UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
Commission File Number: 0-11412
AMERICAN WIRELESS SYSTEMS, INC.
(Exact name of small business issuer
as specified in its charter)
DELAWARE 41-1616965
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7426 E. Stetson Drive, Suite 220, Scottsdale, AZ 85251
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(Address of principal executive offices)
11811 N. Tatum Blvd., Suite 1060, Phoenix, AZ 85028
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(Former address of principal executive offices)
602-994-4301
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Number of shares of common stock, $.01 par value, of registrant outstanding at
September 30, 1995: 5,709,187
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements -
Balance Sheets - December 31, 1994 and September 30, 1995 . . . . . . 1
Statements of Operations - Quarters Ended September 30, 1994
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Operations - Nine Months Ended September 30, 1994
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows - Nine Months Ended September 30, 1994
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements - September 30, 1995 . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. Change in Securities . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits & Reports on Form 8-K . . . . . . . . . . . . . . . . . 14
<PAGE>
<TABLE>
PART I
Item 1. Financial Statements
AMERICAN WIRELESS SYSTEMS, INC.
BALANCE SHEETS - DECEMBER 31, 1994 AND
SEPTEMBER 30, 1995
(Unaudited)
<CAPTION>
December 31, 1994 September 30,1995
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 376,621 $ 1,182,653
Prepaid expenses and other current assets 186,242 89,724
-------------- --------------
Total current assets 562,863 1,272,377
PROPERTY AND EQUIPMENT, at cost, net 431,790 218,404
INVESTMENT IN AND ADVANCES TO JOINT
VENTURES (Notes 1 & 4) 3,436,048 2,998,398
INVESTMENT IN WIRELESS CABLE SYSTEMS
(Notes 1 & 4) 2,430,866 2,987,940
LICENSE DEPOSITS AND OTHER ASSETS 88,333 77,179
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$ 6,949,900 $ 7,554,298
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 482,342 $ 419,186
Accrued liabilities 345,063 219,337
Current portion notes payable (Note 3) -- 99,442
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Total current liabilities 827,405 737,965
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Notes payable (Note 3) -- 1,800,000
Deferred compensation (Note 5) 354,636 233,044
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Total liabilities 1,182,041 2,771,009
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COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Notes 1, 6, and 7):
Common stock, $.01 par value, 40,000,000 shares
authorized, 5,709,187 shares outstanding 57,092 57,092
Additional paid-in capital 20,239,069 20,239,069
Accumulated deficit (14,528,302) (15,512,872)
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Total stockholders' equity 5,767,859 4,783,289
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$ 6,949,900 $ 7,554,298
============== ==============
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Quarter Ended Quarter Ended
September 30, September 30,
1994 1995
---- ----
REVENUES:
Management fees $ 25,000 $ 25,000
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Total Revenues 25,000 25,000
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GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation 916,801 156,840
Outside services 131,747 70,631
Other 274,667 123,211
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Total Expenses 1,323,215 350,682
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LOSS FROM OPERATIONS (1,298,215) (325,682)
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LOSS FROM OPERATIONS OF JOINT
VENTURES (63,450) (44,604)
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OTHER INCOME (EXPENSE), net
Interest expense (112,735) (76,666)
Other (484,775) 791,501
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(597,510) 714,835
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NET INCOME/(LOSS) $ (1,959,175) $ 344,549
============ ============
NET INCOME/(LOSS) PER SHARE $ (.38) $ .06
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,217,637 5,709,187
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1994 1995
---- ----
REVENUES:
Management fees $ 58,333 $ 75,000
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Total Revenues 58,333 75,000
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GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation 1,554,057 630,070
Outside services 409,267 335,807
Other 807,536 633,354
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Total Expenses 2,770,860 1,599,231
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LOSS FROM OPERATIONS (2,712,527) (1,524,231)
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LOSS FROM OPERATIONS OF JOINT
VENTURES (157,794) (136,298)
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OTHER INCOME (EXPENSE), net
Interest expense (978,695) (126,119)
Other (528,080) 802,078
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(1,506,775) 675,959
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NET LOSS $ (4,377,096) $ (984,570)
============== ==============
NET LOSS PER SHARE $ (1.06) $ (.17)
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,135,431 5,709,187
============== ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1994 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,377,096) $ (984,570)
Adjustments to reconcile net loss to cash used for
operating activities -
Depreciation and amortization 613,717 66,079
Loss on disposal of assets 49,090 200,357
Gain on sale of assets -- (786,646)
Loss from operations of joint ventures 157,794 136,298
Repricing common stock warrants 425,000 --
Deferred compensation 566,381 --
Changes in assets and liabilities -
Decrease in prepaid expenses and other assets (2,276) 96,518
Decrease in accounts payable and accrued liabilities (128,280) (199,321)
------------ ------------
Net cash used for operating activities (2,695,670) (1,471,285)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (241,677) (40,035)
Investment in wireless cable television systems (1,546,334) (662,090)
Proceeds from sale of wireless cable television system -- 1,250,000
Sales of marketable securities 1,325,950 --
Note receivable issued (2,000,000) --
Decrease in deposits -- 1,154
------------ ------------
Net cash used for investing activities (2,462,061) 549,029
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable -- 2,800,000
Net proceeds from sale of common stock 2,009,511 --
Payment of notes payable -- (1,071,712)
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Net cash provided by financing activities 2,009,511 1,728,288
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NET DECREASE IN CASH AND CASH EQUIVALENTS (3,148,220) 806,032
CASH AND CASH EQUIVALENTS, beginning of period 3,244,275 376,621
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 96,055 $ 1,182,653
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 351,510 $ 134,566
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(1) BACKGROUND, ORGANIZATION AND OPERATIONS:
Background and Organization
American Wireless Systems, Inc. (the Company) was originally incorporated in
Minnesota in 1988 as Short Takes, Inc. The Company ceased its prior business
activities in April 1991, at which time the Company began searching for a
suitable business for acquisition or merger. Its sole asset was cash of $669,000
on December 17, 1992, when it acquired certain operating assets and liabilities
of AWS, Inc. (formerly American Wireless Systems, Inc.), a California
corporation (Wireless California) in exchange for 2,572,000 shares of Common
Stock, which represented 82.5% of the outstanding Common Stock of the Company.
For accounting purposes, this transaction has been treated as an issuance of
Common Stock for cash by Wireless California (the reverse acquisition). Wireless
California was subsequently liquidated into AWS Liquidating L.L.C., an Arizona
limited liability company (AWS L.L.C.).
In April 1993, the Company's stockholders approved changing the Company's
name from Short Takes, Inc. to American Wireless Systems, Inc. In addition, the
Company was reincorporated in the state of Delaware and declared a reverse stock
split of 1-for-2.5. On October 18, 1994, the stockholders of the Company
approved a reverse stock split of 1-for-3. The accompanying financial statements
have been retroactively restated to reflect these reverse stock splits.
Operations
The Company currently owns a minority interest in and manages the operations
of wireless cable television systems in Minneapolis and Fort Worth, and holds an
interest in or owns the rights to certain wireless cable television channels in
Los Angeles, Dallas and Memphis. The Company sold its interest in certain
wireless cable assets in Pittsburgh on September 29, 1995. Wireless cable is an
emerging business that provides television programming to subscribers by
transmitting a signal via microwave frequencies licensed by the Federal
Communications Commission (FCC) to antennae located at the subscribers'
premises.
The Company's wireless cable systems are all in either the initial
development stage or in the early operating stage; therefore, significant
additional investment will be required to develop those systems to a level that
will provide positive cash flow.
(2) BASIS OF PRESENTATION
The financial statements have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). The information furnished herein reflects all adjustments
(consisting of normal recurring accruals and adjustments) which, in the opinion
of management, are necessary to fairly state the operating results for the
respective periods. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations, although management of the Company believes that the disclosures
are adequate to make the information presented not misleading.
The Company follows the accounting policies set forth in its financial
statements filed on Form 10-KSB for the year ended December 31, 1994.
(3) FINANCING:
In April 1994, the Company filed a Registration Statement on Form SB-2 in
connection with a proposed public offering, which was amended to include the
offer and sale of 2,500,000 Units, each Unit consisting of two shares of Common
Stock and one Warrant to purchase one share of Common Stock. For a variety of
reasons, the Company elected not to proceed with the proposed offering.
Since January 1995, the Company has been pursuing various financing options
which culminated in signing an Agreement of Merger with Heartland Wireless
Communications, Inc. ("Heartland") on September 11, 1995 (the "Merger
Agreement"). The Merger Agreement provides for the Company's stockholders to
exchange their stock in the Company for stock in Heartland. The Merger Agreement
will give the Company's stockholders $34,000,000 in Heartland common stock,
subject to certain reductions and adjustments, of which at least $30,750,000
will be distributed immediately and up to $3,250,000 will be held in escrow for
one year to indemnify Heartland for potential liabilities (Note 7). The
conversion ratio into Heartland common stock will be the trading price of
Heartland common stock based on the 10 day average closing price 5 business days
before closing, provided that Heartland's trading price is at least $20 per
share and not greater than $26 per share. If Heartland's trading price is below
$20 per share the exchange price will be $20 per share, and if the trading price
is above $26 per share, the exchange price will be $26 per share.
The Company obtained loans totaling $1,000,000 from a stockholder of the
Company. These loans carried an interest rate of 15% per annum, were secured by
various assets of the Company and were paid off in September 1995.
In connection with the Merger Agreement, the Company received a $200,000
nonrefundable deposit and a loan of $1,800,000 pursuant to the Heartland Note
("Heartland Note") dated May 26, 1995 and amended August 17, 1995. The Heartland
Note carries an interest rate of 2% above the prime rate with interest payable
quarterly and, subject to certain exception, is due 12 months after the Merger
Agreement is consummated or abandoned. The Heartland Note is secured by the
rights to the wireless cable licenses and equipment in the Dallas market.
On September 29, 1995, the Company sold its interest in the assets of the
Pittsburgh market for $1,250,000 in cash.
The Company signed a contract on November 7, 1995 to sell its assets in the
Memphis market for $3,900,000. The Company is currently involved in litigation
with the purchaser of these assets. According to this contract, at the time of
closing of the transaction, the Company and the purchaser will execute and
deliver mutual settlements and releases releasing each party from all claims
held against the other. (Note 7).
(4) WIRELESS CABLE TELEVISION SYSTEMS:
Jointly Owned Systems
The Company currently owns an equity interest in and manages the operations
of wireless cable systems in Minneapolis, Minnesota (AWS-Minneapolis) (25%
interest) and Fort Worth, Texas (AWS-Fort Worth) (20% interest) and formerly
owned an equity interest in a wireless cable system under development in
Pittsburgh, Pennsylvania (25% interest).
The Minneapolis system has been in operation since March 1993. The Company's
joint venture partner is a general partnership which was formed to acquire an
interest in and jointly develop and operate the Minneapolis wireless cable
system. In accordance with the terms of the joint venture agreement, losses are
to be allocated in accordance with contributed capital and profits are to be
allocated (i) in accordance with contributed capital to the extent of previously
allocated losses and then (ii) 25% to the Company and 75% to the general
partnership thereafter.
In April 1994, the Company loaned the general partnership $2,000,000 to fund
additional development of the system. The loan bears interest at 8% per annum
and was originally payable in full by October 5, 1995. Prior to the due date,
the Company agreed to extend the maturity of the loan until the earlier of (i)
February 28, 1996, or (ii) the abandonment of the Merger Agreement. In the event
that the loan is not repaid, the Company will receive an additional equity
interest in the Minneapolis joint venture of approximately 10%.
AWS-Minneapolis received additional funding in May 1995 of $550,000 from
Tsunami Capital Corporation (Tsunami). The loan was made by Tsunami in
anticipation of a reverse merger between AWS-Minneapolis and Tsunami. The loan
is due December 31, 1995, and carries an interest rate of 12% per annum.
On October 4, 1995, the Company's joint venture partner in Minneapolis
signed a contract to sell its 75% interest in AWS-Minneapolis to Heartland. As
part of this agreement, Heartland agreed to loan AWS-Minneapolis up to
$1,575,000, of which $575,000 was used to repay Tsunami.
The Fort Worth system has been in operation since November 1992. The
Company's joint venture partner is a general partnership which was formed to
acquire an interest in and jointly develop and operate the Fort Worth wireless
cable system. The Fort Worth system has been operated through an informal joint
venture agreement. The accompanying financial statements include an estimate of
the Company's pro rata losses in this system.
AWS-Fort Worth does not have sufficient funds to continue development of the
system. The Company's joint venture partner also does not have funds to
contribute to the joint venture and has expressed its belief that either
Wireless California or the Company is obligated to provide additional funds to
develop the system to a positive cash flow position. Neither Wireless California
nor the Company believes it has such an obligation; however, the Company is
negotiating the terms of additional funding to continue development of the
system in conjunction with definitive joint venture and management agreements.
In order to protect the Company's interest in the assets of AWS-Fort Worth, the
Company has advanced approximately $368,000 from May 1, 1993, to September 30,
1995. The funds were used to fund the system's negative cash flow and maintain
the current subscriber base.
On October 4, 1995, the Company's joint venture partner in AWS-Fort Worth
signed a contract with Heartland to sell its 80% interest in AWS-Fort Worth to
Heartland.
The Pittsburgh system is still in its initial development stage. On
September 29, 1995, the Company sold all of its interest in the assets of the
Pittsburgh market for $1,250,000 in cash.
Wholly Owned Systems
The Company's investment in wholly owned systems consists primarily of the
costs to acquire the rights to FCC licenses in Dallas (16), Los Angeles (9) and
Memphis (22). The lease agreements provide for the Company to pay for the excess
airtime use, new transmission equipment and all other operating expenses of the
channels including co-location costs.
On November 7, 1995, the Company entered into a contract to sell its assets
in the Memphis market for $3,900,000 to TruVision Cable, Inc. ("TruVision"). As
part of the contract, assuming the closing of the transaction, the Company and
TruVision will agree to a mutual release and settlement of all claims (Note 7).
(5) DEFERRED COMPENSATION
Effective August 1994, an individual who held the position of Chairman of
the Board, President and Chief Financial Officer resigned. In connection with
such resignation, this individual entered into a severance agreement with the
Company. The Company agreed to pay this individual his annual base salary, as
provided by the terms of his employment agreement, a bonus consistent with the
bonuses awarded to certain other officers, if any, and to reimburse certain
other expenses for a period of three years. As a result, the Company recognized
approximately $566,000 of compensation expense in the third quarter of 1994. The
liability as of September 30, 1995 is approximately $390,000, of which
approximately $233,000 is a long-term liability. Upon consummation of the Merger
Agreement, the unpaid portion becomes payable in full.
(6) STOCKHOLDERS' EQUITY:
Warrants and Options
As of September 30, 1995, the Company had outstanding 598,231 warrants and
options to acquire shares of the Company's Common Stock at a weighted average
exercise price of $9.73 per share. In addition, there are currently 144,995
options outstanding to acquire shares of Common Stock under the 1993 Stock
Option Plan at a weighted average exercise price of $3.50 per share.
Escrowed Shares
Approximately 1.88 million shares of the Company's outstanding Common Stock,
which are owned by the former owners of Wireless California, were released from
an escrow in February 1995. The shares were pledged by the former shareholders
to secure the indemnification of the Company by Wireless California for
potential losses incurred from claims arising out of the prior offerings of
general partnership interests by Wireless California. In December 1994, the
Company made a $35,000 claim on the escrowed shares for an advance to Wireless
California to pay administrative penalties assessed Wireless California by the
state of Arizona (see Note 7). All but 50,000 shares were released from escrow
and distributed to the members of AWS L.L.C. in February 1995. The remaining
50,000 shares have been retained to potentially fund a claim made by the Company
which is currently being disputed by AWS L.L.C. The shares will remain in escrow
until the dispute is resolved. No other claims were made on the escrowed shares.
