<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 1996
REGISTRATION NO. 33-65357
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
HEARTLAND WIRELESS COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 4841 73-1435149
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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<TABLE>
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903 NORTH BOWSER, SUITE 140 JOHN R. BAILEY
RICHARDSON, TEXAS 75081 SENIOR VICE PRESIDENT -- FINANCE
(214) 479-9244 HEARTLAND WIRELESS COMMUNICATIONS, INC.
(Address, including zip code, and 903 NORTH BOWSER, SUITE 140
telephone mumber, RICHARDSON, TEXAS 75081
including area code, (214) 479-9244
of Registrant's principal executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
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With copies to:
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ROBERT H. GREENWOOD, ESQ. VICTOR B. ZANETTI, ESQ. STEPHEN W. RUBIN, ESQ.
YOUNG, DIMERO & SAYOVITZ ARTER & HADDEN PROSKAUER ROSE GOETZ & MENDELSOHN LLP
414 EAGLE ROCK AVENUE 1717 MAIN STREET, SUITE 4100 1585 BROADWAY
WEST ORANGE, NJ 07052 DALLAS, TX 75201 NEW YORK, NY 10036
RICHARD B. STAGG, ESQ. ROBERT E. MORRISON, ESQ. EARL H. COHEN, ESQ.
O'CONNOR, CAVANAGH, ANDERSON, BROWN MCCARROLL & OAKS HARTLINE MANSFIELD & TANICK, P.A.
KILLINGSWORTH & BESHEARS, P.A. 300 CRESCENT COURT, STE. 1400 1560 INTERNATIONAL CENTER
ONE EAST CAMELBACK ROAD, SUITE 1100 DALLAS, TX 75201 900 2ND AVENUE SOUTH
PHOENIX, AZ 85012 MINNEAPOLIS, MN 55402
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and upon (1) the
effective time of the proposed merger (the "AWS Merger") of a wholly owned
subsidiary of the Registrant with and into American Wireless Systems, Inc.
("AWS"), (2) the effective time of the proposed merger (the "CMAX Merger") of a
wholly owned subsidiary of the Registrant with and into CableMaxx, Inc.
("CMAX"), (3) the consummation of the Amended and Restated Asset Purchase
Agreement between the Registrant and Fort Worth Wireless Cable T.V. Associates
("FTW Partnership"), pursuant to which (a) Heartland will acquire FTW
Partnership's 79.99% joint venture interest (the "FTW Interest") in and to the
joint venture that owns and operates a wireless cable television system in Fort
Worth, Texas, and (b) FTW Partnership will receive certain shares of the
Registrant's common stock (the "FTW Shares") and distribute the FTW Shares in
connection with the liquidation and dissolution of FTW Partnership (the "FTW
Transaction"), (4) the consummation of the Amended and Restated Asset Purchase
Agreement between the Registrant and Wireless Cable TV Associates #38 (the
"Minneapolis Partnership"), pursuant to which (a) Heartland will acquire the
Minneapolis Partnership's 75% membership interest (the "Minneapolis Interest")
in and to American Wireless System of Minneapolis, L.L.C., a limited liability
company that owns and operates a wireless cable television system in
Minneapolis, Minnesota, and (b) the Minneapolis Partnership will receive certain
shares of the Registrant's common stock (the "Minneapolis Shares") and
distribute the Minneapolis Shares in connection with the liquidation and
dissolution of the Minneapolis Partnership (the "Minneapolis Transaction")
and/or (5) the consummation of the Amended and Restated Asset Purchase Agreement
among the Registrant, Three Sixty Corp. ("TSC"), and Technivision, Inc.,
formerly a subsidiary of TSC that has been merged with and into TSC
("Technivision"), pursuant to which (a) Heartland will acquire substantially all
of the assets formerly held by Technivision, and (b) TSC will receive certain
shares of the Registrant's common stock (the "TSC Shares") and distribute the
TSC Shares in connection with the liquidation and dissolution of TSC (the "TSC
Transaction"). Collectively, the AWS Merger, CMAX Merger, FTW Transaction,
Minneapolis Transaction and TSC Transaction are referred to as the
"Transactions."
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front
Cover Page of Proxy Statement
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information........... Summary; Risk Factors
4. Terms of the Transaction................. Summary; Information Concerning
Heartland; Recommendations of the
Heartland Board; Opinions of Heartland's
Advisor; The AWS Merger; The FTW
Transaction; The Minneapolis Transaction;
The CMAX Merger; The TSC Transaction
5. Pro Forma Financial Information.......... Summary; Pro Forma Financial Information
Relative to the Transactions
6. Material Contacts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... *
8. Interests of Named Experts and Counsel... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information With Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants........ Available Information; Summary
Information Concerning Heartland;
Selected Consolidated Financial
Information of Heartland;
Heartland -- Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Index to
Consolidated Financial Statements and
Unaudited Pro Forma Financial Information
</TABLE>
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FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT
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C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information With Respect to S-3
Companies................................ *
16. Information With Respect to S-2 or S-3
Companies................................ *
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies.......... Available Information; Summary; Appendix
B -- Information Concerning AWS; Appendix
E -- Information Concerning FTW
Partnership; Appendix J -- Information
Concerning Minneapolis Partnership;
Appendix N -- Information Concerning
CMAX; Appendix P -- Information
Concerning TSC; Index to Consolidated
Financial Statements and Unaudited Pro
Forma Financial Information
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited....... Outside Front Cover Page of Heartland
Proxy Statement; Available Information;
Information Concerning Heartland; The
Heartland Meeting; The AWS Meeting; The
FTW Consent Solicitation; The Minneapolis
Partnership Meeting; The CMAX Meeting;
The TSC Meeting; Appendix
B -- Information Concerning AWS; Appendix
E -- Information Concerning FTW
Partnership; Appendix J -- Information
Concerning Minneapolis Partnership;
Appendix N -- Information Concerning
CMAX; Appendix P -- Information
Concerning TSC
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer.................. *
</TABLE>
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*Not applicable or answer is in the negative.
<PAGE> 4
AMERICAN WIRELESS SYSTEMS, INC.
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
WIRELESS CABLE TV ASSOCIATES #38
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front
Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information........... Summary; Risk Factors
4. Terms of the Transaction................. Summary; Information Concerning
Heartland; The Combined Company; The AWS
Merger; The FTW Transaction; The
Minneapolis Transaction; Comparison of
Rights of Security Holders of Heartland
and AWS; Comparison of Rights of Equity
Holders of Heartland and FTW Partnership;
Comparison of Rights of Equity Holders of
Heartland and Minneapolis Partnership
5. Pro Forma Financial Information.......... Summary; Pro Forma Financial Information
Relative to the Transactions
6. Material Contacts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... *
8. Interests of Named Experts and Counsel... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information With Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants........ Available Information; Information
Concerning Heartland; Selected
Consolidated Financial Information of
Heartland; Heartland -- Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Index to Consolidated Financial
Statements and Unaudited Pro Forma
Financial Information
</TABLE>
<PAGE> 5
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<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT/PROSPECTUS
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C. INFORMATION ABOUT THE COMPANIES
BEING ACQUIRED
15. Information With Respect to S-3
Companies................................ *
16. Information With Respect to S-2 or S-3
Companies................................ *
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies.......... Available Information; Summary;
Information Concerning AWS; Information
Concerning FTW Partnership; Information
Concerning Minneapolis Partnership; Index
to Consolidated Financial Statements and
Unaudited Pro Forma Financial
Information; Pro Forma Financial
Information Relative to the Transactions;
AWS -- Selected Financial Information;
AWS -- Management's Discussion and
Analysis of Financial Condition and
Results of Operations; FTW
Partnership -- Selected Financial
Information; FTW
Partnership -- Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Minneapolis
Partnership -- Selected Financial
Information; Minneapolis
Partnership -- Management's Discussion
and Analysis of Financial Condition and
Results of Operations
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited....... Outside Front Cover Page of Proxy
Statement; Available Information;
Summary; Information Concerning AWS;
Information Concerning FTW Partnership;
Information Concerning Minneapolis
Partnership; The AWS Meeting; The FTW
Consent Solicitation; The Minneapolis
Partnership Meeting; The AWS Merger; The
FTW Transaction; The Minneapolis
Transaction
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer.................. *
</TABLE>
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*Not applicable or answer is in the negative.
<PAGE> 6
CABLEMAXX, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT/PROSPECTUS
---------------------------------------------- -----------------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front
Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information........... Summary; Risk Factors
4. Terms of the Transaction................. Summary; Information Concerning
Heartland; The Combined Company; The AWS
Merger; The FTW Transaction; The
Minneapolis Transaction; Comparison of
Rights of Holders of Heartland and CMAX
5. Pro Forma Financial Information.......... Summary; Pro Forma Financial Information
Relative to the Transactions
6. Material Contacts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... *
8. Interests of Named Experts and Counsel... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information With Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants........ Available Information; Summary
Information Concerning Heartland;
Selected Consolidated Financial
Information of Heartland;
Heartland -- Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Index to
Consolidated Financial Statements and
Unaudited Pro Forma Financial Information
</TABLE>
<PAGE> 7
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<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT/PROSPECTUS
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C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information With Respect to S-3
Companies................................ *
16. Information With Respect to S-2 or S-3
Companies................................ *
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies.......... Available Information; Summary;
Information Concerning CMAX; Index to
Consolidated Financial Statements and
Unaudited Pro Forma Financial
Information; Pro Forma Financial
Information Relative to the Transactions;
Selected Consolidated Financial
Information of CMAX; Pro Forma
Information of 1992 Acquisition; CMAX --
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited....... Outside Front Cover Page of Proxy
Statement/Prospectus; Available
Information; Summary; Information
Concerning CMAX; The CMAX Meeting; The
CMAX Merger
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer.................. *
</TABLE>
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*Not applicable or answer is in the negative.
<PAGE> 8
THREE-SIXTY CORP.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT/PROSPECTUS
---------------------------------------------- -----------------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front
Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Table of Contents; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information........... Summary; Risk Factors
4. Terms of the Transaction................. Summary; Information Concerning
Heartland; The Combined Company; The AWS
Merger; The FTW Transaction; The
Minneapolis Transaction; Comparison of
Rights of Security Holders of Heartland
and TSC
5. Pro Forma Financial Information.......... Summary; Pro Forma Financial Information
Relative to the Transactions
6. Material Contacts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... *
8. Interests of Named Experts and Counsel... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ Incorporation of Certain Documents by
Reference
12. Information With Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants........ Available Information; Summary
Information Concerning Heartland;
Selected Consolidated Financial
Information of Heartland;
Heartland -- Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Index to
Consolidated Financial Statements and
Unaudited Pro Forma Financial Information
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR
ITEM NUMBER AND CAPTION CAPTION IN PROXY STATEMENT/PROSPECTUS
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C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information With Respect to S-3
Companies................................ *
16. Information With Respect to S-2 or S-3
Companies................................ *
17. Information With Respect to Companies
Other Than S-2 or S-3 Companies.......... Available Information; Summary;
Information Concerning TSC; Index to
Consolidated Financial Statements and
Unaudited Pro Forma Financial
Information; Pro Forma Financial
Information Relative to the Transactions;
Selected Consolidated Financial
Information of TSC; TSC -- Management's
Discussion and Analysis of Financial
Condition and Results of Operations
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited....... Outside Front Cover Page of Proxy
Statement/Prospectus; Available
Information; Summary; Information
Concerning TSC; The TSC Meeting; The TSC
Transaction
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer.................. *
</TABLE>
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*Not applicable or answer is in the negative.
<PAGE> 10
[HEARTLAND WIRELESS COMMUNICATIONS, INC. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of the stockholders
(the "Special Meeting") of HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware
corporation ("Heartland"), which will be held on February 22, 1996 at 10:00
a.m., local time, at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas,
Texas 75240, (214) 934-9494.
At this important Special Meeting, you will be asked to approve and adopt
the following five (5) separate, but related, agreements (collectively, the
"Agreements") and the issuance of a maximum of 10,721,302 shares of common
stock, par value $.001 per share of Heartland (the "Heartland Common Stock") in
connection therewith or 45.95% of the total number of shares of Heartland Common
Stock then outstanding (collectively, the "Transactions"):
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1. MERGER WITH AMERICAN The Amended and Restated Agreement and Plan of Merger,
WIRELESS SYSTEMS, INC. dated as of September 11, 1995 (the "AWS Merger
Agreement"), by and among American Wireless Systems,
Inc., a Delaware corporation ("AWS"), Heartland and
Heartland Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Heartland ("AWS Merger Sub").
THE AWS MERGER IS MORE COMPLETELY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT, AND A COPY OF THE AWS
MERGER AGREEMENT IS ATTACHED AS APPENDIX C THERETO.
2. ACQUISITION OF VENTURE The Amended and Restated Asset Purchase Agreement, dated
INTEREST IN FORT WORTH as of October 4, 1995 (the "FTW Agreement"), by and
MARKET between Heartland and Fort Worth Wireless Cable T.V.
Associates, a California general partnership ("FTW
Partnership").
THE FTW AGREEMENT AND THE TRANSACTIONS RELATED THERETO
(COLLECTIVELY, THE "FTW TRANSACTION") ARE MORE
COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT
AND A COPY OF THE FTW AGREEMENT IS ATTACHED AS APPENDIX
F THERETO.
3. ACQUISITION OF MEMBERSHIP The Amended and Restated Asset Purchase Agreement, dated
INTEREST IN MINNEAPOLIS MARKET as of October 4, 1995 (the "Minneapolis Agreement"), by
and between Heartland and Wireless Cable TV Associates
#38, a California general partnership ("Minneapolis
Partnership").
THE MINNEAPOLIS AGREEMENT AND THE TRANSACTIONS RELATED
THERETO (COLLECTIVELY, THE "MINNEAPOLIS TRANSACTION")
ARE MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT, AND A COPY OF THE MINNEAPOLIS AGREEMENT IS
ATTACHED AS APPENDIX K THERETO.
4. MERGER WITH The Amended and Restated Agreement and Plan of Merger,
CABLEMAXX, INC. dated as of September 11, 1995 (the "CMAX Merger
Agreement"), by and among Heartland, CableMaxx, Inc., a
Delaware corporation ("CMAX"), and Heartland Merger Sub
2, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("CMAX Merger Sub").
THE CMAX MERGER IS MORE COMPLETELY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT, AND A COPY OF THE CMAX
MERGER AGREEMENT IS ATTACHED AS APPENDIX O THERETO.
</TABLE>
<PAGE> 11
<TABLE>
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5. ASSET PURCHASE FROM THREE SIXTY The Amended and Restated Asset Purchase Agreement, dated
CORP. (SUCCESSOR IN INTEREST TO as of October 19, 1995 (the "TSC Agreement"), by and
TECHNIVISION) among Heartland, Three Sixty Corp., a New Jersey
corporation ("TSC"), and Technivision, Inc., formerly a
subsidiary of TSC that has been merged with and into TSC
("Technivision").
THE TSC AGREEMENT AND THE TRANSACTIONS RELATED THERETO
(COLLECTIVELY, THE "TSC TRANSACTION") ARE MORE
COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT, AND A COPY OF THE TSC AGREEMENT IS ATTACHED
AS APPENDIX Q THERETO.
</TABLE>
At the Special Meeting, the stockholders of Heartland will be asked to
approve the issuance of additional shares as part of a single approval. THE
STOCKHOLDERS OF HEARTLAND ARE NOT BEING REQUESTED, AND WILL NOT BE ENTITLED, TO
SEPARATELY APPROVE AND ADOPT THE AFOREMENTIONED FIVE TRANSACTIONS.
Although the stockholders of Heartland will be approving the issuance of up
to 10,721,302 shares of Heartland Common Stock in connection with the
Transactions, management of the Company anticipates that the actual number of
shares to be issued will be less. Assuming, among other things, a closing
average of $28 per share of the Heartland Common Stock, the approximate closing
average of the Heartland Common Stock over the preceding ten and 20 day trading
periods, Heartland would issue approximately 6,763,949 shares of Heartland
Common Stock or 34.91% of the total number of shares of Heartland Common Stock
then outstanding in connection with the Transactions. See "Information
Concerning Heartland -- Calculation and Listing of Shares to be Issued in
Connection With the Transactions" in the accompanying Proxy Statement.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE TRANSACTIONS, THE
PARTICIPATING DIRECTORS OF HEARTLAND CAREFULLY CONSIDERED AND APPROVED THE TERMS
OF SUCH AGREEMENTS AND RELATED ISSUANCES OF SHARES OF HEARTLAND COMMON STOCK AS
BEING IN THE BEST INTERESTS OF HEARTLAND AND ITS STOCKHOLDERS. THE HEARTLAND
BOARD OF DIRECTORS RECOMMENDS THAT THE HEARTLAND STOCKHOLDERS VOTE FOR THE
APPROVAL OF EACH AGREEMENT AND THE RELATED ISSUANCE OF SHARES OF HEARTLAND
COMMON STOCK IN CONNECTION THEREWITH.
Pursuant to applicable Delaware law, the stockholders of Heartland who
object to the Agreements or related Transactions will not be afforded appraisal
rights or the right to receive cash for their shares of Heartland Common Stock.
The enclosed Proxy Statement sets forth information, including financial
data, relating to Heartland, AWS, FTW Partnership, Minneapolis Partnership, CMAX
and TSC and describes the terms and conditions of each of the Transactions. The
Board of Directors recognizes that this Proxy Statement is a lengthy document.
However, this document necessarily results from the complexity of the
Transactions and the need to furnish you with all appropriate information.
Accordingly, the Board of Directors of Heartland requests that you carefully
review these materials before completing the enclosed Proxy Card. SIGNED BUT
UNMARKED PROXY CARDS RETURNED BY A HEARTLAND STOCKHOLDER WILL BE DEEMED TO BE A
VOTE FOR THE APPROVAL AND ADOPTION OF EACH OF THE TRANSACTIONS.
Should you require assistance in completing your Proxy Card or if you have
any questions about the voting procedure or the accompanying Proxy Statement,
please feel free to contact Heartland at 903 N. Bowser, Suite 140, Richardson,
Texas 75081 (telephone (214) 479-9244).
Very truly yours,
LOGO
John R. Bailey
Senior Vice President -- Finance,
Chief Financial Officer,
Treasurer and Secretary
<PAGE> 12
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 NORTH BOWSER, SUITE 140
RICHARDSON, TEXAS 75081
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 22, 1996
TO THE STOCKHOLDERS OF HEARTLAND WIRELESS COMMUNICATIONS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting (together with any
adjournments or postponements thereof, the "Special Meeting") of the
stockholders of Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), will be held at the Westin Hotel Galleria, 13340 Dallas Parkway,
Dallas, Texas 75240, (214) 934-9494, on February 22, 1996 at 10:00 a.m., local
time, for the following purposes, as more fully described in the accompanying
Proxy Statement:
1. To consider and vote upon a proposal to approve and adopt each of
the following agreements (collectively, the "Agreements") and the issuance
of up to 10,721,302 shares, or 45.95% of the total number of shares of
Heartland Common Stock then outstanding (based upon a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable, and certain additional
assumptions -- see "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions" of the
accompanying Proxy Statement), of common stock, $.001 par value per share,
of Heartland ("Heartland Common Stock") in connection therewith
(collectively, the "Transactions"):
(A) The Amended and Restated Agreement and Plan of Merger, dated as
of September 11, 1995 (the "AWS Merger Agreement"), by and among
American Wireless Systems, Inc., a Delaware corporation ("AWS"),
Heartland and Heartland Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Heartland ("AWS Merger Sub"), as a result of
which AWS Merger Sub will be merged with and into AWS (the "AWS Merger")
and AWS will become a wholly owned subsidiary of Heartland.
(B) The Amended and Restated Asset Purchase Agreement, dated as of
October 4, 1995 (the "FTW Agreement"), by and between Heartland and Fort
Worth Wireless Cable T.V. Associates, a California general partnership
("FTW Partnership"), pursuant to which Heartland proposes to acquire
substantially all of the assets of FTW Partnership (consisting of a
79.99% interest in a joint venture that owns and operates a wireless
cable television system in Fort Worth, Texas).
(C) The Amended and Restated Asset Purchase Agreement, dated as of
October 4, 1995 (the "Minneapolis Agreement"), by and between Heartland
and Wireless Cable TV Associates #38, a California general partnership
("Minneapolis Partnership"), pursuant to which Heartland proposes to
acquire substantially all of the assets of the Minneapolis Partnership
(consisting of a 75% membership interest in and to American Wireless
System of Minneapolis, L.L.C., a Delaware limited liability company that
owns and operates a wireless cable television system in Minneapolis,
Minnesota).
(D) The Amended and Restated Agreement and Plan of Merger, dated as
of September 11, 1995 (the "CMAX Merger Agreement"), by and among
Heartland, CableMaxx, Inc., a Delaware corporation ("CMAX"), and
Heartland Merger Sub 2, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("CMAX Merger Sub"), as a result of which CMAX
Merger Sub will be merged with and into CMAX (the "CMAX Merger") and
CMAX will become a wholly owned subsidiary of Heartland.
(E) The Amended and Restated Asset Purchase Agreement, dated as of
October 19, 1995 (the "TSC Agreement"), by and among Heartland, Three
Sixty Corp., a New Jersey corporation
<PAGE> 13
("TSC"), and Technivision, Inc., formerly a subsidiary of TSC that has
been merged with and into TSC ("Technivision"). Pursuant to the TSC
Agreement, Heartland proposes to acquire substantially all of the assets
of Technivision.
2. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors has fixed the close of business on January 17, 1996
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. Pursuant to the Proxy Statement, Heartland
is seeking the affirmative vote of the holders of shares representing the
majority of the outstanding voting power of Heartland Common Stock to approve
the AWS Merger Agreement, the FTW Agreement, the Minneapolis Agreement, the CMAX
Merger Agreement, the TSC Agreement and the related issuance of Heartland Common
Stock in connection therewith.
Pursuant to applicable Delaware law, the stockholders of Heartland who
object to the Agreements or related Transactions, or any of them, will not be
afforded appraisal rights or the right to receive cash for their shares of
Heartland Common Stock.
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED HEARTLAND PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY A HEARTLAND
STOCKHOLDER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL AND ADOPTION OF EACH OF
THE TRANSACTIONS. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE
SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors,
LOGO
John R. Bailey
Senior Vice President -- Finance,
Chief Financial Officer,
Treasurer and Secretary
DALLAS, TEXAS
January 26, 1996
<PAGE> 14
[CABLEMAXX, INC. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of CableMaxx, Inc., a Delaware corporation ("CMAX"),
which will be held on February 22, 1996 at 10:00 a.m., local time at the Westin
Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas, 75240, (214) 934-9494.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Agreement and Plan of Merger
(the "CMAX Merger Agreement"), dated as of September 11, 1995, by and among
CMAX, Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), and Heartland Merger Sub 2, Inc., a Delaware corporation and
wholly owned subsidiary of Heartland ("CMAX Merger Sub"), pursuant to which CMAX
Merger Sub will be merged with and into CMAX (the "CMAX Merger") and CMAX will
become a wholly owned subsidiary of Heartland. If the CMAX Merger Agreement is
approved and the CMAX Merger is consummated, each outstanding share of common
stock, par value $.01 per share, of CMAX ("CMAX Common Stock") will be converted
into the right to receive that portion of a newly issued publicly tradeable
share of common stock, par value $.001 per share, of Heartland ("Heartland
Common Stock") having an exchange value of $8.50 per share of CMAX Common Stock
for an aggregate exchange value for all shares of CMAX Common Stock of
approximately $80.8 million, subject to reduction by the amount that CMAX's Net
Liabilities exceed its Permitted Net Liabilities (each as defined in the CMAX
Merger Agreement). The exchange value of the Heartland Common Stock to be issued
in the CMAX Merger will be equal to the average closing price of the Heartland
Common Stock as reported on the Nasdaq Stock Market's National Market over the
20-trading-day period ending on the fifth business day preceding the
consummation of the CMAX Merger (or February 15, 1996 based upon a contemplated
closing date of February 23, 1996). IN THE EVENT THAT THE AVERAGE CLOSING PRICE
OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL
MARKET OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING
THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS
GREATER THAN $34 OR LESS THAN $23, CMAX STOCKHOLDERS WILL BE PROVIDED WITH AN
ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE CMAX STOCKHOLDERS WHO
WISH TO DO SO TO CHANGE THEIR VOTE. See "The CMAX Meeting -- Proxies" of the
enclosed Proxy Statement/Prospectus for information regarding the revocability
of CMAX proxies.
