
use the channels in accordance with the Company's plans for the particular
market. Further, FCC interference protection requirements may impact efforts
to modify licenses.
46
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED APPROXIMATE
TOTAL LOS LAUNCH CURRENT EXPECTED SUBSCRIBERS AT
HOUSEHOLDS(1) HOUSEHOLDS(2) DATE CHANNELS(3) CHANNELS(3)(4) JUNE 30, 1996
------------- ------------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING SYSTEMS(5):
Brenham, TX............. 39,500 32,100 February 1996 20 32 857
Bryan/College
Station, TX............ 102,700 65,600 May 1995 32 32 2,899
Milano, TX(6)........... 40,900 36,800 October 1995 20 32 1,659
Wharton, TX ............ 102,300 92,000 June 1994 21 24 2,114
Bunkie, LA.............. 94,700 81,600 December 1995 20 20 1,498
Lafayette, LA(7)........ 180,300 153,200 January 1994 11 26 697
Lake Charles, LA........ 111,600 92,500 April 1994 17 31 555
Monroe, LA(6)........... 114,100 89,600 October 1995 23 30 1,806
Jackson, MS............. 211,500 176,900 June 1994 29 32 10,745
Delta, MS(8)............ 100,800 92,800 July 1995 31 32 4,096
Gulf Coast, MS(9)....... 132,300 121,700 January 1996 24 32 1,672
Natchez, MS............. 76,500 60,000 June 1996 20 31 2
Oxford, MS.............. 60,100 53,500 June 1996 20 32 23
Bucks, AL............... 150,800 113,700 April 1996 20 25 454
Demopolis, AL........... 17,500 15,600 April 1996 28 31 266
Dothan, AL.............. 100,500 81,200 June 1996 23 27 1
Huntsville, AL(10)...... 196,800 181,900 February 1991 27 28 4,014
Fort Walton Beach, FL... 64,200 54,600 May 1996 15 31 70
Gainesville, FL(11)..... 138,700 115,200 January 1996 24 28 986
Panama City, FL ........ 108,300 83,300 September 1995 23 31 1,751
Pensacola, FL........... 217,400 157,900 July 1995 28 29 2,041
Jeffersonville, GA...... 189,300 147,000 March 1996 20 21 247
Lawrenceburg, TN(10).... 76,400 44,100 June 1995 20 32 397
Tullahoma, TN .......... 109,600 73,600 November 1995 20 20 1,403
--------- --------- ------
Total Operating
Systems.............. 2,736,800 2,216,400 40,253
--------- --------- ======
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED TOTAL ESTIMATED LOS EXPECTED
HOUSEHOLDS(1) HOUSEHOLDS(2) CHANNELS(3)(4)
--------------- ------------- --------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION(12):
Florence, AL ..................... 62,000 55,800 24
Albany, GA(13).................... 92,900 67,600 21
Ocala, FL......................... 275,500 186,200 24
Alexandria, LA.................... 31,700 26,900 28
Houma, LA......................... 81,700 69,500 26
Meridian, MS...................... 73,300 44,800 31
Starkville, MS.................... 84,100 65,200 32
Tupelo, MS........................ 130,900 90,600 30
Chattanooga, TN .................. 276,100 200,600 31
--------- -------
Total Systems Under
Construction................... 1,108,200 807,200
--------- -------
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED TOTAL ESTIMATED LOS EXPECTED
HOUSEHOLDS(1) HOUSEHOLDS(2) CHANNELS(3)(4)
--------------- ------------- --------------
<S> <C> <C> <C>
NEAR-TERM LAUNCH MARKETS(14):
Bedias/Huntsville, TX.............. 89,000 50,200 32
Freeport, TX....................... 192,700 173,400 29
Hattiesburg, MS.................... 121,400 88,800 32
Flippin, TN ....................... 56,700 49,600 20
Jackson, TN........................ 123,900 86,400 22
Memphis, TN........................ 433,200 382,200 23
Bankston, AL....................... 64,800 41,300 20
Gadsden, AL(15).................... 198,100 133,300 29
Montgomery, AL..................... 149,200 114,300 27
Selma, AL.......................... 35,700 26,000 32
Charing, GA........................ 41,100 38,400 31
Groveland, GA(16).................. 172,800 136,000 20
Hoggards Mill, GA ................. 22,600 13,000 20
Matthews, GA....................... 193,600 158,700 31
Tarboro, GA........................ 81,500 65,200 20
Valdosta, GA(17)................... 103,200 81,300 29
Marianna, FL....................... 56,700 44,900 24
--------- ---------
Total Near-Term Launch Markets... 2,136,200 1,683,000
--------- ---------
LONG-TERM LAUNCH MARKETS(18):
Auburn, AL(19)..................... 62,200 47,700 31
Birmingham, AL .................... 308,400 276,900 28
Mobile, AL (20).................... 66,100 40,400 21
Six Mile, AL ...................... 32,600 27,000 20
Tuscaloosa, AL..................... 87,100 69,600 28
Woodville, AL ..................... 29,700 25,000 17
Hot Springs, AR.................... 103,800 71,200 16
Pine Bluff, AR(21)................. 86,300 57,900 16
Tallahassee, FL ................... 129,800 115,000 29
Columbus, GA....................... 160,100 116,500 32
Vidalia, GA(22).................... 50,800 34,500 20
Bowling Green, KY.................. 126,900 68,300 20
Abita Springs, LA.................. 217,300 116,800 20
Amite, LA.......................... 50,100 34,400 20
Baton Rouge, LA(15)(23)............ 261,700 235,500 20
Leesville, LA...................... 43,500 26,700 28
Natchitoches, LA(15)............... 30,600 24,800 25
Ruston, LA......................... 44,700 24,300 22
Tallulah, LA....................... 19,500 17,600 20
Moorehead City, NC................. 82,700 55,900 16
--------- ---------
Total Long-Term Launch Markets... 1,993,900 1,486,000
--------- ---------
COMPANY TOTALS................. 7,975,100 6,192,600
========= =========
</TABLE>
- -------
(1) Estimated Total Households represents the Company's estimate of the total
number of households that are within the Company's Intended Service Area.
Intended Service Area includes (i) areas that are presently served, (ii)
areas where systems are not presently in operation but where the Company
intends to commence operations and (iii) areas where service may be
provided by signal repeaters or, in some cases, pursuant to FCC
applications in some markets.
(2) Estimated LOS Households represents the Company's estimate of the number
of households that can receive an adequate signal from the Company in its
Intended Service Area (determined by applying a discount to the Estimated
Total Households in order to account for those homes that the Company
estimates will be unable to receive service due to certain
characteristics of the particular
48
<PAGE>
market). The calculation of Estimated LOS Households assumes (i) the grant
of pending applications for new licenses or for modification of existing
licenses and (ii) the grant of applications for new licenses and license
modification applications which have not yet been filed with the FCC.
(3) Includes wireless cable channels and, where applicable, local off-air
VHF/UHF channels that are not retransmitted by the Company via wireless
cable frequencies.
(4) Expected Channels include (i) Current Channels (see note 3 above) and
(ii) channels with respect to which the Company has a lease with a
channel license holder or applicant for a channel license or which the
Company has the exclusive right to apply for as a result of being the
high bidder at the BTA Auction. Certain licenses cannot be issued until
interference agreements with nearby licensees or applicants can be
secured. There can be no assurance that such interference agreements will
be secured or that applications for channel licenses will be granted. See
"Prospectus Summary--BTA Auction" and "Risk Factors--Uncertainty of
Ability to Obtain FCC Authorizations."
(5) Operating Systems include markets in which the Company is providing
commercial wireless cable service. The Jackson System, Delta System, Gulf
Coast System, Natchez System, Oxford System, Huntsville System, Demopolis
System and Lawrenceburg System are part of the TruVision Transaction and
pending acquisitions. See "The TruVision Transaction" and "Acquisitions".
(6) Acquired from Heartland Division in October 1995 as part of the Heartland
Transaction. The Milano System was acquired by Heartland Division in
December 1994. The Monroe System was constructed in March 1993. The
Systems were not actively marketed until being acquired by the Company as
part of the Heartland Transaction.
(7) The Company is not actively marketing, and does not currently intend to
actively market, its service in the Lafayette Market until an increase in
the channel offering is achieved, which the Company expects to occur
within 12 months from the date hereof.
(8) Eight channels currently utilized in the Delta System are operated under
special temporary FCC authorization.
(9) Four channels currently utilized in the Gulf Coast System were granted by
the FCC without acting on an objection filed by a third party.
(10) The Company has entered into an acquisition agreement with respect to
this system. There can be no assurance that the Company will consummate
such transaction. See "Risk Factors--Inability to Consummate the Pending
Acquisitions" and "Acquisitions."
(11) Ten channels currently utilized in the Gainesville, Florida System are
operated under special temporary FCC authorization.
(12) Systems Under Construction include Markets in which the system headend is
under construction and in which the Company expects to complete
construction and begin commercial operations by the end of November 1996.
The Tupelo, Meridian and Starkville, Mississippi Markets are part of the
TruVision Transaction. See "The TruVision Transaction."
(13) The Company has entered into a letter of intent to acquire rights to 4
channels in Albany, Georgia. There can be no assurance that the Company
will enter into a definitive agreement with respect to such channels. See
"Risk Factors--Inability to Consummate the Pending Transactions" and
"Acquisitions."
(14) Near-Term Launch Markets include Markets in which the Company believes
that it has obtained rights to use a sufficient number of wireless cable
channels to launch commercially viable systems. The Hattiesburg,
Mississippi market, the Flippin, Jackson and Memphis, Tennessee markets
and the Gadsden, Alabama market are part of the TruVision Transaction.
See "The TruVision Transaction." The Jackson, Tennessee market, which is
also part of the TruVision Transaction, is the subject of a pending
acquisition. See "Acquisitions."
(15) Eight of the ITFS applications for the Gadsden Market, sixteen of the
ITFS applications for the Baton Rouge Market and twelve of the ITFS
applications for the Natchitoches Market are subject to comparative
disposition with competing applications. The outcome of these
dispositions cannot be reliably projected at this time.
(16) Objections to the Company's lessors' requests for extension of time to
construct twelve channels are pending before the FCC. The outcome of
these matters cannot be determined.
(17) The Company has entered into a letter of intent to acquire rights to 9
channels in Valdosta, Georgia. There can be no assurance that the Company
will enter into a definitive agreement with respect to such channels. See
"Risk Factors--Inability to Consummate the Pending Transactions" and
"Acquisitions."
(18) Long-Term Launch Markets include Markets in which the Company believes
that it has obtained or expects to obtain, subject to the receipt of
necessary FCC approvals and third party consents, rights to use a
sufficient number of wireless cable channels to launch commercially
viable systems. The Tuscaloosa, Alabama and Hot Springs and Pine Bluff,
Arkansas markets are part of the TruVision Transaction. The Hot Springs,
Arkansas Market which is also part of the TruVision Transaction is the
subject of a pending acquisition. See "Acquisitions."
(19) The Company has entered into a letter of intent to acquire rights to
11 MDS channels and filings for 20 ITFS licenses and related transmission
tower leases and approvals in Auburn/Opelika, Alabama. There can be no
assurance that the Company will enter into a definitive agreement with
respect to such channels. See "Risk Factors--Inability to Consummate the
Pending Transactions" and "Acquisitions."
(20) An existing wireless cable operator is serving approximately 300
subscribers in this market with an 11 channel MDS system.
(21) The Company believes that another entity has leased rights to 20 other
channels that are the subject of pending ITFS applications.
(22) The Company has entered into a letter of intent to acquire rights to 20
channels in Vidalia, Georgia. There can be no assurance that the Company
will enter into a definitive agreement with respect to such channels. See
"Risk Factors--Inability to Consummate the Pending Transactions" and
"Acquisitions."
(23) An existing wireless cable operator is serving approximately 300
subscribers in this market with an 11 channel MDS system.
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<PAGE>
OPERATING SYSTEMS
The following discussion does not reflect channel rights attributable to the
BTA Auction.
Brenham System. The Company launched service in the Brenham, Texas System in
February 1996. The Brenham System serves portions of Washington, Austin,
Waller, Burleson, Lee, Fayette and Colorado counties in Texas. The Brenham
System had approximately 857 subscribers on June 30, 1996.
The Company leases 20 of the wireless cable channels available for the
Brenham market. The Company transmits on all 20 channels. The Brenham System
currently offers an 18 channel basic package, including five local off-air
VHF/UHF channels which are being retransmitted, for $19.95 per month. In
addition, a subscriber may purchase one premium service channel, HBO, for
$9.95. The Brenham System also offers one pay-per-view channel. The Brenham
System transmits at 10 watts of power from the 500 foot level of a 709 foot
tower, located 0.2 miles southwest of Brenham, Texas. The Brenham System's
signal pattern covers a radius of approximately 40 miles, encompassing
approximately 39,500 households, of which the Company believes approximately
32,100 can be served by LOS transmissions. The principal hard-wire cable
competitor in the city of Brenham is Northland Cable TV.
Bryan/College Station System. The Company launched service in the
Bryan/College Station, Texas System in May 1995. The Bryan/College Station
System serves all of Brazos, Grimes and Burleson counties and parts of
Washington, Madison, Robertson, Milano and Lee counties in Texas. The
Bryan/College Station System had approximately 2,899 subscribers on June 30,
1996, primarily in single-family homes.
The Company leases 32 of the wireless cable channels available for the
Bryan/College Station market. The Company transmits on all 32 of these
channels. The Bryan/College Station System currently offers a 27 channel basic
package, including five local off-air VHF/UHF channels which are being
retransmitted, for $19.95 per month. In addition, a subscriber may purchase
four premium service channels, HBO, The Disney Channel, Showtime and Starz,
for $9.95, $5.95, $6.95 and $4.95 per month, respectively. The Bryan/College
Station System also offers one pay-per-view channel. The Bryan/College Station
System transmits at 10 watts of power from the 484 foot level of a 499 foot
tower, three miles southwest of Bryan/College Station. The Bryan/College
Station System's signal pattern covers a radius of approximately 40 miles,
encompassing approximately 102,700 households, of which the Company believes
approximately 65,600 can be served by LOS transmissions. The principal hard-
wire cable competitor in the city of Bryan/College Station is TCA Cable TV,
Inc.
Milano System. The Company acquired the Milano, Texas System in October
1995. Prior thereto, the Milano System was operated by Heartland since
December 1994. The Milano System serves all of the Milano area and parts of
Milan, Burleson, Bell and Brazos counties. The Milano System had approximately
1,659 subscribers on June 30, 1996, primarily in single-family homes.
The Company leases 20 of the wireless cable channels available for the
Milano market. The Company transmits on all 20 of these channels. The Milano
System currently offers an 18 channel basic package, including five local off-
air VHF/UHF channels which are being retransmitted, for $19.95 per month. In
addition, a subscriber may purchase one premium service channel, HBO, for
$9.95 per month. The Milano System also offers one pay-per-view channel. The
Milano System transmits at 10 watts of power from the 695 foot level of a 700
foot tower, two miles northeast of Milano. The Milano signal pattern covers a
radius of approximately 39 miles, encompassing approximately 40,900
households, of which the Company believes approximately 36,800 can be served
by LOS transmissions. The principal hard-wire cable competitor in the city of
Milano is Cable Video Enterprises.
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<PAGE>
Wharton System. The Company launched service in the Wharton, Texas System in
June 1994. The Wharton System serves all of Wharton county and parts of Fort
Bend, Matagorda, Brazoria and Colorado counties. The Wharton System had
approximately 2,114 subscribers on June 30, 1996, primarily in single-family
homes.
The Company leases 21 of the wireless cable channels available for the
Wharton market. The Company transmits on all 21 of these channels. The Wharton
System currently offers an 18 channel basic package, including five local off-
air VHF/UHF channels which are being retransmitted, for $19.95 per month. In
addition, a subscriber may purchase two premium service channels, HBO and
Showtime, for $10.95 and $6.95 per month, respectively. The Wharton System
also offers one pay-per-view channel. The Wharton System transmits at 50 watts
of power from the 436 foot level of a 440 foot tower, 4.2 miles southeast of
Wharton. The Wharton System's signal pattern covers a radius of approximately
39 miles, encompassing approximately 102,300 households, of which the Company
believes approximately 92,000 can be served by LOS transmissions. The
principal hard-wire cable competitor in the city of Wharton is Falcon Cable.
Bunkie System. The Company launched service in the Bunkie, Louisiana System
in December 1995. The Bunkie System serves all of Evangeline parish and parts
of Acadia, Allen, Avoyelles, Point Coupee, Rapides and St. Landry parishes in
Louisiana. The Bunkie System had approximately 1,498 subscribers on June 30,
1996, primarily in single-family homes.
The Company leases 20 of the wireless cable channels available for the
Bunkie market. The Bunkie System currently offers an 18 channel basic package,
including five local off-air VHF/UHF channels which are being retransmitted,
for $19.95 per month. In addition, a subscriber may purchase one premium
service channel, HBO, for $9.95 per month. The Bunkie System also offers one
pay-per-view. The Bunkie System transmits at 50 watts of power from the 705
foot level of a 709 foot tower, located 3.1 miles east of Bunkie, Louisiana.
The Bunkie System's signal pattern covers a radius of approximately 40 miles,
encompassing approximately 94,700 households, of which the Company believes
approximately 81,600 can be served by LOS transmissions. The principal hard-
wire competitor is the City of Bunkie's Laribay Cablevision Limited.
Lafayette System. The Company launched service in the Lafayette, Louisiana
System in January 1994. The Lafayette System serves all of Lafayette, St.
Martin, Iberia, Vermillion and Acadia parishes, and parts of St. Landry and
St. Mary parishes in Louisiana. The Lafayette System had approximately 697
subscribers on June 30, 1996, primarily in single-family homes.
The Company leases 26 of the wireless cable channels available for the
Lafayette market. The Company transmits on six of these channels. Co-location
applications were recently granted for four channels. Co-location applications
are pending for eight additional channels. New station applications are
pending for eight channels. The Lafayette System currently offers an 11
channel basic package, consisting of six wireless cable channels and five
local off-air VHF/UHF channels, for $15.95 per month. The Lafayette System
transmits at 10 watts of power from the 220 foot level of a 228 foot tower,
2.8 miles west of Lafayette. The Company has filed and anticipates approval of
modification applications to increase to 50 watts of power, to transmit at the
588 foot level of a 604 foot tower and to move 8.6 miles south of Lafayette.
Upon such modifications, the Lafayette System's signal pattern will cover a
radius of approximately 38 miles, encompassing approximately 180,300
households, of which the Company believes approximately 153,200 can be served
by LOS transmissions. These LOS household counts do not differ materially from
the Company's present transmission site. The principal hard-wire cable
competitor in the city of Lafayette is TCA Cable TV, Inc.
Lake Charles System. The Company launched service in the Lake Charles,
Louisiana System in April 1994. The Lake Charles System serves all of
Calcasieu, Jefferson Davis and Cameron parishes, and parts of Beauregard and
Allen parishes in Louisiana. The Lake Charles System had approximately 555
subscribers on June 30, 1996, primarily in single-family homes.
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<PAGE>
The Company leases 31 of the wireless cable channels available for the Lake
Charles market. The Company transmits on nine of these channels. Co-location
applications were recently granted for two channels. Co-location applications
were recently granted for four channels and new station applications were
recently granted for the remaining sixteen channels. The Lake Charles System
currently offers a 16 channel basic package, consisting of eight wireless
cable channels and eight local off-air VHF/UHF channels, for $19.95 per month.
In addition, a subscriber may purchase one premium service channel, HBO, for
$9.95 per month. The Lake Charles System transmits at 50 watts of power from
the 407 foot level of a 411 foot tower, 5.5 miles west of Lake Charles.
Applications have been filed to operate the remaining 20 channels at 50 watts
of power from the same tower. The Lake Charles System's signal pattern covers
a radius of approximately 38 miles, encompassing approximately 111,600
households, of which the Company believes approximately 92,500 can be served
by LOS transmissions. The principal hard-wire cable competitor in the city of
Lake Charles is TCI Cable TV, Inc.
Monroe System. The Company acquired the Monroe System in October 1995.
Heartland completed construction of the Monroe System in March 1993. The
Monroe System had approximately 1,806 subscribers on June 30, 1996, primarily
in single-family homes.
The Company leases 30 of the wireless cable channels available for the
Monroe market. The Company transmits on 17 of these channels. A co-location
application is pending for one channel and new station applications are
pending for the remaining 12 channels. Four of these channels also are subject
to an administrative petition that, if granted, could result in the loss of
the license therefor. The Monroe System currently offers a 21 channel basic
package, consisting of 15 wireless cable channels and six local off-air
VHF/UHF broadcast channels, for $19.95 per month. In addition, a subscriber
may purchase one premium service channel, HBO, for $9.95 per month. The Monroe
System also offers one pay-per-view channel. The Monroe System transmits at 50
watts of power from the 650 foot level of a 906 foot tower, located ten miles
north of Monroe. The Monroe System's signal pattern covers a radius of
approximately 39 miles, encompassing approximately 114,100 households, of
which the Company believes approximately 89,600 can be served by LOS
transmissions. The principal hard-wire cable competitor in the city of Monroe
is Louisiana Cablevision.
Jackson System. The Company launched service in the Jackson, Mississippi
System in June 1994. The Jackson System serves all of the metropolitan area of
Jackson, Mississippi, including all or parts of Rankin, Hinds, Madison,
Copiah, Simpson, Scott, Yazoo, Warren and Claiborne counties. The Jackson
System had approximately 10,745 subscribers on June 30, 1996, primarily in
single-family homes.
The Company leases 29 of the 32 wireless cable channels available for the
Jackson market. The Jackson System currently offers a 26 channel basic
package, including five local off-air VHF/UHF channels which are being
retransmitted, for $19.95 per month. In addition, a subscriber may purchase
HBO and Showtime for $8.95 each per month and The Disney Channel for $4.95 per
month. In the Jackson System, the Company also offers its subscribers event
pay-per-view service on one channel shared with WMVT, a local independent
television station. The Jackson System began to generate positive System
EBITDA in March 1995, approximately 10 months after commencement of service.
The Jackson System transmits at 50 watts of power from a height of 1,040 feet
above ground level. The Jackson System's signal pattern covers a radius of
approximately 40 miles, encompassing approximately 211,500 households, of
which the Company believes approximately 176,900 can be served by LOS
transmissions. The principal hard-wire cable competitor in the city of Jackson
is Capitol Cablevision, a Time Warner Cable affiliate.
Delta System. The Company launched service in the Delta, Mississippi System
in July 1995. The Delta System serves that portion of the Delta region which
includes all or parts of Humphreys, Holmes, Sunflower, Washington and Yazoo
counties in Mississippi. The Delta System had approximately 4,096 subscribers
on June 30, 1996, primarily in single-family homes.
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<PAGE>
The Company leases 20 of the 32 wireless cable channels available for use in
the Delta market, owns three of the channels, and operates an additional eight
channels pursuant to a special temporary FCC authorization. The Delta System
currently offers a 27 channel basic package, including five local off-air
VHF/UHF channels which are being retransmitted, for $19.95 per month. In
addition, a subscriber may purchase HBO and Showtime for $8.95 each per month
and The Disney Channel for $4.95 per month. In the Delta System, the Company
also offers its subscribers an event pay-per-view channel and intends to offer
its subscribers a full-time pay-per-view channel beginning in the fourth
quarter of 1996. The Delta System began to generate positive System EBITDA in
February 1996, seven months after commencement of service. The Delta System
transmits at 50 watts of power from a height of 805 feet above ground level.
The Delta System's signal pattern covers a radius of approximately 40 miles,
encompassing approximately 100,800 households, of which the Company believes
approximately 92,800 can be served by LOS transmissions. The hard-wire cable
competitors in the Delta region are generally smaller operators, unaffiliated
with large multiple system cable operators ("MSOs").
Gulf Coast System. The Company launched service in the Gulf Coast,
Mississippi System in January 1996. The Gulf Coast System serves the entire
Gulf Coast region of Mississippi, including all or parts of Harrison, Hancock,
Jackson, Stone and Pearl River counties. The Gulf Coast System had
approximately 1,672 subscribers on June 30, 1996, primarily in single family
homes.
The Company leases 24 of the 32 wireless cable channels available for the
Gulf Coast market. The Gulf Coast System currently offers a 22 channel basic
package, including five local off-air VHF/UHF channels which are being
retransmitted, for $19.95 per month. In addition, a subscriber may purchase
two premium service channels, HBO and The Disney Channel, for $8.95 and $4.95
per month, respectively. The Gulf Coast System transmits at 50 watts of power
from a height of 1,285 feet above ground level. The Gulf Coast System's
cardioid or heart-shaped signal pattern, designed to maximize coverage of the
population densities along the coast, encompasses approximately 132,300
households, of which the Company believes approximately 121,700 can be served
by LOS transmissions. The principal hard-wire cable competitor in the Gulf
Coast region is Post-Newsweek Cable, Inc.
Natchez System. The Company launched service in the Natchez, Mississippi
System in June 1996. The Natchez System serves all or parts of Franklin,
Adams, Amite, Pike, Lincoln, Jefferson, Wilkinson, Claiborne and Copiah
counties. The Natchez System had approximately 2 subscribers on June 30, 1996.
The Company currently leases 20 of the wireless cable channels available for
the Natchez, Mississippi market. All 20 channels are granted and co-located.
The Natchez System currently offers an 18 channel basic package, including
five local off-air VHF/UHF channels which are being retransmitted, for $19.95
per month. In addition, a subscriber may purchase two premium service
channels, HBO and the Disney Channel, for $8.95 and $4.95 per month,
respectively. The Company is currently authorized to transmit 50 watts of
power using a dual antenna system mounted at the 805 and 795 foot levels of a
1,066 foot tower located 8.3 miles southeast of Bude, Mississippi. The Company
has filed modification applications to increase the centerline height of each
antenna 100 feet, to change the omnidirectional antenna to a similar model
with additional gain and change the polarization of the directional parabolic
antenna to vertical. Upon such modification, the Natchez system's signal
pattern will cover a radius of approximately 40 miles, encompassing
approximately 76,500 households, of which the Company believes approximately
60,000 can be served by LOS transmissions. The principal hard-wire cable
competitor in the area of Natchez, Mississippi is Marcus Cable.
Oxford System. The Company launched service in the Oxford, Mississippi
System in June 1996. The Oxford System serves all or parts of Lafayette,
Yalobusha, Union, Pontotac, Marshall, Panola,
53
<PAGE>
Tate and Tallahatchie counties. The Oxford System had approximately 23
subscribers on June 30, 1996.
The Company currently leases 20 of the wireless cable channels available for
the Oxford, Mississippi market. All 20 channels are granted and co-located.
The Oxford System currently offers an 18 channel basic package, including five
local off-air VHF/UHF channels which are being retransmitted, for $19.95 per
month. In addition, a subscriber may purchase two premium service channels,
HBO and the Disney Channel, for $8.95 and $4.95 per month, respectively. The
Company is currently authorized to transmit 50 watts of power using a dual
antenna system mounted at the 1,055 and 1,045 foot levels of a 1,304 foot
tower located 7.0 miles west northwest of Taylor, Mississippi. The Company has
filed modification applications to increase the centerline height of each
antenna 145 feet, to change the omnidirectional antenna to a similar model
with additional gain and change the polarization of the directional parabolic
antenna to vertical. Upon such modification, the Oxford System's signal
pattern will cover a radius of approximately 40 miles, encompassing
approximately 60,100 households, of which the Company believes approximately
53,500 can be served by LOS transmissions. The principal hard-wire cable
competitor in the area of Oxford, Mississippi is TCI of North Mississippi.
Bucks System. The Company launched service in the Bucks, Alabama System in
April 1996. The Bucks System serves parts of Washington, Mobile, Baldwin and
Clarke counties in Alabama. The Bucks System had approximately 454 subscribers
on June 30, 1996.
The Company currently leases 20 of the wireless cable channels available for
the Bucks, Alabama market. The Company transmits on all 20 of these channels.
The Bucks System currently offers an 18 channel basic package, consisting of
13 wireless cable channels and five local off-air VHF/UHF channels for $19.95
per month. In addition, a subscriber may purchase one premium service channel,
HBO, for $10.95 per month. The Bucks System transmits at 10 watts of power
from the 853 foot level of an 859 foot tower, located 9.6 miles northwest of
Bucks, Alabama. Modification applications to increase power to 50 watts are
pending before the FCC. Upon such modification, the Bucks System's signal
pattern will cover a radius of approximately 36 miles, encompassing 150,800
households, of which the Company believes approximately 113,700 can be served
by LOS transmissions. The principal hard-wire cable competitor in the area of
Bucks is Cablevision.
Demopolis System. The Company commenced commercial operations of the
Demopolis System, a wireless cable system in the Demopolis, Alabama area, in
April 1996. The Demopolis System serves Marengo, Sumter, and Hale counties and
portions of Perry, Choctow, Green, Dallas, and Wilcox counties. As a result of
the signal testing conducted earlier in 1996, the Demopolis System had
approximately 266 subscribers on June 30, 1996, primarily in single-family
homes.
The Company leases 28 of the wireless cable channels available for the
Demopolis market. The Demopolis System offers a 25 channel basic package,
including five local off-air VHF/UHF channels which are being retransmitted,
for $19.95 per month. In addition, the Company expects that a subscriber may
purchase HBO and Showtime for $8.95 each per month and The Disney Channel for
$4.95 per month. The Demopolis System transmits at 25 watts of power from a
height of 943 feet above ground level. The Demopolis System's signal pattern
covers a radius of approximately 40 miles, encompassing approximately 17,500
households, of which the Company believes approximately 15,600 can be served
by LOS transmissions. The Demopolis region is currently served by several
relatively small hard-wire cable franchise operators each serving less than
2,000 subscribers.
Dothan System. The Company launched service in the Dothan, Alabama System in
June 1996. The Dothan System serves parts of Early, Miller, Geneva, Holmes,
Barbour, Clay, Calhoun and Jackson Counties in Alabama and all of Dale, Henry
and Houston Counties in Alabama. The Dothan System had approximately 1
subscriber on June 30, 1996.
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<PAGE>
The Company currently leases 23 of the wireless cable channels available for
the Dothan, Alabama market. All 23 channels are granted and co-located.
The Company transmits 10 watts of power from the 900 foot level of a 1,021
foot tower, located 5.5 miles northeast of Dothan, Alabama. The Company has
filed and anticipates approval of modification applications to increase to 50
watts of power. Upon such modifications, the Dothan System's signal pattern
will cover a radius of approximately 35 miles, encompassing approximately
100,500 households, of which the Company believes approximately 81,200 can be
served by LOS transmissions. The principal hard-wire cable competitor in the
area of Dothan, Alabama is Comcast Cablevision of Dothan, Inc.
Huntsville System. The Company anticipates that it will acquire an operating
wireless cable system (the "Huntsville Wireless System") , in the third
quarter of 1996 (by which time the Company expects to receive the necessary
FCC consents and waivers), together with an operating hard-wire system (the
"Huntsville Wired System"), and operate it thereafter. The Huntsville Wireless
System had approximately 2,577 subscribers on June 30, 1996, and the
Huntsville Wired System had approximately 1,437 subscribers on June 30, 1996.
The Company intends to lease 24 and acquire three of the wireless cable
channels available for the Huntsville market. The Huntsville Wireless System
offers a 27 channel package, including five local off-air VHF/UHF channels
which are being retransmitted and three premium service channels (The Movie
Channel, The Disney Channel and Showtime) for $29.95 per month. The Huntsville
System transmits at 10 watts of power from a height of approximately 350 feet
above ground level and has been authorized to transmit at 50 watts of power.
The Huntsville System's signal pattern covers a radius of approximately 40
miles, encompassing approximately 196,800 households, of which the Company
believes approximately 181,900 can be served by LOS transmissions. The
principal hard-wire cable competitor in the Huntsville region is Comcast
Cablevision.
Fort Walton Beach System. The Company launched service in the Fort Walton
Beach, Florida System in May 1996. The Fort Walton Beach System serves parts
of Okaloosa and Walton counties in Florida. The Fort Walton Beach System had
approximately 70 subscribers on June 30, 1996 primarily in single family
homes.
The Company currently leases 23 of the channels available for the Fort
Walton, Florida market. The Company transmits on 15 of these channels. New
station applications are pending for the remaining eight channels. The Fort
Walton System currently offers a 13 channel basic package, consisting of eight
wireless cable channels and five local off-air VHF/UHF channels for $15.95 per
month. In addition, a subscriber may purchase one premium service channel,
HBO, for $10.95 per month. The Fort Walton System also offers one pay-per view
channel. The Fort Walton System transmits at 50 watts of power from the 276
foot level of a 279 foot tower, located four miles northeast of Fort Walton
Beach, Florida. The Fort Walton Beach System's signal pattern covers a radius
of approximately 39 miles, encompassing 64,200 households, of which the
Company believes approximately 54,600 can be served by LOS transmissions. The
principal hard-wire cable competitor in the area of Fort Walton Beach is
Emerald Coast Cable.
Gainesville System. The Company launched service in the Gainesville, Florida
System in January 1996. The Gainesville System serves parts of Clay, Duval,
Gilchrist, Dixie, Levy, Lafayette, Putnam, Swannee, Hamilton and Marion and
all of Alachua, Bradford, Baker, Columbia and Union counties in Florida. The
Gainesville System had approximately 986 subscribers on June 30, 1996,
primarily in single family homes.
The Company leases 28 of the wireless cable channels available for the
Gainesville, Florida market. The Company transmits on 24 of these channels.
Modification applications are pending for the remaining four channels and for
ten channels operating pursuant to special temporary authorization. The
Gainesville System currently offers a 22 channel basic package, including four
local off-air VHF/UHF channels which are being retransmitted, for $19.95 per
month. In addition, a subscriber may
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purchase HBO and Showtime for $9.95 and $6.95 per month, respectively. The
Gainesville System transmits at 50 watts of power from the 706 foot level of a
709 foot tower, located 24.0 miles southeast of Lake City, Florida. The
Gainesville System's signal pattern covers a radius of approximately 40 miles,
encompassing approximately 138,700 households, of which the Company believes
approximately 115,200 can be served by LOS transmissions. The principal hard-
wire cable competitor in the area of Gainesville is Warner Cable.
Panama City System. The Company launched service in the Panama City, Florida
System in September 1995. The Panama City System serves all of Bay County and
parts of Calhoun, Gulf, Holmes, Jackson, Walton and Washington counties in
Florida. The Panama City System had approximately 1,751 subscribers on June
30, 1996, primarily in single-family homes.
The Company leases 27 of the wireless cable channels available for the
Panama City market. The Company transmits on 23 of these channels. The Panama
City System currently offers a 21 channel basic package, including five off-
air VHF/UHF channels which are being retransmitted, for $19.95 per month. In
addition, a subscriber may purchase HBO for $9.95 per month and Showtime for
$6.95 per month. The Panama City System transmits at 50 watts of power from
the 450 foot level of a 500 foot tower, located 9.7 miles north of Panama
City. The Panama City System's signal pattern covers a radius of approximately
40 miles, encompassing approximately 108,300 households, of which the Company
believes approximately 83,300 can be served by LOS transmissions. The
principal hard-wire cable competitor in the city of Panama City is Comcast.
Pensacola System. The Company launched service in the Pensacola, Florida
System in July 1995. The Pensacola System serves all of Escambia and Santa
Rosa counties in Florida, and parts of Okaloosa and Baldwin counties in
Alabama. The Pensacola System had approximately 2,041 subscribers on June 30,
1996, primarily in single-family homes.
The Company leases 28 of the wireless cable channels available for the
Pensacola market. The Company transmits on all 28 of these channels. The
Pensacola System currently offers a 22 channel basic package, including six
local off-air VHF/UHF channels which are being retransmitted, for $19.95 per
month. In addition, a subscriber may purchase HBO and a five channel Showtime
package, for $9.95 and $10.95 per month, respectively. The Pensacola System
transmits at 50 watts of power from the 493 foot level of a 499 foot tower,
located 11.0 miles north of Pensacola. The Pensacola System's signal pattern
covers a radius of approximately 38 miles, encompassing approximately 217,400
households, of which the Company believes approximately 157,900 can be served
by LOS transmissions. The principal hard-wire cable competitor in the city of
Pensacola is Cox Cable Communications.
Jeffersonville System. The Company launched service in the Jeffersonville,
Georgia System in March 1996. The Jeffersonville System serves portions of
Laurens, Pulaski, Peach, Macon, Crawford, Monroe, Jones, Baldwin and Johnson
and all of Beckly, Wilkinson, Houston, Twiggs and Bibb counties in Georgia.
The Jeffersonville System had approximately 247 subscribers on June 30, 1996.
The Company leases 20 of the wireless cable channels available for the
Jeffersonville, Georgia market. The Company transmits on all 20 channels. The
Jeffersonville System currently offers an 18 channel basic package, including
five local off-air VHF/UHF channels which are being retransmitted, for $19.95
per month. In addition, a subscriber may purchase one premium service channel,
HBO, for $10.95. The Jeffersonville System also offers one pay-per-view
channel. The Jeffersonville System transmits at 50 watts of power from the 706
foot level of a 709 foot tower, located 3.3 miles northeast of Jeffersonville,
Georgia. The Jeffersonville System's signal pattern covers a radius of
approximately
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39 miles, encompassing 189,300 households, of which the Company believes
approximately 147,000 can be served by LOS transmissions. The principal hard-
wire cable competitor in the area of Jeffersonville is Cox Cable.
Lawrenceburg System. The Company anticipates, based on a stock purchase
agreement entered into with Shoals on July 1, 1996, that it will acquire all
of the outstanding capital stock of Shoals, whose principal asset is the
Lawrenceburg System, a wireless cable system currently operating in the
Lawrenceburg, Tennessee area with approximately 397 subscribers as of June 30,
1996. See "Acquisitions."
The Company intends to lease 20 of the wireless cable channels available for
the Lawrenceburg market. The Lawrenceburg System offers a 20 channel package,
including five local off-air VHF/UHF channels which are being retransmitted
and one premium service channel (Showtime) for $29.95 per month. The
Lawrenceburg System transmits at 10 watts of power from a height of
approximately 469 feet above ground level. The Lawrenceburg System's signal
pattern covers a radius of approximately 40 miles, encompassing approximately
76,400 households, of which the Company believes approximately 44,100 can be
served by LOS transmissions. The principal hard-wire cable competitor in the
Lawrenceburg region is Rifkin Cable.
Tullahoma System. The Company launched service in the Tullahoma, Tennessee
System in November 1995. The Tullahoma System serves parts of Coffee, Cannon,
Bedford, Moore, Franklin, Grundy and Warren counties in Tennessee. The
Tullahoma System had approximately 1,403 subscribers on June 30, 1996,
primarily in single-family homes.
The Company leases 20 of the wireless cable channels available for the
Tullahoma, Tennessee market. The Company transmits on all 20 channels. The
Tullahoma System currently offers an 18 channel basic package, including five
local off-air VHF/UHF channels which are being retransmitted, for $19.95 per
month. In addition, a subscriber may purchase one premium service channel,
HBO, for $9.95. The Tullahoma System also offers one pay-per-view channel. The
Company transmits at 10 watts of power from the 751 foot level of a 755 foot
tower, located 7.5 miles east of Tullahoma, Tennessee. The Tullahoma System's
signal pattern covers a radius of approximately 40 miles, encompassing
approximately 109,600 households, of which the Company believes approximately
73,600 can be served by LOS transmissions. The principal hard-wire cable
competitor in the city of Tullahoma is Tullahoma Cablevision.
Systems Under Construction
The Company currently has nine additional systems under construction, which
are located in Florence, Alabama; Albany, Georgia; Ocala, Florida; Alexandria
and Houma, Louisiana; Meridian, Starkville and Tupelo, Mississippi; and
Chattanooga, Tennessee. In each of the systems, the Company expects to begin
to transmit on its channels in such Markets by November 30, 1996. The
following discussion does not reflect channel rights attributable to the BTA
Auction.
Florence System. The Company currently leases 20 of the wireless cable
channels available for the Florence, Alabama market. Four channels are granted
and co-located. New station applications are pending for the remaining 16
channels. The Company expects to launch this system by September 30, 1996. The
Company will transmit at 10 watts of power from the 671 foot level of a 820
foot tower, located four miles east of Florence, Alabama. The Florence
System's signal pattern covers a radius of approximately 40 miles,
encompassing 62,000 households, of which the Company believes approximately
55,800 can be served by LOS transmissions.
The Company will serve parts of Lawrence, Limestone, Marion, Morgan and
Winston counties in Alabama, parts of Itawanba and Tishomingo counties in
Mississippi, parts of Hardin, Lawrence and
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Wayne Counties in Tennessee, and all of Colbert, Franklin and Lauderdale
counties in Alabama. The principal hard-wire cable competitor in the area of
Florence, Alabama is Comcast Cable of the Shoals, Inc.
Albany System. The Company currently leases 21 of the wireless cable
channels available for the Albany, Georgia market. Seventeen of the 21
channels are granted and co-located. The Company expects to launch this system
by July 31, 1996. The Company will transmit at 50 watts of power from the 453
foot level of a 520 foot tower, located four miles north of Albany, Georgia.
The Albany System's signal pattern covers a radius of approximately 35 miles,
encompassing 92,900 households, of which the Company believes approximately
67,600 can be served by LOS transmissions. The Company will serve parts of
Stewart, Webster, Sumter, Dooly, Calhoun, Early, Randolph, Crisp, Baker,
Turner, Miller, Mitchell and Colovett counties in Georgia, and all of Terrell,
Lee, Dougherty and Worth counties in Georgia. The principal hard-wire cable
competitor in the area of Albany, Georgia is TCI of Georgia.
Ocala System. The Company currently leases 24 of the wireless cable channels
available for the Ocala, Florida market. Of these, 8 channels are in the
process of being modified to co-locate, and 12 channels are granted and co-
located. A new station application is pending for the remaining 4 channels.
The Company expects to launch this system by September 30, 1996. The Company
will serve parts of Citrus, Sumpter, Putnam, Alachua, and Lake Counties in
Florida and all of Marion County in Florida. The Company will transmit at 10
watts of power from the 296 foot level of a 299 foot tower, located in Ocala,
Florida. The Ocala System's signal pattern covers a radius of approximately 39
miles, encompassing 275,500 households, of which the Company believes
approximately 186,200 can be served by LOS transmissions. The principal hard-
wire cable competitor in the area of Ocala, Florida is Cox Cable.
Alexandria System. The Company currently leases 27 of the wireless cable
channels available for the Alexandria, Louisiana market. Of these, 15 channels
are subject to pending modification applications and four channels are granted
and co-located. New station applications are pending for the remaining 8
channels. The Company expects to launch this System by August 31, 1996. The
Company will transmit at 50 watts of power from the 750 foot level of a 1,329
foot tower, located 18 miles northwest of Alexandria, Louisiana. The
Alexandria System's signal pattern covers a radius of approximately 40 miles,
encompassing 31,700 households, of which the Company believes approximately
26,900 can be served by LOS transmissions. The principal hard-wire cable
competitor in the area of Alexandria, Louisiana is Time Warner Cable.
Meridian System. The Company currently leases 20 of the wireless cable
channels available for the Meridian, Mississippi market. All 20 channels are
granted and co-located. The Company expects to launch this system by September
1996. The Company is licensed to transmit at 50 watts of power from the 805
foot level. A modification is pending FCC approval to move the 20 ITFS
channels. Consent letters from surrounding licensees have been received and
submitted to the FCC. A tower lease is currently under negotiation at a tower
site in the Meridian area. Upon completion of these negotiations and FCC
approval, the Meridian System's signal pattern will cover a radius of
approximately 40 miles, encompassing 73,300 households, of which the Company
believes approximately 44,800 households can be served by LOS transmissions.
The principal hard-wire cable competitor in the Meridian, Mississippi area is
TV Selection Systems, Inc., an affiliate of Comcast Corp.
Starkville System. The Company currently leases 20 of the wireless cable
channels available for the Starkville, Mississippi market. All 20 channels are
granted and co-located. The Company expects to launch this system by October
1996. The Company is licensed to transmit at 20 watts of power from the 280
foot level. Modifications are pending FCC approval to move the stations closer
to the population center, increase antenna height to 680 feet and increase
output power to 50 watts. A tower lease is currently under negotiation at a
tower site in the Starkville area. Upon completion of these
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negotiations and FCC approval, the Starkville System's signal pattern will
cover a radius of approximately 40 miles, encompassing 84,100 households, of
which the Company believes approximately 65,200 households can be served by
LOS transmissions. The principal hard-wire cable competitor in the Starkville,
Mississippi area is Northland Cable TV.
Tupelo System. The Company currently leases 20 of the wireless cable
channels available for the Tupelo, Mississippi market. All 20 channels are
granted and co-located. The Company expects to launch this System by October
1996. The Company is licensed to transmit at 50 watts of power from the 320
foot level. Modifications to move the stations are pending FCC approval. The
modification proposes to increase the antenna height from 320 feet to 534
feet. A tower lease is currently under negotiation at a tower site in the
Tupelo area. Upon completion of these negotiations and FCC approval, the
Tupelo System's signal pattern will cover a radius of approximately 40 miles,
encompassing 130,900 households, of which the Company believes approximately
90,600 households can be served by LOS transmissions. The principal hard-wire
cable competitor in the Tupelo, Mississippi area is Comcast Cablevision of
Tupelo.
Houma System. The Company currently leases 26 of the wireless cable channels
available for the Houma, Louisiana market. Eighteen of these channels are
granted and co-located. New station applications are pending for the remaining
eight channels. The Company expects to launch this system by August 31, 1996.
