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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number 0-23694
HEARTLAND WIRELESS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 73-1435149
(State or other jurisdiction of incorporation (I.R.S. employer
or organization) identification no.)
903 North Bowser, Suite 140, Richardson, Texas 75081
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (214) 479-9244
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is $282,640,199, based on the closing price of the Registrant's
Common Stock, $.001 par value per share (the "Common Stock"), on March 27, 1996,
as reported on the Nasdaq National Market.
The number of outstanding shares of Common Stock as of March 27 1996, was
19,358,021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held
on May 2, 1996, and to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, are incorporated by reference into Part III of this
Form 10-K. Portions of the registrant's Annual Report to Shareholders for the
year ended December 31, 1995, and filed as Exhibit 13 with this Form 10-K, are
incorporated by reference into Part II of this Form 10-K. With the exception
of such portions, the 1995 Annual Report is not deemed filed as a part of this
report.
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HEARTLAND WIRELESS COMMUNICATIONS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PAGE
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PART I
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Item 1. Business 3
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security-Holders 25
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 26
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 29
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PART I
ITEM 1. BUSINESS
OVERVIEW
Heartland Wireless Communications, Inc. (the "Company") develops, owns and
operates wireless cable television systems, primarily in small to mid-size
markets located in the central United States. At March 1, 1996, the Company had
wireless cable channel rights in 81 markets representing approximately 8.6
million households, approximately 7.1 million of which the Company believes can
be served by line-of-sight ("LOS") transmissions (which generally require a
direct, unobstructed transmission path from the central transmitting antenna to
the antenna located on the subscriber's premises).
The Company targets small to mid-size markets with significant numbers of
LOS households that are unpassed by traditional hard-wire cable. Many of these
households, particularly in rural areas, have limited access to local off-air
VHF/UHF channels (such as ABC, NBC, CBS and Fox), and typically do not have
access to pay television service except via satellite receivers. As a result,
the Company believes that its wireless cable television service is an
attractive alternative to existing choices for such households. The Company
estimates that within its 81 wireless cable markets, approximately 2.6 million
LOS households, or 36% of the Company's total LOS households, are unpassed by
traditional hard-wire cable systems, as compared to the 20 largest hard-wire
cable markets in the United States, in which only approximately 2% of all
households are unpassed by traditional hard-wire cable. The Company believes
that it will ultimately achieve a penetration rate of the unpassed LOS
households in its markets that is comparable to the average penetration rate
achieved by traditional hard-wire cable operators nationally, which Paul Kagan
Associates, Inc. estimates to be approximately 64% as of December 31, 1994.
At March 1, 1996, the Company's 81 markets included (i) 38 markets in
which the Company has systems in operation (the "Existing Systems"), (ii) nine
markets in which the Company's system is under construction and (iii) 34 future
launch markets, including 30 in which the Company has aggregated sufficient
wireless cable channel rights to commence construction of a system and four in
which the Company has leases with or options from applicants for channel
licenses that the Company expects to be granted by the Federal Communications
Commission (the "FCC"). At March 1, 1996, the 38 Existing Systems were
providing wireless cable service to approximately 132,000 subscribers.
Wireless cable programming is transmitted through the air via microwave
frequencies from a transmission facility to a small receiving antenna at each
subscriber's location, which generally requires a direct, unobstructed
line-of-sight from the transmission facility to the subscriber's receiving
antenna, by utilizing up to 200 MHZ of radio spectrum allocated by the FCC to
wireless cable operators. Traditional hard-wire cable systems also transmit
signals from a transmission facility, but deliver the signal to a subscriber's
location through an extensive network of coaxial cable and amplifiers. Since
wireless cable systems do not require such an extensive cable network, wireless
cable operators such as the Company can provide subscribers with a high quality
picture and a reliable signal resulting in fewer transmission disruptions at a
significantly lower system capital cost per installed subscriber than
traditional hard-wire cable systems. In addition, operating costs of wireless
cable systems are generally lower than those of comparable traditional
hard-wire systems due to lower network maintenance and depreciation expense.
Like traditional hard-wire operators, the Company can offer its
subscribers local off-air VHF/UHF channels, as well as HBO, Showtime, Disney,
ESPN, CNN, USA, WGN, WTBS, Discovery, the Nashville Network, A&E and other
programming services. The channels that the Company offers in each market will
vary depending upon the channel rights secured in such market at the time of
system launch. In addition, the available channels in a market will typically
change as the Company continues to acquire channel rights. See "Business --
Business Strategy."
The Company's founders, David E. Webb, the President and Chief Executive
Officer, and L. Allen Wheeler, Vice Chairman of the Board of Directors, began
acquiring licenses, leases and options to wireless cable channels in 1989, both
individually and through various controlled entities. In September 1990,
Messrs. Webb and Wheeler formed Wireless Communications, Inc., an Oklahoma
corporation ("WCI"), and contributed to it certain of their direct and indirect
wireless cable assets and liabilities. In October 1993, Hunt Capital, a
principal stockholder of the Company and affiliate of J.R. Holland, Jr., the
Chairman of the Board of the Company, acquired a $988,000 10% promissory note
due September 14, 1994 payable by WCI (the "Hunt Note") from an affiliate of
Hunt Capital, which had entered into a loan agreement with WCI in September
1993.
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The Company was incorporated in Delaware in October 1993 to succeed to the
wireless cable businesses previously conducted by Messrs. Webb and Wheeler,
directly and indirectly through various controlled entities, including WCI.
Messrs. Webb and Wheeler contributed all capital stock of entities engaged in
the wireless cable businesses owned by them to the Company for a 50% equity
interest. Hunt Capital contributed the Hunt Note, including accrued interest,
and $2.0 million to the Company for the remaining 50% equity interest. In
addition, Messrs. Webb and Wheeler leased all other wireless cable channel
license rights controlled, directly and indirectly, by them to the Company and
granted the Company an option to purchase such license rights at a nominal
price. In April and June 1994, the Company sold 2.4 million shares of Common
Stock in its initial public offering at a per share price of $10.50.
The executive offices of the Company are located at 903 North Bowser,
Suite 140, Richardson, Texas 75081, and the telephone number of the executive
offices is (214) 479-9244. The Company's operations and marketing headquarters
are based in Durant, Oklahoma.
Unless the context otherwise requires, all references in this Form 10-K to
the Company refer collectively to Heartland Wireless Communications, Inc., its
predecessors and its majority-owned subsidiaries.
CABLE INDUSTRY OVERVIEW
The cable television industry began in the late 1940s and 1950s to serve
the needs of residents in predominantly rural areas with limited access to
local off-air VHF/UHF broadcasts. The cable television industry expanded to
metropolitan areas due to, among other things, better reception and more
programming. Today, cable television systems offer various types of
programming, which generally include basic service, premium service and, in
some instances, pay-per-view service.
WIRELESS CABLE TECHNOLOGY
Initially, most cable systems were hard-wire systems, using coaxial cable
and amplifiers to transmit television signals. In 1983, the FCC allocated a
portion of the radio spectrum from 2500 to 2700 MHZ, which had previously been
allocated entirely for educational use, to commercial wireless cable operation.
Simultaneously, the FCC also modified its rules on the usage of the remaining
portion of such spectrum allocated for educational use. Nevertheless,
regulatory and other obstacles impeded the growth of the wireless cable
industry through the remainder of the 1980s. The FCC maintained burdensome
restrictions on the commercial use of educational channel capacity. In
addition, before the Cable Act passed by Congress on October 5, 1992 (the
"Cable Act") became effective, many program suppliers were unwilling to provide
programming to wireless cable operators on terms comparable to those offered to
traditional hard-wire cable operators, if at all. During the 1990s, several
factors have contributed to the growth of the wireless cable industry,
including (i) Congressional scrutiny of the rates and practices of the
traditional hard-wire cable industry, (ii) improved technology, particularly
signal encryption, (iii) regulatory reforms by the FCC to facilitate the growth
and competitive impact of the wireless cable industry, including permitting
channel aggregation, (iv) increased availability of programming for wireless
cable systems, (v) consumer demand for alternatives to traditional hard-wire
cable service, and (vi) increased availability of capital to wireless cable
operators in the public and private markets.
Like a traditional hard-wire cable system, wireless cable operates from a
head-end, consisting of satellite reception and other equipment necessary to
receive the desired programming. Programming is then transmitted by microwave
transmitters from an antenna located on a tower to a small receiving antenna
located on a subscriber's rooftop. At the subscriber's location, the microwave
signals are converted to frequencies that can pass through conventional coaxial
cable into an addressable descrambling converter located on top of a television
set. Wireless cable requires a clear line-of-sight, because the microwave
frequencies used will not pass through large trees, hills, tall buildings or
other obstructions. However, many signal blockages can be overcome with the use
of signal boosters which retransmit an otherwise blocked signal over a limited
area. The Company believes that its coverage will be further enhanced upon the
implementation of digital technology and/or cellularization. Because wireless
cable systems do not require an extensive network of coaxial cable and
amplifiers, wireless cable operators can provide subscribers with a high
quality picture and a reliable signal resulting in fewer transmission
disruptions at a significantly lower system capital cost per installed
subscriber than traditional hard-wire cable systems.
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TRADITIONAL HARD-WIRE CABLE TECHNOLOGY
Traditional hard-wire cable operators transmit signals from a head-end,
delivering local and satellite-delivered programming via a distribution network
consisting of coaxial cable, amplifiers and other components to subscribers. As
a direct result of the use of coaxial cable to deliver signals throughout a
service area, traditional hard-wire cable systems are susceptible to signal
problems. Signals can only be transmitted via coaxial cable a fixed distance
without amplification. Each time a television signal passes through an
amplifier, some measure of noise is added. A series of amplifiers between the
head-end and the viewer leads to progressively greater noise and, accordingly,
for some viewers a grainier picture. Also, an amplifier must be properly
balanced or the signal may be improperly amplified. Failure of any one
amplifier in the chain will black out all of the system drawing signal from
that point. Regular system maintenance is required due to water ingress,
temperature changes and other equipment problems, all of which may affect the
quality of signals delivered to subscribers. Some traditional hard-wire cable
companies have begun installing fiber optic cable networks. While this
technology will substantially improve the transmission and reception problems
currently experienced by traditional hard-wire cable systems, the high costs
associated with such technology may slow the conversion to all fiber optic
systems and further enhance the typical cost advantages of wireless cable.
REGULATORY ENVIRONMENT
General. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke, modify and renew licenses within the spectrum available to wireless
cable; to approve the assignment and/or transfer of control of such licenses;
to approve the location of wireless cable systems; to regulate the kind,
configuration and operation of equipment used by wireless cable systems; and to
impose certain equal employment opportunity and other reporting requirements on
wireless cable operators.
In the 50 largest markets, 33 channels are available for wireless cable
(in addition to local off-air VHF/UHF broadcast channels that are not
retransmitted over the microwave channels). In the Company's markets, 32
channels are available for wireless cable (in addition to local off-air VHF/UHF
broadcast channels that are not retransmitted over the microwave channels), 12
of which can be owned by for-profit entities for full-time usage without
programming restrictions (MDS channels). Except in limited circumstances, the
other 20 wireless cable channels can generally only be owned by qualified
non-profit educational organizations, and, in general, each must be used a
minimum of 20 hours per week for educational programming (ITFS channels). The
remaining excess air time on an ITFS channel may be leased to wireless cable
operators for commercial use, without further restrictions (other than the
right of the ITFS license holder, at its option, to recapture up to an
additional 20 hours of air time per week per channel for educational
programming). Certain programs (e.g ., The Discovery Channel and A&E) qualify
as educational and thereby facilitate full-time usage of an ITFS channel by
commercial wireless cable operators. Additionally, a technique known as
"channel mapping" permits ITFS licensees to meet their minimum educational
programming requirements by transmitting educational programming over several
ITFS channels at different times, but the viewer sees the transmission as one
channel. In addition, lessees of ITFS excess air time, including the Company,
generally have the right to transmit to their subscribers the educational
programming provided by the lessor at no incremental cost. The remaining 12
wireless cable channels (commonly referred to as MDS or commercial channels)
available in most of the Company's operating and targeted markets are made
available by the FCC for full-time commercial usage without programming
restrictions. The FCC recently amended its rules to permit "channel loading."
Channel loading permits ITFS license holders to consolidate their educational
programming on one or more of their ITFS channels thereby providing wireless
cable operators leasing such channels, including the Company, with greater
flexibility in their use of ITFS channels. The FCC's allocation of frequencies
to wireless cable is subject to change and, in the future, the FCC might
propose to alter the present wireless cable allocation to provide a portion of
the spectrum for other emerging technologies. Recently, the FCC formally
inquired as to whether certain wireless cable frequencies should be reallocated
for new computer-based communications services. This inquiry is at a
preliminary stage, and it is uncertain whether any definitive action will be
taken with respect to this inquiry. The Company believes that if any such
action were taken to reallocate these channels, the FCC would allocate
substitute frequency rights to the wireless cable industry or provide other
concessions. See "Business -- Competition -- Local Multi-Point Distribution
Service."
The Company is dependent on leases with unaffiliated third parties for
most of its wireless cable channel rights. The Company has entered into leases
for substantially all of its wireless cable channel rights with channel license
holders, applicants for channel licenses and applicants that have had
previously-filed applications returned without prejudice by the FCC and which
will be refiled. The Company's channel leases typically cover four
instructional television fixed service ("ITFS") and/or one to four multi-point
distribution service ("MDS") wireless
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cable channels each. Generally, ITFS channels may only be owned by qualified
non-profit educational organizations and in general must use a minimum of 20
hours per week per channel for educational programming. The remaining excess
ITFS channel air time may be leased to wireless cable operators for commercial
use without further restriction. MDS channels may be owned by commercial
entities and allow full-time usage without programming restrictions. Under the
rules of the FCC, the term of an ITFS channel lease cannot exceed 10 years.
There is no such restriction for MDS channel leases. ITFS licenses generally
are granted for a term of 10 years and are subject to the renewal by the FCC.
MDS licenses generally will expire on May 1, 2001 unless renewed. The use of
such channels by the license holders is subject to regulation by the FCC and
the Company's ability to continue to enjoy the benefits of its leases with
channel license holders is dependent upon the continuing compliance by the
channel license holders with applicable regulations including the requirement
that ITFS license holders must meet certain educational use requirements in
order to lease transmission capacity to wireless cable operators. The remaining
initial terms of most of the Company's channel leases are approximately five to
10 years, although certain of the Company's channel leases have initial terms
expiring during the next several years. Most of the Company's leases grant the
Company a right of first refusal to purchase the channels after the expiration
of the lease if FCC rules and regulations so permit, provide for automatic
renewal of the lease term upon FCC renewal of the license and/or require the
parties to negotiate lease renewals in good faith. The termination of or
failure to renew a channel lease or termination of the channel license, or the
failure to grant an application for an extension of time to construct an
authorized station, would result in the Company being unable to deliver
television programming on such channel(s). Although the Company does not
believe that the termination of or failure to renew a single channel lease or
license would adversely affect the Company, several of such terminations or
failures in one or more markets that the Company actively serves could have a
material adverse effect on the Company. Additionally, FCC licenses also specify
construction deadlines, which, if not met, could result in the loss of the
license. Requests for additional time to construct may be filed and are subject
to review pursuant to FCC rules. Certain of the Company's channel rights are
subject to pending extension requests and it is anticipated that additional
extensions will be required. There can be no assurance that the FCC will grant
any particular extension request or license renewal request.
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom the Company has entered into leases have filed a
series of applications with the FCC for a number of wireless cable channels and
the Company has entered into leases for additional channels with applicants
that have had previously-filed applications returned without prejudice by the
FCC and which have been refiled. The vast majority of such leases are in the
form of lease agreements with qualified non-profit educational organizations
for ITFS channels. These ITFS applications are expected to undergo review by
the FCC's engineers and staff attorneys over the next several months. There is
no limit on the time that may elapse between filing the application with the
FCC for a modification or new license and action thereon by the FCC. Once the
FCC staff determines that the applications meet certain basic technical and
legal qualifications, the staff will then determine whether each application is
proximate to the transmit and receive-site locations of other applications.
Those applications that would result in signal interference to other pending
applications ("Competing Applications") must then undergo a comparative
selection process. The FCC's ITFS application selection process is based on a
set of objective criteria that includes whether an applicant is located in the
community to be served and the number of students that will receive the
applicant's educational programming. Thus, the outcome of the selection process
when two or more qualified applicants are competing for the same channels lends
itself to a degree of predictability that varies according to the
circumstances. Most of the Company's lease agreements with applicants for
channel licenses involve channel licenses for which Competing Applications have
been filed. In each market, the Company has carefully considered the FCC's
selection criteria in choosing the educational entities with which it has
entered into lease agreements. However, because the FCC's application review
process does not lend itself to complete certainty, and given the considerable
number of applications involved, no assurance can be given as to the precise
number of applications that will be granted. A number of competing applicants
for channel licenses have filed with the FCC petitions to deny the applications
in which the Company has acquired channel rights, based upon alleged
substantive defects in the applicant or in technical or other aspects of the
application. The Company anticipates that the FCC will deny most of the
current petitions to deny the applications in which the Company has acquired
channel rights. However, no assurance can be given as to the precise number of
such petitions that will be denied. Although the Company does not believe that
any single award of a channel license to an applicant that has filed a
Competing Application or the granting of any single petition to deny an
application in which the Company has acquired channel rights would adversely
affect the Company, several of such awards or grants could have a material
adverse effect on the Company.
In 1985, the FCC established a lottery procedure for awarding MDS
licenses. In 1990, the FCC established a filing "window" system for new
multichannel MDS ("MMDS") applications. The FCC's selection among more than one
acceptable MMDS application filed during the same filing window was determined
by a lottery. Generally, once an MMDS application is selected by the FCC and
the applicant resolves any deficiencies identified by the FCC, a
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conditional license is issued, allowing construction of the station to
commence. Construction generally must be completed within one year of the date
of grant of the conditional license, in the case of MMDS channels, or 18
months, in the case of ITFS channels. ITFS and MMDS licenses generally have
terms of 10 years. Licenses must be renewed and may be revoked for cause in a
manner similar to other FCC licenses. FCC rules prohibit the sale for profit of
an MMDS conditional license or of a controlling interest in the conditional
license holder prior to construction of the station or, in certain instances,
prior to the completion of one year of operation. The FCC, however, does permit
the leasing of 100% of an MMDS license holder's spectrum capacity to a third
party and the granting of options to purchase a controlling interest in a
license once the required license holding period has lapsed and certain other
conditions are met.
In April 1992, the FCC imposed a freeze on the filing of applications and
amendments to applications for new MMDS channel licenses. In February 1993, the
FCC imposed a similar freeze on the filing of applications for new ITFS
licenses and for major ITFS modifications. The freezes were intended to allow
time for the FCC to update its wireless cable data base and to allow the FCC to
review and possibly modify its application rules related to these services. The
FCC subsequently lifted the freeze on the filing of applications for major ITFS
modifications, but indicated that it would accept such applications only until
September 15, 1995. In February 1995, the FCC amended its rules and established
"windows" for the filing of new ITFS applications or major modifications to
authorized ITFS facilities. The first filing "window" was October 16-20, 1995.
Where two or more ITFS applicants file applications for the same channels and
the proposed facilities could not be operated with Impermissible Interference,
the FCC employs a set of comparative criteria to select from among the
competing applicants.
The FCC is currently in the process of conducting an auction (the "BTA
Auction") of available commercial wireless cable spectrum in 487 basic trading
areas ("BTAs") and six additional BTA-like geographic areas around the country.
The winner of a BTA has the right to develop the vacant MMDS frequencies
throughout the BTA, consistent with certain specified interference criteria
that protects existing ITFS and MMDS channels. Existing ITFS and MMDS channel
rights holders also must protect the BTA winner's spectrum from interference
caused by power increases or tower relocations. The Company may not be the
winning bidder of the BTAs that encompass the Company's markets. The Company's
ability to increase power or relocate its transmission facilities in markets
where it is not the owner of the BTA may be limited, which could increase the
cost to the Company of, and extend the time for, developing a commercially
viable system.
In order to be eligible for the BTA Auction, the Company was required to
file, prior to the start of auction, applications and up-front payments. After
the BTA Auction, in any markets where the Company is the winning bidder, it
will have certain post-auction filing obligations, including, but not limited
to, applications that propose new transmission facilities, exhibits concerning
their involvement in bidding consortia, and their plans to build-out two-thirds
of the market over a five-year period. Due to the unique nature of the BTA
Auction, there is no prior regulatory history regarding the scope and nature of
the information the FCC will require, or how the FCC will treat the
information.
Application for renewal of MDS and ITFS licenses must be filed within a
certain period prior to expiration of the license term, and petitions to deny
applications for renewal may be filed during certain periods following the
filing of such applications. Licenses are subject to revocation or cancellation
for violations of the Communications Act or the FCC's rules and policies.
Conviction of certain criminal offenses may also render a licensee or applicant
unqualified to hold a license. The Company's lease agreements with license
holders typically require the license holders, at the Company's expense, to use
their best efforts, in cooperation with the Company, to make various required
filings with the FCC in connection with the maintenance and renewal of
licenses. The Company believes this reduces the likelihood that a license will
be revoked, canceled or not renewed by the FCC.
Wireless cable transmissions are governed by FCC regulations governing
interference and reception quality. These regulations specify important signal
characteristics such as modulation (i.e., AM/FM) or encoding formats (i.e.,
analog or digital). Current FCC regulations require wireless cable systems to
transmit only analog signals and those regulations will have to be modified,
either by rulemaking or by individual application, to permit the use of digital
transmissions. The Company is a party to a pending application for declaratory
ruling filed in July 1995 seeking adoption of interim regulations authorizing
digital transmission. The Company believes that the necessary FCC approvals
will be obtained to permit the use of digital compression by the time it
becomes commercially available; however, there can be no assurance that these
approvals will be forthcoming or timely. In addition, such modifications filed
with the FCC after the BTA Auction will be subject to the interference
protection rights of BTA Auction winners.
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The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the collocation of a
commercially viable number of channels operating with common technical
characteristics. In order to commence operations in many of the Company's
unlaunched markets, the Company has filed or will be required to file
applications with the FCC to modify licenses for unbuilt stations. In applying
for these modifications, the Company must demonstrate that its proposed signal
does not violate interference standards in the FCC-protected area of another
wireless cable channel license holder. A wireless cable license holder
generally is protected from interference within 35 miles of the transmission
site. An ITFS license holder has protection to all of its receive sites, but
only a 35 mile protected service area during excess capacity use by a wireless
cable operator. In addition, modifications submitted after the BTA Auction
will be required to protect auction winners from interference. If such changes
would cause the Company's signal to cause interference in the FCC-protected
area of another wireless cable channel license holder, the Company would be
required to obtain the consent of such other license holder; however, there can
be no assurance that such consent would be received and the failure to receive
such consent could adversely affect the Company's ability to serve the affected
market.
When the FCC implements competitive bidding in the awarding of initial
MMDS licenses, the Company cannot predict whether any increase in costs of
renewing its leases will result from increased license costs to the initial
licensee. However, the Company does not believe that any such increased costs
would materially affect the Company's operations or financial condition.
The Cable Act. On October 5, 1992, Congress passed the Cable Act, which
imposes greater regulation on traditional hard-wire cable operators and permits
regulation of prices in areas in which there is no "effective competition." The
Cable Act, among other things, directs the FCC to adopt comprehensive new
federal standards for local regulation of certain rates charged by traditional
hard-wire cable operators. The legislation also provides for deregulation of
traditional hard-wire cable in a given market once other multi-channel video
providers serve, in the aggregate, at least 15% of the cable franchise area.
Rates charged by wireless cable operators, typically already lower than
traditional hard-wire cable rates, are not subject to regulation under the
Cable Act.
Under the retransmission consent provisions of the Cable Act and the FCC's
implementing regulations, all multi-channel video providers (including both
hard-wire and wireless cable) seeking to retransmit certain commercial
broadcast signals must first obtain the permission of the broadcast station.
Hard-wire cable systems, but not wireless cable systems, are required under the
Cable Act and the FCC's "must carry" rules to retransmit a specified number of
local commercial television or qualified low power television signals.
On May 3, 1993, the FCC issued new regulations implementing the rate
regulation provisions in the Cable Act. Traditional hard-wire cable operators
with rates above a price benchmark average for basic services were directed to
reduce their rates by approximately 10%. On February 22, 1994, the FCC
announced that it would require traditional hard-wire cable operators to
implement a further reduction in rates of another 7%. On November 18, 1994, the
FCC adopted some exceptions to its cable rate regulations which would allow
certain flow-through item rate increases and after rate flexibility. The FCC
has also adopted regulations implementing the Cable Act that require
traditional hard-wire cable operators to establish standardized levels of
customer service. The Company is currently unable to predict what effect these
regulations may have on the Company's price and service competitiveness.
In February 1996, the Telecommunications Act of 1996 was enacted.
Pursuant to the Telecommunications Act of 1996, all cable rate regulation will
be eliminated after three years, and for "small systems" as defined in the Act,
and under certain other circumstances, rate regulation will be eliminated
immediately. Until these sunset provisions go into effect, hard-wire cable
operators will continue to be subject to rate regulations.
While current FCC regulations are intended to promote the development of a
competitive pay television industry, the rules and regulations affecting the
wireless cable industry may change, and any future changes in FCC rules,
regulations, policies and procedures could have a material adverse effect on
the industry as a whole and on the Company in particular. In addition, a number
of legal challenges to the Cable Act and the regulations promulgated thereunder
have been filed, both in the courts and before the FCC. These challenges, if
successful, could substantially increase the Company's operating costs, make
some programming unavailable to the Company and otherwise have a material
adverse effect on the wireless cable industry as a whole or the Company in
particular. In particular, those sections of the Cable Act which prohibit
discriminatory or unfair practices in the sale of satellite cable and satellite
broadcast programming to competing multichannel video programming distributors
have been challenged. The Company's costs to acquire satellite cable and
broadcast programming may be affected by the outcome of those challenges. See
"Business -- Availability of Programming." Other aspects of the Cable Act that
have been challenged, the outcome of which could adversely affect the Company
and the wireless cable industry in general, are the Cable
-8-
<PAGE> 9
Act's provisions governing rate regulation and customer service standards to be
met by traditional hard-wire cable companies. The Cable Act empowered the FCC
to regulate the subscription rates charged by traditional hard-wire cable
operators. As described above, the FCC recently issued rules requiring such
cable operators, under certain circumstances, to reduce the rates charged for
basic services by 17%. The Cable Act also empowered the FCC to establish
certain minimum customer service standards to be maintained by traditional
hard-wire cable operators. These standards include prompt responses to customer
telephone inquiries, reliable and timely installations and repairs and readily
understandable billing practices. Should these provisions withstand court and
regulatory challenges, the extent to which wireless cable operators may
continue to maintain an advantage over traditional hard-wire cable operators in
price and customer service practices could be diminished.
The Telecommunications Act of 1996 removes certain barriers to investment
by telephone companies in hard-wire cable companies. The legislation lifts the
current statutory cross-ownership ban contained in the Communications Act,
which prevents a telephone company from using hard-wire facilities to provide
cable television service to the same community where it provides telephone
service. The statutory ban was never applied to a telephone company's
investment in wireless cable. Telephone companies operating in the markets
serviced by the Company were legally permitted to build, lease or purchase
hard-wire cable systems and become competitors of the Company.
Other Regulations. Since the vast complex of coaxial cable utilized by
traditional hard-wire cable operators requires a "right of way" to cross
municipal streets, such operators must acquire a municipal franchise and pay
municipal franchise fees. Since wireless cable uses FCC approved frequencies,
it does not require a municipal right of way. Accordingly, wireless cable
operators are not subject to those franchise fees. Traditional hard-wire cable
operators are also required to set aside public access channels for municipal
and local resident use. Wireless cable operators are not subject to these
requirements.
Wireless cable license holders are subject to regulation by the FAA with
respect to the construction of transmission towers and to certain local zoning
regulations affecting construction of towers and other facilities. There may
also be restrictions imposed by local authorities. There can be no assurance
that the Company will not be required to incur additional costs in complying
with such regulations and restrictions.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to transmit
programming over specified frequencies, the operator must then obtain the right
to use the programming to be transmitted.
General. Currently, with the exception of the retransmission of local
off-air VHF/UHF broadcast signals, programming is made available in accordance
with contracts with program suppliers under which the system operator pays a
royalty based on the number of subscribers receiving service each month.
Individual program pricing varies from supplier to supplier; however, more
favorable pricing for programming is generally afforded to operators with
larger subscriber bases. The likelihood that program material will be
unavailable to the Company has been significantly mitigated by the Cable Act
and various FCC regulations issued thereunder which, among other things, impose
limits on exclusive programming contracts and prohibit cable programmers in
which a cable operator has an attributable interest from discriminating against
cable competitors with respect to the price, terms and conditions of
programming. Only a few of the major cable television programming services
carried by the Company are not currently directly owned by vertically
integrated multiple cable system operators and the Company historically has not
had difficulty in arranging satisfactory contracts for these services. The
basic programming package offered in each of the Existing Systems is comparable
to that offered by the local traditional hard-wire cable operators. However,
several of such local traditional hard-wire cable operators currently offer
more premium, pay-per-view and public access channels than the Company.
Copyright. Under the Federal copyright laws, permission from the
copyright holder generally must be secured before a video program may be
retransmitted. Under Section 111 of the Copyright Act, certain "cable systems"
are entitled to engage in the secondary transmission of programming without the
prior permission of the holders of copyrights in the programming. In order to
do so, a cable system must secure a compulsory copyright license. Such a
license may be obtained upon the filing of certain reports and the payment of
certain fees set by the Copyright Royalty Tribunal.
Wireless cable operators may rely on Section 111. The United States
Congress recently enacted legislation that confirmed the ability of wireless
cable operators to obtain the benefit of the compulsory copyright license.
Periodically, Congress has considered proposals to phase out the compulsory
license. Since the Existing Systems
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<PAGE> 10
retransmit only a limited number of broadcast channels, the Company does not
believe that the termination of the compulsory copyright license would have a
material adverse effect on the Company.
Effective October 6, 1993, local broadcasters may require that cable
operators obtain their consent before retransmitting local off-air VHF/UHF
broadcasts. The FCC has exempted wireless cable operators from the
retransmission consent rules if the receive-site antenna is either owned by the
subscriber or within the subscriber's control and available for purchase by the
subscriber upon the termination of service. In all other cases, wireless cable
operators must obtain consent to retransmit local broadcast signals. The
Company has obtained such consents in each of its Existing Systems where the
Company is retransmitting on a wireless cable channel. Such consents will be
required in the Company's other markets. There can be no assurance that the
Company will be able to obtain such consents on terms satisfactory to the
Company, if at all.
PAY TELEVISION INDUSTRY TRENDS
The Company's business will be affected by pay television industry trends
and, in order to maintain and increase its subscriber base in the years ahead,
the Company will need to adapt rapidly to industry trends and modify its
practices to remain competitive. Due to the limited number of physical
components of the wireless transmission system, the Company believes it will be
less expensive for it to adapt to coming industry trends than for traditional
hard-wire cable operators. The cost of such adaptation by the Company could
nonetheless be substantial.
Compression. Several decoder manufacturing companies are developing
digital compression technology, which would allow several programs to be
carried in the amount of bandwidth where only one program is carried now.
Manufacturers have projected varying compression ratios for future equipment,
with more conservative estimates ranging from three-to-one to 10-to-one. Within
12 months, the Company believes compression technology, allowing six to 10
channels within one six-MHZ bandwidth, will be available. It is generally
expected that the intended use for this expanded channel capacity would be for
pay-per-view video services. Wireless cable will be able to immediately use
digital compression technology when it becomes available, through existing and
upgraded set-top converters. The Company believes traditional hard-wire cable
companies will be required to expend significant funds on upgrading current
systems in order to utilize digitally-compressed signals.
Addressability and Pay-Per-View. "Addressability" means the ability to
implement specific orders from or send other communications to each subscriber
without having to modify a subscriber's equipment. "Impulse" addressability
allows a subscriber to select specialized programming, such as pay-per-view, on
an immediate basis simply through the remote control. While the Company, like
many wireless cable operators, uses impulse addressable set-top converters,
only approximately 35% of traditional hard-wire cable operators use
addressability and approximately 5% use impulse addressability. Without
addressability, a traditional hard-wire cable customer not subscribing to a
premium channel must make two trips to the traditional hard-wire cable
operator's offices, once to obtain the descrambling device and once to return
it. A customer subscribing to a premium channel must telephone the traditional
hard-wire cable operator in advance. The Company believes this lack of
convenience has hindered pay-per-view sales. Pay-per-view is expected to become
more popular as additional exclusive events become available for distribution
on pay-per-view. Compression technology will greatly expand the channel
capacity available for such programming. The Company believes that it will then
have an additional advantage over most traditional hard-wire cable operators
because its impulse addressable converters provide greater convenience for its
subscribers. Traditional hard-wire cable operators will incur significant
expenditures to upgrade their systems to be able to offer impulse
addressability.
Advertising. Until recently, most advertising on cable has been sold by
program suppliers, who sell national advertising time as part of the signal
they deliver to cable operators. Recently, however, advertisers have begun
placing advertisements on channels dedicated exclusively to advertising, as
well as in local available time (typically, two minutes each hour) set aside by
program suppliers for local insertions in their programming of advertisements
sold by cable operators. Use of local available time requires automatic spot
insertion equipment, which is readily available today at a minimal capital
cost.
Interactivity. Certain traditional hard-wire cable operators have
announced their intentions to develop interactive features for use by their
subscribers. Interactivity would allow subscribers to utilize their televisions
for two-way communications such as video games and home shopping. Wireless
cable operators will be able to utilize a frequency which the FCC has made
available for interactive communications. At this time, the Company believes
that commercial viability of interactivity in the Company's markets is at least
several years away.
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<PAGE> 11
COMPETITION
In addition to competition from established traditional hard-wire cable
television systems, wireless cable television operators face competition from a
number of other sources, including potential competition from emerging trends
and technologies in the pay television industry, some of which are described
below.
Satellite Receivers. Satellite receivers are generally seven to 12 foot
dishes mounted in the yards of homes to receive television signals from
orbiting satellites. Until the implementation of encryption, these dishes
enabled reception of any and all signals without payment of fees. Having to
purchase decoders and pay for programming has reduced their popularity,
although the Company will to some degree compete with these systems in
marketing its services.
Direct Broadcast Satellite ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the customer's home. Because the
signal is at a higher power level and frequency than most satellite transmitted
signals, its reception can be accomplished with a relatively small (18 inch)
dish mounted on a rooftop or in the yard. DBS cannot, for technical and legal
reasons, provide local VHF/UHF broadcast channels as part of its service,
although many DBS subscribers receive such channels via standard over-air
receive antennas. Moreover, DBS may provide subscribers with access to
broadcast network distant signals only when such subscribers reside in areas
unserved by any broadcast station. The cost to a DBS subscriber for equipment
and service is generally substantially higher than the cost to wireless cable
subscribers. Three DBS services currently are available nationwide, and two
more are expected to commence service in 1996. AT&T Corp. has announced plans
to invest $137.5 million in DirecTv, Inc., a leading provider of DBS service,
and MCI Communications Corp. has announced that it has entered into a DBS joint
venture arrangement with News Corp., using a license that MCI won at a FCC
auction for which it is paying a reported $682.5 million. DBS currently has
approximately 2.3 million subscribers nationwide. At present, the Company does
not believe that in the near-term DBS will constitute competition in the
markets in which the Company operates due primarily to its cost and failure to
provide local VHF/UHF broadcast channels.
Satellite Master Antenna Television ("SMATV"). SMATV is a multi-channel
television service offered through a wired plant very similar to a traditional
hard-wire cable system, except that it operates without a franchise from a
local authority. SMATV operates under an agreement with a private landowner to
service a specific multiple-dwelling unit. The FCC has recently amended its
rules to provide point-to-point delivery of video programming by SMATV
operators and other video delivery systems in the 18 gigahertz band.
Telephone Companies. Under the Communications Act, local exchange
carriers ("LECs") are currently prohibited from providing video programming
directly to subscribers in their respective telephone service areas. The FCC
has recently ruled, however, that LECs may acquire wireless cable channel
operations. Moreover, certain U.S. District Courts and Courts of Appeal have
held that the "telco-cable cross-ownership ban" abridges the First Amendment
rights of LECs to free expression under the U.S. Constitution. Such rulings are
currently under appeal or are expected to be appealed. The Telecommunications
Act of 1996 lifts barriers to the provision of cable television service by
telephone companies. The FCC already permits LECs to provide "video dial-tone"
service, thereby allowing such carriers to make available to multiple service
providers, on a nondiscriminatory common carrier basis, a basic platform that
will permit end users to access video program services provided by others.
While the competitive effect of the entry of telephone companies into the
video programming business is still uncertain, the Company believes that
wireless cable systems will continue to maintain a cost advantage over video
dialtone service and fiber optic distribution technologies.
Video Stores. Retail stores rent VCRs and/or video tapes, and are a major
participant in the television program delivery industry. According to Paul
Kagan Associates, Inc., there are over 75.5 million households with VCRs now in
use in the United States.
Local Off-Air VHF/UHF Broadcasts. Local off-air VHF/UHF broadcasts (such
as ABC, NBC, CBS and Fox) provide a free programming alternative to the public.
Previously, wireless cable systems could retransmit these broadcast signals
without permission. However, effective October 6, 1993, pursuant to the Cable
Act, local broadcasters may require that cable operators obtain their consent
before retransmitting local off-air VHF/UHF broadcasts. The Company has
obtained such consents in the Existing Systems where the Company is
retransmitting on a wireless cable channel. The FCC also has recently permitted
broadcasters to acquire, subject to certain restrictions, ownership interests
in traditional hard-wire cable systems.
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<PAGE> 12
Local Multi-Point Distribution Service. In 1993, the FCC proposed to
redesignate the 28 gigahertz band to create a new video programming delivery
service referred to as local multipoint distribution service ("LMDS"). In July
1995, the FCC proposed to award licenses in each of 493 BTAs pursuant to
auctions. Sufficient spectrum for up to 49 analog channels has been designated
for the LMDS service. The FCC has not determined how many licenses it will
award in each BTA. Final rules for LMDS have not been established. Auctions are
not expected to begin until later in 1996.
Low Power Television ("LPTV"). Low Power Television ("LPTV") utilizes a
limited portion of the spectrum allocated by the FCC for local off-air VHF/UHF
broadcasts, but LPTV utilizes lower power transmission equipment than local
off-air VHF/UHF broadcasts and its signal may be encrypted. LPTV typically has
only a 15 to 20 mile signal range. LPTV requires a separate transmitter for
each channel and a standard antenna at the receiving site.
BUSINESS STRATEGY
The Company's primary business objective is to develop, own and operate
wireless cable television systems in markets in which the Company believes it
can achieve positive cash flow and operating income rapidly after system launch
and then expand such system while increasing such system's operating income.
Rural Market Focus. The Company aggregates wireless cable channel rights
and locates operations in geographic clusters of small to mid-size markets that
have a substantial number of households not currently passed by traditional
hard-wire cable. The Company believes that this size market typically has a
stable economic base, less competition from alternative forms of entertainment
and terrain and other conditions conducive to wireless cable transmissions.
Managed Subscriber Penetration. The Company attempts to manage system
launch and subscriber growth in order to contain system launch costs and to
achieve positive cash flow rapidly. Typically, the Company's operating systems
achieve positive monthly operating cash flow upon obtaining an average of
approximately 1,200 to 1,500 subscribers. Within a system, the Company
initially directs its marketing at unpassed households, which typically have
limited access to local off-air VHF/UHF broadcast channels. Accordingly, the
Company believes it can launch service successfully in most of its markets with
only 12 channels of programming, allowing it to contain system launch costs and
achieve positive cash flow with a lower number of subscribers. Generally, once
a system achieves positive cash flow, the Company will expand the channel
offering and add subscribers while increasing such system's positive operating
cash flow. As of March 1, 1996, 29 of the Company's operating systems were
generating positive monthly operating cash flow. The remaining operating
systems that were not generating positive monthly operating cash flow had not
reached an average of 1,200 to 1,500 subscribers.
Low Cost Structure. Wireless cable systems typically cost significantly
less to build and operate than traditional hard-wire cable systems for several
reasons. First, while both traditional hard-wire cable operators and wireless
cable operators must construct a head-end, traditional hard-wire cable
operators must also install an extensive network of coaxial cable and
amplifiers in order to transmit signals from the head-end to subscribers. Once
the head-end is constructed, the Company estimates that each additional
wireless cable subscriber currently requires an incremental capital expenditure
by the Company of approximately $395 to $435, consisting of, on average, $275
to $300 of material, $95 to $105 of installation labor and overhead charges and
$25 to $30 of direct commission. Such incremental capital expenditures are
variable costs and are partially offset by installation fees paid by
subscribers. Second, without an extensive cable network, wireless cable
operators typically incur lower system maintenance costs and depreciation
expense. Third, programming is generally available to traditional hard-wire and
wireless cable operators on comparable terms, although operators that have a
smaller number of subscribers often are required to pay higher per subscriber
fees. Fourth, the Company currently experiences a low rate of subscriber
turnover of on average approximately 1.5% per month, as compared to the "churn"
rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Reduced subscriber turnover reduces installation and
marketing expenses. Finally, by locating its operations in geographic clusters,
the Company can further contain costs by taking advantage of economies of scale
in management, sales and customer service.
Acquisition of ITFS Channel Rights. Because the Company believes it can
launch service successfully in its markets with as few as 12 channels of
programming, the Company focuses on development of the 20 available ITFS
channels. See "Business -- Regulatory Environment -- General." The Company
cooperates with many non-profit educational organizations in obtaining ITFS
licenses from the FCC. Once the Company has secured rights to at least 12 ITFS
channels in a market, the Company believes it can launch a commercially viable
system in such market. The
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<PAGE> 13
Company believes that its strategy of first developing the ITFS channels, in
lieu of the MDS channels, has resulted in aggregate leased license expense in
its operating systems that is less than the industry-wide average leased
license expense.
EXISTING SYSTEMS AND THE COMPANY'S MARKETS
The table below provides information regarding the 81 markets in which the
Company has wireless cable channel rights that it intended to retain and
develop as of March 1, 1996.
