PROSPECTUS
Wireless One, Inc.
$239,252,000
13 1/2% Senior Discount Notes due 2006
and Warrants to Purchase Shares of Common Stock
Wireless One, Inc. (the "Company") has issued $239,252,000 in principal
amount of 13 1/2% Senior Discount Notes due 2006 (the "Notes") and Warrants
(the "Warrants") to purchase common stock, $0.01 par value per share (the
"Common Stock"), of the Company. The Notes will accrete in value until August
1, 2001 at a rate of 13 1/2% per annum, compounded semi-annually, to an
aggregate principal amount of $239,252,000. Cash interest will not accrue on
the Notes prior to August 1, 2001. Thereafter, interest on the Notes will
accrue at a rate of 13 1/2% per annum and will be payable in cash semi-annually
on February 1 and August 1 of each year, commencing February 1, 2002. The
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after August 1, 2001 at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption.
In addition, in the event of a sale by the Company prior to August 1, 1999 of
at least $25 million of its Capital Stock or Qualified Subordinated
indebtedness (each as defined) to a Strategic Investor (as defined), up to a
maximum of 30% of the aggregate principal amount originally issued of the
Notes may be redeemed at the election of the Company; provided that at least
70% of the aggregate principal amount of the Notes originally issued remains
outstanding after the occurrence of such redemption. See "Description of
Notes -- Optional Redemption."
Upon the occurrence of a Change of Control (as defined), each holder of Notes
may require the Company to repurchase all or a portion of such holder's Notes
at 101% of the Accreted Value (as defined) thereof, or, in the case of any
such purchase on or after August 1, 2001, at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date. See
"Description of Notes - Certain Covenants -- Purchase of Notes upon a Change
of Control."
The Notes are senior obligations of the Company ranking pari passu in right
of payment to all existing and future Indebtedness (as defined) of the
Company, other than Indebtedness that is expressly subordinated to the Notes.
However, subject to certain limitations set forth in the Indenture, the
Company and its Subsidiaries (as defined) may incur other senior
Indebtedness, including Indebtedness that is secured by the assets of the
Company and its Subsidiaries. In addition, although the Notes are titled
"Senior," the Company is a holding company that conducts substantially all of
its business through subsidiaries, and the Notes will be effectively
subordinated to all liabilities of the Company's subsidiaries, including
trade payables. As of March 31, 1997, the Company had $279.2 million of
Indebtedness. The outstanding Indebtedness and trade payables of the
Company's Subsidiaries as of March 31, 1997 were approximately $34.1 million.
See "Description of Notes."
Each Warrant will entitle the holder to purchase 2.274 shares of Common Stock
at $16.6375 per share, subject to adjustment under certain circumstances.
Warrant holders may exercise the Warrants at any time after August 12, 1997
and on or prior to August 12, 2001. Collectively, the Warrants entitle the
holders thereof initially to purchase, in the aggregate, 544,059 shares of
Common Stock of the Company or approximately 3% of the outstanding Common
Stock on the date hereof. On April 25, 1997, the last reported sales price
of the Common Stock as reported on the Nasdaq National Market (which is
quoted under the symbol "WIRL") was $3.375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NOTES AND THE WARRANTS.
THE NOTES AND THE WARRANTS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OR THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus has been prepared for use by Chase Securities Inc. ("CSI")
in connection with offers and sales related to market-making transactions in
the Notes and Warrants. CSI may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale.
The date of this Prospectus is April 30, 1997.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless the context otherwise requires,
references to the "Company" mean Wireless One, Inc., its subsidiaries
(including TruVision Wireless, Inc. ("TruVision")) and predecessors.
Wireless One, Inc. (the "Company") acquires, develops, owns and
operates wireless cable television systems, primarily in small to mid-size
markets in the southeastern United States. Wireless cable programming is
transmitted via microwave frequencies from a transmission facility to a small
receiving antenna at each subscriber's location, which generally requires an
unobstructed line-of-sight ("LOS") from the transmission facility to the
subscriber's receiving antenna. The Company targets markets with a
significant number of households that can be served by LOS transmissions and
that are unpassed by traditional hard-wire cable. The Company estimates that
approximately 25% of the LOS households in its Markets (as hereinafter
defined) are unpassed by traditional hard-wire cable. The Company's 83
Markets (including 13 held by a limited liability company of which the
Company owns 50%) are located in Texas, Louisiana, Mississippi, Tennessee,
Kentucky, Alabama, Georgia, Arkansas, North Carolina, South Carolina and
Florida and represent approximately 11.0 million households (including
households in Markets held through such limited liability company). The
Company believes that approximately 8.1 million of these households (2.0
million of which are in Markets held through such limited liability company)
can be served by LOS transmissions.
Many of the households in the Company's Markets, particularly in rural
areas, also have limited access to local off-air VHF/UHF programming from
ABC, NBC, CBS and Fox affiliates, and typically do not have access to
subscription television service except via satellite television operators,
whose equipment and subscription fees generally are more costly than those of
wireless cable, and which are unable to retransmit local off-air channels.
In many of the Company's rural Markets, the Company believes a significant
number of the households that are passed by cable are served by cable
operators with lower quality service and limited reception and channel
lineups than the Company's services. As a result, the Company believes that
its wireless cable television service is an attractive alternative to
existing television choices for both passed and unpassed households in many
of its Markets.
At December 31, 1996, the Company's Markets included 32 markets in
which the Company has systems in operation ("Operating Systems") and 38
markets ("Future Launch Markets," and together with the Operating Systems,
the "Markets") in which the Company has aggregated either sufficient
wireless cable channel rights to commence construction of a system or leases
with or options from applicants for channel licenses that the Company expects
to be granted by the Federal Communications Commission (the "FCC"). In
addition, the Company owns a 50% interest in a limited liability company
which holds channel rights to serve 13 markets in North Carolina, all of
which are Future Launch Markets. Through increases in the number of
subscribers in its Operating Systems, the addition of eight Operating Systems
through its merger with Truvision and new system launches, the Company was
able to increase its aggregate number of subscribers from 7,525 at December
31, 1995 to 69,825 at December 31, 1996, representing a penetration rate of
2.6% of the LOS households in the Operating Systems at December 31, 1996.
Recent Developments
TruVision Transaction - In July 1996, the Company merged with
TruVision in exchange for approximately 3.4 million shares of the Company's
common stock (the "TruVision Transaction"). At the time of the Merger,
TruVision (i) had Operating Systems located in Jackson, Natchez, Oxford and
the Gulf Coast and Delta regions of Mississippi and Demopolis, Alabama (ii)
held wireless cable channel rights in other areas of Mississippi, for Memphis
and Flippin, Tennessee and for Gadsden and Tuscaloosa, Alabama and (iii) had
acquisition transactions pending in a number of additional Markets, including
Lawrenceburg, Jackson and Chattanooga, Tennessee, Hot Springs, Arkansas,
Huntsville, Alabama, and Jacksonville, North Carolina. As of December 31,
1996, Markets acquired as part of the TruVision Transaction included
approximately 2.0 million LOS households and 31,639 subscribers.
Applied Video Acquisition - In May 1996, the Company acquired Applied
Video Technologies, Inc. ("Applied Video") for a total purchase price of
approximately $6.5 million. The acquisition of Applied Video added one
Operating System (Dothan, Alabama) and two Future Launch Markets (Albany,
Georgia and Montgomery, Alabama). These three Markets consist of
approximately 263,100 LOS households. The Albany, Georgia System was
launched in September 1996. Operations in the Albany, Georgia System
together with the Dothan, Alabama system, as of December 31, 1996, accounted
for 1,343 subscribers.
Other Acquisitions - In 1996, the Company also acquired (i) Shoals
Wireless, Inc., whose principal asset was an Operating System in the
Lawrenceburg, Tennessee Market, for approximately $1.2 million (the "Shoals
Purchase"), (ii) an Operating System and hard-wire cable system in the
Huntsville, Alabama Market (the "Madison Purchase") for approximately $6
million, (iii) rights to 11 wireless cable channels in the Macon, Georgia
Market for approximately $600,000, (iv) rights to eight wireless cable
channels in the Bowling Green, Kentucky Market for $300,000, (v) rights to 16
wireless cable channels in the Jacksonville, North Carolina Market for
approximately $820,000 ($800,00 of which is being withheld pending grants of
licenses) and 12 wireless cable channels in the Chattanooga, Tennessee Market
for $517,000 and (vi) rights to 11 MDS channels and filings for 20 ITFS
licenses (both as hereafter defined) and related transmission tower leases
and approvals in Auburn/Opelika, Alabama for $600,000.
Pending Acquisitions - The Company has entered into a definitive
agreement with SkyView Wireless Cable, Inc. to acquire rights to 22 wireless
cable channels and a substantially completed transmission facility in the
Jackson, Tennessee Market for approximately $2.7 million and to acquire
rights to 20 wireless cable channels in the Hot Springs, Arkansas Market for
approximately $1.5 million. The Company also has entered into an agreement
with Wireless Ventures, L.L.C. ("Wireless Ventures") to acquire a fifty
percent interest in Wireless Ventures, which holds BTA (as hereinafter
defined) authorizations in certain markets in Georgia for approximately $1.0
million.
BTA Auction - In March 1996, the Company, TruVision, Applied Video
and Wireless One of North Carolina, LLC ("WONC") participated in an auction
(the "BTA Auction") conducted by the FCC for the exclusive right to apply for
available Multipoint Distribution Service ("MDS") channels in
certain designated Basic Trading Areas ("BTAs"), subject to compliance with
the FCC's interference standards and other rules. The Company, TruVision,
Applied Video and WONC were the winning bidders for BTA authorizations in 72
BTA markets (the "BTA Markets"), and such authorizations, which primarily
will increase, upon FCC approval, the number of expected channels in the
Company's Markets where BTAs are held, are reflected in the information set
forth herein. Subsequent to the BTA Auction and consistent with FCC rules,
the Company filed applications for authorizations in each BTA Market.
Approximately 95% of these authorizations have been granted by the FCC. The
winning bids of the Company, TruVision and Applied Video in the BTA Auction
aggregated approximately $30.3 million (net of a small business bidding
credit), 80% of which is being financed through indebtedness provided to
the Company by the United States government.
First Quarter 1997 Results. On April 29, 1997, the Company reported
revenues for the first quarter ended March 31, 1997 of $7.1 million,
compared to $1.0 million for the first quarter of 1996 and $5.5 million
for the fourth quarter of 1996. Consolidated EBITDA was negative $3.9
million for the first quarter of 1997, compared to negative $2.2 million
for the first quarter of 1996 and negative $4.6 million for the fourth
quarter of 1996. System EBITDA (as defined in "Management's Discussion
and Analysis of Financial Condition and Results of Operations") was
negative $1.3 million of the first quarter of 1997 compared to negative
$2.3 million for the fourth quarter of 1996. For the first quarter of
1997, 11 Operating Systems had positive EBITDA compared to six for the
fourth quarter of 1996. As of March 31, 1997, the Company had a total of
88,409 subsidiaries in 33 Operating Systems, one of which was launched in
the first quarter of 1997.
2.3GHz Auction. The Company, through a cooperative bidding effort
with BellSouth Corp. ("BellSouth"), acquired certain rights with respect
to the spectrum in the 2.3GHz range at the FCC auction with respect to
such spectrum conducted in April 1997. The Company's agreement with
BellSouth calls for the Company to own 10MHz of spectrum covering its
existing wireless cable footprint. If the partition agreement is
approved by the FCC, the Company will pay approximately $1.1 million for
the spectrum, which covers approximately 11 million total households.
The Company expects to use the spectrum to facilitate two way data and
internet services and to provide additional channel capacity for
downstream video.
The Company's executive offices are located at 11301 Industriplex
Boulevard, Suite 4, Baton Rouge, Louisiana 70809-4115, and its telephone
number at such address is (504) 293-5000.
SECURITIES OFFERED
The Notes:
Maturity Date August 1, 2006.
Principal Amount at Maturity $239,252,000
Interest Rate and Payment Dates The Notes will accrete in value until
August 1, 2001 at a rate of 13 1/2% per
annum, compounded semi-annually, Cash
interest will not accrue on the Notes
prior to August 1, 2001. Thereafter,
interest on the Notes will accrue at a
rate of 13 1/2% per annum and will be
payable in cash semi-annually on
February 1 and August 1 of each year,
commencing February 1, 2002.
Optional Redemption The Notes will be redeemable at the
option of the Company, in whole or in
part, at any time on or after August 1,
2001 at the redemption prices set forth
herein, together with accrued and unpaid
interest, if any, to the date of
redemption.
In addition, at any time or from time to
time prior to August 1, 1999, up to 30%
of the aggregate principal amount
originally issued of the Notes will be
redeemable at the option of the Company
with the Net Cash Proceeds (as defined)
from a sale to a Strategic Investor of
the Company's Capital Stock (other than
Redeemable Capital Stock (as defined))
or Qualified Subordinated Indebtedness
in a single transaction or a series of
related transactions for an aggregate
purchase price equal to or exceeding $25
million at a redemption price equal to
113.5% of the Accreted Value of the
Notes to the date of redemption of the
Notes; provided, that after giving
effect to any such redemption, at least
70% of the aggregate principal amount of
the Notes originally issued remains
outstanding thereafter.
Change of Control Upon the occurrence of a Change of
Control, each holder of Notes will have
the option to require the Company to
repurchase all or a portion of such
holder's Notes at 101% of the Accreted
Value thereof, or, in the case of any
such purchase on or after August 1,
2001, at 101% of the principal amount
thereof, plus accrued and unpaid
interest, if any, to the purchase date.
However, certain highly leveraged
transactions may not be deemed to be a
Change of Control, including, without
limitation, transactions with affiliates
that comply with the other covenants
included in the Indenture. See
"Description of Notes." Additionally,
there can be no assurance that the
Company will have the financial
resources necessary to repurchase the
Notes upon a Change of Control. See
"Risk Factors -- Change of Control" and
"Description of Notes -- Certain
Covenants -- Purchase of Notes Upon a
Change of Control."
Ranking The Notes are senior obligations of the
Company ranking pari passu in right of
payment to all existing and future
Indebtedness of the Company, other than
Indebtedness that is expressly
subordinated to the Notes. However
subject to certain limitations (which
may not limit the Company's ability to
engage in certain highly leveraged
transactions) set forth in the
Indenture, between the Company and
United Trust Company of New York dated
August 12, 1996 (the "Indenture"), the
Company and its Subsidiaries may incur
other senior Indebtedness, including
Indebtedness that is secured by the
assets of the Company and its
Subsidiaries. In addition, the Company
is a holding company that conducts
substantially all of its business
operations through its Subsidiaries,
and, therefore, the Notes will be
effectively subordinated to all existing
and future Indebtedness and other
liabilities and commitments of such
Subsidiaries, including trade payables.
As of March 31, 1997, the Company had
$279.2 million of Indebtedness. The
outstanding Indebtedness and trade
payables of the Company's Subsidiaries
as of March 31, 1997, were approximately
$34.1 million. See "Description of
Notes."
Certain Covenants The Indenture contains certain
covenants, including limitations on the
incurrence of Indebtedness, the making
of restricted payments, transactions
with affiliates, sale and leaseback
transactions, the existence and creation
of liens, the disposition of proceeds of
asset sales, the making of guarantees
and pledges by Restricted Subsidiaries,
transfers and issuances of stock of
Subsidiaries, issuance of preferred
stock by Restricted Subsidiaries, the
imposition of certain payment
restrictions on Restricted Subsidiaries,
investments in Unrestricted
Subsidiaries, the conduct of the
Company's business and certain mergers,
consolidations and sales of assets. See
"Description of Notes -- Certain
Covenants."
Original Issue Discount The Notes were issued with original
issue discount for Federal income tax
purposes. Thus, although cash interest
will not accrue on the Notes prior to
August 1, 2001 and there will be no
periodic payments of interest on the
Notes prior to February 1, 2002,
original issue discount (that is, the
difference between the stated redemption
price at maturity and the issue price of
the Notes) will accrue from the issue
date of a Note to August 1, 2001 and
will be includable as interest income
for each day during each taxable year in
which the Note is held by a holder in
such holder's gross income for Federal
income tax purposes in advance of
receipt of the cash payments to which
the income is attributable. See "United
States Federal Income Tax Matters."
The Warrants:
Warrants 239,252 Warrants, which, when exercised,
will entitle the holders thereof to
acquire 544,059 shares of Common Stock
(the "Warrant Shares"), representing
approximately 3% of the outstanding
Common Stock as of the date hereof.
Registration Rights The Company has agreed that for a period
of four years commencing on the first
anniversary of the date of issuance of
the Warrants it will maintain the
effectiveness of a registration
statement with respect to the issuance
of the Common Stock from time to time
upon exercise of the Warrants.
Exercise Each Warrant will entitle the holder
thereof to purchase 2.274 shares of
Common Stock at an exercise price of
$16.6375 per share. The Warrants will
be exercisable at any time on or after
August 12, 1997. The number of shares
of Common Stock for which, and the price
per share at which, a Warrant is
exercisable are subject to adjustment
upon the occurrence of certain events,
as provided in the warrant agreement
relating to the Warrants (the "Warrant
Agreement"). The Common Stock issued
upon the exercise of the Warrants will
be registered under the Securities Act
of 1933, as amended (the "Securities
Act"). A Warrant does not entitle the
holder to receive any dividends paid on
the Common Stock. See "Description of
Warrants."
Expiration of Warrants The Warrants will expire on August 12,
2001 (the "Expiration Date"). The
Company will give notice of expiration
not less than 90 nor more than 120 days
prior to the Expiration Date to the
registered holders of the then
outstanding Warrants. If the Company
does not give such notice, the Warrants
will still terminate and become void on
the Expiration Date.
For additional information concerning the Notes and the Warrants and
the definitions of certain capitalized terms used above, see "Description of
Notes" and "Description of Warrants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes and the Warrants
including, but not limited to, risks related to the substantial indebtedness
of the Company and the insufficiency of its earnings to cover its fixed
charged; the Company's limited operating history, its lack of profitable
operations, its negative cash flow and the early stage of the Company's
development; the Company's need for additional financing; the holding company
structure of the Company and its dependence on its subsidiaries for the
repayment of the Notes; the ranking of the Notes; the Company's need to
manage its growth; and the uncertainty of the Company's ability to obtain
certain FCC authorizations.
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and
operating data of the Company. The summary consolidated balance sheet data
as of December 31, 1996 and the summary statement of operations data for the
period from February 4, 1993 (inception) to December 31, 1993 and the years
ended December 31, 1994, 1995 and 1996 were derived from the consolidated
financial statements of the Company which were audited by KPMG Peat Marwick
LLP, independent certified public accountants. The consolidated financial
statements as of December 31, 1995 and 1996 and for the years ended December
31, 1994, 1995 and 1996 are included elsewhere in this Prospectus.
The financial statements for the year ended December 31, 1995 reflect
the operating results of the Company for the period from January 1, 1995
through October 18, 1995 and the combined results of the Company and the
certain assets acquired in October 1995 from Heartland Wireless
Communications, Inc. ("Heartland") for the period from October 19, 1995
through December 31, 1995. The financial statements for the year ended
December 31, 1996 reflect the operating results of the Company for the period
from January 1, 1996 through July 28, 1996 and the combined results of the
Company and TruVision for the period from July 29, 1996 through December 31,
1996. The information contained in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's financial statements (including the
notes thereto) contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period from
February 4,
1993
(inception) to Year Ended December 31,
December 31, --------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ --- $ 399,319 $ 1,410,318 $ 11,364,828
Total operating expenses 162,199 2,489,430 7,056,724 35,600,797
Operating loss (162,199) (2,090,111) (5,646,406) (24,235,969)
Interest expense and other, net (411) (171,702) (2,046,068) (20,134,426)
Net loss (162,610) (2,261,813) (7,692,474) (39,670,395)
Net loss applicable to common
stock (162,610) (2,261,813) (8,478,863) (39,670,395)
Other Data:
EBITDA(1) $ (134,710) $(1,695,529) $(3,929,689) $(12,610,462)
Depreciation and amoritzation 27,489 413,824 1,783,066 11,625,507
Capital expenditures(2) 442,977 8,116,896 16,567,472 104,306,746
Deficiency of earnings to
fixed charges(3) 162,610 2,261,813 8,478,863 (44,370,395)
Operating Data at End of Period:
Number of Operating Systems --- 3 10 32
Estimated LOS households in
Operating Systems --- 337,700 926,100 2,675,200
Subscribers in Operating
Systems --- 2,504 7,525 69,825
</TABLE>
As of December 31,1996
----------------------
Balance Sheet Data:
Working capital(4) $ 106,676,500
Total assets 395,609,362
Current portion of long-term debt 3,169,383
Long-term debt 299,909,221
Deferred taxes 6,500,000
Total stockholders' equity 70,666,682
(1) "EBITDA" represents net income (loss) plus interest expense (net),
income tax expense, depreciation and amortization and all other non-
cash charges, less any non-cash items which have the effect of
increasing net income or decreasing net loss. EBITDA is presented
because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. However, EBITDA should
not be considered as an alternative to net income as a measure of
operating results or cash flows as a measure of liquidity.
(2) Includes purchases of property, plant and equipment as well as leased
license and license investments.
(3) In calculating the deficiency of earnings to fixed charges, earnings
consist of net losses prior to income taxes and fixed charges. Fixed
charges consist of interest expense, amortization of debt issuance
costs and one-third of rental payments on operating leases (such amount
having been deemed by the Company to represent the interest portion of
such payments).
(4) Includes approximately $18,149,180 of funds held in escrow at December
31, 1996 to be used to pay interest due on the Company's 13% Senior
Notes due 2003.
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to other information contained in this Prospectus regarding an
investment in the Notes and Warrants offered hereby. This Prospectus
contains certain statements that are not historical facts, which are "forward
looking statements" within the meaning of Section 27A of the Securities Act
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") that reflect management's best judgment concerning the
matters contained therein based on factors currently known. Actual results
could differ materially from those anticipated in these "forward looking
statements" as a result of a number of factors, including but not limited to
those set forth in the risk factors listed below. Certain terms which are
capitalized but not defined below are defined under "Description of the Notes
- - Certain Definitions."
Substantial Indebtedness of the Company; Insufficient Earning to Cover Fixed
Charges
As of December 31, 1996, the Company had approximately $303.1 million of
consolidated indebtedness. The indenture (the "Old Indenture") relating to
the Company's 13% Senior Notes Due 2003 (the "1995 Notes") and the Indenture
(together with the Old Indenture, the "Indentures") limit, but do not
prohibit, the incurrence of additional Indebtedness, secured and unsecured,
by the Company and its Subsidiaries. Subject to the restrictions set forth
in the Indentures, the Company expects that it and its Subsidiaries will
incur substantial additional indebtedness in the future. The Notes are
senior obligations of the Company ranking pari passu in right of payment to
all existing and future indebtedness of the Company, other than Indebtedness
that is expressly subordinated to the Notes. However, subject to certain
limitations set forth in the Indenture, the Company and its Subsidiaries may
incur other senior Indebtedness, including Indebtedness that is secured by
the assets of the Company and its Subsidiaries. The ability of the Company
to make payments of principal and interest will be largely dependent upon its
future performance.
Since its inception the Company has sustained substantial net losses and
therefore has been unable to cover fixed charges. The Company does not
anticipate being able to generate net income until after 2001, and there can
be no assurance that other factors, such as, but not limited to, economic
conditions, inability to raise additional financing or disruption in
operations, will not result in further delays in generating positive net
income. Losses may increase as operations in additional markets are
commenced or acquired. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Many factors, some of which will be beyond the Company's control (such as
prevailing economic conditions), may affect its performance.
In connection with the offering of the 1995 Notes in October 1995, the
Company placed approximately $53.2 million of the approximately $143.8
million of net proceeds from the offering in escrow to cover the first three
years' interest payments on the 1995 Notes. Once the proceeds of the escrow
have been fully applied in October 1998, a substantial portion of the
Company's cash flow will be devoted to debt service on the 1995 Notes and on
and after February 1, 2002, will also be devoted to debt service on the
Notes. If the Company is unable to meet interest and principal payments in
the future, it may, depending upon the circumstances which then exist, seek
additional equity or debt financing, attempt to refinance its existing
indebtedness or sell all or part of its business or assets to raise funds to
repay its indebtedness. There can be no assurance that sufficient equity or
debt financing will be available at all or on terms acceptable to the
Company, that the Company will be able to refinance its existing indebtedness
or the Notes or that sufficient funds could be raised through the sale of all
or a part of the Company's business or assets. If no such refinancing or
additional financing or funds were available, the Company could be forced to
default on the Notes and, as an ultimate remedy, seek protection under the
federal bankruptcy laws. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Limited Operating History; Lack of Profitable Operations; Negative Cash Flow;
Early Stage Company
The Company has a limited operating history and there is limited
historical financial information on the Company upon which to base an
evaluation of the Company's performance and the investment in the Notes and
Warrants. Since its inception, the Company has sustained substantial net
losses and negative consolidated EBITDA (net income (loss) plus interest
expense (net), income tax expense, depreciation and amortization and all
other non-cash charges, less any non-cash items which have the effect of
increasing net income or decreasing net loss) primarily due to fixed
operating costs associated with the development of its systems, interest
expense and charges for depreciation and amortization. The Company's
accumulated deficit as of December 31, 1996 was $49.8 million. The Company
expects to continue to experience negative consolidated EBITDA through at
least the third quarter of 1998, and may continue to do so thereafter while
it develops and expands its wireless cable systems, even if individual
systems of the Company become profitable and generate positive system EBITDA
(as defined in "Management's Discussion and Analysis of Financial Condition
and Results of Operations"). Prospective investors should be aware of the
difficulties encountered by enterprises in the early stages of development,
particularly in light of the intense competition characteristic of the
subscription television industry. There can be no assurance that realization
of the Company's business plan, including an increase in the number of
subscribers or the launch of additional wireless cable systems, will result
in profitability or positive consolidated EBITDA for the Company in future
years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation," "Business" and "Wireless Cable Industry."
Need for Additional Financing; Certain Covenants
In order to finance the capital expenditures and related expenses needed
for subscriber growth and system development, the Company will require
substantial investment on a continuing basis. The Company will need to
obtain additional financing in 1997 in order to continue to complete the
launch of the Company's Markets, to add subscribers in its new and existing
Markets and to cover ongoing operating losses and debt service requirements.
The amount and timing of the Company's future capital requirements will
depend upon a number of factors, many of which are not within the Company's
control, including programming costs, capital costs, marketing expenses,
staffing levels, subscriber growth, churn and competitive conditions. There
can be no assurance that the Company's future capital requirements will not
increase as a result of unexpected developments with respect to its markets.
There can be no assurance that the Company's future capital requirements will
be met or will not increase as a result of future acquisitions, if any. The
Indentures restrict the amount of additional Indebtedness the Company may
incur. Failure to obtain any required additional financing could adversely
affect the growth of the Company and, ultimately, could have a material
adverse effect on the Company. See "-- Substantial Indebtedness of the
Company; Insufficient Earnings to Cover Fixed Charges" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Holding Company Structure; Dependence of Company on Subsidiaries for
Repayment of Notes
The operations of the Company are conducted principally through its direct
and indirect subsidiaries and, as a result, the Company's cash flow and,
consequently, its ability to service debt, including the Notes, is dependent
upon the cash flow of its subsidiaries and the payment of funds by those
subsidiaries to the Company in the form of loans, dividends or otherwise.
The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether in the form of loans,
dividends or otherwise. In addition, certain of the Company' subsidiaries
may become parties to credit agreements that contain limitations on the
ability of such subsidiaries to pay dividends or to make loans or advances to
the Company. The Indentures limit in certain respects the ability of the
Company to create or permit additional restrictions on dividends and other
payments by its Subsidiaries. See "Description of Notes--Certain Covenants--
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries."
Because the Company is a holding company that conducts its business
through its direct and indirect subsidiaries, all existing and future
liabilities of the Company's subsidiaries, including trade payables, will be
effectively senior to the Notes. As of March 31, 1997, the Company's
consolidated subsidiaries had aggregate liabilities, including trade
payables, of approximately $34.1 million.
Ranking of Notes
The Notes are not secured by any of the assets of the Company and are
senior unsecured obligations of the Company. Under the terms of the
Indenture, the Company and its Subsidiaries will be permitted to incur
additional indebtedness, including indebtedness secured by the assets of the
Company and its Subsidiaries. See "Description of Notes - Certain Covenants
- -- Limitation on Indebtedness" and "-- Limitation on Liens." In the event of
any distribution or payment of the assets of the Company in any foreclosure,
dissolution, winding-up, liquidation or reorganization, holders of secured
indebtedness will have a secured prior claim to the assets of the Company
which constitute their collateral. In the event of bankruptcy, liquidation
or reorganization of the Company, holders of the Notes will participate
ratably with all holds of indebtedness of the Company which is unsecured,
including the 1995 Notes, and all other general creditors of the Company,
based upon the respective amounts owed to each holder or creditor in the
remaining assets of the Company, and there may not be sufficient assets to
pay amounts due on the Notes.
Need to Manage Growth
Successful implementation of the Company's business plan will require
management of rapid growth, which will result in an increase in the level of
responsibility for management personnel. To manage its growth effectively,
the Company will be required to continue to implement and improve its
operating and financial systems and controls and to expand, train and manage
its employee base. There can be no assurance that the management, systems
and controls currently in place, or to be implemented, will be adequate for
such growth, or that any steps taken to hire personnel or to improve such
systems and controls will be sufficient.
Inability to Consummate Pending Acquisitions
The description of the Company included in this Prospectus assumes the
consummation all transactions related to the pending acquisition agreements
described herein. The consummation of each of these pending acquisitions,
and any future acquisitions the Company may pursue, if any, is and may be
subject to certain conditions, the satisfaction of which, in some cases, will
be beyond the Company's control, including obtaining FCC approvals and third-
party consents. There can be no assurance that the Company will be able to
obtain such approvals and consents, and failure to do so could have a
material adverse effect on the Company's ability to consummate the
acquisitions or the Company's operations in the affected markets. In
addition, there can be no assurance that the FCC will approve any pending
applications relating to channel rights that the Company is acquiring in
pending acquisitions or may acquire in the future, even though the approval
of such applications may not be a condition to completing such acquisitions.
See "- Uncertainty of Ability to Obtain FCC Authorizations."
Uncertainty of Ability to Obtain FCC Authorizations
Wireless cable systems transmit programming over some or all of the 33 MDS
channels and instructional television fixed service ("ITFS") channels that
are licensed by the FCC. Generally, the Company believes that a minimum of
12 wireless cable channels is necessary to offer a commercially viable
wireless cable service in its markets. All of the channels comprising a
wireless cable system must operate from the same transmitter site so that
subscribers may receive a clear picture on all channels offered. In some of
its Markets, the Company does not currently have the right to operate a
sufficient number of channels from the same transmitter site, and in certain
other Markets, the Company contemplates relocating all of its channels to a
new transmitter site. In these Markets the Company is dependent upon (i) the
grant of pending applications for new licenses or for modification of
existing licenses, and (ii) the grant of applications for new licenses and
license modification applications which have not yet been filed with the FCC.
Certain pending applications cannot be granted by the FCC until interference
agreements with nearby license holders are secured and certain of the
Company's applications are the subject of competing applications. There can
be no assurance that any or all of these applications will be granted by the
FCC. Although the Company does not believe that the denial of any single
application will adversely affect the Company, the denial of several of such
applications, particularly if concentrated in one or a few of the Company's
Markets, could have a material adverse effect on the ability of the Company
to serve such Market or Markets. See "Business - Channels and Channel
Licensing."
In certain cases, FCC approval may be dependent upon the Company's ability
to engineer its use of a wireless cable channel to avoid interference with
the reception of other channels that have been licensed or for which
applications are pending. In addition, intervening license grants may
adversely affect some of the Company's planned applications due to
interference considerations. No assurance can be given that the Company
will be able to engineer all of its channels so as to avoid interference.
See "--Interference Issues."
Government Regulation
The wireless cable industry is extensively regulated by the FCC. The FCC
governs, among other things, the issuance, renewal, assignment and
modification of licenses necessary for wireless cable systems to operate and
the time afforded license holders to construct their facilities. The FCC
imposes fees for certain applications and licenses, and mandates that certain
amounts of educational, instructional or cultural programming be transmitted
over certain of the channels used by the Company's existing and proposed
wireless cable systems. The FCC also has the authority, in certain
circumstances, to revoke and cancel licenses and impose monetary fines for
violations of its rules. In addition, there is no limit on the time that may
elapse between the filing of an application with the FCC for a modification
or a new license and action thereon by the FCC. Delay by the FCC in
processing applications could delay or materially adversely affect the
Company's plans with respect to one or more of its markets. If modification
of an unbuilt station license is anticipated, it is frequently necessary to
obtain from the FCC an extension of the period specified on the license for
constructing the station. In such case, absent FCC grant of such extension,
the license will expire. There can be no assurance that the FCC will grant
an extension in any particular instance. In addition, FCC licenses must be
renewed every ten years and, while such renewals generally have been granted
on a routine basis in the past, there is no assurance that licenses will
continue to be renewed routinely in the future. The failure of the Company's
channel lessors to renew their respective licenses or of the FCC to grant
such extensions would have a material adverse effect on the Company.
No assurance can be given that new regulations will not be imposed or that
existing regulations will not be changed in a manner that could have a
material adverse effect on the wireless cable industry as a whole and on the
Company in particular. In addition, wireless cable operators and channel
license holders are subject to regulation by the Federal Aviation
Administration ("FAA") with respect to construction, marking and lighting of
transmission towers and to certain local zoning regulations affecting the
construction of towers and other facilities. There also may be restrictions
imposed by local authorities, neighborhood associations and other similar
organizations limiting the use of certain types of reception equipment used
by the Company and new taxes imposed by state and local authorities. Future
changes in the foregoing regulations or any other regulations applicable to
the Company could have a material adverse effect on the Company's results of
operations and financial condition. See "Business - Regulatory Environment."
Interference Issues
Under current FCC regulations, a wireless cable operator may install
receive-site equipment and serve any point where its signal can be received.
Interference from other wireless cable systems can limit the ability of a
wireless cable system to serve any particular point. In licensing ITFS and
MDS stations, a primary concern of the FCC is avoiding situations where
proposed station signals are predicted to cause interference to the reception
of previously proposed station signals. The Company's business plan involves
moving the authorized transmitter sites of various of its MDS and ITFS
licensed stations and obtaining the grant of licenses for new stations that
the Company will use in its wireless cable systems. The FCC's interference
protection standards may make one or more of these proposed relocations or
new grants unavailable, in which event it may be necessary to negotiate
interference agreements with the licensees of the stations which would
otherwise block such relocations or grants. There can be no assurance that
the Company will be able to obtain necessary interference agreements with
terms acceptable to the Company. In the event that the Company cannot obtain
interference agreements required to implement the Company's plans for a
market, the Company may have to curtail or modify operations in the market,
which could have a material adverse effect on the growth of the Company. In
addition, while the Company's leases with MDS and ITFS licensees require
their cooperation, it is possible that one or more of the Company's channel
lessors may hinder or delay the Company's efforts to use the channels in
accordance with the Company's plans for the particular market.
Competition
The subscription television industry is highly competitive. Wireless
cable systems face or may face competition from several sources, such as
traditional hard-wire cable systems, direct broadcast satellite ("DBS")
systems, satellite master antenna television ("SMATV") systems, other
wireless cable systems and other alternative methods of distributing and
receiving video programming. Furthermore, premium movie services offered by
cable television systems have encountered significant competition from the
home video cassette recorder ("VCR") industry. In areas where several local
off-air VHF/UHF broadcast channels can be received without the benefit of
subscription television, hard-wire and wireless cable systems also have
experienced competition from the availability of broadcast signals generally
and have found market penetration to be more difficult. In addition, within
each market, the Company must compete with others to acquire, from the
limited number of wireless cable channel licenses issued or issuable, rights
to a minimum number of wireless cable channels needed to establish a
commercially viable system. Legislative, regulatory and technological
developments may result in additional and significant competition, including
competition from proposed new wireless services such as local multipoint
distribution service ("LMDS") in the 28 GHz band and wireless communications
service in the 2.3 GHz band. In some areas, exchange telephone companies
offer video programming services via radio communications without regulation
of rates or services, offer hardwire or fiber optic cable service for hire by
video programmers and provide traditional cable service subject to local
franchising requirements.
In its Operating Systems, the Company initially has targeted its marketing
to households that are unpassed by traditional hard-wire cable and that have
limited access to local off-air VHF/UHF programming. Certain of the hard-
wire cable companies operating in the Company's Markets currently offer a
greater number of channels to their customers than the Company offers. DBS
providers currently offer a substantially greater number of channels than
hard-wire or wireless cable providers with a high picture quality. In
addition, the DBS industry recently signed an agreement with VHF/UHF
programmers that would allow such stations to be broadcast through DBS
systems. Aggressive price competition or the passing of a substantial number
of presently unpassed households by any existing or new subscription
television service could have a material adverse effect on the Company's
results of operations and financial condition.
New and advanced technologies for the subscription television industry,
such as DBS, LMDS, digital compression and fiber optic networks, are in
operation or are in various stages of development. As they are developed,
these new technologies could have a material adverse effect on the demand for
wireless cable services. Many actual and potential competitors have greater
financial, marketing and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully with existing
competitors or new entrants in the market for subscription television
services.
Dependence on Channel Leases; Need for License Extensions; Loss of Licenses
by Lessors
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. The use of wireless
cable channels by the license holders is subject to regulation by the FCC,
and the Company is dependent upon the continuing compliance by channel
license holders with applicable regulations, including the requirement that
ITFS license holders must meet certain educational use requirements in order
to lease transmission capacity to wireless cable operators.
The Company's channel leases typically cover four ITFS channels and/or one
to four MDS channels each. Under a policy adopted by the FCC, the term of
the Company's ITFS channel leases cannot exceed ten years from the time the
lessee begins using the channel. The remaining initial terms of most of the
Company's ITFS channel leases are approximately five to ten years. There is
no restriction on the length of MDS channel leases, which frequently extend
beyond the term of the underlying MDS license. However, in the event an ITFS
or MDS license is not renewed or is otherwise terminated, the authorization
will no longer be valid, and the Company will have no rights under its
lease to transmit on channels that are subject to such nonrenewed or
terminated license.
ITFS licenses generally are granted for a term of ten years and are
subject to renewal by the FCC. Existing MDS licenses generally will expire
on May 1, 2001 unless renewed. BTA authorizations expire ten years from the
grant thereof, unless renewed. FCC licenses also specify construction
deadlines which, if not met, could result in the loss of the license.
Requests for additional time to construct a channel may be filed and are
subject to review pursuant to FCC rules. There can be no assurance that the
FCC will grant any particular extension request or license renewal request.
The termination or non-renewal of a channel lease or of a channel license, or
the failure to grant an application for an extension of the time to construct
an authorized station, would result in the Company being unable to deliver
programming on the subject channels.
The Company contracts with Mississippi EdNet Institute, Inc. ("EdNet") for
the commercial use of 20 ITFS channels in each of its markets in the state of
Mississippi (the "EdNet Agreement"). The term of the EdNet Agreement is 10
years from the date of issuance of certain construction permits, each of
which was granted in 1992. The Company anticipates that, pursuant to the
EdNet Agreement, the lease term will terminate on or about April 1, 2002,
unless renewed prior thereto. The commercial use of these channels
represents the majority of the Company's channels in Mississippi and the
termination of, or inability to renew, the EdNet Agreement would have a
material adverse effect on the Company's operations in its Mississippi
markets. Under the EdNet Agreement, the Company must, at its sole expense,
(i) install, operate and maintain a system sufficient to serve 95% of the
population of the licensed geographic area of Mississippi, (ii) provide,
install and maintain up to 1,100 standard receive sites, up to 11 studio
transmitter links, up to 11 electronic classrooms (each at a cost of up to
$20,000) and pay up to $1.5 million for 11 duplex, 2-channel link, (iii)
acquire and install a minimum of five 10-watt transmitters per transmit site
and (iv) apply for CARS Band microwave authorizations for EdNet use, among
other obligations. The Company must complete and have operational such
system by July 1, 1998. The Company has granted EdNet a security interest in
all of its Mississippi equipment, transmitters and rights to use certain
wireless cable channels (the "EdNet System") in order to secure the Company's
performance under the EdNet Agreement, which generally requires the Company
to install, operate and maintain a system sufficient to serve 95% of the
population of the licensed geographic area of Mississippi by July 1, 1998.
In the event of a default by the Company under the EdNet Agreement, EdNet
will have the right to operate the EdNet System and derive all income from
its operation. If EdNet assumes the operation of the EdNet System, the
Company will be required to assign its interest in the EdNet Agreement and
the EdNet System or to forfeit its interests in such assets. Although the
Company does not believe that the termination of or failure to renew a
single channel lease, other than that with EdNet, would materially adversely
affect the Company, several of such terminations or failures to renew in one
or more markets that the Company actively serves could have a material
adverse effect on the Company. In addition, the termination, forfeiture,
revocation or failure to renew or extend an authorization or license held by
the Company's lessors could have a material adverse effect on the Company.
Dependence on Program Suppliers
The Company is dependent on fixed-term contracts with various program
suppliers such as CNN, ESPN and HBO. Although the Company has no reason to
believe that any such contracts will be canceled or will not be renewed upon
expiration, if such contracts are canceled or not renewed, the Company will
have to seek program material from other sources. There can be no assurance
that other program material will be available to the Company on acceptable
terms or at all or, if so available, that such material will be acceptable to
the Company's subscribers.
Difficulties and Uncertainties of a New Industry
Wireless cable is a new industry with a short operating history.
Potential investors should be aware of the difficulties and uncertainties
that are normally associated with new industries, such as lack of consumer
acceptance, difficulty in obtaining financing, increasing competition,
advances in technology and changes in laws and regulations. There can be no
assurance that the wireless cable industry will develop or continue as a
viable or profitable industry.
Physical Limitations of Wireless Cable Transmission
Reception of wireless cable programming generally requires a direct,
unobstructed LOS from the headend to the subscriber's receive-site antenna.
Therefore, in communities with tall trees, hilly terrain, tall buildings or
other obstructions in the transmission path, wireless cable transmission can
be difficult or impossible to receive at certain locations, and the Company
may not be able to supply service to all potential subscribers. While in
certain instances the Company intends to employ low power repeaters to
overcome LOS obstructions, there can be no assurance that it will be able to
secure the necessary FCC authorizations. Based on the Company's installation
and operating experience, the Company believes that its signal can be
received directly by approximately 80% of the households within the Company's
signal pattern in the Operating Systems, and an average of approximately 70%
of the households within the Company's expected signal patterns for its
Future Launch Markets. In addition to limitations resulting from terrain, in
limited circumstances extremely adverse weather can damage transmission and
receive-site antennae, as well as other transmission equipment.
Dependence on Existing Management
The Company is dependent in large part on the experience and knowledge of
existing management. The loss of the services of one or more of the
Company's current executive officers could have a material adverse effect
upon the Company. Although the Company has recently added new members to its
management team, the Company believes that it will require additional
management personnel as it commences operations in new markets. The failure
of the Company to attract and retain such personnel could have a material
adverse effect on the Company.
Change of Control
In the event of a Change of Control, each holder of Notes will have the
option to require that the Company repurchase (subject to compliance with the
requirements of Rules 13e-4 and 14e-1 under the Exchange Act) all or a
portion of such holder's Notes at 101% of the Accreted Value thereof, or, in
the case of any such purchase on or after August 1, 2001, at 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date. However, certain highly leveraged transactions may not be
deemed to be a Change of Control, including, without limitation, transactions
with affiliates that comply with the other covenants included in the
Indenture. See "Description of Notes." Additionally, there can be no
assurance that the Company will have the financial resources necessary to
repurchase the Notes upon a Change of Control. See "Description of Notes--
Certain Covenants--Purchase of Notes upon a Change of Control.
Public Markets for the Notes and Warrants
The Company has not applied for a listing of the Notes or Warrants on a
securities exchange or sought approval for quotation through an automated
quotation system. The underwriters who participated in the original offering
of the Notes and Warrants have advised the Company that they currently intend
to make a market in the Notes and Warrants, but they are not obligated to do
so and they may discontinue such market making at any time without any
notice. Accordingly, no assurance can be given that an active trading market
for the Notes or the Warrants will continue or as to the liquidity thereof.
If a trading market continues for the Notes and Warrants, the future trading
prices thereof will depend on many factors including, among other things, the
Company's results of operations, prevailing interest rates, the market for
securities with similar terms and the market for securities of other
companies and similar businesses.
Original Issue Discount
The Notes were issued at a substantial discount from their principal
amount at maturity. Consequently, the purchasers of the Notes generally are
required to include amounts in gross income for Federal income tax purposes
in advance of receipt of the cash payments to which their income is
attributable. See "United States Federal Income Tax Matters" for a more
detailed discussion of the Federal income tax consequences to the holders of
the Notes resulting from the purchase, ownership and disposition of the
Notes. If a bankruptcy case is commenced by or against the Company under
Federal bankruptcy law after the issuance of the Notes, the claim of a holder
of the Notes with respect to the principal amount thereof may be limited to
an amount equal to the sum of (i) the initial public offering price of the
Notes and (ii) that portion of the original issue discount which is not
deemed to constitute "unmatured interest" for the purposes of Federal
bankruptcy law. Any original issue discount that was not accreted as of such
bankruptcy filing would constitute "unmatured interest."
