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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[X] Preliminary proxy statement
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Wireless One, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Wireless One, Inc.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Not applicable
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(2) Aggregate number of securities to which transaction applies:
Not applicable
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1/
Not applicable
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(4) Proposed maximum aggregate value of transaction:
Not applicable
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[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
- ----------------------
/1/ Set forth the amount on which the filing fee is calculated and state how
it was determined.
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WIRELESS ONE, INC.
11301 INDUSTRIPLEX, SUITE 4
BATON ROUGE, LOUISIANA 70809-4115
TELEPHONE: (504) 293-5000
_______, 1996
Dear Wireless One Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of Wireless One, Inc., which is currently scheduled to be held on
_______, 1996, at 10:00 a.m. at the Company's corporate headquarters, 11301
Industriplex, Suite 4, Baton Rouge, Louisiana 70809-4115.
At the meeting, we will report to you on current business conditions
and recent developments at Wireless One. Members of the Board of Directors and
all of our executive officers will be present to discuss the affairs of Wireless
One with you.
The Company has enclosed a copy of its 1995 Annual Report for the
fiscal year ended December 31, 1995 and its Quarterly Report for the fiscal
quarter ended March 31, 1996 with this letter, notice of annual meeting of
stockholders and proxy statement. If you would like another copy of the 1995
Annual Report or the Quarterly Report, please contact Michael Ellis, Vice
President -- Controller, at Wireless One, and you will be sent one.
It is important that your shares be represented and voted at the
Annual Meeting, regardless of the size of your holdings. Accordingly, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed envelope to ensure your shares will be represented. If you do attend
the Annual Meeting, you may, of course, withdraw your proxy should you wish to
vote in person.
On behalf of the Board of Directors and management of Wireless One, I
would like to thank you for choosing to invest in our Company. We are very
excited about the future of the Company and are looking forward to our first
annual meeting since the successful completion of our initial public offering in
October 1995.
Sincerely,
Hans J. Sternberg
Chairman of the Board
<PAGE>
WIRELESS ONE, INC.
11301 INDUSTRIPLEX, SUITE 4
BATON ROUGE, LOUISIANA 70809-4115
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
________, 1996
The Annual Meeting of Stockholders of Wireless One, Inc., a Delaware
corporation (the "Company"), is currently scheduled to be held on ______, 1996,
at 10:00 a.m. (the "Annual Meeting"), at the Company's corporate headquarters,
11301 Industriplex, Suite 4, Baton Rouge, Louisiana, for the purpose of:
(1) Electing three (3) Directors to serve until the annual meeting of
stockholders in 1999 and until their successors are duly elected
and qualified;
(2) Approving the issuance of up to 3,553,333 shares of the Company's
common stock, par value $.01 per share;
(3) Approving the appointment of the independent certified public
accountants of the Company for the fiscal year ending December
31, 1996; and
(4) Transacting such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on ______,
1996, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting or any adjournment or postponement
thereof.
By Order of the Board of Directors
William C. Norris, Jr.
Secretary
________, 1996
The Company's 1995 Annual Report for the fiscal year ended December
31, 1995 and its Quarterly Report for the fiscal quarter ended March 31, 1996
are enclosed.
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EVEN IF YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN,
DATE AND MAIL THE ENCLOSED PROXY CARD. A SELF-ADDRESSED ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN
PERSON IF THEY SO DESIRE.
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<PAGE>
WIRELESS ONE, INC.
11301 INDUSTRIPLEX, SUITE 4
BATON ROUGE, LOUISIANA 70809-4115
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON _______, 1996
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Wireless One, Inc., a Delaware corporation (the
"Company"), of proxies to be used at the annual meeting of stockholders of the
Company currently scheduled to be held on ______, 1996 (the "Annual Meeting").
This Proxy Statement and the related proxy card are being mailed to holders of
the Company's common stock, par value $.01 per share (the "Common Stock"),
commencing on or about ______, 1996.
If the enclosed proxy card is executed and returned, the shares
represented by it will be voted as directed on all matters properly coming
before the Annual Meeting for a vote. Returning your completed proxy will not
prevent you from voting in person at the Annual Meeting should you be present
and desire to do so. In addition, the proxy may be revoked at any time prior to
its exercise either by giving written notice to the Company or by submission of
a later-dated proxy.
Stockholders of record of the Company's Common Stock at the close of
business on _______, 1996 will be entitled to vote at the Annual Meeting. On
that date, the Company had outstanding ________ shares of Common Stock. A list
of the Company's stockholders will be open to the examination of any
stockholder, for any purpose germane to the meeting, at the Company's
headquarters for a period of ten days prior to the meeting. Each share of
Common Stock entitles the holder thereof to one vote on all matters submitted to
stockholders. At the Annual Meeting, inspectors of election shall determine the
presence of a quorum and shall tabulate the results of the stockholders' voting.
The holders of a majority of the total number of outstanding shares of Common
Stock entitled to vote must be present in person or by proxy to constitute the
necessary quorum for any business to be transacted at the Annual Meeting. In
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), properly executed proxies marked "abstain" as well as proxies held in
street name by brokers that are not voted on all proposals to come before the
Annual Meeting ("broker non-votes"), will be considered "present" for the
purposes of determining whether a quorum has been achieved at the Annual
Meeting.
The three nominees for Director receiving the greatest number of votes
cast at the Annual Meeting in person or by proxy shall be elected.
Consequently, any shares of Common Stock present in person or by proxy at the
Annual Meeting but not voted for any reason have no impact in the election of
Directors, except to the extent that the failure to vote for an individual may
result in another individual receiving a larger number of votes. All other
matters to be considered at the Annual Meeting require for approval the
favorable vote of a majority of the shares entitled to vote at the meeting
either in person or by proxy. Stockholders have no right to cumulative voting
as to any matter, including the election of Directors. If any proposal at the
Annual Meeting must receive a specific percentage of favorable votes for
approval, abstentions in respect of such proposal are treated as present and
entitled to vote under the DGCL and therefore have the effect of a vote against
such proposal. Broker non-votes in respect of any proposal are not counted for
purposes of determining whether such proposal has received the requisite
approval under the DGCL.
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The shares represented by all valid proxies received will be voted in
the manner specified on the proxies. Where specific choices are not indicated
on a valid proxy, the shares represented by such proxies received will be voted:
(i) for the three nominees for Director named in this Proxy Statement; (ii) for
approval of the issuance of up to 3,553,333 shares of Common Stock as described
in this Proxy Statement; (iii) for approval of the appointment of KPMG Peat
Marwick LLP as independent certified public accountants; and (iv) in accordance
with the best judgment of the persons named in the enclosed proxy, or their
substitutes, for any other matters which properly come before the Annual Meeting
or any adjournment or postponement thereof.
ELECTION OF DIRECTORS
The Board of Directors is currently comprised of eight Directors
divided into three classes. The term of each class expires in different years.
The Board of Directors has nominated and recommends the election for the class
of Directors up for election at the Annual Meeting ("Class I") the three
nominees set forth below. Each nominee currently serves as Director of the
Company. If any nominee becomes unavailable for any reason or should a vacancy
occur before the election (which events are not anticipated), the persons named
on the enclosed proxy card may substitute another person as a nominee or may add
or reduce the number of nominees to such extent as they shall deem advisable.
At the Annual Meeting, three Directors are to be elected as members of Class I
to serve until the annual meeting in 1999 and until their successors are elected
and qualified or until their earlier removal or resignation. Newly created
directorships resulting from an increase in the authorized number of Directors
or any vacancies on the Board of Directors resulting from death, resignation,
disqualification or removal for cause may be filled by a vote of a majority of
the total number of the remaining Directors then in office. All of the current
Directors were elected to the Board of Directors pursuant to a stockholders
agreement. See "Beneficial Ownership of Common Stock --Stockholders Agreement."
Mr. Shimer was appointed to the Board of Directors in February 1996 to fill a
vacancy on the Board. Messrs. Burkhalter and Chavkin were appointed to the
Board of Directors by Chase Manhattan Capital Corporation ("CMCC") in April 1996
pursuant to the stockholders agreement. See "Certain Relationships and Related
Transactions". At present, 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 of the Board of Directors is eligible to
receive stock options under the Company's 1995 Directors' Option Plan.
Directors who are also employees of the Company do not receive any additional
compensation for serving on the Board of Directors. In addition, the Directors
do not receive any additional compensation for committee participation.
Information regarding the nominees for Director of the Company
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Hans J. Sternberg 60 Chairman of the Board
Arnold L. Chavkin 44 Director
David E. Webb(1) 49 Director
</TABLE>
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<PAGE>
Information regarding Directors of the Company not subject to
reelection at the Annual Meeting is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sean E. Reilly(1) 34 Chief Executive Officer,
President and Director
Henry M. Burkhalter 48 Director
J. R. Holland, Jr.(1)(2)(3) 52 Director
William K. Luby(1)(2)(3) 35 Director
Daniel L. Shimer(2) 51 Director
</TABLE>
- ----------------------------------
(1) Member of the Operating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
There are no family relationships between or among any Directors
or executive officers of the Company.
DIRECTOR NOMINEES (CLASS I DIRECTORS) (TERM EXPIRING AT THE 1999 ANNUAL MEETING)
HANS J. STERNBERG has served as Chairman of the Company since its
founding in June 1995 and as Chairman of the Board of the Company's predecessor
("Old Wireless One") since its founding 1993. He has also served as the
Chairman and Chief Executive Officer of Starmount Life Insurance Company
("Starmount") 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, KOXY, WLCS and WWUN. Mr. Sternberg
graduated from Princeton University in 1957.
ARNOLD L. CHAVKIN has been a general partner of Chase Capital Partners
(which was known as "Chemical Venture Capital" until March 1996) since January
1992 and has served as the President of Chemical Investments, Inc. since March
1991. Prior to joining Chase Capital Partners, 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 has been a director
TruVision Wireless, Inc. since August 1994 and 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.
DAVID E. WEBB became a Director of the Company in June 1995. He is a
co-founder of Heartland Wireless Communications, Inc. ("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,
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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.
CLASS II DIRECTORS (TERM EXPIRING AT THE 1997 ANNUAL MEETING)
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, a private equity investing affiliate of
the Chase Manhattan Corporation. 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 Resources, Inc. since September 1991. Unity
Hunt Resources 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 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 and Optical Securities Group, Inc.
CLASS III DIRECTORS (TERM EXPIRING AT THE 1998 ANNUAL MEETING)
SEAN E. 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.
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. Mr. Reilly graduated from
Harvard University in 1984 and from Harvard Law School in 1989.
HENRY M. BURKHALTER became a Director in April 1996. Mr. Burkhalter
has served as Chairman of the Board of Directors, President and Chief Executive
Officer of TruVision Wireless, Inc. since its incorporation in April 1994.
Since 1993, he has been a Director, President and Chief Executive Officer of
Wireless TV, Inc. Since 1992, Mr. Burkhalter has been a Director, President and
Chief Executive Officer of Vision Communications, Inc., and since 1990 he has
been the Chairman of Pacific Coast Paging, Inc. From 1974 through 1992, Mr.
Burkhalter was the President and founder of Burkhalter & Company, a certified
public accounting firm.
DANIEL L. SHIMER became a Director in March 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
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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.
COMMITTEES AND DIRECTORS' MEETINGS
The Board of Directors has three standing committees: the Operating
Committee, the Audit Committee and the Compensation Committee. These committees
were established in October 1995 in connection with the Company's initial public
offering.
The Operating Committee is authorized to oversee the operations of the
Company and to make reports to the full Board. The Operating Committee did not
conduct any meetings in 1995.
The Audit Committee is authorized to oversee the activities of the
Company's independent auditors, including approving the scope of the annual
audit activities of the independent auditors, and review such audit results and
the internal audit controls of the Company. The Audit Committee did not conduct
any meetings in 1995.
The Compensation Committee is authorized to make recommendations to
the Board with respect to general employee benefit levels, determine the
compensation and benefits of the Company's executive officers and administer the
Company's stock option plans. The Compensation Committee held two meetings in
1995.
The Board of Directors held three meetings during the Company's
preceding fiscal year. All of the Directors attended 75% or more of the total
number of meetings of the Board of Directors and of the total number of meetings
held by all committees of the Board on which he served as a member conducted
during the period in which each served as a Director and as a member of such
committee.
The Company does not have a nominating committee. The entire Board of
Directors currently is responsible for filling vacancies on the Board as they
occur and recommending candidates for election as Directors at the annual
meetings of stockholders. The Board will consider individuals recommended for
nominations by stockholders of the Company. Such recommendations should be
submitted in writing to the Chairman of the Board, who will submit them to the
entire Board for its consideration. The recommendation must be accompanied by
the consent of the individual nominated to be elected and to serve.
In addition, the By-Laws of the Company (the "By-Laws") require that
advance notice of nominations for the election of Directors to be made by a
stockholder (as distinguished from a stockholder's recommendation to the Board)
be given to the Secretary of the Company in the case of an annual meeting, no
later than 130 days prior to the first anniversary of the preceding year's
annual meeting of stockholders, provided, that in the event that the date of the
annual meeting is changed from 30 days from such anniversary date, notice by
stockholders must be received no later than the close of business on the tenth
(10th) day following the earlier of the date on which this notice was mailed or
public announcement of the meeting was made and, in the case of a special
meeting, not later than the tenth (10th) day following the earlier of the day on
which notice of the date of the meeting was mailed or public disclosure of the
meeting was made. Such notice must include (i) as to each person whom the
stockholder proposes to nominate for election as a Director at such meeting all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to
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the stockholder giving the notice, (A) the name and address, as they appear on
the Company's books, of such stockholder and (B) the class and number of shares
of the Company which are beneficially owned by such stockholder and also which
are owned of record by such stockholder; and (iii) as to the beneficial owner,
if any, on whose behalf the nomination is made, (A) the name and address of such
person and (B) the class and number of shares of the Company which are
beneficially owned by such person.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs.
Holland, Luby and Shimer. 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 William C. Norris, Senior
Vice President--System Launches and Secretary, 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 Hans J. Sternberg, Chairman of the Board. Executive
officers who are also Directors of the Company did not participate in
discussions relating to their individual compensation arrangements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Preferred Stock Investments. In April 1995, certain investors
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. The following investors
purchased redeemable convertible preferred stock and warrants to acquire common
stock in the amounts indicated: CMCC--8,000 preferred shares and warrants to
purchase 320,000 shares of common stock ($8.0 million); Premier Venture Capital
Corporation--2,500 preferred shares and warrants to purchase 100,000 shares of
common stock ($2.5 million); affiliates of Advantage Capital Corporation--2,000
preferred shares and warrants to purchase 80,000 shares of common stock ($2.0
million); and certain members of Mr. Sternberg's immediate family--252 preferred
shares and warrants to purchase 8,400 shares of common stock. 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).
Heartland Transaction. In October 1995, Heartland and all the
stockholders of Old Wireless One consummated a transaction (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. 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 and/or the contributing
subsidiaries of Heartland, but not to the Company. The distribution of the
shares of Common Stock held in escrow will depend upon certain working capital
post-closing adjustments. Upon consummation of the Heartland Transaction, the
contributing subsidiaries of Heartland received a promissory note for $3 million
and a promissory note for $7 million, which notes were repaid from the proceeds
of the Company's debt and equity offerings.
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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 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
a registration agreement with Heartland, the contributing Heartland subsidiaries
and all of the former stockholders of Old Wireless One (the "Registration
Agreement"). Under the Registration Agreement, at any time after the second
anniversary of the Heartland Transaction, the holders of a majority of the
Common Stock issued to the former stockholders of Old Wireless One in the
Heartland Transaction and the holders of a majority of the Common Stock issued
to certain of Heartland's subsidiaries in the Heartland 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. Heartland and its subsidiaries and
the stockholders of Old Wireless One 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.
In connection with the Heartland Transaction, the Company, Heartland
and certain of the Old Wireless One stockholders entered into a stockholders
agreement (as presently in effect, the "Stockholders Agreement"). See
"Beneficial Ownership of Common Stock - Stockholders Agreement."
TruVision Transaction. On April 25, 1996, pursuant to an Agreement
and Plan of Merger among the Company, TruVision Wireless, Inc. ("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 TruVision (together with the issuance
to Vision Communications, Inc. described below, the "TruVision Transaction").
In that merger, the Company will issue to the TruVision shareholders up to
3,373,333 shares of Common Stock, subject to certain adjustments, and certain of
such shares may be placed in escrow. The former TruVision shareholders will
receive shares placed in escrow upon the satisfaction of certain conditions
relating to the ownership of certain assets by TruVision and the closing of
certain pending TruVision acquisitions. Shares of Common Stock placed in escrow
and not distributed to the former TruVision shareholders will be returned to the
Company.
TruVision acquires, develops, owns and operates wireless cable
television systems within the southeastern United States. TruVision currently
(i) operates wireless cable systems in four markets located in Jackson,
Mississippi and the Delta and the Gulf Coast regions of Mississippi, and
Demopolis, Alabama (ii) holds wireless cable rights for the remainder of the
State of Mississippi, and in Tuscaloosa, Alabama and in Memphis and Flippin,
Tennessee, where it expects to launch wireless cable systems in 1996 and 1997
and (iii) has acquisition transactions pending in a number of additional markets
including Chattanooga, Jackson and Lawrenceburg, Tennessee; Huntsville and
Gadsden, Alabama; Hot Springs, Arkansas and Jacksonville, North Carolina.
Chase Venture Partners Associates, an affiliate of Chemical Bank which
was formerly known as "Chemical Venture Capital Associates" ("CVCA"), owns 45.1%
of the outstanding TruVision common stock on a fully-diluted basis, and CMCC, a
subsidiary of The Chase Manhattan Bank, N.A., owns 14.8% of the
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Common Stock of the Company. In addition, CVCA is a general partner of Baseball
Partners, which owns 2.9% of the Common Stock of the Company. In March 1996,
the parent company of Chemical Bank merged with and into The Chase Manhattan
Corporation, the parent company of The Chase Manhattan Bank, N.A., and The Chase
Manhattan Corporation thereby became the indirect owner of 45.1% of the
outstanding TruVision common stock on a fully-diluted basis. Mr. Chavkin is an
officer of certain subsidiaries of The Chase Manhattan Corporation. In
addition, 52.2% of the outstanding TruVision common stock, on a fully-diluted
basis, is owned by Mississippi Wireless TV, L.P., a partnership which is
controlled by Mr. Burkhalter.
In connection with the merger described above, the Company will issue
to Vision Communications, Inc., a corporation controlled by Mr. Burkhalter
("Vision Communications"), 180,000 shares of Common Stock, and will pay to
Vision Communications $1.8 million in cash, in each case in satisfaction of
certain obligations of TruVision. Upon the consummation of the TruVision
Transaction, the Company will enter into employment agreements with Mr.
Burkhalter, who is the Chairman of the Board, President and Chief Executive
Officer of TruVision, and William R. Byer, Jr., the Executive Vice President and
Chief Operating Officer of TruVision. In addition, upon the consummation of the
TruVision Transaction, the Company will assume the non-qualified stock options
issued by TruVision. As assumed by the Company, such options will cover the
following number of shares at the weighted average exercise prices indicated:
Mr. Burkhalter --78,105 shares of Common Stock, $6.82 per share; Mr. Byer --
62,411 of Common Stock, $6.82 per share; all other persons--36,467 shares of
Common Stock, $6.82 per share. All such options will be fully vested. The
present shareholders of TruVision, the persons who will receive such options,
and Vision Communications are collectively referred to as the "former TruVision
Stockholders."
The shares of Common Stock to be issued in connection with the
TruVision Transaction will not be registered under the Securities Act. The
Registration Agreement will be amended and restated in connection with the
consummation of the TruVision Transaction, with the former TruVision
Stockholders becoming parties thereto. Under such amended and restated
Registration Agreement (the "New Registration Agreement"), (a) at any time after
October 24, 1997, any of (i) 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, (ii) the holders of a majority
of the Common Stock issued to Heartland and/or certain of Heartland's
subsidiaries in the Heartland Transaction, (iii) the holders of a majority of
the Common Stock to be issued to the Former TruVision Stockholders (other than
CVCA) in the TruVision Transaction, and/or (iv) the holders of a majority of the
Common Stock issued to CMCC and Baseball Partners in the Heartland Transaction
or to be 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, and (b) at any time after October 24, 1996, the holders of a
majority of the Common Stock issued to Vision Communications shall 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-3 on one occasion at
the Company's expense. The holders of any such shares of Common Stock also will
be 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.
In connection with the execution of the TruVision Merger Agreement,
the Company, Heartland and certain of the Old Wireless One stockholders amended
the Stockholders Agreement to increase the size of the Board from seven to
eight. At that time, James J. Collis resigned as a Director, and CMCC appointed
Messrs. Burkhalter and Chavkin as Directors pursuant to the Stockholders
Agreement.
8
<PAGE>
In connection with the TruVision Transaction, CMCC, Baseball Partners,
Heartland Wireless Communications, Inc., Hans J. Sternberg, Sean Reilly, Premier
Venture Capital Corporation and Lamar Advertising Company, Inc. entered into
the Wireless One Voting Agreement (the "Voting Agreement"), pursuant to which
they have agreed to vote their shares to approve and adopt actions related to
the consummation of the TruVision Transaction. Collectively, the parties to the
Voting Agreement own 52.7% of the Common Stock. Accordingly, the proposal to
issue Common Stock will be adopted by the Company if the shares owned by such
parties are voted in accordance with the Voting Agreement.
Other Transactions. The Company leases approximately 2,500 square
feet of office space for its corporate headquarters in Baton Rouge, Louisiana,
under a lease from Starmount. Mr. Sternberg is Chairman, Chief Executive
Officer and owner of Starmount. The Company pays approximately $25,000 to
Starmount annually for such space. The Company believes the lease was entered
into on terms reflecting then current market rates. The lease with Starmount
expires on April 30, 1997. The Company moved into larger corporate
headquarters and terminated such lease on April 30, 1996 without further payment
or penalty.
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.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers,
Directors and persons who beneficially own more than ten percent of the
Company's Common Stock to file reports of securities ownership and changes in
such ownership with the Securities and Exchange Commission ("SEC"). Officers,
Directors and greater than ten percent beneficial owners also are required by
rules promulgated by the SEC to furnish the Company with copies of all Section
16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to
the Company, or written representations that no Form 5 filings were required,
the Company believes that during the period from October 19, 1995 (the date the
Company's Common Stock became registered under the Exchange Act) through
December 31, 1995, all Section 16(a) filing requirements applicable to its
officers, Directors and greater than ten percent beneficial owners were complied
with other than by Messrs. Gary and Rye, each of whom filed a late Form 4
disclosing the purchase of shares of Common Stock.
9
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Except as otherwise noted, the following table sets forth certain
information as of April 1, 1996 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 Director nominees, (iii) each of the executive officers named
in the Summary Compensation Table, and (iv) all Directors and executive officers
as a group. All information with respect to beneficial ownership has been
furnished by the respective Director, Director nominees, 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)
--------------------------
PERCENT
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS NUMBER OF SHARES OF CLASS
- ------------------------------------------------------------ ---------------- --------
<S> <C> <C>
Heartland Wireless Communications, Inc. (2)(3)................ 3,361,538 24.9%
903 North Bowser, Suite 140
Richardson, Texas 75081
Chase Manhattan Capital Corporation (2)(4).................... 2,384,916 17.7%
One Chase Manhattan Plaza
New York, New York 10081
Premier Venture Capital Corporation (2)(5).................... 754,268 5.6%
451 Florida Street
Baton Rouge, Louisiana 70821
Advantage Capital Corporation (2)(6).......................... 630,489 4.7%
LL&E Tower
909 Poydras Street, Suite 2230
New Orleans, Louisiana 70112
Hans J. Sternberg (2)(7)...................................... 374,193 2.7%
Sean E. Reilly (2)(8)......................................... 101,755 *
Henry M. Burkhalter........................................... -- --
Arnold L. Chavkin (12)........................................ 2,384,916 17.7%
J. R. Holland, Jr. (9)........................................ 3,361,538 24.9%
William K. Luby (10).......................................... 393,226 2.9%
Daniel L. Shimer.............................................. 4,800 *
David E. Webb (1)............................................. 3,361,538 24.9%
All Directors and executive officers as a group............... 4,376,222 32.4%
(11 persons, including those listed above)
</TABLE>
- ---------------------------------------
* Less than one percent.
(1) Does not include an aggregate of 200,000 of such shares currently being
held in escrow. Such shares will be distributed to either the Old Wireless
One stockholders or the Heartland subsidiaries. The distribution of shares
10
<PAGE>
held in escrow will depend upon certain working capital post-closing
adjustments relating to the Heartland Transaction.
(2) Heartland and certain of its subsidiaries, CMCC, Baseball Partners, Premier
Venture Capital Corporation, Advantage Capital Partners Limited Partnership
and Advantage Capital Partners II Limited Partnership, Mr. Sternberg and
Mr. Reilly, each of whose ownership of Common Stock is disclosed in the
table, are parties to Stockholders Agreement. See "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.
