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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-K
 
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
                      FISCAL YEAR ENDED DECEMBER 31, 1998
 
                                       OR
 
[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
        FOR THE TRANSITION PERIOD FROM                TO
 
                         COMMISSION FILE NUMBER 0-23008
 
                           AMERICAN TELECASTING, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                   DELAWARE
       (State or other jurisdiction of                           54-1486988
        incorporation or organization)              (I.R.S. Employer Identification No.)
      5575 TECH CENTER DRIVE, SUITE 300
          COLORADO SPRINGS, COLORADO                               80919
   (Address of principal executive offices)                      (Zip Code)
</TABLE>
 
         REGISTRANT'S PHONE NUMBER, INCLUDING AREA CODE: (719) 260-5533
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                     Class A Common Stock, $0.01 Par Value
 
     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.  YES [X]  NO [ ]
 
     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SEC.229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K.  [X]
 
     As of March 5, 1999, the aggregate market value of Class A Common Stock
held by non-affiliates* of the Registrant approximated $6.0 million based upon
the closing price of the Class A Common Stock as reported on the OTC Bulletin
Board as of the close of business on that date.
 
     As of March 5, 1999, 25,743,607 shares of the registrant's Class A Common
Stock were outstanding.
                             ---------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
      The following documents are incorporated into this Form 10-K by reference:
      Proxy Statement for the Annual Meeting of Stockholders to be held on April
      22, 1999 Part III
                             ---------------------
 
* Without acknowledging that any individual director or executive officer of the
  Company is an affiliate, the shares over which they have voting control have
  been included as owned by affiliates solely for purposes of this computation.
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                                     PART I
 
ITEM 1. BUSINESS
 
     All statements contained herein that are not historical facts, including
but not limited to statements regarding the Company's plans for future
development and operation of its business, are based on current expectations.
These statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: a lack of
sufficient capital to finance the Company's business strategy on terms
satisfactory to the Company; pricing pressures which could affect demand for the
Company's services; changes in labor, equipment and capital costs; the Company's
inability to develop and implement new services such as wireless broadband
access and high-speed Internet access; the Company's inability to obtain the
necessary authorizations from the Federal Communications Commission for such new
services; competitive factors, such as the introduction of new technologies and
competitors into the wireless communications business; a failure by the Company
to attract strategic partners; general business and economic conditions;
inexperience of management in deploying a wireless broadband access business;
and the other risk factors described from time to time in the Company's reports
filed with the Securities and Exchange Commission. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Securities Litigation Reform
Act of 1995, and as such, speak only as of the date made.
 
BACKGROUND
 
     American Telecasting, Inc. ("ATI" or the "Company") was formed in 1988 to
develop wireless cable television systems in mid-sized markets throughout the
United States. As of December 31, 1998, the Company provided analog subscription
television service to approximately 107,000 subscribers in 32 operational
wireless cable systems located in selected U.S. markets (the "Developed
Markets"). The Company also has wireless cable (microwave) frequency interests
in 21 other U.S. markets (the "Undeveloped Markets," and together with the
Developed Markets, the "Markets"). As of December 31, 1998, the Company had
approximately 10.1 million Estimated Households in Service Areas in its markets
(See "-- Markets"). Servicing these households with services provided by the
Company generally requires line of sight to the transmit antenna site;
therefore, some of these households will be "shadowed" and unable to receive the
services offered by the Company because of certain characteristics of the
particular market, such as transmit antenna height and transmission power,
terrain and foliage ("Line-of-Sight Constraints"). See "-- Markets."
 
     Wireless cable systems use microwave radio frequencies licensed by the
Federal Communications Commission ("FCC") to transmit signals over the air from
a transmission tower to a microwave receiver installed at the subscriber's home
or business. Licenses for wireless cable frequencies, which utilize up to
approximately 200 megahertz ("MHz") of microwave radio spectrum located
generally between 2.5 and 2.7 gigahertz ("GHz"), are given a 35 mile protected
service area to transmit signals from their central transmission point, although
increases in transmission power and other factors may expand the coverage area
of a system to approximately 40 to 50 miles from the central transmission point.
Because microwave signals are transmitted over the air, wireless cable
technology does not require the large networks of cable and amplifiers utilized
by franchise cable operators to deliver services. Thus, wireless cable
technology was developed to be a relatively reliable and perceived lower cost
medium to provide services to subscribers in single family homes, multiple
dwelling units and commercial properties.
 
     The Company was incorporated in Delaware in December 1988 and has its
principal executive offices at 5575 Tech Center Drive, Suite 300, Colorado
Springs, Colorado 80919. The Company's telephone number is (719) 260-5533. The
Company operates its business through its subsidiaries. Except as otherwise
indicated, references in this Report to "ATI" or the "Company" refer to American
Telecasting, Inc. and its subsidiaries collectively.
 
     The subscription television industry began in the late 1940's and 1950's to
serve the needs of residents in predominantly rural areas with limited access to
local off-air VHF/UHF broadcasts. The industry expanded to metropolitan areas
due to, among other things, the fact that subscription television offered better
reception and
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more programming. Currently, subscription television systems offer various types
of programming, which generally include basic service, expanded basic service,
premium service and, in some instances, pay-per-view service.
 
     Subscription television subscribers generally pay an initial connection
charge and a fixed monthly fee for basic service. The amount of the monthly
basic service fee varies from one market to another and is a function, in part,
of the number of channels and services included in the basic service package and
the cost of such services to the subscription television system operator. In
most instances, a separate monthly fee for each premium service and certain
other specific programming is charged to subscribers, with discounts generally
available to subscribers receiving multiple premium services. Monthly service
fees for basic, expanded basic and premium services constitute the major source
of revenue for subscription television systems. Subscribers normally are able to
discontinue service at any time. Converter rentals, remote control rentals,
installation charges, reconnect charges, repair charges, late fees and
advertising fees are also included in a subscription television system's
revenues, but generally are not a significant component of such revenues.
 
BUSINESS STRATEGY
 
  Wireless Broadband Access
 
     The Company's principal business strategy is to pursue implementation of a
Wireless Broadband Access ("WBA") capability that it believes will eventually be
the best use of the wireless cable spectrum (see "-- Competition"). The Company
believes that market, technological and regulatory developments are creating an
opportunity for the current wireless cable spectrum to be used to serve small
and medium-sized business customers with fixed, two-way, high-speed data and
telephony services. The Company's WBA business strategy assumes that ATI will
become part of a larger wholesale provider of fixed, high-speed, two-way data
and telephony services and does not assume retail distribution of WBA services
directly by the wholesale provider. The WBA business strategy also assumes an
investment in the Company and other wireless cable providers by a strategic
partner that will serve both as an investor and as a customer of a newly created
entity to offer WBA services. The Company believes that the WBA business
strategy provides stakeholders of the Company with the best opportunity to
recover some of their investments and maximize future value.
 
     The execution of the Company's WBA business strategy has two principal
elements. First, pursue the regulatory, technological and strategic investment
activities necessary to shift the Company's existing analog video business to
WBA services. Second, manage the Company's existing analog video business to
preserve limited cash resources and afford the Company additional time to pursue
development of WBA services. As part of this second element, the Company has not
been increasing its analog video subscriber levels.
 
     Regulatory developments have begun to benefit the WBA business strategy. In
1996, the FCC authorized the use of digital transmission over the wireless cable
spectrum. In September 1998, the FCC issued regulations that permit two-way use
of the wireless cable spectrum. However, the Company, along with other entities,
has petitioned the FCC to refine its two-way rules to permit simpler deployment
of commercial operations under the two-way rules. Actual implementation of
two-way commercial businesses will require, among other factors, some changes in
the existing rules along with creation of filing "windows" by the FCC to submit
two-way license applications.
 
     Another component of the WBA business strategy has been the development of
technology. There is presently no commercially available point-to-multipoint
equipment for both two-way data and telephony over wireless cable spectrum. In
1997, the Company began working with certain equipment vendors and system
integrators to construct and test broadband, two-way wireless technology to
provide "last mile" connectivity over wireless cable spectrum for both
high-speed data and telephony. As a part of this effort, the Company established
technology trials in Eugene, Oregon and Seattle, Washington and has been testing
various technologies. The technology trials are not presently intended to become
full commercial WBA operations. The Company believes that point-to-multipoint
equipment required for implementing its WBA business strategy will not be
commercially available until late 1999 at the earliest.
 
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     The third component of the WBA business strategy has been to enter into a
relationship with one or more strategic partners that facilitates access to
markets, technologies, products, capital and infrastructure. Potential strategic
partners include telecommunications, Internet, software and equipment companies.
A strategic partnership would likely be accompanied by a financial restructuring
of the Company under the protection of the bankruptcy laws and could involve
transactions with other wireless cable operators. While any such restructuring
under bankruptcy protection, should it occur, could take a variety of forms, it
is likely to involve an exchange of some or all of the outstanding debt for
common stock in the Company and result in a very substantial or total dilution
to existing stockholders. The Company's WBA business strategy assumes that
strategic partners would share in some of the capital expenditures necessary to
construct WBA commercial operations. Although many factors affect the ability to
achieve such a strategic relationship, the most significant challenge to the
Company has been the substantial complexities and uncertainties of building a
WBA business using predominately leased wireless cable spectrum. There can be no
assurance that the Company will be able to enter into one or more strategic
relationships on terms and conditions satisfactory to the Company.
 
     The WBA business strategy has many risks and uncertainties, including, but
not limited to, not receiving the necessary FCC authorizations for two-way
licenses on terms acceptable to the Company, not having access to two-way
equipment for wireless cable spectrum on commercially acceptable terms, not
entering into a strategic relationship, not having access to sufficient channel
capacity, on commercially acceptable terms, not having sufficient capital to
implement a WBA business strategy, not having sufficient capital resources to
operate the current analog video subscription video business or to meet the
Company's obligations under its high-yield notes, and not having the necessary
management skill or human resources. There can be no assurance that the WBA
business strategy will provide stakeholders, including stockholders and
noteholders, of the Company with a recovery on their investments or that it will
produce or maximize future value.
 
     There is also uncertainty regarding the degree of subscriber demand for WBA
services, especially at pricing levels at which the Company can achieve an
attractive return on investment. There can be no assurance that there will be
sufficient subscriber demand for such services to justify the cost of their
introduction, or that the Company will be successful in competing against
existing or new competitors in the market for such broadband services. The
Company expects that the market for any such services will be extremely
competitive. See "-- Competition."
 
  Subscription Video
 
     Historically, the primary business of the Company has been developing
analog wireless cable systems to provide subscription television service. The
Company's analog video strategy was to develop systems in mid-sized markets
where it believed terrain and other conditions were well suited to wireless
cable service. To attract subscribers in these markets, the Company sought to
exploit certain perceived cost advantages of wireless cable over other analog
subscription television services by offering the most popular programming
(including "basic" channels such as ESPN, CNN, USA, Nickelodeon, Discovery,
regional sports channels, MTV, local broadcast channels, and certain "premium"
channels such as Home Box Office and Showtime) at affordable prices and by
emphasizing a strong commitment to customer service. The most significant
challenge to the Company's analog video business has been the limited number of
programming channels available (usually a maximum of 33 plus "off air" capture
of local broadcast stations).
 
     While pursuing alternative services for the wireless cable spectrum, such
as WBA, the Company has continued operating its Developed Markets principally as
an analog video subscription television business. The Company's video plan has
been, in part, to maximize operating cash flow from its analog video operations
while pursuing its WBA business strategy. This operating plan has also been
required because of the Company's low cash resources, high levels of debt and
lack of access to capital markets. The Company has intentionally curtailed
growth in its analog video business by not investing the capital expenditures
and marketing and other funds necessary to replace all subscribers who chose to
stop receiving the Company's services ("Subscriber Churn"). In an effort to
minimize investment in new customer additions, the Company has also increased
installation rates charged to new video subscribers. These price increases and
increased competition have substantially reduced video subscriber additions. The
Company is focusing its attention on
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retaining existing customers and is exploring alternatives for maximizing the
value of its analog video subscribers.
 
     The Company's subscriber base declined from approximately 138,900 at
December 31, 1997 to approximately 107,000 at December 31, 1998. A substantial
portion of the decline resulted from the Company's business strategy and the
sale in 1998 to BellSouth Wireless Cable, Inc. ("BellSouth Wireless") of the
Company's Lakeland, Florida operation (see "-- Acquisitions and Divestitures").
As the Company's analog video subscriber base decreases, its revenues are
expected to decrease, unless and until it is able to successfully introduce WBA
or other services.
 
     The Company has explored offering digital video subscription services.
Digital video equipment for wireless cable spectrum is available and permits the
compression of programming channels to substantially increase channel capacity.
The Company has not initiated digital video service for a variety of reasons,
including intense competition and saturated markets for subscription video
services, lack of available funds, high expense of equipment and high cost of
acquiring digital video broadcast rights from channel owners in certain markets.
 
  High-Speed Internet Access
 
     Using digital technology, the Company launched an asymmetrical, high-speed
Internet access service in its Colorado Springs, Colorado market in 1997 branded
as "WantWEB." WantWEB was launched in Denver, Colorado and Portland, Oregon in
early 1998. This technology utilizes a high-speed wireless cable modem for
downstream Internet access and relies on a telephone connection for upstream
Internet access. The Company launched commercial operations in only a small
number of markets because of limited cash resources and to evaluate the
long-term viability and financial returns of the business. The Company is
seeking to maintain its Internet subscriber base, but no future launches of
WantWEB are currently planned. Revenue from the WantWEB business is not
significant.
 
ACQUISITIONS AND DIVESTITURES
 
  BellSouth Transaction
 
     In March 1997, the Company entered into a definitive agreement (the
"BellSouth Agreement") with BellSouth Corporation and BellSouth Wireless which
provides for the sale of all of the Company's Florida and Louisville, Kentucky
wireless cable assets (the "Southeastern Assets") to BellSouth Wireless (the
"BellSouth Transaction"). The Southeastern Assets include operating wireless
cable systems in Orlando, Lakeland, Jacksonville, Daytona Beach and Ft. Myers,
Florida and Louisville, Kentucky and wireless cable channel rights in Naples,
Sebring and Miami, Florida.
 
     In August 1997, the Company completed the first closing of the BellSouth
Transaction, which involved selling to BellSouth Wireless the Company's
operating systems and channel rights in the Florida markets of Orlando,
Jacksonville, Ft. Myers and Daytona Beach, along with the Louisville, Kentucky
market and certain rights in Miami, Florida. The proceeds received and related
gain recorded by the Company from the first closing totaled approximately $54
million and $35.9 million, respectively.
 
     In March 1998, the Company closed on additional channels in the Ft. Myers
and Jacksonville, Florida markets. The proceeds received and related gain
recorded was $2.9 million.
 
     In July 1998, the Company completed an additional closing of the BellSouth
Transaction, which transferred to BellSouth Wireless the Company's wireless
operating system and channel rights in Lakeland, Florida. As of the date of
closing, the Lakeland wireless cable system served approximately 8,200
subscribers. The proceeds received by the Company were approximately $12.0
million, of which $1.8 million remains in escrow until July 15, 1999 for
satisfaction of potential indemnification obligations. In August 1998, the
Company closed on additional channels in the Lakeland, Florida market for cash
consideration of approximately $5.0 million. A net loss of approximately
$823,000 was recorded on the Lakeland transactions. Under the terms of the
BellSouth Agreement, additional closings are possible through August 1999. If
additional closings occur, the Company presently estimates that total gross
proceeds will be less than $10 million. The
 
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BellSouth Agreement contains customary conditions for each closing, including
the satisfaction of all applicable regulatory requirements. There can be no
assurance that all conditions will be satisfied or that further sales of assets
to BellSouth Wireless will be consummated. See "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
  Other Transactions
 
     In July 1998, the Company purchased from Fresno Telsat, Inc. ("FTI") the
remaining 35% partnership interest that the Company did not already own in
Fresno MMDS Associates for cash consideration of $1.5 million plus contingent
cash consideration of up to $255,000, the precise amount of which will depend
upon the outcome of litigation between the Company and the Fresno County
Superintendent of Schools. Through two of its subsidiaries, the Company is now
the 100 percent owner of Fresno MMDS Associates.
 
     On March 19, 1999, the Company entered into an agreement with AESCO
Systems, Inc. ("AESCO") to acquire wireless cable channels in Portland, Oregon
from AESCO for a fixed payment of $2.25 million plus a deferred payment based
upon the price received in any further transfer of the channels within the next
five years. In addition, the Company paid $250,000 on March 19, 1999 as
consideration for a no-shop covenant. Payment of the $2.25 million fixed portion
of the purchase price to AESCO is contingent upon the Company's closing of sale
transactions of other wireless cable assets for cumulative cash consideration of
$5 million or more and the FCC's grant by final order of the assignment
application for the licenses. The agreement will terminate on March 15, 2000 if
the transaction has not been completed.
 
REGULATION
 
     The wireless cable industry is highly regulated by the FCC and other
governmental agencies. Wireless cable companies are subject to federal, state
and local regulation, as described below.
 
  Federal Communications Commission
 
     The FCC has granted wireless cable service providers access to a series of
channel groups, generally in the 2.5 to 2.7 GHz range of microwave radio
frequencies. These channel groups consist of Multipoint Distribution Service
("MDS") channels, which are allocated for commercial use and Instructional
Television Fixed Service ("ITFS") channels that are primarily authorized for
educational purposes. Currently, up to 33 total channels are potentially
available for licensing, lease or purchase by wireless cable companies in each
market. Up to 13 MDS channels in any given market typically can be owned or
leased by wireless cable operators for full-time usage without programming
restrictions. The remaining 20 channels in a given market generally are
allocated for ITFS use. Wireless cable providers can lease excess channel
capacity from ITFS licensees as long as the licensees provide a prescribed
minimum amount of educational programming over their channels. Wireless cable
companies generally are prohibited from owning ITFS channels. ITFS licensees are
currently allowed to meet their minimum educational programming requirements for
all licensed channels using only one channel per four-channel group via "channel
loading," if desired. FCC rules generally prohibit the ownership or leasing of
MDS and ITFS authorizations by traditional franchise cable companies if the MDS
facility is located within 35 miles, or the ITFS facility is located within 20
miles, of the cable company's franchise or service areas. Pursuant to the
Telecommunications Act of 1996 ("1996 Act"), the cable-MDS cross-ownership rule
does not apply to a cable operator in a franchise area in which the operator is
subject to effective competition.
 
     Authorizations have been issued, or applications are currently pending, for
the vast majority of MDS licenses in major U.S. markets. Under the current
regulatory structure, as discussed below, only holders of a Basic Trading Area
("BTA") authorization may apply for available, unlicensed, MDS frequencies
within the BTA. In a number of markets, certain ITFS frequencies are still
available. However, except as noted below, eligibility for ownership of ITFS
licenses is generally limited to accredited educational institutions,
governmental organizations engaged in the formal education of enrolled students
and non-profit organizations whose purposes are educational and include
providing educational and instructional television material to such accredited
institutions and governmental organizations. Non-local, qualified applicants
must demonstrate that
 
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they have arranged with local educational entities to provide them with
programming and that they have established a local programming committee.
 
     From November 1995 through March 1996, the FCC auctioned all available MDS
rights on the basis of BTAs, with one such authorization available per BTA. The
winning bidder has the exclusive right to apply to operate one or more
unlicensed MDS channels within the BTA, as long as proposed stations operating
on these channels comply with the FCC's interference requirements and certain
other rules. In order to provide wireless cable service in these markets, the
BTA licensee must also secure the right to a transmission facility. A BTA
licensee has a five-year build-out period within which to expand or initiate new
service within its BTA. It may sell, trade or otherwise alienate all or part of
its rights in the BTA and may also partition its BTA along geopolitical
boundaries and contract with eligible parties to allow them to apply for MDS
authorizations within the partitioned area, and conversely, acquire such rights
from other BTA licensees. The license term for each station authorized under
these BTA procedures is ten years from the date on which the BTA auction closed.
 
     The Company was the winning bidder in 59 BTAs and, as of December 31, 1998,
had been issued BTA authorizations in 57 of its BTAs. See "-- Markets." The
Company expects to receive BTA authorizations in the other two BTAs in 1999.
There can be no assurance that the FCC will grant the Company's remaining BTA
applications. As long as the Company continues to hold the BTA rights in these
57 BTAs, other entities seeking new MDS licenses or certain modifications to
existing licenses within such BTAs must seek approval from the Company, as the
BTA authorization holder. Similarly, to the extent that the Company wishes to
obtain new MDS licenses or certain modifications to its existing MDS licenses in
markets in which it was not the BTA winner, it will be required to negotiate
with the BTA owner for approval of such licenses or modifications.
 
     Certain of the Company's MDS applications were filed, and a substantial
majority of the Company's MDS licenses were granted, prior to adoption of the
BTA rules and thus are not subject to such rules. If and when the Company's
non-BTA MDS applications are processed by the FCC and the Company resolves any
deficiencies identified by the FCC, a conditional license will be issued,
allowing construction of the station to commence. Construction of such stations
generally must be completed within one year after the date of grant of the
conditional license. ITFS authorization holders generally have 18 months after
the initial grant of their construction permits within which to construct their
stations. All ITFS licenses have terms of ten years or more and most current
non-BTA MDS licenses will expire on or before May 1, 2001. At the time of
expiration, licenses that were granted prior to adoption of the BTA rules will
be subject to renewal under the pre-BTA regulatory structure. Such licenses also
may be revoked for cause in a manner similar to other FCC licenses. FCC rules
prohibit the sale, for profit, of an MDS authorization not obtained by auction
(i.e. one applied for by a BTA authorization holder) or of a controlling
interest in the licensee of such a facility prior to construction of the station
or, in certain instances, prior to the completion of one year of operation. The
FCC, however, does permit the leasing of 100% of an MDS licensee's spectrum
capacity to a third party and the granting of options to purchase a controlling
interest in an authorization once the required time period has lapsed.
 
     The Company has obligations, pursuant to terms of licenses granted by the
FCC, to construct transmission capabilities for a number of channels in
Undeveloped Markets. In the event the Company does not construct transmission
capabilities for a channel and in the further event the FCC would not grant an
extension of time to construct such transmission capabilities, the FCC has the
authority to revoke the license and the Company would lose its rights to own or
lease such a channel.
 
     Many of the Company's Undeveloped Markets currently have licenses for less
than 20 wireless cable channels, which, in management's opinion, approximates
the minimum number of wireless cable channels necessary for the commencement of
commercial operations using analog technology. Management believes that
high-speed Internet access technology requires substantially fewer channels to
operate on a commercial basis.
 
     The 1997 Balanced Budget Act ("1997 Act") enacted revisions to Section 309
of the Communications Act of 1934, as amended (the "Communications Act"),
requiring that the FCC auction authorizations among
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certain mutually exclusive commercial broadcast license applicants. While the
1997 Act specifically excluded noncommercial educational and public broadcast
station applications from the auction requirement, it did not contain a similar
exclusion for mutually exclusive ITFS applications. In August 1998, the FCC
concluded that it was required by Section 309 to use auctions to dispose of
mutually exclusive ITFS applications rather than the previously applied
comparative "point system."
 
  Two-way Operation
 
     In September 1998, the FCC issued formal rules for two-way use of MDS and
ITFS channels. The Company expects to begin applying for two-way licenses in
selected markets during subsequent filing "windows" established by the FCC. The
Company estimates the earliest it could have a two-way license granted is the
fourth quarter of 1999. There can be no assurance regarding the ability of the
Company to obtain such licenses. Petitions for reconsideration which propose to
refine the two-way rules remain pending at the FCC. The Company believes that
actual implementation of two-way commercial businesses will require some changes
in the existing two-way rules along with filing "windows" by the FCC for
operators such as the Company to submit licensing applications.
 
     The FCC has also adopted a number of ITFS rule changes that permit
licensees to meet the ITFS educational programming requirements by providing
voice and data services. In a digital environment, the ITFS licensee must retain
5% of its capacity for such ITFS programming. ITFS leases may now extend for a
period of fifteen years. Certain of these new rules are also subject to pending
petitions for reconsideration.
 
     The two-way licensing process will require substantial frequency
engineering studies and negotiations with other MDS and ITFS license holders in
markets adjacent to that of a two-way license application. These studies and
negotiations are expected to significantly increase the implementation costs of
two-way digital services. The process may involve channel swapping among
licensees within individual markets.
 
  Telecommunications Act of 1996
 
     The 1996 Act became law on February 8, 1996. Among other things, the 1996
Act eliminated the cable/telephone cross-ownership restriction, allowing a
telephone company the option of providing video programming within its telephone
service area over a cable system or a video platform. Conversely, cable
companies are now permitted to provide telephone service. The 1996 Act also
limited, and in some cases eliminated, FCC regulation of cable rates established
by the Cable Television Consumer Protection and Competition Act of 1992 ("1992
Cable Act"), depending upon the size of the cable system and whether that system
is subject to effective competition and the nature of the rate. Small cable
operators and systems subject to effective competition are now exempt from rate
regulation as a result of the 1996 Act. The 1996 Act also vests the FCC with
exclusive jurisdiction over the provision of Direct Broadcast Satellite ("DBS")
and preempts the authority of local authorities to impose certain taxes on such
services. See "-- Competition -- Direct Broadcast Satellite."
 
     While current FCC regulations are intended to promote the development of a
competitive subscription television industry, there can be no assurance that
these regulations will have a favorable impact on the wireless cable industry as
a whole and/or the Company in particular. In addition, the FCC's regulation of
other spectrum could permit the operation of other wireless services to
interfere with MDS and ITFS frequencies.
 
     The 1996 Act mandated that the FCC adopt regulations to prohibit
restrictions that impair customers' ability to receive video programming
services through reception devices. The FCC has adopted rules that prohibit
restrictions that impair the installation, maintenance or use of an antenna that
receives wireless cable signals, where the antenna is one meter or less in
diameter or diagonal measurement. The FCC has concluded that a restriction
"impairs" if it unreasonably delays, prevents or increases the cost of
installation, maintenance or use, or precludes reception of an acceptable
quality signal. Prohibited regulations include, but are not limited to, any
state or local law or regulation, including zoning, land use, or building
regulation, or any private covenant, homeowner's association rule or similar
restriction on property within the exclusive use or control of the antenna user
where the user has a direct or indirect ownership interest in the property. The
matter of
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whether the FCC's preemption authority extends to property not within the
exclusive use or control of a person with an ownership interest, such as a
rental property, remains pending.
 