Control by Principal Stockholders
Affiliates of The Chase Manhattan Corporation, Heartland and Mississippi
Wireless TV, L.P. ("MWTV") collectively beneficially own 53.7% of the
outstanding Common Stock. Chase Manhattan Capital Corporation ("CMCC"),
Chase Venture Capital Associates, L.P. ("CVCA"), Baseball Partners,
Heartland, MWTV, VanCom, Inc. ("VanCom"), Vision Communications, Inc.("VCI"),
Messrs. Burkhalter, Byer and certain former executives of TruVision are
parties to a stockholders' agreement, pursuant to which they have agreed,
among other things, to vote shares of Common Stock beneficially owned by them
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 and the Company), up to two of whom will be
designated by CMCC, Baseball Partners and CVCA and one of whom may be
designated by MWTV, VanCom, VCI and Messrs. Burkhalter, Byer and certain
former executives of TruVision. As a result, these stockholders will be able
to control the election of the Company's Board of Directors and to generally
exercise control over the Company's affairs. Such concentration of ownership
could also have the effect of delaying, deterring or preventing a change in
control of the Company that might otherwise be beneficial to stockholders.
See "Formation of the Company" and "Principal Stockholders."
Possible Volatility of Common Stock Price
The trading price of the Common Stock for which the Warrants are
exercisable could be subject to wide fluctuations in response to variations
in the Company's quarterly operating results, changes in earnings estimates
by analysts, conditions in the wireless cable industry, regulatory trends or
general market or economic conditions. In addition, in recent years the
stock market has experienced extreme price and volume fluctuations. These
fluctuations have had a substantial effect on the market prices for many
emerging growth companies, often unrelated to the operating performance of
the specific companies. Such market fluctuations could adversely affect the
market price for the Common Stock and the Warrants.
Expiration of Warrants
The Warrants are not exercisable prior to August 12, 1997 and terminate
and become void on the Expiration Date. The Company will give notice not
less than 90 nor more than 120 days prior to the Expiration Date to the
registered holders of then outstanding Warrants to the effect that the
Warrants will terminate and become void as of the close of business on the
Expiration Date. If the Company fails to give such notice, the Warrants will
nonetheless terminate and become void as of the close of business on the
Expiration Date. See "Description of Warrants."
Shares Eligible for Future Sale
The Company has a total of 16,946,697 shares of Common Stock outstanding
(19,270,169 on a fully diluted basis assuming the exercise of the warrants
issued in connection with the 1995 Notes (the "1995 Warrants"), warrants
issued to Gerard, Klauer & Mattison L.L.C. in connection with the Heartland
Transaction (as defined herein) (the "GKM Warrants"), the Warrants and
management and employee options). Of these shares, approximately 3.7 million
shares are freely transferable by persons other than affiliates of the
Company without restriction or registration under the Securities Act. The
remaining shares are "restricted securities" as that term is defined by Rule
144 under the Securities Act and may not be sold other than pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from such registration requirement. None of such shares of Common
Stock will be eligible for sale under Rule 144 for one year following the
date of issuance. All such shares are entitled to demand and piggyback
registration rights. See "Description of Capital Stock -- Registration
Rights." Sales of restricted securities under Rule 144 following such one-
year period will be subject to the conditions of Rule 144. The Warrants will
be exercisable at any time on or after August 12, 1997 through the Expiration
Date. During such period, the Company has agreed to maintain the
effectiveness of a registration statement, and, as a result, the Common Stock
issuable upon exercise of such Warrants will be freely transferable by the
holders thereof (other than affiliates of the Company). Sales of a
substantial number of shares of Common Stock in the public market or under
Rule 144 or otherwise, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Common Stock. See
"Shares Eligible for Future Sales."
Fraudulent Transfer Considerations
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Notes, (a) incurred such indebtedness with
the intent to hinder, delay or defraud creditors, or (b)(i) received less
than reasonably equivalent value or fair consideration and (ii)(A) was
insolvent at the time of such incurrence, (B) was rendered insolvent by
reason of such incurrence (and the application of the proceeds thereof), (C)
was engaged or was about to engage in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its business, or (D) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in
each such case, a court of competent jurisdiction could avoid, in whole or in
part, the Notes or, in the alternative, subordinate the Notes to existing and
future indebtedness of the Company. The measure of insolvency for purposes
of the foregoing would likely vary depending upon the law applied in such
case. Generally, however, the Company would be considered insolvent if the
sum of its debts, including contingent liabilities, was greater than all of
its assets at a fair valuation, or if the present fair saleable value of its
assets was less than the amount that would be required to pay the probable
liabilities on its existing debts, including contingent liabilities, as such
debts become absolute and matured. The Company believes that, for purposes of
the United States Bankruptcy Code and state fraudulent transfer or conveyance
laws, the Notes were issued without the intent to hinder, delay or defraud
creditors and for proper purposes and in good faith, and that the Company
received reasonably equivalent value or fair consideration therefor, and that
after the issuance of the Notes and the application of the net proceeds
therefrom, the Company was solvent, had sufficient capital for carrying on
its business and was able to pay its debts as they mature. However, there
can be no assurance that a court passing on such issues would agree with the
determination of the Company.
Certain Provisions of the Company's Certificate of Incorporation and By-laws
and the DGCL
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-laws (the "By-laws") and the Delaware
General Corporation Law (the "DGCL") contain provisions which may have the
effect of delaying, deterring or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved
by the Company's Board of Directors. Such provisions may also render the
removal of directors and management more difficult. The Company's
Certificate of Incorporation and By-laws provide for, among other things, a
classified Board of Directors serving staggered terms of three years, removal
of directors only for cause and only by the affirmative vote of the holders
of a majority of the voting power of the then outstanding voting capital
stock of the Company, voting together as a single class, exclusive authority
of the Board of Directors to fill vacancies on the Board of Directors (other
than in certain limited circumstances), certain advance notice requirements
for stockholder nominations of candidates for election to the Board of
Directors and certain other stockholder proposals, restrictions on who may
call a special meeting of stockholders and a prohibition on stockholder
action by written consent. Amendments to certain provisions in the
Certificate of Incorporation require the affirmative vote of the holders of
at least 80% of the total votes eligible to be cast in the election of
directors, voting together as a single class. In addition, the Company's
Board of Directors has the ability to authorize the issuance of up to
10,000,000 shares of preferred stock in one or more series and to fix the
voting powers, designations, preferences and relative, participating,
optional and other special rights and qualifications, limitations or
restrictions thereof without stockholder approval. The DGCL also contains
provisions preventing certain stockholders from engaging in business
combinations with the Company, subject to certain exceptions. See
"Description of Capital Stock."
FORMATION OF THE COMPANY
The Company's predecessor, (together with its subsidiaries, "Old Wireless
One"), was formed on December 23, 1993 in conjunction with a merger with its
predecessor, Wireless One, L.L.C., a limited liability company. Wireless
One, L.L.C. was formed on February 4, 1993 with six members including Hans J.
Sternberg, Chairman of the Company. In January 1994, Old Wireless One
completed a private placement of common stock with a group of investors that
included 12 independent telephone companies, certain of which are based in
the Company's targeted markets, for cash commitments and other consideration
totaling approximately $10 million. Proceeds from that offering were used
primarily to construct Operating Systems in Lafayette, Lake Charles and
Wharton and to purchase additional wireless cable channel rights.
In April 1995, certain investors including CMCC and certain members of Mr.
Sternberg's immediate family purchased redeemable convertible preferred stock
and warrants to acquire common stock of Old Wireless One in a private
placement resulting in net proceeds of approximately $14 million to Old
Wireless One. All such preferred shares and warrants to purchase shares of
common stock were converted into shares of Common Stock of the Company in the
Heartland Transaction (as defined herein). Concurrent with the closing of
that private placement, Old Wireless One purchased channel rights from
Heartland in one Texas and four Louisiana markets for approximately $2.8
million. The Company was incorporated in June 1995 for the purpose of
effecting the Heartland Transaction.
In October 1995, Heartland and all the stockholders of Old Wireless One
consummated the "Heartland Transaction," whereby the Company acquired (i) all
of the outstanding capital stock of Old Wireless One (which retained all of
its assets and liabilities except its wireless cable television assets and
certain related liabilities with respect to the Springfield, Missouri market
which Heartland acquired) through the merger of a subsidiary of the Company
with Old Wireless One and (ii) the wireless cable television assets and all
related liabilities of certain subsidiaries of Heartland with respect to
certain of Heartland's markets located in Texas, Louisiana, Alabama, Georgia
and Florida (the "Heartland Division"). In connection with the Heartland
Transaction, the contributing subsidiaries of Heartland and the stockholders
of Old Wireless One received an aggregate of approximately 3.5 million and
approximately 6.5 million shares of Common Stock, respectively, with an
aggregate of 200,000 of such shares of Common Stock placed in escrow to be
distributed to either the Old Wireless One stockholders or the contributing
subsidiaries of Heartland, but not to the Company. In January 1997, all
200,000 of these escrowed shares were delivered to Heartland.
Also in October 1995, the Company consummated an initial public offering
of 3,450,000 shares of its Common Stock and a concurrent offering of 150,000
units consisting of $150 million aggregate principal amount of 1995 Notes and
450,000 1995 Warrants, each of which entitles a holder to purchase one share
of Common Stock.
In July 1996, the Company acquired all of the outstanding capital stock of
TruVision through the merger of a subsidiary of the Company with TruVision.
See "Business - Recent Developments."
DIVIDENDS AND PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq National Market in October
1995 under the symbol of "WIRL" at a price of $10.50 per share. The
following table sets forth the high and low closing bid prices of the Common
Stock as reported by the Nasdaq National Market.
Market Price
---------------
Fiscal Period High Low
---- ---
1995:
Fourth Quarter (from October 18, 1995) $17-1/4 $11-3/4
1996:
First Quarter $16-3/4 $13-3/4
Second Quarter $20-1/4 $ 13
Third Quarter $ 18 $14-1/4
Fourth Quarter $ 14 $ 5-7/8
1997:
First Quarter $ 7 $ 2-5/8
Second Quarter (through April 25, 1997) $ 4 $ 3-3/8
The Company has never declared or paid any cash dividends on the Common
Stock and does not presently intend to pay cash dividends on the Common Stock
in the foreseeable future. The Company intends to retain future earnings for
reinvestment in its business. In addition, the Company's ability to declare
or pay cash dividends is affected by the ability of the Company's present and
future subsidiaries to declare and pay dividends or otherwise transfer funds
to the Company because the Company conducts its operations entirely through
its subsidiaries. Certain agreements related to the Company's indebtedness,
including the Indentures, significantly restrict the Company's ability to pay
dividends on the Common Stock. Future loan facilities, if any, obtained by
the Company or its subsidiaries may prohibit or restrict the payment of
dividends or other distributions by the Company to its stockholders and the
payment of dividends or other distributions by the Company's subsidiaries to
the Company. Subject to such limitations, the payment of cash dividends on
the Common Stock will be within the discretion of the Company's Board of
Directors and will depend upon the earnings of the Company, the Company's
capital requirements, applicable corporate law requirements and other factors
that are considered relevant by the Company's Board of Directors.
CAPITALIZATION
The following table sets forth the cash and the capitalization of the
Company at December 31, 1996. This table should be read in conjunction with
the Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus.
December 31, 1996
Cash and cash equivalents, excluding restricted cash $ 104,448,583
Restricted cash(1) 37,034,745
--------------
Total cash and cash equivalents 141,483,328
==============
Current maturities of long-term debt $ 3,169,383
--------------
Long-term debt:
1995 Notes (2) 148,384,135
Notes (2) 126,400,136
Other 25,124,950
--------------
Total long-term debt 299,909,221
--------------
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,946,697 issued and outstanding(3) 169,467
Additional paid-in capital 120,284,507
Accumulated deficit (49,787,292)
--------------
Total stockholders' equity 70,666,682
--------------
Total capitalization $ 373,745,286
==============
_______________________________
(1) Represents a portion of the net proceeds realized from the sale of the
1995 Notes that was placed in escrow to pay interest on the 1995 Notes
through October 1998.
(2) Net of unamortized discount.
(3) Excludes (i) 1,029,413 shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options granted to employees and
directors, (ii) 300,000 shares of Common Stock issuable upon exercise
of the GKM Warrants, (iii) 450,000 shares of Common Stock issuable upon
exercise of the 1995 Warrants and (iv) the 544,059 shares of Common
Stock issuable upon exercise of the Warrants.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1996 gives effect to (i) the
TruVision Transaction, (ii) the Madison Purchase and (iii) the conversion of
the TruVision convertible preferred stock into TruVision common stock, in
each case as if such transactions had occurred on January 1, 1996. All
transactions are accounted for under the purchase method of accounting.
The pro forma condensed combined statement of operations and the
accompanying notes should be read in conjunction with the Company's
consolidated financial statements, TruVision's financial statements, Madison
Communications, Inc.'s and Beasley Communications, Inc.'s combined financial
statements, including the notes thereto, contained elsewhere in this
Prospectus. The pro forma condensed combined statement of operations does
not purport to represent what the Company's results of operations would
actually have been if the aforementioned transactions or events occurred on
the dates specified or to project the Company's results of operations for any
future periods or at any future date. The pro forma adjustments are based
upon available information and certain adjustments that the Company believes
are reasonable. In the opinion of the Company, all adjustments have been
made that are necessary to present fairly the pro forma condensed combined
statement of operations.
<TABLE>
<CAPTION>
WIRELESS, ONE, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1996
Wireless One TruVision Madison Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 11,364,828 $ 3,356,954 $ 909,896 $ (360,684)(1) $ 15,270,994
Operating expenses:
Systems operations 5,316,190 1,011,164 351,860 --- 6,679,214
Selling, general and administrative 18,659,100 6,548,405 436,088 (130,765)(1) 25,512,829
Depreciation and amortization 11,625,507 2,415,305 294,043 877,051(2) 15,211,906
Total operating expenses 35,600,797 9,974,874 1,081,991 746,286 47,403,949
Operating income (loss) (24,235,969) (6,617,920) (172,095) (1,106,970) (32,132,955)
Interest income 8,146,958 --- --- --- 8,146,958
Interest expense (28,087,948) (912,265) (5,792) --- (29,006,005)
Equity in losses of investee (193,436) --- --- --- (193,436)
Other --- --- 29,307 --- 29,367
Income (loss) before income taxes (44,370,395) (7,530,185) (148,520) (1,106,970) (53,156,071)
Income tax benefit 4,700,000 --- --- --- 4,700,000
Net income (loss) (39,670,395) (7,530,185) (148,520) (1,106,970) (48,456,071)
Preferred stock dividends and
discount accretion --- (440,000) --- (440,000)(3) ---
------------ ----------- --------- ----------- ------------
Net income (loss) applicable to
common stock $(39,670,395) $(7,970,185) $(148,520) $(1,106,970) $(48,456,071)
Net loss per common share $ (2.65) $ (2.86)
Weighted average common shares
outstanding 14,961,934 16,942,807
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(1) Reflects the elimination of TruVision's and Madison's installation
revenue and direct commissions from the statement of operations in
order to conform accounting policies for the capitalized costs of
subscriber installations to the Company's accounting policies.
(2) Reflects the reduction in depreciation expense as a result of the
conforming adjustments in Note 1 above and the amortization of the
intangible assets acquired in the TruVision Transaction and the Madison
Purchase. For purposes of these Pro Forma Statements, lives of 20
years have been used for licenses and channel rights. Amortization of
intangible assets has only been recorded in those Markets acquired
which are Operating Systems.
(3) Reflects the elimination of the preferred dividend requirements as a
result of the conversion of TruVisions's convertible preferred stock
into TruVision common stock.
SELECTED FINANCIAL DATA
The selected consolidated financial data presented as of December 31,
1993, 1994, 1995 and 1996 and for the period from February 4, 1993
(inception) to December 31, 1993, and for the years ended December 31, 1994,
1995 and 1996 are 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, 1995 and 1996, and for
the years ended December 31, 1994, 1995 and 1996, and the report thereon are
contained elsewhere in this Prospectus. The financial statements for the
year ended December 31, 1995 reflect the operating results of the Company for
the period from January 1, 1995 through October 18, 1995 and the combined
results of the Company and the certain assets acquired in the Heartland
Transaction for the period from October 19, 1995 through December 31, 1995.
The financial statements for the year ended December 31, 1996 reflect the
operating results of the Company for the period from January 1, 1996 through
July 28, 1996 and the combined results of the Company and TruVision for the
period from July 29, 1996 through December 31, 1996. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements (including the notes thereto) of the
Company contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Period from
February 4,
1993
(inception) to Year Ended December 31,
December 31, ----------------------------------------
1993 1994 1995 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ - $ 399,319 $ 1,410,318 $ 11,364,828
Operating expenses:
Systems operations 24,429 274,886 841,819 5,316,190
Selling, general and
administrative expenses 110,281 1,800,720 4,431,839 18,659,100
Depreciation and amortization 27,489 413,824 1,783,066 11,625,507
----------- ----------- ------------ ------------
Total operating expenses 162,199 2,489,430 7,056,724 35,600,797
----------- ----------- ------------ ------------
Operating loss (162,199) (2,090,111) (5,646,406) (24,235,969)
Interest expense and other, net (411) (171,702) (2,046,068) (20,134,426)
----------- ----------- ------------ ------------
Loss before income taxes (162,610) (2,261,813) (7,692,474) (44,370,395)
Income tax benefit - - - 4,700,000
----------- ----------- ------------ ------------
Net loss $ (162,610) $(2,261,813) $ (7,692,474) (39,670,395)
Preferred stock dividends and
discount accretion - - (786,389) -
----------- ----------- ------------ ------------
Net loss applicable to common stock $ (162,610) $(2,261,813) $ (8,478,863) $(39,670,395)
=========== =========== ============ ============
Net loss per common share $ (0.30) $ (1.21) $ (2.02) $ (2.65)
=========== =========== ============ ============
Weighted average common shares
outstanding 538,127 1,863,512 4,187,736 14,961,934
=========== =========== ============ ============
December 31,
-------------------------------------------------------
1993 1994 1995 1996
Balance Sheet Data: ----------- ----------- ------------ ------------
Working capital (1) $ 57,786 $(1,537,244) $122,084,511 $106,676,500
Total assets 514,223 8,914,224 213,799,874 395,609,362
Current portion of long-term debt 4,714 1,457,295 376,780 3,169,383
Long-term debt 14,903 2,839,602 150,871,267 299,909,221
Deferred taxes - - - 6,500,000
Total stockholders' equity 458,370 4,343,713 55,649,687 70,666,682
</TABLE>
(1) Includes approximately $17,637,839 and $18,149,180 of funds held in
escrow at December 31, 1995 and 1996 respectively to be used to pay
interest due on the 1995 Notes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements (including the notes thereto)
included elsewhere in this Prospectus.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations pertains solely to the historical financial statements
contained herein.
The results of operations for the years ended December 31, 1994, 1995,
and 1996, were prepared based on the historical results of the Company. 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.
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. On July 29, 1996, the Company merged with
TruVision in exchange for approximately 3.4 million shares of the Company's
common stock. As a result, the results of operations for the year ended
December 31, 1996 includes the operating results of the Company for the
period from January 1, 1996 through July 28, 1996 and the combined operating
results of the Company and TruVision from July 29, 1996 to December 31, 1996.
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, the
TruVision Transaction and the development of the Company's business and
system launches during the periods presented.
Overview
Since its inception, the Company has significantly increased its
Operating Systems and number of subscribers. This controlled growth has been
achieved from internal expansion and through acquisitions and mergers. The
Company has sustained substantial net losses, primarily due to fixed
operating costs associated with the development of its systems, interest
expense and charges for depreciation and amortization. The Company expects
to experience positive system EBITDA in the second half of 1997 and positive
consolidated EBITDA (net income (loss) plus interest expense, income tax
expense, depreciation and amortization expense and all other non-cash charges
less any non-cash items which have the effect of increasing net income or
decreasing net loss) in the first half of 1998. The Company had five
Operating Systems achieve positive EBITDA for 1996 and 11 Operating Systems
positive for the month of December, 1996. None of the Company's remaining
systems had turned EBITDA positive as of December 1996, primarily as a result
of their early stages of development and number of subscribers. The Company
does not anticipate being able to generate net income until after the year
2001, and there can be no assurance that other factors, such as, but not
limited to, economic conditions, its inability to raise additional financing
or disruptions in its operations, will not result in further delays in
operating on a profitable basis. Losses may increase as operations in
additional systems are commenced or acquired.
"System EBITDA" means net income (loss) plus interest expense, income
tax expense, depreciation and amortization expense and all other non-cash
charges, less any non-cash items which have the effect of increasing net
income or decreasing net loss, for a system and includes all selling, general
and administrative expenses attributable to employees in that system. For
the periods presented there are no such non-cash items. Information with
respect to EBITDA is included herein because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. EBITDA is not intended to represent cash flows, as determined
in accordance with generally accepted accounting principles, nor has it been
presented as an alternative to operating income or as an indicator of
operating performance and should not be considered as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
Year 1996 Compared to the Year 1995
Revenues - The Company's revenues consist of monthly fees paid by
subscribers for the basic programming package and for premium programming
services. The Company's subscription revenues for 1996 were $11.4 million as
compared to $1.4 million for 1995, an increase of $10.0 million or 714%. This
increase in revenues was primarily due to the average number of subscribers
increasing from 5,015 to 40,420 subscribers for the years 1995 and 1996,
respectively. At December 31, 1995, the Company had 7,525 subscribers versus
69,825 at December 31, 1996. Approximately 34% of the subscriber increase
was attributable to same system growth (growth in systems in operation at the
beginning of the year and growth in systems acquired during the year from the
date of acquisition), 30% was attributable to growth from the 14 new systems
launched during 1996, and 36% was attributable to the acquisition of eight
Operating Systems.
Systems Operations Expenses - Systems operations expense includes
programming costs, channel lease payments, tower and transmitter site
rentals, cost of program guides and certain repairs and maintenance
expenditures. Programming costs, cost of program guides, and channel lease
payments (with the exception of minimum payments) are variable expenses which
increase as the number of subscribers increases. Systems operations expenses
for 1996 were $5.3 million (46% of revenue) as compared to $0.8 million (57%
of revenue) for 1995, reflecting an increase of $4.5 million or 562%. This
increase is attributable primarily to the increase in the average number of
subscribers in 1996 compared to 1995 as outlined above. As a percent of
revenues, systems operations expenses have decreased as more systems mature.
Selling, General and Administrative - Selling, general and
administrative ("SG&A") expenses for 1996 were $18.7 million (164% of
revenue) compared to $4.4 million (314% of revenue) for 1995, an increase of
$14.3 million or 325%. The Company has experienced increasing SG&A expenses
as a result of its increased wireless cable activities and associated
administrative costs including costs related to opening, acquiring and
maintaining additional offices and 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. As a percent of revenues, selling general and
administrative expenses have decreased as more systems mature.
The Company believes such SG&A costs will not stabilize until 1998 when
all Markets are expected to be launched. At that time, administrative
expenses should remain constant with selling and general expense stabilizing
when desired penetration rates are achieved. In order for such stabilization
to occur within this time period, however, the current system launch schedule
must be met and desired penetration rates must be achieved.
Depreciation and Amortization Expense - Depreciation and amortization
expense for 1996 was $11.6 million versus $1.8 million for 1995, an increase
of $9.8 million or 544%. The increase in depreciation expense during the
period was due to additional capital expenditures related to the launch of
new systems and acquisitions of Operating Systems. In addition, amortization
of leased license costs increased due to new launches and the acquisition of
additional channel rights.
Interest Expense - Interest expense for 1996 was $28.1 million versus
$4.1 million for 1995, an increase of $24 million or 585%. This increase in
interest expense is due to the issuance of the 1995 Notes in October 1995 and
the issuance of the Notes in August 1996.
Interest Income - Interest income in 1996 was $8.1 million versus
$2.0 million for 1995, an increase of $6.1 million or 305%. This increase in
interest income is due to the investment of net proceeds from the 1995 and
1996 Unit Offerings (each as defined in "- Liquidity and Capital Resources").
Year 1995 Compared to the Year 1994
Revenues - The Company's revenues for the year ended December 31,
1994 were $.4 million. Subscription revenues from new subscribers totaled
$.25 million or 67% of revenues. Equipment sales and other revenues
accounted for $.10 million and $.05 million, 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 $1.4 million. The increase in subscription
revenues of $1.15 million or 460% 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 from
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 - For the year ended December 31, 1995,
systems operations expense amounted to $.84 million as compared to $.3
million for the prior-year period. The increase was primarily attributable
to the increase in the number of subscribers and new market launches.
Selling General and Administrative Expense - SG&A increased to $4.4
million as compared to $1.8 million for the prior period. The $2.6 million
increase was due primarily to increase 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 was $1.8 million for the year ended December 31, 1995, compared to
$.4 million 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 the development and implementation
of the Company's operating plan.
Interest Income - For the year ended December 31, 1995, the Company
earned $1.4 million on its cash equivalents and $.6 million from the funds
escrowed in connection with the investment of net proceeds from the 1995 Unit
Offering.
Interest Expense - Interest expense in 1994 was $.17 million. 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 $.05 million of interest expense in 1994. The outstanding
balance on the facility at December 31, 1994 amounted to $1.1 million.
Additionally, the Company issued two discount notes that related 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
$.1 million. The subsidiary of the Company that owns and operates the
Bryan/College Station System has outstanding a $.15 million 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.
Interest expense in 1995 was $4.0 million. 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
$.04 million was incurred in 1995 from this revolving credit facility. In
October 1995, the Company issued an aggregate principal amount of $150
million of its 1995 Notes. At December 31, 1995, interest expense of $3.7
million was incurred on the 1995 Notes. Interest expense for the two
discount notes described in the above paragraph was $.3 million for the year
ended December 31, 1995. Interest expense on the convertible debenture
related to the Bryan/College Station System was $.01 million for the year
ended December 31, 1995.
Liquidity and Capital Resources
The wireless cable television business is capital intensive. The
Company's operations require substantial amounts of capital for (i) the
installation of equipment at subscribers' premises (ii) the construction of
transmission and headend facilities and related equipment purchases, (iii)
the funding of start-up losses and other working capital requirements, (iv)
the acquisition of wireless cable channel rights and systems and (v)
investments in 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 the
launch of additional markets, in October 1995, the Company completed the
initial public offering of 3,450,000 shares of its common stock (the "Common
Stock Offering"). The Company received approximately $32.3 million in net
proceeds from the Common Stock Offering. Concurrently, the Company issued
150,000 units (the "1995 Unit Offering") consisting of $150 million aggregate
principal amount of the 1995 Notes and 450,000 1995 Warrants, which entitle
the holders thereof to purchase an equal number of shares of Common Stock at
an exercise price of $11.55 per share. 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 1995 Notes as required by terms of the Old
Indenture.
In August 1996, the Company issued 239,252 units (the "1996 Unit
Offering") consisting of $239 million aggregate principal amounts of the
Notes and the Warrants. The Company received $118.6 million after expenses.
The proceeds are being used to fund the business plan of the newly acquired
markets from the TruVision Transaction and to fund the launch and expansion
of existing markets.
For the year ended December 31, 1994, cash used in operating activities
was $1.7 million consisting primarily of net loss of $2.3 million and an
increase in receivables and prepaid expenses of $.2 million, offset by an
increase in accounts payable and accrued expenses of $.2 million,
depreciation and amortization of $.4 million, and non-cash expenses of $.2
million. For the year ended December 31, 1994, cash used in investing
activities was $8.2 million, consisting primarily of capital expenditures and
payments for licenses and organizational costs of approximately $3.1 million
and $5.1 million, respectively. These investing activities principally
related to the acquisition of equipment in certain of the Company's Operating
Systems, as well as Future Launch Markets and certain license and
organization costs related to those Markets. For the year ended December 31,
1994, cash provided by financing activities was $9.8 million, consisting
primarily of $5.6 million from the issuance of 1,475,823 shares of Common
Stock and $4.3 million from the issuance of long-term debt associated with
license acquisition costs in Future Launch Markets, offset by $.01 million in
repayments of long-term debt.
For the year ended December 31, 1995, cash used in operating activities
was $.6 million, consisting primarily of a net loss of $7.7 million and an
increase in receivables and prepaid expenses of $.6 million and $.4 million,
respectively, offset by an increase in accounts payable and accrued expenses
of $6 million, and depreciation and amortization of $1.8 million, and net
non-cash expenses of $.3 million. For the year ended December 31, 1995, cash
used in investing activities was $71.3 million, consisting primarily of $53.2
million applied to purchase marketable investment securities to establish the
escrow account relating to the 1995 Notes and capital expenditures and
payments for licenses and organizational costs of approximately $9.8 million
and $6.8 million, respectively. In addition, the Company made investments
and purchased other assets at a cost of approximately $1.5 million. The
capital expenditures and acquisition costs principally related to the
purchase of equipment in certain of the Company's Operating Systems, as well
as Future Launch Markets and certain license and organizational costs related
to those Markets. For the year ended December 31, 1995, cash flows provided
by financing activities were $182.3 million, consisting of $144.8 million in
proceeds from the issuance of long-term debt, $35 million in proceeds from
the issuance of common stock, and $14.3 million in proceeds from the issuance
of redeemable preferred stock, offset by $11.5 million in repayments of long-
term debt and $.3 million in payments for debt issue cost.
For the year ended December 31, 1996, cash used in operating activities
was $22.2 million consisting primarily of a net loss of $39.7 million offset
by an increase in accounts payable and accrued expenses of $3.3 million, an
increase in receivables and prepaids of $1.0 million, a decrease in deposits
of $.9 million, depreciation and amortization of $11.6 million, non-cash
income of $5.7 million and non-cash expenses of $8.4 million. For the year
ended December 31, 1996, cash used in investing activities was $89.8 million,
consisting primarily of capital expenditures and payments for licenses and
organization costs of approximately $60.4 million and $43.9 million,
respectively. In addition, the Company received proceeds from the maturities
of securities of $17.3 million, and made investments and purchased other
assets at a cost of approximately $2.8 million. These investing activities
were principally related to the acquisition of equipment in certain of the
Company's Operating Systems, as well as Future Launch Markets and certain
license and organization costs related to those markets. For the year ended
December 31, 1996, cash flows provided by financing activities were $106
million, consisting of $120.7 million in proceeds from the issuance of long
term debt and $.03 million in proceeds from the issuance of common stock,
offset by $13.1 million in repayments of long-term debt and $1.6 million in
payments for debt issue costs.
Historically, the Company has generated operating and net losses and
can be expected to do so for at least the foreseeable future as it continues
to develop additional operating systems. Such losses may increase as
operations in additional systems are commenced or acquired. There can be no
assurance that the Company will be able to achieve or sustain positive net
income in the future. As the Company continues to develop systems, EBITDA
from more mature systems is expected to be partially or completely offset by
negative EBITDA from less developed systems and from development costs
associated with establishing systems in new markets. This trend is expected
to continue until the Company has a sufficiently large subscriber base to
absorb operating and development costs of recently launched systems. Based
on its current system launch schedule and targeted penetration and subscriber
revenue rates, the Company believes it will reach a subscriber level in its
more mature systems (those systems with positive System EBITDA) in the fourth
quarter of 1997 to generate revenues sufficient to offset these operating and
development costs. EBITDA is used to measure performance in the wireless
cable industry. However, EBITDA does not purport to represent cash provided
by or used by operating activities and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
The Company made capital expenditures, exclusive of acquisitions of
wireless cable systems and additions to leased license acquisition costs, of
approximately $9.8 million and $60.4 million for the years ended December 31,
1995 and 1996, respectively. These expenditures primarily relate to the
purchase of equipment in the Company's Operating Systems, as well as in
Future Launch Markets. The Company estimates that $87 million in capital
expenditures will be required over the next twelve months to continue to fund
growth in its Operating Systems and Future Launch Markets.
Based on the factors and results discussed above, the Company believes
that the $105 million in unrestricted cash at December 31, 1996 is sufficient
to meet its expected capital and operating needs at least over the next nine
to twelve months.
Subject to the limitations of the Indentures, 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 investors, joint ventures or other
arrangements, if such financing is available to the Company on satisfactory
terms.
As a result of issuing the 1995 Notes and the Notes and the possible
incurrence of additional indebtedness, the Company will be required to
satisfy significant 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 1995 Notes.
Additionally, beginning on August 1, 2001, cash interest will begin to accrue
on the Notes and thereafter a substantial portion of the Company's cash flow
will be devoted to such debt service. 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 1995 Notes and the 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 Indentures.
In managing its wireless cable assets, the Company may, at its option,
exchange or trade existing wireless cable channel rights for channel rights
in markets that have a greater strategic value to the Company. The Company
continually evaluates opportunities to acquire, either directly or indirectly
through the acquisition of other entities, wireless cable channel rights.
There is no assurance that the Company will not pursue any such opportunities
that may utilize capital currently expected to be available for its current
markets.
BUSINESS
The Company acquires, develops, owns and operates wireless cable
television systems, primarily in small to mid-size markets in the
southeastern United States. Wireless cable programming is transmitted via
microwave frequencies from a transmission facility to a small receiving
antenna at each subscriber's location, which generally requires an
unobstructed LOS from the transmission facility to the subscriber's receiving
antenna. The Company targets markets with a significant number of households
that can be served by LOS transmissions and that are unpassed by traditional
hard-wire cable. The Company estimates that approximately 25% of the LOS
households in its Markets are unpassed by traditional hard-wire cable. The
Company's 83 Markets (including 13 held by a limited liability company of
which the Company owns 50%) are located in Texas, Louisiana, Mississippi,
Tennessee, Kentucky, Alabama, Georgia, Arkansas, North Carolina, South
Carolina and Florida and represent approximately 11.0 million households
(including households in Markets held through such limited liability
company). The Company believes that approximately 8.1 million of these
households (2.0 million of which are in Markets held through such limited
liability company) can be served by LOS transmissions.
Many of the households in the Company's Markets, particularly in rural
areas, also have limited access to local off-air VHF/UHF programming from
ABC, NBC, CBS and Fox affiliates, and typically do not have access to
subscription television service except via satellite television operators,
whose equipment and subscription fees generally are more costly than those of
wireless cable, and which are unable to retransmit local off-air channels.
In many of the Company's rural Markets, the Company believes a significant
number of the households that are passed by cable are served by cable
operators with lower quality service and limited reception and channel
lineups than the Company's services. As a result, the Company believes that
its wireless cable television service is an attractive alternative to
existing television choices for both passed and unpassed households in many
of its Markets.
At December 31, 1996, the Company's Markets included 32 markets in
which the Company has Operating Systems and 38 Future Launch Markets, in
which the Company has aggregated either sufficient wireless cable channel
rights to commence construction of a system or leases with or options from
applicants for channel licenses that the Company expects to be granted by the
FCC. In addition, the Company owns a 50% interest in a limited liability
company which holds channel rights to serve 13 markets in North Carolina, all
of which are Future Launch Markets. Through increases in the number of
subscribers in its Operating Systems, the addition of eight Operating Systems
through its merger with TruVision and new system launches, the Company was
able to increase its aggregate number of subscribers from 7,525 at December
31, 1995 to 69,825 at December 31, 1996, representing a penetration rate of
2.6% of the LOS households in the Operating Systems at December 31, 1996.
Recent Developments
TruVision Transaction - In July 1996, the Company merged with
TruVision in exchange for approximately 3.4 million shares of the Company's
common stock. At the time of the Merger, TruVision (i) had Operating Systems
located in Jackson, Natchez, Oxford and the Gulf Coast and Delta regions of
Mississippi and Demopolis, Alabama (ii) held wireless cable channel rights in
other areas of Mississippi, for Memphis and Flippin, Tennessee and for
Gadsden and Tuscaloosa, Alabama and (iii) had acquisition transactions
pending in a number of additional Markets, including Lawrenceburg, Jackson
and Chattanooga, Tennessee, Hot Springs, Arkansas, Huntsville, Alabama, and
Jacksonville, North Carolina. See "- Other Acquisitions" and "- Pending
Acquisitions." As of December 31, 1996, Markets acquired as part of the
TruVision Transaction included approximately 2.0 million LOS households and
31,639 subscribers.
Applied Video Acquisition - In May 1996, the Company acquired Applied
Video for a total purchase price of approximately $6.5 million. The
acquisition of Applied Video added one Operating System (Dothan, Alabama) and
two Future Launch Markets (Albany, Georgia and Montgomery, Alabama). These
three Markets consist of approximately 263,100 LOS households. The Albany,
Georgia System was launched in September 1996. Operations in the Albany,
Georgia System together with the Dothan, Alabama system, as of December 31,
1996, accounted for 1,343 subscribers.
Other Acquisitions - In 1996, the Company also acquired (i) Shoals
Wireless, Inc., whose principal asset was an Operating System in the
Lawrenceburg, Tennessee Market, for approximately $1.2 million, (ii) an
Operating System and hard-wire cable system in the Huntsville, Alabama Market
for approximately $6 million, (iii) rights to 11 wireless cable channels in
the Macon, Georgia Market for approximately $600,000, (iv) rights to eight
wireless cable channels in the Bowling Green, Kentucky Market for $300,000,
(v) rights to 16 wireless cable channels in the Jacksonville, North Carolina
Market for approximately $820,000 ($800,00 of which is being withheld pending
grants of licenses) and 12 wireless cable channels in the Chattanooga,
Tennessee Market for $517,000 and (vi) rights to 11 MDS channels and filings
for 20 ITFS licenses and related transmission tower leases and approvals in
Auburn/Opelika, Alabama for $600,000.
Pending Acquisitions - The Company has entered into a definitive
agreement with SkyView Wireless Cable, Inc. to acquire rights to 22 wireless
cable channels and a substantially completed transmission facility in the
Jackson, Tennessee Market for approximately $2.7 million and to acquire
rights to 20 wireless cable channels in the Hot Springs, Arkansas Market for
approximately $1.5 million. The Company also has entered into an agreement
with Wireless Ventures to acquire a fifty percent interest in Wireless
Ventures, which holds BTA authorizations in certain markets in Georgia for
approximately $1.0 million.
BTA Auction - In March 1996, the Company, TruVision, Applied Video
and WONC participated in the BTA Auction conducted by the FCC for the
exclusive right to apply for available MDS channels in certain
designated BTAs, subject to compliance with the FCC's interference standards
and other rules. The Company, TruVision, Applied Video and WONC were the
winning bidders for BTA authorizations in the 72 markets which constitute the
BTA Markets, and such authorizations, which primarily will increase, upon FCC
approval, the number of expected channels in the Company's Markets where BTAs
are held, are reflected in the information set forth herein. Subsequent to
the BTA Auction and consistent with FCC rules, the Company filed applications
for authorizations in each BTA Market. Approximately 95% of these
authorizations have been granted by the FCC. The winning bids of the
Company, TruVision and Applied Video in the BTA Auction aggregated
approximately $30.3 million (net of a small business bidding credit), 80% of
which is being financed through indebtedness provided to the Company by the
United States government.
First Quarter 1997 Results. On April 29, 1997, the Company reported
revenues for the first quarter ended March 31, 1997 of $7.1 million,
compared to $1.0 million for the first quarter of 1996 and $5.5 million
for the fourth quarter of 1996. Consolidated EBITDA was negative $3.9
million for the first quarter of 1997, compared to negative $2.2 million
for the first quarter of 1996 and negative $4.6 million for the fourth
quarter of 1996. System EBITDA was negative $1.3 million of the first
quarter of 1997 compared to negative $2.3 million for the fourth quarter
of 1996. For the first quarter of 1997, 11 Operating Systems had positive
EBITDA compared to six for the fourth quarter of 1996. As of March 31,
1997, the Company had a total of 88,409 subsidiaries in 33 Operating
Systems, one of which was launched in the first quarter of 1997.
2.3GHz Auction. The Company, through a cooperative bidding effort
with BellSouth Corp. ("BellSouth"), acquired certain rights with respect
to the spectrum in the 2.3GHz range at the FCC auction with respect to
such spectrum conducted in April 1997. The Company's agreement with
BellSouth calls for the Company to own 10MHz of spectrum covering its
existing wireless cable footprint. If the partition agreement is
approved by the FCC, the Company will pay approximately $1.1 million for
the spectrum, which covers approximately 11 million total households.
The Company expects to use the spectrum to facilitate two way data and
internet services and to provide additional channel capacity for
downstream video.
Business Strategy
The Company's primary business objective is to develop wireless cable
television systems in markets in which the Company believes it can achieve
positive System EBITDA upon achieving 2,500 to 3,000 subscribers. The
Company intends to accomplish this business objective through implementation
of the following operating strategies.
Rural market focus - The Company generally obtains wireless cable
channel rights and locates operations in geographic clusters of small to mid-
size markets that have a significant number of households not currently
passed by traditional hard-wire cable. The Company believes that such
markets have less competition from alternative forms of entertainment and are
characterized by a relatively high number of "value conscious" consumers, and
that the Company's low-priced service is the most economical subscription
television alternative for many consumers in such markets. Furthermore, the
Company believes that its Markets typically have a stable base of
subscribers, which has allowed the Company to maintain an average turnover or
"churn" rate below 2.5% per month for the year ended December 31, 1996.
Lower churn rates result in reduced installation and marketing expenses.
Contiguous geographic cluster - The Company believes that through its
large contiguous geographic cluster it is able to achieve significant cost
savings through centralization of operations. The Company further believes
that its contiguous cluster simplifies its market launch program by
facilitating the movement of skilled personnel from one launch market to
another. The Company also believes that a contiguous cluster is more
attractive to regional advertisers and offers greater opportunities for
telecommunications and other sources of revenue.
Low cost structure - Wireless cable systems typically cost
significantly less to build and operate than traditional hard-wire cable
systems because, unlike traditional hard-wire cable systems, they do not
require an extensive network of coaxial or fiber optic cable, amplifiers and
related equipment (the "Cable Plant") for the transmission of programming.
Once the Company constructs a headend for a system, the Company estimates
that each additional subscriber will require a capital expenditure of
approximately $375 to $500, consisting of, on average, $240 to $300 of
equipment and $135 to $200 of installation labor and overhead charges. The
Company also believes that its cost structure compares favorably with that of
DBS operators, which must incur the fixed cost of a satellite and the
variable cost of subscriber receive site equipment, which is typically twice
the cost of the Company's receive site equipment.
Focused operating strategy - The Company attempts to manage
subscriber growth in order to make the most efficient use of its assets,
assure customer satisfaction and minimize its churn rate. Within a Market,
the Company initially targets selected geographic sub-markets characterized
by a significant number of households that are unpassed by cable or are
served by smaller independent hard-wire cable operators and focuses marketing
on such sub-markets so that subscribers generally wait no more than ten days
from initial inquiry to commencement of service. The Company seeks to
maintain high levels of customer satisfaction in installation, maintenance
and customer service. To minimize churn, the Company charges an up-front
installation fee, utilizes prequalified customer lists and performs credit
checks on potential subscribers that are not prequalified. In addition, the
Company has a customer retention program focused on resolving customer
complaints and identifying potential non-pays in a timely manner.
Subscription Television Industry
The subscription television industry began in the late 1940s to serve
the needs of residents of predominantly rural areas having limited access to
local off-air VHF/UHF channels. The industry subsequently expanded to
metropolitan areas because, among other reasons, its systems were able to
offer better reception and more programming than local off-air VHF/UHF
channels. Currently, subscription television systems typically offer a
variety of services including basic service, enhanced basic service, premium
service and, in some instances, pay-per-view service.
Typically, subscription television providers charge customers an
installation fee plus a fixed monthly fee for basic service. The monthly fee
for basic service is based on the number of channels provided, operating and
capital costs of the provider and competition within the market, among other
factors. Subscribers who purchase enhanced basic service or premium services
usually are charged additional monthly fees corresponding thereto. Monthly
fees for basic, enhanced basic and premium services constitute the major
source of revenue for subscription television providers. Converter rentals,
remote control rentals, installation charges and reconnect charges also
comprise a portion of a subscription television provider's revenues, but
generally do not comprise a major component of revenues.
Traditional Hard-Wire Cable Technology
Most subscription television systems are hard-wire cable systems which
currently use coaxial cable to transmit television signals, although many
have upgraded or are considering upgrading to fiber optic cable which
provides greater channel capacity than coaxial cable. Traditional hard-wire
systems have headends which receive signals for programming services, which
signals have been transmitted to the headend by local broadcast or satellite
transmissions. A headend consists of signal reception, decryption,
retransmission, encoding and related equipment. The operator then delivers
the signal from the headend to customers via an extensive network of coaxial
or fiber optic cable, amplifiers and related equipment. The use of a network
of coaxial cable inherently results in signal degradation and increases the
possibility of outages. Specifically, signals can be transmitted via coaxial
cable only a relative short distance without amplification. However, each
time a television signal passes through an amplifier, some measure of noise
is added. A series or "cascade" of amplifiers between the headend and a
customer leads to progressively greater noise and for some viewers, a
degraded picture. In addition, an amplifier must be properly balanced or the
signal may be improperly amplified. Failure of any one amplifier in the
chain of a Cable Plant will black out the transmission signal from the failed
amplifier to the end of the cascade. Although fiber optic networks will
substantially reduce the transmission problems of coaxial cable systems and
will expand channel capacity, the installation of such networks will require
a substantial investment by hard-wire cable operators.
Wireless Cable Development
Although regulatory and other obstacles impeded the growth of the
wireless cable industry through the 1980s, during the 1990s several
developments have facilitated the growth of the wireless cable industry,
including (i) regulatory reforms by the FCC intended to encourage the growth
of the wireless cable industry and its ability to compete with hard-wire
cable operators, (ii) Congressional scrutiny of the rates and practices of
the hard-wire cable industry, (iii) the increasing availability of
programming for wireless cable systems on non-discriminatory terms,
(iv) consumer demand for alternatives to hard-wire cable service, (v) the
aggregation by wireless cable operators of a sufficient number of channels in
certain markets to create a competitive service and (vi) the increased
availability of capital to wireless cable operators in the public and private
markets.