THE CMAX MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE CMAX MERGER AGREEMENT IS ATTACHED AS
APPENDIX A THERETO.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE CMAX MERGER AGREEMENT AND
CMAX MERGER, THE DIRECTORS OF CMAX CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED
THE TERMS OF THE CMAX MERGER AGREEMENT AND CMAX MERGER AS BEING IN THE BEST
INTERESTS OF CMAX AND ITS STOCKHOLDERS. THE CMAX BOARD OF DIRECTORS RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE CMAX MERGER
AGREEMENT.
Bear, Stearns & Co., Inc., CMAX's financial advisor, has rendered an
opinion to the Board of Directors of CMAX that the transaction contemplated by
the CMAX Merger Agreement is fair to the CMAX stockholders from a financial
point of view as of the date of such opinion. The analysis, support and
limitations of this opinion are discussed in the enclosed Proxy
Statement/Prospectus with the opinion itself contained as Appendix B thereto.
The Board of Directors has fixed the close of business on January 11, 1996
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. The affirmative vote of a majority of the
outstanding shares of CMAX Common Stock is required to approve the CMAX Merger
<PAGE> 15
Agreement. Abstentions or broker non-votes will have the same effect as a vote
"against" the CMAX Merger Agreement.
Pursuant to applicable Delaware law, the stockholders of CMAX who object to
the CMAX Merger Agreement or CMAX Merger will not be afforded appraisal rights
or the right to receive cash for their shares of CMAX Common Stock.
The enclosed Proxy Statement/Prospectus sets forth information, including
financial data, relating to Heartland, CMAX and certain other parties involved
in the other transactions described in this Proxy Statement/Prospectus, (the
"Other Transactions") and describes the terms and conditions of the CMAX Merger
and the Other Transactions. The Board of Directors recognizes that this Proxy
Statement/Prospectus is a lengthy document. However, this document necessarily
results from the complexity of the CMAX Merger and the Other Transactions and
the need to furnish you with all appropriate information. Accordingly, the Board
of Directors of CMAX requests that you carefully review these materials before
completing the enclosed Proxy Card. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY
A CMAX STOCKHOLDER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL OF THE CMAX
MERGER AGREEMENT AND CMAX MERGER.
Please do not send in your stock certificates with your proxy. If the
stockholders of CMAX approve the CMAX Merger Agreement and the CMAX Merger is
consummated, you will receive a Letter of Transmittal with instructions for the
surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
questions about the voting procedure or the accompanying Proxy
Statement/Prospectus, please feel free to contact CMAX at 6850 Austin Center
Boulevard, Suite 320, Austin, Texas 78731 (telephone (512) 345-1001).
Very truly yours,
A. Lawrence Fagan,
Chairman of the Board
<PAGE> 16
CABLEMAXX, INC.
6850 AUSTIN CENTER BOULEVARD, SUITE 320
AUSTIN, TEXAS 78731
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 22, 1996
TO THE STOCKHOLDERS OF CABLEMAXX, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting (together with any
adjournments or postponements thereof, the "Special Meeting") of the
stockholders of CableMaxx, Inc., a Delaware corporation ("CMAX"), will be held
at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas, 75240,
(214)934-9494 on February 22, 1996 at 10:00 a.m., local time, for the following
purposes, as more fully described in the accompanying Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Merger (the "CMAX Merger Agreement"), dated
as of September 11, 1995, by and among CMAX, Heartland Wireless
Communications, Inc., a Delaware corporation ("Heartland"), and Heartland
Merger Sub 2, Inc., a Delaware corporation and wholly owned subsidiary of
Heartland ("CMAX Merger Sub"), pursuant to which CMAX Merger Sub will be
merged with and into CMAX (the "CMAX Merger") and CMAX will become a wholly
owned subsidiary of Heartland. If the CMAX Merger Agreement is approved and
the CMAX Merger is consummated, each outstanding share of common stock, par
value $.01 per share, of CMAX ("CMAX Common Stock") will be converted into
the right to receive that portion of a newly issued publicly tradeable
share of common stock, par value $.001 per share, of Heartland ("Heartland
Common Stock") having an exchange value of $8.50 per share of CMAX Common
Stock for an aggregate exchange value for all shares of CMAX Common Stock
of approximately $80.8 million, subject to reduction by the amount that
CMAX's Net Liabilities exceed its Permitted Net Liabilities (each as
defined in the CMAX Merger Agreement). The exchange value of the Heartland
Common Stock to be issued in the CMAX Merger will be equal to the average
closing price of the Heartland Common Stock as reported on the Nasdaq Stock
Market's National Market over the 20-trading-day period ending on the fifth
business day preceding the consummation of the CMAX Merger (or February 15,
1996 based upon a contemplated closing date of February 23, 1996). Pursuant
to the terms of the CMAX Merger Agreement, CMAX stockholders will receive
cash in lieu of fractional shares of Heartland Common Stock. The CMAX
Merger is described in detail in the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors has fixed the close of business on January 11, 1996
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. The affirmative vote of a majority of the
outstanding shares of CMAX Common Stock is necessary to approve the CMAX Merger
Agreement. Abstentions or broker non-votes will have the same effect as a vote
"against" the CMAX Merger Agreement.
Charter Wireless Cable Holdings, L.L.C. ("Charter Wireless"), the holder of
approximately 52.7% of the outstanding shares of CMAX Common Stock, has agreed
to vote all such shares in favor of the CMAX Merger Agreement. Accordingly,
stockholder approval of the CMAX Merger Agreement is assured.
Pursuant to applicable Delaware law, the stockholders of CMAX who object to
the CMAX Merger Agreement or CMAX Merger will not be afforded appraisal rights
or the right to receive cash for their shares of CMAX Common Stock.
<PAGE> 17
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED CMAX PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY A CMAX STOCKHOLDER WILL BE
DEEMED TO BE A VOTE FOR THE APPROVAL OF THE CMAX MERGER AGREEMENT. THE PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL MEETING BY FOLLOWING THE
PROCEDURES SET FORTH IN THE PROXY STATEMENT/PROSPECTUS.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE 17 TRADING DAY
PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE
INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN
$23, CMAX STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE
SPECIAL MEETING TO ENABLE CMAX STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR
VOTE.
By Order of the Board of Directors,
Stephen W. Rubin,
Secretary
AUSTIN, TEXAS
January 26, 1996
<PAGE> 18
[AMERICAN WIRELESS SYSTEMS, INC. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of AMERICAN WIRELESS SYSTEMS, INC., a Delaware
corporation ("AWS"), which will be held on February 22, 1996 at 10:00 a.m.,
local time at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas
75240, (214) 934-9494.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Agreement and Plan of Merger
(the "AWS Merger Agreement"), dated as of September 11, 1995, by and among AWS,
Heartland Wireless Communications, Inc., a Delaware corporation ("Heartland"),
and Heartland Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("AWS Merger Sub"), pursuant to which AWS Merger Sub
will be merged with and into AWS (the "AWS Merger"), AWS will become a wholly
owned subsidiary of Heartland, and Heartland will issue to the holders of AWS
common stock, $.01 par value per share ("AWS Common Stock"), that number of
newly issued publicly tradeable shares of Heartland common stock, $.001 par
value per share ("Heartland Common Stock"), having an aggregate exchange value
of $34 million (subject to certain reductions and escrow requirements). The
exchange value of the Heartland Common Stock to be issued in the AWS Merger will
be equal to the average closing price of the Heartland Common Stock as reported
on the Nasdaq Stock Market's National Market over the ten-trading-day period
ending on the fifth business day preceding the consummation of the AWS Merger
(or February 15, 1996 based upon a contemplated closing date of February 23,
1996), provided however that if such average is less than $20 or more than $26
per share, then the number of shares of Heartland Common Stock to be issued in
the AWS Merger will be based upon an exchange value of $20 or $26 per share, as
applicable. IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON
STOCK AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN
TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN
DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34
OR LESS THAN $23, AWS STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY
CARD FOR THE SPECIAL MEETING TO ENABLE AWS STOCKHOLDERS WHO WISH TO DO SO TO
CHANGE THEIR VOTE. SEE "THE AWS MEETING -- PROXIES" OF THE ENCLOSED PROXY
STATEMENT/PROSPECTUS FOR INFORMATION REGARDING THE REVOCABILITY OF AWS PROXIES.
THE AWS MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE AWS MERGER AGREEMENT IS ATTACHED AS
APPENDIX A THERETO.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE AWS MERGER, THE DIRECTORS OF
AWS CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE AWS MERGER AS
BEING IN THE BEST INTERESTS OF AWS AND ITS STOCKHOLDERS. THE AWS BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
AWS MERGER AGREEMENT.
Daniels & Associates, L.P., AWS' financial advisor, has rendered an opinion
to the Board of Directors that the consideration to be received by the AWS
stockholders pursuant to the terms of the AWS Merger Agreement is fair to such
stockholders from a financial point of view as of the date of such opinion. The
analysis, support and limitations of this opinion are discussed in the enclosed
Proxy Statement/Prospectus with the opinion itself contained as Appendix C
thereto.
The AWS Merger is only one of five (5) separate, but related, transactions
(the "Transactions") which Heartland intends to consummate at or about the same
time. The shares of Heartland Common Stock to be issued in connection with each
of the Transactions are being registered on a single Registration Statement
consisting of multiple Proxy Statements/Prospectuses, of which the enclosed
Proxy Statement/Prospectus
<PAGE> 19
forms a part. The consummation of the AWS Merger is conditioned on, among other
things, the requisite approval by AWS and Heartland stockholders of the AWS
Merger Agreement, the AWS Merger and transactions related thereto. Additionally,
the AWS Merger is conditioned upon the consummation of the Amended and Restated
Asset Purchase Agreements between (a) Heartland and Fort Worth Wireless Cable
T.V. Associates and (b) Heartland and Wireless Cable TV Associates #38, which
agreements are further discussed in the accompanying Proxy Statement/Prospectus.
The affirmative vote of the holders of shares representing a majority of
the outstanding voting power of AWS Common Stock is necessary to approve the AWS
Merger Agreement and AWS Merger. The holders of approximately 37% of the
outstanding shares of AWS Common Stock have placed such shares in a voting trust
pursuant to which such stockholders will vote in favor of the AWS Merger
Agreement and AWS Merger.
Pursuant to applicable Delaware law, the stockholders of AWS who object to
the AWS Merger Agreement and AWS Merger and who vote against or abstain from
voting in favor thereof may be afforded certain appraisal rights, including the
right to receive cash for their shares of AWS Common Stock. Stockholders who
wish to exercise their appraisal rights must follow the procedures set forth in
Section 262 of the Delaware General Corporation Law. See "The AWS
Merger -- Appraisal Rights" in the Proxy Statement/Prospectus.
The enclosed Proxy Statement/Prospectus sets forth information, including
financial data, relating to Heartland, AWS and certain other parties involved in
the other transactions described in this Proxy Statement/Prospectus (the "Other
Transactions") and describes the terms and conditions of the AWS Merger and the
Other Transactions. The Board of Directors recognizes that this Proxy
Statement/Prospectus is a lengthy document. However, this document necessarily
results from the complexity of the AWS Merger and the Other Transactions and the
need to furnish you with all appropriate information. Accordingly, the Board of
Directors of AWS requests that you carefully review these materials before
completing the enclosed Proxy Card. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY
AN AWS STOCKHOLDER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL OF THE AWS
MERGER AGREEMENT AND AWS MERGER. ACCORDINGLY, AWS STOCKHOLDERS RETURNING SIGNED
BUT UNMARKED PROXY CARDS WILL WAIVE THEIR APPRAISAL RIGHTS.
Please do not send in your stock certificates with your proxy. If the
stockholders of AWS approve the AWS Merger Agreement and the AWS Merger is
consummated, you will receive a Letter of Transmittal with instructions for the
surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
questions about the voting procedure or the accompanying Proxy
Statement/Prospectus, please feel free to contact AWS at 7426 E. Stetson Drive,
Suite 220, Scottsdale, Arizona 85251 (telephone (602) 994-4301).
Very truly yours,
/s/ STEVEN G. JOHNSON
Steven G. Johnson
President and Chief Executive
Officer
<PAGE> 20
AMERICAN WIRELESS SYSTEMS, INC.
7426 E. STETSON DRIVE, SUITE 220
SCOTTSDALE, ARIZONA 85251
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 22, 1996
TO THE STOCKHOLDERS OF AMERICAN WIRELESS SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting (together with any
adjournments or postponements thereof, the "Special Meeting") of the
stockholders of American Wireless Systems, Inc., a Delaware corporation ("AWS"),
will be held at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas
75240, (214) 934-9494 on February 22, 1996 at 10:00 a.m., local time, for the
following purposes, as more fully described in the accompanying Proxy
Statement/Prospectus:
1. To consider and vote upon the Amended and Restated Agreement and
Plan of Merger ("AWS Merger Agreement"), dated as of September 11, 1995, by
and among AWS, Heartland Wireless Communications, Inc., a Delaware
corporation ("Heartland"), and Heartland Merger Sub, Inc., a Delaware
corporation and wholly owned subsidiary of Heartland ("AWS Merger Sub"),
pursuant to which AWS Merger Sub will merge with and into AWS ("AWS
Merger"), AWS will become a wholly owned subsidiary of Heartland, and
Heartland will issue to the holders of AWS common stock, $.01 par value per
share ("AWS Common Stock"), that number of newly issued publicly tradeable
shares of Heartland common stock, $.001 par value per share ("Heartland
Common Stock"), having an aggregate exchange value of $34 million (subject
to certain reductions and the escrow requirements discussed below). If the
AWS Merger Agreement is consummated, each share of AWS Common Stock issued
and outstanding immediately prior to the AWS Merger, subject to certain
adjustments provided therein, will be converted into shares of Heartland
Common Stock having an exchange value of approximately $5.90, of which
approximately $0.56 will be held in the escrow described below. The
exchange value of the Heartland Common Stock to be issued in the AWS Merger
will be equal to the average closing price of the Heartland Common Stock as
reported on Nasdaq Stock Market's National Market over the ten-trading-day
period ending on the fifth business day preceding the consummation of the
AWS Merger (or February 15, 1996 based upon a contemplated closing date of
February 23, 1996); provided, however, that if such average is less than
$20 or more than $26 per share, then the number of shares of Heartland
Common Stock to be issued in connection with the AWS Merger will be based
upon an exchange value of $20 or $26 per share, as applicable. Pursuant to
the AWS Merger Agreement, shares of Heartland Common Stock having an
aggregate exchange value of up to $3.25 million (subject to reduction upon
the resolution of certain claims against AWS) will be held in escrow for a
period of approximately twelve (12) months to satisfy certain
indemnification obligations of AWS to Heartland. Any shares of Heartland
Common Stock remaining at the termination of such escrow will be released
to the holders of AWS Common Stock. Subject to the terms of the AWS Merger
Agreement, AWS stockholders will receive cash in lieu of fractional shares
of Heartland Common Stock. The terms of the AWS Merger are more fully
described in detail in the accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors has fixed the close of business on January 17, 1996
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. The affirmative vote of the holders of
shares representing the majority of the outstanding voting power of AWS Common
Stock is necessary to approve the AWS Merger Agreement and AWS Merger. Certain
stockholders of AWS holding approximately 37% of the outstanding shares of the
AWS Common Stock have placed such shares in a voting trust pursuant to which
such stockholders will vote in favor of the AWS Merger Agreement and AWS Merger.
<PAGE> 21
Pursuant to applicable Delaware law, the stockholders of AWS who object to
the AWS Merger Agreement and AWS Merger and who vote against or abstain from
voting in favor thereof may be afforded certain appraisal rights including the
right to receive cash for their shares of AWS Common Stock. Stockholders who
wish to exercise their appraisal rights must follow the procedures set forth in
Section 262 of the Delaware General Corporation Law. See "The AWS
Merger -- Appraisal Rights" in the Proxy Statement/Prospectus.
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED AWS PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY AN AWS STOCKHOLDER WILL BE
DEEMED TO BE A VOTE FOR THE APPROVAL OF THE AWS MERGER AGREEMENT AND AWS MERGER.
ACCORDINGLY, AWS STOCKHOLDERS RETURNING SIGNED BUT UNMARKED PROXY CARDS WILL
WAIVE THEIR APPRAISAL RIGHTS. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE PROXY
STATEMENT/PROSPECTUS.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN TRADING
DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE
INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN
$23, AWS STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE
SPECIAL MEETING TO ENABLE AWS STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR
VOTE.
By Order of the Board of Directors,
LOGO
John R. Hardesty
Chairman of the Board
SCOTTSDALE, ARIZONA
January 26, 1996
<PAGE> 22
WIRELESS CABLE TV ASSOCIATES #38
C/O MANSFIELD & TANICK
1560 INTERNATIONAL CENTER
900 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
---------------------
January 26, 1996
Dear Partner:
You are cordially invited to attend the special meeting (the "Partners
Meeting") of general partners (the "Minneapolis Partners") of WIRELESS CABLE TV
ASSOCIATES #38, a California general partnership ("Minneapolis Partnership"),
which will be held on February 22, 1996 at 10:00 a.m., local time at the Westin
Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas 75240, (214) 934-9494.
At this important Partners Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Asset Purchase Agreement
attached as Appendix J to the accompanying Proxy Statement/Prospectus (the
"Minneapolis Agreement"), dated as of October 4, 1995, by and between
Minneapolis Partnership and Heartland Wireless Communications, Inc., a Delaware
corporation ("Heartland"), pursuant to which (i) Minneapolis Partnership will
sell to Heartland substantially all of its assets, consisting of a 75%
membership interest in and to American Wireless System of Minneapolis, L.L.C., a
Delaware limited liability company that owns and operates a wireless cable
television system in Minneapolis, Minnesota (the "Minneapolis LLC"), (ii)
Heartland will issue to Minneapolis Partnership that number of newly issued
publicly tradeable shares (the "Minneapolis Shares") of common stock, par value
$.001 per share, of Heartland ("Heartland Common Stock") having an aggregate
exchange value equal to the sum of (A) $18.0 million plus (B) $500 for each
wireless cable television subscriber in excess of 2,500 ("Additional
Subscribers") as of the fifth business day preceding the consummation of the
Minneapolis Agreement (or February 15, 1996 based upon a contemplated closing
date of February 23, 1996) (currently estimated to be 1,000 Additional
Subscribers, and not anticipated to exceed 2,000 Additional Subscribers), (iii)
Heartland will assume up to $2.2 million of liabilities of Minneapolis
Partnership to American Wireless Systems, Inc., a Delaware corporation ("AWS"),
and (iv) Minneapolis Partnership and the Minneapolis Partners approving the
Minneapolis Agreement will assign to Heartland certain claims (the "Minneapolis
Claims") against AWS, its predecessors and their respective affiliates (the
"Minneapolis Claim Assignment"). The exchange value of the Minneapolis Shares
will be equal to either (a) the lesser of $23 per share and the average closing
price of Heartland Common Stock as reported on the Nasdaq Stock Market's
National Market over the ten-trading-day period ending on the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 15, 1996
based upon a contemplated closing date of February 23, 1996) or (b) if such
closing average is equal to or in excess of $30 per share, then (i) the product
of the closing average multiplied by $23, divided by (ii) $30. IN THE EVENT THAT
THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE
NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN TRADING DAY PERIOD ENDING
ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, THE
MINNEAPOLIS PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO
ENABLE SUCH MINNEAPOLIS PARTNERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. As a
part of the approval of the Minneapolis Agreement, the Minneapolis Partners will
also be asked to approve the liquidation and dissolution of Minneapolis
Partnership ("Minneapolis Liquidation") in accordance with the terms and
conditions of the Agreement and Plan of Liquidation attached as Appendix L to
the accompanying Proxy Statement/Prospectus (the "Minneapolis Liquidation
Plan"), pursuant to which the Minneapolis Shares will be distributed. The
transactions contemplated by the Minneapolis Agreement, the Minneapolis Claim
Assignment, the Minneapolis Liquidation Plan, and the consummation thereof, are
collectively referred to herein as the "Minneapolis Transaction."
THE MINNEAPOLIS TRANSACTION IS MORE COMPLETELY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS AND COPIES OF THE MINNEAPOLIS AGREEMENT,
THE MINNEAPOLIS CLAIM ASSIGNMENT AND THE MINNEAPOLIS LIQUIDATION PLAN ARE
ATTACHED AS APPENDIX J, APPENDIX K AND APPENDIX L, RESPECTIVELY, THERETO.
<PAGE> 23
AT THE MEETING OF THE MANAGEMENT COMMITTEE OF MINNEAPOLIS PARTNERSHIP
("MINNEAPOLIS COMMITTEE") HELD TO CONSIDER THE MINNEAPOLIS TRANSACTION, THE
MINNEAPOLIS COMMITTEE CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE
MINNEAPOLIS TRANSACTION AS BEING IN THE BEST INTEREST OF MINNEAPOLIS PARTNERSHIP
AND THE MINNEAPOLIS PARTNERS. THE MINNEAPOLIS COMMITTEE RECOMMENDS THAT THE
MINNEAPOLIS PARTNERS VOTE FOR THE PROPOSAL TO APPROVE THE MINNEAPOLIS
TRANSACTION.
AT THE PARTNERS MEETING, THE MINNEAPOLIS PARTNERS WILL BE ASKED TO APPROVE
AND ADOPT THE MINNEAPOLIS AGREEMENT, THE MINNEAPOLIS CLAIM ASSIGNMENT, THE
MINNEAPOLIS LIQUIDATION PLAN AND THE TRANSACTIONS RELATED THERETO AS A PART OF
ONE APPROVAL. THE MINNEAPOLIS PARTNERS ARE NOT BEING REQUESTED, AND WILL NOT BE
ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT, MINNEAPOLIS
CLAIM ASSIGNMENT, MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
Pursuant to the terms of the Minneapolis Agreement, the affirmative vote of
Minneapolis Partners representing two-thirds ( 2/3) of the outstanding
partnership interests in Minneapolis Partnership is necessary to approve the
Minneapolis Transaction.
Neither applicable California partnership law nor the partnership agreement
for Minneapolis Partnership provides for any dissenters or appraisal rights to
any Minneapolis Partner abstaining from or voting against the Minneapolis
Transaction.
The Minneapolis Transaction is only one of five (5) separate, but related,
transactions (collectively, the "Transactions") which Heartland intends to
consummate at or about the same time. The shares of Heartland Common Stock to be
issued in connection with each of the Transactions are being registered on a
single Registration Statement consisting of multiple Proxy
Statements/Prospectuses, of which the enclosed Proxy Statement/Prospectus forms
a part. The consummation of the Minneapolis Transaction is conditioned on, among
other things, the requisite approval by Heartland stockholders of the
Minneapolis Agreement and transactions related thereto. Additionally, the
consummation of the Minneapolis Transaction is conditioned upon the consummation
of an Amended and Restated Agreement and Plan of Merger between AWS and
Heartland, which agreement is further discussed in the accompanying Proxy
Statement/Prospectus.