     The 1996 Act also requires all providers of telecommunications services to
contribute to a national Universal Service Fund (the "Fund"). The Fund was
created to promote the availability of telecommunications services to those in
low income, rural, insular and high cost areas at rates that are reasonably
comparable to the lower rates charged in urban areas. The 1996 Act expanded the
purpose of the Fund to include provision of affordable access to advanced
telecommunications services for schools, classrooms, health care facilities and
libraries. Previously, only telephone companies were required to contribute to
the Fund. The FCC is considering whether and to what extent wireless cable
operators, such as the Company, must contribute to the Fund. This matter remains
pending before the FCC.
 
     Pursuant to the 1996 Act, video programming distributors, including
wireless cable operators, will be required to provide closed captioned video
programming on a phased-in basis starting on January 1, 2000. Requirements to
pass-through captions already contained in programming and to maintain
captioning at 1997 levels became effective on January 1, 1998. Because ITFS
programming, as a class, is exempt from captioning requirements, wireless cable
operators that retransmit such programming are not required to provide it with
closed captioning.
 
  Pending Legislation
 
     Legislation has been introduced in several states that would authorize
state and local authorities to impose taxes on providers of subscription
television programming, including wireless cable operators, based upon their
gross receipts comparable to the franchise fee cable operators pay. While the
proposals vary among states, such legislation would require as much as five
percent of gross receipts to be paid by wireless cable operators to local
authorities.
 
     Although the majority of states impose a sales/use tax on the sale of
certain telecommunication services, the proliferation of new and emerging
services has made unclear the distinction between taxable telecommunication
services and non-telecommunication services. Internet access services could be
classified as telecommunication services in some states. In 1998 the United
States Congress enacted a three-year moratorium on the imposition of any new
taxes on Internet services.
 
  Other Forms of Regulation
 
     Federal law requires that all "cable companies," as defined by Section 602
of the Communications Act, obtain local or state franchises prior to
constructing a subscription television distribution system. Because wireless
cable systems deliver programming to subscribers by means of microwave
facilities rather than through coaxial cable that cross public rights-of-way and
are not specifically defined as "cable systems" in Section 602 of the
Communications Act, the 1992 Cable Act, or in earlier statutes or FCC
regulations, wireless cable systems have not been considered cable companies
under FCC rules in this context. Accordingly, wireless cable companies generally
are not required to obtain franchises and are generally not subject to state
regulation by public utility or cable commissions.
 
     The Company's subscription television assets in Cincinnati, Ohio include
both wireless cable and Satellite Master Antenna Television facilities, the
latter of which have been deemed by the FCC to constitute cable systems. The FCC
granted the Company a temporary waiver of the cable/MDS cross-ownership rules to
allow the common ownership and operation of these facilities until April 22,
1999. By that date, or any extension thereof, the Company will be required to
take all actions necessary to comply with these rules, including possible
divestiture.
 
     The Company also operates certain other rural systems that may be defined
as cable systems. In accordance with FCC procedure, on June 1, 1996, the Company
applied for special waivers from the cross-ownership rules to enable it to
continue to operate these systems. The FCC has yet to act on the Company's
waiver requests. Should these waivers be denied by the FCC, the Company would be
required to take all
 
                                        8
<PAGE>   10
 
actions necessary to comply with these rules, which among other things, may
include divestiture of these systems. Less than 500 subscribers are served by
these systems.
 
     The Company is also subject to various FCC regulatory limitations relating
to ownership and control. The 1996 Act and FCC rules require the FCC's approval
before a license may be assigned or control of the licensee may be transferred.
Moreover, the 1996 Act provides that certain types of licenses, including those
for MDS stations, may not be held directly by corporations of which non-U.S.
citizens or entities ("Aliens") own of record or vote more than 20% of the
capital stock. In situations in which such a FCC license is directly or
indirectly controlled by another corporation, Aliens may own of record or vote
no more than 25% of the controlling corporation's capital stock.
 
     Wireless cable operators are also subject to regulation by the Federal
Aviation Administration and the FCC with respect to construction of transmission
towers and certain local zoning regulations affecting construction of such
towers and other facilities.
 
     Under the federal copyright laws, permission from the copyright holder
generally must be secured before a video program may be retransmitted. Under
Section 111 of the Copyright Act, certain "cable systems" are entitled to engage
in the secondary transmission of broadcast programming without the prior
permission of the holders of the copyright in the programming. To do so, a cable
system must secure a compulsory copyright license. Such a license is obtained
upon the filing of certain reports with, and the payment of certain fees, to the
U.S. Copyright Office. In 1994, Congress amended copyright law to permit
wireless cable operators to rely on the cable compulsory license under Section
111 of the Copyright Act.
 
     Section 119 of the Copyright Act provides for a similar
compulsory-licensing program for the retransmission of broadcast programming to
the home via satellite. In 1997, the Copyright Arbitration Royalty Panel
significantly increased the rates of entities operating under Section 119. While
this action has no direct impact on the rates applicable to the Company's
services, it has generated a debate over the differences in the compulsory
licensing schemes and the disparity of the rates. The Company's operations may
be adversely affected if existing laws or regulations applicable to the
Company's copyright royalty liability are modified or new laws are adopted.
 
     Under the retransmission consent provisions of the 1992 Cable Act, wireless
and hardwire cable operators seeking to retransmit certain commercial television
broadcast signals must first obtain the permission of the broadcast station
whose signal it wishes to retransmit. However, wireless cable systems, unlike
hardwire cable systems, are not required under the FCC's "must carry" rules to
retransmit a specified number of broadcast television channels. Although it is
not certain that the Company will be able to obtain the requisite broadcaster
consents, the Company believes that in most cases it will be able to do so for
little or no additional cost.
 
COMPETITION
 
  Subscription Television Services
 
     The Company offers analog subscription television services in 32 markets,
serving approximately 107,000 customers at the end of 1998. In most of the
Company's markets, its subscription television services are branded as "WANTV."
The subscription television business provides essentially all of the Company's
current revenue. Subscription television competition is very intense. The
Company's existing and potential competitors in the subscription television
business consist of a broad range of companies engaged in the communications and
entertainment businesses, especially franchise cable operators and DBS
providers, and to a lesser extent, television networks and home video products
companies. The Company has recently experienced increased competition in the
subscription television business due, in part, to the growth in market share of
companies providing digital video.
 
     The Company has sought to differentiate itself from its competitors through
lower prices, streamlined pricing plans, service guarantees, high-quality
customer service and system performance, and local community involvement and
support. These differentiating factors have decreased over time as new
competitors, such as DBS providers, have entered the subscription television
market, as the quality of customer service of competitors has improved, as
digital video has become available, as incentives have improved for customers to
 
                                        9
<PAGE>   11
 
switch to competitors' services, as the number of programming channels offered
by competitors in their basic and premium packages has increased over the
comparable number offered by the Company, as DBS providers began introducing low
cost basic programming tiers with more programming channels than the Company's
basic tiers and at rates comparable to or less than offered by the Company, and
as certain competitors have begun offering high-speed Internet access bundles
with their subscription television services.
 
     Many of the Company's existing or potential competitors have substantially
greater name recognition and financial, technical and human resources than the
Company and may be better equipped to develop and operate systems providing
subscription television service. The Company's principal existing competitors
for subscription television are described below.
 
  Franchise Cable Systems
 
     Currently, the Company's principal subscription television competitors are
franchise cable companies that hold local franchises to operate their systems in
the Company's markets. Cable television service is currently available to a
significant majority of U.S. television households. In most instances, the
franchise cable operators serve more subscribers on both a local and national
level than the Company. Franchise cable companies typically offer a larger
selection of programming than the Company. The Company seeks to compete with
franchise cable companies by offering the most widely demanded programming
choices at lower prices combined with high-quality customer service.
 
     In the current technological environment, most franchise cable operators
would be required to significantly upgrade their coaxial systems in order to
provide digital programming, which would involve a substantial investment of
capital. In part, because of the substantial capital required, deployment of
digital programming has been slow to occur. However, a number of proposed
technological improvements, when fully completed, will permit cable companies to
increase channel capacity, offer two-way capable systems, and deliver a higher
quality picture and sound with less substantial upgrades to their systems.
 
     A critical competitive factor in the subscription television industry is
access to high-quality programming at competitive prices. Programming costs
represent one of the most significant expense items for subscription television
operators. Franchise cable operators, with a total of about 67 million
subscribers in the United States, compared to less than one million for wireless
cable operators, usually pay less for programming expenses because of their
significantly larger subscriber base. Because of the typically higher channel
capacity of franchise cable systems over analog video wireless cable systems,
franchise cable operators are also able to take advantage of discount rates
available from certain programmers for carrying bundles of programming channels
from the same or affiliated programmers. In some instances programmers have
granted exclusive programming access to franchise cable operators.
 
     The Company's inability to renew its programming agreements on satisfactory
terms as they expire, or to obtain access to acceptable alternate programming,
would have a material, adverse effect on its business, financial condition and
results of operations.
 
  Direct Broadcast Satellite
 
     DBS involves the transmission of an encoded signal directly from a
satellite to the subscriber's home. Because the signal is at a higher power
level than most satellite-transmitted signals, it can be received with a
relatively small (typically 18-inch) dish mounted at a subscriber's premises.
 
     The cost of constructing and launching the satellites used to distribute
DBS programming is substantial. When first introduced, DBS reception equipment
for a single television set, plus installation fees, service charges and off-air
antenna installation, where applicable, was more expensive than comparable
prices charged by wireless and franchise cable operators. These prices have
decreased as additional competitors have entered the DBS market and as DBS
providers have become more aggressive in marketing their services. DBS operators
served approximately 8.6 million subscribers nationwide at the end of 1998
(representing about a 38% increase from 1997). The Company is experiencing
increased competition and Subscriber Churn from
 
                                       10
<PAGE>   12
 
DBS operators primarily because of a decrease in DBS equipment prices, lower
monthly subscription rates, aggressive marketing by DBS operators and the number
of digital-quality channels offered.
 
     To a lesser extent, the Company also competes with C-band satellite program
distributors (also referred to as "backyard dish" or television receive only
systems) and private cable operators in the provision of subscription television
services.
 
  Internet Services
 
     The Company has launched commercial asymmetrical high-speed Internet access
services in three markets, Portland, Oregon and Denver and Colorado Springs,
Colorado. The service is branded as "WantWEB." WantWEB customers typically
receive Internet download data at approximately 750 Kbps over wireless MDS
channels and rely upon a telephone line upload, or return, to the Internet.
Average Internet download speeds may vary widely based upon a number of factors,
including the capacity of the Internet Service Providers ("ISPs") connectivity
to the Internet, the number of users downloading information at any one time
from an ISP, speed of the telephone return path and the characteristics of the
user's personal computer. The Company's principal target market is small to
mid-size business customers. The overall demand throughout the United States for
Internet services is expected to grow substantially, led by increased utility of
the Internet to corporate and consumer users, new software applications,
availability of faster access speeds and rising personal computer penetration.
 
     The Internet access business is highly competitive. Barriers to entry are
relatively low. Current and potential competitors include local, regional and
national ISPs, telephone companies, franchise cable operators and DBS service
providers. The Company's principal competition usually comes from high-speed
Internet access alternatives and not from slower dial-up connections to the
Internet. These principal competitors include franchise cable companies offering
high-speed Internet over their networks, telephone companies such as local
exchange carriers ("LECs") and competitive local exchange carriers ("CLECs")
using ISDN, and digital subscriber lines ("DSL") or T1 connections, ISP's
offering a similar variety of connections as LECs and CLECs, and DBS providers.
 
     The Company believes that it has a competitive advantage in achieving
relatively fast download speed from the Internet with less capital investments
than typically required by franchise cable operators to upgrade their networks
or by LECs and CLECs offering DSL connectivity.
 
     The Company believes that competition will intensify in the future and its
ability to be successful in this business will depend on a number of factors,
including customer demand for high-speed Internet access services, acceptable
pricing structures for high-speed Internet services, reliable subscriber
equipment and the financial ability of the Company to service and grow the
high-speed Internet business. Many of the Company's existing or potential
competitors in the Internet access business have greater name recognition and
financial, technical and human resources than the Company and may be better
equipped to develop, deploy and operate Internet access systems.
 
     The high-speed Internet access business and other businesses, such as WBA,
that use digital technologies present increased competition to the Company for
the renewal of channel lease agreements. This increased competition arises
because high-speed Internet access and certain other businesses that use digital
technologies may require fewer channels than the traditional analog video use of
wireless cable spectrum where a practical minimum of about 20 channels is
required. The Company could lose channels to competitors or incur higher costs
to renew or retain its existing channels.
 
  Wireless Broadband Access
 
     The Company believes that the best use of wireless cable spectrum is to
serve small and medium-sized business customers with fixed, two-way high-speed
data and telephony services. The Company is not presently offering WBA services.
The Company faces two principal types of competition for its WBA services. One
group of competitors is telephone companies such as LECs and CLECs that offer a
wide variety of non-wireless broadband T1, T3, DSL and fiber connectivity for
business customers. The other group of competitors
 
                                       11
<PAGE>   13
 
is companies that offer or plan to offer WBA services using radio frequencies
other than wireless cable spectrum. These competitors include companies
operating in local multipoint distribution service spectrum (27.5 to 28.35 GHz,
29.1 to 29.25 GHz and 31.0 to 31.3 GHz) and in the 24 GHz and the 39 GHz bands.
The Company believes that other frequencies of radio spectrum are also being
evaluated for WBA services by competitors. All WBA providers are potentially
competitors of the LECs because the WBA technologies bypass the local customer
access lines of the LECs and the related costs charged by the LECs to access
such lines. The various radio spectrum used by WBA providers is subject to
different physical broadcast properties and FCC licensing rules.
 
     A broad range of companies engaged in the communications and entertainment
businesses will be actual or potential competitors. Pending and future
technological and regulatory developments may result in additional competitors
and alternate means of providing broadband services. Almost all the competitors
of the Company for broadband services are larger and have more capital,
technology and human resources. The Company depends upon regulatory, technology
and strategic partner actions, among other factors, in order to successfully
implement its WBA business strategy (see " -- Business Strategy").
 
  Bundled Services
 
     Many franchise cable companies have begun offering or announced their
intentions to offer, high-speed Internet access over their networks. At least
one DBS provider also offers high-speed Internet access. AT&T Corp. ("AT&T") has
completed its acquisition of Tele-Communications, Inc. ("TCI") and has announced
its intention to use the cable network of TCI to distribute data and telephone
services of AT&T. AT&T has also announced ventures with other franchise cable
companies to distribute AT&T products. This bundling activity increases
competition for the Company because of the attractiveness to customers of
purchasing bundled services from one provider and because of the opportunity for
the provider to price bundled services more competitively than individual
services that the Company may offer.
 
MARKETS
 
     The Company operates under a decentralized management structure. To enhance
its operating efficiency and maintain quality customer service, the Company has
consolidated or "clustered" operations of systems by geographical areas. Many of
the Company's operational systems or system clusters are managed by a General or
Operations Manager who reports directly to the Vice President of Operations.
General and Operations Managers are responsible for the day-to-day operations of
their respective systems. Each operating system is staffed with customer service
sales representatives and service technicians. Most non-executive employees of
the Company have incentive compensation programs that are tied to service
quality levels and operating goals. Pricing and programming decisions are made
at the local level, subject to review by the Company's executive management.
 
     The following table sets forth, by region, certain information relating to
the Company's Markets as of December 31, 1998:
 
<TABLE>
<CAPTION>
                                                                    ESTIMATED
                                             TOTAL    DEVELOPED   HOUSEHOLDS IN
                  REGION                    MARKETS    MARKETS    SERVICE AREAS   SUBSCRIBERS
                  ------                    -------   ---------   -------------   -----------
<S>                                         <C>       <C>         <C>             <C>
Rocky Mountain............................    23         15         3,008,000        56,100
Southeast.................................     3         --           406,000            --
Western...................................    18         11         3,681,000        32,200
Midwest...................................     9          6         2,974,000        18,700
                                              --         --        ----------       -------
                                              53         32        10,069,000       107,000
                                              ==         ==        ==========       =======
</TABLE>
 
     Information regarding each of the Company's Markets as of December 31, 1998
is presented in the following table. "Estimated Households in Service Areas"
represents the approximate number of households within a 35 mile radius of the
Company's tower sites, subject to certain downward adjustments for overlapping
service areas. This information is based upon household estimates provided by
MapInfo using data obtained
 
                                       12
<PAGE>   14
 
from the Claritas database. The estimated households in the Claritas database
for 1997 plus one fifth of the projected estimated households through 2002, was
used to derive the Estimated Households in Service Areas for 1998. Some of these
households will be "shadowed" and therefore unable to receive the Company's
service due to Line-of-Sight Constraints. The percentage of Estimated Households
in Service Areas that the Company estimates may be shadowed because of
Line-of-Sight Constraints generally ranges from 10% to 50% depending upon the
market.
 
                            WIRELESS CABLE CHANNELS
 
<TABLE>
<CAPTION>
                                      1998                     OWNED OR LEASED                  TOTAL EXPECTED
                                    ESTIMATED      OWNED OR    CHANNELS SUBJECT                ANALOG CHANNELS
                                  HOUSEHOLDS IN   LEASED FCC    TO PENDING FCC      TOTAL     (INCLUDING OFF-AIR
                                  SERVICE AREAS    CHANNELS    APPLICATIONS(1)    MICROWAVE      CHANNELS)(2)
                                  -------------   ----------   ----------------   ---------   ------------------
<S>                               <C>             <C>          <C>                <C>         <C>
ROCKY MOUNTAIN REGION
  Denver, CO....................      857,000         27              --             27               35
  Oklahoma City, OK.............      392,000         29              --             29               38
  Omaha, NE(3)..................      270,000         13              16             29               33
  Little Rock, AR...............      232,000         30              --             30               36
  Wichita, KS(3)................      207,000         31              --             31               34
  Colorado Springs, CO(3).......      207,000         33              --             33               38
  Mankato, MN(3)................      132,000         27               3             30               30
  Lincoln, NE(3)................      111,000         32              --             32               39
  Ft. Collins, CO(3)............       88,000         29               4             33               41
  Fargo, ND(3)..................       79,000         32               1             33               38
  Pueblo, CO(3).................       55,000         28               1             29               34
  Greeley, CO(3)................       54,000         30              --             30               38
  Billings, MT..................       53,000         28               4             32               35
  Lewiston, ID..................       50,000         12              --             12               18
  Rapid City, SD................       46,000         30              --             30               35
  Grand Island, NE(3)...........       43,000         32              --             32               41
  Bismarck, ND(3)...............       35,000         18              --             18               18
  Windom, MN(3).................       29,000         22              --             22               26
  Geneva, NE....................       17,000          8              --              8               15
  Tecumseh, NE..................       14,000         20              --             20               20
  Alamosa, CO...................       14,000         13               4             17               17
  Sheridan, WY..................       13,000         23               4             27               30
  Sterling, CO..................       10,000         13              --             13               13
                                   ----------
          Region Total..........    3,008,000
SOUTHEAST REGION
  Bradenton, FL.................      268,000          9               4             13               25
  Naples, FL(3),(4).............       89,000         22               1             23               29
  Sebring, FL...................       49,000         12               4             16               28
                                   ----------
          Region Total..........      406,000
WESTERN REGION
  Seattle, WA...................    1,007,000         14              --             14               24
  Portland, OR(3)...............      683,000         28              --             28               34
  Las Vegas, NV(3)..............      427,000         19              --             19               31
  Fresno, CA....................      274,000         25              --             25               39
  Salem, OR(3)..................      188,000         27               1             28               35
  Eugene, OR(3).................      126,000         33              --             33               36
  Visalia, CA(3)................      119,000         30               1             31               42
  Bellingham, WA................      118,000         24              --             24               32
</TABLE>
 
                                       13
<PAGE>   15
 
<TABLE>
<CAPTION>
                                      1998                     OWNED OR LEASED                  TOTAL EXPECTED
                                    ESTIMATED      OWNED OR    CHANNELS SUBJECT                ANALOG CHANNELS
                                  HOUSEHOLDS IN   LEASED FCC    TO PENDING FCC      TOTAL     (INCLUDING OFF-AIR
                                  SERVICE AREAS    CHANNELS    APPLICATIONS(1)    MICROWAVE      CHANNELS)(2)
                                  -------------   ----------   ----------------   ---------   ------------------
<S>                               <C>             <C>          <C>                <C>         <C>
  Monterey/Salinas, CA(3).......      103,000         23               4             27               34
  Santa Barbara, CA.............      101,000          8               4             12               18
  Medford, OR(3)................       99,000         33              --             33               33
  Anchorage, AK.................       98,000         25               4             29               36
  Yuba City, CA(3)..............       84,000         27               5             32               43
  Redding, CA(3)................       66,000         33              --             33               38
  Merced, CA(3).................       58,000         25               8             33               38
  Bend, OR......................       48,000         32              --             32               36
  Wenatchee, WA(3)..............       43,000          9              12             21               23
  Maui, HI(3)...................       39,000         28              --             28               34
                                   ----------
          Region Total..........    3,681,000
MIDWEST REGION
  Cincinnati, OH(3).............      666,000         14              --             14               20
  Columbus, OH(3)...............      585,000         20               9             29               34
  Youngstown, OH(3).............      428,000         32               1             33               37
  Toledo, OH....................      326,000         28               4             32               40
  South Bend/Elkhart, IN(3).....      298,000         31              --             31               36
  Lansing, MI(3)................      219,000         23               8             31               37
  Jackson, MI(3)................      178,000         17              13             30               34
  Sheboygan, WI(3)..............      152,000          2              --              2                7
  Green Bay, WI(3)..............      122,000         29              --             29               35
                                   ----------
          Region Total..........    2,974,000
                                   ----------
          Total.................   10,069,000
                                   ==========
</TABLE>
 
---------------
 
(1) New station applications, petitions for reconsideration and petitions for
    reinstatement are subject to approval by the FCC. The entities with which
    the Company has entered into leasing agreements have filed a series of
    applications for wireless cable channels. In many cases, the Company's
    applicant is the sole applicant. Due to the qualifications of the Company's
    applicants relative to competing filings, the Company expects that most of
    these applications will be approved by the FCC. However, there can be no
    assurance that these FCC applications will be approved.
 
(2) Represents total expected wireless channels (including channels not yet in
    service) plus local off-air broadcast channels which are generally available
    in the Company's broadcast signal area and which the Company does not expect
    to rebroadcast over its wireless cable channels.
 
(3) The Company is the BTA holder in this market. In certain cases, two or more
    of the Company's existing or target markets may be contained within a single
    BTA.
 
(4) The Company has exercised a put right to sell this market to BellSouth
    Wireless pursuant to the BellSouth Agreement upon the satisfaction of
    certain conditions.
 
     In addition to the channel interests detailed above, the Company holds
channel rights in a number of other U.S. markets. The Company may seek
additional channel rights in these markets or sell or exchange the channel
rights it already holds.
 
     Pursuant to an Investment Agreement dated January 19, 1991, between CFW
Communications Company ("CFW"), a diversified publicly-traded telecommunications
company based in Waynesboro, Virginia, and ATI (which agreement provided for the
purchase by CFW of 1,209,678 shares of ATI's Series A Convertible Preferred
Stock), the Company is entitled to receive payments equal to 10% of the earnings
(as defined in the agreement) of each wireless cable system developed by CFW in
the Commonwealth of Virginia for a 15-year period after each respective system
has achieved accumulated pre-tax income. In return, the
 
                                       14
<PAGE>   16
 
Company is required to provide certain advisory services to CFW in connection
with the development of such systems. CFW currently operates wireless cable
systems in Richmond, Charlottesville and other cities within the Shenandoah
Valley, and maintains certain wireless cable channel rights in Lynchburg and
Winchester, Virginia.
 
PROGRAMMING
 
     The Company's analog wireless cable systems seek to offer popular
programming at affordable prices. The Company selects its basic programming
channels to appeal to a specific subscriber base and generally does not offer
programming which appeals to small, specialized market segments. The Company's
typical analog channel offering includes between 11 and 28 basic cable channels,
certain premium channels (such as HBO and Showtime) and one or two pay-per-view
channels. Specific programming packages vary according to particular market
demand. Local off-air channels are received by the subscriber along with the
Company's wireless channels, thereby adding, on average, four to eight channels
to the number of basic channels offered. Programming expenses typically exceed
one-third of the Company's revenue and have been increasing as a percent of
revenue. The Company could be adversely affected if it cannot increase
subscriber rates, because of market pressures or otherwise, to offset increases
in programming and other expenses.
 
SALES AND MARKETING
 
     In marketing its subscription television service, the Company continues to
target specific consumer segments which have demonstrated a propensity toward
value-added choices and offers specific marketing programs based on local
demand, general market characteristics and subscriber surveys. High-speed
Internet access services are primarily marketed to small and medium-sized
businesses.
 
EQUIPMENT AND FACILITIES
 
     The Company's analog wireless cable systems utilize fully addressable
subscriber equipment. Subscriber equipment generally includes a microwave
receiver, downconverter, set-top converter and remote control unit. Because the
Company is not replacing all of its Subscriber Churn, the Company's requirements
for subscriber equipment to operate its Developed Markets have been reduced. The
Company is not dependent upon any one supplier for its analog video equipment.
 
     The Company's high-speed Internet access service utilizes the same
microwave antennas and downconverters as its analog wireless cable service.
Subscribers are typically required to purchase the cable modem, which is sold by
the Company. The Company is dependent upon a single supplier, Hybrid Networks,
Inc. for high-speed cable modems. The Company's inability to purchase modems at
satisfactory prices from this supplier or a substitute supplier could have a
material adverse effect on the Company's high-speed Internet access business.
 
LICENSES AND CHANNEL LEASES
 
     The majority of the licenses the Company uses to broadcast its programming
are under long-term leases with third party licensees. A typical channel lease
is for a period of ten years or more including renewals. Certain channel
agreements permit only the use of analog technologies. Thus, the deployment of
digital services may require renegotiations of these channel leases. Although
the Company anticipates that it will continue to have access to a sufficient
number of channels to operate wireless cable systems, if a significant number of
the Company's channel leases are not renewed, a significant number of its
pending FCC applications are not granted, or the FCC terminates, forfeits,
revokes or fails to renew the authorizations held by the Company's channel
lessors, the Company may be unable to provide competitive programming packages
to subscribers in some or all of its markets. These events would also impede the
Company's development plans for WBA.
 