(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 (National
Association), the direct parent of CMCC, and The Chase Manhattan
Corporation, the ultimate parent of CMCC. Baseball Partners has agreed to
grant CMCC an irrevocable proxy to vote all of the 393,226 shares of Common
Stock owned by Baseball Partners.
(5) As reported on a Schedule 13G filed with the SEC with respect to the shares
of Common Stock held by Premier Venture Capital Corporation ("PVCC") as of
December 31, 1995. PVCC is an indirect wholly owned subsidiary of Premier
Bancorp, Inc., which is a publicly-traded corporation.
(6) Advantage Capital Corporation ("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.
(7) Includes 12,520 shares owned by Mr. Sternberg's wife and 85,537 shares
issuable upon the exercise of presently exercisable options.
(8) Includes 85,537 shares issuable upon the exercise of presently exercisable
options.
(9) 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.
(10) Reflects shares of Common Stock which are 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, including CVCA, are general partners of Baseball Partners.
(11) 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.
(12) Reflects 393,226 shares of Common Stock which are beneficially owned by
Baseball Partners and 1,991,690 shares of Common Stock which are
beneficially owned by CMCC. Mr. Chavkin is a general partner of CVCA,
which is a general partner of Baseball Partners and an affiliate of CMCC,
and therefore may be deemed to be a beneficial owner of such shares. Mr.
Chavkin disclaims beneficial ownership of all of the shares of Common Stock
owned by Baseball Partners and CMCC.
11
<PAGE>
STOCKHOLDERS AGREEMENT
In connection with the Heartland Transaction, CMCC, Baseball Partners,
Premier Venture Capital Corporation, affiliates of Advantage Capital Corporation
("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. As amended in connection with the execution of the
TruVision Merger Agreement, the Stockholders Agreement requires, among other
things, that the parties thereto vote their Common Stock so that the Board of
Directors of the Company will have up to eight members, one of whom will be Sean
Reilly (so long as he is the President of the Company), up to three of whom will
be designated by Heartland (at least one of whom must be independent of
Heartland, the Company and the Old Wireless One stockholders who are parties to
the Stockholders Agreement), up to two 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 Heartland, the Company and such stockholders), and up to two of
whom will be designated by CMCC and Baseball Partners. 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
and Luby; the current Directors proposed by CMCC and Baseball Partners are
Messrs. Burkhalter and Chavkin.
Based upon certain filings made by the parties to the Stockholders
Agreement with the SEC, the Company believes that the parties to the
Stockholders Agreement collectively beneficially own an aggregate of 7,607,159
shares of Common Stock (including 171,074 shares of Common Stock issuable upon
the exercise of presently exercisable stock options held by Messrs. Sternberg
and Reilly), which represents approximately 55.6% 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 Stockholders Agreement also provides that,
without the prior approval of the Board and until October 24, 1998, the parties
to the 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 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 Stockholders Agreement, act together with any other
person to acquire, hold, vote or dispose of securities of the Company.
The Stockholders Agreement will be amended and restated in connection
with the consummation of the TruVision Transaction, with the Former TruVision
Stockholders becoming parties thereto. In such amended and restated agreement
(the "New Stockholders Agreement"), the parties thereto, among other things,
will agree 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 Heartland, the Company
and the Old Wireless One stockholders who are parties to the 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
Wireless One, the Company and such stockholders), 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.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
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 $100,000 in
either of those years. The amounts shown include compensation for services in
all capacities that were provided to the Company or Old Wireless One and their
respective subsidiaries.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------------------
Awards
------------------------
Annual Compensation Restricted Securities
Name and --------------------------- Stock Underlying All Other
Principal Position Year Salary($) Bonus ($) Awards($) Options(#) Compensation
------------------ ----- --------- -------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sean E. Reilly 1995 $87,692 -- -- 201,395(1) --
President and Chief 1994 $35,000(2) -- -- 113,144(3) --
Executive Officer
</TABLE>
- ------------------------------------
(1) Such options were originally issued in April 1995 and were to purchase
shares of common stock of Old Wireless One. Such options were assumed by
the Company under its 1995 Long-Term Performance Incentive Plan (the
"Incentive Plan") in October 1995 in connection with the Heartland
Transaction.
(2) Mr. Reilly began receiving compensation from Old Wireless One on June 1,
1994.
(3) Such options were originally issued in September 1994 and were to purchase
shares of common stock of Old Wireless One. Such options were assumed by
the Company under its Incentive Plan in October 1995 in connection with the
Heartland Transaction.
STOCK OPTION GRANTS
The following table provides information relating to the stock options
awarded to the Chief Executive Officer during the Company's last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value at
Assumed Annual Rates of Stock
Price
Appreciation for Option Term
Individual Grants (1)
- ---------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of
Securities
Underlying Percent of Total
Options Options Granted Exercise Price Expiration
Name Granted (#)(2) in Fiscal Year ($) Date(3) 5% ($) 10% ($)
- ------------ -------------- ---------------- -------------- ---------- ------ --------
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
SEC'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.
13
<PAGE>
See Note (4). 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 $4.16 per share, which is increased 35% per
year for each of the remaining four installments.
STOCK OPTION HOLDINGS
The following table sets forth information with respect to the Chief
Executive Officer concerning the stock options held as of December 31, 1995.
There were no stock options exercised during the last fiscal year of the
Company.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options at Fiscal Year- Value of Unexercised In-the-Money
End (#) Options at Fiscal Year-End ($)
----------------------------------- ---------------------------------
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.
EMPLOYMENT AGREEMENTS
In connection with the consummation of the Heartland Transaction, the
Company entered into employment agreements with Messrs. Sternberg, Reilly and
Norris. The employment agreements provide for payment of a specified base
salary indexed to inflation and bonuses in the sole discretion of the
Compensation Committee based upon the executive's performance and the Company's
operating results. The term of each agreement is for two years, subject to
automatic annual renewal until the tenth anniversary of the date of such
agreement. 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 executive offices to a location more than 60
miles from its present location.
14
<PAGE>
1995 LONG-TERM INCENTIVE PLAN
BACKGROUND AND PURPOSE. Set forth below is a description of the
Wireless One, Inc. 1995 Long-Term Performance Incentive Plan. The Incentive
Plan was adopted by the Board of Directors of the Company on October 17, 1995
and approved by the stockholders of the Company and became effective on October
18, 1995. The Incentive Plan is not subject to the Employee Retirement Income
Security Act of 1974, as amended, and is not qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of the
Incentive Plan is to provide incentives to certain employees of the Company and
any of its subsidiaries and other key individuals.
ADMINISTRATION. The Incentive Plan is administered solely by the
Compensation Committee (the "Committee") of the Company's Board of Directors;
provided that the Committee may, at any time or from time to time, delegate the
administration of the Incentive Plan in whole or in part, on such terms and
conditions, to such other person or persons as it may determine in its
discretion, if and to the extent that both (a) Rule 16b-3 or any successor rule
("Rule 16b-3") under the Exchange Act, so permits without adversely affecting
the ability of the Incentive Plan to comply with the conditions for exemption
from Section 16 of the Exchange Act (or any successor provision), and (b)
Section 162(m) (or any successor provision) of the Code, and any implementing
regulations (or any successor provisions), so permits without adversely
affecting the deductibility of certain executive compensation. No member of the
Committee may have within one year prior to his appointment received awards
under the Incentive Plan ("Awards") or under any other plan, program or
arrangement of the Company or any of its affiliates if such receipt would cause
such member to cease to be a "disinterested person" under Rule 16b-3.
The Committee has the powers vested in it by the terms of the
Incentive Plan, such powers to include exclusive authority (except as may be
delegated as permitted herein) (i) to select the employees of the Company or any
subsidiary of the Company and other key individuals to be granted Awards under
the Incentive Plan, (ii) to determine the type, size and terms of the Award to
be made to each individual selected, subject to certain limitations, (iii) to
modify the terms of any Award that has been granted, (iv) to determine the time
when Awards will be granted, (v) to establish performance objectives, (vi) to
make any adjustments necessary or desirable as a result of the granting of
Awards to eligible individuals located outside the United States and (vii) to
prescribe the form of the instruments embodying Awards made under the Incentive
Plan. In addition, the Committee is authorized (A) to interpret the Incentive
Plan and the Awards granted under the Incentive Plan, (B) to establish, amend
and rescind any rules and regulations relating to the Incentive Plan, and (C) to
make any other determinations which it deems necessary or desirable for the
administration of the Incentive Plan.
ELIGIBILITY. Consistent with the purposes of the Incentive Plan, the
Committee has exclusive power (except as may be delegated as permitted herein)
to select the key employees of the Company or any subsidiary of the Company and
other key individuals performing services for the Company or any of its
subsidiaries who may participate in the Incentive Plan and be granted Awards
under the Incentive Plan. Eligible individuals may be selected individually or
by groups or categories, as determined by the Committee in its discretion. No
non-employee director of the Company shall be eligible to receive an Award under
the Incentive Plan. The term "subsidiary" as used in this Incentive Plan means
any corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
AWARDS UNDER THE INCENTIVE PLAN. Awards under the Incentive Plan may
include, but need not be limited to, one or more of the following types, either
alone or in any combination thereof: (i) "Stock
15
<PAGE>
Options," (ii) "Stock Appreciation Rights," (iii) "Restricted Stock," (iv)
"Performance Grants" and (v) any other type of Award deemed by the Committee in
its discretion to be consistent with the purposes of the Incentive Plan
(including, but not limited to, Awards of or options or similar rights granted
with respect to unbundled stock units or components thereof, and Awards to be
made to participants who are foreign nationals or are employed or performing
services outside the United States). Stock Options, which include "Nonqualified
Stock Options" (which may be awarded to participants or sold at a price
determined by the Committee ("Purchased Options")) and "Incentive Stock Options"
or combinations thereof, are rights to purchase common shares of the Company
having a par value of $.01 per share and stock of any other class into which
such shares may thereafter be changed (the "Common Shares").
There may be issued under the Incentive Plan (as Restricted Stock, in
payment of Performance Grants, pursuant to the exercise of Stock Options or
Stock Appreciation Rights, or in payment of or pursuant to the exercise of such
other Awards as the Committee, in its discretion, may determine) an aggregate of
not more than 1,300,000 Common Shares, subject to adjustment as provided in the
Incentive Plan. The maximum number of Common Shares with respect to which Stock
Options, Stock Appreciation Rights, Restricted Stock, Performance Grants or any
other Award may be granted to any one participant in any one taxable year of the
Company may not exceed 325,000 Common Shares (the "Participant Limitation").
Common Shares issued pursuant to the Incentive Plan may be authorized but
unissued shares, treasury shares, reacquired shares, or any combination thereof.
If any Common Shares issued as Restricted Stock or otherwise subject to
repurchase or forfeiture rights are reacquired by the Company pursuant to such
rights, or if any Award is canceled, terminates or expires unexercised, any
Common Shares that would otherwise have been issuable pursuant thereto will be
available for issuance under new Awards. Unless otherwise determined by the
Committee in its discretion, a participant to whom an Award of Restricted Stock
has been made (and any person succeeding to such a participant's rights pursuant
to the Incentive Plan) shall have, after issuance of a certificate for the
number of Common Shares awarded and prior to the expiration of any restrictions
thereon, ownership of such Common Shares, including the right to vote the same
and to receive dividends or other distributions made or paid with respect to
such Common Shares, subject, however, to the options, restrictions and
limitations imposed thereon pursuant to the Incentive Plan. Notwithstanding the
foregoing, a participant with whom an Award agreement is made to issue Common
Shares in the future, shall have no rights as a stockholder with respect to
Common Shares related to such agreement until issuance of a certificate to him.
Unless otherwise determined by the Committee in its discretion, a participant to
whom a grant of Stock Options, Stock Appreciation Rights, Performance Grants or
any other Award is made (and any person succeeding to such a participant's
rights pursuant to the Incentive Plan) shall have no rights as a stockholder
with respect to any Common Shares or as a holder with respect to other
securities, if any, issuable pursuant to any such Award until the date of the
issuance of a stock certificate to him for such Common Shares or other
instrument of ownership, if any.
Stock Options. The Committee may grant or sell Stock Options either
alone, or in conjunction with Stock Appreciation Rights, Performance Grants or
other Awards, either at the time of grant or by amendment thereafter; provided,
that (A) an Incentive Stock Option may be granted only to an eligible employee
of the Company or of any parent or Subsidiary of the Company; (B) no Incentive
Stock Option shall be issued in conjunction with or include an alternative right
if the exercise of either such alternative right or the Incentive Stock Option
would affect the right to exercise the other or would otherwise permit the
avoidance of the requirements of Code (S)422(b); and (C) any arrangement under
which a Stock Appreciation Right is issued in conjunction with an Incentive
Stock Option shall meet the requirements of applicable Temporary Treasury
regulations. Each Stock Option (referred to herein as an "Option") granted or
sold under the Incentive Plan must be evidenced by an instrument in such form as
the Committee shall prescribe from time to time in accordance with the Incentive
Plan (an "Award Instrument") and shall comply with certain terms and conditions
set forth in the Incentive Plan, and with such other terms and conditions,
including, but not limited
16
<PAGE>
to, restrictions upon the Option or the Common Shares issuable upon exercise
thereof, as the Committee, in its discretion, shall establish. Among other
things, the Incentive Plan provides that the exercise price of an Incentive
Stock Option 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.
Stock Appreciation Rights. The Committee may grant Stock Appreciation
Rights either alone, or in conjunction with Stock Options, Performance Grants or
other Awards, either at the time of grant or by amendment thereafter. Each
Award of Stock Appreciation Rights granted under the Incentive Plan shall be
evidenced by an Award Instrument and shall comply with the certain terms and
conditions set forth in the Incentive Plan, and with such other terms and
conditions, including, but not limited to, restrictions upon the Award of Stock
Appreciation Rights or the Common Shares issuable upon exercise thereof, as the
Committee, in its discretion, shall establish.
Restricted Stock. Each Award of Restricted Stock under the Incentive
Plan shall be evidenced by an Award Instrument in such form as the Committee
shall prescribe from time to time in accordance with the Incentive Plan and
shall comply with the certain terms and conditions set forth in the Incentive
Plan, and with such other terms and conditions as the Committee, in its
discretion, shall establish.
Performance Grants. The Award of a Performance Grant to a participant
will entitle him to receive a specified amount determined by the Committee (the
"Actual Value"), if the terms and conditions specified herein and in the Award
are satisfied. Each Award of a Performance Grant shall be subject to certain
terms and conditions set forth in the Incentive Plan, and to such other terms
and conditions, including but not limited to, restrictions upon any cash, Common
Shares, other securities of the Company or property, other forms of payment, or
any combination thereof, issued in respect of the Performance Grant, as the
Committee, in its discretion, shall establish, and shall be embodied in an Award
Instrument in such form and substance as is determined by the Committee.
DEFERRAL OF COMPENSATION. The Committee is authorized to determine
whether or not an Award shall be made in conjunction with deferral of the
participant's salary, bonus or other compensation, or any combination thereof,
and whether or not such deferred amounts may be (i) forfeited to the Company, to
other participants or any combination thereof, under certain circumstances
(which may include, but need not be limited to, certain types of termination of
employment or performance of services for the Company), (ii) subject to increase
or decrease in value based upon the attainment of or failure to attain,
respectively, certain performance measures, and/or (iii) credited with income
equivalents (which may include, but need not be limited to, interest, dividends
or other rates of return) until the date or dates of payment of the Award, if
any.
DEFERRED PAYMENT OF AWARDS. The Committee may specify that the
payment of all or any portion of cash, Common Shares, other securities of the
Company or property, any other form of payment, or any combination thereof,
under an Award shall be deferred until a later date. Deferrals shall be for
such periods or until the occurrence of such events, and upon such terms, as the
Committee shall determine in its discretion. Deferred payments of Awards may be
made by undertaking to make payment in the future based upon the performance of
certain investment equivalents (which may include, but need not be limited to,
government securities, Common Shares, other securities, property or
consideration, or any combination thereof), together with such additional
amounts of income equivalents (which may be compounded and may include, but need
not be limited to, interest, dividends or other rates of return, or any
combination thereof) as may accrue thereon until the date or dates of payment,
such investment equivalents and such additional amounts of income equivalents to
be determined by the Committee in its discretion.
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AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE INCENTIVE PLAN. The
terms of any outstanding Award under the Incentive Plan may be amended from time
to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any Award and/or payments thereunder); provided that no such amendment shall
adversely affect in a material manner any right of a participant under the Award
without his written consent, unless (except as otherwise provided in an Award
Instrument) the Committee determines in its discretion that there have occurred
or are about to occur significant changes in the participant's position, duties
or responsibilities, or significant changes in economic, legislative,
regulatory, tax, accounting or cost/benefit conditions which are determined by
the Committee in its discretion to have or to be expected to have a substantial
effect on the performance of the Company, or any Subsidiary, affiliate, division
or department thereof, on the Incentive Plan or on any Award under the Incentive
Plan. The Committee may, in its discretion, permit holders of Awards under the
Incentive Plan to surrender outstanding Awards in order to exercise or realize
rights under other Awards, or in exchange for the grant of new Awards, or
require holders of Awards to surrender outstanding Awards as a condition
precedent to the grant of new Awards under the Incentive Plan.
DEATH AND DISABILITY. Unless otherwise specifically provided in an
Award Instrument, if a participant to whom an Award has been granted under the
Incentive Plan shall die or suffer a total and permanent disability while
employed by the Company or any of its Subsidiaries, such Award may be exercised,
to the extent that the participant was entitled to do so at the termination of
employment, as set forth herein, by the participant, legal guardian of the
participant (unless such exercise would disqualify an option as an Incentive
Stock Option), a legatee or legatees of the participant under the participant's
last will, or by the participant's legal representatives or distributees,
whichever is applicable, at any time within one (1) year after the date of the
participant's death or total disability, but in no event later than the date on
which the Award terminates. Notwithstanding the above, if a participant whose
employment terminates by reason of total and permanent disability shall die, a
legatee or legatees of such participant under the participant's last will, or
the legal representative of such participant's estate, shall have the right to
exercise such Award to the extent that the participant was entitled to do so at
the termination of employment, only during the period ending one (1) year after
the date of the participant's termination of employment by reason of disability.
For purposes of the Incentive Plan, "total and permanent disability" has the
meaning set forth in Code Section 22(e)(3), or any successor provision thereto.
TERMINATION OF A PARTICIPANT. For all purposes under the Incentive
Plan, the Committee shall determine whether a participant has terminated
employment with, or the performance of services for, the Company (or parent or
any Subsidiary of the Company).
DILUTION AND OTHER ADJUSTMENTS. Unless otherwise specifically
provided in an Award Instrument, in the event of any change in the outstanding
Common Shares of the Company by reason of any stock split, dividend, split-up,
split-off, spin-off, recapitalization, merger, consolidation, rights offering,
reorganization, combination or exchange of shares, a sale by the Company of all
of its assets, any distribution to stockholders other than a normal cash
dividend, or other extraordinary or unusual event, if the Committee shall
determine, in its discretion, that such change equitably requires an adjustment
in the terms of any Award or the number of Common Shares available for Awards,
such adjustment may be made by the Committee and shall be final, conclusive and
binding for all purposes of the Incentive Plan.
In the event of the proposed dissolution or liquidation of the
Company, all outstanding Awards shall terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, all restrictions on any outstanding Awards shall
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<PAGE>
lapse and participants shall be entitled to the full benefit of all such Awards
immediately prior to the closing date of such sale or merger, unless otherwise
provided by the Committee.
DESIGNATION OF BENEFICIARY BY PARTICIPANT. Unless otherwise
specifically provided in an Award Instrument, a participant may name a
beneficiary to receive any payment to which he may be entitled in respect of any
Award under the Incentive Plan in the event of his death, on a written form to
be provided by and filed with the Committee, and in a manner determined by the
Committee in its discretion. The Committee has the right to review and approve
beneficiary designations. A participant may change his beneficiary from time to
time in the same manner, unless such participant has made an irrevocable
designation. Any designation of beneficiary under the Incentive Plan (to the
extent it is valid and enforceable under applicable law) shall be controlling
over any other disposition, testamentary or otherwise, as determined by the
Committee in its discretion. If no designated beneficiary survives the
participant and is living on the date on which any amount becomes payable to
such a participant's beneficiary, such payment will be made to the legal
representatives of the participant's estate, and the term "beneficiary" as used
in the Incentive Plan shall be deemed to include such person or persons. If
there are any questions as to the legal right of any beneficiary to receive a
distribution under the Incentive Plan, the Committee in its discretion may
determine that the amount in question be paid to the legal representatives of
the estate of the participant, in which event the Company, the Board and the
Committee and the members thereof, will have no further liability to anyone with
respect to such amount.
FINANCIAL ASSISTANCE. Unless otherwise specifically provided in an
Award Instrument, if the Committee determines that such action is advisable, the
Company may assist any person to whom an Award has been granted in obtaining
financing from the Company (or under any program of the Company approved
pursuant to applicable law), or from a bank or other third party, on such terms
as are determined by the Committee, and in such amount as is required to
accomplish the purposes of the Incentive Plan, including, but not limited to, to
permit the exercise of an Award, the participation therein, and/or the payment
of any taxes in respect thereof. Such assistance may take any form that the
Committee deems appropriate, including, but not limited to, a direct loan from
the Company, a guarantee of the obligation by the Company, or the maintenance by
the Company of deposits with such bank or third party.
WITHHOLDING TAXES. The Company is granted the right to deduct from
any payment made under the Incentive Plan any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Common Shares, other securities of the Company or property, other securities or
property, or other forms of payment, or any combination thereof, upon exercise,
settlement or payment of any Award under the Incentive Plan, that the
participant (or any beneficiary or person entitled to act) pay to the Company,
upon its demand, such amount as may be required by the Company for the purpose
of satisfying any liability to withhold federal, state, local or foreign income
or other taxes. If the amount requested is not paid, the Company may refuse to
issue Common Shares, other securities of the Company or property, other
securities or property, other forms of payment, or any combination thereof.
Notwithstanding anything in the Incentive Plan to the contrary, the Committee
may, in its discretion, permit an eligible participant (or any beneficiary or
person entitled to act) to elect to pay a portion or all of the amount requested
by the Company for such taxes with respect to such Award, at such time and in
such manner as the Committee shall deem to be appropriate (including, but not
limited to, by authorizing the Company to withhold, or agreeing to surrender to
the Company on or about the date such tax liability is determinable, Common
Shares, other securities of the Company or property, other securities or
property, other forms of payment, or any combination thereof, owned by such
person or a portion of such forms of payment that would otherwise be
distributed, or have been distributed, as the case may be, pursuant to such
Award to such person, having a fair market value equal to the amount of such
taxes).
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<PAGE>
INCENTIVE PLAN AMENDMENT OR SUSPENSION. The Incentive Plan may be
amended or suspended in whole or in part at any time and from time to time by
the Board, but no amendment shall be effective unless and until the same is
approved by stockholders of the Company where the failure to obtain such
approval would adversely affect the compliance of the Incentive Plan with Rule
16b-3 under the Exchange Act or with other applicable law. No amendment of the
Incentive Plan shall adversely affect in a material manner any right of any
participant with respect to any Award theretofore granted without such
participant's written consent.
INCENTIVE PLAN TERMINATION. This Incentive Plan terminates upon the
earlier of the following dates or events to occur: (a) upon the adoption of a
resolution of the Board terminating the Incentive Plan; or (b) ten years from
the date the Incentive Plan is initially approved and adopted by the
stockholders of the Company (October 18, 2005); provided, however, that the
Board may, prior to the expiration of such ten-year period, extend the term of
the Incentive Plan for an additional period of up to five years for the grant of
Awards other than Incentive Stock Options. No termination of the Incentive Plan
shall materially alter or impair any of the rights or obligations of any person,
without his consent, under any Award theretofore granted under the Incentive
Plan, except that subsequent to termination of the Incentive Plan, the Committee
may make those amendments permitted under the plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of
the principal federal income tax consequences to participants of the grant and
exercise of certain Awards under the Incentive Plan. This summary does not
purport to address all aspects of federal income taxes that may affect
participants in light of their individual circumstances. Moreover, this summary
is based upon the current provisions of the Code, Treasury Regulations
(including proposed Treasury Regulations) promulgated thereunder, rulings,
administrative pronouncements and court interpretations thereof in effect as of
the date hereof. It is possible that future legislative, regulatory, judicial
or administrative changes or interpretations could modify such tax consequences
and the conclusions reached below and that any such change could apply
retroactively. This summary applies only to participants who acquire options
under the Incentive Plan in connection with their employment by the Company or
one of its Affiliates and exercise such options during their lifetimes. Because
federal income tax consequences will vary as a result of individual
circumstances, each option holder is urged to consult a tax advisor with respect
to the tax consequences (including those under state and local tax laws) of the
grant and exercise of stock options under the Incentive Plan. Moreover, the
following summary relates only to option holders' federal income tax treatment.