(7) COMMITMENTS AND CONTINGENCIES:
Prior to the sale of certain assets by Wireless California to the Company,
approximately $29,000,000 was raised in connection with the offering of general
partnership interests in three general partnerships, each of which was formed
for the purpose of acquiring an interest in the rights to develop and operate a
wireless cable television system in Fort Worth, Minneapolis and Pittsburgh,
respectively. Through an affiliate, Wireless California participated in the
offer and sale of the general partnership interests without registration under
any federal or state securities laws based on the belief that the general
partnership interests did not constitute securities under federal and applicable
state laws. Certain current and former officers and directors of the Company
were formerly officers and directors of Wireless California.
Following an investigation by the Commission involving the activities of
Wireless California in connection with the offer and sale of the general
partnership interests as described above, the Company and certain of its current
and former officers, without admitting or denying any wrongdoing, consented to
an order of the Commission to cease and desist from committing or causing any
violation and any future violations of the securities registration provisions of
the Securities Act of 1933 and the broker-dealer registration provisions of the
Securities Exchange Act of 1934.
Securities administrators in 22 states also have conducted or are presently
conducting investigations of the activities related to the unregistered sale of
the general partnership interests described above. The actions taken by the
various state securities administrators range from no action taken to the
issuance of 15 cease and desist orders and consent orders pursuant to which
Wireless California, the issuing general partnerships, and certain officers of
Wireless California were required to cease selling general partnership interests
without registration, to offer rescission to individuals who purchased general
partnership interests and, in certain cases, to pay administrative penalties. In
addition, AWS L.L.C. has entered into a consent order with the State of Illinois
pursuant to which AWS L.L.C. agreed to cease and desist from selling general
partnership interests without registration, to pay an administrative penalty,
and to cause a rescission offer to be made to Illinois residents. AWS L.L.C. did
not comply with the order and the State of Illinois filed a complaint on August
14, 1995. Following an investigation by the State of Arizona, AWS L.L.C. and
current and former officers of the Company consented to an order of the Arizona
Corporation Commission to cease and desist from selling securities unless the
sale is registered or exempt from registration and to the imposition of an
administrative penalty against AWS L.L.C. The Company also consented to a
separate order that requires the Company to make an offer of rescission to all
general partners who are Arizona residents or who were offered and sold their
interests from Arizona. To the knowledge of the Company, there are no other
active federal or state regulatory proceedings or investigations.
The Company is currently attempting to amend the order to provide for an
alternative to rescission, although there can be no assurance that the Company
will be successful in this regard. The Arizona order currently provides that if
the rescission offers are not made, the Company will be required to pay to the
Arizona Corporation Commission an amount equal to the amount of the investment
made by all general partners who are Arizona residents, or approximately
$566,000, plus interest from the time of investment. There can be no assurance
that the Company will be able to satisfy the Arizona rescission order.
Since October 31, 1992, Wireless California, the general partnerships and
the current and former officers of the Company have ceased all activities
involving the offer and sale of general partnership interests, although one of
the general partnerships continued to raise funds through capital calls to
existing general partners after such date. In addition to the rescission offers
described above, Wireless California and the general partnership issuers
voluntarily elected to offer to purchase the general partnership interests of
certain general partners in exchange for cash in an amount equal to the funds
contributed by such general partners. As of November 13, 1995, approximately
1,170 of the approximately 1,930 purchasers of general partnership interests had
been offered rescission or a return of their investment by Wireless California
or the general partnership issuers and approximately 80 had accepted the offer,
all of which have been paid. None of such offers, however, were necessarily
conducted in accordance with the statutory requirements of the various states.
To the extent such requirements were not met, potential securities liability
arising from the offer and sale of the general partnership interests will not be
statutorily eliminated until the statutes of limitation with respect to such
claims have expired or an offer is made in accordance with the statutory
rescission requirements of any state.
There can be no assurance that current general partners or any governmental
agency will not institute proceedings against Wireless California or the Company
as the successor to Wireless California based on a failure to register the
general partnership interests in connection with a public offering or for
damages based on alleged omissions or misrepresentations of material information
in connection with the sale of such interests. In connection with the
acquisition of certain assets of Wireless California, the Company expressly
disclaimed any liabilities of Wireless California arising out of the offer and
sale of the general partnership interests described above. There is a
possibility, however, that a successful claim against Wireless California could
be asserted against the Company based on a number of theories involving
successor liability. The institution of legal action against the Company arising
out of the offer and sale of general partnership interests by Wireless
California could result in substantial defense costs to the Company and the
diversion of efforts by the Company's management, and the imposition of
liabilities against the Company could have a material adverse effect on the
Company. Based on its experience to date, however, taking into account the
status of investigations by various state securities administrators, the absence
of any asserted claim for rescission having been instituted by any of the
general partners against any of the general partnerships, Wireless California or
the Company, the Company's assessment of the current value of the general
partnership interests, the terms of the agreements between the Fort Worth and
Minneapolis general partnerships to sell their interests to Heartland, the
relatively small number of general partners who have accepted previous offers by
Wireless California or its shareholders to purchase general partnership
interests, the existence of a number of possible defenses to any claims asserted
against it, and other factors, the Company does not believe the ultimate
resolution of this matter will have a material adverse impact on its financial
condition.
In September 1995, the Company and the Pittsburgh general partnership sold
all of their wireless cable assets in the Pittsburgh market to a publicly held
wireless cable company. As consideration for the sale of its assets in the
Pittsburgh market, the Pittsburgh general partnership received approximately
$11,250,000 in cash and short term notes, which amount exceeded the aggregate
amount that would have been required if all Pittsburgh general partners were
offered and accepted rescission.
The Company is currently named as a defendant in two separate lawsuits. On
May 16, 1995, William R. Jenkins, the former Chief Executive Officer of the
Company, filed a lawsuit in Arizona state court alleging breach of his
employment contract and requesting as damages all amounts due under the
employment contract, treble damages under Arizona statute, attorney's fees and
costs. On June 2, 1995, the Company filed a Petition to Compel Arbitration and
an Answer including counterclaims. As a result, the dispute was referred to an
arbitration hearing and the lawsuit was dismissed. The Company estimates that
the amount due under Mr. Jenkins' employment contract, if he were successful,
would be approximately $167,000, which amount could be trebled under Arizona
statute.
On June 21, 1995, TruVision, the party with whom AWS had entered into a
letter of intent relating to the sale of the Company's Memphis assets, filed a
lawsuit, as amended on June 29, 1995, in the state of Mississippi alleging that
the Company breached the letter of intent, that the parties entered into a
binding agreement which the Company breached, and that the Company committed
fraud and negligent misrepresentation. The Company disputes these claims based
on the position that it lawfully terminated the letter of intent. The Amended
Complaint requests damages in the amount of $28,196,642 and punitive damages in
the amount of $20,000,000, together with interest and all costs of court. On
November 7, 1995, the Company entered into an agreement with TruVision pursuant
to which the Company has agreed to sell, with Heartland's consent, the Memphis
assets to TruVision for $3,900,000. The agreement provides for the settlement
and release of all claims by and among the Company, TruVision and Heartland
relating to the Memphis assets, subject to consummation of the agreement to sell
the Memphis assets.
The Company believes it has adequate grounds to successfully defend both
lawsuits. The Company does not expect that a judgment against the Company, if
any, would have a material adverse effect on its financial condition or results
of operations.
The Company is also the subject of two threatened lawsuits. American
Telecasting, Inc. ("ATI") has sent letters to the Company claiming that the
Company breached a term sheet and requesting payment of $1,800,000 as the
alleged termination fee owed to ATI under the term sheet, plus expenses. The
Company has responded to ATI and disputes all of ATI's claims.
By letter dated January 31, 1995, Laidlaw Holdings, Inc. ("Laidlaw"), the
underwriter of the Company's proposed public offering, claims that the Company
owes Laidlaw $182,166 as accountable expenses under a Letter Agreement between
the parties dated November 20, 1994. A follow-up letter was sent to the Company
on July 13, 1995. By letter dated February 3, 1995 from the Company to Laidlaw,
the Company asserted that Laidlaw terminated the Letter Agreement. The Company
believes that if a claim is filed by Laidlaw, the Company has adequate grounds
to successfully defend the claim.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
The Company currently owns a minority interest in and manages the operations
of wireless cable systems in Minneapolis and Fort Worth and holds an interest in
or owns the rights to certain wireless cable television channels in Los Angeles,
Dallas and Memphis. Launched in March 1993 and November 1992, respectively, the
Minneapolis and Fort Worth systems currently serve approximately 2,800 and 1,600
subscribers, respectively.
The wireless cable business is a capital intensive business and, to date,
the Company's existing wireless cable systems in Minneapolis and Fort Worth have
been financed primarily through joint ventures. Initially, significant capital
is required to acquire the rights to wireless cable channels, construct the
headend facility, co-locate the channels and fund negative cash flow until the
system is able to install a sufficient number of subscribers to fund its
operating expenses. After operations have been launched, the Company estimates
that the incremental cost per subscriber is approximately $530 (assuming
one-half of the subscribers order additional outlets which require additional
equipment and labor). The Company does not expect any of its systems to provide
cash flow to the Company unless significant additional capital can be obtained.
The Minneapolis and Fort Worth systems are operational; however, the
Minneapolis and Fort Worth systems currently are installing a minimal number of
subscribers each month in order to offset subscriber churn. The Company's
proposed wireless cable systems in Los Angeles, Dallas and Memphis are currently
in the development stage. None of these systems have subscribers, or the
financing necessary to add subscribers, to generate positive cash flow from
operations. A significant investment in equipment and engineering would have to
be made to prepare these markets for launch. The Company does not anticipate
making this investment unless significant additional capital is obtained.
The Company will require additional financing in the first quarter of 1996
to fund its operating expenses. The Company, however, anticipates that the
Merger Agreement will be consummated prior to the close of the first quarter of
1996, thereby eliminating the Company's responsibility to fund future operating
and development expenses. Under the terms of the Merger Agreement, the Company
will receive approximately $34,000,000 in Heartland Common Stock, subject to
adjustments in certain events. If the Merger Agreement is not consummated, the
Company will pursue other financing options including the sale of some or all of
its assets or a merger with a third party.
In Minneapolis, the joint venture agreement requires the Company's joint
venture partner to contribute all financing required by the system. Pursuant to
a management agreement, the Company currently serves as the manager of the
Minneapolis joint venture. The Company lent its joint venture partner
$2,000,000, which has been contributed to the joint venture to fund the
operations of the system. In May 1995, AWS-Minneapolis obtained a loan of
$550,000 from Tsunami. In October 1995, AWS-Minneapolis obtained a loan of
$1,575,000 from Heartland, of which $575,000 was used to repay the Tsunami loan,
including interest. The Company anticipates that the remaining $1,000,000 will
be used to add subscribers and pay for corporate overhead. AWS-Minneapolis will
require additional funding beyond the $1,000,000 during the first quarter of
1996 to continue installing subscribers. If the Merger Agreement is consummated,
Heartland will be responsible for additional funding. If the Merger Agreement is
not consummated, AWS will assist its joint venture partner to obtain additional
funding.
In Fort Worth, the Company currently serves as the manager through an
informal management agreement, but to date has not been compensated for its
efforts. In addition, the joint venture agreement between the Company and the
Fort Worth general partnership is informal. Over the past two and one-half
years, the Company and the Fort Worth general partnership have been negotiating
the terms of a definitive joint venture arrangement and a management agreement
to formalize the relationship; however, to date, no agreement has been obtained.
The Company is currently advancing approximately $30,000 per month to AWS-Fort
Worth to fund negative cash flow. As of September 30, 1995, the Company has
advanced approximately $368,000 to AWS-Fort Worth. If the Merger Agreement is
consummated, Heartland will be responsible for any additional funding. If the
Merger Agreement is not consummated, the Company will continue to negotiate with
its joint venture partner with respect to formal joint venture and management
agreements and additional funding for AWS-Fort Worth.
In Dallas and Los Angeles, the Company currently owns or leases the rights
to 16 and nine wireless cable channels, respectively. The Company anticipated
that funding for launch of wireless cable systems in Dallas and Los Angeles
would be available from the proceeds of the Company's proposed public offering
(see Liquidity and Capital Resources). Because this offering was not completed,
preparation for any launch has been delayed indefinitely.
In Memphis, the Company owns or leases the rights to 22 wireless cable
channels. The Company has entered into a contract to sell its assets in the
Memphis market to TruVision for $3,900,000 in cash. The Company anticipates that
this transaction will close before the Merger Agreement is consummated. The
Company is currently involved in litigation with TruVision. According to the
contract, assuming the closing of such transaction, the Company and TruVision
will execute and deliver a mutual release and settlement of all claims.
On September 29, 1995, the Company sold its assets in the Pittsburgh market
for $1,250,000 in cash.
Results of Operations
As described above, the Company has interests in, but does not have any
wholly owned operating wireless cable systems, and therefore had no operating
revenue in either of the quarters ended September 30, 1995 or September 30,
1994. The Company accrued management fees of $25,000 for both the third quarters
of 1995 and 1994. Management fees are for services provided to AWS-Minneapolis.
For the quarter ended September 30, 1995, the Company had net income of
$344,549 and for quarter ended September 30, 1994, the Company had a net loss of
$1,959,175. The Company's gain in the third quarter of 1995 was primarily the
result of the Company's sale of the Pittsburgh wireless cable assets. General
and administrative expenses decreased by approximately $973,000 for the quarter
ended September 30, 1995 as compared to the quarter ended September 30, 1994.
The primary components of general and administrative expenses include
compensation, professional services including legal and accounting services,
rental expense, depreciation and travel and entertainment. Compensation expense
decreased approximately $760,000 for the quarter ended September 30, 1995 as
compared to the quarter ended September 30, 1994. This decrease was due to the
recognition of approximately $566,000 in September 1994 of compensation expense
related to authorization of a severance package to a former officer as well as a
reduction in the number of employees, including one executive officer in January
1995 and approximately half of the other personnel in January 1995 and February
1995. Professional expense decreased approximately $61,000 for the quarter ended
September 30, 1995 as compared to the quarter ended September 30, 1994,
primarily due to timing of legal, accounting and engineering services. Other
general and administrative expenses decreased approximately $152,000 for the
quarter ended September 30, 1995 as compared to the quarter ended September 30,
1994, primarily due to expenses associated with relocating the Company's offices
to a more economical facility in February 1995 and staff reductions in January
1995 and February 1995.
The Company's loss from operations of joint ventures decreased approximately
$19,000 from the quarter ended September 30, 1995 as compared to the quarter
ended September 30, 1994 because the Company's joint venture partner in
Minneapolis contributed $686,000 to the joint venture, thereby reducing the
Company's loss allocation. In Minneapolis, the Company's allocated losses are
based on contributed capital rather than its beneficial interest. Accordingly,
the Company's allocated share of the losses on a percentage basis is less than
its beneficial interest. In Fort Worth, the Company's recorded losses are based
on the anticipated terms of the joint venture agreement, which the Company
currently is negotiating.
Interest expense for the quarter ended September 30, 1995 represents
interest on outstanding notes payable and interest paid on the $1,000,000 in
loans from a stockholder which was repaid in September 1995. Interest expense
for the quarter ended September 30, 1994 represents interest on the Company's
12% Convertible Subordinated Notes, which were converted into shares of the
Company's Common Stock as of September 1994, and amortization of debt issuance
costs associated with these convertible notes.
Other income for the quarter ended September 30, 1995 is primarily comprised
of approximately a $787,000 gain from the sale of the Company's interest in the
Pittsburgh market. Other expense for the quarter ended September 30, 1994 is
primarily comprised of $425,000 in expense related to repricing certain of the
Company's outstanding warrants.
Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." In connection with the reverse
acquisition of Wireless California on December 17, 1992, the basis in the assets
acquired and liabilities assumed by the Company were substantially the same for
book and tax purposes; therefore, no significant deferred tax assets or
liabilities existed. During the year ended December 31, 1993, the Company was
able to utilize a portion of its losses generated to recapture previous taxes
paid by Wireless California. Such recapture has been treated as a capital
contribution to the Company by Wireless California.
At September 30, 1995, the Company had no significant deferred tax assets or
liabilities. The Company has available net operating loss carry forwards of
approximately $7,286,000 that begin expiring in 2009. No benefit from these net
operating loss carryforwards has been realized in the Company's financial
statements.
Liquidity and Capital Resources
All of the Company's wireless cable systems are either in the development
stage or early operating stage. The Company's efforts to date have been directed
primarily toward the acquisition of channel rights and launch of systems. The
Company has had limited sources of revenue and capital, has incurred losses
since inception, and expects to incur additional losses. Since none of the
Company's existing or proposed systems have advanced beyond the early operating
or development stage, the Company anticipates that it will be dependent upon
external financing and continue to incur losses. Due to the Company's prior
financing constraints, the Company was unable to produce timely audited
financial statements to include in the Company's Form 10-KSB for the year ended
December 31, 1994. Because additional financing was secured (see below), the
Company has engaged its independent public accountants to perform an audit of
its financial statements for the year ended December 31, 1994. Upon completion,
the Company will file the audit report as an amendment to the Company's Form
10-KSB for the year ended December 31, 1994.
Since January 1995, the Company has pursued various financing options which
culminated in signing the Merger Agreement with Heartland on September 11, 1995.
The Merger Agreement calls for the Company's stockholders to exchange their
stock in the Company for Heartland common stock. The Merger Agreement provides
for the Company's stockholders to receive an aggregate of $34,000,000 in
Heartland common stock, subject to reduction or adjustment in certain events, of
which at least $30,750,000 will be distributed immediately and up to $3,250,000
will be held in escrow for one year to indemnify Heartland for potential
liabilities. The conversion price per share of Heartland common stock will equal
the trading price of Heartland common stock based on the 10 day average closing
price ending five business days before the closing of the Merger Agreement,
provided Heartland's trading price is at least $20 per share and not greater
than $26 per share. If Heartland's trading price is $20 per share, the exchange
price will be $20 per share; and if the trading price is above $26 per share,
the exchange price will be $26 per share.
The Company obtained loans totaling $1,000,000 from a stockholder of the
Company. These loans bore interest at a per annum rate of 15%, were secured by
various assets of the Company and were repaid in full in September 1995.
On September 29, 1995, the Company sold its assets in the Pittsburgh market
for $1,250,000 in cash.
On May 25, 1995, the Company and Heartland entered into a non-binding letter
of intent providing for the potential acquisition of the Company by Heartland.
Pursuant to this letter of intent, Heartland paid $200,000 to the Company for an
exclusive "no shop" agreement pursuant to which the Company agreed, subject to
certain conditions, to refrain from seeking transactions with third parties
during the period from May 26, 1995 through June 26, 1995. The termination of
the Company's no shop obligation was subsequently extended until June 30, 1995.
The $200,000 was deposited into an escrow account by Heartland and released to
the Company on June 23, 1995 pursuant to the letter of intent. In addition,
Heartland loaned to the Company $1,800,000 on May 26, 1995, (the "AWS Loan").
The AWS Loan is secured by the Company's interest in all of its assets related
to the Dallas, Texas market pursuant to the asset security agreement between the
Company and Heartland. The AWS Loan bears interest at the lesser of the maximum
rate of interest allowed by applicable law or two percent over the prime rate
with interest payable every three months beginning October 1, 1995. The AWS Loan
is due on or before January 31, 1997. The Merger Agreement provides that
specified amounts ("Exclusivity Fees") are to be periodically offset against the
AWS Loan as additional consideration for the non-solicitation covenant in the
Merger Agreement. If the Company terminates or fails to consummate the Merger
Agreement as a result of certain specified events, payment of the AWS Loan may
be accelerated and previously offset Exclusivity Fees may be added back to the
AWS Loan. If Heartland terminates or fails to consummate the Merger Agreement
after all conditions to its obligations have been satisfied or waived, then the
balance of the AWS Loan may be forfeited as liquidated damages.
The Company will require additional financing in the first quarter of 1996
to fund its operating expenses. The Company, however, anticipates that the
Merger Agreement will be consummated prior to the close of the first quarter of
1996, thereby eliminating the Company's responsibility to fund future operating
and development expenses. Under the terms of the Merger Agreement, the Company's
stockholders will receive approximately $34,000,000 in Heartland Common Stock,
subject to adjustments in certain events. If the Merger Agreement is not
consummated, the Company will pursue other financing options including the sale
of some or all of its assets or a merger with a third party.
In May 1995, AWS-Minneapolis borrowed $550,000 from Tsunami. The loan was
due December 31, 1995, and bore interest at a per annum rate of 12%. On October
5, 1995, the Company's joint venture partner signed a contract to sell its 75%
interest in AWS-Minneapolis to Heartland. As part of this agreement, Heartland
agreed to lend AWS-Minneapolis up to $1,575,000, of which $575,000 was used to
repay the Tsunami loan.
AWS-Fort Worth does not have sufficient funds to continue development of the
system. The Company's joint venture partner also does not have funds to
contribute to AWS-Fort Worth and has expressed its belief that Wireless
California is obligated to provide additional funds to develop the system until
it generates positive cash flow. The Company does not believe it has such an
obligation; however, it is negotiating the terms of additional funding to
continue development of the system in conjunction with definitive joint venture
and management agreements. In order to protect the Company's interest in the
assets of AWS-Fort Worth, the Company had advanced approximately $368,000 as of
September 30, 1995 to AWS-Fort Worth. The funds were used to fund negative cash
flow of the system and maintain the current subscriber base.
Other than acquiring the rights to wireless cable licenses for proposed
systems in Dallas, Los Angeles and Memphis, the Company has not commenced
significant development. The Company does not anticipate using a significant
amount of additional funds to further develop these markets.
Given the Company's inability to acquire sufficient financing to launch and
add a significant number of subscribers to its wireless cable systems, the
Company does not believe that any of its systems will generate sufficient cash
flow to meet operating expenses in the near future. If additional financing is
not obtained to continue development of its systems or if the Merger Agreement
or alternative financing is not consummated or obtained as outlined above, the
Company's assets and current operating activities could be materially and
adversely affected.
PART II
Item 1. Legal Proceedings
-----------------
The information required by Part II, Item 1 is incorporated by reference
from Note 7 to the Financial Statements included in Part I, Item 1 of this Form
10-QSB.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit No.
10.30 Purchase and Sale Agreement between the Registrant and TruVision
Cable, Inc.
27.1 Financial Data Schedule for the interim period ended September 30,
1995.
(b) Reports on Form 8-K
On September 25, 1995, the Registrant filed a report on Form 8-K to
disclose the Agreement and Plan of Merger dated September 11, 1995
between the Registrant, Heartland Mergersub, Inc. and Heartland
Wireless Communications, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN WIRELESS SYSTEMS, INC.
(Registrant)
DATED: November 13, 1995 By: /s/ Steven G. Johnson
---------------------
Steven G. Johnson
President and Chief Executive Officer
DATED: November 13, 1995 By: /s/ Daniel A. Cartwright
------------------------
Daniel A. Cartwright
Chief Financial Officer
Exhibit 10.30
MEMPHIS PURCHASE AND SALE AGREEMENT
-----------------------------------
THIS MEMPHIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered
into this 7th day of November, 1995, by and between AMERICAN WIRELESS SYSTEMS,
INC., a Delaware corporation with offices at 7436 E. Stetson Drive, Suite 220,
Scottsdale, AZ 85251 (hereinafter referred to as "Seller") and TRUVISION CABLE,
INC., a Delaware corporation with offices at 181 Kroger Drive, Suite H,
Richland, MS 39218 (hereinafter referred to as "Buyer").
RECITALS:
--------
WHEREAS, Seller is the owner of certain wireless cable television assets as
herein defined which are intended to enable Seller to provide and/or which are
related to the ownership, development and operation of a wireless television
subscription service in the metropolitan area of Memphis, Tennessee (the
"Memphis Area");
WHEREAS, pursuant to the provisions of this Agreement, Seller desires to
sell and Buyer desires to purchase the assets of Seller described herein, secure
assignment of certain leases and agreements and enter into other agreements with
Seller in connection therewith concurrently with the consummation of the
transactions contemplated by the Flippen Agreement (as defined below);
WHEREAS, the Board of Directors of Buyer have adopted resolutions approving
this Agreement;
WHEREAS, Seller, Heartland Wireless Communications, Inc., a Delaware
corporation ("Heartland"), and a wholly-owned subsidiary of Heartland have
entered into an Agreement and Plan of Merger ("Merger Agreement") dated as of
September 11, 1995, providing for the acquisition by Heartland of Seller;
WHEREAS, the Merger Agreement provides that Seller has the right to sell the
assets of Seller described herein with Heartland's consent and Heartland has
consented to this Agreement; and
WHEREAS, concurrently with the execution and delivery of this Agreement by
Seller and Buyer and in order to induce Buyer to enter into this Agreement,
Heartland and Buyer have entered into a certain Flippen Purchase and Sale
Agreement (the "Flippen Agreement") relating to the sale by Heartland to Buyer
of all of Heartland's assets and rights with respect to that certain business
described in the Flippen Agreement (the "Flippen Business"); and
NOW, THEREFORE, in consideration of the mutual obligations, representations,
warranties and covenants contained herein, the parties agree as follows:
AGREEMENT:
---------
Section 1A. CERTAIN DEFINITIONS.
For Purposes of this Agreement:
"Affiliate" means, with respect to a Person, a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with that Person. For purposes of this definition,
"Control," as used with respect to any person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such person, whether through the ownership of voting
securities, by agreement or otherwise; provided, however, that beneficial
ownership of 10% or more of the voting securities of a person shall be deemed to
be control.
"Assets" means (i) the assets, properties and rights of Seller relating to
the Business as set forth in Schedules 1.3(a), 1.3(b), and 1.3(c) and (ii) the
Documents.
"Assigned Contracts" means the Real Property Interests listed on Schedule
1.3(a) and the Capacity Lease Agreements listed on Schedule 1.3(b).
"Authorizations" means FCC Authorizations, State Licenses, and all other
authorizations, permits or licenses issued by any public, governmental or
regulatory body, authority, agency or unit relating to the Business or the
Assets or relating to the Non-compete BTA (as defined in Section 28.2).
"Business" means all of the business and operations of the Seller related to
the ownership, development and/or operation of wireless cable or other
commercial wireless program transmission and distribution and communication
business in the Memphis Area, whether already developed and operating or as may
be or may be capable of being developed and operated, and all incidental
business and commercial activities. Without limiting the foregoing, the Business
includes the System.
"Capacity Lease Agreements" means those certain agreements pursuant to which
transmission capacity under an Authorization has been leased to the Seller and,
in connection with this Agreement, will be assigned to the Buyer or pursuant to
which the Buyer will, upon the Closing of the Sale obtain channel capacity.
"Capacity Lease Party" means each party, other than the Seller to each of
the Capacity Lease Agreements.
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Documents" means the documents listed or described in Sections 5
and 6.
"Code" means the Internal Revenue Code of 1986, as may be amended from time
to time.
"Communications Act" means the Communications Act of 1934, as amended, 47
United States Code, ss. 1 et seq.
"Consents" means any and all consents, approvals, authorizations and waivers
of any public, governmental or regulatory body, authority, agency or unit and
any and all consents, approvals, authorizations and waivers from parties to any
of the Contracts or any other Person that are (i) required for the lawful
consummation of the Sale and/or any other transactions contemplated by this
Agreement, or (ii) necessary or desirable for the Business to be conducted or
the Assets to be used or available for use in the conduct of the Business after
the Closing Date substantially in the same manner as before the Closing Date.
"Contracts" means all of the oral or written, express or implied,
agreements, contracts, leases, licenses, notes, loans, evidence of indebtedness,
indentures, letters of credit, franchise agreements, undertakings, covenants not
to compete, employment agreements, consulting agreements, permits, participation
agreements, instruments, obligations, commitments, policies, purchase and sales
orders, quotations and other executed or executory commitments relating to or
connected with the Business or the Assets, in any case, to which Seller is, and
as a result of the sale of Assets, Buyer will be, a party or by which Seller is,
and as a result of the sale of Assets, Buyer will be, bound and which inure to
the benefit of Seller and, as a result of sale of Assets, will inure to Buyer,
and to which any of the Assets is subject or which Buyer shall assume pursuant
to the sale of Assets.
"Documents" mean, with respect to the Business or the Assets, all
applications, engineering or market or other studies, reports and analysis or
memoranda, or records and other documents or data relating to the Business which
are in the possession or under the control of Seller, whether or not any such
Document is reproduced or maintained on paper or stored or retained in or on
audio or video tapes or computer hardware disks or by other electronic, magnetic
or other means or methods.
"Encumbrance" means, with respect to the Business or the Assets, any claim,
lien, mortgage, pledge, option, charge, easement, security interest,
right-of-way, encumbrance, restriction, condition or other right of any third
party, including the Seller or any Affiliate of the Seller.
"Environmental Laws" means any and all federal, state or local statutes,
rules, laws, regulations, ordinances, codes, orders, licenses, franchises,
permits, authorizations and concessions relating to health, safety or the
environment, including without limitation the Handling of Substances, the
presence of Substances at an Operating Site or any antipollution requirements.
"Equipment" means all of the furniture, fixtures, furnishings, machinery,
computer hardware, antennas, transmitters, amplifiers, all other electronic and
"head end" equipment and other tangible personal property used or available for
use in the Business or located at any of the Facilities and related to the
Business.
"Facilities" means, with respect to the Business or the Assets, all of the
plants, offices, broadcast towers, antenna towers, head-ends, studios, control
centers and all other real property interests and related facilities which are
owned (if any) or leased by or the use of which are leased by the Seller and,
from and after the Sale, the Buyer.
"FCC" means the Federal Communications Commission.
"FCC Authorizations" means, with respect to the Business or the Assets,
authorizations, permits, licenses and other instruments authorizing construction
or operation of communications facilities issued by the FCC.
"Final Order" means a preliminary order which is not reversed, stayed,
enjoined, set aside, annulled, or suspended, and with respect to which no timely
request for stay, motion or petition for reconsideration or rehearing,
application or request for review, or notice of appeal or other judicial
petition for review is pending, and as to which the time for filing any such
request, motion, petition, application, appeal, or notice, and for the entry of
an order staying, reconsidering, or reviewing on the FCC's or other regulatory
authorities' own motion, has expired. A preliminary order which is not reversed,
stayed, enjoined, set aside, annulled, or suspended, and with respect to which
no timely request for stay, motion or petition for reconsideration or rehearing,
application or request for review, or notice of appeal or other judicial
petition for review is pending, and as to which the time for filing any such
requests, motion, petition, application, appeal, or notice, and for the entry of
an order staying, reconsidering or reviewing on the FCC's or other regulatory
authorities' own motion has expired, but which is subject to conditions is not
(and will not be deemed) a Final Order unless and until the Buyer has notified
the Seller in writing of me Buyer's willingness to accept such conditions.
"Handling" means the production, use, generation, storage, treatment,
recycling, disposal, discharge, release or other handling or disposition of any
kind at any time on or prior to the Closing.
"Insurance" means all policies or binders of fire, liability, title,
worker's compensation, product liability and other forms of insurance maintained
by Seller relating to the Business and the Assets.
"Intellectual Property" means all patents, trademarks, service marks, trade
names, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, merchandising
techniques, operating procedures, know-how, data and other intellectual property
rights of the Seller or any Affiliate of the Seller which are used in connection
with the Business.