                                       15
<PAGE>   17
 
EMPLOYEES
 
     As of March 5, 1999, the Company had approximately 260 employees. The
Company considers relations with its employees to be satisfactory. The Company
also uses independent contractors to perform certain professional services.
 
ITEM 2. PROPERTIES
 
     The principal physical assets of a wireless cable system consist of
satellite signal reception equipment, radio transmitters and transmission
antennas, as well as office space, warehouse and transmission tower space. The
Company's principal office is located in approximately 18,000 square feet of
leased office space in Colorado Springs, Colorado. The Company occupies this
space under a lease agreement that expires in 2000. The Company believes that
such office space in Colorado Springs is adequate for the near future. The
Company currently leases additional office and warehouse space in each of its
Developed Markets and certain of its Undeveloped Markets pursuant to lease
agreements that expire at various times over the next three to five years.
 
     The Company also leases tower transmission space in all of its Developed
Markets (except for three markets where it owns transmission towers) and certain
of its Undeveloped Markets, pursuant to long-term lease arrangements. The
Company's tower lease agreements provide for locating transmitter, antenna and
other equipment at existing towers to broadcast wireless cable signals. The
agreements generally cover a period of five to ten years and are subject to
renewals upon expiration. To date, the Company has been able to obtain suitable
tower space on satisfactory terms in each of its Developed Markets. In the event
that any one or more of these tower space leases is terminated or not renewed
upon expiration, the Company will be required to obtain alternative tower space
and potentially modify its licenses in order to broadcast its services.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company owns all the partnership interests in Fresno MMDS Associates
("FMA"). On or about December 24, 1997, Peter Mehas, Fresno County
Superintendent of Schools, filed an action against FMA, the Company and others
in an action entitled Peter Mehas, Fresno County Superintendent of Schools v.
Fresno Telsat, Inc., an Indiana Corporation, et al., Superior Court of the State
of California, Fresno, California. The complaint alleges that a channel lease
agreement between FMA and the Fresno County school system has expired. The
plaintiff seeks a judicial declaration that the lease has expired and that the
defendants, including the Company, hold no right, title or interest in the
channel capacity which is the subject of the lease. The parties have conducted
substantial discovery. The Company removed the case to federal court in December
1998. Plaintiff filed a motion to remand the case to state court. The motion was
heard on February 22, 1999, and remains under submission with the court. No
trial date is set in the case. The Company denies that the channel lease
agreement has expired.
 
     On or about October 13, 1998, Bruce Merrill and Virginia Merrill, as
Trustees of the Merrill Revocable Trust dated as of August 20, 1982, filed a
lawsuit against the Company entitled Bruce Merrill and Virginia Merrill, as
Trustees of the Merrill Revocable Trust dated as of August 20, 1982 v. American
Telecasting, Inc., in the United States District Court for the District of
Colorado. The complaint alleges that the Company owes the plaintiffs $1,250,000
due on a note which matured on September 15, 1998. The plaintiffs seek payment
of $1,250,000 plus attorney fees and interest. The Company has answered the
complaint and denied any liability. Limited discovery has occurred and a trial
preparation schedule has been ordered by the court
 
     In addition, the Company is occasionally a party to legal actions arising
in the ordinary course of its business, the ultimate resolution of which cannot
be ascertained at this time. However, in the opinion of the Company, resolution
of these matters will not have a material adverse effect on the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1998.
 
                                       16
<PAGE>   18
 
EXECUTIVE OFFICERS OF THE REGISTRANT
(FURNISHED IN ACCORDANCE WITH ITEM 401(b) OF REGULATION S-K, PURSUANT TO GENERAL
INSTRUCTION G(3) OF FORM 10-K)
 
     The following table sets forth certain data concerning the Company's
executive officers as of the date of this Report:
 
<TABLE>
<CAPTION>
             NAME                AGE     PRESENT POSITION      BUSINESS EXPERIENCE AND OTHER INFORMATION
             ----                ---     ----------------      -----------------------------------------
<S>                              <C>   <C>                     <C>
Donald R. DePriest.............  59    Chairman of the Board   Chairman of the Board Directors since
                                       of Directors            March 1990; President of the Company from
                                                               1988 through March 1990; Chairman of the
                                                               Board of Directors, President and sole
                                                               stockholder of MedCom Development
                                                               Corporation ("MedCom"), the sole general
                                                               partner of MCT Investors, L.P. ("MCT"),
                                                               an investment partnership specializing in
                                                               the communications and health care
                                                               industries and the Company's largest
                                                               stockholder; also a limited partner of
                                                               MCT; Chairman of the Board and President
                                                               of Boundary Healthcare Products
                                                               Corporation, a hospital products
                                                               manufacturer, from 1987 through its sale
                                                               to Maxxim Medical, Inc. ("Maxxim") in
                                                               December 1992; Director of Maxxim, a
                                                               publicly traded hospital products
                                                               manufacturer, since December 1992.
Richard F. Seney...............  44    Vice Chairman of the    Vice Chairman of the Board of Directors
                                       Board of Directors      of the Company since October 1993;
                                                               Secretary of the Company since 1988;
                                                               Treasurer of the Company from 1988 to
                                                               March 1994; Vice President and General
                                                               Manager of MedCom since 1987; limited
                                                               partner of MCT.
Robert D. Hostetler............  57    President and Chief     President and Chief Executive Officer of
                                       Executive Officer       the Company since January 1996; Vice
                                                               President -- Development of the Company
                                                               from January 1995 through December 1995;
                                                               Director of Mergers and Acquisitions of
                                                               the Company from December 1993 through
                                                               December 1994; from 1988 to 1993 served
                                                               as director and/or officer of several
                                                               entities engaged in the business of
                                                               constructing and operating wireless cable
                                                               television systems, certain of which were
                                                               acquired by the Company in December 1993.
David K. Sentman...............  48    Senior Vice             Senior Vice President and Chief Financial
                                       President, Chief        Officer since January 1996; Vice
                                       Financial Officer,      President -- Finance and Chief Financial
                                       Treasurer and           Officer from July 1995 through December
                                       Assistant Secretary     1995; served in various capacities,
                                                               including Chief Financial Officer, with
                                                               Artisoft, Inc. from July 1992 through
                                                               February 1995.
</TABLE>
 
                                       17
<PAGE>   19
 
<TABLE>
<CAPTION>
             NAME                AGE     PRESENT POSITION      BUSINESS EXPERIENCE AND OTHER INFORMATION
             ----                ---     ----------------      -----------------------------------------
<S>                              <C>   <C>                     <C>
Terry J. Holmes................  44    Senior Vice President   Senior Vice President since September
                                                               1997; Vice President -- Operations from
                                                               January 1996 through August 1997;
                                                               Regional Manager -- Western Region from
                                                               June 1995 through December 1995;
                                                               currently Managing Director of Fresno
                                                               MMDS Associates; General Manager of the
                                                               Fresno MMDS Associates from June 1991 to
                                                               June 1995.
Lee G. Haglund.................  47    Vice President --       Vice President -- Operations since
                                       Operations              September 1998; Regional Manager --
                                                               Western Region from January 1996 to
                                                               September 1998; General Manager from July
                                                               1995 to January 1996; served in various
                                                               capacities, including Regional Manager,
                                                               with Falcon Cable from June 1991 to June
                                                               1995.
Bryan H. Scott.................  40    Vice President --       Vice President -- Engineering since
                                       Engineering             September 1997; Director of Engineering
                                                               from April 1997 to August 1997; System
                                                               Development Manager from April 1994 to
                                                               March 1997; prior to April 1994, served
                                                               in various positions with Tele-
                                                               Communications, Inc., Fanch
                                                               Communications, Inc., Time Warner
                                                               Entertainment and American Television
                                                               Communications Corporation.
Nasser Sharabianlou............  42    Vice President --       Vice President -- Telecom Services since
                                       Telecom Services        May 1998; held various technical and
                                                               management positions with Pacific Bell
                                                               from 1986 to May 1998.
Charles A. Spann...............  35    Vice-President --       Vice President -- Development since
                                       Development             January 1999; held various positions with
                                                               the Company since October 1994; held
                                                               various positions with InterMedia
                                                               Partners from 1990 to October 1994.
</TABLE>
 
                                       18
<PAGE>   20
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     In February 1998, The Nasdaq Stock Market informed the Company that it was
not in compliance with the new net tangible asset/market capitalization/net
income requirements for continued listing on the Nasdaq SmallCap Market.
Effective with the close of business October 28, 1998, Nasdaq delisted the
Company's Class A Common Stock. The delisting by Nasdaq may make it more
difficult to buy or sell the Company's Class A Common Stock or obtain timely and
accurate quotations to buy or sell. In addition, the delisting may result in a
decline in the trading market for the Class A Common Stock, which could
potentially further depress the Company's stock and bond prices, among other
consequences. Subsequent to the delisting, the Company's Class A Common Stock
commenced trading on the OTC Bulletin Board.
 
     The Company's Class A Common Stock is quoted on the OTC Bulletin Board
under the symbol "ATEL." The table below sets forth the high and low sale prices
for the Class A Common Stock on The Nasdaq Stock Market (as reported by Nasdaq)
through the third quarter of 1998, and the OTC Bulletin Board for fourth quarter
of 1998.
 
<TABLE>
<CAPTION>
                                                              HIGH     LOW
                                                              -----   -----
<S>                                                           <C>     <C>
1997
  First Quarter.............................................  $6.50   $1.50
  Second Quarter............................................   2.09     .50
  Third Quarter.............................................   1.50     .53
  Fourth Quarter............................................   2.75     .69
1998
  First Quarter.............................................   1.47     .53
  Second Quarter............................................   1.00     .47
  Third Quarter.............................................   1.09     .25
  Fourth Quarter............................................    .56     .10
</TABLE>
 
     As of March 5, 1999, there were 445 record holders of the Company's Class A
Common Stock, not including stockholders who beneficially own Class A Common
Stock held in nominee or street name. As of March 5, 1999, there were
approximately 4,400 beneficial owners of the Company's Class A Common Stock held
in nominee or street name.
 
     The Company has never declared or paid any cash dividends on its Class A
Common Stock and does not expect to declare dividends in the foreseeable future.
Payment of any future dividends will depend upon the earnings and capital
requirements of the Company, the provisions of the Company's debt facilities and
other factors the Board of Directors considers appropriate. The Company's
ability to declare dividends is affected by covenants in certain debt facilities
that prohibit the Company from declaring dividends and the Company's
subsidiaries from transferring funds in the form of cash dividends, loans or
advances to ATI.
 
                                       19
<PAGE>   21
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The selected consolidated financial data as of, and for each period in, the
five year period ended December 31, 1998 have been derived from, and are
qualified by reference to, the Company's Consolidated Financial Statements which
have been audited by Arthur Andersen LLP, independent public accountants. This
data should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes thereto, for each of the three years in the period
ended December 31, 1998, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Report.
 
<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                         ---------------------------------------------------------------
                                          1994(1)      1995(2)       1996(3)      1997(4)      1998(5)
                                         ----------   ----------   -----------   ----------   ----------
                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<S>                                      <C>          <C>          <C>           <C>          <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
  DATA:
Total revenues.........................   $ 21,629     $ 47,501     $  62,032     $ 59,031     $ 47,737
Costs and expenses:
  Operating............................     13,128       26,021        36,029       34,516       30,488
  Marketing, general and
     administrative....................     13,486       27,870        26,256       23,544       21,438
  Depreciation and amortization........     12,032       29,276        44,665       49,033       42,398
  Impairment of wireless cable
     assets............................         --           --        21,271           --       52,369
                                          --------     --------     ---------     --------     --------
Loss from operations...................    (17,017)     (35,666)      (66,189)     (48,062)     (98,956)
Interest expense and other, net........     (7,271)     (22,300)      (35,488)     (41,537)     (40,554)
Gain on disposition of wireless cable
  systems and assets...................         --           --            --       35,944        2,396
Extraordinary gain on extinguishment
  of debt..............................         --           --            --           --       61,047
                                          --------     --------     ---------     --------     --------
Loss before income taxes...............   $(24,288)    $(57,966)    $(101,677)    $(53,655)    $(76,067)
                                          ========     ========     =========     ========     ========
Net loss applicable to Class A Common
  Stock(6).............................   $(15,478)    $(66,635)    $(104,630)    $(52,471)    $(74,946)
                                          ========     ========     =========     ========     ========
Basic and diluted net loss per
  share(7).............................   $  (1.08)    $  (4.17)    $   (5.78)    $  (2.06)    $  (2.91)
                                          ========     ========     =========     ========     ========
Net dividends declared.................   $     --     $     --     $      --     $     --     $     --
                                          ========     ========     =========     ========     ========
Weighted average shares
  outstanding(7).......................     14,357       15,977        18,096       25,458       25,744
                                          ========     ========     =========     ========     ========
OPERATING AND OTHER DATA:
  Earnings (loss) before interest,
     income taxes, depreciation and
     amortization(8)...................   $ (4,985)    $ (6,390)    $    (253)    $    971     $ (4,189)
  Number of operational systems (at end
     of period)........................         26           38            38           33           32
  Number of subscribers (at end of
     period)...........................    106,500      173,700       179,800      138,900      107,000
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and short-term
     investments(9)....................   $ 33,331     $ 32,514     $  18,476     $  9,125     $ 11,155
  Intangible assets, net...............    118,397      166,194       161,168      150,090       83,890
  Total assets.........................    226,920      317,049       283,572      261,247      127,665
  Long-term obligations (net of current
     portion and deferred income
     taxes)............................    117,761      225,512       256,354      293,286      240,040
  Stockholders' equity (deficit).......     93,843       53,736         3,113      (49,224)    (124,170)
</TABLE>
 
---------------
 
(1) Includes the results of operations of the Bend, FEN/WEN Group, Oklahoma
    City, Wichita and Lakeland systems from their respective acquisition dates.
 
                                       20
<PAGE>   22
 
(2) Includes the results of operations of the Medford, Sheridan, Redding, Las
    Vegas and Rapid City systems and Fresno Wireless Cable Television, Inc. from
    their respective acquisition dates.
 
(3) Includes the results of operations of the Cincinnati system from its
    acquisition date.
 
(4) The Company's operating systems and channel rights in the Florida markets of
    Orlando, Jacksonville, Ft. Myers and Daytona Beach, along with the
    Louisville, Kentucky market and certain rights in Miami, Florida were sold
    to BellSouth Wireless in August 1997. The assets sold accounted for total
    revenues, operating expenses and earnings before interest, taxes,
    depreciation and amortization ("EBITDA") of approximately $5.2 million, $4.3
    million and $902,000, respectively, for the period from January 1, 1997
    through the closing date of the transaction.
 
(5) The Company's operating system and channel rights in the Florida market of
    Lakeland, Florida were sold to BellSouth Wireless in July 1998. The assets
    sold accounted for total revenues, operating expenses and EBITDA of
    approximately $1.4 million, $1.1 million and $377,000, respectively, for the
    period January 1, 1998 through the closing date of the transaction. The
    Company also closed on additional channels in the Ft. Myers and
    Jacksonville, Florida markets. There was no effect on revenues, operating
    expenses and EBITDA as a result of this transaction.
 
(6) Reflects, for 1995, the cumulative effect of the change in accounting for
    installation costs effected January 1, 1995 (income, net of income taxes, of
    $602,000 or $0.04 per share) and the extraordinary charge on early
    retirement of debt recognized during the quarter ended September 30, 1995
    (charge of $11.5 million or $0.72 per share). Net loss for the year ended
    December 31, 1996 includes a dividend embedded in the conversion feature of
    ATI's Series B Convertible Preferred Stock of $6.25 million. Includes for
    1998 the cumulative effect of a change in accounting principle to expense
    start-up costs made in accordance with Statement of Position 98-5
    "Accounting for Start-up Costs" issued by the American Institute of
    Certified Public Accountants (charge of $1.9 million or $.07 per share).
 
(7) Pro forma net loss per share and weighted average shares outstanding for the
    year ended December 31, 1994 were $1.07 and 14,445,000, respectively. Pro
    forma net loss per share and weighted average shares outstanding for the
    year ended December 31, 1994 give effect to the conversion in January 1994
    of all outstanding shares of ATI's Series A Convertible Preferred Stock into
    2,014,098 shares of Common Stock. Net loss per share for the year ended
    December 31, 1996 gives effect to the dividend embedded in the conversion
    feature of ATI's Series B Convertible Preferred Stock of $6.25 million. Pro
    forma net loss per share and weighted average shares outstanding for the
    years ended December 31, 1996 and 1997 give effect to the conversion of
    outstanding shares of ATI's Series B Convertible Preferred Stock into
    2,273,785 shares of Class A Common Stock and 4,959,369 shares of Class A
    Common Stock, respectively.
 
(8) Earnings (loss) before interest, taxes, depreciation and amortization is a
    commonly used measure of performance within the wireless cable industry.
    However, it does not purport to represent cash provided by (used in)
    operating activities and should not be considered in isolation or as a
    substitute for measures of performance in accordance with generally accepted
    accounting principles. The amount for 1996 and 1998 excludes an impairment
    of wireless cable assets of approximately $21.3 million and $52.4 million,
    respectively.
 
(9) Excludes, for 1997, available cash of approximately $31.7 million,
    representing the Net Available Proceeds from the BellSouth Transaction as of
    December 31, 1997, which was required to be used for asset purchases and
    debt repayments pursuant to the Indentures.
 
                                       21
<PAGE>   23
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     All statements contained herein that are not historical facts, including
but not limited to statements regarding the Company's plans for future
development and operation of its business, are based on current expectations.
These statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: a lack of
sufficient capital to finance the Company's business strategy on terms
satisfactory to the Company; pricing pressures which could affect demand for the
Company's service; changes in labor, equipment and capital costs; the Company's
inability to develop and implement new services such as wireless broadband
access and high-speed Internet access; the Company's inability to obtain the
necessary authorizations from the Federal Communications Commission for such new
services; competitive factors, such as the introduction of new technologies and
competitors into the wireless communications business; a failure by the Company
to attract strategic partners; general business and economic conditions;
inexperience of management in deploying a wireless broadband access business;
and the other risk factors described from time to time in the Company's reports
filed with the Securities and Exchange Commission. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which statements are made pursuant to the Private Securities Litigation Reform
Act of 1995, and as such, speak only as of the date made.
 
INTRODUCTION
 
     The Company's principal business strategy is to pursue implementation of a
Wireless Broadband Access ("WBA") capability that it believes will eventually be
the best use of the wireless cable spectrum. The Company believes that market,
technological and regulatory developments are creating an opportunity for the
current wireless cable spectrum to be used to serve small and medium-sized
business customers with fixed, two-way high-speed data and telephony services.
The Company's WBA business strategy assumes that it will become part of a larger
wholesale provider of fixed, two-way high-speed data and telephony services and
does not assume retail distribution of WBA services directly by the wholesale
provider. The WBA business strategy also assumes an investment in the Company
and other wireless cable providers by a strategic partner that will serve both
as an investor and as a customer of a newly created entity to offer WBA
services. The Company believes that the WBA business strategy provides
stakeholders of the Company with the best opportunity to recover some of their
investments and maximize future value.
 
     While pursuing alternative uses for the wireless cable spectrum, such as
WBA, the Company has continued operating its Developed Markets principally as an
analog video subscription television business. The Company's video plan has
been, in part, to maximize operating cash flow from its analog video operations,
while pursuing its WBA business strategy. This operating plan has also been
required because of the Company's low cash resources, high levels of debt and
lack of access to capital markets. The Company has intentionally curtailed
growth in its analog video business by not investing the capital expenditures
and marketing and other funds necessary to replace all subscribers who chose to
stop receiving the Company's services ("Subscriber Churn"). In an effort to
minimize investment in new customer additions, the Company has also increased
installation rates charged to new video subscribers. These price increases and
increased competition have substantially reduced video subscriber additions. The
Company is focusing its attention on retaining existing customers, and is
exploring alternatives for maximizing the value of its analog video subscribers.
 
     Using digital technology, the Company launched an asymmetrical high-speed
Internet access service in its Colorado Springs, Colorado market in 1997 branded
as "WantWEB." WantWEB was launched in Denver, Colorado and Portland, Oregon in
February 1998. The Company launched commercial operations in a small number of
markets in order to evaluate the long-term viability and financial returns of
the business. The Company is seeking to maintain its Internet subscriber base,
but no future launches of WantWEB are currently planned. Revenue from the
WantWEB business is not significant.
 
     During 1998, the Company took certain actions to reduce its costs and
conserve its limited cash resources. Such measures included a reduction in the
size of the Company's workforce by about 30%, decreases in capital expenditures
and discretionary expenses and replacement of Subscriber Churn. The
 
                                       22
<PAGE>   24
 
Company's business strategy regarding analog video subscribers is expected to
result in a further decline in subscribers, revenue and operating cash flow.
This negative trend is expected to continue for the foreseeable future until the
Company is able to successfully introduce and market alternative digital
services. Moreover, at this time, the Company does not generally intend to
further develop any of its Undeveloped Markets using analog video technology.
Unless and until sufficient cash flow is generated from operations, the Company
will be required to utilize its current capital resources or sell assets to
satisfy its working capital and capital expenditure needs.
 
  Wireless Broadband Access
 
     The execution of the Company's WBA business strategy has two principal
elements. First, pursue the regulatory, technology and strategic investment
activities necessary to shift the Company's existing analog video business to
WBA services. Second, manage the Company's existing analog video business to
preserve limited cash resources and afford the Company additional time to pursue
development of WBA services. As part of this second element, the Company has not
been increasing its analog video subscriber levels.
 
     Regulatory developments have begun to benefit the WBA business strategy. In
September 1998 the FCC issued regulations that permit two-way use of the
wireless cable spectrum. However, the Company, along with other entities, has
petitioned the FCC to refine its two-way rules to permit simpler deployment of
commercial operations under the two-way rules. Actual implementation of two-way
commercial businesses will require, among other factors, some changes in the
existing rules along with filing "windows" by the FCC to submit two-way license
applications.
 
     Another component of the WBA business strategy has been the development of
technology. There is presently no commercially available point-to-multipoint
equipment for both two-way data and telephony over wireless cable spectrum. In
1997, the Company began working with certain equipment vendors and system
integrators to construct and test broadband, two-way wireless technology to
provide "last mile" connectivity over wireless cable spectrum for both
high-speed data and telephony. As a part of this effort, the Company established
technical trials in Eugene, Oregon and Seattle, Washington and has been testing
various technologies. The technical trials are not presently intended to become
full commercial WBA operations. The Company believes that point-to-multipoint
equipment required for implementing its WBA business strategy will not be
commercially available until late 1999 at the earliest.
 
     The third component of the WBA business strategy has been to enter into a
relationship with one or more strategic partners that facilitates access to
markets, technologies, products, capital and infrastructure. Potential strategic
partners include telecommunications, Internet, software and equipment companies.
A strategic partnership would likely be accompanied by a financial restructuring
of the Company and could involve transactions with other wireless cable
operators. The Company's WBA business strategy assumes that strategic partners
would share in some of the capital expenditures necessary to construct WBA
commercial operations. Although many factors affect the ability to achieve such
a strategic relationship, the most significant challenge to the Company has been
the significant complexities and uncertainties of building a WBA business using
predominately leased wireless cable spectrum. There can be no assurance that the
Company will be able to enter into one or more strategic relationships or on
terms and conditions satisfactory to the Company.
 
     The WBA business strategy has many risks and uncertainties, including but
not limited to, not receiving the necessary FCC authorizations for two-way
licenses upon terms acceptable to the Company, not having access to two-way
equipment for wireless cable spectrum upon commercially acceptable terms, not
entering into a strategic relationship that supports the WBA business strategy,
not having access to sufficient channel capacity upon commercially acceptable
terms, to operate the WBA business, not having sufficient capital resources to
implement a WBA business strategy, not having sufficient capital resources to
operate the current analog video subscription business or to meet the Company's
obligations under its high-yield notes until a strategic partner relationship
can be established, and not having the necessary management skill or human
resources. There can be no assurance that the WBA business strategy will provide
stakeholders, including
 
                                       23
<PAGE>   25
 
stockholders and bondholders, of the Company with a recovery on their
investments or will produce or maximize future value.
 
     There is also uncertainty regarding the degree of subscriber demand for WBA
services, especially at pricing levels at which the Company can achieve an
attractive return on investment. There can be no assurance that there will be
sufficient subscriber demand for such services to justify the cost of their
introduction, or that the Company will be successful in competing against
existing or new competitors in the market for such broadband services. The
Company expects that the market for any such services will be extremely
competitive. See " -- Competition."
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Sources and Uses of Funds
 
     The Company has experienced negative cash flow from operations in each year
since inception. Although certain of the Company's more established systems
currently generate positive cash flow from operations, the sale of six operating
systems to BellSouth Wireless since August 1997, and the Company's strategy to
not replace all Subscriber Churn has resulted in a decline in revenue and
operating cash flow. The Company expects this decline in revenue and cash flow
to continue. The Company's high-speed Internet access business, advanced
technology trials in Eugene, Oregon and Seattle, Washington, and regulatory,
technology and strategic partner activities necessary to implement the Company's
WBA business strategy have been and are expected to consume cash resources.
Unless and until sufficient cash flow is generated from operations, or until a
strategic partner relationship is established, the Company expects to attempt to
utilize its current capital resources or to sell assets to satisfy its working
capital and capital expenditure needs.
 
     In 1999, additional obligations for cash expenditures include a cash
interest payment of approximately $10.5 million on December 15, 1999 on the
Senior Discount Notes due 2004 (the "2004 Notes") and purchase of channels and
equipment for construction of channels pursuant to pre-existing commitments. The
Company may also incur significant expenses in connection with a capital
restructuring in 1999. Cash resources available to apply to the Company's cash
obligations include existing cash and investment balances, proceeds from
additional closings under the BellSouth Agreement, if such closings occur, and
proceeds, if any, from other asset sales. Without such closings or sales, the
Company will be required, at a minimum, to further curtail its planned capital
and other expenditures.
 