Like a traditional hard-wire cable system, a wireless cable system
receives programming at a headend. Unlike traditional hard-wire cable
systems, however, programming is then retransmitted by microwave transmitters
operating in the 2150-2162 MHZ and 2500-2686 MHZ portions of the
electromagnetic radio spectrum from antennae located on a tower or building
to a small receiving antenna located at each subscriber's premises. At the
subscriber's location, the signals are descrambled, converted to frequencies
that can be viewed on a television set and relayed to a subscriber's
television set by coaxial cable. Because the microwave frequencies used will
not pass through trees, hills, buildings or other obstructions, wireless
cable systems require a clear LOS from the headend to a subscriber's
receiving antenna. To ensure the clearest LOS possible, the Company has
placed, or plans to place, its transmitting antennae on towers and/or tall
buildings. In each of the Company's Markets, the Company believes there to
be a number of acceptable locations for the placement of its towers.
Additionally, many LOS obstructions can be overcome with the use of signal
repeaters which retransmit an otherwise blocked signal over a limited area.
Because wireless cable systems do not require an extensive network of coaxial
cable and amplifiers, wireless cable operators can provide subscribers with a
reliable signal having few transmission disruptions, resulting in a
television signal of a quality comparable or superior to traditional hard-
wire cable systems, and at a significantly lower system capital cost per
installed subscriber.
Channels and Channel Licensing
Channels Available for Wireless Cable - The FCC licenses and
regulates the use of channels used by wireless cable operators to transmit
video programming and other services. In 50
large markets in the U.S., 33 analog channels are available for wireless
cable (in addition to any local off-air VHF/UHF broadcast channels that are
not retransmitted over wireless cable channels). In each other market, 32
analog channels are available for wireless cable (in addition to any local
off-air VHF/UHF broadcast channels that are not retransmitted over wireless
cable channels). The actual number of wireless cable channels available for
licensing in any market is determined by the FCC's interference protection
and channel allocation rules. Except in limited circumstances, 20 of these
channels in each geographic area, known as ITFS channels, are generally
licensed to qualified educational organizations. In general, each of these
channels must be used an average of at least 20 hours per week for
educational programming. The educational requirement may be satisfied by
such programming as the Discovery Channel, PBS and C-SPAN. The remaining air
time ("excess air time") on each ITFS channel may be leased to wireless cable
operators for commercial use, without further restrictions (other than the
right of the ITFS license holder, at its option, to recapture up to an
additional 20 hours of air time per week for educational programming).
Lessees of ITFS excess air time generally have the right to transmit to their
customers at no incremental cost the educational programming provided by the
lessor on one or more of its ITFS channels, thereby providing wireless cable
operators that lease such channels with greater flexibility in their use of
ITFS channels. The remaining MDS channels available in most of the Company's
operating and targeted markets are made available by the FCC for full-time
commercial usage without educational programming requirements. The FCC does
not impose any restrictions on the terms of MDS channel leases, other than
the requirement that the licensee maintain effective control of its MDS
station. The same FCC effective control requirements apply to ITFS
licensees. In addition, ITFS excess capacity leases cannot exceed a term of
10 years from the time that the lessee begins using the channel capacity.
The Company's ITFS leases generally grant the Company a right of first
refusal to match any new lease offer after the end of the lease term and
require the parties to negotiate in good faith to renew the lease.
Licensing Procedures - The FCC awards ITFS and MDS licenses based
upon applications demonstrating that the applicant is legally, technically
and financially qualified to hold the license and that the operation of the
proposed station will not cause impermissible interference to other stations
or proposed stations entitled to interference protection. The FCC accepts
applications for new ITFS stations or major modifications to authorized ITFS
stations in designated filing "windows." Where two or more ITFS applicants
file for the same channels and the proposed facilities cannot be operated
without impermissible interference, the FCC employs a set of comparative
criteria to select from among the competing applicants.
In 1996, the FCC adopted a competitive bidding mechanism under which
initial MDS licenses for 493 designated BTAs were auctioned to the highest
bidder. Auction winners obtained the exclusive right to apply for
available MDS channels within such BTA, subject to compliance with FCC
interference protection, construction and other rules. The BTA Auction was
concluded on March 28, 1996, and the Company was the high bidder for its BTA
Markets and timely submitted to the FCC the required down payment for its BTA
Markets. The Company filed applications for MDS channels in all of its BTA
Markets. Approximately 95% of these authorizations have been granted by the
FCC.
Construction of ITFS stations generally must be completed within 18
months following the date authorization to construct is granted.
Construction of MDS stations licensed pursuant to initial applications filed
before the implementation of the BTA Auction rules generally must be
completed within 12 months. If construction of MDS or ITFS stations is not
completed within the authorized construction period, the licensee must file
an application with the FCC seeking additional time to construct the station,
demonstrating compliance with certain FCC standards. If the extension
application is not filed or is not granted, the license will be deemed
forfeited. FCC rules prohibit the sale for profit of a conditional
commercial license or of a controlling interest in the conditional license
holder prior to construction of the station or, in certain instances, prior
to the completion of one year of operation. However, the FCC does permit the
leasing of 100% of a commercial license holder's spectrum capacity to a
wireless cable operator and the granting of options to purchase a controlling
interest in a license even before such holding period has lapsed. The
construction requirements applicable to MDS stations licensed pursuant to the
BTA Auction are substantially different. The licensee must build stations
covering two-thirds of the area within its control in the BTA within five
years.
ITFS and commercial licenses generally have terms of 10 years.
Applications for renewal of MDS and ITFS licenses must be filed within a
certain period prior to expiration of the license term, and petitions to deny
applications for renewal may be filed during certain periods following the
filing of such applications. Licenses are subject to revocation or
cancellation for violation of the Communications Act of 1934, as amended (the
"Communications Act") or the FCC's rules and policies. Conviction of certain
criminal offenses may also render a licensee or applicant unqualified to
obtain renewal of a license. The Company's lease agreements with license
holders typically require the license holders, at the Company's expense, to
use their best efforts, in cooperation with the Company, to make various
required filings with the FCC in connection with the maintenance and renewal
of licenses. The Company believes that such a requirement reduces the
likelihood that a license would be revoked, canceled or not renewed by the
FCC.
Availability of Programming
Once a wireless cable operator has obtained the right to transmit
programming over specified frequencies, the operator must then obtain the
right to use the programming to be transmitted.
General - Currently, with the exception of the retransmission of
VHF/UHF broadcast signals, the Company's programming is made available in
accordance with contracts with program suppliers under which the Company
generally pays a royalty based on the number of customers receiving service
each month. Individual program pricing varies from supplier to supplier;
however, more favorable pricing for programming is generally afforded to
operators with larger customer bases. The likelihood that program material
will be unavailable to the Company has been significantly mitigated by the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") and various FCC regulations issued thereunder which, among other
things, impose limits on exclusive programming contracts and prohibit cable
programmers, in which a cable operator has an attributable interest (a
"vertically integrated cable operator"), from discriminating against cable
competitors with respect to the price, terms and conditions of the sale of
programming. The Company historically has not had difficulty in arranging
satisfactory contracts for programming and believes that it will have access
to sufficient programming to enable it to provide full channel lineups in its
Markets for the foreseeable future and is not dependent on any one
programming distributor for its programming. The basic programming package
offered by the Company's Operating Systems is comparable to that offered by
the local hard-wire cable operators with respect to the most widely watched
channels. However, several of such local hard-wire cable operators may,
because of their greater channel capacity, currently offer more basic,
enhanced basic, premium, pay-per-view and public access channels than the
Company. Certain hard-wire cable companies competing in the Company's
Markets currently offer a greater number of channels to their customers,
compared to the 24 to 31 wireless cable channels offered by the Company in
its Operating Systems.
Copyright - Under the federal copyright laws, permission from the
copyright holder generally must be secured before a video program subject to
such copyright may be retransmitted. Under Section 111 of the Copyright Act,
certain "cable systems," including wireless cable operators, are entitled to
engage in the secondary transmission of programming without the prior
permission of the copyright holders, provided the cable system has secured a
compulsory copyright license for such programming. The Company relies on
Section 111 to retransmit two superstations and five local off-air broadcast
signals.
Retransmission Consent - Under the retransmission provisions of the
1992 Cable Act, wireless cable and hard-wire cable operators seeking to
retransmit certain commercial broadcast signals must first obtain the
permission of the broadcast station. The FCC has exempted wireless cable
operators from the transmission consent rules, if the receive-site antenna is
either owned by the subscriber or within the subscriber's control and
available for purchase by the subscriber upon the termination of service. In
all other cases, wireless cable operators must obtain consent to retransmit
local broadcast signals. The Company has obtained such consents with respect
to the Operating Systems where it is retransmitting local VHF/UHF channels.
Although there can be no assurances that the Company will be able to obtain
requisite broadcaster consents, the Company believes that in most cases it
will be able to do so for little or no additional cost.
Operations
Installation - When a potential subscriber requests service, a signal
reception survey is made at the potential subscriber's premises to determine
whether LOS transmission is possible. The potential subscriber is informed
on the day of the survey whether service can be provided at the subscriber's
location. If service can be provided, an installation is scheduled. The
Company provides three installation options. The first and primary
installation method features a rooftop antenna mount. The second option
involves placing the antenna in the upper part of a tree on the subscriber's
premises, if such a tree is available. The third and least used option is to
place a "free standing" mast on the ground supported with guy wires. Each of
the installation methods includes running a coaxial to the subscribers
dwelling and grounding the receiving antenna in accordance with national
electrical codes. The installation process is completed, and service
commences, within approximately ten days of the potential subscriber's
initial request for service.
Billing - The Company believes that its billing procedures help
minimize churn. Subscribers are billed on the first day of the month for
that month's service with payment due on the fifteenth of the month. The
Company encourages delinquent accounts to pay by disconnecting either premium
channels or additional outlets after a period of non-payment. The Company
also uses a customer retention program to encourage delinquent accounts to
pay and continue receiving service. However, if an account becomes 60 days
past due, total service is disconnected and the Company's collection team
initiates the collection process. The local system manager from each market
is responsible for retrieving the equipment from disconnected subscribers on
a timely basis. After the canceled customer's account becomes 90 days past
due, a collection "threat letter" is sent to the canceled subscriber. If no
payment is made within 15 days of the threat letter, the account is written
off the Company's books, turned over to a third party collector and reported
to the credit bureau in that region.
Equivalent Billing Units - The Company reports its subscriber base on
an equivalent billing unit ("EBU") basis to consistently account for
subscribers. In converting total subscribers in a multiple dwelling unit
("MDU") to EBUs, the Company divides its total basic service charge for the
MDU, whether bulk or individually billed, by the basic service rate charged
to its single family units ("SFU"), currently $19.95.
Marketing - Prior to commencing operations in a new system, the
Company develops a marketing plan designed to manage subscriber growth and to
ensure that the quality of installations and customer service remains high.
The Company prioritizes areas of the market according to the number of
unpassed homes, the relative strength of any traditional hard-wire
competitors, the existence of terrain or obstructions that would impede LOS
transmissions, the economic demographics of the area and the percentage of
single family homes. On the basis of such analysis the market is divided
into sub-markets based on zip codes and/or mail carrier routes and the sub-
markets are prioritized on the basis of their attractiveness to the Company.
In each sub-market, the Company's marketing staff develops a targeted
marketing plan that typically includes direct mailings, telemarketing follow-
up calls and selected door-to-door sales. Separate marketing teams focus on
adding commercial subscribers (such as restaurants, business offices and auto
dealers) and MDU contracts.
The Company markets its wireless cable service by highlighting four
major competitive advantages over traditional hard-wire cable services and
other subscription television alternatives: customer service, picture
quality and reliability, programming features and price. The ability to
deliver local programming to its customers is a major advantage over DBS
technology.
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 retain and attract new subscribers and
build loyalty among it customers.
Picture Quality and Reliability - Wireless cable subscribers enjoy
substantially outage-free, highly reliable picture quality because there is
no Cable Plant between the headend and the subscriber's location, as in the
case of traditional hard-wire cable. Within the signal range of the
Operating Systems, the picture quality of the Company's service is generally
equal or better in quality to that typically received by traditional hard-
wire cable subscribers because, absent any LOS obstruction, there is less
opportunity for signal degradation between the Company's headend and the
subscriber.
Programming Features - In the Operating Systems and Future Launch
Markets, 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.
Price - The Company offers its subscribers a programming package
consisting of basic service, enhanced basic service, premium programs and
premium packages. The Company can offer a price to its subscribers for basic
service and enhanced basic service that is typically lower than prices for
the same services offered by traditional rural hard-wire cable operators
because of lower operating costs. The rates charged by cable operators for
their programming services are regulated pursuant to the 1992 Cable Act, as
modified by the 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 rural hard-wire cable operators with respect to
comparable programming.
Operating Systems and Future Launch Markets
The table below provides information regarding the Company's Markets.
"Estimated Total Households" represents the Company's estimate of the total
number of households that are within the Company's Intended Service Area.
"Intended Service Area" includes (i) areas that are presently served, (ii)
areas where systems are not presently in operation but where the Company
intends to commence operations and (iii) areas where service may be provided
by signal repeaters or, in some cases, pursuant to FCC applications.
"Estimated LOS Households" represents the Company's estimate of the number of
households that can receive an adequate signal from the Company in its
Intended Service Area (determined by applying a discount to the Estimated
Total Households in order to account for those homes that the Company
estimates will be unable to receive service due to certain characteristics of
the particular market). The calculation of Estimated LOS Households assumes
(i) the grant of pending applications for new licenses or for modifications
of existing licenses and (ii) the grant of applications for new licenses and
license modification applications which have not yet been filed with the FCC.
The Company holds some of its FCC channel licenses directly, but for a
majority of its channel rights, the Company has acquired the right to
transmit over those channels under leases with holders of channel licenses
and applicants for channel licenses. Although the Company has obtained or
anticipates that it will be able to obtain access to a sufficient number of
channels to operate commercially viable wireless cable systems in its
Markets, if a significant number of the Company's channel leases are
terminated or not renewed, a significant number of pending FCC applications
in which the Company has rights are not granted, or the FCC terminates,
revokes or fails to extend or renew the authorizations held by the Company's
channel lessors, the Company may be unable to provide a commercially viable
programming package to customers in some or all of its Markets. In addition,
with the cooperation of the Company, certain channel lessors may file
applications with the FCC to modify certain channel licenses in the Company's
Markets to allow for the relocation of some channels from their currently
authorized transmission site. While the Company's leases with such licensees
require their cooperation, it is possible that one or more of such lessors
may hinder or delay the Company's efforts to use the channels in accordance
with the Company's plans for the particular market. Further, FCC
interference protection requirements may impact efforts to modify licenses.
<TABLE>
<CAPTION>
Estimated Total Estimated LOS Acquisition or Subscribers at Penetration
Households Households Launch Date December 31, 1996 Rate (1)
--------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Operating Systems:
Lafayette, LA 180,300 153,200 January 1994 1,458 0.95%
Lake Charles, LA 111,600 92,500 April 1994 2,716 2.94%
Wharton, TX 102,300 92,000 June 1994 2,484 2.70%
Bryan/College Station,TX 102,700 65,600 May 1995 4,269 6.51%
Pensacola, FL 217,400 157,900 July 1995 2,835 1.80%
Panama City, FL 108,300 83,300 September 1995 2,561 3.07%
Monroe, LA 114,100 89,600 October 1995 2,961 3.30%
Milano, TX 40,900 36,800 October 1995 1,958 5.32%
Tullahoma, TN 109,600 73,600 November 1995 2,233 3.03%
Bunkie, LA 94,700 81,600 December 1995 2,629 3.22%
Gainesville, FL(2) 138,700 115,200 January 1996 3,376 2.93%
Brenham, TX 39,500 32,100 February 1996 2,068 6.44%
Jeffersonville, GA 189,300 147,000 March 1996 1,427 0.97%
Bucks, AL 150,800 113,700 April 1996 1,580 1.39%
Fort Walton Beach, FL 64,200 54,600 May 1996 779 1.43%
Dothan, AL 100,500 81,200 June 1996 880 1.08%
Jackson, MS 211,500 176,900 July 1996 12,682 7.17%
Delta, MS(3) 100,800 92,800 July 1996 4,953 5.34%
Gulf Coast, MS(4) 132,300 121,700 July 1996 4,053 3.33%
Demopolis, AL 17,500 15,600 July 1996 792 5.08%
Oxford, MS 60,100 53,500 July 1996 1,640 3.07%
Natchez, MS 76,500 60,000 July 1996 1,618 2.70%
Houma, LA 81,700 69,500 July 1996 663 0.95%
Lawrenceburg, TN(5) 76,400 44,100 August 1996 656 1.49%
Huntsville, AL(5) 196,800 181,900 August 1996 4,182 2.30%
Alexandria, LA 31,700 26,900 August 1996 706 2.62%
Meridian, MS 73,300 44,800 September 1996 750 1.67%
Albany, GA 92,900 67,600 September 1996 463 0.68%
Tupelo, MS 130,900 90,600 November 1996 267 0.29%
Florence, AL 62,000 55,800 November 1996 140 0.25%
Starkville, MS 84,100 65,200 December 1996 46 0.07%
Charing, GA 41,100 38,400 December 1996 --- 0.00%
--------- --------- ------ -----
Total Operating Systems 3,334,500 2,675,200 69,825 2.61%
========= ========= ====== =====
</TABLE>
Estimated Total Estimated LOS Expected
Households Households Channels(6)
--------------- ------------- -----------
Future Launch Markets:
Ocala, FL(7) 275,500 186,200 24
Chattanooga, TN 276,100 200,600 31
Bedias/Huntsville, TX 89,000 50,200 31
Freeport, TX 192,700 173,400 29
Hattiesburg, MS 121,400 88,800 31
Flippin, TN 56,700 49,600 20
Jackson, TN(8) 123,900 86,400 22
Memphis, TN 433,200 382,200 23
Bankton, AL 64,800 41,300 20
Gadsden, AL(7) 198,100 133,300 29
Montgomery, AL 149,200 114,300 27
Selma, AL 35,700 26,000 31
Groveland, GA(9) 172,800 136,000 20
Hoggards Mill, GA 22,600 13,000 20
Matthews, GA 193,600 158,700 31
Tarboro, GA 81,500 65,200 20
Valdosta, GA(10) 103,200 81,300 29
Marianna, FL 56,700 44,900 24
Auburn, AL 62,200 47,700 27
Birmingham, AL 308,400 276,900 28
Mobile, AL(7)(11) 66,100 40,400 21
Six Mile, AL 32,600 27,000 20
Tuscaloosa, AL 87,100 69,600 28
Woodville, AL 29,700 25,000 17
Hot Springs, AR(8) 103,800 71,200 16
Pine Bluff, AR(12) 86,300 57,900 16
Tallahassee, FL 129,800 115,000 31
Columbus, GA 160,100 116,500 31
Vidalia, GA 50,800 34,500 24
Bowling Green, KY(13) 126,900 68,300 20
Abita Springs, LA 217,300 116,800 20
Amite, LA 50,100 34,400 20
Baton Rouge, LA(7)(11) 261,700 235,500 20
Leesville, LA 43,500 26,700 28
Natchitoches, LA(7) 30,600 24,800 25
Ruston, LA 44,700 24,300 22
Tallulah, LA 19,500 17,600 20
Moorehead City, NC 82,700 55,900 16
--------- ---------
Total Future Launch Markets 4,640,600 3,517,400
--------- ---------
7,975,100 6,192,600
========= =========
_____________________________
(1) "Penetration Rate" equals the number of subscribers in an Operating
System divided by the Estimated LOS households in that Operating
System.
(2) Ten channels currently utilized in the Gainesville, Florida System are
operated under special temporary FCC authorization.
(3) Eight channels currently utilized in the Delta System are operated
under special temporary FCC authorization.
(4) Four channels currently utilized in the Gulf Coast System were granted
by the FCC without acting on an objection filed by a third party.
(5) The Huntsville, Alabama System and the Lawrenceburg, Tennessee System
were launched in February 1991 and January 1995, respectively, but
acquired by the Company in August 1996.
(6) Expected Channels include (i) wireless cable channels and, where
applicable, local off air VHF/UHF channels that are not retransmitted
by the Company via wireless cable frequencies and (ii) channels with
respect to which the Company has a lease with a channel license holder
or applicant for a channel license or for which the Company has the
exclusive right to apply for as a result of being the high bidder at
the BTA Auction. Certain licenses cannot be issued until interference
agreements with nearby licensees or applicants can be secured. There
can be no assurance that such interference agreements will be secured
or that applications for channel licenses will be granted.
(7) Four of the ITFS channels for the Ocala Market, four of the ITFS
channels for the Mobile Market, four of the ITFS channels for the
Gadsden Market, sixteen of the ITFS channels for the Baton Rouge
Market and twelve of the ITFS channels for the Natchitoches Market are
subject to comparative disposition with competing applications. The
outcome of these dispositions cannot be reliably projected at this
time.
(8) This Market is subject to a pending acquisition.
(9) Objections to the Company's lessors' requests for extension of time to
construct twelve channels are pending before the FCC. The outcome of
these matters cannot be determined.
(10) The Company has entered into a letter of intent to acquire rights to 9
channels in Valdosta, Georgia. There can be no assurance that the
Company will enter into a definitive agreement with respect to such
channels.
(11) An existing wireless cable operator is serving a small number of
subscribers in this market with an 11 channel MDS system.
(12) The Company believes that another entity has leased rights to 20 other
channels that are the subject of pending ITFS applications.
(13) The Company currently leases eight channels in the Bowling Green
Market, and has filed applications for 12 commercial channels pursuant
to the BTA Auction that cannot be granted until interference agreements
with unaffiliated third parties in nearby markets can be secured.
There can be no assurance that such interference agreements can be
secured or that applications for these 12 channels will be granted.
--------------------
Wireless One of North Carolina, L.L.C. - In 1995, the Company entered
into a joint venture with CT Wireless Cable, Inc., a North Carolina
corporation, and O. Gene Gabbard, for the purpose of forming WONC to (i)
develop and operate wireless cable systems in the state of North Carolina and
in the Greenville and Spartanburg, South Carolina Markets, (ii) enter into
lease agreements with various educational organizations for the use of ITFS
wireless cable channels, (iii) bid for, purchase, or otherwise acquire the
use of licenses for commercial wireless cable channels, and (iv) develop and
operate wireless cable systems using the leased ITFS and acquired commercial
wireless cable channels. The Company holds a 50% interest in WONC, CT
Wireless Cable, Inc. holds a 48% interest in WONC, and O. Gene Gabbard holds
a 2% interest in WONC.
In December 1996, WONC was awarded the right to use ITFS channels held
by the University of North Carolina ("UNC") to develop a statewide wireless
cable network. Specifically, the contract allows WONC to build wireless
cable systems across the state, in part using the 40 channels licensed to
or applied for by UNC.
The Company estimates that WONC has aggregated channels covering in
excess of one million LOS households. The Company estimates that the
addition of the UNC channels will enable WONC to reach approximately 900,000
new LOS households in the North Carolina, bringing the total LOS households
in the WONC footprint to approximately 2.0 million. The Company is working
with its joint venture partners to evaluate the best financing plan for WONC.
Based on existing channel rights, the Company's existing properties
and BTA Auction rights, the Company believes that WONC will have sufficient
channel capacity to launch wireless cable systems in the following markets:
Estimated Estimated
Total LOS
Market Households Households
------------------------------ ------------ ------------
Asheville, NC 246,700 93,300
Fayetteville, NC 245,300 179,700
Greenville, NC 99,200 57,500
Hickory, NC 376,800 162,700
Jacksonville, NC 136,700 116,200
Rocky Mount, NC 199,100 178,900
Roanoke Rapids, NC 44,700 38,000
Wilmington, NC 136,900 123,400
Rockingham, NC 93,200 86,600
Elizabeth City, NC 63,800 35,500
Raleigh, NC 217,800 142,400
Winston-Salem, NC 546,400 357,200
Charlotte, NC 577,400 377,400
---------- ----------
Total 2,984,000 1,948,800
========== ==========
Operating Systems - At December 31, 1996, the Company had 32
Operating Systems. The Company generally offers 20 to 26 basic cable
channels and one to three premium channels in each Market. In 95% of its
Operating Systems, the Company also offers at least one pay-per-view channel
and expects to offer at least one pay-per-view channel in all of its Markets
during 1997. In addition, the Company retransmits five local off-air VHF/UHF
channels along with its wireless channels, which provide its subscribers with
access to local news, including weather news. The basic package ranges in
price from $15.95 to $19.95 per month, with an additional $6.95 to $19.95 per
premium channel. The Operating Systems transmit at 10 to 50 watts of power
from transmission towers and generally have signal patterns covering a radius
of 18 to 35 miles.
The following chart depicts the Company's current programming line-up
in a typical Operating System.
Company Channel Offerings
Basic
ABC (local network affiliate) The Learning Channel (education)
AMC (classic movies) Mind Extension University (education)
Black Entertainment Television The Nashville Network (music)
(special interest)
CBS (local network affiliate) NBC (local network affiliate)
Country Music Television Nickelodeon (children's)
CNN (news) PBS (education, general interest)
C-SPAN (public affairs) SportSouth (southeast U.S. sports)
Discovery (science) TBS Superstation (sports, movies)
The Disney Channel (1) TNT (sports, movies)
ESPN (sports) USA (general interest)
The Family Channel (family The Weather Channel (weather)
entertainment)
Fox (local network affiliate)
Premium Pay-Per-View
Home Box Office Viewer's Choice
Showtime
The Disney Channel(1)
________________________
(1)The Disney Channel is part of the basic package in certain Markets and
as a premium channel in other Markets.
------------------------
Currently, the FCC will not accept applications for new ITFS licenses
or "major" modifications of ITFS licenses which relate to several of the
Company's Future Launch Markets. The most recent five-day window for filing
ITFS applications was completed on December 23, 1996, in which the Company's
lessors filed the majority of the applications required to effectuate its
future launch plans. The Company believes that the currently pending ITFS
applications filed by its lessors are expected to undergo review by FCC
engineers and staff attorneys over the next 18 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 criteria that includes whether an applicant is located
in the community to be served and is an accredited educator proposing to
serve its own students.
Historically, the outcome of the selection process when two or more
qualified applicants are competing for the same channels has been somewhat
predictable based on the particular facts and circumstances. A small number
of the Company's lease agreements involve applications for channel licenses
for which competing applications have been filed. The Company therefore
anticipates that a substantial number of the pending applications will be
granted. However, no assurance can be given as to the precise number of
applications that will be granted. The failure of the Company to obtain a
sufficient number of channel rights in a particular Market could have a
material adverse effect on the growth of the Company.
EdNet Agreement - The Company contracts with EdNet for the commercial
use of 20 ITFS channels in each of its Mississippi Markets. The EdNet
Agreement provides exclusive rights to use all excess airtime (that portion
of a channel's airtime available for commercial programming under FCC rules
and policies) for the 20 ITFS channels located in each of the Company's
Mississippi Markets. The Company believes that the EdNet Agreement presents
the Company with a number of strategic benefits. The Company's rights under
the agreement to the available commercial use of 20 of the 32 available
wireless frequencies throughout Mississippi provide it with the critical mass
of channels necessary to operate in each of its Mississippi Markets and
create a significant competitive advantage relative to other potential
wireless cable operators in such Markets. The large contiguous nature of the
cluster of Markets encompassing Mississippi will allow the Company to
centralize operations and achieve substantial economies of scale in
Mississippi and surrounding Markets. The Company believes its transmission
of programming involving job training, fire and police training, literacy
projects and other continuing education programs enjoys the support of the
Mississippi state authorities and will generate substantial goodwill in the
community and enhance the Company's identity as a local provider of
subscription television service.
System Costs
The Company estimates that the current cost per market for transmission
(or headend) equipment and build-out in a typical 31 channel system will be
approximately $1 million. The Company estimates that each additional
wireless cable subscriber will require an incremental capital expenditure of
approximately $375 to $500, consisting of, on average, $240 to $300 of
materials and $135 to $200 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 it has
a stable base of subscribers that has allowed it to maintain an average churn
rate below 2.5% per month for the year ended December 31, 1996, 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.
Subscription Television Industry Trends
The Company's business will be affected by subscription television
industry trends, and in order to maintain and increase its customer base in
the years ahead, the Company will need to adapt rapidly to industry trends to
remain competitive.
Addressability and Pay-Per-View - "Addressability" means the ability
to implement specific orders from or send other communications to each
subscriber, such as pay-per-view channels, without having to modify a
subscriber's equipment. The Company provides all of its subscribers with
addressable converters, while only a portion of traditional hard-wire cable
operators use addressability. Without addressability, the customer must make
two trips to the cable operator's offices in order to obtain pay-per-view
programming, once to obtain the descrambling device and once to return it.
Pay-per-view is expected to become increasingly popular as additional
exclusive events become available for distribution on pay-per-view and
digital compression technology greatly expands the channel capacity available
for such programming. The Company believes its fully addressable converters
present a competitive advantage over traditional hard-wire cable operators.
Digital Compression - Several equipment manufacturers are developing
digital compression technology which would allow several programs to be
carried within the same bandwidth which presently can accommodate only one
program without digital compression technology. Manufacturers have projected
varying compression ratios for future equipment, ranging from four-to-one to
ten-to-one, which would increase the channels available to be carried on a
wireless cable system using digital compression technology from 31 to between
124 and 310 channels.
Interactivity - Certain traditional hard-wire cable operators have
announced their intentions to develop interactive features for use by their
customers. Interactivity would allow customers to utilize their televisions
for two-way communications such as video games, home shopping and video-on-
demand. Extensive use of interactivity will likely require the development
and utilization of digital compression and cellularization. The wireless
cable industry filed in March 1997 a request with the FCC proposing the
adoption of new rules to permit MDS and ITFS channels to be used for two-way
interactive services. At this time, the Company believes that the widespread
commercial availability of many interactive products is at least several
years away.
Advertising - Local and national advertising continues to grow as a
source of revenue for hard-wire and wireless cable operators. The Company
recently began generating advertising revenue and expects to increase this
amount over time as its systems mature. The Company believes its regional
cluster strategy should benefit its efforts in this regard because of its
ability to deliver advertising throughout its entire region and not just
isolated markets.
Competition
In addition to competition from traditional hard-wire cable television
systems, wireless cable television operators face competition from a number
of other sources, including potential competition from emerging trends and
technologies in the subscription television industry, some of which are
described below.
Direct-to-Home ("DTH") - DTH satellite television services originally
were available via satellite receivers which generally were seven to 12 foot
dishes mounted in the yards of homes to receive television signals from
orbiting satellites. Until the implementation of encryption, these dishes
enabled reception of any and all signals without the payment of fees. Having
to purchase decoders and to pay for programming has reduced the popularity of
DTH, although the Company will compete to some degree with these systems in
marketing its services.
Direct Broadcast Satellite Programming - DBS programming involves the
transmission of an encoded signal directly from a satellite to an 18 to 36
inch dish installed at the customer's premises. DBS providers currently have
approximately five million subscribers nationwide. Currently, DBS operators
cannot, for technical and legal reasons, provide local VHF/UHF broadcast
channels as part of their service, although some customers receive such
channels from standard over-the-air antennae. DBS may provide subscribers
with access to broadcast network distant signals only when such subscribers
reside in areas unserved by any broadcast station. The cost to a DBS
subscriber for equipment and service is generally substantially higher than
the cost to wireless cable subscribers. If a subscriber is unable to receive
local network signals off-air, due to such subscriber's geographic location,
the subscriber would be able to receive the network signals through DBS
transmissions, but such transmissions would be limited to distant, rather
than local, network signals. The Company does not currently experience, and
does not anticipate in the near future that it will experience, significant
competition from DBS in its Markets due primarily to DBS' higher cost and
failure to provide local VHF/UHF broadcast channels. In August 1996, the
U.S. Copyright Office issued an advisory letter indicating that it "would not
question" copyright statements filed by DBS operators that include the
retransmission of local broadcast signals. While this development eliminates
some of the legal obstacles to the retransmission of local broadcast stations
by DBS systems, there is no indication that DBS operators have developed the
technical means to effectively carry and transmit local broadcast stations.
Congress is presently conducting hearings concerning video distribution
copyright issues which could result in further developments on this issue.
Private Cable - Private cable, also known as SMATV (Satellite Master
Antenna Television), is a multichannel subscription television service where
the programming is received by satellite receiver and then transmitted via
coaxial cable through private property, often MDUs, without crossing public
rights of way. Private cable operates under an agreement with a private
landowner to service a specific MDU, commercial establishment or hotel. The
FCC permits point-to-point delivery of video programming by private cable
operators and other video delivery systems in the 18 GHz band. Private cable
operators compete with the Company for rights of entry into MDUs, commercial
establishments and hotels.
Telephone Companies - The 1996 Act permits Local Exchange Carriers
("LECs") to provide video service in their telephone service areas. Under
existing FCC rules LECs may provide "video dial tone" service, thereby
allowing LECs to make available to multiple service providers, on a
nondiscriminatory common carrier basis, a basic platform that will permit end
users to access video program services provided by others. Several large
telephone companies have announced plans to either (i) enhance their existing
distribution plant to offer video dialtone service, (ii) construct new
distribution plants in conjunction with a local cable operator to offer video
dialtone service or (iii) acquire or merge with existing franchise cable
systems outside of the telephone companies' respective telephone service
areas. BellSouth Corporation ("BellSouth") announced in late 1996 and early
1997 that it had entered into agreements to acquire wireless cable systems
and channels rights in New Orleans, Louisiana, Louisville, Kentucky and five
markets in the Atlanta, Georgia metropolitan area, and seven markets in
Florida. The competitive effect of the offering by telephone companies
of subscription television services, including wireless cable, video dialtone
and fiber optic, is still uncertain. The Company believes that wireless cable
technology will continue to offer a lower cost alternative to video dialtone
and fiber optic distribution technologies.
Local Off-Air VHF/UHF Broadcasts - Local off-air VHF/UHF broadcasts
(from ABC, NBC, CBS and Fox affiliates) provide free programming to the
public. In some areas, several low power television ("LPTV") stations
authorized by the FCC are used to provide multichannel subscription
television service to the public. LPTV transmits on conventional VHF/UHF
broadcast channels, but is restricted to very low power levels, which limits
the area where a high quality signal can be received.
Local Multi-Point Distribution Service - In 1993, the FCC initially
proposed to redesignate a portion of the 28 GHz band to create a new video
programming delivery service referred to as LMDS. In July 1995, the FCC
proposed to award licenses in each of 493 BTAs pursuant to auctions.
Sufficient spectrum for up to 49 analog channels has been designated for the
LMDS service. LMDS is a competitive technology tailored more for high
density urban areas due to the relatively small radius of its signal. At
this time, the Company does not have plans to participate in the upcoming
auction.
Wireless Communications Service - In early 1997, the FCC allocated 30
MHz of spectrum in the 2.3 GHz band for a new service called Wireless
Communications Service ("WCS"). Because of its proximity to wireless cable
spectrum, WCS spectrum could be used by existing wireless cable operators to
add channels or by other companies to offer competing subscription
television services or other services. The FCC will award two 10 MHZ
licenses for each of 52 Major Economic Areas and two 5 MHz licenses for each
of 12 Regional Economic Area Groupings. On April 15, 1997, the FCC began
auctioning the licenses.
Regulatory Environment
General - The wireless cable industry is subject to regulation by the
FCC pursuant to the Communications Act. The Communications Act empowers the
FCC, among other things, to issue, revoke, modify and renew licenses within
the spectrum available to wireless cable; to approve the assignment and/or
transfer of control of such licenses; to approve the location of wireless
cable systems; to regulate the kind, configuration and operation of equipment
used by wireless cable systems; and to impose certain equal employment
opportunity and reporting requirements on channel license holders and
wireless cable operators.
The FCC has determined that wireless systems are not "cable systems"
for purposes of the Communications Act. Accordingly, a wireless cable system
does not require a local franchise and is subject to fewer local regulations
than a hard-wire cable system. In addition, all transmission and reception
equipment for a wireless cable system can be located on private property,
therefore eliminating the need to make use of utility poles, dedicated
easements or other public rights of way. Although wireless cable operators
typically must lease from the holders of channel licenses the right to use
wireless cable channels, unlike hard-wire cable operators they do not have to
pay local franchise fees. Recently, legislation has been introduced in
several states to authorize state and local authorities to impose on all
video program distributors (including wireless cable operators) a tax on such
distributors' gross receipts comparable to the franchise fees that hard-wire
cable operators must pay. Similar legislation might be enacted in states
where the Company does business or intends to do business. Efforts are
underway by the Wireless Cable Association International, Inc. to have
Congress preempt the imposition of such taxes by enacting new federal
legislation. In addition, the industry is opposing the state bills as they
are introduced. However, it is not possible to predict whether new state laws
will be enacted that impose new taxes on wireless cable operators.
Interference - Wireless cable transmissions are subject to FCC
regulations governing interference and transmission quality. Other than a
limited number of systems, wireless cable systems transmit in a standard
analog format. The FCC has adopted interim guidelines for the implementation
of certain digital transmission formats, which are intended to facilitate the
rapid implementation of digital wireless cable systems capable of providing
more programming sources on the same channel bandwidth and improving signal
quality.
The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the co-location of a
commercially viable number of transmitting antennae and operations with
common technical characteristics (such as power and polarity). In order to
commence the operations of certain of the Company's Markets, applications
have been filed or must be filed with the FCC to relocate and modify
authorized transmission facilities.
Under current FCC regulations, a wireless cable operator generally may
serve any location within the LOS of its transmission facility, provided that
it complies with the FCC's interference protection standards. An MDS station
generally is entitled to interference protection within a 35-mile radius
around its transmitter site. Generally, an ITFS facility is entitled to the
same 35-mile protected area during excess capacity use by a wireless cable
operator, as well as interference protection for all of its FCC-registered
receive-sites. In launching or upgrading a system, the Company may wish to
relocate its transmission facility, or increase its height or signal power in
order to serve one or more of its targeted markets. If such changes would
result in interference to any previously proposed station, the consent of
such station must be obtained before the FCC will grant the proposed
modification. There can be no assurance that any necessary consents will be
received. In addition, such modifications will be subject to the
interference protection rights of BTA Auction winners.
The 1992 Cable Act - The 1992 Cable Act imposed additional regulation
on traditional hard-wire cable operators and permits regulation of hard-wire
cable rates in markets in which there is no "effective competition." The
1992 Cable Act, among other things, directed the FCC to adopt comprehensive
new federal standards for local regulation of certain rates charged by
traditional hard-wire cable operators. The 1992 Cable Act also deregulated
traditional hard-wire cable in a given market once other subscription
television providers serve, in the aggregate, at least 15% of the cable
franchise area. Rates charged by wireless cable operators, typically already
lower than traditional hard-wire cable rates, are not subject to regulation
under the 1992 Cable Act. Pursuant to the 1992 Cable Act, the FCC has
required traditional hard-wire cable operators to implement rate reductions.
The 1996 Act - A principal focus of the 1996 Act is freeing local
telephone companies and long distance telephone companies from barriers to
competing in each other's lines of business, and preempting state
restrictions on competition in the provision of local telephone service. In
addition, the 1996 Act contains provisions which amend the 1992 Cable Act and
which affect wireless cable operators.
A significant potential effect on the Company of the 1996 Act may
result from its provisions exempting traditional hard-wire 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
multiple system cable operators ("MSOs"), and serving 50,000 or fewer
subscribers. The Company believes that cable systems in many of the
Company's Markets will qualify for small system rate deregulation and that a
number of them will raise their rates, which may improve the Company's price
advantages over competing traditional hard-wire cable services.
The 1996 Act also contains provisions allowing local exchange telephone
companies to offer cable service within their telephone service areas. Under
the 1992 Cable Act, exchange telephone companies were free to offer wireless
cable service anywhere, but could offer wired cable service only outside of
their exchange telephone areas or solely as common carriers, subject to FCC
authorization. The 1996 Act allows exchange telephone companies to offer
video programming services via radio communications (such as wireless cable)
without regulation of rates or services, to offer hard-wire or fiber cable
service channels for hire by video programmers, to offer their own hardwire
or fiber cable service over networks with channels also available for use by
other video program services providers under a modified regulatory scheme,
and to provide traditional cable service subject to local franchising
requirements. It is difficult to predict the impact (if any) of final FCC
regulations with regard to local exchange telephone companies in these
respects on the Company.
FCC rules generally prohibit hard-wire cable operators from providing
wireless cable service in areas where the hard-wire cable franchise area
overlaps with the 35-mile protected service area of a wireless cable system.
In certain circumstances, the FCC may grant waivers of such restriction, or
the common ownership of hard-wire and wireless cable systems may otherwise be
exempt. Rules adopted by the FCC pursuant to the 1996 Act permit cable
operators to offer wireless cable service in such overlap areas where the
cable company is subject to "effective competition." Telephone companies are
not subject to any such cross-ownership restrictions.
The 1996 Act offers wireless cable operators and satellite programmers
relief from private and local governmentally-imposed restrictions on the
placement of receive-site antennae. 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 antennae on or near homes. In August 1996, the FCC adopted rules
prohibiting restrictions that impair installation, maintenance or use of
receive-site antennae.
Other Regulations - Wireless cable license holders are subject to
regulation by the Federal Aviation Administration with respect to the
construction, marking and lighting of transmission towers and to certain
local zoning regulations affecting construction of towers, receive-site
antennae and other facilities. There may also be restrictions imposed by
local authorities and private covenants. There can be no assurance that the
Company will not be required to incur additional costs in complying with such
regulations and restrictions.
Properties
The Company leases approximately 15,746 square feet of office space for
its corporate headquarters in Baton Rouge, Louisiana under a lease that
expires on April 30, 2001. The Company pays approximately $131,500 per year
for such space. The Company currently leases approximately 4,440 square feet
for its administrative and regional offices in Jackson, Mississippi, which
lease expires on January 31, 2001. The Company pays approximately $56,500
per year for such space. The Company is currently in the process of moving
its administrative and regional offices to a new location in Jackson,
Mississippi, for which it leases approximately 14,200 square feet of office
space expiring on December 31, 2002. The Company pays approximately $191,500
per year for such space. The Company currently does and will, in the future,
purchase or lease additional office space in other locations where it
launches additional systems. In addition to office space, the Company also
leases space on transmission towers located in its various markets. The
Company believes that office space and space on transmission towers is
readily available on acceptable terms in each of its Markets.
The Company owns certain trademarks; however, the Company believes that
its business is not materially dependent upon its ownership of any single
trademark or group of trademarks.
Legal Proceedings
The Company is involved in various legal and other proceedings which
are incidental to the conduct of its business. Management believes that none
of these proceedings if adversely determined, would have a material adverse
effect on the Company's results of operations or financial condition.
Employees
As of December 31, 1996, the Company had a total of 777 employees.
None of the Company's employees is subject to a collective bargaining
agreement. The Company has experienced no work stoppages and believes that
it has good relations with its employees. The Company also utilizes the
services of unaffiliated independent contractors to build and install its
wireless cable systems and to market its service.
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information as of the date of
this Prospectus with respect to each person who is an executive officer or
director of the Company:
Name Age Position
Hans J. Sternberg(1) 61 Chairman of the Board
Henry M. Burkhalter 48 President and Vice Chairman of the
Board
Sean E. Reilly 36 Chief Executive Officer and Director
Henry G. Schopfer, III 50 Executive Vice President, Chief
Financial Officer and Secretary
Alton C. Rye 53 Executive Vice President-Operations
Bill R. Byer, Jr. 39 Executive Vice President -Operations
Michael C. Ellis 30 Vice President-Controller and
Assistant Secretary
Arnold L. Chavkin(1)(3) 45 Director
William K. Luby(1)(2)(3) 37 Director
J. R. Holland, Jr.(1)(2) 53 Director
Daniel L. Shimer(2) 52 Director
William J. Van Devender (3) 48 Director
L. Allen Wheeler 64 Director
____________________
(1) Member of Operating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
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 since its founding in late 1993. He has also served as the
Chairman and Chief Executive Officer of Starmount Life Insurance Company
since 1983. He is a former owner and President and Chief Executive Officer
of Maison Blanche Department Stores, a chain of 24 department stores.
Henry M. Burkhalter became a Director of the Company in April 1996 and
President and Vice Chairman upon the consummation of the TruVision
Transaction in July 1996. Mr. Burkhalter had been Chairman of the Board of
Directors, President and Chief Executive Officer of TruVision since its
incorporation in April 1994. He has been the Chairman of Pacific Coast
Paging, Inc. since 1990.
Sean E. Reilly has served as Chief Executive Officer and Director of
the Company since its founding in June 1995 and as Chief Executive Officer
and President of the Company's predecessor since its founding in late 1993.
Prior to joining the Company's predecessor, Mr. Reilly served as Vice-
President of Real Estate/Mergers and Acquisitions of Lamar Advertising
Company, a publicly-traded outdoor advertising company. Mr. Reilly served in
the Louisiana Legislature as a State Representative from March 1988 to
January 1996.
Henry G. Schopfer, III became Executive Vice President and Chief
Financial Officer on December 9, 1996. He also serves as the Company's
Secretary. From 1988 to 1996, Mr. Schopfer served as an Executive Officer
with Daniel Industries, Inc., a Houston, Texas-based manufacturer of oil
field related products, most recently as Vice President and Chief Financial
Officer.