The state, local and foreign tax consequences may be substantially different
from the federal income tax consequences described herein.
A. Taxation of Ordinary Income and Capital Gains.
The ordinary income of an individual taxpayer currently is generally
subject to a maximum federal income tax rate of 39.6%, while long-term capital
gains of an individual currently are generally subject to a maximum tax rate of
28%. The effective marginal rates of some taxpayers may be higher to the extent
that they are subject to the phase-out of personal exemptions or the reduction
of itemized deductions that occur at certain income levels. The classification
of income as capital or ordinary is also relevant for taxpayers who have capital
losses or investment interest.
B. Restricted Stock.
A participant who is granted restricted stock may, if the restrictions
constitute a "substantial risk of forfeiture" as defined in Section 83 of the
Code, make a Section 83(b) election to have the grant taxed as compensation
income at the date of grant in an amount equal to the fair market value on the
date of grant of the shares subject to such award less any amount paid by the
participant for the shares. If the participant does
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<PAGE>
not make a timely Section 83(b) election, the grant is generally taxed to him or
her as compensation income at the date(s) that the restrictions imposed on the
shares expire, in an amount on each such date equal to the fair market value on
such date of the shares as to which the restrictions expire less any amount paid
by the participant for the shares. Unless a participant makes a timely Section
83(b) election, any dividends paid on the shares subject to the award while such
shares remain subject to the restrictions are compensation income to the
participant. Provided such compensation income is, or is deemed to be, included
in the holder's gross income, the Company is generally entitled to a deduction
for any compensation income taxed to the participant.
Upon a participant's sale of shares received pursuant to a grant of
restricted stock, the difference between the selling price and the tax basis of
the shares (generally, if a timely Section 83(b) election is made, the fair
market value of the shares on the date of grant or, if a timely Section 83(b)
election is not made, the fair market value of the shares on the date(s) on
which the restrictions on the shares expire) is a capital gain or loss (long- or
short-term, depending on the participant's holding period for the shares). A
participant's holding period beings on the date of grant if a timely Section
83(b) election is made or on the date(s) on which the restrictions on the shares
expire if no timely Section 83(b) election is made.
An exception to the foregoing treatment may occur in the event that
the participant is subject to Section 16(b) of the Exchange Act. In certain
circumstances, the fair market value of particular shares may be determined, and
the participant's holding period for such shares may commence, on a date other
than the date of grant or the date on which the restrictions on such shares
lapse unless the participant makes a timely Section 83(b) election with respect
to such shares.
C. Options.
Under the Incentive Plan, a participant may be granted options that
qualify as incentive stock options under Section 422 of the Code ("ISO") or
options that do not so qualify (nonqualified options or "NQOs") or both.
Generally, the tax consequences to an option holder with respect to ISOs will be
different from the tax consequences with respect to NQOs, as more fully
explained below. In addition, the discussion below assumes that at the time an
NQO is exercised, the shares received are either fully vested or the holder
makes a timely election under Section 83(b).
i. Nonqualified Options.
The holder of an NQO does not recognize taxable income upon the grant of
the NQO, nor is the Company entitled, for income tax purposes, to a deduction
upon such a grant. The option holder recognizes ordinary compensation income
(subject to withholding taxes) on the exercise of an NQO equal to the excess of
the fair market value of the shares received on exercise over the option
exercise price. The fair market value of the shares is measured on the exercise
date. If such taxable compensation is properly included in the holder's gross
income by the holder or is deemed to have been properly included as a result of
the timely satisfaction of certain reporting requirements by the Company, the
Company should be entitled to a deduction in computing its federal income taxes
in an amount equal to the ordinary income recognized by the option holder on the
exercise of the NQO.
If an option holder sells shares acquired pursuant to the exercise of an
NQO, the option holder will recognize capital gain or loss equal to the
difference between the selling price of the shares and their fair market value
on the exercise date. The capital gain is long-term or short-term, depending on
whether the option holder has held the option shares for more than one year
after the exercise date. The Company is not entitled to any deduction with
respect to any capital gain recognized by the option holder.
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The previous paragraph assumes, for simplicity, that the option holder's
tax basis in the option shares sold is equal to the fair market value of such
shares on the exercise date. While this would be the case if the option holder
had paid the exercise price for such shares in cash, it would not normally be
the case if the option holder paid the exercise price in whole or in part by
delivery of other Company Common Stock. In the latter case, the option holder's
tax basis in, and holding period for, the previously acquired shares surrendered
carries over to an equal number of the option shares received on a share-for-
share basis. Shares received in excess of the shares surrendered have a tax
basis equal to the fair market value of those received shares on the exercise
date and the option holder's holding period for such received shares begins on
the exercise date. The option holder's capital gain or loss on a sale of option
shares would be determined based on the option holder's actual basis in the
shares sold and the long-term or short-term nature of any gain would be based on
the option holder's actual holding period.
ii. Incentive Stock Options.
The holder of an ISO does not realize taxable income upon the grant or
exercise of the ISO and the Company is not entitled to any deduction with
respect to such grant or exercise. However, upon exercise of an ISO, the excess
of the fair market value on the exercise date of the shares acquired pursuant to
the exercise of the ISO over the exercise price will be included in the option
holder's alternative minimum taxable income and may cause or increase a
liability for alternative minimum tax. Such alternative minimum tax may be
payable even though the option holder receives no cash upon the exercise of the
ISO with which to pay such tax.
The income tax treatment of any gain or loss realized upon an option
holder's disposition of option shares depends on the timing of the disposition.
If the option shares have been held for at least one year and if at least two
years have elapsed since the date of grant of the ISO (the "Required Holding
Periods"), then the option holder recognizes (i) long-term capital gain to the
extent that the selling price exceeds the exercise price or (ii) long-term
capital loss to the extent that the exercise price exceeds the selling price.
In either case, no deduction is allowed to the Company.
If an option holder disposes of option shares before the expiration of the
Required Holding Period ( "Disqualifying Disposition"), then (i) if the selling
price exceeds the fair market value of the option shares on the date the ISO was
exercised, the excess of such fair market value over the exercise price is
taxable to the option holder as ordinary income and the excess of the selling
price over such fair market value is taxable to the option holder as capital
gain (long-term or short-term depending on whether the option holder has held
the shares for more than one year), (ii) if the selling price exceeds the
exercise price but does not exceed the fair market value of the option shares on
the date the ISO was exercised, the excess of the selling price over the
exercise price is taxable to the option holder as ordinary income and (iii) if
the selling price is less than the exercise price, the difference is treated as
capital loss to the option holder. If, however, the disposition is a sale to a
related party (as defined in Section 267(b) of the Code to include, for example,
a member of the option holder's family or a corporation majority-owned by the
option holder) or a gift, then the ordinary income recognized by the option
holder will not be less than the excess of the fair market value of the option
shares on the exercise date over the option exercise price. In each case, the
Company is entitled to a deduction equal to the amount of ordinary income (but
not capital gain) recognized by the option holder on the Disqualifying
Disposition, provided such taxable amount is, or is deemed to be, included in
the gross income of the option holder.
The previous paragraphs assume, for simplicity, that the option holder's
tax basis in the option shares disposed of is equal to the option exercise
price. While this would be the case if the option holder had paid the option
exercise price for such shares in cash, it would not normally be the case if the
option holder paid
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the option exercise price in whole or in part by delivery of the Common Stock.
If an option holder delivers previously acquired Common Stock (other than shares
acquired upon exercise of an ISO and not held for the Required Holding Periods)
in payment of all or part of the option exercise price of an ISO, the option
holder's tax basis in, and holding period for, the previously acquired shares
surrendered carries over to an equal number of the option shares received (for
capital gain purposes, but not for purposes of determining whether a
Disqualifying Disposition occurs) on a share-for-share basis. Shares received
in excess of the shares surrendered have a tax basis equal to the amount paid
(if any) by the option holder to exercise the ISO in addition to the previously
acquired shares, and such shares' holding period begins on the exercise date.
Proposed regulations provided that where an ISO is exercised using previously
acquired shares, a later Disqualifying Disposition of the shares received will
be deemed to have been a disposition of the shares having the lowest basis
first. The option holder's capital gain or loss on a sale of option shares
would be determined based on the option holder's actual basis in such shares
(increased by any ordinary income on such disposition) and the long-term or
short-term nature of any gain would be based on the option holder's actual
holding period.
If an option holder pays the exercise price of an ISO in whole or in part
with previously acquired Common Stock that was acquired upon the exercise of an
ISO and that has not been held for the Required Holding Periods, the option
holder will recognize ordinary income (but not capital gain) with respect to the
surrendered shares under the rules applicable to Disqualifying Dispositions.
The Company will be entitled to a corresponding deduction. The option holder's
basis in the shares received in exchange for the shares surrendered will be
increased by the amount of ordinary income the option holder recognizes.
Under the Incentive Plan, the Committee may allow options to be exercised
after the termination of an option holder's employment. However, if an ISO is
exercised more than three months after the termination of an option holder's
employment other than because of the option holder's death (or more than one
year after the termination of an option holder's employment because of
disability) the option holder will be taxed on the exercise as if the ISO were
an NQO.
iii. Effect of Section 16(b) of the Securities Exchange Act
of 1934.
The tax consequences to an option holder of the exercise of either an ISO
or an NQO may vary from those described above if the option holder is a person
who is subject to liability under Section 16(b) of the Exchange Act (typically,
officers, directors and major shareholders of a company) for certain dealings in
the Common Stock (a "16(b) Person"). In general, an option holder who is a
16(b) Person will not recognize income on receipt of the Common Stock until such
holder is no longer subject to a liability under Section 16(b) with respect to
the disposition of such Common Stock. However, the option holder may elect to
be taxed based on the fair market value of the shares on the exercise date (and
have a holding period beginning on the exercise date) by filing an election
under Section 83(b) of the Code within 30 days of the exercise date.
D. Other Awards.
Because other awards may take many forms, as determined by the Committee,
it is not possible to describe generally what their tax treatment will be.
E. Effect of Section 162(m) of the Internal Revenue Code.
Starting with tax years beginning after January 1, 1994, a publicly held
corporation may not deduct compensation paid to its CEO and its four other most-
highly compensated officers in excess of $1 million per officer during a
corporate taxable year except to the extent such amounts in excess of $1 million
qualify
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for an exception to this limitation. To qualify for this exception, such
amounts must be determined on the basis of preestablished, objective,
nondiscretionary formulae that meet certain shareholder and outside director
approval requirements. For this purpose, "compensation" is broadly defined and
would include, for example, income realized on the exercise of non-qualified
options or SARs, disqualifying dispositions of ISO shares, and the receipt (if a
timely Section 83(b) election is made) or vesting (if no Section 83(b) election
is made) of restricted stock. Thus, to the extent awards granted to the Chief
Executive Officer and the four other most highly compensated officers do not
qualify for the performance based-exception, the Company's deductions with
respect to such awards may be subject to the $1 million per executive deduction
limitation.
INCENTIVE PLAN BENEFITS. The following table sets forth the number of
nonqualified stock options that have been granted under the Incentive Plan as of
the date of the Proxy Statement to (i) the Chief Executive Officer, (ii) all
current executive officers as a group, (iii) all current Directors who are not
executive officers as a group, and (iv) all employees, including all current
officers who are not executive officers, as a group.
1995 LONG-TERM PERFORMANCE INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION NONQUALIFIED STOCK
- ----------------- OPTIONS GRANTED
-------------------
<S> <C>
Sean E. Reilly, President and Chief Executive Officer... 314,539
Executive Group (5 persons)............................. 746,987
Non-Executive Director Group............................ --
Non-Executive Officer Employee Group.................... 63,200
</TABLE>
No other Awards have been granted under the Incentive Plan to date. The
type or number of future Awards that will be granted under the Incentive Plan to
the above-named individuals and groups in the future is not determinable at this
time.
1995 DIRECTORS' OPTION PLAN
BACKGROUND AND PURPOSE. Set forth below is a description of the Wireless
One, Inc. 1995 Directors' Option Plan (the "Directors' Plan"). The Directors'
Plan was adopted by the Board of Directors of the Company on October 17, 1995
and approved by the stockholders of the Company and became effective on October
18, 1995. The Directors' Plan is not subject to the Employee Retirement Income
Security Act of 1974, as amended, and is not qualified under Section 401(a) of
the Code.
The purpose of the Directors' Plan is to compensate non-management
Directors for services rendered by such persons and to provide them with
significant additional incentives to promote the financial success of the
Company. In addition, the Directors' Plan may provide an incentive which may be
used to induce able persons to become or remain as directors of the Company.
ADMINISTRATION OF THE PLAN. The Directors' Plan is administered by the
Committee. The Committee must be composed of at least two members of the Board
each of whom has not, during the one year prior to service as an administrator
of the Directors' Plan, or during such service, been granted or awarded equity
securities pursuant to the Directors' Plan or any other plan of the Company or
any subsidiary; provided that: (i) participation in a formula plan meeting the
conditions of Rule 16b-3(c) (2) (ii) of the Exchange Act, (ii)
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participation in an ongoing securities acquisition plan meeting the conditions
of Rule 16b-3 (d) (2) (i) of the Exchange Act and (iii) an election to receive
an annual retainer fee in either cash or an equivalent amount of securities, or
partly in cash and partly in securities, shall not disqualify a director from
serving on the Committee. Subject to the preceding sentence, the Board has the
power to determine the number of members which the Committee shall have and to
change the number of membership positions on the Committee from time to time.
The Committee has the full power and authority to prescribe, amend and rescind
rules and procedures governing administration of the Directors' Plan. In
addition, the Committee has been granted the full power and authority (i) to
interpret the terms of the Plan, the terms of the options granted under the plan
and the rules and procedures established by the Committee and (ii) to determine
the meaning of or require ments imposed by or rights of any person under the
plan, any option or any rule or procedure established by the Committee.
PERSONS ELIGIBLE TO RECEIVE OPTIONS. A person shall be eligible to be
granted an option under the Directors' Plan only if on the proposed date of
grant for such option such person is a non-management director of the Company.
A person eligible to be granted an option is hereinafter referred to as a "Non-
management Director."
GRANT OF OPTIONS. The Committee has the right and the power to grant at
any time to any Non-management Director an option entitling such person to
purchase Common Stock from the Company in such quantity, at such price, on such
terms and subject to such conditions consistent with the provisions of the plan
as may be established by the Committee on or prior to the date of grant for such
option. Each option to purchase Common Stock which shall be granted by the
Committee pursuant to the provisions of the plan is hereinafter referred to as
an "Option." All options granted under the Directors' Plan must be nonqualified
options for federal income tax purposes. As of the date of this Proxy
Statement, no options have been granted under the Directors' Plan.
OPTION TERMS. The Committee has the power to determine the Non-management
Directors to whom Options are granted, the number of shares subject to each
Option, the number of Options awarded to each Non-management Director and the
time at which each Option is granted. Except as otherwise expressly provided in
the plan, the Committee is authorized also to determine, at the time of the
grant of each Option, all terms and conditions governing the rights and
obligations of the holder with respect to such Option, including but not limited
to: (a) the purchase price per share or the method by which the purchase price
per share will be determined; (b) the length of the period during which the
Option may be exercised and any limitations on the number of shares purchasable
with the Option at any given time during such period; (c) the times at which the
Option may be exercised; (d) any conditions precedent to be satisfied before the
Option may be exercised; and (e) any restrictions on resale of any shares
purchased upon exercise of the Option. Notwithstanding the foregoing, the price
at which each share may be purchased upon the exercise of any Option may not be
less than the per share market value on the date of grant for such Option. The
per share market value is equal to the fair market value of one share of Common
Stock, as determined in such manner as prescribed by the Committee in good
faith.
TRANSFER LIMITATIONS. No Option granted under the Directors' Plan may be
transferable other than by will or the laws of descent and distribution or
exercisable during the lifetime of the person to whom the Option is initially
granted by anyone other than the initial grantee.
NO RIGHT TO EMPLOYMENT CONFERRED. Nothing in the Directors' Plan or (in
the absence of an express provision to the contrary) in any agreement evidencing
the option grant (the "Option Agreement") (i) confers any right or obligation on
any person to continue as a director of the Company or (ii) affects or shall
affect in any way any person's right or the right of the Company or any
subsidiary, the stockholders or the Board
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of Directors to terminate such person's retention as a director with the Company
or any subsidiary at any time, for any reason, with or without cause.
EXERCISE PROCEDURES. Each Option must be exercised by written notice to
the Company. Any holder of any Option is required, as a condition to such
holder's right to purchase securities with such Option, to supply the Committee
at such person's expense with such evidence, representations, agreements or
assurances (including, but not limited to, opinions of counsel satisfactory to
the Committee) as the Committee may deem necessary or desirable in order to
establish to the satisfaction of the Committee the right of such person to
exercise such Option and of the propriety of the sale of securities by reason of
such exercise under the Securities Act and any other laws or requirements of any
governmental authority specified by the Committee. The Company is not be
obligated to sell any Shares subject to such Option until all evidence,
representations, agreements and assurances required by the Committee have been
supplied. An Option holder does not have any rights as a stockholder with
respect to shares issuable under any Option until and unless such shares are
sold and delivered to such holder.
PAYMENT OF PURCHASE PRICE. The purchase price of shares purchased upon the
exercise of an Option must be paid in full in cash or by check by the holder at
the time of the delivery of such shares, provided that the Committee may (but
need not) permit payment to be made by (i) delivery to the Company of
outstanding shares, (ii) retention by the Company of shares which would
otherwise be transferred to the Option holder upon exercise of the Option or
(iii) any combination of cash, check, the holder's delivery of outstanding
shares and retention by the Company of shares which would otherwise be
transferred to the Option holder upon exercise of the Option. In the event any
Common Stock is delivered to or retained by the Company to satisfy all or any
part of the purchase price, the part of the purchase price deemed to have been
satisfied by such Common Stock shall be equal to the product derived by
multiplying (i) the per share market value as of the date of exercise by (ii)
the number of shares delivered to or retained by the Company. No fractional
shares will be delivered to or retained by the Company in satisfaction of the
purchase price. To the extent such fractional share would result, the holder
shall make up such difference in cash. Any part of the purchase price paid in
cash or by check upon the exercise of any Option will be added to the general
funds of the Company and may be used for any proper corporate purpose. Unless
the Board shall otherwise determine, for each share delivered to or retained by
the Company as payment of all or part of the purchase price upon the exercise of
any Option, the aggregate number of shares subject to the Directors' Plan will
be increased by one share.
DEATH, PERMANENT DISABILITY OR TERMINATION WITHOUT CAUSE OF OPTION HOLDER.
Except as otherwise provided in the Option Agreement, if the holder of an Option
dies while such Option holder is still employed by 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 death. Except as
otherwise provided in the Option Agreement, if the holder of an Option dies and
such Option is exercisable at the date of death (for any reason including
acceleration pursuant to the preceding sentence), then such holder's estate or
the person or persons to whom the holder's rights under the Option shall pass by
reason of the holder's death shall have the right to exercise the Option for 90
days after the date of death, and the Option shall expire at the end of such 90
day period.
Except as otherwise provided in the Option Agreement, if the holder of an
Option suffers a Permanent Disability while such holder is still employed by 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 later of the date
of such Permanent Disability or the date of discovery of such Permanent
Disability (the "Permanent Disability Date"). Except as otherwise provided in
the Option Agreement, if the holder of an Option suffers a Permanent Disability
and such Option is exercisable at the Permanent Disability Date (for any reason
including
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<PAGE>
acceleration pursuant to the preceding sentence), then such holder shall have
the right to exercise such Option for 90 days after the Permanent Disability
Date, and the Option shall expire at the end of such 90 day period. Under the
Directors' Plan, "Permanent Disability" is defined to mean a physical or mental
disability suffered by an initial grantee of an Option which the Committee
determines in its sole discretion will permanently prevent such initial grantee
from working for the Company in the same or a substantially similar position as
such initial grantee occupied prior to suffering such disability.
Except as otherwise provided in the Option Agreement, if the holder of an
Option is terminated without Cause and such Option is currently exercisable at
the time of such termination, then such holder has the right to exercise such
Option for 30 days after the date of such termination, and the Option shall
expire at the end of such 30 day period. Under the Directors' Plan, "Cause" is
defined to mean (i) the commission of any act involving moral turpitude or any
act which brings or could bring the Company into disrepute or materially damages
its relations with its customers, suppliers, licensors or financing sources or
(ii) the violation of any statutory or common law duty of loyalty to the
Company.
WITHHOLDING TAXES. The Company or any subsidiary are entitled, if the
Committee deems it necessary or desirable, to withhold from an Option holder's
salary or other compensation (or to secure payment from the Option holder in
lieu of withholding) all or any portion of any withholding or other tax due from
the Company or any subsidiary with respect to any shares deliverable under such
holder's Option or the Committee may (but need not) permit payment of such
withholding by the Company's retention of shares which would otherwise be
transferred to the Option holder upon exercise of the Option.
SECURITIES LAW COMPLIANCE. Each Option granted under the Directors' Plan
is subject to the condition that such Option may not be exercised if and to the
extent the Committee determines that the sale of securities upon exercise of the
Option may violate the Securities Act or any other law or requirement of any
governmental authority. Under the Directors' Plan, the Company does not have
any obligation to register the shares subject to any Option granted under the
plan under the Securities Act or to maintain in effect any registration of such
shares which may be made at any time under the
Securities Act.
SHARES SUBJECT TO THE PLAN. An aggregate of 100,000 shares of Common Stock
has been reserved for the option grants under the Directors' Plan. Except as
otherwise provided in the plan, the Options shall be limited so that the sum of
the following shall not as of any given time exceed 100,000 shares: (i) all
shares subject to Options outstanding under the plan at the given time and (ii)
all shares which shall have been sold by the Company by reason of the exercise
at or prior to the given time of any of the Options. The Common Stock issued
under the plan may be either authorized and unissued shares, shares reacquired
and held in the treasury of the Company, or both, all as from time to time
determined by the Board. In the event any Option shall expire or be terminated
before it is fully exercised, then all shares formerly subject to such Option as
to which such Option was not exercised shall be available for any Option
subsequently granted in accordance with the provisions of the plan.
ADJUSTMENTS TO REFLECT ORGANIC CHANGES. The Board is required to
appropriately and proportionately adjust the number and kind of shares subject
to outstanding Options, the price for which shares may be purchased upon the
exercise of outstanding Options, and the number and kind of shares available for
Options subsequently granted under the Directors' Plan to reflect any stock
dividend, stock split, combination or exchange of shares, merger, consolidation
or other change in the capitalization of the Company which the Board determines
to be similar, in its substantive effect upon the plan or the Options, to any of
the changes expressly indicated in this sentence. The Board may (but shall not
be required to) make any appropriate adjustment to the number and kind of shares
subject to outstanding Options, the price for
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<PAGE>
which shares may be purchased upon the exercise of outstanding Options, and the
number and kind of shares available for Options subsequently granted under this
plan to reflect any spin-off, spin-out or other distribution of assets to
stockholders or any acquisition of the Company's stock or assets or other change
which the Board determines to be similar, in its substantive effect upon the
plan or the Options, to any of the changes expressly indicated in this sentence.
The Committee shall have the power to determine the amount of the adjustment to
be made in each case described in the preceding two sentences, but no adjustment
approved by the Committee shall be effective until and unless it is approved by
the Board. In the event of any reorganization, reclassification, consolidation,
merger or sale of all or substantially all of the Company's assets which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock, the Board may (but shall not be
required to) substitute the per share amount of such stock, securities or assets
for shares upon any subsequent exercise of any Option. If any fractional Share
becomes subject to any Option as a result of any such adjustment, then (i) such
Option may not be exercised with respect to such fractional share until and
unless such Option is exercised as to all other shares subject to such Option
and (ii) if such Option is exercised with respect to such fractional share, the
Company has the right to deliver to the holder in lieu of such fractional share
cash in an amount equal to the product derived by multiplying the fraction
representing the portion of a full share represented by such fractional share
times the per share market value on the exercise date of the Option with respect
to such fractional share established as prescribed in the plan.
AMENDMENT OF DIRECTORS' PLAN. Except as provided in the following two
sentences, the Board has the complete power and authority to amend the plan at
any time and no approval by the Company's stockholders or by any other person,
committee or other entity of any kind is required to make any amendment approved
by the Board effective. The Board does not, without the affirmative vote of the
holders of a majority of the securities of the Company present, or represented,
and entitled to vote at a meeting duly held in accordance with applicable law,
make any amendment to the plan which materially (i) increases the benefits
accruing to participants under the plan, (ii) increases the number of shares of
Common Stock which may be issued under the plan or (iii) modifies the
requirements as to eligibility for participation in the plan. No termination or
amendment of the plan may, without the consent of the holder of any Option prior
to termination or the adoption of such amendment, materially and adversely
affect the rights of such holder under such Option.