     Without new investments in the Company, additional borrowings, or a capital
restructuring accompanied by additional investments or borrowings, it is
unlikely that the Company will be able to make cash interest payments on either
the 2004 Notes or the Senior Discount Notes due 2005 (the "2005 Notes") or meet
its other obligations by the end of 1999, or earlier. There is no assurance that
such sources of cash will be available to the Company. The first cash interest
payment is due on December 15, 1999 on the Company's 2004 Notes and must be paid
from unrestricted cash. The Company is pursuing a number of alternatives to
address its limited liquidity and its cash interest and principal payment
obligations under the 2004 Notes and 2005 Notes. These alternatives include
combinations of establishing strategic relationships, asset sales, additional
borrowings, and a capital restructuring under the protection of the bankruptcy
laws. While any such restructuring, should it occur, could take a variety of
forms, it probably would involve an exchange of some or all of the outstanding
debt for common stock in the Company under the protection of the bankruptcy laws
and would result in very substantial or total dilution of existing stockholders.
Even if the Company were to seek a capital restructuring under the protection of
the bankruptcy laws, the Company would require additional capital to continue
its WBA business strategy and to operate its current businesses. There can be no
assurance that such capital will be available at all or on terms acceptable to
the Company. In managing its limited cash resources, the Company may be required
to curtail its operations and development plans, which curtailment could
involve, among other things, further reduction in the Company's workforce,
closing certain operating businesses or discontinuing certain activities,
including but not limited to, high-speed Internet access and advanced technology
trials.
 
     The Company is pursuing strategic relationships or transactions with
telecommunication, Internet, software and equipment companies. These
relationships could provide the Company with access to technolo-
 
                                       24
<PAGE>   26
 
gies, products, capital and infrastructure. The Company's ability to implement
its WBA business strategy will depend, among other things, on its ability to
attract sufficient additional capital through relationships with strategic
partners. There can be no assurance that sufficient capital will be available on
terms satisfactory to the Company, or at all. The Company has not reached any
agreements or understandings with respect to such strategic relationships or
transactions and there can be no assurance that any such agreements or
understandings will be reached or upon terms satisfactory to the Company.
 
     The Company is experiencing increased programming expenses from normal
annual escalations, renewals of programming contracts on less favorable terms
and as a result of the Company's declining subscriber base. These cost increases
place additional downward pressure on the Company's cash flow from operations.
 
     With the introduction of the high-speed Internet access business and the
development of a WBA business, the Company may experience increased competition
for the renewal of channel lease agreements. As a result, the Company could lose
channels or incur higher costs to renew and retain its existing channels.
Furthermore, certain of the Company's channel lease agreements permit only
analog technologies. Thus, the deployment of businesses such as WBA and
high-speed Internet access that utilize digital technologies may require
renegotiations of these channel leases, which could also result in increased
operating costs.
 
     In March 1997, the Company entered into a definitive agreement (the
"BellSouth Agreement") with BellSouth Corporation and BellSouth Wireless which
provides for the sale of all of the Company's Florida and Louisville, Kentucky
wireless cable assets (the "Southeastern Assets") to BellSouth Wireless (the
"BellSouth Transaction"). The Southeastern Assets include operating wireless
cable systems in Orlando, Lakeland, Jacksonville, Daytona Beach and Ft. Myers,
Florida and Louisville, Kentucky and wireless cable channel rights in Naples,
Sebring and Miami, Florida.
 
     In August 1997, the Company completed the first closing of the BellSouth
Transaction, which involved selling to BellSouth Wireless the Company's
operating systems and channel rights in the Florida markets of Orlando,
Jacksonville, Ft. Myers and Daytona Beach, along with the Louisville, Kentucky
market and certain rights in Miami, Florida. The proceeds received by the
Company from the first closing totaled approximately $54 million. In March 1998,
the Company sold additional channels in the Ft. Myers and Jacksonville, Florida
markets for cash consideration of approximately $2.9 million.
 
     In July 1998, the Company completed an additional closing of the BellSouth
Transaction, which sold to BellSouth Wireless the Company's wireless operating
system and channel rights in Lakeland, Florida. The proceeds received by the
Company were approximately $12.0 million, of which $1.8 million remains in
escrow.
 
     In August 1998, the Company sold to BellSouth Wireless additional channels
in the Lakeland, Florida market for cash consideration of approximately $5.0
million. Under the terms of the BellSouth Agreement, additional closings are
possible through August 1999. If additional closings occur, the Company
presently estimates that total gross proceeds will be less than $10 million. The
BellSouth Agreement contains customary conditions for each closing, including
the satisfaction of all applicable regulatory requirements. There can be no
assurance that all conditions will be satisfied or that further sales of assets
to BellSouth Wireless will be consummated.
 
     In conjunction with the BellSouth Transaction, the Company agreed to sell
its hardwire cable television system in Lakeland, Florida. In February 1998,
this system was sold to Time Warner Entertainment -- Advance Newhouse
Partnership. The proceeds received by the Company were approximately $1.5
million.
 
     In July 1998, the Company purchased from Fresno Telsat, Inc. ("FTI") the
remaining 35% partnership interest that the Company did not already own in
Fresno MMDS Associates for cash consideration of $1.5 million plus contingent
cash consideration of up to $255,000, the precise amount of which will depend
upon the outcome of litigation between the Company and the Fresno County
Superintendent of Schools. Through two of its subsidiaries, the Company is now
the 100 percent owner of Fresno MMDS Associates.
 
     On March 19, 1999, the Company entered into an agreement with AESCO
Systems, Inc. ("AESCO") to acquire wireless cable channels in Portland, Oregon
from AESCO for a fixed payment of $2.25 million plus a deferred payment based
upon the price received in any further transfer of the channels within the next
five
 
                                       25
<PAGE>   27
 
years. In addition the Company paid $250,000 on March 19, 1999 as consideration
for a no-shop covenant. Payment of the $2.25 million fixed portion of the
purchase price to AESCO is contingent upon the Company's closing of sale
transactions of other wireless cable assets for cumulative cash consideration of
$5 million or more and the FCC's grant by final order of the assignment
application for the licenses. The agreement will terminate on March 15, 2000 if
the transaction has not been completed.
 
OTHER LIQUIDITY AND CAPITAL RESOURCES REQUIREMENTS AND LIMITATIONS
 
  2004 Notes and 2005 Notes
 
     Both the 2004 Notes and the 2005 Notes were issued pursuant to Indentures
which contain certain restrictive covenants and limitations. Among other things,
the Indentures limit the incurrence of additional debt, limit the making of
restricted payments (as defined) including the declaration and/or payment of
dividends, place limitations on dividends and other payments by ATI's
subsidiaries, prohibit ATI and its subsidiaries from engaging in any business
other than the transmission of video, voice and data and related businesses and
services, and place limitations on liens, certain asset dispositions and
merger/sale of assets activity.
 
     Pursuant to certain restrictive covenants in the Indentures relating to the
Company's 2004 Notes and 2005 Notes, Net Available Proceeds (as defined in the
Indentures) from Asset Dispositions (as defined in the Indentures) from
transactions other than BellSouth must be applied within 270 days of such
closing: (1) first, to prepay or repay outstanding debt of the Company or any
Restricted Subsidiary (as defined) to the extent the terms of the governing
documents therefore require such prepayment (2) second, to the extent of any
such Net Available Proceeds remaining after application thereof pursuant to item
(1) above, to the acquisition of assets used in the transmission of video, voice
and data and related businesses and services of the Company or a Restricted
Subsidiary and (3) third, to the extent of any such Net Available Proceeds
remaining after the application thereof pursuant to items (1) and (2) above, (i)
first to prepay or repay all outstanding debt of the Company or any Restricted
Subsidiary that prohibits purchases of the 2004 Notes or 2005 Notes and (ii)
then, to the extent of any remaining Net Available Proceeds, to make an offer to
purchase outstanding 2004 Notes and 2005 Notes at a purchase price equal to 100%
of the accreted value thereof to any purchase date prior to maturity.
 
     In April 1998, the Company tendered an offer (the "Tender Offer") for a
portion of its outstanding 2004 Notes and a portion of its outstanding 2005
Notes at a cash price of $255 per $1,000 principal amount at maturity of the
2004 Notes purchased and $225 per $1,000 principal amount at maturity of the
2005 Notes purchased (collectively the "Notes").
 
     On May 7, 1998, the Company completed the Tender Offer and purchased
approximately $30.2 million aggregate principal amount at maturity of 2004 Notes
(approximate accreted value of $25.3 million as of May 7, 1998) and
approximately $43.5 million aggregate principal amount at maturity of 2005 Notes
(approximate accreted value of $30.6 million as of May 7, 1998). The maximum
aggregate amount of cash available for the purchase of the Notes pursuant to the
offer was $17.5 million. The Company recognized an extraordinary gain of
approximately $37.0 million upon early extinguishment of the Notes.
 
     In conjunction with and as a condition of the Tender Offer, the Company
also received the consent of holders of the majority of the outstanding Notes to
(i) waivers (the "Waivers") of certain asset disposition covenants in the
Indentures (the "Indentures") relating to the Notes with respect to proceeds
previously received from certain asset dispositions, and (ii) amendments (the
"Amendments") of the Indentures regarding treatment of future proceeds from
certain asset dispositions pursuant to the BellSouth Transaction.
 
     The Waivers and Amendments relate to provisions of the Indentures (the
"Asset Disposition Covenants") which require that certain Net Available Proceeds
(as defined in the related Indenture) from asset sales by the Company that were
not used by the Company within 270 days following receipt to acquire certain new
assets or to retire certain indebtedness be used to make a pro rata offer to
purchase outstanding Notes at a purchase price equal to 100% of the accreted
value thereof.
 
                                       26
<PAGE>   28
 
     The Waivers approved by the noteholders waived the application of the Asset
Disposition Covenants with respect to any and all net proceeds previously
received by the Company from dispositions completed prior to the Tender Offer,
including pursuant to the BellSouth Transaction.
 
     The Amendments amended the Asset Disposition Covenants in the case of any
and all Net Available Proceeds received by the Company from (i) dispositions
under the BellSouth Agreement that closed after May 7, 1998, which are presently
estimated at less than $10 million in proceeds depending on the total number of
channel leases and licenses ultimately delivered by the Company to BellSouth,
and (ii) the approximately $2.0 million in proceeds that were received from an
escrow account related to a BellSouth closing occurring on July 15, 1998.
 
     Pursuant to the Amendments, no later than 30 days after the aggregate
amount of Net Available Proceeds first equaled or exceeded $10 million, the
Company was obligated to utilize 57% of the amount of such Net Available
Proceeds to make an offer (the "Initial Offer") to purchase the outstanding
Notes, at a purchase price in cash equal to the greater of (i) $280.50 per
$1,000 principal amount at maturity in the case of the 2004 Notes and $247.50
per $1,000 principal amount at maturity in the case of the 2005 Notes and (ii)
the market value of the Notes. Any and all financial advisor, legal and other
costs and fees incurred by the Company in connection with completing or
facilitating any future BellSouth dispositions, escrow proceeds, or any required
offer shall be deemed to reduce the amount of Net Available Proceeds. If the
aggregate principal amount of Notes tendered by holders thereof pursuant to a
required offer exceeds the amount of the 57% of the Net Available Proceeds to be
used for the purchase of the Notes, the Notes shall be selected for purchase on
a pro rata basis.
 
     The Amendments do not apply to net proceeds that may be received from
dispositions of assets that the Company may undertake other than pursuant to the
BellSouth Agreement, and with respect to such proceeds the Asset Disposition
Covenants remain in effect.
 
     The Company's July 1998 and August 1998 transactions with BellSouth
Wireless involving the sale of the Company's operating system in Lakeland,
Florida, the closing on additional channels in Lakeland, Florida and the release
of the restricted escrowed funds from the first closing of the BellSouth
Transaction, provided cash to the Company of approximately $21.6 million.
Because the combination of these funds, net of financial advisor, legal and
other costs, exceeded $10 million, the Company was obligated to use 57% of these
Net Available Proceeds to make the Initial Offer to purchase outstanding Notes.
 
     On October 15, 1998, the Company completed the Initial Offer and purchased
approximately $21.5 million aggregate principal amount at maturity of 2004 Notes
(approximate accreted value of $19.3 million as of October 15, 1998) and
approximately $22.6 million aggregate principal amount at maturity of 2005 Notes
(approximate accreted value of $17.0 million as of October 15, 1998) for $11.6
million. The Company recognized an extraordinary gain of approximately $24.0
million upon the early extinguishment of the Notes.
 
     Upon completion of the Initial Offer, the amount of Net Available Proceeds
was reset at zero. Thereafter, at such time as the amount of Net Available
Proceeds from subsequent asset dispositions to BellSouth Wireless is greater
than $5 million, the Company shall be obligated to utilize 57% of the amount of
such Net Available Proceeds to make a subsequent required offer at a purchase
price in cash equal to the greater of (i) $280.50 per $1,000 principal amount at
maturity in the case of the 2004 Notes and $247.50 per $1,000 principal amount
at maturity in the case of the 2005 Notes and (ii) the market value of the
Notes.
 
     The 43% of the Net Available Proceeds not to be utilized for such required
offer to purchase, as well as the amount of the 57% of Net Available Proceeds to
be used to purchase Notes pursuant to such required offer that is in excess of
the amount required to purchase the Notes tendered by holders thereof, (the
"Unencumbered Net Available Proceeds") shall not be subject to any such tender
obligation and shall be freely available for use by the Company as it deems
appropriate. The Amendments do not restrict the Company from using Unencumbered
Net Available Proceeds for the purchase or other retirement of Notes on such
terms as it determines to be appropriate.
 
                                       27
<PAGE>   29
 
     The Company's capital expenditures, exclusive of acquisitions of wireless
cable systems and additions to deferred license and leased license acquisition
costs, during the years ended December 31, 1996, 1997 and 1998 were
approximately $32.5 million, $12.3 million and $11.5 million, respectively.
 
     Cash interest payments on the 2004 Notes and the 2005 Notes are required to
commence on December 15, 1999 and February 15, 2001, respectively. The aggregate
interest payments on the 2004 Notes and the 2005 Notes are approximately $10.5
million, $21.0 million and $40.7 million in 1999, 2000 and 2001, respectively,
after adjusting for the completion of the bond tender offer on October 15, 1998.
Based upon the Company's present financial condition, it is unlikely the Company
will be able to meet its cash interest obligations for the 2004 Notes on
December 15, 1999.
 
     As a result of certain limitations contained in the Indentures relating to
the 2004 Notes and the 2005 Notes, the Company's total borrowing capacity
outside the 2004 Notes and the 2005 Notes is currently limited to $17.5 million
(approximately $473,000 of which had been utilized as of December 31, 1998).
Although the Company had the ability under the Indentures to borrow an
additional $17.0 million as of December 31, 1998, the Company does not presently
intend to incur any additional bank or other borrowings because of the probable
high cost of funds. However, if subsequent closings under the BellSouth
Agreement either do not occur or are insufficient to provide funds for
operations, the Company may be required to seek additional debt financing. There
can be no assurance that the Company would be able to borrow additional funds on
satisfactory terms or at all. Under current capital market conditions for
wireless cable companies, the Company does not expect to be able to raise
significant capital by issuing equity securities.
 
  Year 2000
 
     Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the Year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. The Company utilizes software and related computer technologies essential
to its operations, such as its accounting and subscriber management (including
customer invoicing) systems, headend equipment, Internet equipment, phone
systems and network hardware and software servers that will be affected by the
Year 2000 issue.
 
     The Company continues to assess the impact of the Year 2000 on its
operations using internal staff. The Company is following a six step process to
evaluate its state of readiness for Year 2000 compliance -- awareness,
inventory, assessment, remediation, testing and risk management. To date, the
Company has substantially completed its inventory/assessment phase with some
remediation and testing taking place. The inventory/assessment phase includes
the accounting software, subscriber management systems, headend equipment,
Internet equipment, phone systems and network hardware and software servers. The
Company implemented new accounting software during 1998 and the software has
been certified as Year 2000 compliant by the vendor. The Company presently
intends to modify its principal subscriber management system with a Year 2000
patch from the current vendor before the end of the third quarter of 1999. The
Company expects to test and implement this Year 2000 patch on or before the end
of 1999.
 
     It is possible that the Company will be adversely affected by Year 2000
problems encountered by key customers and suppliers. The Company's most
significant suppliers are its providers of video programming, and the Company is
soliciting comments from its major programmers regarding their Year 2000
compatibility. To date the Company has not received responses from all its
programmers, but it will continue to pursue these vendors in order to obtain the
necessary information on their Year 2000 compliance.
 
     The Company presently estimates that it will spend approximately $1.0 to
$1.2 million to remediate or replace existing accounting, subscriber management,
hardware and other systems over the course of this project. These costs relate
to the replacement of the existing accounting software, modification of the
principal subscriber management system, and adaptation of the headend and
addressable set-top controller systems. The Company will refine its cost
estimates as testing and remediation proceeds and as additional information
becomes available. To date, the Company has spent approximately $800,000 in
remediating Year 2000 issues for its accounting software. The costs of the
Company's Year 2000 project and the time frame for its
                                       28
<PAGE>   30
 
completion are based on current estimates. These estimates include assumptions
about future events, including the timing and effectiveness of third-party
remediation plans and other factors. The Company gives no assurance that these
estimates will be achieved, and actual results could differ materially from
those currently expected.
 
     The Company believes that the likely worst case scenario would be the
failure of the Company's subscriber management system addressing the Company's
headend equipment, which sends the signals to the addressable controller units,
as well as the addressable controller units themselves. The controller units
communicate to the customer's set-top box. The loss of the ability to transmit
such signals would result in the loss of customers and related revenues, among
other things.
 
     The Company does not presently have a contingency plan in the event its
systems are not Year 2000 compliant. The Company will routinely reassess its
likely worst case scenario and possible responses as new information becomes
available and it intends to have contingency plans in place. Such contingency
plans could include using back up systems that do not rely on computers.
Although the Company's remediation plan for Year 2000 is not yet completed, the
Company is not aware of any critical systems that cannot be made Year 2000
compliant.
 
  Executive and Key Employee Retention Program
 
     Effective July 1, 1998, the Board of Directors approved a Retention and
Achievement Incentive Program ("Executive Program") for certain of its executive
officers. Under the Executive Program, the executive officers of the Company are
each eligible to receive cash retention payments of $40,000-$50,000 if such
individuals remain in the Company's employment through June 30, 1999, or if the
employment of such individuals with the Company is terminated by the Company
without cause before June 30, 1999. The maximum aggregate retention payments
that are payable under the Executive Program are approximately $320,000. In
addition, the Executive Program also provides for the payment of achievement
incentives to certain of these executives if the average closing price of the
Company's Class A Common Stock is $2.00 per share or higher for the last 20
trading days of June 1999. One-half of the achievement incentives are payable if
such average closing price is $2.00 per share or higher, and the full
achievement incentives are payable if such average closing price per share is
$3.00 per share or higher. If achievement incentives are payable, the first 40%
of such incentives are payable by the Company in cash, and the remaining 60% may
be paid in cash or Class A Common Stock, or a combination thereof, at the
discretion of the Company. Appropriate adjustments in the achievement incentives
will be made to give effect to changes in the Class A Common Stock resulting
from subdivisions, consolidations or reclassifications of the Class A Common
Stock, the payment of dividends or other distributions by the Company (other
than in the ordinary course of business), mergers, consolidations, combinations
or similar transactions or other relevant changes in the capital of the Company.
The maximum aggregate achievement payments that are payable under the Executive
Program are approximately $900,000. Certain executives covered under the
Executive Program who do not have employment contracts with the Company have
severance benefits ranging from six to ten months and total a maximum of
approximately $200,000. Amounts payable under the Executive Program are
independent of any obligations of the Company, including severance payments,
under employment agreements or other bonus programs. No amounts have been paid
by the Company under the Executive Program.
 
     The Board of Directors also approved, effective July 1, 1998, a Retention
Program ("Key Employee Program") for key employees (other than executive
officers) as designated by the Chief Executive Officer. Under the Key Employee
Program, certain key employees selected to date are each eligible to receive
cash retention payments of $12,500-$40,000 if such individuals remain in the
Company's employment through June 30, 1999, or if the employment of such
individuals with the Company is terminated by the Company without cause before
June 30, 1999. The maximum aggregate retention payments presently payable under
the Key Employee Program are approximately $310,000. In addition, the Key
Employee Program offers severance benefits ranging from three to nine months of
base salary to certain key employees in the event that their employment with the
Company is terminated without cause on or before December 31, 1999. The maximum
aggregate termination payments presently payable under the Key Employee Program
are approximately
 
                                       29
<PAGE>   31
 
$300,000. The Key Employee Program is evidenced by agreements between the
Company and each key employee. Approximately $70,000 was paid out during 1998
under the Key Employee Program.
 
     No retention, achievement incentives or termination payments are payable to
any executive officer or key employee who voluntarily terminates employment with
the Company or whose employment is terminated by the Company for cause.
 
RESULTS OF OPERATIONS
 
  Fiscal Year 1998 Compared to Fiscal Year 1997
 
     Service revenues decreased $11.0 million, or 19.0%, during the year ended
December 31, 1998, to $47.0 million, as compared to $58.0 million during the
year ended December 31, 1997. This decrease resulted primarily from the loss of
revenues from the markets sold to BellSouth Wireless and from an overall decline
of analog video subscribers as part of the Company's business strategy. This
decline was offset, in part, by subscription rate increases in certain markets.
The six operating markets sold to BellSouth since August 1997 accounted for
total revenue, operating expenses and EBITDA of $8.3 million, $6.5 million, and
$1.8 million, respectively, for the twelve months ended December 31, 1997, and
contributed revenue, operating expenses and EBITDA of $1.4 million, $1.1 million
and $377,000, respectively, for the twelve months ended December 31, 1998.
Revenues, operating expenses, and EBITDA for the Lakeland hardwire system were
immaterial for the twelve months ended December 31, 1998 and 1997. The number of
subscribers to the Company's wireless cable systems decreased to approximately
107,000 at December 31, 1998 compared to approximately 138,900 at December 31,
1997. Approximately 10,500 of the decline resulted from the sale of assets to
BellSouth Wireless. The balance of the decline resulted from the Company's
business strategy. See "-- Business Strategy."
 
     During the year-ended December 31, 1998, on a "same system" basis
(comparing systems that were operational for all of each of the years ended
December 31, 1997 and 1998), service revenues decreased $4.0 million, or 8.4%,
to $44.1 million, compared to $48.1 million for the year ended December 31,
1997. Same systems during these periods totaled 32 systems. The average number
of same system subscribers decreased approximately 11% for the twelve months
ended December 31, 1998, as compared to the year ended December 31, 1997. The
Company anticipates the average number of analog video subscribers to decline
further during 1999 and thereafter as part of the Company's business strategy.
Revenues from Internet operations are excluded from the analysis because these
operations were launched in the second quarter of 1997 and their results would
be immaterial. Revenues from the Orlando, Jacksonville, Daytona Beach and Ft.
Myers, Florida and Louisville, Kentucky systems were omitted from same system
revenues for both periods as these systems were sold by the Company during the
third quarter of 1997. Similarly, the revenues from the Company's Lakeland,
Florida wireless and hardwire cable television systems were omitted from both
periods because the systems were sold during the first and third quarters of
1998, respectively.
 
     Installation revenues decreased $265,000, or 26.1%, from $1.0 million for
the year ended December 31, 1997 to $751,000 for the year ended December 31,
1998. The decrease in installation revenues was the result of fewer subscriber
installations, as a portion of normal Subscriber Churn was not replaced. The
decrease in installation revenues was partially offset by increased installation
rates for the twelve-month period ended December 31, 1998, compared to
installation rates during the same period of 1997. The number of installations
completed during the year ended December 31, 1998 decreased approximately 49.1%
as compared to the same period during 1997. Installation rates vary widely by
system based upon competitive conditions. The Company occasionally reduces
installation charges as part of selected promotional campaigns.
 
     Operating expenses, principally programming, site costs and other direct
expenses, decreased $4.0 million from $34.5 million (or 58.5% of total revenues)
during the year ended December 31, 1997, compared to $30.5 million (or 63.9% of
total revenues) for the year ended December 31, 1998. The decrease was primarily
attributable to the operations of the six operating markets sold to BellSouth
and lower service call and disconnect expenses as a result of a lower subscriber
base. The decrease in operating expenses was partially offset by increased
programming rates for basic and premium programming, increased channel lease
costs
 
                                       30
<PAGE>   32
 
because of annual rate increases, certain system development expenses and
installation costs and connectivity costs associated with high-speed Internet
operations and WBA technology trials.
 
     Marketing and selling expenses decreased $1.0 million or 37.3%, from $2.8
million (or 4.8% of total revenues) during the year ended December 31, 1997, to
$1.8 million (or 3.7% of total revenues) for the year ended December 31, 1998.
The decrease in such expenses is attributable to the Company's continued
strategy to replace only a limited amount of Subscriber Churn.
 
     General and administrative expenses decreased $1.1 million, or 5.1%, from
$20.7 million (or 35.1% of total revenues) during the year ended December 31,
1997 to $19.7 million (or 41.2% of total revenues) during the year ended
December 31, 1998. This decrease was principally attributable to a reduction of
employees, which resulted in reduced salaries, a decrease in legal fees because
of completion of litigation between the Company and FTI. These decreases were
offset by an increase in consulting fees relating to ongoing WBA technical
trials and strategic partner activities.
 
     The Company's EBITDA loss was $4.2 million for the year ended December 31,
1998, compared to EBITDA of $971,000 for the year ended December 31, 1997. The
decline in EBITDA was primarily the result of decreased revenues associated with
loss of subscribers and increased expenses associated with WBA technical trials,
Internet expenses and the sale of the six operating markets in the BellSouth
Transaction.
 
     In the fourth quarter of 1998, after considering developments in the
wireless cable industry, including bankruptcy restructurings of other wireless
cable operators, the improbability of external financing for any significant
analog video operations, the history and probability of future operating losses,
and the uncertainty of implementing the WBA business strategy, the Company
evaluated the fair value of its tangible and intangible wireless cable assets in
each of its markets. The evaluation was made for each of the Company's markets
individually and not for the Company's markets as a whole. Fair value for the
assets was estimated based on recent reorganized enterprise values in the
wireless cable industry as publicly disclosed. Based on this valuation, the
Company determined that assets with a carrying value of $155 million were
impaired according to 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," and wrote down the carrying value
of such assets by $52.4 million to their estimated fair value. The carrying
values of property, plant, and equipment, deferred license assets, and goodwill
were written down by $6.0 million, $35.4 million, and $11.0 million,
respectively.
 
     Depreciation and amortization expenses decreased approximately $6.6 million
to $42.4 million for the year ended December 31, 1998, compared to $49.0 million
for the year ended December 31, 1997. The decrease is primarily the result of
the Company's smaller depreciable asset base from the sale of the six operating
markets in the BellSouth Transaction.
 