The Company will transmit at 10 watts of power from the 377 foot level of a
500 foot tower, located 19.5 miles northwest of Houma, Louisiana. The Houma
system's signal pattern covers a radius of approximately 40 miles,
encompassing 81,700 households, of which the Company believes approximately
69,500 can be served by LOS transmissions. The principal hard-wire cable
competitor in the area of Houma, Louisiana is Time Warner Cable.
Chattanooga System. The Company currently leases 31 of the wireless cable
channels available for the Chattanooga, Tennessee market. Of these channels,
15 are granted and co-located and eight are subject to pending modification
applications. New station applications are pending for the remaining 12
channels. The Company expects to launch this system by September 1996. The
Company will transmit at 50 watts of power from the 309 foot level of a 579
foot tower, located 12.0 miles north of Chattanooga, Tennessee. The
Chattanooga System's signal pattern covers a radius of approximately 40 miles,
encompassing 276,100 households, of which the Company believes approximately
200,600 can be served by LOS transmissions. The Company will serve parts of
DeKalb, Jackson, Catoosa, Dade and Walker counties. The principal hard-wire
cable competitor in the area of Chattanooga, Tennessee is Chattanooga Cable
T.V., Inc.
Near-Term and Long-Term Launch Markets
In these Markets, the Company has obtained or expects to obtain, subject to
necessary FCC approvals, the rights to a sufficient number of wireless cable
channels to launch commercially viable systems. In the Near-Term Launch
Markets, the Company believes that it has obtained such wireless cable channel
rights. Many of the Company's channel rights in the Long-Term Launch Markets
are in the form of lease agreements with qualified, non-profit educational
organizations that have licenses for channels which must be modified by the
FCC to be utilized by the Company as planned, that have pending applications
for ITFS channels that have not yet been granted or for which application to
the FCC has yet to be made. The Company is considering modifying certain
channel licenses in Near-Term Launch Markets and Long-Term Launch Markets to
allow for the relocation of some channels from their currently authorized or
proposed transmission sites. While the Company believes that the relocation
would increase the total number of potential subscribers in those systems, the
Company does not intend to delay construction of a new system if the
modifications are not approved by the FCC.
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Currently, the FCC will not accept applications for new ITFS licenses or
"major" modifications of ITFS licenses which affects channel rights in several
of the Company's Long-Term Launch Markets. The most recent five-day window for
filing ITFS applications was completed on October 20, 1995, in which the
Company's lessors filed the majority of the applications required to
effectuate its long-term launch plans. The Company's currently pending ITFS
applications are expected to undergo review by FCC engineers and staff
attorneys over the next 24 months. If the FCC staff determines that an
application meets certain basic technical and legal qualifications, the staff
will then determine whether the application proposes facilities that would
result in signal interference to facilities proposed in other pending
applications. If so, the conflicting applications undergo a comparative
selection process. The FCC's ITFS application selection process is based on a
set of comparative criteria that includes whether an applicant is located in
the community to be served and is an accredited educator proposing to serve
its own students. Historically, the outcome of the selection process when two
or more qualified applicants are competing for the same channels has been
somewhat predictable based on the particular facts and circumstances. A small
number of the Company's lease agreements involve applications for channel
licenses for which competing applications have been filed. The Company
therefore anticipates that a substantial number of the pending applications
will be granted. However, no assurance can be given as to the precise number
of applications that will be granted. The failure of the Company to obtain a
sufficient number of channel rights in a particular Market could have a
material adverse effect on the growth of the Company.
The Company currently expects to construct and to begin operations in the
Near-Term Launch Markets by November 30, 1996 and 20 to 24 Long-Term Launch
Markets in 1997. Construction will entail the construction of a transmission
building near a transmission tower and the installation of transmission
equipment and, in certain cases, the construction of the transmission tower.
The construction of the transmission facility will enable the Company to
launch wireless cable service in such Markets. For the remaining Markets, the
Company expects to begin operations by the end of 1998. The Company is
analyzing the appropriate construction schedule for the remaining Long-Term
Launch Markets. This analysis is being performed based upon multiple factors
including, but not limited to, the expiration dates of channel leases and FCC
construction authorizations, the number of potential subscribers in each
Market, the availability of capital and the proximity of a market to Operating
Systems and other Markets ready for construction. In managing its wireless
cable channel assets, the Company may, at its option, trade or exchange
existing channel rights in order to acquire, directly or indirectly, channel
rights in Markets that have a greater strategic value to the Company.
WIRELESS ONE OF NORTH CAROLINA, L.L.C.
On October 10, 1995, the Company entered into a Limited Liability Company
Agreement with CT Wireless Cable, Inc., a North Carolina corporation, and O.
Gene Gabbard, for the purpose of forming Wireless One of North Carolina,
L.L.C., a Delaware limited liability company ("WONC"), to (i) develop and
operate wireless cable systems in the state of North Carolina and in the
markets encompassing Greenville and Spartanburg, South Carolina, (ii) enter
into lease agreements with various educational organizations for the use of
ITFS wireless cable channels, (iii) bid for, purchase, or otherwise acquire
the use of licenses for commercial wireless cable channels, and (iv) develop
and operate wireless cable systems using the leased ITFS and acquired
commercial wireless cable channels. The Company holds a 50% interest in WONC,
CT Wireless Cable, Inc. holds a 48% interest in WONC, and O. Gene Gabbard
holds a 2% interest in WONC.
Based on WONC's ITFS filings and channel acquisitions, the TruVision
Transaction and BTA Auction high bids, the Company believes that WONC will
have sufficient channel capacity to launch wireless cable systems in the
following markets:
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<TABLE>
<CAPTION>
ESTIMATED
TOTAL ESTIMATED LOS
MARKET HOUSEHOLDS HOUSEHOLDS
- ------ ---------- -------------
<S> <C> <C>
Asheville, NC.......................................... 246,700 93,300
Fayetteville, NC....................................... 245,300 179,700
Greenville, NC......................................... 99,200 57,500
Hickory, NC............................................ 376,800 162,700
Jacksonville, NC....................................... 136,700 116,200
Rocky Mount, NC........................................ 199,100 178,900
Roanoke Rapids, NC..................................... 44,700 38,000
Wilmington, NC......................................... 136,900 123,400
Rockingham, NC......................................... 93,200 86,600
Elizabeth City, NC..................................... 63,800 35,500
--------- ---------
Total................................................ 1,642,300 1,071,700
========= =========
</TABLE>
WONC has also filed for ITFS channels and has agreements to acquire channels
in Charlotte, Greensboro and Raleigh, North Carolina and Spartanburg, South
Carolina; however, the Company does not believe that WONC has sufficient
channel capacity to launch systems in these four markets.
SYSTEM COSTS
The Company estimates that the current cost per market for transmission (or
headend) equipment and a headend build-out in a typical 20 channel system will
be approximately $570,000. In addition, the Company expects to spend
approximately $2.8 million on beam benders in 1996 and 1997. Beam benders
permit reception of the Company's signal in areas which would otherwise be
unable to receive transmission due to terrain or other obstacles. The
additional cost to expand a system to a full 32 channels is approximately
$180,000. The Company estimates that, as of December 31, 1995, each additional
wireless cable subscriber with a single set-top converter required an
incremental capital expenditure of approximately $375 to $475, consisting of,
on average, $240 to $340 of materials and $135 of installation labor and
overhead charges.
The operating costs for wireless cable systems are generally lower than
those for comparable traditional hard-wire systems. This is attributable to
lower system network maintenance and depreciation expense. Programming is
generally available to traditional hard-wire and wireless cable operators on
comparable terms, although operators that have a smaller number of subscribers
often are required to pay higher per subscriber fees. Accordingly, operators
in the initial operating stage generally pay higher programming fees on a per
subscriber basis. The Company believes that its Markets typically have a
stable base of subscribers which have allowed it to maintain an average churn
rate below 2.5% per month for the six months ended June 30, 1996, as compared
to a churn rate of approximately 3% per month typically experienced by
traditional hard-wire cable operators, resulting in reduced installation and
marketing expenses. By locating its operations in geographic clusters, the
Company believes that it can further contain costs by taking advantage of
economies of scale in management, sales and customer service. For each
Operating System, the Company employs a general manager, salespersons and
installation and repair personnel. All other functions are centralized,
including engineering, marketing, billing, customer service, finance and
administration.
PROGRAMMING
The Company seeks to offer popular programming at affordable prices. The
Company's typical channel offering includes 20 to 31 channels, which include
19 to 26 basic channels, up to three premium channels (HBO, The Disney Channel
and Showtime) and up to one full-time pay-per-view channel. Local news
programs are broadcast over the VHF/UHF channels which in turn are
retransmitted over the Company's wireless cable channels. Thus subscribers to
the Company's
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services have access to local news, including weather news. The Company
believes that being able to provide such access gives it an important
competitive advantage over DBS competitors, which do not rebroadcast such
programming.
The following chart depicts the Company's current programming line-up in a
typical Market.
COMPANY CHANNEL OFFERINGS
BASIC
ABC (local network affiliate) The Learning Channel (education)
AMC (classic movies) Mind Extension University
(education)
Black Entertainment Television (special interest)
CBS (local network affiliate) The Nashville Network (music)
Country Music Television NBC (local network affiliate)
CNN (news) Nickelodeon (children's)
C-SPAN (public affairs) PBS (education, general interest)
Discovery (science) SportSouth (southeast U.S. sports)
The Disney Channel (/1/) TBS Superstation (sports, movies)
ESPN (sports) TNT (sports, movies)
The Family Channel (family entertainment) USA (general interest)
Fox (local network affiliate) The Weather Channel (weather)
PREMIUM PAY-PER-VIEW
Home Box Office Viewer's Choice
Showtime
The Disney Channel (/1/)
(/1/The)Disney Channel is part of the basic package except in the Company's
Mississippi Markets and certain other Markets where it is offered as a
premium channel.
OPERATIONS
Installation. Once a potential subscriber has requested service, a pre-
survey to determine the feasibility of LOS transmission at such subscriber's
location is carried out and the potential subscriber is informed the day of
the survey if service can be provided at the subscriber's location. Assuming
service can be provided, an installation is then scheduled. The Company
provides two installation options. One installation option features a standard
rooftop mount linked to a down converter located at the subscriber's location.
For cases where the subscriber's location is surrounded by trees which would
normally render LOS reception impossible, or upon subscriber request, the
Company has developed a tree mount, which consists of a 20 foot mast which is
bracketed to the upper part of a tree. A wire is then run from the mast to the
ground and back to the subscriber's location. Each installation option
includes grounding of the receiving antenna in accordance with national
electrical codes. The installation process is completed, and service
commences, typically within ten days of the initial request.
Billing. The Company believes that its billing procedures are an integral
part of its strategy to minimize churn. Subscribers are billed on the first
day of the month for that month's service with payment due on the fifteenth of
the month. The Company seeks to encourage delinquent accounts to pay by
disconnecting either premium or full service after a period of non-payment
coupled with a calling program by customer service representatives to
encourage delinquent accounts to pay and continue receiving service.
Marketing. Prior to commencing operations in a new system, the Company
develops a plan designed to manage subscriber growth by maintaining a
manageable backlog of installations (so that
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subscribers generally wait no more than ten days from initial inquiry to
commencement of service) which ensures that the quality of installations and
customer service remains high. The Company prioritizes areas of the market
according to the number of unpassed homes, the relative strength of any
traditional hard-wire competitors, the existence of terrain or obstructions
that would impede LOS transmissions, the economic demographics of the area,
and the percentage of single family homes. On the basis of such analysis the
market is divided into sub-markets of approximately 5,000 households and the
sub-markets are prioritized on the basis of their attractiveness to the
Company.
In each sub-market, the Company's marketing staff develops a targeted
marketing plan that typically includes direct mailings, telemarketing follow-
up calls and selected door-to-door sales. In certain markets, the Company uses
television and newspaper advertisements. A separate marketing team focuses on
adding commercial subscribers (such as restaurants, business offices and auto
dealers) and MDU contracts.
The Company markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
subscription television alternatives: customer service, picture quality and
reliability, programming features and price.
Customer Service. The Company has established the goal of maintaining high
levels of customer satisfaction. In furtherance of that goal, the Company
emphasizes responsive customer service and convenient installation scheduling.
The Company has established customer retention and referral programs in an
effort to obtain and retain new subscribers. Because traditional hard-wire
cable companies enjoyed virtual monopolies in the past, few have had an
incentive to provide as high levels of customer service as the Company
provides. The regulations promulgated under the 1992 Cable Act require
traditional hard-wire cable companies to provide improved customer service
which may decrease the Company's competitive advantage in this area.
Picture Quality and Reliability. Wireless cable subscribers enjoy
substantially outage-free, highly reliable picture quality because there is no
Cable Plant between the headend and the subscriber's location, as in the case
of traditional hard-wire cable. Within the signal range of the Operating
Systems, the picture quality of the Company's service is generally equal or
better in quality to that typically received by traditional hard-wire cable
subscribers because, absent any LOS obstruction, there is less opportunity for
signal degradation between the Company's headend and the subscriber.
Programming Features. In the Operating Systems and Systems Under
Construction, the Company believes that it has assembled sufficient channel
rights and programming agreements to provide a programming package competitive
with those offered by traditional hard-wire cable operators. Additionally, the
Company uses equipment which (when channel availability is sufficient) enables
it to offer pay-per-view programming and addressability not currently offered
by many of the rural hard-wire cable operators with which it competes.
Price. The Company offers its subscribers a programming package consisting
of basic service, enhanced basic service and premium programs. The Company can
offer a price to its subscribers for basic service and enhanced basic service
that is typically lower than prices for the same services offered by
traditional rural hard-wire cable operators because of lower operating costs.
The rates charged by cable operators for their programming services are
regulated pursuant to the 1992 Cable Act, as modified by the 1996 Act. The
Company is unable to predict precisely what effect FCC rate regulations will
have on the rates charged by traditional hard-wire cable operators.
Notwithstanding the regulations, however, the Company believes it will
continue to be price competitive with traditional hard-wire cable operators
with respect to comparable programming.
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EDNET AGREEMENT
The EdNet Agreement provides exclusive rights to use all excess airtime
(that portion of a channel's airtime available for commercial programming
under FCC rules and policies) for the 20 ITFS channels located in each of the
Company's Mississippi Markets. The Company believes that the EdNet Agreement
presents the Company with a number of strategic benefits. The Company's rights
under the agreement to the available commercial use of 20 of the 32 available
wireless frequencies throughout Mississippi provide it with the critical mass
of channels necessary to operate in each of its Mississippi Markets and create
a significant competitive advantage relative to other potential wireless cable
operators in such Markets. The large contiguous nature of the cluster of
Markets encompassing Mississippi will allow the Company to centralize
operations and achieve substantial economies of scale in Mississippi and
surrounding Markets. The Company believes its transmission of programming
involving job training, literacy projects and other continuing education
programs enjoys the support of the Mississippi state authorities and will
generate substantial goodwill in the community and enhance the Company's
identity as a local provider of subscription television service.
EMPLOYEES
As of March 31, 1996, the Company had a total of 507 employees. None of the
Company's employees is subject to a collective bargaining agreement. The
Company has experienced no work stoppages and believes that it has good
relations with its employees. The Company also utilizes the services of
unaffiliated independent contractors to build and install its wireless cable
systems and to market its service.
PROPERTIES
The Company leases approximately 15,746 square feet of office space for its
corporate headquarters in Baton Rouge, Louisiana under a lease that expires on
April 23, 2001. The Company pays approximately $131,500 per annum for such
space. The Company currently leases approximately 10,400 square feet for its
administrative and regional offices in Jackson, Mississippi, which lease
expires on April 30, 1998. The Company currently does and will, in the future,
purchase or lease additional office space in other locations where it launches
additional systems. In addition to office space, the Company also leases space
on transmission towers located in its various markets. The Company believes
that office space and space on transmission towers is readily available on
acceptable terms in the Markets.
LEGAL PROCEEDINGS
In an objection filed in June, 1996, which the Company believes to be
frivolous and without merit, the Company was accused of unlawfully colluding
with another bidder in the BTA Auction. Both the Company and the other bidder
have opposed the objection. The objection is pending before the FCC. If the
FCC rules against the Company, certain channel rights obtained at the BTA
Auction would be subject to administrative sanctions including the loss of
such BTA channel rights, a forfeiture of any payments due and referral to the
United States Department of Justice for further action. Although the Company
believes that the objection is frivolous and without merit, there can be no
assurance that the Company will prevail.
Other than as described above, the Company is not a party to any litigation
that would have a material adverse effect on its business, results of
operations, or financial condition.
TRADEMARKS
The Company owns certain trademarks; however, the Company believes that its
business is not materially dependent upon its ownership of any single
trademark or group of trademarks.
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WIRELESS CABLE INDUSTRY
SUBSCRIPTION TELEVISION INDUSTRY
The subscription television industry began in the late 1940s to serve the
needs of residents of predominantly rural areas having limited access to local
off-air VHF/UHF channels. The industry subsequently expanded to metropolitan
areas because its systems were able to offer better reception and more
programming than local off-air VHF/UHF channels, among other reasons.
Currently, subscription television systems typically offer a variety of
services including basic service, enhanced basic service, premium service and,
in some instances, pay-per-view service.
Typically, subscription television providers charge customers an
installation fee plus a fixed monthly fee for basic service. The monthly fee
for basic service is based on the number of channels provided, operating and
capital costs of the provider, and competition within the market, among other
factors. Subscribers who purchase enhanced basic service or premium services
usually are charged additional monthly fees corresponding thereto. Monthly
fees for basic, enhanced basic and premium services constitute the major
source of revenue for subscription television providers. Subscribers normally
may discontinue service at any time. Converter rentals, remote control
rentals, installation charges and reconnect charges for subscribers who were
previously disconnected also comprise a portion of a subscription television
provider's revenues, but generally do not comprise a major component of
revenues.
TRADITIONAL HARD-WIRE CABLE TECHNOLOGY
Most subscription television systems are hard-wire cable systems which
currently use coaxial cable to transmit television signals, although many have
upgraded or are considering upgrading to fiber optic cable with greater
channel capacity than coaxial cable. Traditional hard-wire systems have
headends which receive signals for programming services, such as CBS, NBC,
ABC, HBO, Cinemax, CNN, etc., which signals have been transmitted to the
headend by local broadcast or satellite transmissions. A headend consists of
signal reception, decryption, retransmission, encoding and related equipment.
The operator then delivers the signal from the headend to customers via a
Cable Plant. The use of a network of coaxial cable inherently results in
signal degradation and increases the possibility of outages. Specifically,
signals can be transmitted via coaxial cable only a relatively short distance
without amplification. However, each time a television signal passes through
an amplifier, some measure of noise is added. A series or "cascade" of
amplifiers between the headend and a customer leads to progressively greater
noise and for some viewers, a degraded picture. Also, an amplifier must be
properly balanced or the signal may be improperly amplified. Failure of any
one amplifier in the chain of a Cable Plant will black out the transmission
signal from the failed amplifier to the end of the cascade. Regular system
maintenance is required due to water ingress, temperature changes and other
equipment problems, all of which may affect the quality of a signal. Some
hard-wire cable companies have begun installing fiber optic networks, which
will substantially reduce the transmission and reception problems currently
experienced by traditional hard-wire cable systems and will expand the channel
capacity of their systems. However, the installation of such networks will
require a substantial investment by hard-wire cable operators.
WIRELESS CABLE DEVELOPMENT
Although regulatory and other obstacles impeded the growth of the wireless
cable industry through the 1980s, during the 1990s several developments have
facilitated the growth of the wireless cable industry, including (i)
regulatory reforms by the FCC to encourage the growth of the wireless cable
industry and its ability to compete with hard-wire cable operators, (ii)
Congressional scrutiny of the rates and practices of the hard-wire cable
industry, (iii) the increasing availability of programming for wireless cable
systems on non-discriminatory terms, (iv) consumer demand for alternatives to
hard-
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wire cable service, (v) the aggregation by wireless cable operators of a
sufficient number of channels in certain markets to create a competitive
service; and (vi) the increased availability of capital to wireless cable
operators in the public and private markets. According to the 1995 Cable TV
Financial Data Book, published by Paul Kagan Associates, Inc. ("Kagan"),
approximately 150 wireless cable systems presently operate in the United
States, with wireless cable serving approximately 400,000 customers at the end
of 1993 and approximately 600,000 customers at the end of 1994. In addition,
the 1995 Wireless Cable Databook estimates that wireless cable would be
serving approximately 950,000 customers at the end of 1995.
Like a traditional hard-wire cable system, a wireless cable system receives
programming at a headend. Unlike traditional hard-wire cable systems, however,
programming then is retransmitted by microwave transmitters operating in the
2150-2162 MHz and 2500-2686 MHz portions of the electromagnetic radio spectrum
from antennas located on a tower or building to a small receiving antenna
located at a subscriber's premises. At the subscriber's location, the signals
are descrambled, converted to frequencies that can be viewed on a television
set and relayed to a subscriber's television set by coaxial cable. Because the
microwave frequencies used will not pass through trees, hills, buildings or
other obstructions, wireless cable systems require a clear LOS from the
headend to a subscriber's receiving antenna. To ensure the clearest LOS
possible, in the Company's markets, the Company has placed, and plans to
place, its transmitting antennas on towers and/or tall buildings. There
exists, in each of the Company's operating and targeted markets, a number of
acceptable locations for the placement of its towers, and the Company does not
believe that the failure to secure any one location for such placement in any
single market will materially affect the Company's operation in such market.
Additionally, many LOS obstructions can be overcome with the use of signal
repeaters which retransmit an otherwise blocked signal over a limited area.
Because wireless cable systems do not require an extensive network of coaxial
cable and amplifiers, wireless cable operators can provide subscribers with a
reliable signal having few transmission disruptions resulting in a television
signal of a quality comparable or superior to, and at a significantly lower
system capital cost per installed subscriber than, traditional hard-wire cable
systems.
REGULATORY ENVIRONMENT
General. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke, modify and renew licenses within the spectrum available to wireless
cable; to approve the assignment and/or transfer of control of such licenses;
to approve the location of wireless cable systems; to regulate the kind,
configuration and operation of equipment used by wireless cable systems; and
to impose certain equal employment opportunity and reporting requirements on
channel license holders and wireless cable operators.
The FCC has determined that wireless systems are not "cable systems" for
purposes of the Communications Act. Accordingly, a wireless cable system does
not require a local franchise and is subject to fewer local regulations than a
hard-wire cable system. All transmission and reception equipment for a
wireless cable system can be located on private property; hence, there is no
need to make use of utility poles or dedicated easements or other public
rights of way. Although wireless cable operators typically must lease from the
holders of channel licenses the right to use wireless cable channels, unlike
hard-wire cable operators they do not have to pay local franchise fees.
Recently, legislation has been introduced in several states to authorize state
and local authorities to impose on all video program distributors (including
wireless cable operators) a tax on such distributors' gross receipts
comparable to the franchise fees that hard-wire cable operators must pay.
Similar legislation might be enacted in states where the Company does business
or intends to do business. Efforts are underway by the Wireless Cable
Association International, Inc. to have Congress preempt the imposition of
such taxes through enacting new federal legislation. In addition, the industry
is opposing
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the state bills as they are introduced. However, it is not possible to predict
whether or not new state laws will be enacted which impose new taxes on
wireless cable operators.
Channels Available for Wireless Cable. The FCC licenses and regulates the
use of channels used by channel license holders and wireless cable operators
to transmit video programming and other services. In 50 large markets in the
U.S., 33 analog channels are available for wireless cable (in addition to any
local off-air VHF/UHF broadcast channels that are not retransmitted over
wireless cable channels). In each other market, 32 analog channels are
available for wireless cable (in addition to any local off-air VHF/UHF
broadcast channels that are not retransmitted over wireless cable channels).
The actual number of wireless cable channels available for licensing in any
market is determined by the FCC's interference protection and channel
allocation rules. Except in limited circumstances, 20 ITFS channels in each
geographic area are generally licensed to qualified educational organizations.
In general, each of these channels must be used an average of at least 20
hours per week for educational programming. The educational requirement may be
satisfied by such programming as the Discovery Channel, PBS and C-SPAN. The
remaining airtime ("excess air time") on each ITFS channel may be leased to
wireless cable operators for commercial use, without further restrictions
(other than the right of the ITFS license holder, at its option, to recapture
up to an additional 20 hours of air time per week for educational
programming). Lessees of ITFS excess air time, including the Company,
generally have the right to transmit to their customers at no incremental cost
the educational programming provided by the lessor on one or more of its ITFS
channels, thereby providing wireless cable operators leasing such channels,
including the Company, with greater flexibility in their use of ITFS channels.
The remaining MDS channels available in most of the Company's operating and
targeted markets are made available by the FCC for full-time commercial usage
without educational programming requirements. ITFS excess capacity leases
generally cannot exceed terms of 10 years. The FCC does not impose any
restrictions on the terms of MDS channel leases, other than the requirement
that the licensee maintain effective control of its MDS station. The same FCC
control requirement applies to ITFS licensees. In addition, ITFS excess
capacity leases cannot exceed a term of 10 years from the time that the lessee
begins using the channel capacity. The Company's ITFS leases generally grant
the Company a right of first refusal to match any new lease offer after the
end of the lease term and require the parties to negotiate in good faith to
renew the lease.
Licensing Procedures. The FCC awards ITFS and MDS licenses based upon
applications demonstrating that the applicant is legally, technically and
financially qualified to hold the license and that the operation of the
proposed station will not cause impermissible interference to other stations
or proposed stations entitled to interference protection.
The FCC accepts applications for new ITFS stations or major modifications to
authorized ITFS stations in designated filing "windows." Where two or more
ITFS applicants file for the same channels and the proposed facilities cannot
be operated without impermissible interference, the FCC employs a set of
comparative criteria to select from among the competing applicants.
Recently, the FCC adopted a competitive bidding mechanism under which
initial MDS licenses for 493 designated BTAs were auctioned to the highest
bidder. The BTA Auction concluded on March 28, 1996 after 181 rounds of
bidding. High bidders were required to submit specified down payments to the
FCC by April 5, 1996. The Company was the high bidder for the BTA Markets, and
timely tendered the required down payment. BTA Auction winners obtain the
exclusive right to apply for available MDS channels within such BTA, subject
to compliance with FCC interference protection, construction and other rules.
The Company timely filed applications for MDS channels in the BTA Markets, and
such applications are pending before the FCC. Financing is available to
certain qualified entities from the United States government for rights
purchased in the BTA Auction. See "Description of Certain Indebtedness."
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Construction of ITFS stations generally must be completed within 18 months
of the date of grant of the authorization. Construction of MDS stations
licensed pursuant to initial applications filed before the implementation of
the BTA Auction rules generally must be completed within 12 months. If
construction of MDS or ITFS stations is not completed within the authorized
construction period, the licensee must file an application with the FCC
seeking additional time to construct the station, and demonstrate therein
compliance with certain FCC standards. If the extension application is not
filed or is not granted, the license will be deemed forfeited. FCC rules
prohibit the sale for profit of a conditional commercial license or of a
controlling interest in the conditional license holder prior to construction
of the station or, in certain instances, prior to the completion of one year
of operation. However, the FCC does permit the leasing of 100% of a commercial
license holder's spectrum capacity to a wireless cable operator and the
granting of options to purchase a controlling interest in a license even
before such holding period has lapsed. The construction requirements
applicable to MDS stations licensed pursuant to the BTA Auction are
substantially different. The licensee must build stations covering two-thirds
of the area within its control in the BTA within five years.
ITFS and commercial licenses generally have terms of 10 years. Applications
for renewal of MDS and ITFS licenses must be filed within a certain period
prior to expiration of the license term, and petitions to deny applications
for renewal may be filed during certain periods following the filing of such
applications. Licenses are subject to revocation or cancellation for violation
of the Communications Act or the FCC's rules and policies. Conviction of
certain criminal offenses may also render a licensee or applicant unqualified
to obtain renewal of a license. The Company's lease agreements with license
holders typically require the license holders, at the Company's expense, to
use their best efforts, in cooperation with the Company, to make various
required filings with the FCC in connection with the maintenance and renewal
of licenses. The Company believes that such a requirement reduces the
likelihood that a license would be revoked, cancelled or not renewed by the
FCC.
Wireless cable transmissions are subject to FCC regulations governing
interference and transmission quality. Other than a limited number of
experimental and developmental systems, wireless cable systems transmit in a
standard analog format. On July 11, 1996, acting on a request of the Company
and numerous other wireless cable operators, educators and equipment
manufacturers, the FCC adopted interim guidelines for the implementation of
certain digital transmission formats. These guidelines are intended to
facilitate the rapid implementation of digital wireless cable systems capable
of providing more programming sources on the same channel bandwidth and
improving signal quality.
The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the co-location of a
commercially viable number of transmitting antennas and operations with common
technical characteristics (such as power and polarity). In order to commence
the operations of certain of the Company's Markets, applications have been
filed or must be filed with the FCC to relocate and modify authorized
transmission facilities.
Under current FCC regulations, a wireless cable operator generally may serve
any location within the LOS of its transmission facility, provided that it
complies with the FCC's interference protection standards. An MDS station
generally is entitled to interference protection within a 35-mile radius
around its transmitter site. Generally, an ITFS facility is entitled to the
same 35-mile protected area during excess capacity use by a wireless cable
operator, as well as interference protection for all of its FCC-registered
receive-sites. In launching or upgrading a system, the Company may wish to
relocate its transmission facility, or increase its height or signal power in
order to serve one or more of its targeted markets. If such changes would
result in interference to any previously proposed station, the consent of such
station must be obtained before the FCC will grant the proposed modification.
There can be no assurance that any necessary consents will be received. In
addition, such modifications will be subject to the interference protection
rights of BTA Auction winners.
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The 1992 Cable Act. The 1992 Cable Act imposed additional regulation on
traditional hard-wire cable operators and permits regulation of hard-wire
cable rates in markets in which there is no "effective competition." The 1992
Cable Act, among other things, directed the FCC to adopt comprehensive new
federal standards for local regulation of certain rates charged by traditional
hard-wire cable operators. The 1992 Cable Act also deregulated traditional
hard-wire cable in a given market once other subscription television providers
serve, in the aggregate, at least 15% of the cable franchise area. Rates
charged by wireless cable operators, typically already lower than traditional
hard-wire cable rates, are not subject to regulation under the 1992 Cable Act.
Pursuant to the 1992 Cable Act, the FCC has required traditional hard-wire
cable operators to implement rate reductions.
The 1996 Act. The Telecommunications Act of 1996 became law on February 8,
1996. A principal focus of the 1996 Act is freeing local telephone companies
and long distance telephone companies from barriers to competing in each
other's lines of business, and preempting State restrictions on competition in
the provision of local telephone service. In addition, the 1996 Act contains
provisions which amend the 1992 Cable Act and which affect wireless cable
operators.
A significant potential effect on the Company of the 1996 Act may result
from its provisions exempting traditional hardwire cable systems from rate
regulation. In particular, the 1996 Act will end rate regulation of all but
basic cable service by 1999, and immediately removes virtually all rate
regulation of "small cable operators" -- those cable systems not owned by MSOs
and serving 50,000 or fewer subscribers. The Company believes that cable
systems in many of the Company's Markets will qualify for small system rate
deregulation. The Company anticipates that some number of such cable systems
will raise their rates, although the Company cannot predict the number of its
cable system competitors which will raise service rates, the timing of the
rate increases or the amounts of the rate increases. The Company regards the
1996 Act's rate deregulation of cable systems as generally positive because it
can be expected to improve the Company's price advantages over competing
traditional hard-wire cable services.
The 1996 Act also contains provisions allowing local exchange telephone
companies to offer cable service within their telephone service areas. Under
the 1992 Cable Act, exchange telephone companies were free to offer wireless
cable service anywhere, but could offer wired cable service only outside of
their exchange telephone areas or solely as common carriers, subject to FCC
authorization. The 1996 Act allows exchange telephone companies to offer video
programming services via radio communications (such as wireless cable) without
regulation of rates or services, to offer hard-wire or fiber cable service
channels for hire by video programmers, to offer their own hardwire or fiber
cable service over networks with channels also available for use by other
video program services providers under a modified regulatory scheme, and to
provide traditional cable service subject to local franchising requirements.
It is difficult to predict the impact (if any) of final FCC regulations with
regard to local exchange telephone companies in these respects on the Company.
FCC rules generally prohibit hard-wire cable operators from providing
wireless cable service in areas where the hard-wire cable franchise area
overlaps with the 35-mile protected service area of a wireless cable system.
In certain circumstances, the FCC may grant waivers of such restriction, or
the common ownership of hard-wire and wireless cable systems may otherwise be
exempt. Rules adopted by the FCC pursuant to the 1996 Act permit cable
operators to offer wireless cable service in such overlap areas where the
cable company is subject to "effective competition." Telephone companies are
not subject to any such cross-ownership restrictions.
The 1996 Act offers wireless cable operators and satellite programmers
relief from private and local governmentally-imposed restrictions on the
placement of receive-site antennas. In some instances, wireless cable
operators have been unable to serve areas due to laws, zoning ordinances,
homeowner association rules or restrictive property covenants banning the
erection of antennas on or near homes. The FCC has initiated proceedings to
promulgate rules implementing Congress' intent and such rules are expected to
be adopted by August 8, 1996. The Company cannot predict if any
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FCC rules ultimately adopted will materially improve the Company's access to
homes subject to receive-site antenna placement restrictions.
Finally, the 1996 Act requires wireless cable companies and traditional
hardwire cable companies to "scramble" or encrypt channels which ordinarily
carry indecent or sexually explicit adult programming. The Company does not
anticipate any adverse impact from that provision.
Other Regulations. Wireless cable license holders are subject to regulation
by the Federal Aviation Administration with respect to the construction,
marking and lighting of transmission towers and to certain local zoning
regulations affecting construction of towers, receive-site antennas and other
facilities. There may also be restrictions imposed by local authorities and
private covenants. There can be no assurance that the Company will not be
required to incur additional costs in complying with such regulations and
restrictions.
Due to the regulated nature of the subscription television industry, the
Company's growth and operations may be adversely impacted by the adoption of
new, or changes to existing, laws or regulations or the interpretations
thereof.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to transmit
programming over specified frequencies, the operator must then obtain the
right to use the programming to be transmitted.
General. Currently, with the exception of the retransmission of VHF/UHF
broadcast signals, programming is made available to wireless cable operators
in accordance with contracts with program suppliers under which the system
operator generally pays a royalty based on the number of customers receiving
service each month. Individual program pricing varies from supplier to
supplier; however, more favorable pricing for programming is generally
afforded to operators with larger customer bases. The likelihood that program
material will be unavailable to the Company has been significantly mitigated
by the 1992 Cable Act and various FCC regulations issued thereunder which,
among other things, impose limits on exclusive programming contracts and
prohibit vertically integrated cable operators from discriminating against
cable competitors with respect to the price, terms and conditions of the sale
of programming. Only a few of the major cable television programming services
carried by the Company are not currently directly or indirectly owned or
controlled by vertically integrated cable operators and the Company
historically has not had difficulty in arranging satisfactory contracts for
these services. The Company believes that it will have access to sufficient
programming to enable it to provide full channel lineups in its markets
through 1996 and for the foreseeable future. Current fair access to
programming rules imposed by the 1992 Cable Act and the 1996 Act only apply to
programming that is owned or controlled by a cable company or common carrier
and is delivered by satellite. The basic programming package offered by the
Company's operating systems is comparable to that offered by the local hard-
wire cable operators with respect to the most widely watched channels.
However, several of such local hard-wire cable operators may, because of their
greater channel capacity, currently offer more basic, enhanced basic, premium,
pay-per-view and public access channels than the Company. Certain hard-wire
cable companies competing in the Company's markets currently offer a greater
number of channels to their customers, compared to between 24 to 31 wireless
cable channels offered by the Company in its Operating Systems. The Company's
programming is supplied by numerous separate distributors.
Copyright. Under the federal copyright laws, permission from the copyright
holder generally must be secured before a video program subject to such
copyright may be retransmitted. Under Section 111 of the Copyright Act,
certain "cable systems" are entitled to engage in the secondary transmission
of programming without the prior permission of the holders of copyrights in
the programming. In order to do so, a cable system must secure a compulsory
copyright license. Such a license may be obtained
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by filing certain reports with and paying certain fees to the U.S. Copyright
Office. In 1994, Congress enacted the Satellite Home Viewers Act of 1994 which
clarified that wireless cable operators may rely on the cable compulsory
license provisions of Section 111 of the Copyright Act. The Company relies on
Section 111 to retransmit two superstations and five local off-air broadcast
signals.
Retransmission Consent. Under the retransmission provisions of the 1992
Cable Act, wireless cable and hard-wire cable operators seeking to retransmit
certain commercial broadcast signals must first obtain the permission of the
broadcast station. The FCC has exempted wireless cable operators from the
transmission 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 with respect to the Operating Systems where
it is retransmitting local VHF/UHF channels. Although there can be no
assurances that the Company will be able to obtain requisite broadcaster
consents, the Company is of the view that in most cases it will be able to do
so for little or no additional cost.
SUBSCRIPTION TELEVISION INDUSTRY TRENDS
The Company's business will be affected by subscription television industry
trends and, in order to maintain and increase its customer base in the years
ahead, the Company will need to adapt rapidly to industry trends to remain
competitive.
Addressability and Pay-Per-View. "Addressability" means the ability to
implement specific orders from or send other communications to each subscriber
without having to modify a subscriber's equipment. While the Company, like
many wireless cable operators, provides all subscribers with addressable
convertors, only approximately 35% of traditional hard-wire cable operators
use addressability. Without addressability, a traditional hard-wire cable
customer not subscribing to a premium channel must make two trips to the
traditional hard-wire cable operator's offices, once to obtain the
descrambling device and once to return it. A customer subscribing to a premium
channel must telephone the traditional hard-wire cable operator in advance.
The Company believes this lack of convenience has hindered pay-per-view sales.
Pay-per-view is expected to become more popular as additional exclusive events
become available for distribution on pay-per-view. Digital compression
technology will greatly expand the channel capacity available for such
programming. The Company believes that traditional hard-wire cable operators
will incur significant expenditures to upgrade their systems to be able to
offer addressability.
Digital Compression. Several equipment manufacturers are developing digital
compression technology which would allow several programs to be carried within
the same bandwidth which presently can accommodate only one program without
digital compression technology. Manufacturers have projected varying
compression ratios for future equipment, ranging from four-to-one to ten-to-
one, which would increase the channels available to be carried on a wireless
cable system using digital compression technology from 31 to between 124 and
310 channels.
Interactivity. Certain traditional hard-wire cable operators have announced
their intentions to develop interactive features for use by their customers.
Interactivity would allow customers to utilize their televisions for two-way
communications such as video games, home shopping and video-on-demand.
Extensive use of interactivity will likely require the development and
utilization of digital compression and cellularization. Wireless cable
operators may be able to utilize return paths which the FCC has made available
for interactive communications. At this time, the Company believes that the
widespread commercial availability of many interactive products is at least
several years away.
Advertising. Local and national advertising continues to grow as a source of
revenue for hard-wire and wireless cable operators. The Company recently began
generating advertising revenue and
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expects to increase this amount over time as its systems mature. The Company
believes its regional cluster strategy should benefit its efforts in this
regard because of its ability to deliver advertising throughout its entire
region and not just isolated markets.
COMPETITION
In addition to competition from traditional hard-wire cable television
systems, wireless cable television operators face competition from a number of
other sources, including potential competition from emerging trends and
technologies in the subscription television industry, some of which are
described below.
Direct-to-Home ("DTH"). DTH satellite television services originally were
available via satellite receivers which generally were seven to 12 foot dishes
mounted in the yards of homes to receive television signals from orbiting
satellites. Until the implementation of encryption, these dishes enabled
reception of any and all signals without the payment of fees. Having to
purchase decoders and to pay for programming has reduced the popularity of
DTH, although the Company will compete to some degree with these systems in
marketing its services.
DBS. DBS involves the transmission of an encoded signal directly from a
satellite to the customer's premises. Because the signal is at a higher power
level than DTH signals, its reception can be accomplished with a relatively
small (18 inch to three foot) dish mounted on a rooftop or in the yard. Four
DBS services currently are available nationwide, and one more is expected to
be launched in 1996. DBS currently has approximately 2.3 million subscribers
nationwide. AT&T Corp. has announced plans to invest $137.5 million in
DirecTV, Inc., a leading provider of DBS service, in exchange for a 2.5
percent equity interest and options to acquire up to a total of a 30% equity
interest. MCI Communications Corp. has announced that it has entered into a
DBS joint venture arrangement with News Corp., using a license that MCI
recently won in an FCC auction for which MCI will pay $682.5 million. DBS
cannot, for technical and legal reasons, provide local VHF/UHF broadcast
channels as part of its service, although many customers receive such channels
from standard over-the-air antennas. If a subscriber is unable to receive
local network signals off-air, due to such subscriber's geographic location,
the subscriber would be able to receive the network signals through DBS
transmissions, but such transmissions would be limited to distant, rather than
local, network signals. For example, a potential subscriber in the Jackson,
Mississippi area who was unable to receive the off-air broadcasts of the local
Jackson NBC affiliate would be able to subscribe to Primestar, a DBS provider,
and receive NBC broadcasts, but such broadcasts would be limited to those of
the Boston, Massachusetts NBC affiliate.
Private Cable. Private cable, also known as SMATV, is a multichannel
subscription television service where the programming is received by satellite
receiver and then transmitted via coaxial cable throughout private property,
often MDUs, without crossing public rights of way. Private cable operates
under an agreement with a private landowner to service a specific MDU,
commercial establishment or hotel. The FCC permits point-to-point delivery of
video programming by private cable operators and other video delivery systems
in the 18 GHz band. Private cable operators compete with the Company for
rights of entry into MDUs, commercial establishments and hotels.
Telephone Companies. The 1996 Act permits Local Exchange Carriers ("LECs")
to provide video service in their telephone service areas. Under existing FCC
rules LECs may provide "video dialtone" service, thereby allowing LECs to make
available to multiple service providers, on a nondiscriminatory common carrier
basis, a basic platform that will permit end users to access video program
services provided by others. Several large telephone companies have announced
plans to either (i) enhance their existing distribution plant to offer video
dialtone service, (ii) construct new distribution plants in conjunction with a
local cable operator to offer video dialtone service or (iii) acquire or merge
with existing franchise cable systems outside of the telephone companies'
respective telephone service areas. While the competitive effect of the
offering by telephone companies of video dialtone and fiber optic based
subscription television services is still uncertain, the Company believes that
wireless cable technology will continue to offer a lower cost alternative to
video dialtone and fiber optic distribution technologies.
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Two LECs, Bell Atlantic and NYNEX, have invested, in the aggregate, $100
million in CAI Wireless Systems, Inc., which operates wireless cable systems
in large urban markets which are primarily located in Bell Atlantic's and
NYNEX's areas of operations. Bell Atlantic and NYNEX announced that their
investment will allow them to enter the market for consumer video services
more quickly than by constructing a coaxial fiber optic network. In April
1995, Pacific Telesis ("PacTel"), an LEC based in California announced it
would acquire Cross Country Wireless, Inc., which operates a wireless cable
system and holds channel rights in southern California, for approximately $175
million. Similar to Bell Atlantic and NYNEX, PacTel announced that its
acquisition of Cross Country will allow PacTel to enter the market for
consumer video services on an expedited basis. In November 1995, PacTel
announced it would acquire Wireless Holdings, Inc., which operates wireless
cable systems and holds channel rights in California, Washington, Florida and
South Carolina, for approximately $170 million. Bell Atlantic and NYNEX own a
10% equity interest in CS Wireless Systems, Inc., which operates and is
developing wireless cable systems primarily in the midwestern United States.
In May 1996, BellSouth Corp. announced it would acquire the New Orleans,
Louisiana wireless cable system for approximately $12 million. The competitive
effect of the entry of telephone companies into the subscription television
business, including wireless cable, is uncertain.
Local Off-Air VHF/UHF Broadcasts. Local off-air VHF/UHF broadcasts (from
ABC, NBC, CBS and Fox affiliates) provide free programming to the public. In
some areas, several low power television ("LPTV") stations authorized by the
FCC are used to provide multichannel subscription television service to the
public. LPTV transmits on conventional VHF/UHF broadcast channels, but is
restricted to very low power levels, which limits the area where a high
quality signal can be received.
Local Multi-Point Distribution Service ("LMDS"). In 1993, the FCC initially
proposed to redesignate a portion of the 28 GHz band to create a new video
programming delivery service referred to as LMDS. In July 1995, the FCC
proposed to award licenses in each of 493 BTAs pursuant to auctions.
Sufficient spectrum for up to 49 analog channels has been designated for the
LMDS service. The FCC has not determined how many licenses it will award in
each BTA. Final rules for LMDS have not been established. Auctions are not
expected to begin any earlier than the third quarter of 1996.
Video Stores. Retail stores rent VCRs and/or video tapes and are major
participants in the video distribution industry. According to Kagan, as of the
end of 1994 there were over 75.5 million households with VCRs in the United
States.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Prospectus with respect to each person who is an executive officer or director
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Hans J. Sternberg(1).... 60 Chairman of the Board
Henry M. Burkhalter..... 48 President* and Vice Chairman* of the Board
Sean E. Reilly.......... 35 Chief Executive Officer and Director
Alton C. Rye............ 52 Executive Vice President--Operations
Bill R. Byer, Jr........ 39 Executive Vice President--Operations*
William C. Norris, Jr.,
Ph.D. ................. 61 Senior Vice President--System Launches and Secretary
Michael C. Ellis........ 30 Vice President--Controller
Arnold L.
Chavkin(1)(3).......... 44 Director
William K.