TERMINATION OF DIRECTORS' PLAN. The Board has the right and the power to
terminate the Directors' Plan at any time. No Option shall be granted under the
plan after its termination, but the termination of the plan will not have any
other effect. Any Option outstanding at the time of the termination of the plan
may be exercised after termination of the plan at any time prior to the
expiration date of such Option to the same extent such Option would have been
exercisable had this Plan not terminated. "Expiration Date" as applied to any
Option means the date specified in the Option Agreement between the Company and
the Holder as the expiration date of such Option. If no expiration date is
specified in the Option Agreement relating to any Option, then the Expiration
Date of such Option is the day prior to the seventh anniversary of the date of
grant of such Option.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of the
principal federal income tax consequences to participants of the grant and
exercise of certain Options under the Directors' Plan. This summary does not
purport to address all aspects of federal income taxes that may affect
participants in light of their individual circumstances. Moreover, this summary
is based upon the current provisions of the Code, Treasury Regulations
(including proposed Treasury Regulations) promulgated thereunder, rulings,
administrative pronouncements and court interpretations thereof in effect as of
the date hereof. It is possible that future legislative, regulatory, judicial
or administrative changes or interpretations could modify such tax consequences
and the conclusions reached below and that any such change could apply
retroactively. This
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<PAGE>
summary applies only to participants who acquire Options under the Directors'
Plan in connection with their service as a member of the Board and exercise such
options during their lifetimes. Because federal income tax consequences will
vary as a result of individual circumstances, each option holder is urged to
consult a tax advisor with respect to the tax consequences (including those
under state and local tax laws) of the grant and exercise of stock options under
the Directors' Plan. Moreover, the following summary relates only to option
holders' federal income tax treatment. The state, local and foreign tax
consequences may be substantially different from the federal income tax
consequences described herein.
A. Taxation of Ordinary Income and Capital Gains.
The ordinary income of an individual taxpayer currently is generally
subject to a maximum federal income tax rate of 39.6%, while long-term capital
gains of an individual currently are generally subject to a maximum tax rate of
28%. The effective marginal rates of some taxpayers may be higher to the extent
that they are subject to the phase-out of personal exemptions or the reduction
of itemized deductions that occur at certain income levels. The classification
of income as capital or ordinary is also relevant for taxpayers who have capital
losses or investment interest.
B. Nonqualified Options.
Under the Directors' Plan, a participant may only be granted options that
do not qualify as incentive stock options under Section 422 of the Code
(nonqualified options or "NQOs"). The holder of an NQO does not recognize
taxable income upon the grant of the NQO, nor is the Company entitled, for
income tax purposes, to a deduction upon such a grant. The option holder
recognizes ordinary compensation income (subject to withholding taxes) on the
exercise of an NQO equal to the excess of the fair market value of the shares
received on exercise over the option exercise price. The fair market value of
the shares is measured on the exercise date. If such taxable compensation is
properly included in the holder's gross income by the holder or is deemed to
have been properly included as a result of the timely satisfaction of certain
reporting requirements by the Company, the Company should be entitled to a
deduction in computing its federal income taxes in an amount equal to the
ordinary income recognized by the option holder on the exercise of the NQO.
If an option holder sells shares acquired pursuant to the exercise of an
NQO, the option holder will recognize capital gain or loss equal to the
difference between the selling price of the shares and their fair market value
on the exercise date. The capital gain is long-term or short-term, depending on
whether the option holder has held the option shares for more than one year
after the exercise date. The Company is not entitled to any deduction with
respect to any capital gain recognized by the option holder.
The previous paragraph assumes, for simplicity, that the option holder's
tax basis in the option shares sold is equal to the fair market value of such
shares on the exercise date. While this would be the case if the option holder
had paid the exercise price for such shares in cash, it would not normally be
the case if the option holder paid the exercise price in whole or in part by
delivery of other Company Common Stock. In the latter case, the option holder's
tax basis in, and holding period for, the previously acquired shares surrendered
carries over to an equal number of the option shares received on a share-for-
share basis. Shares received in excess of the shares surrendered have a tax
basis equal to the fair market value of those received shares on the exercise
date and the option holder's holding period for such received shares begins on
the exercise date. The option holder's capital gain or loss on a sale of option
shares would be determined based on the option holder's actual basis in the
shares sold and the long-term or short-term nature of any gain would be based on
the option holder's actual holding period.
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<PAGE>
C. Effect of Section 16(b) of the Securities Exchange Act of 1934.
The tax consequences to an option holder of the exercise of an NQO may vary
from those described above if the option holder is a person who is subject to
liability under Section 16(b) of the Exchange Act (typically, officers,
directors and major stockholders of a company) for certain dealings in the
Common Stock (a "16(b) Person"). In general, an option holder who is a 16(b)
Person will not recognize income on receipt of the Common Stock until such
holder is no longer subject to a liability under Section 16(b) with respect to
the disposition of such Common Stock. However, the option holder may elect to
be taxed based on the fair market value of the shares on the exercise date (and
have a holding period beginning on the exercise date) by filing an election
under Section 83(b) of the Code within 30 days of the exercise date.
D. Effect of Section 162(m) of the Internal Revenue Code.
Starting with tax years beginning after January 1, 1994, a publicly held
corporation may not deduct compensation paid to its chief executive officer and
its four other most-highly compensated officers in excess of $1 million per
officer during a corporate taxable year except to the extent such amounts in
excess of $1 million qualify for an exception to this limitation. To qualify
for this exception, such amounts must be determined on the basis of
preestablished, objective, nondiscretionary formulae that meet certain
stockholder and outside director approval requirements. For this purpose,
"compensation" is broadly defined and would include, for example, income
realized on the exercise of nonqualified options or SARs disqualifying
dispositions of ISO shares, and the receipt (if a timely Section 83(b) election
is made) or vesting (if no Section 83(b) election is made) of restricted stock.
Thus, to the extent awards granted to the Chief Executive Officer and the four
other most highly compensated officers do not qualify for the performance based-
exception, the Company's deductions with respect to such awards may be subject
to the $1 million per executive deduction limitation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
The following report has been submitted by the Compensation Committee of
the Board of Directors:
The Compensation Committee was established in connection with the Company's
initial public offering in October 1995. The Compensation Committee is
authorized to make recommendations to the Board of Directors with respect to
general employee benefit levels, determine the compensation and benefits of the
Company's officers and key employees and administer the Company's stock option
plans. At the time of its creation, Messrs. J.R. Holland, Jr. and William K.
Luby were appointed to the Committee. In February 1996, Mr. Daniel L. Shimer
was added to the Committee. None of the members of the Committee is an officer
or employee of the Company.
At the time of the Heartland Transaction, the Company's existing executive
officers (Messrs. Sternberg, Reilly and Norris) all entered into employment
agreements with the Company. Such employment agreements were based in large
part upon the terms of each executive's then existing employment agreement with
Old Wireless One, each of which was executed in April 1995 at the time of Old
Wireless One's sale of preferred stock and warrants to an investor group led by
CMCC. The terms of such agreements were the result of arms-length negotiations
between each executive and CMCC, as the principal investors in Old
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<PAGE>
Wireless One. The terms of the new agreements were subject to the approval of
the Compensation Committee.
In general, these employment agreements establish the base salary for each
executive during the term of the agreement, which is subject to adjustment based
upon increases in the Consumers Price Index. Further, the agreements establish
that such executives are eligible to receive performance bonuses if granted by
the Compensation Committee in its sole discretion based upon the operating
performance of the Company. In determining whether to grant bonuses to these
executives, the Compensation Committee intends to consider the financial
condition and operational performance of the Company during the last completed
fiscal year and the specific contributions of the individual executive officer
to the Company's performance and the achievement of strategic business
objectives.
The Company's remaining executive officers, Messrs. Alton C. Rye and J.
Robert Gary, were each hired by the Company in September 1995. The compensation
arrangements for such executives were approved by the full Board upon the
recommendation of Hans J. Sternberg. The salary levels for such executives were
determined by Mr. Sternberg based upon a review of salaries for similar
positions at comparable companies and over-all competitive and market
conditions. The compensation arrangements for such executives will be reviewed
annually by the Compensation Committee.
At the time of the Heartland Transaction, the Company adopted its Incentive
Plan, which authorizes the granting of options or other equity-based awards to
eligible employees with respect to an aggregate of 1,300,000 shares of Common
Stock. At such time, the Company assumed on the same terms and conditions the
nonqualified options previously issued to Messrs. Sternberg, Reilly and Norris
with respect to shares of common stock of Old Wireless One. As a result of the
Heartland Transaction, Old Wireless One became a wholly owned subsidiary of the
Company. In addition, the Compensation Committee approved the issuance of
nonqualified stock options for the following number of shares of Common Stock
with an exercise price of the initial public offering price of the Common Stock
to the following executive officers: Alton C. Rye -- 30,000 shares and J.
Robert Gary -- 25,000 shares. In determining the relative number of options
awarded, the Compensation Committee considered the position and responsibilities
of such executive. Such options were awarded as part of the overall
compensation package offered to Messrs. Rye and Gary at the time of their
hiring.
For the immediate future, the Compensation Committee intends to rely on
options granted under the Incentive Plan as a means to compensate key members of
management while the Company uses its reserves to develop its operating systems.
The Committee believes that stock options are a cost-effective method of
providing management with long-term compensation. In addition, the Committee
believes that stock options are a particularly appropriate long-term incentive
since they align the interests of the optionee with those of the stockholders by
providing value to the optionee tied directly to stock price increases. In the
future, the Compensation Committee intends also to rely on cash bonuses as a
means to compensate key members of management.
The foregoing report has been approved by all members of the Compensation
Committee.
J. R. Holland, Jr., Chairman
William K. Luby
Daniel L. Shimer
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PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return since the Common Stock became publicly traded on October 19, 1995 with
the Nasdaq Total Return Index and an index of certain companies selected by the
Company as comparative to the Company in that each is a wireless cable company.
The graph assumes that the value of the investment in the Company's Common Stock
at its initial public offering price of $10.50 per share and each index was
$100.00 on October 19, 1995.
COMPARISON OF THE COMPANY'S COMMON STOCK,
THE NASDAQ TOTAL RETURN INDEX AND A PEER GROUP INDEX(1)
[Chart to Come]
<TABLE>
<CAPTION>
October 19, 1995 December 29, 1995
---------------- -----------------
<S> <C> <C>
Wireless One, Inc. 100 157
Nasdaq Total Return Index 100 100
Peer Group Index 100 95
</TABLE>
- ------------------------
(1) The companies selected to form the Company's industry peer group index are
American Telecasting Development, Inc., CAI Wireless Systems, Inc.,
Heartland Wireless Communications, Inc. and People's Choice TV Corp. Total
returns are based on market capitalization.
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APPROVAL OF ISSUANCE OF COMMON STOCK
The Company proposes to issue up to an additional 3,553,333 shares of
Common Stock in connection with the TruVision Transaction. See "Certain
Relationships and Related Transactions-TruVision Transaction."
A vote for this proposal would permit the Company to consummate the
TruVision Transaction in accordance with the terms of the TruVision Merger
Agreement. The TruVision Merger Agreement is subject to certain conditions,
including: (i) the receipt of the approval of holders of a majority of Common
Stock, (ii) the receipt of certain third party consent and approvals, (iii) the
absence of any material adverse change in the business of TruVision and (iv)
other customary conditions. Accordingly, there is no assurance that the
TruVision Transaction will be consummated. If the TruVision Transaction is not
consummated and this proposal is approved, the Company will not issue any
additional Common Stock.
CMCC, Baseball Partners, Heartland Wireless Communications, Inc., Hans J.
Sternberg, Sean Reilly, Premier Venture Capital Corporation and Lamar
Advertising are parties to the Voting Agreement, pursuant to which they have
agreed to vote their shares to approve and adopt actions related to the
consummation of the TruVision Transaction. Collectively, the parties to the
Voting Agreement own 52.7% of the Common Stock. Accordingly, this proposal will
be adopted by the Company if the shares owned by such parties are voted in
accordance with the Voting Agreement. Attached as Annex A are pro forma
financial statements of the Company which give effect to the issuance of the
Common Stock and the consummation of the TruVision Transaction.
Proxies will be voted for and against approval of this proposal in
accordance with the specification marked thereon, and will be noted in favor of
approval if no specification is made. Approval requires a favorable vote of the
holders of the majority of the shares of Common Stock present at the Annual
Meeting in person or by proxy, assuming a quorum. Neither the Delaware General
Corporation Law nor the Company's Certificate of Incorporation provides that
stockholders of the Company have cumulative voting rights. Stockholders of the
Company have no preemptive rights.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
APPROVAL OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors recommends a vote for approval of the appointment of
KPMG Peat Marwick LLP as the independent certified public accountants of the
Company and its subsidiaries to audit the books and accounts for the Company and
its subsidiaries for the fiscal year ended December 31, 1996. During fiscal
1995, KPMG Peat Marwick LLP examined the financial statements of the Company and
its subsidiaries. It is expected that representatives of KPMG Peat Marwick LLP
will attend the Annual Meeting, with the opportunity to make a statement if they
so desire, and will be available to answer appropriate questions.
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND ADDITIONAL INFORMATION
Proposals of stockholders intended to be eligible for inclusion in the
Company's proxy statement and proxy card relating to the 1997 annual meeting of
stockholders of the Company must be received by the
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<PAGE>
Company on or before the close of business December 24, 1996. Such proposals
should be submitted by certified mail, return receipt requested.
The Company's By-Laws provide that a stockholder wishing to present a
nomination for election of a director or to bring any other matter before an
annual meeting of stockholders must give written notice to the Company's
Secretary not less than 130 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice must be received
prior to the close of business on the 10th day following such notice of the date
of the annual meeting was mailed and public disclosure was made. In addition,
such notice must meet certain other requirements. Any stockholder interested in
making such a nomination or proposal should request a copy of the By-Laws
provisions from the Secretary of the Company.
The Company will furnish without charge to each person whose proxy is being
solicited, upon written request of any such person, a copy of the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, as
filed with the SEC, including the financial statements and schedules thereto.
Requests for copies of such Annual Report on Form 10-K should be directed to the
Chief Financial Officer, Wireless One, Inc., 11301 Industriplex, Suite 4, Baton
Rouge, Louisiana 70809-4115.
OTHER MATTERS
The Company will bear the costs of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited by
the Directors, officers and employees of the Company by personal interview,
telephone or telegram. Such Directors, officers and employees will not be
additionally compensated for such solicitation, but may be reimbursed for out-
of-pocket expenses incurred in connection therewith. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation materials to the beneficial owners of Common
Stock held of record by such persons, and the Company will reimburse such
brokerage houses, custodians, nominees and fiduciaries for reasonable out-of-
pocket expenses incurred in connection therewith.
The Directors know of no other matters which are likely to be brought
before the Annual Meeting, but if any such matters property come before the
meeting the persons named in the enclosed proxy, or their substitutes, will vote
the proxy in accordance with their best judgment.
By Order of the Board of Directors
William C. Norris
Secretary
________, 1996
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. EVEN IF YOU EXPECT
TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE
ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following is incorporated in this Proxy Statement by reference and
made a part hereof: (a) Items 6, 7, 8 and 9 of the Company's 1995 Annual Report
for fiscal year ended December 31, 1995 (b) Items 1 and 2 of the Company's
Quarterly Report for the fiscal quarter ended March 31, 1996 and (c) the
financial statements of TruVision attached hereto as Annex B.
35
<PAGE>
ANNEX A
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 TruVision Purchase,
(ii) the Madison Purchase, (iii) the Shoal Purchase, and (iv) 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 events referred
to in the previous sentence, (ii) the AWS Purchase, (iii) the Heartland
Purchase, (iv) the Jacksonville Purchase, (v) the Chattanooga Purchase, (vi) the
Gadsden Purchase, (vii) the Skyview Purchase, and (viii) the channel rights
to be purchased by both TruVision and Wireless One via the BTA Auction. All
transactions are accounted for under the purchase method of accounting.
The Pro Forma Statements and accompanying notes should be read in conjunction
with Wireless One's consolidated financial statements incorporated by reference
into this Proxy and TruVisions financial statements included herein. 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 management believes are reasonable. In
the opinion of management, all adjustments have been made that are necessary to
present fairly the Pro Forma Statements.
A-1
<PAGE>
PRO FORMA BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
Wireless One TruVision Madison Shoal Proforma Proforma
Historical Historical Historical Historical Adjustments Combined
------------ ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 98,964,157 536,411 63,946 5,074 (1,800,000)(1) 74,372,348
(69,020)(5)
(6,880,000)(6)
(16,448,220)(7)
Marketable investment securities
-restricted 17,735,150 -- -- -- 17,735,150
Other current assets 1,540,727 380,577 126,008 2,720 32,000 (2) 2,082,032
----------- ---------- --------- ------- ----------- -----------
Total current assets 118,240,034 916,988 189,954 7,794 (25,165,240) 94,189,530
Property and equipment, net 22,912,095 11,862,038 1,133,925 409,610 580,000 (2) 36,897,668
Intangibles 28,491,658 2,447,387 64,999 12,153 103,713,840 (2) 134,730,037
Marketable investment securities
-restricted 35,946,439 -- -- -- 35,946,439
Other assets 7,703,873 3,781,054 1,835 -- (900,000)(8) 10,586,762
----------- ---------- --------- ------- ----------- -----------
Total assets 213,294,099 19,007,467 1,390,713 429,557 78,228,600 312,350,436
=========== ========== ========= ======= =========== ===========
</TABLE>
A-2
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
Wireless One TruVision Madison Shoal Proforma Proforma
Historical Historical Historical Historical Adjustments Combined
------------ ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Short-term debt 384,366 10,084,894 100,000 85,058 (185,058)(5) 10,469,260
Other current liabilities 12,346,619 3,336,475 450,532 442,101 (892,633)(5) 15,683,094
----------- ---------- ---------- -------- ----------- -----------
Total current liabilities 12,730,985 13,421,369 550,532 527,159 (1,077,691) 26,152,354
Deferred income taxes -- -- 10,905,334 (9) 10,905,334
BTA Auction indebtedness -- -- 23,712,880 (8) 23,712,880
Long-term debt 150,993,259 -- -- -- 150,993,259
Stockholders' equity:
Preferred stock -- 11,000 -- -- (11,000)(3) --
Common stock 134,988 24,000 1,000 300 35,533 (4) 170,521
(25,300)(3)
Additional paid-in capital 65,631,596 10,698,679 2,475,192 17,604 49,711,129 (4) 116,612,817
(13,191,475)(3)
1,270,092 (10)
Accumulated deficit (16,196,729) (5,147,581) (1,636,011) (115,506) 6,899,098 (3) (16,196,729)
----------- ---------- ---------- -------- ----------- -----------
Total stockholders' equity 49,569,855 5,586,098 840,181 (97,602) 44,688,077 100,586,609
----------- ---------- ---------- -------- ----------- -----------
213,294,099 19,007,467 1,390,713 429,557 78,228,600 312,350,436
=========== ========== ========== ======== =========== ===========
</TABLE>
A-3
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
MARCH 31, 1996
(1) This adjustment represents the cash paid to VCI in accordance with terms of
the Agreement and Plan of Merger.
(2) This adjustment represents the estimated fair value of the equipment and
other assets acquired and the excess of cost over tangible assets acquired
as part of the TruVision, Madison, and Shoal purchases and the License and
Channel Rights purchases. For purposes of Pro Forma Financial 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.
(3) These adjustments represent the elimination of the TruVision, Madison and
Shoal equity accounts.
(4) These adjustments represent the issuance of 3,373,333 and 180,000 shares of
Wireless One common stock to the TruVision shareholders and VCI,
respectively, in accordance with the terms of the Agreement and Plan of
Merger.
(5) These adjustments reflect the elimination of certain assets and liabilities
that the Company will not acquire as part of the Madison Purchase and the
Shoal Purchase as set forth in the respective agreements.
(6) This adjustment represents the $5.7 million cash paid for Madison and the
$1,180,000 cash paid for Shoal.
(7) This adjustment represents $3.9 million, $2.7 million, $1.5 million, $1.5
million, $950,000, and $820,000 paid for channel rights in the Memphis,
Jackson, Flippin, Hot Springs, Gadsden, and Jacksonville markets,
respectively, and the $5 million cash portion of the channel rights
obtained via the BTA auction.
(8) These adjustments represent debt to the United States government to finance
approximately $23.7 million of the purchase price and the utilization of
the $900,000 deposit for the channel rights obtained via the BTA auction.
(9) This adjustment reflects the recognition of deferred income taxes at an
estimated 35% effective tax rate on excess book value over tax basis
relating to the TruVision net assets acquired. The related increase in
intangibles will be amortized over an estimated useful life of 20 years.
(10) This adjustment reflects the value assigned to the options issued to
certain TruVision employees in exchange for TruVision options as set forth
in the TruVision Agreement and Plan of Merger.
A-4
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Wireless One TruVision Madison Shoal Proforma Proforma
Historical Historical Historical Historical Adjustments Combined
------------ ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 1,343,969 3,081,614 1,582,147 83,867 (486,100)(1) 5,605,497
Expenses
Systems operations 841,819 2,103,053 888,707 53,015 (134,787)(1) 3,751,807
Selling, general and
administrative 4,431,839 2,086,200 404,804 49,915 6,972,758
Depreciation and amortization 1,783,066 1,266,301 577,240 61,306 (35,131)(2) 4,958,045
759,996 (4)
545,267 (5)
---------- ---------- --------- -------- ---------- -----------
Total operating expenses 7,056,724 5,455,554 1,870,751 164,236 1,135,345 15,682,610
---------- ---------- --------- -------- ---------- -----------
Operating loss (5,712,755) (2,373,940) (288,604) (80,369) (1,621,445) (10,077,113)
---------- ---------- --------- -------- ---------- -----------
Interest income 2,024,116 15,063 -- -- 2,039,179
Interest expense (4,070,184) (143,505) (17,440) (35,137) (4,266,266)
Other 66,349 -- 36,271 -- 102,620
---------- ---------- --------- -------- ---------- -----------
Net Loss (7,692,474) (2,502,382) (269,773) (115,506) (1,621,445) (12,201,580)
Preferred stock dividends and
discount accretion (786,389) (687,000) -- -- 687,000 (3) (786,389)
---------- ---------- --------- -------- ---------- -----------
Net loss applicable to common
stock (8,478,863) (3,189,382) (269,773) (115,506) (934,445) (12,987,969)
========== ========== ========= ======== ========== ===========
Net loss per common share (2.02) (1.68)
========== ========== ===========
Weighted average common shares
outstanding 4,187,736 3,553,333 7,741,069
========== ========== ===========
</TABLE>
A-5
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(1) These adjustments represent the elimination of TruVision's, Madison's and
Shoal's installation revenue and direct commissions in order to conform
accounting policies for the costs of subscriber installations.
(2) This adjustment represents the reduction in depreciation expense as a result
of the conforming adjustments in note 1.
(3) This adjustment reflects the elimination of TruVision's preferred dividends
as a result of the conversion of TruVision's convertible preferred stock
into common stock of Wireless One, Inc. prior to the merger.
(4) This adjustment reflects amortization of the intangible assets acquired from
TruVision, Madison and Shoal. For purposes of these Pro Forma Financial
Statements, lives of 20 years have been used for licenses and channel
rights.
(5) This adjustment reflects the incremental amortization of excess purchase
price over the fair value of net identifiable assets acquired in the
TruVision acquisition over 20 years.
A-6
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Wireless One TruVision Madison Shoal Proforma Proforma
Historical Historical Historical Historical Adjustments Combined
------------ ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues 940,777 1,286,026 392,629 20,967 (138,197)(1) 2,502,202
Expenses
Systems operations 555,942 885,711 152,554 13,254 (36,668)(1) 1,570,793
Selling, general and
administrative 2,637,553 911,024 191,675 12,479 3,752,731
Depreciation and amortization 964,005 584,544 129,134 15,327 (17,566)(2) 2,097,854
286,093 (4)
136,317 (5)
---------- ---------- --------- -------- ---------- -----------
Total operating expenses 4,157,500 2,381,279 473,363 41,060 368,176 7,421,378
---------- ---------- --------- -------- ---------- -----------
Operating loss (3,216,723) (1,095,253) (80,734) (20,093) (506,373) (4,919,176)
---------- ---------- --------- -------- ---------- -----------
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 (744,186) 19,703 -- (704,059)
---------- ---------- --------- -------- ---------- -----------
Net Loss (6,079,832) (2,003,437) (63,941) (28,877) (506,373) (8,682,460)
Preferred stock dividends and
discount accretion -- (220,000) -- -- 220,000 (3) --
---------- ---------- --------- -------- ---------- -----------
Net loss applicable to common
stock (6,079,832) (2,223,437) (63,941) (28,877) (286,373) (8,682,460)
========== ========== ========= ======== ========== ===========
Net loss per common share (0.45) (0.51)
========== ========== ===========
Weighted average common shares
outstanding 13,498,752 3,553,333 17,052,085
========== ========== ===========
</TABLE>
A-7
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(1) These adjustments represent the elimination of TruVision's, Madison's, and
Shoal's installation revenue and direct commissions in order to conform
accounting policies for the costs of subscriber installations.