"Knowledge" means, as to a corporation, the knowledge of the officers or
directors of such corporation after reasonable inquiry, and, as to an
individual, the knowledge of such individual after reasonable inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
the Assets or any liabilities relating to the Business or the Assets.
"Operating Site" means any real property or facility owned, leased or used
at any time by Seller or any Affiliate of Seller in connection with the
Business.
"Person" means any person or entity, whether an individual, trustee,
corporation, general partnership, limited partnership, trust, unincorporated
organization, business association, firm, joint venture, governmental agency or
authority.
"Representative" means any officer, director, partner, stockholder,
principal, attorney, agent, employee or other representative of any Person.
"Sale" shall have the meaning provided in Section 2.2.
"Schedule" means a disclosure schedule executed and delivered by the Seller
to the Buyer which contains a Schedule to or required by this Agreement setting
forth exceptions to the representations and warranties contained in Section 7
and certain other information required by other provisions of this Agreement.
Each Schedule will be deemed to be part of this Agreement and is incorporated by
reference herein.
"Service" means the wireless program transmission and communication service
provided or contemplated to be provided by the Seller prior to the consummation
of the Sale and, from and after the consummation of the Sale, by the Buyer in
the ordinary course of business.
"State Licenses" means licenses, permits and other authorizations issued by
the State of Tennessee or any other state in connection with or relating to the
Business or the Assets.
"Substance" means any toxic, hazardous, or other regulated wastes,
substances, products, pollutants or materials of any kind (including without
limitation, petroleum and petroleum products, asbestos, and radon).
"System" means the wireless program transmission and communication system
owned, developed, operated and controlled by the Seller in the Memphis,
Tennessee, metropolitan area and, from and after the consummation of the Sale by
the Buyer.
"Taxes" means all taxes of any type or nature, including without limitation,
penalties and interest from time to time imposed by the laws of any jurisdiction
or by any federal, state or local government or governmental unit in connection
with the Assets or the operation of the Business.
Section 1. ASSETS TO BE CONVEYED AND LIABILITIES ASSUMED
1.1 Assets to be Conveyed. Subject to the provisions of this Agreement and
on the basis of the covenants, agreements, representations and warranties set
forth herein, and except as otherwise specifically provided by this Agreement,
(i) Seller agrees to sell and Buyer agrees to buy the Assets free and clear of
all Encumbrances, and (ii) Seller, as lessor, agrees to lease to Buyer and the
Buyer, as lessee, agrees to lease from the Seller the Memphis E Group License
described in Section 4.
1.2 Assumed Liabilities. Except such obligations and liabilities which
accrue under the Assigned Contracts on or after the Closing Date and are assumed
by the Buyer pursuant to the Closing Documents (collectively "Assumed
Liabilities"), Buyer does not intend to, and shall not, assume any monetary or
other obligation or liability of Seller of any character whatsoever.
1.3 Assets Identified. The Seller represents and warrants to the Buyer that
all of the Assets used or available for use in the conduct of the Business
(excluding the Documents) are described in this Section 1.3 and the Schedules
referred to herein as follows:
(a) Schedule 1.3 (a) separately lists and describes in detail each real
property interest (collectively "Real Property Interests") owned by the Seller
or leased by the Seller which is used or available for use in the Business.
(b) Schedule 1.3 (b) separately describes in detail each Capacity Lease
Agreement.
(c) Schedule 1.3(c) separately lists and describes in detail each item
of Equipment, except small hand tools and similar equipment which are generally
described by category and number.
1.4 Information Schedules. The Seller represents and warrants to the Buyer
that the information contained in the following Schedules relating to the Assets
and the Business is complete and accurate:
(a) Schedule 1.4 (a) contains a list of all employees of the Seller or
any Affiliate of the Seller (collectively "Personnel") who, at the option of the
Buyer as provided by this Agreement, may or shall become employees of the Buyer
after the Closing, including (i) name and address, (ii) social security number,
(iii) length of service, (iv) job title or description, (v) rate of
compensation, (vi) date of last change in compensation rate, (vii) payroll
period, (viii) annual paid holidays, (ix) accrued bonuses, (x) annual vacation
and sick leave and accrued annual vacation and sick leave, and (xi) the name of
the Seller or Seller's Affiliate who is the employer.
(b) Schedule 1.4 (b) contains a list and description of current, pending
or threatened litigation or other judicial or administrative proceeding to which
the Seller is or may become a party or which may affect or involve the Assets or
the Business.
(c) Schedule 1.4 (c) contains a list and a detailed description of all
formal or informal pension, profit sharing, retirement, bonus, hospitalization,
health, disability, insurance or other plans or practices (collectively "Benefit
Plans") in effect for or which benefit the Personnel described in Schedule
whether or not any such Benefit Plan is subject to the provision of the
Employees Retirement Income Security Act of 1974, as amended ("ERISA").
(d) Schedule 1.4 (d) contains a list and detailed description of all
written and oral, and true and complete copies of all written, contracts,
agreements, understandings or arrangements between the Seller and any labor
organization related to or affecting the Business or any Personnel described in
Schedule .
(e) Schedule 1.4 (e) contains a list and detailed description of all
notes, instruments of debt, deeds of trust or mortgages, liens or encumbrances,
and conditional sale or lease purchase agreements, security agreements, open
accounts or other purchase arrangements, and any other documents with or of any
other creditors of Seller (collectively "Debt Documents") not fully satisfied as
of the date of this Agreement, if any of the Assets secure the performance of
any obligation or the payment of any debt of the Seller or any other Person.
Schedule shall identify or describe (i) the Person to whom the obligation or
debt is payable or due, (ii) any collateral securing payment of each debt or
performance of each obligation or debt, (iii) the amount and date due or payment
schedule of each obligation or debt, and (iv) the nature of each such obligation
or debt. Buyer shall not assume or have any liability with respect to any Debt
Documents or any liabilities or obligations pursuant thereto. All such
liabilities and obligations shall be repaid by Seller at or prior to the
Closing.
(f) Schedule 1.4 (f) contains a list and detailed description of all
applicable invoices for bills or other price, expense or cost determination
documents of all Persons who have performed or supplied or who are obligated to
perform or supply materials, labor or other personal services to, for or related
to the Seller and the Assets or the Business, if such Person has not been fully
paid or if any dispute exists with respect to any amount due or payable to, or
to the past or future performance or supply of materials, labor or other
personal services by or with, any such person or entity. Schedule 1.4(f) shall
include (i) the names of each such Person, (ii) the amount payable to or in
dispute or a description of any other dispute with such Person, and (iii) the
date such amount became due or payable to or the date the dispute arose with
such Person. Buyer shall not assume or have any liability with respect to any
invoice, bill or other price, expense or cost determination documents or any
liabilities or obligations pursuant thereto. All such liabilities and
obligations shall be repaid by Seller at or prior to the Closing.
(g) Schedule 1.4(g) lists and describes in detail all information
concerning pollution or other environmental problems and/or any violations or
potential violations of any federal, state or local law or regulation protecting
the environment (collectively "Environmental Laws") at any Real Property
Interest location or site for which the Seller may have any liability or claim
for liability under any such Environmental Laws. Schedule 1.4 (g) lists and
describes problems, violations or potential violations of Environmental Laws
which are known to or have been reported to, and any action taken or required
by, the Tennessee Bureau of Conservation or any of its divisions.
(h) Schedule 1.4(h) contains a list and detailed description of each
Contract, including a statement whether the Contract is written or oral except
for Capacity Lease Agreements disclosed in Schedule 1.3(b) and Real Property
Interests disclosed in Section 1.3(a).
(i) Schedule 1.4(i) contains a list and detailed description of each FCC
Authorization.
(j) Schedule 1.4(j) contains a list and detailed description of all
pending applications relating to the FCC Authorizations.
Section 2. ESCROW FUNDS, PURCHASE PRICE AND CLOSING
2.1 Escrow Funds. The Buyer has deposited $100,000.00 with Heidelberg &
Woodliff, P.A., as escrow agent ("the Escrow Agent"), pursuant to a certain
Escrow Agreement, dated as of March 31, 1995, as amended on the date hereof,
among the Buyer, the Seller and the Escrow Agent (the "Escrow Agreement").
Pursuant to the Escrow Agreement, on April 5, 1995, the Escrow Agent disbursed
$10,000.00 of the Escrow Funds to the Seller, which amount has been forfeited by
Buyer. The remainder of the Escrow Funds ($90,000.00) ( the "Funds"), shall be
held, invested and disbursed or distributed in accordance with the provisions of
the Escrow Agreement.
2.2 Purchase Price. Subject to adjustment pursuant to Section 2.3, Seller
agrees to sell, and the Buyer agrees to purchase, the Assets for a total
consideration equal to the assumption of the Assumed Liabilities and
$3,900,000.00 in cash, including $100,000.00 as consideration for the Covenant
not to Compete set forth in Section 28.2 (the "Purchase Price"), upon the terms
and conditions of, and in the transaction described in, this Agreement (the
"Sale"). The Purchase Price shall be payable by the Buyer at and upon the
consummation of the Sale (the "Closing") in the manner provided by Section 3.
2.3 Purchase Price Adjustment. In the event that one or more of the
conditions set forth in Section 10.1 (j) shall not be satisfied as of the
Closing Date, Buyer shall have the right, in its sole discretion, to exercise
any rights or remedies available to it hereunder or otherwise or, alternatively,
to proceed with the Closing and deduct from the Purchase Price $250,000.00 for
each channel (a) that is authorized under an FCC Authorization that is not on
the Closing Date in unconditional full force and effect, valid for the balance
of its current term and unimpaired by any acts or omissions of Seller, the
Capacity Lease Parties or any other Person; or (b) that underlies a Capacity
Lease Agreement that is not on the Closing Date in unconditional full force and
effect, valid for the balance of its current term and unimpaired by any acts or
omissions of Seller, the Capacity Lease Parties or any other Person; provided,
however, that Buyer may not reduce the Purchase Price by more than Five Hundred
Thousand Dollars ($500,000.00) in the aggregate pursuant to this Section 2.3.
2.4 Closing. The Closing shall be held at the offices of 7426 E. Stetson
Drive, Suite 220, Scottsdale, AZ 85251 ten (10) business days after satisfaction
of all conditions described in Section , at such date and time as the Buyer
shall specify by written notice to the Seller (the "Closing Date") and
concurrently with the closing under the Flippen Agreement. The Closing Date
shall not be later than January 31, 1996: provided however, that Buyer may
extend the Closing for a reasonable period of time to a date no later than March
31, 1996 without the consent of Seller if Seller has not satisfied the
conditions to Closing set forth in Section 10.1(a), (c), (d), (e), (f), (g),
(h), (i) or (j) of this Agreement. (If Seller has met all of its conditions to
Closing, but Heartland has not performed all of its obligations to close the
Flippen Agreement, then Buyer may not extend the Closing beyond January 31,
1995.) If the Closing does not occur by January 31, 1996 or such date as further
extended pursuant to this Section 2.4, Buyer may terminate this Agreement. Any
such termination shall have no effect upon the rights or obligations of any
party hereto arising out of any breach of this Agreement.
Section 3. PURCHASE PRICE PAYMENT
3.1 Upon Closing. On the Closing Date, Buyer shall take following action:
(a) Cash. Buyer shall pay to Seller the sum of Three Million Nine
Hundred Thousand Dollars ($3,900,000.00) by cashier's check or wire transfer of
funds, including Ninety Thousand Dollars ($90,000.00) of the Funds described in
Section 2.1, subject to any Purchase Price Adjustment made pursuant to Section
2.3.
Section 4. ADDITIONAL AGREEMENTS
4.1 Lease/Purchase Option for Memphis E-Group License. Seller is the holder
of an FCC license to operate an MMDS station for the E-Group channels in the
Memphis Area under Call Sign WMI-883 (the "Memphis E-Group License"), a copy of
which is disclosed in Schedule 4.1. At Closing, Buyer shall enter into a Lease
Agreement With Purchase Option for the Memphis E-Group License with Seller for
the lease of the Memphis E-Group License with an option to purchase in the form
attached hereto as Exhibit 4.1.
4.2 Settlement Agreement and Release. Buyer has filed a lawsuit against
Seller and Heartland in the circuit court of Rankin County, Mississippi (Civ.
Action No. 95-112) relating to the Assets (the "Lawsuit"). By entering into this
Agreement and consummating the transactions contemplated hereby and by the
Flippen Agreement at the Closing, the parties seek to settle all claims raised
in the Lawsuit. Prior to the Closing, and so long as neither this Agreement nor
the Flippen Agreement has been terminated, Buyer and Seller agree that the
Lawsuit shall be stayed. Buyer agrees to dismiss the Lawsuit with prejudice
within five (5) days after the Closing. At Closing, Buyer, Seller and Heartland
shall enter into a Settlement Agreement and Release in a form to be agreed upon
by the parties thereto and consistent with the terms hereof and of the Flippen
Agreement. The Settlement Agreement and Release shall release Seller, Buyer and
Heartland from any and all liabilities, claims, causes of actions and rights by
or of any other party to this Agreement or of Heartland in any way related to
the Assets that arose prior to the execution of this Agreement. Neither such
release and the dismissal of the Lawsuit pursuant to this Section 4.2 nor any
other provision of this Section 4.2 shall affect Seller's or Buyer's
representations, warranties, covenants and agreements contained in this
Agreement. In the event that this Agreement or the Flippen Agreement is
terminated or the Closing does not occur on the Closing Date, this Section 4.2
shall be of no further force and effect, Buyer shall have the right to prosecute
the Lawsuit or another similar lawsuit and to otherwise pursue any and all
rights and remedies with respect to the Lawsuit or the claims and matters
underlying the Lawsuit, and Seller and Heartland shall be entitled to raise all
defenses and counterclaims associated therewith.
4.3 Applications For FCC Consent To Assignment. Seller and the Buyer will
join in an application to be filed on the appropriate FCC forms as soon as
practicable (but in no event more than ten (10) business days from the first
date that this Agreement has been executed by Seller and Buyer) with the FCC
requesting its written consent to the assignment of the Memphis E-Group License
to Buyer (the "Assignment Application"). Buyer shall pay any FCC filing fee
associated with the Assignment Application. Seller and Buyer will cooperate in
providing all information and taking all steps necessary, desirable and proper
to expedite the preparation and filing of such application and its prosecution
to a favorable conclusion. In the event any person petitions the FCC to deny the
Assignment Application or otherwise challenges the grant of the Assignment
Application before the FCC, or in the event the FCC enters an order consenting
to and approving the assignment of the Memphis E-Group License and any person
appeals or otherwise attacks such order and assignment before the FCC, or in any
judicial proceeding, then Seller and Buyer agree to oppose such petition or
challenge before the FCC or defend such action and the order of the FCC
diligently and in absolute good faith, each at its own cost and expense, to the
end that the transactions contemplated by this Agreement may be finally
consummated.
Section 5. SELLER'S CLOSING DELIVERIES
5.1 At the Closing, Seller shall deliver to Buyer (i) full and complete
possession of the Assets, (ii) such documents of sale, transfer, assignment and
conveyance as may be required or requested by the Buyer to ensure that Buyer
owns and is vested with the entire legal and beneficial interest in the Assets
which are not leased by the Buyer pursuant to this Agreement and in the
Business, free and clear of all Encumbrances and subject to no legal or
equitable conditions or restrictions of any kind, except as specifically
permitted by this Agreement, and (iii) such documents as may be required or
requested by the Buyer to ensure that the Seller has complied with all of the
Seller's obligations under this Agreement. The documents required to be properly
executed by the Seller and delivered to the Buyer by the Seller shall be in a
form reasonably acceptable to Buyer and Seller and include, but are not limited
to:
(a) Assignment Documents. Such instruments of sale, conveyance, transfer
--------------------
and assignment pertaining to the Assets as shall be reasonably necessary or
appropriate to convey to Buyer all of the Assets free and clear of any and all
Encumbrances of any nature, including, but not limited to,
(1) assignment and assumptions of Assigned Contracts, including
Capacity Lease Agreements,
(2) warranty bill of sale and assignment with respect to Equipment
and other tangible personal property,
(3) assignments and assumptions of various Real Property Interest
leases,
(4) such documents, if any, as may be required by the holders of
each Debt Document to release the lien of any and all Encumbrances against the
Assets or the Business.