Luby(1)(2)(3).......... 35 Director
J. R. Holland,
Jr.(1)(2)(3)........... 52 Director
Daniel L. Shimer(2)..... 51 Director
William J. Van
Devender............... 47 Director*
David E. Webb(1)........ 49 Director
</TABLE>
- --------
(1) Member of Operating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
*Upon the consummation of the TruVision Transaction.
Hans J. Sternberg has served as Chairman of the Company since its founding
in June 1995 and as Chairman of the Board of Old Wireless One since its
founding in late 1993. He has also served as the Chairman and Chief Executive
Officer of Starmount Life Insurance Company since 1983. He is a former owner
and President and Chief Executive Officer of Maison Blanche Department Stores,
a chain of 24 department stores which had annual revenues of approximately
$480 million prior to its 1992 sale. He invested in cellular telephones in the
early 1980s, began in cable television in 1972 as a founding partner and
director of Cablesystems of Hammond, Inc., and later helped found Cablesystems
of Alabama, Inc. He was an owner and a director of radio stations WQXY, KQXY,
WLCS and WWUN.
Henry M. Burkhalter became a Director of the Company in April 1996 and
President and Vice Chairman upon the consummation of the TruVision Transaction
on , 1996. Mr. Burkhalter had been Chairman of the Board of Directors,
President and Chief Executive Officer of TruVision since its incorporation in
April 1994. He has been the Chairman of Pacific Coast Paging, Inc. since 1990.
From 1974 through 1992, he was the President and founder of Burkhalter &
Company, a certified public accounting firm.
Sean Reilly has served as Chief Executive Officer, President and Director of
the Company since its founding in June 1995 and as Chief Executive Officer and
President of Old Wireless One since its founding in late 1993. Upon the
consummation of the TruVision Transaction, Mr. Reilly stepped down as
President of the Company. Prior to joining Old Wireless One, Mr. Reilly served
as Vice-President of Real Estate/Mergers and Acquisitions for Lamar
Advertising Company ("Lamar"), an outdoor advertising company, and continues
to serve as a member of the Lamar board of directors. Mr. Reilly served in the
Louisiana Legislature as a State Representative from March 1988 to January
1996.
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<PAGE>
Alton C. Rye became Executive Vice President--Operations of the Company in
August 1995. Prior to joining the Company, Mr. Rye served as Vice President--
Operations for Sammons Communications, Inc. ("Sammons"), of Dallas, Texas,
which is the twelfth largest cable television company in the United States,
from August 1993 to August 1995 and was responsible for Sammons' largest
operating division, which serviced approximately 350,000 subscribers. From May
1988 to August 1993, Mr. Rye served as Vice President--Finance, Chief
Financial Officer and Treasurer of Sammons.
Bill R. Byer, Jr. became Executive Vice President--Operations of the Company
upon the consummation of the TruVision Transaction on , 1996. Mr. Byer had
been Executive Vice President and Chief Operating Officer of TruVision since
1994. From 1989 to 1994, he served as General Manager for MultiMedia
CableVision, Inc., which operated a wireless cable system serving Oklahoma
City, Oklahoma. From 1984 to 1989, he served as General Manager of Argonox
Communications/Technivision, a wireless cable company, and from 1979 to 1984,
he served as General Manager of Movie Systems, Inc., a wireless cable company
serving the Milwaukee, Wisconsin, Indianapolis, Indiana, Oklahoma City,
Oklahoma and Ft. Lauderdale and West Palm Beach, Florida markets. In total, he
has over 15 years of experience in the wireless cable industry, managing
several systems with an aggregate number of subscribers in excess of 50,000.
William C. Norris, Jr. Ph.D. has served as Senior Vice President--System
Launches and Secretary of the Company since its founding in June 1995 and as
Chief Operating Officer and Secretary of Old Wireless One since its founding
in late 1993. Prior to working at Old Wireless One, he developed cable systems
in Texas, Louisiana, Mississippi and Alabama over a 25-year period. He was an
investor in, and functioned as the Chief Executive Officer of, those systems.
He is a board member and stockholder in the Baton Rouge Cellular Telephone
Company.
Michael C. Ellis has served as Vice President--Controller of the Company
since joining the Company in November of 1995. Prior to his joining the
Company, he was an associate partner in the financial reporting and consulting
division of Postlethwaite and Netterville, a regional accounting and
consulting firm. He was employed with Postlethwaite and Netterville from
August 1988 to November 1995.
Arnold L. Chavkin became a Director of the Company in April 1996. He has
been a General Partner of CCP since January 1992 and has served as the
President of Chemical Investments, Inc. since March 1991. Prior to joining
CCP, Mr. Chavkin was a member of Chemical Bank's merchant banking group and a
generalist in its corporate finance group specializing in mergers and
acquisitions and private placements for the energy industry. His experience
prior to Chemical Bank included corporate development for Freeport McMoRan as
well as positions with Gulf and Western Industries and Arthur Young & Company.
Mr. Chavkin is also a director of Reading & Bates Corporation, American Radio
Systems Corporation, Inc., Bell Sports, Inc., Envirotest Systems, Forcenergy
Gas Exploration, Inc. and several privately held firms.
William K. Luby became a Director of the Company in June 1995 and a director
of Old Wireless One in April 1995. From June 1992 to March 1996, Mr. Luby was
a managing director at CMCC. From 1985 to 1992, Mr. Luby held various
positions in the Leveraged Lending and Restructuring groups at The Chase
Manhattan Bank, N.A. He is currently a director of numerous private companies.
J. R. Holland, Jr. became a Director of the Company in June 1995. He began
advising Heartland as a consultant in October 1992 and became Chairman of the
Board of Directors of Heartland in October 1993. Mr. Holland has been employed
as President of Unity Hunt, Inc. since September 1991. Unity Hunt is a large
international, private holding company with interests in entertainment, cable
television, retail, investments, real estate, natural resources and energy
businesses. Mr. Holland is
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<PAGE>
also the President of Hunt Capital, a principal stockholder of Heartland. From
November 1988 to September 1991, Mr. Holland was Chairman of the Board and
Chief Executive Officer of Nedinco, Inc., a large diversified international
holding company. Prior to that, Mr. Holland was President and a director of
KSA Industries, Inc., a private, diversified company involved in
entertainment, retail, transportation and energy businesses, and President and
a director of Western Services International, Inc., a company involved in
energy services, equipment and chemicals. Mr. Holland began his career with
Booz-Allen & Hamilton, Inc., a major management consulting firm. In addition,
Mr. Holland is currently a director of Placid Refining Company, Optical
Securities Group, Inc., TNP Enterprises, Inc. and several private companies.
Daniel L. Shimer became a Director of the Company in February 1996. Mr.
Shimer has served as Executive Vice President and Chief Financial Officer of
COREStaff, Inc. since April 1994. Formed in late 1993, COREStaff has rapidly
grown, principally through acquisitions, to a $400 million top ten provider of
staffing services in the United States. From March 1991 to March 1994, Mr.
Shimer served as the Executive Vice-President, Chief Financial Officer, and
President of National Accounts for Brice Foods, Inc. From February 1983 to
March 1991, he was associated with Bard & Company, Inc. in various senior
financial capacities among its publicly traded affiliates, including Foxmeyer
Corporation, Coast America Corporation, and Computerland Corporation. Mr.
Shimer, a certified public accountant, began his career at KPMG Peat Marwick
LLP and has over 25 years of financial management experience.
William J. Van Devender became a Director of the Company upon the
consummation of the TruVision Transaction on , 1996. Mr. Van Devender had
been a Director of TruVision since August 1994. He controls VanCom, a limited
partner of MWTV. In addition, Mr. Van Devender has founded or served in senior
executive positions with Van Petroleum, Inc., Green Acres Farms, Inc., Gulf
Coast Plywood, Inc. and Coastal Paper Company. Mr. Van Devender also serves on
the Board of Directors of Alaska-3 Cellular LLC, CelluTissue Holdings, Inc.
and Pacificom LLC, and various bank and community organizations.
David E. Webb became a Director of the Company in June 1995. He is a co-
founder of Heartland, and has been President and Chief Executive Officer and a
director of Heartland since its founding in September 1990. During 1989 and
1990, Mr. Webb began acquiring rights to wireless cable channels. From 1979 to
January 1989, Mr. Webb was a shareholder, director and manager of Durant
Cablevision, Inc. and its predecessor, a traditional hard-wire cable system
company. Mr. Webb has been a shareholder and director of several
media/communications companies involved in network and independent television
stations, AM and FM radio stations, paging and telephony.
The Board of Directors of the Company is divided into three classes, as
nearly equal in numbers as possible, having terms expiring at the annual
meeting of the Company's stockholders in 1997 (comprised of Messrs. Luby,
Holland and Van Devender), 1998 (comprised of Messrs. Reilly, Burkhalter and
Shimer) and 1999 (comprised of Messrs. Sternberg, Chavkin and Webb). At each
annual meeting of stockholders, successors of the class of Directors whose
term expires at such meeting will be elected to serve for three-year terms and
until their successors are elected and qualified. All current Directors were
elected or appointed pursuant to the terms of a stockholders agreement. See
"--Stockholders Agreement."
Non-employee Directors of the Company receive an annual fee of $5,000 and a
meeting fee of $500 per meeting attended, plus reimbursement of out-of-pocket
expenses, for their services as Directors of the Company. In addition, each
non-employee Director of the Company who does not serve on the Compensation
Committee is eligible to receive stock options under the Company's 1995
Directors' Stock Option Plan (the "Directors' Plan"). See "--Stock Option
Plans--1995 Directors' Stock Option Plan." Directors who are also employees do
not receive any additional compensation for their
76
<PAGE>
services as directors. In addition, directors do not receive any additional
compensation for committee participation.
STOCKHOLDERS AGREEMENT
In connection with the Heartland Transaction, CMCC, Baseball Partners, PVCC,
affiliates of ACC, Mr. Sternberg and Mr. Reilly, each of whom was a former
stockholder of Old Wireless One, and Heartland and certain of its subsidiaries
entered into a stockholders agreement (the "Initial Stockholders Agreement").
The Initial Stockholders Agreement was amended and restated in connection with
the execution of the TruVision Merger Agreement, with CVCA, VanCom, MWTV and
Messrs. Burkhalter, Byer, Eilers and Woolhiser (Messrs. Eilers and Woolhiser
are members of TruVision's management team) (collectively "Former TruVision
Stockholders") becoming parties thereto. In such amended and restated
agreement (the "New Stockholders Agreement"), the parties thereto, among other
things, agreed to vote their Common Stock so that the Board of Directors of
the Company will have up to nine members, up to three of whom will be
designated by Heartland (at least one of whom must be independent of the
parties to the Initial Stockholders Agreement), up to three of whom will be
designated by a majority of the Old Wireless One stockholders who are parties
to the Stockholders Agreement other than CMCC and Baseball Partners (at least
one of whom must be independent of the parties to the Initial Stockholders
Agreement), up to two of whom will be designated by CMCC, Baseball Partners
and CVCA, collectively, and one of whom may be designated by the Former
TruVision Stockholders other than CVCA. The current Directors proposed by
Heartland are Messrs. Holland, Shimer and Webb; the current Directors proposed
by the Old Wireless One stockholders are Messrs. Sternberg, Reilly and Luby;
the current Directors proposed by CMCC, Baseball Partners and CVCA are Messrs.
Van Devender and Chavkin, and the current Director proposed by the Former
TruVision Stockholders is Mr. Burkhalter.
Based upon certain filings made by the parties to the New Stockholders
Agreement with the Securities and Exchange Commission (the "Commission"), the
Company believes that the parties to the New Stockholders Agreement
collectively beneficially own an aggregate of 11,225,987 shares of Common
Stock (including 249,089 shares of Common Stock issuable upon the exercise of
presently exercisable stock options held by Messrs. Sternberg and Reilly and
certain of the Former TruVision Stockholders), which represents approximately
65.6% of the outstanding Common Stock. As a result, such stockholders are able
to control the election of the members of the Company's Board of Directors and
to generally exercise control over the Company's affairs. The New Stockholders
Agreement also provides that, without the prior approval of the Board and
until October 24, 1998, the parties to the New Stockholders Agreement may not,
without the approval of a majority of the Directors, (i) acquire equity
securities of the Company (or rights or options to acquire equity securities
of the Company other than equity securities issued or issuable with respect to
such Common Stock, securities issued to them pursuant to Board-approved option
plans and the acquisition of up to 250,000 shares of Common Stock by each of
Heartland or ACC), (ii) solicit proxies or consents in opposition to
solicitations made by or on behalf of the Board or (iii) other than in
connection with the New Stockholders Agreement, act together with any other
person to acquire, hold, vote or dispose of securities of the Company.
REGISTRATION AGREEMENT
In connection with the Heartland Transaction, the Company, Heartland, the
contributing Heartland subsidiaries and all of the former stockholders of Old
Wireless One entered into a registration agreement (the "Initial Registration
Agreement"). The Initial Registration Agreement was amended and restated in
connection with the execution of the TruVision Merger Agreement, with the
Former TruVision Stockholders becoming parties thereto. Under such amended and
restated registration agreement (the "New Registration Agreement"), at any
time after October 24, 1997, any of (a) the holders of a majority of the
Common Stock issued to the former stockholders of Old Wireless One (other than
CMCC and Baseball Partners) in the Heartland Transaction, (b) the holders of a
majority
77
<PAGE>
of the Common Stock issued to Heartland or certain of Heartland's subsidiaries
in the Heartland Transaction, (c) the holders of a majority of the Common
Stock issued to the Former TruVision Stockholders (other than CVCA) in the
TruVision Transaction, or (d) the holders of a majority of the Common Stock
issued to CMCC and Baseball Partners in the Heartland Transaction or issued to
CVCA in the TruVision Transaction, shall each have the right, subject to
certain conditions, to require the Company to register any or all of such
Common Stock under the Securities Act of 1933, as amended (the "Securities
Act") on Form S-1 on three occasions at the Company's expense and on Form S-2
or S-3 on an additional three occasions at the Company's expense. The holders
of any such shares of Common Stock are also entitled to request the inclusion
of any Common Stock subject to the Registration Agreement in any registration
statement at the Company's expense whenever the Company proposes to register
any of its equity securities under the Securities Act, subject to certain
conditions. After October 24, 1996, the holders of a majority of the shares of
Common Stock granted to VCI in satisfaction of the Phase II Payment shall be
entitled to request registration of such shares under the Securities Act.
SUMMARY COMPENSATION TABLE
The table below provides information relating to compensation for the
Company's last two fiscal years for the Chief Executive Officer. No other
executive officers of the Company received compensation in excess of $100,000
in either of those years. The amounts shown include compensation for services
in all capacities that were provided to the Company or Old Wireless One and
their respective subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
---------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND ------------------------- STOCK UNDERLYING ALL OTHER
PRNCIPAL POSITIONI YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION
- ------------------ ---- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sean E. Reilly.......... 1995 $87,692 -- -- 201,395(1) --
Chief Executive Officer 1994 $35,000(2) -- -- 113,144(3) --
</TABLE>
- --------
(1) Such options were originally issued in April 1995 and were to purchase
shares of common stock of Old Wireless One. Such options were assumed by
the Company under its 1995 Long-Term Performance Incentive Plan (the
"Incentive Plan") in October 1995 in connection with the Heartland
Transaction.
(2) Mr. Reilly began receiving compensation from Old Wireless One on June 1,
1994.
(3) Such options were originally issued in September 1994 and were to purchase
shares of common stock of Old Wireless One. Such options were assumed by
the Company under its Incentive Plan in October 1995 in connection with
the Heartland Transaction.
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<PAGE>
STOCK OPTION GRANTS
The following table provides information relating to the stock options
awarded to the Chief Executive Officer during the Company's last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
- --------------------------------------------------------------------------- ----------------------
NUMBER OF
SECURITIES
UNDERLYING PERCENT OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION
NAME GRANTED(#)(2) IN FISCAL YEAR PRICE($) DATE(3) 5%($) 10%($)
---- ------------- ---------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sean E. Reilly.......... 201,395(4) 36.3% (5) 4/14/01 $57,196 $ 199,784
</TABLE>
- --------
(1) Amounts reflect certain assumed rates of appreciation set forth in the
Commission's executive compensation disclosure rules. Actual gains, if
any, on stock options exercises depend on future performance of the
Company's Common Stock and overall market conditions. The fair market
value of the common stock on the date of grant was estimated to be $4.16
per share. See Note (4) below. At an annual rate of appreciation of 5% per
year for the option term, the stock price would be $5.57 per share. At an
annual rate of appreciation of 10% per year for the option term, the stock
price would be $7.37 per share.
(2) All options vest in five equal installments, with accelerated vesting in
the event of a change in control of the Company.
(3) All options listed in the table also expire one year following the
termination of employment with the Company of such holder for any reason.
(4) Such options were originally issued in April 1995 and were to purchase
shares of common stock of Old Wireless One. Such options were assumed by
the Company under its Incentive Plan in October 1995 in connection with
the Heartland Transaction.
(5) The exercise price of such options varies depending upon the date such
options become exercisable. The exercise price with respect to the first
20% installment of options is $4.16 per share, which is increased 35% per
year for each of the remaining four installments.
STOCK OPTION HOLDINGS
The following table sets forth information with respect to the Chief
Executive Officer concerning the stock options held as of December 31, 1995.
There were no stock options exercised during the last fiscal year of the
Company.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
------------------------------- ----------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
---- ------------------------------- ----------------------------
<S> <C> <C>
Sean E.
Reilly(1)........ 62,908/251,631 $729,893/$2,088,212
</TABLE>
- --------
(1) Of these shares underlying the options held by Mr. Reilly, options for
113,144 shares are exercisable at a price of $6.21 per share and options
for 201,395 shares are exercisable at various prices depending upon the
date such options became exercisable. The first 20% installment of options
are exercisable at $4.16 per share, which is increased 35% per year for
each of the remaining four installments.
(2) The closing sale price of the Common Stock on December 29, 1995 was $16.50
as reported by the Nasdaq National Market. The value of such options at
the fiscal year end is calculated on the basis of the difference between
the option exercise price and $16.50 multiplied by the number of shares of
Common Stock underlying the option.
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<PAGE>
EMPLOYMENT AGREEMENTS
In connection with the consummation of the Heartland Transaction, the
Company entered into employment agreements with Messrs. Sternberg, Reilly and
Norris. In connection with the consummation of the TruVision Transaction, the
Company entered into employment agreements with Messrs. Burkhalter and Byer
and made certain amendments to its employment agreements with Messrs.
Sternberg, Reilly and Norris. The employment agreements provide for payment of
a base salary indexed to inflation and bonuses awarded at the sole discretion
of the Company's Compensation Committee based upon the executive's performance
and the Company's operating results. The term of each agreement ends on April
14, 1998, subject to automatic annual renewal through April 14, 2005. Each
employment agreement provides that each executive may be terminated with or
without cause, and will provide that the executive will not compete with the
Company or its subsidiaries within a specified area during the period of
employment and for the two years thereafter. Each executive will be entitled
to receive a severance payment in the event of a resignation caused by the
relocation of the Company's office at which the executive is employed to a
location more than 60 miles from its present location.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1995 were Messrs.
Holland and Luby, and now include Mr. Shimer as of February 1996. No officers
or employees of the Company serve on the Compensation Committee. The
Compensation Committee was established in October 1995 in connection with the
Company's initial public offering. Previous compensation levels for Messrs.
Sternberg, Reilly and Norris, were established pursuant to the terms of their
respective employment agreements. See "Employment Agreements." The
compensation for Messrs. J. Robert Gary and Alton C. Rye, the other executive
officers of the Company, was approved by the full Board of Directors upon the
recommendation of the Compensation Committee. Executive officers who are also
Directors of the Company did not participate in discussions relating to their
individual compensation arrangements. No Director who served as a member of
the Compensation Committee was a party to any reportable interlock during
1995.
STOCK OPTION PLANS
1995 Long-Term Performance Incentive Plan. The Board of Directors has
adopted and the stockholders of the Company have approved the 1995 Long-Term
Performance Incentive Plan (the "Incentive Plan"), which provides for the
grant to key employees of the Company of (i) both "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and stock options that are non-qualified for federal
income tax purposes, (ii) stock appreciation rights, (iii) restricted stock,
(iv) performance grants and (v) any other type of award deemed by the
Compensation Committee to be consistent with the purpose of the Incentive
Plan. The total number of shares of Common Stock which may be granted pursuant
to the Incentive Plan is 1,300,000, subject to certain adjustments reflecting
changes in the Company's capitalization. The Incentive Plan will terminate
upon the earlier of the adoption of a Board of Director's resolution
terminating the Incentive Plan or on the tenth anniversary of the date of
adoption, unless extended for an additional five-year period for grants of
awards other than incentive stock options, and is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
has broad powers under the Incentive Plan, including exclusive authority
(except as otherwise provided in the Incentive Plan) to determine (i) which of
the Company's employees will receive awards, (ii) the type, size and terms of
awards, and (iii) the time when awards will be granted and to establish
performance objectives. Members of the Compensation Committee will not be
eligible to receive awards under the Incentive Plan. Directors who are also
employees are eligible to receive awards under the Incentive Plan. Non-
employee directors are not eligible to receive options under the Incentive
Plan, but may be eligible to receive awards under the Directors' Plan.
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<PAGE>
The exercise price of incentive stock options is determined by the
Compensation Committee, but may not be less than 100% of the fair market value
of the Common Stock on the date of grant and the term of any such option may
not exceed 10 years from the date of grant. With respect to any employee who
owns stock representing more than 10% of the voting power of the outstanding
capital stock of the Company, the exercise price of any incentive stock option
may not be less than 110% of the fair market value of such shares on the date
of grant and the term of such option may not exceed five years from the date
of grant. The exercise price of non-qualified stock options is determined by
the Compensation Committee on the date the option is granted.
Options and stock appreciation rights granted under the Incentive Plan are
nontransferable, unless otherwise specified in the award instrument, and, with
certain exceptions in the event of the death or disability of the participant,
may be exercised by the participant only during employment, subject to vesting
requirements established by the Compensation Committee. Restrictions on awards
granted under the Incentive Plan will also generally vest upon a proposed sale
of substantially all of the assets of the Company, or the merger of the
Company with or into another corporation.
The Company has assumed all non-qualified options issued by Old Wireless
One. Such options are now covered by the Incentive Plan and cover 691,988
shares with a weighted average exercise price per share of $7.54. Such options
vest over a five-year period which period commenced on February 1, 1995. The
options expire on April 14, 2001. In October 1995 the Company issued non-
qualified stock options for 50,000 shares of Common Stock, with an exercise
price equal to the initial public offering price, to two employees of the
Company. Such options are scheduled to vest in equal installments over a five-
year period from the date of grant. In addition, upon the consummation of the
TruVision Transaction, the Company assumed the non-qualified options issued by
TruVision. Such options are now covered by the Incentive Plan and cover
176,983 shares at a weighted average exercise price of $6.82. All such options
are fully-vested and expire on June 8, 2004.
1995 Directors' Stock Option Plan. The Board of Directors has adopted and
the stockholders of the Company have approved the 1995 Directors' Stock Option
Plan (the "Directors' Plan"). The Directors' Plan is administered by a
committee (the "Committee") consisting of at least two Disinterested Persons
(as defined in the Directors' Plan to be disinterested under Rule 16b-3
promulgated under the Exchange Act) appointed by the Board of Directors. Those
directors of the Company who are not employees of the Company (a "Director
Participant") are eligible to receive options under the Directors' Plan.
Members of the Committee are not eligible to receive options under the
Directors' Plan. The total number of shares of Common Stock for which options
may be granted under the Directors' Plan is 100,000, subject to certain
adjustments reflecting changes in the Company's capitalization.
Options granted under the Directors' Plan will be non-qualified options for
federal income tax purposes. The exercise price of options will be determined
by the Committee, but will be at least 100% of the fair market value of the
Common Stock on the date of grant.
Options granted under the Directors' Plan may be subject to vesting and
certain other restrictions at the Committee's sole discretion. Subject to
certain exceptions, the right to exercise an option generally terminates at
the earlier of (i) the first date on which the initial grantee of such option
is no longer a director of either the Company or any subsidiary for any reason
other than death, permanent disability, or termination without "cause" (as
defined in the Directors' Plan) or (ii) the expiration date of the option.
Options granted under the Directors' Plan will also generally vest upon a
"change in control" of the Company (as defined in the Directors' Plan). No
options have been granted under the Directors' Plan to date.
General. The Board of Directors generally has the power and authority to
amend the Incentive Plan and the Directors' Plan (collectively, the "Stock
Option Plans") at any time without approval of
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<PAGE>
the Company's stockholders; provided, that the Board of Directors shall not
amend the Stock Option Plans in such a manner as to materially increase the
benefits or number of shares under the Stock Option Plans or modify the
eligibility requirements without the affirmative approval of the Company's
stockholders. In addition, the Board of Directors may not amend the Stock
Option Plans to materially and adversely affect the rights of an option holder
under such option without the consent of such option holder.
Except as otherwise provided in an option agreement, if a director holding
an option under the Directors' Plan dies or suffers a permanent disability
while still employed by or a director of the Company or any subsidiary, then
the right to exercise all unexpired installments of such option shall be
accelerated and shall accrue as of the date of such death or the later of the
date of such permanent disability or discovery of such permanent disability,
and such option shall be exercisable, subject to certain exceptions, for 90
days after such date. In addition, except as otherwise provided in an option
agreement, if a Director Participant in the Directors' Plan who holds an
option granted under such Plan is terminated without "cause" (as defined in
the Directors' Plan), then he will have the right to exercise any option which
is currently exercisable at the time of such termination for 30 days after the
date of such termination.
Also, except as otherwise provided in an option agreement, if an employee
holding an award granted under the Incentive Plan dies or suffers a permanent
disability while still employed by the Company or any subsidiary, then such
award may be exercised, to the extent the employee was entitled to do so at
the termination of employment, by the employee, his legal guardian (unless
such exercise would disqualify an option as an incentive stock option), or his
legatee, legal representative or distributee (whichever is applicable), at any
time within one year after the date of death or disability (but in no event
later than the date on which such award terminates).
The Board of Directors recently adopted a resolution to terminate the
Company's 1995 Non-Employee Directors' Stock Option Plan and to adopt, subject
to stockholder approval, the Company's 1996 Non-Employee Directors' Stock
Option Plan which, if authorized, will authorize the granting of options based
on a set formula rather than at the Committee's discretion. The purpose of the
resolution is to allow non-employee directors of the Company (including those
who are members of the Committee) to participate in such a directors' plan.
The Plan document explicitly specifies all terms of the options, including the
time when options will be granted, the terms of options, the exercise price,
the time and manner for exercising options, and the number of shares subject
to the options. Such plan will be administered by the Board of Directors.
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CERTAIN TRANSACTIONS
In connection with the Heartland Transaction, Heartland and the Company
entered into an agreement whereby (i) the Company agreed not to compete with
Heartland or any of Heartland's subsidiaries in the wireless cable television
business in specified markets in which Heartland and its subsidiaries operate
or have significant channel rights, (ii) Heartland agreed not to compete with
the Company in the wireless cable television business in specified markets,
including substantially all of the Markets described herein and (iii) if at
any time a wireless cable television system operated by the Company interferes
with the signal transmission of a wireless cable television system operated by
Heartland or one of Heartland's subsidiaries (or vice versa), then the
Company, Heartland and their respective subsidiaries will use their best
efforts to negotiate and enter into an appropriate non-interference agreement.
In connection with the Heartland Transaction, the Company entered into the
Initial Registration Agreement with Heartland, the contributing Heartland
subsidiaries and all of the former stockholders of Old Wireless One which was
amended and restated in connection with the TruVision Transaction with the
Former TruVision Stockholders becoming parties thereto. See "Management--
Registration Agreement."
In connection with the Heartland Transaction, the Company, Heartland and
certain of the Old Wireless One stockholders entered into the Stockholders
Agreement which was amended and restated in connection with the TruVision
Transaction with the Former TruVision Stockholders becoming parties thereto.
See "Management--Stockholders Agreement."
In February 1996, CVCA provided TruVision the Interim Facility in the
principal amount of up to $12.0 million.
In connection with the execution of the TruVision Merger Agreement, the
Company agreed to make certain loans to TruVision pending the consummation of
the TruVision Transaction. On May 6, 1996, the Company made such a loan to
TruVision in the amount of approximately $1.1 million, and TruVision used the
proceeds of such loan to repay borrowings under a working capital facility
which was guaranteed by Mr. Burkhalter, and that guarantee was terminated and
released. On the date of, but prior to, the consummation of the TruVision
Transaction, the Company made such a loan to TruVision in the amount of
approximately $1.5 million, and TruVision used the proceeds of that borrowing
to pay accrued dividends on its preferred stock to CVCA and VanCom in the
amounts of approximately $1.1 million and $100,000, respectively. See Note 11
to the Notes to the Financial Statements of TruVision included elsewhere in
this Prospectus.
Upon consummation of the TruVision Transaction, the Company issued to VCI
180,000 shares of Common Stock and paid to VCI $1.8 million in cash, in
satisfaction of TruVision's obligation to make the Phase II Payment.
The terms of the transactions described above were determined by the parties
thereto, and the Company believes that such transactions involving affiliates
were on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties in arms-length transactions. The Company
expects that all future transactions between the Company and its officers,
Directors, principal stockholders and affiliates will be on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
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PRINCIPAL STOCKHOLDERS
Except as otherwise noted, the following table sets forth certain
information as of May 30, 1996 (pro forma to account for the TruVision
Transaction) as to the security ownership of those persons owning of record or
known to the Company to be the beneficial owner of more than five percent of
the voting securities of the Company and the security ownership of equity
securities of the Company by (i) each of the Directors of the Company, (ii)
each of the executive officers named in the Summary Compensation Table, and
(iii) all Directors and executive officers as a group. All information with
respect to beneficial ownership has been furnished by the respective Director,
executive officer or five percent beneficial owner, as the case may be. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to the number of shares set forth opposite their names.
Beneficial ownership of the Common Stock has been determined for this purpose
in accordance with the applicable rules and regulations promulgated under the
Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK(1)
-------------------
DIRECTORS, OFFICERS NUMBER OF PERCENT
AND 5% STOCKHOLDERS SHARES OF CLASS
------------------- ---------- --------
<S> <C> <C>
Heartland Wireless Communications, Inc.(2)(3)............. 3,361,538 19.9%
903 North Bowser, Suite 140
Richardson, Texas 75081
Chase Manhattan Capital Corporation(2)(4)................. 3,954,249 23.4%
380 Madison Avenue, 12th Floor
New York, New York 10017
Chase Venture Capital Associates L.P. (2)(5).............. 3,954,249 23.4%
380 Madison Avenue, 12th Floor
New York, New York 10017
Baseball Partners(2)...................................... 393,226 2.3%
380 Madison Avenue, 12th Floor
New York, New York 10017
Premier Venture Capital Corporation(2)(6)................. 754,268 4.5%
451 Florida Street
Baton Rouge, Louisiana 70821
Advantage Capital Corporation(2)(7)....................... 630,489 3.7%
LL&E Tower
909 Poydras Street, Suite 2230
New Orleans, Louisiana 70112
Mississippi Wireless TV, L.P.(2)(8)....................... 1,760,000 10.4%
VanCom, Inc.(2)(9)........................................ 44,000 *
Henry M. Burkhalter(2).................................... 2,018,015 11.9%
Hans J. Sternberg(2)(10).................................. 374,193 2.2%
Sean E. Reilly(2)(11)..................................... 101,755 *
Arnold L. Chavkin(5)...................................... 3,954,249 23.4%
J. R. Holland, Jr.(12).................................... 3,361,538 19.9%
William K. Luby(13)....................................... 393,226 2.3%
Daniel L. Shimer.......................................... 4,800 *
William J. Van Devender................................... 44,000 *
David E. Webb(14)......................................... 3,361,538 19.9%
All Directors and executive officers as a group (13
persons)................................................. 10,496,874 59.1%
</TABLE>
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- --------
* Less than one percent.
(1) Does not include an aggregate of 200,000 of such shares currently being
held in escrow, pursuant to the Heartland Transaction. Such shares will
be distributed to either the Old Wireless One stockholders or the
Heartland subsidiaries. The distribution of shares held in escrow will
depend upon certain working capital post-closing adjustments.
(2) Heartland and certain of its subsidiaries, CMCC, CVCA, Baseball Partners,
MWTV, VanCom, PVCC, Advantage Capital Partners Limited Partnership and
Advantage Capital Partners II Limited Partnership, Mr. Sternberg, Mr.
Reilly and Mr. Burkhalter, each of whose ownership of Common Stock is
disclosed in the table, are parties to the New Stockholders Agreement.
See "Management--Stockholders Agreement." Each of the parties to the
Stockholders Agreement disclaims beneficial ownership of the shares of
Common Stock owned by the other parties to such agreement.
(3) Heartland reported on a Schedule 13G filed with the SEC, as of December
31, 1995, shared voting and dispositive power with respect to an
aggregate of 3,361,538 shares of Common Stock owned by certain direct and
indirect subsidiaries of Heartland. The address for Heartland is 903
North Bowser, Suite 140, Richardson, Texas 75081.
(4) CMCC reported on a Schedule 13G filed with the SEC, as of December 31,
1995, shared voting and dispositive power with respect to 1,991,690
shares of Common Stock, together with The Chase Manhattan Bank, N.A., the
direct parent of CMCC, and Chase, the ultimate parent of CMCC. The
address for CMCC, CVCA and Baseball Partners is 380 Madison Avenue, 12th
Floor, New York, New York 10017.
(5) Reflects 3,954,249 shares owned by CVCA, CMCC and Baseball Partners. Mr.
Chavkin is a general partner of CCP, the general partner of CVCA. CCP has
investment and voting discretion with respect to the shares held by CMCC.
Baseball Partners has agreed to grant a proxy with respect to the Shares
held by it to CCP. Mr. Chavkin disclaims beneficial ownership of the
Shares held by CVCA, CMCC and Baseball Partners.
(6) As reported on a Schedule 13G filed with the SEC with respect to the
shares of Common Stock held by PVCC as of December 31, 1995. PVCC is an
indirect wholly owned subsidiary of Premier Bancorp, Inc., which is a
publicly-traded corporation. The address for PVCC is 451 Florida Street,
Baton Rouge, Louisiana 70821.
(7) ACC, as the sole general partner of Advantage Capital Partners Limited
Partnership and Advantage Capital Limited Partners II Limited
Partnership, reported on a Schedule 13G filed with the SEC, as of
December 31, 1995, sole voting and dispositive power with respect to the
shares held by such partnerships. Mr. Steven T. Stull is the majority
stockholder of ACC. The address for ACC is LL&E Tower, 909 Poydras
Street, Suite 2230, New Orleans, Louisiana 70112.
(8) MWTV owns 1,760,000 shares of Common Stock. The general partner of MWTV
is WTV. Mr. Burkhalter is the President and controlling stockholder of
WTV. WTV has the power to vote and dispose of the shares of Common Stock
held by MWTV. Therefore, Mr. Burkhalter may be deemed to beneficially own
all shares of Common Stock held by MWTV. Mr. Burkhalter disclaims
beneficial ownership of any such shares of Common Stock. In addition, Mr.
Burkhalter owns currently exercisable options to acquire 78,015 shares of
Common Stock. See "Management."
(9) VanCom is the limited partner of MWTV and has a right to 22.9167% of
allocations and distributions of the Partnership. Mr. Van Devender is the
President and controlling stockholder of VanCom. Mr. Van Devender's
address is c/o VanCom, Inc., P.O. Box 5327, Jackson, Mississippi 39296.
(10) Includes 12,520 shares owned by Mr. Sternberg's wife and 85,537 shares
issuable upon the exercise of presently exercisable options.
(11) Includes 85,537 shares issuable upon the exercise of presently
exercisable options.
(12) Includes 3,361,538 shares beneficially owned by Heartland. Mr. Holland
is the Manager and President of Hunt Capital Group, L.L.C., a principal
stockholder of Heartland. Mr. Holland is the Chairman of the Board of
Heartland. Mr. Holland disclaims beneficial ownership of shares owned by
Heartland.
(13) Reflects shares of Common Stock beneficially owned by Baseball Partners.
Mr. Luby is a general partner of Baseball Partners and therefore may be
deemed to be a beneficial owner of such shares. Mr. Luby disclaims
beneficial ownership of all of the shares of Common Stock owned by
Baseball Partners in which Mr. Luby has no pecuniary interest. Certain
affiliates of CMCC are general partners of Baseball Partners.
(14) Includes 3,361,538 shares beneficially owned by Heartland. Mr. Webb is
President and Chief Executive Officer and a director and principal
stockholder of Heartland. Mr. Webb disclaims beneficial ownership of the
shares of Common Stock owned by Heartland and in which Mr. Webb has no
pecuniary interest.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
INDEBTEDNESS TO U.S. GOVERNMENT
The Company anticipates that it will incur certain indebtedness to the U.S.
government in connection with its payment obligations for the rights to MDS
licenses which it has acquired through the BTA Auction. The FCC has approved
an installment financing plan for qualified "designated entities" to complete
their payment obligations for such rights. The Company believes that it
qualifies as a "designated entity" and thus is eligible for such installment
financing.
The terms of the installment payment plan authorized by the FCC provide that
a qualifying bidder can pay the full amount of its winning bid in installments
(less a down payment equal to 20% of the total purchase price). The total
purchase price, in the case of a company which qualifies as a "designated
entity," is calculated by multiplying the total amount of wining bids in the
BTA Auction by 0.85. The plan provides for quarterly interest and principal
payments and a term of ten years for repayment, running from the date the BTA
authorization is issued. Only interest payments are required for the first two
years, with principal being amortized over the remaining years of the ten-year
period. The applicable interest rate is fixed at the time of issuance of the
BTA authorization at the then prevailing rate on the ten-year U.S. Treasury
obligation plus 2.5%.
EXISTING NOTES
The Company currently has outstanding $150 million aggregate principal
amount of Existing Notes. The Company recently executed the Supplemental
Indenture to modify certain of the restrictive covenants to conform to the
restrictive covenants governing the Notes and to make certain other technical
changes of a non-substantive nature. See "Description of Notes--Certain
Covenants."
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued under the Indenture to be dated as of , 1996
between the Company and United States Trust Company of New York, as trustee
(the "Trustee"), a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and will be made
available to prospective purchasers of the Notes upon request. The Indenture
is subject to and governed by the Trust Indenture Act.
The following summary of the material provisions of the Indenture does not
purport to be complete, and where reference is made to particular provisions
of the Indenture, such provisions, including the definitions of certain terms,
are qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions." References to the Company in the
"Description of Notes" are to Wireless One, Inc., excluding any Subsidiaries
thereof.
PRINCIPAL, INTEREST AND MATURITY
The Notes will be issued at a discount to their aggregate principal amount
to generate gross proceeds to the Company of approximately $ million and
will be senior obligations of the Company. The Notes will accrete in value
until August 1, 2001 at a rate of % per annum, compounded semi-annually, to
an aggregate principal amount of $ million. Cash interest will not accrue on
the Notes prior to August 1, 2001. Thereafter, interest will accrue at a rate
of % per annum and will be payable semi-annually in cash on each and
, commencing , 2002, to holders of record on the immediately
preceding and . Interest will accrue
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<PAGE>
from the most recent date to which interest has been paid or, if no interest
has been paid, from August 1, 2001. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months. The Notes will mature on
, 2006. All references to the principal amount of the Notes herein are
references to the principal amount at final maturity.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency
of the Company in the City of New York maintained for such purposes (which
initially will be the corporate trust office of the Trustee at 114 West 47th
Street, New York, New York 10036, Attention: Corporate Trust Administration);
provided, however, that payment of interest may be made at the option of the
Company by check mailed to the Person entitled thereto as shown on the
security register. The Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and any integral multiple thereof.
No service charge will be made for any registration of transfer, exchange or
redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
RANKING
The 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. However,
subject to certain limitations set forth in the Indenture, the Company and its
Subsidiaries may incur other senior Indebtedness, including Indebtedness that
is secured by the assets of the Company and its Subsidiaries. Such limitations
may not limit the Company's ability to engage in certain highly leveraged
transactions. In addition, the Company is a holding company that conducts
substantially all of its business operations through its Subsidiaries and,
therefore, the Notes will be effectively subordinated to all existing and
future Indebtedness and other liabilities and commitments of such
Subsidiaries, including trade payables. As of March 31, 1996, after giving
effect to the TruVision Transaction and the Offering, the Company would have
had $300.1 million of Indebtedness. The outstanding Indebtedness and trade
payables of the Company's Subsidiaries as of March 31, 1996 (on a pro forma
basis giving effect to the TruVision Transaction and the other Pro Forma
Events) would have been approximately $17.4 million.
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after ,
2001, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral
multiple thereof at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning on
October 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001............................................................ %
2002............................................................
2003............................................................
2004............................................................ 100%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due
on an interest payment date).
In addition, at any time or from time to time prior to , 1999, up to
30% of the aggregate principal amount originally issued of the Notes will be
redeemable at the option of the Company with the Net Cash Proceeds from a sale
to a Strategic Investor of the Company's Capital Stock (other than Redeemable
Capital Stock) or Qualified Subordinated Indebtedness in a single transaction
or series
87
<PAGE>
of related transactions for an aggregate purchase price equal to or exceeding
$ million, at a redemption price equal to % of the Accreted Value of the
Notes; provided that after giving effect to any such redemption, at least 70%
of the aggregate principal amount originally issued of the Notes remains
outstanding thereafter. The Company shall make such redemption not more than
180 days after the consummation of any such sale of the Company's Capital
Stock or Qualified Subordinated Indebtedness and upon not less than 30 nor
more than 60 days' notice given within 30 days after (and not before) the
consummation of any such sale, in amounts of $1,000 or an integral multiple
thereof.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable.
MANDATORY REDEMPTION
Except as set forth below under "--Certain Covenants--Limitation on Sale of
Assets" and "--Purchase of Notes upon a Change of Control," 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 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.
CERTAIN COVENANTS
The Indenture will contain, among others, the covenants described below.
Limitation on Indebtedness. The Company will not, and will not permit any
Restricted Subsidiary to, create, issue, incur, assume, guarantee or otherwise
in any manner become directly or indirectly liable for the payment of or
otherwise incur (collectively, "incur") any Indebtedness (including any
Acquired Indebtedness), except that the Company may incur Indebtedness
(including any Acquired Indebtedness) and any Restricted Subsidiary may incur
Acquired Indebtedness, if, in each case, the Debt to Operating Cash Flow Ratio
of the Company and its Restricted Subsidiaries at the time of incurrence of
such Indebtedness, after giving pro forma effect thereto, is 5.0:1.0 or less.