<TABLE>
<CAPTION>
ESTIMATED NUMBER OF
ESTIMATED LINE-OF- SUBSCRIBERS AT
TOTAL SIGHT CURRENT MARCH 1,
HOUSEHOLDS HOUSEHOLDS CHANNELS (1) 1996
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
EXISTING SYSTEMS
Ada, OK 27,950 20,693 32 5,680
Wichita Falls, TX 78,290 74,376 28 5,956
Midland, TX 120,037 114,035 26 4,865
Abilene, TX 86,676 82,344 23 3,674
Lawton, OK 97,023 92,172 27 7,260
Laredo, TX 313,406(2) 297,736(2) 27 6,126
Enid, OK 76,602 72,772 21 4,142
Lindsay, OK 52,266 42,646 32 3,453
Ardmore, OK 61,416 52,976 20 3,353
Mt. Pleasant, TX 33,589 26,871 16 2,110
Lufkin, TX 117,534 88,150 12 --(3)
Shaw, KS 47,223 42,763 30 3,881
Texarkana, TX 118,204 94,563 20 2,033
Stillwater, OK 54,562 40,922 20 6,365
Lubbock, TX 123,934 105,323 34 5,665
McLeansboro, IL 80,136 60,102 18 1,266
Vandalia, IL 73,593 55,195 20 1,899
Olney, IL 67,812 50,859 20 1,728
Lykens, OH 210,800 168,640 24 697
Paragould, AR 77,523 58,500 21 2,557
Sikeston, MO 69,837 52,378 24 3,008
Taylorville, IL 159,596 119,697 20 1,836
Peoria, IL 276,446 248,801 22 1,046
Manhattan, KS 56,473 42,335 20 1,336
O'Donnell, TX 68,940 65,493 20 1,568
Olton, TX 32,548 30,921 20 1,380
Monroe City / Lakenan, MO 46,376 34,782 27 1,674
Paris, TX 55,445 41,584 20 1,200
Sherman / Denison, TX 100,000 90,000 31 4,478
Harper / Freeport, IL 125,269 93,952 20 504
Corsicana / Athens, TX 69,161 62,245 23 165
Strawn / Ranger, TX 34,488 25,866 20 239
Hamilton, TX 28,551 21,413 20 --(4)
Champaign, IL 164,992 148,493 23 2,061
Austin, TX 360,000 250,000 31 12,453
Temple / Killeen, TX 110,000 80,000 35 6,737
Waco, TX 100,000 80,000 35 4,289
Corpus Christi, TX 135,000 108,000 31 15,392
--------- --------- -------
Total -- Existing Systems 3,911,698 3,237,618 132,076
========= ========= =======
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED LINE-OF- CHANNELS AT
TOTAL SIGHT LAUNCH
HOUSEHOLDS HOUSEHOLDS (1) (5)
---------- ---------- -----------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION (6)
Anthony, KS 15,798 11,845 16
Forrest City, AR 55,642 41,732 21
Marion, KS 53,881 40,411 19
Peaksville, MO 48,157 36,118 15
Purdin, MO 25,001 18,751 20
Sterling, KS 45,213 38,431 24
Stromsberg, NE 34,813 29,591 20
Tulsa, OK 321,922 273,634 16
Walnut Grove, IL 84,226 63,170 20
--------- ---------
Total -- Systems Under
Construction 684,653 553,683
========= =========
FUTURE LAUNCH MARKETS (7)
Adairsville, GA 205,662 154,247 16
Altus, OK 30,653 29,120 16
Amarillo, TX 106,670 101,337 26
Bellflower, MO 63,384 57,046 20
Bluffs, IL 46,389 34,792 20
Burnet, TX 24,917 18,688 16
Charlotte, TX 32,771 24,578 16
Columbia, MO 149,622 127,179 18
Crow, TX 71,421 57,137 12
Des Moines, IA 267,279 240,551 16
El Dorado, AR 54,727 38,310 16
El Paso, TX 200,000 180,000 27
Elk City, OK 26,379 21,103 16
Fischer, TX 317,039 237,779 20
Henryetta, OK 31,968 25,574 16
Holdenville, OK 50,637 45,573 20
Ingram, TX 26,235 19,676 20
Kossuth, TX 52,490 39,368 20
Lenapah, OK 51,921 38,941 12
Mayfield, KY 175,948 155,972 21
McAlester, OK 36,475 25,533 20
Miami, OK 70,820 60,197 15
Muskogee, OK 66,510 53,208 20
Portsmouth, NH 384,389 288,292 27
Powers Crossroads, GA 135,037 101,278 20
Rutledge, GA 141,370 106,028 16
Sabinal, TX 15,795 11,846 20
Seminole, OK 42,204 35,873 19
Shreveport. LA 214,315 182,168 24
Springfield, MO 139,706 118,750 16
Topeka, KS 211,762 190,586 16
Tyler, TX 233,416 186,734 14
Weatherford, OK 31,445 29,873 16
Wick, OH 336,098 268,878 20
--------- ---------
Total -- Future Launch Markets 4,045,454 3,306,215
--------- ---------
TOTAL -- ALL COMPANY MARKETS 8,641,805 7,097,516
========= =========
</TABLE>
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<PAGE> 15
- -------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted
by the Company over wireless cable channels.
(2) Includes households located in Mexico, to which the Company would be
permitted to provide service in conjunction with a Mexican-owned company.
(3) Construction of the Lufkin System was completed in December 1994. The
Company is not actively marketing its service in the Lufkin System because
it is awaiting action by the FCC to grant licenses, which would increase
the number of wireless cable channels available to the Company.
(4) The Hamilton System was launched on February 27, 1996.
(5) The Company's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although the Company has no
current intention to launch any market with less than 12 channels, the
Company will launch certain markets with more than 12 channels and may, at
some point in the future, launch one or more markets with less than 12
channels due to FCC construction deadlines or competitive considerations
in such markets. Expected channels at launch includes channels with
respect to which the Company has a lease with or an option from a channel
license holder, an applicant for a channel license or an entity that has
had an application for a channel license returned without prejudice by the
FCC and which will be refiled. In certain markets, the Company has rights
to additional wireless cable channels but does not expect to utilize such
channels upon system launch.
(6) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
the Company has a lease with or an option from a channel license holder or
an applicant for a channel license.
(7) Such markets include 30 markets with respect to which the Company has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which the
Company has a lease with or an option from an applicant for a channel
license or an entity that has had an application for a channel license
returned without prejudice by the FCC and which will be refiled. The
Company expects a substantial number of such licenses to be granted by the
FCC.
Existing Systems. At March 1, 1996, the Company had 38 Existing Systems.
The Company generally offers 16 to 24 basic cable channels, one to three
premium channels (HBO, Showtime and Cinemax) and one pay-per-view channel.
Local off-air channels are received by the subscriber along with the Company's
wireless channels, thereby adding an average of three to six channels to the
basic channels offered, resulting in aggregate offerings of approximately 18 to
32 channels. Generally, the Company's Existing Systems lease all of their
wireless cable channels. The terms of such leases typically expire 10 years
from the license grant date, ranging from years 1998 to 2005, and such leases
provide for either a right of first refusal or two automatic five-year renewal
periods or one 10-year renewal period. The Existing Systems transmit at 10 to
50 watts of power from a transmission tower that generally has a signal pattern
covering a radius of 35 to 50 miles.
Systems Under Construction. At March 1, 1996, the Company had nine
additional systems under construction, which are located in Anthony, Marion and
Sterling, Kansas, Forrest City, Arkansas, Peaksville and Purdin, Missouri,
Stromsberg, Nebraska, Tulsa, Oklahoma and Walnut Grove, Illinois. In each of
the systems under construction, the Company has ordered equipment to commence
construction necessary to transmit on its channels in such markets.
Generally, the Company's systems under construction lease all of their
wireless cable channels. The terms of such leases typically expire 10 years
from the license grant date, ranging from years 2001 to 2005, and such leases
provide for either a right of first refusal or two automatic five-year renewal
periods or one 10-year renewal period. The systems under construction transmit
at 10 to 50 watts of power from a transmission tower that generally has a
signal pattern covering a radius of 35 to 50 miles.
Future Launch Markets. In these markets, the Company has aggregated or is
aggregating additional wireless cable channel rights. In 30 of the future
launch markets, the Company has aggregated sufficient wireless cable channel
rights to commence construction of a system and in four of such markets, the
Company has leases with or options from applicants for channel licenses that
the Company expects to be granted by the FCC. The vast majority of the
Company's channel rights in the future launch markets are in the form of lease
agreements with educational entities that have pending applications for ITFS
channels or that have had applications returned without prejudice by the FCC
which will be refiled. These ITFS applications are expected to undergo review
by the FCC's engineers and staff attorneys over the next 24 months. Once the
FCC staff determines that the applications meet certain basic technical and
legal qualifications, the staff will then determine whether each application is
proximate to the transmit and receive-site locations of other applications.
Those applications that would result in signal interference to other pending
applications must then undergo a comparative selection process. The FCC's ITFS
application selection process is based on a set of objective criteria that
includes whether an applicant is located in the community to be served and the
number of students that will receive the applicant's educational programming.
Thus, the outcome of the selection process when two or more qualified
applicants are competing for the same channels lends itself to a degree of
predictability that varies according to the circumstances. Most of the
Company's lease agreements with applicants for channel licenses involve channel
licenses for which Competing Applications have been filed and Competing
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<PAGE> 16
Applications may be filed with respect to the applications to be refiled. In
each market, the Company has carefully considered the FCC's selection criteria
in choosing the educational entities with which it has entered into lease
agreements. The Company therefore anticipates that a substantial number of the
pending applications and applications to be refiled will be granted by the FCC.
However, because the FCC's application review process does not lend itself to
complete certainty, and given the considerable number of applications involved,
no assurance can be given as to the precise number of applications that will be
granted.
The Company currently plans to finish construction of all systems
currently under construction during the second quarter of 1996 and the Company
currently expects to construct approximately 25 to 30 systems during 1996.
Construction will entail the construction of a transmission building near a
transmission tower and the installation of transmission equipment and, in
certain cases, the construction of the transmission tower. The construction of
the transmission facility will enable the Company to launch wireless cable
service in such markets. The Company is analyzing the appropriate construction
schedule for its additional markets. This analysis is being performed based
upon multiple factors, including, but not limited to, the expiration dates of
leases and FCC construction permits, the number of potential subscribers in
each market, the availability of capital and the proximity of a market to its
existing systems or other markets ready for construction.
SYSTEM COSTS
Traditional hard-wire cable systems typically cost significantly more to
build than wireless cable systems. The Company estimates that the current cost
per market for transmission (or head-end) equipment for its wireless cable
systems will average approximately $750,000 to $900,000 depending upon the type
and sophistication of the equipment and whether the Company is required to
construct a transmission tower. Although traditional hard-wire cable operators
must also construct a transmission (or head-end) facility, hard-wire systems
must also install a network of coaxial cable and amplifiers in order to deliver
signals to their subscribers. This considerable cost is not incurred by
wireless cable operators and is only partially offset by the cost a wireless
cable operator incurs to purchase and install the wireless frequency receiving
antenna and related equipment necessary for each subscriber's location. The
Company estimates that each additional wireless cable subscriber currently
requires an incremental capital expenditure by the Company of approximately
$395 to $435, consisting of, on average, $275 to $300 of material, $95 to $105
of installation labor and overhead charges and $25 to $30 of direct commission.
Such incremental capital expenditures are variable costs and are partially
offset by installation fees paid by subscribers.
The system operating costs for wireless cable systems also are generally
lower than those for comparable traditional hard-wire systems. This is
attributable to lower system network maintenance and depreciation expense.
Programming is generally available to traditional hard-wire and wireless cable
operators on comparable terms, although operators that have a smaller number of
subscribers often are required to pay higher per subscriber fees. Accordingly,
operators in the initial operating stage generally pay higher programming fees
on a per subscriber basis. The Company currently experiences a low rate of
subscriber turnover of approximately 1.5% per month, as compared to the "churn"
rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Reduced subscriber turnover reduces installation and
marketing expenses. By locating its operations in geographic clusters, the
Company can further contain costs by taking advantage of economies of scale in
management, sales and customer service. Each of the Company's operating systems
or system clusters is managed by a general manager who reports directly to a
regional manager. General managers are responsible for the day-to-day
operations of their respective systems. Each operating system is staffed with
customer service and sales representatives and service technicians. All other
functions, including engineering, marketing, billing, and finance and
administration, are centralized.
MARKETING AND CUSTOMER SERVICE
The Company markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
pay-television alternatives: (i) picture quality and reliability, (ii) customer
service, (iii) programming features and (iv) price.
Picture Quality and Reliability. The Company's transmission facilities
use the latest available technology. The Company believes that it is
positioning itself as a reliable alternative to traditional hard-wire cable by
delivering a high quality signal throughout the entire signal area of the
Existing Systems. Wireless cable subscribers enjoy substantially outage-free,
highly reliable picture quality because there is no coaxial cable,
amplifiers or processing
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and filtering equipment between the head-end and the subscriber's household, as
in the case of traditional hard-wire cable. Within the signal range of the
Existing Systems, the picture quality of the Company's service is at least as
good as that typically received by traditional hard-wire cable subscribers
because, absent any line-of-sight obstruction, there is less opportunity for
signal degradation between the Company's head-end and the subscriber.
Customer Service. The Company has established the goal of maintaining
high levels of customer satisfaction. In furtherance of that goal, the Company
emphasizes responsiveness and convenient installation scheduling. The Company
has established customer retention and referral programs in an effort to obtain
and retain new subscribers. The Company plans to expand its customer service
operations and management information systems as its systems in operation
expand. Because municipal franchises created virtual monopolies for traditional
hard-wire cable companies, in the past, few have had an incentive to provide a
level of customer service as high as the Company provides. The regulations
authorized under the Cable Act will require traditional hard-wire cable
companies to provide improved customer service which may decrease the Company's
competitive advantage in this area.
Programming Features. In the Existing Systems (other than the Lufkin,
Texas System) and markets under construction, the Company believes that it has
assembled sufficient channel rights and programming agreements to provide a
programming package competitive with those offered by traditional hard-wire
cable operators. Additionally, the Company has the capacity to offer
pay-per-view programming and impulse addressability not currently widely
offered by traditional hard-wire cable operators. The Company's typical channel
offering includes between 16 and 24 basic cable channels, one to three premium
channels (HBO, Showtime or Cinemax) and one pay-per-view channel on an
event-by-event basis. Specific programming packages vary according to
particular market demand. Local off-air channels are received by the subscriber
along with the Company's wireless channels, thereby adding an average of three
to six channels to the basic channels offered and resulting in aggregate
offerings of approximately 18 to 32 channels.
Price. The Company offers its subscribers a programming package
consisting of basic service and premium programs. The Company can offer a price
to its subscribers for basic service that is competitive with traditional
hard-wire cable operators because of lower capital and operating costs. The
Company is unable to predict precisely what effect FCC regulations enacted
pursuant to the Cable Act will have on the rates charged by traditional
hard-wire cable operators. Notwithstanding the regulations, the Company
believes it will continue to be price competitive with traditional hard-wire
cable operators with respect to comparable programming. The Company's typical
pricing structure is $17.95 to $19.95 for basic service and $5.95 to $9.95 for
one premium service channel or $14.95 for a combination premium service.
Depending on market demand and competition, the Company offers a combination
package consisting of basic service, rental of the receive-site equipment and
two premium channels for $29.95 per month.
EMPLOYEES
As of March 1, 1996, the Company had approximately 1,040 employees. None
of the Company's employees is subject to a collective bargaining agreement. The
Company has experienced no work stoppages and believes that it has good
relations with its employees. The Company also presently utilizes the services
of independent contractors to build and install certain of its wireless cable
systems and market its services.
ACQUISITIONS, DIVESTITURES AND RECENT TRANSACTIONS
RuralVision Joint Venture. On August 19, 1994, RuralVision Joint Venture,
a newly-formed general partnership in which each of the Company and Cross
Country Wireless, Inc. ("Cross Country") had a 50% interest, purchased
substantially all of the assets (the "RuralVision Assets"), including five
operating wireless cable systems and channel rights in approximately 100
markets, from RuralVision Central, Inc. and RuralVision South, Inc.
(collectively, "RuralVision"). The aggregate purchase price of approximately
$50 million for the RuralVision Assets was comprised of a $46 million note
bearing interest at the rate of 8% per annum (the "RuralVision Note") and
approximately $4.0 million of acquisition-related costs paid primarily by the
Company and Cross Country. The Company and Cross Country guaranteed the
payment of the RuralVision Note.
On December 1, 1994, the Company purchased the wireless cable system
located in Milano, Texas and additional wireless cable channel rights acquired
from RuralVision in 37 other markets (collectively, the "RuralVision Purchased
Assets") from RuralVision Joint Venture for $14.0 million.
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On January 27, 1995, the Company, Cross Country and RuralVision entered
into agreements (collectively, the "Venture Distribution Agreement"), as a
result of which the Company (i) paid an additional $4.32 million (including
accrued interest of $320,000) in satisfaction of 50% of the remaining
RuralVision Note, $513,000 (including accrued interest of $13,000) in
satisfaction of 50% of the remaining balance of certain liabilities which
RuralVision Joint Venture had assumed and transaction costs of $592,000
(collectively, the "Distribution Agreement Payments") and (ii) received a
distribution (the "RuralVision Distribution") from RuralVision Joint Venture of
an operating wireless cable system and wireless cable channel rights in 36
other markets (the "RuralVision Distributed Assets") with a carrying amount of
approximately $17.4 million. As part of the transaction, the Company granted
to Cross Country the right to sell 14 non-operating markets (the "Put Markets")
remaining in RuralVision Joint Venture to the Company for $3.25 million
(reduced dollar for dollar by the proceeds of any partial sales to third
parties of any such assets) on May 17, 1995. Cross Country exercised this
right and as a consequence the Company acquired the Put Markets. In addition,
on May 17, 1995, the Company assigned its remaining interest in RuralVision
Joint Venture to an unrelated third party in exchange for nominal consideration
and, as a result, ceased to be a joint venturer thereof on such date.
At March 1, 1996, the Company's 81 markets included 37 wireless cable
markets acquired by or distributed to the Company from RuralVision joint
venture that it currently intends to retain, own and develop (the "RuralVision
Retained Assets"). Approximately 52 wireless cable markets (the "RuralVision
Sale Assets") acquired by or distributed to the Company from RuralVision Joint
Venture are not included in the discussion of the Company's business because
the Company has disposed of 32 markets included in the RuralVision Sale Assets
and the remaining RuralVision Sale Assets comprising 20 markets are not a part
of the Company's long-term business plan.
In total, the Company expended, through contributions to RuralVision Joint
Venture, payment of the Distribution Agreement Payments, the acquisition of the
RuralVision Purchased Assets and the acquisition of the Put Markets, an
aggregate of approximately $35 million. The Company has disposed of certain
RuralVision Sale Assets with respect to 34 wireless cable markets for aggregate
consideration of approximately $49 million plus two wireless cable markets
comprising approximately 2,040 subscribers and 267,000 line-of-sight
households. The net result of the RuralVision acquisitions, dispositions and
trades, excluding proceeds from the planned disposition of the remaining
RuralVision Sale Assets, is that the Company acquired wireless cable channel
rights in 39 markets representing an aggregate of approximately 2.3 million LOS
households and 5,600 subscribers (as of the date of acquisition) for a nominal
cost.
Acquisitions of Minority Interests in Subsidiaries. During February 1995,
the Company offered minority shareholders in 23 subsidiaries the opportunity to
exchange their minority interests for shares of Common Stock. The exchange
offer was consummated on March 15, 1995 and the Company issued an aggregate of
304,038 shares of common stock in exchange for minority interests in 21
subsidiaries (18 of which are now wholly-owned).
Unit Offering. On April 26, 1995, the Company consummated a private
placement of 100,000 units (the "Units") consisting of $100 million aggregate
principal amount of 13% Senior Notes due 2003 ("Senior Notes") and 600,000
warrants to purchase an equal number of shares of Common Stock at an exercise
price of $19.525 per share to the initial purchasers. The Company placed
approximately $24.1 million of the approximately $95.3 million net proceeds
from the sale of the Units into an escrow account and used approximately $3
million of such proceeds to repay indebtedness. In connection with the
issuance of the Senior Notes, the Company agreed, among other things, to file
within 30 days of the issue date a registration statement with the Securities
and Exchange Commission (the "Commission") with respect to an offer to exchange
new notes registered under the Securities Act of 1933 for the Senior Notes,
which new notes will be identical in all respects to the Senior Notes, except
that the new notes will not contain terms with respect to transfer restrictions
and to cause such registration statement to become effective within 120 days of
the issue date. See "Business -- Acquisitions, Divestitures and Recent
Transactions -- Exchange Offer of Senior Notes."
Lubbock, Texas and Tulsa, Oklahoma Acquisitions. In May 1995, the Company
purchased an operating wireless cable system in the Lubbock, Texas market for
approximately $5.4 million and wireless cable channel rights in the Tulsa,
Oklahoma market for approximately $2.0 million and the forgiveness of a $2.0
million note receivable.
Sale of Markets. In May 1995, the Company sold certain wireless cable
channel rights in five markets to an unaffiliated entity for $2.7 million in
cash. In July 1995, the Company sold certain wireless cable channel
rights in five markets in New Mexico to an unaffiliated entity for $637,500 in
cash and a $562,500 note receivable.
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Cross Country Acquisition. On July 18, 1995, the Company privately placed
1,029,707 shares of Common Stock to RuralVision Joint Venture in exchange for
$20 million in cash. Immediately subsequent to the issuance of the shares to
RuralVision Joint Venture, the Company acquired substantially all of the
remaining assets of RuralVision Joint Venture, consisting primarily of wireless
cable systems located in Lykens, Ohio; Paragould, Arkansas; Sikeston, Missouri
and channel rights in additional markets located in five states for $20 million
in cash (the "Cross Country Acquisition").
Consent Solicitation. Between September 12, 1995 and September 29, 1995,
the Company engaged in the solicitation of consents (the "Consent
Solicitation") of the holders of its 13% Senior Notes due 2003 (the "Senior
Notes") to (i) amend certain provisions of the indenture then in effect
governing the Senior Notes (the "Original Indenture") to permit the Company to
consummate the Wireless One Transaction (as hereinafter defined), the
CableMaxx, AWS and Technivision Acquisitions (as hereinafter defined) and the
CS Wireless Transaction (as hereinafter defined) and (ii) additionally amend
certain definitions and covenants in the Original Indenture, which imposed
restrictions on the Company's ability to pursue certain additional acquisition,
divestiture, financing and other opportunities that the Company believed were
necessary to enhance the value of the Company. The amendments referred to in
(i) and (ii) above and sought by the Company in the Consent Solicitation are
referred to herein as the "Amendments."
In the Original Indenture, the Company agreed, among other things, to
certain restrictions on its and its subsidiaries' ability to make certain
investments, to incur certain indebtedness and to consummate certain asset
sales. Accordingly, in order to enable the Company to consummate the CableMaxx,
AWS and Technivision Acquisitions and to facilitate the Company's ability to
pursue such additional opportunities, if and when they arise, the Company
engaged in the Consent Solicitation.
The Amendments required the approval of at least a majority in aggregate
principal amount of the Senior Notes that were outstanding on or prior to
September 29, 1995, the expiration date of the Consent Solicitation. The
Amendments received approval of approximately 95.5% in aggregate principal
amount of the Senior Notes and, accordingly, became effective as of October 2,
1995 upon the execution of a supplemental indenture embodying such Amendments.
Promptly after the effectiveness of the supplemental indenture including the
Amendments, the Company paid to each holder of the Senior Notes who delivered a
properly completed and executed consent form $10 in cash for each $1,000
principal amount of Senior Notes for which such consent form was delivered by
such holder. The Company paid an aggregate of $955,000 to the holders of the
Senior Notes in this regard.
The Wireless One Transaction. Effective October 24, 1995, the Company and
certain affiliates of Wireless One, Inc., a newly formed Delaware corporation
("Wireless One"), consummated a transaction (the "Wireless One Transaction")
pursuant to which the Company and such affiliates contributed all of their
respective wireless cable assets in various markets in Alabama, Florida,
Georgia, Louisiana and Texas in exchange for $10 million and common stock of
Wireless One. The Company contributed assets relating to 28 markets, including
16 of which were either previously held for sale or were markets in which the
Company had not yet aggregated sufficient wireless cable channel rights to
launch a commercially viable wireless cable system. As a result of the Wireless
One Transaction, and after giving effect to the initial public offering of its
common stock contemporaneously therewith, the Company became the beneficial
owner of approximately 26% (after exercise of the over-allotment option granted
to the underwriter of such initial public offering) of the outstanding common
stock of Wireless One (the "Wireless One Common Stock").
In connection with the Wireless One Transaction, the Company granted
Wireless One the option to purchase the wireless cable channel rights of the
Company and its subsidiaries in certain additional markets located in Florida,
for either Wireless One Common Stock or cash, at Wireless One's option.
The Company and certain of the other Wireless One stockholders, who
beneficially own in the aggregate 57.3% of the outstanding Wireless One Common
Stock, are parties to a stockholders agreement (the "Wireless One Stockholders
Agreement") whereby, among other things, they agreed to vote their shares of
Wireless One Common Stock so that the Board of Directors of Wireless One will
have up to seven members, up to three of whom will be designated by the Company
(at least one of whom cannot be an affiliate of Wireless One or the Company),
up to three of whom will be designated by the other Wireless One stockholders
who are parties to the Wireless One Stockholders
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Agreement, including Chase Manhattan Capital Company ("CMCC") (at least one of
whom must be independent of Wireless One and such stockholders), and one of
whom will be designated by CMCC.
In addition, the Company has agreed that with certain exceptions, from and
after the closing until the earlier to occur of the (i) third anniversary of
the closing and (ii) time when the Company and its affiliates cease to own at
least 5% of the outstanding Wireless One Common Stock, the Company will not,
and will cause each of its subsidiaries to not, engage in the wireless cable
television business or acquire wireless cable television assets or related
rights in any market in any of the states of Alabama, Georgia, Florida,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina or Tennessee,
except for the Memphis, Tennessee market and certain existing markets owned by
the Company in these states as of the date of consummation of the Wireless One
Transaction. Wireless One has agreed that, also subject to certain exceptions,
from and after the closing until the earlier to occur of the (i) third
anniversary of the closing and (ii) time when the Company and its affiliates
cease to own at least 5% of the outstanding Wireless One Common Stock, Wireless
One will not, and will cause each of its subsidiaries to not, engage in the
wireless cable television business or acquire wireless cable television assets
or related rights in any market in any of the states of Arizona, Arkansas,
Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Missouri, New Hampshire,
Oklahoma, Ohio, Texas and Wyoming, except for certain existing wireless cable
markets owned by Wireless One in these states as of the closing of the Wireless
One Transaction.
Amendment to Note Purchase Agreement. On October 3, 1995, the Company and
Jupiter entered into that certain Second Amendment to Note Purchase Agreement
(the "Second Amendment") to the Note Purchase Agreement for the Convertible
Notes (the "Note Purchase Agreement"). The Company agreed to such amendments in
connection with Jupiter's agreement to consent, pursuant to the terms of the
Note Purchase Agreement, to the merger with CableMaxx, Inc. Such amendments
included the following:
(a) The Company's agreement that Jupiter's consent would be required
for all acquisitions prior to December 31, 1997, except the acquisition of
channel rights in any wireless cable market where the Company previously
owned or leased 16 or more channels or a lease of channel rights in any
wireless cable market where the Company previously owned or leased 12 or
more channels, in each case subject to maximum aggregate consideration of
$900,000 in cash and 100,000 shares of restricted Common Stock, without
registration rights;
(b) The parties clarification that an acquisition of channel rights
for purposes of the foregoing restriction would include any loan made in
connection with an agreement to enter into a purchase transaction,
including any option agreement;
(c) The Company's agreement that Permitted Dispositions (as defined
in the Note Purchase Agreement) would be limited to dispositions for cash,
with Jupiter approval required for any non-cash dispositions and the
contribution of assets to any non-wholly owned entity.
(d) The definition of a Change of Control (as defined in the Note
Purchase Agreement) being amended to include a series of transactions
consummated prior to December 31, 1997, culminating in a Change of
Control;
(e) The period for which a Change of Control triggers a Material
Default (as defined in the Note Purchase Agreement) being extended until
December 31, 1997;
(f) The definition of a Material Default being clarified to confirm
that a Change of Control is a Material Default, whether or not the
transaction resulting in a Change of Control is approved by Jupiter; and
(g) The Jupiter nominee which is elected to the Board of Directors of
the Company serving as a member of the Compensation Committee of the
Company.
Exchange Offer of Senior Notes. Pursuant to a prospectus dated February
12, 1996, forming part of a Registration Statement on Form S-4 declared
effective by the Commission on February 12, 1996, the Company offered to
exchange $1,000 principal amount of exchange notes which have terms identical
in all material respects to the Senior Notes, except that the exchange notes do
not contain terms with respect to transfer restrictions, for each $1,000
principal amount of Senior Notes outstanding. Since the Company did not comply
with its registration
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obligations with respect to the Senior Notes in a timely manner, it was
required to pay additional interest (in addition to the scheduled payment of
interest) during the first 90 day period of such default in an amount equal to
0.50% per annum at the end of such 90-day period and additional interest of 1%
per annum during the subsequent period ending February 12, 1996.
CableMaxx, AWS and Technivision Acquisitions. Effective February 23,
1996, the Company, directly or through one or more subsidiaries, acquired all
the assets and liabilities and succeeded to the businesses of American Wireless
Systems, Inc. ("AWS") and CableMaxx, Inc. ("CableMaxx") and acquired
substantially all of the assets and certain of the liabilities and succeeded to
all of the businesses of Fort Worth Wireless Cable T.V. Associates (the "FTW
Partnership"), Wireless Cable TV Associates #38 (the "Minneapolis Partnership")
and Three Sixty Corp. ("TSC"), the successor to Technivision, Inc.
("Technivision"), (the aforementioned five transactions collectively referred
to herein as the "CableMaxx, AWS and Technivision Acquisitions"). The
CableMaxx, AWS and Technivision Acquisitions are discussed below:
The AWS Merger. On February 23, 1996, the Company consummated the merger
of Heartland Merger Sub., Inc., a wholly owned subsidiary of the Company
("Merger Sub"), with and into AWS pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of September 11, 1995 ("AWS Merger
Agreement") by and among the Company, Merger Sub and AWS. Pursuant to the
terms of the AWS Merger Agreement, Merger Sub was merged with and into AWS
whereupon AWS became a wholly owned subsidiary of the Company. Under the terms
of the AWS Merger Agreement, stockholders of AWS are entitled to receive, in
the aggregate, approximately 1,310,000 shares of the Company's Common Stock
having an aggregate value as of February 23, 1996 of approximately $35.0
million, of which approximately 125,000 shares having an aggregate value of
approximately $3.3 million are being held in an escrow established pursuant to
the AWS Merger Agreement to satisfy certain indemnification obligations of AWS
to the Company. As of March 1, 1996 options and warrants to purchase
approximately 574,566 shares of AWS Common Stock were outstanding that convert
by their terms into the right to purchase shares of the Company's Common Stock,
subject to certain adjustments. Pursuant to the AWS Merger Agreement, AWS has
agreed to use reasonable efforts to cause the holders of such options and
warrants to exercise, terminate or cancel such options or warrants. The assets
previously held by AWS included minority interests in the wireless cable
television systems of Minneapolis, Minnesota and Fort Worth, Texas (the
remaining interests being held by the FTW Partnership and Minneapolis
Partnership, respectively) and certain additional rights and properties held in
connection with wireless cable television markets located in Dallas, Texas, Los
Angeles, California and Memphis, Tennessee (collectively, the "AWS Assets").
The Company will seek to sell directly to a third party the Los Angeles,
California market. The Memphis, Tennessee market is subject to a pending
contract of sale to TruVision Cable, Inc. ("TruVision"). The Dallas, Texas
market, and AWS' interest in the Fort Worth, Texas and Minneapolis, Minnesota
markets were contributed by the Company to CS Wireless Systems, Inc. ("CS
Wireless") pursuant to the terms of a Participation Agreement dated December
12, 1995, as amended by Amendment No. 1 to Participation Agreement dated
February 22, 1996, by and among the Company, CAI Wireless Systems, Inc. ("CAI")
and CS Wireless (the "CS Wireless Participation Agreement"). See "Business --
Acquisitions, Divestitures and Recent Transactions -- CS Wireless Transaction."
The FTW Transaction. On February 23, 1996, the Company consummated the
acquisition of substantially all of the assets of the FTW Partnership pursuant
to the Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 ("FTW Agreement") by and between the Company and FTW Partnership.
Pursuant to the terms of the FTW Agreement, the Company acquired from the FTW
Partnership substantially all of the assets of the FTW Partnership, consisting
of an approximate 80.0% interest in a joint venture that owned and operating
the wireless cable television system in Fort Worth, Texas (the "FTW Venture
Interest"). Under the terms of the FTW Agreement, the Company issued
approximately 580,000 shares of the Company's Common Stock having an aggregate
value as of February 23, 1996 of approximately $15.5 million to the FTW
Partnership. As the owner of the FTW Venture Interest, the Company caused the
contribution, together with AWS, of the Fort Worth, Texas market to CS Wireless
pursuant to the terms of the CS Wireless Participation Agreement. See
"Business -- Acquisitions, Divestitures and Recent Transactions -- CS Wireless
Transaction."
The Minneapolis Transaction. On February 23, 1996, the Company
consummated the acquisition of substantially all of the assets of the
Minneapolis Partnership pursuant to the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 ("Minneapolis Agreement") by and between
the Company and Minneapolis Partnership. Pursuant to the terms of the
Minneapolis Agreement, the Company acquired from the
Minneapolis Partnership substantially all of the assets of the Minneapolis
Partnership, consisting of a 75.0% membership interest
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in and to American Wireless Systems of Minneapolis, L.L.C., a limited liability
company that owned and operated the wireless cable television system in
Minneapolis, Minnesota (the "LLC Interest"). Under the terms of the
Minneapolis Agreement, the Company issued approximately 810,000 shares of the
Company's Common Stock having an aggregate value as of February 23, 1996 of
approximately $21.7 million to the Minneapolis Partnership. As the owner of
the LLC Interest, the Company caused the contribution, together with AWS, of
the Minneapolis, Minnesota market to CS Wireless pursuant to the terms of the
CS Wireless Participation Agreement. See "Business -- Acquisitions,
Divestitures and Recent Transactions -- CS Wireless Transaction." 7,496 shares
of the Company's Common Stock issued to the FTW Partnership and 2,756 shares of
the Company's Common Stock issued to the Minneapolis Partnership are expected
to be distributed to AWS in its capacity as a partner in each of the
aforementioned Partnerships. Accordingly, the Company has classified those
shares of the Company's Common Stock as treasury shares.
The CableMaxx Merger. On February 23, 1996, the Company consummated the
merger of Heartland Merger Sub 2, Inc., a wholly owned subsidiary of the
Company ("Merger Sub 2") with and into CableMaxx pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of September 11, 1995
("CableMaxx Merger Agreement") by and among the Company, Merger Sub 2 and
CableMaxx. Pursuant to the terms of the CableMaxx Merger Agreement, Merger Sub
2 was merged with and into CableMaxx whereupon CableMaxx became a wholly owned
subsidiary of the Company. Under the terms of the CableMaxx Merger Agreement,
the stockholders of CableMaxx are entitled to receive, in the aggregate,
approximately 2,880,000 shares of the Company's Common Stock having an
aggregate value as of February 23, 1996 of approximately $77.0 million. The
assets previously held by CableMaxx included certain rights and properties held
in connection with certain wireless cable television markets throughout Texas
and in Salt Lake City, Utah (collectively, the "CableMaxx Assets"). With the
exception of the San Antonio, Texas and the Salt Lake City, Utah markets, which
the Company contributed to CS Wireless pursuant to the terms of the CS Wireless
Participation Agreement (see "Business -- Acquisitions, Divestitures and
Recent Transactions -- CS Wireless Transaction"), the CableMaxx Assets will
continue to be used and operated by the Company in connection with its wireless
cable television business.
The TSC Transaction. On February 23, 1996, the Company consummated the
acquisition of certain assets of TSC pursuant to the Amended and Restated Asset
Purchase Agreement dated as of October 19, 1995 ("TSC Agreement") by and among
the Company, TSC and Technivision, Inc., formerly a subsidiary of TSC that has
been merged with and into TSC ("Technivision"). Pursuant to the terms of the
TSC Agreement, the Company acquired certain assets from TSC representing
substantially all of the assets formerly held by Technivision. Under the terms
of the TSC Agreement, the Company issued to TSC approximately 1,180,000 shares
of the Company's Common Stock having an aggregate value as of February 23, 1996
of approximately $31.5 million, of which approximately 189,000 shares having an
aggregate value as of February 23, 1996 of $5.1 million are being held in
escrow established pursuant to the terms of the TSC Agreement to satisfy
certain indemnification obligations and secure certain post-closing covenants
of TSC to the Company. The assets previously held by TSC included certain
rights and properties held in connection with wireless cable television markets
in El Paso, Texas, Corpus Christi, Texas and Dayton, Ohio (collectively, the
"TSC Assets"). With the exception of the Dayton, Ohio market, which the
Company contributed to CS Wireless pursuant to the terms of the CS Wireless
Participation Agreement (see "Business -- Acquisitions, Divestitures and
Recent Transactions -- CS Wireless Transaction"), the TSC Assets will continue
to be used and operated by the Company in connection with its wireless cable
television business.
The net result of the CableMaxx, AWS and Technivision Acquisitions, the CS
Wireless Transaction (as hereinafter defined) and the planned disposition of
the Los Angeles, California and Memphis, Tennessee markets, is that the Company
acquired (i) operating wireless cable television systems in Austin, Corpus
Christi, Temple/Killeen and Waco, Texas, (ii) the wireless cable television
markets of El Paso and Sherman/Denison, Texas and (iii) wireless cable channel
rights in Amarillo, Corsicana/Athens and Lubbock, Texas for total net
consideration of approximately $58 million. The aforementioned markets
acquired by the Company represent approximately 1,000,000 LOS households and
38,900 subscribers.
CS Wireless Transaction. Effective February 23, 1996, immediately
following the closing of the CableMaxx, AWS and Technivision Acquisitions, the
Company, CAI and CS Wireless consummated the CS Wireless Participation
Agreement pursuant to which the Company (or certain of its subsidiaries)
contributed or sold to CS Wireless the wireless cable assets and all related
liabilities of the following wireless cable television markets (the "Heartland
Contributed Assets"):
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(1) Maysville, Missouri
(2) Sweet Springs, Missouri
(3) Grand Rapids/Moline, Michigan
(4) Bloom Center/Napoleon, Indiana
(5) Dallas, Texas
(6) Fort Worth, Texas
(7) San Antonio, Texas
(8) Dayton, Ohio
(9) Salt Lake City, Utah
(10) Minneapolis, Minnesota
Simultaneously with the contribution and sale of the Heartland Contributed
Assets to CS Wireless, CAI (or certain of its subsidiaries) contributed to CS
Wireless (directly or by contribution of stock of subsidiaries) the wireless
cable television assets associated with the following markets (the "CAI
Contributed Assets"):
(1) Stockton/Modesto, California
(2) Bakersfield, California
(3) Cleveland, Ohio
(4) Charlotte, North Carolina
The combination of the Heartland Contributed Assets and the CAI
Contributed Assets in CS Wireless (the "CS Wireless Transaction"), as of
February 29, 1996, created a company with approximately 5.7 million
line-of-sight households and approximately 58,500 subscribers.
In connection with the CS Wireless Transaction, the Company (or its
contributing subsidiaries) received (i) shares of CS Wireless common stock (the
"CS Wireless Common Stock") constituting approximately 40.0% of the outstanding
shares of CS Wireless Common Stock (35.4% following dilution for certain
additional stock issuances), (ii) approximately $28.3 million in cash paid at
the closing, (iii) a promissory note in the principal sum of $25 million
payable on or before nine months from the closing and secured by proceeds of a
contemplated issuance by CS Wireless of senior discount notes (which note has
been prepaid) and (iv) a promissory note in the sum of $15 million payable 10
years from closing and prepayable from asset sales and certain other events.
CAI and the Company are in the process of completing certain post-closing net
working capital calculations. Components of such calculations include the
relative accounts payable, accounts receivable and related working capital
assets of the contributed systems, the number of granted channels represented
and actually contributed to CS Wireless for each market, increase or decrease
in the number of subscribers in each contributed system from the number of
subscribers stated in the CS Wireless Participation Agreement and related
factors. Following the completion of these calculations, payments will be made
to or by the parties, depending upon such calculations.
In connection with the closing of the CS Wireless Transaction, CAI, the
Company and CS Wireless have entered into a stockholders' agreement (the "CS
Wireless Stockholders Agreement"). The CS Wireless Stockholders Agreement
provides, among other things, that the Company and CAI will agree to vote their
shares of CS Wireless Common Stock in favor of a Board of Directors of CS
Wireless having nine members consisting of (i) up to four members designated by
CAI (provided that at least one of whom may not be an affiliate of either CAI
or the Company); (ii) up to three members designated by the Company (provided
that at least one of whom may not be an affiliate of either CAI or the
Company); (iii) the Chief Executive Officer of CS Wireless; and (iv) the Chief
Operating Officer of CS Wireless. The Stockholders' Agreement and CS Wireless'
bylaws further provide that certain major transactions will require the
affirmative approval of at least 70% (seven of nine) of the Directors of CS
Wireless.
Series C Senior Note Offering. On March 28, 1996, the Company consummated
a private placement of $15 million aggregate principal amount of 13% Series C
Senior Notes due 2003 (the "Series C Senior Notes"). The Company placed
approximately $1.9 million of the $15.9 million net proceeds from the sale of
the Series C Senior Notes into an escrow account, representing funds sufficient
to pay interest on the Series C Senior Notes from April 15, 1996 through April
14, 1997. In connection with the issuance of the Series C Senior Notes, the
Company agreed, among other things, to file within 180 days of the issue date a
registration statement with the Commission with respect to an offer to exchange
new notes registered under the Securities Act of 1933 for the Series C Senior
Notes, which new notes will be identical in all respects to the Series C Senior
Notes, except that the new notes will not contain terms with respect to
transfer restrictions and to cause such registration statement to become
effective within 270 days of the issue date.
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<PAGE> 24
ITEM 2. PROPERTIES
The Company leases approximately 5,500 square feet of office space for its
executive offices in Richardson, Texas under a lease that expires September 30,
1998. The Company pays approximately $35,000 per annum rent for such space. The
Company leases from an affiliate of Messrs. Webb and Wheeler approximately
2,400 square feet for its operating offices in Durant, Oklahoma under a lease
that expires May 31, 2000. The Company pays $18,000 per annum rent for such
space and the utilities are provided by the owner of the building. The Company
leases approximately an additional 5,000 square feet for its marketing offices
in Durant, Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease
that expires March 1, 2000 subject to a five-year renewal option. The Company
pays $29,004 per annum rent for such space. The Company leases approximately an
additional 1,126 square feet for its operating offices in Durant, Oklahoma from
an affiliate of Messrs. Webb and Wheeler under a lease that expires on May 31,
2000. The Company pays $8,448 per annum rent for such space and the utilities
are provided by the owner of the building. The Company leases approximately an
additional 1,987 square feet for its telemarketing offices in Durant, Oklahoma
from an affiliate of Messrs. Webb and Wheeler under a lease that expires May
31, 2000. The Company pays $23,844 per annum rent for such space and the
utilities are provided by the owner of the building. The Company leases
approximately an additional 10,000 square feet of warehouse space in Durant,
Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease that
expires on August 1, 2000. The Company pays $16,000 per annum rent for such
space. See "Certain Relationships and Related Transactions" The Company
believes that these facilities are adequate for the foreseeable future.