Alton C. Rye became Executive Vice President-Operations of the Company
in August 1995. Prior to joining the Company, Mr. Rye served as Vice
President-Operations for Sammons Communications, Inc. ("Sammons"), of Dallas,
Texas, which was the twelfth largest cable television company in the United
States at the time it was sold. From August 1993 to August 1995, he was
responsible for Sammons' largest operating division, which serviced
approximately 350,000 subscribers. From May 1987 to August 1993, Mr. Rye
served as Vice President-Finance, Chief Financial Officer and Treasurer of
Sammons.
Bill R. Byer, Jr. became Executive Vice President-Operations of the
Company upon consummation of the TruVision Transaction in July 1996. Mr. Byer
had been Executive Vice President and Chief Operating Officer of TruVision
since 1994. From 1989 to 1994, he served as General Manager for MultiMedia
CableVision, Inc., which operated a wireless cable system serving Oklahoma
City, Oklahoma. From 1984 to 1989, he served as General Manager of Argonox
Communications/Technivision, a wireless cable company, and from 1979 to 1984,
he served as General Manager of Movie Systems, Inc., a wireless cable company
serving the Milwaukee, Wisconsin, Indianapolis, Indiana, Oklahoma City,
Oklahoma and Ft. Lauderdale and West Palm Beach, Florida markets. In total,
he has over 15 years of experience in the wireless cable industry, managing
several systems with an aggregate number of subscribers in excess of 50,000.
Michael C. Ellis has served as Vice President-Controller of the Company
since joining the Company in November of 1995 and Secretary from August 1996
to February 1997. In February 1997, Mr. Ellis was appointed Assistant
Secretary of the Company. Prior to joining the Company, he was an associate
partner in the financial reporting and consulting division of Postlethwaite
and Netterville, a regional accounting and consulting firm. He was employed
with Postlethwaite and Netterville from August 1988 to November 1995.
Arnold L. Chavkin became a Director of the Company in April 1996. He
has been a General Partner of Chase Capital Partners ("CCP") since January
1992 and has served as the President of Chemical Investments, Inc. since
March 1991. Mr. Chavkin is a director of Reading & Bates Corporation,
American Radio Systems Corporation, Inc., Bell Sports, Inc., Envirotest
Systems, Forcenergy, Inc. and American Tower Corp.
William K. Luby became a director of the Company in June 1995 and a
director of the Company's predecessor in April 1995. Since October 1996, Mr.
Luby has been a partner in CEA Capital Partners, USA L.P., a private equity
investor. From April 1996 to October 1996, he served as President of Two
River Capital. From June 1992 to March 1996, Mr. Luby was a managing
director at CMCC. From 1985 to 1992, Mr. Luby held various positions in the
Leveraged Lending and Restructuring groups at The Chase Manhattan Bank, N.A.
J. R. Holland, Jr. became a Director of the Company in June 1995. Mr.
Holland served as Chairman of the Board of Directors of Heartland from
October 1993 to March 1997. Mr. Holland remains a director of Heartland.
Since September 1991, Mr. Holland has been employed as President of Unity
Hunt, Inc., a 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. Mr. Holland is currently a director of Optical
Securities Group, Inc. and TNP Enterprises, Inc.
Daniel L. Shimer became a Director of the Company in February 1996.
Mr. Shimer is President of Shimer Capital Partners, Inc., a financial
consulting and merchant banking company started in September 1996. From
April 1994 to September 1996 he served as Executive Vice President and Chief
Financial Officer of COREStaff, Inc., a publicly-traded provider of staffing
services. From March 1991 to March 1994, Mr. Shimer served as the Executive
Vice-President and Chief Financial Officer of Brice Foods, Inc., an
international manufacturer and retailer of frozen dessert products.
William J. Van Devender became a Director of the Company upon
consummation of the TruVision Transaction in July 1996. Mr. Van Devender had
been a Director of TruVision since August 1994. He controls VanCom, a
limited partner of MWTV. In addition, Mr. Van Devender has founded or served
in senior executive positions with Van Petroleum, Inc., Green Acres Farms,
Inc., Gulf Coast Plywood, Inc. and Coastal Paper Company. Mr. Van Devender
also serves on the Board of Directors of Alaska-3 Cellular LLC, CelluTissue
Holdings, Inc. and Pacificom LLC, and various bank and community
organizations.
L. Allen Wheeler became a Director of the Company in April 1997. Mr.
Wheeler was the co-founder of Heartland and has and served as a director of
Heartland since its formation in September 1990 and was Vice-Chairman of the
Board of Directors from February 1996 until Feburary 1997. From January 1997
until February 1997, Mr. Wheeler served as acting President and Chief
Executive Officer of Heartland. Mr. Wheeler has owned and managed diversified
investments through Allen Wheeler Management, Inc., a personal holding
company, for over 20 years.
The Board of Directors of the Company is divided into three classes, as
nearly equal in number as possible, having terms expiring at the annual
meeting of the Company's stockholders in 1997 (comprised of Messrs. Luby,
Holland and Van Devender), 1998 (comprised of Messrs. Reilly, Burkhalter and
Shimer) and 1999 (comprised of Messrs. Sternberg, Chavkin and Wheeler). At
each annual meeting of stockholders, successors of the class of Directors
whose term expires at such meeting will be elected to serve for three-year
terms and until their successors are elected and qualified. All current
Directors were elected or appointed pursuant to the terms of a stockholders
agreement. See "- Stockholders Agreement."
Non-employee Directors of the Company receive an annual fee of $5,000
and a meeting fee of $500 per meeting attended, plus reimbursement of out-of-
pocket expenses, for their services as Directors of the Company. In
addition, each non-employee Director of the Company (an "Eligible Director")
is eligible to receive stock options under the Company's 1996 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). See "-Stock Option
Plans-1995 Directors' Stock Option Plan." Directors who are also employees
do not receive any additional compensation for their services as directors.
In addition, Directors do not receive any additional compensation for
committee participation.
Stockholders Agreement
In connection with the Heartland Transaction, CMCC, Baseball Partners,
Premier Venture Capital Corporation ("PVCC"), affiliates of Advantage Capital
Corporation ("ACC"), Messrs. Sternberg and Reilly (PVCC, the affiliates of
ACC and Messrs. Sternberg and and Reilly, are referred to herein as the "Old
Wireless One Stockholders") and Heartland and certain of its subsidiaries
entered into a stockholders agreement (the "Initial Stockholders Agreement").
The Initial Stockholders Agreement was amended and restated in connection
with the execution of the TruVision Transaction, with CVCA, VanCom, MWTV and
VCI and Messrs. Burkhalter, Byer and certain former executives of TruVision
(collectively, the "Former TruVision Stockholders") becoming parties
thereto. In September 1996, the agreement was further amended to remove the
Old Wireless One Stockholders as parties thereto. In such amended and
restated agreement (the "New Stockholders Agreement"), the parties thereto,
among other things, agreed to vote their Common Stock so that the Board of
Directors of the Company will have up to nine members, up to three of whom
will be designated by Heartland (at least one of whom must be independent of
Heartland and the Company), up to two of whom will be designated by CMCC,
Baseball Partners and CVCA, collectively, and one of whom may be designated
by the Former TruVision Stockholders other than CVCA. The current Directors
proposed by Heartland are Messrs. Holland, Shimer and Wheeler; the current
Directors proposed by CMCC, Baseball Partners and CVCA are Messrs. Van
Devender and Chavkin, and the current Director proposed by the Former
TruVision Stockholders is Mr. Burkhalter. Messrs. Sternberg, Reilly and Luby
were originally proposed by the Old Wireless One Stockholders, but now serve
as nominees of the full Board.
Based upon certain filings made by the parties to the New Stockholders
Agreement with the Securities and Exchange Commission (the "Commission"), the
Company believes that the parties to the New Stockholders Agreement
collectively beneficially own an aggregate of 9,107,369 shares of Common
Stock, which represent approximately 53.7% of the outstanding Common Stock.
As a result, these stockholders are able to control the election of the
members of the Company's Board of Directors and to generally exercise control
over the Company's affairs. The New Stockholders Agreement also provides
that, without the prior approval of the Board and until October 24, 1998, the
parties to the New Stockholders Agreement may not, without the approval of a
majority of the Directors, (i) acquire equity securities of the Company (or
rights or options to acquire equity securities of the Company, other than
equity securities issued or issuable with respect to such Common Stock,
securities issued to them pursuant to Board-approved option plans and the
acquisition of up to 250,000 shares of Common Stock by Heartland), (ii)
solicit proxies or consents in opposition to solicitations made by or on
behalf of the Board or (iii) other than in connection with the New
Stockholders Agreement act together with any other person to acquire, hold,
vote or dispose of securities of the Company.
Registration Agreement
In connection with the Heartland Transaction, the Company, Heartland,
certain subsidiaries of Heartland and all of the former stockholders of the
Company's predecessor entered into a registration agreement (the "Initial
Registration Agreement"). The Initial Registration Agreement was amended and
restated in connection with the TruVision Transaction, with all the former
stockholders of TruVision becoming parties thereto. Under such amended and
restated registration agreement (the "New Registration Agreement"), at any
time after October 24, 1997, any of (a) the holders of a majority of the
Common Stock issued to the former stockholders of the Company's predecessor
(other than CMCC and Baseball Partners) in the Heartland Transaction, (b) the
holders of a majority of the Common Stock issued to Heartland or certain of
Heartland's subsidiaries in the Heartland Transaction, (c) the holders of a
majority of the Common Stock issued to the former stockholders of TruVision
(other than CVCA) in the TruVision Transaction, or (d) the holders of a
majority of the Common Stock issued to CMCC and Baseball Partners in the
Heartland Transaction or issued to CVCA in the TruVision Transaction, shall
each have the right, subject to certain conditions, to require the Company to
register any or all of such Common Stock under the Securities Act on Form S-1
on three occasions at the Company's expense and on Form S-2 or S-3 on an
additional three occasions at the Company's expense. The holders of any
such shares of Common Stock are also entitled to request the inclusion of any
Common Stock subject to the Registration Agreement in any registration
statement at the Company's expense whenever the Company proposes to register
any of its equity securities under the Securities Act, subject to certain
conditions.
In accordance with the New Registration Rights Agreement, the Company
registered for resale, on Form S-3, the 180,000 shares of Common Stock
granted to VCI in connection with the TruVision Transaction.
Summary Compensation Table
The table below provides information relating to compensation for the
Company's last three fiscal years for the Company's Chief Executive Officer
and highest paid executive officer (collectively, the "Named Executive
Officers"). No other executive officers of the Company received compensation
in excess of $100,000 in 1996.
<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 1996 $ 131,781 --- --- --- $4,442
Chief Executive Officer
1995 $ 87,692 --- --- 201,395 ---
1994 $ 35,000(1) --- --- 113,144 ---
Alton C. Rye 1996 $ 103,467 --- --- --- $4,442
Executive Vice
President-Operations 1995 $ 31,058(2) --- --- 30,000 ---
</TABLE>
________________________
(1) Mr. Reilly began receiving compensation from Old Wireless One on June
1, 1994.
(2) Mr. Rye began receiving compensation from Old Wireless One on September
1, 1995.
(3) Automobile allowance.
----------------------
Stock Option Holdings
The following table sets forth information with respect to the Named
Executive Officers concerning stock options held by them as of December 31,
1996. The Company did not grant any options to the Named Executive Officers
in 1996 nor did the Named Executive Officers exercise any options to purchase
the Company's Common Stock in 1996.
Aggregated Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-End
------------------------------ ----------------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable(3)
------ ------------------------- ----------------------------
Sean E. Reilly (1) 125,815/188,724 $158,500/0
Alton C. Rye (2) 6,000/24000 0/0
____________________
(1) Mr. Reilly has the following currently exercisable options at the
following exercise prices; 45,257 at $6.21 per share, 40,279 at $4.16
per share and 40,279 at $5.62 per share. Mr. Reilly also has 67,887
options, which are not currently exercisable, that have an exercise
price of $6.21 per share. The remainder of Mr. Reilly's options will
vest and become exercisable in three equal installments over the next
three years. Each installment will become exercisable at an exercise
price 35% higher than the prior year's installment.
(2) These options, all of which were granted on October 19, 1995, have a
ten-year term, an exercise price per share of $10.50 and become
exercisable in 20% annual increments on the anniversary of the date of
grant.
(3) The closing sale price of the Common Stock on December 31, 1996 was
$6.625 as reported by the Nasdaq Stock Market National Market. The
value of all options is calculated on the basis of the difference
between $6.625 and the respective exercise prices.
--------------------
Employment Agreements
The Company has entered into into employment agreements with certain of
its executive officers, including Messrs. Burkhalter, Reilly, Byer, Rye and
Schopfer. The employment agreements provide for payment of a base salary
indexed to inflation and bonuses awarded at the sole discretion of the
Company's Compensation Committee and based upon the executive's performance
and the Company's operating results. Each agreement has a two-year term and
is subject to automatic annual renewal for a period of seven years thereafter.
Each employment agreement provides that each executive may be terminated with
or without cause, and provides that the executive will not compete with the
Company or its subsidiaries within a specified area during the period of
employment and for the two years thereafter. Each executive will be entitled
to receive a severance payment in the event of a resignation caused by the
relocation of the Company's office at which the executive is employed to a
location more than 60 miles from its present location.
Compensation Committee Interlocks and Insider Participation
The members of the Company's Compensation Committee are Messrs.
Holland, Luby, and Shimer. No past or current officer or employee of the
Company serves on the Compensation Committee. During 1996, no executive
officer of the Company served as a member of the compensation committee or a
director of an entity, one of whose executive officers served as a director
of the Company. The Compensation Committee was established in October 1995
in connection with the Company's initial public offering. Previous
compensation levels for Messrs. Sternberg and Reilly were established
pursuant to the terms of their respective employment agreements. See
"Employment Agreements." The compensation levels for Messrs. Burkhalter and
Byer were approved by the Compensation Committee at the time of the TruVision
Transaction. The compensation for Messrs. Rye, Schopfer and Ellis, the other
executive officers of the Company, was approved by the full Board of
Directors upon the recommendation of the Compensation Committee. Executive
officers who are also Directors of the Company did not participate in
discussions relating to their individual compensation arrangements. No
Director who served as a member of the Compensation Committee was a party to
any reportable interlock during 1996.
Stock Option Plans
1995 Long-Term Performance Incentive Plan. The Board of Directors has
adopted and the stockholders of the Company have approved the 1995 Long-Term
Performance Incentive Plan (the "Incentive Plan"), which provides for the
grant to key employees of the Company of (i) both "incentive stock options,"
as defined by Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and stock options that are non-qualified for federal income tax
purposes, (ii) stock appreciation rights, (iii) restricted stock, (iv)
performance grants and (v) any other type of award deemed by the Compensation
Committee to be consistent with the purpose of the Incentive Plan. The total
number of shares of Common Stock which may be granted pursuant to the
Incentive Plan is 1,300,000, subject to certain adjustments reflecting
changes in the Company's capitalization. The Incentive Plan will terminate
upon the earlier of the adoption of a Board of Director's resolution
terminating the Incentive Plan or the tenth anniversary of the date of
adoption, unless extended for an additional five-year period for grants of
awards other than incentive stock options, and is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
has broad powers under the Incentive Plan, including exclusive authority
(except as otherwise provided in the Incentive Plan) to establish performance
objectives and to determine (i) which of the Company's employees will receive
awards, (ii) the type, size and terms of awards, and (iii) the time when
awards will be granted. Members of the Compensation Committee will not be
eligible to receive awards under the Incentive Plan. Directors who are also
employees are eligible to receive awards under the Incentive Plan. Non-
employee directors are not eligible to receive options under the Incentive
Plan, but may be eligible to receive awards under the Directors' Plan.
The exercise price of incentive stock options is determined by the
Compensation Committee, but may not be less than 100% of the fair market
value of the Common Stock on the date of grant, and the term of any such
option may not exceed 10 years from the date of grant. With respect to any
employee who owns stock representing more than 10% of the voting power of the
outstanding capital stock of the Company, the exercise price of any incentive
stock option may not be less than 110% of the fair market value of such
shares on the date of grant, and the term of such option may not exceed five
years from the date of grant. The exercise price of non-qualified stock
options is determined by the Compensation Committee on the date the option is
granted.
Options and stock appreciation rights granted under the Incentive Plan
are nontransferable, unless otherwise specified in the award instrument, and,
with certain exceptions in the event of the death or disability of the
participant, may be exercised by the participant only during employment,
subject to vesting requirements established by the Compensation Committee.
Restrictions on awards granted under the Incentive Plan will also generally
vest upon a proposed sale of substantially all of the assets of the Company,
or the merger of the Company with or into another corporation.
The Company has assumed all non-qualified options issued by Old
Wireless One. Such options are now covered by the Incentive Plan and cover
691,988 shares with a weighted average exercise price per share of $7.54.
Such options vest over a five-year period which period commenced on February
1, 1995. The options expire on April 14, 2001. In October 1995 the Company
issued non-qualified stock options for 50,000 shares of Common Stock, with an
exercise price equal to the initial public offering price, to two employees
of the Company. Such options are scheduled to vest in equal installments
over a five-year period from the date of grant. In addition, upon the
consummation of the TruVision Transaction, the Company assumed the non-
qualified options issued by TruVision. Such options are now covered by the
Incentive Plan and cover 195,226 shares at a weighted average exercise price
of $6.82. All such options are fully-vested and expire on June 8, 2004. In
December 1996, the Company issued stock options for 27,000 shares of Common
Stock to Mr. Schopfer upon his hiring.
1996 Non-Employee Directors' Stock Option Plan. The Board of Directors
has adopted and the stockholders of the Company have approved the 1996 Non-
Employee Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan is administered by the Board of Directors. Eligible
Directors 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 subject to certain adjustments reflecting
changes in the Company's capitalization.
Options granted under the Directors' Plan will be non-qualified options
for federal income tax purposes. The exercise price of options will be
determined as specified in the Plan and will be at least 100% of the fair
market value of the Common Stock on the date of grant.
Options granted under the Directors' Plan may be subject to vesting and
certain other restrictions at the Board of Directors' sole discretion.
Subject to certain exceptions, the right to exercise an option generally
terminates at the earlier of (i) the first date on which the initial grantee
of such option is no longer a director of either the Company or any
subsidiary of the Company for any reason other than death, permanent
disability, or termination with "cause" (as defined in the Directors' Plan)
or (ii) the expiration date of the option. Options granted under the
Directors' Plan will also generally vest upon a "change in control" of the
Company (as defined in the Directors' Plan). The Company issued options to
purchase 20,000 shares of Common Stock under the Directors' Plan in 1996.
Pursuant to the Directors' Plan, on each November 15, each Eligible Director
will be granted options to purchase 2,000 shares of Common Stock.
General. The Board of Directors generally has the power and authority
to amend the Incentive Plan and the Directors' Plan (collectively, the "Stock
Option Plans") at any time without approval of the Company's stockholders;
provided, that the Board of Directors may not amend the Stock Option Plans in
such a manner as to materially increase the benefits or number of shares
under the Stock Option Plans or to modify the eligibility requirements
without the affirmative approval of the Company's stockholders. In addition,
the Board of Directors may not amend the Stock Option Plans to materially and
adversely affect the rights of an option holder under such option without the
consent of such option holder.
Except as otherwise provided in an option agreement, if a director
holding an option under the Directors' Plan dies or suffers a permanent
disability while still employed by or a director of the Company or any
subsidiary, then the right to exercise all unexpired installments of such
option shall be accelerated and shall accrue as of the date of such death or
the later of the date of such permanent disability or discovery of such
permanent disability, and such option shall be exercisable, subject to
certain exceptions, for 90 days after such date. In addition, except as
otherwise provided in an option agreement, if an Eligible Director who holds
an option granted under the Directors' Plan is terminated without "cause" (as
defined in the Directors' Plan), then he will have the right to exercise any
option which is currently exercisable at the time of such termination for 30
days after the date of such termination.
Also, except as otherwise provided in an option agreement, if an
employee holding an award granted under the Incentive Plan dies or suffers a
permanent disability while still employed by the Company or any subsidiary,
then such award may be exercised, to the extent the employee was entitled to
do so at the termination of employment, by the employee, his legal guardian
(unless such exercise would disqualify an option as an incentive stock
option), or his legatee, legal representative or distributee (whichever is
applicable), at any time within one year after the date of death or
disability (but in no event later than the date on which such award
terminates).
CERTAIN TRANSACTIONS
In connection with the Heartland Transaction, Heartland and the Company
entered into an agreement whereby (i) the Company agreed not to compete with
Heartland or any of Heartland's subsidiaries in the wireless cable television
business in specified markets in which Heartland and its subsidiaries operate
or have significant channel rights, (ii) Heartland agreed not to compete with
the Company in the wireless cable television business in specified markets,
including substantially all of the Markets described herein and (iii) if at
any time a wireless cable television system operated by the Company
interferes with the signal transmission of a wireless cable television system
operated by Heartland or one of Heartland's subsidiaries (or vice versa),
then the Company, Heartland and their respective subsidiaries will use their
best efforts to negotiate and enter into an appropriate non-interference
agreement. The Company also entered into a registration rights agreement
with Heartland and all of the former stockholders of Old Wireless One, which
was amended and restated in connection with the TruVision Transaction, to
include the Former TruVision Stockholders as parties thereto, pursuant to
which the Company granted to the parties thereto certain demand and "piggy-
back" registration rights with respect to shares of common stock held by such
parties. See "Management - Registration Agreement."
In February 1996, CVCA entered into an agreement whereby CVCA provided
TruVision interim financing (the "Interim Facility") in an amount up to $12.0
million at an annual interest rate of 10% in order to fund certain operating
and acquisition costs.
In connection with the execution of the Company's merger with
TruVision, the Company agreed to make certain loans to TruVision pending the
consummation of the TruVision Transaction. On May 6, 1996, the Company made
such a loan to TruVision in the amount of approximately $1.5 million, of
which TruVision used $1.0 million of the proceeds of such loan to repay
borrowings under a working capital facility which was guaranteed by Mr.
Burkhalter, and that guarantee was terminated and released. On the date of,
but prior to, the consummation of the TruVision Transaction, the Company made
such a loan to TruVision in the amount of approximately $1.5 million, and
TruVision used the proceeds of that borrowing to pay accrued dividends on its
preferred stock to CVCA and VanCom in the amounts of approximately $1.4
million and $18,000, respectively. In addition, the Company issued to VCI, a
corporation controlled by Mr. Burkhalter, 180,000 shares of Common Stock and
paid to VCI $1.8 million in cash, in satisfaction of certain obligations of
TruVision to VCI.
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-lengths 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.
CSI is an affiliate of CMCC, CVCA and Baseball Partners, which own
approximately 11.8%, 9.0% and 2.3%, respectively, of the outstanding Common
Stock. CSI served as the lead underwriter for the 1996 Unit Offering. In
addition, Mr. Chavkin, a Director of the Company, is a general partner of
CCP, which is also affiliated with CSI. Under Conduct Rule 2720 ("Rule
2720") of the National Association of Securities Dealers, Inc. (the "NASD"),
when a NASD member, such as CSI, participates in the distribution of a public
offering of the securities of an affiliate of such member, such offering must
be conducted in accordance with the applicable provisions of Rule 2720.
Accordingly, by virtue of CSI's participation in the 1996 Unit Offering and
Chase's ownership interest in the Company, the 1996 Unit Offering was
conducted in accordance with the applicable provisions of Rule 2720.
Prudential Securities Incorporated acted as a qualified independent
underwriter for the 1996 Unit Offering, as required by Rule 2720. The
Company believes that CSI participated in the 1996 Unit Offering on terms and
received fees and commissions from the Offering on a basis that was no less
fair to the Company than was available from other non-affiliated
underwriters.
PRINCIPAL STOCKHOLDERS
Except as otherwise noted, the following table sets forth certain
information as of April 1, 1997 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 Named Executive Officers, and (iii) all
Directors and executive officers as a group. All information with respect to
beneficial ownership has been furnished by the respective Director, executive
officer or five percent beneficial owner, as the case may be. Unless
otherwise indicated, the persons named below have sole voting and investment
power with respect to the number of shares set forth opposite their names.
Beneficial ownership of the Common Stock has been determined for this purpose
in accordance with the applicable rules and regulations promulgated under the
Exchange Act.
Common Stock(1)
----------------------
Directors, Officers Number of Percent of
and 5% Stockholders Shares Class
-------------------- --------- ----------
Heartland Wireless Communications, Inc. (2) 3,459,508 20.4%
Chase Manhattan Capital Corporation (3) 1,991,690 11.8%
Chase Venture Capital Associates L.P. (3) 1,517,979 9.0%
Baseball Partners (3) 393,226 2.3%
Mississippi Wireless TV, L.P. (4) 1,702,406 10.1%
VanCom, Inc. (5) 42,560 *
Henry M. Burkhalter (4)(6) 1,884,339 11.1%
Hans J. Sternberg (7) 499,700 2.9%
Sean E. Reilly (8) 209,920 1.2%
Arnold L. Chavkin (9) 3,902,895 23.0%
J. R. Holland, Jr. (10) 3,459,508 20.4%
William K. Luby (11) 393,226 2.3%
Daniel L. Shimer 4,800 *
William J. Van Devender (5) 57,904 *
Alton C. Rye (12) 7,000 *
L. Allen Wheeler (13) 3,459,508 20.4%
All Directors and executive officers as a
group (13 persons)(14) 10,040,577 57.6%
___________________
* Less than one percent.
(1) Heartland and certain of its subsidiaries, CMCC, CVCA, Baseball
Partners, MWTV, VanCom, VCI and Messrs. Burkhalter and Byer are parties
to the New Stockholders Agreement, as amended. See "Management-
Stockholders Agreement." Each of the parties to the Stockholders
Agreement disclaims beneficial ownership of the shares of Common Stock
owned by the other paries to such agreement.
(2) Heartland reported on a Schedule 13G filed with the SEC, on February
14, 1997, shared voting and dispositive power as of December 31, 1996,
with respect to an aggregate of 3,259,508 shares of Common Stock owned
by certain direct and indirect subsidiaries of Heartland. Shares
listed for Heartland also include 200,000 shares of Common Stock that
were distributed to Heartland from an escrow account that was
established in connection with the Heartland Transaction. The address
for Heartland is 200 Chisolm Place, Suite 200, Plano, Texas 75075.
(3) CMCC reported, on a Schedule 13G filed with the SEC on February 13,
1997, shared voting and dispositive power as of December 31, 1996, with
respect to 1,991,690 shares of Common Stock, together with The Chase
Manhattan Bank, the direct parent of CMCC and The Chase Manhattan
Corporation, the ultimate parent of CMCC. In the same filing, CVCA
reported sole voting and dispositive power, as of December 31, 1996,
with respect to 1,385,388 shares of Common Stock, and Baseball Partners
reported shared voting and dispositive power with respect to 393,226
shares of Common Stock. The address for CMCC, CVCA and Baseball
Partners is 380 Madison Avenue, 12th Floor, New York, New York 10017.
Shares listed for CVCA also include 132,591 shares held in escrow for
CVCA that will be distributed in 1997.
(4) MWTV owns 1,702,406 shares of Common Stock. The general partner of
MWTV is WTV. Mr. Burkhalter is the President and controlling
stockholder of WTV. WTV has the power to vote and dispose of the
shares of Common Stock held by MWTV. Therefore, Mr. Burkhalter may be
deemed to beneficially own all shares of Common Stock held by MWTV.
Mr. Burkhalter disclaims beneficial ownership of any such shares of
Common Stock. The address for MWTV and Mr. Burkhalter is c/o
TruVision, 1080 River Oaks Drive, Suite A150, Jackson, MS 39208.
(5) VanCom is the limited partner of MWTV and has a right to 22.9167% of
allocations and distributions of the Partnership. Shares owned by Mr.
Van Devender include shares owned by VanCom as Mr. Van Devender is the
President and controlling stockholder of VanCom. Mr. Van Devender's
address is c/o VanCom, Inc., P.O. Box 5327, Jackson, Mississippi
39296.
(6) Includes 12,288 shares owned by Mr. Burkhalter's wife and 78,015 shares
issuable upon the exercise of presently exercisable options.
(7) Includes 75,120 shares owned by Mr. Sternberg's wife and children and
148,444 shares issuable upon the exercise of presently exercisable
options.
(8) Includes 193,702 shares issuable upon the exercise of presently
exercisable options.
(9) Reflects 3,902,895 shares owned by CVCA, CMCC and Baseball Partners.
Mr. Chavkin is a general partner of CCP, which is the general partner
of CVCA. CCP has investment and voting discretion with respect to the
shares held by CMCC. Baseball Partners has agreed to grant a proxy
with respect to the Shares held by it to CCP. Mr. Chavkin disclaims
beneficial ownership of the Shares held by CVCA, CMCC and Baseball
Partners. The address for Mr. Chavkin is 380 Madison Avenue, 12th
Floor, New York, NY 10017.
(10) Includes 3,459,508 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 also a director of Heartland.
Mr. Holland disclaims beneficial ownership of shares owned by
Heartland. The address for Mr. Holland is 4000 Thanksgiving Tower,
Dallas, TX 75201.
(11) Reflects shares of Common Stock beneficially owned by Baseball
Partners. Mr. Luby is a general partner of Baseball Partners and
therefore may be deemed to be a beneficial owner of such shares. Mr.
Luby disclaims beneficial ownership of all of the shares of Common
Stock owned by Baseball Partners in which Mr. Luby has no pecuniary
interest. Certain affiliates of CMCC are general partners of Baseball
Partners.
(12) Includes 6,000 shares issuable upon the exercise of currently
exercisable options.
(13) Includes 3,459,508 shares beneficially owned by Heartland, of which Mr.
Wheeler is a director. Mr. Wheeler disclaims any beneficial ownership
of shares owned by Heartland. The address of Mr. Wheeler is P.O. Box
839, Durrant, Oklahoma 74702.
(14) Includes 490,572 shares issuable upon the exercise of currently
exercisable options held by directors and executive officers.
DESCRIPTION OF THE NOTES
General
The Notes were issued under the Indenture dated as of August 12, 1996
between the Company and United States Trust Company of New York, as trustee
(the "Trustee"), a copy of which is incorporated by reference as an exhibit
to the Registration Statement of which this Prospectus forms a part and will
be made available to purchasers of the Notes upon request. The Indenture is
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act").
The following summary of the material provisions of the Indenture does
not purport to be complete, and where reference is made to particular
provisions of the Indenture, such provisions, including the definitions of
certain terms, are qualified in their entirety by reference to all of the
provisions of the Indenture and those terms made a part of the Indenture by
the Trust Indenture Act. For definitions of certain capitalized terms used
in the following summary, see "--Certain Definitions." References to the
Company in the "Description of Notes" are to Wireless One, Inc., excluding
any Subsidiaries thereof.
Principal, Interest and Maturity
The Notes were issued at a discount to their aggregate principal amount
to generate gross proceeds to the Company of $125 million and are senior
obligations of the Company. The Notes will accrete in value until August 1,
2001 at a rate of 13 1/2% per annum, compounded semi-annually, to an aggregate
principal amount of $239,252,000. Cash interest will not accrue on the Notes
prior to August 1, 2001. Thereafter, interest will accrue at a rate of 13 1/2%
per annum and will be payable semi-annually in cash on each February 1 and
August 1, commencing February 1, 2002, to holders of record on the
immediately preceding January 15 and July 15. Interest will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from August 1, 2001. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months. The Notes will mature on August 1,
2006. All references to the principal amount of the Notes herein are
references to the principal amount at final maturity.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes are exchangeable and transferable, at the office or
agency of the Company in the City of New York maintained for such purposes
(which initially is the corporate trust office of the Trustee at 114 West
47th Street, New York, New York 10036, Attention: Corporate Trust
Administration); provided, however, that payment of interest may be made at
the option of the Company by check mailed to the Person entitled thereto as
shown on the security register. Notwithstanding the foregoing, payments of
principal of, and interest on, Notes represented by one or more permanent
global Notes registered in the name of or held by The Depository Trust
Company or its nominee will be made in immediately available funds to such
entity as the registered owner and holder of such permanent global Note or
Notes. The Notes were issued only in fully registered form without coupons,
in denominations of $1,000 and any integral multiple thereof. No service
charge will be made for any registration of transfer, exchange or redemption
of Notes, except in certain circumstances for any tax or other governmental
charge that may be imposed in connection therewith.
Ranking
The Notes are senior obligations of the Company ranking pari passu in
right of payment to all existing and future Indebtedness of the Company,
other than Indebtedness that is expressly subordinated to the Notes.
However, subject to certain limitations set forth in the Indenture, the
Company and its Subsidiaries may incur other senior Indebtedness, including
Indebtedness that is secured by the assets of the Company and its
Subsidiaries. Such limitations may not limit the Company's ability to engage
in certain highly leveraged transactions. In addition, the Company is a
holding company that conducts substantially all of its business operations
through its Subsidiaries and, therefore, the Notes will be effectively
subordinated to all existing and future Indebtedness and other liabilities
and commitments of such Subsidiaries, including trade payables. The
outstanding Indebtedness and trade payables of the Company's Subsidiaries as
of March 31, 1997 were approximately $34.1 million.
Optional Redemption
The Notes will be subject to redemption at any time on or after August
1, 2001, at the option of the Company, in whole or in part, on not less than
30 nor more than 60 days' prior notice in amounts of $1,000 or an integral
multiple thereof at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning on
August 1 of the years indicated below:
Year Redemption Price
---- ----------------
2001.........................................106.75%
2002.........................................104.50%
2003.........................................102.25%
2004.........................................100.00%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due
on an interest payment date).
In addition, at any time or from time to time prior to August 1, 1999,
up to 30% of the aggregate principal amount originally issued of the Notes
are redeemable at the option of the Company with the Net Cash Proceeds from a
sale to a Strategic Investor of the Company's Capital Stock (other than
Redeemable Capital Stock) or Qualified Subordinated Indebtedness in a single
transaction or series of related transactions for an aggregate purchase price
equal to or exceeding $25 million, at a redemption price equal to 113.5% of
the Accreted Value of the Notes; provided that after giving effect to any
such redemption, at least 70% of the aggregate principal amount originally
issued of the Notes remains outstanding thereafter. The Company shall make
such redemption not more than 180 days after the consummation of any such
sale of the Company's Capital Stock or Qualified Subordinated Indebtedness
and upon not less than 60 nor more than 150 days' notice given within 30 days
after (and not before) the consummation of any such sale, in amounts of
$1,000 or an integral multiple thereof.
If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed pro rata, by lot or by
any other method the Trustee shall deem fair and reasonable.
Mandatory Redemption
Except as set forth below under "--Certain Covenants--Limitation on
Sale of Assets" and "--Purchase of Notes upon a Change of Control," the
Company is not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate, provided that no Notes with a principal amount of $1,000 or less
shall be redeemed in part. Notice of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date
to each holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount to be redeemed. A
new Note in principal amount equal to the unredeemed portion will be issued
in the name of the holder thereof upon cancellation of the original Note. On
and after the redemption date, interest will cease to accrue on the Notes or
portions of the Notes called for redemption.
Certain Covenants
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness. The Company will not, and will not permit
any Restricted Subsidiary to, create, issue, incur, assume, guarantee or
otherwise in any manner become directly or indirectly liable for the payment
of or otherwise incur (collectively, "incur") any Indebtedness (including any
Acquired Indebtedness), except that the Company may incur Indebtedness
(including any Acquired Indebtedness) and any Restricted Subsidiary may incur
Acquired Indebtedness, if, in each case, the Debt to Operating Cash Flow
Ratio of the Company and its Restricted Subsidiaries at the time of
incurrence of such Indebtedness, after giving pro forma effect thereto, is
5.0 to 1.0 or less.
The foregoing limitation will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), but any such Permitted
Indebtedness will be included in any calculation of Debt:
(i) Indebtedness of the Company or any of its Restricted
Subsidiaries under a Bank Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed $25,000,000;
(ii) Indebtedness of the Company pursuant to the Notes;
(iii) Indebtedness of any Restricted Subsidiary consisting of a
guarantee of Indebtedness under a Bank Credit Facility;
(iv) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture and listed on a schedule
thereto (exclusive of any debt of the kind referred to in clause (x));
(v) Indebtedness of the Company owing to a Restricted
Subsidiary; provided that any Indebtedness of the Company owing to a
Restricted Subsidiary is made pursuant to an intercompany note in the
form attached to the Indenture and is subordinated in right of payment
from and after such time as the Notes shall become due and payable
(whether at Stated Maturity, acceleration or otherwise) to the payment
of the Company's obligations under the Notes; provided, further, that
any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a disposition, pledge or transfer to a Wholly Owned
Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the obligor not permitted by this clause (v);
(vi) Indebtedness of a Restricted Subsidiary owing to the
Company or another Restricted Subsidiary; provided that, with respect
to Indebtedness owing to a Restricted Subsidiary, any such Indebtedness
is made pursuant to an intercompany note in the form attached to the
Indenture; provided, further, that (a) any disposition, pledge or
transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to the Company or a Restricted
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by
the obligor not permitted by this clause (vi) and (b) any transaction
pursuant to which any Restricted Subsidiary, which has Indebtedness
owing to the Company or any other Restricted Subsidiary, ceases to be a
Restricted Subsidiary shall be deemed to be the incurrence of
Indebtedness by such Restricted Subsidiary that is not permitted by
this clause (vi);
(vii) guarantees of any Restricted Subsidiary made in accordance
with the provisions of the covenant described in "--Limitation on
Issuances of Guarantees of Indebtedness;"
(viii)obligations of the Company or any Restricted Subsidiary
entered into in the ordinary course of business pursuant to Interest
Rate Agreements designed to protect the Company or any Restricted
Subsidiary against fluctuations in interest rates in respect of
Indebtedness of the Company or any Restricted Subsidiary as long as
such obligations at the time incurred do not exceed the aggregate
principal amount of such Indebtedness then outstanding or in good faith
anticipated to be outstanding within 90 days of such occurrence;
(ix) Indebtedness having a yield to maturity not in excess of
the yield to maturity on the Notes lent by a Strategic Investor (or any
subsidiary thereof and including any refinancing of such outstanding
amount) resulting in up to $50,000,000 in aggregate Net Cash Proceeds;
provided that (i) such Indebtedness (and any refinancing thereof) is
subordinated in right of payment to the prior payment in full in cash
of all obligations (including principal, interest and premium, if any)
of the Company under the Notes and the Indenture (including as a
consequence of any repurchase, redemption or other repayment of the
Notes, including, without limitation, by way of optional redemption,
Offers, and Change of Control Offers to the extent such rights to
repayment are exercised by the Noteholders) such that (A) the Company
shall make no payment or distribution in respect of such Indebtedness
and may not acquire such Indebtedness until the prior payment in full
in cash of all obligations in respect of the Notes if any Default on
the Notes shall occur and be continuing, and (B) the holders of such
Indebtedness may not take any action to enforce or accelerate such
Indebtedness until the holders of the Notes have taken such action in
respect of the Notes, (ii) such Indebtedness (and any refinancing
thereof) is not guaranteed by any of the Company's Subsidiaries and is
not secured by any Lien on any property or asset of the Company or any
Restricted Subsidiary, (iii) such Indebtedness (and any refinancing
thereof) has no scheduled maturity of principal earlier than a date at
least one year after the final Stated Maturity of the Notes, (iv)
accreted interest on such Indebtedness shall only be payable on the
Maturity thereof and cash interest on such Indebtedness shall only be
payable to the extent that immediately prior to and after such payment
of interest the Company is permitted to incur $1.00 of Indebtedness
under the ratio described in the first paragraph of this covenant and
(v) the holders of such Indebtedness shall assign any rights to vote,
including by way of proxy, in a bankruptcy, insolvency or similar
proceeding to the Trustee and the trustee for the 1995 Notes; and,
provided further, the aggregate Net Cash Proceeds of such Indebtedness
under this clause (ix) together with the Net Cash Proceeds of
Indebtedness incurred under clause (xi) below shall not exceed
$100,000,000 at any time outstanding;
(x) Indebtedness of the Company or any Restricted Subsidiary
owing to a federal governmental authority relating to the purchase of
wireless cable channels in an auction in an amount not to exceed in the
aggregate $40,000,000 (including any such Indebtedness refinanced under
clause (xiii) below);
(xi) in the event the Company receives $40,000,000 or more of
aggregate Net Cash Proceeds from the sale of Qualified Capital Stock
(other than Qualified Capital Stock sold to a Subsidiary or to any
employee stock ownership plan or similar trust and other than
Redeemable Capital Stock) issued subsequent to the date of the
Indenture, Indebtedness of the Company in an aggregate principal amount
not to exceed $100,000,000 (including any refinancing thereof);
provided that (i) the incurrence of such Indebtedness would not result
in there being outstanding more than $1.50 of Indebtedness under this
clause (xi), clause (ix) and clause (xii) for each $1.00 of aggregate
Net Cash Proceeds of Qualified Capital Stock issued subsequent to the
date of the Indenture, (ii) such Indebtedness (and any refinancing
thereof) is not guaranteed by any of the Company's Subsidiaries and is
not secured by any Lien on any property or asset of the Company or any
Restricted Subsidiary and (iii) the Indebtedness permitted by this
clause (xi) shall be reduced by the sum of (A) the aggregate Net Cash
Proceeds of Indebtedness issued under clause (ix) and clause (xii) of
this covenant plus (B) the product of $1.50 and the aggregate amount of
Investments made by the Company pursuant to clause (viii) of the
definition of Permitted Investments (other than Investments acquired in
consideration for the issuance of Common Stock);
(xii) in the event the Company incurs Indebtedness lent by a
Strategic Investor under clause (ix) that results in $50,000,000 of Net
Cash Proceeds and the Company receives $40,000,000 or more of aggregate
Net Cash Proceeds from the sale of Qualified Capital Stock issued
subsequent to the date of the Indenture, the Company or any Restricted
Subsidiary shall be permitted to incur up to $25,000,000 of
Indebtedness (including any refinancing thereof); provided that the Net
Cash Proceeds of such Indebtedness, together with the Net Cash Proceeds
of Indebtedness incurred under clause (xi) of this covenant, shall not
exceed $50,000,000;
(xiii) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any
Indebtedness described in clauses (ii), (iv) and (x) above, including
any successive refinancings so long as the aggregate principal amount
of Indebtedness represented thereby is not increased by such
refinancing (or, if said Indebtedness provides for an amount less than
the principal amount thereof to be due and payable upon a declaration
of acceleration of the maturity thereof, not greater than such lesser
amount) plus the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such refinancing
and, in the case of Pari Passu or Subordinated Indebtedness, such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness; and
(xiv) Indebtedness of the Company or any Restricted Subsidiary,
in addition to that described in clauses (i) through (xiii) above, so
long as the aggregate principal amount of all such Indebtedness shall
not exceed $10,000,000 at any one time outstanding.
Limitation on Restricted Payments. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than
dividends or distributions payable solely in its shares of Qualified
Capital Stock or in options, warrants or other rights to acquire shares
of such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital
Stock of any Affiliate of the Company (other than Capital Stock of any
Wholly Owned Restricted Subsidiary) or options, warrants or other
rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem,
defease, retire or otherwise acquire for value, prior to any scheduled
principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital
Stock of any Restricted Subsidiary to any Person (other than to the
Company or any of its Restricted Subsidiaries so long as, in the event
the Restricted Subsidiary paying such dividend or distribution is not a
Wholly Owned Restricted Subsidiary, the Company or a Restricted
Subsidiary of the Company receives at least its pro rata share of such
dividend or distribution in accordance with its Equity Interests in
such Capital Stock);
(v) incur, create or assume any guarantee of Indebtedness of
any Affiliate of the Company (other than guarantees of Indebtedness of
the Company given by any Restricted Subsidiary in accordance with the
terms of the Indenture); or
(vi) until the date on which the ratio of Annualized EBITDA to
Consolidated Interest Expense equals or exceeds 1.5 to 1.0, make any
Investment in any Person (other than any Permitted Investments) in a
cumulative amount for the Company and all of its Restricted
Subsidiaries in excess of (A) (1) 100% of the Net Cash Proceeds
received by the Company from the issuance and sale of Capital Stock of
the Company (other than Capital Stock sold to a Subsidiary or to any
employee stock ownership plan or similar trust and other than
Redeemable Capital Stock) subsequent to the date of the Indenture and
(2) $15,000,000 less (B) the cumulative amount of Net Cash Proceeds
received by the Company from the issuance or sale of Capital Stock of
the Company that has been applied to make Restricted Payments provided
in clauses (i) through (v) above subsequent to the date of the
Indenture; provided that any Guarantee that is an Investment in an
Unrestricted Subsidiary shall cease to be deemed an Investment (and
shall be deemed to have not been made) to the extent that the Guarantee
is released without payment on the obligations so guaranteed by the
Company or any Restricted Subsidiary of the Company;
(any of the foregoing actions described in clauses (i) through (vi), other
than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") unless after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if
other than cash, as determined by the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a board resolution),
(1) no Default or Event of Default shall have occurred and be continuing and
such Restricted Payment shall not be an event which is, or after notice or
lapse of time or both, would be, an "event of default" under the terms of any
Indebtedness of the Company or its Restricted Subsidiaries; (2) the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the covenant described in "--Limitation on Indebtedness";
and (3) the aggregate amount of all such Restricted Payments declared or made
after the date of the Indenture, does not exceed the sum of:
(A) an amount equal to the Company's Cumulative Operating Cash
Flow less 2.0 times the Company's Cumulative Consolidated Interest
Expense; and
(B) the aggregate Net Cash Proceeds received after the date of
the Indenture by the Company from capital contributions (other than
from a Subsidiary) or from the issuance or sale (other than to a
Subsidiary) of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase such Qualified Capital Stock of the
Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below in clause (ii), (iii) or (vii) of
paragraph (b) below and except the Net Cash Proceeds from the issuance
of Common Stock that are applied to acquire Permitted Investments
pursuant to clause (viii) of the definition of Permitted Investments).