The enclosed Proxy Statement/Prospectus sets forth information, including
financial data, relating to Heartland, Minneapolis Partnership and certain other
parties involved in the Transactions and describes the terms and conditions of
the Minneapolis Transaction and the other Transactions. The Minneapolis
Committee recognizes that this Proxy Statement/Prospectus is a lengthy document.
However, this document necessarily results from the complexity of the
Minneapolis Transaction and the other Transactions and the need to furnish you
with all appropriate information. Accordingly, the Minneapolis Committee
requests that you carefully review these materials before attending the Partners
Meeting and/or completing the enclosed Consent. SIGNED BUT UNMARKED CONSENTS
RETURNED BY A MINNEAPOLIS PARTNER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL
OF THE MINNEAPOLIS TRANSACTIONS.
Should you have any questions about the voting procedure completing your
Consent, or the accompanying Proxy Statement/Prospectus, please feel free to
contact Minneapolis Partnership at Mansfield & Tanick, 1560 International
Center, 900 Second Avenue South, Minneapolis, Minnesota, 55402 (telephone (612)
339-4295).
Very truly yours,
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 24
WIRELESS CABLE TV ASSOCIATES #38
C/O MANSFIELD & TANICK
1560 INTERNATIONAL CENTER
900 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
---------------------
NOTICE OF SPECIAL MEETING OF GENERAL PARTNERS
TO BE HELD FEBRUARY 22, 1996
TO THE PARTNERS OF WIRELESS CABLE TV ASSOCIATES #38:
NOTICE IS HEREBY GIVEN that a special meeting (together with any
adjournments or postponements thereof, the "Partners Meeting") of the general
partners (the "Minneapolis Partners") of Wireless Cable TV Associates #38, a
California general partnership ("Minneapolis Partnership"), will be held at the
Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas, 75240, (214)
934-9494 on February 22, 1996 at 10:00 a.m., local time, for the following
purposes, as more fully described in the accompanying Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Amended and
Restated Asset Purchase Agreement (the "Minneapolis Agreement"), dated as
of October 4, 1995, by and between Minneapolis Partnership and Heartland
Wireless Communications, Inc., a Delaware corporation ("Heartland"),
pursuant to which (i) Minneapolis Partnership will sell to Heartland
substantially all of its assets, consisting of a 75% membership interest in
and to American Wireless System of Minneapolis, L.L.C., a Delaware limited
liability company that owns and operates a wireless cable television system
in Minneapolis, Minnesota (the "Minneapolis LLC"), (ii) Heartland will
issue to Minneapolis Partnership that number of newly issued publicly
tradeable shares (the "Minneapolis Shares") of common stock, par value
$.001 per share, of Heartland ("Heartland Common Stock") having an
aggregate exchange value equal to the sum of (A) $18.0 million plus (B)
$500 for each wireless cable television subscriber in excess of 2,500
("Additional Subscribers") as of the fifth business day preceding the
consummation of the Minneapolis Agreement (or February 15, 1996 based upon
a contemplated closing date of February 23, 1996) (currently estimated to
be 1,000 Additional Subscribers, and not anticipated to exceed 2,000
Additional Subscribers), (iii) Heartland will assume up to $2.2 million of
liabilities of Minneapolis Partnership to American Wireless System, Inc., a
Delaware corporation ("AWS"), and (iv) Minneapolis Partnership and the
Minneapolis Partners approving the Minneapolis Agreement will assign to
Heartland certain claims ("Minneapolis Claims") against AWS, its
predecessors and their respective affiliates (the "Minneapolis Claim
Assignment"). The exchange value of the Minneapolis Shares will be equal to
either (a) the lesser of $23 per share and the average closing price of
Heartland Common Stock as reported on the Nasdaq Stock Market's National
Market over the ten-trading-day period ending on the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 15,
1996 based upon a contemplated closing date of February 23, 1996) or (b) if
such closing average is equal to or in excess of $30 per share, then (i)
the product of the closing average multiplied by $23, divided by (ii) $30.
As a part of the approval of the Minneapolis Agreement, the Minneapolis
Partners will be asked to approve the liquidation and dissolution of
Minneapolis Partnership (the "Minneapolis Liquidation") in accordance with
the terms and conditions of the Agreement and Plan of Liquidation attached
as Appendix L to the accompanying Proxy Statement/Prospectus (the
"Minneapolis Liquidation Plan"), pursuant to which the Minneapolis Shares
will be distributed. The enclosed Proxy Statement/Prospectus describes in
detail the Minneapolis Agreement, the Minneapolis Claim Assignment, the
Minneapolis Liquidation Plan and the transactions contemplated in
connection therewith (collectively, the "Minneapolis Transaction"). If the
Minneapolis Transaction is consummated, the management committee of
Minneapolis Partnership ("Minneapolis Committee") anticipates that (a)
Minneapolis Shares having an aggregate exchange value of approximately
$1,500,000 ($721.50 per general partnership interest) will be sold by the
exchange agent for the Minneapolis Transaction, on behalf of Minneapolis
Partnership (in the open market or as otherwise directed by the Minneapolis
Committee) to satisfy the known and contingent liabilities (other than the
liabilities to be assumed by Heartland) and to fund its costs of the
Minneapolis Transaction and pay expenses of the winddown of the Minneapolis
Partnership's operation of the Minneapolis Partnership, and (b) Minneapolis
Shares having
<PAGE> 25
an aggregate exchange value of approximately $17 million ($8,177 per
general partnership interest) will be available for distribution to the
Minneapolis Partners. Upon the completion of the liquidation and
dissolution of Minneapolis Partnership, the Minneapolis Partners will
receive any remaining Minneapolis Shares or the proceeds thereof in
proportion to their respective ownership interest in the Minneapolis
Partnership.
2. To transact such other business as may properly come before the Partners
Meeting.
Pursuant to the terms of the Minneapolis Agreement, the affirmative vote of
Minneapolis Partners representing two-thirds ( 2/3) of the outstanding
partnership units in Minneapolis Partnership is necessary to approve the
Minneapolis Transaction, as further described in the accompanying Proxy
Statement/Prospectus. As of the date of this letter, there were 2,079 general
partnership interests outstanding. Consequently, Minneapolis Partners
representing at least 1,386 of the outstanding general partnership interests of
Minneapolis Partnership must vote in favor of the Minneapolis Transaction in
order for it to be approved.
AT THE PARTNERS MEETING, THE MINNEAPOLIS PARTNERS WILL BE ASKED TO APPROVE
AND ADOPT THE MINNEAPOLIS AGREEMENT, THE MINNEAPOLIS CLAIM ASSIGNMENT, THE
MINNEAPOLIS LIQUIDATION PLAN AND THE TRANSACTIONS RELATED THERETO AS A PART OF
ONE APPROVAL. THE MINNEAPOLIS PARTNERS ARE NOT BEING REQUESTED, AND WILL NOT BE
ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT, THE
MINNEAPOLIS CLAIM ASSIGNMENT, THE MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS
RELATED THERETO.
The rights of Minneapolis Partnership are governed by California law.
Neither California law nor the partnership agreement for Minneapolis Partnership
requires that Minneapolis Partners who object to the Minneapolis Transaction and
who vote against or abstain from voting in favor thereof be afforded any
appraisal rights or the right to receive cash for their general partnership
interest.
Because the affirmative vote of Minneapolis Partners holding at least
two-thirds of the general partnership interests in Minneapolis Partnership is
required to approve the Minneapolis Transaction, abstentions or failures to vote
will have the same effect as a vote "against" the Minneapolis Transaction.
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
WHETHER OR NOT YOU EXPECT TO ATTEND THE PARTNERS MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED MINNEAPOLIS PARTNERSHIP CONSENT AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. SIGNED BUT UNMARKED CONSENTS RETURNED BY A MINNEAPOLIS
PARTNER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL OF THE MINNEAPOLIS
TRANSACTIONS.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN TRADING
DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE
INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN
$23, THE MINNEAPOLIS PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN
CONSENT TO ENABLE SUCH MINNEAPOLIS PARTNERS WHO WISH TO DO SO TO CHANGE THEIR
VOTE.
By Order of the Management
Committee,
Damon Ostis
Deputy Chairman of Management
Committee
MINNEAPOLIS, MINNESOTA
January 26, 1996
<PAGE> 26
[THREE SIXTY CORP. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of Three Sixty Corp., a New Jersey corporation ("TSC"),
which will be held on February 22, 1996, at 10:00 a.m., local time at 120 Floral
Avenue, New Providence, New Jersey 07974.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Asset Purchase Agreement
(the "TSC Agreement"), dated as of October 19, 1995, by and among Heartland
Wireless Communications, Inc., a Delaware corporation ("Heartland"), TSC, and
Technivision, Inc., formerly a subsidiary of TSC that has been merged with and
into TSC ("Technivision"), pursuant to which (a) TSC will sell to Heartland
substantially all of the assets formerly held by Technivision, consisting of
wireless cable television assets in Dayton, Ohio, Corpus Christi, Texas and El
Paso, Texas, and (b) Heartland will issue to TSC that number of newly issued
publicly tradeable shares ("TSC Shares") of Heartland common stock, par value
$.001 per share ("Heartland Common Stock"), having an aggregate exchange value
of (i) $36.75 million plus (ii) $1,200 for each wireless cable television
subscriber on the fifth business day preceding the consummation of the TSC
Agreement (or February 15, 1996 based upon a contemplated closing date of
February 23, 1996) in excess of amounts specified in the TSC Agreement
(currently estimated to be $1.5 million, provided that the aggregate of such
additional subscriber consideration will not exceed $3.5 million), minus (iii)
the amount of any obligations assumed by Heartland (not to exceed $5 million,
and currently estimated to be $5 million), minus (iv) if the wireless cable
television assets relative to the Dayton, Ohio market are sold prior to the
consummation of the TSC Agreement, certain proceeds thereof to be retained by
TSC. The exchange value of the Heartland Common Stock to be issued pursuant to
the TSC Agreement will be equal to the average closing price of the Heartland
Common Stock on the Nasdaq Stock Market's National Market over the
20-trading-day period ending on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996). IN THE EVENT THAT THE AVERAGE
CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ STOCK
MARKET'S NATIONAL MARKET OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY 12,
1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED
CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, TSC STOCKHOLDERS WILL
BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE TSC
STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. As a part of the approval
of the TSC Agreement, the TSC stockholders will be asked to approve the
liquidation and dissolution of TSC (the "TSC Liquidation") in accordance with
the terms and conditions of the Agreement and Plan of Liquidation attached as
Appendix C to the accompanying Proxy Statement/Prospectus (the "TSC Liquidation
Plan"), pursuant to which the TSC Shares (and the remaining assets of TSC) will
be distributed. Pursuant to the terms of the TSC Agreement, TSC Shares having an
aggregate exchange value of $5 million will be held in escrow for a period of up
to 18 months to satisfy certain indemnification obligations of TSC to Heartland,
and additional TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be held in a separate escrow
for up to six months (subject to extension) to secure the performance of certain
post-closing covenants of TSC. The transactions contemplated by the TSC
Agreement, TSC Liquidation Plan and the consummation thereof are collectively
referred to herein as the "TSC Transaction."
THE TSC TRANSACTION IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND A COPY OF THE TSC AGREEMENT AND TSC LIQUIDATION PLAN
ARE ATTACHED AS APPENDIX A AND APPENDIX C, RESPECTIVELY THERETO.
AT THE DIRECTORS MEETING HELD TO CONSIDER THE TSC TRANSACTION, THE
DIRECTORS OF TSC CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE TSC
TRANSACTION AS BEING IN THE BEST INTERESTS OF TSC AND ITS STOCKHOLDERS. THE
<PAGE> 27
TSC BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO
APPROVE THE TSC TRANSACTION.
AT THE SPECIAL MEETING, THE TSC STOCKHOLDERS WILL BE ASKED TO APPROVE AND
ADOPT THE TSC AGREEMENT, THE TSC LIQUIDATION PLAN AND THE TRANSACTIONS RELATED
THERETO AS A PART OF ONE APPROVAL. THE TSC STOCKHOLDERS ARE NOT BEING REQUESTED,
AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE TSC AGREEMENT, TSC
LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
The TSC Transaction is only one of five (5) separate, but related,
transactions (collectively, the "Transactions") which Heartland intends to
consummate at or about the same time. The shares of Heartland Common Stock to be
issued in connection with each of the Transactions are being registered on a
single Registration Statement consisting of multiple Proxy
Statements/Prospectuses, of which the enclosed Proxy Statement/Prospectus forms
a part. Consummation of the TSC Transaction is conditioned upon, among other
things, the requisite approval by the Heartland stockholders of the TSC
Agreement and transactions contemplated thereby.
The affirmative vote of a majority of the votes cast by the holders of the
TSC Common Stock is necessary to approve the TSC Transaction. Abstentions and
broker non-votes will have no effect on the approval of the TSC Transaction
(assuming a majority of the shares of TSC Common Stock is present at the Special
Meeting).
Pursuant to the New Jersey Business Corporation Act ("NJBCA") holders of
TSC Common Stock who vote against the TSC Transaction and comply with the
detailed provisions contained in Chapter 11 of NJBCA will be entitled to dissent
from the TSC Transaction and to seek payment of the fair value of their TSC
Common Stock. A copy of Chapter 11 of the NJBCA is reproduced as Appendix D to
the attached Proxy Statement/Prospectus. TSC stockholders wishing to dissent
from the TSC Transaction should read such materials carefully.
The enclosed Proxy Statement/Prospectus sets forth, or incorporates by
reference, information, including financial data, relating to Heartland, TSC and
certain other parties involved in the Transactions and describes the terms and
conditions of the TSC Transaction and the other Transactions. The Board of
Directors recognizes that this Proxy Statement/Prospectus is a lengthy document.
However, this document necessarily results from the complexity of the TSC
Transaction and the other Transactions and the need to furnish you with all
appropriate information. Accordingly, the Board of Directors of TSC requests
that you carefully review these materials before completing the enclosed Proxy
Card. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY A TSC STOCKHOLDER WILL BE
DEEMED TO BE A VOTE FOR THE APPROVAL OF THE TSC AGREEMENT AND THE TSC
TRANSACTION. ACCORDINGLY, TSC STOCKHOLDERS RETURNING SIGNED BUT UNMARKED PROXY
CARDS WILL WAIVE THEIR APPRAISAL RIGHTS.
Please do not send in your stock certificates with your proxy. If the
stockholders of TSC approve the TSC Transaction, you will receive a Letter of
Transmittal with instructions for the surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
any questions about the voting procedure or the accompanying Proxy
Statement/Prospectus, please feel free to contact TSC c/o Nowalk & Associates,
2650 Route 130 North, Cranbury, New Jersey 08512, (telephone (609) 655-4100).
Very truly yours,
Robert D. Bilodeau
President
<PAGE> 28
THREE SIXTY CORP.
120 FLORAL AVENUE
NEW PROVIDENCE, NEW JERSEY 07974
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY 22, 1996
TO THE STOCKHOLDERS OF THREE SIXTY CORP.:
NOTICE IS HEREBY GIVEN that a Special Meeting (together with any
adjournments or postponements thereof, the "Special Meeting") of the
stockholders of Three Sixty Corp., a New Jersey corporation ("TSC"), will be
held at 120 Floral Avenue, New Providence, New Jersey 07974 on February 22, 1996
at 10:00 a.m., local time, for the following purposes, as more fully described
in the accompanying Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Amended and
Restated Asset Purchase Agreement (the "TSC Agreement"), dated as of
October 19, 1995, by and among TSC, Heartland Wireless Communications,
Inc., a Delaware corporation ("Heartland"), and Technivision, Inc.,
formerly a subsidiary of TSC that has been merged with and into TSC
("Technivision"), pursuant to which (a) TSC will sell to Heartland
substantially all of the assets formerly held by Technivision, consisting
of wireless cable television assets in Dayton, Ohio, Corpus Christi, Texas
and El Paso, Texas, and (b) Heartland will issue to TSC that number of
newly issued publicly tradeable shares ("TSC Shares") of Heartland common
stock, par value $.001 per share ("Heartland Common Stock"), having an
aggregate exchange value of (i) $36.75 million plus (ii) $1,200 for each
wireless cable television subscriber on the fifth business day preceding
the consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996) in excess of amounts
specified in the TSC Agreement (currently estimated to be $1.5 million,
provided that the aggregate of such additional subscriber consideration
will not exceed $3.5 million), minus (iii) the amount of any obligations
assumed by Heartland (not to exceed $5 million, and currently estimated to
be $5 million), minus (iv) if the wireless cable television assets relative
to the Dayton, Ohio market are sold prior to the consummation of the TSC
Agreement, certain proceeds thereof to be retained by TSC. The exchange
value of the Heartland Common Stock to be issued pursuant to the TSC
Agreement will be equal to the average closing price of the Heartland
Common Stock on the Nasdaq Stock Market's National Market over the
20-trading-day period ending on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996). AS A PART OF THE APPROVAL
OF THE TSC AGREEMENT, THE TSC STOCKHOLDERS WILL BE ASKED TO APPROVE THE
LIQUIDATION AND DISSOLUTION OF TSC (THE "TSC LIQUIDATION") IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THE AGREEMENT AND PLAN OF LIQUIDATION
attached as Appendix C to the accompanying Proxy Statement/Prospectus (the
"TSC Liquidation Plan"), pursuant to which the TSC Shares (and the
remaining assets of TSC) will be distributed. Pursuant to the terms of the
TSC Agreement, TSC Shares having an aggregate exchange value of $5 million
will be held in escrow for a period of up to 18 months to satisfy certain
indemnification obligations of TSC to Heartland, and additional TSC Shares
having an aggregate exchange value of up to $3.6 million (currently
estimated to be $1 million) will be held in a separate escrow for six
months (subject to extension) to secure the performance of certain
post-closing covenants of TSC. The transactions contemplated by the TSC
Agreement, the TSC Liquidation Plan and the consummation thereof are
collectively referred to herein as the "TSC Transaction." If the TSC
Transaction is consummated, the Board of Directors of TSC ("TSC Board")
anticipates that TSC Shares having an aggregate exchange value of
approximately $20 million (or approximately $2,865 per share of TSC Common
Stock) will be distributed to certain creditors of TSC or sold (in the open
market or as otherwise directed by the TSC Board) in accordance with the
TSC Liquidation Plan to satisfy the known and contingent claims against
TSC, and the remaining TSC Shares (currently estimated to have an aggregate
exchange value of approximately $13.25 million, or approximately $1,900 per
share of TSC Common Stock, assuming (i) TSC elects to cause Heartland to
assume $5 million of liabilities at closing, (ii) $1.5 million of
additional subscriber consideration and (iii) the Dayton system is not sold
prior to closing) will, subject to certain escrow requirements, be
available for distribution to the TSC stockholders. Upon the completion of
the liquidation and dissolution of TSC, any remaining proceeds from the
<PAGE> 29
liquidated TSC Shares will be distributed among the TSC stockholders. The
enclosed Proxy Statement/Prospectus describes in detail the TSC Agreement
and the TSC Liquidation Plan and the transactions contemplated in
connection therewith.
2. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors has fixed the close of business on January 17, 1996
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. The affirmative vote of a majority of the
votes cast by the holders of the TSC Common Stock is necessary to approve the
TSC Transaction.
AT THE SPECIAL MEETING, THE TSC STOCKHOLDERS WILL BE ASKED TO APPROVE AND
ADOPT THE TSC AGREEMENT, THE TSC LIQUIDATION PLAN AND THE TRANSACTIONS RELATED
THERETO AS A PART OF ONE APPROVAL. THE TSC STOCKHOLDERS ARE NOT BEING REQUESTED,
AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE TSC AGREEMENT, TSC
LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
Pursuant to the New Jersey Business Corporation Act ("NJBCA"), holders of
TSC Common Stock who vote against the TSC Transaction and comply with the
detailed provisions contained in Chapter 11 of the NJBCA will be entitled to
dissent from the TSC Transaction and to seek payment of the fair value of their
TSC Common Stock. Because an executed Proxy Card will be voted "FOR" the TSC
Transaction unless otherwise specified, a stockholder returning a signed but
unmarked Proxy Card will waive his or her right to dissent from the TSC
Transaction. A copy of Chapter 11 of the NJBCA is reproduced as Appendix D to
the attached Proxy Statement/Prospectus. TSC stockholders wishing to dissent
from the TSC Transaction should read such materials carefully.
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED TSC PROXY CARD AND RETURN IT IN THE ACCOMPANYING
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL
MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE PROXY STATEMENT/PROSPECTUS.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE 17 TRADING DAY
PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE
INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN
$23, TSC STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE
SPECIAL MEETING TO ENABLE TSC STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR
VOTE.
By Order of the Board of Directors,
Robert H. Greenwood
Secretary
NEW PROVIDENCE, NEW JERSEY
January 26, 1996
<PAGE> 30
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JANUARY 25, 1996
---------------------
PROXY STATEMENT
FOR
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 N. BOWSER, SUITE 140
RICHARDSON, TEXAS 75081
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 22, 1996
---------------------
This Proxy Statement and the accompanying appendices and other materials
are being furnished in connection with the solicitation of proxies by the Board
of Directors of Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), to be used at a Special Meeting of Stockholders of Heartland to
be held on February 22, 1996 (the "Heartland Meeting").
The proxies solicited hereby for the Heartland Meeting may be revoked,
subject to the procedures described herein, at any time up to and including the
date of the Heartland Meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 31 FOR A DISCUSSION OF CERTAIN
IMPORTANT FACTORS THAT SHOULD BE CONSIDERED IN ADDITION TO THE OTHER INFORMATION
HEREIN, BEFORE VOTING UPON THE VARIOUS TRANSACTIONS TO BE CONSIDERED AT THE
HEARTLAND MEETING.
THE SECURITIES TO BE ISSUED PURSUANT TO THE REGISTRATION STATEMENT OF WHICH
THIS PROXY STATEMENT FORMS A PART HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
All undefined capitalized items shall have the meanings set forth on page
165 of this Proxy Statement.
This Proxy Statement and the accompanying appendices and Proxy Card are
first being mailed to the stockholders of Heartland on or about January 26,
1996.
THE DATE OF THIS PROXY STATEMENT IS JANUARY 26, 1996.