The principal physical assets of a wireless cable system consist of
satellite signal reception equipment, radio transmitters and transmission
antennae, as well as office space and transmission tower space. The Company
leases office space for the Existing Systems and will, in the future, purchase
or lease additional office space in other locations where it launches other
wireless cable systems. The Company also owns transmission towers or leases
space on transmission towers located in its markets. The current capacity range
of the Company's transmission facilities is from 10 to 50 watts, capable of
generating a signal over a 35 to 50 mile range. The Company believes that
office space and space on transmission towers currently is readily available on
acceptable terms in the markets where the Company intends to operate wireless
cable systems.
ITEM 3. LEGAL PROCEEDINGS
On June 21, 1995, TruVision filed a lawsuit in the Circuit Court of Rankin
County, Mississippi naming the Company and AWS as defendants. TruVision
asserted in its original pleadings that it had an agreement to purchase from
AWS certain wireless cable assets in Memphis, Tennessee ("Memphis Market") for
approximately $2,200,000 which agreement the Company interfered with by
entering into negotiations and an alleged agreement with AWS. In its original
pleadings, TruVision alleged that the Company entered into an agreement to
acquire AWS, which agreement is alleged to have valued AWS's assets relating to
the Memphis Market at $7,000,000. As a result, TruVision sought actual damages
of $4,800,000. Subsequently, on June 29, 1995, TruVision filed its First
Amended Complaint asserting that in addition to damages sought in its original
pleadings, TruVision was entitled to additional damages of an amount as yet
undetermined by TruVision, but estimated by TruVision to be $28,196,642, in
respect of diminution in the value of TruVision's assets outside of the Memphis
Market caused by the alleged agreement between AWS and the Company and actions
related thereto. TruVision is also seeking $20,000,000 in punitive damages. On
July 26, 1995, the Company filed a Motion to Dismiss this litigation for lack
of personal jurisdiction. The Company intends to vigorously defend this
lawsuit. On November 7, 1995, the Company and TruVision entered into an Asset
Purchase Agreement providing for the sale by the Company to TruVision of the
Flippin, Tennessee wireless cable market for $1.5 million in cash. On November
7, 1995, TruVision and AWS entered into an Asset Purchase Agreement providing
for the sale by AWS to TruVision of the Memphis, Tennessee wireless cable
market for $3,900,000 in cash, subject to adjustment. Consummation of each such
agreement is contingent upon the consummation of the other agreement. Further,
each agreement provides that, prior to closing, each party agrees that this
lawsuit would be stayed. Assuming consummation of each transaction, TruVision
agreed to dismiss such lawsuit with prejudice within five days of the closing,
and each party agreed to enter into a Settlement Agreement and Release in form
satisfactory to the other parties. If such closings do not occur, TruVision
shall have the right to prosecute the lawsuit, and AWS and the Company shall
have the right to raise all defenses and counterclaims associated therewith.
Prior to February 23, 1996, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $29 million of general
partnership interest in three general partnerships, including the FTW
Partnership and the Minneapolis Partnership, without registration under any
federal or state securities laws. Following an
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<PAGE> 25
investigation by the Commission, AWS, Steven G. Johnson, a director and officer
of AWS, Jeffrey D. Howes, formerly a director and officer of AWS, and Dexter S.
Cohen and Kevin C. King, each of whom own greater than 5% of AWS common stock,
without admitting or denying any wrongdoing, consented to a Commission order 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, as amended, and the broker-dealer registration provisions of the
Securities Exchange Act of 1934, as amended. In addition, securities
administrators in 22 states have also investigated or are presently
investigating 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 AWS, the issuing
general partnerships and Messrs. Johnson and Howes, as officers of AWS, were
required to cease selling general partnership interests without registration,
to offer recision to individuals who purchased general partnership interests
and, in certain cases, to pay administrative penalties. In certain cases, such
parties have entered into consent decrees with state regulatory authorities,
including an order in Arizona requiring AWS to offer to purchase such general
partnership interest sold to residents of Arizona or to pay 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 the investment. AWS has advised the Arizona
Corporation Commission that it does not intent to make such offer to purchase.
On September 29, 1995, AWS and the Pittsburgh Partnership jointly sold
their respective interest in the joint venture operating the wireless cable
television system in Pittsburgh, Pennsylvania to CAI. The Pittsburgh Partners
executed and delivered written consents to such sale, each of which included a
release of AWS and certain related parties from certain contingent claims
including claims arising from the offer and sale of the general partnership
interests to the Pittsburgh Partners. General partners holding in excess of 88%
and 78%, respectively, of the partnership interests in the Minneapolis
Partnership and the FTW Partnership executed and delivered written consents to
the Minneapolis Transaction and the FTW Transaction, respectively, each of which
included a release of AWS and certain related parties from certain contingent
claims including claims arising from the offer and sale of the general
partnership interests to such partners. There can be no assurance that the
Minneapolis Partners and the FTW Partners who did not vote in favor of the
Minneapolis Transaction or the FTW Transaction, respectively, or the Pittsburgh
Partners who did not vote in favor of the Pittsburgh Sale, or any governmental
agency will not institute proceedings against AWS or the Company, as the
successor to AWS, 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. No assurance can be given that a successful claim
against the predecessors of AWS could not 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 AWS's predecessors 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 an adverse
effect on the Company.
AWS is also the subject of two threatened lawsuits. American Telecasting,
Inc. ("ATI") has sent letters to AWS claiming AWS 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. AWS has responded to ATI and disputes all
of ATI's claims.
By letter dated January 31, 1995, Laidlaw Holdings, Inc. ("Laidlaw"), the
underwriter of AWS' proposed public offering, claimed that AWS 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 AWS on July 13, 1995.
By letter dated February 3, 1995 from AWS to Laidlaw, AWS asserted that Laidlaw
terminated the Letter Agreement. AWS believes that if a claim is filed by
Laidlaw, AWS has adequate grounds to successfully defend the claim.
The Company is a party, from time to time, to routine litigation or
employment litigation incidental to its business. No provision has been
reflected in the Company's financial statements for any litigation. It is the
opinion of management that no pending litigation matter will have a material
adverse effect on the Company's financial condition, results of operations or
properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
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<PAGE> 26
PART II
The Company's Annual Report to Shareholders for the year ended December
31, 1995 (the "1995 Annual Report"), is filed as Exhibit 13 with the Form 10-K.
Information items 5,7 and 8, which are contained in the 1995 Annual Report,
are specifically incorporated by reference into this Form 10-K. With the
exception of such information items, the 1995 Annual Report is not deemed filed
as a part of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information called for by this item is incorporated herein by
reference to the section of the 1995 Annual Report captioned "Market Price of
Common Stock" on the back inside cover of the 1995 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data presented below as of December 31,
1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993 were
derived from the consolidated financial statements of the Company, which were
audited by KPMG Peat Marwick LLP, independent certified public accountants,
which appear in the 1995 Annual Report and are incorporated by reference into
this Form 10-K. The selected historical financial data presented below as of
December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and
1991 were derived from consolidated financial statements of the Company, which
were audited by KPMG Peat Marwick LLP, but are not included the 1995 Annual
Report or in this Form 10-K. This selected consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements (including the notes thereto) included in the 1995 Annual Report and
incorporated by reference into this Form 10-K.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $15,300 $2,229 $869 $205 $--
Operating expenses:
Systems operations 4,893 762 321 36 --
Selling, general and administrative 11,887 4,183 647 148 64
Depreciation and amortization 6,234 1,098 138 35 2
------- ------ ------ ------ ------
Total operating expenses 23,014 6,043 1,106 219 66
------- ------ ------ ------ ------
Operating loss (7,714) (3,814) (237) (14) (66)
Interest expense, net (10,857) (210) (73) -- --
Equity in losses of affiliates (1,369) (387) -- -- --
Other expense (247) (227) (96) (37) --
Income tax benefit 4,285 1,595 -- -- --
Net loss (15,902) (3,043) (406) (51) (66)
======= ====== ====== ====== ======
Net loss per common share $(1.34) $(0.30) $(0.05) $(0.01) $(0.01)
======= ====== ====== ====== ======
Weighted average number of common
shares outstanding 11,866 10,041 8,000 8,000 8,000
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $23,143 $11,986 $815 $165 $53
Total assets 205,405 77,921 8,665 2,268 427
Long-term debt, including current
portion 141,652 40,506 1,593 -- --
Total stockholders' equity 51,688 30,081 4,493 1,004 173
</TABLE>
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<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is incorporated herein by reference
to the section of the 1995 Annual Report Captioned "Management's Discussion and
Analysis" on page 12.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS WHICH APPEAR IN THE 1995
ANNUAL REPORT ARE INCORPORATED BY REFERENCE:
Independent Auditors' Report -- Page 18
Consolidated Balance Sheets as of December 31, 1995 and 1994 -- Page 19
Consolidated Statements of Operations for the three years ended
December 31, 1995 -- Page 20
Consolidated Statements of Stockholders' EQuity for the three years ended
December 31, 1995 -- Page 21
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 -- Page 22
Notes to Consolidated Financial Statements -- Page 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with
the Commission not later than 120 days after the fiscal year end of December
31, 1995, and delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held May 2, 1996, captioned "Election of Directors,"
"Executive Officers" and "Disclosure Pursuant to Section 16 of the Exchange
Act."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with
the Commission not later than 120 days after the fiscal year end of December
31, 1995, and delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held May 2, 1996, captioned "Meetings of the Board of
Directors and Committees of the Board of Directors; Compensation of Directors"
and "Executive Compensation and Related Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by
reference to the section of the definitive Proxy Statement to be filed with the
Commission not later than 120 days after the fiscal year end of December 31,
1995, and delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held May 2, 1996, captioned "Security Ownership of Certain
Beneficial Owners, Directors and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with
the Commission not later than 120 days after the fiscal year end of December
31, 1995, and delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held May 2, 1996, captioned "Certain Transactions and
Relationships."
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<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Financial Statements of the Registrant are incorporated
by reference herein under Item 8 of this report.
2. Financial Statement Schedule
The following financial statement schedule is filed as part
of this Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report on Financial
Statement Schedule S-1
Schedule II -- Valuation and Qualifying
Accounts -- Three years ended December 31, 1995 S-2
</TABLE>
Schedules other than the above have been omitted because
they are either not applicable or the required information
has been disclosed in the financial statements or notes
thereto.
3. Exhibits
2.1 Letter Agreement regarding formation of the Registrant (filed as Exhibit
2.1 to the Registrant's Registration Statement on Form S-1, File No.
33-74244 (the "Form S-1"), and incorporated herein by reference)
2.2 Supplement to Letter Agreement regarding formation of the Registrant
(filed as Exhibit 2.2 to the Form S-1 and incorporated herein by reference)
2.3 Asset Purchase Agreement among RuralVision Joint Venture, RuralVision
Central, Inc. and RuralVision South, Inc. (filed as Exhibit 2.3 to the
Registrant's Registration Statement on Form S-1, File No. 33-84408 (the
"November Form S-1") and incorporated herein by reference)
2.4 Supplemental Agreement to the Asset Purchase Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.4 to the November Form S-1 and incorporated herein by
reference)
2.5 Closing Agreement amending the Supplemental Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.5 to the November Form S-1 and incorporated herein by
reference)
2.6 Asset Purchase Agreement between RuralVision Joint Venture and Cable Equity
Partners, Inc. (filed as Exhibit 2.6 to the November Form S-1 and
incorporated herein by reference)
2.7 Letter Agreement amending Asset Purchase Agreement between RuralVision
Joint Venture and Cable Equity Partners, Inc. (filed as Exhibit 2.7 to the
November Form S-1 and incorporated herein by reference)
2.8 Letter Agreement between the Registrant and Cross Country Wireless, Inc.
(filed as Exhibit 2.8 to the November Form S-1 and incorporated herein by
reference)
2.9 Letter Agreement between the Registrant and Cable Equity Partners, Inc.
(filed as Exhibit 2.9 to the Registrant's Registration Statement on Form
S-4, File No. 33-87076 (the "Form S-4"), and incorporated herein by
reference)
2.10 Lease Purchase Agreement between Registrant and Choice Television of Iowa,
L.C. (filed as Exhibit 2.10 to the Form S-4 and incorporated herein by
reference)
2.11 Asset Purchase Agreement between Registrant and RuralVision Joint Venture
(filed as Exhibit 2.11 to the Form 8-K Current Report dated as of December
1, 1994 and filed with the Commission on December 14, 1994 (the "December
1994 Form 8-K"), and incorporated herein by reference)
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<PAGE> 30
2.12 Agreement for Purchase and Sales of Assets between
Registrant and REC Services, Inc. (filed as Exhibit 2.12 to
the Form S-4 and incorporated herein by reference)
2.13 Letter Agreement among Registrant, United States Wireless
Cable, Inc. and United States Wireless Cable Systems, Inc.
(filed as Exhibit 2.13 to the Form S-4 and incorporated
herein by reference)
2.14 Letter Agreement among Registrant, Cross Country Wireless,
Inc. and RuralVision Joint Venture (filed as Exhibit 2.14 to
the Form S-4 and incorporated herein by reference)
2.15 Extension Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc. and Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.15 to the Form S-4 and incorporated herein by
reference)
2.16 Note Modification Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc., the Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc., the
Larry D. Hudson Trust and Jerri Hudson Bell (filed as
Exhibit 2.16 to the Form S-4 and incorporated herein by
reference)
2.17 Asset Purchase Agreement between Heartland Wireless Paducah,
Inc. and Cross Country Wireless, Inc. (filed as Exhibit 2.17
to the Form S-4 and incorporated herein by reference)
2.18 First Amendment to Joint Venture Agreement between the
Registrant and Cross Country Wireless, Inc. (filed as
Exhibit 2.18 to the Form S-4 and incorporated herein by
reference)
2.19 Venture Distribution Agreement between Registrant and
RuralVision Joint Venture (filed as Exhibit 2.19 to the Form
S-4 and incorporated herein by reference)
2.20 Stock Purchase Agreement between Wireless Communications,
Inc. and Robert R. Story (filed as Exhibit 2.20 to the
Registrant's Registration Statement on Form S-4, File No.
33-65357, (the "January Form S-4"), and incorporated herein
by reference)
2.21 Asset Purchase Agreement between United States Wireless
Systems, Inc. and Robert R. Story, Inc. (filed as Exhibit
2.21 to the January Form S-4 and incorporated herein by
reference)
2.22 Amended and restated Agreement and Plan of Merger dated as
of September 11, 1995, between American Wireless Systems,
Inc., Heartland Merger Sub, Inc. and the Registrant (filed
as Exhibit 2.22 to the January Form S-4 and incorporated
herein by reference)
2.23 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Fort Worth Wireless Cable T.V.
Associates and the Registrant (filed as Exhibit 2.23 to the
January Form S-4 and incorporated herein by reference)
2.24 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Wireless Cable TV Associates #38
and the Registrant (filed as Exhibit 2.24 to the January
Form S-4 and incorporated herein by reference)
2.25 Amended and Restated Agreement and Plan of Merger dated as
of September 11, 1995, between CableMaxx, Inc., Heartland
Merger Sub 2, Inc. and the Registrant (filed as Exhibit 2.25
to the January Form S-4 and incorporated herein by
reference)
2.26 Amended and Restated Assets Purchase Agreement dated as of
October 19, 1995, between Three Sixty Corp., Technivision,
Inc. and the Registrant (filed as Exhibit 2.26 to the
January Form S-4 and incorporated herein by reference)
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Form S-1 and incorporated
herein by reference)
3.2 Restated By-laws of the Registrant (filed as Exhibit 3.2 to
the Form S-1 and incorporated herein by reference)
*4.1 1994 Employee Stock Option Plan of the Registrant, as amended
4.2 Revised Form of Nontransferable Incentive Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.2 to the Registrant's
Registration Statement on Form S-4, File No. 33-91930 (the
"February Form S-4"), and incorporated herein by reference)
4.3 Revised Form of Nontransferable Non-Qualified Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.3 to the February Form S-4
and incorporated herein by reference)
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<PAGE> 31
4.4 1994 Stock Option Plan for Non-Employee Directors of the
Registrant (filed as Exhibit 4.4 to the Form S-1 and incorporated
herein by reference)
4.5 Form of Stock Option Agreement under the 1994 Stock Option Plan
for Non-Employee Directors of the Registrant (filed as Exhibit 4.5
to the Form S-1 and incorporated herein by reference)
4.6 Warrant Agreement between the Registrant and Gerard Klauer Mattison & Co.,
Inc. (including form of warrant certificate) (filed as Exhibit 4.6 to the
Form S-1 and incorporated herein by reference)
4.7 Registration Rights Agreement among Registrant, Jupiter Partners L.P. and
Thomas R. Haack (filed as Exhibit 4.7 to the Form S-4 and incorporated
herein by reference)
4.8 Stockholders Agreement among Registrant, Hunt Capital Group,
L.L.C., David E. Webb, L. Allen Wheeler and Jupiter Partners L.P.
(filed as Exhibit 4.8 to the Form S-4 and incorporated herein by
reference)
4.9 Note Purchase Agreement among the Registrant and Jupiter Partners
L.P. and Thomas R. Haack (filed as Exhibit 4.9 to the Form S-4 and
incorporated by reference)
4.10 First Amendment to Note Purchase Agreement among the Registrant
and Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit
4.10 to the Form 10-K Annual Report filed with the Commission on
March 31, 1995 (the "1995 Form 10-K"), and incorporated herein by
reference)
4.11 Second Amendment to Note Purchase Agreement among the Registrant,
Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit 4.11
to the February Form S-4 and incorporated herein by reference)
4.12 Indenture between the Registrant and First Trust of New York,
National Association, as Trustee (the "Trustee") (filed as Exhibit
4.12 to the February Form S-4 and incorporated herein by
reference)
4.13 Supplemental Indenture dated October 2, 1995, between the
Registrant and the Trustee (filed as Exhibit 4.13 to the February
Form S-4 and incorporated herein by reference)
4.14 Registration Rights Agreement among the Registrant, BT Securities
Corporation ("BT Securities") and Lazard Freres & Co. ("Lazard") (filed as
Exhibit 4.14 to the February Form S-4 and incorporated herein by
reference)
4.15 Securityholders' and Registration Rights Agreement among the Registrant,
BT Securities and Lazard (filed as Exhibit 4.15 to the February Form S-4
and incorporated herein by reference)
4.16 Warrant Agreement between the Registrant and Bankers Trust Company, as
Warrant Agent (filed as Exhibit 4.16 to the February Form S-4 and
incorporated herein by reference)
4.17 Unit Agreement among the Registrant, Bankers Trust Company, as Unit Agent
and Warrant Agent, and the Trustee (filed as Exhibit 4.17 to the February
Form S-4 and incorporated herein by reference)
4.18 Escrow and Disbursement Agreement among the Registrant, Bankers Trust
Company, as Escrow Agent, and the Trustee (filed as Exhibit 4.18 to the
February Form S-4 and incorporated herein by reference)
10.1 Form of Indemnity Agreement between the Registrant and each of its
directors (filed as Exhibit 10.3 to the Form S-1 and incorporated herein
by reference)
10.2 Noncompetition Agreement between the Registrant and J. R. Holland, Jr.
(filed as Exhibit 10.4 to the Form S-1 and incorporated herein by
reference)
10.3 Noncompetition Agreement between the Registrant and David E. Webb (filed
as Exhibit 10.5 to the Form S-1 and incorporated herein by reference)
10.4 Noncompetition Agreement between the Registrant and John R. Bailey (filed
as Exhibit 10.6 to the Form S-1 and incorporated herein by reference)
10.5 Noncompetition Agreement between the Registrant and Randy R. Hendrix
(filed as Exhibit 10.7 to the Form S-1 and incorporated herein by
reference)
10.6 Noncompetition Agreement between the Registrant and L. Allen Wheeler
(filed as Exhibit 10.9 to the Form S-1 and incorporated herein by
reference)
10.7 Standard Commercial Lease between the Registrant and Tech Concepts Joint
Venture regarding the Registrant's Richardson, Texas office (filed as
Exhibit 10.12 to the November Form S-1 and incorporated herein by
reference)
-31-
<PAGE> 32
10.8 Building Lease Agreement dated June 1, 1990, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.13 to the 1995 Form 10-K and incorporated herein by reference)
10.9 Building Lease Agreement dated January 2, 1995, between the Registrant
and W&W Commercial Group, L.L.C. (filed as Exhibit 10.14 to the 1995 Form
10-K and incorporated herein by reference)
10.10 Building Lease Agreement dated May 1, 1994, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.15 to the 1995 Form 10-K and incorporated herein by reference)
10.11 Purchase Agreement among the Registrant, BT Securities and Lazard (filed
as Exhibit 10.17 to the Form S-4 and incorporated herein by reference)
10.12 Building Lease Agreement dated November 20, 1995, between the Registrant
and the Federal Building, Inc. (filed as Exhibit 10.18 to the February
Form S-4 and incorporated herein by reference)
10.13 Participation Agreement dated as of December 12, 1995, by and among the
Registrant, CAI Wireless Systems, Inc. and CS Wireless Systems, Inc. (the
"Participation Agreement") (without exhibits except Stockholders'
Agreement) (filed as Exhibit 2.6 to the Form 8-K Current Report dated as
of December 12, 1995 (the "December 1995 Form 8-K"), and incorporated
herein by reference)
10.14 Amendment No. 1 to Participation Agreement (filed as Exhibit 2.7 to the
December 1995 Form 8-K and incorporated herein by reference)
*10.15 Contribution Agreement and Agreement and Plan of Merger dated as of
October 18, 1995 by and among the Registrant, Wireless One, Inc.,
Wireless One Operating Company, Wireless One Merger Company and others
*13 Annual Report to Shareholders for the year ended December 31, 1995
submitted herewith but not "filed", except for those portions expressly
incorporated by reference herein
*21 List of Subsidiaries
*23 Consent of KPMG Peat Marwick LLP\
*27 Financial Data Schedule
- ----------
* Filed herewith.
(b) Reports on Form 8-K
During the fourth quarter of the year ended December 31, 1995, the Company
filed the following reports on Form 8-K:
(1) a Current Report on Form 8-K dated October 2, 1995, with
respect to the execution of a Supplemental Indenture dated October 2,
1995 by the holders of the Company's 13% Senior Notes due 2003.
(2) a Current Report on Form 8-K dated December 12, 1995, with respect to
the Company entering into a Participation Agreement with CAI Wireless
Systems, Inc. and CS Wireless Systems, Inc. to contribute or sell to
CS Wireless Systems, Inc. certain wireless cable assets and all
related liabilities.
- 32 -
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 28th day of
March, 1996.
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By /s/ John R. Bailey
-------------------------------------
John R. Bailey
Senior Vice President -- Finance,
Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on the 28th day of March, 1996, by the following persons
in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ J. R. Holland, Jr. Chairman of the Board and Director
- -----------------------------------------------------
J. R. Holland, Jr.
/s/ L. Allen Wheeler Vice Chairman of the Board and Director
- -----------------------------------------------------
L. Allen Wheeler
/s/ David E. Webb President, Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
David E. Webb
/s/ John R. Bailey Senior Vice President -- Finance, Chief Financial
- ----------------------------------------------------- Officer, Treasurer and Secretary
John R. Bailey (Principal Financial Officer)
/s/ David D. Hagey Vice President, Controller and Assistant Secretary
- ----------------------------------------------------- (Principal Accounting Officer)
David D. Hagey
/s/ Alvin H. Lane, Jr. Director
- -----------------------------------------------------
Alvin H. Lane, Jr.
/s/ Dennis M. O' Rourke Director
- -----------------------------------------------------
Dennis M. O'Rourke
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
/s/ John A. Sprague Director
- -----------------------------------------------------
John A. Sprague
/s/ Wes W. Watkins Director
- -----------------------------------------------------
Wes W. Watkins
</TABLE>
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Heartland Wireless Communications, Inc.:
Under date of March 8, 1996, we reported on the consolidated balances sheets of
Heartland Wireless Communications, Inc. and subsidiaries as of December 31,
1995 and 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which are included in the Company's Annual
Report to Shareholders for the year ended December 31, 1995 and incorporated by
reference into the Company's annual report on Form 10-K. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Dallas, Texas
March 8, 1996
S-1
<PAGE> 36
Schedule II
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER DEDUCTIONS PERIOD
- ----------------------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful
accounts $123 $838 $-- $-- $961
==== ==== ========= ==== ======
Valuation allowance for
deferred tax assets $791 $-- $3,190(b) $-- $3,981
==== ==== ========= ==== ======
Year ended December 31, 1994:
Allowance for doubtful
accounts $25 $72 $26(a) $-- $123
==== ==== ========= ==== ======
Valuation allowance for
deferred tax assets $183 $-- $608(b) $-- $791
==== ==== ========= ==== ======
Year ended December 31, 1993:
Allowance for doubtful
accounts $-- $26 $-- $(1) $25
==== ==== ========= ==== ======
Valuation allowance for
deferred tax assets $47 $-- $136(b) $-- $183
==== ==== ========= ==== ======
</TABLE>
(a) Allocation of assets from the purchase of Milano System.
(b) Recognized as a component of federal income tax benefit.
S-2
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.1 1994 Employee Stock Option Plan of the Registrant, as amended
10.15 Contribution Agreement and Agreement and Plan of Merger dated as
of October 18, 1995 by and among the Registrant, Wireless One,
Inc., Wireless One Operating Company, Wireless One Merger
Company and others
13 Annual Report to Shareholders for the year ended December 31,
1995 submitted herewith but not "filed", except for those
portions expressly incorporated by reference herein
21 List of Subsidiaries
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 38
INDEX TO EXHIBITS
Exhibit
No. Description
- ----- -----------
2.1 Letter Agreement regarding formation of the Registrant (filed as Exhibit
2.1 to the Registrant's Registration Statement on Form S-1, File No.
33-74244 (the "Form S-1"), and incorporated herein by reference)
2.2 Supplement to Letter Agreement regarding formation of the Registrant
(filed as Exhibit 2.2 to the Form S-1 and incorporated herein by reference)
2.3 Asset Purchase Agreement among RuralVision Joint Venture, RuralVision
Central, Inc. and RuralVision South, Inc. (filed as Exhibit 2.3 to the
Registrant's Registration Statement on Form S-1, File No. 33-84408 (the
"November Form S-1") and incorporated herein by reference)
2.4 Supplemental Agreement to the Asset Purchase Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.4 to the November Form S-1 and incorporated herein by
reference)
2.5 Closing Agreement amending the Supplemental Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.5 to the November Form S-1 and incorporated herein by
reference)
2.6 Asset Purchase Agreement between RuralVision Joint Venture and Cable Equity
Partners, Inc. (filed as Exhibit 2.6 to the November Form S-1 and
incorporated herein by reference)
2.7 Letter Agreement amending Asset Purchase Agreement between RuralVision
Joint Venture and Cable Equity Partners, Inc. (filed as Exhibit 2.7 to the
November Form S-1 and incorporated herein by reference)
2.8 Letter Agreement between the Registrant and Cross Country Wireless, Inc.
(filed as Exhibit 2.8 to the November Form S-1 and incorporated herein by
reference)
2.9 Letter Agreement between the Registrant and Cable Equity Partners, Inc.
(filed as Exhibit 2.9 to the Registrant's Registration Statement on Form
S-4, File No. 33-87076 (the "Form S-4"), and incorporated herein by
reference)
2.10 Lease Purchase Agreement between Registrant and Choice Television of Iowa,
L.C. (filed as Exhibit 2.10 to the Form S-4 and incorporated herein by
reference)
2.11 Asset Purchase Agreement between Registrant and RuralVision Joint Venture
(filed as Exhibit 2.11 to the Form 8-K Current Report dated as of December
1, 1994 and filed with the Commission on December 14, 1994 (the "December
1994 Form 8-K"), and incorporated herein by reference)
<PAGE> 39
2.12 Agreement for Purchase and Sales of Assets between
Registrant and REC Services, Inc. (filed as Exhibit 2.12 to
the Form S-4 and incorporated herein by reference)
2.13 Letter Agreement among Registrant, United States Wireless
Cable, Inc. and United States Wireless Cable Systems, Inc.
(filed as Exhibit 2.13 to the Form S-4 and incorporated
herein by reference)
2.14 Letter Agreement among Registrant, Cross Country Wireless,
Inc. and RuralVision Joint Venture (filed as Exhibit 2.14 to
the Form S-4 and incorporated herein by reference)
2.15 Extension Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc. and Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.15 to the Form S-4 and incorporated herein by
reference)
2.16 Note Modification Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc., the Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc., the
Larry D. Hudson Trust and Jerri Hudson Bell (filed as
Exhibit 2.16 to the Form S-4 and incorporated herein by
reference)
2.17 Asset Purchase Agreement between Heartland Wireless Paducah,
Inc. and Cross Country Wireless, Inc. (filed as Exhibit 2.17
to the Form S-4 and incorporated herein by reference)
2.18 First Amendment to Joint Venture Agreement between the
Registrant and Cross Country Wireless, Inc. (filed as
Exhibit 2.18 to the Form S-4 and incorporated herein by
reference)
2.19 Venture Distribution Agreement between Registrant and
RuralVision Joint Venture (filed as Exhibit 2.19 to the Form
S-4 and incorporated herein by reference)
2.20 Stock Purchase Agreement between Wireless Communications,
Inc. and Robert R. Story (filed as Exhibit 2.20 to the
Registrant's Registration Statement on Form S-4, File No.
33-65357, (the "January Form S-4"), and incorporated herein
by reference)
2.21 Asset Purchase Agreement between United States Wireless
Systems, Inc. and Robert R. Story, Inc. (filed as Exhibit
2.21 to the January Form S-4 and incorporated herein by
reference)
2.22 Amended and restated Agreement and Plan of Merger dated as
of September 11, 1995, between American Wireless Systems,
Inc., Heartland Merger Sub, Inc. and the Registrant (filed
as Exhibit 2.22 to the January Form S-4 and incorporated
herein by reference)
2.23 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Fort Worth Wireless Cable T.V.
Associates and the Registrant (filed as Exhibit 2.23 to the
January Form S-4 and incorporated herein by reference)
2.24 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Wireless Cable TV Associates #38
and the Registrant (filed as Exhibit 2.24 to the January
Form S-4 and incorporated herein by reference)
2.25 Amended and Restated Agreement and Plan of Merger dated as
of September 11, 1995, between CableMaxx, Inc., Heartland
Merger Sub 2, Inc. and the Registrant (filed as Exhibit 2.25
to the January Form S-4 and incorporated herein by
reference)
2.26 Amended and Restated Assets Purchase Agreement dated as of
October 19, 1995, between Three Sixty Corp., Technivision,
Inc. and the Registrant (filed as Exhibit 2.26 to the
January Form S-4 and incorporated herein by reference)
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Form S-1 and incorporated
herein by reference)
3.2 Restated By-laws of the Registrant (filed as Exhibit 3.2 to
the Form S-1 and incorporated herein by reference)
*4.1 1994 Employee Stock Option Plan of the Registrant, as amended
4.2 Revised Form of Nontransferable Incentive Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.2 to the Registrant's
Registration Statement on Form S-4, File No. 33-91930 (the
"February Form S-4"), and incorporated herein by reference)
4.3 Revised Form of Nontransferable Non-Qualified Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.3 to the February Form S-4
and incorporated herein by reference)
<PAGE> 40
4.4 1994 Stock Option Plan for Non-Employee Directors of the
Registrant (filed as Exhibit 4.4 to the Form S-1 and incorporated
herein by reference)
4.5 Form of Stock Option Agreement under the 1994 Stock Option Plan
for Non-Employee Directors of the Registrant (filed as Exhibit 4.5
to the Form S-1 and incorporated herein by reference)
4.6 Warrant Agreement between the Registrant and Gerard Klauer Mattison & Co.,
Inc. (including form of warrant certificate) (filed as Exhibit 4.6 to the
Form S-1 and incorporated herein by reference)
4.7 Registration Rights Agreement among Registrant, Jupiter Partners L.P. and
Thomas R. Haack (filed as Exhibit 4.7 to the Form S-4 and incorporated
herein by reference)
4.8 Stockholders Agreement among Registrant, Hunt Capital Group,
L.L.C., David E. Webb, L. Allen Wheeler and Jupiter Partners L.P.
(filed as Exhibit 4.8 to the Form S-4 and incorporated herein by
reference)
4.9 Note Purchase Agreement among the Registrant and Jupiter Partners
L.P. and Thomas R. Haack (filed as Exhibit 4.9 to the Form S-4 and
incorporated by reference)
4.10 First Amendment to Note Purchase Agreement among the Registrant
and Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit
4.10 to the Form 10-K Annual Report filed with the Commission on
March 31, 1995 (the "1995 Form 10-K"), and incorporated herein by
reference)
4.11 Second Amendment to Note Purchase Agreement among the Registrant,
Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit 4.11
to the February Form S-4 and incorporated herein by reference)
4.12 Indenture between the Registrant and First Trust of New York,
National Association, as Trustee (the "Trustee") (filed as Exhibit
4.12 to the February Form S-4 and incorporated herein by
reference)
4.13 Supplemental Indenture dated October 2, 1995, between the
Registrant and the Trustee (filed as Exhibit 4.13 to the February
Form S-4 and incorporated herein by reference)
4.14 Registration Rights Agreement among the Registrant, BT Securities
Corporation ("BT Securities") and Lazard Freres & Co. ("Lazard") (filed as
Exhibit 4.14 to the February Form S-4 and incorporated herein by
reference)
4.15 Securityholders' and Registration Rights Agreement among the Registrant,
BT Securities and Lazard (filed as Exhibit 4.15 to the February Form S-4
and incorporated herein by reference)
4.16 Warrant Agreement between the Registrant and Bankers Trust Company, as
Warrant Agent (filed as Exhibit 4.16 to the February Form S-4 and
incorporated herein by reference)
4.17 Unit Agreement among the Registrant, Bankers Trust Company, as Unit Agent
and Warrant Agent, and the Trustee (filed as Exhibit 4.17 to the February
Form S-4 and incorporated herein by reference)
4.18 Escrow and Disbursement Agreement among the Registrant, Bankers Trust
Company, as Escrow Agent, and the Trustee (filed as Exhibit 4.18 to the
February Form S-4 and incorporated herein by reference)
10.1 Form of Indemnity Agreement between the Registrant and each of its
directors (filed as Exhibit 10.3 to the Form S-1 and incorporated herein
by reference)
10.2 Noncompetition Agreement between the Registrant and J. R. Holland, Jr.
(filed as Exhibit 10.4 to the Form S-1 and incorporated herein by
reference)
10.3 Noncompetition Agreement between the Registrant and David E. Webb (filed
as Exhibit 10.5 to the Form S-1 and incorporated herein by reference)
10.4 Noncompetition Agreement between the Registrant and John R. Bailey (filed
as Exhibit 10.6 to the Form S-1 and incorporated herein by reference)
10.5 Noncompetition Agreement between the Registrant and Randy R. Hendrix
(filed as Exhibit 10.7 to the Form S-1 and incorporated herein by
reference)
10.6 Noncompetition Agreement between the Registrant and L. Allen Wheeler
(filed as Exhibit 10.9 to the Form S-1 and incorporated herein by
reference)
10.7 Standard Commercial Lease between the Registrant and Tech Concepts Joint
Venture regarding the Registrant's Richardson, Texas office (filed as
Exhibit 10.12 to the November Form S-1 and incorporated herein by
reference)
<PAGE> 41
10.8 Building Lease Agreement dated June 1, 1990, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.13 to the 1995 Form 10-K and incorporated herein by reference)
10.9 Building Lease Agreement dated January 2, 1995, between the Registrant
and W&W Commercial Group, L.L.C. (filed as Exhibit 10.14 to the 1995 Form
10-K and incorporated herein by reference)
10.10 Building Lease Agreement dated May 1, 1994, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.15 to the 1995 Form 10-K and incorporated herein by reference)
10.11 Purchase Agreement among the Registrant, BT Securities and Lazard (filed
as Exhibit 10.17 to the Form S-4 and incorporated herein by reference)
10.12 Building Lease Agreement dated November 20, 1995, between the Registrant
and the Federal Building, Inc. (filed as Exhibit 10.18 to the February
Form S-4 and incorporated herein by reference)
10.13 Participation Agreement dated as of December 12, 1995, by and among the
Registrant, CAI Wireless Systems, Inc. and CS Wireless Systems, Inc. (the
"Participation Agreement") (without exhibits except Stockholders'
Agreement) (filed as Exhibit 2.6 to the Form 8-K Current Report dated as
of December 12, 1995 (the "December 1995 Form 8-K"), and incorporated
herein by reference)
10.14 Amendment No. 1 to Participation Agreement (filed as Exhibit 2.7 to the
December 1995 Form 8-K and incorporated herein by reference)
*10.15 Contribution Agreement and Agreement and Plan of Merger dated as of
October 18, 1995 by and among the Registrant, Wireless One, Inc.,
Wireless One Operating Company, Wireless One Merger Company and others
*13 Annual Report to Shareholders for the year ended December 31, 1995
submitted herewith but not "filed", except for those portions expressly
incorporated by reference herein
*21 List of Subsidiaries
*23 Consent of KPMG Peat Marwick LLP\
*27 Financial Data Schedule
- ----------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.1
HEARTLAND WIRELESS COMMUNICATIONS, INC.
1994 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the HEARTLAND WIRELESS COMMUNICATIONS, INC. 1994 EMPLOYEE
STOCK OPTION PLAN (the "Plan") is (i) to further the growth and success of
Heartland Wireless Communications, Inc., a Delaware corporation (the
"Company"), and its Subsidiaries (as hereinafter defined) by enabling officers
and employees of the Company and any of its Subsidiaries to acquire shares of
Common Stock, $.001 par value (the "Common Stock"), of the Company, thereby
increasing their personal interest in such growth and success, and (ii) to
provide a means of rewarding outstanding performance by such persons to the
Company and/or its Subsidiaries. Options granted under the Plan may be either
"incentive stock options" ("ISOs"), intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options ("NSOs"). For purposes of the Plan,
the term "Parent" shall mean "Parent Corporation" as such term is defined in
Section 424(e) of the Code and the term "Subsidiary" shall mean any entity,
whether corporation, limited liability company, joint venture, or partnership
in which the members of the Committee (as hereinafter defined) determine in
their reasonable discretion, that, by virtue of the Company's equity or
participation interest therein, the Board of Directors of the Company can
reasonably be deemed to elect one or more members to the governing body thereof
which, in turn, controls the policies and directors of such entity. Unless the
context otherwise requires, any ISO or NSO shall hereinafter be referred to as
an "Option."
2. ADMINISTRATION OF THE PLAN.
A. STOCK OPTION COMMITTEE
So long as the Plan shall be required to comply with Rule 16b-3 ("Rule
16b-3") promulgated by the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in order to
permit transactions pursuant to the Plan by officers and employee directors of
the Company to be exempt from the provisions of Section 16(b) of the 1934 Act,
the Plan shall be administered by a committee (the "Committee") consisting of
two or more directors appointed to such Committee from time to time by the
Board of Directors of the Company (the "Board"), and each member of the
Committee, at the effective date of his or her appointment to the Committee,
shall be a "disinterested person" within the meaning of Rule 16b-3. The
members of the Committee may be removed at any time either with or without
cause by the Board. Any vacancy on the Committee, whether due to action of the
Board or any other cause, shall be filled by the
-1-
<PAGE> 2
Board. The term "Committee" shall, for all purposes of the Plan other than
this Section 2, be deemed to refer to the Board if the Board is administering
the Plan.
B. PROCEDURES.
The Committee shall from time to time select a Chairman from among its
members and shall adopt such rules and regulations as it shall deem appropriate
concerning the holding of meetings and the administration of the Plan. A
majority of the entire Committee shall constitute a quorum and the actions of a
majority of the members of the Committee present at a meeting at which a quorum
is present, or actions approved in writing by all of the members of the
Committee, shall be the actions of the Committee; provided, however, that if
the Committee consists of only two members, both shall be required to
constitute a quorum and to act at a meeting or to approve actions in writing.
C. INTERPRETATION.
Except as otherwise expressly provided in the Plan, the Committee shall
have all powers with respect to the administration of the Plan, including,
without limitation, full power and authority to interpret the provisions of the
Plan and any Option Agreement (as defined in Section 5.b.), and to resolve all
questions arising under the Plan. All decisions of the Board or the Committee,
as the case may be, shall be conclusive and binding on all participants in the
Plan.
3. SHARES OF STOCK SUBJECT TO THE PLAN.
A. NUMBER OF SHARES.
Subject to the provisions of Section 9 (relating to adjustments upon
changes in capital structure and other corporate transactions), the number of
shares of Common Stock subject at any one time to Options granted under the
Plan, plus the number of shares of Common Stock theretofore issued and
delivered pursuant to the exercise of Options granted under the Plan, shall not
exceed 1,950,000 shares. If and to the extent that Options granted under the
Plan terminate, expire or are cancelled without having been fully exercised,
new Options may be granted under the Plan with respect to the shares of Common
Stock covered by the unexercised portion of such terminated, expired or
cancelled Options.
B. CHARACTER OF SHARES.
The shares of Common Stock issuable upon exercise of an Option granted
under the Plan shall be (i) authorized but unissued shares of Common Stock,
(ii) shares of Common Stock held in the Company's treasury or (iii) a
combination of the foregoing.
C. RESERVATION OF SHARES.
-2-
<PAGE> 3
The number of shares of Common Stock reserved for issuance under the Plan
shall at no time be less than the maximum number of shares which may be
purchased at any time pursuant to outstanding Options.
4. ELIGIBILITY.
A. GENERAL.
Options may be granted by the Committee under the Plan only to persons who
are officers or employees (including directors who are officers or employees)
of the Company or any of its Subsidiaries. Options granted under the Plan
shall be, in the discretion of the Committee, either ISOs or NSOs.
Notwithstanding the foregoing, Options may be conditionally granted to persons
who are prospective employees of the Company or any of its Subsidiaries;
provided, however, that any such conditional grant of an ISO to a prospective
employee shall, by its terms, become effective no earlier than the date on
which such person actually becomes an employee.