(b) Notwithstanding the foregoing, and in the case of clauses (ii)
through (vi) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (vii) being referred to as a "Permitted
Payment"):
(i) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this covenant and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a "Permitted Payment" for
purposes of the calculation required by paragraph (a) of this covenant;
(ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of the Company
in exchange for (including any such exchange pursuant to the exercise
of a conversion right or privilege in connection with which cash is
paid in lieu of the issuance of fractional shares or scrip), or out of
the Net Cash Proceeds of a substantially concurrent issue and sale for
cash (other than to a Subsidiary) of, other shares of Qualified Capital
Stock of the Company; provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are excluded from
clause (3)(B) of paragraph (a) of this covenant;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or in an amount not in excess of the net
proceeds of, a substantially concurrent issuance and sale for cash
(other than to any Subsidiary of the Company) of any Qualified Capital
Stock of the Company, provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are excluded from
clause (3)(B) of paragraph (a) of this covenant;
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of any
Subordinated Indebtedness (other than Redeemable Capital Stock) (a
"refinancing") through the issuance of new Subordinated Indebtedness of
the Company, provided that any such new Subordinated Indebtedness (1)
shall be in a principal amount that does not exceed the principal
amount so refinanced (or, if such Subordinated Indebtedness provides
for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser
amount as of the date of determination), plus the lesser of (I) the
stated amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the
Indebtedness being refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus,
in either case, the amount of expenses of the Company incurred in
connection with such refinancing; (2) has an Average Life to Stated
Maturity greater than the remaining Average Life to Stated Maturity of
the Notes; (3) has a Stated Maturity for its final scheduled principal
payment later than the Stated Maturity for the final scheduled
principal payment of the Notes; and (4) is expressly subordinated in
right of payment to the Notes at least to the same extent as the
Indebtedness to be refinanced;
(v) the repurchase of Capital Stock of the Company (including
options, warrants or other rights to acquire such Capital Stock) from
employees or former employees of the Company or any Restricted
Subsidiary thereof for consideration which, when added to all loans
made pursuant to clause (vi) below during the same fiscal year and then
outstanding, does not exceed $1,000,000 in the aggregate in any fiscal
year and $4,000,000 in the aggregate since the date of the Indenture;
(vi) the making of loans and advances to employees of the
Company or any Restricted Subsidiary thereof in an aggregate amount at
any time outstanding (including as outstanding any such loan or advance
written off or forgiven) which, when added to the aggregate
consideration paid pursuant to clause (v) above during the same fiscal
year, does not exceed $1,000,000 in any fiscal year and $4,000,000 in
the aggregate since the date of the Indenture; and
(vii) the repurchase, redemption or other acquisition or
retirement of Capital Stock of any Subsidiary of the Company for
Capital Stock (other than Redeemable Capital Stock).
The amounts referred to in clauses (i), (v) and (vi) shall be included
as Restricted Payments in any computation made pursuant to clause (a)(3)
above. Restricted Payments shall be deemed not to include Permitted Payments
and Permitted Investments.
Limitation on Transactions with Affiliates. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of
assets, property or services) with any Affiliate of the Company (other than
the Company or a Wholly Owned Restricted Subsidiary) unless (a) such
transaction or series of related transactions is in writing and on terms that
are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that would be available in a comparable transaction
in arm's-length dealings with an unrelated third party, (b) with respect to
any transaction or series of related transactions involving aggregate value
in excess of $1,000,000, the Company delivers an Officers' Certificate to the
Trustee certifying that such transaction or series of related transactions
complies with clause (a) above and such transaction or series of transactions
has been approved by a majority of the Board of Directors of the Company, (c)
with respect to any transaction or series of related transactions involving
aggregate payments in excess of $2,000,000, such transaction or series of
related transactions has been approved by the Disinterested Directors of the
Company (or in the event there is only one Disinterested Director, by such
Disinterested Director) and (d) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $10,000,000,
such transaction or series of related transactions has been approved by the
Disinterested Directors of the Company (or in the event there is only one
Disinterested Director, by such Disinterested Director) and the Company
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, (I)
that the provision with respect to clause (d) above shall not apply to the
coordination of programming and equipment purchases with Heartland and (II)
that this provision shall not apply to (A) any transaction with an officer or
director of the Company entered into in the ordinary course of business
(including compensation or employee benefit arrangements with any officer or
director of the Company and any transactions permitted by subclauses (v) and
(vi) of clause (b) under the covenant described in "--Limitation on
Restricted Payments"), (B) the cash portion of the Phase II Payment to VCI,
(C) repayment of the Interim Facility or (D) any agreements, transactions or
series of related transactions in existence on the date of the Indenture and
any renewal or extension thereof under substantially the same terms as the
original terms.
Limitation on Sale and Leaseback Transactions. The Company will not,
and will not permit any Restricted Subsidiary to, enter into any Sale and
Leaseback Transaction with respect to any property or assets (whether now
owned or hereafter acquired) unless (i) the sale or transfer of such property
or assets to be leased is treated as an Asset Sale and the Company complies
with the covenant described in "--Limitation on Sale of Assets" and (ii) the
Company or such Subsidiary would be entitled under the covenant described in
"--Limitation on Indebtedness" to incur any Capital Lease Obligations in
respect of such Sale and Leaseback Transaction.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, affirm or
suffer to exist any Lien of any kind upon any of its property or assets
(including any intercompany notes), owned at the time of or acquired after
the date of the Indenture, or any income or profits therefrom, except if the
Notes are directly secured equally and ratably with (or prior to in the case
of Liens with respect to Subordinated Indebtedness) the obligation or
liability secured by such Lien, excluding, however, from the operation of the
foregoing any of the following (collectively, "Permitted Liens"):
(a) any Lien on assets of the Company or any Subsidiary thereof
securing only the Notes equally and ratably;
(b) any Lien arising under the Indenture in favor of the
Trustee or any prior Trustee;
(c) any Lien existing as of the date of the Indenture and
listed on a schedule thereto;
(d) any Lien arising by reason of (1) any judgment, decree or
order of any court, so long as such Lien is adequately bonded and any
appropriate legal proceedings which may have been duly initiated for
the review of such judgment, decree or order shall not have been
finally terminated or the period within which such proceedings may be
initiated shall not have expired; (2) taxes not yet delinquent or which
are being contested in good faith; (3) security for payment of workers'
compensation or other insurance; (4) good faith deposits in connection
with tenders, leases and contracts (other than contracts for the
payment of money) in the ordinary course of business; (5) zoning
restrictions, easements, licenses, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of
the lessee), none of which materially impairs the use of any parcel of
property material to the operation of the business of the Company or
any Restricted Subsidiary or the value of such property for the purpose
of such business; (6) deposits to secure public or statutory
obligations, or in lieu of surety or appeal bonds; (7) certain surveys,
exceptions, title defects, encumbrances, easements, reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph
or telephone lines and other similar purposes or zoning or other
restrictions as to the use of real property not interfering with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; or (8) operation of law in favor of mechanics,
materialmen, laborers, employees or suppliers, incurred in the ordinary
course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings
which suspend the collection thereof;
(e) any Lien securing Indebtedness under a Bank Credit Facility
incurred by the Company or any Restricted Subsidiary in compliance with
the "--Limitation on Indebtedness" covenant or Liens securing
Indebtedness incurred in compliance with clause (xii) of the definition
of Permitted Indebtedness of the covenant described in "--Limitation on
Indebtedness;"
(f) Liens securing purchase money Indebtedness, including
pursuant to clause (x) under the second paragraph of the covenant
described in "--Limitation on Indebtedness," incurred in compliance
with the Indenture; provided that such Liens do not extend to any
assets other than the assets so acquired and the principal amount of
such Indebtedness shall at no time exceed the original purchase price
of the property or assets purchased;
(g) any Lien securing Acquired Indebtedness created prior to
(and not created in connection with, or in contemplation of) the
incurrence of such Indebtedness by the Company or any Restricted
Subsidiary, in each case which Indebtedness is permitted under the
provisions of the covenant described in "--Limitation on Indebtedness;"
provided that any such Lien extends only to the assets that were
subject to such Lien securing Acquired Indebtedness prior to the
related transaction by the Company or its Restricted Subsidiaries; and
(h) any extension, renewal, refinancing or replacement, in
whole or in part, of any Lien described in the foregoing clauses (a)
through (g) so long as the amount of security is not increased thereby.
Limitation on Sale of Assets. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly,
consummate an Asset Sale unless (i) at least 80% of the proceeds from such
Asset Sale are received in cash or Temporary Cash Investments; and (ii) the
Company or such Restricted Subsidiary receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the shares or
assets subject to such Asset Sale (as determined by the Board of Directors of
the Company and evidenced in a board resolution; provided, however, that if
the Fair Market Value of such assets exceeds $20,000,000, the Fair Market
Value shall be determined by an investment banking firm of national standing
selected by the Company). For purposes of this paragraph (a), an amount
equal to the Fair Market Value (as determined by the Board of Directors of
the Company and evidenced in a board resolution) of (1) Wireless Cable
Related Assets received by the Company or any such Restricted Subsidiary from
the transferee that will be used by the Company or any such Restricted
Subsidiary in the operation of a Wireless Cable Business in North America and
(2) the Voting Stock of a Strategic Investor engaged in the
Telecommunications Business in North America received by the Company or any
such Restricted Subsidiary shall be deemed to be cash, provided that the
aggregate Fair Market Value (as determined at the date of receipt of such
Wireless Cable Related Assets or Voting Stock, as the case may be) of all
such Wireless Cable Related Assets and Voting Stock received since the date
of the Indenture shall not exceed $12,500,000.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale
are not required to be applied to repay permanently any Indebtedness then
outstanding under a Bank Credit Facility as required by the terms thereof, or
the Company determines not to apply such Net Cash Proceeds to the permanent
prepayment of such Indebtedness under a Bank Credit Facility, or if no such
Indebtedness under a Bank Credit Facility is then outstanding, then the
Company or a Restricted Subsidiary may, within 270 days of the Asset Sale,
invest the Net Cash Proceeds from such Asset Sale in properties and other
assets that (as determined by the Board of Directors of the Company) replace
the properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the Wireless Cable Business. The
amount of such Net Cash Proceeds neither used to permanently repay or prepay
Indebtedness under a Bank Credit Facility nor used or invested as set forth
in this paragraph constitutes "Excess Proceeds."
(c) The Indenture provides that, when the aggregate amount of Excess
Proceeds exceeds $5,000,000 the Company will apply the Excess Proceeds to the
repayment of the Notes and any other Pari Passu Indebtedness outstanding with
similar provisions requiring the Company to make an offer to purchase such
Indebtedness with the proceeds from any Asset Sale as follows: (A) the
Company will make an offer to purchase (an "Offer") within ten days of such
time from all holders of the Notes in accordance with the procedures set
forth in the Indenture in the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of an amount (the
"Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes (or, if prior to August 1, 2001, the Accreted Value of the Notes), and
the denominator of which is the sum of the outstanding principal amount of
the Notes (or, if prior to August 1, 2001, the Accreted Value of the Notes)
and such Pari Passu Indebtedness (subject to proration in the event such
amount is less than the aggregate Offered Price of all Notes tendered) and
(B) to the extent required by such Pari Passu Indebtedness to permanently
reduce the principal amount of such Pari Passu Indebtedness, the Company will
make an offer to purchase or otherwise repurchase or redeem Pari Passu
Indebtedness (a "Pari Passu Offer") in an amount (the "Pari Passu Debt
Amount") equal to the excess of the Excess Proceeds over the Note Amount;
provided that in no event will the Company be required to make a Pari Passu
Offer in a Pari Passu Debt Amount exceeding the principal amount of such Pari
Passu Indebtedness plus the amount of any premium required to be paid to
repurchase such Pari Passu Indebtedness. The offer price for the Notes will
be an amount payable in cash equal to 100% of the principal amount of the
Notes plus accrued and unpaid interest, if any, (or, if prior to August 1,
2001, the Accreted Value of the Notes) to the date (the "Offer Date") such
Offer is consummated (the "Offered Price") in accordance with the procedures
set forth in the Indenture. To the extent that the aggregate Offered Price
of the Notes tendered pursuant to the Offer is less than the Note Amount
relating thereto or the aggregate amount of Pari Passu Indebtedness that is
purchased in a Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company may use any remaining Excess Proceeds for general corporate purposes.
Upon the completion of the purchase of all the Notes tendered pursuant to an
Offer and the completion of a Pari Passu Offer, the amount of Excess
Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant to
clause (c) above, the Notes and the Pari Passu Indebtedness shall be
purchased by the Company, at the option of the holder thereof, in whole or in
part in integral multiples of $1,000, on a date that is not earlier than 45
days and not later than 60 days from the date the notice of the Offer is
given to holders, or such later date as may be necessary for the Company to
comply with the requirements under the Exchange Act.
(e) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer.
Limitation on Issuances of Guarantees of indebtedness, (a) The Company
will not permit any Restricted Subsidiary, directly or indirectly, to
guarantee, assume or in any other manner become liable with respect to any
Indebtedness of the Company (other than Indebtedness under a Bank Credit
Facility pursuant to clauses (i) and (iii) of the second paragraph under the
covenant described in "--Limitation on Indebtedness") unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a guarantee of the Notes on the same
terms as the guarantee of such Indebtedness except that (A) such guarantee
need not be secured unless required pursuant to the provisions of the
covenant described in "--Limitations on Liens," and (B) if such Indebtedness
is by its terms expressly subordinated to the Notes, any such assumption,
guarantee or other liability of such Restricted Subsidiary with respect to
such Indebtedness shall be subordinated to such Restricted Subsidiary's
assumption, guarantee or other liability with respect to the Notes to the
same extent as such Indebtedness is subordinated to the Notes and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
guarantee.
(b) Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all
of the Company's Capital Stock in such Restricted Subsidiary, which is in
compliance with the terms of the Indenture.
Purchase of Notes Upon a Change of Control. If a Change of Control
shall occur at any time, then each holder of Notes shall have the right to
require that the Company purchase (subject to compliance with the
requirements of Rules 13e-4 and 14e-1 under the Exchange Act and any other
applicable statute, rule or regulation) such holder's Notes in whole or in
part in integral multiples of $l,000, at a purchase price (the "Change of
Control Purchase Price") in cash in an amount equal to 101% of the principal
amount of such Notes, plus accrued and unpaid interest, if any (or, in the
case of repurchases of Notes prior to August 1, 2001 at a purchase price
equal to 101% of the Accreted Value thereof), to the repurchase date (the
"Change of Control Purchase Date") pursuant to the offer described below (the
"Change of Control Offer") and in accordance with the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice of such Change of Control
to each holder of Notes, by first-class mail, postage prepaid, at his address
appearing in the security register, stating, among other things: the purchase
price and the purchase date, which date shall be a business day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or
such later date as is necessary to comply with requirements under the
Exchange Act; that any Note not tendered will continue to accrue or accrete
interest; that, unless the Company defaults in the payment of the purchase
price, any Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Purchase Date; and
certain other procedures that a holder of Notes must follow to accept a
Change of Control Offer or to withdraw such acceptance.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have beneficial
ownership of all shares that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 40% of the total outstanding Voting
Stock of the Company; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election to
such board or whose nomination for election by the stockholders of the
Company was approved by a vote of 66 2/3 % of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease for
any reason to constitute a majority of such Board of Directors then in
office; (iii) the Company consolidates with, or merges with or into, any
Person or sells, assigns, conveys, transfers or leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is changed into or exchanged for cash, securities or other property,
other than any such transaction where the outstanding Voting Stock of the
Company is not changed or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of the Company) or
where (A) the outstanding Voting Stock of the Company is changed into or
exchanged for (x) Voting Stock of the surviving corporation which is not
Redeemable Capital Stock or (y) cash, securities and other property (other
than Capital Stock of the surviving corporation) in an amount which could be
paid by the Company as a Restricted Payment under the covenant described in
"--Limitation on Restricted Payments" (and such amount shall be treated as a
Restricted Payment subject to the provisions of the covenant described in
"--Limitation on Restricted Payments") and (B) no "person" or "group" other
than Permitted Holders owns immediately after such transaction, directly or
indirectly, more than 40% of the total outstanding Voting Stock of the
surviving corporation; or (iv) the Company is liquidated or dissolved or
adopts a plan of liquidation or dissolution other than in a transaction which
complies with the provisions described under the covenant described in
"--Consolidation, Merger, Sale of Assets."
"Permitted Holders" means, as of the date of determination, Chase
Capital Partners, Chase, Heartland, Henry M. Burkhalter, William J. Van
Devender and their respective Affiliates (other than the Company and its
Subsidiaries).
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. The failure of the
Company to make or consummate the Change of Control Offer or pay the Change
of Control Purchase Price when due will give the Trustee and the holders of
the Notes the rights described under "--Events of Default."
The term "all or substantially all" as used in the definition of
"Change of Control" has not been interpreted under New York law (which is the
governing law of the Indenture) to represent a specific quantitative test.
As a consequence, in the event the holders of the Notes elected to exercise
their rights under the Indenture and the Company elected to contest such
election, there could be no assurance as to how a court interpreting New York
law would interpret the phrase.
The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any Restricted Subsidiary to,
create or permit to exist or become effective any restriction (other than
restrictions under Indebtedness as in effect on the date of the Indenture and
any extensions, refinancings, renewals or replacements of any of the
foregoing) that would materially impair the ability of the Company to make a
Change of Control Offer to purchase the Notes or, if such Change of Control
Offer is made, to pay for the Notes tendered for purchase; provided that the
restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the holders of the Notes
than those under the Indebtedness being extended, refinanced, renewed or
replaced. As of the date of this Prospectus, the Company is not subject to
any agreement containing a material restriction on its ability to make a
Change of Control Offer.
Limitation on Subsidiary Capital Stock. The Company will not permit
(a) any Restricted Subsidiary of the Company to issue, sell or transfer any
Capital Stock, except for (i) Capital Stock issued or sold to, held by or
transferred to the Company or a Wholly Owned Restricted Subsidiary of the
Company, and (ii) Capital Stock issued by a Person prior to the time (A) such
Person becomes a Restricted Subsidiary, (B) such Person merges with or into a
Restricted Subsidiary or (C) a Restricted Subsidiary merges with or into such
Person; provided that such Capital Stock was not issued or incurred by such
Person in anticipation of the type of transaction contemplated by subclause
(A), (B) or (C) or (b) any Person (other than the Company or a Wholly Owned
Restricted Subsidiary) to acquire Capital Stock of any Subsidiary from the
Company or any Wholly Owned Restricted Subsidiary except upon the acquisition
of all the outstanding Capital Stock of such Restricted Subsidiary in
accordance with the terms of the Indenture.
Limitation on Preferred Stock of Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries to issue, directly or indirectly,
any Preferred Stock, except (i) Preferred Stock of Restricted Subsidiaries
outstanding on the Issue Date; (ii) Preferred Stock issued to and held by the
Company or a Wholly Owned Restricted Subsidiary, except that any subsequent
issuance or transfer of any Capital Stock which results in any Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any transfer of such Preferred Stock to a Person not a Wholly Owned
Restricted Subsidiary will be deemed an issuance of Preferred Stock; (iii)
Preferred Stock issued by a Person prior to the time (a) such Person became a
Restricted Subsidiary, (b) such Person merges with or into a Restricted
Subsidiary or (c) another Person merges with or into such Person (in a
transaction in which such Person becomes a Restricted Subsidiary), in each
case if such Preferred Stock was not issued in anticipation of such
transaction; and (iv) Preferred Stock issued in exchange for, or the proceeds
of which are used to refund Indebtedness or refinance Preferred Stock
referred to in clause (i) or issued pursuant to clause (ii) or (iii) (other
than Preferred Stock which by its terms or by the terms of any security into
which it is convertible or for which it is exchangeable is redeemable at the
option of the holder thereof or is otherwise redeemable, pursuant to sinking
fund obligations or otherwise, prior to the date of redemption or maturity of
the Preferred Stock or Indebtedness being so refunded or refinanced);
provided that (a) the liquidation value of such Preferred Stock so issued
shall not exceed the principal amount or the liquidation value of the
Indebtedness or Preferred Stock, as the case may be, so refunded or
refinanced and (b) the Preferred Stock so issued (1) shall have a Stated
Maturity not earlier than the Stated Maturity of the Indebtedness or
Preferred Stock being refunded or refinanced and (2) shall have an Average
Life to Stated Maturity equal to or greater than the remaining Average Life
to Stated Maturity of the Indebtedness or Preferred Stock being refunded or
refinanced.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends
or make any other distribution on its Capital Stock, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii)
make any Investment in the Company or any other Restricted Subsidiary or (iv)
transfer any of its properties or assets to the Company or any other
Restricted Subsidiary, except for: (a) any encumbrance or restriction
pursuant to any agreement in effect on the date of the Indenture and listed
on a schedule thereto; (b) any customary encumbrance or restriction pursuant
to the terms of any instrument governing any Indebtedness incurred by a
Restricted Subsidiary pursuant to a Bank Credit Facility in conformance with
the covenant described in "--Limitation on Indebtedness;" provided that any
such encumbrance or restriction shall specifically not prohibit payments of
principal, premium, if any, and interest on the Notes; (c) any encumbrance or
restriction, with respect to a Restricted Subsidiary that is not a Restricted
Subsidiary of the Company on the date of the Indenture, in existence at the
time such Person becomes a Restricted Subsidiary of the Company and not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary; (d) any encumbrance or restriction existing under any
agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses (a), (b)
and (c), or in this clause (d); provided that the terms and conditions of any
such encumbrances or restrictions are no more restrictive in any material
respect than those under or pursuant to the agreement evidencing the
Indebtedness so extended, renewed, refinanced or replaced, (e) any instrument
governing Acquired Indebtedness as in effect at the time of acquisition
(except to the extent such Indebtedness was incurred in connection with, or
in contemplation of, such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired;
(f) with respect to clause (iv) above, by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business; or (g)
with respect to clause (iv) above, purchase money obligations for property
acquired in the ordinary course of business, which obligations do not cover
any asset other than the asset acquired.
Limitations on Unrestricted Subsidiaries. The Company will not make,
and will not permit its Restricted Subsidiaries to make, any Investment in
Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of
such Investments would exceed the amount of Restricted Payments then
permitted to be made pursuant to the covenant described in "--Limitation on
Restricted Payments." Any Investments in Unrestricted Subsidiaries permitted
to be made pursuant to the covenant herein described (i) will be treated as a
Restricted Payment in calculating the amount of Restricted Payments made by
the Company and (ii) may be made in cash or property.
Provision of Financial Statements. The Indenture provides that,
whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the
Commission pursuant to such Sections 13(a) or 15(d) if the Company were so
subject, such documents to be filed with the Commission on or prior to the
date (the "Required Filing Date") by which the Company would have been
required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing
Date (i) transmit by mail to all holders, as their names and addresses appear
in the security register, without cost to such holders and (ii) file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were
subject to such Sections and (y) if filing such documents by the Company with
the Commission is not permitted under the Exchange Act, promptly upon written
request, supply copies of such documents to any prospective holder at the
Company's cost.
Activities of the Company. The Indenture provides that the Company and
its Restricted Subsidiaries may not, directly or indirectly, engage in any
business other than the Wireless Cable Business; provided that in the event a
Change of Control occurs in which a Strategic Investor becomes the holder of
a majority of the Voting Stock of the Company, this covenant shall no longer
be of force or effect.
Consolidation, Merger, Sale of Assets
The Company will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Restricted Subsidiaries to enter
into any such transaction or series of related transactions if such
transaction or series of related transactions, in the aggregate, would result
in a sale, assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a Consolidated basis to any other Person or group
of affiliated Persons, unless at the time and after giving effect thereto (i)
either (a) the Company will be the continuing corporation or (b) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment,
conveyance, transfer, lease or disposition all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated basis (the "Surviving Entity") will be a corporation duly
organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and such Person
expressly assumes, by a supplemental indenture, in a form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the
Indenture, as the case may be, and the Notes and the Indenture will remain in
full force and effect as so supplemented; (ii) immediately before, and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default will have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any
of its Restricted Subsidiaries which becomes the obligation of the Company or
any of its Restricted Subsidiaries as a result of such transaction as having
been incurred at the time of such transaction), the Consolidated Net Worth of
the Company (or the Surviving Entity if the Company is not the continuing
obligor under the Indenture) is equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction; (iv) immediately
before and immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred on the first day of
the most recently ended full fiscal quarter for which financial statements
are available immediately prior to the consummation of such transaction with
the appropriate adjustments with respect to the transaction being included in
such pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the "--Limitation on Indebtedness" covenant; (v) at the time of the
transaction each Guarantor, if any, unless it is the other party to the
transactions described above, will have by supplemental indenture confirmed
that its Guarantees shall apply to such Person's obligations under the
Indenture and the Notes; (vi) at the time of the transaction if any of the
property or assets of the Company or any of its Restricted Subsidiaries
would thereupon become subject to any Lien, the provisions of the "-
- -Limitation on Liens" covenant are complied with; and (vii) at the time of
the transaction the Company or the Surviving Entity will have delivered, or
caused to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each to the effect that such consolidation, merger, transfer, sale,
assignment, conveyance, transfer, lease or other transaction and the
supplemental indenture in respect thereof comply with the Indenture and that
all conditions precedent therein provided for relating to such transaction
have been complied with. For purposes of the foregoing, the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one
or more Subsidiaries of the Company, the Capital Stock of which constitutes
all or substantially all of the properties and assets of the Company, shall
be deemed to be the transfer of all or substantially all of the properties
and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph
in which the Company is not the continuing corporation, the successor Person
formed or remaining shall succeed to, and be substituted for, and may
exercise every right and power of, the Company, and the Company would be
discharged from all obligations and covenants under the Indenture and the
Notes.
Events of Default
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on
any Note when it becomes due and payable, and such default shall
continue for a period of 30 days;
(ii) there shall be a default in the payment of the principal of
(or premium, if any, on) any Note at its Maturity (upon acceleration,
optional or mandatory redemption, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach,
of any covenant or agreement of the Company under the Indenture or the
Notes (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (i) or
(ii) or in clause (b), (c) or (d) of this clause (iii)) and such
default or breach shall continue for a period of 30 days after written
notice has been given, by certified mail, (x) to the Company by the
Trustee or (y) to the Company and the Trustee by the holders of at
least 25% in Accreted Value or aggregate principal amount, as the case
may be, of the outstanding Notes; (b) there shall be a default in the
performance or breach of the provisions described in the covenant
described in "--Consolidation, Merger, Sale of Assets;" (c) the Company
shall have failed to make or consummate an Offer in accordance with the
provisions of the covenant described in "--Limitation on Sale of
Assets;" or (d) the Company shall have failed to make or consummate a
Change of Control Offer in accordance with the provisions of the
covenant described in "--Purchase of Notes Upon a Change of Control;"
(iv) (A) any default in the payment of the principal, premium,
if any, or interest on any Indebtedness shall have occurred under any
agreements, indentures or instruments under which the Company or any
Restricted Subsidiary then has outstanding Indebtedness in excess of
$5,000,000 when the same shall become due and payable and continuation
of such default after any applicable grace period and, if such
Indebtedness has not already matured at its final maturity in
accordance with its terms, the holder of such Indebtedness shall have
the right to accelerate such Indebtedness or (B) an event of default as
defined in any of the agreements, indentures or instruments described
in clause (A) of this paragraph (iv) shall have occurred and the
Indebtedness thereunder, if not already matured at its final maturity
in accordance with its terms, shall have been accelerated; provided
that a default in the payment of principal, premium, if any, or
interest in respect of Indebtedness issued by the Company or any
Restricted Subsidiary of the Company to any seller of Wireless Cable
Related Assets pursuant to an acquisition of Wireless Cable Related
Assets by the Company or any Restricted Subsidiary of the Company in an
aggregate amount not to exceed $10,000,000 shall not be considered an
Event of Default so long as (a) such nonpayment shall be the result of
nonperformance by the seller under the terms of the definitive
documentation applicable to such acquisition, (b) the Company is
applying its best efforts to the pursuit of legal remedies under such
definitive documentation at law or in equity, (c) other outstanding
Indebtedness of the Company or its Restricted Subsidiaries in an
aggregate principal amount in excess of $5,000,000 shall not have
become due and payable as a consequence of such nonpayment, (d) in the
event such nonpayment continues for a period of time equal to or in
excess of 30 days, the Company shall have an Eligible Institution make
available to the Trustee a letter of credit that may be immediately
drawn upon in an amount sufficient to satisfy all amounts due and
payable with respect to such seller indebtedness and (e) the Company
shall have delivered to the Trustee an Officers' Certificate regarding
all such matters;
(v) any Guarantee shall for any reason cease to be, or shall
for any reason be asserted in writing by any Guarantor or the Company
not to be, in full force and effect and enforceable in accordance with
its terms except to the extent contemplated by the Indenture and any
such Guarantee;
(vi) one or more judgments, orders or decrees for the payment of
money in excess of $5,000,000, either individually or in the aggregate,
shall be rendered against the Company, or any Restricted Subsidiary or
any of their respective properties and shall not be discharged and
either (a) any creditor shall have commenced an enforcement proceeding
upon such judgment, order or decree or (b) there shall have been a
period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of an appeal or otherwise, shall not
be in effect;
(vii) any holder or holders of at least $5,000,000 in aggregate
principal amount of Indebtedness of the Company or any Restricted
Subsidiary after a default under such Indebtedness shall notify the
Trustee of the intended sale or disposition of any assets of the
Company or any Restricted Subsidiary that have been pledged to or for
the benefit of such holder or holders to secure such Indebtedness or
shall commence proceedings, or take any action (including by way of
set-off), to retain in satisfaction of such Indebtedness or to collect
on, seize, dispose of or apply in satisfaction of Indebtedness, assets
of the Company or any Restricted Subsidiary (including funds on deposit
or held pursuant to lock-box and other similar arrangements);
(viii)there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the
Company or any Material Restricted Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or (b) a decree or order
adjudging the Company or any Material Restricted Subsidiary bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Material Restricted
Subsidiary under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or any Material Restricted
Subsidiary or of any substantial part of their respective properties,
or ordering the winding up or liquidation of their respective affairs,
and any such decree or order for relief shall continue to be in effect,
or any such other decree or order shall be unstayed and in effect, for
a period of 60 consecutive days; or
(ix) (a) the Company or any Material Restricted Subsidiary
commences a voluntary case or proceeding under any applicable
Bankruptcy Law or any other case or proceeding to be adjudicated
bankrupt or insolvent, (b) the Company or any Material Restricted
Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Material Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or
to the commencement of any bankruptcy or insolvency case or proceeding
against it, (c) the Company, any Guarantor or any Material Restricted
Subsidiary files a petition or answer or consent seeking reorganization
or relief under any applicable federal or state law, (d) the Company or
any Material Restricted Subsidiary (I) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or such Material Restricted Subsidiary or of
any substantial part of their respective properties, (II) makes an
assignment for the benefit of creditors or (III) admits in writing its
inability to pay its debts generally as they become due or (e) the
Company or any Material Restricted Subsidiary takes any corporate
action in furtherance of any such actions in this paragraph (ix).
If an Event of Default (other than as specified in clauses (viii) and
(ix) of the prior paragraph) shall occur and be continuing with respect to
the Indenture, the Trustee or the holders of not less than 25% in aggregate
principal amount or the Accreted Value, as the case may be, of the Notes then
outstanding may, and the Trustee at the request of such holders shall,
declare all unpaid principal of (or, if prior to August l, 2001, Accreted
Value of), premium, if any, and accrued interest on all Notes to be due and
payable immediately, by a notice in writing to the Company (and to the
Trustee it given by the holders of the Notes) and upon any such declaration,
such principal (or Accreted Value), premium, if any, and interest shall
become due and payable. If an Event of Default specified in clause (viii) or
(ix) of the prior paragraph occurs and is continuing, then all the Notes
shall ipso facto become and be due and payable immediately in an amount equal
to the principal of (or if prior to August 1, 2001, Accreted Value of),
premium, if any, and accrued interest on all Notes, to the date the Notes
become due and payable, without any declaration or other act on the part of
the Trustee or any holder.
After a declaration of acceleration, but before a judgment or decree
for payment of the money due has been obtained by the Trustee, the holders of
a majority in aggregate principal amount of Notes outstanding by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if (a) the Company has paid or deposited with the
Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee
under the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue
interest on all Notes then outstanding, (iii) the principal of and premium,
if any, on any Notes then outstanding which have become due otherwise than by
such declaration of acceleration and interest thereon at a rate borne by the
Notes and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes; and (b) all
Events of Default, other than the non-payment of principal of the Notes which
have become due solely by such declaration of acceleration, have been cured
or waived as provided in the Indenture.
The holders of not less than a majority in aggregate principal amount
of the Notes outstanding may on behalf of the holders of all outstanding
Notes waive any past default under the Indenture and its consequences, except
a continuing default in the payment of the principal of, premium, if any, or
interest on any Note or in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Note affected by such modification or amendment.
The Company is also required to notify the Trustee within five business
days of the Company's knowledge of the occurrence of any Default. The
Company is required to deliver to the Trustee, on or before a date not more
than 60 days after the end of each fiscal quarter and not more than 120 days
after the end of each fiscal year, a written statement as to compliance with
the Indenture, including whether or not any Default has occurred. The
Trustee is under no obligation to exercise any of the rights or powers vested
in it by the Indenture at the request or direction of any of the holders of
the Notes unless such holders offer to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which
might be incurred thereby.
The Trust Indenture Act contains limitations on the rights of the
Trustee, should it become a creditor of the Company or any Guarantor, if any,
to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claims, as security or
otherwise. The Trustee is permitted to engage in other transactions;
provided that if it acquires any conflicting interest it must eliminate such
conflict upon the occurrence of an Event of Default or else resign.
Defeasance or Covenant Defeasance of Indenture
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the
Notes discharged with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company, any such Guarantor and any other obligor
under the Indenture shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights
of holders of such outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee and (iv) the defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and any Guarantor released with
respect to certain covenants that are described in the Indenture ("covenant
defeasance") and thereafter any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the
Notes. In the event covenant defeasance occurs, certain events (not
including non-payment, bankruptcy and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in United States dollars, U.S. Government
Securities (as defined in the Indenture) or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally-recognized firm
of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity or on the applicable
optional redemption date (such date being referred to as the "Defeasance
Redemption Date"), if at or prior to electing either defeasance or covenant
defeasance, the Company has delivered to the Trustee an irrevocable notice to
redeem all of the outstanding Notes on the Defeasance Redemption Date; (ii)
in the case of defeasance, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States stating that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of independent counsel in the
United States shall confirm that, the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred; (iii) in the case of covenant
defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States to the effect that the holders of
the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clauses (viii) or (ix)
under the first paragraph under "Events of Default" are concerned, at any
time during the period ending on the 91st day after the date of deposit; (v)
such defeasance or covenant defeasance shall not cause the Trustee for the
Notes to have a conflicting interest as defined in the Indenture and for
purposes of the Trust Indenture Act with respect to any securities of the
Company or any Guarantor; (vi) such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a Default under, the
Indenture or any other material agreement or instrument to which the Company,
any Guarantor or any Subsidiary is a party or by which it is bound; (vii)
such defeasance or covenant defeasance shall not result in the trust arising
from such deposit constituting an investment company within the meaning of
the Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; (viii) the
Company will have delivered to the Trustee an opinion of independent counsel
in the United States to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors,
rights generally; (ix) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the Notes or any Guarantee over
the other creditors of the Company or any Guarantor or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, any
Guarantor or others; (x) no event or condition shall exist that would prevent
the Company from making payments of the principal of, premium, if any, and
interest on the Notes on the date of such deposit or at any time ending on
the 91st day after the date of such deposit; and (xi) the Company will have
delivered to the Trustee an Officers' Certificate and an opinion of
independent counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which
have been replaced or paid or Notes whose payment has been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year under
arrangements satisfactory to the applicable Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company;
and the Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust an amount in United States dollars sufficient
to pay and discharge the entire indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, including principal of, premium,
if any, and accrued interest at such Maturity, Stated Maturity or redemption
date; (b) the Company has paid or caused to be paid all other sums payable
under the Indenture by the Company; and (c) the Company has delivered to the
Trustee an Officers' Certificate and an opinion of independent counsel, each
stating that (i) all conditions precedent under the Indenture relating to the
satisfaction and discharge of such Indenture have been complied with and (ii)
such satisfaction and discharge will not result in a breach or violation of,
or constitute a default under, the Indenture or any other material agreement
or instrument to which the Company, or any Subsidiary is a party or by which
the or any Subsidiary is bound.
Modifications and Amendments
Modifications and amendments of the Indenture may be made by the
Company, each Guarantor, if any, and the Trustee with the consent of the
holders of at least a majority of aggregate principal amount of the Notes
then outstanding; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby: (i) change the Stated Maturity of the principal of, or any
installment of interest on, any such Note or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of
any such Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment after the
Stated Maturity thereof (or, in the case of redemption, on or after the
redemption date); (ii) amend, change or modify the obligation of the Company
to make and consummate an Offer with respect to any Asset Sale or Asset
Sales in accordance with the covenant described in "--Limitation on Sale
of Assets" or the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control in accordance with the
covenant described in "--Purchase of Notes Upon a Change of Control,"
including, in each case, amending, changing or modifying any definitions
relating thereto; (iii) reduce the percentage in principal amount of such
outstanding Notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver or compliance with certain provisions of the Indenture; (iv) modify
any of the provisions relating to supplemental indentures requiring the
consent of holders or relating to the waiver of past defaults or relating to
the waiver of certain covenants, except to increase the percentage of such
outstanding Notes required for such actions or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent
of the holder of each such Note affected thereby; (v) except as otherwise
permitted under the covenant described in "--Consolidation, Merger, Sale of
Assets," consent to the assignment or transfer by the Company or any
Guarantor of any of its rights and obligations under the Indenture; or (vi)
amend or modify any of the provisions of the Indenture relating to the
ranking of the Notes or any Guarantee thereof in any manner adverse to the
holders of the Notes or any such Guarantee.
Notwithstanding the foregoing, without the consent of any holders of
the Notes, the Company, any Guarantor and the Trustee may modify or amend the
Indenture (a) to evidence the succession of another Person to the Company or
a Guarantor, and the assumption by any such successor of the covenants of the
Company or such Guarantor in the Indenture and in the Notes and in any
Guarantee in accordance with the covenant described in "--Consolidation,
Merger, Sale of Assets;" (b) to add to the covenants of the Company, any
Guarantor or any other obligor upon the Notes for the benefit of the holders
of the Notes or to surrender any right or power conferred upon the Company or
any Guarantor or any other obligor upon the Notes, as applicable, in the
Indenture, in the Notes or in any Guarantee; (c) to cure any ambiguity, or to
correct or supplement any provision in the Indenture, the Notes or any
Guarantee which may be defective or inconsistent with any other provision in
the Indenture, the Notes or any Guarantee or make any other provisions with
respect to matters or questions arising under the Indenture, the Notes or any
Guarantee; provided that, in each case, such provisions shall not adversely
affect the interest of the holders of the Notes; (d) to comply with the
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; (e) to add a
Guarantor under the Indenture, (f) to evidence and provide the acceptance of
the appointment of successor Trustee under the Indenture; or (g) to mortgage,
pledge, hypothecate or grant a security interest in favor of the Trustee for
the benefit of the holders of the Notes as additional security for the
payment and performance of the Company's and any Guarantor's obligations
under the Indenture, in any property, or assets, including any of which are
required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted to the Trustee pursuant to the Indenture
or otherwise.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Governing Law
The Indenture and the Notes are governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
Certain Definitions
Set forth below are certain defined terms used herein and in the
Indenture. Reference is made to the Indenture for a full disclosure of
all such terms, as well as any other capitalized terms used herein for which
no definition is provided.
"Accreted Value" means as of a date of determination prior to August 1,
2001, with respect to any Note, the sum of (a) the initial offering price of
such Note and (b) the portion of the excess of the principal amount of such
Note over such initial offering price which shall have been accreted thereon
through such date, such amount to be so accreted on a daily basis at the rate
of 13 1/2% per annum of the initial offering price of such Note, compounded
semi-annually on each February 1 and August 1 from the Issue Date through the
date of determination, computed on the basis of a 360-day year of twelve 30-
day months. The Accreted Value of any Note on or after August 1, 2001 shall
be 100% of the principal amount thereof.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
the time such Person becomes a Subsidiary or (ii) assumed in connection with
the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary or such acquisition, as the case may be. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes
a Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person
that owns, directly or indirectly, 5% or more of such specified Person's
Capital Stock or any officer or director of any such specified Person or
other Person or, with respect to any natural Person, any person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin or (iii) any other Person 5% or more of the Voting Stock of
which is beneficially owned or held directly or indirectly by such specified
Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized EBITDA to Consolidated Interest Expense" as of any date of
determination means the ratio of (x) the aggregate amount of EBITDA for the
most recent fiscal quarter for which financial information has been filed
with the Commission multiplied by four to (y) Consolidated Interest Expense
for the preceding four quarter period; provided, however, that (i) if the
Company or any Restricted Subsidiary of the Company has incurred any
Indebtedness (including Acquired Indebtedness) that remains outstanding on
the date of such determination, the ratio of Annualized EBITDA to
Consolidated Interest Expense for such period will be calculated after giving
effect on a pro forma basis to (a) such Indebtedness, as if such Indebtedness
had been incurred on the first day of the relevant period (fiscal quarter in
the case of annualized EBITDA and four quarter period in the case of
Consolidated Interest Expense) and (b) the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of the relevant period, (ii) if since the beginning of such fiscal
quarter the Company or any Restricted Subsidiary of the Company has made any
Asset Sale, EBITDA for such fiscal quarter will be (a) reduced by an amount
equal to EBITDA (if positive) directly attributable to the assets which are
the subject of such Asset Sale for such fiscal quarter or (b) increased by an
amount equal to EBITDA (if negative) directly attributable thereto for such
fiscal quarter and (iii) if since the beginning of such period the Company or
any Restricted Subsidiary of the Company (by merger or otherwise) has made an
Investment in any Person which becomes a Restricted Subsidiary of the Company
as a result of such Investment or an Investment in an existing Restricted
Subsidiary with the result that such Investment will result in the
consolidation of a greater percentage of such Restricted Subsidiary's
Consolidated Net Income (Loss) (other than a transfer of operating assets
from the Company or one Restricted Subsidiary to another Restricted
Subsidiary) or has made an acquisition of assets (other than from the Company
or another Restricted Subsidiary of the Company), including any acquisition
of assets occurring in connection with a transaction causing a calculation of
Annualized EBITDA to Consolidated Interest Expense to be made hereunder,
which constitutes all or substantially all of an operating unit of a
business, Annualized EBITDA to Consolidated Interest Expense will be
calculated after giving pro forma effect thereto (including the incurrence of
any Indebtedness (including Acquired Indebtedness)) as if such Investment or
acquisition occurred on the first day of the relevant period. For purposes
of this definition, whenever pro forma effect is to be given to an
acquisition of assets, an Investment, a divestiture or an incurrence of
Indebtedness, the pro forma calculations will be determined in good faith by
a responsible financial or accounting officer of the Company; provided,
however, that such officer shall apply in his calculations the historical
EBITDA and Consolidated Interest Expense associated with such assets for the
most recent relevant period for which financial information is available. If
any Indebtedness (including Acquired Indebtedness) bears a floating rate of
interest and is being given pro forma effect, the interest on such
Indebtedness will be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction) (collectively, a
"transfer"), directly or indirectly, in one or a series of related
transactions, of: (i) any Capital Stock of any Restricted Subsidiary; (ii)
all or substantially all of the properties and assets of any division or line
of business of the Company or its Restricted Subsidiaries; or (iii) any other
properties or assets of the Company or any Restricted Subsidiary other than
in the ordinary course of business. For the purposes of this definition, the
term "Asset Sale" shall not include any transfer of properties and assets
that (A) is governed by the covenant described in "--Consolidation, Merger,
Sale of Assets," (B) is by the Company to any Restricted Subsidiary, or by
any Restricted Subsidiary to the Company or any Wholly Owned Restricted
Subsidiary, (C) is in the form of a contribution to an Unrestricted
Subsidiary which complies with the covenant described in "--Limitations on
Unrestricted Subsidiaries," (D) is of obsolete equipment in the ordinary
course of business, (E) aggregates not more than $250,000 in gross proceeds
or (F) aggregates, when together with all other transfers in any 12-month
period, not more than $2,000,000 in gross proceeds and, when together with
all other transfers since the date of the Indenture, not more than $5,000,000
in gross proceeds.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date
of determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978,
as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Bank Credit Facility" means one or more credit facilities (whether a
term or a revolving facility) of the type customarily entered into with
commercial banks, between the Company or any of its Restricted Subsidiaries,
on the one hand, and any commercial banks, financial institutions or other
lenders, on the other hand (and any renewals, refundings, extensions or
replacements of any such credit facilities; provided that such renewals,
refundings, extensions or replacements comply with this definition of "Bank
Credit Facility"), which Bank Credit Facilities are by their terms designated
as a "Bank Credit Facility" for purposes of the Indenture.