(b) Memphis E-Group License Agreement. A Lease Agreement With Purchase
----------------------------------
Option for the Memphis E-Group License as required by Section 4.1 hereof
attached as Exhibit 4.1.
(c) Seller's Representations and Warranties Certificate. A certificate,
---------------------------------------------------
dated as of the Closing Date, by Seller to the effect that the representations
and warranties of Seller contained in this Agreement are true and correct, and
that Seller has complied with or performed all terms, covenants and conditions
to be complied with or performed by Seller on or prior to the Closing Date.
(d) Seller's Sale Approval Certificate. A certificate, dated as of the
----------------------------------
Closing Date, by Seller approving the execution and delivery of this Agreement
and consummation of the transactions contemplated thereby.
(e) Consents. Originally executed Consents, including, in the case of
--------
Consents from all parties to Assigned Contracts, estoppel provisions in each
case substantially in the form attached hereto as Exhibit 5.1(e) (the "Estoppel
Letters").
(f) Business Documents. Originals of all Documents, Contracts, including
------------------
Capacity Lease Agreements, FCC Authorizations and Authorizations, and other
intangible Assets.
(g) Opinion of Corporate Counsel. An opinion from counsel to Seller,
------------------------------
dated as of the Closing Date and addressed to Buyer, in form and substance
satisfactory to Buyer.
(h) Opinion of FCC Counsel. An opinion from Federal Communications
-----------------------
Commission counsel to Seller, Pepper & Corazzini, dated as of the Closing Date
and addressed to Buyer, in form and substance satisfactory to Buyer.
(i) Settlement Agreement and Release. A Settlement Agreement and Release
--------------------------------
as required by Section 4.2 hereof.
(j) Other Documents. All other documents reasonably requested by Buyer
---------------
or counsel for Buyer.
Section 6. BUYER'S CLOSING DELIVERIES
6.1 At the Closing, Buyer shall deliver to Seller the following (documents
shall be in a form reasonably acceptable to Buyer and Seller):
(a) Cash. At Closing, Buyer shall pay the cash portion of the Purchase
----
Price as required by Section , less the $90,000.00 to be paid by the Escrow
Agent.
(b) Assumption Documents. Execution of an assumption of all obligations
--------------------
which accrue after the Closing of the Seller under Assigned Contracts assigned
by the Seller to Buyer pursuant to Section 5.1(a)(1).
(c) Memphis E-Group License Agreement. A Lease Agreement with Purchase
----------------------------------
Option for the Memphis E-Group License as required by Section 4.1 hereof
attached as Exhibit 4.1.
(d) Buyer's Representations and Warranties Certificate. A certificate,
---------------------------------------------------
dated as of the Closing Date, by Buyer to the effect that the representations
and warranties of Buyer contained in this Agreement are true and correct and
that Buyer has complied with or performed all terms, covenants and conditions to
be complied with or performed by Buyer on or prior to the Closing Date.
(e) Purchase Approval Certificate. A certificate, dated as of the
-------------------------------
Closing Date, by Buyer approving the execution and delivery of this Agreement
and consummation of the transactions contemplated hereby.
(f) Opinion of Counsel to Buyer. An opinion from counsel to Buyer, dated
---------------------------
the Closing Date and addressed to Seller, satisfactory in form and substance to
Seller and its counsel.
(g) Settlement Agreement and Release. A Settlement Agreement and Release
--------------------------------
as required by Section 4.2 hereof.
Section 7. SELLER'S REPRESENTATIONS AND WARRANTIES
7.1 For the purpose of inducing Buyer to enter into this Agreement and
consummate the transactions contemplated hereby and except as otherwise set
forth in Seller's Disclosure Schedule attached and incorporated herein as
Schedule 7.1, Seller represents and warrants to Buyer as follows:
(a) Organization and Standing of Seller. Seller is a corporation duly
------------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. As of the Closing Date, Seller will be qualified as a foreign
corporation in all jurisdictions in which such qualification is necessary under
applicable law as a result of the conduct of the Business or the ownership of
the Assets or in which such qualification is necessary under applicable law as a
result of the conduct of its business or the ownership of its properties and
where the failure to be so qualified would have a Material Adverse Effect.
(b) Seller's Authority. Seller has the corporate power and authority to
------------------
own its properties and to conduct its business. This Agreement and the
transactions contemplated hereby, including the execution and delivery of and
the performance of all obligations of Seller under this Agreement and the
Closing Documents, have been duly authorized by all necessary corporate action
of Seller, and its officers, directors and stockholders. This Agreement
constitutes and, upon the execution and delivery by the respective parties at
the Closing, the Closing Documents will constitute the legal, valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms.
(c) Title to Properties. The Assets constitute all of Seller's assets,
-------------------
rights and properties of every kind and description, tangible or intangible,
real or personal, which are used or available for use in connection with the
Business as the Business is now conducted or operated. Seller holds good, valid,
marketable, legal and beneficial title to the Assets free and clear of all
Encumbrances, except for any Encumbrances that will be released pursuant to any
Consents which will be provided at Closing. The Seller has in all material
respects performed all obligations required to be performed by the Seller with
respect to all of the Assets except where the failure to perform would not have
a Material Adverse Effect. The conveyance, transfer and delivery of the Assets
pursuant to the terms hereof will vest in Buyer all of Seller's title thereto,
free and clear of all Encumbrances of any nature whatsoever. At Closing, the
assignment of the Contracts and Equipment pursuant to this Agreement and the
execution and delivery of the Lease Agreement With Purchase Option for the
Memphis E-Group License pursuant to Section 4 of this Agreement will effectively
convey to Buyer all of Seller's right, title and interest therein. There exists
no default (including, without limitation, any event that with the giving of
notice or passage of time or both would cause a default), termination or
threatened termination under, or amendment to, any Contract.
(d) Asset Condition. All Real Property Interests and tangible personal
---------------
property, including Equipment and Facilities, (i) are in normal operating
condition and repair, (ii) are free from defects, and (iii) conform or comply in
all respects with all applicable ordinances, laws, rules, regulations, and
applicable requirements of federal, state and/or local regulatory or government
authorities. The Equipment is in normal operating condition and repair
(reasonable wear and tear excepted), operates at the performance parameters
specified in applicable FCC authorizations and is suitable for the purpose for
which it is intended to be used.
(e) Consents. Seller will use its best efforts to obtain by the Closing
--------
Date all Consents necessary for Seller to convey the Assets to Buyer, which
Consents are listed and described in Schedule 7.1(e). No other consents, orders,
approvals, permits or authorizations or notification of, or registration,
declaration or filing with, any governmental or judicial authority or other
Person is required in connection with the valid execution, delivery or
performance of this Agreement and the Closing Documents or the consummation of
the Sale. All of the Contracts are currently, or as of the Closing Date will be,
in full force and effect, and not in default.
(f) Claims and Litigation. There is no claim, action, lawsuit,
-----------------------
proceeding, arbitration, investigation or inquiry pending before any court or
governmental or administrative body or agency nor, to the Knowledge of Seller,
is any claim, action, lawsuit, proceeding, arbitration, investigation or inquiry
threatened against Seller, its shareholders, officers, employees or agents
involving, affecting or relating to any of the Assets or the transactions
contemplated by this Agreement. There are no judgments of any court which in any
way may currently constitute a lien or at some future time be perfected into a
lien upon or against any portion of the Assets, and, there is no litigation or
proceeding pending or threatened against, relating to or affecting any portion
of the Business or the Assets.
(g) Taxes and Fees. Seller has timely filed all federal, state and local
--------------
tax returns required to be filed by Seller. Seller has paid and shall pay all
Taxes due and payable for all periods ending prior to the Closing Date. Buyer
shall pay and will pay any and all taxes due and payable for all periods
beginning with the Closing Date.
(h) No Violation. The execution, delivery and performance of this
-------------
Agreement, the Closing Documents and the consummation of the transactions
contemplated hereby:
(1) will not violate, conflict with or cause a breach or default
under, or an event that with or without passage of time or the giving of notice
or both would become a default under, any of the terms and provisions of (i) any
Contract, Capacity Lease Agreement, Encumbrance, Consent, Authorization or other
document to which Seller is a party, by which Seller is bound or by which the
Assets may be affected, except where such violations, conflicts, breaches or
defaults are waived pursuant to Consents to be obtained prior to Closing, (ii)
the Certificate of Incorporation or By-laws of Seller or (iii) any judgment,
decree, order or award of any court, governmental body or arbitration or any
applicable law, ordinance, rule or regulation; or
(2) will not (i) result in the creation or imposition of any
Encumbrance on or against the Business or the Assets, (ii) give to any other
Person any rights, including rights of acceleration, termination or
cancellation, with respect to any Contract, agreement or other instrument
relating to any of the Assets or otherwise have a Material Adverse Effect, or
(iii) constitute an act of bankruptcy, preference, insolvency or fraudulent
conveyance under any bankruptcy act or other law for the protection of debtors
and creditors.
(i) Compliance with Laws. Seller and its Affiliates and the conduct of
---------------------
the Business are in compliance with all applicable federal, state and local
laws, ordinances, rules and regulations, including, but not limited to, the
Communications Act, if any failure to comply therewith would have a Material
Adverse Effect. Seller and its Affiliates or Representatives have not received
any notice (written or otherwise) from any Person to the effect that, or
otherwise been advised that, Seller is not in compliance with any applicable
law, ordinance, regulation, building or zoning law relating to the Assets or the
Business and the Seller has no reason to anticipate that any presently existing
circumstances are likely to result in any violation of any such law, statute,
ordinance or regulation.
(j) FCC. Seller is not and, to the Knowledge of Seller, no Capacity
---
Lease Party is, in violation of the FCC rules and regulations pertaining to the
Business, and the Seller has no reason to anticipate that any presently existing
circumstances are likely to result in any violation of any FCC Rules and
Regulations. As a result of the Sale, neither the Seller nor the Buyer will be
in violation of the FCC rules and regulations pertaining to the Business.
(k) Applications, Permits and Licenses. To Seller's Knowledge and except
----------------------------------
as disclosed in Seller's Disclosure Schedule, the Authorizations, listed on
Schedule 1.4(i) and issued by the FCC for the twenty-two (22) wireless channels
which are the subjects of Contracts (the "Wireless Channels") are, and on the
Closing Date will be, in unconditional full force and effect, are valid for the
balance of their current terms and are unimpaired by any acts or omissions of
Seller or the Capacity Lease Parties or other licensees or permittees of such
Authorizations. To Seller's Knowledge, there are no existing or threatened
investigations, inquiries or proceedings by or before the FCC which could result
in the revocation, cancellation, suspension, forfeiture or material adverse
modification of any such Authorization or application.
(l) Contracts. The Contracts, including Capacity Lease Agreements, are,
---------
and on the Closing Date will be, in unconditional full force and effect and are
unimpaired by any act or omission of Seller or known to Seller. Seller is not in
breach thereof and, to Seller's Knowledge, no other party to any such Contract
is in breach thereof and no claim of breach or threat of legal action relating
to a claim of breach has been made by any Person.
(m) Finder's Fees. Seller has not taken any action which would impose
--------------
upon Buyer any obligation or liability to any person for finder's fees, agents'
commissions or like payments in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated thereby.
Seller shall indemnify Buyer from and against any and all claims, liabilities or
expenses arising out of any such finder's fees, agents' commissions or like
payments resulting from Seller's action.
(n) Absence of Certain Changes or Events. Since the Effective Date of
-------------------------------------
this Agreement, and except as contemplated hereby, there has not been any:
(1) change in the Seller's condition (financial or otherwise),
assets, liabilities, working capital, reserves, earnings, business or prospects,
except for changes contemplated hereby or changes which have not, individually
or in the aggregate, resulted in a Material Adverse Effect;
(2) employee welfare, pension, retirement, profit-sharing or similar
payment or arrangement made or agreed to by Seller for any Personnel except
pursuant to the existing plans and arrangements described in Schedule 1.4 (c);
(3) addition to or modification of the employee benefit plans,
arrangements or practices described in the Schedule affecting Personnel other
than (i) contributions made for 1995 in accordance with the normal practices of
Seller, or (ii) the extension of coverage to other personnel who became eligible
after the Effective Date of this Agreement;
(4) sale, assignment or transfer of any of the Assets, material
singly or in the aggregate;
(5) cancellation of any indebtedness or waiver of any rights of
substantial value to the Seller, whether or not in the ordinary course of
business, which result in a Material Adverse Effect;
(6) amendment, cancellation or termination of any Contract material
to the Seller, including the cancellation, non-extension or non-renewal of any
Authorization;
(7) failure to repay any material obligation of the Seller except in
the ordinary course of business or where such failure would not have a Material
Adverse Effect;
(8) failure to operate the Business in the ordinary course so as to
use reasonable efforts to preserve the Business intact, to keep available to the
Seller the services of the Personnel, and to preserve for the Seller the
goodwill of the Seller's suppliers, customers and others having business
relations with the Seller except where such failure would not have a Material
Adverse Effect;
(9) damage, destruction or loss (whether or not covered by
insurance) having a Material Adverse Effect;
(10) Encumbrance of any Assets, material singly or in the aggregate,
except purchase money security interests, mortgages and trade accounts payable
arising in the ordinary course of business;
(11) agreement by Seller to do any of the foregoing; or
(12) other event or condition of any character which in any one case
or in the aggregate has had a Material Adverse Effect, or any event or condition
known to Seller (other than matters of general public Knowledge relating to
general economic conditions or Seller's industry as a whole) which it is
reasonable to expect would have, in any one case or in the aggregate, a Material
Adverse Effect in the future.
(o) Facilities. Seller enjoys, and, as a result of the Sale, Buyer will
----------
enjoy, peaceful and undisturbed possession of all Facilities leased by it. Such
Facilities are not subject to any Encumbrances, encroachments, building or use
restrictions, exceptions, reservations or limitations which in any material
respect interfere with or impair the present and continued use thereof in the
usual and normal conduct of the Business. There are no pending or, to Seller's
Knowledge, threatened condemnation proceedings relating to any of the
Facilities. The real property improvements (including leasehold improvements,
head-ends and Equipment owned or used by Seller at the Facilities) on the
Facilities are adequately insured and are structurally sound with no known
material defects and are in conformity in all material respects with all
applicable laws, ordinances, orders, regulations and other requirements
(including applicable zoning, environmental, radio frequency radiations, motor
vehicle safety standards, occupational safety and health laws and regulations)
relating thereto currently in effect except where the failure of such
improvements to conform would not have a Material Adverse Effect. None of the
said improvements is subject to any commitment or other arrangement for their
sale or use by any Person. Seller does not, and, as a result of the Sale Buyer
will not, own any real property.
(p) Equipment. Seller owns and holds, and as a result of the Sale Buyer
---------
will own and hold, good and marketable title to all of the Equipment, except for
Equipment that is specifically identified on Schedule 1.3(c) leased pursuant to
one of the Contracts. The Equipment is in normal operating condition and repair
(except for ordinary wear and tear) and is in conformity in all material
respects with all applicable laws, ordinances, orders, regulations and other
requirements (including applicable zoning, environmental, motor vehicle safety
or standards, occupational safety and health laws and regulations) relating
thereto currently in effect, except where the failure to conform would not have
a Material Adverse Effect. The Equipment is sufficient for the operation of the
Business as it is currently conducted by the Seller. The Equipment used to
provide Service is operating in accordance with the standards of good
engineering practice and is sufficient to permit Buyer to operate in accordance
with the terms of the Authorizations and the Capacity Lease Agreements.