<PAGE> 31
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 2
SUMMARY................................................................................ 3
The Industry......................................................................... 3
The Parties.......................................................................... 3
The Heartland Meeting................................................................ 12
The Transactions..................................................................... 13
The Combined Company................................................................. 26
RISK FACTORS........................................................................... 31
INFORMATION CONCERNING HEARTLAND....................................................... 41
The Business......................................................................... 41
Recent Transactions.................................................................. 50
Dividends on and Market Prices of Heartland Common Stock............................. 53
Calculation and Listing of Shares to be Issued in Connection with the Transactions... 54
Management........................................................................... 57
Security Ownership of Principal Stockholders and Management.......................... 64
Certain Transactions................................................................. 65
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND............................... 68
PRO FORMA FINANCIAL INFORMATION RELATIVE TO THE TRANSACTIONS........................... 70
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 95
RECOMMENDATIONS OF THE HEARTLAND BOARD; OPINIONS OF HEARTLAND'S ADVISOR................ 106
Recommendations of the Heartland Board of Directors.................................. 106
Background of the Transactions....................................................... 106
Board Deliberations.................................................................. 110
Opinions of Heartland's Advisor...................................................... 112
THE HEARTLAND MEETING.................................................................. 114
Time, Place and Date of Heartland Meeting............................................ 114
Purpose of the Heartland Meeting..................................................... 114
Record Date; Voting Rights........................................................... 114
Vote Required........................................................................ 115
Solicitation of Proxies and Expenses................................................. 115
Proxies.............................................................................. 115
Other Matters to be Considered....................................................... 116
Stockholder Proposals................................................................ 116
Lack of Appraisal Rights............................................................. 116
THE COMBINED COMPANY................................................................... 117
Business of the Combined Company After the Transactions.............................. 117
Management of the Combined Company................................................... 122
Principal Holders.................................................................... 122
Planned Divestitures................................................................. 123
THE AWS MERGER......................................................................... 127
Reasons for the AWS Merger........................................................... 127
Terms of AWS Merger Agreement........................................................ 127
Stock Options; Warrants.............................................................. 130
Effective Time....................................................................... 130
Representations and Warranties....................................................... 130
Covenants and Obligations............................................................ 130
No Solicitation...................................................................... 131
Conditions........................................................................... 131
Regulatory Approvals................................................................. 132
</TABLE>
i
<PAGE> 32
<TABLE>
<S> <C>
Termination.......................................................................... 132
Resales; Affiliates.................................................................. 133
Accounting Treatment................................................................. 133
Interested Parties................................................................... 133
Voting Agreements.................................................................... 133
Certain Expenses..................................................................... 133
THE FTW TRANSACTION.................................................................... 134
Reasons for the FTW Transaction...................................................... 134
Terms of FTW Agreement............................................................... 134
Representations and Warranties....................................................... 135
Covenants and Obligations............................................................ 136
No Solicitation...................................................................... 136
Conditions........................................................................... 136
Regulatory Approvals................................................................. 137
Termination.......................................................................... 137
Indemnification...................................................................... 138
Description of FTW Claims............................................................ 138
Accounting Treatment................................................................. 139
Interested Parties................................................................... 139
Certain Expenses..................................................................... 139
THE MINNEAPOLIS TRANSACTION............................................................ 139
Reasons for the Minneapolis Transaction.............................................. 140
Terms of the Minneapolis Agreement................................................... 140
Representations and Warranties....................................................... 141
Covenants and Obligations............................................................ 141
No Solicitation...................................................................... 142
Conditions........................................................................... 142
Regulatory Approvals................................................................. 143
Termination.......................................................................... 143
Indemnification...................................................................... 143
Description of Minneapolis Claims.................................................... 143
Accounting Treatment................................................................. 143
Interested Parties................................................................... 144
Certain Expenses..................................................................... 144
THE CMAX MERGER........................................................................ 145
Reasons for the CMAX Merger.......................................................... 145
Terms of the CMAX Merger Agreement................................................... 145
Effective Time....................................................................... 147
Representations and Warranties....................................................... 147
Covenants and Obligations............................................................ 147
No Solicitation...................................................................... 148
Conditions........................................................................... 148
Regulatory Approvals................................................................. 149
Termination.......................................................................... 149
Voting Agreements.................................................................... 150
Indemnification...................................................................... 150
Resales; Affiliates; Registration Rights............................................. 150
Accounting Treatment................................................................. 150
Interested Parties................................................................... 150
Material Contacts.................................................................... 151
Certain Expenses..................................................................... 151
</TABLE>
ii
<PAGE> 33
<TABLE>
<S> <C>
THE TSC TRANSACTION.................................................................... 152
Reasons for the TSC Transaction...................................................... 152
Terms of the TSC Agreement........................................................... 152
Other Assets......................................................................... 153
Representations and Warranties....................................................... 153
Covenants and Obligations............................................................ 153
No Solicitation...................................................................... 154
Conditions........................................................................... 154
Regulatory Approvals................................................................. 155
Termination.......................................................................... 155
Indemnification...................................................................... 155
Accounting Treatment................................................................. 155
Interested Parties................................................................... 156
WIRELESS CABLE INDUSTRY................................................................ 156
Cable Industry Overview.............................................................. 156
Wireless Cable Technology............................................................ 156
Traditional Hard-Wire Cable Technology............................................... 157
Regulatory Environment............................................................... 157
Availability of Programming.......................................................... 160
Pay Television Industry Trends....................................................... 161
Competition.......................................................................... 162
EXPERTS................................................................................ 164
LEGAL MATTERS.......................................................................... 164
GLOSSARY............................................................................... 165
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION.......................................................................... F-1
</TABLE>
APPENDICES
<TABLE>
<S> <C>
Appendix A -- Heartland Fairness Opinions
Appendix B -- Information Concerning AWS
Appendix C -- Amended and Restated AWS Merger Agreement
Appendix D -- AWS Escrow Agreement
Appendix E -- Information Concerning FTW Partnership
Appendix F -- Amended and Restated FTW Asset Purchase Agreement
Appendix G -- FTW Claim Release
Appendix H -- FTW Claim Assignment
Appendix I -- FTW Liquidation Plan
Appendix J -- Information Concerning Minneapolis Partnership
Appendix K -- Amended and Restated Minneapolis Asset Purchase Agreement
Appendix L -- Minneapolis Claim Assignment
Appendix M -- Minneapolis Liquidation Plan
Appendix N -- Information Concerning CMAX
Appendix O -- Amended and Restated CMAX Merger Agreement
Appendix P -- Information Concerning TSC
Appendix Q -- Amended and Restated TSC Asset Purchase Agreement
Appendix R -- TSC Escrow Agreement
Appendix S -- TSC Liquidation Plan
</TABLE>
iii
<PAGE> 34
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HEARTLAND OR
ANY OTHER PERSON OR ENTITY. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE ANY SUCH SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION OF SECURITIES IN CONNECTION
HEREWITH SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF HEARTLAND, AWS, FTW PARTNERSHIP, MINNEAPOLIS
PARTNERSHIP, CMAX OR TSC SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Heartland, AWS and CMAX are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC" or
"Commission"). The reports, proxy statements and other information filed by
Heartland, AWS and CMAX with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission at Seven World Trade Center, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. The common stock of each of Heartland and CMAX is listed on the
Nasdaq Stock Market's National Market. ("Nasdaq-NMS") and the common stock of
AWS is listed on the Nasdaq Stock Market's OTC Bulletin Board. Reports, proxy
statements and other information concerning Heartland, AWS and CMAX can also be
inspected at the offices of The National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
Heartland has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued pursuant to the transactions
described herein. The Registration Statement contains one proxy statement and
three proxy statement/prospectuses. As permitted by the rules and regulations of
the Commission, this Proxy Statement does not contain all of the information set
forth in the Registration Statement. Copies of the Registration Statement
containing such omitted information are available from the Commission upon
payment of certain fees prescribed by the Commission or without charge from
Heartland as described below. Statements contained in this Proxy Statement or in
any document incorporated by reference in this Proxy Statement as to the
contents of any contract or other document referred to herein are not
necessarily complete. In each instance, reference is hereby made to the copy of
such contract or other document filed as an appendix and/or exhibit to the
Registration Statement or such other document and each such statement is
qualified in all respects by such reference.
TO OBTAIN, WITHOUT CHARGE, COPIES OF THE PROXY STATEMENT/PROSPECTUSES
CONSTITUTING PART OF THE REGISTRATION STATEMENT, PLEASE CONTACT HEARTLAND AT 903
N. BOWSER, SUITE 140, RICHARDSON, TEXAS 75081, TELEPHONE NUMBER 214-479-9244.
The term "Heartland" when used herein shall mean Heartland Wireless
Communications, Inc. and its subsidiaries and affiliates through which it
conducts business, unless the context indicates otherwise. The term "CMAX" when
used herein shall mean CableMaxx, Inc. and its subsidiaries through which it
conducts business, unless the context indicates otherwise. The term "AWS" when
used herein shall mean American Wireless Systems, Inc. and its one subsidiary
through which it conducts business, unless the context indicates otherwise.
2
<PAGE> 35
SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement. This Summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in this Proxy Statement and
the Appendices hereto, all of which should be carefully reviewed. The
information contained herein with respect to Heartland, AWS, FTW Partnership,
Minneapolis Partnership, CMAX and TSC has been supplied by each such respective
entity. Additionally, the information contained herein with respect to the AWS
Merger, the FTW Transaction, the Minneapolis Transaction, the CMAX Merger and
the TSC Transaction is qualified by reference to the AWS Merger Agreement, FTW
Agreement, Minneapolis Agreement, CMAX Merger Agreement and TSC Agreement
attached hereto as Appendix C, F, K, O and Q, respectively, and incorporated
herein by reference. Unless otherwise indicated, year-end financial and other
information referencing a particular year with respect to Heartland, AWS, FTW
Partnership or the Minneapolis Partnership is as of or for the fiscal year ended
December 31, with respect to CMAX is as of or for the fiscal year ended June 30,
and with respect to TSC is as of or for the fiscal year ended May 31. Cross-
references in this Summary refer to indicated captions or portions of this Proxy
Statement.
This Proxy Statement is one of four proxy statements or proxy
statement/prospectuses that are contained in the Registration Statement of which
this Proxy Statement constitutes a part. Each proxy statement/prospectus,
including this Proxy Statement, describes one or more of five separate but
related transactions pursuant to which Heartland proposes to (i) cause a wholly
owned subsidiary to merge with and into AWS, (ii) cause a wholly owned
subsidiary to merge with and into CMAX, (iii) acquire FTW Partnership's 79.99%
joint venture interest in and to the joint venture that owns and operates the
wireless cable television systems in Fort Worth, Texas, (iv) acquire the
Minneapolis Partnership's 75% membership interest in and to American Wireless
System of Minneapolis, L.L.C., a limited liability company that owns and
operates the wireless cable television system in Minneapolis, Minnesota, and (v)
acquire substantially all of the assets formerly held by Technivision
(collectively the "Transactions"). To obtain, without charge, copies of any
other proxy statement or prospectus contained therein, see "Additional
Information."
THE STOCKHOLDERS OF HEARTLAND ARE BEING ASKED ONLY TO CONSIDER A PROPOSAL
TO ISSUE CERTAIN ADDITIONAL SHARES OF HEARTLAND COMMON STOCK IN CONNECTION WITH
THE TRANSACTIONS. THE STOCKHOLDERS OF HEARTLAND ARE NOT BEING REQUESTED, AND
WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE AFOREMENTIONED FIVE
TRANSACTIONS.
EACH OF THE TRANSACTIONS INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS."
THE INDUSTRY
Wireless cable is an alternative to traditional hard-wire cable television
systems that offers various types of programming including local off-air VHF/UHF
channels (such as ABC, CBS, NBC and Fox) and premium channels (such as HBO,
Showtime, Disney, MTV, etc.). Like traditional hard-wire cable, 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. Generally, this requires that
subscribers 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). See "Wireless
Cable Industry."
THE PARTIES
HEARTLAND WIRELESS COMMUNICATIONS, INC.
General. Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), develops, owns and operates wireless cable television systems
primarily in small to mid-size markets located in the central United States. As
of November 30, 1995, Heartland had wireless cable channel rights in 79 existing
3
<PAGE> 36
markets representing approximately 8.2 million households, approximately 6.7
million of which Heartland estimates are serviceable by LOS transmissions.
Heartland currently operates wireless cable television systems in 32 markets,
representing approximately 3.4 million households, approximately 2.9 million of
which Heartland estimates are serviceable by LOS transmissions. On November 30,
1995, Heartland's existing wireless cable television systems provided service to
approximately 80,600 subscribers.
Certain of the wireless cable assets presently held by or sought to be
acquired by Heartland pursuant to the Transactions are not included in the
discussion of Heartland's business because such assets are not part of
Heartland's current long-term business plan (the excluded assets being
collectively referred to as the "Heartland Disposition Assets"). Heartland is
currently pursuing opportunities to dispose of the Heartland Disposition Assets
and expects to sell, contribute or exchange such assets in one or more
transactions. See "Summary -- The Combined Company -- Planned Divestitures".
Although no assurance can be given that any or all of the Heartland Disposition
Assets will be disposed of on terms acceptable to Heartland or when such
transactions might be consummated, if such dispositions are consummated,
Heartland will have acquired pursuant to the Transactions wireless cable channel
rights in nine markets representing an aggregate of approximately 1.3 million
households, approximately 1.0 million of which can be served by LOS
transmissions, and four operating systems serving an aggregate of approximately
37,940 subscribers as of November 30, 1995. Assuming the Transactions are
consummated and the Heartland Disposition Assets are sold, contributed or
exchanged, Heartland would hold wireless cable channel rights in 79 markets (33
operating markets serving approximately 117,000 subscribers) representing
approximately 8.2 million households, approximately 6.8 million of which
Heartland estimates are serviceable by LOS transmission. See "The Combined
Company -- Business of the Combined Company After the Transactions."
Heartland estimates that, within the 79 wireless cable markets following
the consummation of the Transactions and the proposed divestitures,
approximately 2.4 million LOS households, or approximately 36% of Heartland'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 executive offices of Heartland are located at 903 N. Bowser, Suite 140,
Richardson, Texas 75081, and its telephone number is (214) 479-9244. See
"Information Concerning Heartland."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Heartland. The data was
derived from the more detailed information and the consolidated financial
statements of Heartland appearing elsewhere in this Proxy Statement. The data
should be read in conjunction with "Selected Consolidated Financial Information
of Heartland," "Heartland -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
(including the notes thereto) of Heartland contained elsewhere in this Proxy
Statement. See "Index to Consolidated Financial Statements and Unaudited Pro
Forma Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ---------------------------
1992 1993 1994 1994 1995
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................... $ 205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
Total operating expenses......................... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss................................... (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income (expense), net................... (207) (73,306) (210,113) 60,519 (6,864,367)
Income tax benefit............................... -- -- 1,594,963 649,510 1,307,137
Net loss......................................... (50,822) (406,101) (3,043,321) (1,213,894) (11,178,095)
Net loss per common share........................ $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
Weighted average shares outstanding................ 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
Operating and Other Financial Data:
EBITDA(1)........................................ $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $ (1,050,936)
Capital expenditures(2).......................... 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
Number of systems in operation (at end of
period).......................................... 1 5 13 8 30
Estimated LOS households in systems in operation
(at end of period)............................... 24,319 371,652 1,108,230 843,904 2,723,365
Subscribers (at end of period)..................... 1,076 2,731 19,838 8,040 64,357
</TABLE>
4
<PAGE> 37
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted
investments..................................... $ 815,305 $11,985,953 $ 37,155,064
Restricted investments............................ -- -- 24,747,214
Total assets...................................... 8,665,066 77,921,528 200,150,474
Long-term debt, including current portion......... 1,592,529 40,505,852 140,045,039
Total stockholders' equity........................ 4,492,568 30,080,885 48,293,817
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the year ended December 31, 1992 were comprised of
$604,082 for purchases of systems and equipment and $797,655 of expenditures
for leased licenses; for the year ended December 31, 1993, $2,072,937 for
purchases of systems and equipment and $3,068,084 for expenditures for
leased licenses; for the year ended December 31, 1994, $12,414,501 for
purchases of systems and equipment, $3,354,471 for expenditures of leased
licenses, $12,431,379 for the investment in Rural Vision Joint Venture and
$16,300,000 for the purchase of certain assets from Rural Vision Joint
Venture and the acquisition of the Lindsay, Oklahoma system; for the nine
months ended September 30, 1994, $4,011,480 for systems and equipment and
$2,465,265 for leased licenses and $11,649,908 for the investment in
RuralVision Joint Venture; and for the nine months ended September 30, 1995,
$25,575,252 for purchases of system and equipment, $1,592,024 for
expenditures for leased licenses, $5,426,432 for the investment in Rural
Vision Joint Venture and $11,422,814 for the acquisition of wireless cable
television systems in Lubbock, Texas and Tulsa, Oklahoma and the acquisition
of certain additional assets from Rural Vision Joint Venture.
AMERICAN WIRELESS SYSTEMS, INC.
General. American Wireless Systems, Inc., a Delaware corporation ("AWS"),
currently owns a minority interest in and manages the operations of wireless
cable systems in Minneapolis, Minnesota and Fort Worth, Texas and owns the
rights to certain wireless cable rights in Dallas, Texas, Los Angeles,
California and Memphis, Tennessee. The Minneapolis and Fort Worth markets
combined have approximately 1,500,000 households, of which AWS estimates
approximately 1,325,000 are serviceable by LOS transmissions.
AWS owns a 25% membership interest in American Wireless System of
Minneapolis, LLC, a Delaware limited liability company ("Minneapolis LLC"), that
owns and operates the Minneapolis system, which system was launched in March
1993. The Minneapolis system provides 29 channels of service, including eight
local television stations, to approximately 2,740 subscribers as of November 30,
1995. AWS owns an interest in and manages the operations of the Minneapolis
system pursuant to joint venture and management agreements with Minneapolis LLC
and its joint venture partner, Wireless Cable TV Associates #38 ("Minneapolis
Partnership"), the owner of the 75% membership interest in the Minneapolis LLC.
In connection with these agreements, AWS has loaned to Minneapolis Partnership
$2,000,000, the proceeds of which have been contributed to the Minneapolis LLC
and used to fund operating expenses and the costs of subscriber growth.
AWS owns a 20.01% beneficial interest in a joint venture that owns and
operates the Fort Worth system (the "FTW Venture"), which system was launched in
November 1992. The Fort Worth system provides 27 channels of service, including
13 local television stations, to approximately 1,550 subscribers as of November
30, 1995. AWS also has acquired the rights to eight additional wireless cable
channels that AWS anticipates will be added to the Fort Worth system.
AWS directly owns the rights to 16 wireless cable channels in Dallas, nine
wireless cable channels in Los Angeles and 22 wireless cable channels in
Memphis. In Dallas, AWS is negotiating to acquire additional wireless cable
channel rights. On November 7, 1995, AWS entered into a contract with TruVision
Cable, Inc. ("TruVision") to sell all of AWS's assets in Memphis for $3,900,000
in cash. Pursuant to the AWS Merger Agreement, at least $750,000 of the proceeds
of such transaction will be held in a deposit account for the benefit of
Heartland pending the consummation of the AWS Merger and the remaining proceeds
will be used
5
<PAGE> 38
to offset the permitted liabilities of AWS. AWS anticipates that this
transaction will close by February 29, 1996.
The executive offices of AWS are located at 7426 East Stetson Drive, Suite
220, Scottsdale, Arizona 85251, and its telephone number is (602) 994-4301. See
Appendix B: "Information Concerning AWS."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for AWS. The data was derived
from the more detailed information and the financial statements of AWS appearing
elsewhere in this Proxy Statement. The data should be read in conjunction with
Appendix B: "Information Concerning AWS -- Selected Financial Information,"
"-- AWS -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements (including the notes
thereto) of AWS contained elsewhere in this Proxy Statement. See "Index to
Consolidated Financial Statements and Unaudited Pro Forma Information."
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- --------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues(1).................. $ -- $ -- $ 83,333 $ 58,333 $ 75,000
Total operating expenses........... 3,358,526 2,758,934 4,158,462 2,770,860 1,599,231
Operating loss..................... (3,358,526) (2,758,934) (4,075,129) (2,712,527) (1,524,231)
Interest expense, net.............. -- (775,525) (976,867) (978,695) (126,119)
Net loss........................... (3,443,736) (3,650,160) (5,726,780) (4,377,096) (984,570)
Net loss per common share............ $ (1.33) $ (1.16) $ (1.26) $ (1.06) $ (.17)
Weighted average shares
outstanding........................ 2,595,689 3,159,397 4,540,362 4,135,431 5,709,187
Other Financial Data:
EBITDA(2).......................... $(3,324,205) $(2,316,001) $(3,438,080) $(2,098,810) $(1,458,152)
Capital expenditures(3)............ $ 910,355 $ 832,326 $ 4,107,603 $ 3,788,011 $ 702,125
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................................... $3,244,275 $ 376,621 $ 1,182,653
Total assets................................................... 9,301,293 6,949,900 7,554,298
Long-term debt, including current portion...................... 7,707,000 -- 1,899,442
Total stockholders' equity..................................... 903,575 5,767,859 4,783,289
</TABLE>
- ---------------
(1) Since inception AWS' only revenue source has been from management fees. The
first such fees were received in March 1994. Because AWS owns a minority
interest in each of the systems it currently operates, AWS does not
recognize revenues from operations from these systems.
(2) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(3) For the year ended December 31, 1992 capital expenditures were comprised of
$160,960 for purchases of property and equipment and $749,395 for
expenditures for investment in wireless systems; for the year ended December
31, 1993 capital expenditures were comprised of $77,055 for purchases of
property and equipment and $755,271 for expenditures for investment in
wireless systems; for the year ended December 31, 1994 capital expenditures
were comprised of $287,291 for purchases of property and equipment and
$3,820,312 for expenditures for investment in wireless systems; for the nine
months ended September 30, 1994 capital expenditures were comprised of
$241,677 for purchase of property and equipment and $3,546,334 of
expenditures for investment in wireless systems; and for the nine months
ended September 30, 1995 capital expenditures were comprised of $40,035 for
purchase of property and equipment and $662,090 of expenditures for
investment in wireless systems.
HEARTLAND MERGER SUB, INC.
Heartland Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("AWS Merger Sub"), was formed by Heartland for the
purpose of effecting the transaction described herein with AWS. AWS Merger Sub
does not maintain executive offices. AWS Merger Sub's mailing address is c/o
Heartland Wireless Communications, Inc., 903 N. Bowser, Suite 140, Richardson,
Texas 75081 and the telephone number is (214) 479-9244.
6
<PAGE> 39
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
General. Fort Worth Wireless Cable T.V. Associates, a California general
partnership ("FTW Partnership"), owns as its principal asset a 79.99% interest
(the "FTW Interest") in the FTW Venture, the owner and operator of the Fort
Worth system. AWS owns the remaining 20.01% beneficial interest in FTW Venture.
FTW Partnership does not maintain executive offices. FTW Partnership
matters may be directed to its legal counsel in care of Robert E. Morrison, Esq.
at Brown McCarroll & Oaks Hartline, 300 Crescent Court, Suite 1400, Dallas,
Texas 75201 and the telephone number is (214) 999-6100. See Appendix E:
"Information Concerning FTW Partnership."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for FTW Partnership. The data
was derived from the more detailed information and the consolidated financial
statements of FTW Partnership appearing elsewhere in this Proxy Statement. The
data should be read in conjunction with Appendix E: "Information Concerning FTW
Partnership -- Selected Financial Information," "-- FTW
Partnership -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements (including the
notes thereto) of FTW Partnership contained elsewhere in this Proxy Statement.
See "Index to Consolidated Financial Statements and Unaudited Pro Forma
Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------------
1992 1993 1994 1994 1995
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues....................................... $ 144,381 $ 791,877 $ 667,260 $ 505,259 $ 451,581
Total operating expenses........................... 888,577 1,862,604 2,050,023 1,574,601 1,481,663
Operating loss..................................... (744,196) (1,070,727) (1,382,763) (1,069,342) (1,030,082)
Net loss........................................... (667,750) (1,013,038) (1,320,482) (1,021,368) (986,034)
Other Financial Data:
EBITDA(1).......................................... $ (493,981) $ (316,611) $ (596,191) $ (460,618) $ (448,631)
Capital expenditures(2)............................ $1,933,269 $ 738,967 $ 86,365 $ 62,761 $ 22,984
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................................... $ 94,898 $ 21,836 $ 25,014
Total assets............................................................ 4,667,216 3,860,932 3,266,499
Long-term debt, including current portion............................... -- -- --
Total partners' equity.................................................. 4,265,962 2,945,480 1,959,446
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should to be considered as an alternative
to net income as a measure of operating results or to cash flows as a
measure of funds available for discretionary or other liquidity purposes.
(2) Capital expenditures for the year ended December 31, 1992 were comprised of
$1,498,371 for purchase of systems and equipment and $434,898 of
expenditures for leased licenses; for the year ended December 31, 1993 were
comprised of 738,967 for purchase of systems and equipment and $-0- for
expenditures for leased licenses; for the year ended December 31, 1994 were
comprised of $73,865 for purchase of systems and equipment and $12,500 for
expenditures for leased licenses; for the nine months ended September 30,
1994 were comprised of $62,761 for purchase of systems and equipment and
$-0- of expenditures for leased licenses; for the nine months ended
September 30, 1995 were comprised of $22,984 for purchase of systems and
equipment and $-0- of expenditures for leased licenses.