The foregoing limitation will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), but any such Permitted
Indebtedness will be included in any calculation of Debt:
(i) Indebtedness of the Company or any of its Restricted Subsidiaries
under a Bank Credit Facility in an aggregate principal amount at any one
time outstanding not to exceed $25,000,000;
(ii) Indebtedness of the Company pursuant to the Notes;
(iii) Indebtedness of any Restricted Subsidiary consisting of a guarantee
of Indebtedness under a Bank Credit Facility;
(iv) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the date of the Indenture and listed on a schedule thereto (exclusive of
any debt of the kind referred to in clause (x));
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(v) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness of the Company owing to a Restricted
Subsidiary is made pursuant to an intercompany note in the form attached to
the Indenture and is subordinated in right of payment from and after such
time as the Notes shall become due and payable (whether at Stated Maturity,
acceleration or otherwise) to the payment of the Company's obligations
under the Notes; provided, further, that any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a disposition,
pledge or transfer to a Wholly Owned Restricted Subsidiary) shall be deemed
to be an incurrence of such Indebtedness by the obligor not permitted by
this clause (v);
(vi) Indebtedness of a Restricted Subsidiary owing to the Company or
another Restricted Subsidiary; provided that, with respect to Indebtedness
owing to a Restricted Subsidiary, any such Indebtedness is made pursuant to
an intercompany note in the form attached to the Indenture; provided,
further, that (a) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to
the Company or a Restricted Subsidiary) shall be deemed to be an incurrence
of such Indebtedness by the obligor not permitted by this clause (vi) and
(b) any transaction pursuant to which any Restricted Subsidiary, which has
Indebtedness owing to the Company or any other Restricted Subsidiary,
ceases to be a Restricted Subsidiary shall be deemed to be the incurrence
of Indebtedness by such Restricted Subsidiary that is not permitted by this
clause (vi);
(vii) guarantees of any Restricted Subsidiary made in accordance with the
provisions of the "--Limitation on Issuances of Guarantees of Indebtedness"
covenant;
(viii) obligations of the Company or any Restricted Subsidiary entered
into in the ordinary course of business pursuant to Interest Rate
Agreements designed to protect the Company or any Restricted Subsidiary
against fluctuations in interest rates in respect of Indebtedness of the
Company or any Restricted Subsidiary as long as such obligations at the
time incurred do not exceed the aggregate principal amount of such
Indebtedness then outstanding or in good faith anticipated to be
outstanding within 90 days of such occurrence;
(ix) Indebtedness having an interest rate not in excess of the interest
rate on the Notes lent by a Strategic Investor (or any subsidiary thereof
and including any refinancing of such outstanding amount) resulting in up
to $50,000,000 in aggregate Net Cash Proceeds; provided that (i) such
Indebtedness (and any refinancing thereof) is subordinated in right of
payment to the prior payment in full in cash of all obligations (including
principal, interest and premium, if any) of the Company under the Notes and
the Indenture (including as a consequence of any repurchase, redemption or
other repayment of the Notes, including, without limitation, by way of
optional redemption, Asset Sale Offers, and Change of Control Offers to the
extent such rights to repayment are exercised by the Noteholders) such that
(A) the Company shall make no payment or distribution in respect of such
Indebtedness and may not acquire such Indebtedness until the prior payment
in full in cash of all obligations in respect of the Notes if any Default
on the Notes shall occur and be continuing, and (B) the holders of such
Indebtedness may not take any action to enforce or accelerate such
Indebtedness until the holders of the Notes have taken such action in
respect of the Notes, (ii) such Indebtedness (and any refinancing thereof)
is not guaranteed by any of the Company's Subsidiaries and is not secured
by any Lien on any property or asset of the Company or any Restricted
Subsidiary, (iii) such Indebtedness (and any refinancing thereof) has no
scheduled maturity of principal earlier than a date at least one year after
the final Stated Maturity of the Notes, (iv) accreted interest on such
Indebtedness shall only be payable on the Maturity thereof and cash
interest on such Indebtedness shall only be payable to the extent that
immediately prior to and after such payment of interest the Company is
permitted to incur $1.00 of Indebtedness under the ratio described in the
first paragraph of this covenant and (v) the holders of such Indebtedness
shall assign any rights to vote, including by way of proxy, in a
bankruptcy, insolvency or similar proceeding to the Trustee and the trustee
for the Existing Notes; and, provided further, the aggregate principal
amount of Indebtedness under this clause (ix) and clause (xi) below shall
not exceed $100,000,000 at any time outstanding;
(x) Indebtedness of the Company or any Restricted Subsidiary owing to a
federal governmental authority relating to the purchase of wireless cable
channels in an auction in an
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amount not to exceed in the aggregate $40,000,000 (including any such
Indebtedness refinanced under clause (xiii) below);
(xi) in the event the Company receives $40,000,000 or more of aggregate
Net Cash Proceeds from the sale of Qualified Capital Stock (other than
Qualified Capital Stock sold to a Subsidiary or to any employee stock
ownership plan or similar trust and other than Redeemable Capital Stock)
issued subsequent to the date of the Indenture, the incurrence by the
Company of up to $100,000,000 of Indebtedness (including any refinancing
thereof); provided that (i) the incurrence of such Indebtedness would not
result in their being outstanding more than $1.50 of Indebtedness under
this clause (xi) and clause (xii) for each $1.00 of aggregate Net Cash
Proceeds of Qualified Capital Stock issued subsequent to the date of the
Indenture, (ii) such Indebtedness (and any refinancing thereof) is not
guaranteed by any of the Company's Subsidiaries and is not secured by any
lien on any property or asset of the Company or any Restricted Subsidiary
and (iii) the Indebtedness permitted by this clause (xi) shall be reduced
by the aggregate Net Cash Proceeds of Indebtedness issued under clauses
(ix) and (xii) of this covenant;
(xii) in the event the Company incurs Indebtedness lent by a Strategic
Investor under clause (ix) that results in $50,000,000 of cash proceeds and
the Company receives $40,000,000 or more of aggregate cash proceeds from
the sale of Qualified Capital Stock issued subsequent to the date of the
Indenture, the Company or any Restricted Subsidiary shall be permitted to
incur up to $50,000,000 of Indebtedness (including any refinancing
thereof); provided that the cash proceeds of all such Indebtedness incurred
under this clause (xii), together with the cash proceeds of Indebtedness
incurred under clause (xi) of this covenant, shall not exceed $50,000,000;
(xiii) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (ii), (iv) and (x) above, including any successive
refinancings so long as the aggregate principal amount of Indebtedness
represented thereby is not increased by such refinancing (or, if said
Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, not greater than such lesser amount) plus the lesser of (I) the
stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus, in
either case, the amount of expenses of the Company incurred in connection
with such refinancing and, in the case of Pari Passu or Subordinated
Indebtedness, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Indebtedness;
(xiv) Indebtedness of the Company or any Restricted Subsidiary, in
addition to that described in clauses (i) through (xiii) above, so long as
the aggregate principal amount of all such Indebtedness shall not exceed
$10,000,000 at any one time outstanding.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in its shares of Qualified Capital Stock or in
options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, the Company's Capital Stock or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Restricted Subsidiary) or options, warrants or other rights to acquire such
Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
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(iv) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than to the Company or any
of its Restricted Subsidiaries so long as, in the event the Restricted
Subsidiary paying such dividend or distribution is not a Wholly Owned
Restricted Subsidiary, the Company or a Restricted Subsidiary of the
Company receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such Capital
Stock);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than guarantees of Indebtedness of the
Company given by any Restricted Subsidiary in accordance with the terms of
the Indenture); or
(vi) until the date on which the ratio of Annualized EBITDA to
Consolidated Interest Expense equals or exceeds 1.5 to 1.0, make any
Investment in any Person (other than any Permitted Investments) in a
cumulative amount for the Company and all of its Restricted Subsidiaries in
excess of (A)(1) 100% of the Net Cash Proceeds received by the Company from
the issuance and sale of Capital Stock of the Company (other than Capital
Stock sold to a Subsidiary or to any employee stock ownership plan or
similar trust and other than Redeemable Capital Stock) and (2) $15,000,000
less (B) the cumulative amount of Net Cash Proceeds received by the Company
from the issuance or sale of Capital Stock of the Company that has been
applied to make Restricted Payments provided in clauses (i) through (v)
above subsequent to the date of the Indenture; provided that any Guarantee
that is an Investment in an Unrestricted Subsidiary shall cease to be
deemed an Investment (and shall be deemed to have not been made) to the
extent that the Guarantee is released without payment on the obligations so
guaranteed by the Company or any Restricted Subsidiary of the Company;
(any of the foregoing actions described in clauses (i) through (vi), other
than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") unless after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if
other than cash, as determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), (1) no
Default or Event of Default shall have occurred and be continuing and such
Restricted Payment shall not be an event which is, or after notice or lapse of
time or both, would be, an "event of default" under the terms of any
Indebtedness of the Company or its Restricted Subsidiaries; (2) the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "--Limitation on Indebtedness" covenant; and (3) the
aggregate amount of all such Restricted Payments declared or made after the
date of the Indenture, does not exceed the sum of:
(A) an amount equal to the Company's Cumulative Operating Cash Flow less
2.0 times the Company's Cumulative Consolidated Interest Expense; and
(B) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from capital contributions (other than from a
Subsidiary) or from the issuance or sale (other than to a Subsidiary) of
Qualified Capital Stock of the Company or any options, warrants or rights
to purchase such Qualified Capital Stock of the Company (except, in each
case, to the extent such proceeds are used to purchase, redeem or otherwise
retire Capital Stock or Subordinated Indebtedness as set forth below in
clause (ii), (iii) or (vii) of paragraph (b) below and except the Net Cash
Proceeds from the issuance of Common Stock that are applied to acquire
Permitted Investments pursuant to clause (viii) of the definition of
Permitted Investments).
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vi) below, so long as there is no Default or Event of Default continuing, the
foregoing provisions shall not prohibit the following actions (each of clauses
(i) through (vii) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this covenant and such
payment shall have been deemed to have been paid on such date of
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declaration and shall not have been deemed a "Permitted Payment" for
purposes of the calculation required by paragraph (a) of this covenant;
(ii) the repurchase, redemption or other acquisition or retirement of any
shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection with which cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the Net Cash Proceeds of a
substantially concurrent issue and sale for cash (other than to a
Subsidiary) of, other shares of Qualified Capital Stock of the Company;
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph (a) of
this covenant;
(iii) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness in
exchange for, or in an amount not in excess of the net proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(B) of paragraph (a) of
this covenant;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the issuance of new Subordinated Indebtedness of the Company,
provided that any such new Subordinated Indebtedness (1) shall be in a
principal amount that does not exceed the principal amount so refinanced
(or, if such Subordinated Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, then such lesser amount as of the date of
determination), plus the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing; (2) has an Average
Life to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the Notes; (3) has a Stated Maturity for its final scheduled
principal payment later than the Stated Maturity for the final scheduled
principal payment of the Notes; and (4) is expressly subordinated in right
of payment to the Notes at least to the same extent as the Indebtedness to
be refinanced;
(v) the repurchase 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 Restricted Subsidiary thereof for
consideration which, when added to all loans made pursuant to clause (vi)
below during the same fiscal year and then outstanding, does not exceed
$1,000,000 in the aggregate in any fiscal year and $4,000,000 in the
aggregate since the date of the Indenture;
(vi) the making of loans and advances to employees of the Company or any
Restricted Subsidiary thereof in an aggregate amount at any time
outstanding (including as outstanding any such loan or advance written off
or forgiven) which, when added to the aggregate consideration paid pursuant
to clause (v) above during the same fiscal year, does not exceed $1,000,000
in any fiscal year and $4,000,000 in the aggregate since the date of the
Indenture; and
(vii) the repurchase, redemption or other acquisition or retirement of
Capital Stock of any Subsidiary of the Company for Capital Stock (other
than Redeemable Capital Stock).
The amounts referred to in clauses (i), (v) and (vi) shall be included as
Restricted Payments in any computation made pursuant to clause (a)(3) above.
Restricted Payments shall be deemed not to include Permitted Payments and
Permitted Investments.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property
or
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services) with any Affiliate of the Company (other than the Company or a
Wholly Owned Restricted Subsidiary) unless (a) such transaction or series of
related transactions is in writing and on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
would be available in a comparable transaction in arm's-length dealings with
an unrelated third party, (b) with respect to any transaction or series of
related transactions involving aggregate value in excess of $1,000,000, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (a) above
and such transaction or series of transactions has been approved by a majority
of the board of directors of the Company, (c) with respect to any transaction
or series of related transactions involving aggregate payments in excess of
$2,000,000, such transaction or series of related transactions has been
approved by the Disinterested Directors of the Company (or in the event there
is only one Disinterested Director, by such Disinterested Director) and (d)
with respect to any transaction or series of related transactions involving
aggregate payments in excess of $10,000,000, such transaction or series of
related transactions has been approved by the Disinterested Directors of the
Company (or in the event there is only one Disinterested Director, by such
Disinterested Director) and the Company delivers to the Trustee a written
opinion of an investment banking firm of national standing or other recognized
independent expert with experience appraising the terms and conditions of the
type of transaction or series of related transactions for which an opinion is
required stating that the transaction or series of related transactions is
fair to the Company or such Restricted Subsidiary from a financial point of
view; provided, however, (I) that the provision with respect to clause (d)
above shall not apply to the coordination of programming and equipment
purchases with Heartland and (II) that this provision shall not apply to (A)
any transaction with an officer or director of the Company entered into in the
ordinary course of business (including compensation or employee benefit
arrangements with any officer or director of the Company and any transactions
permitted by subclauses (v) and (vi) of clause (b) under the "--Limitation on
Restricted Payments" covenant), (B) the cash portion of the Phase II Payment,
(C) repayment of the Interim Facility or (D) any agreements, transactions or
series of related transactions in existence on the date of the Indenture and
any renewal or extension thereof under substantially the same terms as the
original terms.
Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any Restricted Subsidiary to, enter into any Sale and
Leaseback Transaction with respect to any property or assets (whether now
owned or hereafter acquired) unless (i) the sale or transfer of such property
or assets to be leased is treated as an Asset Sale and the Company complies
with the "--Limitation on Sale of Assets" covenant and (ii) the Company or
such Subsidiary would be entitled under the "--Limitation on Indebtedness"
covenant to incur any Capital Lease Obligations in respect of such Sale and
Leaseback Transaction.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, affirm or
suffer to exist any Lien of any kind upon any of its property or assets
(including any intercompany notes), now owned or acquired after the date of
the Indenture, or any income or profits therefrom, except if the Notes are
directly secured equally and ratably with (or prior to in the case of Liens
with respect to Subordinated Indebtedness) the obligation or liability secured
by such Lien, excluding, however, from the operation of the foregoing any of
the following (collectively, "Permitted Liens"):
(a) any Lien on assets of the Company or any Subsidiary thereof securing
only the Notes equally and ratably;
(b) any Lien existing as of the date of the Indenture and listed on a
schedule thereto;
(c) any Lien arising by reason of (1) any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; (2) taxes not
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yet delinquent or which are being contested in good faith; (3) security for
payment of workers' compensation or other insurance; (4) good faith
deposits in connection with tenders, leases and contracts (other than
contracts for the payment of money) in the ordinary course of business;
(5) zoning restrictions, easements, licenses, reservations, provisions,
covenants, conditions, waivers, restrictions on the use of property or
minor irregularities of title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a landlord
or owner of the leased property, with or without consent of the lessee),
none of which materially impairs the use of any parcel of property material
to the operation of the business of the Company or any Restricted
Subsidiary or the value of such property for the purpose of such business;
(6) deposits to secure public or statutory obligations, or in lieu of
surety or appeal bonds; (7) certain surveys, exceptions, title defects,
encumbrances, easements, reservations of, or rights of others for, rights
of way, sewers, electric lines, telegraph or telephone lines and other
similar purposes or zoning or other restrictions as to the use of real
property not interfering with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries; or (8) operation of law in
favor of mechanics, materialmen, laborers, employees or suppliers, incurred
in the ordinary course of business for sums which are not yet delinquent or
are being contested in good faith by negotiations or by appropriate
proceedings which suspend the collection thereof;
(d) any Lien securing Indebtedness under a Bank Credit Facility incurred
by the Company or any Restricted Subsidiary in compliance with the "--
Limitation on Indebtedness" covenant or Liens securing Indebtedness
incurred in compliance with clause (xii) of the definition of Permitted
Indebtedness of the "--Limitation on Indebtedness" covenant;
(e) Liens securing purchase money Indebtedness, including pursuant to
clause (x) under the second paragraph of the "--Limitation on Indebtedness"
covenant, incurred in compliance with the Indenture; provided that such
Liens do not extend to any assets other than the assets so acquired and the
principal amount of such Indebtedness shall at no time exceed the original
purchase price of the property or assets purchased;
(f) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary, in each case
which Indebtedness is permitted under the provisions of the "--Limitation
on Indebtedness" covenant; provided that any such Lien extends only to the
assets that were subject to such Lien securing Acquired Indebtedness prior
to the related transaction by the Company or its Restricted Subsidiaries;
and
(g) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (a) through (f) so
long as the amount of security is not increased thereby.
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) at least 80% of the proceeds from such Asset Sale are
received in cash or Temporary Cash Investments; and (ii) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets subject to such
Asset Sale (as determined by the Board of Directors of the Company and
evidenced in a board resolution; provided, however, that if the Fair Market
Value of such assets exceeds $20,000,000, the Fair Market Value shall be
determined by an investment banking firm of national standing selected by the
Company). For purposes of this paragraph (a), an amount equal to the Fair
Market Value (as determined by the Board of Directors of the Company and
evidenced in a board resolution) of (1) Wireless Cable Related Assets received
by the Company or any such Restricted Subsidiary from the transferee that will
be used by the Company or any such Restricted Subsidiary in the operation of a
Wireless Cable Business in North America and (2) the Voting Stock of a
Strategic Investor engaged in the Telecommunications Business in North America
received by the Company or any such Restricted Subsidiary shall be deemed to
be cash,
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provided that the aggregate Fair Market Value (as determined at the date of
receipt of such Wireless Cable Related Assets or Voting Stock, as the case may
be) of all such Wireless Cable Related Assets and Voting Stock received since
the date of the Indenture shall not exceed $12,500,000.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Indebtedness then outstanding
under a Bank Credit Facility as required by the terms thereof, or the Company
determines not to apply such Net Cash Proceeds to the permanent prepayment of
such Indebtedness under a Bank Credit Facility, or if no such Indebtedness
under a Bank Credit Facility is then outstanding, then the Company or a
Restricted Subsidiary may, within 270 days of the Asset Sale, invest the Net
Cash Proceeds from such Asset Sale in properties and other assets that (as
determined by the Board of Directors of the Company) replace the properties
and assets that were the subject of the Asset Sale or in properties and assets
that will be used in the Wireless Cable Business. The amount of such Net Cash
Proceeds neither used to permanently repay or prepay Indebtedness under a Bank
Credit Facility nor used or invested as set forth in this paragraph
constitutes "Excess Proceeds."
(c) The Indenture will provide that, when the aggregate amount of Excess
Proceeds exceeds $5,000,000 the Company will apply the Excess Proceeds to the
repayment of the Notes and any other Pari Passu Indebtedness outstanding with
similar provisions requiring the Company to make an offer to purchase such
Indebtedness with the proceeds from any Asset Sale as follows: (A) the Company
will make an offer to purchase (an "Offer") from all holders of the Notes in
accordance with the procedures set forth in the Indenture in the maximum
principal amount (expressed as a multiple of $1,000) of Notes that may be
purchased out of an amount (the "Note Amount") equal to the product of such
Excess Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Notes (or, if prior to , 2001, the
Accreted Value of the Notes), and the denominator of which is the sum of the
outstanding principal amount of the Notes (or, if prior to , 2001, the
Accreted Value of the Notes) and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price of
all Notes tendered) and (B) to the extent required by such Pari Passu
Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, the Company will make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an
amount (the "Pari Passu Debt Amount") equal to the excess of the Excess
Proceeds over the Note Amount; provided that in no event will the Company be
required to make a Pari Passu Offer in a Pari Passu Debt Amount exceeding the
principal amount of such Pari Passu Indebtedness plus the amount of any
premium required to be paid to repurchase such Pari Passu Indebtedness. The
offer price for the Notes will be an amount payable in cash equal to 100% of
the principal amount of the Notes plus accrued and unpaid interest, if any,
(or, if prior to , 2001, the Accreted Value of the Notes) to the date
(the "Offer Date") such Offer is consummated (the "Offered Price") in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate Offered Price of the Notes tendered pursuant to the Offer is
less than the Note Amount relating thereto or the aggregate amount of Pari
Passu Indebtedness that is purchased in a Pari Passu Offer is less than the
Pari Passu Debt Amount, the Company may use any remaining Excess Proceeds for
general corporate purposes. Upon the completion of the purchase of all the
Notes tendered pursuant to an Offer and the completion of a Pari Passu Offer,
the amount of Excess Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Notes and the Pari Passu Indebtedness shall be purchased by the
Company, at the option of the holder thereof, in whole or in part in integral
multiples of $1,000, on a date that is not earlier than 45 days and not later
than 60 days from the date the notice of the Offer is given to holders, or
such later date as may be necessary for the Company to comply with the
requirements under the Exchange Act.
(e) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
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Limitation on Issuances of Guarantees of Indebtedness. (a) The Company will
not permit any Restricted Subsidiary, directly or indirectly, to guarantee,
assume or in any other manner become liable with respect to any Indebtedness
of the Company (other than Indebtedness under a Bank Credit Facility pursuant
to clauses (i) and (iii) of the second paragraph under the "--Limitation on
Indebtedness" covenant) unless (i) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
a guarantee of the Notes on the same terms as the guarantee of such
Indebtedness except that (A) such guarantee need not be secured unless
required pursuant to the provisions of the "--Limitations on Liens" covenant,
and (B) if such Indebtedness is by its terms expressly subordinated to the
Notes, any such assumption, guarantee or other liability of such Restricted
Subsidiary with respect to such Indebtedness shall be subordinated to such
Restricted Subsidiary's assumption, guarantee or other liability with respect
to the Notes to the same extent as such Indebtedness is subordinated to the
Notes and (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its guarantee.
(b) Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's Capital
Stock in such Restricted Subsidiary, which is in compliance with the terms of
the Indenture.
Purchase of Notes Upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase (subject to compliance with the requirements of
Rules 13e-4 and 14e-1 under the Exchange Act and any other applicable statute,
rule or regulation) such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Notes, plus accrued and unpaid interest, if any (or, in the case of
repurchases of Notes prior to , 2001 at a purchase price equal to 101%
of the Accreted Value thereof), to the repurchase date (the "Change of Control
Purchase Date") pursuant to the offer described below (the "Change of Control
Offer") and in accordance with the other procedures set forth in the
Indenture.
Within 30 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address
appearing in the security register, stating, among other things: the purchase
price and the purchase date which shall be a business day no earlier than 30
days nor later than 60 days from the date such notice is mailed, or such later
date as is necessary to comply with requirements under the Exchange Act; that
any Note not tendered will continue to accrue or accrete interest; that,
unless the Company defaults in the payment of the purchase price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act), other than Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have beneficial ownership of all shares that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 40% of the total outstanding Voting Stock of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors of the Company (together
with any new directors whose election to such board 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),
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cease for any reason to constitute a majority of such Board of Directors then
in office; (iii) the Company consolidates with, or merges with or into, any
Person or sells, assigns, conveys, transfers or 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 the outstanding Voting Stock of the Company
is changed into or exchanged for cash, securities or other property, other
than any such transaction where the outstanding Voting Stock of the Company is
not changed or exchanged at all (except to the extent necessary to reflect a
change in the jurisdiction of incorporation of the Company) or where (A) the
outstanding Voting Stock of the Company is changed into or exchanged for (x)
Voting Stock of the surviving corporation which is not Redeemable Capital
Stock or (y) cash, securities and other property (other than Capital Stock of
the surviving corporation) in an amount which could be paid by the Company as
a Restricted Payment under the "--Limitation on Restricted Payments" covenant
(and such amount shall be treated as a Restricted Payment subject to the
provisions of the "--Limitation on Restricted Payments" covenant) and (B) no
"person" or "group" other than Permitted Holders owns immediately after such
transaction, directly or indirectly, more than 40% of the total outstanding
Voting Stock of the surviving corporation; or (iv) the Company is liquidated
or dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under the "--
Consolidation, Merger, Sale of Assets" covenant.
"Permitted Holders" means, as of the date of determination, Chase Capital
Partners, The Chase Manhattan Corporation, Heartland, Henry J. Burkhalter,
William J. Van Devender and their respective Affiliates (other than the
Company and its Subsidiaries).
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 of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The failure of the
Company to make or consummate the Change of Control Offer or pay the Change of
Control Purchase Price when due will give the Trustee and the holders of the
Notes the rights described under "--Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret the phrase.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Restricted Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions under Indebtedness as in effect on the date of the Indenture and
any extensions, refinancings, renewals or replacements of any of the
foregoing) that would materially impair the ability of the Company to make a
Change of Control Offer to purchase the Notes or, if such Change of Control
Offer is made, to pay for the Notes tendered for purchase; provided that the
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the holders of the Notes than
those under the Indebtedness being extended, refinanced, renewed or replaced.
As of the date of this Prospectus, the Company is not subject to any agreement
containing a material restriction on its ability to make a Change of Control
Offer.
Limitation on Subsidiary Capital Stock. The Company will not permit (a) any
Restricted Subsidiary of the Company to issue, sell or transfer any Capital
Stock, except for (i) Capital Stock issued or sold to, held by or transferred
to the Company or a Wholly Owned Restricted Subsidiary of the Company, and
(ii) Capital Stock issued by a Person prior to the time (A) such Person
becomes a Restricted Subsidiary, (B) such Person merges with or into a
Restricted Subsidiary or (C) a Restricted
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Subsidiary merges with or into such Person; provided that such Capital Stock
was not issued or incurred by such Person in anticipation of the type of
transaction contemplated by subclause (A), (B) or (C) or (b) any Person (other
than the Company or a Wholly Owned Restricted Subsidiary) to acquire Capital
Stock of any Subsidiary from the Company or any Wholly Owned Restricted
Subsidiary except upon the acquisition of all the outstanding Capital Stock of
such Restricted Subsidiary in accordance with the terms of the Indenture.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Restricted Subsidiaries to issue, directly or indirectly, any
Preferred Stock, except (i) Preferred Stock of Restricted Subsidiaries
outstanding on the Issue Date; (ii) Preferred Stock issued to and held by the
Company or a Wholly Owned Restricted Subsidiary, except that any subsequent
issuance or transfer of any Capital Stock which results in any Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any transfer of such Preferred Stock to a Person not a Wholly Owned Restricted
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 Restricted
Subsidiary, (b) such Person merges with or into a Restricted Subsidiary or (c)
another Person merges with or into such Person (in a transaction in which such
Person becomes a Restricted 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 clause (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 an Average Life to Stated Maturity equal to or greater than
the remaining Average Life to Stated Maturity of the Indebtedness or Preferred
Stock being refunded or refinanced.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distribution on its Capital Stock, (ii) pay any Indebtedness owed to the
Company or any other Restricted Subsidiary, (iii) make any Investment in the
Company or any other Restricted Subsidiary or (iv) transfer any of its
properties or assets to the Company or any other Restricted Subsidiary, except
for: (a) any encumbrance or restriction pursuant to any agreement in effect on
the date of the Indenture and listed on a schedule thereto; (b) any customary
encumbrance or restriction pursuant to the terms of any instrument governing
any Indebtedness incurred by a Restricted Subsidiary pursuant to a Bank Credit
Facility in conformance with the "--Limitation on Indebtedness" covenant;
provided that any such encumbrance or restriction shall specifically not
prohibit payments of principal, premium, if any, and interest on the Notes;
(c) any encumbrance or restriction, with respect to a Restricted Subsidiary
that is not a Restricted Subsidiary of the Company on the date of the
Indenture, in existence at the time such Person becomes a Restricted
Subsidiary of the Company and not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary; (d) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (a), (b) and (c), or in this clause (d);
provided that the terms and conditions of any such encumbrances or
restrictions are no more restrictive in any material respect than those under
or pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced; (e) any instrument governing Acquired Indebtedness 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
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any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired; (f) with respect to
clause (iv) above, by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business; or (g) with respect to clause
(iv) 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.
Limitations on Unrestricted Subsidiaries. The Company will not make, and
will not permit its Restricted Subsidiaries to make, any Investment in
Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of
such Investments would exceed the amount of Restricted Payments then permitted
to be made pursuant to the "--Limitation on Restricted Payments" covenant. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as a Restricted Payment in calculating the amount
of Restricted Payments made by the Company and (ii) may be made in cash or
property.
Provision of Financial Statements. The Indenture provides that, whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the
Company will, to the extent permitted under the Exchange Act, file with the
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Sections 13(a) or 15(d) if the Company were so subject, such documents to be
filed with the Commission on or prior to the date (the "Required Filing Date")
by which the Company would have been required so to file such documents if the
Company were so subject. The Company will also in any event (x) within 15 days
of each Required Filing Date (i) transmit by mail to all holders, as their
names and addresses appear in the security register, without cost to such
holders and (ii) file with the Trustee copies of the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company were subject to such Sections and (y) if filing such documents by
the Company with the Commission is not permitted under the Exchange Act,
promptly upon written request, supply copies of such documents to any
prospective holder at the Company's cost.
Activities of the Company. The Indenture will provide that the Company and
its Restricted 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 Investor becomes the holder of a
majority of the Voting Stock of the Company, this covenant shall no longer be
of force or effect.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of affiliated Persons,
or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated basis to any other Person or group of affiliated Persons, unless
at the time and after giving effect thereto (i) either (a) the Company will be
the continuing corporation or (b) the Person (if other than the Company)
formed by such consolidation or into which the Company is merged or the Person
which acquires by sale, assignment, conveyance, transfer, lease or disposition
all or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a Consolidated basis (the "Surviving Entity") will
be a corporation duly organized and validly existing under the laws of the
United States of America, any state thereof or the District of Columbia and
such Person expressly assumes, by a supplemental indenture, in a form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture, as the case may be, and the Notes and the Indenture
will remain in full force and effect as so supplemented; (ii) immediately
before, and immediately after giving effect
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to such transaction on a pro forma basis, no Default or Event of Default will
have occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company or any of its Restricted Subsidiaries which
becomes the obligation of the Company or any of its Restricted Subsidiaries as
a result of such transaction as having been incurred at the time of such
transaction), the Consolidated Net Worth of the Company (or the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; (iv) immediately before and immediately after
giving effect to such transaction on a pro forma basis (on the assumption that
the transaction occurred on the first day of the most recently ended full
fiscal quarter for which financial statements are available immediately prior
to the consummation of such transaction with the appropriate adjustments with
respect to the transaction being included in such pro forma calculation), the
Company (or the Surviving Entity if the Company is not the continuing obligor
under the Indenture) could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the "--Limitation on Indebtedness" covenant; (v)
at the time of the transaction each Guarantor, if any, unless it is the other
party to the transactions described above, will have by supplemental indenture
confirmed that its Guarantees shall apply to such Person's obligations under
the Indenture and the Notes; (vi) at the time of the transaction if any of the
property or assets of the Company or any of its Restricted Subsidiaries would
thereupon become subject to any Lien, the provisions of the "--Limitation on
Liens" covenant are complied with; and (vii) at the time of the transaction
the Company or the Surviving Entity will have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an Officers' Certificate and an Opinion of Counsel, each to the
effect that such consolidation, merger, transfer, sale, assignment,
conveyance, transfer, lease or other transaction and the supplemental
indenture in respect thereof comply with the Indenture and that all conditions
precedent therein provided for relating to such transaction have been complied
with. 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.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the continuing corporation, the successor Person
formed or remaining shall succeed to, and be substituted for, and may exercise
every right and power of, the Company, and the Company would be discharged
from all obligations and covenants under the Indenture and the Notes.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company under the Indenture or the Notes
(other than a default in the performance, or breach, of a covenant or
agreement which is specifically dealt with in clause (i) or (ii) or in
clause (b), (c) or (d) of this clause (iii)) and such default or breach
shall continue for a period of 30 days after written notice has been given,
by certified mail, (x) to the Company by the Trustee or (y) to the Company
and the Trustee by the holders of at least 25% in Accreted Value or
aggregate principal amount, as the case may be, of the outstanding Notes;
(b) there shall be a default in the performance or breach of the provisions
described in the "--Consolidation, Merger, Sale of Assets" covenant; (c)
the Company shall have failed to make or consummate an Offer in accordance
with the provisions of the "--Limitation on Sale of Assets" covenant; or
(d) the
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Company shall have failed to make or consummate a Change of Control Offer
in accordance with the provisions of the "--Purchase of Notes Upon a Change
of Control" covenant;
(iv) (A) any default in the payment of the principal, premium, if any, or
interest on any Indebtedness shall have occurred under any agreements,
indentures or instruments under which the Company or any Restricted
Subsidiary then has outstanding Indebtedness in excess of $5,000,000 when
the same shall become due and payable and continuation of such default
after any applicable grace period and, if such Indebtedness has not already
matured at its final maturity in accordance with its terms, the holder of
such Indebtedness shall have the right to accelerate such Indebtedness or
(B) an event of default as defined in any of the agreements, indentures or
instruments described in clause (A) of this paragraph (iv) shall have
occurred and the Indebtedness thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been accelerated;
provided that a default in the payment of principal, premium, if any, or
interest in respect of Indebtedness issued by the Company or any Restricted
Subsidiary of the Company to any seller of Wireless Cable Related Assets
pursuant to an acquisition of Wireless Cable Related Assets by the Company
or any Restricted Subsidiary of the Company in an aggregate amount not to
exceed $10,000,000 shall not be considered an Event of Default so long as
(a) such nonpayment shall be the result of nonperformance by the seller
under the terms of the definitive documentation applicable to such
acquisition, (b) the Company is applying its best efforts to the pursuit of
legal remedies under such definitive documentation at law or in equity,
(c) other outstanding Indebtedness of the Company or its Restricted
Subsidiaries in an aggregate principal amount in excess of $5,000,000 shall
not have become due and payable as a consequence of such nonpayment and (d)
in the event such nonpayment continues for a period of time equal to or in
excess of 30 days, the Company shall have an Eligible Institution make
available to the Trustee a letter of credit that may be immediately drawn
upon in an amount sufficient to satisfy all amounts due and payable with
respect to such seller indebtedness.
(v) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in
full force and effect and enforceable in accordance with its terms except
to the extent contemplated by the Indenture and any such Guarantee;
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $5,000,000, either individually or in the aggregate, shall be
rendered against the Company, or any Restricted Subsidiary or any of their
respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 60 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of an appeal or otherwise, shall not be in effect;
(vii) any holder or holders of at least $5,000,000 in aggregate principal
amount of Indebtedness of the Company or any Restricted Subsidiary after a
default under such Indebtedness shall notify the Trustee of the intended
sale or disposition of any assets of the Company or any Restricted
Subsidiary that have been pledged to or for the benefit of such holder or
holders to secure such Indebtedness or shall commence proceedings, or take
any action (including by way of set-off), to retain in satisfaction of such
Indebtedness or to collect on, seize, dispose of or apply in satisfaction
of Indebtedness, assets of the Company or any Restricted Subsidiary
(including funds on deposit or held pursuant to lock-box and other similar
arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Material Restricted Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or (b) a decree or order adjudging the
Company or any Material Restricted Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Material Restricted Subsidiary under any
applicable federal or state law, or appointing a custodian,
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receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Material Restricted Subsidiary or of any
substantial part of their respective properties, or ordering the winding up
or liquidation of their respective affairs, and any such decree or order
for relief shall continue to be in effect, or any such other decree or
order shall be unstayed and in effect, for a period of 60 consecutive days;
or
(ix) (a) the Company or any Material Restricted Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (b) the
Company or any Material Restricted Subsidiary consents to the entry of a
decree or order for relief in respect of the Company or such Material
Restricted Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, (c) the Company, any Guarantor or
any Material Restricted Subsidiary files a petition or answer or consent
seeking reorganization or relief under any applicable federal or state law,
(d) the Company or any Material Restricted Subsidiary (I) consents to the
filing of such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or such Material Restricted Subsidiary or of any
substantial part of their respective properties, (II) makes an assignment
for the benefit of creditors or (III) admits in writing its inability to
pay its debts generally as they become due or (e) the Company or any
Material Restricted Subsidiary takes any corporate action in furtherance of
any such actions in this paragraph (ix).
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in aggregate
principal amount or the Accreted Value, as the case may be, of the Notes then
outstanding may, and the Trustee at the request of such holders shall, declare
all unpaid principal of (or, if prior to , 2001, Accreted Value of),
premium, if any, and accrued interest on all Notes to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if
given by the holders of the Notes) and upon any such declaration, such
principal (or Accreted Value), premium, if any, and interest shall become due
and payable. If an Event of Default specified in clause (viii) or (ix) of the
prior paragraph occurs and is continuing, then all the Notes shall ipso facto
become and be due and payable immediately in an amount equal to the Accreted
Value of the Notes, together with accrued and unpaid interest, if any, to the
date the Notes become due and payable, without any declaration or other act on
the part of the Trustee or any holder.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, (ii) all overdue interest on
all Notes then outstanding, (iii) the principal of and premium, if any, on any
Notes then outstanding which have become due otherwise than by such
declaration of acceleration and interest thereon at a rate borne by the Notes
and (iv) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (b) all Events of
Default, other than the non-payment of principal of the Notes which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in the Indenture.
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all outstanding Notes waive
any past default under the Indenture and its consequences, except a continuing
default in the payment of the principal of, premium, if any, or interest on
any Note or in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each Note
affected by such modification or amendment.
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The Company is also required to notify the Trustee within five business days
of the Company's knowledge of the occurrence of any Default. The Company is
required to deliver to the Trustee, on or before a date not more than 60 days
after the end of each fiscal quarter and not more than 120 days after the end
of each fiscal year, a written statement as to compliance with the Indenture,
including whether or not any Default has occurred. The Trustee is under no
obligation to exercise any of the rights or powers vested in it by the
Indenture at the request or direction of any of the holders of the Notes
unless such holders offer to the Trustee security or indemnity satisfactory to
the Trustee against the costs, expenses and liabilities which might be
incurred thereby.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, if any, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the Notes
discharged with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company, any such Guarantor and any other obligor
under the Indenture shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights
of holders of such outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (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, trusts, duties
and immunities of the Trustee and (iv) the 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 and any Guarantor 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 an Event of Default with respect to the Notes. In
the event covenant defeasance occurs, certain events (not including non-
payment, bankruptcy and insolvency events) described under "Events of Default"
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture) or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally-recognized firm
of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity or on the applicable
optional redemption date (such date being referred to as the "Defeasance
Redemption Date"), if at or prior to electing either defeasance or covenant
defeasance, the Company has delivered to the Trustee an irrevocable notice to
redeem all of the outstanding Notes on the Defeasance Redemption Date; (ii) in
the case of defeasance, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) 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 independent counsel in the
United States 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 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 defeasance had not occurred; (iii) in the case of covenant defeasance,
the Company shall have delivered to the Trustee an opinion of
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independent counsel in the United States to the effect 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; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clauses (viii) or (ix)
under the first paragraph under "Events of Default" are concerned, at any time
during the period ending on the 91st day after the date of deposit; (v) such
defeasance or covenant defeasance shall not cause the Trustee for the Notes to
have a conflicting interest as defined in the Indenture and for purposes of
the Trust Indenture Act with respect to any securities of the Company or any
Guarantor; (vi) such 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, any Guarantor or
any Subsidiary is a party or by which it is bound; (vii) such defeasance or
covenant defeasance shall not result in the trust arising from such deposit
constituting an investment company within the meaning of the Investment
Company Act of 1940, as amended, unless such trust shall be registered under
such Act or exempt from registration thereunder; (viii) the Company will have
delivered to the Trustee an opinion of independent counsel in the United
States to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (ix) 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 the Notes or any Guarantee over the other
creditors of the Company or any Guarantor or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others; (x) no event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Notes on the date of such deposit or at any time ending on the 91st day after
the date of such deposit; and (xi) the Company will have delivered to the
Trustee an officers' certificate and an opinion of independent counsel, each
stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with.
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
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the applicable Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company; and the
Company has irrevocably deposited or caused to be deposited with the Trustee
as trust funds in trust an amount in United States dollars sufficient to pay
and discharge the entire indebtedness on the Notes not theretofore delivered
to the Trustee for cancellation, including principal of, premium, if any, and
accrued interest at such Maturity, Stated Maturity or redemption date; (b) the
Company has paid or caused to be paid all other sums payable under the
Indenture by the Company; and (c) the Company has delivered to the Trustee an
officers' certificate and an opinion of independent counsel, each stating that
(i) all conditions precedent under the Indenture relating to the satisfaction
and discharge of such Indenture have been complied with and (ii) such
satisfaction and discharge will 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, or any Subsidiary is a party or by which the
or any Subsidiary is bound.
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MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the holders of at
least a majority of aggregate principal amount of the Notes then outstanding;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby: (i) change
the Stated Maturity of the principal of, or any installment of interest on,
any such Note or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or change the coin
or currency in which the principal of any such Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in the
case of redemption, on or after the redemption date); (ii) amend, change or
modify the obligation of the Company to make and consummate an Offer with
respect to any Asset Sale or Asset Sales in accordance with the "--Limitation
on Sale of Assets" covenant or the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control in
accordance with the "--Purchase of Notes Upon a Change of Control" covenant,
including, in each case, amending, changing or modifying any definitions
relating thereto; (iii) reduce the percentage in principal amount of such
outstanding Notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver or compliance with certain provisions of the Indenture; (iv) modify any
of the provisions relating to supplemental indentures requiring the consent of
holders or relating to the waiver of past defaults or relating to the waiver
of certain covenants, except to increase the percentage of such outstanding
Notes required for such actions or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of the holder
of each such Note affected thereby; (v) except as otherwise permitted under
the "--Consolidation, Merger, Sale of Assets" covenant, consent to the
assignment or transfer by the Company or any Guarantor of any of its rights
and obligations under the Indenture; or (vi) amend or modify any of the
provisions of the Indenture relating to the ranking of the Notes or any
Guarantee thereof in any manner adverse to the holders of the Notes or any
such Guarantee.
Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company, any Guarantor and the Trustee may modify or amend the
Indenture (a) to evidence the succession of another Person to the Company or a
Guarantor, and the assumption by any such successor of the covenants of the
Company or such Guarantor in the Indenture and in the Notes and in any
Guarantee in accordance with the "--Consolidation, Merger, Sale of Assets"
covenant; (b) to add to the covenants of the Company, any Guarantor or any
other obligor upon the Notes for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company or any Guarantor or
any other obligor upon the Notes, as applicable, in the Indenture, in the
Notes or in any Guarantee; (c) to cure any ambiguity, or to correct or
supplement any provision in the Indenture, the Notes or any Guarantee which
may be defective or inconsistent with any other provision in the Indenture,
the Notes or any Guarantee or make any other provisions with respect to
matters or questions arising under the Indenture, the Notes or any Guarantee;
provided that, in each case, such provisions shall not adversely affect the
interest of the holders of the Notes; (d) to comply with the requirements of
the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act; (e) to add a Guarantor under the
Indenture; (f) to evidence and provide the acceptance of the appointment of
successor Trustee under the Indenture; or (g) to mortgage, pledge, hypothecate
or grant a security interest in favor of the Trustee for the benefit of the
holders of the Notes as additional security for the payment and performance of
the Company's and any Guarantor's obligations under the Indenture, in any
property, or assets, including any of which are required to be mortgaged,
pledged or hypothecated, or in which a security interest is required to be
granted to the Trustee pursuant to the Indenture or otherwise.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
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GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to the
conflicts of law principles thereof.
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.
"Accreted Value" means as of a date of determination prior to , 2001,
with respect to any Note, the sum of (a) the initial offering price of such
Note and (b) the portion of the excess of the principal amount of such Note
over such initial offering price which shall have been accreted thereon
through such date, such amount to be so accreted on a daily basis at the rate
of % per annum of the initial offering price of such Note, compounded semi-
annually on each and from the Issue Date through the date of
determination, computed on the basis of a 360-day year of twelve 30-day
months. The Accreted Value of any Note on or after , 2001 shall be 100%
of the principal amount thereof.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition, as the case may be. Acquired Indebtedness
shall be deemed to be incurred on the date of the related acquisition of
assets from any Person or the date the acquired Person becomes a Subsidiary,
as the case may be.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin
or (iii) any other Person 5% or more of the Voting Stock of which is
beneficially owned or held directly or indirectly by such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized EBITDA to Consolidated Interest Expense" as of any date of
determination means the ratio of (x) the aggregate amount of EBITDA for the
most recent fiscal quarter for which financial information has been filed with
the Commission multiplied by four to (y) Consolidated Interest Expense for the
preceding four quarter period; provided, however, that (i) if the Company or
any Restricted Subsidiary of the Company has incurred any Indebtedness
(including Acquired Indebtedness) that remains outstanding on the date of such
determination, the ratio of Annualized EBITDA to Consolidated Interest Expense
for such period 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 the relevant period (fiscal quarter in the case of annualized EBITDA
and four quarter period in the case of Consolidated Interest Expense) 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 the relevant period , (ii) if since
the beginning of such fiscal quarter the Company or any Restricted 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
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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 Restricted Subsidiary of the Company (by merger or otherwise) has made an
Investment in any Person which becomes a Restricted Subsidiary of the Company
as a result of such Investment or an Investment in an existing Restricted
Subsidiary with the result that such Investment will result in the
consolidation of a greater percentage of such Restricted Subsidiary's
Consolidated Net Income (Loss) (other than a transfer of operating assets from
the Company or one Restricted Subsidiary to another Restricted Subsidiary) or
has made an acquisition of assets (other than from the Company or another
Restricted Subsidiary of the Company), including any acquisition of assets
occurring in connection with a transaction causing a calculation of Annualized
EBITDA to Consolidated Interest Expense to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Annualized EBITDA to Consolidated Interest Expense will be calculated after
giving pro forma effect thereto (including the incurrence of any Indebtedness
(including Acquired Indebtedness)) as if such Investment or acquisition
occurred on the first day of the relevant period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, an Investment, a divestiture or an incurrence of Indebtedness, the pro
forma calculations will be determined in good faith by a responsible financial
or accounting officer of the Company; provided, however, that such officer
shall apply in his calculations the historical EBITDA and Consolidated
Interest Expense associated with such assets for the most recent relevant
period for which financial information is available. If any Indebtedness
(including Acquired Indebtedness) 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, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Restricted Subsidiary; (ii) all or substantially all of the
properties and assets of any division or line of business of the Company or
its Restricted Subsidiaries; or (iii) any other properties or assets of the
Company or any Restricted Subsidiary other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include any transfer of properties and assets that (A) is governed by the "--
Consolidation, Merger, Sale of Assets" covenant, (B) is by the Company to any
Restricted Subsidiary, or by any Restricted Subsidiary to the Company or any
Wholly Owned Restricted Subsidiary, (C) is in the form of a contribution to an
Unrestricted Subsidiary which complies with the "--Limitations on Unrestricted
Subsidiaries" covenant, (D) is of obsolete equipment in the ordinary course of
business, (E) aggregates not more than $250,000 in gross proceeds or (F)
aggregates, when together with all other transfers in any 12-month period, not
more than $2,000,000 in gross proceeds and, when together with all other
transfers since the date of the Indenture, not more than $5,000,000 in gross
proceeds.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Bank Credit Facility" means one or more credit facilities (whether a term
or a revolving facility) of the type customarily entered into with commercial
banks, between the Company or any of its
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Restricted Subsidiaries, on the one hand, and any commercial banks, financial
institutions or other lenders, on the other hand (and any renewals,
refundings, extensions or replacements of any such credit facilities; provided
that such renewals, refundings, extensions or replacements comply with this
definition of "Bank Credit Facility"), which Bank Credit Facilities are by
their terms designated as a "Bank Credit Facility" for purposes of the
Indenture.
"Capital Lease Obligation" means any obligation of the Company and its
Restricted Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as
a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued
after the date of the Indenture.
"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 but the issuer is a Foreign Issuer (as defined in Rule 3b-
4(b) under the Exchange Act) and the principal securities exchange on which
such shares are listed or admitted to trading is a Designated Offshore
Securities Market (as defined in Rule 902(a) under the Securities Act), the
average of the reported closing bid and asked prices regular way on such
principal exchange, or, if such shares are not listed or admitted to trading
on any national securities exchange or quoted on such automated quotation
system and the issuer and principal securities exchange do not meet such
requirements, 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.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act then the body
performing such duties at such time.