(q) Consents and Approvals. Other than the Consents listed on the
------------------------
Schedule 7.1(q), no Consent or declaration of or filing or registration with any
governmental or regulatory authority or any other Person, is required in
connection with the execution, delivery and performance of this Agreement, the
Closing Documents or the consummation of the Sale.
(r) Authorizations; Capacity Lease Agreements; Qualifications;
--------------------------------------------------------------------
Interference.
- ------------
(1) Authorizations. Schedule 1.4(i) lists all of the Authorizations
which are validly issued in the name of Seller or any Capacity Lease Party that
has leased such Authorization to Seller, as indicated on such Schedule. In
connection with the Sale, each of such Authorizations will be leased by Seller,
and Buyer will acquire the rights to use all capacity available to Seller under
the Capacity Lease Agreements. The Authorizations listed on Schedule 1.4(i) are
all of the Authorizations necessary to conduct the Business, are in full force
and effect, are unimpaired by any acts or omissions of Seller or, to the
Knowledge of Seller, any Capacity Lease Party or any other person, and, to the
Knowledge of the Seller, are valid for use by Seller for the balance of the
current license term, if any, applicable generally to Authorizations of that
type. To the Knowledge of Seller, all ownership reports, employment reports, and
other documents required to be filed by Seller, any Capacity Lease Party or any
Representatives of any of the foregoing with the FCC or with any state
regulatory authority with respect to the System have been filed and, to the
Knowledge of Seller, all such reports and documents are correct in all material
respects. No renewal of any FCC Authorizations would constitute a major
environmental action under the rules of the FCC. The FCC actions granting the
conditional licenses to operate the System are Final Orders of the FCC.
(2) Capacity Lease Agreements. Schedule lists all of the Capacity
Lease Agreements. The Capacity Lease Agreements are valid, legally binding,
enforceable, and in full force and effect and will continue to be valid, legally
binding, enforceable, and in full force and effect up to and through the Closing
Date. Seller is not, and, to the Knowledge of Seller, no Capacity Lease Party
is, in material breach or violation of, or default under, any of the Capacity
Lease Agreements. To the Knowledge of Seller, no event has occurred which with
notice or lapse of time or both could constitute a material breach or violation
of, or default under, any Capacity Lease Agreement or permit termination or
modification thereof. All Capacity Lease Agreements require the consent of any
Capacity Lease Party for the transactions contemplated by this Agreement. Seller
is not aware of any intent by any Capacity Lease Party to terminate or amend the
terms of any Capacity Lease Agreement or to refuse to renew any Capacity Lease
Agreement upon expiration of its term. None of the Capacity Lease Agreements
conflicts with any applicable law, statute, ordinance or regulation, whether
federal, state or local, including, but not limited to, the Communications Act,
and Seller has no reason to anticipate that any presently existing circumstances
are likely to result in any violation of any such law, statute, ordinance or
regulation which would, in any one case or in the aggregate, have a Material
Adverse Effect.
(3) Qualifications. Neither Seller nor, to the Knowledge of Seller,
any Capacity Lease Party has engaged in any course of conduct which, with notice
or lapse of time or both, would impair Buyer's or any Capacity Lease Party's
ability to remain the holder of any Authorization or is aware of any reason why
those of the Authorizations or Capacity Lease Agreements subject to expiration
might not be renewed in the ordinary course or of any reason why any of the
Authorizations or Capacity Lease Agreements might be revoked.
(4) Interference. To the Knowledge of Seller, neither Seller nor any
licensed Capacity Lease Party has accepted electrical interference to the
Wireless Channels from any source, has consented to the grant of any
applications filed with the FCC that is likely to result in any electrical
interference to the Wireless Channels or has failed to timely petition to deny
any application that proposes facilities that would theoretically cause
objectional electrical interference to the Wireless Channels.
(5) No Customer. Seller has not entered into any contract, lease or
agreement of any nature under which any person shall have any right to utilize
any facility or secure transmission capacity on any facility authorized under an
FCC Authorization listed on Schedule 1.4(i), other than the Capacity Lease
Agreements.
(6) Tower Matters. The antenna support structures for the facilities
authorized under the FCC Authorizations comply with the rules and regulations of
the Federal Aviation Administration ("FAA") and, if required are marked and
lighted in accordance with FCC and FAA requirements.
(7) Copyright Liability and Retransmission Consent. The Seller has
not engaged in any secondary transmission of any broadcast station signal in
connection with the Business.
(s) Labor Matters. Seller is not, and, as a result of the Sale, Seller
-------------
will not be, a party to any labor agreement with respect to its System employees
with any labor organization, group or association. Seller has not experienced
any attempt by organized labor or its representatives to make Seller conform to
demands of organized labor relating to its System employees or to enter into a
binding agreement with organized labor that would cover the employees of Buyer
from and after the Closing.
(t) Environmental Matters. Except as set forth in Schedule 1.4(g) to
----------------------
this Agreement and except in compliance with applicable law, (a) there is and
has been no handling of any Substances at, or from, any Operating Site; and (b)
to the Knowledge of Seller, there is and has been no presence of Substances at
or on any Operating Site regardless of how the Substance or Substances came to
rest there. To the Knowledge of Seller, no underground tanks, PCBs or
asbestos-containing materials are or have been located on or under any Operating
Site. Seller has no notice of any formal or informal assertion by any
governmental or regulatory agency or other Person that Seller or a predecessor
business or landowner may be a potentially responsible party in connection with
any Substance disposal site relating to the Business, and Seller has no
Knowledge of any pending or threatened claims or any reasonable basis for
damages by any Person against Seller in connection with the Business under any
Environmental Law. Neither Seller nor any Person acting on behalf of Seller has
released any other Person from any claims Seller might have, or have had, for
any matter relating to presence or Handling of Substances relating to the
Business. To the Knowledge of Seller, no Encumbrances have been, or are, imposed
on any of the Assets under any Environmental Laws. Seller has obtained all
permits, licenses, registrations, and other approvals, has made all reports and
notifications required under any Environmental Laws in connection with the
Business, and in compliance in all material respects with all applicable
Environmental Laws. Schedule 1.4(g) to this Agreement also contains a list and
brief description of all filings by Seller, Affiliate or Representative of
Seller with, notices to Seller, Affiliate or Representative of Seller from, and
related reports to, all governmental authorities administering Environmental
Laws, within 5 years prior to the date hereof, including without limitation,
filings made, corrective action taken, or citations received by Seller in
connection with the Business.
(u) Intellectual Property. Seller does not own, lease, license or hold
----------------------
any Intellectual Property.
(v) Insurance. Schedule 7.1(v) contains a complete and accurate list of
---------
all Insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration dates, annual premiums, a general description of the
type of coverage provided, loss experience history by line of coverage). All
Insurance applicable to the Business and the Assets is in full force and effect,
insures Seller in reasonably sufficient amounts against all risks usually
insured against by persons operating similar businesses or properties of similar
size in the localities where such businesses or properties are located, provides
coverage as may be required by applicable regulations and by any and all
Contracts to which Seller is a party and has been issued by insurers of
recognized responsibility. There is no default under any such coverage nor has
there been any failure to give notice or present any claim under any such
coverage in a due and timely fashion. There are no outstanding unpaid premiums
except in the ordinary course of business and no notice of cancellation or
nonrenewal of any such coverage has been received. There are no provisions in
such Insurance for retroactive or retrospective premium adjustments. All
products liability, general liability and workers' compensation insurance
policies maintained by Seller have been occurrence policies and not claims made
policies. There are no outstanding performance bonds covering or issued for the
benefit of the Seller. No insurer has advised Seller that it intends to reduce
coverage, increase premiums or fail to renew existing policy or binder.
(w) Liabilities. Seller has no Liabilities due or to become due relating
-----------
to the Business or the Assets, except for Liabilities arising in the ordinary
course of business under the Contracts and other business arrangements that are
specifically described in this Agreement or in Schedule 1.4(h) (none of which
relates to any breach, violation or default under any Contract, Capacity Lease
or FCC Authorization, breach of warranty, tort, infringement or violation of any
federal, state or local statute, rule or regulation or court order or arose out
of any action) and none of which, individually or in the aggregate, has or would
have a material adverse effect on the Business or the Assets. As used in this
paragraph, "Liabilities" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by and Person, whether accrued, absolute, contingent, matured, unmatured or
other.
Section 8. BUYER'S REPRESENTATIONS AND WARRANTIES
8.1 For the purpose of inducing Buyer to enter into this Agreement and
to consummate the transactions contemplated hereby, Buyer represents and
warrants to Seller as follows:
(a) Organization and Standing of Buyer. Buyer is a corporation duly
----------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. As of the Closing Date, Buyer will be qualified as a foreign
corporation in all jurisdictions in which such qualification is necessary under
applicable law to conduct the Business or acquire ownership of the Assets from
and after the Closing.
(b) Buyer's Authority. Buyer has the corporate power and authority
------------------
to own its properties and carry on its business. This Agreement and the
transactions contemplated hereby, including the execution and delivery of and
the performance of all obligations of Buyer under this Agreement and the Closing
Documents, have been duly authorized by all necessary corporate action of Buyer,
and its officers, directors and stockholders. This Agreement constitutes and,
upon the execution and delivery by the respective parties at the Closing, the
Closing Documents will constitute the legal, valid and binding obligations of
Buyer, enforceable against Buyer in accordance with their respective terms.
(c) Effect of Agreement. The execution, delivery and performance of
-------------------
this Agreement, the Closing Documents and the consummation of the transactions
contemplated hereby:
(1) will not violate, conflict with or cause a breach or default
under, or an event that with or without passage of time or the giving of notice
or both would become a default under, any of the terms and provisions of (i) any
contract, agreement of other instrument to which Buyer is a party or by which
Buyer is bound, (ii) the Certificate of Incorporation or By-laws of Buyer or
(iii) any judgment, decree, order or award of any court, governmental body or
arbitration or any applicable law, ordinance, rule or regulation; or
(2) will not (i) result in the creation or imposition of any
Encumbrance (except for Seller's first priority lien) on or against the Business
or the Assets, (ii) give to any other Person any rights, including rights,
including rights of acceleration, termination or cancellation, with respect to
any contract, agreement or other instrument to which Buyer is a party or by
which Buyer is bound, or (iii) constitute an act of bankruptcy, preference,
insolvency or fraudulent conveyance under any bankruptcy act or other law for
the protection of debtors and creditors.
(d) Finder's Fees. Buyer has not taken any action which would
--------------
impose upon Seller any obligation or liability to any person for finder's fees,
agents' commissions or like payments in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
thereby, and Buyer specifically agrees to be responsible for the payment of any
and all fees due to Amsterdam Pacific Corporation in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated thereby. Buyer shall indemnify Seller from and against any and all
claims, liabilities or expenses arising out of any such finder's fees, agents'
commissions or like payments resulting from Buyer's action.
(e) Claims and Litigation. There is no claim, action, lawsuit,
---------------------
proceeding, arbitration, investigation or inquiry pending before any court or
governmental or administrative body or agency, nor to the Knowledge of Buyer, is
any claim, action, lawsuit, proceeding, arbitration, investigation or inquiry
threatened against Buyer which would materially adversely affect the ability of
Buyer to perform its obligations under this Agreement. There are no judgments of
any court which in any way may currently constitute a lien or at some future
time be perfected into a lien upon or against any position of the Assets.
(f) Financial Ability. Upon execution of this Agreement and
------------------
continuing to and as of the Closing Date, Buyer has sufficient cash available to
consummate the transaction contemplated by this Agreement.
Section 9. SELLER'S AND BUYER'S COVENANTS REGARDING BUSINESS
9.1 Seller's Covenants. Seller covenants that between the date of this
Agreement and the Closing Date and any time after the Closing Date that this
Agreement or any portion is still in effect:
(a) Access to Information. Seller shall give to Buyer and Buyer's
----------------------
counsel, accountants and other representatives reasonable access, during normal
business hours, to all of Seller's properties, books, and records relating to
the Business and shall furnish to Buyer during such period all information
concerning the Assets that Buyer may reasonably request. Seller shall furnish to
the Buyer all economic and financial studies which Seller has or has access to
relating to the Business and the Assets, even if not otherwise described in a
Schedule, and all such information may be used by the Buyer in such manner as
the Buyer desires, provided that in the event the Buyer fails to purchase the
Assets for any reason, all such information shall be returned to Seller. If the
Assets are purchased or, as provided by this Agreement, leased by the Buyer all
such documents and information shall be and become the property of the Buyer
without payment of any additional consideration. Without limiting the generality
of the foregoing, Seller will cooperate and use reasonable efforts to cause its
independent certified public accountants to cooperate in the preparation and
audit (at Buyer's cost) of any financial statements or financial or other
disclosure, including by giving Buyer and its independent certified public
accountants access to (and if requested, copies of) all of the work papers and
other records, documents and written information of Seller and its independent
certified public accountants related to the Assets or the Business
(b) Conduct of Business. Seller will conduct its business relating
-------------------
to the Business and the Assets only in the ordinary course of business. Seller
shall not enter into any contracts or commitments relating to the Assets and the
Business except contracts or commitments in the normal or usual conduct of
Seller's business and only with Buyer's written consent thereto, such consent
not to be unreasonably withheld. Prior to the Closing, Seller will not, without
the prior written consent of the Buyer, (i) sell, transfer or dispose or become
obligated to sell, transfer or dispose of any of the Assets, (ii) waive any
rights or allow any Contract, to lapse or default under any Contract, (iii)
except as specifically permitted by this Agreement, enter into any transaction,
or make any commitment other than in the ordinary course of business relating to
the Assets or the Business, (iv) amend, renew, extend, modify or terminate any
Contract except as contemplated by this Agreement or (v) take or omit to take
any action that results in any representation of warranty of Seller as (as
modified by the Disclosure Schedule) being untrue after such action or omission
or at the Closing Date.
(c) No Liens. Seller will not create any Encumbrance of any kind
--------
upon any of the Assets which will survive the Closing Date.
(d) FCC Filings. Seller shall cooperate with Buyer and shall execute
-----------
all documents reasonably requested by Buyer to obtain FCC consent to the
assignment of the Memphis E-Group License.
(e) Additional Channels. Seller shall use its reasonable efforts to
-------------------
assist Buyer to obtain leases of excess capacity for an additional eight
wireless cable channels in the Memphis Area upon terms and conditions usual and
customary in the wireless cable television industry.
(f) Applications and Consents. As promptly as practicable after the
-------------------------
date hereof, Seller shall file or submit and diligently prosecute any and all
applications or notices with federal, state and/or local authorities and all
other requests with any Persons for, and Seller shall use reasonable efforts to
obtain consents, approvals, authorizations and permissions which are or may be
necessary or appropriate by Seller or Buyer or which are reasonably requested by
Buyer for the consummation of this Agreement or to prevent the default under or
termination of any Contract or any loss or disadvantage to the Business that
would have a Material Adverse Effect. In addition, Seller recognizes that
Heartland is required to obtain certain Estoppel Letters on or prior to the
Closing Date in accordance with Section 9.1(d) of the Flippen Agreement. In the
event that Buyer shall for any reason be entitled to terminate the Flippen
Agreement pursuant to Section 9.1(d) of the Flippen Agreement, then Buyer shall
also have the right to simultaneously terminate this Agreement by sending
written notice to Seller and Heartland, and upon delivery of such notice: (A)
this Agreement and the Flippen Agreement shall be null and void and no party
hereto or thereto shall be entitled to any recourse or remedies for any breach
or violation hereof or thereof; provided, however, that, notwithstanding the
foregoing provisions of this paragraph, Seller and Heartland shall not be
relieved, upon such termination of this Agreement, of any liability or
obligation with respect to any breach or violation by Seller of Section 27 or 28
hereof occurring on to prior to the date of such termination or any breach or
violation by Heartland of Section 27 or 28 of the Flippen Agreement occurring on
or prior to the date of such termination, and Buyer shall be entitled to all
recourse and remedies available hereunder or under law or equity or otherwise
with respect to any such breach or violation; and (B) notwithstanding Section
4.2, Buyer shall have the right to prosecute the Lawsuit or another similar
lawsuit and to otherwise pursue any and all rights and remedies with respect to
the Lawsuit or the claims and matters underlying the Lawsuit, in which case
Heartland and Seller shall be entitled to raise all defenses and counterclaims
associated therewith.