WIRELESS CABLE TV ASSOCIATES #38
General. Wireless Cable TV Associates #38, a California general partnership
("Minneapolis Partnership"), owns as its principal asset a 75% membership
interest (the "Minneapolis Interest") in Minneapolis LLC, the owner and operator
of the Minneapolis system. AWS owns the remaining 25% membership interest in
Minneapolis LLC.
7
<PAGE> 40
Minneapolis Partnership does not maintain executive offices. Minneapolis
Partnership matters may be directed to its legal counsel in care of Earl H.
Cohen, Esq. at Mansfield & Tanick, P.A., 1560 International Center, 900 Second
Avenue South, Minneapolis, Minnesota, 55402 and the telephone number is (612)
339-4295. See Appendix J: "Information Concerning Minneapolis Partnership."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Minneapolis Partnership. The
data was derived from the more detailed information and the consolidated
financial statements of Minneapolis Partnership appearing elsewhere in this
Proxy Statement. The data should be read in conjunction with Appendix J:
"Information Concerning Minneapolis Partnership -- Selected Financial
Information," " -- Minneapolis Partnership -- Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements (including the notes thereto) of Minneapolis Partnership
contained elsewhere in this Proxy Statement. See "Index to Consolidated
Financial Statements and Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28,
1992
(INCEPTION) NINE MONTHS ENDED
TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- ---------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................ $ 23,694 $ 272,152 $ 535,046 $ 329,757 $ 740,595
Total operating expenses...................... 94,894 1,944,348 2,628,422 1,821,390 2,264,471
Operating loss................................ (71,200) (1,672,196) (2,093,376) (1,491,633) (1,523,876)
Net loss...................................... (62,436) (1,544,979) (1,955,221) (1,389,145) (1,433,248)
Other Financial Data:
EBITDA(1)..................................... $ (65,042) $ (933,336) $(1,115,905) $ (772,588) $ (724,722)
Capital expenditures(2)....................... $ 5,983,256 $ 1,214,519 $ 520,967 $ 334,408 $ 203,093
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................................ $ 167,897 $ 620,058 $ 177,941
Total assets............................................................. 7,391,740 7,425,224 6,484,576
Long-term debt, including current portion................................ 26,287 2,016,692 2,578,562
Total partners' equity................................................... 6,772,243 4,817,022 3,383,774
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the ten months ended December 31, 1992 were
comprised of $428,269 for purchase of systems and equipment and $5,554,987
of expenditures for leased licenses; for the year ended December 31, 1993
were comprised of $35,938 for purchase of systems and equipment and
$1,178,581 for expenditures for leased licenses; for the year ended December
31, 1994 were comprised of $520,967 for purchase of systems and equipment
and $-0- for expenditures for leased licenses; for the nine months ended
September 30, 1994 were comprised of $334,408 for purchase of systems and
equipment and $-0- of expenditures for leased licenses; for the nine months
ended September 30, 1995 were comprised of $203,093 for purchase of systems
and equipment and $-0-of expenditures for leased licenses.
8
<PAGE> 41
CABLEMAXX, INC.
General. CableMaxx, Inc., a Delaware corporation ("CMAX"), owns, develops
and operates wireless cable television systems and currently provides
subscription television services to approximately 34,300 subscribers (as of
November 30, 1995) in a cluster of wireless cable television systems located in
Texas (the "Texas Cluster"). The Texas Cluster provides service to customers in
a 250 mile long and 70 mile wide area encompassing the cities of San Antonio,
Austin, Temple/Killeen and Waco through the utilization of four separate
head-end/transmission facilities. CMAX also presently holds wireless cable
channel rights in Sherman/Denison, Lubbock, Athens and Amarillo, Texas (the
"Additional Texas Systems") and Salt Lake City, Utah (the "Salt Lake City
System"). In connection with the CMAX Merger Agreement, CMAX entered into a
Sublease and Purchase Agreement with Heartland (the "Sublease Agreement")
pursuant to which CMAX subleased to Heartland all of its wireless cable channel
rights in the Additional Texas Systems. CMAX estimates that the Texas Cluster,
the Additional Texas Systems and the Salt Lake City System collectively
represent approximately 1,614,000 households which can be served by LOS
transmissions. CMAX also estimates that approximately 233,000 households in
these markets are not passed by traditional hard-wire cable systems.
The executive offices of CMAX are located at 6850 Austin Center Boulevard,
Suite 320, Austin, Texas 78731, and its telephone number is (512) 345-1001. See
Appendix N: "Information Concerning CMAX."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for CMAX. The data was derived
from the more detailed information and the consolidated financial statements of
CMAX appearing elsewhere in this Proxy Statement. The data should be read in
conjunction with Appendix N: "Information Concerning CMAX -- Selected
Consolidated Financial Information," "-- CMAX -- Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements (including the notes thereto) of CMAX and the predecessor
of CMAX's business (the "CMAX Predecessor") contained elsewhere in this Proxy
Statement. See "Index to Consolidated Financial Statements and Unaudited Pro
Forma Financial Information."
<TABLE>
<CAPTION>
CMAX CMAX
PREDECESSOR(1) -----------------------------------------------------------------
-------------- PRO FORMA
PERIOD FROM PERIOD FROM FISCAL THREE MONTHS
JULY 1, DECEMBER 18, YEAR FISCAL YEAR ENDED
1992 TO 1992 TO ENDED ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 17, JUNE 30, JUNE 30, ------------------ -----------------
1992 1993 1993(2) 1994 1995 1994 1995
-------------- ------------ --------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues........................ $ 1,835 $ 2,277 $ 4,112 $ 7,709 $ 13,463 $ 3,144 $ 3,633
Total operating expenses.............. 3,033 3,766 6,701 15,123 23,626 5,362 6,135
Operating loss........................ (1,198) (1,489) (2,589) (7,414) (10,163) (2,218) (2,502)
Interest expense...................... (343) (288) (525) (506) (875) (101) (311)
Net loss.............................. (1,036) (1,775) (3,107) (7,499) (10,783) (2,237) (2,796)
Net loss per common share............... -- $(0.35) $(0.61) $(1.05) $(1.21) $ (0.26) $ (0.29)
Weighted average shares outstanding..... -- 5,100 5,100 7,142 8,902 8,600 9,507
Other Financial Data:
EBITDA(3)............................. $ (49) $ (151) $ (272) $(3,175) $ (1,889) $ (486) $ 12
Capital expenditures(4)............... 655 21,768 22,423 17,299 9,798 3,939 1,122
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1994 1995 1995
------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, and short-term investments......................... $14,558 $ 2,206 $ 786
Total assets.................................................................. 53,203 51,954 49,445
Long-term debt................................................................ 3,200 10,808 10,808
Total stockholders' equity.................................................... 44,086 37,709 34,913
</TABLE>
9
<PAGE> 42
- ---------------
(1) Includes consolidated operations of Austin and San Antonio systems, the
assets of which were acquired by CMAX on December 18, 1992 (the "1992
Acquisition") from the CMAX Predecessor.
(2) Presented on a pro forma basis as if the 1992 Acquisition had occurred on
July 1, 1992.
(3) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(4) Capital expenditures for the period from December 18, 1992 to June 30, 1993
were comprised of $3,645 for purchases of systems and equipment and $18,123
for the purchase of certain wireless cable systems. Capital expenditures for
all other periods presented consist solely of purchases of systems and
equipment.
HEARTLAND MERGER SUB 2, INC.
Heartland Merger Sub 2, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("CMAX Merger Sub"), was formed by Heartland for the
purpose of effecting the transactions described herein with CMAX. CMAX Merger
Sub does not maintain executive offices. CMAX Merger Sub's mailing address is
c/o Heartland Wireless Communications, Inc., 903 N. Bowser, Suite 140,
Richardson, Texas 75081 and the telephone number is (214) 479-9244.
THREE SIXTY CORP.
General. Three Sixty Corp., a New Jersey corporation ("TSC"), is the former
parent of TechniVision, Inc., a Texas corporation ("Technivision"). Technivision
was merged into TSC in January 1996 in order to facilitate the TSC Transaction.
Prior to its merger into TSC, Technivision developed, owned and operated
wireless cable television systems in Corpus Christi, Texas and Dayton, Ohio. In
addition, Technivision owned the rights to develop and operate a wireless cable
television system with 27 channels in El Paso, Texas (collectively with the
Corpus Christi system and the Dayton system, the "TSC Systems"). Technivision
management estimates that the Corpus Christi, El Paso and Dayton markets have
approximately 795,000 households of which 588,000 are serviceable by LOS
transmissions. The Corpus Christi system, which was launched in April 1990,
provides 31 channels of service, including six off-air local television
stations, to approximately 15,468 subscribers as of November 30, 1995. The
Dayton system, which was launched in November 1993, provides 31 channels of
service, including five off-air local television stations, to approximately
3,242 subscribers as of November 30, 1995.
In addition to the TSC Systems, TSC owns and operates two SMATV systems in
New Jersey and engages in certain other business activities. See "The TSC
Transaction -- Other Assets." Because the TSC Transaction relates only to the
TSC Systems, no description of the other business activities of TSC is contained
in this Proxy Statement. Unless the context otherwise requires, references
herein to TSC relate to TSC as successor to Technivision.
The executive offices of TSC are located at 120 Floral Avenue, New
Providence, New Jersey and its telephone number is (908) 665-0094. See Appendix
P: "Information Concerning TSC."
10
<PAGE> 43
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Technivision. The data was
derived from the more detailed information and the financial statements of
Technivision appearing elsewhere in this Proxy Statement. The data should be
read in conjunction with Appendix P: "Information Concerning TSC -- Selected
Financial Information," "-- TSC -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
(including the notes thereto) of Technivision contained elsewhere in this Proxy
Statement. See "Index to Consolidated Financial Statements and Unaudited Pro
Forma Information."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
-------------------------------------- ------------------------
1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................................ $3,903,922 $5,439,575 $6,756,133 $3,371,705 $3,332,351
Total operating expenses........................ 5,304,204 8,027,539 9,069,832 4,548,518 4,413,488
Operating loss.................................. (1,400,282) (2,587,964) (2,313,699) (1,176,813) (1,081,137)
Interest expense, net........................... (1,063,620) (959,647) (1,338,292) (543,326) (674,295)
Net loss........................................ (2,463,902) (3,652,611) (289,761) (1,720,139) (1,502,080)
Other Financial Data:
EBITDA(1)....................................... $ 577,070 $ (216,073) $ 310,037 $ 146,849 $ 218,466
Capital expenditures(2)......................... $1,255,104 $4,645,998 $1,678,178 $ 501,726 $ 603,216
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
------------------------ NOVEMBER 30,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................................ $ 3,197 $ 51,637 $ 78,124
Total assets............................................................. 14,358,235 14,877,585 14,551,185
Long-term debt, including current portion................................ 19,053,522 17,242,089 18,338,157
Total stockholders' deficit.............................................. (8,342,640) (6,882,947) (8,385,027)
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the fiscal year ended May 31, 1993 were comprised
of $1,225,104 for purchases of systems and equipment; for the fiscal year
ended May 31, 1994 were comprised of $4,506,900 for purchases of systems and
equipment and $139,098 for expenditures for leased licenses; for the fiscal
year ended May 31, 1995 were comprised of $1,514,822 for purchases of
systems and equipment and $163,354 for expenditures for leased licenses; for
the six months ended November 30, 1994 were comprised of $501,726 for
purchases of systems and equipment; and for the six months ended November
30, 1995 were comprised of $603,216 for purchases of systems and equipment.
11
<PAGE> 44
THE HEARTLAND MEETING
SPECIAL MEETING OF THE STOCKHOLDERS OF HEARTLAND
Time, Place and Date. A Special Meeting of Stockholders of Heartland (the
"Heartland Meeting") is scheduled to be held on February 22, 1996 at the Westin
Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas, 75240, (214) 934-9494
commencing at 10:00 a.m. local time.
Record Date; Shares Entitled to Vote. Holders of record of Heartland common
stock, par value $.001 per share ("Heartland Common Stock"), at the close of
business on January 17, 1996 (the "Heartland Record Date") will be entitled to
notice of, and to vote at, the Heartland Meeting. At the close of business on
the Heartland Record Date, 12,611,132 shares of Heartland Common Stock were
issued and outstanding. Each outstanding share of Heartland Common Stock is
entitled to one vote with respect to each matter to be voted on at the Heartland
Meeting.
Purpose. At the Heartland Meeting, Heartland's stockholders will consider
and vote upon a proposal to approve and adopt each of the following agreements
and the Transactions contemplated thereby: (i) the AWS Merger Agreement (as
hereinafter defined) and the AWS Merger (as hereinafter defined), (ii) the FTW
Agreement (as hereinafter defined) and the transactions relating thereto, (iii)
the Minneapolis Agreement (as hereinafter defined) and the transactions relating
thereto, (iv) the CMAX Merger Agreement (as hereinafter defined) and the CMAX
Merger (as hereinafter defined), and (v) the TSC Agreement (as hereinafter
defined) and the transactions relating thereto (the AWS Merger Agreement, FTW
Agreement, Minneapolis Agreement, CMAX Merger Agreement and TSC Agreement being
collectively referred to as the "Agreements"). In addition, at the Heartland
Meeting, the Heartland stockholders may consider and vote upon such other
business as may properly come before the Heartland Meeting or any adjournment or
postponement thereof.
Because the exact number of shares of Heartland Common Stock ultimately
issued in each of the five Transactions will depend upon a number of variables,
certain of which are outside of the control of Heartland and the other parties
hereto and certain of which will not occur until after the date of the
respective meetings or consent deadlines, the number of shares of Heartland
Common Stock issuable in connection with the Transactions described above will
not be determined until immediately prior to consummation thereof. In no event
will the aggregate number of shares of Heartland Common Stock issuable in
connection with the Transactions exceed 10,721,302 shares or 45.95% of the total
number of shares of Heartland Common Stock then outstanding. See "Information
Concerning Heartland -- Calculation and Listing of Shares to be Issued in
Connection with the Transactions -- Assumptions for Calculation of Maximum
Shares." Management of Heartland currently estimates that approximately
6,763,949 shares of Heartland Common Stock, or 34.91% of the total number of
shares of Heartland Common Stock then outstanding, in connection with the
Transactions. See "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions -- Assumptions for
Calculation of Anticipated Shares" of the accompanying Proxy Statement."
Vote Required. The affirmative vote of a majority of the outstanding shares
of Heartland Common Stock is required for the approval of the Agreements and the
Transactions. Because the affirmative vote of the holders of a majority of the
outstanding shares of Heartland Common Stock is required to approve the
Agreements, abstentions and broker non-votes will have the same effect as
negative votes. The percentage of currently outstanding shares of Heartland
Common Stock entitled to vote held by directors, executive officers and their
affiliates, assuming the exercise in full of options to purchase Heartland
Common Stock held by such persons, is 63.33% or, 8,106,825 shares of Heartland
Common Stock. As of the Heartland Record Date, David E. Webb, the President and
Chief Executive Officer of Heartland, L. Allen Wheeler, a member of the Board of
Directors of Heartland, and Hunt Capital Group, L.L.C., a stockholder of
Heartland and an affiliate of J. R. Holland, Jr., the Chairman of the Board of
Heartland, collectively have record or beneficial ownership of approximately
62.68% or 7,905,225 million shares of the Heartland Common Stock outstanding as
of such date. Messrs. Webb and Wheeler and Hunt Capital Group, L.L.C. have
agreed to vote in favor of approving and adopting the CMAX Merger Agreement and
CMAX Merger. As a result, approval of the Agreements by the requisite vote of
the outstanding shares of Heartland Common Stock is assured.
12
<PAGE> 45
Appraisal Rights. The stockholders of Heartland will not have appraisal
rights with respect to any of the Transactions.
Risk Factors. The proposed Transactions involve substantial risk. The
following risk factors, together with all of the other information appearing
elsewhere in this Proxy Statement, should be carefully considered by the
stockholders, in light of their particular investment objectives and financial
circumstances, prior to determining how to vote: (i) there are significant
uncertainties and risks relating to the integration by Heartland of the
businesses to be acquired as a result of the Transactions in the event that the
planned divestiture of the Heartland Disposition Assets is not consummated; (ii)
Heartland may in the future make additional acquisitions or may be unsuccessful
in consummating planned divestitures, each of which could adversely affect the
liquidity, results of operation and financial condition of Heartland; (iii)
substantial risks are associated with the potential volatility in the market
price of the Heartland Common Stock upon consummation of the Transactions and
subsequent liquidation of shares of Heartland Common Stock to satisfy certain
obligations of the parties to the Transactions; (iv) the Transactions, if
consummated, will have the effect of substantially increasing the number of
shares of Heartland Common Stock outstanding and (v) substantial risks to
Heartland may be associated with the rescission rights of partners of
Minneapolis Partnership and FTW Partnership. See "Risk Factors."
THE TRANSACTIONS
MERGER OF HEARTLAND AFFILIATE WITH AND INTO AWS
AWS Merger; Consideration. Upon the consummation of the AWS Merger, AWS
Merger Sub will be merged with and into AWS, and AWS will be the surviving
corporation. Under the AWS Merger Agreement, all of the shares of AWS Common
Stock outstanding immediately prior to the effective time of the AWS Merger (the
"AWS Effective Time") will be converted into the right to receive a
proportionate number of newly issued publicly tradeable shares of Heartland
Common Stock having an aggregate exchange value of approximately $34 million
(subject to certain reductions and the escrow requirements discussed below),
resulting in each such share of AWS Common Stock, subject to certain
adjustments, being converted into the right to receive shares of Heartland
Common Stock having an exchange value of approximately $5.90 per share of AWS
Common Stock, of which shares having an exchange value of approximately $0.56
per share of AWS Common Stock will be held in the escrow described below. The
exchange value of the Heartland Common Stock to be issued in the AWS Merger will
be equal to the average closing price of the Heartland Common Stock as reported
on the Nasdaq-NMS over the ten-trading-day period ending on the fifth business
day preceding the consummation of the AWS Merger (or February 15, 1996 based
upon a contemplated closing date of February 23, 1996); provided however that if
such average is less than $20 or more than $26 per share, then the number of
shares of Heartland Common Stock to be issued in the AWS Merger will be based
upon an exchange value of $20 or $26 per share, as applicable. As a result, a
maximum of 1,700,000 shares of Heartland Common Stock are issuable in connection
with the AWS Merger. See "The AWS Merger -- Terms of the AWS Merger Agreement."
See "Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions" for the calculation of the maximum
and anticipated number of shares of Heartland Common Stock issuable at various
closing averages in connection with the Transactions.
At the closing of the AWS Merger, shares of Heartland Common Stock to be
delivered to the AWS stockholders having an aggregate exchange value of up to
$3.25 million will be held in escrow pursuant to the terms of an escrow
agreement ("AWS Escrow Agreement") for a period of approximately one year. A
form of the AWS Escrow Agreement is attached as Appendix D to this Proxy
Statement. Pursuant to the terms of the AWS Escrow Agreement, Heartland will
have the right to submit claims to the Exchange Agent (defined below) and,
following a claims procedure, seek to recover the escrowed shares or proceeds
thereof for any claims for which indemnity is proper pursuant to the terms of
the AWS Merger Agreement. The AWS Escrow Agreement includes provisions pursuant
to which certain claims are fully indemnified by AWS from the escrow fund
(including all liabilities in excess of $3.15 million, subject to adjustment)
and other claims are shared equally by the escrow fund and Heartland. Pursuant
to the terms of the AWS Escrow Agreement, if
13
<PAGE> 46
certain litigation pending against AWS is dismissed prior to the consummation of
the AWS Merger, the exchange value of the shares of Heartland Common Stock to be
held in escrow will be reduced from $3.25 million to $2.75 million and the
exchange value of the shares of Heartland Common Stock initially to be
distributed to the AWS stockholders will be increased from $30.75 million to
$31.25 million. See "The AWS Merger -- Terms of the AWS Merger
Agreement -- Indemnity Escrow; Contingent AWS Distribution."
Heartland has previously loaned to AWS the principal sum of $1.8 million
(the "AWS Loan"). The AWS Loan is secured by a first lien on the wireless cable
channel rights of AWS in the Dallas, Texas market. Upon the consummation of the
AWS Merger, the AWS Loan will remain in place as an intercompany obligation from
AWS to Heartland. The AWS Merger Agreement provides that specified amounts
("Exclusivity Fees") are to be periodically offset against the AWS Loan as
additional consideration for the non-solicitation covenant contained in the AWS
Merger Agreement. The AWS Merger Agreement and documents relating to the AWS
Loan further provide (a) if the AWS Merger Agreement is terminated as a result
of a competing proposal to acquire AWS or its material assets, then the
aggregate amount of all previously offset Exclusivity Fees will be added back to
the AWS Loan and the AWS Loan will be immediately due and payable; (b) if the
AWS Merger Agreement is terminated as a result of certain specified events
(generally arising from the conduct or past conduct of AWS or its predecessors),
then the aggregate amount of all previously offset Exclusivity Fees will be
added back to the AWS Loan and the AWS Loan is to be repaid in accordance with
its terms; (c) if Heartland fails to consummate the AWS Merger after all of the
conditions precedent to its obligations to consummate the AWS Merger Agreement
have been satisfied or waived, then the remaining balance of the AWS Loan will
be forfeited by Heartland as liquidated damages; and (d) upon any other
termination under the AWS Merger Agreement, the AWS Loan (reduced by any
previously offset Exclusivity Fees) is to be repaid to Heartland within one year
following the date of termination of the AWS Merger Agreement. See "The AWS
Merger -- Terms of the AWS Merger Agreement -- AWS Loan."
Stock Options; Warrants. Upon the AWS Effective Time, no options or warrant
agreements allowing the holder to exercise rights thereunder to receive shares
of AWS Common Stock shall exist. However, at the AWS Effective Time, any
unexercised warrants will be converted into warrants to purchase shares of
Heartland Common Stock on an adjusted basis. The holders of such warrants have
certain demand registration rights attached to the warrant agreements that will
survive the AWS Merger. See "The AWS Merger -- Stock Options; Warrants."
Recommendations of the Heartland Board; Reasons for the AWS Merger. The
Board of Directors of Heartland (the "Heartland Board") has approved and adopted
the AWS Merger Agreement and recommends that the stockholders of Heartland vote
FOR the Agreements and thereby approve and adopt the AWS Merger Agreement. The
Heartland Board believes that the AWS Merger is fair to and in the best interest
of Heartland and its stockholders. The Heartland Board believes that the AWS
Merger would provide Heartland with wireless cable television systems and
channel rights targeted for disposition on terms and conditions favorable to
Heartland in comparison with the cost of their acquisition. Further, if the
planned disposition of all of AWS's channel rights is not consummated, the
Heartland Board believes that the AWS Merger would increase Heartland's
competitive position in the industry by increasing the aggregate number and size
of its wireless cable television systems and channel rights at favorable
acquisition costs. Such systems would then be held for disposition or strategic
exchange for other systems and channel rights which the Heartland Board believes
would enhance Heartland's competitive position. See "Recommendations of the
Heartland Board; Opinions of Heartland's Advisor" and "The Combined
Company -- Planned Divestitures."
Opinions of Heartland's Advisor. On October 1, 1995, Heartland retained
Lazard Freres & Co. LLC ("Heartland's Advisor") to act as Heartland's financial
advisor in connection with the Transactions (including the AWS Merger) and, at
the option of Heartland, render an opinion to the Heartland Board as to the
fairness to Heartland from a financial point of view of the consideration
payable in each individual Transaction. A copy of the opinions of Heartland's
Advisor are attached to this Proxy Statement as Appendix A and should be read
carefully and in their entirety. See "Recommendations of the Heartland Board;
Opinions of Heartland's Advisor."