     Interest expense decreased $3.3 million, or 7.6%, to $40.4 million during
the year ended December 31, 1998 as compared to $43.7 million during the year
ended December 31, 1997. Approximately $1.3 million of the decrease is related
to a credit facility that was in place only during 1997. The remainder of the
decrease is because of the impact of the Bond Tender Offers completed during
1998.
 
     During the years ended December 31, 1998 and 1997, the Company recorded
gains of approximately $2.1 million and $35.9 million, respectively, related to
the sale of certain assets to BellSouth Wireless in the BellSouth Transaction.
 
     The Company recognized an extraordinary noncash gain in 1998 of $61.0
million in conjunction with two Tender Offers for a portion of its outstanding
2004 and 2005 Notes.
 
  Fiscal Year 1997 Compared to Fiscal Year 1996
 
     Service revenues decreased $2.7 million, or 4.4%, during the year ended
December 31, 1997 to $58.0 million, as compared to $60.7 million during the year
ended December 31, 1996. This decrease resulted primarily from the loss of
revenues from the markets sold to BellSouth Wireless on August 12, 1997 and from
an overall decline in analog video subscribers as part of the Company's business
strategy, offset partially by
 
                                       31
<PAGE>   33
 
subscription rate increases principally implemented during the first quarter of
1997. The five operating markets sold in the first closing of the BellSouth
Transaction accounted for total revenue, operating expenses and EBITDA of $5.2
million, $4.3 million and $902,000, respectively, for the period from January 1,
1997 through the closing date. The number of subscribers to the Company's
wireless cable systems decreased to approximately 138,900 at December 31, 1997
compared to approximately 179,800 at December 31, 1996. Approximately half of
this decline (about 23,000 subscribers) resulted from the sale of assets to
BellSouth Wireless. The balance of the decline resulted from the Company's
business strategy. See "-- Business Strategy."
 
     On a "same system" basis (comparing systems that were operational for all
of each of the years ended December 31, 1997 and 1996), service revenues
increased $50,000, or 0.1%, to $50.9 million during the year ended December 31,
1997, as compared to $50.9 million for the year ended December 31, 1996. This
increase was attributable principally to rate increases implemented during the
first quarter of 1997. Same systems during these periods totaled 31 systems. The
average number of same system subscribers decreased approximately 3.9% during
the year ended December 31, 1997, as compared to the year ended December 31,
1996. The Company's Cincinnati, Ohio, Portland, Oregon and Anchorage, Alaska
systems were omitted from same system revenues for both periods because these
systems were launched in the second quarter of 1996. Similarly, the St. James,
Minnesota and Yankton, South Dakota systems were omitted from same system
revenues for both periods because these systems were sold by the Company during
the second and fourth quarters, respectively, of 1996. The Company's Orlando,
Daytona Beach, Ft. Myers, Jacksonville, Florida and Louisville, Kentucky systems
were also omitted from same system revenues for both periods because these
systems were sold in the third quarter of 1997.
 
     Installation revenues decreased $303,000, or 23.0%, from $1.3 million for
the year ended December 31, 1996 to $1.0 million for the year ended December 31,
1997. The decrease in installation revenues was primarily the net result of
fewer subscriber installations because of the sale of certain assets to
BellSouth Wireless in August 1997 and the decision to not replace a portion of
normal Subscriber Churn as part of the Company's business strategy. The decrease
in installation revenues was partially offset by increased installation rates
for the year ended December 31, 1997, as compared to installation rates during
the same period of 1996. The number of installations completed during the year
ended December 31, 1997 decreased approximately 54.0% as compared to the year
ended December 31, 1996. Installation rates vary widely by system based upon
competitive conditions. The Company occasionally reduces installation charges as
part of selected promotional campaigns.
 
     Operating expenses, principally programming, site costs and other direct
expenses, decreased $1.5 million, or 4.2%, from $36.0 million (or 58.1% of total
revenues) during the year ended December 31, 1996 to $34.5 million (or 58.5% of
total revenues) during the year ended December 31, 1997. The decrease was
primarily the result of one-time programming rebates of approximately $400,000
received during the third quarter of 1997, decreased programming expense related
to the loss of subscribers attributable to the BellSouth Transaction and lower
service call and disconnect expenses of approximately $1.3 million as a result
of a lower subscriber base. The decrease in operating expenses was partially
offset by increased programming rates for basic and premium programming, and
increased channel lease costs due to annual rate increases.
 
     Marketing and selling expenses decreased $4.6 million, or 62.2%, from $7.4
million (or 12.0% of total revenues) during the year ended December 31, 1996 to
$2.8 million (or 4.8% of total revenues) during the year ended December 31,
1997. The decrease in such expenses resulted from reductions in the number of
employees, which resulted in reduced salaries and related sales commissions, and
reduced advertising costs. This decrease in marketing efforts is consistent with
the Company's strategy to not replace all Subscriber Churn as part of the
Company's business strategy.
 
     General and administrative expenses increased $1.9 million, or 10.1%, from
$18.8 million (or 30.4% of total revenues) in the year ended December 31, 1996
to $20.7 million (or 35.1% of total revenues) for the year ended December 31,
1997. This increase was principally attributable to the write-off of certain
merger and acquisition costs previously capitalized, higher legal costs related
to litigation with FTI, consulting fees
 
                                       32
<PAGE>   34
 
relating to ongoing WBA technical trials and strategic partner activities and
severance costs relating to the BellSouth Transaction.
 
     In the fourth quarter of 1996, after considering the Company's 1996
operating loss, its history of such operating losses and the expectation of
future operating losses, changes in the Company's strategic direction, and
developments relating to previously scheduled wireless cable industry
transactions and ventures, the Company evaluated the ongoing value of its
wireless cable business in each Developed Market. Based on this valuation, the
Company determined that assets with a carrying value of $95.1 million were
impaired according to the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and wrote down the carrying value of such assets by $21.3 million to their fair
value. An evaluation was made for each of the Company's Developed Markets
individually, not for the Company's markets as a whole. Fair value was based on
then recently announced transactions in the wireless cable industry. In
addition, during the fourth quarter of 1996, the Company prospectively revised
the lives of its subscriber premise equipment from seven years to three or four
years. During 1997, the Company reviewed the requirements of SFAS No. 121 and
evaluated the ongoing value of its business in each Developed Market. As a
result of this evaluation, the Company concluded that an additional impairment
adjustment was not needed at such time.
 
     The Company's loss from operations was $48.1 million during the year ended
December 31, 1997, as compared to $66.2 million during the year ended December
31, 1996. The decrease in loss from operations of $18.1 million was attributable
primarily to the absence of the 1996 impairment loss of $21.3 million described
above, and increased depreciation and amortization expense of $4.4 million. The
increase in depreciation and amortization expense was due to the revision in the
useful lives of subscriber premise equipment described above in the fourth
quarter of 1996 and a revision in the useful lives of transmission assets from
ten years to a remaining life of four years made by the Company during the
fourth quarter of 1997. The increase was also caused by additional expense
recorded for excess subscriber equipment. This increase was offset, in part, by
a net decrease in loss from operations of approximately $1.2 million as a result
of fluctuations in revenues and operating, marketing and general and
administrative expenses previously discussed.
 
     Interest expense increased $6.4 million, or 17.2%, to $43.7 million during
the year ended December 31, 1997, as compared to $37.3 million during the year
ended December 31, 1996. The increase in interest expense primarily resulted
from increased noncash interest charges of approximately $5.3 million associated
with the increased accreted value of the Company's 2004 Notes and 2005 Notes.
Interest expense also increased $1.3 million due to interest charges associated
with bond appreciation rights, warrants and outstanding and unused loan balances
recorded in connection with a $17.0 million short term credit facility the
Company entered into in February of 1997 (the "Credit Facility"). These
increases in interest expense were offset, in part, by lower debt balances on
various notes that were repaid with borrowings from the Credit Facility. The
Credit Facility was fully repaid and terminated during 1997.
 
     During the year ended December 31, 1997, the Company recorded a gain of
approximately $35.9 million related to the sale of certain assets to BellSouth
Wireless in the BellSouth Transaction.
 
     EBITDA totaled $971,000 for the year ended December 31, 1997, as compared
to a loss before interest, taxes, depreciation, amortization and the impairment
write down described above of $253,000 during the year ended December 31, 1996.
The assets sold to BellSouth Wireless accounted for $902,000 of the $971,000 in
EBITDA for the year ended December 31, 1997.
 
INCOME TAX MATTERS
 
     The Company and its subsidiaries file a consolidated federal tax return.
Beginning with its 1997 tax return, the Company paid alternative minimum federal
income taxes and expects to do so again in its 1998 tax return. The Company pays
state and local taxes in those states that do not recognize net operating loss
carryforwards. As of December 31, 1998, the Company had approximately $131.6
million in net operating loss carryforwards for tax purposes, expiring in years
2008 through 2011. Section 382 of the Internal Revenue Code limits the amount of
loss carryforwards that a company can use to offset future income upon the
occurrence of certain changes in ownership. The issuance of moderate amounts of
certain types of new equity
                                       33
<PAGE>   35
 
could limit the Company's ability to use net operating losses to offset future
gains from the sale of assets, thus requiring the Company to pay income taxes on
gains received in such asset sales.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
     Effective for the fiscal year ended December 31, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income", SFAS No. 131 "Disclosures About Segments of an Enterprise
and Related Information" and SFAS No. 132 "Employers' Disclosures about Pensions
and Other Post Retirement Benefits". See "Note 2. Significant Accounting
Policies -- Comprehensive Income" in the Notes to Consolidated Financial
Statements regarding the adoption of SFAS No. 130. Adoption of these standards
did not have a material impact on the Company's financial position or results of
operations. Effective for the fiscal year ending December 31,1999, the Company
is required to adopt SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities." The Company has not determined whether the adoption of this
standard will have a material impact on the Company's financial position or
results of operations.
 
     In 1998, the Company adopted the American Institute of Certified Public
Accountants' Statement of Position 98-5 "Accounting for Start-up Costs". The
adoption of this statement resulted in the Company writing off $1.9 million of
previously capitalized start-up costs as a cumulative effect of a change in
accounting principle.
 
INFLATION
 
     Inflation has not affected the Company's operations significantly during
the past three years. The Company believes that its ability to increase charges
for services in future periods will depend primarily on competitive pressures.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The Company's Consolidated Financial Statements included in this Report on
pages F-1 through F-26 are incorporated in this Item 8 by reference.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                       34
<PAGE>   36
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item with respect to the identity and
business experience of the Company's directors is set forth in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on April 22,
1999, under the caption "Election of Directors," which information is hereby
incorporated herein by reference.
 
     The information required by this Item with respect to the identity and
business experience of the Company's executive officers is set forth on page 18
of this Report under the caption "Executive Officers of the Registrant."
 
     The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is set forth in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
April 22, 1999, under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance," which information is hereby incorporated herein by reference.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 22, 1999,
under the captions "Compensation and Other Information Concerning Executive
Officers," and "Board of Directors Interlocks and Insider Participation," which
information is hereby incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 22, 1999,
under the caption "Stock Ownership of Certain Beneficial Owners and Management,"
which information is hereby incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item is set forth in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 22, 1999,
under the caption "Certain Relationships and Related Transactions," which
information is hereby incorporated herein by reference.
 
                                       35
<PAGE>   37
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as part of this Report:
 
          (1) Financial Statements
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Public Accountants....................  F-2
Consolidated Balance Sheets as of December 31, 1997 and
  1998......................................................  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1996, 1997 and 1998..........................  F-4
Consolidated Statements of Stockholders' Deficit for the
  years ended December 31, 1996, 1997 and 1998..............  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1996, 1997 and 1998..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>
 
          (2) Exhibits
 
<TABLE>
<C>                      <S>
          3.1            -- Certificate of Designation for Series B Convertible
                            Preferred Stock of American Telecasting, Inc. dated
                            August 6, 1996 (incorporated by reference to Exhibit 4.1
                            to the Company's Form 8-K filed on August 7, 1996).
          3.2            -- Amendment to Restated Certificate of Incorporation of
                            American Telecasting, Inc. dated April 24, 1996
                            (incorporated by reference to Exhibit 3.1(i) to the
                            Company's Quarterly Report on 10-Q for the period ended
                            June 30, 1996).
          3.3            -- Restated Certificate of Incorporation of American
                            Telecasting, Inc., dated April 27, 1995 (incorporated by
                            reference to Exhibit 3.1 to the Company's Quarterly
                            Report on Form 10-Q for the period ended March 31, 1995).
          3.4            -- Amended and Restated Bylaws of American Telecasting, Inc.
                            (incorporated by reference to Exhibit 3.2 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 1995).
          4.1            -- Specimen Common Stock Certificate (incorporated by
                            reference to Exhibit 2 to the Company's Registration
                            Statement on Form 8-A filed on December 6, 1993).
          4.2            -- Specimen Class A Common Stock Certificate (incorporated
                            by reference to Exhibit 4.2 to the Company's Registration
                            Statement on Form S-3 filed on April 26, 1996).
          4.3            -- Specimen Class B Common Stock Certificate (incorporated
                            by reference to Exhibit 4.3 to the Company's Annual
                            Report on Form 10-K for the fiscal year ended December
                            31, 1996).
          4.4            -- Specimen Series B Convertible Preferred Stock Certificate
                            (incorporated by reference to Exhibit 4.4 to the
                            Company's Annual Report on Form 10-K for the fiscal year
                            ended December 31, 1997).
          4.5            -- Supplemental Indenture dated as of April 28, 1998 to
                            Indenture dated as of August 10, 1995 -- Senior Discount
                            Notes Due 2005 (incorporated by reference to Exhibit 4 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended March 31, 1998).
          4.6            -- Supplemental Indenture dated as of April 28, 1998 to
                            Indenture dated as of June 23, 1994 -- Senior Discount
                            Notes Due 2004 (incorporated by reference to Exhibit 4.1
                            to the Company's Quarterly Report on Form 10-Q for the
                            period ended March 31, 1998).
</TABLE>
 
                                       36
<PAGE>   38
<TABLE>
<C>                      <S>
          4.7            -- Supplemental Indenture dated as of August 10, 1995
                            between American Telecasting, Inc. and First Trust
                            National Association, Trustee, supplementing and amending
                            the Indenture dated as of June 23, 1994 (incorporated by
                            reference to Exhibit 4.1 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1995).
          4.8            -- Indenture dated as of June 23, 1994 between American
                            Telecasting, Inc. and First Trust National Association,
                            Trustee (incorporated by reference to Exhibit 4.2 to the
                            Company's Annual Report on Form 10-K for the period ended
                            December 31, 1994).
          4.9            -- Form of Senior Discount Note due 2004 (included within
                            Exhibits 4.7 and 4.8).
          4.10           -- Supplemental Warrant Agreement dated as of August 10,
                            1995 between American Telecasting, Inc. and First Union
                            National Bank of North Carolina, as warrant agent
                            (incorporated by reference to Exhibit 4.2 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1995).
          4.11           -- Warrant Agreement dated as of June 23, 1994 between
                            American Telecasting, Inc. and First Union National Bank
                            of North Carolina, as warrant agent (incorporated by
                            reference to Exhibit 4.4 to the Company's Annual Report
                            on Form 10-K for the period ended December 31, 1994).
          4.12           -- Form of Warrant (included within Exhibits 4.8 and 4.9).
          4.13           -- Collateral and Disbursement Agreement dated as of June
                            23, 1994 between First Trust National Association and
                            American Telecasting, Inc. (incorporated by reference to
                            Exhibit 4.3 to the Company's Annual Report on Form 10-K
                            for the period ended December 31, 1994).
          4.14           -- Indenture dated as of August 10, 1995 between American
                            Telecasting, Inc., as Issuer, and First Trust National
                            Association, as Trustee (incorporated by reference to
                            Exhibit 4.3 to the Company's Quarterly Report on Form
                            10-Q for the period ended June 30, 1995).
          4.15           -- Form of Senior Discount Note due 2005 (included within
                            Exhibit 4.12).
          4.16           -- Warrant Agreement dated as of August 10, 1995 between
                            American Telecasting, Inc. and First Union National Bank
                            of North Carolina, as warrant agent (incorporated by
                            reference to Exhibit 4.5 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1995).
          4.17           -- Form of Warrant (included within Exhibit 4.14).
          4.18           -- Registration Rights Agreement dated as of August 10, 1995
                            by and among American Telecasting, Inc. and Dillon Read &
                            Co., Inc. and CS First Boston Corporation (incorporated
                            by reference to Exhibit 4.7 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1995).
         10.1            -- Stock Purchase and Sale Agreement dated as of June 7,
                            1995 by and between Bruce Merrill and Virginia Merrill
                            and their successors in trust, as trustees of the Merrill
                            Revocable Trust dated August 20, 1982 and American
                            Telecasting, Inc. (incorporated by reference to Exhibit
                            10.1 to the Company's Quarterly Report on Form 10-Q for
                            the period ended June 30, 1995).
         10.2            -- Standard Commercial Lease Agreement, dated as of
                            September 18, 1995, between Tech Center VI Associates,
                            L.P., as Lessor, and American Telecasting, Inc., as
                            Lessee (incorporated by reference to Exhibit 10.13 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995).
         10.3            -- Retention and Achievement Incentive Agreement with Robert
                            D. Hostetler (incorporated by reference to Exhibit 10.1
                            to the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
</TABLE>
 
                                       37
<PAGE>   39
<TABLE>
<C>                      <S>
         10.4            -- Retention and Achievement Incentive Agreement with David
                            K. Sentman (incorporated by reference to Exhibit 10.2 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.5            -- Retention and Achievement Incentive Agreement with Terry
                            J. Holmes (incorporated by reference to Exhibit 10.3 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.6            -- Retention and Achievement Incentive Agreement with Nasser
                            Sharabianlou (incorporated by reference to Exhibit 10.4
                            to the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.7            -- Retention and Achievement Incentive Agreement with Bryan
                            H. Scott (incorporated by reference to Exhibit 10.5 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.8            -- Key Employee Retention Agreement (incorporated by
                            reference to Exhibit 10.6 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1998).*
         10.9            -- Key Employee Retention Agreement with Lee G. Haglund
                            (incorporated by reference to Exhibit 10.3 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1998).*
         10.10           -- Employment Agreement effective as of July 1, 1997 between
                            American Telecasting, Inc. and Robert D. Hostetler
                            (incorporated by reference to Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1997).*
         10.11           -- Employment Agreement effective as of July 1, 1998 between
                            American Telecasting, Inc. and Robert D. Hostetler
                            (incorporated by reference to Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1998).*
         10.12           -- Employment Agreement dated August 10, 1995 between
                            American Telecasting, Inc. and David K. Sentman
                            (incorporated by reference to Exhibit 10 to the Company's
                            Quarterly Report on Form 10-Q for the period ended
                            September 30, 1995).*
         10.13           -- First amendment to Employment Agreement effective as of
                            September 9, 1997 between the Company and David K.
                            Sentman (incorporated by reference to Exhibit 10.2 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1997.) *
         10.14           -- Second amendment to Employment Agreement effective as of
                            October 7, 1998 between American Telecasting, Inc. and
                            David K. Sentman (incorporated by reference to Exhibit
                            10.2 to the Company's Quarterly Report on Form 10-Q for
                            the period ended September 30, 1998).*
         10.15           -- Employment Agreement as of April 28, 1997 between
                            American Telecasting, Inc. and Terry J. Holmes
                            (incorporated by reference to Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1997).*
</TABLE>
 
                                       38
<PAGE>   40
 
<TABLE>
<C>                       <S>
          10.16           -- Credit Agreement dated as of February 26, 1997, among American Telecasting, Inc. and
                             Banque Indosuez, New York Branch, as Agent, and the lending institutions listed therein
                             (the "Banks"); related Option Agreement dated as of February 26, 1997 among American
                             Telecasting, Inc. and Indosuez CM II, Inc.; related Bond Appreciation Rights
                             Certificate dated February 26, 1997; related Securities Pledge Agreement dated as of
                             February 26, 1997 in favor of Banque Indosuez, New York Branch, as pledgee, assignee
                             and secured party, in its capacity as collateral agent for the Banks; related
                             Securities Pledge Agreement dated as of February 26, 1997 made by American Telecasting
                             of Green Bay, Inc. in favor of Banque Indosuez, New York Branch, as pledgee, assignee
                             and secured party, in its capacity as collateral agent for the Banks; related General
                             Security Agreement dated as of February 26, 1997 made by certain subsidiaries of
                             American Telecasting, Inc. in favor of Banque Indosuez, New York Branch, as pledgee,
                             assignee and secured party, in its capacity as collateral agent for the Banks; related
                             Registration Rights Agreement dated as of February 26, 1997 among American Telecasting,
                             Inc. and the holders of the warrants to purchase an aggregate of 141,667 shares of the
                             Class A Common Stock of American Telecasting, Inc.; related Securities Pledge Agreement
                             dated as of February 26, 1997 made by American Telecasting, Inc. in favor of Banque
                             Indosuez, New York Branch, as pledgee, assignee and secured party, in its capacity as
                             collateral agent for the Banks (incorporated by reference to Exhibit 10.10 to the
                             Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996).
          10.17           -- Management Agreement dated as of June 28, 1996 between Novner Enterprises, Inc. and
                             American Telecasting of Cincinnati, Inc.(incorporated by reference to Exhibit 10.2 to
                             the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996).
          10.18           -- American Telecasting, Inc. 1990 Stock Option Program, As Amended (Effective April 25,
                             1996) (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on
                             Form 10-Q for the period ended June 30, 1996).*
          10.19           -- Form of Registration Rights Agreement between American Telecasting, Inc. and
                             Stockholder (incorporated by reference to Exhibit 10.40 to the Company's Form S-1
                             Registration Statement filed on October 8, 1993).
          10.20           -- Asset Purchase Agreement dated as of March 18, 1997 by and among BellSouth Corporation,
                             BellSouth Wireless Cable, Inc., American Telecasting of Central Florida, Inc., American
                             Telecasting Development, Inc., American Telecasting of Fort Myers, Inc., American
                             Telecasting of Jacksonville, Inc., American Telecasting of Louisville, Inc., and
                             American Telecasting of Yuba City, Inc. (incorporated by reference to Exhibit 10 to the
                             Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997).
          11.1            -- Statement regarding computation of per share earnings.
          21.1            -- Subsidiaries of American Telecasting, Inc. (incorporated by reference to Exhibit 21.1
                             to the Company's Annual Report on Form 10-K for the year ended December 31, 1996).
          27.1            -- Financial Data Schedule.
</TABLE>
 
---------------
 
*  Indicates management agreement or compensatory plan or arrangement.
 
                                       39
<PAGE>   41
 
     (b) Reports on Form 8-K
 
     The following reports on Form 8-K were filed during the quarter ended
December 31, 1998.
 
          (i) Current Report on Form 8-K/A dated October 13, 1998 to amend the
     Form 8-K report originally filed by the Company on September 12, 1998. The
     report amended and supplemented the original disclosure regarding the
     Company's tender offer for a portion of its outstanding Notes due in 2004
     and 2005.
 
          (ii) Current Report on Form 8-K/A dated October 15, 1998 to amend the
     Form 8-K report originally filed by the Company on September 12, 1998. The
     report amended and supplemented the original disclosure regarding the
     Company's tender offer for a portion of its outstanding Notes due in 2004
     and 2005.
 
          (iii) Current Report on Form 8-K dated October 30, 1998 to report,
     under Item 5, that The Nasdaq Stock Market, Inc. notified the Company that
     its Class A Common Stock was being delisted from the Nasdaq SmallCap Market
     effective with the close of business on October 28, 1998.
 