"Common Stock" means the common stock, $.01 par value per share, of the
Company.
"Company" means Wireless One, Inc., a corporation incorporated under the
laws of the State of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Company" shall mean such successor 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
Restricted 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 (other than, in the case of the Company, Unrestricted
Subsidiaries) as of such date determined on a consolidated basis in accordance
with GAAP and which would appear on the balance sheet of any such Person.
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"Consolidated Interest Expense" means, without duplication, for any period,
the sum of (a) the interest expense of the Company and its Consolidated
Restricted Subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount, (ii) the net costs
associated with Interest Rate Agreements (including amortization of
discounts), (iii) the interest portion of any deferred payment obligation and
(iv) accrued interest, plus (b) the interest component of the Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Restricted Subsidiaries during such period, in each case as
determined in accordance with GAAP.
"Consolidated Net Income (Loss)" means, for any period, the Consolidated net
income (or loss) of the Company and its Consolidated Restricted Subsidiaries
for such period on a Consolidated basis as determined in accordance with GAAP,
adjusted, to the extent included in calculating such net income (or loss), by
excluding, without duplication, (i) all extraordinary gains but not losses
(less all fees and expenses relating thereto), (ii) the portion of net income
(or loss) of the Company and its Consolidated Restricted Subsidiaries on a
Consolidated basis allocable to minority interests in unconsolidated Persons
and Unrestricted Subsidiaries except to the extent of the amount of dividends
or distributions actually paid to the Company and its Consolidated Restricted
Subsidiaries, (iii) net income (or loss) of any Person combined with the
Company and its Consolidated Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) net gains (but not losses) (less all fees
and expenses relating thereto) in respect of dispositions of assets other than
in the ordinary course of business and (vi) the net income of any Restricted
Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Worth," as of a date, means the Consolidated stockholders'
equity (excluding Redeemable Capital Stock) of the Company and its
Consolidated Restricted Subsidiaries, as of such date, as determined in
accordance with GAAP.
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries (other than, in the case
of the Company, Unrestricted Subsidiaries) if and to the extent the accounts
of such Person and each of its subsidiaries (other than, in the case of the
Company, Unrestricted Subsidiaries) would normally be consolidated with those
of such Person, all in accordance with GAAP. The term "Consolidated" shall
have a similar meaning.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from to the end of the
Company's most recently ended full fiscal quarter date for which financial
statements are available prior to such, taken as a single accounting period.
"Cumulative Operating Cash Flow" means, as of any date of determination,
Operating Cash Flow from to the end of the Company's most recently
ended full fiscal quarter for which financial statements are available prior
to such date, taken as a single accounting period.
"Debt" or "Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit issued
under letter of credit facilities, acceptance facilities or other similar
facilities and in connection with any agreement to purchase, redeem, exchange,
convert or otherwise acquire for value any Capital Stock of such Person, or
any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, (ii) all obligations of such
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Person evidenced by bonds, notes, debentures or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such property),
but excluding trade payables arising in the ordinary course of business, (iv)
all obligations under Interest Rate Agreements of such Person, (v) all Capital
Lease Obligations of such Person, (vi) all Indebtedness referred to in clauses
(i) through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien,
upon or with respect to property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, (vii) all Guaranteed
Debt of such Person, (viii) all Redeemable Capital Stock issued by such Person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends, and (ix) any amendment, supplement,
modification, deferral, renewal, extension, refunding or refinancing of any
liability of the types referred to in clauses (i) through (viii) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the Fair Market Value of such Redeemable
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer of such Redeemable Capital Stock.
"Debt to Operating Cash Flow Ratio" means, as of any date of determination,
the ratio of (a) the aggregate principal amount of all outstanding
Consolidated Indebtedness of the Company and its Restricted Subsidiaries as of
such date plus, without duplication, the aggregate liquidation preference or
redemption amount of all Redeemable Capital Stock of the Company (excluding
any such Redeemable Capital Stock held by the Company or a Wholly Owned
Restricted Subsidiary of the Company), to (b) Operating Cash Flow of the
Company and its Restricted Subsidiaries on a Consolidated basis for the most
recently ended fiscal quarter for which financial statements are available
prior to such date multiplied by four, determined on a pro forma basis (and
after giving pro forma effect to (i) the incurrence of such Indebtedness and
(if applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of such period; (ii)
the incurrence, repayment or retirement of any other Indebtedness by the
Company and its Restricted Subsidiaries since the first day of such period as
if such Indebtedness was incurred, repaid or retired at the beginning of such
period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the average
balance of such Indebtedness at the end of each month during such period);
(iii) in the case of Acquired Indebtedness, the related acquisition as if such
acquisition had occurred at the beginning of such period; and (iv) any
acquisition or disposition by the Company and its Restricted Subsidiaries of
any company or any business or any assets out of the ordinary course of
business, or any related repayment of Indebtedness, in each case since the
first day of such period, assuming such acquisition or disposition had been
consummated on the first day of such four-quarter period).
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the Board of Directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"EBITDA" for any period means the Consolidated Net Income (Loss) for such
period plus the following to the extent deducted in calculating such
Consolidated Net Income (Loss): (i) Consolidated
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Income Tax Expense, (ii) Consolidated Interest Expense, (iii) depreciation and
amortization expense determined on a consolidated basis for such Person and
its Consolidated Restricted 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 (decreasing in the case
of a loss) Consolidated Net Income (Loss) 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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"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.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose
of enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss, (iii) to supply funds to, or in any
other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (iv) to maintain working capital or equity capital of
the debtor, or otherwise to maintain the net worth, solvency or other
financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit, in either case in the ordinary course
of business.
"Guarantor" means any Restricted Subsidiary that is required after the date
of the Indenture to execute a guarantee of the Notes pursuant to the "--
Limitation on Issuance of Guarantees of Indebtedness" covenant until a
successor replaces such Restricted Subsidiary pursuant to the applicable
provisions of the Indenture and, thereafter, shall mean such successor.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes, including any Guarantor, to
pay principal of, premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with the Indenture,
the Notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the Notes, according to the respective terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into with one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate
swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, (a)
any advance, loan (including guarantees) or other extension of credit or
capital contribution to (by means of any transfer
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of cash or other property to others or any payment for property or services
for the account or use of others), or any purchase, acquisition or ownership
by such Person of any Capital Stock, bonds, notes, debentures or other
securities issued or owned by any other Person and all other items that would
be classified as investments on a balance sheet prepared in accordance with
GAAP and (b) any acquisition of property and assets by such Person.
"Issue Date" means the date on which Notes are first authenticated and
issued.
"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or other encumbrance upon
or with respect to any property of any kind (including any conditional sale,
capital lease or other title retention agreement, any leases in the nature
thereof and any agreement to give any security interest), real or personal,
movable or immovable, now owned or hereafter acquired.
"Marketable Securities" means (i) U.S. Government Securities maturing not
more than three 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 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.
"Material Restricted Subsidiary" means any Restricted Subsidiary which would
be a "significant subsidiary" of the Company as defined in Rule 1-02 of
Regulation S-X under the Securities Act.
"Maturity" means, when used with respect to the Notes, the date on which the
principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect
of Excess Proceeds, Change of Control Offer in respect of a Change of Control,
call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or Temporary Cash Investments
including payments in respect of deferred payment obligations when received in
the form of, or stock or other assets when disposed of for, cash or Temporary
Cash Investments (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) net of (i)
brokerage commissions and other reasonable fees and expenses (including fees
and expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale,
(iii) payments made to retire Indebtedness where payment of such Indebtedness
is secured by the assets or properties the subject of such Asset Sale, (iv)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or
any Restricted Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated with such
Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock as
referred to the "--Limitation on Restricted Payments" covenant and under "--
Optional Redemption," the
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proceeds of such issuance or sale in the form of cash or Temporary Cash
Investments, net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Operating Cash Flow" means, for any period, the Consolidated Net Income
(Loss) of the Company and its Consolidated Restricted Subsidiaries for such
period, plus, without duplication, (a) extraordinary net losses and net losses
on sales of assets outside the ordinary course of business during such period,
to the extent such losses were deducted in computing Consolidated Net Income
(Loss), plus (b) Consolidated Income Tax Expense, and any provision for taxes
utilized in computing the net losses under clause (a) hereof, plus (c)
Consolidated Interest Expense of the Company and its Restricted Subsidiaries
for such period, plus (d) depreciation, amortization and all other non-cash
charges, to the extent such depreciation, amortization and other non-cash
charges were deducted in computing such Consolidated Net Income (Loss)
(including amortization of goodwill and other intangibles).
"Opinion of Counsel" means any opinion in writing signed by legal counsel,
who may be an employee of or of counsel to the Company, or who may be other
counsel reasonably satisfactory to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is pari
passu in right of payment to the Notes.
"Permitted Investment" means (i) Investments in any existing Restricted
Subsidiary; (ii) Indebtedness of the Company or a Restricted Subsidiary
described under clauses (v), (vi) and (vii) of the definition of "Permitted
Indebtedness"; (iii) Temporary Cash Investments; (iv) Investments acquired by
the Company or any Restricted Subsidiary in connection with an Asset Sale
permitted under the "--Limitation on Sale of Assets" covenant to the extent
such Investments are non-cash proceeds as permitted under such covenant; (v)
Investments in existence on the date of the Indenture; (vi) any acquisition of
equipment in the ordinary course of business; (vii) any acquisition of
property and assets (other than channel rights) for a purchase price of not
more than $50,000; (viii) any Investment in the Wireless Cable Business
acquired in consideration for the issuance of Common Stock or the proceeds of
the issuance of Common Stock to the extent such amounts have not been
previously applied to a Restricted Payment; (ix) any acquisition or lease of
additional channel rights in markets listed in an annex to the Indenture or in
which the Company and its Restricted Subsidiaries (A) as of the date of the
Indenture, 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 (without giving effect to such acquisition),
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; (x) Investments consisting of any acquisition or lease of
additional channel rights in one or more Wireless One Service States or any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person engaged in the Wireless Cable Business if as a result of such
Investment (A) such Person becomes a Restricted Subsidiary of the Company or
(B) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; provided that (1) there are a maximum of 250,000
households within a 35-mile radius of the licensed transmission site
associated with such channel rights or such Person, as the case may be, of
which at least 15% are unpassed by traditional hard-wire cable (as supported
by an Officer's Certificate); (2) if such Person conducts operations outside
the Wireless One Service States, the Company shall deliver to the Trustee an
Officer's Certificate that allocates a portion of the dollar amount of such
Investment to the operations outside the Wireless One Service States and such
amount shall not qualify as a Permitted Investment and (3) the aggregate
amount of such cash
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Investments in respect of all such channel rights and all such Persons shall
not exceed $20,000,000, and (xi) Investments by the Company or any Restricted
Subsidiary in a joint venture which is formed to provide wireless cable
television service in North Carolina in part via ITFS channels leased from
community colleges in North Carolina, provided that such Investments do not in
the aggregate exceed $15,000,000.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Qualified Subordinated Indebtedness" means Subordinated Indebtedness issued
to a Strategic Investor the terms of which include (i) the terms set forth in
clause (x) of the definition of Permitted Indebtedness in the covenant "--
Limitation on Indebtedness", (ii) asset sale provisions and change of control
provisions no more restrictive in any respect than those contained in the
Indenture, (iii) optional redemption or repurchase provisions that are not
effective until the day succeeding the final Maturity date of the Notes, (iv)
provisions that no part of such Subordinated Indebtedness shall have any claim
to the assets of the Company on a parity with or prior to the claim of the
Notes, (v) provisions that unless and until the Notes have been paid in full,
without the express prior written consent of the Trustee, no holder of such
Subordinated Indebtedness will take, demand or receive from the Company, and
the Company will not make, give or permit, directly or indirectly, by set-off,
redemption, purchase or in any other manner, any payment of or security for
the whole or any part of the Subordinated Indebtedness, including, without
limitation, any letter of credit or similar credit support facility to support
payment of such Subordinated Indebtedness and (vi) covenants from the holder
of such Subordinated Indebtedness that such holder will not, without the
written consent of the Trustee, (A) sell, assign or otherwise transfer its
rights in respect of such Subordinated Indebtedness to any Person who does not
agree to be bound by clauses (B) and (C), (B) permit any of the documentation
relating to the subordination of such Subordinated Indebtedness to be amended
and (C) commence, or join with any creditors other than the Trustee or the
Noteholders, in commencing any bankruptcy, insolvency or similar proceeding
with respect to the Company or any of its Restricted Subsidiaries.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable
or otherwise, is or upon the happening of an event or passage of time would
be, required to be redeemed prior to any Stated Maturity of the principal of
the Notes or is redeemable at the option of the holder thereof at any time
prior to any Stated Maturity of the Notes, or is convertible into or
exchangeable for debt securities at any time prior to any Stated Maturity of
the Notes at the option of the holder thereof.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
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"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest, as the case may be, is due and payable.
"Strategic Investor" means any Person (i) engaged in the Telecommunications
Business that as of the date of determination has a Total Equity Market
Capitalization of at least $500,000,000 or (ii) any corporation, partnership,
joint venture, limited liability company or similar entity of which a
shareholder, general partner, joint venturer or member with more than 50% of
the capital accounts, distribution rights, total equity and voting interests
or general or limited partnership interests, as applicable, are owned or
controlled, directly or indirectly, by a Person that satisfies clause (i) of
this definition; provided that clause (ii) of this definition may be satisfied
by any group of shareholders, general partners, joint venturers or members so
long as (a) each Person included in such group satisfies clause (i), (b) at
least one member in such group owns or controls, directly or indirectly, 35%
or more of the capital accounts, distribution rights, total equity and voting
rights or general or limited partnership interests of such Strategic Investor,
(c) no more than five Persons may be included in such group and (d) the
shareholders, general partners, joint ventures members to be included in such
group shall act as a group and in concert.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Guarantor subordinated in right of payment to the Notes or the Guarantee of
such Guarantor, as the case may be.
"Subsidiary" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries.
"Telecommunications 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, (ii) creating, developing or
packaging entertainment or communication programming, (iii) offering of
private telephony services or (iv) evaluating, participating or pursuing any
other activity or opportunity that is related to those identified in (i), (ii)
or (iii) above.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than one
year after the date of acquisition, issued by, or time deposit of, a
commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less
than $500,000,000, whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (iii) commercial paper, maturing not more than
one year after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Company) organized and existing under the laws
of the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" according to Moody's or "A-1" according
to S&P and (iv) any money market deposit accounts issued or offered by a
domestic commercial bank having capital and surplus in excess of $500,000,000;
provided that the short term debt of such commercial bank has a rating at the
time of Investment, of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P.
"Total Equity Market Capitalization" of any Person means, as of any date of
determination, the product of (i) the aggregate number of outstanding shares
of Common Stock of such Person on such date (which shall not include any
options or warrants on, or securities convertible or exchangeable into,
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shares of Common Stock of such Person) and (ii) the average Closing Price of
such Common Stock over the 20 consecutive Trading Days immediately preceding
such date. If no such Closing Price exists with respect to shares of any such
class, the value of such shares shall be determined by the Company's Board of
Directors in good faith and evidenced by a resolution of the Board of
Directors of the Company filed with the Trustee.
"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.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly-
acquired or newly-formed Subsidiary) to be an Unrestricted Subsidiary if all
of the following conditions apply: (a) such Subsidiary is not liable, directly
or indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness and (b) any Investment in such Subsidiary made as a
result of designating such Subsidiary an Unrestricted Subsidiary shall not
violate the provisions of the "--Limitation on Unrestricted Subsidiaries"
covenant. Any such designation by the Board of Directors of the Company shall
be evidenced to the Trustee by filing with the Trustee a board resolution
giving effect to such designation and an officers' certificate certifying that
such designation complies with the foregoing conditions. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary; provided that immediately after giving effect to such
designation, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the restrictions under the "--
Limitation on Indebtedness" covenant.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any Restricted Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect for, such
Indebtedness), except Guaranteed Debt of the Company or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of such
Guaranteed Debt resulted in a Restricted Payment at the time of incurrence)
the Company shall be deemed to have made a Restricted Payment equal to the
principal amount of any such Indebtedness to the extent guaranteed at the time
such Affiliate is designated an Unrestricted Subsidiary and (ii) which, upon
the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Indebtedness of the Company or any Restricted
Subsidiary (other than a Bank Credit Facility incurred pursuant to clause (i)
of the second paragraph of the "--Limitation on Indebtedness" covenant) to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"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
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obligation or the specific payment of principal of or interest on the U.S.
government obligation evidenced by such depository receipt.
"Voting Stock" means Capital Stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time Capital Stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which is owned by the Company or another Wholly Owned
Restricted Subsidiary.
"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, and the Voting Stock of any entity which is to
become a Wholly Owned Restricted Subsidiary and is engaged exclusively in the
Wireless Cable Business.
"Wireless One Service States" shall mean the states of Texas, Louisiana,
Mississippi, Tennessee, Alabama, Georgia, Arkansas, North Carolina, Florida,
South Carolina and Kentucky.
BOOK-ENTRY, DELIVERY AND FORM
Upon issuance the Notes will be represented by a permanent global Note or
Notes. Each permanent global Note will be deposited with, or on behalf of, The
Depositary Trust Company (the "Depositary") and registered in the name of a
nominee of the Depositary. Except under the limited circumstances described
below, permanent global Notes will not be exchangeable for definitive
certificated Notes.
Ownership of beneficial interests in a permanent global Note will be limited
to institutions that have accounts with the Depositary or its nominee
("participants") or persons that may hold interests through participants. In
addition, ownership of beneficial interests by participants in such permanent
global Note will be evidenced only by, and the transfer of that ownership
interest will be effected only through, records maintained by the Depositary
or its nominee for such permanent global Note. Ownership of beneficial
interests in such permanent global Note by persons that hold through
participants will be evidenced only by, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. The Depositary has no knowledge of the actual
beneficial owners of the Notes. Beneficial owners will not receive written
confirmation from the Depositary of their purchase, but beneficial owners are
expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
participants through which the beneficial owners entered the transaction. The
laws of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in such permanent global Note.
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The Company has been advised by the Depositary that upon the issuance of a
permanent global Note and the deposit of such permanent global Note with the
Depositary, the Depositary will immediately credit, on its book-entry
registration and transfer system, the respective principal amounts represented
by such permanent global Note to the accounts of such participants.
Payment of principal of, and interest on, Notes represented by a permanent
global Note registered in the name of or held by the Depositary or its nominee
will be made to the Depositary or its nominee, as the case may be, as the
registered owner and holder of the permanent global Note representing such
Notes. The Company has been advised by the Depositary that upon receipt of any
payment of principal of, or interest on, a permanent global Note, the
Depositary will immediately credit, on its book-entry registration and
transfer system, accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such permanent global Note as shown in the records of the Depositary.
Payments by participants to owners of beneficial interests in a permanent
global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name,"
and will be the sole responsibility of such participants, subject to any
statutory or regulatory requirements as may be in effect from time to time.
None of the Company, the Trustee or any other agent of the Company or the
Trustee will have any responsibility or liability for any aspect of the
records of the Depositary, any nominee or any participant relating to, or
payments made on account of, beneficial interests in a permanent global Note
or for maintaining, supervising or reviewing any of the records of the
Depositary, any nominee or any participant relating to such beneficial
interests.
A permanent global Note is exchangeable for definitive Notes registered in
the name of, and a transfer of a permanent global Note may be registered to,
any person other than the Depositary or its nominee, only if:
(a) the Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such permanent global Note or if any time the
Depositary ceases to be a clearing agency registered under the Exchange
Act;
(b) the Company in its sole discretion determines that such permanent
global Note shall be exchangeable for definitive Notes in registered form;
or
(c) there shall have occurred and be continuing an Event of Default under
the Notes.
Any permanent global Note that is exchangeable pursuant to the preceding
sentence will be exchangeable in whole for definitive Notes in registered
form, of like tenor and of an equal aggregate principal amount as the
permanent global Note, in denominations of $1,000 and integral multiples
thereof. Such definitive Notes will be registered in the name or names of such
persons as the Depositary shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depositary from its
participants with respect to ownership of beneficial interests in such
permanent global Note. With respect to definitive Notes, any principal and
interest will be payable, the transfer of the definitive Notes will be
registerable and the definitive Notes will be exchangeable at the office of
the Trustee in New York, New York, provided that payment of interest may be
made at the option of the Company by check mailed to the address of the person
entitled thereto and as shown on the register for the Notes.
Except as provided above, owners of beneficial interests in such permanent
global Note will not be entitled to receive physical delivery of Notes in
definitive form and will not be considered the holders thereof for any purpose
under the Indenture, and no permanent global Note shall be exchangeable except
for another permanent global Note of like denomination and tenor to be
registered in the name of the Depositary or its nominee. Accordingly, each
person owning a beneficial interest in such
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permanent global Note must rely on the procedures of the Depositary and, if
such person is not a participant, on the procedures of the participant through
which such person owns its interest, to exercise any rights of a holder of the
Notes (a "Holder") under the permanent global Note.
The Company understands that, under existing industry practices, in the
event that the Company requests any action of Holders, or an owner of a
beneficial interest in such permanent global Note desires to give or take any
action that a Holder is entitled to give or take under the Notes, the
Depositary would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning
through them.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the Depositary's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly. The rules applicable to the Depositary and its
participants are on file with the Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. So
long as the Notes are represented by a permanent global Note or Notes, all
payments of principal, premium, if any, and interest will be made by the
Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the Notes
are represented by a permanent global Note or Notes registered in the name of
the Depositary or its nominee, the Notes will trade in the Depositary's Same-
Day Funds Settlement System, and secondary market trading activity in the
Notes will therefore be required by the Depositary to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on the trading activity in the
Notes.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock and (ii) 10,000,000 shares of Preferred Stock, $.01 par
value (the "Preferred Stock").
The statements under this caption are brief summaries, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the more complete descriptions contained in the Certificate of
Incorporation and By-laws which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Subject to the prior rights of the holders of any
Preferred Stock, holders of Common Stock are entitled to receive such
dividends as may from time to time be declared by the Board of Directors of
the Company out of funds legally available therefor. Holders of Common Stock
have no preemptive, conversion, redemption or sinking fund rights. In the
event of a liquidation, dissolution or winding-up of the Company, holders of
Common Stock are entitled to share ratably in the assets of the Company which
are legally available for distribution, if any, remaining after the payment of
all debts and liabilities of the Company and the liquidation preference of any
outstanding series of Preferred Stock. The outstanding shares of Common Stock
are validly issued, fully-paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to any class or series of
Preferred Stock which the Company may issue in the future.
The Common Stock is quoted and traded on the Nasdaq National Market under
the symbol "WIRL." The transfer agent and registrar for the Common Stock is
First Chicago Trust Company of New York.
PREFERRED STOCK
The Board of Directors is authorized to issue Preferred Stock in classes or
series and to fix the designations, preferences, qualifications, limitations,
or restrictions of any class or series with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of stock, voting rights and other terms.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Certificate of Incorporation, there are approximately 33 million
shares of Common Stock and 10 million shares of Preferred Stock available for
future issuance without stockholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public
offerings to raise additional capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity
of the Company's management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of the
Company.
The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued Preferred Stock. The purpose of
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authorizing the Board of Directors to determine such rights and preferences is
to eliminate delays associated with a stockholder vote on specific issuances.
The Board of Directors may issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock, and which could, among other things, have the effect of delaying,
deterring or preventing a change in control of the Company.
The Company does not currently have any plans to issue additional shares of
Common Stock or Preferred Stock other than shares of Common Stock which may be
issued in connection with the TruVision Transaction or upon the exercise of
the GKM Warrants, the Warrants or options which have been granted or which may
be granted in the future to the Company's employees or directors. See
"Underwriting."
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation provides that the Company shall indemnify
each officer and director of the Company to the fullest extent permitted by
applicable law, except as may be otherwise provided in the By-laws. In
furtherance thereof, the Board of Directors is expressly authorized to amend
the By-laws to give full effect to any changes in applicable law,
notwithstanding possible self-interest of the directors in the action being
taken. The Certificate of Incorporation also provides that, to the fullest
extent permitted by the DGCL, a director of the Company shall not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director to the Company or its stockholders. Such limitation does
not affect the liability of a director (i) for any transaction from which the
director derives an improper personal benefit, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for improper payment of dividends or redemption of shares or (iv)
for any breach of a director's duty of loyalty to the Company or its
stockholders.
As described below, the Certificate of Incorporation and By-laws contain
certain provisions that are intended to enhance the likelihood of continuity
and stability in the composition of the Company's Board of Directors and which
may have the effect of delaying, deterring or preventing a future takeover or
change in control of the Company unless such takeover or change in control is
approved by the Company's Board of Directors. Such provisions may also render
the removal of the directors and management more difficult.
Pursuant to the Certificate of Incorporation, the Board of Directors of the
Company is divided into three classes serving staggered three-year terms.
Directors can be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally
in the election of directors, voting together as a single class. Vacancies on
the Board of Directors may only be filled by the affirmative vote of the
majority of the remaining directors or by a sole remaining director and not by
the stockholders, except that in the case of newly created directorships, if
the remaining directors fail to fill any such vacancy, the stockholders may do
so at the next annual or special meeting called for the purpose of election of
directors.
The By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of stockholders of the Company. In general,
notice must be received by the Company not less than 130 days prior to the
meeting and must contain certain specified information concerning the person
to be nominated or the matter to be brought before the meeting and concerning
the stockholder submitting the proposal.
Special meetings of stockholders may be called only by the Chairman of the
Board, the President of the Company or the Board of Directors. The Certificate
of Incorporation provides that stockholders may act only at an annual or
special meeting and stockholders may not act by written consent. The
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Certificate of Incorporation provides that the affirmative vote of the holders
of at least 80% of the total votes eligible to be cast in the election of
directors is required to amend, alter, change or repeal certain provisions of
the Certificate of Incorporation. This requirement of a super-majority vote to
approve amendments to the Certificate of Incorporation could enable a minority
of the Company's stockholders to exercise veto powers over such amendments.
REGISTRATION RIGHTS
In connection with the Heartland Transaction, the Company, Heartland, the
contributing Heartland subsidiaries and the former stockholder of Old Wireless
One entered into the Initial Registration Agreement. The Initial Registration
Agreement was amended and restated in connection with the execution of the
TruVision Merger Agreement, with the Former TruVision Stockholders becoming
parties thereto. Under the New Registration Agreement, at any time after
October 24, 1997, any of (a) the holders of a majority of the Common Stock
issued to the former stockholders of Old Wireless One (other than CMCC and
Baseball Partners) in the Heartland Transaction, (b) the holders of a majority
of the Common Stock issued to Heartland and/or certain of Heartland's
subsidiaries in the Heartland Transaction, (c) the holders of a majority of
the Common Stock issued to the Former TruVision Stockholders (other than CVCA)
in the TruVision Transaction, and/or (d) the holders of a majority of the
Common Stock issued to CMCC and Baseball Partners in the Heartland Transaction
or issued to CVCA in the TruVision Transaction, shall each have the right,
subject to certain conditions, to require the Company to register any or all
of such Common Stock under the Securities Act on Form S-1 on three occasions
at the Company's expense and on Form S-2 or S-3 on an additional three
occasions at the Company's expense. The holders of any such shares of Common
Stock are also entitled to request the inclusion of any Common Stock subject
to the Registration Agreement in any registration statement at the Company's
expense whenever the Company proposes to register any of its securities under
the Securities Act, subject to certain conditions. After October 24, 1996, the
holders of a majority of the shares of Common Stock granted to VCI in
satisfaction of the Phase II Payment shall be entitled to request registration
of such shares under the Securities Act.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the "business combination" statute of the DGCL. In
general, such statute prohibits a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) the
transaction is approved by the board of directors of the corporation prior to
the date the interested stockholder obtained such status, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
outstanding voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer, or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to a stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or, within
three years, did own) 15% or more of the corporation's voting stock. The
statute could prohibit or delay the accomplishment of a merger or other
takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company. Because CMCC,
CVCA, Baseball Partners and Heartland acquired their shares in a transaction
approved by the Board for purposes of the "business combination" statute,
CMCC, CVCA, Baseball Partners and Heartland are not subject to the
restrictions of such statute.
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UNITED STATES FEDERAL INCOME TAX MATTERS
In the opinion of Kirkland & Ellis, special tax counsel to the Company, the
following summary describes the principal United States Federal income tax
consequences of the purchase, ownership and disposition of Notes as of the
date hereof. Except where noted, it deals only with Notes held as capital
assets by holders that are United States Persons (as defined below) and does
not deal with special situations, such as those of dealers in securities or
currencies, financial institutions, life insurance companies, persons holding
Notes as a part of a hedging or conversion transaction or a straddle or
holders whose functional currency is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended to the date hereof (the "Code") and regulations,
administrative pronouncements, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so
as to result in U.S. Federal income tax consequences different from those
discussed below. In particular, the discussion below is based upon Treasury
regulations issued under section 1273 and related sections of the Code
relating to "original issue discount" ("OID") (the "OID Regulations"). PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES IN
LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein, a "United States Person" means an individual that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
THE NOTES
Payments of Interest--Original Issue Discount
The Notes will be issued with original issue discount ("OID") equal to the
difference between their issue price and their stated redemption price at
maturity. The "issue price" of the Notes is the first price at which a
substantial amount of the Notes is sold for money, excluding sales to
underwriters, placement agents or wholesalers. The "stated redemption price at
maturity" of the Notes will equal the sum of all payments required under the
Notes other than payments of qualified stated interest. To have "qualified
stated interest," a debt instrument must, among other requirements, have
interest that is unconditionally payable at least annually during the entire
term of the debt instrument. Because the Notes will not pay interest until
, 2002, none of the interest on the Notes will be qualified stated
interest. As a result, all payments made under the Notes will be treated as
part of the stated redemption price at maturity. Accordingly, the interest on
the Notes will be taxable to holders in advance of receipt regardless of a
holder's method of accounting, in accordance with the OID rules described
below. The aggregate OID on a Note will equal the difference between the sum
of all payments required under the Note and the issue price of the Note.
A holder of Notes will be required to include OID in income for U.S. Federal
income tax purposes as it accrues. OID will accrue daily in accordance with a
constant yield method based on a compounding of interest. Under this method,
holders of the Notes will be required to include in income increasingly
greater amounts of OID in successive accrual periods. OID allocable to any
accrual period will equal the product of the adjusted issue price of the Notes
as of the beginning of such period and the Notes' yield to maturity. The
"adjusted issue price" of the Notes as of the beginning of any accrual period
will equal the issue price of the Notes increased by OID previously includable
in income and decreased by any payments under the Notes (other than qualified
stated interest). Because OID will accrue and be includable in income at least
annually and no payments will be made under the Notes until , 2002, the
adjusted issue price of the Notes will increase until , 2001. OID includable
in income will therefore increase during each accrual period until , 2001.
Thereafter, OID includable
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in income for each six-month accrual period will approximate the amount of
cash interest due at the end of such period.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of Notes, information with respect to
interest and OID accruing during the calendar year. The OID information will
be based upon the adjusted issue price of the debt instrument as if the holder
were the original holder of the debt instrument. Subsequent holders who
purchase Notes for an amount other than the adjusted issue price and/or on a
date other than the last day of an accrual period will be required to
determine for themselves the amount of OID, if any, they are required to
include in gross income for U.S. Federal income tax purposes.
Applicable High Yield Discount Rules
If the yield to maturity on the Notes equals or exceeds the sum of (x) the
"applicable federal rate" (as determined under Section 1274(d) of the Code) in
effect for the month in which the Notes are issued (the "AFR") and (y) 5%, the
Notes will be considered "applicable high yield discount obligations" under
Section 163(i) of the Code. Consequently, the Company will not be allowed to
take a deduction for interest (including OID) accrued on the Notes for U.S.
Federal income tax purposes until such time as the Company actually pays such
interest (including OID) in cash or in other property (other than stock or
debt of the Company or a person deemed to be related to the Company under
Section 453(f)(1) of the Code).
Moreover, if the yield to maturity on the Notes exceeds the sum of (x) the
AFR and (y) 6% (such excess shall be referred to hereinafter as the
"Disqualified Yield"), the deduction for interest (including OID) accrued on
the Notes will be permanently disallowed (regardless of whether the Company
actually pays such interest or OID in cash or in other property) for U.S.
Federal income tax purposes to the extent such interest or OID is attributable
to the Disqualified Yield on the Notes ("Dividend-Equivalent Interest"). For
purposes of the dividends-received deduction, such Dividend-Equivalent
Interest will be treated as a dividend to the extent it is deemed to have been
paid out of the Company's current or accumulated earnings and profits.
Accordingly, a corporate holder of a Note may be entitled to take a dividends-
received deduction with respect to any Dividend-Equivalent Interest received
by such corporate holder on such Note.
Market Discount; Acquisition Premium
If a holder purchases Notes for an amount that is less than the revised
issue price (which generally approximates adjusted issue price) of such Notes,
the amount of the difference will be treated as "market discount" for U.S.
Federal income tax purposes, unless such difference is less than a specified
de minimis amount. Under the market discount rules, a holder will be required
to treat any principal payment on, or any amount received on the sale,
exchange, retirement or other disposition of, Notes as ordinary income to the
extent of any market discount which has not previously been included in income
and is treated as having accrued on such Notes by the time of such payment or
disposition. If a holder makes a gift of a Note, accrued market discount, if
any, will be recognized as if such holder had sold such Note for a price equal
to its fair market value. In addition, the holder may be required to defer,
until the maturity of the Notes or their earlier disposition in a taxable
transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Notes.
Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the
Notes, unless the holder elects to accrue market discount under a constant
interest method. A holder of Notes may elect to include market discount in
income currently as it accrues (under either a straight-line or constant
interest method), in which case the rules described above regarding the
deferral of interest deductions will not apply. This election to include
market discount in income currently, once made, applies to all market discount
obligations
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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 Internal
Revenue Service (the "IRS").
A holder that purchases Notes for an amount that is greater than the
adjusted issue price of such Notes but equal to or less than the sum of all
amounts payable on such Notes after the purchase date will be considered to
have purchased such Notes at an "acquisition premium." Under the acquisition
premium rules, the amount of OID which such holder must include in its gross
income with respect to such Notes for any taxable year will be reduced by the
portion of such acquisition premium properly allocable to such year.
Sale, Exchange, Retirement or other Disposition of Notes
Upon the sale, exchange, retirement or other disposition of Notes, a holder
will generally recognize gain or loss equal to the difference between the
amount realized upon such sale, exchange, retirement or other disposition and
such holder's adjusted tax basis in the Note.
A holder's adjusted tax basis in a Note will equal such holder's initial tax
basis in the Note, increased by the amounts of any OID or market discount
previously included in income by the holder with respect to such Note and
reduced by the amounts of any payments on the Note received by such holder.
Except with respect to market discount and payments for accrued interest not
previously included in income, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the Notes have been held for
more than one year as of the date of such sale, exchange, retirement or other
disposition. Under current law, the excess of net long-term capital gains over
net short-term capital losses is taxed at a lower rate than ordinary income
for certain non-corporate taxpayers. The distinction between capital gain or
loss and ordinary income or loss is also relevant for purposes of, among other
things, limitation on the deductibility of capital losses.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to accruals of
interest and OID on the Notes and to the proceeds of a disposition of a Note,
other than a disposition by certain exempt recipients (including, among
others, corporations). Certain noncorporate holders may be subject to backup
withholding at a rate of 31% on payments of principal and interest (including
OID) and premium on, and the proceeds of disposition of, a Note. Backup
withholding will apply only if the holder: (i) fails to furnish its Taxpayer
Identification Number ("TIN") which, for an individual, would be his or her
Social Security number; (ii) furnishes an incorrect TIN; (iii) is notified by
the IRS that he or she has failed to properly report payments of interest and
dividends; or (iv) under certain circumstances, fails to certify, under
penalty of perjury, that he or she has furnished a correct TIN and has not
been notified by the IRS that he or she is subject to backup withholding for
failure to report interest and dividend payments. Holders of the Notes should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption, if
applicable.
The amount of any backup withholding from a payment for a holder of a Note
will be allowed as a credit against the holder's U.S. Federal income tax
liability and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
OTHER TAX CONSEQUENCES
In addition to the U.S. Federal income tax considerations described above,
prospective purchasers of the Notes should consider potential state and local
income, franchise, personal property and other taxation in any state or
locality and the tax effect of ownership, sale, exchange, retirement
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or disposition of Notes in any state or locality. Prospective purchasers of
Notes are advised to consult their own tax advisors with respect to any state
and local income, franchise, personal property and other tax consequences
arising out of their ownership of Notes.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER OF NOTES SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME
TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the Underwriters, the
Company has agreed to sell to the Underwriters, and the Underwriters have
severally agreed to purchase from the Company, the following respective
principal amounts of the Notes:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
------------ ---------
<S> <C>
Chase Securities Inc................................................. $
BT Securities Corporation............................................
Gerard Klauer Mattison & Co., LLC....................................
Prudential Securities Incorporated...................................
----
Total.............................................................. $
====
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of the Notes are purchased. The Company has been advised by the
Underwriters that the Underwriters propose to offer the Notes to the public
initially at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers initially at such price less a discount not
in excess of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession to certain other dealers not
in excess of % of the principal amount of the Notes. After the initial public
offering, the Underwriters may change the public offering price, the discount
and the concession.
The Notes comprise new issues of securities with no established trading
market. The Company had been advised by the Underwriters that the Underwriters
intend to make a market in the Notes, as permitted by applicable laws and
regulations. No assurance can be given, however, that the Underwriters will
make a market in the Notes, or as to the liquidity of, or the trading market
for, the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, and to contribute
to payments which the Underwriters might be required to make in respect
thereof.
CMCC and CVCA, each affiliates of CSI and each other, own on a fully diluted
basis approximately 10.7% and 8.5%, respectively, of the Company's outstanding
Common Stock upon completion of the TruVision Transaction. In addition,
Baseball Partners, which is also affiliated with each of CMCC, CVCA and CSI,
owns, on a fully diluted basis, approximately 2.1% of the Company's Common
Stock outstanding upon completion of the Offerings, which will be voted by
CVCA pursuant to a proxy. See "Principal Stockholders." In addition, CVCA
provided the Interim Facility to TruVision and will be repaid by the Company
from the proceeds of the Offering. See "Use of Proceeds." Mr. Arnold L.
Chavkin is a Director of the Company and a General Partner of CCP. Pursuant to
the New Stockholders Agreement, CMCC, CVCA and Baseball Partners have the
right to designate up to two of the nine directors of the Company. See
"Management."
In connection with the Heartland Transaction, the Company sold to GKM for
nominal consideration warrants to purchase from the Company 300,000 shares of
Common Stock ("GKM Warrants"). The GKM Warrants are initially exercisable at a
price per share of $12.60 (120% of the initial public offering price in the
initial public offering of the Common Stock) for a period of four years
commencing on October 18, 1996. The GKM Warrants grant to the holders thereof
certain anti-dilution rights and rights with respect to the registration of
the securities issuable upon exercise of the GKM Warrants. "Description of
Capital Stock--Registration Rights." GKM has also provided certain financial
advisory services to Heartland and the Company in connection with the
Heartland Transaction for which GKM received a fee.
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BTSC, GKM and Prudential have, from time to time, provided investment
banking services to the Company, such as in connection with the Old Offerings
(in the case of each of BTSC, GKM, and Prudential) and the Heartland
Transaction (in the case of GKM) and have received customary fees in
connection therewith. GKM also has a right of first refusal to be a managing
underwriter in future equity and debt transactions of the Company. In
connection with the TruVision Transaction, GKM delivered a fairness opinion
and received customary compensation in connection therewith. BTSC acted as
solicitation agent in connection with the receipt of consent from the holders
of Existing Notes to amend the Old Indenture and received customary
compensation in connection therewith.
Under Conduct Rule 2720 ("Rule 2720") of the National Association of
Securities Dealers, Inc. (the "NASD"), when an NASD member, such as CSI,
participates in the distribution of a public offering of the securities of an
affiliate of such member, such offering must be conducted in accordance with
the applicable provisions of Rule 2720. Accordingly, by virtue of CSI's
participation in the offering of the Notes and Chase's ownership interest in
the Company, the offering of the Notes will be conducted in accordance with
the applicable provisions of Rule 2720. Accordingly, Prudential has agreed to
act as a qualified independent underwriter for the Offering. In the Offering,
the Underwriters will not confirm sales to any account over which they
exercise discretionary authority without the prior specific written approval
of the customer.
This Prospectus has been prepared for use by the Underwriters and may be
used by CSI in connection with offers and sales related to secondary market
transactions in the Notes. CSI may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale. No dealer, salesman or other person has been
authorized to give any information or to make any representation not contained
in this Prospectus and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or CSI. This
Prospectus does not constitute an offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful to make such
offer in such jurisdiction.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the Company
by Kirkland & Ellis (a partnership which includes professional corporations),
New York, New York. Certain FCC regulatory matters relating to this offering
will be passed upon for the Company by Gardner, Carton & Douglas, Washington,
D.C., as special telecommunications counsel. Certain legal matters relating to
the Offering will be passed upon for the Underwriters by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York,
New York and by Rini, Coran & Lancellotta, P.C., Washington, D.C., as special
telecommunications counsel.
EXPERTS
The consolidated financial statements of Wireless One, Inc. and subsidiaries
as of December 31, 1994 and 1995 and for the period from February 4, 1993
(inception) through December 31, 1993 and the years ended December 31, 1994
and 1995 and the financial statements of Heartland Division as of December 31,
1993 and 1994 and for the years ended December 31, 1992 and 1993, the period
from January 1, 1994 to August 18, 1994 and the period from August 19, 1994 to
December 31, 1994 have been included herein and in the Registration Statement
in reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing herein and in the Registration Statement and
upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the financial statements of
Heartland Division contains an explanatory paragraph that refers to a business
combination in 1994 accounted for as a
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purchase involving assets comprising a portion of Heartland Division. As a
result of the acquisition, financial information of Heartland 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 audited financial statements of TruVision Wireless, Inc., Madison
Communications, Inc. and Beasley Communications, Inc., and BarTel, Inc.
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are included herein in reliance upon the authority of such firm in
giving such reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information 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 7 World Trade Center, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. A Registration
Statement on Form S-1 under the Securities Act, including amendments thereto,
relating to the Notes offered hereby has been filed by the Company with the
Commission. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Notes offered hereby,
reference is made to such Registration Statement and exhibits and schedules
filed as a part thereof. Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additionally, the Commission maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Company. The Company's Common Stock is quoted on the Nasdaq National
Market, and such reports, proxy statements and other information regarding the
Company can be inspected at the offices of Nasdaq Operations, 1735 K Street,
N.W., Washington, D.C. 20006.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, but such
statements are complete in all material respects for the purposes herein made.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Company will be required by the Indenture to furnish holders of the
Notes with annual reports containing audited consolidated financial statements
certified by independent public accountants and quarterly reports containing
unaudited consolidated financial data for the first three quarters of each
fiscal year following the end of each such quarter.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
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WIRELESS ONE, INC.
Independent Auditors' Report............................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (unaudited)................................................... F-4
Consolidated Statements of Operations for the period from February 4,
1993 (inception)
to December 31, 1993, the years ended December 31, 1994 and 1995 and
the three months ended March 31, 1995 and 1996 (unaudited)............. F-5
Consolidated Statements of Stockholders' Equity for the period from
February 4, 1993 (inception) to December 31, 1993, the years ended
December 31, 1994 and 1995 and the three months ended March 31, 1996
(unaudited)............................................................ F-6
Consolidated Statements of Cash Flows for the period from February 4,
1993 (inception) to December 31, 1993, the years ended December 31,
1994, and 1995 and the three months ended March 31, 1995 and 1996
(unaudited)............................................................ F-7
Notes to Consolidated Financial Statements.............................. F-8
HEARTLAND DIVISION
Independent Auditors' Report............................................ F-19
Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)............................................................ F-20
Statements of Operations and Division Equity for the years ended
December 31, 1992 and 1993, the period from January 1, 1994 to August
18, 1994, the period August 19, 1994 to September 30, 1994 (unaudited),
and the period from August 19, 1994 to December 31, 1994 and the nine
months ended September 30, 1995 (unaudited)............................ F-21
Statements of Cash Flows for the years ended December 31, 1992 and 1993,
the period from January 1, 1994 to August 18, 1994, the period August
19, 1994 to September 30, 1994 (unaudited), and the period from August
19, 1994 to December 31, 1994 and the nine months ended September 30,
1995 (unaudited)....................................................... F-22
Notes to Financial Statements........................................... F-23
TRUVISION WIRELESS, INC.
Report of Independent Public Accountants................................ F-27
Balance Sheets as of December 31, 1994 and 1995 and unaudited March 31,
1996................................................................... F-28
Statements of Operations for the periods from Inception (November 2,
1993) to
December 31, 1993, January 1, 1994 through August 24, 1994 and August
25, 1994 through December 31, 1994 and for the year ended December 31,
1995 and unaudited for the three months ended March 31, 1995 and 1996.. F-29
Statements of Partners' Capital for the periods from Inception (November
2, 1993)
to December 31, 1993 and January 1, 1994 through August 24, 1994....... F-30
Statements of Changes in Stockholders' Equity for the period from August
25, 1994 through December 31, 1994 and for the year ended December 31,
1995 and unaudited for the three months ended March 31, 1996........... F-31
Statements of Cash Flows for the periods from Inception (November 2,
1993) to December 31, 1993, January 1, 1994 through August 24, 1994,
and August 25, 1994 through December 31, 1994 and for the year ended
December 31, 1995 and unaudited for the three months ended March 31,
1995 and 1996.......................................................... F-32
Notes to Financial Statements........................................... F-33
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
Report of Independent Public Accountants................................ F-43
Combined Balance Sheets as of December 31, 1994 and 1995 and unaudited
March 31, 1996......................................................... F-44
Combined Statements of Operations and Accumulated Deficit for the years
ended
December 31, 1993, 1994 and 1995 and unaudited for the three months
ended March 31, 1995 and 1996.......................................... F-45
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994
and 1995 and unaudited for the three months ended March 31, 1995 and
1996................................................................... F-46
Notes to Combined Financial Statements.................................. F-47
BARTEL, INC.