(2) This adjustment represents the reduction in depreciation expense as a result
of the conforming adjustments in note 1.
(3) This adjustment reflects the elimination of TruVision's preferred dividends
as a result of the conversion of TruVision's convertible preferred stock
into common stock of Wireless One, Inc. prior to the merger.
(4) This adjustment reflects amortization of the intangible assets acquired from
TruVision, Madison and Shoal. For purposes of these Pro Forma Financial
Statements, lives of 20 years have been used for licenses and channel
rights.
(5) This adjustment reflects the incremental amortization of excess purchase
price over the fair value of net identifiable assets acquired in the
TruVision acquisition.
A-8
<PAGE>
ANNEX B
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.
B-1
<PAGE>
TRUVISION WIRELESS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $2,712,851 $ 88,882
Short-term investments............................... 75,000 36,300
Accounts receivable (less allowance for doubtful
accounts of $34,000 and
$150,426, respectively)............................. 41,178 283,656
Other current assets................................. 11,005 108,376
---------- -----------
Total current assets................................ 2,840,034 517,214
---------- -----------
Property, plant and equipment:
Transmission equipment............................... 1,197,425 3,029,214
Subscriber premises equipment and installation costs. 1,841,868 6,866,806
Office furniture and equipment....................... 263,743 437,169
Vehicles............................................. 223,996 215,344
Buildings and improvements........................... 204,340 326,090
---------- -----------
3,731,372 10,874,623
Less: accumulated depreciation....................... (217,676) (1,375,402)
---------- -----------
3,513,696 9,499,221
Uninstalled subscriber premises equipment............ 1,006,854 546,316
---------- -----------
4,520,550 10,045,537
---------- -----------
License costs, net--Notes 2 and 3..................... 157,480 179,592
Organizational costs, net............................. 374,654 285,318
Deferred costs, net and other assets--Note 7.......... 90,341 1,849,556
---------- -----------
Total assets........................................ $7,983,059 $12,877,217
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................... $ 813,471 $ 713,218
Accrued expenses..................................... 77,671 43,000
Short-term debt...................................... -- 4,531,464
---------- -----------
Total current liabilities........................... 891,142 5,287,682
---------- -----------
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
Series B, Convertible Preferred Stock, $.01 par
value; 300,000 authorized, issued and outstanding in
1995 (liquidation preference of $3,000,000)......... -- 3,000
Common Stock, $.01 par value; 6,000,000 shares
authorized, 2,400,000 shares issued and outstanding. 24,000 24,000
Additional paid-in capital........................... 7,701,679 10,698,679
Accumulated deficit.................................. (641,762) (3,144,144)
---------- -----------
Total stockholders' equity.......................... 7,091,917 7,589,535
---------- -----------
Total liabilities and stockholders' equity.......... $7,983,059 $12,877,217
========== ===========
</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.
B-2
<PAGE>
TRUVISION WIRELESS, INC.
STATEMENTS OF OPERATIONS (NOTE 1)
<TABLE>
<CAPTION>
MISSISSIPPI WIRELESS TV L.P. TRUVISION WIRELESS, INC.
------------------------------------- ------------------------------------
PERIOD FROM
INCEPTION
(NOVEMBER 2, 1993)
TO DECEMBER 31, JANUARY 1, 1994 TO AUGUST 25, 1994 TO YEAR ENDED
1993 AUGUST 24, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Service revenues...... $ -- $ 16,233 $ 264,491 $ 2,595,514
Installation revenues. -- 57,137 166,043 486,100
--------- ---------- ---------- -----------
Total revenues....... -- 73,370 430,534 3,081,614
--------- ---------- ---------- -----------
Expenses:
System operating
expenses............. 116,733 278,000 425,603 2,103,053
Selling, general and
administrative
expenses............. 111,186 668,009 534,431 2,086,200
Depreciation and
amortization......... -- 82,196 167,990 1,266,301
--------- ---------- ---------- -----------
Total operating
expenses............ 227,919 1,028,205 1,128,024 5,455,554
--------- ---------- ---------- -----------
Loss from operations.... (227,919) (954,835) (697,490) (2,373,940)
Interest income......... -- 6,632 55,728 15,063
Interest expense........ -- -- -- (143,505)
--------- ---------- ---------- -----------
Net loss................ (227,919) (948,203) (641,762) (2,502,382)
--------- ---------- ---------- -----------
Preferred dividend
requirement............ -- -- (227,000) (687,000)
--------- ---------- ---------- -----------
Net loss attributable to
common stockholders.... $(227,919) $ (948,203) $ (868,762) $(3,189,382)
========= ========== ========== ===========
Loss per common share*.. N/A N/A $ (0.36) $ (1.33)
========= ========== ========== ===========
Weighted average shares
outstanding*........... N/A N/A 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.
B-3
<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>
GENERAL LIMITED TOTAL 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.
B-4
<PAGE>
TRUVISION WIRELESS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTE 1)
FOR THE PERIOD FROM AUGUST 25, 1994 THROUGH DECEMBER 31, 1994
AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
STOCK 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)
======= ====== ======= ====== ========= ======= =========== ===========
</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.
B-5
<PAGE>
TRUVISION WIRELESS, INC.
STATEMENTS OF CASH FLOWS (NOTE 1)
<TABLE>
<CAPTION>
MISSISSIPPI WIRELESS TV L.P. TRUVISION WIRELESS, INC.
---------------------------------- ----------------------------
PERIOD FROM
INCEPTION
(NOVEMBER 2, 1993) JANUARY 1, 1994 AUGUST 25, 1994 YEAR ENDED
THROUGH TO AUGUST 24, TO DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1993 1994 1994 1995
------------------ --------------- --------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net loss............. $ (227,919) $ (948,203) $ (641,762) $(2,502,382)
Adjustments to recon-
cile net loss to net
cash provided by op-
erating activities:
Depreciation and
amortization...... -- 82,196 167,990 1,266,301
Provision for
losses on accounts
receivable........ -- -- 34,000 126,370
Changes in operat-
ing assets and
liabilities:
Increase in ac-
counts receiv-
able............ -- (105,395) (23,783) (368,848)
Decrease
(increase) in
other current
assets.......... -- (76,969) 63,014 (97,371)
Increase (de-
crease) in ac-
counts
payable......... 17,785 431,319 364,367 (100,254)
Increase (de-
crease) in ac-
crued
liabilities..... -- -- 77,671 (34,671)
---------- ----------- ----------- -----------
Cash provided by (used
in) operating activi-
ties: (210,134) (617,052) 41,497 (1,710,855)
---------- ----------- ----------- -----------
Cash flows from invest-
ing activities:
Capital expenditures. (177,000) (2,555,318) (1,896,615) (6,682,712)
Payments for license
and organizational
costs............... -- (541,823) (165,505) --
Increase in deferred
costs............... -- -- -- (1,250,566)
Deposits for acquisi-
tions............... -- -- -- (100,000)
Deposit for FCC auc-
tion................ -- -- -- (450,000)
Proceeds from short-
term investments.... -- -- -- 38,700
Purchase of short-
term investments.... -- -- (75,000) --
---------- ----------- ----------- -----------
Net cash used in in-
vesting activities.. (177,000) (3,097,141) (2,137,120) (8,444,578)
---------- ----------- ----------- -----------
Cash flows from financ-
ing activities:
Proceeds from issu-
ance of preferred
stock............... -- -- 8,000,000 3,000,000
Preferred stock issu-
ance costs.......... -- -- (761,361) --
Principal payments on
notes payable....... -- -- (3,308,000) --
Proceeds from issu-
ance of short-term
debt................ -- 3,308,000 -- 4,531,464
Proceeds from part-
ners' contributions. 1,081,000 590,162 -- --
---------- ----------- ----------- -----------
Net cash provided by
financing activities.. 1,081,000 3,898,162 3,930,639 7,531,464
---------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents........... 693,866 183,969 1,835,016 (2,623,969)
Cash and cash equiva-
lents at beginning of
period................ -- 693,866 877,835 2,712,851
---------- ----------- ----------- -----------
Cash and cash equiva-
lents at end of peri-
od.................... $ 693,866 $ 877,835 $ 2,712,851 $ 88,882
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-6
<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. Losses incurred since inception are attributable primarily to
start-up costs, marketing and sales costs and depreciation of assets used in
the Company's wireless cable systems in various markets. The Company expects
to continue to
B-7
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
See "Risk Factors" in the Company's Prospectus for further discussion.
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.
B-8
<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 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>
B-9
<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, 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, 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 deferred 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, 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.
B-10
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 stockholder's
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.) 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 1995 of which
approximately $65,000 was capitalized. No income taxes were paid in 1995.
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.
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.
B-11
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
NOTE 4: SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ----------
<S> <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
</TABLE>
The borrowings 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.
B-12
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 500,000 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. No preferred
dividends have been declared. See Note 10.
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. It is anticipated that the
Convertible Preferred Stock will be converted into Common Stock upon completion
of the Offering. See Note 10.
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.
B-13
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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,
------------------
1994 1995
------- ----------
<S> <C> <C>
Deferred costs and other assets consist of:
Deferred acquisition costs................................ $ -- $1,027,216
Advances to EdNet--Note 3................................. 84,000 132,000
Deposit for future acquisition--Note 10................... -- 100,000
FCC auction deposit....................................... -- 450,000
Other..................................................... 6,341 140,340
------- ----------
$90,341 $1,849,556
======= ==========
</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.
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.
B-14
<PAGE>
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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. 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 Shoal Wireless, Inc., a wireless cable
provider located in Lawrenceburg, Tennessee, for $1,180,000 in cash.
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). The Company also has in process a public offering
of Units, comprising Senior Discount Notes and Warrants, and an initial public
offering of Common Stock (the "Offerings") with expected aggregate net proceeds
of approximately $125 million.
In connection with the Offerings 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 ($914,000 at
December 31, 1995) will be paid. The proceeds from the Offerings are expected
to be used to pay the cash portion of certain of the acquisitions discussed
above, repay debt incurred as a result of the acquisitions, pay the Convertible
Preferred Stock dividends, pay the Phase II Payment (see Note 1) and finance
the launch, initial development and expansion of certain wireless cable
markets.
The Company's Certificate of Incorporation will provide for a Board of
Directors comprised of seven members. Pursuant to a stockholders agreement
between MWTV and CVCA, four directors will be designated by MWTV and two
directors will be designated by CVCA. The stockholders agreement will prohibit
certain directors from being employees or affiliates of the Company, MWTV or
CVCA.
B-15
<PAGE>
TruVision Wireless, Inc.
Balance Sheet
(Unaudited)
12/31/95 3/31/96
-------- -------
ASSETS
Cash and Short-Term Investments 125,182 536,411
Accounts Receivable (Net) 283,656 237,644
Other Current Assets 108,376 142,933
---------- ----------
Total Current Assets 517,214 916,988
---------- ----------
Property, Plant, and Equipment
Transmission Equipment 3,029,214 3,419,840
Subscriber Equipment 6,886,806 8,476,038
Office Furniture and Equipment 437,169 610,224
Vehicles 215,344 216,144
Buildings and Leasehold Improvements 326,090 348,654
Uninstalled Subscriber Premises Equipment 546,316 696,493
---------- ----------
11,420,939 13,767,393
Less: Accumulated Depreciation (1,375,402) (1,905,355)
---------- ----------
10,045,537 11,862,038
License Cost, Net 179,592 2,447,387
Organizational Costs, Net 285,318 253,370
Non-compete agreements -- 100,000
Deferred Costs and other assets, net 1,849,556 4,171,870
-- --
---------- ----------
Total Assets 12,877,217 19,751,653
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable/Accrued Expenses 756,218 3,336,475
Notes Payable 4,531,464 10,084,894
Other Liabilities -- --
---------- ----------
Total Current Liabilities 5,287,682 13,421,369
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock 24,000 24,000
Preferred Stock 11,000 11,000
Additional Paid in Capital 10,698,679 10,698,679
Accumulated Deficit (3,144,144) (4,403,395)
---------- ----------
Total Stockholders' Equity 7,589,535 6,330,284
---------- ----------
Total Liabilities and Stockholders' Equity 12,877,217 19,751,653
========== ==========
B-16
<PAGE>
TruVision Wireless, Inc.
Statement of Operations
For the 3 months ended March 31, 1996
(Unaudited)
Revenues 1,286,026
Expenses:
Operating 885,711
Selling, general and
administrative 911,024
Depreciation and amortization 584,544
----------
Income (loss) from Operations (1,095,253)
Other income (expense):
Interest income --
Interest expense (163,998)
Other income --
----------
Income (loss) before income taxes (1,259,251)
Provision for taxes --
----------
Net Loss (1,259,251)
Preferred dividend requirement (220,000)
----------
Net loss applicable to common
shareholders (1,479,251)
==========
Number of shares issued and
outstanding: 2,400,000
Earnings per share: (0.62)
B-17
<PAGE>
WIRELESS ONE, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ______, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Sean E. Reilly, William K. Luby
and William C. Norris, and each or any of them, proxies of the undersigned, with
full power of substitution, to vote all of the shares of Wireless One, Inc., a
Delaware corporation (the "Company"), which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of the Company to be held at the
Company's corporate headquarters, 11301 Industriplex, Suite 4, Baton Rouge,
Louisiana 70809-4115 on _____, ______, 1996 at 10:00 a.m. or at any adjournment
or postponement thereof, as shown on the voting side of this card.
See Reverse
Side
<PAGE>
Please mark your votes as in this example.
[X]
This proxy will be voted as specified. If a choice is not specified, this
proxy will be voted FOR the nominees for Class I Directors, FOR Proposal 2
and FOR Proposal 3.
1. Election of All Nominees for Class I Directors Listed FOR Withheld
Hereon. [_] [_]
Nominees: Arnold L. Chavkin
Hans J. Sternberg
David E. Webb
For all nominees listed hereon, except vote withheld form the following
nominee(s):
____________________________________
2. Approval of the Issuance of up to 3,553,333 FOR AGAINST ABSTAIN
shares of Common Stock. [_] [_] [_]
3. Approval of the appointment of KPMG Peat FOR AGAINST ABSTAIN
MarwicK LLP as the independent certified public [_] [_] [_]
accountants for the Company's 1996 fiscal year.
The Board of Directors recommends a vote FOR this proposal.
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
or postponement thereof.
This proxy should be dated, signed by the stockholder exactly as the
stockholder's name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
Please sign exactly as name(s) appear hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
________________________________________
________________________________________
Signature(s) Date
<PAGE>
May 21, 1996
TO OUR STOCKHOLDERS:
It is with feelings of satisfaction that we present our stockholders with
Wireless One's first annual report. 1995 was an exciting year of growth -- both
operationally and financially. We brought in new financial and strategic
partners, completed initial public offerings of both debt and equity, added
seven new systems to our operations, and through our licensing activities added
significant additional spectrum rights to our portfolio. These accomplishments
and others will be discussed in this letter as we look forward to a challenging
1996 for your Company.
NEW FINANCIAL AND STRATEGIC PARTNERS
In April, 1995, Wireless One completed a preferred stock offering led by
Chase Capital, in which the Company raised approximately $14.8 million. This
financing enabled Wireless One to complete its acquisition of additional
spectrum rights in Texas and Louisiana, as well as providing needed capital for
system launches and subscriber growth. Contemporaneous with Wireless One's
initial public offering, the Company completed a successful merger with
Heartland Wireless Communications, Inc., whereby Heartland contributed to
Wireless One significantly all of its wireless cable operations and spectrum
rights in the Southeast. This merger doubled Wireless One's line of sight
households and provided the Company with a strategic partner.
INITIAL PUBLIC OFFERINGS
In October, 1995 Wireless One completed its initial public offerings of
3,450,000 shares of Common Stock priced at $10.50 per share and $150,000,000 of
Senior Notes. Total gross proceeds from the transaction aggregated
approximately $186 million. This capital will enable the Company to accelerate
its growth and to take advantage of additional consolidation opportunities in
its target markets. Our stock is listed on the Nasdaq National Market under the
symbol "WIRL" and currently exceeds its price at the time of the public
offering.
NEW SYSTEMS IN OPERATION
During 1995, we launched five new systems and acquired two operating
systems through our merger with Heartland. In the final quarter of 1995 after
our initial public offering, our subscriber base grew from approximately 5,500
subscribers to approximately 7,500 subscribers at year end (a 40% increase).
With the 1995 launches and acquisitions, Wireless One had 10 systems in
operation at year end and since then has expanded that number to 14 systems in
operation with over 15,000 subscribers. The chart below indicates the new
systems added in 1995:
LAUNCH OR
MARKET ACQUISITION DATE
- --------------------------------------------------------------------------------
Bryan, Texas May
Pensacola, Florida July
Panama City, Florida September
Monroe, Louisiana October
Milano, Texas October
Tullahoma, Tennessee November
Bunkie, Louisiana December
<PAGE>
LICENSING ACTIVITY AND FCC AUCTION RESULTS
In September and October of 1995, the FCC accepted applications for new and
modified ITFS frequencies which Wireless One incorporates into its wireless
cable systems. Through the efforts of our licensing team, Wireless One
submitted applications for wireless cable frequencies which should significantly
enhance our market coverage. These applications include new markets extending
our coverage over an additional half a million households in Alabama, Georgia,
and Louisiana. In addition, Wireless One has recently completed its
participation in the FCC auction of wireless cable BTA rights which began in
November, 1995. We believe that our efforts at the auction and future
aggregation efforts will lead to the addition of substantial households in BTA
clusters which we have secured in Kentucky and South Carolina. Finally, we are
pleased with the aggregation efforts of our 50% owned joint venture in North
Carolina with the Concord Telephone Company. Through our ITFS application
efforts and bidding in the FCC's BTA auction, our share of the secured channel
rights should cover approximately 500,000 new line of sight households in the
state of North Carolina. Our efforts in North Carolina are ongoing, but it is
clear to date we have aggregated significant spectrum rights at a low basis.
1996 OUTLOOK
Demonstrably, Wireless One enjoyed a successful 1995. Many opportunities
and challenges lie ahead. We are hitting our launch target of approximately one
new system a month and are adding subscribers, both in existing systems and
newly launched systems. Because of our successful fund raising activities, we
have the capital to fund our growth. Moreover, we have in place the personnel
to manage our growth prudently and effectively. Our management team understands
and appreciates the task ahead of it. We are focused on our strategy of
acquiring customers in rural southeastern markets as quickly as possible. We
appreciate the trust represented by your investment in Wireless One and look
forward to reporting successful results in 1996. Our goal is increased
shareholder value, and we are dedicated to that.
/s/ Sean Reilly
Hans J. Sternberg Sean Reilly
Chairman President and Chief Executive Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995 or
-------------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to ________
Commission file number 0-26836
-------------------
WIRELESS ONE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 72-1300837
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5551 Corporate Boulevard, Suite 2K, Baton Rouge, LA 70808
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (504) 926-7778
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
----------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 21, 1996 at a closing sale price of $14.25 as reported by
the Nasdaq National Market was approximately $81,626,237.
As of March 21, 1996, the Registrant had 13,498,752 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be used in connection with
the solicitation of proxies for the Annual Meeting to be held on May 30, 1996
(the "Proxy Statement") are incorporated by reference in Part III of this Annual
Report of Form 10-K (the "Form 10-K").
<PAGE>
WIRELESS ONE, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I ........................................................................................... 1
Item 1. Business.................................................................. 1
Item 2. Properties................................................................ 21
Item 3. Legal Proceedings......................................................... 21
Item 4. Submission of Matters to a Vote of Security-Holders....................... 21
Item 4A. Executive Officers of the Registrant...................................... 22
PART II........................................................................................... 23
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. 23
Item 6. Selected Financial Data................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 24
Item 8. Financial Statements and Supplementary Data............................... 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................... 30
PART III.......................................................................................... 30
Item 10. Directors and Executive Officers of the Registrant........................ 30
Item 11. Executive Compensation.................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 30
Item 13. Certain Relationships and Related Transactions............................ 30
PART IV........................................................................................... 31
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 31
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company develops, owns and operates wireless cable television systems,
primarily in small to mid-size markets located in the southeastern United
States. Wireless cable television systems transmit programming via microwave
frequencies from a headend to a small receive-site antenna at each subscriber's
location. The Company has targeted 37 markets located in Texas, Louisiana,
Tennessee, Alabama, Georgia and Florida, representing approximately 4.7 million
households, approximately 3.4 million of which the Company believes 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 located at the subscriber's location.
The Company targets small to mid-size markets with a significant number of
LOS households that are unpassed by traditional hard-wire cable. Many of these
households, particularly in rural areas, have limited access to local off-air
VHF/UHF programming (such as ABC, NBC, CBS and Fox), and typically do not have
access to subscription television service except via satellite receivers which
generally are more costly than wireless cable. The Company offers its
subscribers local off-air VHF/UHF programming, as well as HBO, Showtime, The
Disney Channel, ESPN, CNN, USA, WGN, WTBS, The Discovery Channel, The Nashville
Network, A&E and other programming services. The programming that the Company
offers in each market varies depending upon market conditions and the
availability of channel capacity. Generally, once a system is launched, the
Company increases channel offerings when possible. Substantially all of the
Company's subscribers have set-top converters that are addressable, which
enhances the Company's ability to offer subscribers pay-per-view services. The
Company markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
subscription television alternatives: picture quality and reliability,
customer service, programming features and price.
The Company's targeted markets include (i) 13 markets in which the Company
currently has systems in operation (the "Operating Systems"), (ii) two markets
in which the Company's systems are currently under construction and in which
the Company expects to begin operations by April 1996, (iii) 10 near-term
launch markets in which the Company believes that it has obtained sufficient
wireless cable channel rights to launch commercially viable systems, and (iv)
12 long-term launch markets in which the Company believes that it has obtained
or expects to obtain, subject to necessary approvals by the Federal
Communications Commission (the "FCC"), sufficient wireless cable channel rights
to launch commercially viable systems. At December 31, 1995 and February 29,
1996, the Company's Operating Systems had approximately 7,525 and 10,372
subscribers, respectively.
In October 1995, the Company acquired (i) the wireless cable business
previously conducted by Wireless One Operating Company ("Old Wireless One") and
(ii) the wireless cable television assets and all related liabilities of
certain subsidiaries of Heartland Wireless Communications, Inc. ("Heartland")
with respect to certain of Heartland's markets (the "Heartland Division").
Unless the context otherwise requires, references herein to the "Company"
include (i) Wireless One, Inc. and its direct and indirect subsidiaries,
including the operations of the Heartland Division subsequent to its
acquisition by the Company, and (ii) the business conducted by Old Wireless One
and its direct and indirect subsidiaries prior to the Company's acquisition of
the Heartland Division.
1
<PAGE>
BUSINESS OPERATING STRATEGY
The Company's primary business objective is to develop, own and operate
wireless cable television systems in rural markets in which the Company
believes it can achieve positive system cash flow within 18 months after
commencing operations. The Company plans to further its 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 that wireless cable service is the
most economical subscription television alternative for many of these
households. The Company believes that it can commence service successfully in
most of its markets with as few as 12 wireless cable channels. Nevertheless,
the Company typically commences operations in a given market utilizing all of
the channels available to it at such time, which in most cases has exceeded 12.
This strategy gives the Company a leading position in its markets, facilitating
the Company's ability to acquire additional wireless cable channel rights in
such markets. In addition, the Company enjoys low labor costs in its rural
markets. Finally, the Company believes that its markets typically have a
stable base of potential subscribers that will enable it to maintain a
subscriber turnover rate of below 2% per month, as compared to a turnover rate
of approximately 3% per month typically experienced by traditional hard-wire
cable operators, resulting in reduced installation and marketing expenses.
Consequently, the Company believes that its rural market focus will enable it
to achieve positive system cash flow with relatively few subscribers.
Low Cost Structure. Wireless cable systems typically cost significantly
less to build and operate than traditional hard-wire cable systems. While both
traditional hard-wire cable operators and wireless cable operators must
construct a headend in each market, traditional hard-wire operators must
install an extensive network of co-axial or fiber optic cable, amplifiers and
related equipment (the "Cable Plant") in order to transmit signals from the
headend to subscribers. In contrast, once the headend is constructed, the
additional costs to add a subscriber are variable and are further offset by
installation fees paid by subscribers. Additionally, without a Cable Plant,
wireless cable operators typically incur lower system maintenance costs and
depreciation costs. At December 31, 1995, the Company estimates that each
additional wireless cable subscriber with a single set-top converter requires
an incremental capital expenditure of approximately $425, consisting of, on
average, $290 of materials and $135 of installation labor and overhead charges.
Managed Subscriber Penetration. The Company attempts to manage system
launch costs and subscriber growth in order to achieve positive system cash
flow rapidly. Within a system, the Company initially directs its marketing
efforts at households not currently passed by hard-wire cable. The Company
then expands its marketing efforts into the more competitive segments of the
market, targeting both passed and unpassed households.