"Capital Lease Obligation" means any obligation of the Company and its
Restricted Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded
as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued
after the date of the Indenture.
"Closing Price" on any Trading Day with respect to the per share price
of any shares of Capital Stock means the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if such shares are not listed or admitted to
trading on any national securities exchange or quoted on such automated
quotation system but the issuer is a Foreign Issuer (as defined in Rule 3b-
4(b) under the Exchange Act) and the principal securities exchange on which
such shares are listed or admitted to trading is a Designated Offshore
Securities Market (as defined in Rule 902(a) under the Securities Act), the
average of the reported closing bid and asked prices regular way on such
principal exchange, or, if such shares are not listed or admitted to trading
on any national securities exchange or quoted on such automated quotation
system and the issuer and principal securities exchange do not meet such
requirements, the average of the closing bid and asked prices in the over-
the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or if at any time after
the execution of the Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act then the body
performing such duties at such time.
"Company" means Wireless One, Inc., a corporation incorporated under
the laws of the State of Delaware, until a successor Person shall have become
such pursuant to the applicable provisions of the Indenture, and thereafter
"Company" shall mean such successor Person.
"Consolidated Income Tax Expense" for any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations of such Person and its Consolidated
Restricted Subsidiaries with respect to such period in accordance with GAAP.
"Consolidated Indebtedness" means, with respect to any Person, as of
any date of determination, the aggregate amount of Indebtedness of such
Person and its subsidiaries (other than, in the case of the Company,
Unrestricted Subsidiaries) as of such date determined on a consolidated basis
in accordance with GAAP and which would appear on the balance sheet of any
such Person.
"Consolidated Interest Expense" means, without duplication, for any
period, the sum of (a) the interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period, on a Consolidated
basis, including, without limitation, (i) amortization of debt discount, (ii)
the net costs associated with Interest Rate Agreements (including
amortization of discounts), (iii) the interest portion of any deferred
payment obligation and (iv) accrued interest, plus (b) the interest component
of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries during such period, in
each case as determined in accordance with GAAP.
"Consolidated Net Income (Loss)" means, for any period, the
Consolidated net income (or loss) of the Company and its Consolidated
Restricted Subsidiaries for such period on a Consolidated basis as determined
in accordance with GAAP, adjusted, to the extent included in calculating such
net income (or loss), by excluding, without duplication, (i) all
extraordinary gains but not losses (less all fees and expenses relating
thereto), (ii) the portion of net income (or loss) of the Company and its
Consolidated Restricted Subsidiaries on a Consolidated basis allocable to
minority interests in unconsolidated Persons and Unrestricted Subsidiaries
except to the extent of the amount of dividends or distributions actually
paid to the Company and its Consolidated Restricted Subsidiaries, (iii) net
income (or loss) of any Person combined with the Company and its Consolidated
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (v) net
gains (but not losses) (less all fees and expenses relating thereto) in
respect of dispositions of assets other than in the ordinary course of
business and (vi) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,.
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Worth," as of a date, means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock) of the Company and
its Consolidated Restricted Subsidiaries, as of such date, as determined in
accordance with GAAP.
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person and each of its subsidiaries (other than, in the
case of the Company, Unrestricted Subsidiaries) if and to the extent the
accounts of such Person and each of its subsidiaries (other than, in the case
of the Company, Unrestricted Subsidiaries) would normally be consolidated
with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense from June 30, 1996 to the end of
the Company's most recently ended full fiscal quarter date for which
financial statements are available prior to such, taken as a single
accounting period.
"Cumulative Operating Cash Flow" means, as of any date of
determination, Operating Cash Flow from June 30, 1996 to the end of the
Company's most recently ended full fiscal quarter for which financial
statements are available prior to such date, taken as a single accounting
period.
"Debt" or "Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities arising in the ordinary course
of business, but including, without limitation, all obligations, contingent
or otherwise, of such Person in connection with any letters of credit issued
under letter of credit facilities, acceptance facilities or other similar
facilities and in connection with any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such
Person, or any warrants, rights or options to acquire such Capital Stock, now
or hereafter outstanding, (ii) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (iii) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements of such Person, (v) all Capital
Lease Obligations of such Person, (vi) all Indebtedness referred to in
clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien, upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness, (vii) all Guaranteed Debt of such Person, (viii) all Redeemable
Capital Stock issued by such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
and (ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any liability of the types referred to
in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant
to the Indenture, and if such price is based upon, or measured by, the Fair
Market Value of such Redeemable Capital Stock, such Fair Market Value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Debt to Operating Cash Flow Ratio" means, as of any date of
determination, the ratio of (a) the aggregate principal amount of all
outstanding Consolidated Indebtedness of the Company and its Restricted
Subsidiaries as of such date plus, without duplication, the aggregate
liquidation preference or redemption amount of all Redeemable Capital Stock
of the Company (excluding any such Redeemable Capital Stock held by the
Company or a Wholly Owned Restricted Subsidiary of the Company), to (b)
Operating Cash Flow of the Company and its Restricted Subsidiaries on a
Consolidated basis for the most recently ended fiscal quarter for which
financial statements are available prior to such date multiplied by four,
determined on a pro forma basis (and after giving pro forma effect to (i) the
incurrence of such Indebtedness and (if applicable) the application of the
net proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was incurred, and the application of such proceeds occurred, at
the beginning of such period; (ii) the incurrence, repayment or retirement of
any other Indebtedness by the Company and its Restricted Subsidiaries since
the first day of such period as if such Indebtedness was incurred, repaid or
retired at the beginning of such period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average balance of such Indebtedness at the
end of each month during such period); (iii) in the case of Acquired
Indebtedness, the related acquisition as if such acquisition had occurred at
the beginning of such period; and (iv) any acquisition or disposition by the
Company and its Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, or any related repayment of
Indebtedness, in each case since the first day of such period, assuming such
acquisition or disposition had been consummated on the first day of such
four-quarter period).
"Default" means any event which is, or after notice or passage of any
time or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions.
"EBITDA" for any period means the Consolidated Net Income (Loss) for
such period plus the following to the extent deducted in calculating such
Consolidated Net Income (Loss): (i) Consolidated Income Tax Expense, (ii)
Consolidated Interest Expense, (iii) depreciation and amortization expense
determined on a consolidated basis for such Person and its Consolidated
Restricted Subsidiaries in accordance with GAAP for such period and (iv) all
other non-cash charges (other than non-cash charges which require an accrual
of or reserve for cash charges in future periods), and less any non-cash
items which have the effect of increasing (decreasing in the case of a loss)
Consolidated Net Income (Loss) for such period.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A" (or higher) according to S&P or
Moody's at the time as of which any investment or rollover therein is made.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's
Indenture Obligations.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of
Indebtedness guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such Indebtedness or to assure the holder of such Indebtedness against loss,
(iii) to supply funds to, or in any other manner invest in, the debtor
(including any agreement to pay for property or services without requiring
that such property be received or such services be rendered), (iv) to
maintain working capital or equity capital of the debtor, or otherwise to
maintain the net worth, solvency or other financial condition of the debtor
or (v) otherwise to assure a creditor against loss; provided that the term
"guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Guarantor" means any Restricted Subsidiary that is required after the
date of the Indenture to execute a guarantee of the Notes pursuant to the "--
Limitation on Issuance of Guarantees of Indebtedness" covenant until a
successor replaces such Restricted Subsidiary pursuant to the applicable
provisions of the Indenture and, thereafter, shall mean such successor.
"Indenture Obligations" means the obligations of the Company and any
other obligor under the Indenture or under the Notes, including any
Guarantor, to pay principal of, premium, if any, and interest when due and
payable, and all other amounts due or to become due under or in connection
with the Indenture, the Notes and the performance of all other obligations to
the Trustee and the holders under the Indenture and the Notes, according to
the respective terms thereof.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into with one or more financial
institutions: interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar
agreements) and/or other types of interest rate hedging agreements from time
to time.
"Investment" means, with respect to any Person, directly or indirectly,
(a) any advance, loan (including guarantees) or other extension of credit or
capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned
by any other Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP and (b) any
acquisition of property and assets by such Person.
"Issue Date" means the date on which Notes are first authenticated and
issued.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation, claim, preference, priority or other
encumbrance upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention agreement, any
leases in the nature thereof and any agreement to give any security
interest), real or personal, movable or immovable, now owned or hereafter
acquired.
"Material Restricted Subsidiary" means any Restricted Subsidiary which
would be a "significant subsidiary" of the Company as defined in Rule 1-02 of
Regulation S-X under the Securities Act.
"Maturity" means, when used with respect to the Notes, the date on
which the principal of the Notes becomes due and payable as therein provided
or as provided in the Indenture, whether at Stated Maturity, the Offer Date
or the redemption date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds, Change of Control Offer in respect of a Change of
Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof in the form of cash or Temporary Cash
Investments including payments in respect of deferred payment obligations
when received in the form of, or stock or other assets when disposed of for,
cash or Temporary Cash Investments (except to the extent that such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary) net of (i) brokerage commissions and other reasonable
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes payable as
a result of such Asset Sale, (iii) payments made to retire Indebtedness where
payment of such Indebtedness is secured by the assets or properties the
subject of such Asset Sale, (iv) amounts required to be paid to any Person
(other than the Company or any Restricted Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (v) appropriate amounts
to be provided by the Company or any Restricted Subsidiary, as the case may
be, as a reserve, in accordance with GAAP, against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected
in an Officers' Certificate delivered to the Trustee and (b) with respect to
any issuance or sale of Indebtedness or Capital Stock, as applicable, as
referred to under the definition of Permitted Investment and in "--Limitation
on Restricted Payments," "--Limitation on Indebtedness" and under "--Optional
Redemption," the proceeds of such issuance or sale in the form of cash or
Temporary Cash Investments, net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Operating Cash Flow" means, for any period, the Consolidated Net
Income (Loss) of the Company and its Consolidated Restricted Subsidiaries for
such period, plus, without duplication, (a) extraordinary net losses and net
losses on sales of assets outside the ordinary course of business during such
period, to the extent such losses were deducted in computing Consolidated Net
Income (Loss), plus (b) Consolidated Income Tax Expense, and any provision
for taxes utilized in computing the net losses under clause (a) hereof, plus
(c) Consolidated Interest Expense of the Company and its Restricted
Subsidiaries for such period, plus (d) depreciation, amortization and all
other non-cash charges, to the extent such depreciation, amortization and
other non-cash charges were deducted in computing such Consolidated Net
Income (Loss) (including amortization of goodwill and other intangibles).
"Opinion of Counsel" means any opinion in writing signed by legal
counsel, who may be an employee of or of counsel to the Company, or who may
be other counsel reasonably satisfactory to the Trustee.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.
"Permitted Investment" means (i) Investments in any existing Restricted
Subsidiary; (ii) Indebtedness of the Company or a Restricted Subsidiary
described under clauses (v), (vi) and (vii) of the definition of "Permitted
Indebtedness"; (iii) Temporary Cash Investments; (iv) Investments acquired by
the Company or any Restricted Subsidiary in connection with an Asset Sale
permitted under the covenant described in "--Limitation on Sale of Assets" to
the extent such Investments are non-cash proceeds as permitted under such
covenant; (v) Investments in existence on the date of the Indenture; (vi) any
acquisition of equipment in the ordinary course of business; (vii) any
acquisition of property and assets (other than channel rights) for a purchase
price of not more than $50,000; (viii) any Investment in the Wireless Cable
Business acquired in consideration for the issuance of Common Stock, or
provided that no Default or Event of Default shall have occurred and be
continuing and such Permitted Investment shall not be an event which is, or
after notice or lapse of time or both, would be "an event of default" under
the terms of any Indebtedness of the Company or its Restricted Subsidiaries,
the proceeds of the issuance of Common Stock to the extent such amounts have
not been previously applied to a Restricted Payment; provided further that
the amount available for Investment out of such proceeds shall be reduced
(but not below zero) by the quotient of (A) the Net Cash Proceeds of
Indebtedness incurred by the Company or any of its Restricted Subsidiaries
under clauses (xi) and (xii) of the "--Limitation on Indebtedness" covenant
divided by (B) $1.50; (ix) any acquisition or lease of additional channel
rights in markets listed in an annex to the Indenture or in which the Company
and its Restricted Subsidiaries (A) as of the date of the Indenture, have
channel rights, whether by way of license, lease with a channel license
holder, lease with a channel license applicant, lease with a qualified, non-
profit educational organization that plans to apply for a channel license or
option to acquire any of the foregoing or (B) as of the date of such
acquisition or lease (without giving effect to such acquisition), have rights
with respect to at least eight wireless cable channels, whether by way of
license, lease with a channel license holder, lease with a channel license
applicant, lease with a qualified, non-profit educational organization that
plans to apply for a channel license or option to acquire any of the
foregoing; (x) Investments consisting of any acquisition or lease of
additional channel rights in one or more Wireless One Service States or any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person engaged in the Wireless Cable Business if as a result of such
Investment (A) such Person becomes a Restricted Subsidiary of the Company or
(B) such Person, in one transaction or a series of related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary; provided that (1) there are a maximum of 250,000
households within a 35-mile radius of the licensed transmission site
associated with such channel rights or such Person, as the case may be, of
which at least 15% are unpassed by traditional hard-wire cable (as supported
by an Officers' Certificate); (2) if such Person conducts operations outside
the Wireless One Service States, the Company shall deliver to the Trustee an
Officers' Certificate that allocates a portion of the dollar amount of such
Investment to the operations outside the Wireless One Service States and such
amount shall not quality as a Permitted Investment and (3) the aggregate
amount of such cash Investments in respect of all such channel rights and all
such Persons shall not exceed $20,000,000, and (xi) Investments by the
Company or any Restricted Subsidiary in a joint venture which is formed to
provide wireless cable television service in North Carolina in part via ITFS
channels leased from community colleges in North Carolina, provided that such
Investments do not in the aggregate exceed $15,000,000.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over the Capital Stock of any other class in such Person.
"Qualified Capital Stock" of any Person means any and all Capital Stock
of such Person other than Redeemable Capital Stock.
"Qualified Subordinated Indebtedness" means Subordinated Indebtedness
issued to a Strategic Investor the terms of which include (i) the terms set
forth in clause (x) of the definition of Permitted Indebtedness in the
covenant "--Limitation on Indebtedness," (ii) asset sale provisions and
change of control provisions no more restrictive in any respect than those
contained in the Indenture, (iii) optional redemption or repurchase
provisions that are not effective until the day succeeding the final Maturity
date of the Notes, (iv) provisions that no part of such Subordinated
Indebtedness shall have any claim to the assets of the Company on a parity
with or prior to the claim of the Notes, (v) provisions that unless and until
the Notes have been paid in full, without the express prior written consent
of the holders of a majority in aggregate principal amount of the Notes, no
holder of such Subordinated Indebtedness will take, demand or receive from
the Company, and the Company will not make, give or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner, any
payment of or security for the whole or any part of the Subordinated
Indebtedness, including, without limitation, any letter of credit or similar
credit support facility to support payment of such Subordinated Indebtedness
and (vi) covenants from the holder of such Subordinated Indebtedness that
such holder will not, without the written consent of the holders of a
majority in aggregate principal amount of the Notes, (A) sell, assign or
otherwise transfer its rights in respect of such Subordinated Indebtedness to
any Person who does not agree to be bound by clauses (B) and (C), (B) permit
any of the documentation relating to the subordination of such Subordinated
Indebtedness to be amended and (C) commence, or join with any creditors other
than the Trustee or the Noteholders, in commencing any bankruptcy, insolvency
or similar proceeding with respect to the Company or any of its Restricted
Subsidiaries.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to any Stated Maturity of the
principal of the Notes or is redeemable at the option of the holder thereof
at any time prior to any Stated Maturity of the Notes, or is convertible into
or exchangeable for debt securities at any time prior to any Stated Maturity
of the Notes at the option of the holder thereof.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Restricted Subsidiary
sells or transfers any property or asset in connection with the leasing, or
the resale against installment payments, of such property or asset to the
seller or transferor.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of interest, as the case may be, is due and payable.
"Strategic Investor" means any Person (i) engaged in the
Telecommunications Business that as of the date of determination has a Total
Equity Market Capitalization of at least $500,000,000 or (ii) any
corporation, partnership, joint venture, limited liability company or similar
entity of which a shareholder, general partner, joint venturer or member with
more than 50% of the capital accounts, distribution rights, total equity and
voting interests or general or limited partnership interests, as applicable,
are owned or controlled, directly or indirectly, by a Person that satisfies
clause (i) of this definition; provided that clause (ii) of this definition
may be satisfied by any group of shareholders, general partners, joint
venturers or members so long as (a) each Person included in such group
satisfies clause (i), (b) at least one member in such group owns or controls,
directly or indirectly, 35% or more of the capital accounts, distribution
rights, total equity and voting rights or general or limited partnership
interests of such Strategic Investor, (c) no more than five Persons may be
included in such group and (d) the shareholders, general partners, joint
venturers or members to be included in such group shall act as a group and in
concert.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Guarantor subordinated in right of payment to the Notes or the Guarantee of
such Guarantor, as the case may be.
"Subsidiary" means any Person, a majority of the equity ownership or
the Voting Stock of which is at the time owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries.
"Telecommunications Business" means, when used in reference to any
Person, that such Person, directly or indirectly, is engaged primarily in the
business of (i) transmitting video, voice or data, (ii) creating, developing
or packaging entertainment or communication programming, (iii) offering of
private telephony services or (iv) evaluating, participating or pursuing any
other activity or opportunity that is related to those identified in (i),
(ii) or (iii) above.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than
one year after the date of acquisition, issued by, or time deposit of, a
commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less
than $500,000,000, whose debt has a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-
1" (or higher) according to S&P, (iii) commercial paper, maturing not more
than one year after the date of acquisition, issued by a corporation (other
than an Affiliate or Subsidiary of the Company) organized and existing under
the laws of the United States of America with a rating, at the time as of
which any investment therein is made, of "P-1" according to Moody's or "A-1"
according to S&P and (iv) any money market deposit accounts issued or offered
by a domestic commercial bank having capital and surplus in excess of
$500,000,000; provided that the short term debt of such commercial bank has a
rating at the time of Investment, of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P.
"Total Equity Market Capitalization" of any Person means, as of any
date of determination, the product of (i) the aggregate number of outstanding
shares of common stock of such Person on such date (which shall not include
any options or warrants on, or securities convertible or exchangeable into,
shares of common stock of such Person) and (ii) the average Closing Price of
such common stock over the 20 consecutive Trading Days immediately preceding
such date. If no such Closing Price exists with respect to shares of any
such class, the value of such shares shall be determined by the Company's
Board of Directors in good faith and evidenced by a resolution of the Board
of Directors of the Company filed with the Trustee.
"Trading Day" with respect to a securities exchange or automated
quotation system means a day on which such exchange or system is open for a
full day of trading.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
the Company may designate any Subsidiary of the Company (including any newly-
acquired or newly-formed Subsidiary) to be an Unrestricted Subsidiary if all
of the following conditions apply: (a) such Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness and (b) any Investment in such
Subsidiary made as a result of designating such Subsidiary an Unrestricted
Subsidiary shall not violate the provisions of the covenant described in "--
Limitation on Unrestricted Subsidiaries." Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing with
the Trustee a board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complies with the
foregoing conditions. The Board of Directors of the Company may designate
any Unrestricted Subsidiary as a Restricted Subsidiary; provided that
immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to the restrictions under the covenant described in "--Limitation on
Indebtedness."
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary
means Indebtedness of such Unrestricted Subsidiary (i) as to which neither
the Company nor any Restricted Subsidiary is directly or indirectly liable
(by virtue of the Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect for, such
Indebtedness), except Guaranteed Debt of the Company or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of such
Guaranteed Debt resulted in a Restricted Payment at the time of incurrence)
the Company shall be deemed to have made a Restricted Payment equal to the
principal amount of any such Indebtedness to the extent guaranteed at the
time such Affiliate is designated an Unrestricted Subsidiary and (ii) which,
upon the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Indebtedness of the Company or any Restricted
Subsidiary (other than a Bank Credit Facility incurred pursuant to clause (i)
of the second paragraph of the covenant described in "--Limitation on
Indebtedness") to declare a default on such Indebtedness of the Company or
any Restricted Subsidiary or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity.
"U.S. Government Securities" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act) as custodian with respect to any such
U.S. government obligation or a specific payment of principal of or interest
on any such U.S. government obligation held by such custodian for the account
of the holder of such depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. government obligation or the
specific payment of principal of or interest on the U.S. government
obligation evidenced by such depository receipt.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of a corporation (irrespective of whether or not at the
time Capital Stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which is owned by the Company or another Wholly Owned
Restricted Subsidiary.
"Wireless Cable Business" means, when used in reference to any Person,
that such Person, directly or indirectly, is engaged primarily in the
business of (i) transmitting video, voice or data primarily through wireless
transmission facilities, (ii) utilizing wireless cable channels for any
commercial purpose permitted by the FCC, (iii) creating, developing and
packaging programming that may be used to satisfy educational programming
requirements for ITFS channels and advertising, that, in either case, is
transmitted over one or more of the Company's wireless cable channels or (iv)
evaluating, participating or pursuing any other activity or opportunity that
is related to those identified in (i), (ii) or (iii) above.
"Wireless Cable Related Assets" means all assets, rights (contractual
or otherwise) and properties, whether tangible or intangible, used in
connection with a Wireless Cable Business, and the Voting Stock of any entity
which is to become a Wholly Owned Restricted Subsidiary and is engaged
exclusively in the Wireless Cable Business.
"Wireless One Service States" means the states of Texas, Louisiana,
Mississippi, Tennessee, Alabama, Georgia, Arkansas, North Carolina, Florida,
South Carolina and Kentucky.
Book-Entry, Delivery and Form
The Notes are represented by a permanent global Note, which is
deposited with The Depositary Trust Company (the "Depositary") and registered
in the name of a nominee of the Depositary. Except under the limited
circumstances described below, permanent global Notes will not be
exchangeable for definitive certificated Notes.
Ownership of beneficial interests in a permanent global Note is limited
to institutions that have accounts with the Depositary or its nominee
("participants") or persons that may hold interests through participants. In
addition, ownership of beneficial interests by participants in such permanent
global Note is evidenced only by, and the transfer of that ownership interest
will be effected only through, records maintained by the Depositary or its
nominee for such permanent global Note. Ownership of beneficial interests in
such permanent global Note by persons that hold through participants is
evidenced only by, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The Depositary has no knowledge of the actual beneficial owners
of the Notes. Beneficial owners will not receive written confirmation from
the Depositary of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well
as periodic statements of their holdings, from the participants through which
the beneficial owners entered the transaction. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the
ability to transfer beneficial interests in such permanent global Note.
Payment of principal of, and interest on, Notes represented by a
permanent global Note registered in the name of or held by the Depositary or
its nominee will be made to the Depositary or its nominee, as the case may
be, as the registered owner and holder of the permanent global Note
representing such Notes. The Company has been advised by the Depositary that
upon receipt of any payment of principal of, or interest on, a permanent
global Note, the Depositary will immediately credit, on its book-entry
registration and transfer system, accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of such permanent global Note as shown in the records of the
Depositary. Payments by participants to owners of beneficial interests in a
permanent global Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the sole responsibility of such participants,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
None of the Company, the Trustee or any other agent of the Company or
the Trustee will have any responsibility or liability for any aspect of the
records of the Depositary, any nominee or any participant relating to, or
payments made on account of, beneficial interests in a permanent global Note
or for maintaining, supervising or reviewing any of the records of the
Depositary, any nominee or any participant relating to such beneficial
interests.
A permanent global Note is exchangeable for definitive Notes registered
in the name of, and a transfer of a permanent global Note may be registered
to, any person other than the Depositary or its nominee, only if:
(a) the Depositary notifies the Company that it is unwilling or
unable to continue as depositary for such permanent global Note
or if any time the Depositary ceases to be a clearing agency
registered under the Exchange Act;
(b) the Company in its sole discretion determines that such permanent
global Note shall be exchangeable for definitive Notes in
registered form; or
(c) there shall have occurred and be continuing an Event of Default
under the Notes.
Any permanent global Note that is exchangeable pursuant to the
preceding sentence will be exchangeable in whole for definitive Notes in
registered form, of like tenor and of an equal aggregate principal amount as
the permanent global Note, in denominations of $1,000 and integral multiples
thereof. Such definitive Notes will be registered in the name or names of
such persons as the Depositary shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the
Depositary from its participants with respect to ownership of beneficial
interests in such permanent global Note. With respect to definitive Notes,
any principal and interest will be payable, the transfer of the definitive
Notes will be registerable and the definitive Notes will be exchangeable at
the office of the Trustee in New York, New York, provided that payment of
interest may be made at the option of the Company by check mailed to the
address of the person entitled thereto and as shown on the register for the
Notes.
Except as provided above, owners of beneficial interests in such
permanent global Note will not be entitled to receive physical delivery of
Notes in definitive form and will not be considered the holders thereof for
any purpose under the Indenture, and no permanent global Note shall be
exchangeable except for another permanent global Note of like denomination
and tenor to be registered in the name of the Depositary or its nominee.
Accordingly, each person owning a beneficial interest in such permanent
global Note must rely on the procedures of the Depositary and, if such person
is not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder of the Notes (a
"Holder") under the permanent global Note.
The Company understands that, under existing industry practices, in the
event that the Company requests any action of Holders, or an owner of a
beneficial interest in such permanent global Note desires to give or take any
action that a Holder is entitled to give or take under the Notes, the
Depositary would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such
action or would otherwise act upon the instructions of beneficial owners
owning through them.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold
securities of its participants and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. The
Depositary is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary's book-
entry system is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly. The rules applicable to the
Depositary and its participants are on file with the Commission.
Same-Day Settlement and Payment
Settlement for the Notes will be made in immediately available funds.
So long as the Notes are represented by a permanent global Note or Notes,
all payments of principal, premium, if any, and interest will be made by the
Company in immediately available funds.
Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. So long as
the Notes are represented by a permanent global Note or Notes registered in
the name of the Depositary or its nominee, the Notes will trade in the
Depositary's Same-Day Funds Settlement System, and secondary market trading
activity in the Notes will therefore be required by the Depositary to settle
in immediately available funds. No assurance can be given as to the effect,
if any, of settlement in immediately available funds on the trading activity
in the Notes.
DESCRIPTION OF WARRANTS
The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and United States Trust Company of New York,
as warrant agent (the "Warrant Agent"). The following summary of certain
provisions of the Warrant Agreement and the Warrants does not purport to be
complete and is qualified in its entirety by reference to the Warrant
Agreement and the Warrants, including the definitions therein of certain
terms. As used in this Section, the term "Company" refers only to Wireless
One, Inc. and not to its subsidiaries.
General
Each Warrant, when exercised, will entitle the holder thereof to
receive 2.274 shares of Common Stock of the Company at an exercise price of
$16.6375 per share (the "Exercise Price"). The Exercise Price and the number
of Warrant Shares issuable on exercise of a Warrant are both subject to
adjustment in certain cases. See "- Adjustments" below. The Warrants are
exercisable at any time on or after one year from the date of issuance.
Unless exercised, the Warrants will automatically expire on August 12, 2001
(the "Expiration Date"), which is not subject to extension by the Company.
The Company will give notice of expiration not less than 90 nor more than 120
days prior to the Expiration Date to the registered holders of the then
outstanding Warrants. If the Company does not give such notice, the Warrants
will still terminate and become void on the Expiration Date. The Warrants
will entitle the holders thereof to purchase in the aggregate 544,059 shares
of Common Stock of the Company, or approximately 3% of the outstanding Common
Stock of the Company. The Company has agreed that for a period of four years
commencing on the first anniversary of the date of issuance of the Warrants
it will maintain the effectiveness of a registration statement with respect
to the issuance of the Company's Common Stock from time to time upon exercise
of the Warrants.
The Warrants may be exercised by surrendering to the Company the
Warrant certificates evidencing such Warrants, if any, with the accompanying
form of election to purchase, properly completed and executed, together with
payment of the Exercise Price. The Exercise Price of the Warrants is
$16.6375 per share. On April 25, 1997, the last reported sales price of the
Common Stock on the Nasdaq National Market was $3.375 per share. Payment of
the Exercise Price may be made in the form of cash or a certified or official
bank check payable to the order of the Company. Upon surrender of the
Warrant certificate and payment of the Exercise Price, the Warrant Agent will
deliver or cause to be delivered, to or upon the written order of such
holder, stock certificates representing the number of whole Warrant Shares
or other securities or property to which such holder is entitled under the
Warrants and Warrant Agreement, including, without limitation, any cash
payable to adjust for fractional interests in Warrant Shares issuable upon
such exercise. If less than all of the Warrants evidenced by a Warrant
certificate are to be exercised, a new Warrant certificate will be issued
for the remaining number of Warrants.
No fractional Warrant Share will be issued upon exercise of the
Warrants. If any fraction of a Warrant Share would, except for the foregoing
provision, be issuable upon the exercise of any Warrants (or specified
portion thereof), the Company will pay an amount in cash equal to the current
market price per Warrant Share, as determined on the date immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction, computed to the nearest whole cent.
Certificates for Warrants will be issued in global form or registered
form as definitive warrant certificates and no service charge will be made
for registration of transfer or exchange upon surrender of any Warrant
certificate at the office of the Warrant Agent maintained for that purpose.
The Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration
or transfer or exchange of Warrant certificates.
The holders of the Warrants have no right to vote on matters submitted
to the stockholders of the Company and have no right to receive cash
dividends. The holders of the Warrants are not entitled to share in the
assets of the Company in the event of the liquidation, dissolution or winding
up of the Company's affairs.
Adjustments
The number of Warrant Shares purchasable upon the exercise of the
Warrants and the Exercise Price will both be subject to adjustment in certain
events including: (i) the payment by the Company of dividends (or other
distributions) on the Common Stock of the Company payable in shares of such
Common Stock or other shares of the Company's capital stock, (ii)
subdivisions, combinations and reclassifications of the Common Stock, (iii)
the issuance to all holders of the Common Stock of rights, options or
warrants entitling them to subscribe for shares of the Common Stock, or of
securities convertible into or exchangeable for shares of the Common Stock or
additional shares of Common Stock, for a consideration per share which is
less than the current market price per share (as defined in the Warrant
Agreement) of the Common Stock and (iv) the distribution to all holders of
the Common Stock of any of the Company's assets, debt securities or any
rights or warrants to purchase securities (excluding those rights and
warrants referred to in clause (iii) above and excluding cash dividends or
other cash distributions from current or retained earnings). In addition,
the Exercise Price may be reduced in the event of purchase of shares of the
Common Stock pursuant to a tender or exchange offer made by the Company or
any subsidiary thereof at a price greater than the sale price of the Common
Stock at the time such tender or exchange offer expires.
No adjustment in the Exercise Price will be required unless such
adjustment would require an increase or decrease of at least one percent (1%)
in the Exercise Price; provided, however, that any adjustment which is not
made will be carried forward and taken into account in any subsequent
adjustment.
In case of certain reclassifications, redesignations, reorganizations
or changes in the number of outstanding shares of Common Stock or
consolidations or mergers of the Company or the sale of all or substantially
all of the assets of the Company, each Warrant shall thereafter be
exercisable for the right to receive the kind and amount of shares of stock
or other securities or property to which such holder would have been entitled
as a result of such consolidation, merger or sale had the Warrants been
exercised immediately prior thereto.
Reservation of Shares
The Company has authorized and reserved for issuance such number of
shares of Common Stock as shall be issuable upon the exercise of all
outstanding Warrants. Such shares of Common Stock, when paid for and issued,
will be duly and validly issued, fully paid and non-assessable, free of
preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issue thereof.
Amendment
From time to time, the Company and the Warrant Agent, without the
consent of the holders of the Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including, without limitation, curing defects
or inconsistencies or making any change that does not adversely affect the
rights of any holder. Any amendment or supplement to the Warrant Agreement
that has an adverse effect on the interests of the holders of the Warrants
shall require the written consent of the holders of a majority of the then
outstanding Warrants. The consent of each holder of the Warrants affected
shall be required for any amendment pursuant to which the Exercise Price
would be increased or the number of Warrant Shares purchasable upon exercise
of Warrants would be decreased (other than pursuant to adjustments provided
in the Warrant Agreement).
Reports
Whether or not required by the rules and regulations of the Commission,
as long as any of the Warrants remain outstanding, but only to the extent it
is required to send such documents to the holders of its outstanding Common
Stock, the Company shall cause copies of the reports and other documents
described under "Description of Notes - Certain Covenants -- Provision of
Financial Statements" to be filed with the Warrant Agent and mailed to the
holder at their addresses appearing in the register of Warrants maintained by
the Warrant Agent.
Book-Entry Procedures
The Depositary will act also as securities depository for the Warrants.
On the Separation Date, one global certificate representing the entire issue
of Warrants will be issued and registered in the name of Cede & Co. and such
global certificate will be deposited with the Depositary or its custodian.
Purchases of, and transfers of beneficial ownership interests in,
Warrants will be effected through the Depositary system in the same manner as
for the Notes, except that prior to the Separation Date, any transfer of
beneficial ownership interests in a Note will also constitute transfer of the
beneficial ownership interests in the related Warrants. See "Description of
Notes - Book-Entry, Delivery and Form." Beneficial owners will not receive
certificates representing their ownership interests in Warrants except in the
event that use of the book-entry system for the Warrants is discontinued.
The Depositary has no knowledge of the actual beneficial owners of the
Warrants; the Depositary's records reflect only the identity of the
participants to whose accounts such Warrants are credited, which may or may
not be the beneficial owners. Participants in the Depositary's system will
remain responsible for keeping account of their holdings on behalf of their
customers.
Because the Depositary can act only on behalf of direct participants,
who in turn act on behalf of indirect participants, the ability of a holder
of Warrants to pledge Warrants to persons or entities that do not participate
in the Depositary's system, or otherwise to act with respect to such Warrants
may be limited due to the lack of a physical certificate for such Warrants.
Conveyance of notices and other communications by the Depositary to
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect
to any Warrants. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the Company as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those participants
to whose accounts the Warrants are credited on the record date (identified in
a listing attached to the Omnibus Proxy).
In order to exercise a Warrant, the beneficial owner of the Warrant
shall give notice to elect to exercise such Warrant, through its direct or
indirect participant, to the Warrant Agent, and shall effect delivery of the
Warrant certificate evidencing such Warrant by causing the direct participant
to transfer its interest in such Warrant on the Depositary's records, to the
Warrant Agent. The requirements for physical delivery of Warrant
certificates in connection with an exercise request will be deemed satisfied
when the ownership rights in the Warrants are transferred by direct
participants on the Depositary's records.
The Depositary may discontinue providing its services as securities
depository with respect to the Warrants at any time by giving reasonable
notice to the Company. The Company may decide to discontinue use of the
system of book-entry transfers through the Depositary (or a successor
securities depository). Under such circumstances, in the event that a
successor securities depository is not obtained, or if the Depository (or its
successor) ceases to be a clearing agency registered under the Exchange Act,
Warrant certificates will be printed and delivered.
Registration Rights
In connection with the 1996 Unit Offering, the Company agreed to
maintain the effectiveness of a registration statement covering the shares of
Common Stock issuable from time to time upon the exercise of the Warrants for
a period of four years commencing with the first anniversary of the issuance
of the Warrants.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock and (ii) 10,000,000 shares of Preferred Stock, $0.01
par value (the "Preferred Stock").
The statements under this caption are brief summaries, do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, the more complete descriptions contained in the Certificate of
Incorporation and By-laws which are incorporated by reference as exhibits to
the Registration Statement of which this Prospectus is a part.
Common Stock
Holders of Common Stock are entitled to one vote per share on all
matters on which the holders of Common Stock are entitled to vote and do not
have any cumulative voting rights. Subject to the prior rights of the
holders of any Preferred Stock, holders of Common Stock are entitled to
receive such dividends as may from time to time be declared by the Board of
Directors of the Company out of funds legally available therefor. Holders of
Common Stock have no preemptive, conversion, redemption or sinking fund
rights. In the event of a liquidation, dissolution or winding-up of the
Company, holders of Common Stock are entitled to share ratably in the assets
of the Company which are legally available for distribution, if any,
remaining after the payment of all debts and liabilities of the Company and
the liquidation preference of any outstanding series of Preferred Stock. The
rights, preferences and privileges of holders of Common Stock are subject to
any class or series of Preferred Stock which the Company may issue in the
future.
The Common Stock is quoted and traded on the Nasdaq Stock Market
National Market under the symbol "WIRL." The transfer agent and registrar
for the Common Stock is First Chicago Trust Company of New York.
Preferred Stock
The Board of Directors is authorized to issue Preferred Stock in
classes or series and to fix the designations, preferences, qualifications,
limitations, or restrictions of any class or series with respect to the rate
and nature of dividends, the price and terms and conditions on which shares
may be redeemed, the amount payable in the event of voluntary or involuntary
liquidation, the terms and conditions for conversion or exchange into any
other class or series of stock, voting rights and other terms.
Certain Effects of Authorized but Unissued Stock
Under the Certificate of Incorporation, there are approximately 30
million shares of Common Stock and 10 million shares of Preferred Stock
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital or to facilitate corporation
acquisitions.
One of the effects of the existence of unissued and unreserved Common
Stock and Preferred Stock may be to enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of the Company's management. Such additional shares also
could be used to dilute the stock ownership of persons seeking to obtain
control of the Company.
The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and
restrictions of the unissued Preferred Stock. The purpose of authorizing the
Board of Directors to determine such rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances. The Board
of Directors may issue Preferred Stock with voting and conversion rights
which could adversely affect the voting power of the holders of Common Stock,
and which could, among other things, have the effect of delaying, deterring
or preventing a change in control of the Company.
The Company does not currently have any plans to issue additional
shares of Common Stock or Preferred Stock other than shares of Common Stock
which may be issued upon the exercise of the 1995 Warrants, the GKM Warrants,
the 1996 Warrants or options which have been granted or which may be granted
in the future to the Company's employees or Directors.
Certain Provisions of the Certificate of Incorporation and By-laws
The Certificate of Incorporation provides that the Company shall
indemnify each officer and director of the Company to the fullest extent
permitted by applicable law, except as may be otherwise provided in the By-
laws. In furtherance thereof, the Board of Directors is expressly authorized
to amend the By-laws to give full effect to any changes in applicable law,
notwithstanding possible self-interest of the directors in the action being
taken. The Certificate of Incorporation also provides that, to the fullest
extent permitted by the DGCL, a director of the Company shall not be liable
to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director to the Company or its stockholders. Such
limitation does not affect the liability of a director (i) for any
transaction from which the director derives an improper personal benefit,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) for improper payment of
dividends or redemption of shares or (iv) for any breach of a director's duty
of loyalty to the Company or its stockholders.
As described below, the Certificate of Incorporation and By-laws
contain certain provisions that are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of
Directors and which may have the effect of delaying, deterring or preventing
a future takeover or change in control of the Company unless such takeover or
change in control is approved by the Company's Board of Directors. Such
provisions may also render the removal of the directors and management more
difficult.
Pursuant to the Certificate of Incorporation, the Board of Directors of
the Company is divided into three classes serving staggered three-year terms.
Directors can be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of capital stock of the Company entitled to vote generally
in the election of directors, voting together as a single class. Vacancies
on the Board of Directors may only be filled by the affirmative vote of the
majority of the remaining directors or by a sole remaining director and not
by the stockholders, except that in the case of newly created directorships,
if the remaining directors fail to fill any such vacancy, the stockholders
may do so at the next annual or special meeting called for the purpose of
election of directors.
The By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to certain matters to be
brought before an annual meeting of stockholders of the Company. In general,
notice must be received by the Company not less than 130 days prior to the
meeting and must contain certain specified information concerning the person
to be nominated or the matter to be brought before the meeting and concerning
the stockholder submitting the proposal.
Special meetings of stockholders may be called only by the Chairman of
the Board, the President of the Company or the Board of Directors. The
Certificate of Incorporation provides that stockholders may act only at an
annual or special meeting and stockholders may not act by written consent.
The Certificate of Incorporation provides that the affirmative vote of the
holders of at least 80% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain
provisions of the Certificate of Incorporation. This requirement of a super-
majority vote to approve amendments to the Certificate of Incorporation could
enable a minority of the Company's stockholders to exercise veto powers over
such amendments.
Registration Rights
In connection with the 1996 Unit Offering, the Company agreed to
maintain the effectiveness of a registration statement covering the shares of
Common Stock issuable from time to time upon the exercise of the Warrants for
a period of four years commencing with the first anniversary of the issuance
of the Warrants. The Company entered into a similar agreement with respect
to the shares underlying the 1995 Warrants and has agreed to maintain the
effectiveness of that registration until the fifth anniversary of the
issuance of the 1995 Warrants. The Company has also granted "piggy-back"
registration rights to the holders of the GKM Warrants with respect to shares
issuable upon exercise of the GKM Warrants.
In connection with the Heartland Transaction, the Company, Heartland,
certain subsidiaries of Heartland and all of the former stockholders of the
Company's predecessor entered into the Initial Registration Agreement. The
Initial Registration Agreement was amended and restated in connection with
the TruVision Transaction, with all the former stockholders of TruVision
becoming parties thereto. Under the New Registration Agreement, at any time
after October 24, 1997, any of (a) the holders of a majority of the Common
Stock issued to the former stockholders of the Company's predecessor (other
than CMCC and Baseball Partners) in the Heartland Transaction, (b) the
holders of a majority of the Common Stock issued to Heartland or certain of
Heartland's subsidiaries in the Heartland Transaction, (c) the holders of a
majority of the Common Stock issued to the former stockholders of TruVision
(other than CVCA) in the TruVision Transaction, or (d) the holders of a
majority of the Common Stock issued to CMCC and Baseball Partners in the
Heartland Transaction or issued to CVCA in the TruVision Transaction, shall
each have the right, subject to certain conditions, to require the Company to
register any or all of such Common Stock under the Securities Act on Form S-1
on three occasions at the Company's expense and on Form S-2 or S-3 on an
additional three occasions at the Company's expense. The holders of any
such shares of Common Stock are also entitled to request the inclusion of any
Common Stock subject to the Registration Agreement in any registration
statement at the Company's expense whenever the Company proposes to register
any of its equity securities under the Securities Act, subject to certain
conditions.
In accordance with the New Registration Rights Agreement, the Company
registered for resale, on Form S-3, the 180,000 shares of Common Stock
granted to VCI in connection with the TruVision Transaction.
Delaware Anti-Takeover Law
The Company is subject to the "business combination" statute of the
DGCL. In general, such statute prohibits a publicly held Delaware
corporation from engaging in various "business combination" transactions with
any "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder,"
unless (i) the transaction is approved by the board of directors of the
corporation prior to the date the interested stockholder obtained such
status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a)
persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (iii) on or subsequent to such date, the business
combination is approved by the Board of Directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3 % of the outstanding voting stock which
is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to a stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, within three years, did
own) 15% or more of the corporation's voting stock. The statute could
prohibit or delay the accomplishment of a merger or other takeover or change
in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company. Because CMCC, CVCA, Baseball
Partners and Heartland acquired their shares in a transaction approved by the
Board for purposes of the "business combination" statute, CMCC, CVCA,
Baseball Partners and Heartland are not subject to the restrictions of such
statute.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has a total of 16,946,697 shares of Common Stock
outstanding (19,270,169 on a fully diluted basis assuming the exercise of the
1995 Warrants, the GKM Warrants, the Warrants, and certain director,
management and employee options). Of these shares, approximately 3.7 million
(including shares issuable upon exercise of the 1995 Warrants and the
Warrants) shares are freely transferable by persons other than affiliates of
the Company without restriction or registration under the Securities Act.
All of the remaining shares (except those issuable upon the exercise of
director, management and employee options) are "restricted securities" as
that term is defined by Rule 144 promulgated under the Securities Act and may
not be sold other than pursuant to an effective registration statement under
the Securities Act, pursuant to an exemption from such registration
requirement or in accordance with Rule 144. None of such shares of Common
Stock will be eligible for sale under Rule 144 for one year following the
date of issuance. All such shares are subject to demand and piggyback
registration rights. See "Description of Capital Stock-Registration Rights."
Sales of restricted securities under Rule 144 following such one-year period
will be subject to the conditions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed to be an
"affiliate" of the Company, is entitled to sell within any three month period
"restricted" shares beneficially owned by him or her in an amount that does
not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock or (ii) the average weekly trading volume in shares of Common Stock
during the four calendar weeks preceding such sale, provided that at least
one year has elapsed since such shares were acquired from the Company or an
affiliate of the Company. Sales are also subject to certain requirements as
to the manner of sale, notice and the availability of current public
information regarding the Company. However, a person who has not been an
affiliate of the Company at any time within three months prior to the sale is
entitled to sell his or her shares without regard to the volume limitations
or other requirements of Rule 144, provided that at least two years have
elapsed since such shares were acquired from the Company or an affiliate of
the Company.
UNITED STATES FEDERAL INCOME TAX MATTERS
It is the opinion of Kirkland & Ellis, special tax counsel to the
Company, that the following are the principal United States Federal income
tax consequences of the purchase, ownership and disposition of Notes as of
August 7, 1996. Except where noted, it deals only with Notes held as capital
assets by holders that are United States Persons (as defined below) and does
not deal with special situations, such as those of dealers in securities or
currencies, financial institutions, life insurance companies, persons holding
Notes as a part of a hedging or conversion transaction or a straddle or
holders whose functional currency is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended to the date hereof (the "Code") and regulations,
administrative pronouncements, rulings and judicial decisions thereunder as
of the date hereof, and such authorities may be repealed, revoked or modified
so as to result in U.S. Federal income tax consequences different from those
discussed below. In particular, the discussion below is based upon Treasury
regulations issued under section 1273 and related sections of the Code
relating to "original issue discount" ("OID") (the "OID Regulations").