14
<PAGE> 47
Accounting Treatment. The AWS Merger will be accounted for by Heartland
under the "purchase method" of accounting in accordance with generally accepted
accounting principles. See "The AWS Merger -- Accounting Treatment."
Conditions to Consummation of the AWS Merger. Consummation of the AWS
Merger is conditioned upon the fulfillment or waiver (where permissible) of
certain conditions set forth in the AWS Merger Agreement. For a detailed
description of the conditions to the AWS Merger, see "The AWS Merger --
Conditions."
Regulatory Approvals. In addition to the federal and state regulatory
approvals required in connection with the effectiveness of the Registration
Statement of which this Proxy Statement forms a part, Heartland and AWS have
made or expect to make certain regulatory filings with the Federal
Communications Commission ("FCC") for the transfer of AWS' commercial wireless
cable television licenses to Heartland. The AWS Merger Agreement is conditioned
upon receipt of FCC approval regarding the transfer of such commercial wireless
cable television licenses. See "The AWS Merger -- Regulatory Approvals."
Effective Time of the AWS Merger. If the AWS Merger is approved by the
requisite vote of the stockholders of AWS and the other conditions to the
consummation of the AWS Merger are satisfied or waived (where permissible), the
AWS Merger will become immediately effective at the time a Certificate of Merger
is duly filed with the Secretary of State of the State of Delaware. See "The AWS
Merger -- Effective Time." The Certificate of Merger for the AWS Merger will be
filed only upon satisfaction or waiver of the conditions contained in the AWS
Merger Agreement. See "The AWS Merger -- Conditions," and "-- Termination."
Termination of the AWS Merger Agreement. In general, the AWS Merger
Agreement may be terminated (i) by mutual consent of Heartland and AWS, (ii) by
either Heartland or AWS if the AWS Merger has not been consummated by February
29, 1996, and (iii) under certain other circumstances. See "The AWS
Merger -- Termination."
Interests of Certain Persons in AWS Merger. If the AWS Merger is
consummated, Heartland intends to terminate all AWS employees immediately
following the AWS Effective Time. Certain executive officers of AWS, including
Steven G. Johnson, Daniel A. Cartwright and Todd J. Parriott, have employment
agreements with AWS, certain of which provides for certain severance payments to
be made following a termination. The total amount of payments to be made to
those officers by AWS following their terminations is approximately $830,000.
Heartland has entered into a non-competition and consulting agreement with Mr.
Johnson pursuant to which, in lieu of any amounts owed to him as a result of any
termination of his employment, Mr. Johnson will receive approximately $700,000
over a period of two years in consideration of transitional and other assistance
to be provided to Heartland following the AWS Merger and Mr. Johnson's agreement
not to compete with Heartland or its affiliates for a period of three years
following the AWS Merger. See "Information Concerning Heartland -- Certain
Transactions."
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the AWS Common Stock certain historical pro forma and
equivalent pro forma per share financial information as of December 31, 1994 and
the year then ended, and as of September 30, 1995 and the nine months then
ended. All such information is presented on a per share basis. The pro forma
amounts included in the table below are based on the purchase method of
accounting and a preliminary allocation of the purchase price. Neither Heartland
nor AWS has declared any cash dividends. The following information should be
read in conjunction with and is qualified in its entirety by reference to the
historical consolidated financial statements
15
<PAGE> 48
and accompanying notes of Heartland and AWS and "Pro Forma Financial Information
Relative to the Transactions" and the other pro forma financial information
included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
HEARTLAND AWS
--------- ------
<S> <C> <C>
Book Value Per Share as of
December 31, 1994.............................................. $ 2.71 $ 1.01
September 30, 1995............................................. $ 3.87 $ .84
Pro Forma Equivalent Book Value Per Share as of September 30,
1995(1)........................................................ $ 12.66 $ 2.90
Net Loss Per Share
for the year ended December 31, 1994........................... $ (.30) $(1.26)
for the nine months ended September 30, 1995................... $ (.96) $ (.17)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................... $ (.71) $ (.16)
for the nine months ended September 30, 1995................... $ (.74) $ (.17)
</TABLE>
- ---------------
(1) The pro forma information for AWS reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Heartland
by the exchange ratio, assuming that (i) 1,307,692 shares of Heartland
Common Stock are issued upon consummation of the AWS Merger, resulting in an
exchange ratio of one Heartland share for 4.366 AWS shares (ii) the closing
average and the closing price of Heartland Common Stock on the closing date
of the AWS Merger is $28 and (iii) all of the Transactions are consummated.
Comparative Market Price Data. The Heartland Common Stock is listed on the
Nasdaq-NMS under the symbol "HART" and the AWS Common Stock is listed on the
Nasdaq Stock Market's-OTC Bulletin Board under the symbol "AWSY."
On September 11, 1995, the last full trading day preceding the public
announcement of the execution of the AWS Merger Agreement, the closing sale
price per share of Heartland Common Stock was $21.50 and the last sale bid price
per share of the AWS Common Stock was $4.375. As of January 22, 1996, the
closing sale price per share of Heartland Common Stock was $29.25 and the last
sale bid price per share of AWS Common Stock was $4.625.
The following table sets forth the last sale bid and closing sale price per
share of AWS Common Stock and Heartland Common Stock, respectively, as reported
on the appropriate exchanges, and the equivalent per share price of AWS Common
Stock on September 11, 1995, the business date preceding public announcement of
the AWS Merger, and on January 22, 1996.
<TABLE>
<CAPTION>
EQUIVALENT
AWS HEARTLAND PER SHARE
COMMON STOCK COMMON STOCK PRICE
------------ ------------ ----------
<S> <C> <C> <C>
September 11, 1995........................... $4.375 $21.50 $ 5.96
January 22, 1996............................. $4.625 $29.25 $ 6.70
</TABLE>
TRANSACTION WITH FTW PARTNERSHIP
Asset Purchase; Consideration. Pursuant to the FTW Agreement, (i) FTW
Partnership will assign to Heartland the FTW Interest, (ii) FTW Partnership and
the FTW Partners approving the FTW Transaction will assign (the "FTW Claim
Assignment") to Heartland or release (the "FTW Claim Release") the FTW Claims,
(iii) Heartland will assume up to $570,000 of certain types of liabilities
(including disputed liabilities) of FTW Partnership to AWS, and (iv) Heartland
will issue to FTW Partnership the FTW Shares having an aggregate exchange value
of $13.3 million. The exchange value for the shares of Heartland Common Stock to
be issued in connection with the FTW Agreement will be equal to the average
closing price of the Heartland Common Stock as quoted on the Nasdaq-NMS over the
ten-trading-day period ending on the fifth business day preceding the
consummation of the FTW Agreement (or February 15, 1996 based upon a
contemplated
16
<PAGE> 49
closing date of February 23, 1996) provided that if such average closing price
is in excess of $23 per share, the exchange value will be $23 per share.
Further, either FTW Partnership or Heartland, at its option, may terminate the
FTW Agreement if such average closing price is below $17 per share. Heartland
currently intends to exercise such right, if applicable. As a result, a maximum
of 782,353 shares of Heartland Common Stock are issuable in connection with the
FTW Agreement. The FTW Agreement also grants to Heartland a right of first
refusal with regard to the FTW Interest. See "The FTW Transaction -- Terms of
the FTW Agreement." Please see "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions" for the
calculation of the maximum and anticipated number of shares of Heartland Common
Stock issuable at various closing averages in connection with the Transactions.
In connection with the FTW Agreement, Heartland (a) deposited in escrow
$100,000 on October 12, 1995, $55,000 on November 7, 1995, $55,000 on December
1, 1995, $55,000 on January 5, 1996 and has agreed to deposit in escrow an
additional $55,000 on the first day of each month thereafter (collectively, "FTW
Earnest Money"), and (b) has agreed to loan to FTW Partnership up to $500,000
("FTW Loan"), $350,000 of which has been advanced through January 15, 1996, to
enable FTW Partnership to pay accrued expenses of FTW Partnership, primarily
legal fees, accounting fees, and reimbursable expenses incurred by members of
FTW Committee. The FTW Loan is secured by a first lien on the FTW Interest
pursuant to the terms of a security agreement between Heartland and FTW
Partnership. Upon the consummation of the FTW Transaction, the FTW Loan will be
repaid to Heartland from the proceeds of FTW Shares to be liquidated in
connection with the dissolution of FTW Partnership. See "The FTW
Transaction -- Terms of the FTW Agreement -- FTW Earnest Money; FTW Loan."
Recommendations of the Heartland Board; Reasons for the FTW Transaction.
The Heartland Board has approved and adopted the FTW Agreement and recommends
that the stockholders of Heartland vote FOR the Agreements and thereby approve
and adopt the FTW Agreement. The Heartland Board believes that the FTW
Transaction is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the FTW Transaction will provide
Heartland with a wireless cable television system targeted for disposition on
terms and conditions favorable to Heartland in comparison with the cost of its
acquisition. Further, if the planned disposition of certain channel rights
(including the FTW Interest) is not consummated, the Heartland Board believes
the FTW Transaction would increase Heartland's competitive position in the Fort
Worth, Texas and Dallas, Texas markets (coupled with the consummation of the AWS
Merger) by consolidating the wireless cable television markets of Fort Worth,
Texas and Dallas, Texas. Such markets would substantially add to Heartland's
geographic cluster of markets in the northern regions of the State of Texas.
Such systems would then be held for disposition or strategic exchange for other
systems and channel rights, which the Heartland Board believes would enhance
Heartland's competitive position. See "Recommendations of the Heartland Board;
Opinions of Heartland's Advisor" and "The Combined Company -- Planned
Divestitures."
Opinions of Heartland's Advisor. On October 1, 1995, Heartland retained
Heartland's Advisor to act as Heartland's financial advisor in connection with
the Transactions (including the FTW Transaction) and, at the option of
Heartland, render an opinion to the Heartland Board as to the fairness to
Heartland from a financial point of view of the consideration payable in each
individual Transaction. A copy of the opinions of Heartland's Advisor are
attached to this Proxy Statement as Appendix A and should be read carefully and
in their entirety. See "Recommendations of the Heartland Board; Opinions of
Heartland's Advisor."
Accounting Treatment. The FTW Transaction will be accounted for by
Heartland under the "purchase method" of accounting in accordance with generally
accepted accounting principles. See "The FTW Transaction -- Accounting
Treatment."
Conditions to Consummation of the FTW Transaction. The consummation of the
FTW Agreement is conditioned upon the fulfillment or waiver (where permissible)
of certain conditions set forth in the FTW Agreement. For a detailed description
of the conditions to the FTW Agreement, see "The FTW Transaction -- Conditions."
17
<PAGE> 50
Regulatory Approvals. The FTW Transaction does not require any regulatory
approvals other than federal and state approvals required in connection with the
effectiveness of the Registration Statement of which this Proxy Statement forms
a part. See "The FTW Transaction -- Regulatory Approvals."
Consummation of the FTW Agreement. If the FTW Transaction is approved by
the requisite vote of the FTW Partners and the other conditions to the
consummation of the FTW Transaction are satisfied or waived where permissible,
the FTW Agreement will be consummated upon the transfer of the FTW Interest, the
assignment or release of the FTW Claims, and the delivery of the FTW Shares to
the Exchange Agent. It is anticipated that such transactions will occur as soon
as practicable after the satisfaction or waiver where permissible of the
conditions noted above. It is anticipated that the FTW Liquidation Plan will be
consummated within one year of the consummation of the FTW Agreement.
Termination of the FTW Agreement. In general, the FTW Agreement may be
terminated (i) by mutual consent of Heartland and FTW Partnership, (ii) by
either Heartland or FTW Partnership if the FTW Agreement has not been
consummated by March 15, 1996, and (iii) under certain other circumstances. See
"The FTW Transaction -- Termination."
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the FTW Units certain historical pro forma and
equivalent pro forma per share financial information as of December 31, 1994 and
the year then ended and as of September 30, 1995 and the nine months then ended.
All such information is presented on a per share basis. Neither Heartland nor
FTW Partnership has paid any cash dividends or distributions. The pro forma
amounts included in the table below are based on the purchase method of
accounting and a preliminary allocation of the purchase price. The following
information should be read in conjunction with and is qualified in its entirety
by reference to the historical financial statements and accompanying notes of
Heartland and FTW Partnership and "Pro Forma Financial Information Relative to
the Transactions" and other pro forma financial information included elsewhere
in this Proxy Statement.
<TABLE>
<CAPTION>
FTW
HEARTLAND PARTNERSHIP
--------- -----------
<S> <C> <C>
Book Value Per Share (Unit) as of
December 31, 1994............................................ $ 2.71 $ 2,018.83
September 30, 1995........................................... $ 3.87 $ 1,343.01
Pro Forma Equivalent Book Value Per Share (Unit) as of
September 30, 1995(1)........................................ $ 12.66 $ 5,023.81
Net Loss Per Share (Unit)
for the year ended December 31, 1994......................... $ (.30) $ (905.06)
for the nine months ended September 30, 1995................. $ (.96) $ (675.83)
Pro Forma Equivalent Net Loss Per Share (Unit)(1)
for the year ended December 31, 1994......................... $ (.71) $ (281.75)
for the nine months ended September 30, 1995................. $ (.74) $ (293.65)
</TABLE>
- ---------------
(1) The pro forma information for FTW Partnership reflects an "equivalent" pro
forma adjustment determined by multiplying the pro forma information of
Heartland by the exchange ratio, assuming that (i) 578,261 shares of
Heartland Common Stock are issued upon consummation of the FTW Transaction,
resulting in an exchange ratio of one Heartland share for .00252 Units of
the FTW Partnership, (ii) the closing average and the closing price of
Heartland Common Stock on the closing date of the FTW Transaction is $28,
and (iii) all of the Transactions are consummated.
Comparative Market Price Data. The FTW Units are not traded on any public
exchange or automated quotation system, and, as a result no market price is
available for such interests as of September 11, 1995. On September 11, 1995,
the last full trading day preceding the public announcement of Heartland's
intent to purchase the FTW Interest, the closing price per share of Heartland
was $21.50. As of January 22, 1996, the closing sale price per share of
Heartland Common Stock was $29.25.
TRANSACTION WITH MINNEAPOLIS PARTNERSHIP
Asset Purchase; Consideration. Pursuant to the terms of the Minneapolis
Agreement, (i) Minneapolis Partnership will assign to Heartland the Minneapolis
Interest, (ii) Minneapolis Partnership and Minneapolis
18
<PAGE> 51
Partners approving the Minneapolis Agreement will assign to Heartland the
Minneapolis Claims, (iii) Heartland will assume up to $2.2 million of
liabilities of Minneapolis Partnership to AWS, and (iv) Heartland will issue to
Minneapolis Partnership the Minneapolis Shares having an aggregate exchange
value equal to the sum of (A) $18 million plus (B) $500 for each wireless cable
television subscriber in excess of 2,500 ("Additional Subscribers") the fifth
business day preceding the consummation of the Minneapolis Agreement (or
February 15, 1996 based upon a contemplated closing date of February 23, 1996)
(currently anticipated to be 1,000 Additional Subscribers on the relevant date,
and not anticipated to exceed 2,000 Additional Subscribers). Under the terms of
the Minneapolis Agreement, certain claims may be resolved by mutual agreement of
the parties prior to closing, with any agreed damages relating thereto
("Stipulated Damages") to be paid from the liquidation of Minneapolis Shares in
connection with the dissolution of Minneapolis Partnership; provided that the
aggregate amount of such Stipulated Damages may not exceed $1 million. Pursuant
to the terms of the Minneapolis Agreement, claims by Heartland against
Minneapolis Partnership for breaches of the Minneapolis Agreement (other than
Stipulated Damages) may only be made during the six-month period following the
consummation of the Minneapolis Agreement, and Heartland will not have any
recourse to Minneapolis Partners other than to the extent that the Minneapolis
Committee is in possession of the proceeds of Minneapolis Shares liquidated for
the payment of contingent claims (which Minneapolis Shares will have an
aggregate exchange value of at least $500,000). Any claims asserted against
Minneapolis Partnership by Heartland after the closing of the Minneapolis
Transaction will be subject to the alternative dispute resolution procedures set
forth in the Minneapolis Agreement.
The exchange value of the Heartland Common Stock to be issued in the
Minneapolis Transaction will be equal to the average closing price of the
Heartland Common Stock as reported on the Nasdaq-NMS over the ten-trading-day
period ending on the fifth business day preceding the consummation of the
Minneapolis Agreement (or February 15, 1996 based upon a contemplated closing
date of February 23, 1996); provided, however, that if such average is (a)
greater than or equal to $23 per share but less than $30 per share, then the
exchange value will be $23 per share, and (b) greater than or equal to $30 per
share, then the exchange value will be (i) the product of the closing average
multiplied by $23, divided by (ii) $30, and the number of Minneapolis Shares
will be adjusted accordingly. Further, either Minneapolis Partnership or
Heartland, at its option, may terminate the Minneapolis Agreement if such
average closing price is below $17 per share. Heartland currently intends to
exercise such right, if applicable. As a result, a maximum of 1,117,647 shares
of Heartland Common Stock are issuable in connection with the Minneapolis
Agreement (assuming that there are 4,500 subscribers on the relevant date.) See
"The Minneapolis Transaction -- Terms of the Minneapolis Agreement." Please see
"Information Concerning Heartland -- Calculation and Listing of shares to be
Issued in Connection with the Transactions" for the calculation of the maximum
and anticipated number of shares of Heartland Common Stock issuable at various
closing averages in connection with the Transactions.
In connection with the Minneapolis Agreement, Heartland has agreed to loan
to the Minneapolis LLC up to $1,575,000 (the "Minneapolis Loan"), of which (a)
$575,000 was advanced on October 31, 1995 and used to repay an existing
obligation, and (b) $1 million ("Subscriber Proceeds") may be used for general
working capital purposes (not to exceed $100,000) and for subscriber growth.
Heartland advanced $250,000 of the Subscriber Proceeds on October 31, 1995 and
$234,000 on December 20, 1995 to fund working capital needs and subscriber
growth. The Minneapolis Loan is secured by a first lien on the wireless cable
channel assets in the Minneapolis, Minnesota market, and, upon the consummation
of the Minneapolis Transaction, the Minneapolis Partnership will be responsible
for the repayment of a portion of the Minneapolis Loan (approximately $215,000)
from the proceeds of the Minneapolis Shares to be liquidated in connection with
the dissolution of the Minneapolis Partnership. The Minneapolis Agreement also
grants to Heartland a right of first refusal with regard to the Minneapolis
Interest. See "The Minneapolis Transaction -- Terms of the Minneapolis
Agreement -- Minneapolis Loan."
Recommendations of the Heartland Board; Reasons for the Minneapolis
Transaction. The Heartland Board has approved and adopted the Minneapolis
Agreement and recommends that the stockholders of
19
<PAGE> 52
Heartland vote FOR the Agreements and thereby approve and adopt the Minneapolis
Agreement. The Heartland Board believes that the Minneapolis Transaction is fair
to and in the best interest of Heartland and its stockholders. The Heartland
Board believes that the Minneapolis Transaction will provide Heartland with a
wireless cable television system targeted for disposition on terms and
conditions favorable to Heartland in comparison with the cost of its
acquisition. Further, if the planned disposition of certain channel rights
(including the Minneapolis Interest) is not consummated, the Minneapolis system
would then be held for disposition or strategic exchange for other systems and
channel rights which the Heartland Board believes would enhance Heartland's
competitive position. See "Recommendations of the Heartland Board; Opinion of
Heartland's Advisor" and "The Combined Company -- Planned Divestitures."
Opinions of Heartland's Advisor. On October 1, 1995, Heartland retained
Heartland's Advisor to act as Heartland's financial advisor in connection with
the Transactions (including the Minneapolis Transaction) and, at the option of
Heartland, to render an opinion to the Heartland Board as to the fairness to
Heartland from a financial point of view of the consideration payable in each
individual Transaction. A copy of the opinions of Heartland's Advisor are
attached to this Proxy Statement as Appendix A and should be read carefully and
in their entirety. See "Recommendations of Heartland Board; Opinions of
Heartland's Advisor."
Accounting Treatment. The Minneapolis Transaction will be accounted for by
Heartland under the "purchase method" of accounting in accordance with generally
accepted accounting principles. See "The Minneapolis Transaction -- Accounting
Treatment."
Conditions to Consummation of the Minneapolis Transaction. The consummation
of the Minneapolis Agreement is conditioned upon the fulfillment or waiver
(where permissible) of certain conditions set forth in the Minneapolis
Agreement. The Minneapolis Agreement is also subject to the closing of the AWS
Merger. For a detailed description of the conditions to the Minneapolis
Agreement, see "The Minneapolis Transaction -- Conditions."
Regulatory Approvals. The Minneapolis Transaction does not require any
regulatory approvals other than federal and state approvals required in
connection with the effectiveness of the Registration Statement of which this
Proxy Statement forms a part and FCC approval regarding the transfer of control
of commercial wireless cable television licenses held by Minneapolis LLC. See
"The Minneapolis Transaction -- Regulatory Approvals."
Consummation of the Minneapolis Agreement. If the Minneapolis Transaction
is approved by the requisite vote of the Minneapolis Partners and other
conditions to the consummation of the Minneapolis Agreement are satisfied or
waived (where permissible), the Minneapolis Agreement will be consummated upon
the transfer of the Minneapolis Interest, the assignment of the Minneapolis
Claims, and the delivery of the Minneapolis Shares to the Exchange Agent. It is
anticipated that such transactions will occur as soon as practicable after the
satisfaction or waiver (where permissible) of the conditions noted above. It is
anticipated that the Minneapolis Liquidation Plan will be consummated within one
year of the consummation of the Minneapolis Agreement.
Termination of the Minneapolis Agreement. In general, the Minneapolis
Agreement may be terminated (i) by mutual consent of Heartland and the
Minneapolis Partnership, (ii) by either Heartland or the Minneapolis Partnership
if the Minneapolis Agreement has not been consummated by March 15, 1996, and
(iii) under certain other circumstances. See "The Minneapolis
Transaction -- Termination."
20
<PAGE> 53
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the Minneapolis Units certain historical pro forma
and equivalent pro forma per unit financial information as of December 31, 1994
and the year then ended and as of September 30, 1995 and the nine months then
ended. All such information is presented on a per share basis. Neither Heartland
nor Minneapolis Partnership has paid any cash dividends or distributions. The
pro forma amounts included in the table below are based on the purchase method
of accounting and a preliminary allocation of the consideration paid by
Heartland. The following information should be read in conjunction with and is
qualified in its entirety by reference to the historical financial statements
and accompanying notes of Heartland and Minneapolis Partnership and "Pro Forma
Financial Information Relative to the Transactions" and other pro forma
financial information included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
MINNEAPOLIS
HEARTLAND PARTNERSHIP
--------- -----------
<S> <C> <C>
Book Value Per Share (Unit) as of
December 31, 1994........................................... $ 2.71 $2,316.99
September 30, 1995.......................................... $ 3.87 $1,627.60
Pro Forma Equivalent Book Value Per Share (Unit) as of
September 30, 1995(1)....................................... $ 12.66 $4,759.40
Net Loss Per Share (Unit)
for the year ended December 31, 1994........................ $ (.30) $ (940.46)
for the nine months ended September 30, 1995................ $ (.96) $ (689.39)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................ $ (.71) $ (266.92)
for the nine months ended September 30, 1995................ $ (.74) $ (278.20)
</TABLE>
- ---------------
(1) The pro forma information for Minneapolis Partnership reflects an
"equivalent" pro forma adjustment determined by multiplying the pro forma
information of Heartland by the exchange ratio, assuming that (i) 782,609
shares of Heartland Common Stock are issued upon consummation of the
Minneapolis Transaction, resulting in an exchange ratio of one Heartland
share for .00266 Units of the Minneapolis Partnership (ii) the closing
average and the closing price of Heartland Common Stock on the closing date
of the Minneapolis Transaction is $28, and (iii) all of the Transactions are
consummated.