                                       40
<PAGE>   42
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Consolidated Financial Statements:
Report of Independent Public Accountants....................   F-2
Consolidated Balance Sheets as of December 31, 1997 and
  1998......................................................   F-3
Consolidated Statements of Operations for the years ended
  December 31, 1996, 1997 and 1998..........................   F-4
Consolidated Statements of Stockholders' Deficit for the
  years ended December 31, 1996, 1997 and 1998..............   F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1996, 1997 and 1998..........................   F-6
Notes to Consolidated Financial Statements..................   F-7
</TABLE>
 
                                       F-1
<PAGE>   43
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To American Telecasting, Inc.:
 
     We have audited the accompanying consolidated balance sheets of American
Telecasting, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1998. 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 an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Telecasting, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
 
     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency as of December 31, 1998. Cash
interest payments of $10.5 million on the Company's 2004 Notes are due on
December 15, 1999. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
 
                                            ARTHUR ANDERSEN LLP
 
Washington, D.C.
February 17, 1999
(except with respect
to the matter discussed in
Note 12 as to which the date
is March 19, 1999)
 
                                       F-2
<PAGE>   44
 
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1997        1998
                                                              ---------   ---------
<S>                                                           <C>         <C>
Current Assets:
  Cash and cash equivalents.................................  $   9,125   $  11,155
  Trade accounts receivable, net of allowance for
     uncollectible accounts of $244 and $141,
     respectively...........................................      1,091         971
  Prepaid expenses and other current assets.................      2,722       1,472
                                                              ---------   ---------
          Total current assets..............................     12,938      13,598
Property and equipment, net.................................     60,166      28,349
Deferred license and leased license acquisition costs,
  net.......................................................    131,017      81,141
Cash available for asset purchases and debt repayment.......     31,658          --
Restricted escrowed funds...................................      6,395       1,828
Goodwill, net...............................................     14,296          --
Deferred financing costs, net...............................      4,294       2,523
Other assets, net...........................................        483         226
                                                              ---------   ---------
          Total assets......................................  $ 261,247   $ 127,665
                                                              =========   =========
 
                       LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Accounts payable and accrued expenses.....................  $  12,263   $  11,338
  Current portion of long-term obligations..................      3,284         271
  Subscriber deposits.......................................        363         186
                                                              ---------   ---------
          Total current liabilities.........................     15,910      11,795
Deferred income taxes.......................................      1,275          --
Long-term obligations, net of current portion:
  2004 Notes................................................    156,897     134,130
  2005 Notes................................................    135,137     105,383
  Notes Payable.............................................         --          75
  Capital lease obligations.................................        307         127
  Minority interest and other...............................        945         325
                                                              ---------   ---------
          Total long-term obligations, net of current
            portion.........................................    293,286     240,040
                                                              ---------   ---------
          Total liabilities.................................    310,471     251,835
Commitments and Contingencies (Notes 10 and 11)
Stockholders' Deficit (Notes 8 and 9):
  Preferred Stock, $.01 par value; 2,500,000 shares
     authorized, none issued and outstanding................         --          --
  Series B Convertible Preferred Stock, $.01 par value;
     500,000 shares authorized; 250,000 shares issued and
     none outstanding.......................................         --          --
  Class A Common Stock, $.01 par value; 45,000,000 shares
     authorized; 25,743,607 shares issued and outstanding...        257         257
  Class B Common Stock, $.01 par value; 10,000,000 shares
     authorized; no shares issued and outstanding...........         --          --
  Additional paid-in capital................................    189,413     189,413
  Common Stock warrants.....................................     10,129      10,129
  Accumulated deficit.......................................   (249,023)   (323,969)
                                                              ---------   ---------
          Total stockholders' deficit.......................    (49,224)   (124,170)
                                                              ---------   ---------
          Total liabilities and stockholders' deficit.......  $ 261,247   $ 127,665
                                                              =========   =========
</TABLE>
 
          See Accompanying Notes to Consolidated Financial Statements
                                       F-3
<PAGE>   45
 
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                         --------------------------------------
                                                            1996          1997          1998
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Revenues:
  Service and other....................................  $   60,713    $   58,015    $   46,986
  Installation.........................................       1,319         1,016           751
                                                         ----------    ----------    ----------
Total revenues.........................................      62,032        59,031        47,737
Costs and Expenses:
  Operating............................................      36,029        34,516        30,488
  Marketing............................................       7,429         2,806         1,758
  General and administrative...........................      18,827        20,738        19,680
  Depreciation and amortization........................      44,665        49,033        42,398
  Impairment of wireless cable assets (Note 2).........      21,271            --        52,369
                                                         ----------    ----------    ----------
Total costs and expenses...............................     128,221       107,093       146,693
                                                         ----------    ----------    ----------
Loss from operations...................................     (66,189)      (48,062)      (98,956)
Interest expense.......................................     (37,281)      (43,682)      (40,383)
Interest income........................................       1,106         1,528         1,511
Other income, net......................................         530           617           271
Gain on disposition of wireless cable systems and
  assets...............................................         157        35,944         2,396
                                                         ----------    ----------    ----------
Loss before income tax benefit.........................    (101,677)      (53,655)     (135,161)
Income tax benefit.....................................       3,297         1,184         1,121
                                                         ----------    ----------    ----------
Loss before extraordinary gain and cumulative effect of
  change in accounting for start-up costs..............     (98,380)      (52,471)     (134,040)
Cumulative effect of change in accounting for start-up
  costs (Note 2).......................................          --            --        (1,953)
                                                         ----------    ----------    ----------
Loss before extraordinary item.........................     (98,380)      (52,471)     (135,993)
Extraordinary gain on extinguishment of debt (Note
  7)...................................................          --            --        61,047
                                                         ----------    ----------    ----------
Net loss...............................................     (98,380)      (52,471)      (74,946)
Dividend embedded in conversion of Series B Convertible
  Preferred Stock......................................      (6,250)           --            --
                                                         ----------    ----------    ----------
Net loss applicable to Class A
  Common Stock.........................................  $ (104,630)   $  (52,471)   $  (74,946)
                                                         ==========    ==========    ==========
Basic and diluted net income (loss) per share:
  Loss per share applicable to Class A Common Stock
     before extraordinary gain and cumulative effect of
     change in accounting for start-up costs...........  $    (5.78)   $    (2.06)   $    (5.21)
  Loss per share from cumulative effect of change in
     accounting for start-up costs.....................          --            --          (.07)
  Income per share from extraordinary gain.............          --            --          2.37
                                                         ----------    ----------    ----------
  Basic and diluted net loss per share applicable to
     Class A Common Stock..............................  $    (5.78)   $    (2.06)   $    (2.91)
                                                         ==========    ==========    ==========
Weighted average number of shares outstanding..........  18,095,961    25,458,247    25,743,607
                                                         ==========    ==========    ==========
</TABLE>
 
          See accompanying Notes to Consolidated Financial Statements
 
                                       F-4
<PAGE>   46
 
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                        SERIES B
                                      CONVERTIBLE            CLASS A
                                    PREFERRED STOCK        COMMON STOCK      ADDITIONAL    COMMON
                                   ------------------   ------------------    PAID-IN      STOCK     ACCUMULATED
                                   SHARES   PAR VALUE   SHARES   PAR VALUE    CAPITAL     WARRANTS     DEFICIT       TOTAL
                                   ------   ---------   ------   ---------   ----------   --------   -----------   ---------
<S>                                <C>      <C>         <C>      <C>         <C>          <C>        <C>           <C>
Balance, December 31, 1995.......     --    $     --    16,436     $164       $135,364    $10,130     $ (91,922)   $  53,736
  Exercise of Class A Common
     Stock warrants..............     --          --        62        1            172         (1)           --          172
  Exercise of Class A Common
     Stock options...............     --          --        85        1            484         --            --          485
  Issuance of Class A Common
     Stock for acquisitions......     --          --        64        1            706         --            --          707
  Issuance of Class A Common
     Stock pursuant to public
     offering, net of issuance
     costs of $1,532.............     --          --     1,700       17         19,913         --            --       19,930
  Issuance of Series B
     Convertible Preferred Stock,
     net of issuance costs of
     $1,233......................    250      23,766        --       --             --         --            --       23,766
  Dividend embedded in conversion
     of Series B Convertible
     Preferred Stock.............     --       6,250        --       --             --         --        (6,250)          --
  Conversion of Series B
     Convertible Preferred
     Stock.......................   (140)    (16,779)    2,274       23         16,860         --            --          104
  Conversion of note payable.....     --          --       163        1          2,524         --            --        2,525
  Deferred compensation pursuant
     to issuance of Class A
     Common Stock options........     --          --        --       --             68         --            --           68
  Net loss.......................     --          --        --       --             --         --       (98,380)     (98,380)
                                    ----    --------    ------     ----       --------    -------     ---------    ---------
Balance, December 31, 1996.......    110      13,237    20,784      208        176,091     10,129      (196,552)       3,113
  Conversion of Series B
     Convertible Preferred
     Stock.......................   (110)    (13,237)    4,960       49         13,322         --            --          134
  Net loss.......................     --          --        --       --             --         --       (52,471)     (52,471)
                                    ----    --------    ------     ----       --------    -------     ---------    ---------
Balance, December 31, 1997.......     --          --    25,744      257        189,413     10,129      (249,023)     (49,224)
  Net loss.......................     --          --        --       --             --         --       (74,946)     (74,946)
                                    ----    --------    ------     ----       --------    -------     ---------    ---------
Balance, December 31, 1998.......     --    $     --    25,744     $257       $189,413    $10,129     $(323,969)   $(124,170)
                                    ====    ========    ======     ====       ========    =======     =========    =========
</TABLE>
 
          See Accompanying Notes to Consolidated Financial Statements
 
                                       F-5
<PAGE>   47
 
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1996       1997       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................  $(98,380)  $(52,471)  $(74,946)
Adjustments to reconcile net loss to net cash used in
  operating activities
Depreciation and amortization...............................    44,665     49,033     42,398
Impairment of wireless cable assets.........................    21,271         --     52,369
Cumulative effect of change in accounting for start-up
  costs.....................................................        --         --      1,953
Extraordinary gain on extinguishment of debt................        --         --    (61,047)
Deferred income taxes.......................................    (3,297)    (1,184)    (1,275)
Amortization of debt discount and deferred financing
  costs.....................................................    35,402     41,767     40,219
Gain on disposition of wireless cable systems and assets....      (157)   (35,944)    (2,396)
Other.......................................................      (441)       609       (109)
Changes in operating assets and liabilities, net of
  acquisitions:
  Trade accounts receivable.................................       307        729        202
  Prepaid expenses and other current assets.................       214       (367)     1,280
  Other assets..............................................      (247)       734     (1,414)
  Accounts payable and other current liabilities............    (6,876)    (4,757)    (2,565)
                                                              --------   --------   --------
          Net cash used in operating activities.............    (7,539)    (1,851)    (5,331)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of loans from related parties and others........       252         --         --
Purchases of property and equipment.........................   (32,474)   (12,267)   (11,510)
Additions to deferred license and leased license acquisition
  costs.....................................................   (12,492)      (311)    (5,717)
Proceeds from disposition of wireless cable systems and
  assets....................................................     2,776     54,106     19,213
(Increase)/decrease in cash available for asset purchases
  and debt repayment........................................        --    (31,658)    31,658
(Increase)/release of restricted escrowed funds.............        --     (6,395)     6,733
Net cash used in acquisitions...............................    (1,956)    (3,416)    (1,526)
                                                              --------   --------   --------
          Net cash (used in) provided by investing
            activities......................................   (43,894)        59     38,851
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock, net of stock
  issuance costs............................................    20,587         --         --
Proceeds from issuance of Series B Convertible Preferred
  Stock, net of stock issuance costs........................    23,766         --         --
Borrowings under revolving credit facilities................       200      6,155         --
Principal payments on revolving credit facilities...........    (5,500)    (9,105)        --
Increase in deferred financing costs........................        --     (1,285)        --
Contributions to subsidiaries by minority interest holder...     1,240        462         --
Principal payments on warrants..............................        --       (850)        --
Principal payments on notes payable.........................    (2,030)    (2,149)      (591)
Cash used in bond tender offers.............................        --         --    (29,909)
Principal payments on capital lease obligations.............      (868)      (787)      (990)
                                                              --------   --------   --------
          Net cash provided by (used in) financing
            activities......................................    37,395     (7,559)   (31,490)
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........   (14,038)    (9,351)     2,030
Cash and cash equivalents, beginning of year................    32,514     18,476      9,125
                                                              --------   --------   --------
Cash and cash equivalents, end of year......................  $ 18,476   $  9,125   $ 11,155
                                                              ========   ========   ========
</TABLE>
 
          See accompanying Notes to Consolidated Financial Statements
 
                                       F-6
<PAGE>   48
 
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. BUSINESS DESCRIPTION
 
  Organization
 
     American Telecasting, Inc. ("ATI") owns and operates a network of wireless
cable television systems providing subscription television service to
residential and commercial subscribers. ATI and its subsidiaries are
collectively referred to herein as the "Company." As of December 31, 1998, the
Company owned and operated 32 wireless cable systems located throughout the
United States (the "Developed Markets"). The Company also has wireless cable
(microwave) frequency interests in 21 other U.S. markets (the "Undeveloped
Markets").
 
  Risks and Other Important Factors
 
     The Company's principal business strategy is to pursue implementation of a
Wireless Broadband Access ("WBA") capability that it believes will eventually be
the best use of the wireless cable spectrum. The Company believes that market,
technological and regulatory developments are creating an opportunity for the
current wireless cable spectrum to be used to serve small and medium-sized
business customers with fixed, two-way, high-speed data and telephony services.
The Company is not presently offering any WBA services. The Company's WBA
business strategy assumes that ATI will become part of a larger wholesale
provider of fixed, two-way, high speed data and telephony services and does not
assume retail distribution of WBA services directly by the wholesale provider.
The WBA business strategy also assumes an investment in the Company and other
wireless cable providers by a strategic partner that will serve both as an
investor and as a customer of a newly created entity to offer WBA services. The
execution of the Company's WBA business strategy has two principal elements.
First, pursue the regulatory, technology and strategic investment activities
necessary to shift the Company's existing analog video business to WBA services.
Second, manage the Company's existing analog video business to preserve limited
cash resources and afford the Company additional time to pursue development of
WBA services. As part of this second element, the Company has not been
increasing its analog video subscriber levels.
 
     During 1998, the Company continued operating its Developed Markets
principally as an analog video subscription television business. The Company has
intentionally curtailed growth in its analog video business by not investing the
capital resources necessary to replace all subscribers who chose to stop
receiving the Company's service.
 
     The Company's ability to introduce WBA services on a broad commercial basis
will depend on a number of factors, including the availability of sufficient
capital through a strategic partner or otherwise, the success of the Company's
development efforts, competitive factors (such as the introduction of new
technologies or the entry of competitors with significantly greater resources
than the Company and increased competition for the renewal of programming and
channel lease agreements), the availability of appropriate transmission and
reception equipment on satisfactory terms, the expertise of the Company's
management, and the Company's ability to obtain the necessary regulatory changes
and approvals in a timely fashion. There is also uncertainty regarding the
degree of subscriber demand for these services, especially at pricing levels at
which the Company can achieve an attractive return on investment. Moreover, the
Company expects that the market for any such services will be extremely
competitive.
 
     The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is ultimately dependent upon its ability to implement its business
strategy and generate sufficient cash flow to meet its obligations on a timely
basis. The Company will require significant additional capital to fully
implement its business strategy. To meet such capital requirements, the Company
is pursuing opportunities to
 
                                       F-7
<PAGE>   49
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
enter into strategic relationships or transactions with providers of
telecommunication services, Internet, software and communication equipment.
These relationships could provide the Company with access to technologies,
products, capital and infrastructure. Such relationships or transactions could
involve, among other things, joint ventures, sales or exchanges of stock or
assets, or loans to or investments in the Company by strategic partners, likely
accompanied by some type of capital restructuring of the Company under the
protection of the bankruptcy laws. As of February 17, 1999, except for the
BellSouth Agreement (as defined herein), the Company has not reached any
agreements or understandings with respect to such strategic relationships or
transactions. However, the Company is continually involved in discussions
regarding possible strategic partner investments.
 
     Cash interest payments on the 2004 Notes and the 2005 Notes are required to
commence on December 15, 1999 and February 15, 2001, respectively. The aggregate
interest payments on the 2004 Notes and the 2005 Notes are approximately $10.5
million, $21.0 million and $40.7 million in 1999, 2000 and 2001, respectively.
Based upon the Company's present financial condition, it is unlikely the Company
will be able to meet its cash interest obligations for the 2004 Notes on
December 15, 1999. The Company is pursuing a number of alternatives to address
its limited liquidity and cash interest and principal payment obligations under
its 2004 Notes and 2005 Notes. These alternatives include combinations of
establishing strategic relationships, asset sales, additional borrowings and a
capital restructuring under the protection of the bankruptcy laws.
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The consolidated financial statements include the accounts of ATI and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
 
  Use of Estimates in 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 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. As further
described below, the Company recognized an impairment charge in the carrying
value of its long-lived assets in both 1996 and 1998. The measurement of the
impairment amounts are particularly dependent upon estimates.
 
  Cash and Cash Equivalents
 
     The Company considers all short-term investments with original maturities
of 90 days or less to be cash equivalents. As of December 31, 1997 and 1998,
cash equivalents principally consisted of money market funds, commercial paper,
federal government/agency debt securities, and other short-term,
investment-grade, interest-bearing securities. The carrying amounts reported in
the balance sheet for cash and cash equivalents approximate the fair values of
those assets.
 
  Cash Available for Asset Purchases and Debt Repayment and Restricted Escrow
Funds
 
     In 1997 and 1998, restricted escrow funds are related to the BellSouth
transactions and are escrowed for a period of up to one year. Cash available for
asset purchases and debt repayment represents the net available proceeds as of
December 31, 1997, received from the BellSouth closing that occurred on August
12, 1997. These funds were restricted pursuant to the Indentures. On May 7, 1998
the Company obtained a waiver of
 
                                       F-8
<PAGE>   50
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
certain Asset Disposition Covenants in the Indentures which relieved the
restriction on these funds (see Note 7).
 
  Long-Lived Assets
 
     Long-lived assets and identifiable assets to be held and used are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount should be addressed. Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected to
result from the use of the assets and their eventual dispositions for each of
the Company's markets. The Company considers estimated future operating results,
trends and other available information including the fair value of frequency
rights owned, in assessing whether the carrying value of the asset can be
recovered.
 
     In the fourth quarter of 1998, after considering developments in the
wireless cable industry, including bankruptcy restructurings of other wireless
cable operators, the improbability of external financing for any significant
analog video operations, the history and probability of future operating losses,
and the uncertainty of implementing the wireless broadband access business
strategy, the Company evaluated the fair value of its tangible and intangible
wireless cable assets in each of its markets. The evaluation was made for each
of the Company's markets individually and not for the Company's markets as a
whole. Fair value for the assets was estimated based on recent reorganized
enterprise values in the wireless cable industry as publicly disclosed. Based on
this valuation, the Company determined that assets with a carrying value of $155
million were impaired according to 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," and wrote down
the carrying value of such assets by $52.4 million to their estimated fair
value. The carrying values of property, plant, and equipment, deferred license
assets, and goodwill were written down by $6.0 million, $35.4 million, and $11.0
million, respectively. These write-downs are recorded in the Consolidated
Statements of Operations as "Impairment of wireless cable assets" expense.
 
     In 1996, the Company evaluated its Developed Markets for possible
impairment after considering changes in the Company's strategic direction and
certain industry factors. The evaluation determined that certain assets were
impaired according to the provisions of SFAS No. 121. An impairment charge of
$21.3 million was recorded and the assets were written down to their estimated
realizable values.
 
     The Company's estimates of anticipated gross revenues, the remaining
estimated lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology, regulation, available
financing or competitive pressures in any of the Company's individual markets.
As a result, the carrying amount of long-lived assets and intangibles could be
reduced materially in the future.
 
  Property and Equipment
 
     Property and equipment are stated at cost. Depreciation and amortization,
including amortization of assets acquired under capitalized lease agreements,
are recorded on a straight-line basis for financial reporting purposes. Repair
and maintenance costs are charged to expense when incurred. Renewals and
improvements are capitalized. Subscriber installation costs are capitalized and
amortized over an 18-month period, the approximate average subscription term of
a subscriber.
 
  Deferred License and Leased License Acquisition Costs
 
     Deferred license and leased license acquisition costs include costs
incurred to develop or acquire wireless cable licenses. Costs incurred to
acquire or lease licenses issued by the Federal Communications Commission
("FCC") are deferred and are amortized ratably over useful lives of 20 years
beginning with inception of service in each respective market, or charged to
expense if development is not pursued. Accumulated
 
                                       F-9
<PAGE>   51
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
amortization related to deferred license and leased license acquisition costs
approximated $22.0 million and $29.0 million at December 31, 1997 and 1998,
respectively.
 
  Goodwill
 
     Goodwill is amortized on a straight-line basis for financial reporting
purposes over a period of 20 years. Accumulated amortization related to goodwill
was approximately $3.0 million and $2.8 million at December 31, 1997 and 1998,
respectively. The remaining goodwill was written off as a result of the SFAS 121
impairment analysis.
 
  Deferred Financing Costs
 
     Deferred financing costs represent fees and other costs incurred in
connection with the issuance of long-term debt. These costs are amortized over
the term of the related debt using the effective interest rate method. During
1998, deferred financing costs of approximately $1.3 million were written off as
a result of the Bond Tender Offers (see Note 7).
 
  Other Assets
 
     Other assets, net of accumulated amortization, consist primarily of
long-term deposits and covenants-not-to-compete. Covenants not-to-compete are
amortized over their respective terms, which is typically three years. As part
of the SFAS No. 121 impairment analysis, the unamortized balance of
covenants-not-to-compete were written-off.
 
  Revenue Recognition
 
     Monthly service fees are recognized in the period service is provided.
Installation revenue is recognized upon origination of service to a subscriber
to the extent of direct selling costs incurred. To date, direct selling costs
have exceeded installation revenues.
 
  Operating Costs and Expenses
 
     Operating costs and expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
Historically, the Company capitalized certain pre-launch costs for non-
operating systems. These costs included tower and site rentals and channel lease
payments. The total of such costs capitalized in 1996, 1997 and 1998
approximated $445,000, $477,000 and $458,000 respectively.
 
     In December 1998, the Company adopted the American Institute of Certified
Public Accountants' Statement of Position 98-5 "Accounting for Start-up Costs."
The adoption of this statement resulted in the Company writing off $1.9 million
of previously capitalized start-up costs as a cumulative effect of a change in
accounting principle. All start-up costs incurred after December 31, 1998 will
be expensed in the period incurred.
 
  Marketing and Direct Selling Costs
 
     Marketing and direct selling costs are expensed as incurred.
 
  Net Loss Per Share
 
     SFAS No. 128, "Earnings Per Share", requires dual presentation of basic and
diluted earnings per share on the face of the statement of operations for all
periods presented. Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could
 
                                      F-10
<PAGE>   52
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Options and warrants to purchase
shares of common stock were not included in the computation of loss per share as
the effect would be antidilutive. As a result, the basic and diluted earnings
per share amounts are identical.
 
  New Accounting Pronouncements
 
     Effective for the fiscal year ended December 31, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income", SFAS No. 131 "Disclosures About Segments of an Enterprise
and Related Information" and SFAS No. 132 "Employers' Disclosures about Pensions
and Other Post Retirement Benefits." Adoption of these standards did not have a
material impact on the Company's financial position or results of operations.
Effective for the fiscal year ending December 31, 1999, the Company is required
to adopt SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities." The Company has not determined whether the adoption of this
standard will have a material impact on the Company's financial position or
results of operations.
 
  Comprehensive Income
 
     SFAS No. 130 requires "comprehensive income" and the components of "other
comprehensive income" to be reported in the financial statements or notes
thereto. Since the Company does not have any components of "other comprehensive
income" reported net income is the same as "comprehensive income" for the years
ended December 31, 1998, 1997, and 1996.
 
  Reclassifications
 
     Certain amounts from the prior years' consolidated financial statements
have been reclassified to conform with the 1998 presentation.
 
  Supplemental Cash Flow Disclosures
 
     Noncash investing and financing activities consisted of the acquisition of
vehicles and equipment by acceptance of bank notes, capitalized leases and other
financing arrangements totaling approximately $604,000, $208,000, and $0 during
1996, 1997, and 1998, respectively. Cash paid during 1996, 1997, and 1998 for
interest approximated $2.0 million, $3.5 million, and $164,000, respectively. As
discussed in Note 3, the Company issued Class A Common Stock valued at $707,000
during the year ended December 31, 1996 in connection with certain acquisitions.
 
3. ACQUISITIONS AND DIVESTITURES
 
     During 1996, the Company acquired wireless cable channel rights in various
markets for aggregate consideration of $1.1 million. The Company also acquired
the remaining interest in its Little Rock, Arkansas operating system for
$707,000 in Class A Common Stock. Also during 1996, the Company sold its
wireless cable systems in St. James, Minnesota and Yankton, South Dakota and its
wireless cable channel assets in Sioux Falls, South Dakota for aggregate cash
consideration of $3.1 million. All of the Company's acquisitions have been
accounted for as purchases for financial reporting purposes.
 
     The Company was involved in the bidding process for wireless cable channel
authorizations in certain basic trading areas ("BTAs"), which was completed in
March 1996. The Company was the highest bidder in 59 markets. In the aggregate,
the Company's bids in these markets totaled approximately $10.1 million. Of such
amount, a total of approximately $9.6 million has been paid as of December 31,
1998. The remaining amount (approximately $498,000) is due upon the FCC's
notification to the Company of the issuance of the remainder of its BTA
licenses, which the Company expects will occur in 1999.
 
                                      F-11
<PAGE>   53
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     On June 28, 1996, the Company acquired wireless cable channel rights and
certain other subscription television assets in Cincinnati, Ohio (the
"Cincinnati Acquisition") for aggregate consideration of approximately $5.6
million in cash, of which $2.2 million and $3.4 million was paid in 1996 and
1997, respectively.
 
  BellSouth Transaction
 
     In March 1997, the Company entered into a definitive agreement (the
"BellSouth Agreement") with BellSouth Corporation and BellSouth Wireless Cable,
Inc. ("BellSouth Wireless") which provides for the sale of all the Company's
Florida and Louisville, Kentucky wireless cable assets (the "Southern Assets")
to BellSouth Wireless. The Southern Assets include operating wireless cable
systems in Orlando, Lakeland, Jacksonville, Daytona Beach, Ft. Myers, Florida
and Louisville, Kentucky and wireless cable channel rights in Naples, Sebring
and Miami, Florida.
 
     In August 1997, the Company completed the first closing of the BellSouth
Transaction, which involved transferring to BellSouth Wireless the Company's
operating systems and current channel rights in the Florida markets of Orlando,
Jacksonville, Ft. Myers and Daytona Beach, along with the Louisville, Kentucky
market and certain rights in Miami, Florida. The proceeds received and related
gain recorded by the Company from the first closing totaled approximately $54
million and $35.9 million, respectively. Of such proceeds, approximately $6.4
million was held in escrow until August 12, 1998. The use of the sale proceeds
was restricted by certain restrictive covenants in the Indentures related to the
Company's 2004 and 2005 notes as discussed in Note 7. The markets sold in the
first closing accounted for approximately 23,000 subscribers as of the date of
sale. Total revenue, operating expenses and net loss (exclusive of the gain on
sale) for the markets sold in the first closing was $5.2 million, $4.3 million
and $3.9 million, respectively, for the year ended December 31, 1997. Total
revenue, operating expenses and net loss for such markets was $8.7 million, $7.9
million and $6.0 million, respectively, for the year ended December 31, 1996.
 
     The Company's operating system and channel rights in the Florida market of
Lakeland, Florida were transferred to BellSouth Wireless in July 1998 and August
1998. The assets sold accounted for total revenues, operating expenses and
EBITDA of approximately $1.4 million, $1.1 million and $377,000, respectively,
for the period January 1, 1998 through the closing date of the transaction. The
proceeds received and related loss recorded by the Company in connection with
such sale totaled approximately $17 million and $823,000, respectively. The
Company also closed on additional channels in the Ft. Myers and Jacksonville,
Florida markets. The proceeds received and related gain recorded was $2.9
million. There was no effect on revenues, operating expenses and EBITDA as a
result of this transaction.
 
     Under the terms of the BellSouth Agreement, additional closings are
possible through August 1999. If additional closings occur, the Company
presently estimates that total gross proceeds will be less than $10 million. The
BellSouth Agreement contains customary conditions for each closing, including
the satisfaction of all applicable regulatory requirements. There can be no
assurance that all conditions will be satisfied or that further sales of assets
to BellSouth Wireless will be consummated.
 
  Fresno MMDS Associates Transaction
 
     In July 1998, the Company purchased from Fresno Telsat, Inc. the remaining
35% partnership interest that the Company did not already own in Fresno MMDS
Associates for cash consideration of $1.5 million plus contingent cash
consideration of up to $255,000, the precise amount of which will depend upon
the outcome of litigation between the Company and the Fresno County
Superintendent of Schools. Through two of its subsidiaries, the Company is now
the 100 percent owner of Fresno MMDS Associates.
 