The opinion described above is based in reliance on various
representations of the Company including the following:
1. Based on all facts and circumstances as of the issue date, it is
significantly more likely that payments will be made according to the Notes'
stated payment schedule than that the Notes will be redeemed before their
scheduled maturity.
2. The interest that accrues and is payable semi-annually on the
Notes beginning on February 1, 2002 will be computed at a rate that is
approximately equal to, but does not exceed, the overall yield on the Notes
(determined by assuming that the Notes remain outstanding until their final
maturity date).
3. The redemption price of the Notes on each optional redemption
date will be equal to or greater than the sum of (i) the adjusted issue price
(as defined in Section 1272(a)(4) of the Code) of the Notes at the start of
the accrual period in which such optional redemption date occurs plus (ii)
the original issue discount (as defined in Section 1273 of the Code) that has
accrued on the Notes from the beginning of such accrual period through such
optional redemption date.
4. During the term of the Notes, the Company will not pay or incur
interest in any taxable year in excess of $5,000,000 that is attributable to
an obligation evidenced by a bond, debenture, note, certificate or other
evidence of indebtedness ("Debt") issued to provide direct or indirect
consideration for the acquisition (an "Acquisition") of (A) stock in another
corporation (an "acquired corporation") or (B) assets of another corporation
(an "acquired corporation") pursuant to a plan under which at least two-
thirds (in value) of all the assets (excluding money) used in trades and
business carried on by such corporation are acquired. For this purpose, Debt
issued to provide consideration for an Acquisition includes (without
limitation):
(i) Debt issued directly in exchange for the acquired
corporation's stock or assets;
(ii) Debt issued to raise the money necessary to purchase the
acquired corporation's stock or assets, including, without limitation,
where the Company, when it issued the Debt, anticipated the
Acquisition and the Debt would not have been issued if the Company had
not so anticipated such Acquisition; and
(iii) Debt issued to replace the Company working capital spent to
acquire the acquired corporation where the Company, when it used
working capital to purchase the acquired corporation, foresaw or
reasonably should have foreseen that it would be required to issue the
Debt, which it would not otherwise have been required to issue if the
Acquisition had not occurred, in order to meet its future economic
needs.
Persons considering the purchase, ownership or disposition of Notes
should consult their own tax advisors concerning the U.S. Federal Income tax
consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
As used herein, a "United States Person" means an individual that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, or an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.
The Notes
Payments of Interest-Original Issue Discount
The Notes were issued with original issue discount ("OID") equal to the
difference between their issue price and their stated redemption price at
maturity. The "stated redemption price at maturity" of the Notes equals the
sum of all payments required under the Notes other than payments of qualified
stated interest. To have "qualified stated interest," a debt instrument
must, among other requirements, have interest that is unconditionally payable
at least annually during the entire term of the debt instrument. Because the
Notes will not pay interest until February 1, 2002, none of the interest on
the Notes will be qualified stated interest. As a result, all payments made
under the Notes will be treated as part of the stated redemption price at
maturity. Accordingly, the interest on the Notes will be taxable to holders
in advance of receipt regardless of a holder's method of accounting, in
accordance with the OID rules described below. The aggregate OID on a Note
will equal the difference between the sum of all payments required under the
Note and the issue price of the Note.
A holder of Notes will be required to include OID in income for U.S.
Federal income tax purposes as it accrues. OID will accrue daily in
accordance with a constant yield method based on a compounding of interest.
Under this method, holders of the Notes will be required to include in income
increasingly greater amounts of OID in successive accrual periods. The
accrual period for Notes may be of any length and may vary in length over the
term of the Notes, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs on the first
day or the final day of an accrual period. OID allocable to any accrual
period will equal the product of the adjusted issue price of the Notes as of
the beginning of such period and the Notes' yield to maturity (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period). OID allocable to a final
accrual period is the difference between the amount payable at maturity and
the adjusted issue price at the beginning of the final accrual period. The
"adjusted issue price" of the Notes as of the beginning of any accrual period
will equal the issue price of the Notes increased by OID previously
includable in income and decreased by any payments under the Notes (other
than qualified stated interest). The "yield to maturity" is the discount
rate that, when used in computing the present value of all principal and
interest payments to be made under a Note, produces an amount equal to its
issue price. The initial accrual period of a Note is the short period
beginning on the issue date and ending on the day before the first day of the
first full accrual period. The amount of OID attributable to such initial
accrual period may be computed under any reasonable method.
The Company is required to furnish certain information to the IRS, and
will furnish annually to record holders of Notes, information with respect to
interest and OID accruing during the calendar year. The OID information will
be based upon the adjusted issue price of the debt instrument as if the
holder were the original holder of the debt instrument. Subsequent holders
who purchase Notes for an amount other than the adjusted issue price and/or
on a date other than the last day of an accrual period will be required to
determine for themselves the amount of OID, if any, they are required to
include in gross income for U.S. Federal income tax purposes.
Applicable High Yield Discount Rules
The Notes are applicable high yield discount obligations ("AHYDOs"), as
defined in the Code. Under the rules applicable to AHYDOs, because the yield
to maturity of the Notes will exceed the applicable federal rate in effect at
the time of their issuance (the "AFR") plus six percentage points, a portion
of the OID that accrues on the Notes will not be deductible by the Company at
any time. The non-deductible portion of the OID will be an amount that bears
the same ratios to such OID as (i) the excess of the yield to maturity of the
Notes over the AFR plus six percentage points bears to (ii) the yield to
maturity of the Notes. To the extent that the non-deductible portion of OID
would have been treated as a dividend if it had been distributed with respect
to the Company's stock, it will be treated for some purposes as a dividend to
holders of the Notes. Amounts of OID treated as dividends may qualify for
the dividends received deduction for corporate holders. OID that accrues on
the Notes and for which the Company's deductions are allowable (the OID
portion equal to or less than the AFR plus six percentage points) will not be
deductible by the Company until such time as the Company actually pays such
interest (including OID) in cash or in other property (other than stock or
debt of the Company or a person deemed to be related to the Company under
Section 453(f)(1) of the Code).
Market Discount; Acquisition Premium
If a holder purchases Notes for an amount that is less than the revised
issue price (which generally approximates adjusted issue price) of such
Notes, the amount of the difference will be treated as "market discount" for
U.S. Federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a holder will
be required to treat any principal payment on, or any amount received on the
sale, exchange, retirement or other disposition of, Notes as ordinary income
to the extent of any market discount which has not previously been included
in income and is treated as having accrued on such Notes by the time of such
payment or disposition. If a holder makes a gift of a Note, accrued market
discount, if any, will be recognized as if such holder had sold such Note for
a price equal to its fair market value. In addition, the holder may be
required to defer, until the maturity of the Notes or their earlier
disposition in a taxable transaction, the deduction of a portion of the
interest expense on any indebtedness incurred or continued to purchase or
carry such Notes.
Any market discount will be considered to accrue on a straight-line
basis during the period from the date of acquisition to the maturity date of
the Notes, unless the holder elects to accrue market discount under a
constant interest method. A holder of Notes may elect to include market
discount in income currently as it accrues (under either a straight-line or
constant interest method), in which case the rules described above regarding
the deferral of interest deductions will not apply. This election to include
market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent
of the IRS.
A holder that purchases Notes for an amount that is greater than the
adjusted issue price of such Notes but equal to or less than the sum of all
amounts payable on such Notes after the purchase date will be considered to
have purchased such Notes at an "acquisition premium." Under the acquisition
premium rules, the amount of OID which such holder must include in its gross
income with respect to such Notes for any taxable year will be reduced by the
portion of such acquisition premium properly allocable to such year.
Sale, Exchange, Retirement or other Disposition of Notes
Upon the sale, exchange, retirement or other disposition of Notes, a
holder will generally recognize gain or loss equal to the difference between
the amount realized upon such sale, exchange, retirement or other disposition
and such holder's adjusted tax basis in the Note.
A holder's adjusted tax basis in a Note will equal such holder's
initial tax basis in the Note, increased by the amounts of any OID or market
discount previously included in income by the holder with respect to such
Note and reduced by the amounts of any payments on the Note received by such
holder.
Except with respect to market discount and payments for accrued
interest not previously included in income, such gain or loss will be capital
gain or loss and will be long-term capital gain or loss if the Notes have
been held for more than one year as of the date of such sale, exchange,
retirement or other disposition. Under current law, the excess of net long-
term capital gains over net short-term capital losses is taxed at a lower
rate than ordinary income for certain non-corporate taxpayers. The
distinction between capital gain or loss and ordinary income or loss is also
relevant for purposes of, among other things, limitation on the deductibility
of capital losses.
The Warrants
Upon the exercise of a Warrant, a holder will not recognize gain or
loss (except to the extent of cash, if any, received in lieu of the issuance
of fractional shares of Common Stock) and will have a tax basis in the Common
Stock equal to such holder's tax basis in the Warrant plus the exercise price
of the Warrant. The holding period of such Common Stock will commence on the
day after the date of exercise of the Warrant. If any cash is received in
lieu of the issuance of fractional shares of Common Stock, the holder will
recognize gain or loss, the amount and character of which generally will be
determined as if the holder had received such fractional shares and then
immediately sold them for cash. Similarly, upon he sale of Common Stock
received upon exercise of a Warrant, a holder will recognize capital gain or
loss equal to the difference between the amount realized upon the sale and
the holder's tax basis in the Common Stock. Such capital gin or loss will be
long-term if, at the time of sale or exchange, the Common Stock was held for
more than one year. Holders should consult their own tax advisors concerning
the U.S. Federal income tax consequences of the ownership of the Common
Stock.
If a Warrant expires unexercised, a holder will have a capital loss
equal to its tax basis in the Warrant. Such capital loss will be long-term
capital loss if, at the time of expiration, the Warrant was held for more
than one year. Upon the sale or exchange of a Warrant, a holder will
recognize capital gain or loss equal to the difference between the amount
realized upon the sale or exchange and the holder's tax basis in the Warrant.
Such capital gain or loss will be long-term if, at the time of sale or
exchange, the Warrant was held for more than one year. It is unclear whether
the repurchase of a Warrant by the Company would be treated as a sale or
exchange. If it were not so treated, any gain or loss to a holder on such
repurchase could be ordinary income or loss. Adjustments to the exercise
price or conversion ratio of the Warrant, or the failure to make adjustments,
may result in the receipt of taxable constructive dividends by the holder.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to accruals
of interest and OID on the Notes and to the proceeds of a disposition of a
Note, other than a disposition by certain exempt recipients (including, among
others, corporations). Certain noncorporate holders may be subject to backup
withholding at a rate of 31% on payments of principal and interest (including
OID) and premium on, and the proceeds of disposition of, a Note. Backup
withholding will apply only if the holder: (i) fails to furnish its Taxpayer
Identification Number ("TIN") which, for an individual, would be his or her
Social Security number; (ii) furnishes an incorrect TIN; (iii) is notified by
the IRS that he or she has failed to properly report payments of interest and
dividends; or (iv) under certain circumstances, fails to certify, under
penalty of perjury, that he or she has furnished a correct TIN and has not
been notified by the IRS that he or she is subject to backup withholding for
failure to report interest and dividend payments. Holders of the Notes
should consult their tax advisors regarding their qualification for exemption
from backup withholding and the procedure for obtaining such an exemption, if
applicable.
The amount of any backup withholding from a payment for a holder of a
Note will be allowed as a credit against the holder's U.S. Federal income tax
liability and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
Other Tax Consequences
In addition to the U.S. Federal income tax considerations described
above, prospective purchasers of the Notes and Warrants should consider
potential state and local income, franchise, personal property and other
taxation in any state or locality and the tax effect of ownership, sale,
exchange, retirement or disposition of Notes and Warrants in any state or
locality. Prospective purchasers of Notes and Warrants are advised to
consult their own tax advisors with respect to any state and local income,
franchise, personal property and other tax consequences arising out of their
ownership of Notes and Warrants.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH PROSPECTIVE PURCHASER OF NOTES AND WARRANTS SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO
HIM OR HER OF THE NOTES AND WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY STATE, LOCAL OR FOREIGN INCOME TAX LAWS AND ANY RECENT OR PROSPECTIVE
CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
This Prospectus is to be used by CSI in connection with offers and
sales related to market-making transactions in the Notes and the Warrants.
CSI may act as principal or agent in such transactions. Such sales will be
made at prices related to prevailing market prices at the time of sale. The
Company will not receive any of the proceeds of such sales. CSI has no
obligation to make a market in the Notes or the Warrants and may discontinue
its market-making activities at any time without notice, at its sole
discretion. The Company has agreed to indemnify CSI against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments which CSI might be required to make in respect
thereof.
CMCC and CVCA, each affiliates of CSI and each other, beneficially own
approximately 11.8% and 9.0%, respectively, of the Company's outstanding
Common Stock. In addition, Baseball Partners, which is also affiliated with
each of CMCC, CVCA and CSI, owns approximately 2.3% of the Company's Common
Stock, which is voted by CVCA pursuant to a proxy. Mr. Chavkin is a director
of the Company and a general partner of CCP. Pursuant to a stockholders'
agreement to which they are parties, CMCC, CVCA and Baseball Partners have
the right to designate up to two of the nine directors of the Company.
LEGAL MATTERS
The legality of the Notes has been passed upon for the Company by
Kirkland & Ellis, a partnership which includes professional corporations, New
York, New York.
EXPERTS
The consolidated balance sheets of Wireless One, Inc. and subsidiaries
as of December 31, 1995 and 1996 and the consolidated statements of
operations, stockholders' equity and cash flows for the years ended December
31, 1994, 1995 and 1996 are included in this Prospectus and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and in
the Registration Statement and upon the authority of said firm as experts
in accounting and auditing.
The financial statements of TruVision Wireless, Inc. and the combined
financial statements of Madison Communications, Inc. and Beasley
Communications, Inc. included in this Prospectus and in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith, files, reports, proxy statements
and other information with the Commission. Such reports, proxy statements
and other information may be inspected by anyone without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. A
Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Notes and Warrants offered hereby has
been filed by the Company with the Commission. This Prospectus does not
contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the Notes and Warrants offered hereby, reference is made to
such Registration Statement and exhibits and schedules filed as a part
thereof. Copies of all or any portion of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, the
Commission maintains a web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company. The
Company's Common Stock is quoted on the Nasdaq National Market, and such
reports, proxy statements and other information regarding the Company can be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, but
such statements are complete in all material respects for the purposes herein
made. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
The Company is required by the Indenture to furnish holders of the
Notes and Warrants with annual reports containing audited consolidated
financial statements certified by independent public accountants and
quarterly reports containing unaudited consolidated financial data for the
first three quarters of each fiscal year following the end of each such
quarter.
INDEX TO FINANCIAL STATEMENTS
Wireless One, Inc.
Independent Auditors' Report..........................................F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996..........F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995, and 1996..................................F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1995, and 1996............................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995, and 1996..................................F-6
Notes to consolidated Financial Statements............................F-7
TruVision Wireless, Inc.
Report of Independent Public Accountants.............................F-22
Balance Sheets as of December 31, 1994 and 1995 and unaudited
June 30, 1996.....................................................F-23
Statement of Operations for the periods from inception
(November 2, 1993) to December 31, 1993, January 1, 1994
through August 24, 1994 and August 25, 1994 through December
31, 1994 and for the year ended December 31, 1995 and
unaudited for the six months ended June 30, 1995 and 1996.........F-24
Statements of Partners' Capital for the periods from
inception (November 2, 1993) to December 31, 1993 and
January 1, 1994 through August 24, 1994...........................F-25
Statements of Changes in Stockholders' Equity for the
period from August 25, 1994 through December 31, 1994 and
for the year ended December 31, 1995 and unaudited for the
six months ended June 30, 1996....................................F-26
Statement of Cash Flows for the periods from inception
(November 2, 1993) to December 31, 1993, January 1, 1994
through August 24, 1994, August 25, 1994 through December
31, 1994 and for the year ended December 31, 1995 and
unaudited for the six months ended June 30, 1995 and 1996......F-27
Notes to Financial Statements........................................F-28
Madison Communications, Inc. and Beasley Communications, Inc.
Report of Independent Public Accountants.............................F-37
Combined Balance Sheets as of December 31, 1994 and 1995
and unaudited June 30, 1996.....................................F-38
Combined Statements of Operations and Accumulated Deficit
for the years ended December 31, 1993, 1994 and 1995 and
unaudited for the six months ended June 30, 1995 and 1996.........F-39
Combined Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 and unaudited for the
six months ended June 30, 1995 and 1996...........................F-40
Notes to Financial Statements........................................F-41
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, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1996. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wireless
One, Inc. and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three
year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
New Orleans, Louisiana
February 21, 1997
WIRELESS ONE, INC.
Consolidated Balance Sheets
December 31, 1995 and 1996
<TABLE>
<CAPTION>
Assets 1995 1996
------ -------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 110,380,329 $ 104,448,583
Marketable investment securities - restricted
(note 5) 17,637,839 18,149,180
Subscriber receivables, less allowance for doubtful
accounts of $73,641 and $292,619 in 1995 and 1996,
respectively 143,633 998,734
Accrued interest and other receivables 405,241 464,166
Prepaid expenses 796,389 1,149,296
-------------- --------------
Total current assets 129,363,431 125,209,959
Property and equipment, net (note 6) 14,266,755 82,636,712
License and leased license investment, net of
accumulated amortization of $548,283 and
$2,823,658 in 1995 and 1996, respectively 26,724,238 154,444,536
Marketable investment securities - restricted (note 5) 35,755,505 18,885,565
Other assets (note 7) 7,689,945 14,432,590
-------------- --------------
$ 213,799,874 $ 395,609,362
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,356,707 $ 4,105,994
Accrued expenses 862,100 6,775,218
Accrued interest 3,683,333 4,482,864
Current maturities of long-term debt (note 8) 376,780 3,169,383
------------- --------------
Total current liabilities 7,278,920 18,533,459
Long-term debt (note 8) 150,871,267 299,909,221
Deferred taxes (note 9) - 6,500,000
------------- --------------
158,150,187 324,942,680
Redeemable convertible preferred stock, $.01 par
value, 15,000 shares authorized, no shares
issued or outstanding (note 10) - -
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value, 50,000,000 shares
authorized, 13,498,752 and 16,946,697 shares
issued and outstanding in 1995 and 1996, respectively 134,988 169,467
Additional paid-in capital 65,631,596 120,284,507
Accumulated deficit (10,116,897) (49,787,292)
------------- --------------
Total stockholders' equity 55,649,687 70,666,682
------------- --------------
Commitments and contingencies (note 13)
------------- --------------
$ 213,799,874 $ 395,609,362
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
WIRELESS ONE, INC.
Consolidated Statements of Operations
Years Ended December 31, 1994, 1995, and 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ --------------
<S> <C> <C> <C>
Revenues $ 399,319 $ 1,410,318 $ 11,364,828
Operating expenses:
Systems operations 274,886 841,819 5,316,190
Selling, general and administrative 1,800,720 4,431,839 18,659,100
Depreciation and amortization 413,824 1,783,066 11,625,507
------------ ------------ --------------
2,489,430 7,056,724 35,600,797
------------ ------------ --------------
Operating loss (2,090,111) (5,646,406) (24,235,969)
------------ ------------ --------------
Other income (expense):
Interest expense (171,702) (4,070,184) (28,087,948)
Interest income - 2,024,116 8,146,958
Equity in losses of investee (note 7) - - (193,436)
------------ ------------ --------------
Total other expense (171,702) (2,046,068) (20,134,426)
Loss before income taxes (2,261,813) (7,692,474) (44,370,395)
Income tax benefit (note 9) - - 4,700,000
------------ ------------ --------------
Net loss (2,261,813) (7,692,474) (39,670,395)
Preferred stock dividends and discount
accretion (note 10) - (786,389) -
------------ ------------ --------------
Net loss applicable to common stock $ (2,261,813) $ (8,478,863) $ (39,670,395)
============ ============ ==============
Net loss per common share $ (1.21) (2.02) (2.65)
============ ============ ==============
Weighted average common shares outstanding 1,863,512 4,187,736 14,961,934
============ ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
WIRELESS ONE, INC.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1994, 1995, and 1996
<TABLE>
<CAPTION>
Additional
Common paid-in Subscriptions Accumulated
Stock capital receivable deficit Total
--------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 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
Issuance of 3,442,945
shares of common stock
in purchase transactions 34,429 48,166,801 - - 48,201,230
Issuance of stock options
in purchase transactions - 1,401,723 - - 1,401,723
Issuance of warrants to
purchase 544,059 shares
of common stock - 5,053,387 - - 5,053,387
Issuance of 5,000 shares of
common stock upon exercise
of employee stock options 50 31,000 - - 31,050
Net loss - - - (39,670,395) (39,670,395)
--------- ------------- ------------ ------------- -------------
Balance at December 31, 1996 $ 169,467 $ 120,284,507 $ - $ (49,787,292) $ 70,666,682
========= ============= ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
WIRELESS ONE, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1995, and 1996
1994 1995 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,261,813) $ (7,692,474) $ (39,670,395)
Adjustments to reconcile net loss to
net cash used in operating activities:
Bad debt expense 54,608 196,281 371,349
Depreciation and amortization 413,824 1,783,066 11,625,507
Amortization of debt discount 104,767 328,301 7,845,537
Accretion of interest income - (213,230) (976,638)
Deferred income tax benefit - - (4,700,000)
Equity in losses of investee - - 193,436
Changes in assets and liabilities:
Receivables (167,277) (571,957) (868,890)
Prepaid expenses (46,515) (468,707) (145,949)
Deposits - - 917,796
Accounts payable and accrued
expenses 237,378 6,004,541 3,265,187
------------ -------------- --------------
Net cash used in operating
activities (1,665,028) (634,179) (22,143,060)
------------ -------------- --------------
Cash flows from investing activities:
Purchase of investments and other assets (102,000) (1,533,446) (2,778,012)
Capital expenditures (2,960,842) (9,805,057) (60,408,418)
Acquisition of license investment (5,156,054) (6,762,415) (43,898,328)
Purchase of marketable investment
securities - (53,180,114) -
Proceeds from maturities of securities - - 17,335,237
------------ -------------- --------------
Net cash used in investing
activities (8,218,896) (71,281,032) (89,749,521)
------------ -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt and warrants 4,275,819 144,764,902 120,624,614
Principal payments on long-term debt (103,306) (11,502,054) (13,089,874)
Debt issuance costs - (343,839) (1,604,955)
Issuance of common stock 5,647,156 35,008,396 31,050
Issuance of redeemable preferred stock - 14,343,654 -
------------ -------------- --------------
Net cash provided by financing
activities 9,819,669 182,271,059 105,960,835
------------ -------------- --------------
Net increase (decrease) in cash (64,255) 110,355,848 (5,931,746)
Cash and cash equivalents at beginning
of period 88,736 24,481 110,380,329
------------ -------------- --------------
Cash and cash equivalents at end of period $ 24,481 $ 110,380,329 $ 104,448,583
============ ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
WIRELESS ONE, INC.
Notes to Consolidated Financial Statements
December 31, 1995 and 1996
(1) Description of Business and Summary of Significant Accounting
Policies
(a) Nature of Operations
Wireless One Inc. is engaged in the business of developing,
owning, and operating wireless cable television systems
primarily in select southern and southeastern United States
markets.
(b) Consolidation Policy
The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant
inter-company 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, overhead charges and direct commissions.
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 disconnection 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 on a first
in first out basis.
(d) License and Leased License Investment
Licenses and 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. Amortization expense for the years ended December 31,
1994, 1995 and 1996 was $191,915, $574,169 and $2,275,374
respectively. As of December 31, 1995 and 1996, approximately
$17,809,000 and $76,269,000 of channel rights were not subject
to amortization.
(e) Long Lived Assets
Effective January 1, 1996, the Company adopted the provisions of
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." SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to
be held and used or disposed of by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
The adoption of this statement had no impact on the financial
position or results of operations of the Company.
The Company periodically evaluates the propriety of the carrying
amounts of the license and leased license investment and
property and equipment in each market, as well as the
depreciation and amortization periods based on estimated
undiscounted future cash flows and other factors 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 license and related
property and equipment.
(f) Revenue Recognition
Revenues from subscribers are recognized in the month that the
service is provided.
(g) 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 basis. 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.
(h) 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.
(i) Debt Issuance Costs
Costs incurred in connection with issuance of the Company's 1995
Senior Notes and 1996 Senior Discount Notes (see note 8) are
included in other assets and are being amortized using the
interest method over the term of the notes.
(j) 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.
(k) 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.
(l) Marketable Investment Securities
Investments in marketable securities at December 31, 1995 and
1996 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. No such
impairments have been recorded for the years ended December 31,
1994, 1995 and 1996.
(m) Reclassifications
Certain amounts in the prior year consolidated financial
statements have been reclassified to conform with the current
year presentation. These reclassifications had no effect on
previously reported net loss.
(2) Liquidity
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. In addition, the Company has
recorded net losses since inception and expects to continue to
experience net losses while it develops and expands its wireless
cable systems. 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.
(3) Initial Public Offering and Heartland Transaction
Wireless One, Inc. was formed in June, 1995, by the shareholders of
a predecessor company ("Old Wireless One") and Heartland Wireless
Communications, Inc., ("Heartland"). Old Wireless One had been
formed in 1993.
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
(the "1995 Senior Notes") 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 1995 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:
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
============
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, are summarized below:
1994 1995
------------ ------------
Total revenues $ 1,287,312 $ 1,976,142
Net loss applicable to common stock $ (3,776,669) $ (8,863,252)
Net loss per common share $ (0.29) $ (0.68)
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. Net loss per common share is
based on the weighted average number of shares outstanding during the
year adjusted to give effect to shares issued in the transaction.
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 or of future results of operations of the
consolidated entity.
(4) Acquisitions
On July 29, 1996, the Company merged with TruVision Wireless Inc.,
("TruVision") whereby the Company issued to the then TruVision
shareholders 3,262,945 shares of common stock. The Company also paid
$1.8 million in cash and issued 180,000 shares of common stock to certain
affiliates of TruVision and issued stock options equivalent to 195,226
shares of the Company's common stock with an estimated fair value at the
date of acquisition of $1,401,723. TruVision acquires, develops, owns
and operates wireless cable television systems within the southeastern
United States primarily in Mississippi, Alabama, and Tennessee.
The following summarizes the allocation of estimated fair market value of
the net assets acquired in the transaction:
Current assets $ 1,146,604
Property and equipment 16,427,882
Other assets 2,149,155
License and leased license investment 80,645,464
Current liabilities (5,719,908)
Deferred tax liability (11,200,000)
Short term debt (32,046,244)
------------
$ 51,402,953
============
In 1996, the Company also acquired (i) Shoals Wireless, Inc., whose
principal asset was an Operating System in the Lawrenceburg,
Tennessee Market, for approximately $1.2 million (ii) an Operating
System and hard-wire cable system in the Huntsville, Alabama Market
for approximately $6 million, (iii) rights to 11 wireless cable
channels in the Macon, Georgia Market for approximately $600,000,
(iv) rights to eight wireless cable channels in the Bowling Green,
Kentucky Market for $300,000, (v) rights to 16 wireless cable
channels in the Jacksonville, North Carolina Market for
approximately $820,000 ($800,00 is being withheld pending grant of
licenses) and 12 wireless cable channels in the Chattanooga,
Tennessee Market for $517,000 and (vi) rights to 11 MDS channels and
filings for 20 ITFS licenses and related transmission tower leases
and approvals in Auburn/Opelika, Alabama for $600,000.
The foregoing transactions have been accounted for as business
combinations using the purchase method of accounting. The various
purchase prices have been allocated to the net assets acquired based
on management's estimates of fair values of assets and liabilities
acquired. Approximately $94,529,000 of the purchase prices have
been allocated to license and leased license investment and are
being amortized over 20 years.
The December 31, 1996 financial statements of Wireless One, Inc. include
the results of operations of the business interests acquired in the
various transactions discussed above from the dates of the respective
transactions. Summarized below is the unaudited pro forma information
for the years ended December 31, 1995 and 1996 as if the transactions
discussed herein and in note 3 had been consummated as of January 1,
1995.
1995 1996
------------ -------------
Revenues $ 6,387,670 $ 15,270,994
Net loss applicable to common stock $ (8,649,605) $ (53,156,071)
Net loss per common share $ (0.52) (3.14)
The unaudited pro forma results have been prepared for comparative
purposes only and include adjustments to conform financial statements of
the acquired entities to accounting policies used by the Company and to
record additional amortization of license and leased license investments
related to the excess purchase price over historical costs of these
license and leased license investments. Adjustments have also been made
to recognize income tax benefits during the periods to the extent
deferred tax assets can be realized through reversals of taxable
temporary differences. Net loss per common share is based on the
weighted average number of shares outstanding during the year adjusted to
give effect to shares issued in the transactions. The unaudited pro
forma results do not purport to be indicative of the results of
operations which actually would have resulted had the combinations been
in effect on January 1, 1995 or of the future results of operations of
the consolidated entity.
(5) Marketable Investment Securities - Restricted
Marketable investment securities - restricted at December 31, 1995
and 1996 consists of U.S. Treasury securities placed in escrow
pursuant to the bond indenture relating to the 1995 Senior Notes. The
investments have been deposited into an escrow account and, pending
disbursement, the collateral agent has a first priority lien on the
escrow account for the benefit of the holders of the notes. Such
funds may be disbursed from the escrow account only to pay interest
on the notes and, upon certain repurchases or redemptions of the
notes, to pay principal of and premium, if any, thereon. The
maturities of the securities purchased have been matched to the
interest payment dates of the notes.
A summary of the Company's restricted held to maturity securities at
December 31, 1995 and 1996 follows:
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Loss Gain Value
----------------- ------------ ---------- --------- ------------
U.S. Treasury Notes $ 22,343,879 $ (1,110) $ 113,163 $ 22,455,932
U.S. Treasury Notes
interest coupon strips 31,049,465 - 199,185 31,248,650
------------ --------- --------- ------------
$ 53,393,344 $ (1,110) $ 312,348 $ 53,704,582
============ ========= ========= ============
December 31, 1996
U.S. Treasury Notes $ 15,214,837 $ (38,659) $ - $ 15,176,178
U.S. Treasury Notes
interest coupon strips 21,332,090 (23,675) 14,596 21,323,011
Other 487,818 - 15,135 502,953
------------ --------- --------- ------------
$ 37,034,745 $ (62,334) $ 29,731 $ 37,002,142
============ ========= ========= ============
Scheduled maturities for the marketable securities held at December
31, 1996, are as follows:
Amortized Fair
Cost Value
------------ ------------
Maturing in less than 1 year $ 18,149,180 $ 18,152,471
Maturing from 1-5 years 18,885,565 18,849,671
------------ ------------
$ 37,034,745 $ 37,002,142
============ ============
(6) Property and Equipment
Major categories of property and equipment at December 31, 1995 and
1996 are as follows:
Estimated
Life 1995 1996
-------- ------------ ------------
Equipment awaiting installation - $ 2,230,144 $ 9,109,287
Subscriber premises equipment
and installation costs 5 3,561,714 43,049,807
Transmission equipment and
system construction costs 10 8,092,890 29,463,789
Office furniture and equipment 7 1,270,131 7,161,468
Buildings and leasehold
improvements 31.5 523,203 2,031,754
------------ ------------
15,678,082 90,816,105
Less accumulated depreciation (1,411,327) (8,179,393)
------------ ------------
$ 14,266,755 $ 82,636,712
============ ============
Depreciation expense for the years ended December 31, 1994, 1995
and 1996 was $221,909, $1,208,897 and $9,350,133 respectively.
(7) Other Assets
Other assets at December 31, 1995 and 1996 consist of the following:
1995 1996
--------- ----------
Debt issuance costs, net of accumulated
amortization of $163,927 and $1,068,230
in 1995 and 1996, respectively $ 6,053,898 $ 11,129,764
Deposits and other 1,410,543 492,747
Investments in unconsolidated subsidiaries 225,504 2,810,079
----------- ------------
$ 7,689,945 $ 14,432,590
=========== ============
Investments in unconsolidated subsidiaries relates to the Company's
50% investment in Wireless One North Carolina, LLC (WONC) accounted
for on the equity method and its 16.5% investment in Telecorp
Holding Corp, Inc., (Telecorp) accounted for on the cost method.
WONC is in the business of acquiring, developing and operating
wireless cable television systems in North Carolina. Telecorp is in
the business of acquiring personal communication service (PCS)
licenses for the purpose of developing and operating a PCS
network. Neither of these entities has commenced operations as of
December 31, 1996.
(8) Long-term Debt
Long-term debt consists of the following:
1995 1996
------------ ------------
13% Senior Notes due 2003; face value
of $150,000,000, net of unamortized
discount - (1995 Senior Notes) $148,149,131 $148,384,135
13.5% Senior Discount Notes due 2006;
face value of $239,252,000, net of
unamortized discount - (1996 Senior
Discount Notes) - 126,400,136
9.5% installment notes, principal and
interest due in installments through
August 31, 2006 - 22,257,207
Subordinated non-interest bearing notes
(face value outstanding at December
31, 1995 and 1996 of $3,400,000 and
$3,050,000, respectively), discounted
to an 8% effective rate, principal and
interest due in installments through
July 1997 2,939,156 2,880,672
Other 159,760 3,156,454
------------ ------------
151,248,047 303,078,604
Less current maturities (376,780) (3,169,383)
------------ ------------
Long-term debt, excluding current
maturities $150,871,267 $299,909,221
============ ============
Scheduled maturities of long term debt for the next five years and
thereafter, are as follows:
1997...........................$ 3,169,383
1998........................... 821,426
1999........................... 2,781,078
2000........................... 2,394,819
2001........................... 2,630,560
Thereafter..................... 291,281,338
Interest on the 1995 Senior Notes is payable semi-annually on April
15 and October 15 of each year. The 1995 Senior 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 1995
Senior 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 the 1995 Senior Notes may
require the Company to repurchase all or a portion of such holder's
1995 Senior Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest.
The 1996 Senior Discount Notes will accrete in value until August 1,
2001 at a rate of 13.5% per annum to an aggregate principal amount
of $239,252,000. Thereafter, cash interest on the notes will accrue
at a rate of 13.5% per annum on the face value of the notes payable
semi-annually on February 1 and August 1 of each year commencing
February 1, 2002. The Company is accreting the 1996 Senior Discount
Notes using the effective yield. Interest expense accreted to the
balance of the notes during the year ended December 31, 1996 was
$6,453,922. The 1996 Senior Discount Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or
after August 1, 2001 at variable redemption prices in excess of par.
On or prior to August 1, 1999, the Company may redeem up to 30% of
the aggregate principal amount of the 1996 Senior Discount 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 the 1996 Senior Discount Notes may require
the Company to repurchase all or a portion of such holder's 1996
Senior Discount Notes at 101% of the accreted value thereof, plus
accrued and unpaid interest.
The 1995 Senior Notes and 1996 Senior Discount Notes are issued and
outstanding under indentures which contain certain restrictive
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.
The 9.5% installment notes were incurred in connection with an
auction of Basic Trading Area ("BTA") rights in which the Company
was the successful bidder. The notes require quarterly payments of
interest only through August 31, 1998. Thereafter, the notes
require equal quarterly payments of principal and interest of
$1,000,849 through August 31, 2006.
(9) Income Taxes
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are
presented below:
1995 1996
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 2,955,166 $ 24,537,357
Allowance for bad debts 25,038 176,771
Accrued liabilities deductible
when paid 152,320 216,368
Other 68,000 24,796
------------ ------------
3,200,524 24,955,292
Less valuation allowance (2,136,029) (5,766,361)
------------ ------------
Deferred tax asset 1,064,495 19,188,931
------------ ------------
Deferred tax liabilities:
Fixed assets, principally due to
differences in depreciation and
underlying basis 11,700 473,997
License Investment, due to
differences in basis from
amortizable lives and purchase
accounting adjustments 1,052,795 25,214,934
----------- ------------
Deferred tax liabilities 1,064,495 25,688,931
----------- ------------
Net deferred tax liability $ - $ 6,500,000
=========== ============
The net changes in total valuation allowance for the years ended
December 31, 1995 and 1996 were increases of $1,911,619 and
$3,630,332 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 did not recognize any income tax benefit for 1994 or
1995 due to management's conclusion that a 100% valuation allowance
for the net deferred tax asset was warranted. The consummation of
the TruVision transaction resulted in deferred tax liabilities that
will be recognized during periods in which the net operating losses
may be utilized. The Company has therefore recorded a deferred tax
benefit in the year ended December 31, 1996 to the extent such
assets can be realized through future reversals of deferred tax
liabilities. Income tax benefit in 1996 consists entirely of
deferred income tax benefit resulting from the recognition of net
operating losses.
The reconciliation of income tax from continuing operations computed
at the U.S. Federal statuatory tax rate to the company's effective
income tax rate is as follows for each of the years ended December
31,:
1994 1995 1996
------- ------- -------
Tax at U.S. Federal statutory rate (34.0)% (34.0)% (34.0)%
State and local income taxes, net
of U.S. federal benefit - - (0.9)
Valuation allowance 34.0 28.3 23.5
Other - 5.7 0.8
------- ------- -------
-% -% (10.6)%
======= ======= =======
The Company had net operating loss carryforwards for Federal and
state income tax purposes of approximately $62,916,000 as of
December 31, 1996. The carryforwards expire in years 2008-2011.
(10) 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.
(11) Stockholders' Equity
In connection with the 1995 Senior Notes, 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 1996 Senior Discount Notes, the Company issued
warrants to acquire 544,059 shares of common stock. The warrants are
exercisable at any time on or after August 12, 1997, at an exercise
price of $16.6375 per share and will expire on August 12, 2001. For
financial reporting purposes, these warrants were valued at $5,053,387.
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, and as amended in
connection with the TruVision Transaction, certain of the shareholders
of the Company 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.
(12) Stock Option Plan
In October of 1995, the Company adopted the 1995 Long-Term
Performance Incentive Plan (the "Incentive Plan"), which provides
for the grant to key employees of the Company of stock options,
appreciation rights, restricted stock, performance grants and any
other type of award deemed to be consistent with the purpose of the
Incentive Plan.
The total number of shares of Common Stock which may be granted
pursuant to the Incentive Plan is 1,300,000. The Incentive Plan
will terminate upon the earlier of the adoption of a Board of
Directors' resolution terminating the Incentive Plan or on the tenth
anniversary of the date of adoption, unless extended for an
additional five-year period for grants of awards other than
incentive stock options.
The exercise price of stock options is determined by the
Compensation Committee of the Board of Directors, but may not be
less than 100% of the fair market value of the common stock on the
date of the grant and the term of any such option may not exceed 10
years from the date of grant. With respect to any employee who owns
stock representing more than 10% of the voting power of the
outstanding capital stock of the Company, the exercise price of any
incentive stock option may not be less than 110% of the fair market
value of such shares on the date of grant and the term of such
option may not exceed five years from the date of grant.
Awards granted under the Incentive Plan will generally vest upon a
proposed sale of substantially all of the assets of the Company, or
the merger of the Company with or into another corporation. Options
generally vest over a five-year period commencing on the date of
grant and expire ten years from the date of grant.
On July 26, 1996, The Company adopted the 1996 Non Employees
Directors' Stock Option Plan (the "Directors' Plan"). 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.
Participants in office on July 26, 1996, received options to acquire
4,000 shares under the Directors' Plan and on January 1 of each
year, eligible participants will receive options to acquire 2,000
shares under the Directors' Plan.
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.
For the aforementioned plans, the Company has adopted the disclosure-
only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option grants.
Had compensation cost for the Company's two stock option plans been
determined based on the fair value at the grant date for awards in
1995 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net loss applicable to common stock and net loss per common
share would have been increased to the pro forma amounts indicated
below:
1995 1996
------------- -------------
Net Loss Applicable to Common Stock -
as reported $ 8,478,863 $ 39,670,395
Net Loss Applicable to Common Stock -
pro forma 10,141,210 44,022,171
Net Loss Per Common Share - as reported 2.02 2.65
Net Loss Per Common Share - pro forma 2.42 2.94
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: expected
volatility of 83%; expected dividend yield of 0%; risk-free interest
rate of 6.76%; and expected lives of 10 years.
Information regarding these option plans for 1994, 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------ ------------------------
Weighted
Average
Exercise
Shares Shares Shares Price
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Options Outstanding, beginning of year - 248,917 804,187 $ 7.98
Options Granted
Exercise Price = Fair Market Value 248,917 555,270 59,000 $ 11.89
Exercise Price < Fair Market Value - - 195,226 $ 6.82
Options exercised - - 5,000 $ 6.21
Options canceled - - 25,000 $ 10.50
--------- -------- --------- -------
Options outstanding, end of year 248,917 804,187 1,028,413 $ 7.93
--------- -------- --------- -------
Option price range at end of year $ 6.21 $ 4.16 - 13.83 $ 4.16 - 16.25
Option price range for exercised shares $ - - $ 6.21
Options available for grant at end of year 1,051,083 495,813 371,587
Weighted-average fair value of options,
granted during the year $ 13.10
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------- ------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
- --------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.16 - $ 6.21 421,145 7.9 $ 5.6545 271,793 $ 5.3492
$ 6.63 - $ 7.59 310,840 9.2 $ 7.0985 195,226 $ 6.8200
$10.24 - $13.83 264,428 8.4 $11.6020 17,440 $10.7221
$15.25 - $16.25 32,000 7.6 $15.5937 0 $ 0.0000
--------- --- -------- ------- --------
1,028,413 8.4 $ 7.9295 484,459 $ 6.1353
========= === ======== ======= ========
</TABLE>
(13) 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, other than that with
EdNet, 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.
The Company is a party to 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. The agreement 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 1996 related to this
agreement was $79,336. The agreement also required 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 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
operation.
The EdNet agreement requires the Company to install, operate, and
maintain a system sufficient to serve 95% of the population of the
licensed geographic area of Mississippi by July 1, 1998. The
agreement also requires the Company to provide installations and
equipment at no charge to EdNet at 1,100 sights EdNet may designate
and to install and equip an electronic classroom in each of its
Mississippi markets at a minimum cost of $20,000 per classroom.
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.
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 $179,172, $380,346, and $1,454,898
for the years ended December 31, 1994, 1995, and 1996, 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 $79,791, $183,003, and
$1,805,083 for the years ended December 31, 1994, 1995, and 1996,
respectively.
Future minimum lease payments due under channel rights leases and
other noncancelable operating leases at December 31, 1996 are as
follows:
Channel Other
Year ending rights operating
December 31, leases leases
------------ ------------ ------------
1997...................... $ 1,588,462 $ 1,432,564
1998...................... 1,688,164 1,361,857
1999...................... 1,703,548 1,310,972
2000...................... 1,737,460 1,244,260
2001...................... 1,745,272 967,600
Thereafter................ 1,810,871 802,202
------------ ------------
$ 10,273,777 $ 7,119,455
============ ============
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.
(14) 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.
(15) Supplemental Cash Flow Information
Cash interest payments made in 1994, 1995, and 1996 totaled
$168,512, $351,178, and $19,404,454 respectively.
The Company made no Federal or state income tax payments during the
years ended December 31, 1994, 1995, and 1996.
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.
During 1995, the Company completed a public offering of the 1995
Senior Notes which had an underwriters fee treated as a non-cash
transaction in the accompanying cash flow statement of $5,250,000.
During 1996, the Company paid $1.8 million in cash, issued 3,442,945
shares of common stock and issued options valued at $1,401,723 in
connection with the TruVision acquisition. The cost of the acquisition
including property and equipment and license rights acquired was
$51,402,953 based on the then market price of the Company's stock of
$14.
In December 1996, the Company entered into a lease transaction for
computer equipment accounted for as a capital lease. The value
assigned to the equipment and the related capital lease obligation was
$924,782.
During 1996, the Company financed $22,257,207 of the bid price in the
BTA auction with the FCC representing 80% of the Company's bid in those
markets. In addition, the Company recorded other long term debts of
$1,959,252 and related license investment related to BTA's in which the
company was the successful bidder but has not been granted the licenses
as of December 31, 1996 (see note 8).
During 1996, the Company acquired all of the outstanding common stock
of Shoals Wireless, Inc., whose principal asset is a wireless cable
system in Lawrenceburg, Tennessee, for $1,068,000 in cash and a note
payable for $118,000.
During 1996, the Company completed a public offering of the 1996 Senior
Discount Notes which had an underwriters fee treated as a non-cash
transaction in the accompanying cash flow statement of $4,374,986.
(16) 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, 1996.
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, 1996
--------------------
Carrying Estimated
Amount Fair Value
-------------- --------------
Marketable investment securities $ 37,034,745 $ 37,002,142
Long-term debt 303,078,604 288,818,456
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 term nature 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 where available and by discounting future
cash flows at rates currently available to the Company for
similar instruments when quoted market rates are not available.
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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of TruVision Wireless, Inc.:
We have audited the accompanying balance sheets of TruVision Wireless, Inc.
(a Delaware corporation formerly named TruVision Cable, Inc.) as of December
31, 1994 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for the period from inception (August 25,
1994) through December 31, 1994 and for the year ended December 31, 1995. We
have also audited the statements of operations, partners' capital and cash
flows of Mississippi Wireless TV L. P. (the predecessor entity to TruVision
Wireless, Inc.) for the period from inception (November 2, 1993) to December
31, 1993 and the period from January 1, 1994 through August 24, 1994.