Comparative Market Price Data. The Minneapolis Units are not traded on any
public exchange or automated quotation system, and, as a result no market price
is available for such interest as of September 11, 1995. On September 11, 1995,
the last full trading day preceding the public announcement of Heartland's
intent to purchase the Minneapolis Interest, the closing price per share of
Heartland was $21.50. As of January 22, 1996, the closing sale price per share
of Heartland Common Stock was $29.25.
MERGER OF HEARTLAND AFFILIATE WITH AND INTO CMAX
CMAX Merger; Consideration. Upon consummation of the CMAX Merger, CMAX
Merger Sub will be merged with and into CMAX and CMAX will become a wholly owned
subsidiary of Heartland. Under the CMAX Merger Agreement, each share of CMAX
Common Stock issued and outstanding immediately prior to the CMAX Merger
(excluding the shares of CMAX Common Stock held by CMAX as treasury stock, all
of which will be cancelled) will be converted into the right to receive that
portion of a newly issued publicly tradeable share of Heartland Common Stock
having an exchange value of $8.50 per share of CMAX Common Stock for an
aggregate exchange value of approximately $80.8 million for all shares of CMAX
Common Stock, subject to adjustment (the "CMAX Merger Consideration"). The
exchange value of the Heartland Common Stock to be issued pursuant to the CMAX
Merger will be equal to the average closing price of Heartland Common Stock as
reported on the Nasdaq-NMS for the 20-trading-day period ending on the fifth
business day preceding the consummation of the CMAX Merger (or February 15, 1996
based upon a contemplated closing date of February 23, 1996). If CMAX's Net
Liabilities exceed its Permitted Net Liabilities (each as defined in the CMAX
Merger Agreement) as of the closing of the CMAX Merger Agreement (such excess
being referred to as "CMAX Excess Liabilities"), then the CMAX Merger
Consideration will be reduced by the amount of the CMAX Excess Liabilities.
Heartland, at its option, may
21
<PAGE> 54
terminate the CMAX Merger Agreement if such average closing price is below $10
per share. Heartland currently intends to exercise such right, if applicable. As
a result, a maximum of 8,081,214 shares of Heartland Common Stock are issuable
in connection with the CMAX Merger. CMAX, at its option, may terminate the CMAX
Merger Agreement if the average closing price of Heartland Common Stock is above
$34 per share. See "The CMAX Merger -- Terms of the CMAX Merger Agreement."
Please see "Information Concerning Heartland -- Calculation and Listing of
Shares to be Issued in Connection with the Transactions" for the calculation of
the maximum and anticipated number of shares of Heartland Common Stock issuable
at various closing averages in connection with the Transactions.
In connection with the execution of the CMAX Merger Agreement, CMAX entered
into a Sublease and Purchase Agreement (the "Sublease Agreement") with
Heartland. Pursuant to the terms of the Sublease Agreement, CMAX subleased to
Heartland all of its wireless cable television rights in the Additional Texas
Systems and Heartland paid CMAX a $2.4 million non-refundable deposit for such
rights. If the CMAX Merger Agreement is terminated as a result of a breach
thereof by CMAX or as a result of the acceptance by the Board of Directors of
CMAX of a competing acquisition proposal, Heartland will acquire such wireless
cable television rights for nominal additional consideration. If the CMAX Merger
Agreement is terminated for any other reason, Heartland will acquire such
wireless cable television rights for an amount equal to the difference between
the appraised value of such rights and the $2.4 million previously paid by
Heartland. See "The CMAX Merger -- Terms of the CMAX Merger Agreement -- CMAX
Sublease Agreement."
In connection with the CMAX Merger Agreement, Heartland agreed to loan to
CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced on
December 29, 1995 to be used for working capital purposes, and (b) $500,000 may
be used for subscriber growth. The CMAX Loan will not increase the amount of
CMAX Excess Liabilities. Upon consummation of the CMAX Merger Agreement, it is
anticipated that the CMAX Loan will remain as an inter-company obligation from
CMAX to Heartland. In the event that the CMAX Merger Agreement is not
consummated, the CMAX Loan is payable August 29, 1996; provided, that if the
CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
In connection with the CMAX Merger, Heartland will grant registration
rights to Charter Wireless, the majority stockholder of CMAX, with respect to
shares to be issued to such stockholder in connection with the CMAX Merger
Agreement that are subject to the restrictions on transfer contained in Rules
144 and 145 promulgated by the SEC under the Securities Act.
For a period of three years from and after the date of the consummation of
the CMAX Merger, Charterhouse Equity Partners, L.P., an affiliate of Charter
Wireless, and Tommy L. Gleason, the President and Chief Executive Officer of
CMAX, have agreed not to own or operate a wireless cable television business
within a fifty-mile radius of any wireless television cable market acquired by
Heartland from CMAX.
Stock Options; Warrants. Pursuant to the terms of the CMAX Agreement, all
stock options and warrants to acquire shares of CMAX Common Stock will be
exercised or terminated prior to the CMAX Effective Time. See "The CMAX
Merger -- Terms of the CMAX Merger Agreement -- Options and Warrants."
Recommendations of the Heartland Board; Reasons for the CMAX Merger. The
Heartland Board has approved and adopted the CMAX Merger and the CMAX Merger
Agreement and recommends that the stockholders of Heartland vote FOR the
Agreements and thereby approve and adopt the CMAX Merger Agreement. The
Heartland Board believes that the CMAX Merger is fair to and in the best
interest of Heartland and its stockholders. The Heartland Board believes that
the CMAX Merger will provide Heartland with (i) additional wireless cable
television systems and channel rights consistent with Heartland's rural market
focus (Amarillo, Athens, Austin, Lubbock, Sherman/Denison, Temple/Killeen and
Waco, Texas) strategically located with Heartland's existing wireless cable
television systems in the State of Texas and (ii) wireless cable television
systems and channel rights targeted for disposition (Salt Lake City, Utah and
San Antonio, Texas) on terms and conditions favorable to Heartland in comparison
with their cost of acquisition. If the planned disposition is not consummated,
the San Antonio and Salt Lake City systems would then be held for disposition or
strategic exchange for other systems and channel rights which the Heartland
22
<PAGE> 55
Board believes would enhance Heartland's competitive position. See
"Recommendations of the Heartland Board; Opinions of Heartland's Advisor" and
"The Combined Company -- Planned Divestitures."
Opinions of Heartland Advisor. On October 1, 1995, Heartland retained
Heartland's Advisor to act as Heartland's financial advisor in connection with
the Transactions (including the CMAX Merger) and, at the option of Heartland, to
render an opinion to the Heartland Board as to the fairness to Heartland from a
financial point of view of the consideration payable in each individual
Transaction. A copy of the opinions of Heartland's Advisor are attached to this
Proxy Statement as Appendix A and should be read carefully and in their
entirety. See "Recommendations of the Heartland Board; Opinions of Heartland's
Advisor."
Accounting Treatment. The CMAX Merger will be accounted for by Heartland
under the "purchase method" of accounting in accordance with generally accepted
accounting principles. See "The CMAX Merger -- Accounting Treatment."
Conditions to Consummation of the CMAX Merger. The consummation of the CMAX
Merger is conditioned upon the fulfillment or waiver (where permissible) of
certain conditions set forth in the CMAX Merger Agreement. For a detailed
description of the conditions to the CMAX Merger, see "The CMAX
Merger -- Conditions."
Regulatory Approvals. In addition to the federal and state approvals
required in connection with the effectiveness of the Registration Statement of
which this Proxy Statement forms a part, the CMAX Merger requires the early
termination of or lapse of waiting periods pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), which early
termination was received by Heartland and CMAX effective as of October 26, 1995.
See "The CMAX Merger -- Regulatory Approvals."
Effective Time of the CMAX Merger. If the CMAX Merger is approved by the
requisite vote of the stockholders of CMAX and the other conditions of the
consummation of the CMAX Merger are satisfied or, where permissible, waived, the
CMAX Merger will become effective immediately upon the filing of a Certificate
of Merger with the Secretary of State of Delaware (the "CMAX Effective Time").
See "The CMAX Merger -- Effective Time." The Certificate of Merger for the CMAX
Merger will be filed only upon satisfaction or waiver (where permissible) of the
conditions contained in the CMAX Merger Agreement and only if no party has
exercised any right of termination provided in the CMAX Merger Agreement. See
"The CMAX Merger -- Conditions" and "-- Termination."
Termination of the CMAX Merger Agreement. In general, the CMAX Merger
Agreement may be terminated (i) by mutual consent of Heartland and CMAX, (ii) by
either Heartland or CMAX if the CMAX Merger has not been consummated by February
29, 1996, and (iii) under certain other circumstances. See "The CMAX
Merger -- Termination."
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the CMAX Common Stock certain historical pro forma
and equivalent pro forma per share financial information as of December 31, 1994
and the year then ended and as of September 30, 1995 and the nine months then
ended. All such information is presented on a per share basis. Neither Heartland
nor CMAX has paid any cash dividends. The pro forma amounts included in the
table below are based on the purchase method of accounting and a preliminary
allocation of the purchase price. The following information should be read in
conjunction with and is qualified in its entirety by reference to the historical
consolidated financial statements
23
<PAGE> 56
and accompanying notes of Heartland and CMAX and "Pro Forma Financial
Information Relative to the Transactions" and other pro forma financial
information included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
HEARTLAND CMAX
--------- ------
<S> <C> <C>
Book Value Per Share as of
December 31, 1994.............................................. $ 2.71 $ 4.62
September 30, 1995............................................. $ 3.87 $ 3.67
Pro Forma Equivalent Book Value Per Share as of September 30,
1995(1)........................................................ $ 12.66 $ 3.84
Net Loss Per Share
for the year ended December 31, 1994........................... $ (.30) $(1.05)
for the nine months ended September 30, 1995................... $ (.96) $ (.99)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................... $ (.71) $ (.22)
for the nine months ended September 30, 1995................... $ (.74) $ (.22)
</TABLE>
- ---------------
(1) The pro forma information for CMAX reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Heartland
by the exchange ratio, assuming that (i) 2,886,148 shares of Heartland
Common Stock are issued upon consummation of the CMAX Merger, resulting in
an exchange ratio of one Heartland share for 3.294 CMAX shares, (ii) the
closing average and the closing price of Heartland Common Stock on the
closing date of the CMAX Merger is $28, and (iii) all of the Transactions
are consummated.
Comparative Market Price Data. The Heartland Common Stock and the CMAX
Common Stock are listed on the Nasdaq-NMS under the symbols "HART" and "CMAX,"
respectively.
On September 11, 1995, the last full trading day preceding the public
announcement of the execution of the CMAX Merger Agreement, the closing sale
price per share of Heartland Common Stock was $21.50 and the closing sale price
per share of the CMAX Common Stock was $6.87. As of January 22, 1996, the
closing sale price per share of Heartland Common Stock was $29.25 and the
closing sale price per share of CMAX Common Stock was $7.68.
The following table sets forth the closing sale price per share of CMAX
Common Stock and Heartland Common Stock as reported on the Nasdaq-NMS, and the
"equivalent per share" price of CMAX Common Stock on September 11, 1995, the
business date preceding public announcement of the CMAX Merger, and on January
22, 1996.
<TABLE>
<CAPTION>
EQUIVALENT
CMAX HEARTLAND PER SHARE
COMMON STOCK COMMON STOCK PRICE
------------ ------------ ----------
<S> <C> <C> <C>
September 11, 1995........................... $ 6.87 $21.50 $ 8.50
January 22, 1996............................. $ 7.68 $29.25 $ 8.50
</TABLE>
TRANSACTION WITH TSC
Asset Purchase; Consideration. Pursuant to the TSC Agreement, TSC will sell
to Heartland substantially all of the assets formerly held by Technivision,
consisting of wireless cable television assets in Dayton, Ohio, Corpus Christi,
Texas and El Paso, Texas, and Heartland will issue to TSC the TSC Shares having
an aggregate exchange value of (a) $36.75 million plus (b) $1,200 for each
wireless cable television subscriber on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996) in excess of amounts specified
in the TSC Agreement (currently estimated to be $1.5 million, provided that the
aggregate of such additional subscriber consideration shall not exceed $3.5
million) minus (c) the amount of any obligations assumed by Heartland (not to
exceed $5 million and currently estimated to be $5 million), minus (d) if the
wireless cable television assets relative to the Dayton, Ohio market are sold
prior to the consummation of the TSC Agreement, certain proceeds thereof to be
retained by TSC. Pursuant to the terms of the TSC Agreement, TSC Shares having
an aggregate exchange value of $5 million will be held in escrow for a period of
approximately 18 months to satisfy certain indemnification obligations of TSC to
Heartland, and TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be held in a separate escrow
for up to six months (subject to extension) to secure the performance of certain
post-closing covenants of TSC. The exchange value for the shares of Heartland
Common Stock to be issued in the TSC Transaction will be equal to the
24
<PAGE> 57
average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS over the 20-trading-day period ending on the fifth business day
preceding the consummation of the TSC Agreement (or February 15, 1996 based upon
a contemplated closing date of February 23, 1996). Heartland, at its option, may
terminate the TSC Agreement if such average closing price is below $16 per
share. Heartland currently intends to exercise such right, if applicable. As a
result, a maximum of 2,515,625 shares of Heartland Common Stock (assuming $3.5
million in additional subscriber consideration and the assumption of no
liabilities at closing) are issuable in connection with the TSC Transaction. See
"The TSC Transaction -- Terms of the TSC Agreement." Please see "Information
Concerning Heartland -- Calculation and Listing of Shares to be Issued in
Connection with the Transactions" for the calculation of the maximum and
anticipated number of shares of Heartland Common Stock issuable at various
closing averages in connection with the Transactions.
Recommendations of the Heartland Board; Reasons for the TSC Transaction.
The Heartland Board has approved and adopted the TSC Agreement and recommends
that the stockholders of Heartland vote FOR the Agreements and thereby approve
and adopt the TSC Agreement. The Heartland Board believes that the TSC
Transaction is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the TSC Transaction would
provide Heartland with (i) additional wireless cable television systems and
channel rights consistent with Heartland's rural market focus (El Paso and
Corpus Christi, Texas) strategically located with Heartland's existing wireless
cable television systems in the State of Texas and (ii) a wireless cable
television system targeted for disposition (Dayton, Ohio) on terms and
conditions favorable to Heartland in comparison with its cost of acquisition. If
the planned disposition is not consummated, the Dayton system would then be held
for disposition or strategic exchange for other systems and channel rights which
the Heartland Board believes would enhance Heartland's competitive position. See
"Recommendations of the Heartland Board; Opinions of Heartland's Advisor" and
"The Combined Company -- Planned Divestitures."
Opinions of Heartland's Advisor. On October 1, 1995, Heartland retained
Heartland's Advisor to act as Heartland's financial advisor in connection with
the Transactions (including the TSC Transaction) and, at the option of
Heartland, to render an opinion to the Heartland Board as to the fairness to
Heartland from a financial point of view of the consideration payable in each
individual Transaction. A copy of the opinions of Heartland's Advisor are
attached to this Proxy Statement as Appendix A and should be read carefully and
in their entirety. See "Recommendations of the Heartland Board; Opinions of
Heartland's Advisor."
Accounting Treatment. The TSC Transaction will be accounted for by
Heartland under the "purchase method" of accounting in accordance with generally
accepted accounting principles. See "The TSC Transaction -- Accounting
Treatment."
Conditions to Consummation of the TSC Transaction. The consummation of the
TSC Agreement is conditioned upon the fulfillment or waiver (where permissible)
of certain conditions set forth in the TSC Agreement. For a detailed description
of the conditions to the TSC Transactions, see the "TSC Agreement --
Conditions."
Regulatory Approvals. In addition to the federal and state approvals
required in connection with the effectiveness of the Registration Statement of
which this Proxy Statement forms a part, Heartland and TSC have made or expect
to make certain regulatory filings with (1) the FCC for the transfer of TSC's
commercial wireless cable television licenses to Heartland and (2) the Federal
Trade Commission and the Antitrust Division of the Department of Justice
pursuant to the HSR Act. The TSC Agreement is conditioned upon the notification
of expiration of the waiting period under the HSR Act. See "The TSC
Transaction -- Regulatory Approvals."
Termination of the TSC Agreement. The TSC Agreement may be terminated (i)
by mutual consent of Heartland and TSC, (ii) by either Heartland or TSC if the
TSC Agreement has not been consummated by February 29, 1996, and (iii) under
certain other circumstances. See "The TSC Transaction -- Termination."
25
<PAGE> 58
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the TSC Common Stock certain historical pro forma and
equivalent pro forma per share financial information as of December 31, 1994 and
the year then ended and as of September 30, 1995 and for the nine months then
ended. All such information is presented on a per share basis. Neither Heartland
nor TSC has paid any cash dividends. The pro forma amounts included in the table
below are based on the purchase method of accounting and a preliminary
allocation of the purchase price. The following information should be read in
conjunction with and is qualified in its entirety by reference to the historical
consolidated financial statements and accompanying notes to Heartland and
Technivision and "Pro Forma Financial Information Relative to the Transactions"
and other pro forma financial information included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
HEARTLAND TSC(2)
--------- ----------
<S> <C> <C>
Book Value Per Share as of
December 31, 1994 (November 30, 1994 for TSC)............... $ 2.71 $(1,332.26)
September 30, 1995 (November 30, 1995 for TSC).............. $ 3.87 $(1,201.98)
Pro Forma Equivalent Book Value Per Share as of September 30,
1995(1)..................................................... $ 12.66 $ 2,041.94
Net Loss Per Share
for the year ended December 31, 1994 (November 30, 1994 for
TSC)..................................................... $ (.30) $ (596.38)
for the nine months ended September 30, 1995 (November 30,
1995 for TSC)............................................ $ (.96) $ (314.12)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................ $ (.71) $ (114.52)
for the nine months ended September 30, 1995................ $ (.74) $ (119.35)
</TABLE>
- ---------------
(1) The pro forma information for TSC reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Heartland
by the exchange ratio, assuming that (i) 1,133,929 shares of Heartland
Common Stock are issued upon consummation of the TSC Transaction, resulting
in an exchange ratio of one Heartland share for .0062 TSC shares
outstanding, (ii) the closing average and the closing price of Heartland
Common Stock on the closing date of the TSC Transaction is $28, (iii) no
additional subscriber consideration and the assumption by Heartland of $5
million of liabilities, and (iv) all of the Transactions are consummated.
(2) The computations of historical and equivalent per share data for the TSC
Transaction were made using the number of shares of TSC outstanding (6,976
shares), not that of Technivision. Management of TSC believes that the use
of the TSC shares outstanding provides more meaningful data because
Technivision is a wholly owned subsidiary of TSC and represents the only TSC
interests being sold to Heartland.
Comparative Market Price Data. The Heartland Common Stock is listed on the
Nasdaq-NMS under the symbol "HART." The TSC Common Stock is not listed on any
public exchange or automated quotation system, and, as a result, no market price
is available for September 11, 1995.
On September 11, 1995, the last full trading day preceding the public
announcement of Heartland's intent to pursue the TSC Agreement, the closing sale
price per share of Heartland Common Stock was $21.50. As of January 22, 1996,
the closing sale price per share of Heartland Common Stock was $29.25.
THE COMBINED COMPANY
Generally. Following the consummation of the Transactions and the
disposition of the Heartland Disposition Assets, if this should occur,
Heartland, together with the combined operations and businesses of one or more
of AWS, CMAX, FTW Venture, Minneapolis LLC and TSC (collectively, the "Combined
Company") will be in the business of developing, owning and operating wireless
cable television systems in primarily small and mid-sized markets within the
central United States. The Combined Company will continue to build out its
existing markets substantially in accordance with the business plan adopted by
the management of Heartland and described herein. Management of Heartland does
not currently anticipate material changes in the Combined Company's business
strategy or market focus, although the Combined Company expects to respond as
its management deems appropriate to changes in its markets or competitive
environment. The Combined Company will continue to aggregate wireless cable
channel rights and locate
26
<PAGE> 59
operations in geographic clusters of small to mid-sized markets that have a
substantial number of households not currently passed by traditional hard-wire
cable. The Combined Company will also continue its strategy of launching most
markets with only 12 channels of programming, focusing on areas with limited
access to local off-air VHF/UHF broadcast channels. No assurance can be given
that any of the Transactions will be consummated and, if consummated, no
assurance can be given that the businesses combined thereby can be successfully
integrated. See "The Combined Company -- Business of the Combined Company After
the Transactions."
Management of the Combined Company. The Combined Company will be managed
after consummation of the Transactions by Heartland's existing management, and
has entered into a noncompetition and consulting agreement with Steven G.
Johnson, the President of AWS. The Combined Company does not expect to retain
executive officers (other than Mr. Johnson under a consulting and noncompetition
agreement) or any significant numbers of management personnel from AWS or CMAX.
No management personnel will be hired from TSC, Minneapolis Partnership or FTW
Partnership. To the extent necessary to maintain customer service and system
launch schedules, the Combined Company may retain certain other employees of
AWS, CMAX or TSC. No member of the Board of Directors of AWS, CMAX or TSC will
continue to serve as a member of the Board of Directors of the Combined Company
following the consummation of the Transactions.
Principal Holders. The following table sets forth (a) the effect of the
Transactions (assuming the consummation of all of the Transactions and an
average closing price during the relevant periods of $28 per share (the
approximate closing average of the Heartland Common Stock over the ten- and
20-day trading periods preceding the date hereof) or $17 per share (the closing
average at which the maximum number of shares of Heartland Common Stock are
issuable pursuant to the Transactions) of Heartland Common Stock and certain
other assumptions as noted) on the amount and percentage of present holdings of
shares of Heartland Common Stock owned beneficially by each holder of five
percent (5%) or more of the shares of Heartland Common Stock and (b) persons
that will beneficially own five percent (5%) or more of the outstanding shares
of Heartland Common Stock outstanding immediately following the Transactions.
See "Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, and (iv) CMAX's Net Liabilities do not exceed its Permitted
Net Liabilities. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
27
<PAGE> 60
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the owner of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
Markets. The following table sets forth certain information with respect to
the markets to be acquired by Heartland in the Transactions.
<TABLE>
<CAPTION>
CURRENT
ESTIMATED CHANNELS NUMBER OF
ESTIMATED LINE-OF- (INCLUDING SUBSCRIBERS AT
TOTAL SIGHT OFF-AIR NOVEMBER 30,
TRANSACTION MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS) 1995
- -------------- -------------------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CMAX Salt Lake City, UT*....... 454,000 434,000 27(2) --
Amarillo, TX(1)(5)........ 90,000 80,000 9(3) --
Athens, TX(1)(5).......... 90,000 60,000 7(3) --
Austin, TX................ 360,000 250,000 31 12,299
Lubbock, TX(1)(5)......... 110,000 100,000 12(4) --
San Antonio, TX*.......... 550,000 440,000 37 11,805
Sherman/Denison, TX(5).... 100,000 90,000 31(6) --
Temple/Killeen, TX........ 110,000 80,000 35 6,312
Waco, TX.................. 100,000 80,000 35 3,860
--------- --------- ------
1,964,000 1,614,000 34,276
--------- --------- ------
AWS Los Angeles, CA*.......... 3,029,500 2,726,500 9(7) --
Minneapolis, MN(8)*....... 958,900 882,200 29 2,744
Fort Worth, TX(8)*........ 539,700 442,500 35(9) 1,554
Dallas, TX*............... 981,500 872,400 16(7) --
Memphis, TN*.............. 376,900 350,600 22(7) --
--------- --------- ------
5,886,500 5,274,200 4,298
--------- --------- ------
TSC Dayton, OH*............... 460,000 300,000 31 3,242
Corpus Christi, TX........ 135,000 108,000 31 15,468
El Paso, TX............... 200,000 180,000 27 --
--------- --------- ------
795,000 588,000 18,710
--------- --------- ------
8,645,500 7,476,200 57,284
========= ========= ======
</TABLE>
- ---------------
* Constitutes part of the Heartland Disposition Assets.