Report of Independent Public Accountants................................ F-51
Balance Sheet as of December 31, 1995................................... F-52
Statement of Income and Retained Earnings for the year ended December
31, 1995............................................................... F-53
Statement of Cash Flows for the year ended December 31, 1995............ F-54
Notes to Financial Statements........................................... F-55
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wireless One, Inc.:
We have audited the accompanying consolidated balance sheets of Wireless
One, Inc. and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the period from February 4, 1993 (inception) through December 31, 1993 and
the years ended December 31, 1994 and 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wireless
One, Inc. and subsidiaries as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for the period from February 4, 1993
(inception) through December 31, 1993 and the years ended December 31, 1994
and 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New Orleans, Louisiana
March 22, 1996
F-3
<PAGE>
WIRELESS ONE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 24,481 $110,380,329 $ 98,964,157
Marketable investment securities--
restricted
(note 3)............................ -- 17,637,839 17,735,150
Subscriber receivables, less
allowance for doubtful accounts of
$4,000, $73,641 and $39,834 at
December 31, 1994 and 1995 and March
31, 1996, respectively.............. 110,219 143,633 159,819
Accrued interest and other
receivables......................... 3,450 405,241 793,176
Prepaid expenses..................... 55,515 796,389 587,732
---------- ------------ ------------
Total current assets............... 193,665 129,363,431 118,240,034
Property and equipment, net (note 4)... 3,078,523 14,266,755 22,912,095
Leased license investment, net of
accumulated amortization of $230,902,
$548,283 and $767,291 at December 31,
1994 and 1995 and March 31, 1996,
respectively.......................... 5,540,036 26,724,238 28,491,658
Marketable investment securities--
restricted (note 3)................... -- 35,755,505 35,946,439
Other assets (note 5).................. 102,000 7,689,945 7,703,873
---------- ------------ ------------
$8,914,224 $213,799,874 $213,294,099
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 228,835 $ 2,356,707 $ 2,627,827
Accrued expenses..................... 44,779 862,100 1,160,459
Accrued interest..................... -- 3,683,333 8,558,333
Current maturities of long-term debt
(note 6)............................ 1,457,295 376,780 384,366
---------- ------------ ------------
Total current liabilities.......... 1,730,909 7,278,920 12,730,985
Long-term debt (note 6)................ 2,839,602 150,871,267 150,993,259
---------- ------------ ------------
4,570,511 158,150,187 163,724,244
---------- ------------ ------------
Redeemable convertible preferred stock,
$.01 par value; 15,000 shares
amortized, no shares issued or
outstanding (note 8).................. -- -- --
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized, no
shares issued or outstanding........ -- -- --
Common stock, $0.01 par value,
50,000,000 shares authorized,
2,013,950, 13,498,752, and
13,498,752 shares issued and
outstanding at December 31, 1994 and
1995 and March 31, 1996,
respectively........................ 20,139 134,988 134,988
Additional paid-in capital........... 9,979,861 65,631,596 65,631,596
Subscriptions receivable............. (3,231,864) -- --
Accumulated deficit.................. (2,424,423) (10,116,897) (16,196,729)
---------- ------------ ------------
Total stockholders' equity......... 4,343,713 55,649,687 49,569,855
Commitments and contingencies (note
11)...................................
---------- ------------ ------------
$8,914,224 $213,799,874 $213,294,099
========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WIRELESS ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FEBRUARY 4,
1993
(INCEPTION YEARS ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------ -----------------------
1993 1994 1995 1995 1996
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ 380,077 $ 1,343,969 $ 238,825 $ 940,777
--------- ----------- ----------- --------- -----------
Operating expenses:
Systems operations.... 24,429 274,886 841,819 169,981 555,942
Selling, general and
administrative....... 110,281 1,800,720 4,431,839 461,129 2,637,553
Depreciation and
amortization......... 27,489 413,824 1,783,066 199,519 964,005
--------- ----------- ----------- --------- -----------
162,199 2,489,430 7,056,724 830,629 4,157,500
--------- ----------- ----------- --------- -----------
Operating loss.......... (162,199) (2,109,353) (5,712,755) (591,804) (3,216,723)
--------- ----------- ----------- --------- -----------
Other income (expense):
Interest expense...... (411) (171,702) (4,070,184) (114,090) (5,009,893)
Interest income....... -- -- 2,024,116 3,122 2,126,360
Other................. -- 19,242 66,349 (520) 20,424
--------- ----------- ----------- --------- -----------
Total other income
(expense).......... (411) (152,460) (1,979,719) (111,488) (2,863,109)
--------- ----------- ----------- --------- -----------
Net loss............ (162,610) (2,261,813) (7,692,474) (703,292) (6,079,832)
Preferred stock
dividends and discount
accretion (note 8)..... -- -- (786,389) -- --
--------- ----------- ----------- --------- -----------
Net loss applicable to
common stock........... $(162,610) $(2,261,813) $(8,478,863) $(703,292) $(6,079,832)
========= =========== =========== ========= ===========
Net loss per common
share.................. $ (.30) $ (1.21) $ (2.02) $ (.35) $ (.45)
========= =========== =========== ========= ===========
Weighted average common
shares outstanding..... 538,127 1,863,512 4,187,736 2,013,950 13,498,752
========= =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WIRELESS ONE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN SUBSCRIPTIONS ACCUMULATED
STOCK CAPITAL RECEIVABLE DEFICIT TOTAL
-------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of 538,127
shares of common stock
and recapitalization
upon merger with
Wireless One, L.L.C.
(note 1(a))............ $ 5,381 $ 834,619 $ (219,020) $ -- $ 620,980
Net loss................ -- -- -- (162,610) (162,610)
-------- ----------- ---------- ------------ -----------
Balance at December 31,
1993................... 5,381 834,619 (219,020) (162,610) 458,370
Issuance of 1,475,823
shares of common
stock.................. 14,758 9,145,242 (8,660,000) -- 500,000
Collections of
subscriptions
receivable............. -- -- 5,647,156 -- 5,647,156
Net loss................ -- -- -- (2,261,813) (2,261,813)
-------- ----------- ---------- ------------ -----------
Balance at December 31,
1994................... 20,139 9,979,861 (3,231,864) (2,424,423) 4,343,713
Collections of
subscriptions
receivable............. -- -- 3,231,864 -- 3,231,864
Conversion of redeemable
preferred stock and
warrants into 4,524,512
shares of common
stock.................. 45,246 14,453,442 -- -- 14,498,688
Issuance of 3,450,000
shares of common stock
pursuant to initial
public offering........ 34,500 32,340,708 -- -- 32,375,208
Issuance of 750,000
warrants............... -- 3,015,000 -- -- 3,015,000
Issuance of 3,510,290
shares of common stock
in purchase
transactions........... 35,103 6,628,974 -- -- 6,664,077
Preferred stock
dividends and accretion
of discount............ -- (786,389) -- -- (786,389)
Net loss................ -- -- -- (7,692,474) (7,692,474)
-------- ----------- ---------- ------------ -----------
Balance at December 31,
1995................... 134,988 65,631,596 -- (10,116,897) 55,649,687
Net loss (unaudited).... -- -- -- (6,079,832) (6,079,832)
-------- ----------- ---------- ------------ -----------
Balance at March 31,
1996 (unaudited)....... $134,988 $65,631,596 $ -- $(16,196,729) $49,569,855
======== =========== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WIRELESS ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
FEBRUARY 4, 1993 YEARS ENDED DECEMBER 31, ENDED MARCH 31,
(INCEPTION) THROUGH ------------------------- -----------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------- ----------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(162,610) $(2,261,813) $ (7,692,474) $(703,292) $(6,079,832)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Bad debt expense.... -- 54,608 196,281 -- 23,694
Depreciation and
amortization....... 27,489 413,824 1,783,066 199,519 964,005
Amortization of debt
discount........... -- 104,767 328,301 73,671 130,897
Non-cash interest
income............. -- -- (213,230) -- (288,245)
Changes in assets
and liabilities:
Receivables....... -- (167,277) (571,957) 884 (427,815)
Prepaid expenses.. (9,000) (46,515) (468,707) 11,631 208,657
Accounts payable
and accrued
expenses......... 36,236 237,378 6,004,541 279,448 5,444,480
--------- ----------- ------------ --------- -----------
Net cash used in
operating
activities..... (107,885) (1,665,028) (634,179) (138,139) (24,159)
--------- ----------- ------------ --------- -----------
Cash flows from
investing activities:
Purchase of
investments and other
assets............... -- (102,000) (1,533,446) (25,943) (209,021)
Capital expenditures.. (288,123) (2,960,842) (9,805,057) (654,945) (9,195,283)
Acquisition of
intangible assets.... (154,854) (5,156,054) (6,762,415) (19,902) (1,986,390)
Purchase of marketable
investment
securities........... -- -- (53,180,114) -- --
--------- ----------- ------------ --------- -----------
Net cash used in
investing
activities..... (442,977) (8,218,896) (71,281,032) (700,790) (11,390,694)
--------- ----------- ------------ --------- -----------
Cash flows from
financing activities:
Proceeds from issuance
of long-term debt and
warrants............. 20,722 4,275,819 150,014,902 37,472 --
Principal payments on
long-term debt....... (1,104) (103,306) (11,502,054) -- (1,319)
Debt issuance costs... -- -- (5,593,839) -- --
Issuance of common
stock................ 619,980 5,647,156 35,008,396 1,077,622 --
Issuance of redeemable
preferred stock...... -- -- 14,343,654 -- --
--------- ----------- ------------ --------- -----------
Net cash
provided by
financing
activities..... 639,598 9,819,669 182,271,059 1,115,094 (1,319)
--------- ----------- ------------ --------- -----------
Net increase
(decrease) in
cash........... 88,736 (64,255) 110,355,848 276,165 (11,416,172)
Cash and cash
equivalents at
beginning of period.... -- 88,736 24,481 24,481 110,380,329
--------- ----------- ------------ --------- -----------
Cash and cash
equivalents at end of
period................. $ 88,736 $ 24,481 $110,380,329 $ 300,646 $98,964,157
========= =========== ============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Organization
Wireless One Inc. was formed in June 1995 by the shareholders of a
predecessor company (Old Wireless One) and Heartland Wireless Communications,
Inc. (Heartland) for the purpose of further developing, owning, and operating
wireless cable television systems primarily in select southern and
southeastern markets. Old Wireless One had been formed on December 23, 1993,
in conjunction with the merger of its predecessor, Wireless One, L.L.C., a
Limited Liability Company (LLC). LLC had been formed on February 4, 1993 with
six members and on December 23, 1993, Old Wireless One acquired all of the net
assets and outstanding interests of LLC in a tax free reorganization.
Accordingly, the accompanying consolidated financial statements include
results of operations of Wireless One, Inc. and its predecessor companies
since February 4, 1993. Unless otherwise indicated, references to the Company
include Wireless One, Inc. and its predecessors.
(b) Consolidation Policy
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
(c) Property and Equipment
Property and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. The Company
capitalizes the excess of direct costs of subscriber installations over
installation fees. These direct costs include reception materials and
equipment on subscriber premises, installation labor and overhead charges and
direct commissions. Prior to 1995, installation fees were recognized in
revenues and commissions were expensed. The effect of the above change had no
material effect on the 1994 and 1995 results of operations.
Depreciation and amortization are recorded on a straight-line basis for
financial reporting purposes over the estimated useful lives of the assets.
Any unamortized balance of the nonrecoverable portion of the cost of a
subscriber installation is fully depreciated upon subscriber disconnect and
the related cost and accumulated depreciation are removed from the balance
sheet. Repair and maintenance costs are charged to expense when incurred;
renewals and betterments are capitalized.
Equipment awaiting installation consists primarily of accessories, parts and
supplies for subscriber installations, and is stated at the lower of average
cost or market.
(d) Leased License Investment
Leased license investment consists primarily of costs incurred in connection
with the Company's acquisition of channel rights. Channel rights represent the
right to utilize all of the capacity on channels operated under a license
received from the Federal Communications Commission ("FCC"). These assets are
recorded at cost and amortized using the straight-line method over the assets'
estimated useful lives, usually 10-20 years, beginning with inception of
service in each market. As of December 31, 1994 and 1995, approximately
$4,686,000 and $17,809,000 of channel rights were not subject to amortization.
The Company periodically evaluates the propriety of the carrying amounts of
the leased license investment in each market, as well as the amortization
period based on estimated undiscounted future
F-8
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cash flows to determine whether current events or circumstances warrant
adjustments to the carrying amounts or a revised estimate of the useful life.
If warranted, an impairment loss would be recognized to reduce the carrying
amount of the related assets to management's estimate of the fair value of the
individual market.
(e) Revenue Recognition
Revenues from subscribers are recognized in the month that the service is
provided.
(f) Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
A valuation allowance is provided to reduce the carrying value of deferred
tax assets to an amount which more likely than not will be realized. Changes
in the valuation allowance represent changes in an estimate and are reflected
as an adjustment to income tax expense in the period of the change.
The Company files a consolidated federal income tax return which includes
all of its subsidiaries. Losses incurred from inception through December 22,
1993 were attributed directly to the members of the L.L.C., and, accordingly,
are not available to offset the Company's future taxable income.
(g) Net Loss Per Common Share
Net loss per common share is based on the net loss applicable to common
stock divided by the weighted average number of common shares outstanding
during the period presented. All share and per share data, including the
weighted average number of common shares outstanding, for all periods prior to
the Heartland Transaction (see note 2) give retroactive effect to the exchange
of approximately one share of Old Wireless One common stock for 4 shares of
Wireless One, Inc. Shares issuable upon exercise of stock options and warrants
are antidilutive and have been excluded from the calculation.
(h) Debt Issuance Costs
Costs incurred in connection with issuance of the Company's 13% Senior Notes
are included in other assets and are being amortized using the interest method
over the term of the notes.
(i) Cash and Cash Equivalents
Cash and cash equivalents includes cash and temporary cash investments that
are highly liquid and have original maturities of three months or less.
(j) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(k) Marketable Investment Securities
Investments in marketable securities at December 31, 1995 consist of U.S.
Treasury securities which mature periodically through October 1998. The
Company has the ability and intent to hold these investments until maturity
and, accordingly, has classified these investments as held-to-maturity
investments. Held-to-maturity investments are recorded at amortized cost,
adjusted for amortization of premiums or discounts. Premiums and discounts are
amortized over the life of the related held-to-maturity investment as an
adjustment to yield using the effective interest method. A decline in market
value of the Company's investments below cost that is deemed other than
temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the investment is
established.
(l) Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
financial information of the Company contains all adjustments, consisting only
of those of a normal recurring nature, necessary to present fairly the
Company's financial position as of March 31, 1996 and the results of its
operations and cash flows for the three month periods ended March 31, 1995 and
1996, and changes in stockholders' equity for the three months ended March 31,
1996. These results are not necessarily indicative of the results to be
expected for the full fiscal year.
(2) INITIAL PUBLIC OFFERING AND HEARTLAND TRANSACTION
During October, 1995, the Company completed a series of transactions which
included (i) the issuance of 3,450,000 shares of common stock at $10.50 per
share in an initial public offering; (ii) the issuance of $150,000,000 of 13%
Senior Notes due in 2003 and warrants to purchase 450,000 shares of the
Company's common stock, and (iii) the acquisition of certain wireless cable
television assets and related liabilities of certain subsidiaries of Heartland
for common stock of the Company and notes (the Heartland Transaction).
The consummation of the Heartland transaction included the Company's
acquisition of all of the outstanding capital stock of Old Wireless One and
certain wireless cable television assets and related liabilities in
Heartland's markets in Texas, Louisiana, Alabama, Georgia and Florida. In
connection with the Heartland transaction, the shareholders of Old Wireless
One received approximately 6.5 million shares of the Company's common stock
and Heartland received approximately 3.5 million shares of the Company's
common stock. In addition, Heartland received notes in the amount of
$10,000,000, which were subsequently repaid by the Company from the proceeds
of the offerings of the Company's common stock and Senior Notes.
The Heartland transaction has been accounted for as a business combination
using the purchase method of accounting. In accordance with Staff Accounting
Bulletin No. 48, the Heartland assets and liabilities acquired have been
recorded using the historical cost basis previously reported by Heartland,
reduced by the amount of notes issued to Heartland in connection with the
transaction. The assets acquired consist primarily of systems and equipment
and various wireless cable channel rights. The following is a summary of the
net assets acquired:
<TABLE>
<S> <C>
Current assets.............................................. $ 318,892
Current liabilities......................................... (35,956)
Systems and equipment, net.................................. 2,392,711
Leased license investment and other intangibles............. 13,476,534
------------
Net assets acquired....................................... 16,152,181
Notes issued to Heartland................................. (10,000,000)
------------
$ 6,152,181
============
</TABLE>
F-10
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1995 financial statements of Wireless One, Inc. include the results of
operations of the business interests acquired in the Heartland Transaction
since October 18, 1995. Pro forma unaudited consolidated operating results of
the Company and the Heartland business acquired for the years ended December
31, 1994 and 1995, assuming the transaction had been completed as of January
1, 1994 and 1995, are summarized below:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Total revenues.................................... $ 1,287,312 $ 1,976,142
Operating expenses:
Systems operations.............................. 1,052,799 1,433,934
Selling, general and administrative............. 2,306,280 4,780,286
Depreciation and amortization................... 658,177 1,977,028
----------- -----------
Total operating expenses...................... 4,017,256 8,191,248
----------- -----------
Operating loss.................................... (2,729,944) (6,215,106)
Interest expense.................................. (1,065,967) (4,738,611)
Interest income and other......................... 19,242 2,090,465
----------- -----------
Net loss...................................... $(3,776,669) $(8,863,252)
=========== ===========
Net loss per share............................ $ (0.29) $ (0.68)
=========== ===========
</TABLE>
These pro forma results have been prepared for comparative purposes only and
include an adjustment for additional interest expense associated with the
portion of the proceeds of the notes utilized to repay $7 million of notes to
Heartland. They do not purport to be indicative of the results of operations
which actually would have resulted had the combination been in effect on
January 1, 1994 and 1995 or of future results of operations of the
consolidated entities.
(3) MARKETABLE INVESTMENT SECURITIES--RESTRICTED
Marketable investment securities--restricted at December 31, 1995 consists
of U.S. Treasury securities placed in escrow pursuant to the bond indenture
relating to the 13% Senior Notes due 2003. The investments have been deposited
into an escrow account and, pending disbursement, the collateral agent has a
first priority lien on the escrow account for the benefit of the holders of
the notes. Such funds may 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. The maturities of the
securities purchased have been matched to the interest payment dates of the
notes.
A summary of the Company's restricted marketable securities as of December
31, 1995 follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST LOSS GAIN VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............ $22,343,879 $(1,110) $113,163 $22,455,932
Other Debt Securities.......... 31,049,415 -- 199,185 31,248,600
----------- ------- -------- -----------
$53,393,294 $(1,110) $312,348 $53,704,532
=========== ======= ======== ===========
</TABLE>
Scheduled maturities for the marketable securities held at December 31,
1995, are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Maturing in less than 1 year........................ $11,471,559 $17,665,069
Maturing from 1-5 years............................. 41,921,735 36,039,463
----------- -----------
$53,393,294 $53,704,532
=========== ===========
</TABLE>
F-11
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) PROPERTY AND EQUIPMENT
Major categories of property and equipment at December 31, 1994 and 1995 are
as follows :
<TABLE>
<CAPTION>
ESTIMATED
LIFE 1994 1995
--------- ----------- ------------
<S> <C> <C> <C>
Equipment awaiting installation..... 5 $ 422,109 $ 2,230,144
Subscriber premises equipment and
installation costs................. 5 1,021,382 3,561,714
Transmission equipment and system
construction costs................. 10 1,534,028 8,092,890
Office furniture and equipment...... 7 219,629 1,270,131
Buildings and leasehold
improvements....................... 31.5 91,723 523,203
----------- ------------
3,288,871 15,678,082
Less accumulated depreciation....... (210,348) (1,411,327)
----------- ------------
$ 3,078,523 $ 14,266,755
=========== ============
(5) OTHER ASSETS
Other assets at December 31, 1994 and 1995 consist of the following:
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
Debt issuance costs, net of accumulated
amortization of $163,927..................... $ -- $ 6,053,898
Deposits...................................... -- 1,410,543
Other......................................... 102,000 225,504
----------- ------------
$ 102,000 $ 7,689,945
=========== ============
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
13% Senior Notes due 2003; face value of
$150,000,000, net of unamortized discount.... $ -- $148,149,131
Subordinated non-interest bearing notes (face
value of $3,700,000), discounted to an 8%
effective rate, principal and interest due in
installments through July 1997............... 2,949,986 2,939,156
$3,000,000 revolving line of credit, due
September 30, 1995, with interest due
quarterly at the prime rate, (7.25% at
December 31, 1994) secured by assignment of
stock subscriptions receivable............... 1,106,243 --
Other......................................... 240,668 159,760
----------- ------------
4,296,897 151,248,047
Less current maturities....................... (1,457,295) (376,780)
----------- ------------
Long-term debt, excluding current
maturities................................. $ 2,839,602 $150,871,267
=========== ============
</TABLE>
F-12
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long term debt matures as follows:
<TABLE>
<S> <C>
1996............................. $ 376,780
1997............................. 2,572,136
1998............................. --
1999............................. 150,000
2000............................. --
Thereafter....................... 148,149,131
</TABLE>
Interest on the Senior Notes (the "Notes") is payable semi-annually on April
15 and October 15 of each year, commencing April 15, 1996. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on
or after October 15, 1999, at variable redemption prices in excess of par. On
or prior to October 15, 1998, the Company may redeem up to 30% of the
aggregate principal amount of the Notes with the proceeds from a sale to a
strategic investor, as defined. In addition, upon the occurrence of a change
of control, as defined, each holder of Notes may require the Company to
repurchase all or a portion of such holder's Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest.
The notes are issued and outstanding under an indenture which contains
certain covenants, including limitations on the incurrence of indebtedness,
the making of restricted payments, transactions with affiliates, sale and
leaseback transactions, the existence of liens, disposition of proceeds of
asset sales, the making of guarantees and pledges by restricted subsidiaries,
transfers and issuance of stock of subsidiaries, investments in unrestricted
subsidiaries, the conduct of the Company's business and certain mergers and
sales of assets.
(7) INCOME TAXES
The Company has not recognized any income tax benefit for any of the periods
presented due to management's conclusion that a 100% valuation allowance for
the net deferred tax asset is warranted. Statement of Financial Accounting
Standards ("SFAS") 109 provides that the tax benefit of net operating loss
carryforwards is recorded as an asset only to the extent that management
assesses the realization of such carryforwards to be "more likely than not."
F-13
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 808,064 2,955,166
Allowance for bad debts........................... -- 25,038
Reserve for obsolescence in equipment............. -- 68,000
Accrued liabilities deductible when paid.......... -- 152,320
--------- ----------
808,064 3,200,524
Less valuation allowance............................ (224,410) (2,136,029)
--------- ----------
Deferred tax asset.................................. 583,654 1,064,495
--------- ----------
Deferred tax liabilities:
Fixed assets, principally due to differences in
depreciation and underlying basis................ 10,737 11,700
Intangibles, due to differences in basis and
amortizable lives................................ 572,917 440,795
Purchase accounting adjustments resulting in
differences in bases of underlying assets........ -- 612,000
--------- ----------
Deferred tax liabilities............................ 583,654 1,064,495
--------- ----------
Net deferred tax asset.............................. $ -- --
========= ==========
</TABLE>
The net changes in total valuation allowance for the years ended December
31, 1994 and 1995 were increases of $224,410 and $1,911,619, respectively. In
assessing the realizability of deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. The Company
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based
upon these considerations, the Company has recognized deferred tax assets to
the extent such assets can be realized through future reversals of existing
taxable temporary differences.
The Company had net operating loss carryforwards for Federal income tax
purposes of approximately $8,700,000 as of December 31, 1995. The
carryforwards expire in years 2008-2010.
(8) REDEEMABLE CONVERTIBLE PREFERRED STOCK
On April 14, 1995, the Company completed a private placement of 14,781.75
shares of redeemable convertible preferred stock and 591,270 warrants to
purchase common stock (collectively the "Units") at a price of $1,000 per
Unit. The proceeds from the issue were $13,866,000, net of issuance costs. The
excess of the liquidation value over the carrying value was accreted by
periodic charges to additional paid-in capital during the period the stock was
outstanding. Contemporaneously with the closing of the initial public offering
of common stock in October 1995, the preferred stock and warrants were
converted into approximately 4,524,512 shares of common stock.
(9) STOCKHOLDERS' EQUITY
In connection with the sale of the 13% Senior Notes due 2003, the company
issued warrants to acquire 450,000 shares of its common stock. Each warrant
entitles the holder to purchase one share
F-14
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of common stock at $11.55 per share. The warrants are exercisable at any time
on or after October 24, 1996 and will expire on October 24, 2000. For
financial reporting purposes, these warrants were valued at $1,890,000.
In connection with the Heartland transaction, the Company issued warrants
(the "GKM Warrants") to purchase 300,000 shares of common stock to an
underwriter for nominal consideration. The GKM Warrants are initially
exercisable at $12.60 per share through October 18, 2000. For financial
reporting purposes, these warrants were valued at $1,125,000.
In connection with the Heartland Transaction, certain of the shareholders of
the Company with beneficial ownership of approximately 56% of the Company's
outstanding common stock at December 31, 1995 have entered into an agreement
whereby, among other things, they have agreed to vote their common stock to
elect a specified slate of directors, which will be designated by the parties
to the stockholders agreement.
(10) STOCK OPTION PLAN
The Company has adopted the 1995 Long-Term Performance Incentive Plan (the
"Incentive Plan"), which provides for the grant to key employees of the
Company of stock options, appreciation rights, restricted stock, performance
grants and any other type of award deemed to be consistent with the purpose of
the Incentive Plan.
The total number of shares of Common Stock which may be granted pursuant to
the Incentive Plan is 1,300,000. The Incentive Plan will terminate upon the
earlier of the adoption of a Board of Directors' resolution terminating the
Incentive Plan or on the tenth anniversary of the date of adoption, unless
extended for an additional five-year period for grants of awards other than
incentive stock options.
The exercise price of stock options is determined by the Compensation
Committee of the Board of Directors, but may not be less than 100% of the fair
market value of the Common Stock on the date of the grant and the term of any
such option may not exceed 10 years from the date of grant. With respect to
any employee who owns stock representing more than 10% of the voting power of
the outstanding capital stock of the Company, the exercise price of any
incentive stock option may not be less than 110% of the fair market value of
such shares on the date of grant and the term of such option may not exceed
five years from the date of grant.
Awards granted under the Incentive Plan will generally vest upon a proposed
sale of substantially all of the assets of the Company, or the merger of the
Company with or into another corporation. Options generally vest over a five-
year period commencing on the date of grant and expire ten years from the date
of grant.
Directors of the Company who are not employees of the Company are eligible
to receive options under the Directors' Plan. The total number of shares of
Common Stock for which options may be granted under the Directors' Plan is
100,000.
Options granted under the Directors' Plan may be subject to vesting and
certain other restrictions. Subject to certain exceptions, the right to
exercise an option generally terminates at the earlier of (i) the first date
on which the initial grantee of such option is no longer a director of either
the Company or any subsidiary for any reason other than death or permanent
disability or (ii) the expiration date of the option. Options granted under
the Directors' Plan will also generally vest upon a "change in control" of the
Company. No options have been granted under the Directors' Plan as of December
31, 1995.
F-15
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information regarding the Company's stock option plans is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------
EXERCISE
INCENTIVE DIRECTORS' PRICE
PLAN PLAN RANGE
--------- ---------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1993.......... -- -- $ --
1994 activity:
Granted................................. 248,917 -- 6.21
------- ------- -----------
December 31, 1994 outstanding........... 248,917 -- 6.21
1995 activity:
Granted................................. 555,270 -- 4.16-13.83
------- ------- -----------
December 31, 1995 outstanding........... 804,187 -- $4.16-13.83
======= ======= ===========
Exercisable at December 31, 1995........ 138,395 -- $4.16-13.83
======= ======= ===========
Available for future grants at December
31, 1995............................... 495,813 100,000
======= =======
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
The Company leases, from third parties, channel rights licensed by the FCC.
Under FCC policy, the base term of these leases cannot exceed the term of the
underlying FCC license. FCC licenses for wireless cable channels generally
must be renewed every five to ten years, and there is no automatic renewal of
such licenses. The use of such channels by third parties is subject to
regulation by the FCC and, therefore, the Company's ability to enjoy the
benefit of these leases is dependent upon the third party lessor's continuing
compliance with applicable regulations. The remaining terms of the Company's
leases range from approximately five to twenty years. Most of the Company's
leases provide for rights of first refusal for their renewal. The termination
of or failure to renew a channel lease or termination of the channel license
would result in the Company being unable to deliver television programming on
such channel. Although the Company does not believe that the termination of or
failure to renew a single channel lease could 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.
Channel rights lease agreements generally require payments based on the
greater of specified minimums or amounts based upon various factors, such as
subscriber levels or subscriber revenues.
Payments under the channel rights lease agreements generally begin upon the
completion of construction of the transmission equipment and facilities and
approval for operation pursuant to the rules and regulations of the FCC.
However, for certain leases, the Company is obligated to begin payments upon
grant of the channel rights. Channel rights lease expense was $9,000,
$179,172, and $380,346 for the period from February 4, 1993 (inception) to
December 31, 1993, and for the years ended December 31, 1994 and 1995,
respectively.
The Company also has certain operating leases for office space, equipment
and transmission tower space. Rent expense incurred in connection with other
operating leases was $6,996, $79,791 and $183,003 for the period from February
4, 1993 (inception) to December 31, 1993 and for the years ended December,
1994 and 1995, respectively.
F-16
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments due under channel rights leases and other
noncancelable operating leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
DECEMBER 31, LEASES LEASES
------------ ---------- ----------
<S> <C> <C>
1996............................................... $1,097,075 $ 487,666
1997............................................... 1,146,307 515,916
1998............................................... 1,167,319 515,955
1999............................................... 1,175,415 523,625
2000............................................... 1,165,755 520,344
---------- ----------
$5,751,871 $2,563,506
========== ==========
</TABLE>
The Company has entered into various service agreements to obtain
programming for delivery to customers of the Company. Such agreements require
a per subscriber fee to be paid by the Company on a monthly basis. These
agreements range in life from two to ten years.
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company is actively competing in the FCC auction program designed to
award initial licenses for MDS channels. Successful bidders will receive a
blanket authorization to serve entire "Basic Trading Areas" or "BTA's" on all
MDS channels. The Company estimates its commitment related to this auction of
BTA's to be approximately $16,000,000 to $18,000,000. At the conclusion of the
auction, the Company will be required to remit 20% of the total committed
amount (less its deposit of $900,000 remitted prior to December 31, 1995) with
the remaining 80% being paid out over a 10 year period. Over this ten year
period commencing on the date the BTA is authorized by the FCC, the Company
will be required to make quarterly interest only payments for the first two
years and then quarterly payments of principal and interest over the remaining
years of the agreement. The interest rate related to this installment plan is
equal to the ten year U.S. Treasury rate at the time of the issuance of the
BTA authorization plus 2-1/2%.
(12) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash, temporary cash investments, and
accounts receivable. The Company places its cash and temporary cash
investments with high credit quality financial services companies.
Collectibility of subscriber accounts receivable is impacted by economic
trends in each of the Company's markets. Such receivables are typically
collected within thirty days, and the Company has provided an allowance which
it believes is adequate to absorb losses from uncollectible accounts.
(13) SUPPLEMENTAL CASH FLOW INFORMATION
Cash interest payments made in 1993, 1994, and 1995 totaled $143, $168,512
and $351,178, respectively.
During 1995, the Company paid $288,104 in cash and issued 48,752 shares of its
common stock in connection with the acquisition of channel rights in
Tennessee. The cost of the channel rights and other intangible assets acquired
was $800,000 based on the initial public offering price per share of $10.50.
F-17
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995. The fair value of
a financial instrument is defined as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Marketable investment securities................ $ 53,393,344 $ 53,704,532
Long-term debt.................................. 151,248,047 160,598,916
</TABLE>
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies as
follows:
. The carrying amounts of cash and cash equivalents, subscriber receivable,
accrued interest and other receivables, accounts payable and accrued
expenses approximate fair value because of the short maturity of these
items.
. The fair values of the Company's marketable investment securities are
based on quoted market prices.
. The fair value of long-term debt is based upon market quotes obtained
from dealers.
Fair value estimates are subject to inherent limitations. Estimates of fair
value are made at a specific point in time, based on relevant market
information and information about the financial instrument. The estimated fair
values of financial instruments presented above are not necessarily indicative
of amounts the Company might realize in actual market transactions. Estimates
of fair value are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heartland Wireless Communications, Inc.:
We have audited the accompanying balance sheets of Heartland Division as of
December 31, 1993 and 1994, and the related statements of operations and
division equity and cash flows for the years ended December 31, 1992 and 1993,
the period from January 1, 1994 to August 18, 1994 and the period from August
19, 1994 to December 31, 1994. These financial statements are the
responsibility of Heartland Division's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heartland Division as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years ended December 31, 1992 and 1993, the period from January
1, 1994 to August 18, 1994 and the period from August 19, 1994 to December 31,
1994, in conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, on August 19, 1994,
RuralVision Joint Venture, a general partnership in which Heartland Wireless
Communications, Inc. had a 50% interest, purchased certain wireless cable
television assets, including assets comprising a portion of Heartland
Division, in a business combination accounted for as a purchase. As a result
of the acquisition, financial information for periods after August 18, 1994 is
presented on a different cost basis than that for the periods before August
18, 1994 and, therefore, such information is not comparable.
KPMG Peat Marwick LLP
Dallas, Texas
June 20, 1995
F-19
<PAGE>
HEARTLAND DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, DECEMBER 31, 30,
ASSETS 1993 1994 1995
------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Subscriber receivables, net of allowance for doubtful accounts of $16,596 in 1993,
$28,504 in 1994 and $53,641 in 1995.................................................. $ 52,642 $ 22,984 $ 42,909
Prepaid expenses and other............................................................ 66,534 149,553 311,280
---------- ---------- -----------
Total current assets................................................................ 119,176 172,537 354,189
---------- ---------- -----------
Systems and equipment, net (note 2)..................................................... 1,774,427 1,590,303 2,658,065
Leased license investment, net of accumulated amortization of $4,909 in 1993, $22,476 in
1994 and $63,210 in 1995 (note 1(d))................................................... 469,105 7,394,107 11,244,107
Other assets, net....................................................................... 37,865 22,859 6
---------- ---------- -----------
Total assets........................................................................ $2,400,573 $9,179,806 $14,256,367
========== ========== ===========
<CAPTION>
LIABILITIES AND DIVISION EQUITY
-------------------------------
<S> <C> <C> <C>
Current liabilities--accounts payable and accrued expenses.............................. $ 98,346 $ 109,727 $ 113,732
Deferred income tax liability to Heartland (note 4)..................................... -- 212,370 98,480
Division equity (note 1(a))............................................................. 2,302,227 8,857,709 14,044,155
Commitments (notes 3 and 6)
---------- ---------- -----------
Total liabilities and division equity............................................... $2,400,573 $9,179,806 $14,256,367
- --------------------------------------------------
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
HEARTLAND DIVISION
STATEMENTS OF OPERATIONS AND DIVISION EQUITY
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, AUGUST 19,
DECEMBER 31, 1994 TO 1994 TO AUGUST 19,
---------------------- AUGUST 18, DECEMBER 31, 1994 TO
1992 1993 1994 1994 SEPTEMBER 30, 1994
---------- ---------- ---------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 349,244 $ 850,167 $ 616,223 $ 291,012 $ 80,095
---------- ---------- ---------- ---------- ----------
Operating expenses:
Systems operations......................... 290,898 397,503 340,539 197,429 54,601
Selling, general and administrative........ 352,226 557,466 320,701 184,859 50,065
Depreciation and amortization.............. 105,860 211,464 166,358 77,995 22,659
---------- ---------- ---------- ---------- ----------
Total operating expenses................. 748,984 1,166,433 827,598 460,283 127,325
---------- ---------- ---------- ---------- ----------
Loss before income taxes................. (399,740) (316,266) (211,375) (169,271) (47,230)
Income tax benefit (note 4)................. -- -- -- 62,630 17,475
---------- ---------- ---------- ---------- ----------
Net loss................................. (399,740) (316,266) (211,375) (106,641) (29,755)
Division equity at beginning of period...... -- 1,673,924 2,302,227 2,202,789 2,202,789
Elimination of RuralVision equity
(note 1(a))................................ -- -- -- (1,551,486) (1,551,486)
Net investment in and advances from
parents.................................... 2,073,664 944,569 111,937 8,313,047 8,279,220
---------- ---------- ---------- ---------- ----------
Division equity at end of period............ $1,673,924 $2,302,227 $2,202,789 $8,857,709 $8,900,768
- --------------------------------------------------
========== ========== ========== ========== ==========
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1995
-------------
(UNAUDITED)
<S> <C>
Revenues.................................... $ 632,173
-------------
Operating expenses:
Systems operations......................... 397,574
Selling, general and administrative........ 348,447
Depreciation and amortization.............. 193,962
-------------
Total operating expenses................. 939,983
-------------
Loss before income taxes................. (307,810)
Income tax benefit (note 4)................. 113,890
-------------
Net loss................................. (193,920)
Division equity at beginning of period...... 8,857,709
Elimination of RuralVision equity
(note 1(a))................................ --
Net investment in and advances from
parents.................................... 5,380,366
-------------
Division equity at end of period............ $14,044,155
- --------------------------------------------------
=============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
HEARTLAND DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, AUGUST 19, AUGUST 19, NINE MONTHS
DECEMBER 31, 1994 TO 1994 TO 1994 TO ENDED
---------------------- AUGUST 18, DECEMBER 31, SEPT. 30, SEPT. 30,
1992 1993 1994 1994 1994 1995
----------- --------- ---------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (399,740) $(316,266) $(211,375) $ (106,641) $ (29,755) $ (193,920)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................... 105,860 211,464 166,358 77,995 22,659 193,962
Deferred tax benefit............................. -- -- -- (62,630) (17,475) (113,890)
Changes in assets and liabilities:
Subscriber receivables.......................... (7,657) (44,985) (16,731) 46,389 8,779 (19,925)
Prepaid expenses and other...................... (25,871) (40,663) (35,161) (47,858) (248) (161,727)
Accounts payable and accrued expenses........... 65,000 33,346 1,283 10,098 (1,543) 4,005
----------- --------- --------- ----------- ---------- -----------
Net cash used in operating activities.......... (262,408) (157,104) (95,626) (82,647) (17,583) (291,495)
Cash flows from investing activities--capital
expenditures..................................... (1,811,256) (787,465) (16,311) (8,505,400) (8,261,637) (4,988,871)
Cash flows from financing activities--net
investment in and advances from parents.......... 2,073,664 944,569 111,937 8,588,047 8,279,220 5,280,366
----------- --------- --------- ----------- ---------- -----------
Cash at beginning and end of period............... $ -- $ -- $ -- $ -- $ -- $ --
- --------------------------------------------------
=========== ========= ========= =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
HEARTLAND DIVISION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM AUGUST 19, 1994
TO SEPTEMBER 30, 1994 AND THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General and Basis of Presentation
Heartland Wireless Communications, Inc. ("Heartland") develops, owns and
operates wireless cable television systems. Heartland and Wireless One
Operating Company ("Old Wireless One") have proposed entering into an
agreement to form a new corporation ("Wireless One") for the purpose of
developing, owning and operating wireless cable television systems. Prior to
the closing of Wireless One's initial public offering, Old Wireless One and
Heartland would consummate a transaction whereby Wireless One would acquire
(i) all of the outstanding capital stock of Old Wireless One (which would
retain all of its assets and liabilities except its wireless cable television
assets and certain related liabilities with respect to the Springfield,
Missouri market which Heartland will acquire), and (ii) wireless cable
television assets and all related liabilities with respect to certain of
Heartland's markets located in Alabama, Florida, Georgia, Louisiana and Texas
("Heartland Division").
The accompanying financial statements reflect the historical financial
position, results of operations and cash flows of the assets and liabilities
comprising Heartland Division. Until August 19, 1994, the assets and
liabilities comprising Heartland Division were owned by either Heartland or
RuralVision South, Inc. Accordingly, the financial information as of December
31, 1993 and for the years ended December 31, 1992 and 1993 and the period
from January 1, 1994 to August 18, 1994 includes historical financial
information from both Heartland and RuralVision South, Inc. with respect to
the assets and liabilities comprising Heartland Division.
On August 19, 1994, RuralVision Joint Venture, a general partnership in
which each of Heartland and an unrelated third party had a 50% interest,
purchased certain wireless cable television assets, including assets
comprising a portion of Heartland Division, from RuralVision Central, Inc. and
RuralVision South, Inc. ("RuralVision"). RuralVision Joint Venture accounted
for the acquisition as a purchase and, accordingly, established a new cost
basis with respect to the assets purchased from RuralVision. Subsequent to
August 19, 1994, the assets and liabilities comprising Heartland Division were
owned by either Heartland or RuralVision Joint Venture. Accordingly, the
financial information as of December 31, 1994 and for the period from August
19, 1994 to December 31, 1994, the period from August 19, 1994 to September
30, 1994 and the nine months ended September 30, 1995 includes historical
financial information from both Heartland and RuralVision Joint Venture with
respect to the assets and liabilities comprising Heartland Division. As a
result of the acquisition and the different cost basis with respect to the
assets and liabilities comprising Heartland Division, financial information
for periods before and after August 19, 1994 is not comparable.
Subsequent to December 31, 1994, all Heartland Division assets and
liabilities previously owned by RuralVision Joint Venture had either been
purchased by or transferred to Heartland. Such purchases and transfers were
recorded by Heartland at RuralVision Joint Venture's historical carrying
amounts for such assets and liabilities. Accordingly, subsequent to December
31, 1994, all Heartland Division assets and liabilities are owned by
Heartland.
The accompanying financial statements include the assets, liabilities,
revenues and expenses that are directly related to Heartland Division. The
financial statements do not include general unallocated corporate assets,
liabilities, revenues and expenses of the various parent entities which are
not directly related to Heartland Division or debt financing and associated
interest expense and, therefore, may
F-23
<PAGE>
HEARTLAND DIVISION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM AUGUST 19, 1994
TO SEPTEMBER 30, 1994 AND THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
not necessarily reflect what the financial position, results of operations and
cash flows of Heartland Division would have been had it been a separate,
stand-alone entity during the periods covered by the financial statements.
(b) Cash Management
Heartland Division utilized central cash management systems of its parent
entities to finance its operations. Cash requirements were satisfied by
transactions between Heartland Division and its parent entities. The
transactions are included in the division equity account in the balance sheets
and as net investment in and advances from parents in the statements of cash
flows.
(c) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Receive-site
equipment on subscriber premises and costs associated with initial subscriber
installations are capitalized. Upon subscriber disconnect, Heartland Division
continues to depreciate the full capitalized installation cost subsequent to
the disconnection. Depreciation and amortization are recorded on a straight-
line basis for financial reporting purposes over useful lives ranging from 6
to 10 years. Repair and maintenance costs are charged to expense when
incurred; renewals and betterments are capitalized.
(d) Leased License Investment
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Such costs were incurred by the parent entities on behalf of
Heartland Division and have been allocated to Heartland Division on a
proportional basis under a method that Heartland's management believes is
systematic and rational. Cost incurred to acquire channel rights issued by the
Federal Communications Commission ("FCC") are deferred and amortized ratably
over estimated useful lives of 20 years beginning with inception of service.
As of December 31, 1993 and 1994, approximately $405,000 and $6,500,000 of
leased license investment was not subject to amortization. Heartland Division
continually reevaluates the propriety of the carrying amounts of the leased
license investment based on estimated undiscounted future cash flows as well
as the amortization period to determine whether current events or
circumstances warrant adjustments to the carrying amounts or a revised
estimate of the useful life.
(e) Revenue Recognition
Revenues from subscribers are recognized in the period service is provided.
(f) Channel Leases
Prepayments on granted channel leases are expensed ratably in the year to
which they relate.
(g) Systems Operations
Systems operations expenses consist principally of programming fees, channel
lease costs, tower rental and other costs of providing services. Such amounts
are charged to expense in the period incurred.
(h) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using the enacted tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
F-24
<PAGE>
HEARTLAND DIVISION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM AUGUST 19, 1994
TO SEPTEMBER 30, 1994 AND THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The results of operations of Heartland Division have been included in the
federal income tax returns of Heartland, RuralVision South, Inc. or
RuralVision Joint Venture. Total current and deferred income taxes have been
allocated to Heartland Division as if such taxes were calculated on a separate
return basis using the accounting principles in Statement of Financial
Accounting Standards No. 109.
(i) Interim Financial Information
In the opinion of management, the accompanying unaudited condensed financial
information of Heartland Division contains all adjustments, consisting only of
those of a recurring nature, necessary to present fairly Heartland Division's
financial position as of September 30, 1995, and the results of operations and
cash flows for the period from August 19, 1994 to September 30, 1994 and the
nine-month period ended September 30, 1995. These results are not necessarily
indicative of the results to be expected for the full fiscal year.