B. EXCEPTIONS.
Notwithstanding anything contained in Section 4.a. to the contrary:
(i) no ISO may be granted under the Plan to an employee who owns,
directly or indirectly (within the meaning of Sections 422(b)(6) and 424(d)
of the Code), stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its Parent or
Subsidiaries, if any, unless (A) the Option Price (as defined in Section
6.a.) of the shares of Common Stock subject to such ISO is fixed at not
less than 110% of the Fair Market Value on the date of grant (as determined
in accordance with Section 6.b.) of such shares and (B) such ISO, by its
terms, is not exercisable after the expiration of five years from the date
it is granted;
(ii) no Option may be granted to a person (A) who has been appointed
pursuant to Section 2.a. to serve on the Committee effective as of a future
date at any time during the period from the date such appointment is made
to the date such appointment is to become effective or (B) who is serving
as a member of the Committee;
(iii) no Option may be granted to David E. Webb; and
(iv) no ISO may be granted under the Plan to an employee of a
Subsidiary unless such Subsidiary shall meet the definition of "Subsidiary
Corporation" found in Section 424(f) of the Code; provided, however, that
if and to the extent an Option purporting to be an ISO is granted to an
employee of a Subsidiary which does not meet the aforementioned definition
of "Subsidiary Corporation," such Option shall not be invalidated but shall
be deemed, for all purposes, to the fullest extent permitted by law, a NSO.
-3-
<PAGE> 4
5. GRANT OF OPTIONS.
A. GENERAL.
Options may be granted under the Plan at any time and from time to time on
or prior to the Expiration Date (as defined in Section 12). Subject to the
provisions of the Plan, the Committee shall have plenary authority, in its
discretion, to determine:
(i) the persons (from among the class of persons eligible to receive
Options under the Plan) to whom Options shall be granted (the "Optionees");
(ii) the time or times at which Options shall be granted;
(iii) the number of shares subject to each Option;
(iv) the Option Price of the shares subject to each Option, which
price shall be not less than the minimum specified in Section 4.b.(I) or
6.a. (as applicable); and
(v) the time or times when each Option shall become exercisable and
the duration of the exercise period.
B. OPTION AGREEMENTS.
Each Option granted under the Plan shall be designated as an ISO or an NSO
and shall be subject to the terms and conditions applicable to ISOs and/or NSOs
(as the case may be) set forth in the Plan. In addition, each Option shall be
evidenced by a written agreement (an "Option Agreement"), containing such terms
and conditions and in such form, not inconsistent with the Plan, as the
Committee shall, in its discretion, provide. Each Option Agreement shall be
executed by the Company and the Optionee.
C. NO EVIDENCE OF EMPLOYMENT.
Nothing contained in the Plan or in any Option Agreement shall confer upon
any Optionee any right with respect to the continuation of his or her
employment by the Company or any of its Subsidiaries or interfere in any way
with the right of the Company or any such Subsidiary (subject to the terms of
any separate agreement to the contrary), at any time to terminate such
employment or to increase or decrease the compensation of the Optionee from the
rate in existence at the time of the grant of an Option.
D. DATE OF GRANT.
The date of grant of an Option under this Plan shall be the date as of
which the Committee approves the grant; provided, however, that in the case of
an ISO, the date of grant shall in no
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<PAGE> 5
event be earlier than the date as of which the Optionee becomes an employee of
the Company or one of its Subsidiaries.
6. OPTION PRICE.
A. GENERAL.
Subject to Section 9, the price (the "Option Price") at which each share
of Common Stock subject to an Option granted under the Plan may be purchased
shall be determined by the Committee at the time the Option is granted;
provided, however, that in the case of an ISO (subject to Section 4.b.(i)) or
an NSO, such Option price shall in no event be less than 100% of the Fair
Market Value on the date of grant (as determined in accordance with Section
6.b.) of such share of Common Stock.
B. DETERMINATION OF FAIR MARKET VALUE.
Subject to the requirements of Section 422 of the Code, for purposes of
the Plan, the "Fair Market Value" of shares of Common Stock shall be equal to:
(i) if such shares are publicly traded, (x) the closing price, if
applicable, or the average of the last bid and asked prices on the date of
grant or, if lower, the average of the daily closing prices (or the mean
between the last bid and asked prices for days on which no sales took
place) of the 30 business days immediately preceding the date of grant, in
the over-the-counter market as reported by NASDAQ, or (y) if the Common
Stock is then traded on a national securities exchange, the average of the
high and low prices on the date of grant or, if lower, the average of the
daily closing prices (or the mean between the last bid and asked prices for
days on which no sales took place) of the 30 business days immediately
preceding the date of grant, on the principal national securities exchange
on which it is so traded; or
(ii) if there is no public trading market for such shares, the fair
value of such shares on the date of grant as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common
Stock in private transactions negotiated at arms' length.
Anything contained in the Plan to the contrary notwithstanding, all
determinations pursuant to Section 6.b.(ii) shall be made without regard to any
restriction other than a restriction which, by its terms, will never lapse.
C. REPRICING OF NSOS.
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<PAGE> 6
Subsequent to the date of grant of any NSO, the Committee may, at its
discretion and with the consent of the Optionee, establish a new Option Price
for such NSO so as to increase or decrease the Option price of such NSO.
7. EXERCISABILITY OF OPTIONS.
A. COMMITTEE DETERMINATION.
Each Option granted under the Plan shall be exercisable at such time or
times, or upon the occurrence of such event or events, and for such number of
shares subject to the Option, as shall be determined by the Committee and set
forth in the Option Agreement evidencing such Option; provided, however, no
Option granted under the Plan shall be exercisable during the 180-day period
immediately following the effective date of the registration statement filed by
the Company under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the initial public offering of the Common Stock.
Subject to the proviso of the immediately preceding sentence, if an Option is
not at the time of grant immediately exercisable, the Committee may (i) in the
Option Agreement evidencing such Option, provide for the acceleration of the
exercise date or dates of the subject Option upon the occurrence of specified
events and/or (ii) at any time prior to the complete termination of such
Option, accelerate the exercise date or dates of such Option.
B. AUTOMATIC TERMINATION OF OPTION.
The unexercised portion of any Option granted under the Plan shall
automatically terminate and shall become null and void and be of no further
force or effect upon the first to occur of the following:
(i) the seventh anniversary of the date on which such Option is
granted or, in the case of any ISO granted to a person described in Section
4.b.(i), the fifth anniversary of the date on which such ISO is granted;
(ii) the expiration of such period of time or the occurrence of
such event as the Committee in its discretion may provide in the Option
Agreement;
(iii) the effective date of a Corporate Transaction (as defined in
Section 9.b.) to which Section 9.b.(ii) (relating to assumptions and
substitutions of Options) does not apply; provided, however, that an
Optionee's right to exercise any Option outstanding prior to such effective
date shall in all events be suspended during the period commencing 10 days
prior to the proposed effective date of such Corporate Transaction and
ending on either the actual effective date of such Corporate Transaction or
upon receipt of notice from the Company that such Corporate Transaction
will not in fact occur; and
(iv) except to the extent permitted by Section 9.b.(ii), the date
on which an Option or any part thereof or right or privilege relating
thereto is transferred (otherwise
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<PAGE> 7
than by will or the laws of descent and distribution), assigned, pledged,
hypothecated, attached or otherwise disposed of by the Optionee.
Anything contained in the Plan to the contrary notwithstanding, unless
otherwise provided in an Option Agreement, no Option granted under the Plan
shall be affected by any change of duties or position of the Optionee
(including a transfer to or from the Company or one of its Subsidiaries), so
long as such Optionee continues to be an officer or employee of the Company or
one of its Subsidiaries.
C. LIMITATIONS ON EXERCISE.
Anything contained in the Plan to the contrary notwithstanding, an ISO
granted under the Plan to an Optionee shall not be exercisable to the extent
that the aggregate Fair Market Value on the date of grant of such ISO (as
determined in accordance with Section 6.b.) of all stock with respect to which
incentive stock options are exercisable for the first time by such Optionee
during any calendar year (under all plans of the Company and its Subsidiaries)
exceeds $100,000.
8. PROCEDURE FOR EXERCISE.
A. PAYMENT.
At the time an Option is granted under the Plan, the Committee shall, in
its discretion, specify one or more of the following forms of payment which may
be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to the Company in an
amount equal to the aggregate Option price of the shares with respect to
which the Option is being exercised;
(ii) stock certificates (in negotiable form) representing shares of
Common Stock having a Fair Market Value on the date of exercise (as
determined in accordance with Section 6.b. as if the date of exercise
were the date of grant) equal to the aggregate Option Price of the shares
with respect to which the Option is being exercised; or
(iii) a combination of the methods set forth in clauses (i) and (ii).
B. NOTICE.
An Optionee (or other person, as provided in Section 10.b.) may exercise
an Option granted under the Plan in whole or in part (but for the purchase of
whole shares only), as provided in the Option Agreement evidencing his or her
Option, by delivering a written notice (the "Notice") to the Secretary of the
Company. The Notice shall:
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<PAGE> 8
(i) state that the Optionee elects to exercise the Option;
(ii) state the number of shares with respect to which the Option
is being exercised (the "Optioned Shares");
(iii) state the method of payment for the Optioned Shares (which
method must be available to the Optionee under the terms of his or her
Option Agreement);
(iv) state the date upon which the Optionee desires to consummate
the purchase (which date must be prior to the termination of such
Option and no later than 30 days from the delivery of such Notice);
(v) include any representations of the Optionee required pursuant
to Section 10.a.;
(vi) if the Option is exercised pursuant to Section 10.b. by any
person other than the Optionee, include evidence to the satisfaction of
the Committee of the right of such person to exercise the Option; and
(vii) include such further provisions consistent with the Plan as the
Committee may from time to time require.
The exercise date of an Option shall be the date on which the Company
receives the Notice from the Optionee.
Within 30 days of the exercise of the Option, the Optionee shall deliver
to the Company a copy of any election filed by the Optionee with the Internal
Revenue Service under Section 83(b) of the Code.
C. ISSUANCE OF CERTIFICATES.
The Company shall issue a stock certificate in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions
of Section 10.b.) for the Optioned Shares as soon as practicable after receipt
of the Notice and payment of the aggregate Option Price for such shares.
Neither the Optionee nor any person exercising an Option in accordance with the
provisions of Section 10.b. shall have any privileges as a stockholder of the
Company with respect to any shares of stock subject to an Option granted under
the Plan until the date of issuance of a stock certificate pursuant to this
Section 8.c.
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<PAGE> 9
9. ADJUSTMENTS.
A. CHANGES IN CAPITAL STRUCTURE.
Subject to Section 9.b., if the Common Stock is changed by reason of a
stock split, reverse stock split, stock dividend or recapitalization, or
converted into or exchanged for other securities as a result of a merger,
consolidation or reorganization, the Committee shall make such adjustments in
the number and class of shares of stock with respect to which Options may be
granted under the Plan as shall be equitable and appropriate in order to make
such Options, as nearly as may be practicable, equivalent to such Options
immediately prior to such change. A corresponding adjustment changing the
number and class of shares allocated to, and the Option price of, each Option
or portion thereof outstanding at the time of such change shall likewise be
made. Anything contained in the Plan to the contrary notwithstanding, in the
case of ISOs, no adjustment under this Section 9.a. shall be appropriate if
such adjustment (i) would constitute a modification, extension or renewal of
such ISOs within the meaning of Sections 422 and 424 of the Code, and the
regulations promulgated by the Treasury Department thereunder, or (ii) would,
under Section 422 of the Code and the regulations promulgated by the Treasury
Department thereunder, be considered the adoption of a new plan requiring
stockholder approval.
B. CORPORATE TRANSACTIONS.
The following rules shall apply in connection with the dissolution or
liquidation of the Company, a reorganization, merger or consolidation in which
the Company is not the surviving corporation, or a sale of all or substantially
all of the assets of the Company to another person or entity (a "Corporate
Transaction"):
(i) each holder of an Option outstanding at such time shall be
given (A) written notice of such Corporate Transaction at least 20 days
prior to its proposed effective date (as specified in such notice) and
(B) an opportunity, during the period commencing with delivery of such
notice and ending 10 days prior to such proposed effective date, to
exercise the Option to the full extent to which such Option would have been
exercisable by the Optionee at the expiration of such 20-day period;
provided, however, that upon the effective date of a Corporate
Transaction, all Options granted under the Plan not so exercised shall
automatically terminate; and
(ii) anything contained in the plan to the contrary notwithstanding,
Section 9.b.(i) shall not be applicable if provision shall be made in
connection with such Corporate Transaction for the assumption of
outstanding Options by, or the substitution for such Options of new
options covering the stock of, the surviving, successor or purchasing
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number, kind and option prices of shares subject to
such options; provided, however, that in the case of ISOs, the Committee
shall, to the extent not inconsistent with the best interests of the
Company or its Subsidiaries (such best interests to be determined in good
faith by the Committee in its sole discretion), use its best efforts to
ensure that any such assumption or substitution will not constitute a
modification, extension or renewal of the ISOs within the meaning of
Section 424(h) of the Code and the regulations promulgated by the Treasury
Department thereunder.
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<PAGE> 10
C. SPECIAL RULES.
The following rules shall apply in connection with Section 9.a. and b.
above:
(i) no fractional shares shall be issued as a result of any such
adjustment, and any fractional shares resulting from the computations
pursuant to Section 9.a. or b. shall be eliminated without consideration
from the respective Options;
(ii) no adjustment shall be made for cash dividends or the issuance
to stockholders of rights to subscribe for additional shares of Common
Stock or other securities; and
(iii) any adjustments referred to in Section 9.a. or b. shall be
made by the Committee in its sole discretion and shall be conclusive and
binding on all persons holding Options granted under the Plan.
10. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES.
A. COMPLIANCE WITH SECURITIES LAWS.
No Options shall be granted under the Plan, and no shares of Common Stock
shall be issued and delivered upon the exercise of Options granted under the
Plan, unless and until the Company and/or the Optionee shall have complied with
all applicable Federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
The Committee in its discretion may, as a condition to the exercise of any
Option granted under the Plan, require an Optionee (i) to represent in writing
that the shares of Common Stock received upon exercise of an Option are being
acquired for investment and not with a view to distribution and (ii) to make
such other representations and warranties as are deemed appropriate by counsel
to the Company. Stock certificates representing shares of Common Stock
acquired upon the exercise of Options that have not been registered under the
Securities Act shall, if required by the Committee, bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
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<PAGE> 11
B. NONASSIGNABILITY OF OPTION RIGHTS.
No Option granted under this Plan shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. If an Optionee dies, his or her Option shall thereafter
be exercisable, during the period specified in the Option Agreement, by his or
her executors or administrators to the full extent to which such Option was
exercisable by the Optionee at the time of his or her death.
11. EFFECTIVE DATE OF PLAN.
This Plan shall become effective on the date (the "Effective Date") of the
consummation of the initial public offering of the Common Stock; provided,
however, that no Option shall be exercisable by an Optionee unless and until the
Plan shall have been approved by the stockholders of the Company in accordance
with the provisions of its Certificate of Incorporation and Bylaws, which
approval shall be obtained within 12 months before or after the adoption of the
Plan by the Board.
12. EXPIRATION AND TERMINATION OF THE PLAN.
Except with respect to Options then outstanding, the Plan shall expire on
the date (the "Expiration Date") which is the first to occur of (i) the tenth
anniversary of the Effective Date, (ii) the tenth anniversary of the date on
which the Plan is approved by the stockholders of the Company and (iii) the
date as of which the Board, in its sole discretion, determines that the Plan
shall terminate. Any Options outstanding as of the Expiration Date shall
remain in effect until they have been exercised or terminated or have expired
by their respective terms.
13. AMENDMENT OF PLAN.
The Board may at any time prior to the Expiration Date modify and amend
the Plan in any respect; provided, however, that the approval of the holders of
a majority of the votes that may be cast by all of the holders of shares of
Common Stock and preferred stock of the Company, if any, entitled to vote
(voting as a single class) shall be obtained prior to any such amendment
becoming effective if such approval is required by law or is necessary to
comply with regulations promulgated by the SEC under Section 16(b) of the 1934
Act or with Section 422 of the Code or the regulations promulgated by the
Treasury Department thereunder.
14. CAPTIONS.
The use of captions in this Plan is for convenience. The captions are not
intended to provide substantive rights.
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<PAGE> 12
15. DISQUALIFYING DISPOSITIONS.
If Optioned Shares acquired by exercise of an ISO granted under this Plan
are disposed of within two years following the date of grant of the ISO or one
year following the transfer of the Optioned Shares to the Optionee (a
"Disqualifying Disposition"), the holder of the Optioned Shares shall,
immediately prior to such Disqualifying Disposition, notify the Company in
writing of the date and terms of such Disqualifying Disposition and provide
such other information regarding the Disqualifying Disposition as the Company
may reasonably require.
16. WITHHOLDING TAXES.
Whenever under the Plan shares of Common Stock are to be delivered to an
Optionee upon exercise of an NSO, the Company shall be entitled to require as a
condition of delivery that the Optionee remit or, in appropriate cases, agree
to remit when due, an amount sufficient to satisfy all current or estimated
future Federal, state and local withholding tax and employment tax requirements
relating thereto. At the time of a Disqualifying Disposition, the Optionee
shall remit to the Company in cash the amount of any applicable Federal, state
and local withholding taxes and employment taxes.
17. OTHER PROVISIONS.
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the
Committee, in its sole discretion. Notwithstanding the foregoing, each ISO
granted under the Plan shall include those terms and conditions which are
necessary to qualify the ISO as an "incentive stock option" within the meaning
of Section 422 of the Code and the regulations thereunder and shall not include
any terms or conditions which are inconsistent therewith.
18. NUMBER AND GENDER.
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, and
vice-versa, as the context requires.
19. GOVERNING LAW.
The validity and construction of this Plan and the instruments evidencing
the Options granted hereunder shall be governed by the laws of the State of
Delaware.
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<PAGE> 1
Exhibit 10.15
CONTRIBUTION AGREEMENT
AND
AGREEMENT AND PLAN OF MERGER
AMONG
WIRELESS ONE OPERATING COMPANY
and its stockholders,
HEARTLAND WIRELESS COMMUNICATIONS, INC.,
CONTRIBUTING HEARTLAND SUBSIDIARIES (AS DEFINED HEREIN),
WIRELESS ONE, INC.,
WIRELESS ONE MERGER COMPANY
AND
PREMIER VENTURE CAPITAL CORPORATION,
as the initial Wireless One Stockholder Representative
Dated as of October 18, 1995
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS.............................. 1
ARTICLE II
CLOSING OF THE CONTRIBUTION....................... 15
2.1 First Closing................................................. 15
2.2 The Contribution.............................................. 15
ARTICLE III
CLOSING OF THE MERGER.......................... 16
3.1 Second Closing................................................ 16
3.2 Conversion of Preferred Stock................................. 17
3.3 Transfer of Warrants.......................................... 17
3.4 Exercise of Warrants.......................................... 17
3.5 Shares to be Issued upon Warrant Exercise..................... 17
3.6 Cancellation of Non-Exercised Options......................... 18
3.7 Delivery of Schedule of Pro Rata Amounts...................... 18
3.8 The Merger.................................................... 18
3.9 Certificate of Incorporation.................................. 19
3.10 The By-Laws................................................... 19
3.11 Directors and Officers........................................ 19
3.12 Merger Sub Stock.............................................. 19
3.13 Transfer of Shares prior to the Second Closing................ 19
ARTICLE IV
SHARE CONSIDERATION IN THE CONTRIBUTION AND THE MERGER......... 20
4.1 Share Consideration; Conversion, Contribution or
Cancellation of Shares........................................ 20
4.2 Joint Markets................................................. 20
4.3 Payment for Shares in the Merger.............................. 21
4.4 Allocation of Share Consideration............................. 22
ARTICLE V
REPRESENTATIONS AND WARRANTIES..................... 22
5.1 Representations and Warranties of Wireless One................ 22
i
<PAGE> 3
5.2 Representations and Warranties of the Wireless One
Stockholders................................................... 29
5.3 Representations and Warranties of Heartland.................... 32
ARTICLE VI
COVENANTS................................. 40
6.1 Covenants of the Parties....................................... 40
6.2 Additional Affirmative Covenants of Wireless One............... 43
6.3 Additional Negative Covenants of Wireless One.................. 46
6.4 Additional Affirmative Covenants of the Heartland Companies.... 48
6.5 Additional Negative Covenants of the Heartland Companies....... 51
6.6 Post-Closing Operations........................................ 52
ARTICLE VII
CONDITIONS................................ 55
7.1 Conditions to the First Closing................................ 55
7.2 Conditions to the Second Closing............................... 55
ARTICLE VIII
TERMINATION................................ 62
8.1 Termination by Mutual Consent.................................. 62
8.2 Termination by Either Wireless One or Heartland................ 62
8.3 Effect of Termination and Abandonment.......................... 62
8.4 Effect of Second Closing....................................... 63
ARTICLE IX
CALL MARKETS............................... 63
9.1 Exercise of Option............................................. 63
9.2 Purchase Price................................................. 64
ARTICLE X
INDEMNIFICATION.............................. 65
10.1 Indemnities of the Heartland Companies......................... 65
10.2 Delivery of Notice............................................. 65
ii
<PAGE> 4
ARTICLE XI
MISCELLANEOUS AND GENERAL......................... 66
11.1 Expenses....................................................... 66
11.2 Notices, Etc. ................................................. 66
11.3 Amendments, Waivers, Etc. ..................................... 67
11.4 No Assignment.................................................. 67
11.5 Entire Agreement............................................... 67
11.6 Specific Performance........................................... 67
11.7 Remedies Cumulative............................................ 68
11.8 No Waiver...................................................... 68
11.9 No Third Party Beneficiaries................................... 68
11.10 Public Announcements........................................... 68
11.11 Governing Law.................................................. 68
11.12 Name, Captions, Etc............................................ 68
11.13 Counterparts................................................... 69
11.14 Generally Accepted Accounting Principles....................... 69
11.15 No Strict Construction......................................... 69
11.16 Wireless One Stockholder Representative........................ 69
11.17 Severability................................................... 72
11.18 Further Assurances............................................. 72
iii
<PAGE> 5
CONTRIBUTION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
CONTRIBUTION AGREEMENT AND AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of October __, 1995, among Wireless One Operating
Company, a Delaware corporation ("Wireless One"), those persons named on
Schedule I hereto (the "Wireless One Stockholders"), Heartland Wireless
Communications, Inc., a Delaware corporation ("Heartland"), the subsidiaries of
Heartland named on Schedule II hereto (the "Contributing Heartland
Subsidiaries"), Wireless One, Inc., a Delaware corporation (the "Company"),
Wireless One Merger Company, a Delaware corporation and a direct wholly owned
subsidiary of the Company ("Merger Sub"), and Premier Venture Capital
Corporation, as initial representative of the Wireless One Stockholders (the
"Wireless One Stockholder Representative").
RECITALS
WHEREAS, the parties hereto intend to enter into a series of transactions
that shall be recognized as a tax-free contribution and reorganization under the
provisions of Sections 351 and 368 of the Internal Revenue Code of 1986, as
amended; and
WHEREAS, such transactions will comprise (i) the contribution by Heartland
and the Contributing Heartland Subsidiaries of the Contributed Assets (as
defined herein) and the assumption by the Company of the Assumed Liabilities (as
defined herein) and (ii) the merger of the Company's direct wholly owned
subsidiary, Merger Sub, into Wireless One.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
"Additional Investors" means those Persons listed under the caption "New
Investors" on Schedule I hereto.
1
<PAGE> 6
"Adjustment Shares" means 200,000 shares of Company Common Stock, which are
part of the Share Consideration.
"Affiliate" of any Person means any other Person controlling, controlled by
or under common control with such Person, where "control" means the possession,
directly or indirectly, of the power to direct the management and policies of a
Person whether through the ownership of voting securities, contract or
otherwise, and, in the case of a partnership or limited liability company, any
partner or member of such partnership or limited liability company. For
purposes of this Agreement, Baseball will be deemed to be an "Affiliate" of
Chase and Chase's "Affiliates," and Chase and Chase's Affiliates will be deemed
to be "Affiliates" of Baseball.
"Anticipated IPO" means the initial public offering of the Company Common
Stock, which offering is expected to close on or before November 15, 1995.
"Anticipated Offerings" means, collectively, the Anticipated IPO and the
contemplated offering of units consisting of the Company's Senior Discount Notes
due 2005 and warrants to purchase shares of Company Common Stock.
"Assumed Liabilities" has the meaning given to such term in Section 2.2.
"Baseball" means Baseball Partners, a New York general partnership.
"Bona Fide Transaction" has the meaning given to such term in Section
6.6(a).
"Broadcast Station" means a television broadcast station, a television
translator station, a low power television station, an educational television
broadcasting station, and includes every category of broadcast station that may
enjoy must-carry rights under FCC Rules, but does not include a "superstation"
as defined by FCC Rule 76.64(c)(2) actually received by the wireless cable
system by satellite downlink.
"Bryan Company" means Wireless One of Bryan, Inc., a Delaware corporation.
2
<PAGE> 7
"BTA" has the meaning given to such term in Section 6.6(a).
"Call Markets" means, collectively, the following markets: Fanning
Springs, Florida; Leesburg, Florida; and Lake City, Florida.
"Certificates" has the meaning given to such term in Section 4.3.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Chase" means Chase Manhattan Capital Corporation.
"Closings" means, collectively, the First Closing and the Second Closing.
"Company Common Stock" means the Company's Common Stock, par value $.01
per share.
"Company Options" means options to acquire Company Common Stock to be
granted at the time of the Second Closing to Hans Sternberg, Sean E. Reilly and
William C. Norris, Jr. pursuant to the Company Stock Option Plan, in amounts
and with the material terms described on Exhibit 3.6 hereto.
"Company Permitted Acquisition" has the meaning given to such term in
Section 6.6(a).
"Company Stock Option Plan" means the Company's 1995 Stock Option Plan
substantially in the form of Exhibit 7.2(a)(xi)(A) hereto.
"Company Subsidiaries" means the Surviving Corporation and its
subsidiaries.
"Contributed Assets" has the meaning given to such term in Section 2.2.
"Contribution" means the contribution by the Heartland Companies of the
Contributed Assets, and the assumption by the Company of the Assumed
Liabilities, as contemplated by Section 2.2.
3
<PAGE> 8
"Designated Wireless One Stockholders" means, collectively, Chase
Manhattan Capital Corporation; Baseball Partners; Advantage Capital Partners,
Limited Partnership; Advantage Capital Partners II, Limited Partnership; First
Commerce Capital, Inc.; Premier Venture Capital Corporation; and each of their
respective Affiliates.
"DGCL" means the Delaware General Corporation Law, as amended, as in
effect from time to time.
"Encumbrance" has the meaning given to such term in Section 5.1(d).
"Environmental and Safety Requirements" means all federal, state, local and
foreign statutes, regulations, ordinances and other provisions having the force
or effect of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law, in each case concerning public
health and safety, worker health and safety and pollution or protection of the
environment (including, without limitation, all those relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, Release, threatened
Release, control or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation).
"Environmental Laws" has the meaning given to such term in Section
5.1(aa).
"Environmental Lien" shall mean any Lien, whether recorded or unrecorded,
in favor of any Governmental Body, relating to any liability under any
Environmental and Safety Requirements.
"Escrow Agreement" means the Escrow Agreement to be dated as of the Second
Closing Date, substantially in the form of Exhibit 7.2(a)(x) hereto, with such
changes thereto as the escrow agent may reasonably request.
"Estimated Heartland Share Consideration" means 3,461,538 shares of
Company Common Stock.
4
<PAGE> 9
"Estimated Wireless One Share Consideration" means 6,538,462 shares of
Company Common Stock.
"Exchange" means the exchange of certain assets prior to the Second
Closing pursuant to the Exchange Agreement substantially in the form of Exhibit
7.2(a)(xii) hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Investors" means those Persons listed under the caption
"Existing Investors" on Schedule I hereto.
"FCC License" has the meaning given to such term in Section 5.1(m).
"Filing Deadline" means the earlier of (i) December 31, 1996 and (ii) the
conclusion of the first "window," as defined in paragraph 4 appearing at 60
Fed. Reg. 20241 (April 25, 1995).
"First Closing" means the consummation of the Contribution.
"First Closing Date" means the date on which the First Closing occurs.
"First Effective Time" means the close of business on the First Closing
Date.
"Funded Indebtedness" means all Indebtedness for borrowed money or for the
deferred purchase price of property or services, as determined in accordance
with generally accepted accounting principles, consistently applied.
"Governmental Body" means any Federal, state, municipal, political
subdivision or other governmental department, court, commission, board, bureau,
agency or instrumentality, domestic or foreign.
"Heartland Basic Subscriber" means a current Subscriber to a Heartland
Operating System's regular monthly basic services who has paid for at least one
full month of basic service in full without discount, whose service rates are
not lower than the rates generally charged when that Subscriber became a
Subscriber and
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<PAGE> 10
whose account receivable for such service does not include any
balance due for service provided more than 60 days before the date of
determination. For bulk rate customers, an equivalent billing unit, as
commonly understood in the cable television industry, shall be a Heartland
Basic Subscriber.
"Heartland Company" means Heartland or any Contributing Heartland
Subsidiary.
"Heartland Lease/License Binder" means the MDS Data Sheets and ITFS Data
Sheets delivered by the Heartland Companies in connection with this Agreement.
"Heartland Net Working Capital" means the amount of the consolidated
current assets included as part of the Contributed Assets reduced by the amount
of consolidated current liabilities included as part of the Assumed
Liabilities, in each case as of the Second Effective Time. For this purpose,
"current assets" and "current liabilities" will include those assets and
liabilities relating to the wireless cable television system located in the
Gainesville, Florida market and which are to be transferred to Wireless One of
Gainesville, Inc. as part of the Exchange, but will not include any Contributed
Asset or Assumed Liability to the extent that it relates to any Joint Market
and (in the case of any Assumed Liability) was incurred in accordance with
Section 4.2, and "current liabilities" will not include the current portion (if
any) of any Assumed Liabilities consisting of Funded Indebtedness and will not
include the Heartland Companies' expenses referred to in Section 11.1 and
assumed by the Company pursuant to Section 2.2. For this purpose, "current
assets" will also include any Contributed Asset consisting of equipment owned
by a Heartland Company and held for installation (but not yet installed) at the
location of a Subscriber or potential Subscriber.
"Heartland Nominal Value" means $27,000,000, adjusted as of the Second
Closing Date as follows: (a) increased by the amount (if any) by which the Net
Asset Amount for the Heartland Companies is greater than $186,000, (b) reduced
by the amount (if any) by which the Net Asset Amount for the Heartland
Companies is less than $186,000, and (c) increased by the product of $400 and
the amount (if any) by which the Heartland Subscriber Increase is greater than
the Wireless One Subscriber Increase.
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"Heartland Operating Subsidiaries" means those Heartland Subsidiaries
operating and/or owning the wireless cable systems in Milano, Texas and Monroe,
Louisiana.
"Heartland Operating Systems" means the Milano, Texas wireless cable
system operated by Heartland Wireless Rockdale, Inc. and the Monroe, Louisiana
wireless cable system operated by Cotton Country Cable, Inc. and Delta Wireless
Cable, Inc., each of which will be contributed to the Company as part of the
Contribution.
"Heartland Pay Subscriber" means a current Subscriber to a Heartland
Operating System's regular monthly pay services who, as of the date of
determination, is a Basic Subscriber.
"Heartland Permitted Acquisition" has the meaning given to such term in
Section 6.6(b).
"Heartland Share Consideration" means a number of shares of Company Common
Stock equal to the product of (a) the Share Consideration multiplied by (b) a
fraction (i) the numerator of which shall be the Heartland Nominal Value and
(ii) the denominator of which shall be the Nominal Value.
"Heartland Site Agreements" has the meaning given to such term in Section
2.2.
"Heartland States" has the meaning given to such term in Section 6.6(a).
"Heartland Subscriber Increase" means, as of the Second Effective Time,
the amount (if any) by which the aggregate number of Subscribers for the
Heartland Operating Systems is greater than 2,186.
"HSR Act" means The Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, as in effect from time to time.
"Indebtedness" means, for any Person: (a) obligations created, issued or
incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such
property from such Person); (b) obligations of such Person to pay the
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<PAGE> 12
deferred purchase or acquisition price of property or services, other than trade
accounts payable arising, and accrued expenses incurred, in the ordinary course
of business; (c) Indebtedness of others secured by a Lien on the property of
such Person, whether or not the respective Indebtedness so secured has been
assumed by such Person; (d) obligations of such Person in respect of letters
of credit or similar instruments issued or accepted by banks and other
financial institutions for account of such Person; (e) capital lease
obligations of such Person; and (f) Indebtedness of others guaranteed by such
Person.
"Intellectual Property Rights" means all (i) patents, patent applications,
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names, logos and corporate names and registrations and applications for
registration thereof together with all of the goodwill associated therewith,
(iii) copyrights (registered or unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, (vi) trade secrets and other
confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"IPO Closing" means the closing of the Anticipated IPO.
"IPO Price" means the price per share at which Company Common Stock is
contemplated to be offered to the public pursuant the Anticipated IPO, which
will be specified in the definitive underwriting agreement to be entered into
by the Company prior to the Second Closing.
"ITFS" refers to wireless cable channels that must be owned by qualified
non-profit educational organizations.
"Joint Markets" means the geographic markets described on Exhibit 4.2
hereto.
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"Lafayette Company" means Wireless One of Lafayette, Inc., a Delaware
corporation.
"Lake Charles Company" means Wireless One of Lake Charles, Inc., a
Delaware corporation.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof), any sale of
receivables with recourse, any filing or agreement to file a financing statement
as debtor under the Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased under a lease which is not
in the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"LOS Households" means line-of-sight households as determined by Robert
Gehman or such other Person as the Company may designate and Heartland and the
Wireless One Stockholder Representative approve in writing (such approval not
to be unreasonably withheld), assuming a 35-mile radius of signal coverage and
30-foot receiving antennas, employing a 20% tree discount, and excluding
households which are line-of-sight households (as determined by Robert Gehman
or such other Person), assuming a 35-mile radius of signal coverage and 30-foot
receiving antennas) with respect to then-current Company markets.
"MDS" refers to wireless cable channels that can be owned by for-profit
entities.
"Merger" means the merger of Merger Sub with and into Wireless One as
contemplated by Section 3.8.
"Merger Sub Common Stock" means Merger Sub's Common Stock, par value $.01
per share.
"Net Asset Amount" means
(i) for Wireless One, the Wireless One Net Working Capital, increased
by the original cost of all equipment owned by the Wireless One Companies
at the Second Effective Time and relating to any Wireless One Operating
System which has fewer
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<PAGE> 14
than 250 Subscribers (other than any equipment relating to any Joint
Market), further increased by the aggregate amount reasonably expended by
the Wireless One Companies with respect to Joint Markets after July 17,
1995 and prior to the Second Effective Time in accordance with Section 4.2,
and reduced by the amount of all Funded Indebtedness of the Wireless One
Companies at the time of the Second Closing; and
(ii) for Heartland, the Heartland Net Working Capital, increased by
the original cost of all equipment included in the Contributed Assets and
relating to any Heartland Operating System which has fewer than 250
Subscribers (other than any equipment relating to any Joint Market),
further increased by the aggregate amount reasonably expended by the
Heartland Companies with respect to Joint Markets after July 17, 1995 and
prior to the Second Effective Time in accordance with Section 4.2, and
reduced by the amount of all Assumed Liabilities which constitute Funded
Indebtedness of the Heartland Companies at the time of the Second Closing.
"Nominal Value" means, collectively, the Wireless One Nominal Value and
the Heartland Nominal Value.
"Note" means the Promissory Note from the Company for the benefit of
Heartland, substantially in the form of Exhibit 2.2 hereto.
"Old Registration Agreement" means the Registration Agreement dated as of
April 14, 1995 among Wireless One and the Wireless One Stockholders.
"Old Stockholders Agreement" means the Stockholders Agreement dated as of
April 14, 1995 among Wireless One and the Wireless One Stockholders.
"Person" means any individual or corporation, company, partnership, trust,
incorporated or unincorporated association, joint venture or other entity of
any kind.
"Pro Rata Amount" means, (a) with respect to any Wireless One Stockholder,
the fraction set forth opposite such Wireless One Stockholder's name on the
"Wireless One Schedule of Pro Rata Amounts" delivered pursuant to Section 3.7
hereof, and (b) with respect to any Heartland Company, the fraction set forth
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<PAGE> 15
opposite such Heartland Company's name on the "Heartland Schedule of Pro Rata
Amounts" delivered pursuant to Section 4.4(b) hereof.
"Release" shall have the meaning set forth in CERCLA.
"SEC" means the Securities and Exchange Commission.
"Second Closing" means the consummation of the Merger.
"Second Closing Date" means the date on which the Second Closing occurs.
"Second Effective Time" means the close of business on the Second Closing
Date.
"Securities Act" means the Securities Act of 1933, an amended, as in
effect from time to time.
"Share Consideration" means 10,000,000 shares of Company Common Stock.
"Subscriber" means each location at which, at the time of determination,
equipment has been installed for the purpose of attaching such location to a
Heartland Operating System or a Wireless One Operating System, as the case may
be. Notwithstanding the foregoing, the number of Subscribers for the Heartland
Operating System located in Milano, Texas will be deemed to be 1,630 for
purposes of determining the Heartland Subscriber Increase.
"subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
(irrespective of whether, at the time, stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other subsidiaries of such Person or a
combination thereof, or (ii) if a partnership, association or other business
entity, a majority of the partnership or other similar ownership interest
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more subsidiaries of such Person or a combination thereof.
For purposes
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<PAGE> 16
hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership,
association or other business entity gains or losses or shall be or control the
managing director or general partner of such partnership, association or other
business entity. The capitalized term "Subsidiary" means any subsidiary of
Heartland or Wireless One.
"Surviving Corporation" means Wireless One, as the surviving corporation
in the Merger.
"Wharton Company" means Wireless One of Wharton, Inc., a Delaware
corporation.
"Wireless One 1995 Options" means the options to purchase up to 60,000
shares of Wireless One Common Stock granted to Hans Sternberg, Sean E. Reilly
and William C. Norris, Jr. pursuant to the separate Non-Qualified Stock Option
Agreements dated as of April 14, 1995, as in effect from time to time.
"Wireless One Basic Subscriber" means a current Subscriber to a Wireless
One Operating System's regular monthly basic services who has paid for at least
one full month of basic service in full without discount, whose service rates
are not lower than the rates generally charged when that Subscriber became a
Subscriber and whose account receivable for such service does not include any
balance due for service provided more than 60 days before the date of
determination. For bulk rate customers, an equivalent billing unit, as
commonly understood in the cable television industry, shall be a Wireless One
Basic Subscriber.
"Wireless One Common Stock" means Wireless One's Common Stock, par value
$.01 per share.
"Wireless One Company" means Wireless One or any Wireless One Subsidiary.
"Wireless One Lease/License Binder" means the MDS Data Sheets and ITFS
Data Sheets delivered by the Wireless One Companies in connection with this
Agreement.
"Wireless One Net Working Capital" means the amount of the consolidated
current assets of the Wireless One Companies
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<PAGE> 17
reduced by the amount of the consolidated current liabilities of the Wireless
One Companies, in each case as of the Second Effective Time. For this purpose,
"current assets" and "current liabilities" will not include any asset or
liability (i) of any Wireless One Company to the extent that it relates to any
Joint Market and (in the case of any liability) was incurred in accordance with
Section 4.2 or (ii) which relates to the wireless cable television system
located in the Gainesville, Florida market and was transferred to or assumed by
a Wireless One Company as part of the Exchange, and "current liabilities" will
not include the current portion (if any) of any Funded Indebtedness of any
Wireless One Company and will not include Wireless One's expenses referred to in
Section 11.1. For this purpose, "current assets" will also include any
equipment owned by a Wireless One Company and held for installation (but not yet
installed) at the location of a Subscriber or potential Subscriber.
"Wireless One Nominal Value" means $51,000,000, adjusted as of the Second
Closing Date as follows: (a) increased by the amount (if any) by which the Net
Asset Amount for Wireless One is greater than $7,835,937.50, (b) reduced by the
amount (if any) by which the Net Asset Amount for Wireless One is less than
$7,835,937.50, and (c) increased by the product of $400 and the amount (if any)
by which the Wireless One Subscriber Increase is greater than the Heartland
Subscriber Increase.
"Wireless One Operating Subsidiaries" means Bryan Company, Lafayette
Company, Lake Charles Company and Wharton Company.
"Wireless One Operating System" means the Bryan/College Station, Texas;
Lafayette, Louisiana; Lake Charles, Louisiana; and Wharton, Texas wireless
cable systems operated by Bryan Company, Lafayette Company, Lake Charles
Company and Wharton Company, respectively, each of which shall be contributed
to the Company at the Second Effective Time by virtue of the Merger.
"Wireless One Pay Subscriber" means a current Subscriber to a Wireless One
Operating System's regular monthly pay services who, as of the date of
determination, is a Basic Subscriber.
"Wireless One Preferred Stock" means Wireless One's Class A Preferred
Stock, par value $0.01 per share.
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<PAGE> 18
"Wireless One Share Consideration" means a number of shares of Company
Common Stock equal to the product of (a) the
Share Consideration multiplied by (b) a fraction (i) the numerator of which
shall be the Wireless One Nominal Value and (ii) the denominator of which shall
be the Nominal Value.
"Wireless One Site Agreements" has the meaning given to such term in
Section 5.1(g).
"Wireless One States" has the meaning given to such term in Section
6.6(b).
"Wireless One Subscriber Increase" means, as of the Second Effective Time,
the amount (if any) by which the aggregate number of Subscribers for the
Wireless One Operating Systems is greater than 2,750.
"Wireless One Warrants" means the Class A, Class B and Class C Stock
Purchase Warrants of Wireless One issued as of April 14, 1995.
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ARTICLE II
CLOSING OF THE CONTRIBUTION
2.1 First Closing. The First Closing shall take place at the offices of
Kirkland & Ellis, 153 East 53rd Street, New York, New York, on such date and
time as Heartland and the Company may agree or as may be necessary to permit
the fulfillment or waiver of the conditions set forth in Section 7.1, the
intention of the parties being that the First Closing will take place on the
day prior to the Company's entry into a definitive underwriting agreement with
respect to the Anticipated IPO.