                                      F-12
<PAGE>   54
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Other Transactions
 
     In December 1997, the Company entered into an agreement to acquire wireless
cable channel rights and certain other subscription television assets in
Bellingham, Washington for aggregate consideration of approximately $1.85
million in cash (of which $1.65 million had been paid as of December 31, 1998)
and the issuance of warrants to purchase 40,000 shares of unregistered Class A
Common Stock of the Company at a purchase price of $2.50.
 
     In February 1998, the Company sold its hardwire cable system in Lakeland,
Florida to Time Warner Entertainment -- Advance Newhouse Partnership. The
proceeds received and related gain recorded by the Company totaled approximately
$1.5 million and $300,000, respectively.
 
     In 1997 and 1998, the Company also acquired certain wireless cable channel
rights in various markets for aggregate consideration of $127,000 and $2.5
million, respectively.
 
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
     Prepaid expenses and other current assets consist of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                              ---------------
                                                               1997     1998
                                                              ------   ------
<S>                                                           <C>      <C>
Miscellaneous receivables...................................  $1,350   $  156
Prepaid rent and other......................................     532      425
Prepaid insurance...........................................     393      328
Prepaid programming and channel leases......................     134        4
Equipment and other short-term deposits.....................     247       83
Accrued investment income...................................      66       34
Inventory...................................................      --      442
                                                              ------   ------
          Total prepaid expenses and other current assets...  $2,722   $1,472
                                                              ======   ======
</TABLE>
 
5. PROPERTY AND EQUIPMENT
 
     Property and equipment consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                            -------------------
                                              1997       1998         LIFE
                                            --------   --------       ----
<S>                                         <C>        <C>        <C>
Subscriber premises equipment.............  $ 50,299   $ 38,274   4 years
Deferred installation costs...............    30,220     32,300   18 months
Transmission equipment and system
  construction costs......................    34,948     35,460   4 or 10 years
Office furniture and equipment............     8,177      8,497   3-5 years
Vehicles..................................     3,207      3,368   3 years
Land, building and leasehold
  improvements............................     1,869      2,143   Lesser of
                                            --------   --------
                                                                  useful life
                                                                  or duration
                                                                  of lease
Total property and equipment..............   128,720    120,042
Accumulated depreciation and
  amortization............................   (68,554)   (91,693)
                                            --------   --------
Property and equipment, net...............  $ 60,166   $ 28,349
                                            ========   ========
</TABLE>
 
     The Company's digital transmission equipment is being depreciated over a 10
year life while existing and new analog transmission equipment is depreciated
over 4 years.
 
                                      F-13
<PAGE>   55
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
     Accounts payable and accrued expenses consist of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                            -----------------
                                                             1997      1998
                                                            -------   -------
<S>                                                         <C>       <C>
Accounts payable..........................................  $ 4,138   $ 4,279
Accrued payroll and related taxes.........................    1,745     1,990
Accrued programming.......................................    1,929       790
Accrued property, sales and franchise taxes...............    1,243       806
Acquisition of channel rights payable.....................      614       498
Accrued interest and other................................    2,594     2,975
                                                            -------   -------
          Total accounts payable and accrued expenses.....  $12,263   $11,338
                                                            =======   =======
</TABLE>
 
7. LONG-TERM DEBT
 
  Senior Discount Notes
 
     On June 23, 1994, ATI issued Units (the "1994 Units Offering") consisting
of Senior Discount Notes due 2004 (the "2004 Notes") which mature on June 15,
2004 and warrants to purchase Common Stock. The 1994 Units Offering resulted in
net proceeds to the Company of approximately $100.1 million (including amounts
attributable to the issuance of the 1994 Warrants (see Note 8) and before
payment of underwriting discounts and other issuance costs aggregating
approximately $4.4 million). The 2004 Notes bear interest at a rate of 14.5%,
computed on a semi-annual bond equivalent basis. The aggregate principal balance
at stated maturity of the 2004 Notes, as adjusted for the Bond Tender Offers,
approximates $145.1 million. Cash interest on the 2004 Notes will be payable on
June 15 and December 15 of each year at a rate of 14.5% per annum commencing
December 15, 1999.
 
     On August 10, 1995, ATI issued Units (the "1995 Units Offering") consisting
of Senior Discount Notes due 2005 (the "2005 Notes") which mature on August 15,
2005 and warrants to purchase Common Stock. The 1995 Units Offering resulted in
net proceeds to the Company of approximately $94.9 million (including amounts
attributable to the issuance of the 1995 Warrants (see Note 8), and after
payment of underwriting discounts and other issuance costs aggregating
approximately $5.1 million). The issue price of the 2005 Notes represents a
yield to maturity of 14.5% per annum computed on a semi-annual bond equivalent
basis. Cash interest on the 2005 Notes will be payable on February 15 and August
15 of each year at a rate of 14.5% per annum commencing February 15, 2001. The
2005 Notes have an aggregate principal balance at stated maturity of
approximately $135.6 million, as adjusted for the Bond Tender Offers.
 
     Both the 2004 Notes and the 2005 Notes are effectively subordinated to all
indebtedness of ATI's subsidiaries, including trade payables, and rank pari
passu with all existing and future unsubordinated and unsecured indebtedness of
ATI.
 
     Both the 2004 Notes and the 2005 Notes were issued pursuant to Indentures
which contain certain restrictive covenants and limitations. Among other things,
the Indentures limit the incurrence of additional debt, limit the making of
restricted payments (as defined) including the declaration and/or payment of
dividends, place limitations on dividends and other payments by ATI's
subsidiaries, prohibit ATI and its subsidiaries from engaging in any business
other than the transmission of video, voice and data and related businesses and
services, and place limitations on liens, certain asset dispositions and
merger/sale of assets activity.
 
                                      F-14
<PAGE>   56
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Bond Tender Offers
 
     Pursuant to certain restrictive covenants in the Indentures relating to the
Company's 2004 Notes and 2005 Notes, Net Available Proceeds (as defined in the
Indentures) from Asset Dispositions (as defined in the Indentures) from
transactions other than the BellSouth Transaction must be applied within 270
days of such closing: (1) first, to prepay or repay outstanding debt of the
Company or any Restricted Subsidiary (as defined) to the extent the terms of the
governing documents therefore require such prepayment (2) second, to the extent
of any such Net Available Proceeds remaining after application thereof pursuant
to item (1) above, to the acquisition of assets used in the transmission of
video, voice and data and related businesses and services of the Company or a
Restricted Subsidiary and (3) third, to the extent of any such Net Available
Proceeds remaining after the application thereof pursuant to items (1) and (2)
above, (i) first to prepay or repay all outstanding debt of the Company or any
Restricted Subsidiary that prohibits purchases of the 2004 Notes or 2005 Notes
and (ii) then, to the extent of any remaining Net Available Proceeds, to make an
offer to purchase outstanding 2004 Notes and 2005 Notes at a purchase price
equal to 100% of the accreted value thereof to any purchase date prior to
maturity.
 
     In April 1998, the Company tendered an offer (the "Tender Offer") for a
portion of its outstanding 2004 Notes and a portion of its outstanding 2005
Notes at a cash price of $255 per $1,000 principal amount at maturity of the
2004 Notes purchased and $225 per $1,000 principal amount at maturity of the
2005 Notes purchased (collectively the "Notes").
 
     In May 1998, the Company completed the Tender Offer and purchased
approximately $30.2 million aggregate principal amount at maturity of 2004 Notes
(approximate accreted value of $25.3 million as of May 7, 1998) and
approximately $43.5 million aggregate principal amount at maturity of 2005 Notes
(approximate accreted value of $30.6 million as of May 7, 1998). The aggregate
amount of cash used to purchase the Notes was approximately $17.5 million. The
Company recognized an extraordinary gain of approximately $37.0 million upon
early extinguishment of the Notes.
 
     In conjunction with and as a condition of the Tender Offer, the Company
also received the consent of holders of the majority of the outstanding Notes to
(i) waivers (the "Waivers") of certain asset disposition covenants in the
Indentures (the "Indentures") relating to the Notes with respect to proceeds
previously received from certain asset dispositions, and (ii) amendments (the
"Amendments") of the Indentures regarding treatment of future proceeds from
certain asset dispositions pursuant to the BellSouth Transaction.
 
     The Waivers and Amendments relate to provisions of the Indentures (the
"Asset Disposition Covenants") which require that certain Net Available Proceeds
(as defined in the related Indenture) from asset sales by the Company that were
not used by the Company within 270 days following receipt to acquire certain new
assets or to retire certain indebtedness be used to make a pro rata offer to
purchase outstanding Notes at a purchase price equal to 100% of the accreted
value thereof.
 
     The Waivers approved by the noteholders waived the application of the Asset
Disposition Covenants in the case of any and all net proceeds previously
received by the Company from dispositions completed prior to the Tender Offer,
including pursuant to the BellSouth Transaction.
 
     The Amendments amended the Asset Disposition Covenants in the case of any
and all Net Available Proceeds received by the Company from (i) dispositions
under the BellSouth Agreement that closed after May 7, 1998, which are presently
estimated at less than $10 million in proceeds depending on the total number of
channel leases and licenses ultimately delivered by the Company to BellSouth,
and (ii) the approximately $2.0 million in proceeds that were received from an
escrow account related to a BellSouth closing occurring on July 15, 1998
 
     Pursuant to the Amendments, no later than 30 days after the aggregate
amount of Net Available Proceeds first equaled or is exceeded $10 million, the
Company was obligated to utilize 57% of the amount of
 
                                      F-15
<PAGE>   57
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
such Net Available Proceeds to make an offer (the "Initial Offer") to purchase
the outstanding Notes, at a purchase price in cash equal to the greater of (i)
$280.50 per $1,000 principal amount at maturity in the case of the 2004 Notes
and $247.50 per $1,000 principal amount at maturity in the case of the 2005
Notes and (ii) the market value of the Notes. Any and all financial advisor,
legal and other costs and fees incurred by the Company in connection with
completing or facilitating any future BellSouth dispositions, escrow proceeds,
or any required offer shall be deemed to reduce the amount of Net Available
Proceeds. If the aggregate principal amount of Notes tendered by holders thereof
pursuant to a required offer exceeds the amount of the 57% of the Net Available
Proceeds to be used for the purchase of the Notes, the Notes shall be selected
for purchase on a pro rata basis.
 
     The Amendments do not apply to net proceeds that may be received from
dispositions of assets that the Company may undertake other than pursuant to the
BellSouth Agreement, and with respect to such proceeds the Asset Disposition
Covenants remain in effect.
 
     The Company's July 1998 and August 1998 transactions with BellSouth
Wireless involving the sale of the Company's operating system in Lakeland,
Florida, the closing on additional channels in Lakeland, Florida and the release
of the restricted escrowed funds from the first closing of the BellSouth
Transaction provided cash to the Company of approximately $21.6 million. Because
the combination of these funds, net of financial advisor, legal and other costs,
exceeded $10 million, the Company was obligated to use 57% of these Net
Available Proceeds to make the Initial Offer to purchase outstanding notes.
 
     On October 15, 1998, the Company completed the Initial Offer and purchased
approximately $21.5 million aggregate principal amount at maturity of 2004 Notes
(approximate accreted value of $19.3 million as of October 15, 1998) and
approximately $22.6 million aggregate principal amount at maturity of 2005 Notes
(approximate accreted value of $17.0 million as of October 15, 1998) for $11.6
million. The Company recognized an extraordinary gain of approximately $24.0
million upon the early extinguishment of the Notes.
 
     Upon completion of the Initial Offer, the amount of Net Available Proceeds
was reset at zero. Thereafter, at such time as the amount of Net Available
Proceeds from subsequent asset dispositions to BellSouth Wireless is greater
than $5 million, the Company shall be obligated to utilize 57% of the amount of
such Net Available Proceeds to make a subsequent required offer at a purchase
price in cash equal to the greater of (i) $280.50 per $1,000 principal amount at
maturity in the case of the 2004 Notes and $247.50 per $1,000 principal amount
at maturity in the case of the 2005 Notes and (ii) the market value of the
Notes.
 
     The 43% of the Net Available Proceeds not to be utilized for such required
offer to purchase, as well as the amount of the 57% of Net Available Proceeds to
be used to purchase Notes pursuant to such required offer that is in excess of
the amount required to purchase the Notes tendered by holders thereof, (the
"Unencumbered Net Available Proceeds") shall not be subject to any such tender
obligation and shall be freely available for use by the Company as it deems
appropriate. The Amendments do not restrict the Company from using Unencumbered
Net Available Proceeds for the purchase or other retirement of Notes on such
terms as it determines to be appropriate.
 
     Pursuant to the Indentures, the Company may not incur additional debt,
other than Permitted Debt (as defined in the Indentures), unless after giving
effect to the incurrence of such debt and the receipt and application of the net
proceeds thereof on a pro forma basis, the Company's consolidated debt to
annualized operating cash flow (as defined) ratio would be less than 5.0 to 1.0
in the case of any such incurrence. As a result of such limitations, the
Company's total borrowing capacity outside the 2004 Notes and the 2005 Notes is
currently limited to $17.5 million (approximately $473,000 of which had been
utilized as of December 31, 1998). Although the Company had the ability under
the Indentures to borrow an additional $17.0 million as of December 31, 1998,
the Company does not presently intend to incur any additional bank or other
borrowings because of the probable high cost of funds. However, if subsequent
closings under the BellSouth Agreement
 
                                      F-16
<PAGE>   58
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
either do not occur or are insufficient to provide funds for operations, the
Company may be required to seek additional debt financing.
 
     The 2004 Notes and the 2005 Notes are redeemable, at the option of ATI at
any time, in whole or in part, on or after June 15, 1999 and August 15, 2000,
respectively, at specified redemption prices, plus accrued and unpaid interest,
if any, to the date of redemption. The redemption prices are as follows:
 
<TABLE>
<CAPTION>
                         YEAR                            2004 NOTES   2005 NOTES
                         ----                            ----------   ----------
<S>                                                      <C>          <C>
1999...................................................   107.250%          --
2000...................................................   104.833%     107.250%
2001...................................................   102.417%     104.833%
2002...................................................   100.000%     102.417%
2003 and thereafter....................................   100.000%     100.000%
</TABLE>
 
     Both the 2004 Notes and the 2005 Notes are subject to mandatory redemption
provisions in the event of a Change of Control (as defined in the Indentures) of
ATI. Upon the occurrence of such an event, each holder of the 2004 Notes will
have the right to require ATI to repurchase all of such holder's 2004 Notes at
101% of the Accreted Value (as defined in the Indentures) thereof, or, in the
case of any such repurchase on or after June 15, 1999, 101% of the principal
amount at stated maturity thereof plus accrued and unpaid interest, if any, to
the date of repurchase. Similarly, in the event of a change of control of ATI,
each holder of the 2005 Notes will have the right to require ATI to repurchase
all of such holder's 2005 Notes at 101% of the Accreted Value (as defined in the
Indentures) thereof, or, in the case of any such repurchase on or after August
15, 2000, 101% of the principal amount at stated maturity thereof plus accrued
and unpaid interest, if any, to the date of repurchase.
 
     Future debt service payments on the 2004 Notes and the 2005 Notes
representing cash interest only, for the next five years are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                     YEAR                       2004 NOTES   2005 NOTES    TOTAL
                     ----                       ----------   ----------   -------
<S>                                             <C>          <C>          <C>
1999..........................................   $10,523      $    --     $10,523
2000..........................................    21,046           --      21,046
2001..........................................    21,046       19,659      40,705
2002..........................................    21,046       19,659      40,705
2003..........................................    21,046       19,659      40,705
</TABLE>
 
  Fresno Facility
 
     During 1996, the Fresno MMDS Associates maintained a revolving credit
facility (the "Fresno Facility") with a bank that provided for borrowings for
the Fresno, Visalia and Merced, California systems. All amounts due to the bank
under the Fresno Facility were repaid by ATI in February 1997 with proceeds from
the Credit Facility (as defined below).
 
  Credit Facility
 
     On February 26, 1997, the Company entered into a twelve month $17 million
credit facility (the "Credit Facility") with a bank. At closing of the Credit
Facility, the Company also delivered 4,500 bond appreciation rights ("BARs") and
an option to exercise 141,667 exchangeable debt warrants or 141,667 equity
warrants. Concurrent with the closing of the BellSouth Transaction, proceeds
from the BellSouth Transaction were used to repay the Credit Facility and redeem
the exchangeable debt warrants. The Company's total obligation under the Credit
Facility for the aggregate principal balance, accrued interest, fees and
redemption of the exchangeable debt warrants was approximately $6.4 million.
 
                                      F-17
<PAGE>   59
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The BARs remain outstanding as of December 31, 1998. Amounts payable in
connection with the BARs are based upon the appreciation in price of $4.5
million face value of the Company's 2004 Notes. The change in the value of the
BARs is reflected as interest expense in the accompanying financial statements.
The BARs are exercisable after the earlier of June 15, 1999 or the occurrence of
an Event of Default under the 2004 Notes. The payment due upon exercise of each
BAR is equal to the market price of each 2004 Note on the closing date less
$290. The net value of the BARs is payable to holders of the BARs in cash. As of
December 31, 1998, the Company had no accrued liability associated with the BARs
based on the market price of the 2004 Notes at that date.
 
     The following table summarizes the book and fair values of the Company's
long-term debt facilities at December 31, 1998 (dollars in thousands). Fair
values for the Company's 2004 Notes and 2005 Notes are based on quoted market
prices. The carrying amount of accrued interest approximates its fair value. The
fair values of the Company's notes payable are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
 
<TABLE>
<CAPTION>
                                                         BOOK VALUE   FAIR VALUE
                                                         ----------   ----------
<S>                                                      <C>          <C>
2004 Notes.............................................   $134,130     $18,868
2005 Notes.............................................    105,383      14,914
Notes payable..........................................         75          58
                                                          --------     -------
                                                          $239,588     $33,840
                                                          ========     =======
</TABLE>
 
     Future maturities of amounts outstanding under the Company's long-term debt
facilities as of December 31, 1998 are summarized as follows (in thousands):
 
<TABLE>
<CAPTION>
                                         2004       2005      NOTES
      YEAR ENDING DECEMBER 31,          NOTES      NOTES     PAYABLE    TOTAL
      ------------------------         --------   --------   -------   --------
<S>                                    <C>        <C>        <C>       <C>
1999.................................  $     --   $     --     $50     $     50
2000.................................        --         --      25           25
2001.................................        --         --      --           --
2002.................................        --         --      --           --
Thereafter...........................   145,142    135,582      --      280,724
Unamortized discount.................   (11,012)   (30,199)     --      (41,211)
                                       --------   --------     ---     --------
          Total......................  $134,130   $105,383     $75     $239,588
                                       ========   ========     ===     ========
</TABLE>
 
8. COMMON STOCK, STOCK OPTIONS AND WARRANTS
 
  Stock Option Plan
 
     The Company maintains a stock option plan reserving 1,525,000 shares of
Class A Common Stock to be issued to officers and key employees under terms and
conditions to be set by the Company's Board of Directors. The options vest over
periods of up to three years and expire five to eight years from the date of
issuance. On April 23, 1998, the Company repriced options for all current exempt
employees at the fair market value on that date. The Company follows variable
plan accounting on the options repriced in April 1998,which requires that the
Company record compensation expense if the quoted value of the stock exceeds the
repriced exercise price of the options. As of December 31, 1998, no compensation
expense has been recorded as the quoted value of the stock does not exceed the
strike price of the repriced options.
 
     The Company has elected to follow Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options is equal to
the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. SFAS No. 123,
 
                                      F-18
<PAGE>   60
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
"Accounting and Disclosure of Stock-Based Compensation," establishes an
alternative method of expense recognition for stock-based compensation awards to
employees based on fair values. The Company elected not to adopt SFAS No. 123
for expense recognition purposes.
 
     Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996, 1997 and 1998, respectively: risk-free interest rates of
6.31%, 5.25% and 4.86%; dividend yields of 0.0% during each period; volatility
factors of the expected market price of the Company's common stock of 0.64, 0.95
and 1.25 and a weighted-average expected life of the option of four years.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
 
     The weighted average fair value of options granted during 1996, 1997 and
1998 was $3.91, $1.56 and $0.48, respectively. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period. The Company's pro forma net loss and pro forma
net loss per share applicable to Class A Common Stock as if the Company had used
the fair value accounting provisions of SFAS No. 123 would be $105.7 million and
$5.84, $54.2 million and $2.13 and $75.6 million and $2.94 for the years ended
December 31, 1996, 1997 and 1998, respectively.
 
     A summary of the Company's stock option activity, and related information
for the years ended December 31, 1996, 1997 and 1998 are as follows:
 
<TABLE>
<CAPTION>
                                         1996                   1997                    1998
                                 --------------------   --------------------   ----------------------
                                            WEIGHTED-              WEIGHTED-                WEIGHTED-
                                             AVERAGE                AVERAGE                  AVERAGE
                                            EXERCISE               EXERCISE                 EXERCISE
                                 OPTIONS      PRICE     OPTIONS      PRICE      OPTIONS       PRICE
                                 --------   ---------   --------   ---------   ----------   ---------
<S>                              <C>        <C>         <C>        <C>         <C>          <C>
Options outstanding at
  beginning of year............   696,000    $ 9.55      734,800     $5.96        822,775     $2.13
Granted........................   752,000      9.12      763,800      2.26        838,800      0.93
Exercised......................   (85,000)    15.53           --        --             --        --
Forfeited......................  (628,200)    13.76     (675,825)     6.39     (1,059,208)     1.86
                                 --------               --------               ----------
Options outstanding at end of
  year.........................   734,800    $ 5.96      822,775     $2.13        602,367     $ .94
                                 ========               ========               ==========
Exercisable at end of year.....   178,000    $ 2.69      392,175     $2.27        298,914     $1.00
                                 ========               ========               ==========
</TABLE>
 
                                      F-19
<PAGE>   61
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Exercise prices for options outstanding as of December 31, 1998, are as
follows:
 
<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                                        -------------------------------------   -----------------------
                                           NUMBER       WEIGHTED                   NUMBER
                                        OUTSTANDING      AVERAGE     WEIGHTED   EXERCISABLE    WEIGHTED
                                           AS OF        REMAINING    AVERAGE       AS OF       AVERAGE
                                        DECEMBER 31,   CONTRACTUAL   EXERCISE   DECEMBER 31,   EXERCISE
       RANGE OF EXERCISE PRICES             1998          LIFE        PRICE         1998        PRICE
       ------------------------         ------------   -----------   --------   ------------   --------
<S>                                     <C>            <C>           <C>        <C>            <C>
$0.719 - $0.719.......................    129,500         7.21       $ 0.719           --       $0.00
$1.000 - $1.000.......................    472,867         5.29         1.000      298,914        1.00
                                          -------         ----       -------      -------       -----
$0.719 - $1.000.......................    602,367         5.70       $0.9396      298,914       $1.00
                                          =======         ====       =======      =======       =====
</TABLE>
 
  Warrants
 
     In conjunction with the 1995 Units Offering described in Note 7, ATI issued
201,700 warrants (the "1995 Warrants") to purchase an aggregate of 943,956
shares of ATI's Common Stock at an exercise price of $12.65 per share, subject
to adjustment under certain circumstances. Warrant holders may exercise the 1995
Warrants at any time prior to August 10, 2000. The 1995 Warrants will terminate
and become void at the close of business on August 10, 2000. Approximately $5.5
million of the proceeds from the 1995 Units Offering was allocated to the 1995
Warrants. As of December 31, 1998, no 1995 Warrants had been exercised.
 
     In conjunction with the 1994 Units Offering described in Note 7, ATI issued
915,000 warrants (the "1994 Warrants") to purchase an equal number of shares of
ATI's Common Stock. The 1994 Warrants have an exercise price of $12.68 per
share. Warrant holders may exercise the 1994 Warrants for cash at any time prior
to June 23, 1999. The 1994 Warrants will terminate and become void at the close
of business on June 23, 1999. The 1994 Warrants, as amended, were valued at
approximately $4.6 million. As of December 31, 1998, 1994 Warrants for the
purchase of 100 shares had been exercised.
 
     During the year ended December 31, 1996, additional warrants for the
purchase of 62,286 shares of Common Stock were exercised at a price of $2.74 per
share while warrants for the purchase of 61,284 shares at a price of $4.67 per
share expired unexercised.
 
     During the year ended December 31, 1997, the Company issued warrants to
purchase 40,000 shares of unregistered Class A Common Stock of the Company in
connection with an agreement to acquire wireless cable channel rights and
certain other subscription television assets. The warrants have an exercise
price of $2.50 per share and expire in May 2000.
 
9. SERIES B CONVERTIBLE PREFERRED STOCK
 
     During 1996, the Company completed private placements of a total of 250,000
shares of Series B Convertible Preferred Stock, resulting in total net proceeds
to the Company of $23.8 million. During 1996, 140,000 shares of Series B
Convertible Preferred Stock were converted into a total of 2,273,785 shares of
the Company's Class A Common Stock at conversion prices ranging from $4.33 to
$7.87. During the first quarter of 1997, the remaining 110,000 shares of Series
B Convertible Preferred Stock were converted into a total of 4,959,369 shares of
the Company's Class A Common Stock at conversion prices ranging from $2.10 to
$4.37.
 
     The "Conversion Price" at any given time was equal to 80% of the prevailing
market price of the Class A Common Stock. Accordingly, the Company recognized
the discount on the conversion as a dividend in the amount of $6,250,000.
 
                                      F-20
<PAGE>   62
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
10. LEASES
 
  Channel Lease Commitments
 
     The Company has entered into various agreements to lease FCC channel
authorizations to provide wireless services. Certain of these lease agreements
provide buy-out options to the Company based upon the number of subscribers at
the time of such buy-out. A typical channel lease is for a period of 10 years or
more including renewals. The Company's obligations under certain of the leases
are subject to receipt by the lessor of all necessary FCC approvals to begin
providing service. Channel lease expense during 1996, 1997 and 1998 approximated
$2.6 million, $2.9 million and $2.7 million, respectively.
 