(2) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Equipment awaiting installation................. $ 70,112 $ 124,025
Subscriber premises equipment and installation
costs.......................................... 921,644 637,778
Transmission equipment and system construction
costs.......................................... 1,051,488 859,673
Other, principally office furniture and
equipment...................................... 30,698 51,417
---------- ----------
2,073,942 1,672,893
Accumulated depreciation........................ (299,515) (82,590)
---------- ----------
$1,774,427 $1,590,303
========== ==========
</TABLE>
(3) LEASES
Heartland Division leases from third parties channel rights licensed by the
FCC. Heartland Division, through affiliates, has entered into leases with
channel license holders and leases with applicants for channel licenses. Under
FCC policy, the base term of most leases cannot exceed 10 years from the time
the lessee begins using the leased channel rights. FCC licenses for wireless
cable channels generally must be renewed every ten years, and there is no
automatic renewal of such licenses. The use of such channels by the lessors is
subject to regulation by the FCC and, therefore, Heartland Division's ability
to continue to enjoy the benefits of these leases is dependent upon the
lessors' continuing compliance with applicable regulations. The remaining
initial terms of Heartland Division's leases range from 6 to 10 years. Most of
Heartland Division's leases grant Heartland Division a right of first refusal
to match another lease offer after expiration of the lease and/or require the
parties to negotiate renewal in good faith. The termination of or failure to
renew a channel lease or termination of the channel license would result in
Heartland Division being unable to deliver television programming on such
channel. Although Heartland Division does not believe that the termination of
or failure to renew a single channel lease could adversely affect Heartland
Division, several of such terminations or failures in one or more markets that
Heartland Division actively serves could have a material adverse effect on
Heartland Division. Channel rights lease agreements generally require payments
based on the greater of specified minimums or amounts based on various
subscriber levels.
F-25
<PAGE>
HEARTLAND DIVISION
NOTES TO FINANCIAL STATEMENTS, CONCLUDED
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE PERIOD FROM AUGUST 19, 1994
TO SEPTEMBER 30, 1994 AND THE
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Payments under the channel rights lease agreements generally begin upon
either the completion of construction of the transmission equipment and
facilities and approval for operation pursuant to the rules and regulations of
the FCC or the grant of the channel rights. Channel rights lease expense was
$34,461, $101,338, $108,611 and $94,500 for the years ended December 31, 1992
and 1993, the period from January 1, 1994 to August 18, 1994 and the period
from August 19, 1994 to December 31, 1994, respectively.
Future minimum lease payments due under channel rights leases in effect at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1995........................... $402,000
1996........................... 485,000
1997........................... 485,000
1998........................... 478,000
1999........................... 472,000
</TABLE>
Heartland Division also has certain operating leases for office space and
transmission tower space which are generally cancellable or with terms less
than one year. Rent expense incurred in connection with these leases was
$71,969, $43,795, $27,058 and $14,673 for the years ended December 31, 1992
and 1993, the period from January 1, 1994 to August 18, 1994 and the period
from August 19, 1994 to December 31, 1994, respectively.
(4) INCOME TAXES
Income tax benefit of $62,630 for the period from August 19, 1994 to
December 31, 1994 consists of a deferred tax benefit.
Heartland Division has recognized deferred tax assets to the extent such
assets can be realized through future reversals of existing taxable temporary
differences.
(5) LIQUIDITY
The growth of Heartland Division's business requires substantial investment
on a continuing basis to finance capital expenditures and related expenses for
subscriber growth and system development. These activities may be financed in
whole or in part by Heartland Division through cash flows from operations or
other sources of financing. The amount and timing of Heartland Division's
future capital requirements will depend upon a number of factors, many of
which are not within Heartland Division's control, including programming
costs, equipment costs, marketing expenses, staffing levels, subscriber growth
and competitive conditions. Failure to obtain any required additional
financing could have a material adverse affect on the growth of Heartland
Division and the development of its markets.
(6) COMMITMENTS
Heartland Division has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1995
through 1998. The agreements generally require monthly payments based upon the
number of subscribers to Heartland Division's systems, subject to certain
minimums.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of TruVision Wireless, Inc.:
We have audited the accompanying balance sheets of TruVision Wireless, Inc.
(a Delaware corporation formerly named TruVision Cable, Inc.) as of December
31, 1994 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for the period from inception (August 25,
1994) through December 31, 1994 and for the year ended December 31, 1995. We
have also audited the statements of operations, partners' capital and cash
flows of Mississippi Wireless TV L. P. (the predecessor entity to TruVision
Wireless, Inc.) for the period from inception (November 2, 1993) to December
31, 1993 and the period from January 1, 1994 through August 24, 1994.
TruVision Wireless, Inc. and Mississippi Wireless TV L. P. are hereinafter
together referred to as "the Company." These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TruVision Wireless, Inc.
as of December 31, 1994 and 1995, and the results of its operations and its
cash flows for the period from inception (August 25, 1994) through December
31, 1994 and for the year ended December 31, 1995, and the results of
operations and cash flows of Mississippi Wireless TV L. P. for the period from
inception (November 2, 1993) through December 31, 1993 and the period from
January 1, 1994 through August 24, 1994, all in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Jackson, Mississippi,
March 26, 1996 (except with respect
to the matter discussed in Note 11,
as to which the date is April 25,
1996).
F-27
<PAGE>
TRUVISION WIRELESS, INC.
BALANCE SHEETS
(DATA WITH RESPECT TO MARCH 31, 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents.......... $2,712,851 $ 88,882 $ 500,111
Short-term investments............. 75,000 36,300 36,300
Accounts receivable (less allowance
for doubtful accounts of $34,000,
$150,426 and $187,060,
respectively)..................... 41,178 283,656 237,644
Other current assets............... 11,005 108,376 142,933
---------- ----------- -----------
Total current assets............. 2,840,034 517,214 916,988
---------- ----------- -----------
Property, plant and equipment:
Transmission equipment............. 1,197,425 3,029,214 3,419,840
Subscriber premises equipment and
installation costs................ 1,841,868 6,866,806 8,476,038
Office furniture and equipment..... 263,743 437,169 610,224
Vehicles........................... 223,996 215,344 216,144
Buildings and improvements......... 204,340 326,090 348,654
---------- ----------- -----------
3,731,372 10,874,623 13,070,900
Less: accumulated depreciation..... (217,676) (1,375,402) (1,905,355)
---------- ----------- -----------
3,513,696 9,499,221 11,165,545
Uninstalled subscriber premises
equipment......................... 1,006,854 546,316 696,493
---------- ----------- -----------
4,520,550 10,045,537 11,862,038
---------- ----------- -----------
License costs, net--Notes 2 and 3.... 157,480 179,592 2,447,387
Organizational costs, net............ 374,654 285,318 253,370
Deferred costs, net and other
assets--Note 7...................... 90,341 1,849,556 4,271,870
---------- ----------- -----------
Total assets..................... $7,983,059 $12,877,217 $19,751,653
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............. $ 813,471 $ 713,218 $3,302,800
Accrued expenses................... 77,671 43,000 33,675
Short-term debt.................... -- 4,531,464 10,084,894
---------- ----------- -----------
Total current liabilities........ 891,142 5,287,682 13,421,369
---------- ----------- -----------
Commitments and contingencies
Stockholders' equity--Notes 5 and 6:*
Series A, Convertible Preferred
Stock, $.01 par value; 800,000
authorized, issued and
outstanding; (liquidation
preference of $8,000,000)......... 8,000 8,000 8,000
Series B, Convertible Preferred
Stock, $.01 par value; 300,000
authorized, issued and outstanding
in 1995 and 1996 (liquidation
preference of $3,000,000)......... -- 3,000 3,000
Common Stock, $.01 par value;
6,000,000 shares authorized,
2,400,000 shares issued and
outstanding....................... 24,000 24,000 24,000
Additional paid-in capital......... 7,701,679 10,698,679 10,698,679
Accumulated deficit................ (641,762) (3,144,144) (4,403,395)
---------- ----------- -----------
Total stockholders' equity....... 7,091,917 7,589,535 6,330,284
---------- ----------- -----------
Total liabilities and
stockholders' equity............ $7,983,059 $12,877,217 $19,751,653
========== =========== ===========
</TABLE>
- --------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
TRUVISION WIRELESS, INC.
STATEMENTS OF OPERATIONS (NOTE 1)
(DATA WITH RESPECT TO MARCH 31, 1995 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
MISSISSIPPI WIRELESS TV L.P. TRUVISION WIRELESS, INC.
--------------------------------------- -----------------------------------------------------------
PERIOD FROM
INCEPTION
(NOVEMBER 2, 1993) JANUARY 1, 1994 TO AUGUST 25, 1994 TO YEAR ENDED THREE MONTHS ENDED
TO DECEMBER 31, 1993 AUGUST 24, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31,
-------------------- ------------------ ------------------ ----------------- ----------------------
1995 1996
--------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service revenues... $ -- $ 16,233 $ 264,491 $ 2,595,514 $ 379,561 $ 1,107,275
Installation
revenues.......... -- 57,137 166,043 486,100 122,308 178,751
--------- ---------- ---------- ----------- --------- -----------
Total revenues.. -- 73,370 430,534 3,081,614 501,869 1,286,026
--------- ---------- ---------- ----------- --------- -----------
Expenses:
System operating
expenses.......... 116,733 278,000 425,603 2,103,053 380,551 885,712
Selling, general
and
administrative
expenses.......... 111,186 668,009 534,431 2,086,200 233,275 911,024
Depreciation and
amortization...... -- 82,196 167,990 1,266,301 193,796 584,544
--------- ---------- ---------- ----------- --------- -----------
Total operating
expenses........ 227,919 1,028,205 1,128,024 5,455,554 807,622 2,381,280
--------- ---------- ---------- ----------- --------- -----------
Loss from
operations......... (227,919) (954,835) (697,490) (2,373,940) (305,753) (1,095,254)
Interest income..... -- 6,632 55,728 15,063 -- --
Interest expense.... -- -- -- (143,505) -- (163,997)
--------- ---------- ---------- ----------- --------- -----------
Net loss............ (227,919) (948,203) (641,762) (2,502,382) (305,753) (1,259,251)
Preferred dividend
requirement........ -- -- (227,000) (687,000) (160,000) (220,000)
--------- ---------- ---------- ----------- --------- -----------
Net loss
attributable to
common
stockholders....... $(227,919) $ (948,203) $ (868,762) $(3,189,382) $(465,753) $(1,479,251)
========= ========== ========== =========== ========= ===========
Loss per common
share*............. N/A N/A $ (0.36) $ (1.33) $ (0.19) $ (0.62)
========= ========== ========== =========== ========= ===========
Weighted average
shares
outstanding*....... N/A N/A 2,400,000 2,400,000 2,400,000 2,400,000
========= ========== ========== =========== ========= ===========
</TABLE>
- --------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
MISSISSIPPI WIRELESS TV L.P.
STATEMENTS OF PARTNERS' CAPITAL (NOTE 1)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 2, 1993) THROUGH DECEMBER 31, 1993 AND
THE PERIOD FROM JANUARY 1, 1994 THROUGH AUGUST 24, 1994
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNER CAPITAL
--------- ---------- ----------
<S> <C> <C> <C>
Initial investment........................... $ -- $1,081,000 $1,081,000
Net loss..................................... (2,279) (225,640) (227,919)
--------- ---------- ----------
Balance, December 31, 1993................... (2,279) 855,360 853,081
Net loss..................................... (170,677) (777,526) (948,203)
Partners' contributions...................... 229,162 361,000 590,162
--------- ---------- ----------
Balance, August 24, 1994..................... $ 56,206 $ 438,834 $ 495,040
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
TRUVISION WIRELESS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTE 1)
(DATA WITH RESPECT TO MARCH 31, 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK* ADDITIONAL
--------------- --------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL* DEFICIT
-------- ------ -------- ------ ---------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange of the net
assets of Mississippi
Wireless TV L.P. for
common stock of the
Company................ -- $ -- -- $ -- 2,400,000 $24,000 $ 471,040 $ --
Sale of preferred stock,
net of issuance costs
of $761,361 ........... 800,000 8,000 -- -- -- -- 7,230,639 --
Net loss for the period
from inception through
December 31, 1994...... -- -- -- -- -- -- -- (641,762)
-------- ------ -------- ------ ---------- ------- ----------- -----------
*BALANCE, DECEMBER 31,
1994................... 800,000 8,000 -- -- 2,400,000 24,000 7,701,679 (641,762)
Net loss................ -- -- -- -- -- -- -- (2,502,382)
Sale of preferred
stock.................. -- -- 300,000 3,000 -- -- 2,997,000 --
-------- ------ -------- ------ ---------- ------- ----------- -----------
BALANCE, DECEMBER 31,
1995................... 800,000 8,000 300,000 3,000 2,400,000 24,000 10,698,679 (3,144,144)
Net loss................ -- -- -- -- -- -- -- (1,259,251)
-------- ------ -------- ------ ---------- ------- ----------- -----------
BALANCE, MARCH 31,
1996................... 800,000 $8,000 300,000 $3,000 2,400,000 $24,000 $10,698,679 $(4,403,395)
======== ====== ======== ====== ========== ======= =========== ===========
</TABLE>
- --------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
TRUVISION WIRELESS, INC.
STATEMENTS OF CASH FLOWS (NOTE 1)
(DATA WITH RESPECT TO MARCH 31, 1995 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
MISSISSIPPI WIRELESS TV L.P. TRUVISION WIRELESS, INC.
---------------------------------- -----------------------------------------------------------
PERIOD FROM
INCEPTION
(NOVEMBER 2, 1993) JANUARY 1, 1994 AUGUST 25, 1994 THREE MONTHS ENDED
THROUGH TO TO YEAR ENDED MARCH 31,
DECEMBER 31, 1993 AUGUST 24, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
------------------ --------------- ----------------- ----------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............. $ (227,919) $ (948,203) $ (641,762) $(2,502,382) $ (305,753) $(1,259,252)
Adjustments to
reconcile net loss
to net cash provided
by operating
activities:
Depreciation and
amortization........ -- 82,196 167,990 1,266,301 193,796 584,544
Provision for losses
on accounts
receivable.......... -- -- 34,000 126,370 8,563 36,634
Changes in operating
assets and
liabilities:
Decrease (increase)
in accounts
receivable......... -- (105,395) (23,783) (368,848) (20,375) 9,378
Decrease (increase)
in other current
assets............. -- (76,969) 63,014 (97,371) (10,161) (34,557)
Increase (decrease)
in accounts
payable............ 17,785 431,319 364,367 (100,254) 79,784 2,589,582
Increase (decrease)
in accrued
liabilities........ -- -- 77,671 (34,671) (77,671) (9,325)
---------- ----------- ----------- ----------- ---------- -----------
Cash provided by (used
in) operating
activities: ......... (210,134) (617,052) 41,497 (1,710,855) (131,817) 1,917,004
---------- ----------- ----------- ----------- ---------- -----------
Cash flows from
investing activities:
Capital
expenditures........ (177,000) (2,555,318) (1,896,615) (6,682,712) (1,337,884) (2,346,453)
Payments for license
and organizational
costs............... -- (541,823) (165,505) -- (17,707) (2,290,438)
Increase in deferred
costs and other
assets.............. -- -- -- (1,250,566) (287,263) (2,422,314)
Deposits for
acquisitions........ -- -- -- (100,000) -- --
Deposit for FCC
auction............. -- -- -- (450,000) -- --
Proceeds from short-
term investments.... -- -- -- 38,700 -- --
Purchase of short-
term investments.... -- -- (75,000) -- -- --
---------- ----------- ----------- ----------- ---------- -----------
Net cash used in
investing
activities.......... (177,000) (3,097,141) (2,137,120) (8,444,578) (1,642,854) (7,059,205)
---------- ----------- ----------- ----------- ---------- -----------
Cash flows from
financing activities:
Proceeds from
issuance of
preferred stock..... -- -- 8,000,000 3,000,000 -- --
Preferred stock
issuance costs...... -- -- (761,361) -- -- --
Principal payments on
notes payable....... -- -- (3,308,000) -- -- --
Proceeds from
issuance of short-
term debt........... -- 3,308,000 -- 4,531,464 -- 5,553,430
Proceeds from
partners'
contributions....... 1,081,000 590,162 -- -- -- --
---------- ----------- ----------- ----------- ---------- -----------
Net cash provided by
financing
activities........... 1,081,000 3,898,162 3,930,639 7,531,464 -- 5,553,430
---------- ----------- ----------- ----------- ---------- -----------
Net increase
(decrease) in cash
and cash
equivalents.......... 693,866 183,969 1,835,016 (2,623,969) (1,774,671) 411,229
Cash and cash
equivalents at
beginning of period.. -- 693,866 877,835 2,712,851 2,712,851 88,882
---------- ----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents at end of
period............... $ 693,866 $ 877,835 $2,712,851 $ 88,882 $ 938,180 $ 500,111
========== =========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: THE COMPANY
HISTORY AND ORGANIZATION
TruVision Cable, Inc. ("TruVision" or the "Company"), a Delaware
corporation, was incorporated in April 1994, and began business activities on
August 25, 1994. The Company's name was changed to TruVision Wireless, Inc. on
February 6, 1996. The Company is engaged in building, managing and owning
wireless cable systems which retransmit television and programming received at
a head-end via encryptic microwave signals from multichannel broadcast towers
to subscribers within an approximate 40 mile radius of each tower. The Company
has exclusive lease rights to substantially all of the ITFS wireless cable
channels in the State of Mississippi licensed by the Federal Communications
Commission ("FCC").
Mississippi Wireless TV L. P. ("MWTV"), a Mississippi limited partnership,
was formed on November 2, 1993. For the period from inception through August
24, 1994, MWTV's business activities consisted primarily of development and
initial operational activities related to certain of its wireless cable rights
which had been assigned to it by an affiliate.
TruVision began business activities upon the contribution of all of the net
assets of MWTV in exchange for 1,200,000 shares (2,400,000 after the 2-for-1
common stock split--see Note 2) of common stock in the Company. At the same
time, an unrelated party, Chase Venture Capital Associates ("CVCA") (formerly
Chemical Venture Capital Associates), a California limited partnership,
contributed $8,000,000 cash in exchange for 800,000 shares of Series A
Convertible Preferred Stock. This transfer of the net assets of MWTV to
TruVision has been accounted for as a transfer of net assets between related
parties, and accordingly, the Company has recorded the net assets received in
the exchange at MWTV's historical carrying values.
The Company is developing its Mississippi wireless cable operations in two
phases. Phase I will consist of five markets which cover West, Central and
South Mississippi. In May 1994, the Company placed its first market in
operation in the Jackson, Mississippi area. In July 1995, the Company placed
its second market in operation in the Delta area. A third market, serving
portions of the Gulf Coast, is expected to begin operations in the first
quarter of 1996. Construction plans call for the development of the additional
markets within the Phase I area.
Plans for the development of Phase II, which consists of four markets
primarily in North Mississippi, have not been finalized. Pursuant to a
stockholders' agreement between CVCA and MWTV, the Company has the option to
complete development of Phase II within a five-year period. Under the terms of
the option, each of the parties to the agreement will contribute their
respective portions of the development costs in cash. In the event the Company
participates in an initial public offering or sale prior to commencing
development of each cell of Phase II, Vision Communications, Inc. ("VCI"), an
entity owned primarily by the general partner of MWTV, will be eligible to
receive a payment (the "Phase II Payment") for its contribution of frequency
rights equal to $1,125,000 per market (total of $4.5 million), payable in cash
or in shares of Common Stock of the Company based on the fair value of such
shares at the time of the Phase II Payment. See Note 10.
RISKS AND OTHER FACTORS
The Company has recorded net losses in each period of its operations. At
December 31, 1995, the Company's accumulated deficit was approximately
$3,144,000 ($4,403,000 at March 31, 1996). Losses incurred since inception are
attributable primarily to start-up costs, marketing and sales costs
F-33
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and depreciation of assets used in the Company's wireless cable systems in
various markets. The Company expects to continue to experience net losses
while it develops and expands its wireless cable systems, although mature
individual systems of the Company may reach profitability sooner than the
Company on a consolidated basis. In the opinion of management, the Company
will ultimately achieve positive cash flow and net income sufficient to
realize its investment in its assets; however, there can be no assurance that
the Company will generate sufficient operating revenues to achieve positive
cash flow or net income.
The growth of the Company's business requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
expansion of the Company's customer base and system development. Management
expects that the Company will require significant additional financings,
through debt or equity financings, joint ventures or other arrangements, to
achieve its targeted subscriber levels in its current business plans in its
operating systems and target markets and to cover ongoing operating losses.
Additional debt or equity also may be required to finance future acquisitions
of wireless cable companies, wireless cable systems or channel rights. While
management believes the Company will be able to obtain additional debt or
equity capital on satisfactory terms to meet its future financing needs, there
can be no assurance that either additional debt or equity capital will be
available.
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. ITFS licenses
generally are granted for a term of 10 years and are subject to renewal by the
FCC. MDS licenses generally will expire on May 1, 2001 unless renewed. FCC
licenses also specify construction deadlines which, if not met by the Company
or extended by the FCC, could result in the loss of the license. There can be
no assurance that the FCC will grant any particular extension request or
license renewal request. The remaining initial terms of most of the Company's
ITFS channel leases are approximately five to 10 years. The Company's MDS
leases generally are for substantially longer terms and the Company has
acquired options to purchase a majority of the underlying MDS licenses. The
use of wireless cable channels by the license holders is subject to regulation
by the FCC and the Company is dependent upon the continuing compliance by
channel license holders with applicable regulations. The termination or non-
renewal of a channel lease or of a channel license, or the failure to grant an
application for an extension of the time to construct an authorized station,
would result in the Company being unable to deliver programming on the
channels authorized pursuant thereto. Although the Company does not believe
that the termination of or failures to renew a single channel lease other than
that with EdNet would materially adversely affect the Company, several of such
terminations or failure to renew in one or more markets that the Company
actively serves or intends to serve could have a material adverse effect on
the Company. In addition, the termination, forfeiture, revocation or failure
to renew or extend an authorization or license held by the Company's lessors
could have a material adverse effect on the Company.
The Company contracts for the commercial use of 20 ITFS channels in various
markets throughout the state of Mississippi with EdNet. The commercial use of
these channels represents the majority of the Company's channels in
Mississippi and the loss of, or inability to renew, the EdNet Agreement would
have a material adverse effect on the Company's operations. See Note 3.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-34
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION
Revenues from monthly service charges are recognized as the service is
provided to the customer. Customers are billed in the month services are
rendered. Installation fees are recognized as income to the extent the Company
has incurred direct selling costs.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company recognizes an allowance for doubtful accounts to the extent it
believes receivables are not collectible. The provision for doubtful accounts
was approximately $34,000 and $126,000 for 1994 and 1995, respectively. No
writeoffs were made in 1994. Writeoffs of accounts receivable were
approximately $45,000 in 1995.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of 90 days or less to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments represent certificates of deposit of approximately
$75,000 in 1994 and $36,000 in 1995 and 1996 restricted for use under a
programming contract.
SYSTEM OPERATING EXPENSES
System operating expenses consist principally of programming fees, license
fees, tower rental, maintenance, engineering and other costs incidental to
providing service to customers. Administrative and marketing expenses incurred
by systems during their launch period are expensed as incurred.
SYSTEM LAUNCH COSTS
The costs incurred to prepare a market for launch (marketing, pre-opening
administration, training, etc.) are expensed in the period incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is recorded
on the straight-line basis for financial reporting purposes. Costs incurred
for repair and maintenance of property, plant and equipment are charged to
expense when incurred. Costs incurred for renewals and improvements are
capitalized. Costs of subscriber equipment, including installation labor and
other direct installation costs, are capitalized. Subscriber premises
equipment and installation costs are depreciated using a composite method over
five years which factors in the Company's estimates of useful lives of
recoverable equipment and average subscriber lives of nonrecoverable
installation costs. Materials and supplies used to provide service to
customers are included in office furniture and equipment and are valued at the
lower of cost or market.
Depreciation is recorded over the estimated useful lives as follows:
<TABLE>
<S> <C>
Transmission equipment......................................... 5-10 years
Subscriber premises equipment and installation costs........... 5 years
Office furniture and equipment................................. 10 years
Vehicles....................................................... 5 years
Buildings and improvements..................................... 31 years
</TABLE>
F-35
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
LICENSE AND ORGANIZATIONAL COSTS
License costs include the costs of acquiring the rights to use certain FCC
frequencies to broadcast programming to the Company's customers. These costs,
net of amortization of $6,000 and $25,000 at December 31, 1994, and 1995,
respectively, and $48,000 at March 31, 1996, are being amortized over a ten-
year period beginning with inception of service in a market. The Company from
time to time reevaluates the carrying amounts of the licenses based on
estimated undiscounted future cash flows as well as the amortization period to
determine whether current events or circumstances warrant adjustments to the
carrying amounts or a revised estimate of the useful life.
Organizational costs include legal fees and other professional fees and
expenses incident to organizing the Company. These costs, net of amortization
of $28,000 and $118,000 at December 31, 1994 and 1995, respectively, and
$150,000 at March 31, 1996, are being amortized over a five-year period.
INCOME TAXES
Income taxes are provided using an asset and liability approach. The current
provision for income taxes represents actual or estimated amounts payable or
refundable on tax returns filed or to be filed for each year. Deferred tax
assets and liabilities are recorded for the estimated future tax effects of
(a) temporary differences between the tax basis of assets and liabilities and
amounts reported in balance sheets, and (b) operating loss and tax credit
carry forwards. The overall change in deferred tax assets and liabilities for
the period measures the deferred tax expense for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are
reflected as adjustments to tax expense in the period of enactment. The
measurement of deferred tax assets may be reduced by a valuation allowance
based on judgmental assessment of available evidence if deemed more likely
than not that some or all of the deferred tax assets will not be realized.
The following summarizes the Company's deferred tax assets and liabilities
as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $287,820 $1,827,540
Allowance for bad debt................................... 13,260 62,400
-------- ----------
Total tax assets....................................... 301,080 1,889,940
Valuation allowance.................................... 249,990 1,224,210
-------- ----------
51,090 665,730
-------- ----------
Deferred tax liabilities:
Depreciation............................................. 25,350 540,150
Deferred cost............................................ 25,740 125,580
-------- ----------
Total deferred tax liabilities......................... 51,090 665,730
-------- ----------
Net deferred tax asset..................................... $ -- $ --
======== ==========
</TABLE>
The Company recognizes a deferred tax asset to the extent such amounts
offset deferred tax liabilities. The $974,000 change in the valuation
allowance from December 31, 1994 to December 31,
F-36
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1995 is due primarily to the increase in the net operating loss carryforwards,
which gives rise to deferred tax assets, over the increase in the temporary
differences related to depreciation, which gives rise to deferred tax
liabilities.
The Company has net operating loss carryforwards for Federal income tax
purposes of approximately $4,686,000 as of December 31, 1995. The
carryforwards expire in years 2009 and 2010.
STOCK SPLIT
On March 26, 1996, the Board of Directors authorized a 2-for-1 stock split
in the form of a 100% stock dividend which will be distributed on April 15,
1996 to shareholders of record on March 15, 1996. Unless otherwise indicated,
all per share data, number of common shares and the statements of
stockholders' equity have been retroactively adjusted to reflect this stock
split.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the net loss attributable to the
weighted average number of common shares outstanding during the period
presented (2,400,000 as of December 31, 1994 and 1995 and March 31, 1995 and
1996.) Conversion of the Series A and B Convertible Preferred Stock into
Common Stock is not assumed because the impact is antidilutive. Shares
issuable upon exercise of stock options are antidilutive and have been
excluded from the calculation. For all periods presented, fully diluted loss
per common share and primary loss per common share are the same.
STATEMENT OF CASH FLOWS
In 1994, the Company issued 2,400,000 shares of Class B Common Stock to MWTV
in exchange for assets with a carrying amount of $4,252,144 and liabilities of
$3,757,104. This exchange has been treated as a non-cash transaction except
for the cash balances of $877,835 acquired from MWTV. No interest or income
taxes were paid in 1994. Interest of $137,385 was paid during the year ended
December 31, 1995 of which approximately $65,000 was capitalized. For the
three months ended March 31, 1996 interest of $85,072 was paid. No interest
was paid for the three months ended March 31, 1995 and no interest was
capitalized for the three month periods ended March 31, 1995 and 1996. No
income taxes were paid for any period presented.
DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments (which consist of
cash, accounts receivable and payable, and short-term debt) approximate their
carrying amounts.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement does not apply to deferred acquisition costs or deferred tax
assets. The Company plans to adopt this statement effective January 1, 1996;
however, management believes that its adoption will not have a material effect
on the Company's financial statements.
F-37
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock Based
Compensation, which generally requires disclosure of additional information
concerning stock based employee compensation arrangements. The Company plans
to adopt SFAS No. 123 effective January 1, 1996.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10.01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that will be expected for the year
ending December 31, 1996.
NOTE 3: LICENSE CONTRACTS
In August 1993, VCI signed a renewable long-term agreement with the
Mississippi EdNet Institute, Inc. ("EdNet"), a non-profit, quasi-governmental
body which manages the licenses designated to various state educational
entities. Subsequently, VCI assigned its rights under the EdNet agreement to
the Company. See Note 1. This lease gives the Company exclusive rights to
utilize excess air time (that portion of a channel's airtime available for
commercial broadcasting according to FCC regulations) on the 20 ITFS channels
in Mississippi. The terms of the channel leases are 10 years, commencing in
1992. The contract provides for the monthly payment of $0.05 per subscriber
per channel or, beginning one year after operating the first market, a minimum
of $7,500 per month. Expense for 1994 and 1995 related to this agreement was
$9,300 and $69,000, respectively.
The contract also requires TruVision to make advances to EdNet during the
first 24 months of operations in the amount of $6,000 per month. These
advances are being recovered as a credit against license fees owed to EdNet.
The agreement with EdNet contains the following major provisions and
requirements to be met by TruVision:
. The system is to ultimately cover at least 95% of the population of the
licensed Mississippi geographic coverage area (including the areas
designated as Phase II by the Company).
. The system must be interconnected by a two-way audio/video link between
TruVision/EdNet transmission sites and Mississippi Authority for
Educational Television headquarters in Jackson, Mississippi. The cost of
this interconnection must be borne by TruVision within certain limits.
. TruVision will provide standard installations at locations as EdNet may
designate.
. TruVision will install and equip an electronic classroom in each of its
Mississippi Markets.
. TruVision will complete the network by July 1, 1998.
The Company capitalizes the cost incurred to comply with the facility
installation and interconnection requirements of the EdNet Agreement and
depreciates such cost over the estimated life of the related equipment.
F-38
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1994 1995 1996
----- ---------- ----------
<S> <C> <C> <C>
Borrowings under $6,000,000 revolving line of
credit with a bank, due June 30, 1996, with
interest due monthly at 1% above the bank's
prime rate (9.50% at December 31, 1995)...... $ -- $4,531,464 $3,400,156
Borrowings under the Interim Credit Facility
with CVCA, due on demand after June 30, 1996,
with interest of 10% due at maturity. See
Note 10. .................................... -- -- 6,000,000
Other......................................... -- -- 684,738
</TABLE>
The borrowings under the revolving line of credit are secured by
substantially all of the assets of the Company, including licenses, accounts
receivable, inventory, property and equipment, and contract rights.
Additionally, the borrowings are guaranteed by the Company's president and a
stockholder. The Company may prepay its obligations without penalty at any
time.
NOTE 5: STOCK OPTION PLANS AND EMPLOYMENT CONTRACTS
The Company has established a stock option plan for executives and other key
employees. The plan provides for a maximum of 250,000 shares of Common Stock
to be reserved for such options. Terms and conditions of the Company's options
generally are at the discretion of the board of directors; however, no options
are exercisable after June 8, 2004.
In August 1994, the Company granted options totaling 191,490 shares to two
key employees at an exercise price of $5.00 per share. In June 1995 and August
1995, options to purchase shares of 30,000 and 20,000, respectively, were
granted to two additional key employees at a price of $5.00 per share. The
options granted in 1995 vest over a five-year period. As of December 31, 1995,
options for 140,426 shares are exercisable. No compensation expense has been
recorded on these options granted since the option price was equal to the
estimated fair market value of the option shares on the date the options were
granted.
NOTE 6: PREFERRED AND COMMON STOCK RIGHTS
In October 1995, the Company issued 300,000 shares of Series B Convertible
Preferred Stock for gross proceeds of $3,000,000. Pursuant to a prior
commitment, CVCA acquired 270,000 shares and 30,000 shares were issued to a
common stockholder. MWTV has pledged its shares of the Company's Common Stock
to CVCA.
Series A and Series B Convertible Preferred Stock is senior to all other
shares of stock. Convertible Preferred Stock dividend rights are cumulative at
8% per annum based on a stated value of $10 per share. As of December 31, 1994
and 1995, the aggregate amount of Convertible Preferred Stock dividends in
arrears was approximately $227,000 and $914,000, respectively ($387,000 and
$1,134,000, respectively, at March 31, 1995 and 1996). No preferred dividends
have been declared. See Note 11.
F-39
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In the event of any liquidation, holders of Series A and Series B
Convertible Preferred Stock would first be entitled to receive the greater of
(i) the total $11,000,000 liquidation preference ($8,000,000 for Series A and
$3,000,000 for Series B) plus all accrued but unpaid dividends, or (ii) the
amount that would have been paid, or the value of property that would have
been distributed if, prior to liquidation, the shares had been converted to
Common Stock plus all accrued but unpaid dividends.
Each share of Convertible Preferred Stock carries voting rights as if
converted into shares of Common Stock and, at the option of the holder, is
convertible at any point in time into one fully paid, nonassessable share (two
shares after the 2-for-1 common stock split--see Note 2) of Common Stock plus
cash equal to accrued but unpaid dividends. If the conversion is not made
pursuant to an initial public offering, TruVision may, at its option, issue a
promissory note in lieu of paying the dividends.
The holders of Convertible Preferred Stock are also entitled to elect two of
the five member Board of Directors of the Company. Pursuant to the terms of a
stockholder's agreement certain restrictions have been placed on the
stockholders' ability to vote on specified matters.
In October 1995, the corporate charter was amended to combine Class A and
Class B Common Stock into a single class of $0.01 par value, Common Stock.
Holders of Common Stock are not eligible to receive dividends as long as any
shares of Convertible Preferred Stock are outstanding.
In the event of liquidation, after distribution in full of preferential
amounts to be distributed to holders of Convertible Preferred Stock, the
holders of Common Stock would receive distributions in proportion to the
number of shares held.
NOTE 7: DEFERRED COSTS AND OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
MARCH 31,
1994 1995 1996
------- ---------- ----------
<S> <C> <C> <C>
Deferred costs and other assets consist of:
Deferred financing and acquisition costs
--Note 11.................................. $ -- $1,027,216 $2,586,178
Advances to EdNet--Note 3................... 84,000 132,000 120,924
Deposits for future acquisitions--Note 10... -- 100,000 562,650
FCC auction deposit......................... -- 450,000 450,000
Other....................................... 6,341 140,340 552,118
------- ---------- ----------
$90,341 $1,849,556 $4,271,870
======= ========== ==========
</TABLE>
Deferred acquisition costs consist primarily of professional fees,
engineering costs, travel costs and other related costs associated with the
acquisition of channel rights, licenses and related cable systems which are
currently subject to letters of intent or definitive agreements (see Note 10).
Such costs will be amortized over periods ranging from five to 10 years,
beginning when each acquisition is consummated, or, if the acquisition is not
consummated, written off.
F-40
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: COMMITMENTS AND CONTINGENCIES
The Company leases office space, antenna space and certain channel broadcast
rights under noncancelable operating leases with remaining terms ranging from
four to eight and one-half years. The following is a schedule by years of
future minimum rentals due under the leases at December 31, 1995:
<TABLE>
<S> <C>
1996............................................................. $369,920
1997............................................................. 397,744
1998............................................................. 309,657
1999............................................................. 190,228
2000............................................................. 132,502
Thereafter....................................................... 225,711
</TABLE>
Rent under these leases was $55,004 for the period August 25, 1994 to
December 31, 1994 and $254,512 for the year ended December 31, 1995.
The Company is participating in an auction conducted by the FCC for rights
to obtain use of available MDS commercial channels in certain basic trading
areas. The Company's outstanding bids for these rights aggregate approximately
$16 million. If the Company is the highest bidder in any, or all, of the
areas, the Company will be required to pay up to $14 million (net of a small
business bidding credit), a portion of which will be financed by the U.S.
government.
The Company is involved in certain legal proceedings generally incidental to
its business. While the results of any litigation contain an element of
uncertainty, management believes that the outcome of any known or threatened
legal proceeding will not have a material effect on the Company's financial
position or results of operations.
NOTE 9: CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk, consist primarily of cash and accounts receivable. The Company
has not experienced any losses on its deposits. Subscriber accounts receivable
collectibility is impacted by economic trends in each of the Company's
markets. Such receivables are typically collected within 30 days, and the
Company has provided an allowance which it believes is adequate to absorb
losses from uncollectible accounts.
NOTE 10: BUSINESS COMBINATIONS AND PROPOSED FINANCING TRANSACTIONS
In February 1996, TruVision acquired all the outstanding common stock of
BarTel, Inc., a company holding wireless cable license rights in the Demopolis
and Tuscaloosa, Alabama Markets for cash of approximately $1.7 million and, if
certain conditions are met, notes payable of $652,000. Accordingly, BarTel,
Inc.'s financial position at March 31, 1996 and the results of its operations
for the period from the date of the consummation of the acquisition to March
31, 1996, are reflected in the Company's results for the three months ended
March 31, 1996. Additionally, TruVision has entered into a definitive
agreement to purchase substantially all of the assets of Madison
Communications, Inc. and Beasley Communications, Inc. ("Madison"), a wired and
wireless cable provider located near Huntsville, Alabama, for approximately
$6.0 million.
In March 1996, the Company entered into a letter of intent to acquire
substantially all of the assets of Shoals Wireless, Inc., a wireless cable
provider located in Lawrenceburg, Tennessee, for $1,180,000 in cash.
F-41
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
TruVision has also entered into agreements to purchase licenses, channel
rights and equipment in several other markets for cash of approximately $11.9
million. None of these markets is currently operating and no significant
liabilities are expected to be assumed in connection with these asset
acquisitions.
The Company expects to finance the acquisitions described above with the
short-term line of credit discussed in Note 4 and with an Interim Facility of
up to $12.0 million provided by CVCA in the form of a 10% note payable (due on
demand after June 30, 1996). See Note 4.
NOTE 11: SUBSEQUENT EVENTS
On April 25, 1996, the Company entered into an agreement and plan of merger
(the "Agreement") with Wireless One, Inc. ("Wireless One"), in which Wireless
One will exchange approximately 3.4 million shares of its common stock for all
of the Company's outstanding shares in a transaction valued at $45 million.
The transaction is expected to close by late July 1996. In connection with the
consummation of the Agreement it is expected that all of the Shares of Series
A and B Convertible Preferred Stock will be converted into shares of Common
Stock and all accrued and unpaid preferred dividends ($1,134,000 at March 31,
1996) will be paid.
On May 6, 1996, Wireless One issued the Company two short-term lines of
credit, a $1.5 million line of credit which is to be used to fund working
capital purposes and pay off the borrowings under the bank revolving line of
credit ("Working Capital Line of Credit") and a $9 million line of credit to
be used to fund acquisition needs ("Acquisition Line of Credit"), together the
"Lines of Credit". The Acquisition Line of Credit will increase to $15 million
upon repayment of the Working Capital Line of Credit. The Lines of Credit are
secured by substantially all of the assets of the Company and accrue interest
at Wireless One's borrowing rate of 13%. Principal and interest are due on the
tenth business day following the earliest of (1) the date of the consummation
of the Agreement, (2) December 31, 1996, or (3) the date the Agreement is
rescinded.
Prior to the Agreement, the Company was pursuing a public offering of Common
Stock and Senior Discount Notes (the "Offerings"). Concurrent with the
Agreement, the Company withdrew the Offerings. Certain costs related to the
Offerings of approximately $643,000 were deferred at March 31, 1996. The
Company intends to write off a portion of those costs in the period ended June
30, 1996, after management evaluates the applicability of the specific costs
to the proposed merger and the related public offering by Wireless One.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Madison Communications, Inc. and
Beasley Communications, Inc.:
We have audited the accompanying combined balance sheets of Madison
Communications, Inc. and Beasley Communications, Inc. (Alabama corporations)
as of December 31, 1994 and 1995 and the related combined statements of
operations and accumulated deficit and cash flows for the years ended December
31, 1993, 1994 and 1995. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Madison
Communications, Inc. and Beasley Communications, Inc. as of December 31, 1994
and 1995 and the combined results of their operations and their combined cash
flows for the years ended December 31, 1993, 1994 and 1995, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Jackson, Mississippi,
January 19, 1996 (except with
respect to the matter discussed in
note 6, as to which the date is
February 6, 1996).
F-43
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED BALANCE SHEETS (NOTE 1)
(DATA WITH RESPECT TO MARCH 31, 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 5,705 $ 39,711 $ 63,946
Accounts receivable (less allowance
for doubtful accounts of $16,302,
$13,888 and $19,673, respectively)... 1,068 3,513 300
Other current assets.................. 7,804 13,401 6,518
----------- ----------- -----------
Total current assets................ 14,577 56,625 70,764
----------- ----------- -----------
Property, plant and equipment:
Cable system--wireless................ 2,337,362 2,462,318 2,475,403
Cable system--wired................... 1,042,923 1,062,824 1,065,176
Machinery and equipment............... 155,753 130,494 130,494
Buildings, leasehold improvements,
office furniture and equipment....... 34,605 40,071 40,071
Land.................................. 50,000 50,000 50,000
----------- ----------- -----------
3,620,643 3,745,707 3,761,144
Less: accumulated depreciation........ (1,944,781) (2,499,752) (2,627,219)
----------- ----------- -----------
1,675,862 1,245,955 1,133,925
Uninstalled subscriber premises
equipment.............................. 18,195 10,431 13,902
----------- ----------- -----------
1,694,057 1,256,386 1,147,827
----------- ----------- -----------
License costs, net--(note 2)............ 73,333 66,666 65,000
Other assets............................ 1,835 1,835 1,835
----------- ----------- -----------
Total assets........................ $ 1,783,802 $ 1,381,512 $ 1,285,426
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 84,042 $ 64,874 $ 55,691
Accrued expenses, primarily
programming costs.................... 275,294 319,424 321,462
Deferred income....................... 28,055 20,576 20,576
Borrowings under line of credit (note
3)................................... 275,000 125,000 100,000
----------- ----------- -----------
Total current liabilities........... 662,391 529,874 497,729
----------- ----------- -----------
Commitments and contingencies (note 4)
Stockholders' equity
Common Stock; $1 par value; 1,000
shares authorized issued and
outstanding.......................... 1,000 1,000 1,000
Additional paid-in capital............ 2,475,192 2,475,192 2,475,192
Accumulated deficit................... (1,354,781) (1,624,554) (1,688,495)
----------- ----------- -----------
Total stockholders' equity.......... 1,121,411 851,638 787,697
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $ 1,783,802 $ 1,381,512 $ 1,285,426
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(DATA WITH RESPECT TO MARCH 31, 1995 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues...... $ 1,426,971 $ 1,493,337 $ 1,543,470 $ 388,811 $ 384,706
Installation reve-
nues................. 68,026 63,400 38,677 11,325 7,923
----------- ----------- ----------- ----------- -----------
Total revenues...... 1,494,997 1,556,737 1,582,147 400,136 392,629
----------- ----------- ----------- ----------- -----------
Expenses:
System operating
expenses............. 727,124 814,715 888,707 146,783 152,554
General and
administrative
expenses............. 386,911 402,897 404,804 152,046 191,675
Depreciation and
amortization......... 578,739 626,531 577,240 148,678 129,134
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 1,692,774 1,844,143 1,870,751 447,507 473,363
----------- ----------- ----------- ----------- -----------
Loss from operations.... (197,777) (287,406) (288,604) (47,371) (80,734)
Other income (expense):
Other income.......... 40,793 43,180 43,414 -- 19,703
Gain (loss) on sale of
assets............... 103,583 -- (7,143) -- --
Interest (expense).... (55,465) (31,090) (17,440) (6,009) (2,910)
----------- ----------- ----------- ----------- -----------
Net loss................ (108,866) (275,316) (269,773) (53,380) (63,941)
Accumulated deficit--
beginning of period.... (970,599) (1,079,465) (1,354,781) (1,354,781) (1,624,554)
----------- ----------- ----------- ----------- -----------
Accumulated deficit--end
of period.............. $(1,079,465) $(1,354,781) $(1,624,554) $(1,408,161) $(1,688,495)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(DATA WITH RESPECT TO MARCH 31, 1995 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- ------------------
1993 1994 1995 1995 1996
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
operating activities:
Net loss................. $(108,866) $(275,316) $(269,773) $(53,380) $(63,941)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortization.......... 578,739 626,531 577,240 148,678 129,134
(Gain) loss on sale of
assets................ (103,583) -- 7,143 -- --
Provision for losses on
accounts receivable... 22,500 18,000 15,505 4,500 4,500
(Increase) in other
assets................ (125) (65) -- -- --
Changes in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (17,720) (10,184) (17,950) 8,700 (1,287)
(Increase) decrease
in other current
assets.............. (8,110) 16,418 (5,597) 77 6,883
Increase (decrease)
in accounts
payable............. 3,170 39,575 (19,168) (21,995) (9,183)
Increase in accrued
expenses............ 127,134 91,610 44,130 45,680 2,038
Increase (decrease)
in deferred income.. 65 5,165 (7,479) (7,921) --
--------- --------- --------- -------- --------
Cash flows provided by
operating activities..... 493,204 511,734 324,051 124,339 68,144
--------- --------- --------- -------- --------
Cash flows used in
investing activities:
Capital expenditures..... (329,640) (220,778) (143,545) (39,797) (18,909)
Proceeds from sale of
assets.................. 180,000 -- 3,500 -- --
--------- --------- --------- -------- --------
Net cash used in
investing activities.... (149,640) (220,778) (140,045) (39,797) (18,909)
--------- --------- --------- -------- --------
Cash flows used in
financing activities:
Payment on bank
overdraft............... (21,815) -- -- -- --
Payments on line of
credit.................. (300,000) (307,000) (150,000) (50,000) (25,000)
--------- --------- --------- -------- --------
Net cash used by financing
activities............... (321,815) (307,000) (150,000) (50,000) (25,000)
--------- --------- --------- -------- --------
Net increase (decrease) in
cash and cash
equivalents.............. 21,749 (16,044) 34,006 34,542 24,235
Cash and cash equivalents
at beginning of period... -- 21,749 5,705 5,705 39,711
--------- --------- --------- -------- --------
Cash and cash equivalents
at end of period......... $ 21,749 $ 5,705 $ 39,711 $ 40,247 $ 63,946
========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) THE COMPANIES
(a) History and Organization
Madison Communications, Inc. ("Madison"), an Alabama corporation, was formed
and began operations on July 26, 1989. Beasley Communications, Inc.