2.2 The Contribution. Subject to the terms and conditions of this
Agreement, at the First Closing and effective as of the First Effective Time,
each Heartland Company, in consideration for its Pro Rata Amount of the
Heartland Share Consideration and the Note, shall contribute to the Company,
and the Company shall receive and accept, all of such Heartland Company's
right, title and interest in and to its wireless cable television assets
relating to the markets described on Exhibit 2.2(a) hereto, with the exception
of certain accounting systems, administrative functions and related assets (the
"Administrative Functions") which are performed by Heartland and are located at
Heartland corporate offices in Richardson, Texas or Durant, Oklahoma
(collectively, the "Contributed Assets"), including but not limited to (a) the
Heartland Operating Systems, including any and all properties and assets used
or held for use in the conduct or operation by such Heartland Company of a
Heartland Operating System other than Administrative Functions, whether
tangible or intangible, real, personal or mixed, currently in use or idle, and
wherever located, (b) the ITFS leases identified on Exhibit 2.2(b) hereto and
the MDS management/option agreements identified on Exhibit 2.2(b) hereto with
respect to the MDS stations, applications for MDS station licenses, returned
applications for MDS licenses and MDS licenses identified on such exhibit, and
(c) the site lease options and site leases listed on Exhibit 2.2(c) hereto
(the items described in subsections (b) and (c) above are hereinafter referred
to collectively as the "Heartland Site Agreements"). Except with respect to
the certain $500,000 promissory note relating to the Heartland Companies'
assets and operations in the Monroe, Louisiana market, the Company shall assume
and agree to pay, perform and discharge all of the Heartland Companies'
expenses referred to in Section 11.1 and all liabilities
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<PAGE> 20
(the "Assumed Liabilities") of the Heartland Companies that solely relate to or
arise out of the Contributed Assets. Accordingly, with respect to the Heartland
Operating Systems and the rights of the lessee under the assigned lease
agreements, the site options, the site leases and the assigned portion of the
management/option agreements, the income, expenses and liabilities (including
accounts payable) attributable thereto through the Second Effective Time shall
be for the account of the Heartland Companies and thereafter for the account of
the Company. Expenses, including but not limited to such items as power and
utilities charges, taxes, prepaid lease rental or royalties, insurance, prepaid
and deferred items, reimbursements due to the lessor, intangible taxes and
personal property taxes and assessments against the Contributed Assets
(including all excess taxes and assessments, penalties and interest), accrued
for the period prior to the Second Effective Time shall be prorated between the
Heartland Companies and the Company as of the Second Effective Time.
ARTICLE III
CLOSING OF THE MERGER
3.1 Second Closing. The Second Closing shall take place at the offices of
Kirkland & Ellis, 153 East 53rd Street, New York, New York, on such date and
time as Wireless One and the Company may agree or as may be necessary to permit
the fulfillment or waiver of the conditions set forth in Section 7.2, the
intention of the parties being that the Second Closing will take place on the
same day as, but immediately prior to, the IPO Closing.
3.2 Conversion of Preferred Stock. Immediately prior to the Second
Closing, each Wireless One Stockholder that holds Wireless One Preferred Stock
will be deemed to have converted each such share of Wireless One Preferred
Stock held by such holder into shares of Wireless One Common Stock in
accordance with the applicable terms of the Certificate of Designations of the
Designation, Voting Powers, Preferences and Rights and Qualifications,
Limitations and Restrictions of the Wireless One Preferred Stock. The number
of shares of Wireless One Common Stock to be issued to each such holder upon
such conversion is specified will be indicated on Schedule I hereto prior to
the Second Closing. Until surrendered in accordance with Section 4.3, the
Certificates representing Wireless One Preferred Stock so converted will be
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deemed to represent the Wireless One Common Stock issuable upon such conversion
or, after the Second Effective Time, the right to receive a portion of the
Wireless One Share Consideration (as described in Section 4.1).
3.3 Transfer of Warrants. Immediately prior to the Second Closing, in
consideration for the termination of the rights of Wireless One and each
Existing Investor under paragraph 6 of the Old Stockholders Agreement, each
Additional Investor shall transfer to the Existing Investors, and each Existing
Investor shall receive from the Additional Investors, the number of Wireless
One Warrants specified opposite such Additional Investor's or Existing
Investor's name on Schedule I hereto.
3.4 Exercise of Warrants. Immediately prior to the Second Closing and
immediately after the transfers pursuant to Section 3.3 hereof, each holder of
any Wireless One Warrant will be deemed to have exercised all such warrants in
full in accordance with the terms thereof in a "cashless" manner, with Wireless
One retaining from the shares to be issued upon such exercise a number of shares
of Wireless One Common Stock having an aggregate value equal to the exercise
price payable upon such exercise in lieu of payment of such exercise price in
cash. The number of shares of Wireless One Common Stock to be issued upon any
such exercise will be calculated in accordance with Section 3.5. Until
surrendered in accordance with Section 4.3, the Certificates representing any
Wireless One Warrant which is so exercised will be deemed to represent the
Wireless One Common Stock issuable upon such exercise or, after the Second
Effective Time, the right to receive a portion of the Wireless One Share
Consideration (as described in Section 4.1).
3.5 Shares to be Issued upon Warrant Exercise. The number of shares of
Wireless One Common Stock deemed to be issued upon the exercise of any Wireless
One Warrant pursuant to Section 3.4 will equal
[TS * (MP - $25.00)] / MP
where:
MP = [(6,538,462 * A) + ($25.00 * 591,270)] / B
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TS = the total number of shares issuable upon exercise of
such Wireless One Warrant in its entirety (i.e., if
the exercise price were paid in cash),
A = the IPO Price, and
B = the number of shares of Wireless One Common Stock
which would be outstanding immediately after the
exercise of all Wireless One Warrants if such
Warrants were exercised in their entirety by payment
of the aggregate exercise price in cash.
3.6 Cancellation of Non-Exercised Options. Effective as of the Second
Closing, each Wireless One 1994 Option and each Wireless One 1995 Option will
be deemed to be cancelled, and the Company will grant to each holder thereof
the Company Options specified for such holder on Schedule I hereto (or, in the
case of holders whose Wireless One 1994 Options and/or Wireless One 1995
Options are cancelled hereby, the Company Options that will be indicated on
Schedule I hereto prior to the Second Closing). Effective as of the Second
Closing, Wireless One's 1995 Incentive Option Plan will be deemed to be
cancelled.
3.7 Delivery of Wireless One Schedule of Pro Rata Amounts. Immediately
after the transactions described in Sections 3.2, 3.3, 3.4, 3.5 and 3.6, the
Wireless One Stockholder Representative shall deliver to the Company, Heartland
and the Escrow Agent a "Schedule of Pro Rata Amounts" setting forth for each
Wireless One Stockholder, as of the time immediately prior to the Merger and
after the transactions described in Sections 3.2, 3.3, 3.4, 3.5 and 3.6, a
fraction (a) the numerator of which is the number of shares of Wireless One
Common Stock held (including shares deemed held pursuant to Sections 3.2, 3.3,
3.4 and 3.5 hereof) by such Wireless One Stockholder and (b) the denominator of
which is the aggregate number of shares of Wireless One Common Stock held
(including shares deemed held pursuant to Sections 3.2, 3.3, 3.4 and 3.5
hereof) by all Wireless One Stockholders.
3.8 The Merger. Subject to the terms and conditions of this Agreement, at
the Second Effective Time, Merger Sub shall be merged with and into Wireless
One in accordance with the provisions of Section 251 of the DGCL and with the
effect provided in Sections
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259 and 261 of the DGCL. The separate corporate existence of Merger Sub shall
thereupon cease, and Wireless One shall be the Surviving Corporation and shall
continue to be governed by the DGCL. At the Second Effective Time, each of the
Old Registration Agreement and the Old Stockholders Agreement shall be
terminated and shall be of no further force and effect.
3.9 Certificate of Incorporation. By virtue of the Merger, the
Certificate of incorporation of the Surviving Corporation shall be amended and
restated to read as set forth on Exhibit 3.9 hereto.
3.10 The By-Laws. The By-Laws of Merger Sub in effect at the Second
Effective Time shall be the By-Laws of the Surviving Corporation, substantially
in the form of Exhibit 3.10 hereto, until duly amended in accordance with the
terms thereof, of the Certificate of Incorporation of the Surviving Corporation
and the DGCL.
3.11 Directors and Officers. The directors of the Surviving Corporation
shall be the individuals who are directors of the Merger Sub immediately prior
to the Merger. The officers of the Surviving Corporation immediately following
the Merger shall be those persons elected by the board of directors of the
Surviving Corporation immediately following the Merger.
3.12 Merger Sub Stock. At the Second Effective Time, each share of Merger
Sub Common Stock issued and outstanding immediately prior to the Second
Effective Time shall be converted into one share of common stock of the
Surviving Corporation.
3.13 Transfer of Shares prior to the Second Closing Date. Subject to the
provisions of Sections 3.2, 3.3, 3.4, 3.5 and 3.6, no transfers of Wireless One
Common Stock or Wireless One Preferred Stock shall be made on the stock
transfer books of Wireless One after the close of business on the day prior to
the Second Closing Date.
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ARTICLE IV
SHARE CONSIDERATION IN THE CONTRIBUTION AND THE MERGER
4.1 SHARE CONSIDERATION; CONVERSION, CONTRIBUTION OR CANCELLATION OF
SHARES.
(a) Subject to the provisions of this Article IV, (i) on the First
Closing Date, in consideration for the contribution by the Heartland
Companies of the Contributed Assets, each Heartland Company shall be
entitled to receive its Pro Rata Amount of the Heartland Share
Consideration and the Note, and (ii) at the Second Effective Time, by
virtue of the Merger and without any action on the part of the holders
thereof, each share of the Wireless One Common Stock issued and outstanding
immediately prior to the Second Effective Time shall be converted into the
right to receive a number of shares of Company Common Stock equal to the
quotient of (A) the Wireless One Share Consideration, divided by (B) the
shares of Wireless One Common Stock that are outstanding after giving
effect to the provisions of Sections 3.2, 3.3, 3.4, 3.5 and 3.6 hereof.
(b) All Wireless One Common Stock to be converted into Company Common
Stock pursuant to this Section 4.1 shall cease to be outstanding, shall be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such Wireless One Common Stock, Wireless One
Preferred Stock or Wireless One Warrants shall thereafter cease to have any
rights with respect to such Wireless One Common Stock (including the
Wireless One Common Stock deemed issued upon the conversion or exercise of
such Wireless One Preferred Stock or Wireless One Warrants) except the
right to receive for such Wireless One Common Stock, upon the surrender of
such certificate in accordance with Section 4.3, the amount of Company
Common Stock specified in Section 4.1(a) above.
4.2 Joint Markets. During the period beginning on May 19, 1995 and ending
on the day prior to the Second Closing Date, Wireless One and the Heartland
Companies may cooperate on mutually acceptable terms as to the acquisition by
one or both of them of wireless cable television assets relating to the Joint
Markets. Any assets and related liabilities so acquired (i) by a Wireless One
Company will be transferred to the Company by means of the Merger at the Second
Effective Time or (ii) by a Heartland Company
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will be contributed to the Company and, in the case of related liabilities,
assumed by the Company by means of the Contribution on the First Closing Date.
4.3 Payment for Shares in the Merger. On the Second Closing Date, each
Wireless One Stockholder shall surrender to the Company the certificates (the
"Certificates") representing all of the Wireless One Warrants and Wireless One
Preferred Stock and all of the issued and outstanding shares of Wireless One
Common Stock held by such Wireless One Stockholder, and the Certificates so
surrendered shall forthwith be cancelled. Until so surrendered, Certificates
shall represent solely the right to receive a portion of the Wireless One Share
Consideration. No dividends or other distributions that are declared after the
Second Effective Time on shares of Company Common Stock and payable to the
holders of record thereof after the Second Effective Time will be paid to
Persons entitled by reason of the Merger to receive shares of Company Common
Stock until such Persons surrender their Certificates. Upon such surrender,
subject to Section 4.4, there shall be paid to the Person in whose name the
shares of Company Common Stock are issued any dividends or other distributions
having a record date after the Second Effective Time and payable with respect
to such shares of Company Common Stock between the Second Effective Time and
the time of such surrender. In no event shall the Persons entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any cash or any certificate representing
shares of Company Common Stock is to be paid to or issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered,
it shall be a condition of such exchange that the Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the Person requesting such exchange shall pay to the Company any transfer or
other taxes required by reason of the issuance of certificates for such shares
of Company Common Stock in a name other than that of the registered holder of
the Certificate surrendered, or shall establish to the satisfaction of the
Company that such tax has been paid or is not applicable. Notwithstanding the
foregoing, neither the Company nor any party hereto shall be liable to any
Heartland Company or any Wireless One Stockholder for any shares of Company
Common Stock or dividends thereon delivered to a public official pursuant to
applicable escheat law. The Company shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of Company Common Stock held
by it from time to time under this Article IV,
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except that it shall receive and hold all dividends or other distributions paid
or distributed with respect to such shares of Company Common Stock for the
account of the Persons entitled thereto.
4.4 Allocation of Share Consideration. On the First Closing Date,
Heartland shall deliver to the Company and the Escrow Agent a "Heartland
Schedule of Pro Rata Amounts" setting forth for each Heartland Company a
fraction representing such Heartland Company's pro rata share of the Heartland
Share Consideration. The Company shall deliver (i) on the First Closing Date,
to the Heartland Companies, in accordance with their respective Pro Rata
Amounts, certificates for shares of Company Common Stock representing the
Estimated Heartland Share Consideration, less one-half of the Adjustment Shares,
(ii) on the Second Closing Date, to the Wireless One Stockholders, in accordance
with their respective Pro Rata Amounts, certificates for shares of Company
Common Stock representing the Estimated Wireless One Share Consideration, less
one-half of the Adjustment Shares, and (iii) on the Second Closing Date, to the
Escrow Agent (as defined in the Escrow Agreement), certificates representing the
Adjustment Shares, issued in the name of the Escrow Agent, as nominee.
Accordingly, as of the First Closing, and until the Second Closing occurs, the
Heartland Companies will own all of the issued and outstanding Company Common
Stock, and the Company will have no outstanding liabilities except for the
Assumed Liabilities and the expenses of the Heartland Companies referred to in
Section 11.1 hereof. The reallocation of the Adjustment Shares pursuant to the
Escrow Agreement shall be the sole adjustment to the Estimated Wireless One
Share Consideration and the Estimated Heartland Share Consideration.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Wireless One. As a material
inducement to the Company and the Heartland Companies to enter into this
Agreement and effect the Contribution and the Merger, Wireless One hereby
represents and warrants that:
(a) The authorized and outstanding capital stock of each Wireless
One Subsidiary as of the Second Closing Date is set forth on Exhibit
5.1(a) hereto. Such issued and outstanding
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shares of capital stock are owned as of the Second Closing Date
beneficially and of record in the amounts and by the persons set forth on
Exhibit 5.1(a) hereto. No shares of such capital stock are held in any
such Wireless One Subsidiary's treasury as of the Second Closing Date.
All of such outstanding capital stock has been duly authorized and is
validly issued, fully paid and nonassessable as of the Second Closing
Date. Except as set forth on Exhibit 5.1(a) hereto, as of the Second
Closing, there will be no (i) agreements restricting the transfer of, or
affecting the rights of any holder of, the shares of such capital stock,
(ii) preemptive rights on the part of any holder of any class of
securities of any Wireless One Company, (iii) existing rights with respect
to registration under the Securities Act of any Wireless One Company's
securities or (iv) options, warrants, conversion or other rights,
agreements or commitments of any kind obligating any Wireless One Company,
contingently or otherwise, to issue or sell any shares of its capital
stock or any class or any securities convertible into or exchangeable for
any such shares, and no authorization therefor has been given. As of the
Second Closing Date, all options exercisable for the capital stock of any
Wireless One Company, unless exercised prior thereto, shall be cancelled.
(b) Each Wireless One Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction
of incorporation and is qualified to do business in every jurisdiction in
which its ownership of property or conduct of business requires it to
qualify. Each Wireless One Company possesses all requisite corporate
power and authority and all material licenses, permits and authorizations
necessary to own and operate its properties, to carry on its businesses
as now conducted and to carry out the transactions contemplated by this
Agreement. The copies of each Wireless One Company's charter documents
and By-Laws which have been furnished to Heartland reflect all amendments
made thereto at any time prior to the date of this Agreement and are
correct and complete.
(c) This Agreement has been duly authorized, executed and delivered
by Wireless One and constitutes its valid and legally binding obligation,
enforceable in accordance with its terms.
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(d) The execution, delivery and performance of this Agreement by
Wireless One do not and will not (i) conflict with or result in a breach
of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any security interest, claim,
Lien, pledge, option, encumbrance, charge, agreement, voting trust, proxy
or other arrangement or restriction (each an "Encumbrance") upon any
Wireless One Company's capital stock or assets pursuant to, (iv) give any
third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) require any authorization,
consent, approval, exemption or other action by or notice or declaration
or filing with any Governmental Body or any other Person (other than as
has been duly made or obtained) pursuant to, the charter or By-Laws of
any Wireless One Company, or any law, statute, rule or regulation to
which any Wireless One Company or any of its assets is subject, or any
agreement, instrument, order, judgment or decree to which any Wireless
One Company or any of its assets is subject.
(e) [Reserved.]
(f) The information appearing on each of the ITFS Data Sheets, and
each of the MDS Data Sheets, appearing in the Wireless One Lease/License
Binder is true and correct in all material respects.
(g) Set forth on Exhibit 5.1(g) hereto is a list of each of the
transmitter site leases and transmitter site lease option agreements (the
"Wireless One Site Agreements") held by a Wireless One Company on the
date of this Agreement. Except as set forth on Exhibit 5.1(g), each
Wireless One Site Agreement will be in full force and effect on the
Second Closing Date and will create lease or lease option rights owned by
a Company Subsidiary. There is no material default under any Wireless
One Site Agreement, and, to Wireless One's knowledge, no party to any
Wireless One Site Agreement has given any other party thereto any notice
of material default thereunder, except as identified on Exhibit 5.1(g).
Exhibit 5.1(g) accurately sets forth, for each Wireless One Site
Agreement, the parties, the location of the real property subject
thereto, the rental payments and the term. True copies of all Wireless
One Site Agreements have been provided to Heartland.
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(h) (i) None of the material real property leased to or under lease
option granted pursuant to a Wireless One Site Agreement is subject to
any condemnation proceeding, (ii) no lease of any such real property
exists which would materially interfere with the use of such property as
contemplated in the Wireless One Site Agreement for the property, (iii)
there is no existing written notice covering future condemnation thereof,
and (iv) Wireless One has no reason to believe that any such real
property will be condemned or subject to material condemnation
proceedings.
(i) To Wireless One's knowledge, the real property described in each
Wireless One Site Agreement is of sufficient size so as to permit the
erection of a guyed tower of the size contemplated in the FCC
authorizations for ITFS stations authorized by the FCC to be built at
that real property or contemplated in the pending applications to the FCC
for such authorizations. To Wireless One's knowledge, neither the
erection of any such tower, nor the construction of a utility building
adjacent thereto, nor the operation of ITFS or MDS radio stations at any
such site, will violate the provisions of any applicable building codes,
fire regulations, building restrictions, land use regulations, safety
regulations, environmental regulations, deed covenants, agreement,
zoning, or other governmental ordinances, orders or regulations.
(j) There are no leases, rental agreements, option agreements,
employment contracts, or contracts for service or maintenance existing and
relating to or connected with the occupancy or operation of any of the
real property subject to a Wireless One Site Agreement other than as
listed on Exhibit 5.1(g). True and complete copies of all such agreements
have been provided to Heartland. Neither Wireless One nor any Affiliate
of Wireless One has any interest, present or future, in any of such real
property except for the Wireless One Company's interest as shown on
Exhibit 5.1(g).
(k) All of the real property subject to Wireless One Site Agreements
is accessible directly from public streets or is accessible in accordance
with valid public or private easements which, if necessary, are included
in the applicable Wireless One Site Agreement.
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(l) No Wireless One Operating System includes or provides
programming to any "cable system," as that term is defined in 47 U.S.C.
Section 522(7). No Wireless One Operating Subsidiary is a "cable
operator," as that term is defined in 47 U.S.C. Section 522(5).
(m) Except as set forth on the MDS Data Sheets or ITFS Data Sheets
in the Wireless One Lease/License Binder, each license, conditional
license or other FCC authorization (each an "FCC License") allowing the
construction or the operation of radio station facilities by a lessor of
channel capacity who is obligated to lease the capacity of the radio
station (in whole or in part) under a lease agreement or
management/option agreement held by a Wireless One Company, is in full
force and effect, and neither the licensee of such FCC License nor the
FCC License is subject to any complaint, investigation or proceeding by
or before the FCC, or on appeal from the FCC, which looks toward or would
result in the revocation, modification or non-renewal of the FCC License.
Except as set forth on the MDS Data Sheets or ITFS Data Sheets in the
Wireless One Lease/License Binder, each of such FCC Licenses for an ITFS
station has a construction completion date which has not elapsed or, if
such date has elapsed, a properly filed request to the FCC to extend that
date for at least six (6) months is pending. Except as set forth on the
MDS Data Sheets or ITFS Data Sheets in the Wireless One Lease/License
Binder, the FCC has granted one or more FCC Licenses to each lessor of
the channel capacity subject to the lease and lease/option agreements of
the Wireless One Companies allowing that lessor to construct and/or
operate each radio station required for the lessor to provide to the
lessee under each such agreement executed by such lessor the channel
capacity subject to that agreement.
(n) [RESERVED.]
(o) Exhibit 5.1(o) hereto sets forth true and correct information
concerning the Subscriber rates and offered programming channels for the
Wireless One Operating Systems as of the date of this Agreement.
(p) Except for ordinary wear and tear, the equipment used in each
Wireless One Operating System is in good
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operating condition, does not require and is not reasonably expected to
require any special or extraordinary expenditures to remain in such
condition, and can be used for its intended purpose.
(q) All transmitters used in Wireless One Operating Systems meet all
material applicable FCC type acceptance and frequency stability
requirements.
(r) No Wireless One Operating System has received any complaint that
it, or any channels used in it, is causing interference to any reception,
transmission or detection system.
(s) Neither any Wireless One Company, nor any lessor of transmission
capacity used in any Wireless One Operating System, requires any
additional FCC authorization for any Wireless One Operating System to
operate as currently operated.
(t) Bryan Company owns (or has a valid leasehold interest in) all
assets used or held for use in the Bryan/College Station, Texas wireless
cable system, Lafayette Company owns (or has a valid leasehold interest
in) all assets used or held for use in the Lafayette, Louisiana wireless
cable system, Lake Charles Company owns (or has a valid leasehold
interest in) all assets used or held for use in the Lake Charles,
Louisiana wireless cable system, and Wharton Company owns (or has a valid
leasehold interest in) all assets used or held for use in the Wharton,
Texas wireless cable system.
(u) Except as set forth on Exhibit 5.1(u) hereto, a Wireless One
Company has the written consent to the retransmission of each Broadcast
Station whose signal is "retransmitted" by a Wireless One Operating
System. The term "retransmitted" means the receipt and retransmission of
a signal, but does not include the reception described in FCC Rule
76.64(e). A true and complete list of each Wireless One Operating System
retransmission consent agreement, including the duration and the payment
terms of such agreement, is set forth on Exhibit 5.1(u) hereto.
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(v) The appropriate Wireless One Company has filed at the FCC the
FCC Forms 395M as required by FCC Rule 76.77 for each year since 1993
that a Wireless One Operating System has been in operation in service of
Subscribers. Each such report is true and correct in all material
respects.
(w) To the knowledge of Wireless One, the conduct of each Wireless
One Company's business has not infringed, misappropriated or conflicted
with and does not infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, nor would any future
conduct as presently contemplated infringe, misappropriate or conflict
with any Intellectual Property Rights of other Persons.
(x) Except as set forth on Exhibit 5.1(x) hereto, there are no
material actions, suits, proceedings, orders, investigations or claims
pending or threatened against or affecting any Wireless One Company, at
law or in equity, or before or by any Governmental Body (including,
without limitation, any actions, suits, proceedings or investigations
with respect to the transactions contemplated by this Agreement); no
Wireless One Company is subject to any material arbitration proceedings
under collective bargaining agreements or otherwise or, to the best of
Wireless One's knowledge, any material governmental investigations or
inquiries; and, to the best of Wireless One's knowledge, there is no
basis for any of the foregoing. No Wireless One Company has received any
opinion or memorandum or legal advice from legal counsel to the effect
that it is exposed, from a legal standpoint, to any liability which may
be material to its business.
(y) There are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon any
Wireless One Company.
(z) Wireless One is not aware that any executive, key employee or
group of employees of any Wireless One Company has any plans to terminate
employment with any Wireless One Company. Each Wireless One Company has
complied in all material respects with all laws relating to the
employment of labor (including, without limitation, provisions thereof
relating to wages, hours, equal opportunity, collective
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bargaining and the payment of social security and other taxes), and
Wireless One is not aware that any Wireless One Company has any material
labor relations problems (including, without limitation, any union
organization activities, threatened or actual strikes or work stoppages or
material grievances).
(aa) No Wireless One Company has violated any law or any governmental
regulation or requirement which violation has had or would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the
Wireless One Companies taken as a whole, and no Wireless One Company has
received notice of any such violation. No Wireless One Company is subject
to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or corrective or remedial obligation
arising under any federal, state, local or foreign law, rule or regulation
(including the common law) relating to or regulating health, safety,
pollution or the protection of the environment ("Environmental Laws").
Without limiting the generality of the foregoing, (i) the Wireless One
Companies have obtained all permits, licenses and authorizations required
under, and have complied in all material respects with, all Environmental
Laws, (ii) no notice has been received by any Wireless One Company
regarding any material violation of, or any material claim, liability or
corrective or remedial obligation under, any Environmental Laws and (iii)
no facts or circumstances exist with respect to the past or present
operations or facilities of any Wireless One Company which would give rise
to a material liability or corrective or remedial obligation under any
Environmental Laws.
(bb) The representations and warranties of Wireless One contained in
this Section 5.1 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, Wireless One
shall be true and correct in all material respects on the Second Closing
Date as though then made, except as affected by the transactions
expressly contemplated by this Agreement.
5.2 Representations and Warranties of the Wireless One Stockholders. As
a material inducement to the Company and the
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Heartland Companies to enter into this Agreement, each Wireless One Stockholder
hereby severally, and not jointly, represents and warrants with respect to
itself and not with respect to any other Wireless One Stockholder that:
(a) All of the shares of Wireless One Common Stock and Wireless One
Preferred Stock and all of the Wireless One 1994 Options, Wireless One
1995 Options and Wireless One Warrants set forth opposite such Wireless
One Stockholder's name on Schedule I hereto are owned of record and
beneficially by such Wireless One Stockholder as of the time immediately
preceding the consummation of the transactions contemplated by Sections
3.2, 3.3, 3.4, 3.5 and 3.6. The Wireless One Common Stock being
transferred to the Company by such Wireless One Stockholder will be owned
by such Wireless One Stockholder, free and clear of all Encumbrances.
Such Wireless One Stockholder will have full right, power and authority
to sell and transfer such Wireless One Common Stock, and upon delivery of
the Certificates for such Wireless One Common Stock, good and valid title
to such shares of Wireless One Common Stock, free and clear of all
Encumbrances, will pass to the Company.
(b) With respect to each Wireless One Stockholder which is not a
natural person, such Wireless One Stockholder is a corporation or
partnership duly organized, validly existing and in good standing under
the laws of its jurisdiction of formation and possesses all requisite
power and authority and all material licenses, permits and authorizations
necessary to carry out the transactions contemplated by this Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by such Wireless One Stockholder and constitutes a valid and legally
binding obligation of such Wireless One Stockholder, enforceable in
accordance with its terms.
(d) The execution, delivery and performance of this Agreement by
such Wireless One Stockholder do not and will not conflict with, violate
or result in the breach of, or create any Encumbrance on its shares of
Wireless One Common Stock pursuant to, any agreement, instrument, order,
judgment, decree, law or governmental regulation to which such Wireless
One Stockholder is a party or is subject or by which such shares are
bound.
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(e) The Company Common Stock to be acquired by such Wireless One
Stockholder pursuant to this Agreement is being acquired by such Wireless
One Stockholder for its own account for investment only and not with a
view to or in connection with any public disposition thereof or with any
present intention of selling, distributing or otherwise disposing of such
Company Common Stock, and such Wireless One Stockholder will not sell or
offer to sell or otherwise dispose of such Company Common Stock so
acquired in violation of any of the registration requirements of the
Securities Act or any applicable state securities laws.
(f) Either alone or with a purchaser representative, such Wireless
One Stockholder (i) is an "accredited investor" within the meaning of
Regulation D of the Securities Act, (ii) understands that the shares of
Company Common Stock to be acquired by it have not been registered under
the Securities Act or any state securities laws by reason of specified
exemptions from the registration provisions of the Securities Act which
depend upon, among other things, the bona fide nature of its investment
intent as expressed herein, (iii) is able to bear the economic risk of
investment in the Company Common Stock and is experienced, either
individually or together with its purchaser representative, and has such
knowledge and experience in financial matters that it is capable of
evaluating the risks and merits of the Contribution and the Merger, and
(iv) acknowledges that such shares of Company Common Stock will bear a
legend restricting transfer unless (A) the transfer is exempt from the
registration requirements under the Securities Act and an opinion of
counsel reasonably satisfactory to the Company that such transfer is
exempt therefrom is delivered to the Company or (B) the transfer is made
pursuant to an effective registration statement under the Securities Act.
(g) The Company has made no representation to it with respect to the
Company or the Company Common Stock, other than the information contained
in this Agreement and in the registration statements relating to the
Anticipated Offerings, drafts of which in substantially final form have
been delivered to it and upon which it is relying in making its
investment decision with respect to the Company Common Stock. Such
Wireless One Stockholder has had access to such financial and other
information concerning the Company and the Company
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Common Stock as it has deemed necessary in connection with its decision to
purchase the Company Common Stock, including an opportunity to ask
questions of and request information from the Company.
(h) (i) There is no plan or intention by such Wireless One
Stockholder to sell, exchange, or otherwise dispose of a number of shares
of Company Common Stock that would reduce such Wireless One Stockholder's
ownership of Company Common Stock to a number of shares having a value,
as of the Second Closing Date, of less than 50% of the value of all the
Wireless One Common Stock held by such Wireless One Stockholder as of the
Second Closing Date; and (ii) such Wireless One Stockholder is not aware
of or participating in any plan or other arrangement on the part of any
of the Wireless One Stockholders to engage in a sale, exchange, or other
disposition of Company Common Stock to be received in connection with the
Merger. For purposes of this paragraph, Wireless One Common Stock will
be treated as outstanding Wireless One Common Stock held by such Wireless
One Stockholder as of the Second Closing Date if it is (A) held by such
Wireless One Stockholder as of the Second Closing Date and exchanged for
cash or other property, surrendered in exercise of appraisal rights, or
exchanged for cash in lieu of fractional shares of Company Common Stock;
(B) held by such Wireless One Stockholder as of July 17, 1995, and
otherwise sold, redeemed, or disposed of subsequent to July 17, 1995; or
(C) exchanged for Company Common Stock in the Merger.
(i) The representations and warranties of the Wireless One
Stockholders contained in this Section 5.2 and elsewhere in this
Agreement and all information contained in any exhibit, schedule or
attachment hereto or in any certificate or other writing delivered by, or
on behalf of, the Wireless One Stockholders shall be true and correct in
all material respects on the Second Closing Date as though then made,
except as affected by the transactions expressly contemplated by this
Agreement.
5.3 Representations and Warranties of Heartland. As a material inducement
to the Company, Wireless One and the Wireless One Stockholders to enter into
this Agreement and effect the Contribution and the Merger, the Heartland
Companies hereby jointly and severally represent and warrant that:
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(a) Except as set forth on Exhibit 5.3(a) hereto, the Heartland
Companies collectively have, and subject to the terms and conditions of
this Agreement will convey, transfer, assign and deliver, good,
marketable and insurable title to (or a valid leasehold interest in) all
of the Contributed Assets, real and personal, free and clear of all
Encumbrances. Except as set forth on Exhibit 5.3(a) and except for
ordinary wear and tear, the Contributed Assets are in good operating
condition in all material respects and are fit for use in the ordinary
course of business. After the consummation of the Contribution, the
Company will own (or have a valid leasehold interest in) all assets
necessary for the conduct of the businesses in which the Contributed
Assets are currently utilized, with the exception of the assets
specifically excluded from the definition of Contributed Assets in
Section 2.2 hereof.
(b) The Heartland Companies are corporations duly organized, validly
existing and in good standing under the laws of their respective
jurisdictions of incorporation and are qualified to do business in every
jurisdiction in which their ownership of property or conduct of business
requires them to qualify. The Heartland Companies possess all requisite
corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on
its businesses as now conducted and to carry out the transactions
contemplated by this Agreement. The copies of each Heartland Company's
charter documents and By-Laws which have been furnished to Wireless One
reflect all amendments made thereto at any time prior to the date of this
Agreement and are correct and complete.
(c) This Agreement has been duly authorized, executed and delivered
by each Heartland Company and constitutes a valid and legally binding
obligation of each of them, enforceable in accordance with its terms.
(d) The execution, delivery and performance of this Agreement by the
Heartland Companies do not and will not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any Encumbrance upon any
of the Contributed Assets pursuant to, (iv) give any third party the
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right to modify, terminate or accelerate any obligation under, (v) result
in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration or filing with any
Governmental Body or any other Person (other than as has been duly made or
obtained) pursuant to, the charter or By-Laws of any Heartland Company, or
any law, statute, rule or regulation to which any Heartland Company or any
of its assets is subject, or any agreement, instrument, order, judgment or
decree to which any Heartland Company or any of its assets is subject.
(e) The Company Common Stock to be acquired by the Heartland
Companies pursuant to this Agreement is being acquired by each such
Heartland Company for its own account for investment only and not with a
view to or in connection with any public disposition thereof or with any
present intention of selling, distributing or otherwise disposing of such
Company Common Stock, except for distribution of the Company Common Stock
from a Heartland Subsidiary to Heartland, and no Heartland Company will
sell or offer to sell or otherwise dispose of such Company Common Stock
so acquired in violation of any of the registration requirements of the
Securities Act or any applicable state securities laws.
(f) The information appearing on each of the ITFS Data Sheets, and
each of the MDS Data Sheets, appearing in the Heartland Lease/License
Binder is true and correct in all material respects.
(g) Except as set forth on Exhibit 2.2(d), each Heartland Site
Agreement will be in full force and effect on the First Closing Date and
will create lease or lease option rights owned by a Heartland Company and
transferred to the Company pursuant to the Contribution. There is no
material default under any Heartland Site Agreement, and, to such
Heartland Company's knowledge, no party to any Heartland Site Agreement
has given any other party thereto any notice of material default
thereunder, except as identified on Exhibit 2.2(d). Exhibit 2.2(d)
accurately sets forth, for each Heartland Site Agreement, the parties,
the location of the real property subject thereto, the rental payments
and the term. True copies of all Heartland Site Agreements have been
provided to Wireless One.
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(h) (i) None of the material real property leased to or under lease
option granted pursuant to a Heartland Site Agreement is subject to any
condemnation proceeding, (ii) no lease of any such real property exists
which would materially interfere with the use of such property as
contemplated in the Heartland Site Agreement for the property, (iii)
there is no existing written notice covering future condemnation thereof,
and (iv) such Heartland Company has no reason to believe that any such
real property will be condemned or subject to condemnation proceedings.
(i) To the knowledge of such Heartland Company, the real property
described in each Heartland Site Agreement is of sufficient size so as to
permit the erection of a guyed tower of the size contemplated in the FCC
authorizations for ITFS stations authorized by the FCC to be built at that
real property or contemplated in the pending applications to the FCC for
such authorizations. To the knowledge of such Heartland Company, neither
the erection of any such tower, nor the construction of a utility building
adjacent thereto, nor the operation of ITFS or MDS radio stations at any
such site, will violate the provisions of any applicable building codes,
fire regulations, building restrictions, land use regulations, safety
regulations, environmental regulations, deed covenants, agreement, zoning,
or other governmental ordinances, orders or regulations.
(j) There are no leases, rental agreements, option agreements,
employment contracts, or contracts for service or maintenance existing
and relating to or connected with the occupancy or operation of any of
the real property subject to a Heartland Site Agreement other than as
listed on Exhibits 2.2(b), 2.2(c) and 2.2(d). True and complete copies
of all such agreements have been provided to Wireless One. No Heartland
Company nor any Affiliate of a Heartland Company has any interest,
present or future, in any of such real property except for the Heartland
Companies' interest as shown on Exhibits 2.2(b), 2.2(c) and 2.2(d).
(k) All of the real property subject to Heartland Site Agreements is
accessible directly from public streets or is accessible in accordance
with valid public or private easements which, if necessary, are included
in the applicable Heartland Site Agreement.
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(l) No Heartland Operating System includes or provides programming
to any "cable system," as that term is defined in 47 U.S.C. Section
522(7). No Heartland Operating Subsidiary is a "cable operator," as that
term is defined in 47 U.S.C. Section 522(5).
(m) Except as set forth on the MDS Data Sheets or the ITFS Data
Sheets in the Heartland Lease/License Binder, each FCC License allowing
the construction or the operation of radio station facilities by a lessor
of channel capacity who is obligated to lease the capacity of the radio
station (in whole or in part) under a lease agreement or management/option
agreement listed on Exhibit 2.2(b) or 2.2(c) hereto, is in full force and
effect, and neither the licensee of such FCC License nor the FCC License
is subject to any complaint, investigation or proceeding by or before the
FCC, or on appeal from the FCC, which looks toward or would result in the
revocation, modification or non-renewal of the FCC License. Except as set
forth on the MDS Data Sheets or ITFS Data Sheets in the Heartland
Lease/License Binder, each of such FCC Licenses for an ITFS station has a
construction completion date which has not elapsed or, if such date has
elapsed, a properly filed request to the FCC to extend that date for at
least six (6) months is pending. Except as set forth on the MDS Data
Sheets or ITFS Data Sheets in the Heartland Lease/License Binder, the FCC
has granted one or more FCC Licenses to each lessor of the channel
capacity subject to the lease and lease/option agreements of the Heartland
Companies allowing that lessor to construct and/or operate each radio
station required for the lessor to provide to the lessee under each such
agreement executed by such lessor the channel capacity subject to that
agreement.
(n) Except (i) as set forth on Exhibit 5.3(a) hereto and (ii)
interests that will be held immediately after the First Closing by the
Company or its subsidiaries, no Heartland Company nor any Affiliate of a
Heartland Company, has, or immediately after the First Closing will have,
any interest, direct or indirect, in (A) any ITFS station, ITFS capacity
lease, ITFS construction permit, ITFS license, other ITFS authorization
or application for ITFS authorization which is for an ITFS station
authorized to a site or proposing a site by FCC application within 50
miles of any site authorized to or applied for pursuant to any ITFS lease
agreement that will
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be held by the Company or any Company Subsidiary immediately after the
First Closing, or (B) in any MDS station, MDS capacity lease, MDS
conditional license, MDS license, other MDS authorization or application
for MDS authorization authorized to a site or proposing a site by FCC
application within 50 miles of any site authorized to or applied for
pursuant to any MDS lease agreement that will be held by the Company or
any Company Subsidiary immediately after the First Closing.
(o) Exhibit 5.3(o) hereto sets forth true and correct information
concerning the Subscriber rates and offered programming channels for the
Heartland Operating Systems as of the date of this Agreement.
(p) Except for ordinary wear and tear, the equipment used in each
Heartland Operating System is in good operating condition, does not
require and is not reasonably expected to require any special or
extraordinary expenditures to remain in such condition, and can be used
for its intended purpose.
(q) All transmitters used in Heartland Operating Systems meet all
material applicable FCC type acceptance and frequency stability
requirements.
(r) No Heartland Operating System has received any complaint that
it, or any channels used in it, is causing interference to any reception,
transmission or detection system.
(s) Neither any Heartland Company nor any lessor of transmission
capacity used in any Heartland Operating System, requires any additional
FCC authorization for any Heartland Operating System to operate as
currently operated.
(t) Heartland Wireless Rockdale, Inc. owns (or has a valid leasehold
interest in), and after the Contribution the Company will own (or have a
valid leasehold in), all assets used or held for use in the Milano, Texas
wireless cable system, and Cotton Country Cable, Inc. and Delta Wireless
Cable, Inc. collectively own (or have valid leasehold interests in), and
after the Contribution the Company will own (or have a valid leasehold
in), all assets used or held for use in the Monroe, Louisiana wireless
cable system.
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(u) Except as set forth on Exhibit 5.3(u) hereto, a Heartland
Company has, and after the Contribution the Company will have, the
written consent to the retransmission of each Broadcast Station whose
signal is "retransmitted" (as defined in Section 5.1(u) above) by a
Heartland Operating System. A true and complete list of each Heartland
Operating System retransmission consent agreement, including the duration
and the payment terms of such agreement, is set forth on Exhibit 5.3(u).
(v) The appropriate Heartland Company has filed at the FCC the FCC
Forms 395M as required by FCC Rule 76.77 for each year since 1993 that a
Heartland Operating System has been in operation in service of
Subscribers. Each such report is true and correct in all material
respects.
(w) To such Heartland Company's knowledge, the conduct of each
Heartland Company's business has not infringed, misappropriated or
conflicted with and does not infringe, misappropriate or conflict with
any Intellectual Property Rights of other Persons, nor would any future
conduct as presently contemplated infringe, misappropriate or conflict
with any Intellectual Property Rights of other Persons.
(x) Except as set forth on Exhibit 5.3(x) hereto, there are no
material actions, suits, proceedings, orders, investigations or claims
pending or threatened against or affecting any Heartland Company, at law
or in equity, or before or by any Governmental Body (including, without
limitation, any actions, suits, proceedings or investigations with
respect to the transactions contemplated by this Agreement); no Heartland
Company is subject to any material arbitration proceedings under
collective bargaining agreements or otherwise or, to the best of
Heartland's knowledge, any material governmental investigations or
inquiries; and, to the best of Heartland's knowledge, there is no basis
for any of the foregoing. No Heartland Company has received any opinion
or memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability which may be material
to its business.
(y) There are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the
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transactions contemplated by this Agreement based on any arrangement or
agreement binding upon any Heartland Company.
(z) [RESERVED.]
(aa) No Heartland Company has violated any law or any governmental
regulation or requirement which violation has had or would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the
Heartland Companies taken as a whole, and no Heartland Company has
received notice of any such violation. No Heartland Company is subject
to, or has reason to believe it may become subject to, any material
liability (contingent or otherwise) or corrective or remedial obligation
arising under any Environmental Laws. Without limiting the generality of
the foregoing, (i) the Heartland Companies have obtained all permits,
licenses and authorizations required under, and have complied in all
material respects with, all Environmental Laws, (ii) no notice has been
received by any Heartland Company regarding any material violation of, or
any material claim, liability or corrective or remedial obligation under,
any Environmental Laws and (iii) no facts or circumstances exist with
respect to the past or present operations or facilities of any Heartland
Company which would give rise to a material liability or corrective or
remedial obligation under any Environmental Laws.
(bb) Such Heartland Company is not aware of or participating in any
plan or other arrangement on the part of any of the Heartland Companies
to engage in a sale, exchange, or other disposition of Company Common
Stock to be received in connection with the Contribution.
(cc) Heartland (i) is an "accredited investor" within the meaning of
Regulation D of the Securities Act, (ii) understand that the shares of
Company Common Stock to be acquired by it have not been registered under
the Securities Act or any state securities laws by reason of specified
exemptions from the registration provisions of the Securities Act which
depend upon, among other things, the bona fide nature of its investment
intent as expressed herein, (iii) is able to bear the economic risk of
investment in the Company Common Stock
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and is experienced and has such knowledge and experience in financial
matters that it is capable of evaluating the risks and merits of the
Contribution and the Merger, and (iv) acknowledges that such shares of
Company Common Stock will bear a legend restricting transfer unless (A)
the transfer is exempt from the registration requirements under the
Securities Act and an opinion of counsel reasonably satisfactory to the
Company that such transfer is exempt therefrom is delivered to the Company
or (B) the transfer is made pursuant to an effective registration
statement under the Securities Act.