TruVision Wireless, Inc. and Mississippi Wireless TV L. P. are hereinafter
together referred to as "the Company." These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TruVision Wireless, Inc.
as of December 31, 1994 and 1995, and the results of its operations and its
cash flows for the period from inception (August 25, 1994) through December
31, 1994 and for the year ended December 31, 1995, and the results of
operations and cash flows of Mississippi Wireless TV L. P. for the period
from inception (November 2, 1993) through December 31, 1993 and the period
from January 1, 1994 through August 24, 1994, all in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Jackson, Mississippi,
March 26, 1996 (except with respect to
the matter discussed in Note 11,
as to which the date is April 25,
1996).
TRUVISION WIRELESS, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
(Data with respect to June 30, 1996 are unaudited)
December 31, June 30,
------------------------
1994 1995 1996
----------- ------------ ------------
ASSETS (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $2,712,851 $88,882 $ 193,100
Short-term investments.................................... 75,000 36,300 48,500
Accounts receivable (less allowance for doubtful accounts
of $34,000, $150,426 and $217,211, respectively)........ 41,178 283,656 398,472
Other current assets...................................... 11,005 108,376 310,026
----------- ------------ ------------
Total current assets.................................... 2,840,034 517,214 950,098
----------- ------------ ------------
Property, plant and equipment:
Transmission equipment.................................... 1,197,425 3,029,214 4,487,166
Subscriber premises equipment and installation costs...... 1,841,868 6,866,806 10,603,107
Office furniture and equipment............................ 263,743 437,169 1,007,267
Vehicles.................................................. 223,996 215,344 223,346
Buildings and improvements................................ 204,340 326,090 378,837
----------- ------------ ------------
3,731,372 10,874,623 16,699,723
Less: accumulated depreciation............................ (217,676) (1,375,402) (2,475,099)
----------- ------------ ------------
3,513,696 9,499,221 14,224,624
Uninstalled subscriber premises equipment................. 1,006,854 546,316 1,709,244
----------- ------------ ------------
4,520,550 10,045,537 15,933,868
----------- ------------ ------------
License costs, net-Notes 2 and 3............................ 157,480 179,592 8,803,889
Organizational costs, net................................... 374,654 285,318 178,443
Deferred costs, net and other assets-Note 7................. 90,341 1,849,556 4,791,659
----------- ------------ ------------
Total assets............................................ $7,983,059 $12,877,217 $30,657,957
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $813,471 $713,218 $4,791,081
Accrued expenses.......................................... 77,671 43,000 1,785,109
Short-term debt........................................... - 4,531,464 22,485,810
----------- ------------ ------------
Total current liabilities............................... 891,142 5,287,682 29,062,000
----------- ------------ ------------
Commitments and contingencies
Stockholders' equity-Notes 5 and 6:*
Series A, Convertible Preferred Stock, $.01 par value;
800,000 authorized, issued and outstanding;
(liquidation preference of $8,000,000).................. 8,000 8,000 8,000
Series B, Convertible Preferred Stock, $.01 par value;
300,000 authorized, issued and outstanding in 1995
and 1996 (liquidation preference of $3,000,000)......... - 3,000 3,000
Common Stock, $.01 par value; 6,000,000 shares authorized,
2,400,000 shares issued and outstanding................. 24,000 24,000 24,000
Additional paid-in capital................................ 7,701,679 10,698,679 10,698,679
Accumulated deficit....................................... (641,762) (3,144,144) (9,137,722)
----------- ------------ ------------
Total stockholders' equity.............................. 7,091,917 7,589,535 1,595,957
----------- ------------ ------------
Total liabilities and stockholders' equity.............. $7,983,059 $12,877,217 $30,657,957
=========== ============ ============
</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.
TRUVISION WIRELESS, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS (NOTE 1)
(Data with respect to June 30, 1995 and 1996 are unaudited)
Mississippi Wireless TV L.P. TruVision Wireless, Inc.
--------------------------------------- --------------------------------------------------------------
Period from
Inception
(November 2, 1993) January 1, 1994 to August 25, 1994 to Year Ended Six Months Ended
to December 31, 1993 August 24, 1994 December 31, 1994 December 31, 1995 June 30,
-------------------- ------------------ ------------------ ----------------- ------------------------
1995 1996
----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service revenues...... $ - $ 16,233 $ 264,491 $ 2,595,514 $ 915,833 $ 2,513,555
Installation
revenues............ - 57,137 166,043 486,100 216,606 293,701
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Total revenues...... - 73,370 430,534 3,081,614 1,132,439 2,807,256
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Expenses:
System operating
expenses............ 116,733 278,000 425,603 2,103,053 781,121 2,015,657
Selling, general
and administrative
expenses............ 111,186 668,009 534,431 2,086,200 547,266 2,102,118
Depreciation and
amortization........ - 82,196 167,990 1,266,301 439,355 1,439,974
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Total operating
expenses.......... 227,919 1,028,205 1,128,024 5,455,554 1,767,742 5,557,749
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Loss from operations.... (227,919) (954,835) (697,490) (2,373,940) (635,303) (2,750,493)
Interest income......... - 6,632 55,728 15,063 14,621 -
Interest expense........ - - - (143,505) (8,939) (728,085)
Costs of aborted offering - - - - - (2,515,000)
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Net loss................ (227,919) (948,203) (641,762) (2,502,382) (629,621) (5,993,578)
Preferred dividend
requirement........... - - (227,000) (687,000) (320,000) (440,000)
-------------------- ------------------ ------------------ ----------------- ----------- -------------
Net loss attributable to
common stockholders... $(227,919) $(948,203) $(868,762) $(3,189,382) $(949,621) $(6,433,578)
==================== ================== ================== ================= =========== =============
Loss per common
share*................ N/A N/A $(0.36) $(1.33) $(0.40) $(2.68)
==================== ================== ================== ================= =========== =============
Weighted average
shares outstanding*... N/A N/A 2,400,000 2,400,000 2,400,000 2,400,000
==================== ================== ================== ================= =========== =============
</TABLE>
- ------
* Restated to reflect the 2-for-1 common stock split. See Note 2.
The accompanying notes are an integral part of these financial statements.
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
Total
General Limited Partners'
Partner Partner Capital
----------- ----------- -----------
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
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
TRUVISION WIRELESS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NOTE 1)
(Data with respect to June 30, 1996 are unaudited)
<TABLE>
<CAPTION>
Series A Series B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock* Additional
--------------- --------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital* Deficit
-------- ------ -------- ------ ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange of the net assets of
Mississippi Wireless TV L.P.
for common stock of the
Company......................... - $ - - $ - 2,400,000 $24,000 $ 471,040 $ -
Sale of preferred stock, net of
issuance costs of $761,361 ..... 800,000 8,000 - - - - 7,230,639 -
Net loss for the period from
inception through December 31,
1994............................ - - - - - - - (641,762)
-------- ------ -------- ------ ---------- ------- ----------- ------------
*Balance, December 31, 1994....... 800,000 8,000 - - 2,400,000 24,000 7,701,679 (641,762)
Net loss.......................... - - - - - - - (2,502,382)
Sale of preferred stock........... - - 300,000 3,000 - - 2,997,000 -
-------- ------ -------- ------ ---------- ------- ----------- ------------
Balance, December 31, 1995........ 800,000 8,000 300,000 3,000 2,400,000 24,000 10,698,679 (3,144,144)
Net loss.......................... - - - - - - - (5,993,578)
-------- ------ -------- ------ ---------- ------- ----------- ------------
Balance, June 30, 1996............ 800,000 $8,000 300,000 $3,000 2,400,000 $24,000 $10,698,679 $(9,137,722)
======== ====== ======== ====== ========== ======= =========== ============
</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.
TRUVISION WIRELESS, INC.
STATEMENTS OF CASH FLOWS (NOTE 1)
(Data with respect to June 30, 1995 and 1996 are unaudited)
<TABLE>
<CAPTION>
Mississippi Wireless TV L.P. TruVision Wireless, Inc.
----------------------------------- -------------------------------------------------------------
Period from
inception Six Months Ended
(November 2, 1993) January 1, 1994 August 25, 1994 June 30,
through to to Year Ended
December 31, 1993 August 24, 1994 December 31, 1994 December 31, 1995 1995 1996
------------------ --------------- ----------------- ----------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................... $ (227,919) $ (948,203) $ (641,762) $ (2,502,382) $ (629,621) $(5,993,578)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and
amortization.............. - 82,196 167,990 1,266,301 439,355 1,439,974
Provision for losses on
accounts receivable....... - - 34,000 126,370 22,722 22,038
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable..... - (105,395) (23,783) (368,848) (88,384) (136,854)
Decrease (increase) in other
current assets.......... - (76,969) 63,014 (97,371) (118,923) (201,650)
Increase (decrease) in
accounts payable........ 17,785 431,319 364,367 (100,254) 170,938 4,077,863
Increase (decrease) in
accrued liabilities..... - - 77,671 (34,671) (59,747) 1,742,109
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash provided by (used in)
operating activities: ........ (210,134) (617,052) 41,497 (1,710,855) (263,660) 949,902
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash flows from investing activities:
Capital expenditures.......... (177,000) (2,555,318) (1,896,615) (6,682,712) (3,391,291) (6,988,028)
Payments for license and
organizational costs........ - (541,823) (165,505) - - (8,352,000)
Increase in deferred costs and
other assets................ - - - (1,250,566) (342,370) (1,947,802)
Deposits for acquisitions..... - - - (100,000) - (1,500,000)
Deposit for FCC auction....... - - - (450,000) - -
Proceeds from short-term
investments................. - - - 38,700 38,700 -
Purchase of short-term
investments................. - - (75,000) - - (12,200)
------------------ --------------- ----------------- ----------------- ------------ -------------
Net cash used in investing
activities.................... (177,000) (3,097,141) (2,137,120) (8,444,578) (3,694,961) (18,800,030)
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of
preferred stock............. - - 8,000,000 3,000,000 - -
Preferred stock issuance
costs....................... - - (761,361) - - -
Principal payments on notes
payable..................... - - (3,308,000) - - -
Proceeds from issuance of
short-term debt............. - 3,308,000 - 4,531,464 1,396,302 17,954,346
Proceeds from partners'
contributions............... 1,081,000 590,162 - - - -
------------------ --------------- ----------------- ----------------- ------------ ------------
Net cash provided by financing
activities.................... 1,081,000 3,898,162 3,930,639 7,531,464 1,396,302 17,954,346
------------------ --------------- ----------------- ----------------- ------------ -------------
Net increase (decrease) in
cash and cash equivalents..... 693,866 183,969 1,835,016 (2,623,969) (2,562,319) 104,218
Cash and cash equivalents at
beginning of period........... - 693,866 877,835 2,712,851 2,712,851 88,882
------------------ --------------- ----------------- ----------------- ------------ -------------
Cash and cash equivalents
at end of period.............. $ 693,866 $ 877,835 $ 2,712,851 $ 88,882 $ 150,532 $ 193,100
================== =============== ================= ================= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
TRUVISION WIRELESS, INC.
NOTES TO FINANCIAL STATEMENTS
(Data with respect to June 30, 1996 and 1995 are unaudited)
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 ($9,137,722 at June 30, 1996). 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 experience net losses while
it develops and expands its wireless cable systems, although mature individual
systems of the Company may reach profitability sooner than the Company on a
consolidated basis. In the opinion of management, the Company will ultimately
achieve positive cash flow and net income sufficient to realize its investment
in its assets; however, there can be no assurance that the Company will
generate sufficient operating revenues to achieve positive cash flow or net
income.
The growth of the Company's business requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
expansion of the Company's customer base and system development. Management
expects that the Company will require significant additional financings,
through debt or equity financings, joint ventures or other arrangements, to
achieve its targeted subscriber levels in its current business plans in its
operating systems and target markets and to cover ongoing operating losses.
Additional debt or equity also may be required to finance future acquisitions
of wireless cable companies, wireless cable systems or channel rights. While
management believes the Company will be able to obtain additional debt or
equity capital on satisfactory terms to meet its future financing needs, there
can be no assurance that either additional debt or equity capital will be
available.
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. ITFS licenses generally
are granted for a term of 10 years and are subject to renewal by the FCC. MDS
licenses generally will expire on May 1, 2001 unless renewed. FCC licenses also
specify construction deadlines which, if not met by the Company or extended by
the FCC, could result in the loss of the license. There can be no assurance
that the FCC will grant any particular extension request or license renewal
request. The remaining initial terms of most of the Company's ITFS channel
leases are approximately five to 10 years. The Company's MDS leases generally
are for substantially longer terms and the Company has acquired options to
purchase a majority of the underlying MDS licenses. The use of wireless cable
channels by the license holders is subject to regulation by the FCC and the
Company is dependent upon the continuing compliance by channel license holders
with applicable regulations. The termination or non-renewal of a channel lease
or of a channel license, or the failure to grant an application for an
extension of the time to construct an authorized station, would result in the
Company being unable to deliver programming on the channels authorized pursuant
thereto. Although the Company does not believe that the termination of or
failures to renew a single channel lease other than that with EdNet would
materially adversely affect the Company, several of such terminations or
failure to renew in one or more markets that the Company actively serves or
intends to serve could have a material adverse effect on the Company. In
addition, the termination, forfeiture, revocation or failure to renew or extend
an authorization or license held by the Company's lessors could have a material
adverse effect on the Company.
The Company contracts for the commercial use of 20 ITFS channels in various
markets throughout the state of Mississippi with EdNet. The commercial use of
these channels represents the majority of the Company's channels in Mississippi
and the loss of, or inability to renew, the EdNet Agreement would have a
material adverse effect on the Company's operations. See Note 3.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
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, $36,000 in 1995 and $49,000 in 1996 restricted for use under
a programming contract.
System Operating Expenses
System operating expenses consist principally of programming fees, license
fees, tower rental, maintenance, engineering and other costs incidental to
providing service to customers. Administrative and marketing expenses incurred
by systems during their launch period are expensed as incurred.
System Launch Costs
The costs incurred to prepare a market for launch (marketing, pre-opening
administration, training, etc.) are expensed in the period incurred.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is recorded on
the straight-line basis for financial reporting purposes. Costs incurred for
repair and maintenance of property, plant and equipment are charged to expense
when incurred. Costs incurred for renewals and improvements are capitalized.
Costs of subscriber equipment, including installation labor and other direct
installation costs, are capitalized. Subscriber premises equipment and
installation costs are depreciated using a composite method over five years
which factors in the Company's estimates of useful lives of recoverable
equipment and average subscriber lives of nonrecoverable installation costs.
Materials and supplies used to provide service to customers are included in
office furniture and equipment and are valued at the lower of cost or market.
Depreciation is recorded over the estimated useful lives as follows:
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
License and Organizational Costs
License costs include the costs of acquiring the rights to use certain FCC
frequencies to broadcast programming to the Company's customers. These costs,
net of amortization of $6,000 and $25,000 at December 31, 1994, and 1995,
respectively, and $250,000 at June 30, 1996, are being amortized over a
ten-year period beginning with inception of service in a market. The Company
from time to time reevaluates the carrying amounts of the licenses based on
estimated undiscounted future cash flows as well as the amortization period to
determine whether current events or circumstances warrant adjustments to the
carrying amounts or a revised estimate of the useful life.
Organizational costs include legal fees and other professional fees and
expenses incident to organizing the Company. These costs, net of amortization
of $28,000 and $118,000 at December 31, 1994 and 1995, respectively, and
$225,000 at June 30, 1996, are being amortized over a five-year period.
Income Taxes
Income taxes are provided using an asset and liability approach. The current
provision for income taxes represents actual or estimated amounts payable or
refundable on tax returns filed or to be filed for each year. Deferred tax
assets and liabilities are recorded for the estimated future tax effects of (a)
temporary differences between the tax basis of assets and liabilities and
amounts reported in balance sheets, and (b) operating loss and tax credit carry
forwards. The overall change in deferred tax assets and liabilities for the
period measures the deferred tax expense for the period. Effects of changes in
enacted tax laws on deferred tax assets and liabilities are reflected as
adjustments to tax expense in the period of enactment. The measurement of
deferred tax assets may be reduced by a valuation allowance based on judgmental
assessment of available evidence if deemed more likely than not that some or
all of the deferred tax assets will not be realized.
The following summarizes the Company's deferred tax assets and liabilities as
of December 31, 1994 and 1995:
December 31,
---------------------
1994 1995
-------- ----------
Deferred tax assets:
Net operating loss carryforwards........ $287,820 $1,827,540
Allowance for bad debt.................. 13,260 62,400
-------- ----------
Total tax assets..................... 301,080 1,889,940
Valuation allowance.................. 249,990 1,224,210
-------- ----------
51,090 665,730
-------- ----------
Deferred tax liabilities:
Depreciation............................ 25,350 540,150
Deferred cost........................... 25,740 125,580
-------- ----------
Total deferred tax liabilities...... 51,090 665,730
-------- ----------
Net deferred tax asset.................... $ - $ -
======== ==========
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.
The Company has net operating loss carryforwards for Federal income tax
purposes of approximately $4,686,000 as of December 31, 1995. The carryforwards
expire in years 2009 and 2010.
Stock Split
On March 26, 1996, the Board of Directors authorized a 2-for-1 stock split in
the form of a 100% stock dividend which will be distributed on April 15, 1996
to shareholders of record on March 15, 1996. Unless otherwise indicated, all
per share data, number of common shares and the statements of stockholders'
equity have been retroactively adjusted to reflect this stock split.
Net Loss Per Common Share
Net loss per common share is based on the net loss attributable to the
weighted average number of common shares outstanding during the period
presented (2,400,000 as of December 31, 1994 and 1995 and June 30, 1995 and
1996.) Conversion of the Series A and B Convertible Preferred Stock into Common
Stock is not assumed because the impact is antidilutive. Shares issuable upon
exercise of stock options are antidilutive and have been excluded from the
calculation. For all periods presented, fully diluted loss per common share and
primary loss per common share are the same.
Statement of Cash Flows
In 1994, the Company issued 2,400,000 shares of Class B Common Stock to MWTV
in exchange for assets with a carrying amount of $4,252,144 and liabilities of
$3,757,104. This exchange has been treated as a non-cash transaction except for
the cash balances of $877,835 acquired from MWTV. No interest or income taxes
were paid in 1994. Interest of $137,385 was paid during the year ended December
31, 1995 of which approximately $65,000 was capitalized. For the six months
ended June 30, 1996 interest of $152,832 was paid. No interest was paid for the
six months ended June 30, 1995 and no interest was capitalized for the six
month periods ended June 30, 1995 and 1996. No income taxes were paid for any
period presented.
Disclosure about the Fair Value of Financial Instruments
The fair value of the Company's financial instruments (which consist of cash,
accounts receivable and payable, and short-term debt) approximate their
carrying amounts.
Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement does not apply to deferred acquisition costs or deferred tax
assets. The Company plans to adopt this statement effective January 1, 1996;
however, management believes that its adoption will not have a material effect
on the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock Based
Compensation, which generally requires disclosure of additional information
concerning stock based employee compensation arrangements. The Company plans to
adopt SFAS No. 123 effective January 1, 1996.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Rule 10.01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1996 are not necessarily
indicative of the results that will be expected for the year ending December
31, 1996.
NOTE 3: LICENSE CONTRACTS
In August 1993, VCI signed a renewable long-term agreement with the
Mississippi EdNet Institute, Inc. ("EdNet"), a non-profit, quasi-governmental
body which manages the licenses designated to various state educational
entities. Subsequently, VCI assigned its rights under the EdNet agreement to
the Company. See Note 1. This lease gives the Company exclusive rights to
utilize excess air time (that portion of a channel's airtime available for
commercial broadcasting according to FCC regulations) on the 20 ITFS channels
in Mississippi. The terms of the channel leases are 10 years, commencing in
1992. The contract provides for the monthly payment of $0.05 per subscriber per
channel or, beginning one year after operating the first market, a minimum of
$7,500 per month. Expense for 1994 and 1995 related to this agreement was
$9,300 and $69,000, respectively.
The contract also requires TruVision to make advances to EdNet during the
first 24 months of operations in the amount of $6,000 per month. These advances
are being recovered as a credit against license fees owed to EdNet.
The agreement with EdNet contains the following major provisions and
requirements to be met by TruVision:
* The system is to ultimately cover at least 95% of the population of the
licensed Mississippi geographic coverage area (including the areas designated
as Phase II by the Company).
* The system must be interconnected by a two-way audio/video link between
TruVision/EdNet transmission sites and Mississippi Authority for Educational
Television headquarters in Jackson, Mississippi. The cost of this
interconnection must be borne by TruVision within certain limits.
* TruVision will provide standard installations at locations as EdNet may
designate.
* TruVision will install and equip an electronic classroom in each of its
Mississippi Markets.
* TruVision will complete the network by July 1, 1998.
The Company capitalizes the cost incurred to comply with the facility
installation and interconnection requirements of the EdNet Agreement and
depreciates such cost over the estimated life of the related equipment.
NOTE 4: SHORT-TERM DEBT
Short-term debt consists of the following:
December 31,
--------------- June 30,
1994 1995 1996
---- ---------- ---------
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 $4,026,795
Borrowings under the Interim Credit
Facility with CVCA, due on demand after
June 30, 1996, with interest of 10% due
at maturity. See Note 10..................... - - 12,000,000
Borrowings under interim credit facility
with Wireless One, Inc. See Note 11.......... - - 5,722,482
Other.......................................... - - 736,533
The borrowings under the revolving line of credit are secured by
substantially all of the assets of the Company, including licenses, accounts
receivable, inventory, property and equipment, and contract rights.
Additionally, the borrowings are guaranteed by the Company's president and a
stockholder. The Company may prepay its obligations without penalty at any
time.
NOTE 5: STOCK OPTION PLANS AND EMPLOYMENT CONTRACTS
The Company has established a stock option plan for executives and other key
employees. The plan provides for a maximum of 250,000 shares of Common Stock to
be reserved for such options. Terms and conditions of the Company's options
generally are at the discretion of the board of directors; however, no options
are exercisable after June 8, 2004.
In August 1994, the Company granted options totaling 191,490 shares to two
key employees at an exercise price of $5.00 per share. In June 1995 and August
1995, options to purchase shares of 30,000 and 20,000, respectively, were
granted to two additional key employees at a price of $5.00 per share. The
options granted in 1995 vest over a five-year period. As of December 31, 1995,
options for 140,426 shares are exercisable. No compensation expense has been
recorded on these options granted since the option price was equal to the
estimated fair market value of the option shares on the date the options were
granted.
NOTE 6: PREFERRED AND COMMON STOCK RIGHTS
In October 1995, the Company issued 300,000 shares of Series B Convertible
Preferred Stock for gross proceeds of $3,000,000. Pursuant to a prior
commitment, CVCA acquired 270,000 shares and 30,000 shares were issued to a
common stockholder. MWTV has pledged its shares of the Company's Common Stock
to CVCA.
Series A and Series B Convertible Preferred Stock is senior to all other
shares of stock. Convertible Preferred Stock dividend rights are cumulative at
8% per annum based on a stated value of $10 per share. As of December 31, 1994
and 1995, the aggregate amount of Convertible Preferred Stock dividends in
arrears was approximately $227,000 and $914,000, respectively ($547,000 and
$1,354,000, respectively, at June 30, 1995 and 1996). No preferred dividends
have been declared. See Note 11.
In the event of any liquidation, holders of Series A and Series B Convertible
Preferred Stock would first be entitled to receive the greater of (i) the total
$11,000,000 liquidation preference ($8,000,000 for Series A and $3,000,000 for
Series B) plus all accrued but unpaid dividends, or (ii) the amount that would
have been paid, or the value of property that would have been distributed if,
prior to liquidation, the shares had been converted to Common Stock plus all
accrued but unpaid dividends.
Each share of Convertible Preferred Stock carries voting rights as if
converted into shares of Common Stock and, at the option of the holder, is
convertible at any point in time into one fully paid, nonassessable share (two
shares after the 2-for-1 common stock split-see Note 2) of Common Stock plus
cash equal to accrued but unpaid dividends. If the conversion is not made
pursuant to an initial public offering, TruVision may, at its option, issue a
promissory note in lieu of paying the dividends.
The holders of Convertible Preferred Stock are also entitled to elect two of
the five member Board of Directors of the Company. Pursuant to the terms of a
stockholder's agreement certain restrictions have been placed on the
stockholders' ability to vote on specified matters.
In October 1995, the corporate charter was amended to combine Class A and
Class B Common Stock into a single class of $0.01 par value, Common Stock.
Holders of Common Stock are not eligible to receive dividends as long as any
shares of Convertible Preferred Stock are outstanding.
In the event of liquidation, after distribution in full of preferential
amounts to be distributed to holders of Convertible Preferred Stock, the
holders of Common Stock would receive distributions in proportion to the number
of shares held.
NOTE 7: DEFERRED COSTS AND OTHER ASSETS
December 31,
------------------
June 30,
1994 1995 1996
------- ---------- ----------
Deferred costs and other assets
consist of:
Deferred merger, financing and
acquisition costs -Note 11............... $ - $1,027,216 $2,464,637
Advances to EdNet-Note 3................... 84,000 132,000 102,924
Deposits for future acquisitions
-Note 10................................. - 100,000 142,153
FCC auction deposit........................ - 450,000 1,450,000
Other...................................... 6,341 140,340 631,945
------- ---------- ----------
$90,341 $1,849,556 $4,791,659
======= ========== ==========
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. At June 30, 1996 deferred merger and financing costs
relate to a proposed public offering of common stock and Senior Discount Notes
and the pending merger with Wireless One, Inc. See Note 11.
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:
1996............................... $369,920
1997............................... 397,744
1998............................... 309,657
1999............................... 190,228
2000............................... 132,502
Thereafter......................... 225,711
Rent under these leases was $55,004 for the period August 25, 1994 to
December 31, 1994 and $254,512 for the year ended December 31, 1995.
The Company is participating in an auction conducted by the FCC for rights to
obtain use of available MDS commercial channels in certain basic trading areas.
The Company's outstanding bids for these rights aggregate approximately $16
million. If the Company is the highest bidder in any, or all, of the areas, the
Company will be required to pay up to $14 million (net of a small business
bidding credit), a portion of which will be financed by the U.S. government.
The Company is involved in certain legal proceedings generally incidental to
its business. While the results of any litigation contain an element of
uncertainty, management believes that the outcome of any known or threatened
legal proceeding will not have a material effect on the Company's financial
position or results of operations.
NOTE 9: CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations
of credit risk, consist primarily of cash and accounts receivable. The Company
has not experienced any losses on its deposits. Subscriber accounts receivable
collectibility is impacted by economic trends in each of the Company's markets.
Such receivables are typically collected within 30 days, and the Company has
provided an allowance which it believes is adequate to absorb losses from
uncollectible accounts.
NOTE 10: BUSINESS COMBINATIONS AND PROPOSED FINANCING TRANSACTIONS
In February 1996, TruVision acquired all the outstanding common stock of
BarTel, Inc., a company holding wireless cable license rights in the Demopolis
and Tuscaloosa, Alabama Markets for cash of approximately $1.7 million and, if
certain conditions are met, notes payable of $652,000. Accordingly, BarTel,
Inc.'s financial position at June 30, 1996 and the results of its operations
for the period from the date of the consummation of the acquisition to June 30,
1996, are reflected in the Company's results for the six months ended June 30,
1996. Additionally, TruVision has entered into a definitive agreement to
purchase substantially all of the assets of Madison Communications, Inc. and
Beasley Communications, Inc. ("Madison"), a wired and wireless cable provider
located near Huntsville, Alabama, for approximately $6.0 million.
In March 1996, the Company entered into a letter of intent to acquire
substantially all of the assets of Shoals Wireless, Inc., a wireless cable
provider located in Lawrenceburg, Tennessee, for $1,180,000 in cash.
TruVision has also entered into agreements to purchase licenses, channel
rights and equipment in several other markets for cash of approximately $11.9
million. None of these markets is currently operating and no significant
liabilities are expected to be assumed in connection with these asset
acquisitions.
The Company expects to finance the acquisitions described above with the
short-term line of credit discussed in Note 4 and with an Interim Facility of
up to $12.0 million provided by CVCA in the form of a 10% note payable (due on
demand after June 30, 1996). See Notes 4 and 11.
NOTE 11: SUBSEQUENT EVENTS
On April 25, 1996, the Company entered into an agreement and plan of merger
(the "Agreement") with Wireless One, Inc. ("Wireless One"), in which Wireless
One will exchange approximately 3.4 million shares of its common stock for all
of the Company's outstanding shares in a transaction valued at $45 million. The
transaction is expected to close by late July 1996. In connection with the
consummation of the Agreement it is expected that all of the Shares of Series A
and B Convertible Preferred Stock will be converted into shares of Common Stock
and all accrued and unpaid preferred dividends ($1,354,000 at June 30, 1996)
will be paid.
On May 6, 1996, Wireless One issued the Company two short-term lines of
credit, a $1.5 million line of credit which is to be used to fund working
capital purposes and pay off the borrowings under the bank revolving line of
credit ("Working Capital Line of Credit") and a $9 million line of credit to be
used to fund acquisition needs ("Acquisition Line of Credit"), together the
"Lines of Credit". The Acquisition Line of Credit will increase to $15 million
upon repayment of the Working Capital Line of Credit. The Lines of Credit are
secured by substantially all of the assets of the Company and accrue interest
at Wireless One's borrowing rate of 13%. Principal and interest are due on the
tenth business day following the earliest of (1) the date of the consummation
of the Agreement, (2) December 31, 1996, or (3) the date the Agreement is
rescinded.
Prior to the Agreement, the Company was pursuing a public offering of Common
Stock and Senior Discount Notes (the "Offerings"). Concurrent with the
Agreement, the Company withdrew the Offerings. Certain costs related to the
Offerings and the Agreement of approximately $474,000 were deferred at June 30,
1996. Costs related to the Offerings which did not relate to the Agreement or
a related public offering of Wireless One were written off.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Madison Communications, Inc. and
Beasley Communications, Inc.:
We have audited the accompanying combined balance sheets of Madison
Communications, Inc. and Beasley Communications, Inc. (Alabama corporations) as
of December 31, 1994 and 1995 and the related combined statements of operations
and accumulated deficit and cash flows for the years ended December 31, 1993,
1994 and 1995. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Madison
Communications, Inc. and Beasley Communications, Inc. as of December 31, 1994
and 1995 and the combined results of their operations and their combined cash
flows for the years ended December 31, 1993, 1994 and 1995, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Jackson, Mississippi,
January 19, 1996 (except with respect
to the matter discussed in note 6,
as to which the date is February 6,
1996).
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED BALANCE SHEETS (Note 1)
(Data with respect to June 30, 1996 are unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------- -------------
1994 1995 1996
------------- ------------- -------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash......................................... $ 5,705 $ 39,711 $ 100,644
Accounts receivable (less allowance for
doubtful accounts of $16,302, $13,888 and
$19,673, respectively)..................... 1,068 3,513 -
Other current assets......................... 7,804 13,401 287
------------- ------------- -------------
Total current assets......................... 14,577 56,625 100,931
------------- ------------- -------------
Property, plant and equipment:
Cable system-wireless...................... 2,337,362 2,462,318 2,500,569
Cable system-wired......................... 1,042,923 1,062,824 1,065,641
Machinery and equipment.................... 155,753 130,494 130,494
Buildings, leasehold improvements, office
furniture and equipment.................. 34,605 40,071 40,071
Land....................................... 50,000 50,000 50,000
------------- ------------- -------------
3,620,643 3,745,707 3,786,775
Less: accumulated depreciation............. (1,944,781) (2,499,752) (2,753,203)
------------- ------------- -------------
1,675,862 1,245,955 1,033,572
Uninstalled subscriber premises equipment.... 18,195 10,431 12,538
------------- ------------- -------------
1,694,057 1,256,386 1,046,110
------------- ------------- -------------
License costs, net-(note 2).................. 73,333 66,666 63,332
Other assets................................. 1,835 1,835 1,835
------------- ------------- -------------
Total assets............................. $ 1,783,802 $ 1,381,512 $ 1,212,208
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 84,042 $ 64,874 $ 60,613
Accrued expenses, primarily programming
costs.................................... 275,294 319,424 332,977
Deferred income............................ 28,055 20,576 17,560
Borrowings under line of credit (note 3)... 275,000 125,000 75,000
------------- ------------- -------------
Total current liabilities................ 662,391 529,874 486,150
------------- ------------- -------------
Commitments and contingencies (note 4)
Stockholders' equity
Common Stock; $1 par value; 1,000 shares
authorized issued and outstanding........ 1,000 1,000 1,000
Additional paid-in capital................. 2,475,192 2,475,192 2,475,192
Accumulated deficit........................ (1,354,781) (1,624,554) (1,750,134)
------------- ------------- -------------
Total stockholders' equity............... 1,121,411 851,638 726,058
------------- ------------- -------------
Total liabilities and stockholders'
equity................................. $ 1,783,802 $ 1,381,512 $ 1,212,208
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Data with respect to June 30, 1995 and 1996 are unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues........................ $ 1,426,971 $ 1,493,337 $ 1,543,470 $ 777,592 $ 782,283
Installation revenues................... 68,026 63,400 38,677 - -
------------- ------------- ------------- ------------- -------------
Total revenues........................ 1,494,997 1,556,737 1,582,147 777,592 782,283
------------- ------------- ------------- ------------- -------------
Expenses:
System operating expenses............... 727,124 814,715 888,707 311,901 301,840
General and administrative
expenses.............................. 386,911 402,897 404,804 305,642 374,095
Depreciation and amortization........... 578,739 626,531 577,240 296,193 256,784
------------- ------------- ------------- ------------- -------------
Total operating expenses.............. 1,692,774 1,844,143 1,870,751 913,736 932,719
------------- ------------- ------------- ------------- -------------
Loss from operations...................... (197,777) (287,406) (288,604) (136,144) (150,436)
Other income (expense):
Other income............................ 40,793 43,180 43,414 19,430 30,060
Gain (loss) on sale of assets........... 103,583 - (7,143) - -
Interest (expense)...................... (55,465) (31,090) (17,440) (10,619) (5,204)
------------- ------------- ------------- ------------- -------------
Net loss.................................. (108,866) (275,316) (269,773) (127,333) (125,580)
Accumulated deficit-beginning of period... (970,599) (1,079,465) (1,354,781) (1,354,781) (1,624,554)
------------- ------------- ------------- ------------- -------------
Accumulated deficit-end of period......... $(1,079,465) $(1,354,781) $(1,624,554) $(1,482,114) $(1,750,134)
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Data with respect to June 30, 1995 and 1996 are unaudited)
<TABLE>
<CAPTION> Six Months
Year Ended December 31, Ended June 30,
----------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net loss............................................... $(108,866) $(275,316) $(269,773) $(127,333) $(125,580)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization........................ 578,739 626,531 577,240 296,193 256,784
(Gain) loss on sale of assets........................ (103,583) - 7,143 - -
Provision for losses on accounts receivable.......... 22,500 18,000 15,505 9,000 9,000
(Increase) in other assets........................... (125) (65) - - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......... (17,720) (10,184) (17,950) (7,931) (5,487)
(Increase) decrease in other current assets........ (8,110) 16,418 (5,597) 7,804 13,115
Increase (decrease) in accounts payable............ 3,170 39,575 (19,168) (378) (4,261)
Increase in accrued expenses....................... 127,134 91,610 44,130 53,191 13,553
Increase (decrease) in deferred income............. 65 5,165 (7,479) (3,225) (3,016)
----------- ----------- ----------- ---------- ----------
Cash flows provided by operating activities.............. 493,204 511,734 324,051 227,321 154,108
----------- ----------- ----------- ---------- ----------
Cash flows used in investing activities:
Capital expenditures................................... (329,640) (220,778) (143,545) (88,554) (43,175)
Proceeds from sale of assets........................... 180,000 - 3,500 - -
----------- ----------- ----------- ---------- ----------
Net cash used in investing activities.................... (149,640) (220,778) (140,045) (88,554) (43,175)
----------- ----------- ----------- ---------- ----------
Cash flows used in financing activities:
Payment on bank overdraft.............................. (21,815) - - - -
Payments on line of credit............................. (300,000) (307,000) (150,000) (100,000) (50,000)
----------- ----------- ----------- ---------- ----------
Net cash used by financing activities.................... (321,815) (307,000) (150,000) (100,000) (50,000)
----------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..... 21,749 (16,044) 34,006 38,767 60,933
Cash and cash equivalents at beginning of period......... - 21,749 5,705 5,705 39,711
----------- ----------- ----------- ---------- ----------
Cash and cash equivalents at end of period............... $ 21,749 $ 5,705 $ 39,711 $ 44,472 $100,644
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
MADISON COMMUNICATIONS, INC. AND BEASLEY COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) The Companies
(a) History and Organization
Madison Communications, Inc. ("Madison"), an Alabama corporation, was formed
and began operations on July 26, 1989. Beasley Communications, Inc.
("Beasley"), an Alabama corporation, was formed on June 16, 1994. The
shareholders of Madison and Beasley are the same and the business operations
are generally conducted as if Madison and Beasley were a single entity.
Accordingly, the financial statements of Madison and Beasley are presented on a
combined basis. Madison and Beasley are hereafter referred to as "the Company."
The Company is engaged in building, managing and owning wired and wireless
cable systems. Wired cable systems retransmit television signals to subscribers
over coaxial cable networks from a head-end facility where the signals are
received and processed. Wireless cable systems retransmit television
programming received at the head-end via encrypted microwave signals from
multi-channel broadcast towers to subscribers within an approximate 40 mile
radius of each tower. The Company has licenses for contractual control over 27
wireless cable channels in Madison and Limestone Counties of North Alabama
licensed by the Federal Communications Commission ("FCC").
(b) FCC Licenses
The Company is dependent on leases with unaffiliated third parties for
substantially all of its wireless cable channel rights. ITFS licenses generally
are granted for a term of 10 years and are subject to renewal by the FCC. MDS
licenses generally will expire on May 1, 2001 unless renewed. FCC licenses also
specify construction deadlines which, if not met by the Company or extended by
the FCC, could result in the loss of the license. There can be no assurance
that the FCC will grant any particular extension request or license renewal
request. The use of wireless cable channels by the license holders is subject
to regulation by the FCC and the Company is dependent upon the continuing
compliance by channel license holders with applicable regulations. The
termination or non-renewal of a channel lease or of a channel license, or the
failure to grant an application for an extension of the time to construct an
authorized station, would result in the Company being unable to deliver
programming on the channels authorized pursuant thereto. Although the Company
does not believe that the termination of or failure to renew a single channel
lease would materially adversely affect the Company, several of such
terminations or failures to renew in one or more Markets that the Company
actively serves or intends to serve could have a material adverse effect on the
Company. In addition, the termination, forfeiture, revocation or failure to
renew or extend an authorization or license held by the Company's lessors could
have a material adverse effect on the Company.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is recorded on
the straight-line basis for financial reporting purposes. Costs incurred for
repair and maintenance of property, plant and equipment are charged to expense
when incurred. Costs incurred for renewals and improvements are capitalized.
The costs of subscriber equipment, including installation labor and other
direct installation costs, is capitalized. Subscriber premises equipment and
installation costs are depreciated using a composite method over five years
which factors in the Company's estimates of useful lives of recoverable
equipment and average subscriber lives of nonrecoverable installation costs.
Depreciation is recorded over the estimated useful lives as follows:
Cable systems-wireless......................... 3-10 years
Cable systems-wired............................ 5-10 years
Machinery and equipment........................ 5-10 years
Office furniture and equipment................. 7 years
Buildings and improvements..................... 31 years
(c) License Costs
License costs include the costs of acquiring the rights to use certain FCC
frequencies to broadcast programming to the Company's customers. These costs,
net of amortization of $20,001, $26,668 and $33,334 at December 31, 1993, 1994
and 1995 and $36,668 at June 30, 1996, are being amortized over a 15 year
period beginning with inception of service in a market. The Company from time
to time reevaluates the carrying value of the licenses based on estimated
undiscounted cash flows as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying amounts or
a revised estimate of the useful life. In 1993, broadcast licenses to certain
Markets outside of the Company's area of interests were sold to a third party,
resulting in a gain of approximately $100,000.
(d) Revenue Recognition
Revenues from monthly service charges are recognized as the service is
provided to the customer. Customers are billed in the month services are
rendered.
Operating Expenses
Operating expenses consist principally of programming fees, license fees,
tower rental, maintenance, engineering and other costs incident to providing
service to customers.
(e) Income Taxes
Effective March 15, 1990, the Company elected to be taxed as an S Corporation
under provisions of the Internal Revenue Code. As a result, the Company does
not pay federal corporate income taxes or Alabama corporate income taxes on its
taxable income. Instead, the stockholders are liable for individual federal
income taxes and Alabama income taxes on the Company's taxable income. No
distributions of earnings to stockholders have been made or are planned to be
made for payment of income taxes as the Company had a loss for income tax
purposes in 1995.
(f) Statement of Cash Flows
The Company considers all highly liquid investments with remaining maturities
of 90 days or less to be cash equivalents. The Company paid interest of
$55,465, $31,090 and $17,440, for the years ended December 31, 1993, 1994 and
1995, respectively and $5,953 for the six months ended June 30, 1996. No
interest was paid in the three months ended March 31, 1995. No income taxes
were paid in any of the periods presented.
(g) Disclosures about the Fair Value of Financial Instruments
The fair values of the Company's financial instruments (which consist of
cash, accounts receivable, accounts payable and borrowings under the line of
credit) approximate their carrying value.
(h) Recently Issued Accounting Standards
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Statement does not apply to deferred acquisition costs, or deferred tax
assets. The Company has adopted this statement effective January 1, 1995, and
its adoption did not have a material effect on the Company's financial
statements.
(i) Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that will be expected for the year ending December
31, 1996.
(3) Line of Credit Agreement
On April 8, 1992 the Company obtained a $1,000,000 revolving credit facility
(the "Revolver") for working capital and other general corporate purposes.
Borrowings under the Revolver bear interest at the prime rate plus 1.0% (9.5%
at December 31, 1995). Interest is payable quarterly and the Revolver is
renewable on an annual basis. Substantially all of the assets of the Company
are pledged as collateral under the Revolver and the stock of the Company is
pledged as collateral under the guarantee of the Revolver. Total borrowings
outstanding under the Revolver were $125,000 at December 31, 1995.
(4) Commitments and Contingencies
The Company leases office space, antenna space and certain equipment under
noncancelable operating leases with remaining terms ranging from one to five
years. The following is a schedule by years of future minimum rentals due under
the leases at December 31, 1995:
1996..................................... $26,407
1997..................................... 10,560
1998..................................... 6,600
1999..................................... 2,640
2000..................................... 1,540
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $13,200, $24,800 and $37,200, respectively.
In addition to the noncancelable leases above, the Company has entered into
agreements with certain area schools and colleges to use the ITFS licenses
awarded them. These contracts give the Company exclusive rights to utilize 16
channels awarded as educational frequencies to broadcast commercial
programming. The Company is obligated to reserve a certain number of hours per
week for broadcasting of educational programming for these institutions and to
provide the equipment necessary in the institutions to receive the Company's
transmission. The Company fulfills its educational programming obligation
through assignment of four channels for full-time educational programming. The
contracts provide monthly payments of $0.05 to $0.10 per subscriber per
channel. License expense for the years ended December 31, 1993, 1994 and 1995
was $44,300, $46,900 and $54,300, respectively.
The Company is involved in certain legal proceedings generally incidental to
its business. While the results of any litigation contain an element of
uncertainty, management believes that the outcome of any known or threatened
legal proceeding will not have a material effect on the Company's financial
position or results of operations.
(5): Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of cash and accounts receivable. The Company
has not experienced any losses on its deposits. Subscriber accounts receivable
collectibility is impacted by economic trends in each of the Company's Markets.
Such receivables are typically collected within thirty days, and the Company
has provided an allowance which it believes is adequate to absorb losses from
uncollectible accounts.
(6): Sale of the Company
On February 6, 1996, the Company signed a definitive agreement to sell
substantially all of the assets of Madison and Beasley to TruVision Wireless,
Inc., for $6.0 million in a combination of cash and notes receivable. The sale,
which is contingent upon FCC approval, is expected to be consummated in the
second quarter of 1996.
================================= ==============================
No dealer, salesman or other Prospectus
person has been authorized to
give any information or make any
representation not contained in
this Prospectus and, if given or
made, such information or
representation must not be relied
upon as having been authorized by
the Company. This Prospectus
does not constitute an offer to
buy any of the securities offered
hereby in any jurisdiction to any
person to whom it is unlawful to
make such offer in such
jurisdiction.
- ---------------------------------
Wireless One, Inc.
13 1/2% Senior Discount Notes
due 2006 and Warrants to
Purchase Common Stock
Table of Contents
Prospectus Summary............. 2
Risk Factors...................10
Formation of the Company.......19
Dividends and Price Range
of Common Stock..............20
Capitalization.................21
Selected Financial
Information..................25
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations...................26
Business.......................31
Management.....................48
Certain Transactions...........55
Principal Stockholders.........56
Description of the Notes.......57
Description of the Warrants....87
Description of Capital
Stock........................89
Shares Eligible for Future
Sale.........................92
United States Federal
Income Tax Matters...........93 April 30, 1997
Plan of Distribution...........97
Legal Matters..................97
Experts........................97
Available Information..........97
Index to Consolidated
Financial Statements........F-1
================================= ==============================