Geographic Clusters and Economies of Scale. The Company believes that its
geographic clustering strategy will enable it to achieve cost savings through
economies of scale in management, sales and customer service.
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
households that are within the Company's service area (i.e., signal pattern).
"Estimated LOS Households" represents the Company's estimate of the households
that can receive the Company's signal after applying a discount to account for
those homes that the Company
2
<PAGE>
estimates will be unable to receive service due to certain characteristics of
the particular market, such as terrain and foliage.
The Company does not hold directly any of the FCC channel licenses.
Instead, 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 near-term and long-term launch 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.
<TABLE>
<CAPTION>
APPROXIMATE
SUBSCRIBERS
ESTIMATED ESTIMATED ACQUISITION OR CHANNELS AT
TOTAL LOS LAUNCH AT LAUNCH OR CURRENT DECEMBER 31,
HOUSEHOLDS/(1)/ HOUSEHOLDS/(1)/ DATE ACQUISITION/(2)/ CHANNELS/(2)/ 1995
--------------- --------------- ------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING SYSTEMS:
Brenham, Tx................. 42,931 38,638 February 1996 20 20 -
Bryan/College Station, Tx... 102,676 92,408 May 1995 31 32 1,445
Milano, Tx.................. 40,880 36,792 October 1995 20 20 1,297
Wharton, Tx................. 102,252 92,027 June 1994 20 21 1,579
Bunkie, La.................. 96,157 81,752 December 1995 20 20 62
Lafayette, La/(3)/.......... 180,277 144,222 January 1994 11 11 593
Lake Charles, La/(3)/....... 111,560 89,248 April 1994 17 23 487
Monroe, La.................. 114,137 87,885 October 1995 10 23 829
Gainesville, Fl............. 121,768 93,761 January 1996 14 14 -
Panama City, Fl............. 108,327 83,412 September 1995 23 23 442
Pensacola, Fl............... 230,122 184,098 July 1995 28 28 658
Jeffersonville, Ga.......... 189,321 145,777 March 1996 20 20 -
Tullahoma, Tn............... 151082 76,498 November 1995 20 20 133
--------- --------- -----
Total Operating............. 1,591,490 1,246,518 7,525
Systems.................... --------- --------- =====
ESTIMATED TOTAL ESTIMATED LOS EXPECTED CHANNELS AT
HOUSEHOLDS/(1) / HOUSEHOLDS/(1)/ LAUNCH/(2)(5)/
------------------ ----------------- --------------------
SYSTEMS UNDER CONSTRUCTION/(4)/:
Bucks, Al/(6)/........................................ 150,802 113,102 20
Fort Walton Beach, Fl................................. 64,216 54,584 19
------- -------
Total Systems Under Construction............... 215,018 167,686
------- -------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ESTIMATED TOTAL ESTIMATED LOS EXPECTED CHANNELS AT
HOUSEHOLDS/(1)/ HOUSEHOLDS/(1)/ LAUNCH/(2)(5)/
------------------ ----------------- --------------------
NEAR-TERM LAUNCH MARKETS/(7)/:
Bedias/Huntsville, Tx....................... 74,681 67,213 20
Freeport, Tx................................ 140,116 126,104 16
Houma, La................................... 81,741 69,480 26
Alexandria, La.............................. 31,683 25,864 23
Ruston, La.................................. 44,697 26,968 18
Chattanooga, Tn............................. 257,082 133,734 18
Florence, Al................................ 112,820 82,358 20
Tarboro, Ga................................. 81,492 52,970 20
Ocala, Fl................................... 284,926 227,940 15
Tallahassee, Fl............................. 149,368 104,558 16
--------- -------
Total Near-Term Launch Markets....... 1,258,606 917,189
--------- -------
ESTIMATED TOTAL ESTIMATED LOS EXPECTED CHANNELS AT
HOUSEHOLDS/(1)/ HOUSEHOLDS/(1)/ LAUNCH/(2)(5)/
------------------ ----------------- -------------
LONG-TERM LAUNCH MARKETS/(9)/:
Abita Springs, La/(10)/................... 219,915 175,948 20
Amite, La/(11)/........................... 99,208 74,404 20
Baton Rouge, La/(12)/..................... 261,691 201,501 15
Bankston, Al.............................. 103,570 51,112 20
Selma, Al................................. 158,661 109,535 16
Six Mile, Al.............................. 96,424 43,287 16
Charing, Ga............................... 156,371 78,336 16
Groveland, Ga/(8)/........................ 172,802 112,321 16
Hoggards Mill, Ga......................... 77,005 57,753 20
Matthews, Ga.............................. 170,271 85,136 20
Valdosta, Ga.............................. 110,381 77,267 16
Marianna, Fl.............................. 56,734 39,714 20
--------- ---------
Total Long-Term Launch Markets..... 1,683,033 1,106,314
--------- ---------
COMPANY TOTALS.................. 4,748,147 3,437,707
========= =========
</TABLE>
(1) Estimated Total Households represents the Company's estimate of the total
households that are within the Company's service area. Estimated LOS
Households represents the Company's estimate of the households that can
receive the Company's signal after applying a discount to account for those
homes that the Company estimates will be unable to receive service due to
certain characteristics of the particular market, such as terrain and
foliage.
(2) Includes local off-air VHF/UHF channels, some or all of which may be
retransmitted by the Company via wireless cable frequencies.
(3) The Company is not actively marketing, and does not currently intend to
actively market, its service in the Lafayette and Lake Charles markets
until an increase in the channel offering is achieved, which the Company
expects to occur within 3 months from the date hereof.
(4) Systems Under Construction include markets in which the system headend is
under construction and in which the Company expects to complete
construction and begin operations by the end of April 1996.
(5) Expected Channels at Launch includes channels with respect to which the
Company has a lease with a channel license holder or applicant for a
channel license or with a qualified, non-profit educational organization
that has filed an application for an ITFS license. There can be no
assurance that applications for channel licenses will be granted.
(6) Household count based on operation at 50 watts. The present operating
signal pattern covers an estimated 42,766 total households and an estimated
38,628 LOS households.
(7) Near-Term Launch Markets include markets in which the Company has obtained
sufficient wireless cable channel rights to launch commercially viable
systems.
(8) A petition to deny applications for extension of time to construct eight
channels is pending before the FCC. The outcome of this matter cannot be
determined.
4
<PAGE>
(9) Long-Term Launch Markets include markets in which the Company has obtained
or expects to obtain, subject to necessary FCC approvals, sufficient
wireless cable channel rights to launch commercially viable systems.
(10) Approximately 50% of the Company's LOS households in this market will
require high gain receive-site equipment to avoid interference from an
adjacent wireless cable system.
(11) The Company's channel rights in this market consist of channel lease
agreements with educational institutions which have filed ITFS
applications with the FCC in October 1995. There can be no assurance that
the applications for channel rights will be granted.
(12) An existing wireless cable operator is serving approximately 300
subscribers in this market with an 11 channel MDS system. The Company's
ITFS applications for the market are subject to comparative disposition
with competing applications. The outcome of that disposition cannot be
reliably projected at this time.
Operating Systems
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 did not have any subscribers at December 31, 1995.
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 .2 miles southwest of Brenham, Texas. The Brenham System's
signal pattern covers a radius of approximately 40 miles, encompassing
approximately 42,931 households, of which the Company believes approximately
38,638 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 1,445 subscribers on December
31, 1995, 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 92,400 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
Milam, Burleson, Bell and Brazos counties. The Milano System had approximately
1,297 subscribers on December 31, 1995, primarily in single-family homes.
5
<PAGE>
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.
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 1,579 subscribers on December 31, 1995, 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 62 subscribers on
December 31, 1995, 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 96,157 households, of which the Company believes
approximately 81,752 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 593 subscribers on December 31, 1995, primarily in single-family
homes.
The Company leases 30 of the wireless cable channels available for the
Lafayette market. The Company transmits on six of these channels. Collocation
applications were recently granted for four channels. Collocation applications
are pending for 12 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.
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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 144,200 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 487
subscribers on December 31, 1995, primarily in single-family homes.
The Company leases 31 of the wireless cable channels available for the
Lake Charles market. The Company transmits on nine of these channels.
Collocation applications were recently granted for two channels. New station
applications are pending for the remaining twenty 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 89,200 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 829 subscribers on December 31, 1995, primarily
in single-family homes.
The Company leases 29 of the wireless cable channels available for the
Monroe market. The Company transmits on 17 of these channels 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 10.0 miles north of Monroe. The Monroe System's signal pattern covers
a radius of approximately 39 miles, encompassing approximately 114,140
households, of which the Company believes approximately 87,900 can be served by
LOS transmissions. The principal hard-wire cable competitor in the city of
Monroe is Louisiana Cablevision.
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 did not have any subscribers on December 31, 1995.
The Company leases 26 of the wireless cable channels available for the
Gainesville, Florida market. The Company transmits on 14 of these channels and
has modification applications pending for the remaining 12 channels. The
Gainesville System currently offers a 13 channel basic package, including four
local off-air VHF/UHF channels which are being retransmitted, for $15.95 per
month. In addition, a subscriber may
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purchase one premium channel, HBO, for $9.95. 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 121,800
households, of which the Company believes approximately 93,760 can be served by
LOS transmissions. The principal hard-wire cable competitor in the area of
Gainesville is Warner Cable.
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 658 subscribers on December 31, 1995,
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 two premium services, 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 230,100 households, of which the Company believes approximately
184,100 can be served by LOS transmissions. The principal hard-wire cable
competitor in the city of Pensacola is Cox Cable Communications.
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 442 subscribers
on December 31, 1995, 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. An
application for a license for the remaining four channels was dismissed by the
FCC and is subject to an administrative petition to reinstate. 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 83,400 can be served by LOS transmissions. The
principal hard-wire cable competitor in the city of Panama City is Comcast.
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 did not have any subscribers at December 31,
1995.
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 39 miles, encompassing 189,321
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households, of which the Company believes approximately 145,777 can be served
by LOS transmissions. The principal hard-wire cable competitor in the area of
Jeffersonville is Cox 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 133 subscribers on December
31, 1995, 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 151,082 households, of which the Company believes approximately
76,498 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 two additional systems under construction, which
are located in Bucks, Alabama and Fort Walton Beach, Florida. In each of the
systems, the Company will have ordered substantially all of the equipment
necessary to transmit on its channels in such markets by April 1996.
The Company currently leases 20 of the wireless cable channels available
for the Bucks, Alabama market. All 20 channels are granted and collocated.
The Company expects to launch this system by April 1996. The Company will
transmit at 10 watts of power from the 853 foot level of a 859 foot tower,
located 9.6 miles northwest of Bucks, Alabama. The Bucks System's signal
pattern covers a radius of approximately 36 miles, encompassing 150,802
households, of which the Company believes approximately 113,102 can be served
by LOS transmissions. The principal hard-wire cable competitor in the area of
Bucks is Cablevision.
The Company currently leases 23 of the wireless cable channels available
for the Fort Walton Beach, Florida market. Fifteen of these channels are
granted and collocated. Eight of these channels are subject to pending
modification applications. The Company expects to launch this system by April
1996. The Company will transmit at 50 watts of power from the 276 foot level
of a 279 foot tower, located approximately four miles northeast of Fort Walton
Beach, Florida. The Fort Walton Beach System's signal pattern covers a radius
of approximately 39 miles, encompassing 64,216 households, of which the Company
believes approximately 54,584 can be served by LOS transmissions. The
principal hard-wire cable competitor in the area of Fort Walton Beach is
Emerald Coast Cable.
Near-term and Long-term Launch Markets
In these markets, the Company has obtained or expects to obtain, subject
to necessary FCC approvals, sufficient wireless cable channel rights 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 ("ITFS" 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
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Company is considering modifying certain channel licenses in near-term and
long-term markets to allow for the relocation of some channels from their
currently authorized or proposed transmission sites. While management 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.
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. A five-day window for filing ITFS
applications was most recently 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 objective 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 portion 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, given
the considerable number of applications involved, 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 10
near-term launch markets by the end of 1996 and 11 additional 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 near-term launch markets and 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.
Other Potential Markets
In addition to the Company's markets described above, the Company
continually evaluates other potential markets in which to implement its
business strategy, either independently or through one or more strategic
alliances. The Company is currently attempting to acquire a sufficient number
of wireless cable channel rights to operate commercially viable wireless cable
systems in additional markets and is currently participating in the auction for
the award of wireless cable channels that can be owned by for-profit entities
("MDS" channels), which commenced on November 13, 1995. The Company
anticipates acquiring additional channel rights in the States of Kentucky and
South Carolina through the auction process. In addition, the Company has
entered into channel lease agreements with local, accredited educational
institutions in several such markets that have filed ITFS applications with the
FCC relating to such markets. Through its 50%
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owned joint venture, the Company has filed for ITFS channels across the State
of North Carolina and expects to acquire MDS channels in 6 to 9 markets in
North Carolina through the auction process. No assurance can be given that the
Company will acquire a sufficient number of wireless cable channel rights to
operate commercially viable wireless cable systems in such markets or that the
Company will have sufficient capital resources to construct, launch and finance
the addition of subscribers in such markets in the event the Company does
obtain such wireless cable channel rights.
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. The additional cost to expand a system to a
full 32 channels is approximately $180,000. At December 31, 1995, the Company
estimates that each additional wireless cable subscriber with a single set-top
converter requires an incremental capital expenditure of approximately $425,
consisting of, on average, $290 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 potential subscribers that will enable it to maintain a
subscriber turnover rate of below 2% per month, as compared to a turnover 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.
MARKETING AND CUSTOMER SERVICE
The Company markets its wireless cable service by highlighting for major
competitive advantages over traditional hard-wire cable services and other
subscription television alternatives: picture quality and reliability, customer
service, programming features and price.
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.
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
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cable companies to provide improved customer service which may decrease the
Company's competitive advantage in this area.
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 capital and
operating costs. The rates charged by cable operators for their programming
services are regulated pursuant to the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), as modified by the
Telecommunications Act of 1996 (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.
EMPLOYEES
As of December 31, 1995, the Company had a total of 179 employees, of whom
142 are employed by the Company's subsidiaries. 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.
WIRELESS CABLE INDUSTRY
SUBSCRIPTION TELEVISION INDUSTRY
The subscription television industry began in the late 1940s to serve the
needs of residents in predominantly rural areas with limited access to local
off-air VHF/UHF channels. At that time, the industry was limited to "community
antenna relay" systems which received off-air television broadcasts and
transmitted them to homes via cable. Over time, cable television expanded to
metropolitan areas due to, among other things, the fact that it offered
subscribers better reception and more programming. Currently, subscription
television systems offer various types of programming, which generally include
basic service, enhanced basic service, premium service and, in some instances,
pay-per-view service.
A subscription television customer generally pays an initial connection
charge and a fixed monthly fee for basic service. The amount of the monthly
basic service fee varies from area to area and is a function, in part, of the
number of channels and services included in the basic service package and the
cost of such services to the subscription television system operator. In most
instances, a separate monthly fee for each premium service and certain other
specific programming is charged to customers, with discounts generally
available to customers receiving multiple premium services. Monthly service
fees for basic, enhanced basic, premium and pay-per-view services constitute
the major source of revenue for subscription television systems. Subscribers
typically are free to discontinue service at any time. Converter rentals,
remote control rentals, advertising revenues, connection charges and
reconnection charges for customers who were
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previously disconnected are also included in a subscription television system's
revenues, but generally are not a major component of such revenues.
TRADITIONAL HARD-WIRE CABLE TECHNOLOGY
Most subscription television systems are traditional hard-wire cable
systems which use coaxial cable to transmit television signals. Traditional
hard-wire cable operators receive, at a headend, signals of programming
services, such as CBS, NBC, ABC, HBO, Cinemax and CNN, which have been
transmitted to such operators by broadcast or satellite. A headend consists of
signal reception, decryption, retransmission, encoding and related equipment.
The operator delivers the signal from the headend to customers via a Cable
Plant. As a direct result of the use of a Cable Plant to deliver signals
throughout a service area, traditional hard-wire cable systems are susceptible
to signal quality problems. Signals can only be transmitted via coaxial cable
a relatively short distance without amplification. Each time a television
signal passes through an amplifier, some measure of noise is added. A series
of amplifiers between the headend and the viewing customer leads to
progressively greater noise and, accordingly for some viewers, a noticeably
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 that point on. Regular
system maintenance is required due to water ingress, temperature changes and
equipment failures, all of which may affect the quality of the picture
delivered to subscribers. Some traditional hard-wire cable operators 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 such systems. The
installation of such fiber optic networks will require a substantial investment
by such operators.
WIRELESS CABLE TECHNOLOGY
The wireless cable industry was made commercially possible in 1983 when
the FCC reallocated a portion of the electromagnetic radio spectrum located
between 2500 and 2686 MHz, permitted this spectrum to be used for commercial
purposes and modified its rules on the usage of the remaining portion of such
spectrum. Nevertheless, regulatory and other obstacles impeded the growth of
the wireless cable industry through the remainder of the 1980s. In addition,
before the 1992 Cable Act became effective, the availability of some
programming from hard-wire cable-controlled programmers was not assured. The
factors contributing to the increasing growth of wireless cable systems since
the effectiveness of the 1992 Cable Act include (i) regulatory reforms by the
FCC to facilitate competition with hard-wire cable, (ii) increasing
availability of programming for wireless cable systems, (iii) consumer demand
for alternatives to traditional hard-wire cable service, (iv) increasing
accumulation by wireless cable operators of a sufficient number of channels in
each market to offer a competitive service and (v) increased availability of
capital to wireless cable operators in the public and private markets.
Wireless cable can provide subscribers the same or superior video
television signal as that provided by traditional hard-wire cable. Like a
traditional hard-wire cable system, a wireless cable system receives
programming at a headend. Unlike traditional hard-wire cable systems, however,
the programming is then retransmitted by microwave from an antenna located on a
tower associated with the headend to a small receive antenna located at a
subscriber's premises. At the subscriber's premises, the signals are converted
to frequencies that can pass through conventional coaxial cable into a
descrambling converter located on top of a television set. Wireless cable
requires a clear LOS because the microwave frequencies used will not pass
through dense foliage, hills, buildings or other obstructions. Some of these
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 a Cable Plant, wireless cable operators can provide
subscribers with
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a high quality picture with few transmission disruptions at a significantly
lower system capital cost per installed subscriber than traditional hard-wire
cable systems.
To ensure the clearest LOS possible in the Company's markets, the Company
has placed, and plans to place, its headend antennas on top of tall structures
or accessible mountain tops located in its markets. There exists, in each of
the Company's markets, a number of acceptable locations for the placement of
headend antennas, and the Company does not believe that the failure to secure
any one location for such placement in any single market will materially
adversely affect the Company's operations in such market.
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 channels that comprise 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 other
reporting requirements on channel license holders and wireless cable operators.
The FCC has determined that wireless cable systems are not "cable systems"
for purposes of the Communications Act, and, therefore, a wireless cable system
does not require a local franchise and is subject to fewer local regulations
than a hard-wire cable system. Moreover, 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 the right to use wireless cable channels from the holders of channel
licenses, unlike hard-wire cable operators they do not have to pay local
franchise fees. Recently, legislation has been introduced in some states to
authorize state and local authorities to impose on all video program
distributors (including wireless cable distributors) a tax on the distributors'
gross receipts comparable to the franchise fees cable operators pay. Similar
legislation might be introduced in states where the Company does business or
intends to do business. While the proposals vary among states, all of the
proposed bills would require, if enacted, as much as 5% of gross receipts to be
paid by wireless cable operators to local authorities. The wireless cable
industry trade association is attempting to prevent the assessment of such
state taxes through federal preemptive legislation. In addition, the industry
is opposing the state bills as they are introduced, and in Virginia, it was
exempted from the video tax that was eventually enacted into law. 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 by wireless cable operators to transmit video programming,
entertainment services and other information. A maximum of 32 wireless cable
channels (constituting a spectrum bandwidth of 192 MHz) may be authorized for
use in a wireless cable market. The actual number of wireless cable channels
available for licensing at any one location is determined by the FCC's
interference-protection rules and by its channel allocation rules. In each of
the Company's operating or targeted markets, either up to 20 or 32 wireless
cable channels are available for wireless cable (in addition to any local off-
air VHF/UHF channels which are not retransmitted over the wireless cable
channels). Except in limited circumstances, 20 wireless cable channels in each
of these geographic service areas are licensed to qualified, non-profit
educational organizations (commonly referred to as ITFS channels). In general,
each of these channels must be used an average of a minimum of 20 hours per
week for educational programming. The remaining "excess air time" on an 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
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educational programming). Certain program networks (e.g., Univision and The
Discovery Channel) provide educational programming and thereby may facilitate
greater usage by the Company of an ITFS channel. Also, a technique known as
"channel mapping" permits ITFS licensees to meet their minimum educational
programming requirements by transmitting educational programming over several
ITFS channels at different times, but in a manner which appears to the viewer
as one channel. As a result of recent FCC rule changes, lessees of ITFS
"excess air time," including the Company, generally have the right to transmit
to their customers the educational programming on one or more of their ITFS
channels, thereby providing wireless cable operators leasing such channels,
including the Company, with greater flexibility in their use of ITFS channels.
The remaining 12 wireless cable channels (commonly referred to as MDS or
commercial channels) available in most of the Company's operating and targeted
markets are made available by the FCC for full-time commercial usage without
programming restrictions. There is no FCC-imposed restriction on the length or
the terms of MDS 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 licenses to ue MDS and ITFS
channels based upon applications demonstrating that the applicant is qualified
to hold the license and that the operation of the proposed channels will not
cause impermissible interference to other channels entitled to interference
protection. Once an MDS license application is granted by the FCC, a
conditional license is issued, allowing construction of the station to commence
upon the satisfaction of certain specified conditions. Construction of MDS
stations generally must be completed within one year of the date of grant of
the conditional license. Where two or more ITFS applicants file for the same
channels in the same geographic area, the FCC employs a set of comparative
criteria to select among the competing applications. Construction of ITFS
channels generally must be completed within 18 months of the award of the
license. If construction is not completed in a timely manner, the license
holder must file an extension application with the FCC. If the extension
application is not filed or granted, the channel license may be forfeited.
ITFS and MDS licenses generally have terms of 10 years. FCC rules prohibit the
sale for profit of a MDS conditional license or of a controlling interest in
the MDS conditional license holder prior to construction of the station or, in
certain instances, prior to the completion of one year of operation. The FCC,
however, does permit the leasing of 100% of a MDS license holder's spectrum
capacity to a third party and the granting of options to purchase a controlling
interest in a license once the required license holding period has elapsed.
In April 1992, the FCC imposed a freeze on the filing of applications and
amendments to applications for new MDS licenses. In February 1993, the FCC
imposed a similar freeze on the filing of applications for new ITFS licenses
and, generally, for major ITFS modifications. Since February 1993, on a
limited basis, the FCC has accepted applications for major ITFS modifications.
The freezes were intended to allow time for the FCC to update its MDS and ITFS
data bases and to allow the FCC to review and possibly modify its application
rules related to these channels. The freezes do not apply to the granting of
licenses applied for prior to the freeze. Recently, the FCC converted ITFS
processing to a "window" filing approach in which the FCC announces five-day
windows during which it will accept ITFS applications. Competing applications
filed in the same window will be processed under the existing comparative
criteria. A five-day window for ITFS applications was completed on October 20,
1995.
Recently the FCC adopted a competitive bidding (auction) mechanism for the
award of initial licenses for MDS channels. Auctions to award initial MDS
licenses began on November 13, 1995. Successful bidders will receive a blanket
authorization to serve entire "Basic Trading Areas" or "BTAs" (as defined by
Rand McNally) on all MDS channels. The blanket authorization will be subject
to the submission of applications for MDS channels demonstrating interference
protection to the 35-mile-radius protected service areas of MDS
15
<PAGE>
and ITFS stations licensed, or for which there is an application for a license
pending as of September 15, 1995. A BTA license holder must show coverage of
at least two-thirds of the BTA within five years of receiving the BTA
authorization. ITFS licenses are exempt from the auction process and
applications for ITFS licenses are expected to continue to be awarded according
to the FCC's existing comparative criteria.
Applications for renewal of MDS and ITFS licenses must be filed within a
certain period prior to the 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 violations 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 hold 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 this reduces the likelihood that a
license will be revoked, canceled or not renewed by the FCC.
Wireless cable transmissions are governed by FCC regulations governing
interference and reception quality. These regulations specify important signal
characteristics such as modulation (i.e., AM/FM) or encoding formats (i.e.,
analog or digital). Current FCC regulations require wireless cable systems to
transmit only analog signals, although a petition is pending before the FCC to
allow MDS and ITFS stations to employ digital formats.