(g) Ordinary Course. Prior to the Closing, Seller shall operate the
---------------
Business and shall maintain the Assets in substantially the same manner and
condition as Seller has operated and maintained the Business and the Assets
immediately prior to the execution date of this Agreement, and Seller shall
maintain at least the current business and the reputation of the Business.
Seller will perform all current or routine maintenance and repairs of or to the
Assets as may be required or reasonably appropriate to operate and conduct the
Business and to preserve the value of the Assets.
(h) Insurance and Other Contracts. Seller shall maintain the
--------------------------------
Insurance relating to the Assets through the Closing Date. Seller will cause to
be paid all Taxes, license fees, trade accounts and costs and expenses of
operation and maintenance of the Assets and the Business incurred through the
Closing Date. At Seller's expense, Seller will terminate, or cause to be
terminated, as of the Closing Date any Contract requested by the Buyer to be
terminated.
(i) Schedule Amendment. Seller shall promptly amend, supplement and
------------------
modify the Schedules, if permitted by this Agreement, to ensure that all
Schedules remain true, correct, complete and accurate between the date of this
Agreement and the Closing; provided however, that no such amendment, supplement
or modification shall be effective unless and until Buyer specifically consents
in writing to such particular amendment, supplement or modification. The
delivery by Seller to Buyer of each such amended, supplemented or modified
Schedule shall constitute a representation and warranty by Seller with respect
to each such amended, supplemented or modified Schedule to the same extent
provided by this Agreement for the original Schedule.
(j) Studies/Audits. Seller will fully, completely and promptly
--------------
assist and cooperate with any environmental evaluation, study or audit of the
Real Property Interests or the personal property prepared by, for or at the
request of Buyer by such environmental consultant or advisor as Buyer shall
approve, including prompt completion and delivery of any questionnaire submitted
to Seller relating to any such evaluation, study or audit.
(k) Payments. Seller shall pay to Buyer upon written notice thereof
--------
the pro rata portion, if any, of any scheduled payment not made pursuant to any
Contract and relating to a period before the Closing Date.
(l) FCC Compliance. Seller will timely file all applications,
---------------
reports, regulatory fees and other submissions in such form and with such
information as may be required by the FCC, including, but not limited to,
renewal applications, applications for additional time to construct authorized
facilities, and annual reports, and will take all other actions necessary to
assure that the Memphis E-Group License remains in fullm force and effect,
without material alteration or modification. Seller will use reasonable efforts
to cause the Capacity Lease Parties to timely file all applications, reports,
regulatory fees and other submissions in such form and with such information as
may be required by the FCC, including, but not limited to, renewal applications,
applications for additional time to construct authorized facilities, and annual
reports, and will take all other actions necessary to assure that all other FCC
Authorizations remain in full force and effect, without material alteration or
modification.
(m) Facility Modifications. If requested to do so by Buyer, Seller
-----------------------
shall use reasonable efforts, at Buyer's expense, to secure such modifications
of the FCC Authorizations as Buyer shall reasonably request. Seller agrees that
it will impose no opposition and will waive all rights to protection from
electrical interference and that it will use reasonable efforts to cause all
Persons from whom it leases transmission capacity to refrain from imposing any
opposition and to waive all rights to protection from electrical interference,
with respect to any application filed pursuant to this paragraph by Buyer or any
entity leasing transmission capacity to Buyer that proposes to relocate
facilities, increase transmission antenna height, increase radiated power,
change polarization or emission designator, or otherwise modify a facility;
provided, however, that such application must comply with Section E of the
Letter Agreement.
(n) Notice. Seller shall immediately notify Buyer in the event
------
Seller receives written or oral notice of either (i) any existing or threatened
investigation, inquiry or proceeding by or before the FCC that reasonably could
result in a monetary penalty or the revocation, cancellation, suspension,
forfeiture or material adverse modification of any FCC Authorization or pending
application, or (ii) any fact or circumstance that reasonably could lead to the
revocation, cancellation, suspension, forfeiture or material adverse
modification of any FCC Authorization or pending application.
9.2 Buyer's Covenants. Between the date of this Agreement and the
Closing Date and any time after the Closing Date that this Agreement or any
portion is still in effect, Buyer covenants that:
(a) Access to Information. Buyer shall give to Seller and Seller's
----------------------
counsel, accountants and other representatives reasonable access, during normal
business hours, to all of Buyer's properties, books and records that are
reasonably necessary to complete the transactions contemplated by this
Agreement.
(b) Payments. At or prior to the Closing, Buyer shall pay to Seller
--------
the pro rata portion, if any, of any scheduled payment paid by Seller pursuant
to any Contract and relating to a period after the Closing Date.
Section 10. CONDITIONS PRECEDENT
10.1 Conditions Precedent to Buyer's Obligations. Buyer's obligation to
consummate the Sale is subject to the satisfaction of all of the following
conditions unless otherwise waived in writing by Buyer:
(a) Performance of Obligations by Seller . Seller shall have
----------------------------------------
performed and complied with all agreements and covenants required by this
Agreement to be performed or complied with by Seller prior to or at the Closing
Date.
(b) Performance of Obligations by Heartland. Heartland shall have
---------------------------------------
performed and complied with all agreements and covenants required by the Flippen
Agreement to be performed or complied with by Heartland prior to or at the
Closing Date. All of the conditions precedent to Buyer's obligations set forth
in Section 10.1(a) of the Flippen Agreement shall have been satisfied (or waived
by Buyer), and concurrently with the Closing, the Closing (as such term is
defined in the Flippen Agreement) shall have occurred.
(c) Representations and Warranties. Seller's representations and
-------------------------------
warranties contained in this Agreement shall be true and complete in all
material respects at the time of execution of this Agreement and at and as of
the Closing Date.
(d) No Action. No lawsuit, action, investigation, inquiry or other
---------
proceeding shall have been instituted or threatened by any governmental
authority or other Person, on or prior to Closing, to set aside or modify,
enjoin or prevent the consummation of the Sale.
(e) Corporate Authorization. Seller shall have delivered to Buyer
------------------------
certified copies of all necessary or appropriate corporate action of the Seller
authorizing the execution, delivery and performance of this Agreement.
(f) Consents. Seller shall have obtained and delivered to Buyer all
--------
Consents necessary to permit Buyer to acquire the Assets.
(g) No Adverse Change. There shall not have been any Material
-------------------
Adverse Effect in any of the Assets between the Effective Date of the Agreement
and the Closing.
(h) Co-location. The licensees for the Wireless Channels shall have
-----------
received FCC Authorizations or filed with the FCC modification applications to
relocate their stations to the Clark Tower in Memphis, TN.
(i) Deliveries. Seller shall have delivered to Buyer each of the
----------
documents specified in Section 5 hereof. Buyer and its counsel will have
received from Seller the Closing Documents and copies of such Documents and
other papers as may reasonably be requested in connection therewith or as a
basis for the Closing opinions, which shall be in form and substance reasonably
satisfactory to Buyer, including delivery to Buyer of separate documents
executed by any Person who has a lien or security interest on, in or against any
of the Assets which terminate and cancel all of the Encumbrances upon the proper
filing for record of such documents.
(j) Validity of Authorizations.
(i) Each FCC Authorization shall on the Closing Date be in
unconditional force and effect, valid for the balance of its current term and
unimpaired by any acts or omissions of Seller, the Capacity Lease Parties or any
other Person.
(ii) Each Capacity Lease Agreement shall on the Closing Date be
in unconditional full force and effect, valid for the balance of its current
term and unimpaired by any acts or omissions of Seller, the Capacity Lease
Parties or any other Person.
10.2 Conditions Precedent to Seller's Obligations. Seller's obligations
to consummate the sale is subject to the satisfaction of all of the following
conditions:
(a) (intentionally omitted)
(b) Performance of Obligations by Buyer. Buyer shall have performed
-----------------------------------
and complied with all agreements and conditions required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing Date.
(c) Representations and Warranties. Buyer's representations and
-------------------------------
warranties contained in this Agreement shall be true and complete in all
material respects at the time of execution of this Agreement and at and as of
the Closing Date.
(d) No Action. No law suit, action, investigation, inquiry or other
---------
proceeding shall have been instituted, or threatened by any governmental
authority or other Person, on or prior to Closing, to set aside or modify,
enjoin or prevent the consummation of the Sale.
(e) Corporate Authorization. Buyer shall have delivered to Seller
------------------------
certified copies of all necessary or appropriate corporate action of the Buyer
authorizing the execution, delivery and performance of this Agreement.
(f) Deliveries. Buyer shall have delivered to Seller each of the
----------
documents specified in Section 6 hereof.
Section 11. RELATIONSHIP
11.1 Buyer and Seller agree that neither party shall be the joint
venturer, partner or agent of the other, and that neither Buyer nor Seller may
bind the other party in any manner whatsoever unless otherwise agreed in this
Agreement.
Section 12. INDEMNIFICATION
12.1 Indemnification By Seller. Notwithstanding any investigation of the
Assets and/or the Business made by or for the Buyer prior to or at the Closing,
Seller shall indemnify, defend, and hold harmless Buyer for, from and against
any and all actual, consequential, absolute or contingent claims, losses, costs,
liabilities, damages, expenses and penalties (including legal, costs of
settlement and other costs and expenses incident thereto or incurred in any
actual action or proceeding) of every kind, nature, and description, including
any undisclosed liabilities of Seller, that incident to, resulting from or in
any way arise out of (i) the falsity of any material representation or breach of
any material warranty of Seller set forth in this Agreement or in any Closing
Document, certificate, Schedule, or instrument delivered by Seller to Buyer
pursuant to this Agreement, (ii) Seller's breach of any of the covenants of
Seller or other provision contained in or arising out of, or failure of Seller
to satisfy any condition contained in, this Agreement or the transactions
contemplated hereby, (iii) Seller's ownership, operation or conduct of the
Business and Assets prior to the Closing, (iv) any breach arising under any of
the Assigned Contracts that is asserted to exist as the result of any facts
arising before the Closing, except for such circumstances, state of facts or
conditions caused or created by Buyer or occurring while Buyer was a party to
the Assigned Contract, or (v) any liabilities or obligations of Seller of any
nature whatsoever, whether fixed or contingent, other than the Assumed
Liabilities. The right of Buyer to obtain indemnification from any other party
will not relieve Seller of the obligation to fully indemnify Buyer under this
provision.
12.2 Indemnification by Buyer. Buyer shall indemnify, defend, and hold
harmless Seller for from and against any and all actual, consequential, absolute
or contingent claims losses, costs, liabilities, damages, expenses and penalties
(including legal, costs of settlement and other costs and expenses incident
thereto or incurred in any actual or threatened action or proceeding) of every
kind, nature and description that incident to, resulting for or in any way arise
out of (i) the falsity of any material representation or breach of any material
warranty of Buyer set forth in this Agreement or in any Closing Document,
certificate, Schedule, or instrument delivered by such Buyer to Seller pursuant
to this Agreement , (ii) Buyer's breach of any of the material covenants of
Buyer or other provision contained in or arising out of, or failure of Buyer to
satisfy any condition contained in, this Agreement or the transactions
contemplated hereby, (iii) any breach arising under any of the Assigned
Contracts that is asserted to exist as the result of any facts arising after
Closing, except for such circumstances, state of facts or conditions caused or
created by Seller or occurring while Seller was a party to the Assigned
Contracts or (iv) any circumstance, state of facts or condition which arises
with respect to the Business or the Assets subsequent to the Closing, except
such circumstances, state of facts or conditions attributable to or caused or
created or permitted to exist or acquiesced in by Seller or occurring while
Seller was the owner of the Business or Assets. The right of Seller to obtain
indemnification from any other party will not relieve Buyer of the obligation to
fully indemnify Seller under this provision. Seller's aggregate liability
pursuant to this Section 12.1 (other than for a breach by Seller of Section 27
of this Agreement or for the failure of Seller to consummate the transactions
contemplated by this Agreement in accordance with its terms) shall not exceed
$3,900,000.00.
12.3 Claims Procedure. Should any claim covered by the foregoing
indemnity be asserted against a party entitled to indemnification hereunder (the
"Indemnitee"), the Indemnitee shall promptly notify the party obligated to make
indemnification (the "Indemnitor"), provided that any delay or failure in
notifying the Indemnitor shall not affect the Indemnitor's liability under this
Section if such delay or failure was not prejudicial to the Indemnitor. From and
after the Closing Date, Buyer shall have the exclusive right to conduct, through
attorneys chosen by Buyer, the defense of any claim or action against Buyer or
with respect to which Buyer is made a party for which Seller is liable to the
Buyer under any of the representations, warranties, indemnities, or other
provisions of this Agreement. Seller shall have the right, at Seller's cost and
expense, to employ attorneys to consult, confer and advise with Buyer's counsel.
Except as otherwise provided by this Section 12.3, the Indemnitor upon receipt
of such notice shall assume the defense thereof with counsel reasonably
satisfactory to the Indemnitee, and the Indemnitee shall extend reasonable
cooperation to the Indemnitor in connection with such defense. No settlement of
any such claim shall be made without the consent of the Indemnitor, such consent
not to be unreasonably withheld, conditioned or delayed nor shall any such
settlement be made by the Indemnitor which does not provide for the absolute,
complete, and unconditional release of the Indemnitee from such claim. In the
event that the Indemnitor shall fail to defend a claim within a reasonable time,
the Indemnitee shall have the right to assume the defense thereof without
prejudice to its rights to indemnity hereunder.
Section 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
13.1 All representations, warranties and agreements made by Seller
and/or Buyer in this Agreement shall survive the Closing.
Section 14. ASSIGNMENT; BENEFIT
14.1 This Agreement and the rights, remedies, obligations or liabilities
arising hereunder or by reason hereof shall not be assignable by either party
without the prior written consent of the other party, except (i) that Buyer may
assign this Agreement and Buyer's rights and obligations under this Agreement to
any Affiliate or as collateral security to any lender to Buyer, but such
assignment shall not relieve Buyer of any obligations or liabilities under this
Agreement, and after the Closing, Buyer may assign its rights under this
Agreement to any person that acquires the Business or substantially all of the
Assets, and (ii) Seller may assign its rights to payments under this Agreement
and any related documents. Subject to this Section 14.1, this Agreement shall
inure to the benefit of and shall be binding upon the parties hereto and their
permitted successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to or shall (i) confer on any Person other than the parties
hereto, and their respective successors or assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, (ii) create any
rights, including, but not limited to, third-party beneficiary rights in any
Person other than Buyer and Seller, or (iii) constitute the parties hereto
partners or participants in a joint venture.
Section 15. DEFAULT
15.1 Default of Buyer. Buyer shall be in default if Buyer fails to
comply with any material term, provision, covenant or condition of this
Agreement or breaches any representation or warranty contained in this Agreement
in any material respect. Such default will allow Seller to take any and all
action allowed under the law.
(a) Notice of Default to Buyer. Seller will provide Buyer with
----------------------------
written notice of any default under this Agreement, and in the case of a
monetary default, Buyer shall have ten business days from receipt of such notice
to cure the default provided that, in the case of a nonmonetary default which
cannot be cured within two business days, Buyer shall have a reasonable period
of time to cure the default if Buyer commences to cure such default within ten
business days after notice and continues to diligently cure such default until
cured.