(dd) The Company has made no representation to it with respect to
the Company or the Company Common Stock, other than the information
contained in this Agreement and in the registration statements relating
to the Anticipated Offerings, drafts of which in substantially final form
have been delivered to it and upon which it is relying in making its
investment decision with respect to the Company Common Stock. Heartland
has had access to such financial and other information concerning the
Company and the Company Common Stock as it has deemed necessary in
connection with its decision to purchase the Company Common Stock,
including an opportunity to ask questions of and request information from
the Company.
(ee) The representations and warranties of the Heartland Companies
contained in this Section 5.3 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in
any certificate or other writing delivered by, or on behalf of, the
Heartland Companies shall be true and correct in all material respects on
the First Closing Date as though then made, except as affected by the
transactions expressly contemplated by this Agreement.
ARTICLE VI
COVENANTS
6.1 Covenants of the Parties. Unless otherwise indicated, until the
Second Closing:
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(a) Each of the parties hereto agrees to use commercially reasonable
efforts to bring about the fulfillment of the conditions precedent to the
Closings.
(b) Each of Wireless One and the Heartland Companies shall permit
any representatives designated by the other, and the Company shall permit
any representatives of the Heartland Companies or the Wireless One
Stockholders, upon reasonable notice and during normal business hours, to
(i) visit and inspect the properties of it and its subsidiaries, (ii)
examine the corporate and financial records of its and its subsidiaries
and make copies thereof or extracts therefrom and (iii) discuss the
affairs, finances and accounts of any such corporations with its and its
subsidiaries' directors, officers, key employees and independent
accountants; provided that this Section 6.1(b) shall not apply to any
Heartland Subsidiaries that are not Contributing Heartland Subsidiaries.
(c) Each of the parties hereto shall promptly make all required
filings under the HSR Act in connection with the transactions
contemplated by this Agreement and will cooperate and promptly respond to
any inquiries or investigations initiated in connection with such
filings.
(d) Subject to the terms and conditions provided herein, each of the
parties hereto agrees to (i) use commercially reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable law and regulation
to consummate and make effective the Contribution and the Merger in
accordance with the terms of this Agreement and (ii) cooperate following
the Closings in the taking of any actions necessary or desirable in order
to effect the purposes of this Agreement. This Section 6.1(d) shall
survive the Closings but shall not survive the termination of this
Agreement in accordance with the provisions of Article VIII.
(e) Each party hereto shall promptly inform each of the other
parties hereto of any circumstance or set of circumstances which could
reasonably be expected to impair such party's ability to perform this
Agreement.
(f) Neither Wireless One nor Heartland shall (or cause or permit any
of their respective Affiliates, employees,
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officers, directors, agents or other persons acting on its behalf to)
discuss a possible sale of all or any part of (i) in the case of Wireless
One, its assets, business or a controlling interest in the Wireless One
Common Stock, or (ii) in the case of Heartland, its assets or businesses
which are the subject of the transactions contemplated hereby, in each of
(i) and (ii) above, with any other Person or provide any information to
any other Person, other than information which is traditionally provided
in the ordinary course of the providing Person's business to third parties
where the providing Person has no reason to believe that such information
may be utilized to evaluate a possible acquisition of all or any part of
any assets, business or stock described above.
(g) Until after the first to occur of the Filing Deadline and the
Second Closing Date, except as contemplated by Section 4.2,
(i) Wireless One shall not (either itself or through an Affiliate)
acquire, offer to acquire or solicit any offer to permit it to acquire,
any rights to lease ITFS or MDS transmission capacity, or any MDS license
authorized to operate, subject to application to the FCC to operate, or
for which operation is contemplated, at any location within 50 miles of
the central post office of any of the communities listed on Exhibit
6.1(g)(i) hereto.
(ii) Heartland shall not (either itself or through an Affiliate)
acquire, offer to acquire or solicit any offer to permit it to acquire,
any rights to lease ITFS or MDS transmission capacity, or any MDS license
authorized to operate, subject to application to the FCC to operate, or
for which operation is contemplated, at any location in North Carolina or
within 50 miles of the central post office of any of the communities
listed on Exhibit 6.1(g)(ii) hereto.
The provisions of this Section 6.1(g) will survive any termination of
this Agreement pursuant to Article VIII.
(h) Each of Wireless One, each Wireless One Stockholder and
Heartland agrees (on behalf of itself and each of its subsidiaries,
directors, officers, employees and representatives) to use reasonable
precautions to keep
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confidential, in accordance with its customary procedures for handling
confidential information of this nature, any non-public information
supplied to it by any other party hereto pursuant to this Agreement which
is identified by such Person as being confidential at the time the same is
delivered, provided that nothing herein shall limit the disclosure of any
such information (i) to the extent required by statute, rule, regulation
or judicial process, (ii) to such Person's legal and accounting advisors
or (iii) in connection with any litigation to which such Person is a party
in which such confidential information is required to be disclosed. This
Section 6.1(h) shall survive the Closings, or, if this Agreement is
terminated prior to either Closing in accordance with the provisions of
Article VIII, this Section 6.1(h) shall survive such termination.
(i) The Company shall not enter into an underwriting agreement with
respect to either Anticipated Offering unless the terms and provisions
(including, without limitation, pricing) of such agreement are approved
by Wireless One and Heartland. This Section 6.1(i) shall survive the
Closings.
(j) During the period from the First Closing Date to the Second
Closing Date, except as contemplated by this Agreement, the Company shall
not, without the prior written consent of Wireless One, enter into any
material agreement or effect any material transaction.
6.2 Additional Affirmative Covenants of Wireless One. Between the date
hereof and the Second Closing Date, except as contemplated by this Agreement,
Wireless One shall:
(a) Use its reasonable efforts (not including the payment of any
consideration not otherwise due) to cause the lessor under each lease
agreement listed in the Wireless One Lease/License Binder to grant and to
deliver to Heartland before the Second Closing Date its agreement in
writing reasonably acceptable to Heartland to the modifications,
amendments and extensions of its lease agreements listed on Exhibit
6.2(a).
(b) Cause each Wireless One Company to retain and to safeguard such
subsidiary's assets, and to maintain such assets free and clear of all
Liens except Liens for taxes not
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<PAGE> 48
yet due or payable and except for the disposal of assets and replacement
thereof with assets of equal or greater value and utility, each as in the
ordinary course of business.
(c) Cause each Wireless One Company to use its reasonable efforts
(not including the payment of any consideration not otherwise due) (i) to
cause to be maintained in full force and effect, and (ii) to cause the
holders to renew when required to prevent the lapse of, all FCC-issued
licenses, conditional licenses and authorizations described in the MDS
Data Sheets and the ITFS Data Sheets contained in the Wireless One
Lease/License Binder.
(d) Cause each Wireless One Company, to the extent that it is a
party thereto, to (i) perform each and every obligation of the manager
under each management/option agreement described in MDS Data Sheets in
the Wireless One Lease/License Binder, (ii) perform each and every
obligation of the optionee or lessee, as appropriate, under each Wireless
One Site Agreement, and (iii) perform each and every obligation of the
excess channel capacity or transmission capacity lessee under each ITFS
excess capacity lease agreement or MDS transmission capacity lease
agreement appearing in the Wireless One Lease/License Binder.
(e) Cause each Wireless One Company to use reasonable efforts (not
including the payment of consideration not otherwise due) to cause (i)
the licensee under the management/option agreements to prosecute its
petitions for reconsideration of the return by the FCC of the MDS station
applications listed on Exhibit 6.2(e) hereto and (ii) each of its lessors
to prosecute in good faith and diligently each MDS application and ITFS
application for facilities subject to a lease agreement with such
subsidiary.
(f) Cause each Wireless One Company to use reasonable efforts (not
including the payment of consideration not otherwise due) to prevent (i)
the modification of any FCC authorization described in the Wireless One
Lease/License Binder, except for such modifications as are described in
that binder, and (ii) the new application to the FCC for
authorization related to any lease appearing in such binder, except (A)
as required to comply with this Agreement, (B) as required by the terms
of the lease, (C) as required by the
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<PAGE> 49
terms of an applicable FCC license, or (D) as may be reasonably required
to operate a Wireless One Operating System in accordance with the usual
and ordinary course of business consistent with past practices.
(g) Use reasonable efforts to cause each Wireless One Operating
System to (i) continue its current level of Subscriber marketing effort,
(ii) preserve the present Subscriber service rates and installation
rates, (iii) adhere to the current practice with respect to bad debt,
collection of Subscriber accounts and deactivation of delinquent account
service, (iv) collect accounts receivable and incur accounts payable only
in the ordinary course consistent with its past practices and (v) take no
action designed to accelerate or likely to accelerate the collection of
its accounts receivable.
(h) Cause each Wireless One Operating System to be operated in the
ordinary course of business in accordance with past practices for such
operation (except where such conduct would conflict with any covenant or
other obligation of Wireless One under this Agreement).
(i) On the Second Closing Date, deliver to Heartland a list of all
contracts, other than Subscriber contracts for non-bulk rate service and
any non-executive employee contract that does not obligate a Wireless One
Company to make severance payments upon the termination of the employee
in question, entered into by a Wireless One Operating System or a
Wireless One Company between the date of this Agreement and the Second
Closing Date, together with copies of such contracts.
(j) Cause the Wireless One Companies (i) to take all reasonable
actions to maintain all of their respective assets in good condition
(ordinary wear and tear excepted), and use, operate, and maintain all of
such assets in a reasonable manner, (ii) to maintain inventories of spare
parts, Subscriber reception equipment and expendable supplies at levels
consistent with past practices, (iii) if any loss, damage, impairment,
confiscation, or condemnation of or to any of such assets occurs, to
repair, replace or restore such assets as soon thereafter as possible,
and (iv) to use the
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proceeds of any claim under any insurance policy to replace such assets
that are lost, damaged, impaired or destroyed.
(k) Cause the appropriate Wireless One Companies to maintain
insurance policies on the Wireless One Operating Systems, their equipment,
the interruption of their business, liability, worker's compensation,
fire, libel and slander, and casualty in accordance with past practices.
(l) Cause each Wireless One Company to maintain its books and
records relating to its Wireless One Operating Systems in accordance with
past practices.
(m) Promptly notify Heartland in writing of any unusual or material
developments with respect to the business or operations of any Wireless
One Operating System and of any material change in any of the information
contained in Wireless One's representations and warranties contained in
Section 5.1 of this Agreement.
(n) Use reasonable efforts to ensure that there are no material
changes in the broadcast hours or in the current program line broadcast
by the Wireless One Operating Systems, and that there are no other
material changes in any Wireless One Operating System's programming
policies, other than adding programming networks under agreements entered
into in the usual and ordinary course of business and on terms and
conditions typical in the wireless cable industry and fair to the
contracting Wireless One Company.
(o) Use all reasonable efforts to preserve the business and
organization of the Wireless One Operating Systems and use its best
efforts to keep available to the Wireless One Operating Systems their
present employees and to preserve the Subscriber base of the Wireless One
Operating Systems and their present relationships with suppliers,
programmers, and others having business relations with them.
(p) Promptly notify Heartland as senior management personnel
vacancies occur at the Wireless One Operating Systems and consider for
employment personnel recommended by Heartland for such vacant positions.
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6.3 Additional Negative Covenants of Wireless One. Between the date
hereof and the Second Closing Date, except as contemplated by this Agreement,
Wireless One shall not allow, suffer or permit, without the prior written
consent of Heartland:
(a) The creation, assumption or permitting to exist of any Lien,
other than Liens for taxes not yet due and payable, on any assets or
properties of any Wireless One Company.
(b) The sale, assignment, lease, waiver of rights with respect to,
sublease or other transfer or disposal of (i) any lease or
management/option agreement listed in the Wireless One Lease/License
Binder (or the whole or any portion of the rights thereunder), (ii) any
Wireless One Site Agreement (or the whole or any portion of the rights
thereunder), or (iii) any other asset or property of any Wireless One
Company other than the disposal of assets and replacement thereof with
assets of equal or greater value and utility, each as in the ordinary
course of business.
(c) The modification, amendment, supplement or novation of any
agreement listed in the Wireless One Lease/License Binder or any Wireless
One Site Agreement, except as contemplated in Section 6.2(a).
(d) Any material action, or material failure to act, of (i) the
lessee under any lease agreement described in the Wireless One
Lease/License Agreement, (ii) the optionee or the lessee under any
Wireless One Site Agreement or (iii) the manager under any
management/option agreement in the Wireless One Lease/License Binder
which would constitute a default or a potential default of the lessee,
optionee or manager thereunder (assuming that any requirements of notice
or lapse of time have occurred).
(e) Any increase, other than in the ordinary course of business, in
the compensation, bonuses, or other benefits payable or to become payable
to any person employed by any Wireless One Operating System or any
Wireless One Company.
(f) Any Wireless One Operating System or any Wireless One Company
to, other than in the ordinary course of business, (i) enter into any
contract or commitment, (ii) amend or terminate any contract (or waive
any material right
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thereunder), or (iii) incur any obligation (including obligations relating
to the borrowing of money or the guaranteeing of Indebtedness) that will
be binding on any Wireless One Operating System or any Wireless One
Company after the Second Closing.
6.4 Additional Affirmative Covenants of the Heartland Companies. Between
the date hereof and the First Closing Date, except as contemplated by this
Agreement, each Heartland Company shall:
(a) Use its reasonable efforts (not including the payment of any
consideration not otherwise due) to cause the lessor under each lease
agreement listed in the Heartland Lease/License Binder to grant and to
deliver to Wireless One before the First Closing Date its agreement in
writing reasonably acceptable to Wireless One to the amendment and
extension of its ITFS lease agreements listed on Exhibit 2.2(b).
(b) Retain and safeguard its or such subsidiary's Contributed Assets,
and maintain such Contributed Assets free and clear of all Liens except
Liens for taxes not yet due or payable and except for the disposal of
assets and replacement thereof with assets of equal or greater value and
utility, each as in the ordinary course of business.
(c) Use its reasonable efforts (not including the payment of any
consideration not otherwise due) (i) to cause to be maintained in full
force and effect, and (ii) to cause the holders to renew when required to
prevent the lapse of, all FCC-issued licenses, conditional licenses and
authorizations described in the MDS Data Sheets and the ITFS Data Sheets
contained in the Heartland Lease/License Binder.
(d) To the extent that it is a party thereto, (i) perform each and
every obligation of the manager under each management/option agreement
described in MDS Data Sheets in the Heartland Lease/License Binder, (ii)
perform each and every obligation of the optionee or lessee, as
appropriate, under each Heartland Site Agreement, and (iii) perform each
and every obligation of the excess channel capacity or transmission
capacity
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<PAGE> 53
lessee under each ITFS excess capacity lease agreement or MDS
transmission capacity lease agreement appearing in the Heartland
Lease/License Binder.
(e) Use reasonable efforts (not including the payment of
consideration not otherwise due) to cause (i) the licensee under the
management/option agreements to prosecute its petitions for
reconsideration of the return by the FCC of the MDS station applications
listed on Exhibit 2.2(b) hereto and (ii) each of its lessors to prosecute
in good faith and diligently each MDS application and ITFS application
for facilities subject to a lease agreement with such subsidiary.
(f) Use reasonable efforts (not including the payment of
consideration not otherwise due) to prevent (i) the modification of any
FCC authorization described in the Heartland Lease/License Binder, except
for such modifications as are described in that binder, and (ii) the new
application to the FCC for authorization related to any lease appearing
in such binder, except (A) as required to comply with this Agreement, (B)
as required by the terms of the lease, (C) as required by the terms of an
applicable FCC license, or (D) as may be reasonably required to operate a
Heartland Operating System in accordance with the usual and ordinary
course of business consistent with past practices.
(g) Use reasonable efforts to (i) continue its current level of
Subscriber marketing effort, (ii) preserve the present Subscriber service
rates and installation rates, (iii) adhere to the current practice with
respect to bad debt, collection of Subscriber accounts and deactivation of
delinquent account service, (iv) collect accounts receivable and incur
accounts payable only in the ordinary course consistent with its past
practices and (v) take no action designed to accelerate or likely to
accelerate the collection of its accounts receivable.
(h) Operate in the ordinary course of business in accordance with
past practices for such operation (except where such conduct would
conflict with any covenant or other obligation of any Heartland Company
under this Agreement).
(i) On the First Closing Date, deliver to Wireless One a list of all
contracts, other than Subscriber contracts for non-bulk rate service and
any non-executive employee contract
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that does not obligate a Heartland Company to make severance payments upon
the termination of the employee in question, relating to the Contributed
Assets or Assumed Liabilities and entered into between the date of this
Agreement and the First Closing Date, together with copies of such
contracts.
(j) (i) take all reasonable actions to maintain all of their
respective Contributed Assets in good condition (ordinary wear and tear
excepted), and use, operate, and maintain all of such Contributed Assets
in a reasonable manner, (ii) maintain inventories of spare parts,
Subscriber reception equipment and expendable supplies at levels
consistent with past practices, (iii) if any loss, damage, impairment,
confiscation, or condemnation of or to any of such Contributed Assets
occurs, repair, replace or restore such Contributed Assets as soon
thereafter as possible, and (iv) use the proceeds of any claim under any
insurance policy to replace such Contributed Assets that are lost,
damaged, impaired or destroyed.
(k) Maintain insurance policies on the Heartland Operating Systems
operated by it, its equipment, the interruption of its business,
liability, worker's compensation, fire, libel and slander, and casualty
in accordance with past practice.
(l) Maintain its books and records relating to its Heartland
Operating Systems in accordance with past practices.
(m) Promptly notify Wireless One in writing of any unusual or
material developments with respect to the business or operations of any
Heartland Operating System and of any material change in any of the
information contained in Heartland's representations and warranties
contained in Section 5.3 of this Agreement.
(n) Use reasonable efforts to ensure that there are no material
changes in the broadcast hours or in the current program line broadcast
by the Heartland Operating Systems, and that there are no other material
changes in any Heartland Operating System's programming policies, other
than adding programming networks under agreements entered into in the
usual and ordinary course of business and on terms and
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conditions typical in the wireless cable industry and fair to the
contracting Heartland Subsidiary.
(o) Use all reasonable efforts to preserve the business and
organization of the Heartland Operating Systems and use its best efforts
to keep available to the Heartland Operating Systems their present
employees and to preserve the Subscriber base of the Heartland Operating
Systems and their present relationships with suppliers, programmers, and
others having business relations with them.
(p) Promptly notify Wireless One as senior management personnel
vacancies occur at the Heartland Operating Systems and consider for
employment personnel recommended by Wireless One for such vacant
positions.
6.5 Additional Negative Covenants of the Heartland Companies. Between
the date hereof and the First Closing Date, except as contemplated by this
Agreement, no Heartland Company shall allow, suffer or permit, without the
prior written consent of Wireless One:
(a) The creation, assumption or permitting to exist of any Lien,
other than Liens for taxes not yet due and payable, on any Contributed
Assets.
(b) The sale, assignment, lease, waiver of rights with respect to,
sublease or other transfer or disposal of (i) any lease or
management/option agreement listed in the Heartland Lease/License Binder
(or the whole or any portion of the rights thereunder), (ii) any
Heartland Site Agreement (or the whole or any portion of the rights
thereunder) or (iii) any other Contributed Asset other than the disposal
of assets and replacement thereof with assets of equal or greater value
and utility, each as in the ordinary course of business.
(c) The modification, amendment, supplement or novation of any
agreement listed in the Heartland Lease/License Binder or any Heartland
Site Agreement, except as contemplated in Section 6.4(a).
(d) Any material action, or material failure to act, of (i) the
lessee under any lease agreement described in the Heartland Lease/License
Agreement, (ii) the optionee or the
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lessee under any Heartland Site Agreement or (iii) the manager under any
management/option agreement in the Heartland Lease/License Binder which
would constitute a default or a potential default of the lessee, optionee
or manager thereunder (assuming that any requirements of notice or lapse
of time have occurred).
(e) Any increase, other than in the ordinary course of business, in
the compensation, bonuses, or other benefits payable or to become payable
to any person employed by any Heartland Operating System.
(f) other than in the ordinary course of business, the (i) entry
into any contract or commitment, (ii) amendment or termination of any
contract (or waiver of any material right thereunder), or (iii)
incurrence of any obligation (including obligations relating to the
borrowing of money or the guaranteeing of Indebtedness) that relates to
the Contributed Assets or Assumed Liabilities and will be binding on any
Heartland Operating System or the Company after the First Closing.
6.6 Post-Closing Operations. The parties to this Agreement intend that,
following the Second Closing, the Company will continue to operate and develop
the businesses and assets contributed to it by the Heartland Companies and held
by the Wireless One Companies at the time of the Second Closing, primarily
(although not necessarily exclusively) within the southeastern United States.
In order to permit the Company and its subsidiaries an opportunity to continue
such operation and development, in order to preserve and protect the value of
the businesses and assets to be contributed to the Company by the Heartland
Companies, in order to preserve the value of confidential and proprietary
information disclosed and exchanged by the Heartland Companies and the Wireless
One Companies in the course of negotiating and preparing for the transactions
contemplated by this Agreement, and in order to avoid conflicts of interest
among the Company and its subsidiaries, on the one hand, and its largest group
of stockholders, the Heartland Companies, on the other hand, the Company and
Heartland, as material inducements to the Wireless One Shareholders and the
Heartland Companies, respectively, to consummate the transactions contemplated
by this Agreement, hereby agree as follows:
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(a) From and after the date of the First Closing until the earlier to
occur of (i) the third anniversary of the Second Closing and (ii) the time
when Heartland and its Affiliates cease to hold at least 5.0% of the
outstanding Company Common Stock, the Company agrees to not, and agrees to
cause each of its subsidiaries to not, engage in the wireless cable
television business, or acquire wireless cable television assets or
related rights, in any geographic market in any of the states set forth on
Schedule III hereto (the "Heartland States") except any market located in
any "basic trading area" (as designated by Rand McNally & Company)(a
"BTA") set forth on Schedule IV hereto; provided that the Company and/or
any of its subsidiaries shall be permitted to own an interest in any
Person which is engaged in the wireless cable television business or
acquires wireless cable television assets or related rights in any other
market in any Heartland State so long as (1) the Company or such
subsidiary does not control such Person, (2) such Person does not control
the Company or such subsidiary and (3) such Person and the Company or such
subsidiary are not each controlled by a single third Person; and provided
further that the Company and/or any of its subsidiaries shall be permitted
to acquire wireless cable television assets in any market in any Heartland
State so long as (x) such assets are acquired by means of a bona fide
acquisition of a Person (or of a business group or division of a Person)
(a "Bona Fide Transaction") and (y) the number of households which are
located in the Heartland States which are in markets in which assets are
acquired pursuant to such Bona Fide Transaction is less than twenty
percent (20%) of the number of households located in all markets in which
assets are acquired pursuant to such Bona Fide Transaction (any such
acquisition a "Company Permitted Acquisition"). Notwithstanding the
second proviso in the preceding sentence, in no event shall the Company or
any of its subsidiaries enhance any assets located in the Heartland States
acquired by means of an acquisition permitted hereunder solely because
such acquisition is a Company Permitted Acquisition (including, without
limitation, by means of the purchase of additional assets in the same
market in which such assets are located other than by means of a separate
Company Permitted Transaction).
(b) From and after the date of the First Closing until the earlier to
occur of (i) the third anniversary of the Second
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Closing and (ii) the time when Heartland and its Affiliates cease to hold
at least 5.0% of the outstanding Company Common Stock, Heartland agrees to
not, and agrees to cause each of its subsidiaries to not, engage in the
wireless cable television business, or acquire wireless cable television
assets or related rights, in any market in any of the states set forth on
Schedule V hereto (the "Wireless One States") except (i) each Call Market
(unless and until the Company acquires the wireless cable assets of
Heartland and its subsidiaries related to such Call Market pursuant to
Section 9.2 of the Merger Agreement) and (ii) any market located in a BTA
in which any city set forth on Schedule VI hereto is located; provided
that Heartland and/or any of its subsidiaries shall be permitted to own an
interest in any Person which is engaged in the wireless cable television
business or acquires wireless cable television assets or related rights in
any market in any Wireless One State so long as (1) Heartland or such
subsidiary does not control such Person, (2) such Person does not control
Heartland or such subsidiary and (3) such Person and Heartland or such
subsidiary are not each controlled by a single third Person; and provided
further that Heartland and/or any of its subsidiaries shall be permitted
to acquire assets in any market in any of the Wireless One States so long
as (x) such assets are acquired by means of a Bona Fide Transaction and
(y) the number of households located in the Wireless One States which are
in markets in which assets are acquired pursuant to such Bona Fide
Transaction is less than twenty percent (20%) of the number of households
located in all markets in which assets are acquired pursuant to such Bona
Fide Transaction (any such acquisition a "Heartland Permitted
Acquisition"). Notwithstanding the second proviso in the previous
sentence, in no event shall Heartland or any of its subsidiaries enhance
any assets located in the Wireless One States acquired by means of an
acquisition permitted hereunder solely because such acquisition is a
Heartland Permitted Acquisition (including, without limitation, by means
of the purchase of additional assets in the same market in which such
assets are located other than by means of a separate Heartland Permitted
Transaction).
(c) For purposes of this Section 6.6, "control" means the possession,
directly or indirectly, of the power to direct the management and
policies of a Person whether through the
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ownership of voting securities, contract or otherwise (provided that the
ability to appoint, directly or indirectly, a number of members to the
board of directors or other governing body of such Person which is less
than one-half of the total number of members of the board of directors or
other governing body of such Person shall not, in and of itself,
constitute the power to direct the management and policies of such
Person).
ARTICLE VII
CONDITIONS
7.1 Conditions to the First Closing.
The First Closing shall occur and the Contribution shall be consummated if
(and only if) the Heartland Companies so determine.
7.2 Conditions to the Second Closing.
(a) Conditions to Obligations of Wireless One and the Wireless One
Stockholders. The obligations of Wireless One and the Wireless One
Stockholders to consummate the Merger are subject to the fulfillment at or
prior to the Second Effective Time of each of the following conditions, any
or all of which may be waived in whole or in part by Wireless One on behalf
of itself and all of the Wireless One Stockholders:
(i) Representations and Warranties True. The representations
and warranties of the Heartland Companies contained in Article V
shall have been true in all material respects when made. The
representations and warranties of the Heartland Companies set forth
in Article V shall be true in all material respects at the time of
the Second Closing with the same effect as though such
representations and warranties had been made at such time, except
for changes resulting from the consummation of the transactions
contemplated by this Agreement.
(ii) Performance of the Heartland Companies and the Company;
Officer's Certificate. The Company and each Heartland Company
shall have performed and complied in
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all material respects with all agreements required by this Agreement
to be performed or complied with by it prior to or at the Second
Closing, and the President or Chief Financial Officer of Heartland
shall deliver to the Wireless One Stockholder Representative a
certificate addressed to the Wireless One Stockholders and dated the
Second Closing Date certifying in such detail as the Wireless One
Stockholder Representative may reasonably request to the
satisfaction of Sections 7.2(a)(i) and 7.2(a)(ii).
(iii) Board Approval. The Company and Heartland shall have
delivered to the Wireless One Stockholder Representative a copy of
the resolutions adopted by the Board of Directors of the Company and
each Heartland Company approving the transactions contemplated by
this Agreement.
(iv) Government Consents, Etc. All FCC and state regulatory
approvals necessary for the consummation of the transactions
contemplated by this Agreement shall have been received.
(v) Litigation; Governmental Proceedings. There shall not be
in effect any judgment, writ, order, injunction or decree of any
Governmental Body of competent jurisdiction, restraining, enjoining
or otherwise preventing consummation of the transactions
contemplated by this Agreement, and no suit, action, investigation,
inquiry or other proceeding by or before any Governmental Body
shall have been instituted and be pending (i) the result of which
could prevent or make illegal the consummation of the transactions
contemplated hereby or (ii) which imposes or would be reasonably
expected to impose any remedy, condition or restriction
unacceptable to Wireless One in its reasonable judgment.
(vi) Third Party Consents. All material required
authorizations, consents or approvals of any third party in
connection with the transactions contemplated hereby shall have
been obtained.
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(vii) Lease Amendments. All material modifications,
amendments and extensions of lease agreements contemplated by
Section 6.4(a) shall have been obtained.
(viii) Stockholders Agreement. The Stockholders Agreement
substantially in the form of Exhibit 7.2(a)(viii) hereto shall have
been executed and delivered by each Heartland Company and the
Company.
(ix) Registration Agreement. The Registration Agreement
substantially in the form of Exhibit 7.2(a)(ix) hereto shall have
been executed and delivered by each Heartland Company and the
Company.
(x) Escrow Agreement. The Escrow Agreement substantially in
the form of Exhibit 7.2(a)(x) hereto shall have been executed and
delivered by each Heartland Company, the Company and the Escrow
Agent.
(xi) Stock Option Plan; Employment Agreements. The Company
shall have adopted the Company Stock Option Plan substantially in
the form of Exhibit 7.2(a)(xi)(A) hereto, and the Company and the
employees named therein shall have entered into the Employment
Agreements substantially in the form of Exhibit 7.2(a)(xi)(B)
hereto.
(xii) Exchange Agreement. The Exchange Agreement
substantially in the form of Exhibit 7.2(a)(xii) hereto shall have
been executed and delivered by Heartland or a Heartland Subsidiary,
and the Exchange shall have been consummated.
(xiii) Legal Opinion. The Wireless One Stockholder
Representative shall have received an opinion of Arter, Hadden,
Blomberg & Johnson, counsel to the Heartland Companies, dated the
Second Closing Date, in form and substance reasonably acceptable to
Wireless One.
(xiv) No Material Adverse Change. During the period (i) from
June 30, 1995 to the First Closing Date, there shall not have been
any material adverse change in the condition (financial or
otherwise), properties, assets, liabilities, business, operations,
customer or employee
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relations or prospects of the Heartland Companies, and no Heartland
Company shall have sustained any loss or damage, whether or not
insured, which materially and adversely affects its ability to
conduct its business, and (ii) from the First Closing Date to the
Second Closing Date, except as contemplated by this Agreement and
except as disclosed in any report of Heartland submitted to the
Securities and Exchange Commission, without the prior written
consent of Wireless One, the Company shall not have entered into any
material agreement or effected any material transaction, and there
shall have been no material adverse change in the Contributed
Assets, and the Contributed Assets shall not have sustained any loss
or damage, whether or not insured, which materially and adversely
affects the Company's ability to conduct its business.
(xv) Approval of Proceedings; Documentation. All corporate
and other proceedings in connection with the transactions
contemplated by this Agreement, and the form and substance of all
opinions, certificates and other documents hereunder shall be
reasonably satisfactory in form and substance to Wireless One and
its counsel.
(xvi) Anti-trust Matters. Any applicable waiting period (and
any extension thereof) as prescribed under the HSR Act for the
Contribution and the Merger shall have expired or shall have been
terminated.
(xvii) Directors. The authorized number of directors on the
board of directors of the Company shall have been established at
seven, and the following three people shall have been elected to
serve as directors: William K. Luby, Hans Sternberg and Sean E.
Reilly.
(xviii) Lender Consents. All authorizations, consents,
waivers or approvals of any lender to any Heartland Company
required in connection with the transactions contemplated hereby
shall have been obtained.
(xix) Purchase Agreement. The Purchase Agreement substantially
in the form of Exhibit 7.2(a)(xix) hereto shall have been executed
and delivered by Heartland, and
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the transactions contemplated thereunder shall have been
consummated.
(xx) Other Documents. Wireless One and the Wireless One
Stockholder Representative shall have received all other documents
reasonably requested by it on behalf of the Wireless One
Stockholders in connection with the consummation of the
Contribution and the Merger.
(b) Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger are subject to the fulfillment at or
prior to the Second Effective Time of each of the following conditions,
any or all of which may be waived in whole or part by the Company:
(i) Representations and Warranties True. The representations
and warranties of Wireless One and the Wireless One Stockholders
contained in Sections 5.1 and 5.2 shall have been true in all
material respects when made. The representations and warranties of
Wireless One and the Wireless One Stockholders set forth in
Sections 5.1 and 5.2 shall be true in all material respects at the
time of the Second Closing with the same effect as though such
representations and warranties had been made at such time, except
for changes resulting from the consummation of the transactions
contemplated by this Agreement.
(ii) Performance of Wireless One; Officer's Certificate.
Wireless One and the Wireless One Stockholders shall have performed
and complied in all material respects with all agreements required
by this Agreement to be performed or complied with by them prior to
or at the Second Closing, and the President of Wireless One shall
deliver to the Company a certificate addressed to the Company and
dated the Second Closing Date certifying in such detail as the
Company may reasonably request to the satisfaction as to Wireless
One of Sections 7.2(b)(i) and 7.2(b)(ii).
(iii) Board and Stockholder Approval. Wireless One shall have
delivered to the Company a copy of (i) the resolutions adopted by
the Board of Directors of Wireless One and (ii) the approval of a
majority of the Wireless
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One Stockholders, each such document approving the transactions
contemplated by this Agreement.
(iv) Government Consents, Etc. All FCC and state regulatory
approvals necessary for the consummation of the transactions
contemplated by this Agreement shall have been received.
(v) Litigation; Governmental Proceedings. There shall not be
in effect any judgment, writ, order, injunction or decree of any
Governmental Body of competent jurisdiction, restraining, enjoining
or otherwise preventing consummation of the transactions
contemplated by this Agreement, and no suit, action, investigation,
inquiry or other proceeding by or before any Governmental Body
shall have been instituted and be pending (i) the result of which
could prevent or make illegal the consummation of the transactions
contemplated hereby or could be materially adverse to the business
or financial condition of the Wireless One Companies taken as a
whole or (ii) which imposes or would be reasonably expected to
impose any remedy, condition or restriction unacceptable to the
Company in its reasonable judgment.
(vi) Third Party Consents. All material required
authorizations, consents or approvals of any third party in
connection with the transactions contemplated hereby shall have
been obtained.
(vii) Minimum Net Assets Amount. It shall have been
demonstrated to Heartland's and the Company's reasonable
satisfaction that the Net Asset Amount for Wireless One will not be
less than $4,700,000.
(viii) Stockholders Agreement. The Stockholders Agreement
substantially in form of Exhibit 7.2(a)(viii) hereto shall have
been executed and delivered by the Wireless One Stockholder
Representative.
(ix) Registration Agreement. The Registration Agreement
substantially in the form of Exhibit 7.2(a)(ix) hereto shall have
been executed and delivered by the Wireless One Stockholder
Representative.
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(x) Escrow Agreement. The Escrow Agreement substantially in
the form of Exhibit 7.2(a)(x) hereto shall have been executed and
delivered by the Wireless One Stockholder Representative and the
Escrow Agent.
(xi) Employment Agreements. The Company and the employees
named therein shall have entered into the Employment Agreements
substantially in the form of Exhibit 7.2(a)(xi)(B) hereto.
(xii) Exchange Agreement. The Exchange Agreement
substantially in the form of Exhibit 7.2(a)(xii) hereto shall have
been executed and delivered by Wireless One or a Wireless One
Subsidiary, and the Exchange shall have been consummated.
(xiii) Legal Opinions. The Company shall have received an
opinion, dated the Second Closing Date, of (A) Kirkland & Ellis,
counsel to Wireless One, and (B) Gardner, Carton & Douglas, special
FCC counsel to Wireless One, in each case in form and substance
reasonably acceptable to the Company.
(xiv) No Material Adverse Change. During the period from June
30, 1995 to the Second Closing Date, there shall not have been any
material adverse change in the condition (financial or otherwise),
properties, assets, liabilities, business, operations, customer or
employee relations or prospects of the Wireless One Companies, and
no Wireless One Company shall have sustained any loss or damage,
whether or not insured, which materially and adversely affects its
ability to conduct its business.
(xv) Approval of Proceedings; Documentation. All corporate
and other proceedings in connection with the transactions
contemplated by this Agreement, and the form and substance of all
opinions, certificates and other documents hereunder shall be
reasonably satisfactory in form and substance to the Company and
its counsel.
(xvi) Anti-trust Matters. Any applicable waiting period (and
any extension thereof) as prescribed under the HSR Act for the
Contribution and the Merger shall have expired or shall have been
terminated.
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(xvii) Directors. The authorized number of directors on the
board of directors of the Company shall have been established at
seven, and the following two people shall have been elected to
serve as directors: David E. Webb and J.R. Holland, Jr.
(xviii) Lender Consents. All authorizations, consents,
waivers or approvals of any lender to any Heartland Company
required in connection with the transactions contemplated hereby
shall have been obtained.
(xix) Purchase Agreement. The Purchase Agreement substantially
in the form of Exhibit 7.2(a)(xix) hereto shall have been executed
and delivered by Wireless One, and the transactions contemplated
thereunder shall have been consummated.
(xx) Other Documents. The Company shall have received all
other documents reasonably requested by it in connection with the
consummation of the Merger.
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be terminated
and the transactions contemplated hereunder may be abandoned at any time prior
to the First Effective Time by the mutual written consent of Wireless One and
Heartland.
8.2 Termination by Either Wireless One or Heartland. This Agreement may
be terminated (upon notice from the terminating party to the other parties) and
the transactions contemplated hereunder may be abandoned by action of either
Wireless One or Heartland if (a) the Contribution or the Merger shall not have
been consummated by November 30, 1995 (provided that the right to terminate this
Agreement under this clause (a) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Contribution or the Merger to occur on or before
such date), (b) any Governmental Body in the United States shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions
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contemplated hereunder and such order, decree, ruling or other action shall have
become final and nonappealable, or (c) closing and funding of the Anticipated
IPO shall not have occurred on or prior to November 15, 1995.
8.3 Effect of Termination and Abandonment. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereunder
pursuant to this Article VIII, except as provided in Sections 6.1(G), 6.1(H) and
11.1, no party hereto shall have any liability or further obligation to any
other party to this Agreement.
8.4 Effect of Second Closing. At the Second Effective Time, except as
provided in Article X hereof, the representations, warranties, covenants and
other agreements of each party hereto contained in Articles V and VI hereof
shall terminate, and no party hereto shall have any liability or further
oblation to any other party hereto with respect to such provisions, provided
that nothing herein shall relieve any party from liability for fraud or for any
breach of Section 6.1(g) or 6.1(h) of this Agreement.
ARTICLE IX
CALL MARKETS
9.1 Exercise of Option. The Heartland Companies shall use reasonable
efforts to obtain ownership or lease rights, or the enforceable right to obtain
ownership or lease rights, for the provision of wireless cable television
service with respect to at least 12 MDS and ITFS channels in each of the Call
Markets. Heartland will give written notice to the Company if and promptly
after the Heartland Companies obtain or enter into definitive agreements to
obtain ownership of or lease rights with respect to 12 or more MDS and ITFS
channels in any Call Market. Upon such notice, the Heartland Companies will
give the Company reasonable access to information, documents, records and
personnel of the Heartland Companies to enable the Company to determine whether
to acquire the assets and assume the liabilities in question. Within 60 days
after receipt of such notice, the Company may elect, by giving written notice to
such effect to Heartland, to acquire the Heartland Companies' wireless cable
assets relating to such Call Market, and, if the Company elects to acquire such
assets, the Company shall assume all of the Heartland Companies' liabilities
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relating to such assets, including indebtedness incurred to acquire such assets
or develop an operating wireless cable television system in such Call Market.
The closing of such acquisition and assumption shall take place as soon as
practicable after Heartland's receipt of such notice of election from the
Company.
9.2 Purchase Price.
(a) The purchase price to be paid for any assets relating to a Call
Market and elected to be acquired by the Company in accordance with Section
9.1 shall equal (i) $20 for each of the LOS Households for such Call
Market, increased by (ii) the amount of all reasonable out-of-pocket
disbursements by the Heartland Companies in connection with the acquisition
of MDS or ITFS channels or lease rights in such Call Market or the
development of an operating wireless cable television system therein (other
than disbursements made from the proceeds of indebtedness assumed by the
Company), reduced by (iii) the amount of any indebtedness or other
liabilities relating to such Call Market and assumed by the Company.
(b) The purchase price may be paid, at the election of the Company,
(i) in cash, (ii) if the Anticipated IPO has occurred, in shares of Company
Common Stock valued at their then-current Market Price (as determined in
accordance with the next sentence), less a 5% discount if such shares are
restricted securities, or (iii) if the Anticipated IPO has occurred, in a
combination of cash and shares of Company Common Stock (such Company Common
Stock to be valued in accordance with clause (ii) above). For purposes of
this Section 9.2(b), "Market Price" of a share of Company Common Stock
means the average of the closing prices of sales of a share of Company
Common Stock on all securities exchanges on which such share may at the
time be listed, or, if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged
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over a period of 21 days consisting of the day as of which "Market Price"
is being determined and the 20 consecutive business days prior to such
day.
ARTICLE X
INDEMNIFICATION
10.1 Indemnities of the Heartland Companies. Each Heartland Company
hereby jointly and severally agrees to indemnify and hold harmless the Company
and each of the Company Subsidiaries and their respective successors and
assigns against and in respect of any and all claims, demands, liabilities,
obligations, actions, suits, proceedings, losses, damages, costs, expenses,
assessments, judgments, recoveries and deficiencies including interest,
penalties and reasonable attorneys' fees, of every kind and description,
contingent or otherwise, suffered by the Company or any of the Company
Subsidiaries (the foregoing hereinafter collectively referred to as "Damages")
and occasioned by, arising out of or resulting from that certain cause of
action styled TCG of Monroe Inc. versus Cotton Country Cable, Inc., Heartland
Wireless Properties Louisiana, Inc. and Ken Diebel (CA No. 95-0869) pending in
the Western District Court of the Western District of Louisiana, Monroe
Division (collectively, the "Heartland Losses").
10.2 Delivery of Notice. If the Company is of the opinion that any
Heartland Loss has occurred or will or may occur, it shall deliver a notice to
Heartland, and each such notice shall specify the amount and the circumstances
of such asserted Heartland Loss. If a claim is made against a party to be
indemnified by the Heartland Companies under Section 10.1 above, or in the
event a Heartland Loss otherwise occurs, the indemnitee shall promptly (and in
any event within 30 days) after the assertion of a claim or the discovery of
any fact upon which such indemnitee intends to base a claim for indemnification
under Section 10.1 of this Agreement (the "Claim") notify the Heartland
Companies from whom indemnification is sought (the "Indemnitor") of such Claim.