The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the collocation of a
commercially viable number of channels operating with common technical
characteristics. In order to commence operations in many of the Company's
unlaunched markets, the Company has filed or will be required to file
applications with the FCC to modify licenses for unbuilt stations. In applying
for these modifications, the Company must demonstrate that its proposed signal
does not violate interference standards in the FCC-protected area of another
wireless cable channel license holder. A wireless cable license holder
generally is protected from interference within 35 miles of the transmission
site. If such changes would cause the Company's signal to cause interference
in the FCC- protected area of another wireless cable channel license holder,
the Company would be required to obtain the consent of such other license
holder; however, there can be no assurance that such consent would be received
and the failure to receive such consent could adversely affect the Company's
ability to serve the affected market.
The 1992 Cable Act. The 1992 Cable Act imposes 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, directs 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 provides for deregulation of
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.
16
<PAGE>
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. While the FCC has not yet implemented
those provisions, the Company anticipates 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 service
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 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 hardwire 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. The FCC
has not yet implemented those provisions of the 1996 Act and, accordingly, it
is difficult to predict the impact (if any) final FCC regulations with regard
to local exchange telephone companies in these respects will have on the
Company.
The 1996 Act offers wireless cable operators and satellite programmers
relief from private and local governmentally-imposed restrictions on the
placement of receive 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 1996 Act directs the FCC to initiate
proceedings to promulgate rules implementing Congress' intent. The proceeding
on wireless cable operator antenna installations has not yet commenced.
Accordingly, the Company cannot predict if any FCC rules ultimately adopted
will materially improve the Company's access to homes subject to antenna
placement restrictions.
Finally, the 1996 Cable 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 and other facilities.
There may also be restrictions imposed by local authorities. There can be no
assurance that the Company will not be required to incur additional costs in
complying with such regulations and restrictions.
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.
17
<PAGE>
AVAILABILITY OF PROGRAMMING
General. Currently, with the exception of the retransmission of local
off-air VHF/UHF channels, 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 subscribers
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 subscriber bases. The likelihood that
program material will be unavailable to the Company has been significantly
mitigated by the 1992 Cable Act and FCC regulations issued thereunder which,
among other things, impose limits on exclusive programming contracts and
prohibit programmers in which a cable operator has an attributable interest
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 vertically integrated cable companies 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 material to enable it to provide full channel lineups in its
markets for the foreseeable future. Current fair access to programming rules
imposed by the 1992 Cable Act only apply to programming owned or controlled by
a cable company which is delivered by satellite. Consequently, unless changed,
any programming developed for transmission to subscribers over telephone lines,
or any programming developed by an entity not owned or controlled by a cable
company, is not required to be made available to wireless cable operators so
long as the programming suppliers do not exercise undue influence to have such
programming made unavailable. The basic programming package offered by the
Company's Operating Systems is comparable to that offered by the local
traditional hard-wire cable operators in such systems' markets. However,
several of such local traditional 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 are offered by the
Company. The Company's programming is supplied by numerous distributors.
Copyright. Under the federal copyright laws, permission from the
copyright holder generally must be secured before a video program may be
retransmitted. Under Section 111 of the Copyright Act of 1976, as amended,
certain "cable systems" are entitled to retransmit programming without the
prior permission of the holders of copyrights in the programming. In order to
do so, a cable operator must secure a "compulsory copyright license." Cable
operators obtain compulsory copyright licenses by filing certain reports with
and paving certain fees to the U.S. Copyright Office. In 1994, Congress
enacted the Satellite Home Viewers Act of 1994 which enables operators of
wireless cable television systems to rely on the cable compulsory copyright
license.
Retransmission Consent. Under the retransmission consent provisions of
the 1992 Cable Act, wireless cable and hard-wire cable operators seeking to
retransmit certain commercial television broadcast signals must first obtain
the permission of the broadcast station in order to distribute its signal. The
FCC has exempted wireless cable operators from the retransmission consent rules
if the receive-site antenna is either owned by the subscriber or within the
subscriber's control and available for purchase by the subscriber upon the
termination of service. In all other cases, wireless cable operators must
obtain consent to retransmit local broadcast signals. The Company has obtained
such consents with respect to the Operating Systems where it is retransmitting
local VHF/UHF channels. Although there can be no assurance that the Company
will be able to obtain any additional required broadcaster consents, the
Company believes in most cases it will be able to do so for little or no
additional cost. Wireless cable systems, unlike hard-wire cable systems, are
not required under the FCC's "must carry" rules to retransmit a specified
number of television signals or qualified low power television station signals
in their markets.
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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 and
modify its business to remain competitive.
Pay-Per-View. Over recent years, the subscription television industry has
been developing a service that enables customers to order, and pay for, one
program at a time. This "pay-per-view" service has been successful for
specialty events such as professional wrestling, boxing and movies. The
subscription television industry is promoting the pay-per-view concept for
purchase of movies in competition with video rental stores. Pay-per-view
requires the customer to have an addressable converter.
Addressability. Beginning in the early 1980s, the cable industry began
promoting and installing addressable converters. These converters allow the
cable company to remotely control the channels to which the customer has
access. In order for customers to most conveniently order pay-per-view
programming, however, an impulse pay-per-view converter is required. The
Company believes that traditional hard-wire cable operators will need to incur
significant cost in order to upgrade their systems to be able to offer impulse
addressability. An impulse pay-per-view converter, which has a return line via
phone or cable to the cable operator's computer system, enables a customer to
order pay-per-view events by pushing a button on a remote control rather than
requiring the customer to make a telephone call to order an event. Where
sufficient channels are available, impulse pay-per-view programming may be
purchased by the Company's subscribers who request impulse pay-per-view
programming.
Compression. Several equipment manufacturers are developing digital video
compression ("DVC") technology which would allow several programs to be carried
in the amount of bandwidth where only one program is currently capable of being
carried. Manufacturers have projected varying compression ratios for future
equipment, ranging from 4 to 1 to 10 to 1, which would increase the channels
available on a wireless cable system using DVC technology from up to 20 to 32
to up to 80 to 320 channels. Due to the limited number of physical components
of the wireless transmission system, the Company believes it will be easier for
it to adapt to DVC than for traditional hardware cable operators. The cost of
such adaptation by the Company could nonetheless be substantial. Current FCC
regulations will have to be interpreted, modified, or waived to permit the use
of DVC when DVC technology becomes commercially available. A petition for that
purpose is pending before the FCC.
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 television for
two-way communications such as video games, home shopping and video-on-demand.
Use of interactivity will likely require the development and utilzation of
DVC. Wireless cable operators may be able to utilize a "return-path" frequency
which the FCC has made available for interactive communications. The Company
believes that the widespread commercial availability of many interactive
products is at least several years away.
Advertising. Local and national advertising through various interconnects
continues to grow as a source of revenue for cable operators. The Company
currently generates approximately $20,000 per year in advertising revenue and
expects to generate additional advertising revenue as its systems grow.
COMPETITION
In addition to competition from traditional hard-wire cable television
systems and other wireless cable systems, wireless cable television operators
face competition from a number of other sources, including
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<PAGE>
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 employed seven to 12 foot
dishes mounted in the yards of homes to receive television signals from
orbiting satellites. Prior to the implementation of encryption, these dishes
enabled reception of any and all signals without payment of fees. Having to
purchase decoders and pay for programming has reduced their popularity,
although the Company does to some degree compete with these systems in
marketing its services.
Direct Broadcast Satellite ("DBS"). DBS involves transmission of an
encoded signal directly from a satellite to the customer's home. Because the
signal is at a higher level and frequency than most satellite- transmitted
signals, its reception can be accomplished with a relatively small (18-inch to
three-foot) dish mounted on a rooftop or in the yard. In the fall of 1994,
DirecTV, Inc. ("DirecTV") began offering nationwide DBS service capable of
providing approximately 150 channels of programming. The cost to a DirecTV
customer of a DBS system to service one television set is approximately $700
plus the cost of installation. Primestar, which in 1994 also began offering
nationwide DBS service capable of providing approximately 70 channels of
programming, does not charge subscribers for equipment but does charge
installation fees of as much as $300. DBS providers are currently unable to
provide locally broadcast channels as part of their service. DBS subscribers
also pay monthly subscription fees. Because of the higher initial cost of DBS,
and the generally higher income level of targeted subscribers, the Company does
not believe that DBS is currently competitive with wireless cable television.
However, as such costs are reduced, DBS could become competitive with wireless
cable television.
SMATV. SMATV is a multi-channel subscription television service where
the programming is received by satellite receiver and then transmitted via
coaxial cable for wireless point-to-multipoint transmission in the 18 gigahertz
("GHz") band primarily to MDUs without crossing public rights of way. SMATV
operates under agreements with a private landowner to service a specific MDU,
commercial establishment or hotel. SMATV operators compete with the Company
for rights of entry into MDUs.
Telephone Companies. The 1996 Act contains provisions allowing local
exchange telephone companies to offer cable service within their telephone
service areas. Previously, exchange telephone companies were free to offer
wireless cable service anywhere, but could offer wire 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 hardwire 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. Several telephone companies have offered hardwire cable plant to
third parties, and additional telephone companies have announced plans to build
such plants. Whether those efforts will continue under the regulatory scheme
implementing the 1996 Act cannot now be known. In addition, Bell Atlantic,
NYNEX and Pacific Telesis have acquired interests in wireless cable operations,
either through investments in existing enterprises or through the purchase of
wireless cable systems. Other companies, including Ameritech, have taken the
traditional cable approach, and are seeking franchises from local authorities
to provide competitive cable services. The FCC has not yet implemented those
provisions of the 1996 Act and, accordingly, it is difficult to predict the
extent to which those provisions will lead to the development of exchange
telephone company provision of cable services.
Local Off-Air VHF/UHF Broadcasts; LPTV. Local off-air VHF/UHF broadcasts
(such as ABC, NBC, CBS and Fox) provide free programming to the public. In
some areas, low power television ("LPTV")
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<PAGE>
stations authorized by the FCC are used to provide subscription or free
television service to the public. LPTV transmits on conventional broadcast
frequencies. The principal difference between LPTV and full-powered television
is that LPTV is restricted to very low power levels, which limits the area
where a high-quality signal can be received. In addition, LPTV stations are
not permitted to cause interference to full-power television reception.
Local Multi-Point Distribution Service ("LMDS"). In 1993, the FCC
initially proposed to redesignate 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 1996.
Video Stores. Retail stores rent VCRs and/or video tapes, and are a major
participant in the television program delivery industry. According to Paul
Kagan Associates, Inc., as of the end of 1994 there were over 75.5 million
households with VCRs in the United States.
ITEM 2. PROPERTIES.
The Company leases approximately 2,500 square feet of office space for its
corporate headquarters in Baton Rouge, Louisiana under a lease that expires on
April 30, 1997. The Company pays approximately $25,000 per annum for such
space. On December 17, 1995, the Company entered into a five-year lease for
approximately 15,700 square feet for its new corporate headquarters in Baton
Rouge. Annual base lease payments will be approximately $115,000 during the
first three years and approximately $122,000 in the remaining two final years.
The Company has the option to renew this lease at the end of the first five-
year term for two additional five-year terms on similar terms and conditions.
The Company expects to move into its new corporate headquarters in May, 1996.
The Company will not incur any payments or penalties in connection with the
early termination of its existing lease.
The Company leases additional office space for the Operating Systems 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 where the
Company intends to operate wireless cable systems.
Item 3. Legal Proceedings.
The Company is a party to certain legal actions arising in the ordinary
course of its business. Based on information presently available to the
Company, the Company believes that it has adequate legal defenses or insurance
coverage for these actions, and that the ultimate outcome of these actions will
not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On October 18, 1995, stockholders representing 3,361,538 shares of the
3,461,538 of the shares of Common Stock then outstanding (approximately 97%)
approved, at a duly convened special meeting of stockholders of the Company,
the adoption of the Company's 1995 Long-Term Performance Incentive Plan and
1995 Directors' Stock Option Plan.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under this Item is furnished pursuant to Instruction 3 to
Item 401(b) of Regulation S-K. Executive officers of the Company are elected
by and serve at the discretion of the Board of Directors.
HANS J. STERNBERG has been Chairman of the Company since its founding in
June 1995 and as Chairman of the Board of Old Wireless One since its founding
in 1993. He has also served as the Chairman and Chief Executive Officer of
Starmount Life Insurance Company ("Starmount") 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
telephone 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. Mr. Sternberg graduated from Princeton University
in 1957. Mr. Sternberg is 60 years old.
SEAN E. 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.
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. Mr. Reilly graduated from
Harvard University in 1984 and from Harvard Law School in 1989. Mr. Reilly is
34 years old.
ALTON C. RYE became Senior 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. Mr. Rye received a B.S. in Accounting from
Arkansas Tech University in 1965. Mr. Rye is 52 years old.
J. ROBERT GARY became Senior Vice President--Chief Financial Officer of
the Company in September 1995. Prior to joining the Company and since 1992,
Mr. Gary served as Executive Vice President, Chief Financial Officer and Chief
Operating Officer of Greentree Software Inc., a publicly-traded software
company located in Marlboro, Massachusetts. From 1990 through 1992, Mr. Gary
was Vice President -Business Manager of Simon & Schuster, Inc.'s Trade
Division. Mr. Gary received a B.B.A. in Accounting from North Texas State
University in 1977. Mr. Gary is 41 years old.
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
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. A native of Louisiana, he earned a PhD in Telecommunications from the
University of Southern California in 1971. Mr. Norris is 61 years old.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Common Stock is quoted through the Nasdaq National Market under the
symbol "WIRL." The Common Stock commenced trading on October 19, 1995. The
following table sets forth on a per share basis, the high and low closing sale
prices per share for the Common Stock as reported by the Nasdaq National Market
for the period from October 19, 1995 through the end of the fourth quarter of
1995.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C> <C>
Fourth Quarter 1995
(beginning October 19, 1995) 18 1/8 11 3/8
</TABLE>
As of the close of business on March 21, 1996, there were approximately 81
holders of record of Common Stock. The Company believes that it has a
significantly larger number of beneficial holders.
The Company does not presently intend to pay any cash dividends on the
Common Stock in the foreseeable future. Furthermore, as a holding company, the
ability of the Company to pay dividends in the future is dependent upon the
receipt of dividends or other payments from its operating subsidiaries. The
Indenture (the "Indenture") pursuant to which the Company's 13% Senior Notes
due 2003 (the "Senior Notes") were issued prohibits the Company from making any
cash dividends on the Common Stock unless, after giving effect to such
dividend, (i) no default or event of default shall have occurred or be
continuing under the Indenture, (ii) the Company could incur $1.00 of
additional indebtedness under the terms of the Indenture and (iii) the
aggregate amount of such dividends, when added together with all Restricted
Payments (as defined in the Indenture) 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 or
from the issuance or sale of capital stock or options, warrants or rights to
purchase capital stock. As of December 31, 1995, the Company would not have
been permitted to declare any cash dividends on its Common Stock under this
provision.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data presented below as of December
31, 1993, 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 and its subsidiaries,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The consolidated financial
statements 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, and the report thereon, are included elsewhere in this Form 10-K. 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 Company's recently completed
offerings. As a result, the statement of operations data 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. This selected consolidated financial data
should be read in conjunction with
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements (including the notes thereto) of the
Company contained elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER 31,
FEBRUARY 4, 1993 -----------------------
(INCEPTION) TO
DECEMBER 31,
1993 1994 1995
----------------- ------------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................... $ - $ 380,077 $ 1,343,969
------------ ----------- ------------
Operating expenses:
Systems operations............................. 24,429 274,886 841,819
Selling, general and administrative expenses... 110,281 1,800,720 4,431,839
Depreciation and amortization.................. 27,489 413,824 1,783,066
-------- --------- ---------
Total operating expenses.......................... 162,199 2,489,430 7,056,724
-------- --------- ---------
Operating loss.................................... (162,199) (2,109,353) (5,712,755)
Interest expense and other, net................... (411) (152,460) (1,979,719)
--------- --------- ---------
Net loss.......................................... $(162,610) $(2,261,813) $(7,692,474)
Preferred stock dividends and discount accretion.. - - (786,389)
Net loss applicable to common stockP.............. $(162,610) $(2,261,813) $(8,478,863)
========= =========== ============
Net loss per common share......................... $(0.30) $(1.21) $(2.02)
Weighted average common shares outstanding........ 538,127 1,863,512 4,187,736
DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- ----------- ------------
BALANCE SHEET DATA:
Working capital (deficit)......................... $ 57,786 $(1,537,244) $122,084,511(1)
Total assets...................................... 514,223 8,914,224 213,799,874
Current portion of long-term debt................. 4,714 1,457,295 376,780
Long-term debt.................................... 14,903 2,839,602 150,871,267
Total stockholders' equity........................ 458,370 4,343,713 55,649,687
___________________
</TABLE>
(1) Includes approximately $17,638,000 of funds held in escrow to be used to
pay interest on the Senior Notes due in 1996 and approximately $3,683,000
of interest accrued thereon.
ITEM 7. 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 Form 10-K.
OVERVIEW
The Company develops, owns and operates wireless cable television systems.
The Company has targeted small to mid-size markets, located in Texas,
Louisiana, Tennessee, Alabama, Georgia and Florida, with approximately 25% to
35% of the households not currently passed by traditional hard-wire cable
systems. The Company currently has Operating Systems located in Brenham,
Bryan/College Station, Milano and Wharton, Texas; Bunkie, Lafayette, Monroe and
Lake Charles, Louisiana; Gainesville, Panama City and Pensacola, Florida;
Jeffersonville, Georgia and Tullahoma, Tennessee.
24
<PAGE>
Since inception, the Company has sustained substantial net losses, due
primarily to start-up costs, interest expense and charges for depreciation and
amortization of capital expenditures to develop its wireless cable systems, and
has incurred negative cash flow. 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. In the fourth quarter of 1995, the Company
disconnected a number of its Milano System subscribers for nonpayment.
Consequently, the Milano System is no longer generating positive cash flow.
The Company expects to replace such subscribers over the next six months.
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 cash flow through at least the third quarter of 1997, and may continue
to do so thereafter while it develops and expands its wireless cable systems,
even if individual systems of the Company become profitable and generate
positive cash flow.
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 Company's recently completed 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(2)..................... April 1994 603 487 476
Monroe, La(3)........................... October 1995 - 829 1,045
Gainesville, Fl......................... January 1996 - - 100
Panama City, Fl......................... September 1995 - 442 1,039
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
APPRIXIMATE APPROXIMATE APPROXIMATE
LAUNCH SUBSCRIBERS AT SUBSCRIBERS AT SUBSCRIBERS AT
MARKET ACQUISTION DATE DECEMBER 31, 1994 DECEMBER 31. 1995 FEBRUARY 29, 1996
- ------ ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Pensacola, Fl.......................... July 1995 - 658 1,086
Jeffersonville, Ga..................... March 1996 - - -
Tullahoma, Tn.......................... November 1995 - 133 422
----- ----- ------
TOTAL............................. 2,054 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 and Lake Charles markets
until an increase in the channel offering is achieved, which the Company
expects to occur within 3 months from the date hereof .
(3) The Monroe System was acquired by the Company from Heartland in October
1995
<TABLE>
<CAPTION>
Revenue Information
YEAR ENDED DECEMBER 31,
--------------------------
APPROXIMATE
AVERAGE REVENUE
PER SUBSCRIBER AT
1993 1994 1995 DECEMBER 31, 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 $255,547 or 67% of revenues. Equipment sales and
other
26
<PAGE>
revenues accounted for $103,837 and $20,693, 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. Systems operations expense includes
programming costs, channel lease payments, tower site rentals and repair and
maintenance. Programming costs (with the exception of minimum payments) and
channel lease payments (with the exception of certain fixed payments for both
operating and non-operating markets) are variable expenses which increase as
the number of subscribers increases. 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.
SG&A Expense. The Company has experienced increasing SG&A 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. 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 includes depreciation of systems and equipment and amortization of
channel right and organizational costs. 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. 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 Indenture relating to
the Senior Notes. For the year ended December 31, 1995, the Company had 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.
27
<PAGE>
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 Senior Notes
with an aggregate principle 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 $7,699,474.
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' location, (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, $0.01 par value,
(the "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 "Units") consisting of $150 million aggregate principal
amount of Senior 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 "Unit Offering" and together with the Common Stock Offering,
the "Offerings"). The Company placed approximately $53.2 million of the
approximately $143.8 million of net proceeds realized from the sale of the
Units into an escrow account to cover the first three years' interest payments
as required by terms of the 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 Common Stock
Offering.
The Indenture pursuant to which the Senior Notes were issued contains
representations and warranties, affirmative and negative covenants and events
of default customary for financing of this type. As of December 31, 1995, the
Company was in compliance with all covenants in the Indenture.
28
<PAGE>
The Company made capital expenditures of approximately $9.8 million and
$3.0 million for the years ended December 31, 1995 and 1994, respectively.
These expenditures primarily related to the acquisition of equipment in certain
of the Company's operating markets, as well as those markets under construction
or near-term launches. In addition, in October 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
Offerings. The Company estimates that approximately $38.8 million in capital
expenditures will be required in 1996 to continue to fund growth in the
Operating Systems and the systems under construction and to complete the
construction and finance the addition of subscribers to 12 additional markets.
At March 13, 1996, the Company had commitments to purchase approximately
$6.2 million in equipment for existing and future markets, primarily for set-top
converters and headend 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 cash flow from operations 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 Offerings will be sufficient to meet
its expected capital needs at least over the next twelve months.
Subject to the limitations of the Company's Indenture relating to the
Senior 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 Unit Offering, and the possible incurrence of additional
indebtedness, the Company will be required to satisfy certain debt service
requirements. Following the disbursement of all of the funds in the escrow
account in October 1998, a substantial portion of the Company's cash flow will
be devoted to debt service on the Senior Notes 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
Senior Notes or other indebtedness of the Company. 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. The incurrence of
additional indebtedness is restricted by the Indenture.
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.
29
<PAGE>
RECENTLY ISSUED ACCOUNTING PRINCIPLES
The Company does not believe the adoption in 1996 of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," will have a
significant effect on its financial position or results of operations.
The Company does not plan to adopt the fair value-based measurement
methodology for employee stock options contemplated by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock- Based Compensation."
Accordingly, this standard is not expected to have a significant effect on the
Company's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is set forth on pages F-1 through F-18 of
this Form 10-K. The Company is not required to provide the supplementary
financial information required by Item 302 of Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to Directors of the Company is set forth in
the Proxy Statement under the heading "Election of Directors," which
information is incorporated herein by reference. Information regarding the
executive officers of the Company is included as Item 4A of Part I of this Form
10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
Information required by Item 405 of Regulation S-K is set forth in the Proxy
Statement under the heading "Compliance with Section 16(a) of the Securities
Exchange Act of 1934," which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is set forth in
the Proxy Statement under the heading "Compensation of Executive Officers,"
which information is incorporated herein by reference (except for the
Compensation Committee Report on Executive Compensation and the Performance
Graph).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial
owners and management is set forth in the Proxy Statement under the heading
"Beneficial Ownership of Common Stock," which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related
transactions is set forth in the Proxy Statements under the headings "Election
of Directors -- Compensation Committee Interlocks and Insider
30
<PAGE>
Participation" and "Election of Directors -- Certain Relationships and Related
Transactions," which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements. The following consolidated financial
statements of the Company and the report ofthe independent
auditors thereon, are included in this Form 10-K on pages F-1
through F-18:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1994 and 1995
Consolidated Statements of Operations for the period from
February 4, 1993 (inception) to December 31, 1993 and
the years ended December 31, 1994 and 1995
Consolidated Statements of Stockholders' Equity for the period
from February 4, 1993 (inception) to December 31, 1993 and
the years ended December 31, 1994 and 1995
Consolidated Statements of Cash Flows for the period from
February 4, 1993 (inception) to December 31, 1993 and
the years ended December 31, 1994 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following financial
statement schedule of the Company for the period from
February 4, 1993 (inception) to December 31, 1993 and the
years ended December 31, 1994 and 1995 is included in
this Form 10-K on page S-1.
SCHEDULE NO. DESCRIPTION PAGE NO.
------------ ----------- --------
Schedule II Valuation and Qualifying Accounts S-1
All other financial statement schedules have been omitted
because they are inapplicable or the required information is
included or incorporated by reference elsewhere herein.
3. Exhibits. The Company will furnish to any eligible stockholder,
upon written request of such stockholder, a copy of any exhibit
listed below upon the payment of a reasonable fee equal to the
Company's expenses in furnishing such exhibit.