(b) Remedies. In the event of a default by Buyer, Seller may, seek
--------
all remedies and rights afforded by laws and/or equity, and if such default
occurs prior to Closing, Seller may terminate this Agreement and, in such event,
Seller and Buyer shall be relieved of all obligations under this Agreement.
15.2 Default of Seller. Seller shall be in default if Seller fails to
comply with or satisfy any material term, provision, covenant or condition of
this Agreement or breach any representation or warranty contained in this
Agreement in any material respect. Such default will allow Buyer to take any and
all action under the law.
(a) Notice of Default to Seller. Buyer will provide Seller written
---------------------------
notice of any default under this Agreement, and Seller shall have ten business
days from receipt of such notice to cure the default; provided that, in the case
of a default which cannot be cured within ten business days, Seller shall have a
reasonable period of time to cure the default if Seller commences to cure such
default within ten business days after notice and continues to diligently cure
such default until cured. If Seller fails to comply with Buyer's written demand
to cure any such default within ten business days after receipt of written
demand, Buyer shall have the right to (i) waive such default, (ii) seek specific
performance of Seller's obligations under this Agreement, or (iii) terminate
this Agreement. Seller agrees that the Business and the Assets are unique in
that damages for failure by Seller to consummate the sale will be impractical
and extremely difficult to determine. Therefore, in the event that Seller fails
or refuses to consummate the sale and Buyer seeks injunctive relief for specific
performance, Seller specifically agrees that the remedies of injunctive relief
for specific performance are appropriate remedies for Buyer, and Seller waives
and agrees not to assert in defense any claim that injunctive relief for
specific performance is not an appropriate remedy for Buyer.
(b) Remedies. In the event of default by Seller, Buyer may, in
--------
addition to all other remedies and rights afforded by law and/or equity,
terminate this Agreement and shall be relieved of all obligations under this
Agreement.
Section 16. EXPENSES
16.1 Each party to this Agreement shall pay its own expenses (including
without limitation the fees and expenses of its agents, representatives,
counsel, and accountants) incidental to the negotiation, drafting, and
performance of this Agreement. In the event any party shall bring an action in
connection with the performance, breach or necessary interpretation of this
Agreement, the prevailing party in any such action shall be entitled to recover
from the losing party all reasonable costs and expenses of such action,
including attorney's fees.
Section 17. FURTHER ASSURANCES
17.1 Each of the parties hereto agrees to execute all documents and
instruments and to take or to cause to be taken all actions which are necessary
or appropriate to complete the transactions contemplated by this Agreement.
Section 18. NOTICE
18.1 All notices, requests, demands or other communications with respect
to this Agreement shall be in writing and shall be personally delivered,
telecopied or mailed, postage prepaid, by certified or registered mail, or
delivered by a nationally recognized express courier service, charges prepaid,
to the following address (or such other address as the parties may specify from
time to time in accordance with this Section):
(a) Seller's Notice.
If to Seller: American Wireless Systems, Inc.
7426 E. Stetson Drive, Suite 220
Scottsdale, AZ 85250
Attn: President
Telecopier: (602) 994-4325
With a Copy to: O'Conner Cavanagh
One East Camelback Road Suite 1100
Phoenix, AZ 85012
Attn: Richard Stagg, Esq.
Telecopier: (602) 263-2900
(b) Buyer's Notice.
If to Buyer: TruVision Cable, Inc.
P.O. Box 97209
Jackson, MS 39288-7209
or
181 Kroger Drive
Suite H
Richland, MS 39218
Attn: President
Telecopier: (601) 936-1517
With a copy to:
Latham & Watkins
885 Third Avenue
New York, NY 10022-4802
Attn: Samuel Fishman
Telecopier: (212) 751-4864
Any such notice shall, when sent in accordance with the preceding sentence, be
deemed to have been given and shall be effective upon receipt.
Section 19. AMENDMENTS, WAIVERS AND CONSENTS
19.1 The terms of this Agreement may not be amended, modified or
eliminated except by a writing signed by Buyer and Seller. No delay or omission
by either party hereto to exercise any right or power hereunder shall impair
such right or power or be construed to be a waiver thereof. A waiver by any of
the parties hereto of any of the covenants to be performed by the other or any
breach thereof shall not be construed to be a waiver of any prior or subsequent
breach thereof or of any other covenant herein contained. Any waiver of any
nonobservance or nonperformance of a term or condition shall be in writing and
shall not be deemed to excuse any future nonobservance or nonperformance or to
constitute an amendment, modification or elimination of this Agreement unless it
expressly so states. All remedies provided for in this Agreement shall be
cumulative and in addition to and not in lieu of any other remedies available to
either party at law, in equity or otherwise.
Section 20. EXHIBITS AND SCHEDULES
20.1 All exhibits and schedules referred to in this Agreement, including
all permitted amendments or supplements to or modifications of any such
schedule, are made a part of and incorporated into this Agreement by reference,
and are subject to all of the Seller's representations, warranties and covenants
contained in this Agreement.
Section 21. SECTION AND OTHER HEADINGS
21.1 The Section and other headings contained in this Agreement are for
reference purposes only and shall not be deemed to be a part of this Agreement
or to affect the meaning or interpretation of this Agreement.
Section 22. EXECUTION IN MULTIPLE COUNTERPARTS; EFFECTIVE DATE
22.1 This Agreement may be executed in any number of identical
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall be
effective on the date the last signed counterpart is executed (the "Effective
Date").
Section 23. GOVERNING LAW
23.1 THIS AGREEMENT AND THE RESPECTIVE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE.
Section 24. CONFIDENTIALITY
24.1 Each party agrees that all information communicated to it by the
other, whether before or after the date hereof will be and was received in
strict confidence, and will be used only for purposes of this Agreement, and
that no such information, including, without limitation, the provisions of this
Agreement, will be disclosed by the receiving party, its directors, officers,
employees or agents, without the other party's prior written consent, except as
may be necessary by reason of legal, accounting, or regulatory requirements and
for purposes of obtaining debt or equity relating to the Business. Buyer hereby
grants to Seller its consent to disclose such information as may be required by
law or regulation because Seller is a publicly-held company.
Section 25. SEVERABILITY
25.1 If any provision of this Agreement is declared or found to be
illegal, unenforceable or void, then all parties shall be relieved of all
obligations arising under such provision, but only to the extent that such
provision is illegal and unenforceable. If the remainder of this Agreement shall
not be affected by such declaration or finding and is capable of substantial
performance, then each provision not so affected shall be enforced to the extent
permitted by law.
Section 26. CONSTRUCTION
26.1 The language in all parts of this Agreement shall in all cases be
construed as a whole according to its fair meaning, strictly neither for nor
against any party hereto and without implying a presumption that the terms shall
be more strictly construed against one party by reason of the rule of
construction that a document is to be construed more strictly against the person
who prepared the documents, it being agreed that all parties hereto have been
represented by counsel and that representatives of all parties have participated
in the preparation hereof.
Section 27. NO SOLICITATION
27.1 From the date hereof through the Closing, Seller and its
representatives shall not, directly or indirectly, enter into, solicit,
initiate, encourage or continue any discussions or negotiations with, or
encourage or respond to any inquiries of proposals by, or participate in any
negotiations with, or provide any information to, or otherwise cooperate in any
other way with, any Person, other than Buyer and its representatives, concerning
any sale, lease, assignment or other transfer or disposition of all or a portion
of the Assets or the Business (each such transaction being referred to herein, a
"Proposed Acquisition Transaction"). Seller hereby represents that it is not now
engaged in discussions or negotiations with any party other than Buyer with
respect to any of the foregoing; provided however, that Buyer acknowledges that
Seller has already entered into the Merger Agreement which provides for the sale
of the Assets to Heartland. Seller shall (i) immediately notify Buyer (orally
and in writing) if any discussions or negotiations are sought to be initiated,
any inquiry or proposal is made, any information is requested with respect to
any Proposed Acquisition Transaction or any offer is made with respect to any
Proposed Acquisition Transaction, (ii) include in such notification the terms of
any such proposal or offer that it may receive in respect of any such Proposed
Acquisition Transaction (and provide Buyer with a copy thereof in writing),
including, without limitation, the identity of the prospective purchaser or
soliciting party, and (iii) keep Buyer informed on the status of the foregoing.
Seller agrees not to release any third party from, or waive any provision of,
any confidentiality or standstill agreement to which Seller is a party.
Section 28. COVENANT NOT TO COMPETE.
28.1 Recitals. Seller acknowledges and agrees that it has technical
expertise associated with the Business and is well known in the wireless cable
industry. In addition, Seller has valuable business contacts with clients and
potential clients of the Business and with professionals in the wireless cable
industry. Seller's reputation and goodwill are in integral part of its business
success throughout the areas where it conducts the Business. If Seller deprives
Buyer of any of Seller's goodwill or in any manner uses its reputation and
goodwill in competition with Buyer, Buyer will be deprived of the benefits it
has bargained for pursuant to this Agreement. Since Seller has the ability to
compete with Buyer in the operation of the Business, Buyer therefore desires
that Seller enter into this Covenant Not To Compete. But for Seller's entry into
this Covenant Not To Compete, Buyer would not have entered into this Agreement
with Seller or into the Flippen Agreement with Heartland.
28.2 Covenant Not to Compete. Seller agrees that for a period of three
years after the Closing Date (the "Term"), Seller, unless acting in accordance
with Buyer's prior written consent, shall not, directly or indirectly, own,
manage, operate or control, or participate in the ownership, management,
operation or control of, or be connected as a director, officer, partner,
consultant or otherwise with, or permit its name to be used by or in connection
with, any profit or non-profit business or organization which owns or operates a
wireless television cable system or owns, acquires, leases or has the right to
use any Authorizations and/or any capacity for wireless cable channels in Basic
Trading Areas (as defined in the Rand McNally 1995 Commercial Atlas and
Marketing Guide) 290, ( the "Non-compete BTA"), except for Heartland's existing
system in Forest City Arkansas and provided that, the foregoing shall not
preclude Seller from owning less than 10% of the publicly traded voting
securities of any entity if such securities are acquired and held for investment
(and not for control) purposes and not the purpose of circumventing the intent
hereof. From and after the date hereof and until the end of the Term, Seller
shall not, directly or indirectly or through any intermediary or agent, take any
action to obtain, or to assist any third party in obtaining, any Authorizations
and/or leases of excess capacity for any additional wireless cable channels in
the Non-compete BTA. Buyer, Seller and their respective Affiliates shall
publicly disclose the provisions of this paragraph to the extent required by
applicable law. Notwithstanding the foregoing, Buyer agrees that nothing herein
shall prevent Seller from entering into a joint venture or similar business
relationship with any party (including CAI Wireless Systems, Inc.) on any terms
provided such arrangement does not result in Seller directly or indirectly
owning any interest in, or operating, controlling or managing wireless cable
channel rights in the Non-compete BTA.
28.3 Cooperation by Parties. Buyer agrees that it will utilize
reasonable efforts to secure the BTA Authorization for the Non-Compete BTA when
such authorization is auctioned by the FCC. In the event that Buyer secures the
BTA Authorization for the Non-compete BTA and this Agreement is terminated,
Buyer grants to Seller an option for a period of one year from the date the
Agreement is terminated ("Option Period") to purchase a partitioned portion of
the Non-compete BTA for those MDS channels available to Buyer as the BTA
Authorization holder for the Non-compete BTA within 35 miles of the location of
the existing System headend upon the following terms and conditions. Seller
shall provide Buyer with written notice of the exercise of its option to
purchase within the Option Period. Within thirty (30) days of such written
notification, Seller shall, pursuant to paragraph 46 of the Report and Order in
MM Docket No. 94-131, submit long form applications for new MDS stations with
technical specifications that match those of the MDS stations that currently
comprise the System. In the event Seller submits such applications, Seller
agrees that upon issuance to Seller of a Partioned Service Area (PSA)
Authorization, Seller shall pay to Buyer an amount equal to Buyer's purchase
price for the Non-compete BTA Authorization (less any bidding credit to which
Buyer may be entitled) multiplied by a fraction whose numerator shall be the
number of television households in the Non-compete BTA that are located within
35 miles of the location of the existing System headend and whose denominator
shall be the total number of television households in the Non-compete BTA and
then further multiplied by a fraction whose numerator shall be the number of MDS
channels available to Buyer as the BTA Authorization holder for the Non-compete
BTA within 35 miles of the location of the existing system headend and whose
denominator is 13. Upon making such payment, and for the duration of Buyer's BTA
Authorization, Seller shall have sole and exclusive and all of the rights of a
BTA Authorization holder within an area comprising a 35 mile radius surrounding
the existing System headend. In such event, Buyer shall not assign, transfer, or
otherwise convey any BTA Authorization for the Non-compete BTA without first
providing Seller with a written agreement from the assignee of such rights that
it agrees to assume Buyer's obligations hereunder with respect to such
Noncompete BTA Authorization. The foregoing provisions of this Section 28.3
shall have no effect upon the rights or obligations of any party hereto arising
out of any breach of this Agreement.
28.4 Severability of Provisions. If any covenant set forth in this
Section 28 is determined by any court to be unenforceable by reason of its
extending for too great a period of time or over too great a geographic area, or
by reason of its being extensive in any other respect, such covenant shall be
interpreted to extend only for the longest period of time and over the greatest
geographic area, and to otherwise have the broadest application as shall be
enforceable. The invalidity or unenforceability of any particular provision of
this Section 28 shall not affect the other provisions hereof, which shall
continue in full force and effect. Without limiting the foregoing, the covenants
contained herein shall be construed as separate covenants, covering their
respective subject matters, with respect to each of the separate cities,
counties and states of the United States, and each other country, and political
subdivision thereof, in which any Seller or its successors now transacts any
business.
28.5 Injunctive Relief. Seller acknowledges that (i) the provisions of
Sections 28.1 and Section 28.2 are reasonable and necessary to protect the
legitimate interests of Buyer, and (ii) any violation of Sections 28.1 or 28.2
will result in irreparable injury to Buyer, the exact amount of which will be
difficult to ascertain, and that the remedies at law for any such violation
would not be reasonable or adequate compensation to Buyer for such a violation.
Accordingly, Seller agrees that if Seller violates the provisions of Sections
28.1 or 28.2, in addition to any other remedy which may be available at law or
in equity, Buyer shall be entitled to specific performance and injunctive
relief, without posting bond or other security, and without the necessity of
proving actual damages.
Section 29. ENTIRE AGREEMENT
29.1 This Agreement including all attachments, exhibits and schedules,
and the Escrow Agreement supersede any other agreement, whether written or oral,
that may have been made or entered into by the parties (or by any director,
officer, agent or other representative of such parties) relating to the matters
contemplated hereby. This Agreement including all attachments, exhibits and
schedules, and other agreements executed contemporaneously herewith constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first written above.
SELLER: BUYER:
AMERICAN WIRELESS SYSTEMS, INC. TRUVISION CABLE, INC.
a Delaware Corporation a Delaware corporation
By: /s/ Steven G. Johnson By: /s/ Henry M. Burkhalter
--------------------- -----------------------
Name: Steven G. Johnson Name: Henry M. Burkhalter
Its: President Its: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet as of September 30, 1995 and Statement of Operations for the Nine
Months Ended September 30, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<PERIOD-START> JAN-01-1995
<CASH> 1,182,653
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,272,377
<PP&E> 218,404
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,554,298
<CURRENT-LIABILITIES> 737,965
<BONDS> 1,800,000
<COMMON> 57,092
0
0
<OTHER-SE> 4,726,197
<TOTAL-LIABILITY-AND-EQUITY> 7,554,298
<SALES> 0
<TOTAL-REVENUES> 75,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,599,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,119
<INCOME-PRETAX> (984,570)
<INCOME-TAX> 0
<INCOME-CONTINUING> (984,570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (984,570)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