In the event of any Claim, the Indemnitor, at its option, may assume (with
legal counsel reasonably acceptable to the indemnitee) the defense of any
claim, demand, lawsuit or other proceeding in connection with the indemnitee's
Claim, and may assert any defense of the indemnitee or the Indemnitor; provided
that the indemnitee shall have the right at its own expense to participate
jointly with the Indemnitor in
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the defense of any claim, demand, lawsuit or other proceeding in connection with
the indemnitee's Claim. In the event that the Indemnitor elects to undertake
the defense of a Claim hereunder, the indemnitee will cooperate with the
Indemnitor to the fullest extent reasonably possible with regard to all matters
relating to the Claim (including, without limitation, corrective actions
required by applicable law, assertion of defenses and the determination,
mitigation, negotiation and settlement of all amounts, costs, actions,
penalties, damages and the like related thereto) so as to make the Indemnitor's
management of the same with regard to the amount of damages payable by the
Indemnitor hereunder. The Indemnitor shall have the right to settle any Claim,
and the indemnitee shall reasonably cooperate in furtherance of such
determination by the Indemnitor; provided that the Indemnitee shall not, without
the prior written consent of the indemnitee, settle any Claim which does not
contain a complete release of the indemnitee from the Claim in question or which
does not involve solely the payment of money for which the indemnitee is
actually indemnified.
ARTICLE XI
MISCELLANEOUS AND GENERAL
11.1 Expenses. Each of Wireless One and each Heartland Company shall bear
its own expenses, including the fees and expenses of any attorneys, accountants,
investment bankers, brokers, finders or other intermediaries or other Persons
engaged by them, incurred in connection with this Agreement and the transactions
contemplated hereby. Each of Wireless One and the Heartland Companies shall
advance on the Company's behalf one-half of all filing fees in connection with
the HSR Act, which advances will be reimbursed by the Company after the Second
Closing. The reasonable expenses of the Heartland Companies and Wireless One
referred to in the preceding two sentences shall be assumed by the Company in
accordance with Section 2.2 (in the case of the Heartland Companies' expenses)
or in connection with the Merger (in the case of Wireless One's expenses). The
Company shall pay the expenses of the Wireless One Stockholders and all expenses
in connection with the Anticipated Offerings; provided that if the Anticipated
Offerings are not completed and either Closing does not occur, 40% of the
expenses of the Anticipated Offerings will be borne by Heartland and 60% of such
expenses will be borne by
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Wireless One. Costs incurred on behalf of the Company in connection with the
Anticipated Offerings and paid prior to the Second Closing will be advanced by
Wireless One and reimbursed by the Company after the Second Closing.
11.2 Notices, Etc. All notices, requests, demands or other communications
required hereunder shall be in writing and shall be deemed to have been duly
given to any party when delivered personally (by courier service or otherwise),
when delivered by telecopy and confirmed by return telecopy, or when received by
first-class mail, postage prepaid and return receipt requested to (i) in the
case of the Company, the Wireless One Stockholder Representative and Wireless
One, the applicable addresses set forth on Exhibit 11.2 hereto and (ii) in the
case of each of the other parties hereto, to the address of such party listed on
the books of the registrar of the Company Common Stock, or, in each case, to
such other address as such party shall have designated by notice so given to
each other party.
11.3 Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified except by an instrument in
writing signed by the Company, Wireless One, the Heartland Companies and the
holders of a majority of the voting stock of Wireless One (prior to the Second
Closing Date) or the holders of a majority of the Wireless One Share
Consideration (after the Second Closing Date).
11.4 No Assignment. This Agreement shall be binding upon and shall inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns; provided that, except for (a) the Company's rights
under Article IX hereof, (b) the assignment of the rights of any of the
Heartland Companies to Heartland, and (c) as otherwise expressly set forth in
this Agreement, neither the rights nor the obligations of any party may be
assigned or delegated without the prior written consent of each other party.
11.5 Entire Agreement. Except as otherwise provided herein, this
Agreement embodies the entire agreement and understanding between the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. There are no representations,
warranties or covenants by the parties hereto relating to such
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subject matter other than those expressly set forth in this Agreement and any
writings expressly required hereby.
11.6 Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
11.7 Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
11.8 No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by
such party of its right to exercise any such or other right, power or remedy or
to demand such compliance.
11.9 No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any Person or entity who or
which is not a party hereto.
11.10 Public Announcements. Wireless One (prior to the Second Closing) or
the Wireless One Stockholder Representative (following the Second Closing) and
the Heartland Companies will agree upon the timing and content of the initial
press release to be issued describing the transactions contemplated by this
Agreement, and will not make any public announcement thereof prior to reaching
such agreement unless required to do so by applicable law or regulation. To
the extent reasonably requested by either party, each party will thereafter
consult with and provide reasonable cooperation to the other in connection with
the issuance of further press releases or other public documents describing the
transactions contemplated by this Agreement.
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11.11 Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the internal laws
(and not the conflict of laws principles) of the State of Delaware.
11.12 Name, Captions, Etc. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall
not affect the interpretation or construction hereof. Unless otherwise
specified, (a) the terms hereof" "herein" and similar terms refer to this
Agreement as a whole and (b) references herein to Articles or Sections refer to
articles or sections of this Agreement.
11.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument.
11.14 Generally Accepted Accounting Principles. Where any accounting
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles a party hereto would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall
continue to be made in accordance with such party's previous accounting methods
and policies.
11.15 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
11.16 Wireless One Stockholder Representative.
(a) Each of the Wireless One Stockholders hereby appoints Premier
Venture Capital Corporation as the initial Wireless One Stockholder
Representative under this Agreement,
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to serve in accordance with the terms, conditions and provisions of this
Agreement, and Premier Venture Capital Corporation hereby agrees to act as
such, upon the terms, conditions and provisions of this Agreement. The
Wireless One Stockholder Representative, in such capacity, will take all
such actions with respect to this Agreement and the other agreements
contemplated hereby, and omit to take any action, each as directed by the
holders of a majority of the voting stock of Wireless One held by the
Designated Wireless One Stockholders (prior to the Second Closing Date) or
the majority of the Company Common Stock held by such Designated Wireless
One Stockholders (after the Second Closing Date), and will promptly
provide to each Designated Stockholder a copy of all notices received by
it from any other party hereto. The Wireless One Stockholder
Representative may be removed and replaced from time to time by written
notice to the Company, Heartland and the Escrow Agent from the holders of
a majority of the voting stock of Wireless One held by the Designated
Wireless One Stockholders (prior to the Second Closing Date) or the
majority of the Company Common Stock held by such Designated Wireless One
Stockholders (after the Second Closing Date). Each of the Wireless One
Stockholders hereby constitutes and appoints the Wireless One Stockholder
Representative its true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for it, and in its name, place
and stead, to sign the following documents: (a) the Registration
Agreement substantially in the form of Exhibit 7.2(a)(ix) hereto and (b)
the Escrow Agreement, substantially in the form of Exhibit 7.2(a)(x)
hereto.
(b) The Wireless One Stockholder Representative shall have no duties
or responsibilities except those expressly set forth herein. The
Wireless One Stockholder Representative shall have no responsibility for
the validity of any agreements referred to in this Agreement or for the
performance of any such agreements by any party thereto or for the
interpretation of any of the provisions of any such agreements. The
Wireless One Stockholders Representative's liability in fulfilling its
duties shall be limited to bad faith, willful misconduct or gross
negligence on its part. The Wireless One Stockholder Representative
shall be protected in acting upon any certificate, notice or other
instrument whatsoever received by the Wireless One Stockholder
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Representative as to its due execution, the validity and effectiveness of
its provisions, and the truth and accuracy of any information therein
contained that the Wireless One Stockholder Representative in good faith
believes to be genuine and to have been signed or presented by a proper
person or persons.
(c) The Wireless One Stockholder Representative shall not be bound
in it capacity as Wireless One Stockholder Representative by any
cancellation, waiver, modification or amendment to this Agreement unless
such modification is consented to in writing by the Wireless One
Stockholder Representative.
(d) The Wireless One Stockholder Representative may, in its sole
discretion, consult with and obtain advice from legal counsel and any
other person or entity in the event of any question as to any of the
provisions of this Agreement or its duties hereunder. The reasonable
cost of such services shall be borne among the Wireless One Stockholders
in accordance with their respective Pro Rata Amounts.
(e) The Wireless One Stockholder Representative shall have the
right, in its sole discretion, to resign as the Wireless One Stockholder
Representative at any time by giving at least 30 days prior written
notice to Heartland and the Wireless One Stockholders. In such event,
Heartland and the Wireless One Stockholders will promptly select another
Wireless One Stockholder Representative. Resignation of the Wireless One
Stockholder Representative shall relieve it of all duties and
responsibilities of the Wireless One Stockholder Representative
thereafter arising hereunder.
(f) Each Wireless One Stockholder severally agrees to hold the
Wireless One Stockholder Representative harmless and to indemnify the
Wireless One Stockholder Representative against such Wireless One
Stockholder's Pro Rata Amount of any loss, liability, claim or demand
arising out of or in connection with the performance of its obligations in
accordance with the provisions of this Agreement, except as arises from
the gross negligence or willful misconduct of the Wireless One Stockholder
Representative. The foregoing indemnities shall survive termination of
this Agreement and
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shall be in addition to any and all other rights and remedies available to
the Wireless One Stockholder Representative.
(g) No provision of this Section 11.16 shall be deemed to give rise
to any obligation in favor of any Heartland Company or to limit any right
or remedy of any Heartland Company under any other Section of this
Agreement.
11.17 Severability. Whenever possible each provision and term of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision or term of this Agreement shall be
held to be prohibited by or invalid under such applicable law, then such
provision or term shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of
this Agreement; provided that if a court having competent jurisdiction shall
find that the covenants contained in Section 6.6 hereof is not reasonable, such
court shall have the power to reduce the duration and/or geographic area and/or
scope of such covenant, and the covenant shall be enforceable in this reduced
form.
11.18 Further Assurances. At any time and from time to time after the
Second Closing, the parties shall execute, deliver and acknowledge such
documents and take such further actions as may be reasonably required in order
to consummate the transactions contemplated hereby.
* * * * *
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties set forth below.
WIRELESS ONE OPERATING COMPANY
By: __________________________________
Name:
Title:
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: __________________________________
Name:
Title:
BROWNWOOD WIRELESS, INC.
By: __________________________________
Name:
Title:
COTTON COUNTRY CABLE, INC.
By: __________________________________
Name:
Title:
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<PAGE> 78
DELTA WIRELESS CABLE, INC.
By: __________________________________
Name:
Title:
HEARTLAND WIRELESS ALABAMA
PROPERTIES, INC.
By: __________________________________
Name:
Title:
HEARTLAND WIRELESS FLORIDA
PROPERTIES, INC.
By: __________________________________
Name:
Title:
HEARTLAND WIRELESS GEORGIA
PROPERTIES, INC.
By: __________________________________
Name:
Title:
74
<PAGE> 79
HEARTLAND WIRELESS OCALA, L.C.
By: __________________________________
Name:
Title:
HEARTLAND WIRELESS ROCKDALE, INC.
By: __________________________________
Name:
Title:
WIRELESS LEASING, INC.
By: __________________________________
Name:
Title:
WIRELESS ONE, INC.
By: __________________________________
Name:
Title:
75
<PAGE> 80
WIRELESS ONE MERGER COMPANY
By: __________________________________
Name:
Title:
PREMIER VENTURE CAPITAL CORPORATION
By: __________________________________
Name:
Title:
THE LAMAR CORPORATION
By: __________________________________
Name:
Title:
HENDRIX FAMILY TRUST
By: __________________________________
Name:
Title:
KBBS, INC.
By: __________________________________
Name:
Title:
76
<PAGE> 81
WIRELESS INVESTMENT COMPANY
By: __________________________________
Name:
Title:
GULF COAST SERVICES, INC.
By: __________________________________
Name:
Title:
OTELCO INVESTMENTS, LLC
By: __________________________________
Name:
Title:
EATEL, INC.
By: __________________________________
Name:
Title:
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<PAGE> 82
FORT BEND TELEPHONE CO.
By: __________________________________
Name:
Title:
COLUMBIA CELLULAR, INC.
By: __________________________________
Name:
Title:
HART WIRELESS LTD PARTNERSHIP
By: __________________________________
Name:
Title:
G.T. INVESTMENTS, INC.
By: __________________________________
Name:
Title:
CHASE MANHATTAN CAPITAL CORPORATION
By: __________________________________
Name:
Title:
78
<PAGE> 83
BASEBALL PARTNERS
By: __________________________________
Name:
Title:
PREMIER VENTURE CAPITAL CORPORATION
By: __________________________________
Name:
Title:
ADVANTAGE CAPITAL PARTNERS LIMITED
PARTNERSHIP
BY: ADVANTAGE CAPITAL CORPORATION
ITS: GENERAL PARTNER
By:__________________________________
Name:
Title:
79
<PAGE> 84
ADVANTAGE CAPITAL PARTNERS II LIMITED
PARTNERSHIP
BY: ADVANTAGE CAPITAL CORPORATION
ITS: GENERAL PARTNER
By: __________________________________
Name:
Title:
FIRST COMMERCE CAPITAL, INC.
By: __________________________________
Name:
Title:
CT COMMUNICATIONS, INC.
By: __________________________________
Name:
Title:
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<PAGE> 85
OPCO SENIOR EXECUTIVE INVESTMENT
PARTNERSHIP, L.P.
BY: OPCO PARTNERS, INC.
ITS:
By: __________________________________
Name:
Title:
______________________________________
HANS STERNBERG
______________________________________
WILLIAM C. NORRIS, JR.
______________________________________
SEAN E. REILLY
______________________________________
RONALD L. DANIELS
R.C. CORR & DORIS CORR,
JOINT SURVIVORS
BY ___________________________________
______________________________________
DONNA STERNBERG
______________________________________
MARK STERNBERG
______________________________________
ERICH STERNBERG
______________________________________
JULIE STERNBERG
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<PAGE> 86
______________________________________
DEBORAH STERNBERG
______________________________________
INSA ABRAHAM
______________________________________
ALLYN MADERE
______________________________________
PAUL BOUDREAUX
______________________________________
ARTHUR G. SCANLAN, II
82
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto of Heartland Wireless
Communications, Inc., included elsewhere in this report.
OVERVIEW
The Company develops, owns and operates wireless cable television systems. The
Company has wireless cable channel rights in small to mid-size markets in the
central United States. Heartland targets small to mid-size markets with
significant numbers of households that are unpassed by traditional hard-wire
cable. The Company offers its subscribers local off-air VHF/UHF channels, as
well as HBO, Showtime, Disney, ESPN, CNN, USA, WGN, WTBS, Discovery, the
Nashville Network, A&E and other popular cable television networks. At March
1,1996, Heartland had wireless cable channel rights in 81 markets, representing
approximately 8.6 million households, approximately 7.1 million of which can be
served by line-of-sight transmissions. Furthermore, Heartland estimates that
within these markets, approximately 36% of line-of-sight households are
currently unpassed by traditional hard-wire cable systems. At March 1, 1996,
the Company had 38 markets with systems in operation, providing wireless cable
service to an aggregate of approximately 132,000 subscribers. In addition,
Heartland owns a 26% equity interest in Wireless One, Inc., the largest rural
wireless cable television provider in the southeastern United States, and owns
a 35% equity interest in CS Wireless Systems, Inc., one of the largest wireless
cable television companies in the United States in terms of subscribers and
line-of-sight households.
The Company has experienced significant subscriber growth since its
inception, both internally and through acquisitions. Although the Company has
recorded net losses since inception, 18 systems achieved positive earnings
before interest, taxes, depreciation and amortization ("EBITDA") for 1995. For
the month ending December 31, 1995, 23 systems achieved positive EBITDA. None
of the Company's 11 remaining systems achieved positive EBITDA for the month
ending December 31, 1995, primarily as a result of their early stages of
development and number of subscribers.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(in thousands, except per share, system, subscriber and per subscriber data)
Management believes that period-to-period comparisons of the Company's
consolidated financial results to date are not necessarily meaningful and
should not be relied upon as an indication of future performance due to the
Company's historically high growth rate, system launches and acquisitions
during the periods presented.
REVENUES. The Company's revenues consist of monthly fees paid by subscribers
for basic programming, premium programming and equipment rental and, to a
lesser extent, sales of receive-site equipment to certain subscribers and
service income. The Company's revenues were $15,300 in 1995, $2,229 in 1994 and
$869 in 1993, representing increases of 586% from 1994 to 1995 and 157% from
1993 to 1994. As discussed more fully in Note 1 of the notes to the
consolidated financial statements, the Company changed, effective January 1,
1995, its method of accounting for the direct costs and installation fees
related to subscriber installations. The revenue increases from 1993 to 1995
were primarily due to average subscribers increasing to 48,360 in 1995 from
5,966 in 1994 and 1,630 in 1993. Average monthly revenue per subscriber was
$29.41 for 1995, $27.35 for 1994 and $30.20 for 1993. The increase in average
monthly revenue per subscriber in 1995 as compared to 1994 was primarily due to
increased premium channel penetration. The decrease in average monthly revenue
per subscriber in 1994 as compared to 1993 was primarily due to an increase in
subscribers who live in multiple dwelling units, which typically generate lower
per subscriber revenue than single-family units, and certain promotional
offerings of premium channels. At December 31, 1995, the Company had 85,160
subscribers versus 19,840 at December 31, 1994 and 2,730 at December 31, 1993.
Approximately 43% of the subscriber increase from 1994 to 1995 was attributable
to same-system growth (net subscriber additions in the Company's systems in
operation at December 31, 1994), 41% was attributable to 17 new systems
launched during 1995 and 16% was attributable to six operating systems
acquired, less two operating systems divested, during 1995. Approximately 39%
of the subscriber increase from 1993 to 1994 was attributable
Heartland Wireless Communications, Inc.
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<PAGE> 2
to same-system growth, 43% was attributable to six new systems launched during
1994 and 18% was attributable to two operating systems acquired during 1994.
The Company had 34 systems in operation at December 31, 1995, compared to 13
systems at December 31, 1994 and five systems at December 31, 1993. In January
1995, the Company acquired the Shaw, Kansas operating system; in May 1995, the
Company acquired the Lubbock, Texas operating system; in July 1995, the Company
acquired the Lykens/Bucyrus, Ohio, Paragould, Arkansas and Sikeston, Missouri
operating systems; and in October 1995, the Company divested the Monroe,
Louisiana and Milano, Texas operating systems. The Champaign, Illinois
acquisition did not become effective for accounting purposes until January 16,
1996. The Company's acquisition of the aforementioned six operating systems
during 1995 contributed $3,074 to 1995 revenues.The Company acquired the
Milano, Texas and Lindsay, Oklahoma operating systems during December 1994.
These acquisitions did not materially contribute to revenues during 1994.
SYSTEMS OPERATIONS. Systems operations include programming costs, channel
lease payments, transmitter site and tower rentals, cost of program guides and
certain repairs and maintenance expenditures. Programming costs (with the
exception of minimum payments), cost of program guides and channel lease
payments (with the exception of certain fixed payments) are variable expenses
which increase as the number of subscribers increases. Systems operations
expense was $4,893 in 1995, $762 in 1994 and $321 in 1993. As a percentage of
revenues, systems operations expense was 32% in 1995, 34% in 1994 and 37% in
1993. The decrease in systems operations expense as a percentage of revenue was
due to revenue increases from 1993 to 1995 (as previously discussed) and the
semi-fixed nature of the Company's systems operations expense.
SELLING, GENERAL AND ADMINISTRATIVE. The Company has experienced increasing
selling, general and administrative expenses ("SG&A") since its inception as a
result of its increasing wireless cable activities and associated
administrative costs, including costs related to opening and maintaining
additional offices, additional accounting and support costs and additional
compensation expense. SG&A was $11,887 in 1995, $4,183 in 1994 and $647 in
1993. As discussed more fully in Note 1 of the notes to the consolidated
financial statements, the Company changed, effective January 1, 1995, its
method of accounting for the direct costs and installation fees related to
subscriber installations. The increase in SG&A from 1994 to 1995 is principally
due to an increase in the Company's corporate and executive staff to support
the Company's overall growth, increased advertising costs to support the
Company's subscriber growth, and, to a lesser extent, increased costs
associated with property and casualty insurance, group health insurance and
property taxes.The increase in SG&A from 1993 to 1994 is principally due to the
commencement of the direct payment of compensation to certain of the Company's
executive officers who had previously served as consultants, the addition of
personnel, and, to a lesser extent, bonuses to management and employees,
implementation of a group health insurance plan and the expenses of being a
public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense includes
depreciation of systems and equipment and amortization of license and leased
license investment and the excess of cost over fair value of net assets
acquired. Depreciation and amortization expense was $6,234 in 1995, $1,098 in
1994 and $138 in 1993. As discussed more fully in Note 1 of the notes to the
consolidated financial statements, the Company changed, effective January 1,
1995, its method of accounting for the direct costs and installation fees
related to subscriber installations. The increases in depreciation expense from
1993 to 1995 were due to additional systems and equipment in connection with
the launch of 17 systems during 1995 and six systems during 1994 and increased
amortization expense on license and leased license investment of systems in
operation and excess of cost over fair value of net assets acquired related to
the acquisition of wireless cable channel rights and the acquisition of
minority interests in certain subsidiaries of the Company.
OPERATING LOSS. The Company generated operating losses of $7,714 during 1995,
$3,814 during 1994 and $237 during 1993. EBITDA was negative $1,480 for 1995,
negative $2,716 for 1994 and negative $99 for 1993. As previously discussed,
the increases in the Company's operating loss and negative EBITDA from 1993 to
1995 was primarily due to increased SG&A at the corporate level, partially
offset by increases in revenue. Increased depreciation and amortization expense
from 1993 to 1995 also contributed
Heartland Wireless Communications, Inc.
13
<PAGE> 3
to the increases in the Company's operating losses during these periods.
Furthermore, initial operating losses associated with the launch of 17 markets
in 1995 and six markets in 1994 also contributed to the Company's operating
losses and negative EBITDA during 1995 and 1994.
INTEREST INCOME. Interest income was $2,860 in 1995, $380 in 1994 and $10 in
1993. The increased interest income from 1994 to 1995 was due to higher average
cash equivalents subsequent to the Company's private placement of 13% Senior
Notes due 2003 (the "Senior Notes") in April 1995. The increased interest
income from 1993 to 1994 relates to interest earned on the Company's cash
equivalents since its initial public offering.
INTEREST EXPENSE. The Company incurred interest expense of $13,717 in 1995,
$590 in 1994 and $83 in 1993 due to increases in borrowed funds. Interest
expense during 1995 included (i) non-cash interest of $3,723 related to
interest on the Company's 9% Convertible Subordinated Discount Notes and (ii)
interest expense on the Company's Senior Notes since April 26, 1995. Interest
expense during 1994 included (i) non-cash interest of $301 related to one
month's interest on the Company's 9% Convertible Subordinated Discount Notes,
(ii) interest expense on bridge financing provided by Internationale
Nederlanden (U.S.) Capital Corporation and (iii) interest expense on short-term
borrowings that were repaid in connection with the Company's initial public
offering in April 1994.
EQUITY IN LOSSES OF AFFILIATES. As discussed more fully in Note 8 of the
notes to the consolidated financial statements, the Company had equity in
losses of affiliates of $1,369 in 1995 and $387 in 1994. Equity in losses of
affiliates during 1995 primarily represents losses from Wireless One, Inc. in
which the Company has an approximate 26% interest. The Company acquired its
interest in Wireless One, Inc. in October 1995. Equity in losses of affiliates
during 1994 represent losses from RuralVision Joint Venture in which the
Company had a 50% interest. The Company ceased to be a joint venturer in
RuralVision Joint Venture during May 1995.
OTHER EXPENSES. Other expenses are comprised of minority interests in the net
earnings of subsidiaries, dividends on preferred stock of certain subsidiaries
and other non-operating expenses offset by other non-operating income. In 1995,
the Company incurred $247 of other expenses, of which $241 relates to
non-operational settlement charges between the Company and an unaffiliated
third party and $21 relates to dividends on preferred stock of certain
subsidiaries. During 1994, the Company incurred $227 of other expenses, of
which $206 consisted of a recapitalization charge relating to costs incurred in
connection with a rescinded offering of securities and $21 relates to minority
interest owners' share of net earnings in subsidiaries and dividends on
preferred stock of certain subsidiaries. In 1993, the Company incurred $96 of
other expenses, of which $57 consisted of a charge relating to a settlement
with a formerly affiliated installation company and $35 relates to minority
interest owners' share of net earnings in subsidiaries and dividends on
preferred stock of certain subsidiaries.
INCOME TAX BENEFIT. As discussed more fully in Note 6 of the notes to the
consolidated financial statements, the Company recognized income tax benefits
related to the Company's net losses of $4,285 for 1995 and $1,595 for 1994. The
Company did not recognize any income tax benefit during 1993. The Company
recognizes income tax benefits to the extent of future reversals of existing
taxable temporary differences.
NET LOSS. The Company has recorded net losses since inception. The Company
incurred net losses of $15,902 or $1.34 per share during 1995, $3,043 or $0.30
per share during 1994 and $406 or $0.05 per share during 1993. As previously
discussed, although the Company's total revenue increased 586% from 1994 to
1995 and 157% from 1993 to 1994, due to initial operating losses associated
with the launch of 17 markets during 1995 and six markets during 1994,
increased SG&A, increased deprecation and amortization expense and increased
interest expense, the Company's net losses have increased from 1993 to 1995.
The Company expects to continue to incur net losses in 1996 and beyond.
Heartland Wireless Communications, Inc.
14
<PAGE> 4
LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except per share, system, subscriber and per subscriber data)
The wireless cable television business is a capital intensive business. Since
inception, the Company has expended funds to lease or otherwise acquire channel
rights in various markets and systems in operation, to construct operating
systems and to finance initial system operating losses. To date, the primary
sources of capital for the Company have been from the sale of the Company's
common stock, debt financings and the sale of wireless cable channel rights
that are not part of the Company's strategic plan. The Company intends to
expand its 38 existing systems, continue to launch additional wireless systems
and lease or otherwise acquire channel rights in various markets.
The Company estimates that a launch of a wireless cable system in a typical
market (assuming an initial programming package of 12 channels) will involve
the initial expenditure of approximately $750 to $900 for wireless cable system
transmission equipment and tower construction and incremental installation
costs of approximately $395 to $435 per subscriber for equipment, labor,
overhead charges and direct commission. Other launch costs include the cost of
securing adequate space for marketing and warehouse facilities, as well as
costs related to employees. As a result of these costs, operating losses are
likely to be incurred by a system during the start-up period. Subsequent
additions of transmission equipment to enhance the channel offering of the
system will approximate $400, but may vary depending upon the power of the
transmission equipment.
Cash used in operations was $6,474 in 1995 versus cash provided by
operations of $711 in 1994 and cash used in operations of $107 in 1993. The
increase in cash consumed by operating activities during 1995 as compared to
1994 was primarily due to initial operating losses associated with the launch
of 17 systems in 1995 and, as previously discussed, increases in SG&A to
support the Company's overall growth. These uses of cash during 1995 were
partially offset by a $13,071 increase in revenue from 1994 to 1995. The
increase in cash provided by operations during 1994 as compared to 1993 was
primarily due to improved working capital management and, as previously
discussed, a $1,360 increase in revenue from 1993 to 1994. These sources of
cash during 1994 were partially offset by initial operating losses associated
with the launch of six systems in 1994 and, as previously discussed, increases
in SG&A.
Cash used in investing activities was $96,703 in 1995, $46,500 in 1994 and
$5,141 in 1993. Cash used in investing activities during 1995, 1994 and 1993
principally relates to the construction of additional operating systems, the
acquisition and installation of subscriber receive-site equipment, the upgrade
of transmission equipment in certain markets and the acquisition of certain
wireless cable channel rights in other markets. As discussed more fully in Note
8 and Note 12 of the notes to the consolidated financial statements, cash used
in investing activities during 1995 also included the Company's additional
investment in RuralVision Joint Venture, the acquisition of certain wireless
cable assets from RuralVision Joint Venture and Cross Country Wireless, Inc.
and payments made in connection with the CableMaxx, AWS and TechniVision
Acquisitions (as hereinafter defined), which were consummated on February 23,
1996. In addition, as discussed more fully in Note 3 of the notes to the
consolidated financial statements, cash used in investing activities during
1995 included purchases of debt securities which represent proceeds from the
sale of Senior Notes placed in escrow for the payment of interest on the Senior
Notes. The above-listed uses of cash during 1995 were partially offset by the
sale of debt securities for the payment of interest on the Senior Notes, the
sale of certain wireless cable channel rights and the repayment of $10,000 of
notes from Wireless One, Inc. As discussed more fully in Note 8 of the notes to
the consolidated financial statements, cash used in investing activities during
1994 also included the Company's investment in RuralVision Joint Venture and
the acquisition of certain wireless cable assets from RuralVision Joint
Venture.
Cash used in operating and investing activities during 1995 was financed
principally through the net proceeds from the sale of Senior Notes and, as
discussed more fully in Note 8 of the notes to the consolidated financial
statements, the issuance of common stock. Cash used in investing activities
during 1994 was financed principally through cash provided by operating
activities, the net proceeds of the Company's initial public offering and the
sale of convertible notes to Jupiter Partners L.P. Cash used in operating and
investing activities during 1993 was financed principally through borrowings,
sales of minority interests in subsidiaries and an investment in common stock
by Hunt Capital Group, L.L.C. As a result of the above-mentioned factors, cash
provided by financing activities was $114,334 in 1995, $56,960 in 1994 and
$5,898 in 1993.
Due to the above discussed factors, at December 31, 1995, the Company had
$23,143 of cash-on-hand, compared to $11,986 at December 31, 1994. As discussed
more fully in Note 12 of the notes to the consolidated financial statements, on
February 23, 1996,
Heartland Wireless Communications, Inc.
15
<PAGE> 5
the Company acquired CableMaxx, Inc. and American Wireless Systems, Inc.
together with substantially all of the assets of Fort Worth Wireless Cable T.V.
Associates, Wireless Cable TV Associates #38 and certain of the wireless cable
television assets of Three Sixty Corp., formerly TechniVision, Inc.
(collectively, the "CableMaxx, AWS and TechniVision Acquisitions"). In
connection with the CableMaxx, AWS and TechniVision Acquisitions, the Company
assumed approximately $20,000 in obligations of which, $14,988 had been paid as
of March 1, 1996. In addition, as discussed more fully in Note 12 of the notes
to the consolidated financial statements, on February 23, 1996, the Company,
CAI Wireless Systems, Inc. ("CAI") and CS Wireless Systems, Inc., a Delaware
corporation and wholly owned subsidiary of CAI ("CS Wireless"), consummated a
transaction (the "CS Wireless Transaction") pursuant to which the Company or
its subsidiaries and CAI or its subsidiaries contributed certain wireless cable
assets and related liabilities to CS Wireless. In connection with the CS
Wireless Transaction, the Company has received approximately $53,300 in cash,
$15,000 in notes and approximately 35% of the outstanding common stock of CS
Wireless.
As a result of the transactions occurring on February 23, 1996, the
incurrence of capital expenditures to construct operating systems and the
financing of operating losses, the Company had approximately $50,000 of
cash-on-hand at March 1, 1996.
Under its current plans, the Company expects that it will incur capital
expenditures of approximately $75,000 during 1996 for system construction,
development, launch and expansion activities. The Company currently expects to
launch an aggregate of approximately 25 to 30 systems during 1996. In addition,
as discussed more fully in Note 10 of the notes to the consolidated financial
statements, the Company may have to pay additional amounts related to the
Federal Communications Commission's "Basic Trading Area" auction.
Notwithstanding potential acquisitions, the Company does not anticipate any
other material capital requirements during 1996 and the Company believes that
its cash-on-hand and cash flow from operations will be adequate to fund its
operations through the end of 1996.
The Company expects to continue to incur significant capital expenditures
in 1997 and beyond in connection with its system construction, development,
launch and expansion activities. These activities may be financed in whole or
in part directly by the Company and/or by its existing or future subsidiaries,
through debt or equity financings, joint ventures or other arrangements. As in
the past, the Company may also finance its system construction, development,
launch and expansion activities or the acquisition of additional markets
through the sale and/or exchange of its existing portfolio of wireless cable
channel rights. Although the Company believes that cash provided by operating
activities, the sale of wireless cable channel rights that are not a part of
the Company's current strategic plan and proceeds from additional public or
private debt or equity offerings will be sufficient for the Company to complete
its planned system construction, development, launch and expansion activities
in 1997 and beyond, there can be no assurance that the Company will achieve
positive cash flow from operations, that the Company will consummate the sale
of certain wireless cable channel rights or that sufficient debt or equity
financing will be available on satisfactory terms and conditions, if at all.
Failure to obtain such additional funds could adversely affect the growth and
cash flow of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not believe that its adoption of Statement of Financial
Accounting Standards No.121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," during 1996 will have a
significant effect on its financial position or results of operations.
The Company does not plan to adopt the fair value-based measurement
methodology for employee stock options contemplated by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, this Standard is not expected to have a significant effect on the
Company's financial position or results of operations.
Heartland Wireless Communications, Inc.
16
<PAGE> 6
FUTURE OPERATING RESULTS
The Company's future revenues and profitability are difficult to predict due to
a variety of risks and uncertainties, including (i) business conditions and
growth in the Company's existing markets, (ii) the successful launch of systems
in new markets, (iii) the Company's existing indebtedness and need for
additional financing to fund subscriber growth and system development, (iv)
government regulation, including FCC regulations, (v) the Company's dependence
on channel leases, (vi) the successful integration of future acquisitions and
(vii) numerous competitive factors, including alternative methods of
distributing and receiving television transmissions.
The Company expects to continue its subscriber growth and launch additional
systems. Increases in revenues and subscribers are anticipated for 1996;
however, the rate of increase cannot be estimated with precision or certainty.
Heartland believes that SG&A and depreciation and amortization expense will
continue to increase to support overall growth.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods. In addition, the Company's
participation in a highly dynamic industry often results in significant
volatility in the price of the Company's common stock.
Heartland Wireless Communications, Inc.
17
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heartland Wireless Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Heartland
Wireless Communications, Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heartland
Wireless Communications, Inc. and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in note 1(d) to the consolidated financial statements, the
Company changed its method of accounting for the direct costs and installation
fees related to subscriber installations in 1995.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Dallas, Texas
March 8, 1996
Heartland Wireless Communications, Inc.
18
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(in thousands, except share data)
<TABLE>
<CAPTION>
Assets
- ------------------------------------------------------------------------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,143 $ 11,986
Restricted assets - investment in debt securities (note 3) 12,324 -
Subscriber receivables, net of allowance for doubtful
accounts of $961 in 1995 and $123 in 1994 2,544 219
Prepaid expenses and other 1,583 830
Note receivable (note 8) - 2,000
Assets held for sale (note 8) 2,200 12,500
---------- ----------
Total current assets 41,794 27,535
---------- ----------
Investments in affiliates, at equity (note 8) 14,077 12,044
Systems and equipment, net (notes 2 and 8) 60,649 16,765
License and leased license investment, net of accumulated
amortization of $1,095 in 1995 and $180 in 1994 (note 8) 60,421 16,740
Excess of cost over fair value of net assets acquired, net of
accumulated amortization of $283 in 1995 and $81 in 1994 (note 4) 4,411 2,565
Restricted assets - investment in debt securities (note 3) 6,415 -
Other assets, net (note 12) 17,638 2,272
---------- ----------
$ 205,405 $ 77,921
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 6,863 $ 3,840
Accrued expenses and other liabilities 3,345 1,062
Current portion of long-term debt (note 3) 765 20
---------- ----------
Total current liabilities 10,973 4,922
---------- ----------
Long-term debt, less current portion (note 3) 140,887 40,486
Deferred income taxes (note 6) 1,628 1,046
Minority interests in subsidiaries (note 4) 229 1,386
Stockholders' equity (note 5):
Common stock, $.001 par value; authorized 50,000,000 shares,
issued 12,611,131 shares in 1995 and 11,109,280 shares in 1994 13 11
Additional paid-in capital 71,165 33,658
Accumulated deficit (19,490) (3,588)
---------- ----------
Total stockholders' equity 51,688 30,081
Commitments and contingencies (notes 7 and 10)
$ 205,405 $ 77,921
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Heartland Wireless Communications, Inc.
19
<PAGE> 9
CONSOLIDATED STATEMENTS OF OPERATIONS
Three years ended December 31, 1995
(in thousands,except share data)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 15,300 $ 2,229 $ 869
---------- ---------- ----------
Operating expenses:
Systems operations 4,893 762 321
Selling, general and administrative 11,887 4,183 647
Depreciation and amortization 6,234 1,098 138
---------- ---------- ----------
Total operating expenses 23,014 6,043 1,106
---------- ---------- ----------
Operating loss (7,714) (3,814) (237)
Other income (expense):
Interest income 2,860 380 10
Interest expense (13,717) (590) (83)
Equity in losses of affiliates (note 8) (1,369) (387) -
Other expense, net (note 9) (247) (227) (96)
---------- ---------- ----------
Total other income (expense) (12,473) (824) (169)
---------- ---------- ----------
Loss before income taxes (20,187) (4,638) (406)
Income tax benefit (note 6) 4,285 1,595 -
---------- ---------- ----------
Net loss $ (15,902) $ (3,043) $ (406)
========== ========== ==========
Net loss per common share $ (1.34) $ (.30) $ (.05)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Heartland Wireless Communications, Inc.
20
<PAGE> 10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three years ended December 31, 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- paid-in Accumulated
Shares Amount capital deficit Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 8,000,000 $ 8 $ 1,135 $ (139) $ 1,004
Formation of Heartland Wireless
Communications, Inc. (note 1) - - 3,000 - 3,000
Equity transactions of subsidiaries (note 4) - - 808 - 808
Other (note 9) - - 87 - 87
Net loss - - - (406) (406)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 8,000,000 8 5,030 (545) 4,493
Issuance of common stock pursuant
to initial public offering (note 5) 2,415,000 2 22,350 - 22,352
Issuance of common stock for minority
interest acquisitions (note 4) 694,280 1 6,278 - 6,279
Net loss - - - (3,043) (3,043)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 11,109,280 11 33,658 (3,588) 30,081
Issuance of common stock for minority
interest acquisitions (note 4) 338,121 1 5,263 - 5,264
Issuance of common stock for
acquisitions (note 8) 1,122,730 1 21,999 - 22,000
Issuance of warrants (note 3) - - 4,200 - 4,200
Exercise of stock options 41,000 - 396 - 396
Gain on equity investment attributed to
initial public offering of affiliate, net
of taxes of $3,318 (note 8) - - 5,649 - 5,649
Net loss - - - (15,902) (15,902)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 12,611,131 $ 13 $ 71,165 $ (19,490) $ 51,688
========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Heartland Wireless Communications, Inc.
21
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three years ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (15,902) $ (3,043) $ (406)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,234 1,098 138
Deferred income tax benefit (4,285) (1,595) -
Debt accretion and debt issuance cost amortization 4,467 301 -
Equity in losses of affiliates 1,369 387 -
Other (43) (16) 65
Changes in assets and liabilities:
Subscriber receivables (2,109) (57) (68)
Inventories - - (251)
Prepaid expenses and other (955) (656) (395)
Accounts payable, accrued expenses and
other liabilities 4,750 4,292 810
---------- ---------- ----------
Net cash provided by (used in) operating activities (6,474) 711 (107)
---------- ---------- ----------
Cash flows from investing activities:
Investment in affiliate (5,426) (12,431) -
Distribution from affiliate 10,000 - -
Proceeds from assets held for sale 3,423 - -
Purchases of systems and equipment (43,151) (12,415) (2,072)
Expenditures for license and leased license investment (2,883) (3,354) (3,069)
Purchases of debt securities (24,120) - -
Proceeds from sales of debt securities 5,380 - -
Acquisitions, net of cash acquired (38,723) (16,300) -
Issuance of notes receivable (250) (2,000) -
Other (953) - -
---------- ---------- ----------
Net cash used in investing activities (96,703) (46,500) (5,141)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 24,596 22,352 2,000
Proceeds from long-term debt 95,800 40,150 -
Payment of debt issuance costs (5,948) (2,395) -
Proceeds from minority interest owners - - 1,553
Purchase of minority interests - (1,609) -
Proceeds from short-term borrowings and notes payable 3,070 10,409 2,992
Payments on short-term borrowings and notes payable (3,243) (11,947) (400)
Other 59 - (247)
---------- ---------- ----------
Net cash provided by financing activities 114,334 56,960 5,898
---------- ---------- ----------
Net increase in cash and cash equivalents 11,157 11,171 650
Cash and cash equivalents at beginning of period 11,986 815 165
---------- ---------- ----------
Cash and cash equivalents at end of period $ 23,143 $ 11,986 $ 815
========== ========== ==========
Cash paid for interest $ 6,362 $ 297 $ 67
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Heartland Wireless Communications, Inc.
22
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended December 31, 1995
(tables in thousands, except per share data)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS Heartland Wireless Communications, Inc. (the
"Company") develops, owns and operates wireless cable television
systems. The Company has wireless cable channel rights primarily in
small to mid-size markets located in the central United States. The
Company has systems in operation in 38 markets as of March 1, 1996.
Systems in other markets are currently under construction and
development by the Company.
(b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of the Company and its majority-owned
subsidiaries. Significant intercompany balances and transactions
between the entities have been eliminated in consolidation.
The Company was formed in October 1993 to succeed to the wireless
cable businesses previously conducted by two of the current principal
stockholders of the Company. The two stockholders contributed their
ownership in all capital stock of entities engaged in the wireless
cable businesses, including Wireless Communications, Inc. ("WCI")
which was formed in September 1990. In addition, the stockholders
agreed to lease all other wireless cable channel lease rights
controlled by them to the Company and grant to the Company an option
to purchase such channel rights at a nominal cost. The formation of
the Company and consolidation of the existing wireless cable
businesses has been accounted for as a combination of entities under
common control in a manner similar to a pooling of interests.
Accordingly, the Company's results of operations for periods prior to
its formation include the results of operations of all wireless cable
businesses previously conducted, either directly or indirectly,
through various controlled entities of the stockholders, including
WCI.
(c) INVESTMENTS IN DEBT SECURITIES Investments in debt securities at
December 31, 1995 consist of U.S. Treasury Notes which mature
periodically through April 1997. The Company has the ability and
intent to hold these investments until maturity and, accordingly, has
classified these investments as held-to-maturity investments.
Held-to-maturity investments are recorded at amortized cost, adjusted
for amortization of premiums or discounts. Premiums and discounts are
amortized over the life of the related held-to-maturity investment as
an adjustment to yield using the effective interest method. A decline
in market value of the Company's investments below cost that is deemed
other than temporary results in a reduction in carrying amount to fair
value. The impairment is charged to earnings and a new cost basis for
the investment is established.