31
<PAGE>
EXHIBIT
NO. EXHIBIT
- ---------- --------
2.1 Contribution Agreement and Agreement and Plan of Merger, dated
October 18, 1995, among, inter alia, the Company, Wireless One
Operating Company and its former stockholders and Heartland.(1)
2.2 Escrow Agreement, dated October 24, 1995, among the parties to Exhibit
2.1.(1)
3.1(i) Amended and Restated Certificate of Incorporation of the Company.(2)
3.1(ii)By-Laws of the Company.(2)
4.1 1995 Long-Term Performance Incentive Plan of the Company.(1)+
4.2 1995 Directors' Stock Option Plan of the Company.(1)+
4.3 Warrant Agreement, dated October 18, 1995, between the Company and
Gerard Klauer Mattison & Co., LLC (including form of warrant
certificate).(1)
4.4 Registration Agreement, dated October 24, 1995, among the Company,
Heartland and the former stockholders of Wireless One Operating
Company.(1)
4.5 Stockholders Agreement, dated October 18, 1995, among the Company,
Heartland and certain former stockholders of Wireless One Operating
Company.(1)
4.6 Indenture, dated October 24, 1995, between the Company and United
States Trust Company of New York, as Trustee.(1)
4.7 Warrant Agreement, dated October 24, 1995, between the Company and
United States Trust Company of New York, as Warrant Agent.(1)
4.9 Unit Agreement, dated October 24, 1995, between the Company and
United States Trust Company of New York, as Unit Agent and Warrant
Agent.(1)
10.1 Standard forms of MDS License Agreement of the Company.(2)
10.2 Standard forms of ITFS License Agreement of the Company.(2)
21.1 Subsidiaries of the Company.
24.1 Powers of Attorney.
___________
32
<PAGE>
(1) Incorporated herein by reference to the same numbered exhibit to
the Company's Form 10-Q for the quarterly period ended September
30, 1995 (Commission File No. 0-26836).
(2) Incorporated herein by reference to the same numbered exhibit to
the Company's Registration Statement on Form S-1 (Commission
File No. 33-94942), as declared effective by the Commission on
October 18, 1995.
+ Denotes a management contract or compensatory plan or
arrangement required to be filed with this Form 10-K pursuant to
Item 14(c) of Form 10-K.
(b) Reports on Form 8-K.
None.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on this 28th day
of March, 1996.
WIRELESS ONE, INC.
By /s/ Sean E. Reilly
----------------------------------
Sean E. Reilly
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on this 28th day of March, 1996.
SIGNATURE CAPACITY
---------- --------
/s/ Sean E. Reilly President, Chief Executive Officer and Director
- ----------------------- (Principal Executive Officer)
Sean E. Reilly
/s/ J. Robert Gary Senior Vice President and Chief Financial Officer
- ----------------------- (Principal Financial Officer)
J. Robert Gary
/s/ Michael C. Ellis Vice President and Controller (Principal
- ----------------------- Accounting Officer)
Michael C. Ellis
* Director
- -----------------------
Hans J. Sternberg
* Director
- -----------------------
James J. Collis
* Director
- -----------------------
William K. Luby
* Director
- -----------------------
J.R. Holland, Jr.
* Director
- -----------------------
Daniel L. Shimer
34
<PAGE>
- --------------------- Director
David E. Webb
- ----------------------
* The undersigned, by signing his name hereto, does sign and execute this
Annual Report on Form 10-K pursuant to the Powers of Attorney executed
by the above-named Officers and Directors of the Company and filed with
the Securities and Exchange Commission on behalf of such Officers and
Directors.
By /s/ Sean E. Reilly
-----------------------------------
Sean E. Reilly, Attorney-in-Fact
35
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- -------- -------------
<S> <C>
2.1 Contribution Agreement and Agreement and Plan of Merger, dated
October 18, 1995, among, inter alia, the Company, Wireless One
Operating Company and its former stockholders and Heartland (1)
2.2 Escrow Agreement, dated October 24, 1995, among the parties to
Exhibit 2.1 (1)
3.1(i) Amended and Restated Certificate of Incorporation of the Company (2)
3.1(ii) By-Laws of the Company (2)
4.1 1995 Long-Term Performance Incentive Plan of the Company+ (1)
4.2 1995 Directors' Stock Option Plan of the Company+ (1)
4.3 Warrant Agreement, dated October 18, 1995, between the Company and
Gerard Klauer Mattison & Co., LLC (including form of warrant
certificate) (1)
4.4 Registration Agreement, dated October 24, 1995, among the Company,
Heartland and the former stockholders of Wireless One Operating
Company (1)
4.5 Stockholders Agreement, dated October 18, 1995, among the Company,
Heartland and certain former stockholders of Wireless One Operating
Company (1)
4.6 Indenture, dated October 24, 1995, between the Company and United
States Trust Company of New York, as Trustee (1)
4.7 Warrant Agreement, dated October 24, 1995, between the Company and
United States Trust Company of New York, as Warrant Agent (1)
4.9 Unit Agreement, dated October 24, 1995, between the Company and
United States Trust Company of New York, as Unit Agent and Warrant
Agent (1)
10.1 Standard forms of MDS License Agreement of the Company (2)
10.2 Standard forms of ITFS License Agreement of the Company (2)
21.1 Subsidiaries of the Company
24.1 Powers of Attorney
</TABLE>
36
<PAGE>
(1) Incorporated herein by reference to the same numbered exhibit to the
Company's Form 10-Q for the quarterly period ended September 30, 1995
(Commission File No. 0-26836).
(2) Incorporated herein by reference to the same numbered exhibit to the
Company's Registration Statement on Form S-1 (Commission File No. 33-
94942), as declared effective by the Commission on October 18, 1995.
+ Denotes a management contract or compensatory plan or arrangement required
to be filed with this Form 10-K pursuant to Item 14(c) of Form 10-K.
37
<PAGE>
WIRELESS ONE, INC.
Consolidated Financial Statements
December 31, 1994 and 1995
With Independent Auditors' Report Thereon
<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. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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. Also in our opinion,
the related 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.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
March 22, 1996
F-1
<PAGE>
WIRELESS ONE, INC.
Consolidated Balance Sheets
December 31, 1994 and 1995
<TABLE>
<CAPTION>
Assets 1994 1995
----- ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,481 110,380,329
Marketable investment securities - restricted (note 3) - 17,637,839
Subscriber receivables, less allowance for doubtful accounts of
$4,000 and $73,641 in 1994 and 1995, respectively 110,219 143,633
Accrued interest and other receivables 3,450 405,241
Prepaid expenses 55,515 796,389
----------- -----------
Total current assets 193,665 129,363,431
Property and equipment, net (note 4) 3,078,523 14,266,755
Leased license investment, net of accumulated amortization of
$230,902 and $548,283 in 1994 and 1995, respectively 5,540,036 26,724,238
Marketable investment securities - restricted (note 3) - 35,755,505
Other assets (note 5) 102,000 7,689,945
----------- -----------
$ 8,914,224 213,799,874
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 228,835 2,356,707
Accrued expenses 44,779 862,100
Accrued interest - 3,683,333
Current maturities of long-term debt (note 6) 1,457,295 376,780
----------- -----------
Total current liabilities 1,730,909 7,278,920
Long-term debt (note 6) 2,839,602 150,871,267
----------- -----------
4,570,511 158,150,187
----------- -----------
Redeemable convertible preferred stock, $.01 par value; 15,000
shares authorized, 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 and 13,498,752 shares issued and outstanding in
1994 and 1995, respectively 20,139 134,988
Additional paid-in capital 9,979,861 65,631,596
Subscriptions receivable (3,231,864) -
Accumulated deficit (2,424,423) (10,116,897)
----------- -----------
Total stockholders' equity 4,343,713 55,649,687
Commitments and contingencies (note 11)
----------- -----------
$ 8,914,224 213,799,874
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
WIRELESS ONE, INC.
Consolidated Statements of Operations
The period from February 4, 1993 (inception)
through December 31, 1993 and the
years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ - 380,077 1,343,969
---------- ---------- ----------
Operating expenses:
Systems operations 24,429 274,886 841,819
Selling, general and administrative 110,281 1,800,720 4,431,839
Depreciation and amortization 27,489 413,824 1,783,066
---------- ---------- ----------
162,199 2,489,430 7,056,724
----------- ---------- ----------
Operating loss (162,199) (2,109,353) (5,712,755)
---------- ----------- -----------
Other income (expense):
Interest expense (411) (171,702) (4,070,184)
Interest income - - 2,024,116
Other - 19,242 66,349
---------- ---------- ----------
Total other income (expense) (411) (152,460) (1,979,719)
---------- ---------- ----------
Net loss (162,610) (2,261,813) (7,692,474)
Preferred stock dividends and discount
accretion (note 8) - - (786,389)
---------- ---------- ----------
Net loss applicable to common stock $ (162,610) (2,261,813) (8,478,863)
========== ========== ==========
Net loss per common share $(.30) (1.21) (2.02)
========== ========== ==========
Weighted average common shares outstanding 538,127 1,863,512 4,187,736
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WIRELESS ONE, INC.
Consolidated Statements of Stockholders' Equity
The period from February 4, 1993 (inception)
through December 31, 1993 and the
years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Additional Subscrip-
Common paid-in tions Accumulated
stock capital receivable deficit Total
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of 538,127 shares of
common stock and recapi-
talization 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
========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WIRELESS ONE, INC.
Consolidated Statements of Cash Flows
The period from February 4, 1993 (inception)
through December 31, 1993 and the
years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(162,610) (2,261,813) (7,692,474)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debt expense - 54,608 196,281
Depreciation and amortization 27,489 413,824 1,783,066
Amortization of debt discount - 104,767 328,301
Non-cash interest income - - (213,230)
Changes in assets and liabilities:
Receivables - (167,277) (571,957)
Prepaid expenses (9,000) (46,515) (468,707)
Accounts payable and accrued expenses 36,236 237,378 6,004,541
--------- ---------- -----------
Net cash used in operating activities (107,885) (1,665,028) (634,179)
--------- ---------- -----------
Cash flows from investing activities:
Purchase of investments and other assets - (102,000) (1,533,446)
Capital expenditures (288,123) (2,960,842) (9,805,057)
Acquisition of intangible assets (154,854) (5,156,054) (6,762,415)
Purchase of marketable investment securities - - (53,180,114)
--------- ---------- -----------
Net cash used in investing activities (442,977) (8,218,896) (71,281,032)
--------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and
warrants 20,722 4,275,819 150,014,902
Principal payments on long-term debt (1,104) (103,306) (11,502,054)
Debt issuance costs - - (5,593,839)
Issuance of common stock 619,980 5,647,156 35,008,396
Issuance of redeemable preferred stock - - 14,343,654
--------- ---------- -----------
Net cash provided by financing activities 639,598 9,819,669 182,271,059
--------- ---------- -----------
Net increase (decrease) in cash 88,736 (64,255) 110,355,848
Cash and cash equivalents at beginning of period - 88,736 24,481
--------- ---------- -----------
Cash and cash equivalents at end of period $ 88,736 24,481 110,380,329
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<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.
(Continued)
F-6
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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 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.
(Continued)
F-7
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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) gives 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.
(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.
(Continued)
F-8
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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>
<CAPTION>
<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>
(Continued)
F-9
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
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 (in thousands except per share
amounts):
<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.
(Continued)
F-10
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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
=========== ==========
</TABLE>
(5) Other Assets
------------
Other assets at December 31, 1994 and 1995
consist of the following:
<TABLE>
<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
=========== ===========
</TABLE>
(6) Long-term Debt
--------------
Long-term debt consists of the following:
<TABLE>
<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
</TABLE>
(Continued)
F-11
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
$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
============ ============
Long term debt matures as follows:
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."
(Continued)
F-12
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
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.
(Continued)
F-13
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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 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
(Continued)
F-14
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
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.
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>
(Continued)
F-15
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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.
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>
(Continued)
F-16
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
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.
(Continued)
F-17
<PAGE>
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
(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.
At December 31, 1995
--------------------
Carrying Estimated
Amount Fair Value
------ ----------
Marketable investment securities $ 53,393,344 53,704,532
Long-term debt 151,248,047 160,598,916
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>
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 asset:
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-1
<PAGE>
COMPANY INFORMATION
BOARD OF DIRECTORS
HANS J. STERNBERG DANIEL L. SHIMER (2)
Chairman of the Board Executive Vice President/
Wireless One, Inc. Chief Financial Officer
COREstaff, Inc.
SEAN E. REILLY (1)
President/Chief Executive Officer
Wireless One, Inc. OTHER CORPORATE OFFICERS
WILLIAM K. LUBY (1)(2)(3) ALTON C. RYE
Former Managing Director Senior Vice President
Chase Manhattan Capital Chief Operating Officer
JAMES J. COLLIS J. ROBERT GARY
Vice President Senior Vice President
Chase Capital Partners Chief Financial Officer
J.R. HOLLAND, JR. (1)(2)(3) WILLIAM C. NORRIS
President Senior Vice President/
Unity Hunt Resources, Inc. System Launches
DAVID WEBB (1) MICHAEL C. ELLIS
President Vice President/Controller
Heartland Wireless Communications, Inc.
WILLIAM HAMBLIN
Vice President/Human Resources
- --------------------------------------
(1) Member of the Operating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
REGISTRAR & TRANSFER AGENT INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
First Chicago Trust Company of New York KPMG Peat Marwick LLP
525 Washington Boulevard One Shell Square, Suite 3500
Jersey City, NJ 07310 New Orleans, LA 70139
Telephone: (201) 222-4116 Telephone: (504) 523-5000
Copies of our annual and quarterly reports, and Forms 10-K and 10-Q, may be
obtained without charge by contacting:
Investor Relations
Wireless One, Inc.
11301 Industriplex Boulevard, Suite 4
Baton Rouge, LA 70809-4115
Telephone: (504) 293-5000
Wireless One, Inc.'s news releases are always immediately accessible to anyone
with a fax machine simply by calling 800-758-5804, ext. 109803 and following the
instructions. In addition, all news releases, including earnings releases, are
posted on the Internet at
http://www.prnewswire.com/cnoc/exec/menu?109803.
STOCK LISTINGS
Wireless One, Inc. common stock (ticker symbol: WIRL) is listed on the NASDAQ
NMS.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
Commission file number: 0-26836
WIRELESS ONE, INC.
(Exact name of registrant specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
72-1300837
(I.R.S. Employer Identification No.)
11301 Industriplex Blvd., Suite 4
Baton Rouge, Louisiana
(Address of principal executive office)
70809-4115
(Zip code)
(504) 293-5000
(Registrant's telephone number, including area code)
5551 Corporate Blvd., Suite 2G
Baton Rouge, Louisiana 70808
(Registrant's former address)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-------- --------
Number of shares of common stock outstanding as of May 8, 1996.
13,498,752
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
<S> <C> <C>
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995............. 2
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1996
and 1995......................................... 3
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 1996
and 1995......................................... 4
Notes to Condensed Consolidated Financial
Statements....................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................. 11
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WIRELESS ONE, INC.
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1996 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 98,964,157 110,380,329
Marketable investment 17,735,150 17,637,839
securities-restricted
Subscriber receivables, net 159,819 143,633
Accrued interest and other receivables 793,176 405,241
Prepaid expenses 587,732 796,389
------------ -----------
Total current assets 118,240,034 129,363,431
Property and equipment, net 22,912,095 14,266,755
Leased license investment, net 28,491,658 26,724,238
Marketable investment securities - 35,946,439 35,755,505
restricted
Other assets 7,703,873 7,689,945
------------ -----------
213,294,099 213,799,874
============ ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 2,627,827 2,356,707
Accrued expenses 1,160,459 862,100
Accrued interest 8,558,333 3,683,333
Current maturities of long-term debt 384,366 376,780
------------ -----------
Total current liabilities 12,730,985 7,278,920
Long-term debt 150,993,259 150,871,267
------------ -----------
163,724,244 158,150,187
------------ -----------
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, and 13,498,752 shares
issued and outstanding 134,988 134,988
Additional paid-in capital 65,631,596 65,631,596
Accumulated deficit (16,196,729) (10,116,897)
------------ -----------
Total stockholders' equity 49,569,855 55,649,687
------------ -----------
$213,294,099 213,799,874
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
WIRELESS ONE, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1996 1995
----------- ----------
<S> <C> <C>
Revenues $ 940,777 238,825
----------- ---------
Operating expenses:
Systems operations 555,942 169,981
Selling, general and administrative 2,637,553 461,129
Depreciation and amortization 964,005 199,519
----------- ---------
4,157,500 830,629
----------- ---------
Operating loss (3,216,723) (591,804)
----------- ---------
Other income (expense):
Interest expense (5,009,893) (114,090)
Interest income 2,126,360 3,122
Other 20,424 (520)
----------- ---------
Total other income (expense) (2,863,109) (111,488)
----------- ---------
Net loss $(6,079,832) (703,292)
=========== =========
Net loss per common share $ (.45) (.35)
=========== =========
Weighted average common shares
outstanding 13,498,752 2,013,950
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WIRELESS ONE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,079,832) (703,292)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 964,005 199,519
Amortization of debt discount 130,897 73,671
Non-cash interest income (288,245) -
Bad debt expense 23,694 -
Changes in assets and liabilities:
Subscriber receivables (427,815) 884
Prepaid expenses 208,657 11,631
Accounts payable and
accrued expenses 5,444,480 279,448
------------ ---------
Net cash used in
operating activities (24,159) (138,139)
------------ ---------
Cash flows from investing activities:
Capital expenditures (9,195,283) (654,945)
Purchase of investments and
other assets (209,021) (25,943)
Expenditures for leased
licenses (1,986,390) (19,902)
------------ ---------
Net cash used in
investing activities (11,390,694) (700,790)
------------ ---------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt - 37,472
Issuance of common stock - 1,077,622
Principal payments on
long-term debt (1,319) -
------------ ---------
Net cash (used in)
provided by
financing activities (1,319) 1,115,094
------------ ---------
Net (decrease)
increase in cash (11,416,172) 276,165
Cash and cash equivalents at beginning
of period 110,380,329 24,481
------------ ---------
Cash and cash equivalents at end of
period $ 98,964,157 300,646
</TABLE> ============ =========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(1) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(a) Description of Organization
---------------------------
Wireless One, Inc. (the "Company") was formed in June 1995 to combine the
operations of a predecessor company ("Old Wireless One") with certain
wireless cable television assets and all related liabilities of certain
subsidiaries of 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 subsidiaries and its
predecessor companies since February 4, 1993. Unless otherwise indicated,
references to the Company include Wireless One, Inc. and its subsidiaries
and its predecessors. See the Company's December 31, 1995 Annual Report
on Form 10-K for further comments regarding Heartland and the Heartland
Transaction.
(b) Consolidation Policy
--------------------
The condensed 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) Interim Financial Information
-----------------------------
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-
Q. Accordingly, certain information and footnotes required by generally
accepted accounting principles for complete financial statements are not
included herein. The interim statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
December 31, 1995 Annual Report on Form 10-K.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for full year 1996. In the
Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature.
(d) Marketable Investment Securities
--------------------------------
Investments in marketable securities 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
(Continued)
5
<PAGE>
WIRELESS ONE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
(e) 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. Shares issuable upon exercise of stock
options and warrants are antidilutive and have been excluded from the
calculation.
All share and per share data for the period ended March 31, 1995,
including the weighted average number of common shares outstanding, have
been restated for the Heartland Transaction consummated in October of
1995 giving retroactive effect to the exchange of approximately one share
of Old Wireless One common stock for 4 shares of Wireless One, Inc.
common stock. See the Company's December 31, 1995 Annual Report on Form
10-K for further description of the Heartland Transaction.
(2) Subsequent Event
----------------
On April 25, 1996, the Company entered into a definitive merger agreement
with Jackson, MS based TruVision Wireless, Inc. ("TruVision"). Under
terms of the transaction, the Company will exchange approximately 3.4
million of its common shares in exchange for all of TruVision's
outstanding shares. Additionally, the Company has committed to provide a
bridge loan of up to $15 million which will be secured by certain assets
of TruVision and its subsidiaries. Consummation of this transaction is
subject to the satisfaction of certain closing conditions including the
receipt of bondholder consents and FCC/Hart Scott approval. This
transaction is expected to close by the end of August 1996.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1996 and March 31, 1995.
<TABLE>
<CAPTION>
Approximate Approximate
Launch or Subscribers at Subscribers at
Market Acquisition Date 03/31/96 03/31/95
- ------ ---------------- -------------- --------------
<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 1,881 1,601
Bunkie, La December 1995 667 -
Lafayette, La January 1994 625 436
Lake Charles, La April 1994 490 573
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 (a) March 1996 - -
Tullahoma, Tn November 1995 661 -
-------- -----
TOTAL 12,289 2,507
======== =====
</TABLE>
(a) System launched at the end of March 1996.
7
<PAGE>
<TABLE>
<CAPTION>
Revenue Information
For the Three Months Ended Approximate
March 31, Average Revenue
-------------------------- Per Subscriber at
1996 1995 March 31, 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 178,988 167,062 35.69
Bunkie, La 34,686 - 33.10
Lafayette, La 41,207 23,475 23.22
Lake Charles, La 42,408 48,288 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 - - -
Tullahoma, Tn 33,885 - 33.41
-------- --------
TOTAL $940,777 $238,825
======== ========
</TABLE>
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 ended in 1995. The
increase in the average number of subscribers is due to the launch of 8 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, attributed to this increase in the average number of
subscribers for the first three months of 1996.
Systems Operations Expenses. Systems operations expense include 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. Selling, general and administrative
expenses for the three months ended March 31, 1996 expense $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
8
<PAGE>
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.
Depreciation and Amortization Expense. 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 of 1995 of 150,000 units (the
"Units") consisting of $150,000,000 aggregate principal amounts of 13% Senior
Notes due 2003.
Interest Income. Interest income of $2,126,360 consists of interest earned on
the proceeds from the Offerings (as described below).
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' location (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 the 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, $0.01 par value
(the "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
the Units consisting of $150 million aggregate principal amount of Senior
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
"Unit Offering" and together with the Common Stock Offering, the "Offerings").
The Company placed approximately $53.2 million of the approximately $143.8
million of net proceeds realized from the sale of the Units into an escrow
account to cover the first three years' interest payments on the Senior Notes as
required by terms of the Indenture.
For the three months ended March 31, 1996 and 1995, the Company's capital
expenditures were approximately $9,195,283 and $654,945 respectively. These
expenditures primarily related to the acquisition of equipment in certain of the
Company's operating markets, as well as those markets under construction or
near-term launches. The Company estimates that approximately $44.4 million in
capital expenditures will be required in 1996 to continue to fund growth in the
Operating Systems and the systems under construction and to complete the
construction and finance the addition of subscribers to 12 additional markets.
During March 1996, the Federal Communications Commission (the "FCC") completed
an auction program designed to award initial licenses for MDS channels.
Successful bidders will receive a blanket authorization to serve an entire Basic
Trading Area ("BTA") on all MDS channels within that BTA. The Company had
successful bids totaling approximately $16 million for BTA's. The Company is
presently preparing applications,
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which will be filed with the FCC by May 10, 1996, to secure these BTA's. Should
no petitions be filed by other parties against the Company's BTA applications,
it is expected that the grant by the FCC of these BTA authorizations will be
made during the second quarter of 1996. Assuming all BTA authorizations are
granted to the Company, the Company will be required to make total down payments
of 20% of the $16 million bid with the remaining 80% being financed over a 10
year term. During this ten-year period, the Company will be required to make
quarterly interest payments for the first two years and then quarterly principal
and interest payments for the remaining term. The interest rate charged will be
equal to the 10 year U.S. Treasury rate at the time of the issuance of the BTA
authorization plus 2-1/2%.
On April 25, 1996, the Company entered into a definitive merger agreement with
Jackson, MS based TruVision Wireless, Inc. ("TruVision"). Under terms of the
transaction, the Company will exchange approximately 3.4 million of its shares
of Common Stock in exchange for all of TruVision's outstanding shares.
Additionally, the Company has committed to provide a bridge loan to TruVision of
up to $15 million, which will be secured by certain assets of TruVision and its
subsidiaries. Consummation of this is subject to the satisfaction of
a number of closing conditions, including the receipt of the consent of
the Company's bondholders and FCC/Hart Scott approval. No assurance can be given
such closing conditions will be satisfied and that the TruVision transaction
will be completed. This transaction is expected to close by the end of August
1996.
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 cash flow from operations 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 Offerings will be sufficient
to meet its expected capital needs at least over the next twelve months.
Subject to the limitations of the Company's indenture relating to the Senior
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 strategic investor, joint
ventures or other arrangements, if such financing is available to the Company
on satisfactory terms.
As a result of the Unit Offering, and the possible incurrence of additional
indebtedness, the Company will be required to satisfy certain debt service
requirements. Following the disbursement of all of the funds in the escrow
account in October 1998, a substantial portion of the Company's cash flow will
be devoted to debt service on the Senior Notes 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 payment when due on the
Senior Notes or other indebtedness of the Company. If the Company is unable to
meet interest and principal payments in the future, it may, depending upon
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 Indenture.
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.
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PART II. - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page 12
(b) No reports on Form 8-K were filed during the periods presented.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WIRELESS ONE, INC.
Date: May 9, 1996 /s/ Sean Reilly
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Sean Reilly
President and Chief Executive Officer
Date: May 9, 1996 /s/ J. Robert Gary
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J. Robert Gary
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
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27 Financial Data Schedule
12