     As of December 31, 1998, aggregate minimum annual channel lease payments
are summarized as follows (in thousands):
 
<TABLE>
<S>                                                            <C>
1999........................................................   $1,584
2000........................................................    1,473
2001........................................................    1,382
2002........................................................    1,197
2003........................................................      949
Thereafter..................................................    2,129
                                                               ------
          Total.............................................   $8,714
                                                               ======
</TABLE>
 
     The Company assigned certain of its channel licenses to a group affiliated
with the Company in November 1993 and entered into agreements to lease those
channels for an initial term of five years, renewable at the Company's option,
for an unlimited number of one-year terms thereafter. Annual lease payments
required to be paid by the Company in connection with the aforementioned channel
leases were nominal. As of the end of 1998 all the leases have been reassigned
to the Company.
 
  Operating Leases
 
     The Company leases various office, warehouse and transmission tower space
and certain office equipment, furniture and vehicles. Rent expense during 1996,
1997 and 1998 was approximately $2.7 million, $2.9 million, and $2.6 million,
respectively. Future minimum commitments as of December 31, 1998 under these
leases are as follows (in thousands):
 
<TABLE>
<S>                                                            <C>
1999........................................................   $2,560
2000........................................................    2,488
2001........................................................    1,626
2002........................................................    1,092
2003........................................................      934
Thereafter..................................................      961
                                                               ------
          Total.............................................   $9,661
                                                               ======
</TABLE>
 
  Capital Leases
 
     The Company leases certain vehicles and office equipment under
noncancelable capital leases. Equipment capitalized under such leases as of
December 31, 1997 and 1998 was approximately $1.3 million and $300,000,
respectively. Future minimum payments for capital leases as of December 31, 1998
are approximately $248,000, $18,000, $4,000 and $2,000 for the years ending
December 31, 1999 through 2002, respectively, including interest of
approximately $16,000.
 
                                      F-21
<PAGE>   63
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11. COMMITMENTS AND CONTINGENCIES
 
  Seattle Agreement
 
     Pursuant to a consulting and shareholder agreement, the Company issued 10%
of the Common Stock of American Telecasting of Seattle, Inc., to a third party,
and is required to issue up to an additional 5% in the event that a certain
subscriber level is achieved in the Seattle system once it becomes operational.
 
  Programming Agreements
 
     The Company has entered into a series of noncancelable agreements to
purchase entertainment programming for rebroadcast which expire through 2008.
The agreements generally require monthly payments based upon the number of
subscribers to the Company's systems, subject to certain minimums. Such expenses
totaled approximately $19.3 million, $19.3 million, and $16.3 million in 1996,
1997 and 1998, respectively.
 
  Vendor Commitments
 
     The Company has purchase commitments with vendors for the purchase of
equipment used in its business. The aggregate amount of the commitments exceeds
$1.2 million, and generally requires the Company to purchase a minimum number of
units at agreed upon prices.
 
  Executive and Key Employee Retention Program
 
     In 1998 the Company adopted an Executive Retention Program and Key Employee
Retention Program (the "Programs"). The Programs, which expire June 30, 1999,
provide payments based on retention, stock performance, and severance to certain
Executive and Key Employees. As of December 31, 1998, $70,000 was paid under the
Programs and the Programs provide for maximum future payments of approximately
$2 million.
 
  Litigation
 
     The Company owns all the partnership interests in Fresno MMDS Associates
("FMA"). On or about December 24, 1997, Peter Mehas, Fresno County
Superintendent of Schools, filed an action against FMA, the Company and others
in an action entitled Peter Mehas, Fresno County Superintendent of Schools v.
Fresno Telsat, Inc., an Indiana Corporation, et al., Superior Court of the State
of California, Fresno, California. The complaint alleges that a channel lease
agreement between FMA and the Fresno County school system has expired. The
plaintiff seeks a judicial declaration that the lease has expired and that the
defendants, including the Company, hold no right, title or interest in the
channel capacity which is the subject of the lease. The parties have conducted
substantial discovery. The Company removed the case to federal court in December
1998. Plaintiff filed a motion to remand the case to state court and remains
under submission with the court. No trial date is set in the case. The Company
denies that the channel lease agreement has expired.
 
     On or about October 13, 1998, Bruce Merrill and Virginia Merrill, as
Trustees of the Merrill Revocable Trust dated as of August 20, 1982, filed a
lawsuit against the Company entitled Bruce Merrill and Virginia Merrill, as
Trustees of the Merrill Revocable Trust dated as of August 20, 1982 v. American
Telecasting, Inc., in the United States District Court for the District of
Colorado. The complaint alleges that the Company owes the plaintiffs $1,250,000
due on a note which matured on September 15, 1998. The plaintiffs seek payment
of $1,250,000 plus attorney fees and interest. The Company has answered the
complaint and denied any liability. Limited discovery has occurred and a trial
preparation schedule has been ordered by the court.
 
     The Company is occasionally a party to other legal actions arising in the
ordinary course of its business, the ultimate resolution of which cannot be
ascertained at this time. However, in the opinion of management, resolution of
such matters will not have a material adverse effect on the Company.
 
                                      F-22
<PAGE>   64
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
12. CONTINGENT ACQUISITION
 
     On March 19, 1999, the Company entered into an agreement with AESCO
Systems, Inc. ("AESCO") to acquire wireless cable channels in Portland, Oregon
from AESCO for a fixed payment of $2.25 million plus a deferred payment based
upon the price received in any further transfer of the channels within the next
five years. In addition the Company paid $250,000 on March 19, 1999 as
consideration for a no-shop covenant. Payment of the $2.25 million fixed portion
of the purchase price to AESCO is contingent upon the Company's closing of sale
transactions of other wireless cable assets for cumulative cash consideration of
$5 million or more, and the FCC's grant by final order of the assignment
application for the licenses. The agreement will terminate on March 15, 2000 if
the transaction has not been completed.
 
13. INCOME TAXES
 
     As of December 31, 1998, the Company's estimated net operating loss
carryforwards ("NOLs") for Federal income tax purposes were approximately $131.6
million. The NOLs expire in years 2008 through 2011. The use of the NOLs is
subject to statutory and regulatory limitations regarding changes in ownership.
SFAS No. 109 requires that the tax benefit of NOLs for financial reporting
purposes be recorded as an asset. A 100 percent valuation allowance has been
established.
 
     The carryforwards and temporary differences which give rise to deferred tax
assets and liabilities as of December 31, 1997 and 1998, are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1997       1998
                                                         --------   ---------
<S>                                                      <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards.....................  $ 52,249   $  50,012
  Interest expense not currently deductible............    37,339      36,908
  Property and equipment, principally due to
     differences in depreciation and capitalized
     installation costs................................    18,664      43,731
  Other................................................     1,855         200
                                                         --------   ---------
          Total gross deferred tax assets..............   110,107     130,851
Deferred tax liabilities:
  Basis differences attributable to purchase
     accounting........................................   (20,466)    (15,288)
                                                         --------   ---------
          Total deferred tax liabilities...............   (20,466)   ( 15,288)
Valuation reserve......................................   (88,366)   (115,563)
                                                         --------   ---------
Net deferred tax liability.............................  $  1,275   $      --
                                                         ========   =========
</TABLE>
 
     The income tax benefit for the years ended December 31, 1997 and 1998 is
comprised of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED
                                                               DECEMBER 31,
                                                              ---------------
                                                               1997     1998
                                                              ------   ------
<S>                                                           <C>      <C>
Current Provision:
  Federal...................................................  $ (375)  $ (100)
  State.....................................................      --      (54)
Deferred Benefit:
  Federal...................................................   1,269    1,038
  State.....................................................     290      237
                                                              ------   ------
                                                              $1,184   $1,121
                                                              ======   ======
</TABLE>
 
                                      F-23
<PAGE>   65
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax benefit for the years ended December 31, 1997 and 1998 is as
follows:
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              DECEMBER 31,
                                                              -------------
                                                              1997    1998
                                                              -----   -----
<S>                                                           <C>     <C>
Tax at U.S. statutory rates.................................    35%     35%
State income taxes, net of federal tax benefit..............     5       5
Losses not benefited for financial reporting purposes.......   (28)    (29)
Other, net..................................................   (10)    (10)
                                                               ---     ---
                                                                 2%      1%
                                                               ===     ===
</TABLE>
 
14. BENEFIT PLANS
 
     The Company sponsors three defined contribution profit sharing plans, the
"American Telecasting, Inc. 401(k) Retirement Plan", the "American Telecasting,
Inc. 401(k) Retirement Plan (SuperChannels of Las Vegas, Inc.)," and the
"American Telecasting, Inc. 401(k) Retirement Plan (Fresno MMDS Associates)"
(the "Plans"). Substantially all of the Company's employees are eligible to
participate in the Plans. Company contributions to the Plans are based on a
percentage of employee's contributions, subject to certain maximum limits.
Employer contributions and administrative costs paid by the Company relating to
the Plans for the years ended December 31, 1996, 1997 and 1998 approximated
$122,000, $192,000,and $175,000, respectively.
 
     The Company also sponsors an employee stock ownership plan, the "American
Telecasting, Inc. Associate Stock Purchase Plan" (the "Stock Purchase Plan").
Generally, all full-time employees who have been employed by the Company for at
least one year are eligible to participate in the Stock Purchase Plan. The
purchase price of each share of the Company's Class A Common Stock purchased by
Stock Purchase Plan participants is 90% of the closing price of the Class A
Common Stock at the time of purchase. The shares are purchased in the open
market and the Company pays ten percent of the purchase price and all
administrative costs. An aggregate of 250,000 shares of the Company's Class A
Common Stock may be sold pursuant to the Stock Purchase Plan. As of December 31,
1998, 51,321 shares have been sold pursuant to the Stock Purchase Plan. Employer
contributions and administrative costs paid by the Company related to the Stock
Purchase Plan aggregated $22,000, $11,000, $2,400 during the years ended
December 31, 1996, 1997 and 1998, respectively.
 
                                      F-24
<PAGE>   66
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
     The following summarizes the Company's unaudited quarterly results of
operations for 1998 and 1997 (dollars in thousands, except per share amounts):
 
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                 ---------------------------------------------------
                                                 MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                                 ---------   --------   -------------   ------------
<S>                                              <C>         <C>        <C>             <C>
Year Ended December 31, 1998:
  Total Revenues...............................  $ 12,713    $ 12,622     $ 11,486        $ 10,916
  Loss from operations.........................   (11,066)    (12,082)     (11,991)        (63,817)
  Gain/(loss) on disposition of wireless cable
     systems and assets(A).....................     3,219          --         (823)             --
  Extraordinary gain on extinguishment of
     debt......................................        --      37,011           --          24,036
  Impairment of wireless cable assets(B).......        --          --           --         (52,369)
  Net (loss) income............................   (18,270)     15,204      (21,320)         99,434
  Net (loss) income applicable to Class A
     Common Stock..............................   (18,270)     15,204      (21,320)         99,434
  Net (loss) income per share applicable to
     Class A Common Stock......................     (0.71)       0.59        (0.83)           3.87
Year Ended December 31, 1997:
  Total Revenues...............................  $ 16,020    $ 15,639     $ 14,306        $ 13,066
  Loss from operations.........................   (12,579)    (12,478)     (11,245)         11,760
  Gain on disposition of wireless cable systems
     and assets(C).............................        --          --       35,944              --
  Net (loss) income............................   (22,583)    (22,813)      11,946         (19,021)
  Net (loss) income applicable to Class A
     Common Stock..............................   (22,583)    (22,813)      11,946         (19,021)
  Net (loss) income per share applicable to
     Class A Common Stock......................     (0.92)      (0.89)        0.46           (0.74)
</TABLE>
 
---------------
 
(A)  During 1998, the Company completed additional closings of the sale of
     certain of its assets to BellSouth Wireless as part of the BellSouth
     Transaction and sold its hardwire cable system in Lakeland Florida to
     Advance/Newhouse Partnership. The related gain on these transactions
     totaled $2.4 million.
 
(B)  During the fourth quarter of 1998, the Company recognized an impairment
     loss on its wireless cable assets of approximately $52.4 million.
 
(C)  During the third quarter of 1997, the Company completed the first closing
     of the sale of certain of its assets to BellSouth Wireless as part of the
     BellSouth Transaction. The related gain recorded by the Company from the
     first closing totaled approximately $35.9 million.
 
     The total of net loss per share for the 1998 and 1997 quarters does not
equal net loss per share for the respective years as per share amounts for each
quarter and for the year are computed based on their respective discrete
periods.
 
                                      F-25
<PAGE>   67
                  AMERICAN TELECASTING, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
16. VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                 BALANCE    ADDITIONS
                                                   AT       CHARGED TO
                                                BEGINNING   COSTS AND                     BALANCE AT
                                                OF PERIOD    EXPENSES    DEDUCTIONS(1)   END OF PERIOD
                                                ---------   ----------   -------------   -------------
<S>                                             <C>         <C>          <C>             <C>
For the Year ended December 31, 1996
  Deducted from asset accounts:
     Allowance for uncollectible accounts.....    $916        $2,322        $2,551           $687
                                                  ====        ======        ======           ====
For the Year ended December 31, 1997
  Deducted from asset accounts:
     Allowance for uncollectible accounts.....    $687        $1,344        $1,787           $244
                                                  ====        ======        ======           ====
For the Year ended December 31, 1998
  Deducted from asset accounts:
     Allowance for uncollectible accounts.....    $244        $  826        $  929           $141
                                                  ====        ======        ======           ====
</TABLE>
 
---------------
 
(1) Uncollectible accounts written off, net of recoveries.
 
                                      F-26
<PAGE>   68
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                            AMERICAN TELECASTING, INC.
 
                                            By:   /s/ ROBERT D. HOSTETLER
                                              ----------------------------------
                                                     Robert D. Hostetler
                                              President, Chief Executive Officer
                                                          and Director
 
Date: March 26, 1999
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 26, 1999:
 
<TABLE>
<CAPTION>
                   SIGNATURE                                             TITLE
                   ---------                                             -----
 <C>                                             <S>
           By: /s/ DONALD R. DEPRIEST            Chairman of the Board and Director
 ----------------------------------------------
               Donald R. DePriest
 
          By: /s/ ROBERT D. HOSTETLER            President, Chief Executive Officer and Director
 ----------------------------------------------    (Principal Executive Officer)
              Robert D. Hostetler
 
            By: /s/ RICHARD F. SENEY             Vice Chairman of the Board, Secretary and Director
 ----------------------------------------------
                Richard F. Seney
 
            By: /s/ DAVID K. SENTMAN             Senior Vice President, Chief Financial Officer and
 ----------------------------------------------    Treasurer (Principal Financial Officer)
                David K. Sentman
 
          By: /s/ FRED C. PATTIN, JR.            Controller (Principal Accounting Officer)
 ----------------------------------------------
              Fred C. Pattin, Jr.
 
           By: /s/ MITCHELL R. HAUSER            Director
 ----------------------------------------------
               Mitchell R. Hauser
 
           By: /s/ JAMES S. QUARFORTH            Director
 ----------------------------------------------
               James S. Quarforth
 
            By: /s/ CARL A. ROSBERG              Director
 ----------------------------------------------
                Carl A. Rosberg
</TABLE>
<PAGE>   69
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
<C>                      <S>
 
          3.1            -- Certificate of Designation for Series B Convertible
                            Preferred Stock of American Telecasting, Inc. dated
                            August 6, 1996 (incorporated by reference to Exhibit 4.1
                            to the Company's Form 8-K filed on August 7, 1996).
          3.2            -- Amendment to Restated Certificate of Incorporation of
                            American Telecasting, Inc. dated April 24, 1996
                            (incorporated by reference to Exhibit 3.1(i) to the
                            Company's Quarterly Report on 10-Q for the period ended
                            June 30, 1996).
          3.3            -- Restated Certificate of Incorporation of American
                            Telecasting, Inc., dated April 27, 1995 (incorporated by
                            reference to Exhibit 3.1 to the Company's Quarterly
                            Report on Form 10-Q for the period ended March 31, 1995).
          3.4            -- Amended and Restated Bylaws of American Telecasting, Inc.
                            (incorporated by reference to Exhibit 3.2 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended March 31, 1995).
          4.1            -- Specimen Common Stock Certificate (incorporated by
                            reference to Exhibit 2 to the Company's Registration
                            Statement on Form 8-A filed on December 6, 1993).
          4.2            -- Specimen Class A Common Stock Certificate (incorporated
                            by reference to Exhibit 4.2 to the Company's Registration
                            Statement on Form S-3 filed on April 26, 1996).
          4.3            -- Specimen Class B Common Stock Certificate (incorporated
                            by reference to Exhibit 4.3 to the Company's Annual
                            Report on Form 10-K for the fiscal year ended December
                            31, 1996).
          4.4            -- Specimen Series B Convertible Preferred Stock Certificate
                            (incorporated by reference to Exhibit 4.4 to the
                            Company's Annual Report on Form 10-K for the fiscal year
                            ended December 31, 1997).
          4.5            -- Supplemental Indenture dated as of April 28, 1998 to
                            Indenture dated as of August 10, 1995 -- Senior Discount
                            Notes Due 2005 (incorporated by reference to Exhibit 4 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended March 31, 1998).
          4.6            -- Supplemental Indenture dated as of April 28, 1998 to
                            Indenture dated as of June 23, 1994 -- Senior Discount
                            Notes Due 2004 (incorporated by reference to Exhibit 4.1
                            to the Company's Quarterly Report on Form 10-Q for the
                            period ended March 31, 1998).
          4.7            -- Supplemental Indenture dated as of August 10, 1995
                            between American Telecasting, Inc. and First Trust
                            National Association, Trustee, supplementing and amending
                            the Indenture dated as of June 23, 1994 (incorporated by
                            reference to Exhibit 4.1 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1995).
          4.8            -- Indenture dated as of June 23, 1994 between American
                            Telecasting, Inc. and First Trust National Association,
                            Trustee (incorporated by reference to Exhibit 4.2 to the
                            Company's Annual Report on Form 10-K for the period ended
                            December 31, 1994).
          4.9            -- Form of Senior Discount Note due 2004 (included within
                            Exhibits 4.7 and 4.8).
          4.10           -- Supplemental Warrant Agreement dated as of August 10,
                            1995 between American Telecasting, Inc. and First Union
                            National Bank of North Carolina, as warrant agent
                            (incorporated by reference to Exhibit 4.2 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1995).
</TABLE>
<PAGE>   70
 
<TABLE>
<CAPTION>
        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
<C>                      <S>
          4.11           -- Warrant Agreement dated as of June 23, 1994 between
                            American Telecasting, Inc. and First Union National Bank
                            of North Carolina, as warrant agent (incorporated by
                            reference to Exhibit 4.4 to the Company's Annual Report
                            on Form 10-K for the period ended December 31, 1994).
          4.12           -- Form of Warrant (included within Exhibits 4.8 and 4.9).
          4.13           -- Collateral and Disbursement Agreement dated as of June
                            23, 1994 between First Trust National Association and
                            American Telecasting, Inc. (incorporated by reference to
                            Exhibit 4.3 to the Company's Annual Report on Form 10-K
                            for the period ended December 31, 1994).
          4.14           -- Indenture dated as of August 10, 1995 between American
                            Telecasting, Inc., as Issuer, and First Trust National
                            Association, as Trustee (incorporated by reference to
                            Exhibit 4.3 to the Company's Quarterly Report on Form
                            10-Q for the period ended June 30, 1995).
          4.15           -- Form of Senior Discount Note due 2005 (included within
                            Exhibit 4.12).
          4.16           -- Warrant Agreement dated as of August 10, 1995 between
                            American Telecasting, Inc. and First Union National Bank
                            of North Carolina, as warrant agent (incorporated by
                            reference to Exhibit 4.5 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1995).
          4.17           -- Form of Warrant (included within Exhibit 4.14).
          4.18           -- Registration Rights Agreement dated as of August 10, 1995
                            by and among American Telecasting, Inc. and Dillon Read &
                            Co., Inc. and CS First Boston Corporation (incorporated
                            by reference to Exhibit 4.7 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1995).
         10.1            -- Stock Purchase and Sale Agreement dated as of June 7,
                            1995 by and between Bruce Merrill and Virginia Merrill
                            and their successors in trust, as trustees of the Merrill
                            Revocable Trust dated August 20, 1982 and American
                            Telecasting, Inc. (incorporated by reference to Exhibit
                            10.1 to the Company's Quarterly Report on Form 10-Q for
                            the period ended June 30, 1995).
         10.2            -- Standard Commercial Lease Agreement, dated as of
                            September 18, 1995, between Tech Center VI Associates,
                            L.P., as Lessor, and American Telecasting, Inc., as
                            Lessee (incorporated by reference to Exhibit 10.13 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995).
         10.3            -- Retention and Achievement Incentive Agreement with Robert
                            D. Hostetler (incorporated by reference to Exhibit 10.1
                            to the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.4            -- Retention and Achievement Incentive Agreement with David
                            K. Sentman (incorporated by reference to Exhibit 10.2 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.5            -- Retention and Achievement Incentive Agreement with Terry
                            J. Holmes (incorporated by reference to Exhibit 10.3 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.6            -- Retention and Achievement Incentive Agreement with Nasser
                            Sharabianlou (incorporated by reference to Exhibit 10.4
                            to the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
         10.7            -- Retention and Achievement Incentive Agreement with Bryan
                            H. Scott (incorporated by reference to Exhibit 10.5 to
                            the Company's Quarterly Report on Form 10-Q for the
                            period ended June 30, 1998).*
</TABLE>
<PAGE>   71
 
<TABLE>
<CAPTION>
        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.8            -- Key Employee Retention Agreement (incorporated by
                            reference to Exhibit 10.6 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1998).*
         10.9            -- Key Employee Retention Agreement with Lee G. Haglund
                            (incorporated by reference to Exhibit 10.3 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1998).*
         10.10           -- Employment Agreement effective as of July 1, 1997 between
                            American Telecasting, Inc. and Robert D. Hostetler
                            (incorporated by reference to Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1997).*
         10.11           -- Employment Agreement effective as of July 1, 1998 between
                            American Telecasting, Inc. and Robert D. Hostetler
                            (incorporated by reference to Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1998).*
         10.12           -- Employment Agreement dated August 10, 1995 between
                            American Telecasting, Inc. and David K. Sentman
                            (incorporated by reference to Exhibit 10 to the Company's
                            Quarterly Report on Form 10-Q for the period ended
                            September 30, 1995).*
         10.13           -- First amendment to Employment Agreement effective as of
                            September 9, 1997 between the Company and David K.
                            Sentman (incorporated by reference to Exhibit 10.2 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended September 30, 1997.) *
         10.14           -- Second amendment to Employment Agreement effective as of
                            October 7, 1998 between American Telecasting, Inc. and
                            David K. Sentman (incorporated by reference to Exhibit
                            10.2 to the Company's Quarterly Report on Form 10-Q for
                            the period ended September 30, 1998).*
         10.15           -- Employment Agreement as of April 28, 1997 between
                            American Telecasting, Inc. and Terry J. Holmes
                            (incorporated by reference to Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the period
                            ended June 30, 1997).*
         10.16           -- Credit Agreement dated as of February 26, 1997, among
                            American Telecasting, Inc. and Banque Indosuez, New York
                            Branch, as Agent, and the lending institutions listed
                            therein (the "Banks"); related Option Agreement dated as
                            of February 26, 1997 among American Telecasting, Inc. and
                            Indosuez CM II, Inc.; related Bond Appreciation Rights
                            Certificate dated February 26, 1997; related Securities
                            Pledge Agreement dated as of February 26, 1997 in favor
                            of Banque Indosuez, New York Branch, as pledgee, assignee
                            and secured party, in its capacity as collateral agent
                            for the Banks; related Securities Pledge Agreement dated
                            as of February 26, 1997 made by American Telecasting of
                            Green Bay, Inc. in favor of Banque Indosuez, New York
                            Branch, as pledgee, assignee and secured party, in its
                            capacity as collateral agent for the Banks; related
                            General Security Agreement dated as of February 26, 1997
                            made by certain subsidiaries of American Telecasting,
                            Inc. in favor of Banque Indosuez, New York Branch, as
                            pledgee, assignee and secured party, in its capacity as
                            collateral agent for the Banks; related Registration
                            Rights Agreement dated as of February 26, 1997 among
                            American Telecasting, Inc. and the holders of the
                            warrants to purchase an aggregate of 141,667 shares of
                            the Class A Common Stock of American Telecasting, Inc.;
                            related Securities Pledge Agreement dated as of February
                            26, 1997 made by American Telecasting, Inc. in favor of
                            Banque Indosuez, New York Branch, as pledgee, assignee
                            and secured party, in its capacity as collateral agent
                            for the Banks (incorporated by reference to Exhibit 10.10
                            to the Company's Annual Report on Form 10-K for the
                            fiscal year ended December 31, 1996).
</TABLE>
<PAGE>   72
 
<TABLE>
<CAPTION>
        EXHIBIT
          NO.                                    DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.17           -- Management Agreement dated as of June 28, 1996 between
                            Novner Enterprises, Inc. and American Telecasting of
                            Cincinnati, Inc. (incorporated by reference to Exhibit
                            10.2 to the Company's Quarterly Report on Form 10-Q for
                            the period ended June 30, 1996).
         10.18           -- American Telecasting, Inc. 1990 Stock Option Program, As
                            Amended (Effective April 25, 1996) (incorporated by
                            reference to Exhibit 10.6 to the Company's Quarterly
                            Report on Form 10-Q for the period ended June 30, 1996).*
         10.19           -- Form of Registration Rights Agreement between American
                            Telecasting, Inc. and Stockholder (incorporated by
                            reference to Exhibit 10.40 to the Company's Form S-1
                            Registration Statement filed on October 8, 1993).
         10.20           -- Asset Purchase Agreement dated as of March 18, 1997 by
                            and among BellSouth Corporation, BellSouth Wireless
                            Cable, Inc., American Telecasting of Central Florida,
                            Inc., American Telecasting Development, Inc., American
                            Telecasting of Fort Myers, Inc., American Telecasting of
                            Jacksonville, Inc., American Telecasting of Louisville,
                            Inc., and American Telecasting of Yuba City, Inc.
                            (incorporated by reference to Exhibit 10 to the Company's
                            Quarterly Report on Form 10-Q for the period ended March
                            31, 1997).
         11.1            -- Statement regarding computation of per share earnings.
         21.1            -- Subsidiaries of American Telecasting, Inc. (incorporated
                            by reference to Exhibit 21.1 to the Company's Annual
                            Report on Form 10-K for the year ended December 31,
                            1996).
         27.1            -- Financial Data Schedule.
</TABLE>
 
---------------
 
*  Indicates management agreement or compensatory plan or arrangement.