("Beasley"), an Alabama corporation, was formed on June 16, 1994. The
shareholders of Madison and Beasley are the same and the business operations
are generally conducted as if Madison and Beasley were a single entity.
Accordingly, the financial statements of Madison and Beasley are presented on
a combined basis. Madison and Beasley are hereafter referred to as "the
Company."
The Company is engaged in building, managing and owning wired and wireless
cable systems. Wired cable systems retransmit television signals to
subscribers over coaxial cable networks from a head-end facility where the
signals are received and processed. Wireless cable systems retransmit
television programming received at the head-end via encrypted microwave
signals from multi-channel broadcast towers to subscribers within an
approximate 40 mile radius of each tower. The Company has licenses for
contractual control over 27 wireless cable channels in Madison and Limestone
Counties of North Alabama licensed by the Federal Communications Commission
("FCC").
(b) FCC Licenses
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. ITFS licenses
generally are granted for a term of 10 years and are subject to renewal by the
FCC. MDS licenses generally will expire on May 1, 2001 unless renewed. FCC
licenses also specify construction deadlines which, if not met by the Company
or extended by the FCC, could result in the loss of the license. There can be
no assurance that the FCC will grant any particular extension request or
license renewal request. The use of wireless cable channels by the license
holders is subject to regulation by the FCC and the Company is dependent upon
the continuing compliance by channel license holders with applicable
regulations. The termination or non-renewal of a channel lease or of a channel
license, or the failure to grant an application for an extension of the time
to construct an authorized station, would result in the Company being unable
to deliver programming on the channels authorized pursuant thereto. Although
the Company does not believe that the termination of or failure to renew a
single channel lease would materially adversely affect the Company, several of
such terminations or failures to renew in one or more Markets that the Company
actively serves or intends to serve could have a material adverse effect on
the Company. In addition, the termination, forfeiture, revocation or failure
to renew or extend an authorization or license held by the Company's lessors
could have a material adverse effect on the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is recorded
on the straight-line basis for financial reporting purposes. Costs incurred
for repair and maintenance of property, plant and
F-47
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
equipment are charged to expense when incurred. Costs incurred for renewals
and improvements are capitalized. The costs of subscriber equipment, including
installation labor and other direct installation costs, is capitalized.
Subscriber premises equipment and installation costs are depreciated using a
composite method over five years which factors in the Company's estimates of
useful lives of recoverable equipment and average subscriber lives of
nonrecoverable installation costs.
Depreciation is recorded over the estimated useful lives as follows:
<TABLE>
<S> <C>
Cable systems--wireless........................................... 3-10 years
Cable systems--wired.............................................. 5-10 years
Machinery and equipment........................................... 5-10 years
Office furniture and equipment.................................... 7 years
Buildings and improvements........................................ 31 years
</TABLE>
(c) License Costs
License costs include the costs of acquiring the rights to use certain FCC
frequencies to broadcast programming to the Company's customers. These costs,
net of amortization of $20,001, $26,668 and $33,334 at December 31, 1993, 1994
and 1995 and $35,001 at March 31, 1996, are being amortized over a 15 year
period beginning with inception of service in a market. The Company from time
to time reevaluates the carrying value of the licenses based on estimated
undiscounted cash flows as well as the amortization period to determine
whether current events or circumstances warrant adjustments to the carrying
amounts or a revised estimate of the useful life. In 1993, broadcast licenses
to certain Markets outside of the Company's area of interests were sold to a
third party, resulting in a gain of approximately $100,000.
(d) Revenue Recognition
Revenues from monthly service charges are recognized as the service is
provided to the customer. Customers are billed in the month services are
rendered.
Operating Expenses
Operating expenses consist principally of programming fees, license fees,
tower rental, maintenance, engineering and other costs incident to providing
service to customers.
(e) Income Taxes
Effective March 15, 1990, the Company elected to be taxed as an S
Corporation under provisions of the Internal Revenue Code. As a result, the
Company does not pay federal corporate income taxes or Alabama corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual federal income taxes and Alabama income taxes on the Company's
taxable income. No distributions of earnings to stockholders have been made or
are planned to be made for payment of income taxes as the Company had a loss
for income tax purposes in 1995.
(f) Statement of Cash Flows
The Company considers all highly liquid investments with remaining
maturities of 90 days or less to be cash equivalents. The Company paid
interest of $55,465, $31,090 and $17,440, for the years ended December 31,
1993, 1994 and 1995, respectively and $5,953 for the three months ended March
31, 1996. No interest was paid in the three months ended March 31, 1995. No
income taxes were paid in any of the periods presented.
F-48
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Disclosures about the Fair Value of Financial Instruments
The fair values of the Company's financial instruments (which consist of
cash, accounts receivable, accounts payable and borrowings under the line of
credit) approximate their carrying value.
(h) Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement does not apply to deferred acquisition costs, or deferred tax
assets. The Company has adopted this statement effective January 1, 1995, and
its adoption did not have a material effect on the Company's financial
statements.
(i) Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Rule10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that will be expected for the year
ending December 31, 1996.
(3) LINE OF CREDIT AGREEMENT
On April 8, 1992 the Company obtained a $1,000,000 revolving credit facility
(the "Revolver") for working capital and other general corporate purposes.
Borrowings under the Revolver bear interest at the prime rate plus 1.0% (9.5%
at December 31, 1995). Interest is payable quarterly and the Revolver is
renewable on an annual basis. Substantially all of the assets of the Company
are pledged as collateral under the Revolver and the stock of the Company is
pledged as collateral under the guarantee of the Revolver. Total borrowings
outstanding under the Revolver were $125,000 at December 31, 1995.
(4) COMMITMENTS AND CONTINGENCIES
The Company leases office space, antenna space and certain equipment under
noncancelable operating leases with remaining terms ranging from one to five
years. The following is a schedule by years of future minimum rentals due
under the leases at December 31, 1995:
<TABLE>
<S> <C>
1996................................................................. $26,407
1997................................................................. 10,560
1998................................................................. 6,600
1999................................................................. 2,640
2000................................................................. 1,540
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $13,200, $24,800 and $37,200, respectively.
F-49
<PAGE>
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In addition to the noncancelable leases above, the Company has entered into
agreements with certain area schools and colleges to use the ITFS licenses
awarded them. These contracts give the Company exclusive rights to utilize 16
channels awarded as educational frequencies to broadcast commercial
programming. The Company is obligated to reserve a certain number of hours per
week for broadcasting of educational programming for these institutions and to
provide the equipment necessary in the institutions to receive the Company's
transmission. The Company fulfills its educational programming obligation
through assignment of four channels for full-time educational programming. The
contracts provide monthly payments of $0.05 to $0.10 per subscriber per
channel. License expense for the years ended December 31, 1993, 1994 and 1995
was $44,300, $46,900 and $54,300, respectively.
The Company is involved in certain legal proceedings generally incidental to
its business. While the results of any litigation contain an element of
uncertainty, management believes that the outcome of any known or threatened
legal proceeding will not have a material effect on the Company's financial
position or results of operations.
(5): CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash and accounts receivable. The Company
has not experienced any losses on its deposits. Subscriber accounts receivable
collectibility is impacted by economic trends in each of the Company's
Markets. Such receivables are typically collected within thirty days, and the
Company has provided an allowance which it believes is adequate to absorb
losses from uncollectible accounts.
(6): SALE OF THE COMPANY
On February 6, 1996, the Company signed a definitive agreement to sell
substantially all of the assets of Madison and Beasley to TruVision Wireless,
Inc., for $6.0 million in a combination of cash and notes receivable. The
sale, which is contingent upon FCC approval, is expected to be consummated in
the second quarter of 1996.
F-50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of BarTel, Inc.:
We have audited the accompanying balance sheet of BarTel, Inc. (an Alabama
corporation) as of December 31, 1995, and the related statements of income and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BarTel, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Jackson, Mississippi,
March 26, 1996.
F-51
<PAGE>
BARTEL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Accounts receivable............................................. $27,816
Other current assets............................................ 500
-------
Total current assets.......................................... 28,316
-------
Property and equipment, net--(note 2)............................. 655
Other assets--(note 2)............................................ 38,299
-------
Total assets.................................................... $67,270
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................................ $ 1,722
Accrued expenses................................................ 3,145
-------
Total current liabilities..................................... 4,867
-------
Other liabilities--(note 2)....................................... 37,828
Deferred tax liability............................................ 4,583
-------
Total liabilities............................................... 47,278
-------
Stockholder's equity
Common Stock, $1.00 par value; 1,500 shares authorized, 1,000
shares issued and outstanding.................................. 1,000
Retained earnings............................................... 18,992
-------
Total stockholder's equity...................................... 19,992
-------
Total liabilities and stockholder's equity...................... $67,270
=======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-52
<PAGE>
BARTEL, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
------------------
<S> <C>
Revenues:
Consulting fees............................................ $150,000
--------
Total revenues........................................... 150,000
--------
Expenses:
Operating expenses......................................... 67,720
General and administrative expenses........................ 59,485
Depreciation............................................... 42
--------
Total operating expenses................................. 127,247
--------
Income from operations....................................... 22,753
Provision for income taxes--(note 2)......................... 5,039
--------
Net income................................................... 17,714
Retained earnings, beginning of year......................... 1,278
--------
Retained earnings, end of year............................... $ 18,992
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-53
<PAGE>
BARTEL, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
------------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $17,714
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 42
Provision for deferred income tax....................... 4,583
Changes in operating assets and liabilities:
Increase in accounts receivable....................... (25,100)
Increase in other assets.............................. (500)
Increase in accounts payable and accrued expenses..... 629
Increase in other liabilities......................... 37,828
-------
Cash provided by operating activities....................... 35,196
-------
Cash flows from investing activities:
Capital expenditures...................................... (697)
Deposit for FCC auction................................... (38,169)
-------
Cash used in investing activities........................... (38,866)
-------
Net decrease in cash and cash equivalents................... (3,670)
-------
Cash and cash equivalents, beginning of year................ 3,670
-------
Cash and cash equivalents, end of year...................... $ --
=======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-54
<PAGE>
BARTEL, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY--HISTORY AND ORGANIZATION
BarTel, Inc. ("BarTel" or the "Company"), an Alabama corporation, was
incorporated on April 14, 1993, to, among other things, develop, construct,
operate and maintain wireless cable systems. A wireless cable system
retransmits programming received at a head-end receiver via encryptic
microwave signals from multichannel broadcast towers to subscribers within an
approximate 40 mile radius of each tower. In February 1996, the Company's sole
stockholder signed a definitive agreement to sell the stock of BarTel to
TruVision Wireless, Inc. See note 4.
(a) Demopolis Market Area
The Company has entered into lease agreements with various educational
institutions (the "Educational Institutions") whereby it has the exclusive
rights to the excess airtime capacity of 20 Instructional Television Fixed
Service ("ITFS") wireless cable channels in the Demopolis, Alabama, market and
through agreements with various individuals, the rights to 8 Multipoint
Distribution Service ("MDS") channels in the same area. Through the lease
agreements with the Educational Institutions, BarTel agreed to assist in
obtaining government grants to fund equipment and construction costs, and to
operate and maintain, at its own cost, a wireless cable system which would
broadcast commercial and educational programming to the Educational
Institutions free of charge.
In October 1993, the Educational Institutions pooled certain ITFS licenses
awarded by the FCC into a single entity, Black Warrior Telecommunications
Consortium (the "Consortium") and agreed to provide the funding for
constructing and equipping the wireless cable system with BarTel operating and
maintaining the system. The Consortium permitted BarTel the right to use the
equipment to operate a commercial wireless system, but the equipment remains
the property of the educational institutions. The Consortium has also allowed
BarTel to combine the ITFS and MDS channels to enhance the wireless cable
system in order to attract potential subscribers. See note 3.
The Company has successfully tested its broadcasting system to limited test
sites in the Demopolis area but has not solicited or installed any customers.
(b) Eutaw/Tuscaloosa Market Area
The Company also has agreements with various educational and health-care
service institutions (the "Institutions") in the Eutaw/Tuscaloosa, Alabama,
broadcast market area. Under these agreements, BarTel has exclusive rights to
the excess airtime capacity of 20 ITFS wireless cable channels of which the
individual Institutions hold licenses. The Company is required to assist in
obtaining government grants to fund the equipment and construction of an ITFS
system, as well as operate and maintain the system, at its own cost. The
equipment will then become the property of the individual Institutions with
BarTel maintaining the right to its use for broadcasting programming to the
general public. See note 3.
(c) Gadsden/Anniston Market Area
The Company has entered into an agreement with Gadsden Wireless Cable
Corporation, Inc. ("Gadsden") whereby it will act as a consultant and
contractor, from development through operation, for purposes of establishing a
wireless cable system in the Gadsden/Anniston, Alabama, broadcast market area.
Under this agreement, Gadsden will fully fund all expenses related to this
endeavor including consulting fees to be paid to BarTel. Upon successful
completion of this wireless cable system in accordance with the agreement,
BarTel will be granted an amount of stock in Gadsden equivalent to that of its
two owners/shareholders. See notes 3 and 4.
F-55
<PAGE>
BARTEL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company acts as an agent for Gadsden for purposes of bidding at an FCC
auction on the rights to acquire several MDS channel licenses. Gadsden has
advanced the Company the deposit necessary to bid on these licenses.
(d) Risks and Other Factors
The Company has not marketed its product to potential customers in the
Demopolis area and the construction of the wireless cable system transmission
facilities has not commenced in the Eutaw/Tuscaloosa market area. The Company
expects to incur significant costs in advertising to the Demopolis market area
and in increased manpower to handle a customer base. Additionally, the cost of
developing a system in the Eutaw/Tuscaloosa market area will require outside
financing sources. The growth of the Company's business also requires
substantial investment on a continuing basis to finance subscriber premises
equipment. There can be no assurance that the Company will generate revenues
or obtain other sources of financing sufficient to cover these costs and
achieve positive cash flow. See note 4.
The Company is dependent on leases with third parties for all of its
wireless cable channel rights. Most of these licenses are granted for a term
of 10 years and are subject to renewal by the lessor. There can be no
assurance that the lessors will grant a license renewal request. The use of
wireless cable channels by the license holders is subject to regulation by the
FCC and the Company is dependent upon the continuing compliance of channel
license holders with applicable regulations. The termination or non-renewal of
a channel lease or of a channel license would result in the Company being
unable to deliver programming on the channels authorized pursuant thereto. In
addition, the termination, forfeiture, revocation or failure to renew or
extend an authorization or license held by the Company's lessors could have a
material adverse effect on the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
Revenue recognized to date is for consulting work performed by the Company's
employees for the benefit of the holders of the channel licenses described in
Note 3 and related to the design and construction of the broadcast equipment
to be leased by the Company. This revenue is recognized as the service is
provided and the holders are billed in the month the service is performed.
(b) Statement of Cash Flows
The Company considers all demand and interest-bearing accounts to be cash
equivalents. In 1995, income taxes of $240 were paid. No interest was paid in
1995.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is recorded on the
straight-line basis for financial reporting purposes. Costs incurred for
repair and maintenance of property and equipment are charged to expense when
incurred. All equipment is depreciated over an estimated useful life of 7
years.
(d) Other Assets and Liabilities
Other assets and other liabilities consist of a deposit to the FCC for the
wireless cable auction and a liability for the same amount as this deposit was
advanced to the Company by Gadsden.
F-56
<PAGE>
BARTEL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(e) Income Taxes
Income taxes are provided using an asset and liability approach. The current
provision for income taxes represents actual or estimated amounts payable on
tax returns to be filed for each year. Deferred tax assets and liabilities are
recorded for the estimated future tax effects of temporary differences between
the tax basis of assets and liabilities and amounts reported in the balance
sheet. The Company pays taxes on the cash basis. Accordingly, deferred tax
assets and liabilities have been recorded for the difference between the cash
basis and accrual basis for the Company's yearly activity. As of December 31,
1995, the Company had a deferred income tax liability of $4,583.
(f) Disclosure about the Fair Value of Financial Instruments
The fair value of the Company's financial instruments (which consists of
accounts receivable and payable) approximate their carrying amounts.
(3) LICENSE CONTRACTS
(a) Demopolis Market Area:
BLACK WARRIOR TELECOMMUNICATIONS CONSORTIUM
In September 1994, the Company was awarded a contract with the Consortium to
act as a "facilitator" in the construction, operation and maintenance of a
wireless cable transmission facility. Under the agreement, the Company will be
paid a monthly fee for services as well as reimbursements for expenses related
to construction of the facility. The Educational Institutions have leased the
Company exclusive rights to the excess airtime under the 20 ITFS licenses
awarded them. The Company is allowed to use the Consortium system, equipment
and leased tower to operate a commercial wireless cable operation. In return
for the use of the excess airtime (that portion of channel's airtime available
for commercial broadcasting according to FCC regulations) under each of these
channel licenses, the Company agrees to pay the Consortium 20% of the
Company's annual gross subscription revenues received from residential and
commercial customers. The Consortium also granted BarTel the right to link
other MDS channels to the system in order to enhance the offering of programs
and to attract potential subscribers. The Company will pay all costs
associated with the operation and maintenance of the transmission facility as
well as all reception equipment required for the general public or any
Consortium members to view the programs to be transmitted. For the ITFS
channels, the Company agrees to reserve for each channel licensed a minimum of
20 hours of airtime each week for broadcasting educational programming. The
terms of the ITFS channel leases are 10 years, running concurrent with the
licenses, commencing June 29, 1994. All leases are renewable at the Company's
option and with approval from the FCC.
POWELL, HYATT & CAROLINE WIRELESS CABLE, INC.
On May 22, 1994, the Company entered into an agreement with Louis F. Powell,
Arvol M. Hyatt, and Caroline Wireless Cable, Inc. ("Caroline"). Powell and
Hyatt are the holders of separate MDS channel licenses granted by the FCC and
authorizing the licensees to construct a transmission facility in Demopolis,
Alabama. Caroline had entered into a service agreement with both Powell and
Hyatt for use of these licenses in exchange for constructing the facility and
providing royalties upon commencement of commercial operations. Caroline also
entered into an agreement with the Wilcox County Board of Education
("Wilcox"), a holder of an ITFS license, for the use of excess channel
capacity. Under that contract, Caroline was to construct, maintain and operate
a transmission facility and pay royalties to Wilcox once subscribers to a
commercial wireless cable system were installed.
F-57
<PAGE>
BARTEL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Caroline assigned BarTel all of its rights to the contracts with Powell,
Hyatt and Wilcox. The Company agreed to complete the Powell license to
construct the facility and use reasonable efforts to assume and carry out the
obligations to Wilcox County. In the event that the Powell and Hyatt licenses
are implemented and that the Wilcox application to construct and operate a
transmission facility is successful, the Company agrees to assume the same
obligations in respect to the various agreements listed above. The term of the
Wilcox agreement is for two years, running concurrent with the license date,
with four automatically renewable terms of two years unless either party gives
notice of cancellation for cause.
In addition, Powell and Hyatt agreed to transfer their licenses to the
Company for $.10 per channel per month per commercial subscriber with payment
to begin after BarTel has reached 4,000 subscribers. Payment will continue for
40 months or until the cumulative payments reach $100,000. If, at the end of
this term, the aggregate payments do not exceed $100,000, the monthly payments
are to continue until the aggregate is $100,000. If the Company has less than
4,000 subscribers, it may withhold payment. However, if after three years
BarTel does not have 4,000 subscribers it must begin monthly payments of $.10
per customer until the aggregate of payments exceeds $100,000.
At no time will the Company be obligated to pay after reaching payments of
$100,000.
EUTAW/TUSCALOOSA MARKET AREA:
On October 12, 1992, Stuart Barron, sole stockholder of BarTel, contracted
with five institutions in separate agreements. The Institutions had applied
for licenses from the FCC to build and operate ITFS channels in the Eutaw,
Alabama area. The Company reached agreements with each institution to have
exclusive rights to the excess channel capacity on these ITFS channels. The
initial term of the agreements is 10 years from the date of the FCC grant of
licenses to the Institutions.
Under these agreements, the Company is to prepare applications for a federal
grant on behalf of the Institutions which will be used to "procure, arrange
for, and pay all costs associated with engineering, purchasing, constructing
and installing ITFS equipment which shall become the property of the
institution." BarTel must pay all costs to provide suitable space and to
operate and maintain the ITFS equipment so that it meets FCC standards. The
Company may, at its own expense, install reception equipment necessary for the
general public to view the programs transmitted.
The Institutions have leased excess capacity time to BarTel and have
reserved 20 hours per channel per week for educational programming. The
contract also allows the institution to reserve an additional 20 hours each
week. Airtime is to be available free of charge to the Institutions.
(b) Gadsden/Anniston Market Area:
GADSDEN WIRELESS CABLE CORPORATION, INC.
On June 17, 1995, the Company entered into a service agreement with Gadsden.
Under this agreement, the Company will assist in assessing the needs of
Gadsden to establish a 20-channel wireless cable system in the
Gadsden/Anniston, Alabama market area and act as a consultant for completing
the project, including applying for FCC licenses.
The Company will acquire and purchase on behalf of Gadsden all materials and
equipment needed to construct the system and arrange for necessary labor to
perform the construction work. It is
F-58
<PAGE>
BARTEL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
also required to determine the work to be done and supervise all activities to
meet FCC requirements for placing the system in operation.
Gadsden agrees to fully fund the project, including the prompt payment of
all labor and materials upon requisition by the Company and approval by
Gadsden. Gadsden will pay the Company $8,000 per month and out of pocket
expenses, up to $1,000 per month, from the execution of this agreement until
the project broadcasts a test signal, or 12 months, whichever occurs first. If
the project is not operational after 12 months, the project may be continued
if it is determined that it is still viable. However, monthly fees paid to the
Company will decline by $1,000 for each month after the twelfth month.
If the Company is successful in placing a 20-channel wireless cable system
into operation, the two shareholders of Gadsden will transfer to BarTel an
amount of stock in Gadsden equal to that which they themselves hold. See Note
4.
4 SUBSEQUENT EVENT
On February 20, 1996, the Company's sole stockholder sold his stock in the
Company to TruVision Wireless, Inc. ("TruVision") for $1.7 million cash and a
promissory note for $652,000 subject to the terms of the purchase agreement.
TruVision expects to renegotiate the obligations under the leases discussed in
Note 3 to (1) reduce the payments to the Consortium and (2) remove the
provisions for the Company obtaining government grants on behalf of the
Consortium. TruVision also anticipates to renegotiate the lease agreements
with the four Eutaw ITFS groups and to transfer ownership of transmission
equipment from the Consortium to TruVision.
Also in February 1996, TruVision entered into a purchase and sale agreement
with Gadsden pursuant to which TruVision will acquire assets that include the
rights to the 20-channel wireless cable system that Gadsden had planned to
establish with the Company's assistance.
F-59
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
------------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 11
Formation of the Company.................................................. 21
Formation of TruVision.................................................... 22
The TruVision Transaction................................................. 22
Acquisitions.............................................................. 23
Use of Proceeds........................................................... 24
Capitalization............................................................ 25
Unaudited Pro Forma Condensed Combined Financial Information.............. 26
Selected Historical Financial Data........................................ 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 35
Business.................................................................. 45
Wireless Cable Industry................................................... 65
Management................................................................ 74
Certain Transactions...................................................... 83
Principal Stockholders.................................................... 84
Description of Certain Indebtedness....................................... 86
Description of Notes...................................................... 86
Description of Capital Stock.............................................. 120
United States Federal Income Tax Matters.................................. 123
Underwriting.............................................................. 127
Legal Matters............................................................. 128
Experts................................................................... 128
Available Information..................................................... 129
Index to Financial Statements............................................. F-1
</TABLE>
PROSPECTUS
$
WIRELESS ONE, INC.
% SENIOR DISCOUNT NOTES DUE 2006
WIRELESS ONE(SM)
CHASE SECURITIES INC.
BT SECURITIES CORPORATION
GERARD KLAUER MATTISON & CO., LLC
PRUDENTIAL SECURITIES INCORPORATED
,1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 60,345
NASD filing fee.................................................. 18,000
Rating agency fee................................................ 20,000
Blue sky fees and expenses....................................... 15,000
Printing and engraving expenses.................................. 600,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 150,000
Trustee fees..................................................... 10,000
Miscellaneous.................................................... 776,655
----------
Total.......................................................... $2,000,000
==========
</TABLE>
The Registrant will bear all of the foregoing fees and expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits, or proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with
the defense or settlement of such action, and the statute requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, by-laws, disinterested director vote, stockholder vote,
agreement or otherwise. Article IX of the Registrant's By-laws requires
indemnification to the fullest extent permitted by Delaware law. In addition,
the Registrant will enter into indemnity agreements with its directors (a form
of which is filed as Exhibit 10.6 to this Registration Statement), which
obligate the Registrant to indemnify such directors to the fullest extent
permitted by the DGCL. The Registrant also intends to obtain, prior to the
effective date of this Registration Statement, officers' and directors'
liability insurance which insures against liabilities that officers and
directors of the Registrant may incur in such capacities.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
transaction from which the director derives an improper personal benefit, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for improper payment of dividends or
redemptions of shares or (iv) for any breach of a director's duty of loyalty
to the company or its stockholders. Article VI of the Registrant's Certificate
of Incorporation includes such a provision.
II-1
<PAGE>
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
to this Registration Statement which provides for indemnification of the
directors and officers of the Registrant signing this Registration Statement
and certain controlling persons of the Registrant against certain liabilities,
including those arising under the Securities Act of 1933, as amended (the
"Securities Act"), in certain instances by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In the Heartland Transaction, the Registrant issued shares of Common
Stock to the following persons in exchange for shares of common stock of Old
Wireless One:
<TABLE>
<CAPTION>
INVESTORS SHARES
--------- ---------
<S> <C>
The Lamar Corporation.............................................. 341,517
Hans Sternberg..................................................... 281,802
Hendrix Family Trust............................................... 245,692
KBBS, Inc.......................................................... 163,795
Wireless Investment Co............................................. 163,795
Gulf Coast Services, Inc........................................... 163,795
Otelco Investments, LLC............................................ 163,795
EATEL, Inc......................................................... 149,053
William C. Norris, Jr.............................................. 102,372
Robert A. Hart..................................................... 102,372
Fort Bend Telephone Co............................................. 81,897
Columbia Cellular, Inc............................................. 81,897
Hart Wireless LTD Partnership...................................... 51,595
G.T. Investments, Inc.............................................. 45,044
Sean Reilly........................................................ 15,636
Chase Manhattan Capital Corporation................................ 2,413,656
Premier Venture Capital Corporation................................ 754,268
Advantage Capital Partners Limited Partnership..................... 452,561
Advantage Capital Partners II Limited Partnership.................. 150,853
First Commerce Capital, Inc........................................ 150,854
Wireless Investment Company........................................ 150,854
Concord Telephone.................................................. 75,427
Ronald L. Daniels.................................................. 75,427
OPCO Senior Executive Investment Partnership, L.P.................. 45,256
R.C. Corr & Doris Corr, Joint Survivors............................ 30,171
Deborah Sternberg.................................................. 12,672
Donna Sternberg.................................................... 12,672
Erich Sternberg.................................................... 12,672
Julie Sternberg.................................................... 12,672
Mark Sternberg..................................................... 12,672
Insa Abraham....................................................... 12,672
Allyn Madere....................................................... 3,017
Arthur G. Scanlan II............................................... 3,017
Paul Boudreaux..................................................... 3,017
---------
Total............................................................ 6,538,467
=========
</TABLE>
The Registrant also issued 3,461,538 shares of Common Stock and the
Heartland Notes to certain subsidiaries of Heartland Wireless Communications,
Inc. in connection with the Heartland Transaction.
The Registrant also issued warrants to GKM to purchase 300,000 shares of
Common Stock in connection with the Heartland Transaction.
II-2
<PAGE>
(b) In the TruVision Transaction, the Registrant will issue shares of Common
Stock to the following persons in exchange for shares of common stock of
TruVision
<TABLE>
<CAPTION>
INVESTORS SHARES
--------- ---------
<S> <C>
Mississippi Wireless TV, L.P. ..................................... 1,760,000
Chase Venture Capital Associates, L.P. ............................ 1,569,333
Vision Communications, Inc. ....................................... 180,000
VanCom, Inc. ...................................................... 44,000
---------
Total.............................................................. 3,553,333
=========
</TABLE>
(c) The Company issued 48,752 shares of Common Stock to Volunteer Wireless,
Inc. within the past 12 months.
Except as set forth above, the Registrant has not sold any securities.
All transactions described above were effected in reliance upon the
exemption from the registration requirements of the Securities Act contained
in Section 4(2) of the Securities Act and Regulation D promulgated thereunder
on the basis that such transactions did not involve any public offering.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement between the Registrant and the
Underwriters*
2.1 TruVision Merger Agreement among the Registrant, TruVision and
Wireless One MergerSub, Inc., dated April 25, 1996*
3.1 Amended and Restated Certificate of Incorporation of the Registrant+++
3.2 Bylaws of the Registrant+++
4.1 Indenture between the Registrant and United States Trust Company of
New York, as Trustee dated October 24, 1995+++
4.2 Warrant Agreement between the Registrant and United States Trust
Company of New York, as Warrant Agent dated October 24, 1995+++
4.3 Escrow and Disbursement Agreement between the Registrant and Bankers
Trust Corporation, as Escrow Agent dated October 24, 1995+++
4.4 Unit Agreement between the Registrant and United States Trust Company
of New York, as Unit Agent dated October 24, 1995+++
4.5 Form of Supplemental Indenture between the Registrant and United
States Trust Company of New York as Trustee*
4.6 Form of Indenture between the Registrant and United States Trust
Company of New York as Trustee*
5.1 Opinion of Kirkland & Ellis (including the consent of such firm) as to
the validity of the notes being offered*
8.1 Opinion of Kirkland & Ellis as to certain tax matters**
10.1 Contribution Agreement and Plan of Merger among, inter alia, the
Registrant, Old Wireless One and its stockholders and Heartland^ dated
October 18, 1995+++
10.2 Escrow Agreement among the parties to Exhibit 2.1 dated October 24,
1995+++
10.3 1995 Long-Term Performance Incentive Plan of the Registrant++
10.4 1995 Director's Stock Option Plan of the Registrant++
10.5 Warrant Agreement between the Registrant and GKM (including form of
warrant certificate) dated October 18, 1995+++
10.6 Form of Amended and Restated Registration Rights Agreement among the
Registrant, Heartland and certain stockholders+*
10.7 Form of Amended and Restated Stockholders Agreement among the
Registrant, and certain stockholders+*
10.8 Standard forms of MDS License Agreement of the Registrant+++
10.9 Standard forms of ITFS License Agreement of the Registrant+++
10.10 Amended and Restated Employment Agreement between the Registrant and
Hans J. Sternberg dated ++
10.11 Amended and Restated Employment Agreement between the Registrant and
Sean E. Reilly dated ++
10.12 Amended and Restated Employment Agreement between the Registrant and
William C. Norris, Jr. dated ++
10.13 Employment Agreement between the Registrant and Bill R. Byer dated
10.14 Employment Agreement between the Registrant and Henry M. Burkhalter
dated
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges of the
Company**
21.1 Subsidiaries of the Registrant*
23.1 Consent of Kirkland & Ellis (included in Exhibit 5.1)*
23.2 Consent of KPMG Peat Marwick LLP (Dallas, Texas)**
23.3 Consent of KPMG Peat Marwick LLP (New Orleans, Louisiana)**
23.4 Consent of Arthur Andersen & Co. SC (Jackson, Mississippi)**
24.1 Powers of Attorney***
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
*** Previously filed.
+ Management contract or compensatory plan or arrangement.
++Incorporated herein by reference to the exhibit to the Registrant's
Registration Statement on Form S-1 (Registration Number 33-94942) as
declared effective by the Commission on October 18, 1995.
II-4
<PAGE>
(b) Financial Statement Schedules
Independent Auditors' Report on Financial Statement Schedule and Consent
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in such Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Baton Rouge, State of Louisiana, on
the 17th day of July, 1996.
Wireless One, Inc.
By:
*
___________________________________
HENRY M. BURKHALTER
PRESIDENT AND VICE CHAIRMAN OF THE
BOARD
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on the 17th day of July, 1996, by the following
persons in the capacities indicated:
SIGNATURE TITLE
Chairman of the Board
*
____________________________________
HANS J. STERNBERG
Director
*
____________________________________
HENRY M. BURKHALTER
Chief Executive Officer and Director
* (Principal Executive Officer)
____________________________________
SEAN E. REILLY
Executive Vice President--Operations
* (Principal Financial and Accounting
____________________________________ Officer)
ALTON C. RYE
Director
____________________________________
WILLIAM K. LUBY
Director
*
____________________________________
ARNOLD L. CHAVKIN
Director
*
____________________________________
DANIEL L. SHIMER
Director
*
____________________________________
J.R. HOLLAND, JR.
II-6
<PAGE>
_____________________________________ Director
DAVID E. WEBB
/s/ Michael C. Ellis
*By:
_________________________________
MICHAEL C. ELLIS,
AS ATTORNEY-IN-FACT
II-7
<PAGE>
SCHEDULE II
WIRELESS ONE, INC.
VALUATION AND QUALIFYING ACCOUNTS
THE PERIOD FROM FEBRUARY 4, 1993 (INCEPTION)
THROUGH DECEMBER 31, 1993 AND THE
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ---------- ---------
BALANCE AT CHANGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995
Deducted in balance sheet from
subscription receivables:
Allowance for doubtful accounts.. $ 4,000 $196,281 $126,640 $73,641
------- -------- -------- -------
Deducted in balance sheet from
leased license investment:
Amortization of leased license
investment: 230,902 317,381 -- 548,283
------- -------- -------- -------
Deducted in balance sheet from
other assets:
Amortization of debt issuance
costs........................... -- 163,926 -- 163,926
------- -------- -------- -------
1994
Deducted in balance sheet from
subscription receivables:
Allowance for doubtful accounts.. $ -- $ 54,605 $ 50,608 $ 4,000
------- -------- -------- -------
Deducted in balance sheet from
leased license investment:
Amortization of leased license
investment...................... 4,116 226,786 -- 230,902
------- -------- -------- -------
Deducted in balance sheet from
other assets:
Amortization of debt issuance
costs........................... -- -- --
------- -------- -------- -------
1993
Deducted in balance sheet from
subscription receivables:
Allowance for doubtful accounts.. $ -- $ -- $ -- $ --
------- -------- -------- -------
Deducted in balance sheet from
leased license investment:
Amortization of leased license
investment...................... -- 4,116 -- 4,116
------- -------- -------- -------
Deducted in balance sheet from
other assets:
Amortization of debt issuance
costs........................... -- -- -- --
------- -------- -------- -------
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.
------- ---------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement between the Registrant and the
Underwriters*
2.1 TruVision Merger Agreement among the Registrant, TruVision and
Wireless One MergerSub, Inc., dated April 25, 1996*
3.1 Amended and Restated Certificate of Incorporation of the
Registrant+++
3.2 Bylaws of the Registrant+++
4.1 Indenture between the Registrant and United States Trust
Company of New York, as Trustee dated October 24, 1995+++
4.2 Warrant Agreement between the Registrant and United States
Trust Company of New York, as Warrant Agent dated October 24,
1995+++
4.3 Escrow and Disbursement Agreement between the Registrant and
Bankers Trust Corporation, as Escrow Agent dated October 24,
1995+++
4.4 Unit Agreement between the Registrant and United States Trust
Company of New York, as Unit Agent dated October 24, 1995+++
4.5 Form of Supplemental Indenture between the Registrant and
United States Trust Company of New York as Trustee*
4.6 Form of Indenture between the Registrant and United States
Trust Company of New York as Trustee*
5.1 Opinion of Kirkland & Ellis (including the consent of such
firm) as to the validity of the notes being offered*
8.1 Opinion of Kirkland & Ellis as to certain tax matters**
10.1 Contribution Agreement and Plan of Merger among, inter alia,
the Registrant, Old Wireless One and its stockholders and
Heartland dated October 18, 1995+++
10.2 Escrow Agreement among the parties to Exhibit 2.1 dated October
24, 1995+++
10.3 1995 Long-Term Performance Incentive Plan of the Registrant++
10.4 1995 Director's Stock Option Plan of the Registrant++
10.5 Warrant Agreement between the Registrant and GKM (including
form of warrant certificate) dated October 18, 1995+++
10.6 Form of Amended and Restated Registration Rights Agreement
among the Registrant, Heartland and certain stockholders+*
10.7 Form of Amended and Restated Stockholders Agreement among the
Registrant, and certain stockholders+*
10.8 Standard forms of MDS License Agreement of the Registrant+++
10.9 Standard forms of ITFS License Agreement of the Registrant+++
10.10 Amended and Restated Employment Agreement between the
Registrant and Hans J. Sternberg dated ++
10.11 Amended and Restated Employment Agreement between the
Registrant and Sean E. Reilly dated ++
10.12 Amended and Restated Employment Agreement between the
Registrant and William C. Norris, Jr. dated ++
10.13 Employment Agreement between the Registrant and Bill R. Byer
dated
10.14 Employment Agreement between the Registrant and Henry M.
Burkhalter dated
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges
of the Company**
21.1 Subsidiaries of the Registrant*
23.1 Consent of Kirkland & Ellis (included in Exhibit 5.1)*
23.2 Consent of KPMG Peat Marwick LLP (Dallas, Texas)**
23.3 Consent of KPMG Peat Marwick LLP (New Orleans, Louisiana)**
23.4 Consent of Arthur Andersen & Co. SC (Jackson, Mississippi)**
24.1 Powers of Attorney***
</TABLE>
- -------
* To be filed by amendment.
** Filed herewith.
*** Previously filed.
+ Management contract or compensatory plan or arrangement.
++Incorporated herein by reference to the exhibit to the Registrant's
Registration Statement on Form S-1 (Registration Number 33-94942) as
declared effective by the Commission on October 18, 1995.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF KIRKLAND & ELLIS]
July 18, 1996
Wireless One, Inc.
11301 Industriplex Boulevard
Suite 4
Baton Rouge, Louisiana 70809-4115
Gentlemen:
We have acted as counsel to Wireless One, Inc., a Delaware corporation
("Wireless One") in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), of a registration statement on Form
S-1 (Registration No. 333-5109) and the amendment thereto (the "Registration
Statement") relating to the senior discount notes due 2006 (the "Notes") to be
issued under that certain indenture to be entered into by and between Wireless
One and the United States Trust Company of New York, as trustee.
As such counsel, we have reviewed or participated in the preparation of the
Registration Statement and other agreements and documents relating to the
transactions therein contemplated, and we have examined and relied upon
originals (or copies certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. Furthermore, in
preparing this opinion we have relied on the certificate provided to us by
Wireless One, and attached hereto as Exhibit A, with respect to certain factual
matters.
The opinion set forth herein is based on and limited to the federal laws of
the United States. This opinion is based on the laws, regulations, rulings and
decisions now in effect, all of which are subject to change or different
interpretation, perhaps with retroactive effect.
Based on the foregoing, we are of the opinion that the statements contained
in the prospectus constituting part of Amendment No. 1 to the Registration
Statement (the "Prospectus") under the heading "United States Federal Income Tax
Matters," to the extent that they constitute matters of law or legal conclusions
with respect thereto, are correct in all material respects.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and the use of our name in the Prospectus in the first
sentence under the caption
<PAGE>
"United States Federal Income Tax Matters." In giving such consent, we do not
thereby concede that we are within the category of persons whose consent is
required under Section 7 of the Securities Act and the regulations promulgated
by the Commission thereunder.
Very truly yours,
KIRKLAND AND ELLIS
By:__________________________________
<PAGE>
EXHIBIT A
WIRELESS ONE, INC.
------------------
The undersigned acknowledges that Kirkland & Ellis has acted as counsel to
Wireless One, Inc., a Delaware corporation ("Wireless One"), in connection with
the preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, of a registration statement on Form S-1
(Registration No. 333-5109) relating to the senior discount notes due 2006 (the
"Notes") to be issued under that certain indenture to be entered into by and
between Wireless One and the United States Trust Company of New York, as
trustee.
The undersigned, as an officer of and on behalf of Wireless One, hereby
certifies to Kirkland & Ellis, as of the date hereof, that:
1. Based on all facts and circumstances as of the issue date, it is
significantly more likely that payments will be made according to the Notes'
stated payment schedule than that the Notes will be redeemed before their
scheduled maturity.
2. The interest that accrues and is payable semi-annually on the Notes
beginning on __________, 2002 will be computed at a rate that is approximately
equal to, but does not exceed, the overall yield on the Notes (determined by
assuming that the Notes remain outstanding until their final maturity date).
3. The redemption price of the Notes on each optional redemption date will
be equal to or greater than the sum of (i) the adjusted issue price (as defined
in Section 1272(a)(4) of the Internal Revenue Code of 1986, as amended (the
"Code")) of the Notes at the start of the accrual period in which such optional
redemption date occurs plus (ii) the original issue discount (as defined in
Section 1273 of the Code) that has accrued on the Notes from the beginning of
such accrual period through such optional redemption date.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
_________, 1996.
WIRELESS ONE, INC.
By: _________________
Name: Michael C. Ellis
Title: Vice President
<PAGE>
EXHIBIT 12.1
WIRELESS ONE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 4,
1993 YEAR YEAR THREE MONTHS
(INCEPTION) TO ENDED ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------------------
1993 1994 1995 1995 1996
-------------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Earnings
Net Loss.............. $(162,610) $(2,261,813) $(7,692,474) $(703,293) $(6,079,832)
Add:
Provision for income
tax benefit........ -- -- -- -- --
Fixed charges........... 5,743 238,781 4,257,967 127,420 5,151,848
--------- ----------- ----------- --------- -----------
Earnings as
adjusted(A)............ $(156,867) $(2,023,032) $(3,434,507) $(575,873) $ (927,984)
========= =========== =========== ========= ===========
Fixed charges
Interest expense...... $ 411 $ 152,460 $ 4,070,184 $ 114,090 $ 5,009,893
Rents under leases
representative of an
interest factor(1)... 5,332 86,321 187,783 13,330 141,955
--------- ----------- ----------- --------- -----------
Fixed charges as
adjusted(B)............ $ 5,743 $ 238,781 $ 4,257,967 $ 127,420 $ 5,151,848
========= =========== =========== ========= ===========
Ratio of earnings to
fixed charges (A)
divided by (B)......... -- (2) -- (2) -- (2) -- (2) -- (2)
========= =========== =========== ========= ===========
</TABLE>
- --------
(1) Management of Wireless One, Inc. believes approximately one-third of
rental and lease expense is representative of the interest component of
rent expense.
(2) For the period from February 4, 1993 (inception) to December 31, 1993, the
years ended December 31, 1994 and 1995 and the three months ended March
31, 1995 and 1996, earnings were inadequate to cover fixed charges by
$162,810, $2,261,813, $7,692,474, $703,293, and $6,079,832, respectively.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Wireless One, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Historical Financial Data" and "Experts"
in the prospectus.
Our report dated June 20, 1995 contains an explanatory paragraph that refers
to a business combination in 1994 accounted for as a purchase involving assets
comprising a portion of Heartland Division. As a result of the acquisition,
financial information of Heartland 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.
KPMG Peat Marwick LLP
Dallas, Texas
July 15, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT
The Board of Directors
Wireless One, Inc.
The audits referred to in our report dated March 22, 1996, included the
related financial statement schedule for the period from February 3, 1993
(inception) through December 31, 1993 and the years ended December 31, 1994
and 1995, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Experts", "Summary Consolidated Financial and
Operating Data" and "Selected Historical Financial Data" in the prospectus.
KPMG Peat Marwick LLP
New Orleans, Louisiana
July 15, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on the financial statements of TruVision Wireless, Inc., on the
combined financial statements of Madison Communications, Inc. and Beasley
Communications, Inc., and on the financial statements of BarTel, Inc. as of
the dates and for the periods indicated therein, and to all other references
to our firm included in or made a part of this Registration Statement.
Arthur Andersen LLP
Jackson, Mississippi,
July 15, 1996.
1