(d) SYSTEMS AND EQUIPMENT Systems and equipment are stated at cost and
include the cost of transmission equipment as well as subscriber
installations. In the third quarter of 1995, the Company changed,
effective January 1, 1995, its method of accounting for the direct
costs and installation fees related to subscriber installations to
achieve a better matching of its revenues and expenses. Pursuant to
the change, the Company's policy is to capitalize the excess of direct
costs of subscriber installations over installation fees. These direct
costs include reception materials and equipment on subscriber
premises, installation labor and overhead charges, and direct
commissions. Such capitalized costs are amortized on a
subscriber-by-subscriber basis over the useful life of the asset for
the recoverable portion of such costs and the estimated average
subscription term (presently six years) for the nonrecoverable portion
of such costs. Any unamortized balance of the non-recoverable
portion of the cost of a subscriber installation is fully depreciated
upon subscriber disconnect and the related cost and accumulated
depreciation are removed from the balance sheet.
Prior to the accounting change, the Company's policy was to
expense all direct commissions associated with subscriber
installations and to recognize as revenue all installation fees to the
extent of selling costs (including direct commissions) incurred to
obtain subscribers. Historically, such selling costs have exceeded
installation fees. In addition, upon subscriber disconnect, the
Company continued to depreciate the full capitalized installation cost
subsequent to the disconnection. The Company has not presented the
cumulative effect of the change in accounting because the effect of
this change on periods prior to January 1, 1995 was not material. In
addition, the results of operations for any prior annual period would
not differ materially from results under the new method of accounting.
The effect of this change on the year ended December 31, 1995 was to
decrease net loss by approximately $1.1 million ($.09 per common
share).
Depreciation and amortization of systems and equipment are
recorded on a straight-line basis for financial reporting purposes
over useful lives ranging from six to 10 years. Repair and maintenance
costs are charged to expense when incurred; renewals and betterments
are capitalized.
Heartland Wireless Communications, Inc.
23
<PAGE> 13
Equipment awaiting installation consists primarily of accessories,
parts and supplies for subscriber installations and is stated at the
lower of average cost or market.
(e) LICENSE AND LEASED LICENSE INVESTMENT License and leased license
investment includes costs incurred to acquire or develop wireless
cable channel rights. Costs incurred to acquire or develop channel
rights issued by the Federal Communications Commission ("FCC") are
deferred and amortized ratably over estimated useful lives of 20 years
beginning with inception of service in each respective market. As of
December 31, 1995, approximately $31 million of the license and leased
license investment was not yet subject to amortization. The Company
periodically evaluates the recoverability of the license and leased
license investment with respect to each market as well as the
amortization period based on management's estimate of the fair value
of each market to determine whether current circumstances warrant
adjustments to the carrying amounts or a revised estimate of the
useful life.
(f) INVESTMENTS IN AFFILIATES The Company uses the equity method of
accounting for investments in affiliates where the ability to exercise
significant influence over such entities exists.
(g) REVENUE RECOGNITION Revenues from subscribers are recognized in the
period of service. Revenues from the sale of subscriber premises
equipment are recognized upon delivery of such equipment to a
subscriber (none in 1995, $238,000 in 1994 and $213,000 in 1993).
(h) SYSTEMS OPERATIONS Systems operations expenses consist principally
of programming fees, channel lease costs, tower rental and other costs
of providing services.
(i) INCOME TAXES Deferred income taxes are recognized for the tax
consequences in future years of differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using the enacted tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
(j) SALES OF SUBSIDIARY AND AFFILIATE STOCK Gains and losses from the
sales of stock by the Company's majority-owned subsidiaries and
affiliates accounted for using the equity method are recognized as
equity transactions in consolidation.
(k) NET LOSS PER COMMON SHARE Net loss per common share is based on the
net loss applicable to the weighted average number of common shares
outstanding of 11,866,000 for the year ended December 31, 1995,
10,041,000 for the year ended December 31, 1994 and 8,000,000 for the
year ended December 31, 1993. The weighted average number of common
shares outstanding in 1994 and 1993 gives retroactive effect to an
8,000-for-1 split of the Company's common stock (see note 5).
Shares issuable upon exercise of stock options, warrants and
convertible debt are antidilutive and have been excluded from the
calculation. Fully-diluted loss per common share is not presented as
it would not materially differ from primary loss per common share.
(l) STATEMENTS OF CASH FLOWS The Company considers all highly liquid
investments purchased with original maturities of three months or less
to be cash equivalents.
During the years ended December 31, 1993 and 1995, the Company had
noncash investing and financing activities. During the year ended
December 31, 1993, the Company acquired certain systems and equipment
by assuming notes payable in the amount of $388,000, certain
individuals contributed assets and services in the amount of $96,000
in exchange for common and preferred stock in certain of the Company's
subsidiaries, and stockholders of the Company contributed certain
equipment and channel rights in the amount of $115,000. During the
year ended December 31, 1995, the Company entered into capital leases
and noncompetition agreements of $872,000 and $315,000, respectively.
Heartland Wireless Communications, Inc.
24
<PAGE> 14
(m) USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Equipment awaiting installation $ 10,052 $ 3,034
Subscriber premises equipment and installation costs 30,437 6,582
Transmission equipment and system construction costs 22,180 7,351
Office furniture and equipment 2,054 407
Buildings and leasehold improvements 423 145
---------- ----------
65,146 17,519
Accumulated depreciation and amortization 4,497 754
---------- ----------
$ 60,649 $ 16,765
========== ==========
</TABLE>
As of December 31, 1995, equipment awaiting installation and
approximately $2.5 million of transmission equipment and system
construction costs were not yet subject to depreciation.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Convertible Notes $ 44,174 $ 40,451
Senior Notes 96,010 -
Other notes payable 1,468 55
---------- ----------
141,652 40,506
Less current portion 765 20
---------- ----------
$ 140,887 $ 40,486
========== ==========
</TABLE>
On November 30, 1994, the Company consummated the private placement of
$40.2 million in gross proceeds of 9% Convertible Subordinated Discount
Notes (the "Convertible Notes") pursuant to the terms of a Note Purchase
Agreement. The Convertible Notes accrete at a rate of 9% compounded
semiannually, to an aggregate principal amount of $62.4 million at November
30, 1999. Thereafter, interest accrues at the rate of 9% per annum and is
payable semiannually from November 30, 1999 or earlier upon the occurrence
of a Material Default (as defined in the Note Purchase Agreement). The
Convertible Notes mature on November 1, 2004 and are subordinated as to all
existing and future indebtedness of the Company other than indebtedness
that is expressly subordinated to the Convertible Notes.
At the option of a holder, the Convertible Notes are convertible into
common stock of the Company at $15.34 per share (the "Conversion Price").
The Convertible Notes are redeemable at the option of the Company at any
time on or after November 30, 1999 at 100% of the principal amount at
maturity plus accrued and unpaid interest. However, such redemption right
is only available if the market price of the Company's common stock exceeds
150% of the Conversion Price for a specified trading period.
In April 1995, the Company consummated a private placement of 100,000
units (the "Units") consisting of $100 million aggregate principal amount
of 13% Senior Notes due 2003 (the "Senior Notes") and 600,000 warrants to
purchase an equal number of shares of common stock at an exercise price of
$19.525 per share. For financial reporting purposes, the warrants were
valued at $4.2 million. The warrants are exercisable beginning April 1996
and expire in April 2000. The Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after April 15, 1999 at
redemption prices ranging from 105.6% to 100% of par. Interest on the
Senior Notes is payable semiannually. The Company placed approximately
$24.1 million of the net proceeds realized
Heartland Wireless Communications, Inc.
25
<PAGE> 15
from the sale of the Units into an escrow account for the payment of two
years of interest on the Senior Notes. The amounts placed in the escrow
account have been invested in U.S. Treasury Notes.
In connection with the issuance of the Senior Notes, the Company
agreed, among other things, to file within 30 days of the issue date a
registration statement with the Securities and Exchange Commission with
respect to an offer to exchange new notes registered under the Securities
Act of 1933 for the Senior Notes, which new notes will be identical in all
respects to the Senior Notes, except that the new notes will not contain
terms with respect to transfer restrictions and to cause such registration
statement to become effective within 120 days of the issue date. As of
December 31, 1995, the Company had not caused such registration statement
to become effective. As a result, subsequent to August 24, 1995, the
Company has been required to pay additional interest on the outstanding
Senior Notes. The amount of additional interest increased by an additional
0.50% per annum for each subsequent 90-day period until the Company
complied with such obligations. A registration statement with respect to
the Senior Notes became effective on February 12, 1996, at which time
additional interest ceased to accrue on the Senior Notes.
The Senior Notes and Convertible Notes contain covenants that, among
other things, prohibit or limit the ability of the Company and its
subsidiaries to pay dividends, to sell or lease channel rights, to make
certain acquisitions and incur certain indebtedness.
Between September 12, 1995 and September 29, 1995, the Company engaged
in the solicitation of consents from the holders of the Senior Notes to
amend certain provisions of the indenture to permit the Company to
consummate the Wireless One Transaction, the Transactions and the CS
Wireless Transaction (as hereinafter defined) and additionally amend
certain definitions and covenants. The proposed amendments to the indenture
received approval of approximately 95.5% in aggregate principal amount of
the Senior Notes and became effective as of October 2, 1995 upon the
execution of a supplemental indenture. The Company paid an aggregate of
$955,000 to consenting holders in October 1995.
Aggregate maturities of long-term debt as of December 31, 1995 for the
five years ending December 31, 2000 are as follows: 1996 - $765,000; 1997
- $302,000; 1998 - $271,000; 1999 - $130,000; and 2000 - $-0-.
(4) MINORITY INTERESTS
In connection with the development of certain wireless cable television
markets, the Company sold stock in certain of its subsidiary companies
principally for cash. Total consideration received from the sales of
subsidiary stock amounted to approximately $1.6 million in 1993. In
addition to providing a portion of the cash necessary for market
development, the sales of subsidiary stock were intended to provide for
local community involvement and ownership in the related wireless cable
systems.
As a result of the sales of subsidiary stock, the Company's investment
in majority-owned subsidiaries increased by $808,000 in 1993. Such increase
has been recorded by the Company as additional paid-in capital in the
accompanying consolidated statements of stockholders' equity. The Company
has not provided deferred income taxes on such increase since the Company
ultimately expects to recover its investments in the subsidiaries in a
tax-free manner.
In April 1994, the Company acquired all of the outstanding minority
ownership interests held by the minority interest owner in six of the
Company's majority-owned subsidiaries in exchange for the issuance by the
Company of 650,000 restricted shares of common stock. As a result of the
acquisition, the six subsidiaries became wholly-owned subsidiaries of the
Company. Additionally, at various dates during 1994, the Company acquired
minority interests in certain other subsidiaries for an aggregate of
approximately $1.6 million in cash and 44,280 restricted shares of common
stock. The acquisitions of the minority ownership interests in 1994 were
accounted for using the purchase method of accounting. For financial
reporting purposes, the total purchase price was approximately $7.9 million
and assumed a value per share of $8.93 to $10.75 for the restricted shares.
A deferred tax liability of approximately $2.6 million has been recorded
for differences between the assigned values and the tax bases of assets and
liabilities recognized in the acquisition of the minority interests. A
corresponding amount has been recorded as excess of cost over fair value of
net assets acquired and will be amortized over a 20-year period.
In March 1995, the Company issued an aggregate of 304,038 registered
shares of common stock in exchange for minority interests in 21
subsidiaries (18 of which are now wholly-owned). The acquisitions of the
minority interests in 1995 were accounted for using the purchase method of
accounting. For financial reporting purposes, the total purchase price was
approximately $5.1 million, including out-of-pocket expenses of
approximately $500,000. A deferred tax liability of approximately $1.4
million has been recorded for differences between the assigned values and
the tax bases of assets and liabilities recognized in the acquisitions of
the minority interests. A corresponding amount has been recorded as excess
of cost over fair value of net assets acquired and will be amortized over a
20-year period.
Heartland Wireless Communications, Inc.
26
<PAGE> 16
(5) STOCKHOLDERS' EQUITY
(a) CHANGE IN CAPITAL STRUCTURE In January 1994, the board of directors
filed a restated certificate of incorporation to increase the number
of authorized shares of common stock to 50,000,000, change the common
stock from $.01 par to $.001 par value and authorize 10,000,000 shares
of preferred stock at $.01 par value per share. In addition, the
Company effected an 8,000-for-1 split of its common stock. The
consolidated financial statements, including all references to the
number of shares of common stock and all per share information, have
been adjusted to reflect the common stock split and other changes in
the capital structure on a retroactive basis.
(b) PUBLIC OFFERING In April 1994, the Company completed an initial
public offering of 2,100,000 shares of its common stock. In June 1994,
the Company sold an additional 315,000 shares of common stock upon
exercise by the underwriters of their over-allotment option. The
aggregate net proceeds to the Company were approximately $22.4
million.
(c) STOCK OPTIONS In April 1994, the Company adopted the 1994 Employee
Stock Option Plan which provides for the granting of options to
purchase a maximum of 950,000 shares of common stock. Options may be
granted to employees at exercise prices of not less than 100% of the
fair market value of the common stock on the date of grant.Options
typically vest over a five-year period (although options granted to
certain employees were 40% vested upon grant and vest an additional
20% per year over a three-year period) and expire at the end of option
periods of not more than seven years.
During 1994, the Company also adopted the 1994 Stock Option Plan
for Non-Employee Directors which provides for the granting of options
to purchase a maximum of 50,000 shares of common stock. Generally,
each non-employee director will be granted on an annual basis an
option to acquire 2,000 shares of common stock at exercise prices
equal to the fair market value of the common stock on the date of
grant. Options granted generally become exercisable in 25% cumulative
annual installments beginning one year from the date of grant and
expire at the end of option periods of not more than seven years.
The following table summarizes the activity in stock options under
these plans:
<TABLE>
<CAPTION>
Number of option shares Price range
----------------------- -----------
<S> <C> <C>
Granted 543 $ 10.50 - 11.125
Cancelled (130) $ 10.50
----
Outstanding at December 31, 1994 413 $ 10.50 - 11.125
Granted 371 $ 14.25 - 22.125
Exercised (41) $ 10.50
----
Outstanding at December 31, 1995 743 $ 10.50 - 22.125
====
Exercisable at December 31, 1995 281 $ 10.50
====
</TABLE>
As of December 31, 1995, 216,000 shares were available for grant under the
stock option plans.
(6) INCOME TAXES
Income tax benefit of approximately $4.3 million and $1.6 million for the
years ended December 31, 1995 and 1994, respectively, consists of a
deferred tax benefit.
Income tax benefit for the years ended December 31, 1995, 1994 and
1993 differed from the amount computed by applying the U.S. federal income
tax rate of 35% to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax benefit $ (7,065) $ (1,623) $ (142)
Amortization of goodwill 104 27 -
Loss for which no tax benefit was recognized 3,190 104 142
Other (514) (103) -
---------- ---------- ----------
$ (4,285) $ (1,595) $ -
========== ========== ==========
</TABLE>
Heartland Wireless Communications, Inc.
27
<PAGE> 17
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 6,988 $ 1,082
Investments in affiliates 841 610
Other 18 1,073
---------- ----------
Total gross deferred tax assets 7,847 2,765
Less valuation allowance (3,981) (791)
---------- ----------
Net deferred tax assets 3,866 1,974
---------- ----------
Deferred tax liabilities:
License and leased license investment (3,990) (2,938)
Systems and equipment (1,504) (82)
---------- ----------
Total gross deferred tax liabilities (5,494) (3,020)
---------- ----------
Net deferred tax liability $ (1,628) $ (1,046)
========== ==========
</TABLE>
The net changes in the total valuation allowance for the years ended
December 31, 1995 and 1994 were increases of approximately $3.2 million and
$183,000, respectively. In assessing the realizability of deferred tax
assets, the Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon
these considerations, the Company has recognized deferred tax assets to the
extent such assets can be realized through future reversals of existing
taxable temporary differences.
As of December 31, 1995, the Company has approximately $18.9 million
of federal income tax loss carryforwards which expire in years 2008 through
2010.
(7) LEASES
The Company is dependent on leases with third parties for most of its
wireless cable channel rights. Under FCC rules, the base term of each lease
cannot exceed the term of the underlying FCC license. FCC licenses for
wireless cable channels generally must be renewed every ten years, and
there is no automatic renewal of such licenses. The use of such channels by
the lessors is subject to regulation by the FCC and, therefore, the
Company's ability to continue to enjoy the benefits of these leases is
dependent upon the lessors' continuing compliance with applicable
regulations. The remaining initial terms of most of the Company's channel
leases range from five to 10 years, although certain of the Company's
channel leases have initial terms expiring in the next several years. Most
of the Company's leases grant the Company a right of first refusal to
purchase the channels after the expiration of the lease if FCC rules and
regulations so permit, provide for automatic renewal of the lease term upon
FCC renewal of the license and/or require the parties to negotiate lease
renewals in good faith. Although the Company does not believe that the
termination of or failure to renew a single channel lease would adversely
affect the Company, several of such terminations or failures in one or more
markets that the Company actively serves could have a material adverse
effect on the Company. Channel rights lease agreements generally require
payments based on the greater of specified minimums or amounts based upon
various subscriber levels.
Payments under the channel rights lease agreements generally begin
upon the completion of construction of the transmission equipment and
facilities and approval for operation pursuant to the rules and regulations
of the FCC. However, for certain leases, the Company is obligated to begin
payments upon grant of the channel rights. Channel rights lease expense was
approximately $2.1 million, $167,000 and $25,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The Company also has certain operating leases for office space,
equipment and transmission tower space. Rent expense incurred in connection
with other operating leases was $436,000, $205,000 and $42,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Heartland Wireless Communications, Inc.
28
<PAGE> 18
Future minimum lease payments due under channel rights leases and
other noncancellable operating leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Channel Other
Year ending rights operating
December 31, leases leases
------------ ------ ------
<S> <C> <C>
1996 $ 3,102 $ 1,120
1997 3,218 924
1998 3,231 806
1999 3,178 682
2000 3,122 303
---------- ----------
$ 15,851 $ 3,835
========== ==========
</TABLE>
(8) INVESTMENTS IN AFFILIATES AND ACQUISITIONS
In August 1994, RuralVision Joint Venture ("RuralVision Joint Venture"), a
newly-formed general partnership in which each of the Company and Cross
Country Wireless, Inc. ("Cross Country") had a 50% interest, purchased
certain assets (the "RuralVision Assets"), including five operating
wireless cable systems and channel rights in approximately 100 markets,
from RuralVision Central, Inc. and RuralVision South, Inc. The aggregate
purchase price of approximately $50 million for the RuralVision Assets was
comprised of a $46 million note bearing interest at the rate of 8% per
annum (the "RuralVision Note") and approximately $4 million of
acquisition-related costs paid primarily by the Company and Cross Country.
In December 1994, the Company acquired an operating wireless cable
system and wireless cable channel rights in 37 other markets from
RuralVision Joint Venture for an aggregate purchase price of $14 million in
cash. The Company allocated the purchase price to the assets acquired and
liabilities assumed based on the estimated fair values of such assets and
liabilities.
In January 1995, the Company, Cross Country and RuralVision Joint
Venture entered into the Venture Distribution Agreement, as a result of
which the Company (i) paid an additional $4.32 million in satisfaction of
50% of the remaining balance of the RuralVision Note, (ii) paid $513,000 in
satisfaction of 50% of the remaining balance of certain liabilities which
RuralVision Joint Venture had assumed, (iii) paid transaction costs of
$592,000, and (iv) received a distribution from RuralVision Joint Venture
of an operating wireless cable system and wireless cable channel rights in
36 other markets with a carrying amount of approximately $17.4 million. As
part of this transaction, the Company granted to Cross Country the right to
sell certain remaining RuralVision Joint Venture assets to the Company for
$3.25 million in May 1995. Cross Country subsequently exercised its right
to sell these assets to the Company and, as a consequence, the Company
acquired such markets. In addition, in May 1995, the Company ceased to be a
joint venturer in RuralVision Joint Venture.
Summarized condensed financial information of RuralVision Joint
Venture as of December 31, 1994 and for the period from August 19, 1994
(inception) to December 31, 1994 are presented below. The Company's equity
in losses of RuralVision Joint Venture in 1995 were not material.
<TABLE>
<S> <C>
Assets
-------------------------------------------------------------------------------
Current assets, including assets to be sold of $20,000,000 $ 20,969
Systems and equipment 6,118
Leased license investment 4,626
----------
$ 31,713
==========
Liabilities and Venturers' Equity
-------------------------------------------------------------------------------
Current liabilities, including notes payable of $9,000,000 $ 10,537
Venturers' equity 21,176
----------
$ 31,713
==========
Statement of Operations
-------------------------------------------------------------------------------
Subscription revenues $ 1,269
Operating expenses 2,043
----------
Net loss $ (774)
==========
</TABLE>
Heartland Wireless Communications, Inc.
29
<PAGE> 19
In connection with the Company's allocation of the purchase price of
the acquisition in December 1994, the Company identified wireless cable
channel rights in certain markets which management expected to sell and
classified $12.5 million of such assets as assets held for sale as of
December 31, 1994. Based on management's analysis of additional assets to
be sold that were included in the assets distributed to the Company as part
of the January 27, 1995 Venture Distribution Agreement, the assets held for
sale increased to $21.5 million. During 1995, losses of $265,000 related to
the assets held for sale (consisting primarily of rental expense under
channel rights lease agreements) were excluded from the statement of
operations and accounted for as an adjustment to the carrying amount of
assets held for sale. As of December 31, 1995, the Company has received
cash and notes of approximately $11 million related to the assets held for
sale and expects to sell the remaining net assets held for sale for their
carrying amount of $2.2 million. The remaining portion of assets originally
classified as held for sale has been allocated to the net assets of the
respective markets based on management's decision to retain such markets.
In December 1994, the Company acquired an operating wireless cable
system in the Lindsay, Oklahoma market for $2.3 million in cash ("the
"Lindsay Acquisition"). In May 1995, the Company purchased an operating
wireless cable system in the Lubbock, Texas market for approximately $5.4
million in cash (the "Lubbock Acquisition") and wireless cable channel
rights in the Tulsa, Oklahoma market for approximately $2 million in cash
and forgiveness of a $2 million note receivable (see note 9).
In July 1995, the Company privately placed 1,029,707 shares of its
common stock to RuralVision Joint Venture in exchange for $20 million in
cash. Immediately subsequent to the issuance of the shares to RuralVision
Joint Venture, the Company acquired substantially all of the remaining
assets of RuralVision Joint Venture, consisting primarily of wireless cable
systems located in Lykens, Ohio; Paragould, Arkansas; Sikeston, Missouri
and channel rights in additional markets located in five states for $20
million in cash (the "Cross Country Acquisition").
In October 1995, the Company contributed certain assets and related
liabilities with respect to two operating wireless cable systems and
certain other wireless cable markets in Texas, Louisiana, Alabama, Georgia
and Florida to Wireless One, Inc. ("Wireless One") for consideration
consisting of approximately 35% of the outstanding common stock of Wireless
One and approximately $10 million of notes (the "Wireless One
Transaction"). A portion of these assets contributed to Wireless One
comprised assets held for sale. In October 1995, Wireless One completed an
initial public offering of 3,000,000 shares of its common stock and,
concurrently therewith, consummated the sale of $150 million in gross
proceeds of 13% Senior Notes due 2003. As a result and pursuant to the
merger agreement, Wireless One repaid the $10 million of notes from the
proceeds of the offerings. As a result of the initial public offering of
Wireless One, the Company's investment in Wireless One increased by
approximately $9 million and its ownership interest decreased to
approximately 26%. Such increase (net of tax of approximately $3.3 million)
has been recorded by the Company as additional paid-in capital in the
accompanying consolidated statements of stockholders' equity. The Company's
investment in Wireless One as of December 31, 1995 and its equity in losses
of Wireless One for the period from October 18, 1995 (date of contribution)
to December 31, 1995 amounted to approximately $14.1 million and $1.2
million, respectively.
The Company allocated the purchase prices of the acquisitions
consummated in 1995 and 1994 discussed above to the assets acquired and
liabilities assumed based on estimated fair values of such assets and
liabilities as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Working capital $ 858 $ 88
Assets held for sale - 12,638
Systems and equipment 6,784 1,912
License and leased license investment 42,452 1,662
---------- ----------
Total purchase price $ 50,094 $ 16,300
========== ==========
</TABLE>
Summarized below is the unaudited pro forma information for the years ended
December 31, 1995 and 1994 as if the acquisitions of assets from
RuralVision Joint Venture, the minority interest acquisitions (note 4), the
Lindsay Acquisition, the Lubbock Acquisition and the Cross Country
Acquisition had been consummated as of the beginning of 1995 and 1994. The
pro forma information does not purport to represent what the Company's
results of operations actually would have been had such transactions or
events occurred on the dates specified, or to project the Company's results
of operations for any future period.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---------- ----------
<S> <C> <C>
Revenues $ 16,584 $ 7,702
Net loss (17,546) (6,941)
Net loss per common share (1.40) (.56)
</TABLE>
Heartland Wireless Communications, Inc.
30
<PAGE> 20
(9) RELATED PARTY TRANSACTIONS
The Company has had certain advances to and from stockholders and
affiliates. As of October 31, 1993, these advances were converted to equity
by the Company and the stockholders and affiliates. The net amount of such
conversion of $69,000 has been recorded as additional paid-in capital in
the accompanying consolidated statements of stockholders' equity.
Generally, these amounts arose as a result of advances to and from
stockholders and affiliates for borrowings, or for services rendered in
connection with the development of wireless cable television systems or
acquisition of wireless cable channel rights. Such amounts were noninterest
bearing.
During 1993, an entity owned by a director of the Company was paid
$41,000 for consulting services provided in connection with the acquisition
of certain wireless cable channel rights. Such amount has been included as
part of the license and leased license investment in the accompanying
consolidated balance sheets. Additionally, such entity purchased
approximately 10% and 5% minority interests, respectively, in two of the
Company's subsidiaries for $45,000. During 1995, an entity owned by the
same director was paid $44,000 for certain marketing services.
Subsequent to its formation in 1990, WCI utilized the services of
several third-party consultants in conducting its business activities.
Consulting services provided by these persons related principally to WCI's
acquisition of wireless cable channel rights. In September and October
1993, certain of the persons that provided such consulting services to WCI
joined the Company as executive officers.
During 1993, the Company received inventory and other assets totaling
$115,000 in exchange for forgiveness of advances of $172,000 to a formerly
affiliated installation company. The Company has reflected the settlement
of $57,000 in other expense in the accompanying 1993 consolidated statement
of operations.
The Company leases office space from an entity owned by certain
stockholders of the Company for which the expense amounted to approximately
$66,000 in 1995, $22,000 in 1994 and $18,000 in 1993.
The Company paid $244,000 in 1994 and $376,000 in 1993 to various
affiliates for services performed in connection with the development of
wireless cable television systems or the acquisition of wireless cable
channel rights. The Company paid $52,000 in 1995, $51,000 in 1994 and
$39,000 in 1993 to an entity owned by an officer and director of the
Company for certain administrative services. The Company paid $57,000 in
1995 to an entity owned by a director for certain consulting services.
In December 1994, the Company entered into an agreement with a
stockholder and its affiliate pursuant to which the Company loaned $2
million to the stockholder secured by 300,000 shares of the Company's
common stock owned by the stockholder and all of the affiliate's assets in
and to the Tulsa, Oklahoma wireless cable market. The loan bore interest at
12% per annum with all accrued interest and the outstanding principal
balance being repaid in June 1995. In addition, in December, the affiliate
granted to the Company an option for the Company to acquire the Tulsa,
Oklahoma wireless cable market. The purchase price paid upon the exercise
of the option in May 1995 of approximately $4 million included forgiveness
of the note receivable (see note 8).
(10) COMMITMENTS AND CONTINGENCIES
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire through
2001. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain
minimums.
The Company is actively competing in an FCC auction program designed
to award initial licenses with respect to certain channel rights.
Successful bidders will receive a blanket authorization to serve entire
"Basic Trading Areas" or "BTAs" with respect to such channels. The Company
estimates its commitment related to this auction of "BTAs" to be
approximately $17 million. At the conclusion of the auction, the Company
will be required to remit 20% of the total committed amount (less its
deposit of $1 million remitted prior to December 31, 1995) with the
remaining 80% being paid out over a 10-year period. Over this 10-year
period commencing on the date the BTA is authorized by the FCC, the Company
will be required to make quarterly interest-only payments for the first two
years and then quarterly payments of principal and interest over the
remaining years of the agreement. The interest rate related to this
installment plan is equal to the 10-year US Treasury rate at the time of
the issuance of the BTA authorization plus 2.5%.
The Company is a party to legal proceedings incidental to its business
which, in the opinion of management, are not expected to have a material
adverse effect on the Company's consolidated financial position or
operating results.
Heartland Wireless Communications, Inc.
31
<PAGE> 21
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. The
fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
<TABLE>
<CAPTION>
1995 1994
-----------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Restricted assets -
investments in debt securities $ 18,739 $ 18,626 $ - $ -
Long-term debt (141,652) (170,745) (40,506) (40,506)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents, subscriber receivables and accounts
payable: The carrying amounts of these assets and liabilities
approximate fair value because of the short maturity of these
instruments.
Investments in debt securities: The fair values of debt securities are
based on quoted market prices at the reporting date for those
investments.
Long-term debt: The fair values of the Company's Senior Notes and
Convertible Notes are based on market quotes obtained from
dealers.
(12) Subsequent Events
In February 1996, the Company acquired all of the outstanding shares of
Cablemaxx, Inc. and American Wireless Systems, Inc. and substantially all
of the assets and certain of the liabilities of Fort Worth Wireless Cable
T.V. Associates, Wireless Cable TV Associates #38 and Three Sixty Corp.
(formerly TechniVision, Inc.) for approximately 6,757,000 shares of common
stock of the Company and transaction costs and other consideration of
approximately $10 million for a total purchase price of approximately $190
million (the "Transactions"). The acquisitions will be accounted for under
the purchase method of accounting and consisted primarily of operating
wireless cable systems in eight markets and wireless cable channel rights
in nine other markets.
As of December 31, 1995, the Company had incurred approximately $8.5
million of costs related to the Transactions and has included such costs in
other assets in the accompanying consolidated balance sheet.
Upon consummation of the Transactions, the Company and CAI Wireless
Systems, Inc. ("CAI") contributed certain wireless cable television assets
and related liabilities (including certain of the assets and liabilities
acquired in the Transactions) to CS Wireless Systems, Inc. ("CS Wireless"
and "CS Wireless Transaction"). In connection with the CS Wireless
Transaction, CAI received approximately 54% of the outstanding shares of CS
Wireless common stock and the Company received approximately 35% of the
outstanding shares of CS Wireless common stock along with $28.3 million of
cash, a $25 million short-term note receivable (which note has been
prepaid) and a $15 million long-term note receivable. The $15 million
long-term note receivable bears interest at 10% per annum until the first
anniversary of the date thereof and 15% per annum thereafter. Interest on
the long-term note receivable is payable at maturity, which is the earlier
of February 2006 or the date that net proceeds from asset sales or the
issuance of common stock by CS Wireless are sufficient to pay the long-term
note receivable, after repayment of the short-term note receivable.
Heartland Wireless Communications, Inc.
32
<PAGE> 22
EXECUTIVE OFFICERS AND DIRECTORS
J.R. Holland, Jr.
Chairman of the Board
President and Chief Executive Officer of Unity Hunt Resources, Inc.
President and Chief Executive Officer of Hunt Capital Group, L.L.C.
L. Allen Wheeler
Vice-Chairman of the Board
Co-Founder
Chairman and Chief Executive Officer of Green Country Radio, Inc.
David E. Webb
President and Chief Executive Officer
Co-Founder
Director
John R. Bailey
Senior Vice President - Finance, Chief Financial Officer, Treasurer and
Secretary
Randy R. Hendrix
Senior Vice President - Marketing
Robert R. Story
Senior Vice President - Operations
David D. Hagey
Vice President, Controller and Assistant Secretary
Alvin H. Lane, Jr.
Director
President of Lane and Associates
President of AHL Finance Company, L.L.C.
Chairman of the Board of Love Bottling Company
Dennis M. O'Rourke
Director
Chairman of the Board and Chief Executive Officer of O'Rourke Companies, Inc.
John A. Sprague
Director
Managing Partner of Jupiter Partners, L.P.
Wes W. Watkins
Director
President of World Export Services, Inc.
Secretary and Representative for International Trade for the State of Oklahoma
CORPORATE INFORMATION
EXECUTIVE OFFICES
903 North Bowser, Suite 140
Richardson, Texas 75081
(214) 479-9244
OPERATIONS AND MARKETING OFFICES
117 North Third / P.O. Box 1224
Durant, Oklahoma 74701
(405) 924-6220
REGISTRAR AND TRANSFER AGENT
Harris Trust & Savings Bank
311 West Monroe Street, 14th Floor
Chicago, Illinois 60606
MARKET PRICE OF COMMON STOCK
The Company's common stock has been traded on the NASDAQ National Market tier
of the NASDAQ Stock Market under the symbol "HART" since April 22, 1994. The
following table sets forth, on a per share basis, the high and low closing
sales prices of the Company's common stock as reported on the NASDAQ National
Market tier for the periods indicated.
<TABLE>
<CAPTION>
Closing Sale Price
----------------------
High Low
---------- ----------
<S> <C> <C>
Fiscal Year Ended December 31, 1994:
Second Quarter (from April 22, 1994) $11.50 $10.00
Third Quarter $15.50 $ 9.50
Fourth Quarter $15.75 $11.00
Fiscal Year Ended December 31, 1995:
First Quarter $17.25 $11.75
Second Quarter $24.25 $15.50
Third Quarter $25.75 $19.50
Fourth Quarter $31.50 $27.00
Fiscal Year Ended December 31, 1996:
First Quarter
(through March 20, 1996) $29.75 $23.50
</TABLE>
At March 20, 1996 there were approximately 1,147 holders of record of the
Company's common stock.
GENERAL COUNSEL
Arter and Hadden
1717 Main Street, Suite 4100
Dallas, Texas 75201
AUDITORS
KPMG Peat Marwick LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201
FORM 10-K AND INVESTOR RELATIONS
FOR A COPY OF THE COMPANY'S FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR ANY ADDITIONAL
INFORMATION REGARDING THE COMPANY, PLEASE CONTACT MR. JOHN R. BAILEY, SENIOR
VICE PRESIDENT - FINANCE, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY,
HEARTLAND WIRELESS COMMUNICATIONS, INC., 903 NORTH BOWSER, SUITE 140,
RICHARDSON, TEXAS 75081.
ANNUAL MEETING
The Annual Meeting of Stockholders of Heartland Wireless Communications, Inc.
will be held at 10:00 a.m., local time, May 2, 1996, at the Westin Hotel -
Galleria, Johnson Room, Second Floor, 13340 Dallas Parkway, Dallas, Texas
75240.
Heartland Wireless Communications, Inc.
33
<PAGE> 1
EXHIBIT 21
MARCH 1, 1996
DIRECT AND INDIRECT SUBSIDIARIES
OF
HEARTLAND WIRELESS COMMUNICATIONS, INC.
DIRECT
<TABLE>
<CAPTION>
NO. NAME STATE OF INCORPORATION
- --- -------------------------------------------- ----------------------
<S> <C> <C>
1 Wireless Communications, Inc. Oklahoma
</TABLE>
INDIRECT
<TABLE>
<CAPTION>
NO. NAME STATE OF INCORPORATION
- --- -------------------------------------------- ----------------------
<S> <C> <C>
1 Wireless Leasing, Inc. Oklahoma
2 Heartland Installations, Inc. Oklahoma
3 Big Country Wireless Cable, Inc. Texas
4 Peoria Wireless Cable, Inc. Illinois
5 Midland-Odessa Holdings Wireless Cable, Inc. Texas
6 Laredo Wireless Cable, Inc. Texas
7 Columbia Wireless Cable, Inc. Texas
8 Topeka Wireless Cable, Inc. Oklahoma
9 Great Plains Wireless, Inc. Oklahoma
10 East Texas Cablevision, Inc. Texas
11 Community Cable Corporation Oklahoma
12 Brownwood Wireless, Inc. Texas
13 Hereford Wireless Cablevision, Inc. Texas
14 Mt. Pleasant Wireless, Inc. Texas
15 Texoma Wireless, Inc. Texas
16 Central Oklahoma Wireless Cable, Inc. Oklahoma
17 Northern Oklahoma Wireless Cable, Inc. Oklahoma
18 Delta Wireless Cable, Inc. Louisiana
19 Master-View Wireless Cable, Inc. Texas
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NO. NAME STATE OF INCORPORATION
- --- -------------------------------------------- ----------------------
<S> <C> <C>
20 East Texas Wireless Ltd. Texas
21 Red River Wireless T.V., Inc. Texas
22 Southwest Wireless Cable, Inc. Oklahoma
23 Arbuckle Cablevision, Inc. Oklahoma
24 Bartlesville Wireless Cable, Inc. Oklahoma
25 Global Vision Wireless Cable, Inc. Oklahoma
26 Henryetta Wireless Cable, Inc. Oklahoma
27 Country Wireless, Inc. Oklahoma
28 Eastern Oklahoma Wireless Cable, Inc. Oklahoma
29 Miami Wireless Cable, Inc. Oklahoma
30 Green Country Wireless, Inc. Oklahoma
31 Ponca City Wireless Cable, Inc. Oklahoma
32 Metro Valley Wireless, Inc. Oklahoma
33 W-C Wireless Cable, Inc. Oklahoma
34 Arklatex Wireless Cable, Inc. Louisiana
35 Plainview Wireless Cable, Inc. Texas
36 Southern Arkansas Wireless Cable, Inc. Arkansas
37 Heartland Wireless Portsmouth, L.L.C. Texas
38 Heartland Wireless Great Bend, L.L.C. Kansas
39 Heartland Wireless Hays-Russell, L.L.C. Kansas
40 Heartland Wireless Ocala, L.C. Florida
41 Southern Oklahoma Wireless Cable, L.L.C. Oklahoma
42 Heartland Wireless Paducah, Inc. Kentucky
43 Heartland Wireless-Elk City, Inc. Oklahoma
44 Heartland Wireless-Rockdale, Inc. Texas
45 Heartland Wireless-Lindsay, Inc. Oklahoma
46 Heartland Wireless-Des Moines, L.C. Iowa
47 HLW Properties, Inc. Texas
48 Heartland Wireless Alabama Properties, Inc. Alabama
49 Heartland Wireless Arizona Investments, Inc. Arizona
50 Heartland Wireless Delaware Properties, Inc. Delaware
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
NO. NAME STATE OF INCORPORATION
- --- -------------------------------------------- ----------------------
<S> <C> <C>
51 Heartland Wireless Florida Properties, Inc. Florida
52 Heartland Wireless Georgia Properties, Inc. Georgia
53 Heartland Wireless Illinois Properties, Inc. Illinois
54 Heartland Wireless Kansas Properties, Inc. Kansas
55 Heartland Wireless Louisiana Properties, Inc. Louisiana
56 Heartland Wireless Michigan Properties, Inc. Michigan
57 Heartland Wireless Missouri Properties, Inc. Missouri
58 Heartland Wireless Nebraska Properties, Inc. Nebraska
59 Heartland Wireless New Mexico New Mexico
Properties, Inc.
60 Heartland Wireless North Dakota North Dakota
Properties, Inc.
61 Heartland Wireless Ohio Properties, Inc. Ohio
62 Heartland Wireless South Dakota South Dakota
Properties, Inc.
63 Heartland Wireless-Chanute, Inc. Kansas
64 Heartland Wireless Productions, Inc. Texas
65 Heartland Wireless Commercial Channels, Inc. Delaware
66 Cotton Country Cable, Inc. Louisiana
67 Heartland Wireless-Lubbock, Inc. f/k/a Texas
Robert R. Story, Inc.
68 Heartland Wireless-Stillwater, Inc. Oklahoma
69 Heartland Wireless-Paragould, Inc. Arkansas
70 Heartland Wireless-Gainsville, Inc. Florida
71 Heartland Wireless-Taylorville, Inc. Illinois
72 Heartland Wireless-Olney, Inc. Illinois
73 Heartland Wireless-McLeansboro Illinois
74 Heartland Wireless-Vandalia, Inc. Illinois
75 Heartland Wireless-Peoria, Inc. Illinois
76 Heartland Wireless-Manhattan, Inc. Kansas
77 Heartland Wireless-Randolph, Inc. Kansas
78 Heartland Wireless-Grand Rapids, Inc. Michigan
79 Heartland Wireless-Sikeston, Inc. Missouri
80 Heartland Wireless-Bucyrus, Inc. Ohio
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
NO. NAME STATE OF INCORPORATION
- --- -------------------------------------------- ----------------------
<S> <C> <C>
81 Heartland Wireless-O'Donnell, Inc. Texas
82 Heartland Wireless-Olton, Inc. Texas
83 Heartland Wireless-Monroe City, MO Not filed yet
84 Heartland Wireless-Corsicana, TX Not filed yet
85 Heartland Wireless-Ranger, TX Not filed yet
86 HARTACQ, Inc. Delaware
87 Heartland Wireless Champaign Properties, Inc. Illinois
88 Heartland Wireless-Corpus Christi, Inc. Texas
89 American Wireless Systems, Inc. Delaware
90 AWS Holdings, Inc. Delaware
91 Heartland Wireless - Fort Worth, Texas general
Joint Venture partnership
92 American Wireless System of Delaware
Minneapolis, L.L.C.
93 CableMaxx, Inc. Delaware
94 CableMaxx (Texas), Inc. Delaware
95 Supreme Cable Metroplex, Inc. Delaware
96 Corrine Cable Systems, Inc. Oklahoma
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Heartland Wireless Communications, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-91186 and No. 33-91190) on Form S-8 of Heartland Wireless Communications,
Inc. of our reports dated March 8, 1996, relating to the consolidated balance
sheets of Heartland Wireless Communications, Inc. and subsidiaries as of
December 31, 1995, and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, and the related schedule, which
reports appears in the December 31, 1995, annual report on Form 10-K of
Heartland Wireless Communications, Inc.
Our report relating to the consolidated financial statements refers to a change
in the method of accounting for the direct costs and installation fees related
to subscriber installations in 1995.
KPMG PEAT MARWICK LLP
Dallas, Texas
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1995 SUBMITTED HEREWITH BUT NOT "FILED" EXCEPT FOR THOSE PORTIONS EXPRESSLY
INCORPORATED BY REFERENCE HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH THE REGISTRANT'S ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 23,143
<SECURITIES> 0
<RECEIVABLES> 2,544
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,794
<PP&E> 60,649
<DEPRECIATION> 0
<TOTAL-ASSETS> 205,405
<CURRENT-LIABILITIES> 10,973
<BONDS> 140,887
<COMMON> 13
0
0
<OTHER-SE> 51,675
<TOTAL-LIABILITY-AND-EQUITY> 205,405
<SALES> 15,300
<TOTAL-REVENUES> 15,300
<CGS> 0
<TOTAL-COSTS> 23,014
<OTHER-EXPENSES> (1,244)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,717
<INCOME-PRETAX> (20,187)
<INCOME-TAX> (4,285)
<INCOME-CONTINUING> (15,902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,902)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