(1) Heartland currently has an operating system in Lubbock, Texas and certain
wireless cable channel rights in the Amarillo and Corsicana/Athens, Texas
markets.
(2) Of these channels, 7 are the subject of pending applications.
(3) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(4) Of these channels, 4 are the subject of an appeal by an unsuccessful
applicant for the frequencies.
(5) Currently subleased by Heartland pursuant to the Sublease Agreement with
CMAX.
(6) Of these channels, 8 are the subject of uncontested application proceedings.
(7) These systems are not in operation and do not include off-air channels.
(8) Includes acquisition of assets from the FTW Partnership and the Minneapolis
Partnership in the FTW Transaction and Minneapolis Transaction, as the case
may be.
(9) Includes 8 channels which must be co-located at AWS's headend transmission
facility before programming may be effected on these channels.
Planned Divestitures. The Board of Directors of Heartland has identified
the Maysville and Sweet Springs, Missouri, Grand Rapids/Moline Michigan, Bloom
Center/Napoleon, Indiana and Flippin, Tennessee markets currently owned by
Heartland, and the Los Angeles, California, Dallas, Fort Worth and San Antonio,
Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake City, Utah and Minneapolis,
Minnesota markets to be acquired in the Transactions (collectively, the
"Heartland Disposition Assets") as being markets for which
28
<PAGE> 61
Heartland should seek one or more disposition opportunities for cash, promissory
notes, retained equity interests or a combination thereof. Notwithstanding its
determination to seek the sale, exchange or other disposition of the Heartland
Disposition Assets, Heartland believes that some or all of such markets,
properly developed and operated, offer attractive opportunities to participate
in the wireless cable television industry.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets. Heartland expects to sell the
Flippin market to TruVision for $1.5 million contemporaneously with the sale to
TruVision by AWS of the Memphis market for $3.9 million (collectively, the
"Memphis Transaction"). Heartland will not retain a direct or indirect interest
in these markets.
Effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or its contributing
subsidiaries) will receive (i) shares of Newco common stock (the "Newco Common
Stock") constituting approximately 39.76% of the outstanding shares of Newco
Common Stock at the closing, (ii) approximately $28.3 million in cash payable by
Newco at the closing, (iii) a promissory note in the principal sum of $25
million payable nine (9) months from the closing and secured by proceeds of a
contemplated issuance by Newco of $125 million of senior discount notes (the
"Newco Financing") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing, and prepayable from asset sales and certain other
events. Within six months of closing, CAI and Heartland will complete certain so
called 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 Newco for each market, increase
or decrease in the number of subscribers in each contributed system from the
number of subscribers stated in the Participation Agreement and related factors.
Following the completion of these calculations, an increase or decrease will
occur in the principal amounts of the promissory notes received by Heartland
from Newco, and CAI will either contribute to or be entitled to a distribution
of cash from Newco, depending upon such calculations.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland); (ii) up to three members designated by Heartland
(provided that at least one of whom may not be an affiliate of either CAI or
Heartland); (iii) the Chief Executive Officer of Newco; and (iv) the Chief
Financial Officer of Newco. The Stockholders Agreement and Newco's Bylaws
further provide that certain major transactions will require the affirmative
approval of at least 70% (or 7 of 9) of the Directors of Newco.
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Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "Recommendations of the Heartland Board;
Opinions of Heartland's Advisor -- Background of the Transactions," "-- Board
Deliberations," "The Combined Company -- Business of the Combined Company After
the Transactions" and "-- Planned Divestitures."
Summary Pro Forma Financial Information. The following table sets forth
summary pro forma financial data of Heartland. The summary unaudited pro forma
statement of operations data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
January 1, 1994, as if such events had occurred on January 1, 1994. The summary
unaudited balance sheet data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
September 30, 1995, as if such events had occurred on September 30, 1995. The
information contained in this table should be read in conjunction with "Pro
Forma Financial Information Relative to the Transactions" and "Pro Forma
Financial Information for Consummated Events" appearing elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Statement of Operations Data:
Total revenues................................................ $ 20,091,635 $ 20,757,529
Total operating expenses...................................... 34,716,226 33,264,971
Operating loss................................................ (14,624,591) (12,507,442)
Interest expense, net......................................... 5,303,165 8,789,219
Income tax benefit............................................ 7,282,895 7,839,079
Net loss...................................................... (13,649,455) (14,253,813)
Net loss per common share..................................... $ (.71) $ (.74)
Weighted average shares outstanding........................... 19,230,083 19,280,566
Other financial data:
EBITDA(1)..................................................... $ (3,449,980) $ (783,996)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
1995
-------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted investments.................. $ 68,613,369
Restricted investments....................................................... 24,747,214
Total assets................................................................. 428,093,782
Long-term debt, including current portion.................................... 141,407,486
Total stockholders' equity................................................... 244,133,989
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
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RISK FACTORS
In addition to the other information in this Proxy Statement, all of the
risk factors listed below should be considered carefully by the stockholders of
Heartland. These factors should be considered in conjunction with the other
information included in this Proxy Statement.
LIMITED OPERATING HISTORY; NET LOSSES SINCE INCEPTION
Although Heartland's business commenced in 1990, it did not generate any
revenues until April 1992. As of September 30, 1995, Heartland has recorded net
losses of approximately $14.8 million since inception, due primarily to interest
expense and charges for depreciation and amortization of capital expenditures to
develop its wireless cable systems. Until such time as the Combined Company
substantially increases its subscriber base, resulting in higher subscription
fee revenues, it will continue to experience losses. Because of the costs
associated with launching a wireless cable television system and expanding its
subscriber base, continued growth by the Combined Company will tend to reduce
net income, if any, or increase net losses. As a result, Heartland expects to
continue to experience net losses whether or not the Transactions are
consummated and for an indefinite period thereafter while it develops and
expands its wireless cable systems even if mature individual systems of the
Combined Company are profitable.
SUBSTANTIAL INDEBTEDNESS OF THE COMBINED COMPANY; INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Combined Company will have a high level of indebtedness. As of
September 30, 1995, on a pro forma basis after giving effect to the consummation
of the Transactions, the Combined Company would have had approximately $158.6
million of long-term debt and other liabilities ($8.8 million of which is
attributable to the Transactions) including the current portion of the long-term
debt of $2.0 million. For the years ended December 31, 1992, 1993 and 1994, and
for the nine months ended September 30, 1994 and 1995, Heartland's earnings were
insufficient to cover fixed charges by $50,822, $406,101, $4,638,284, $1,863,404
and $12,485,232, respectively. The ability of the Combined Company to make
payments of principal and interest on its indebtedness will be largely dependent
upon its future financial performance. Many factors, some of which will be
beyond the Combined Company's control (such as prevailing economic conditions),
will affect its financial performance. There can be no assurance that the
Combined Company will be able to generate sufficient cash flow to cover required
interest and principal payments. If the Combined Company is unable to meet
interest and principal payments in the future, it may, depending upon the
circumstances which then exist, seek additional equity or debt financing,
attempt to refinance its existing indebtedness or sell all or part of its
business or assets to raise funds to repay its indebtedness. There can be no
assurance that sufficient equity or debt financing will be available, or, if
available, that it will be on terms acceptable to the Combined Company, that the
Combined Company will be able to refinance its existing indebtedness or that
sufficient funds could be raised through asset sales. The Combined Company's
high level of indebtedness has several important consequences, including, but
not limited to: (i) significant interest expense and principal repayment
obligations resulting in substantial annual fixed charges; (ii) significant
limitations on the Combined Company's ability to obtain financing, make capital
expenditures and acquisitions and take advantage of other business opportunities
that may arise; and (iii) increased vulnerability to adverse general economic
and industry conditions. There can be no assurance that the Combined Company
will be profitable in the future.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
Heartland has experienced rapid growth in the number of its employees and
the scope of its operating and financial systems. This growth has resulted in an
increased level of responsibility for both existing and new management
personnel. The consummation of the Transactions will result in additional
significant growth of Heartland's operations, particularly if the planned
divestiture of assets by Heartland is not consummated. To manage its growth
effectively, Heartland will be required to implement and improve its operating
and financial systems and controls and to expand, train and manage its employee
base. In addition, Heartland may be required to integrate into its business one
or more of the businesses acquired from CMAX, AWS, FTW Venture, the Minneapolis
LLC and TSC, although Heartland anticipates disposing of all of the business
acquired through AWS, the FTW Venture and the Minneapolis LLC. Heartland
currently has no plans for
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the Combined Company to retain any of the executive officers of AWS, CMAX or
TSC, other than Steven G. Johnson, the President of AWS, with whom Heartland has
entered into a consulting and non-competition agreement. As a result, the
Combined Company will be dependent upon the existing management of Heartland to
assume and perform the management functions formerly performed by management of
each of the parties to the Transactions. To the extent that Heartland's existing
management is unable to assume or perform these combined duties, the Combined
Company could be adversely affected. There can be no assurance that the
management, systems and controls currently in place or any steps taken to
improve such management, systems and controls will be adequate in the future,
whether or not Heartland consummates one or more of the Transactions.
In addition, promptly following the consummation of the Transactions,
management of the Combined Company will be required to make and implement a
number of strategic and operational decisions regarding the integration of the
entity's various operations and the exploitation of its assets and businesses.
The timing and manner of the implementation of decisions made with respect to
the ongoing business of the Combined Company following the consummation of the
Transactions will materially affect the operations of the Combined Company.
Given the range of potential outcomes arising from such decisions, and the
interrelationships among decisions to be made, it is difficult to quantify with
precision the composition of the Combined Company. There can also be no
assurance that any acquired businesses will be integrated successfully into
Heartland's business.
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of the Combined Company's business requires substantial
investment on a continuing basis to finance capital expenditures and expenses
related to subscriber growth and system development. Although Heartland believes
that its cash and cash equivalent assets will be sufficient to fund the Combined
Company's operations and expansion through at least the end of 1996, there is no
assurance that additional funds will not be necessary to complete the launch,
build-out and expansion of all of the Combined Company's wireless cable systems
and to bring such systems to a mature state or that any such required additional
funds would be available on satisfactory terms and conditions, if at all. In
addition, the Combined Company's capital needs will depend in part upon the
success of Heartland's and the Combined Company's efforts to sell or otherwise
dispose of the Heartland Disposition Assets and the nature of any consideration
received as a result of such dispositions. To the extent assets and markets
designated for disposition are not sold, or are not sold for cash, the Combined
Company's requirements for additional funds will be increased. There is also no
assurance that the Combined Company will not pursue, from time to time, other
opportunities to acquire additional wireless cable channel rights and businesses
that may utilize the capital currently expected to be available for its current
markets. The amount and timing of the Combined Company's future capital
requirements, if any, will depend upon a number of factors, including
programming costs, equipment costs, marketing expenses, staffing levels,
subscriber growth and competitive conditions, and any purchases or dispositions
of assets, many of which are not within the Combined Company's control. Failure
to obtain any required additional financing could materially adversely affect
the growth, cash flow or earnings of the Combined Company.
POTENTIAL SIGNIFICANT INDUSTRY TRANSACTIONS
Significant industry transactions such as acquisitions and dispositions of
channel rights, joint ventures and other business transactions between and among
participants in the wireless cable television industry have occurred with some
frequency in the past, and Heartland's management expects this trend to continue
in the foreseeable future. Although Heartland regularly engages in discussions
concerning such industry transactions with other industry participants,
Heartland is not currently subject to any material definitive agreements in such
regard except as disclosed herein or in those documents incorporated herein by
reference. Whether Heartland proceeds with any of these discussions and whether
the Combined Company ultimately negotiates and/or consummates any additional
significant industry transactions will depend, among other things, upon the
business and prospects of the Combined Company, industry conditions, investment
and growth opportunities available to the Combined Company, stock market
conditions, availability and suitability of financing for such transactions,
regulatory and legal considerations, and other plans and requirements of the
Combined
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Company. No assurance can be given that, if consummated, any such significant
industry transactions could be successfully integrated into the Combined
Company's business.
INVESTMENT IN NEWCO
Pursuant to the Newco Transaction, Heartland shall contribute or sell the
Heartland Disposition Assets, other than the Memphis and Flippin, Tennessee
markets to be disposed of in the Memphis Transaction, and the Los Angeles
channel rights (which Heartland will seek to sell directly to a third party), to
Newco in exchange for cash, promissory notes and a retained equity interest. The
Stockholders Agreement provides that Heartland will have the right to appoint
less than a majority of the directors of Newco. Therefore, the Combined Company
will not control the management of Newco, and it will be dependent upon the
skill, expertise and managerial efforts of the management of Newco to achieve a
return on this proposed substantial investment. To the extent that Newco proves
unsuccessful in its business, the value of the Combined Company's investment
therein will be adversely affected. Further, consummation of the Newco
Transaction is subject to significant customary closing conditions. No assurance
can be given that such conditions will be satisfied. See "The Combined
Company -- Business of the Combined Company After the Transactions" and "Planned
Divestitures".
DEPENDENCE ON EXISTING MANAGEMENT; KEY EMPLOYEES
Heartland is dependent in large part on the experience and knowledge of
existing management. Heartland has not entered into any employment agreements
with, or obtained key-man life insurance for, any of its executive officers and
there can be no assurance that any of such persons will remain in Heartland's
employ in the future. The Combined Company's success is also dependent upon its
ability to attract and retain qualified employees to develop and operate its
wireless cable systems.
COMPETITION
The pay television industry is highly competitive. Wireless cable
television systems face or may face competition from several sources, such as
traditional hard-wire cable companies, satellite master antenna television
systems, direct broadcast satellites and other alternative methods of
distributing and receiving television transmissions. Further, premium movie
services offered by cable television systems have encountered significant
competition from the home video cassette industry. In areas where several local
off-air VHF/UHF broadcast signals can be received without the benefit of
subscription television, cable television systems also have experienced
competition from the availability of broadcast signals generally and have found
market penetration to be more difficult. In addition, within each market, the
Combined Company initially must compete with others to acquire, from the limited
number of channel licenses issued, rights to a minimum number of channels needed
to establish a viable system. Legislative, regulatory and technological
developments may result in additional and significant competition, including
competition from local telephone companies, from a proposed new wireless service
known as local multi-point distribution and from emerging trends and
technologies. Heartland has targeted its marketing in its Existing Systems (as
hereafter defined) to households that are unpassed by traditional hard-wire
cable and that have limited access to local off-air VHF/UHF broadcast channels.
Accordingly, to date Heartland has not encountered significant direct
competition from traditional hard-wire cable companies. It is likely, given the
markets involved in the Transactions, that the Combined Company will face
significant direct competition from traditional hard-wire cable companies in the
future, especially in the urban markets acquired in the Transactions if the
planned divestiture of such markets described herein is not consummated. The
basic programming package offered in each of Heartland's existing systems is
comparable to that offered by the local traditional hard-wire cable operators.
However, certain of such local traditional hard-wire cable operators currently
offer more premium, pay-per-view and public access channels than Heartland. In
addition, as the telecommunications industry continues to evolve, the Combined
Company may face additional competition from new providers of entertainment and
data services. In particular, there are a rapidly growing number of information
and data service providers serving consumers via informal communications
networks, such as the Internet and World Wide Web. Although the Combined Company
is unaware of any such provider delivering programming like
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<PAGE> 66
that available over wireless cable television, there can be no assurance that
continuing advances in technology will not make such delivery possible. Even if
such direct competition does not exist in the future, however, the Combined
Company's services will compete, indirectly, with entertainment services
generally, including those provided by operators using evolving technology. Many
actual and potential competitors have greater financial, marketing and other
resources than Heartland. No assurance can be given that the Combined Company
will compete successfully in any or all of its markets.
GOVERNMENT REGULATION
The right to transmit on wireless cable channels is regulated by the
Federal Communications Commission (the "FCC") and the copyright for the
retransmission of local off-air VHF/UHF broadcasts is regulated by the United
States Copyright Office pursuant to the Copyright Act of 1976, as amended (the
"Copyright Act").
Cable Act. Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992, as amended (the "Cable Act"), the FCC adopted rate
regulations exclusively for traditional hard-wire cable systems. Heartland
cannot predict precisely what effect these regulations or other governmental
regulations may have on traditional hard-wire cable operators as to price and
service. 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 an adverse effect on the
industry as a whole and on Heartland in particular.
Copyright Act. Secondary transmission of a broadcast signal is permissible
only if approved by the copyright holder or if subject to compulsory licensing
under the Copyright Act. The United States Congress recently adopted legislation
extending the compulsory copyright licensing system to include wireless cable
systems. As a result of this action, wireless cable operators may engage in
secondary transmissions of distant programming without the copyright holder's
approval, provided that such operators file certain reports and pay certain fees
set by the Copyright Royalty Tribunal. See "Risk Factors -- Dependence on
Program Material Agreements."
Regulation of Retransmission. 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 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. Heartland has obtained such
consents in each of its Existing Systems where Heartland is retransmitting on a
wireless cable channel. Such consents will be required in Heartland's other
markets. There can be no assurance that the Combined Company will be able to
obtain such consents on terms satisfactory to the Combined Company.
Other Regulations. Wireless cable operators are also subject to regulation
by the Federal Aviation Administration (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
Combined Company will not be required to incur additional costs in complying
with such regulations and restrictions. No assurance can be given that new
regulations will not be imposed or that existing regulations will not be
changed. Any such new or modified regulations could have a material adverse
effect on the wireless cable industry as a whole and on Heartland and the
Combined Company in particular.
DEPENDENCE ON CHANNEL LEASES; LOSS OF LICENSES BY LESSORS
Heartland is dependent, and the Combined Company will be dependent, on
leases with unaffiliated third parties for most of its wireless cable channel
rights. Heartland 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. Heartland's channel
leases typically cover four instructional television fixed service ("ITFS")
and/or one to
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four multi-point distribution service ("MDS") wireless 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. See "Wireless Cable
Industry -- Regulatory Environment." Under the rules of the FCC, the term of an
ITFS channel lease cannot exceed ten years. There is no such restriction for MDS
channel leases. ITFS licenses generally are granted for a term of ten 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 Heartland'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 Heartland's channel
leases are approximately 5 to 10 years, although certain of Heartland's channel
leases have initial terms expiring during the next several years. Most of
Heartland's leases grant Heartland 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 Heartland being unable to
deliver television programming on such channel(s). Although Heartland does not
believe that the termination of or failure to renew a single channel lease or
license would adversely affect the Combined Company, several of such
terminations or failures in one or more markets that Heartland actively serves
could have a material adverse effect on the Combined 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 Heartland'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.
UNCERTAINTY OF GRANT OF PENDING APPLICATIONS
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom Heartland has entered into leases have filed a series
of applications with the FCC for a number of wireless cable channels and
Heartland 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 Heartland's lease agreements with applicants for channel licenses
involve channel licenses for which Competing Applications have been filed. In
each market, Heartland 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
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FCC petitions to deny the applications in which Heartland has acquired channel
rights, based upon alleged substantive defects in the applicant or in technical
or other aspects of the application. Heartland anticipates that the FCC will
deny most of the current petitions to deny the applications in which Heartland
has acquired channel rights. However, no assurance can be given as to the
precise number of such petitions that will be denied. Although Heartland 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 Heartland has acquired channel rights would adversely
affect Heartland, several of such awards or grants could have a material adverse
effect on Heartland.
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS
Wireless cable systems transmit programming over wireless cable channels
that are licensed by the FCC. Generally, Heartland believes that a minimum of
twelve wireless cable channels are necessary to offer a commercially viable
wireless cable system in most rural markets and that more channels are required
in more competitive markets, such as those well served by traditional cable
television systems. In some of its long-term launch markets, Heartland does not
currently have the right to operate twelve channels from the same transmitter
site. In those markets, Heartland is dependent upon (i) the grant of pending
applications for modification of existing licenses for unbuilt ITFS stations,
(ii) the grant of such license modification applications which have not been
filed and/or (iii) the grant of applications for new ITFS licenses, some of
which have not been filed. There can be no assurance that any or all of the
modification applications and new license applications actually made or
anticipated to be made by Heartland will be granted by the FCC. Although
Heartland does not believe that the denial of any single modification or new
license application will adversely affect it, the denial of several such
applications, particularly if concentrated in one or a few of Heartland's
markets, could have a material adverse effect on its growth. See "Wireless Cable
Industry -- Cable Industry Overview" and "-- Regulatory Environment."
INTERFERENCE ISSUES
Under current FCC regulations, a wireless cable operator may install
receive-site equipment and serve any point where its signal can be received,
subject to the interference protection rights of certain other wireless cable
systems. Interference from other wireless cable systems can limit the ability of
a wireless cable system to serve particular points, in the same manner that
interference from one television station limits the ability of a viewer to
receive another television station broadcasting on the same frequency. In
licensing ITFS and multi-point distribution service stations, a primary concern
of the FCC is avoiding situations where proposed stations are predicted to cause
interference to the reception of existing station signals. Pursuant to current
FCC regulations, a wireless cable license holder is generally protected from
interference within 35 miles of the transmission site. Heartland's business plan
involves moving the authorized transmitter site of various of its MDS and ITFS
licensed stations and obtaining the grant of licenses to new stations that
Heartland will use in its wireless cable systems. The FCC interference
protection standards may make one or more of those proposed relocations or new
grants unavailable. In any such event, it may be necessary to negotiate
interference agreements with the licensees of stations which would otherwise
block such relocations or new grants. There can be no assurance that the
Combined Company will be able to negotiate any required interference agreements
on terms acceptable to it. In the event that the Combined Company cannot obtain
interference agreements required to implement its plans for a given market, the
Combined Company may have to curtail or modify operations in that market. Any
substantial modification or curtailment of the Combined Company's operations in
its markets could have a material adverse effect on its growth or financial
performance. In addition, the Combined Company's leases with MDS and ITFS
licensees require their cooperation, it is possible that one or more of the
Combined Company's channel lessors may hinder or delay the Combined Company's
efforts to use the channels in accordance with its plans for a particular
market.
AUCTION OF BASIC TRADING AREAS
As a result of legislation authorizing the FCC to utilize competitive
bidding (auctions) for the award of initial licenses or construction permits for
certain commercial services when mutually exclusive applications
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<PAGE> 69
have been filed, on June 15, 1995 the FCC adopted new rules replacing lottery
procedures with auctions for the awarding of commercial licenses where two or
more parties have filed applications for the same frequencies. Auctions under
the new rules began November 13, 1995 for the award of initial commercial
licenses for "Basic Trading Areas" or "BTA's" (as defined by Rand McNally);
however, the new auction rules do not apply when a license is to be renewed. The
new rules are effective although pleadings have been filed which might result in
changes in the rules, and any auctions conducted pursuant thereto. License
holders that obtain an MDS license via an auction must provide interference
protection to the 35-mile protected service area of existing license holders.
Under the statutory auction authority enacted in 1993, ITFS licenses are exempt
from the auction process and applications for ITFS licenses are expected to
continue to be awarded according to the FCC's objective criteria.
DEPENDENCE ON PROGRAM MATERIAL AGREEMENTS
In connection with its distribution of television programming, Heartland is
dependent, and the Combined Company will be dependent, on fixed-term contracts
with various program suppliers. Generally, the terms of such contracts are for
periods of one to five years and began to expire in 1995. Although Heartland has
no reason to believe that any such contracts will be cancelled or will not be
renewed upon expiration, if such contracts are cancelled or not renewed, the
Combined Company will have to seek program material from other sources. There is
no assurance that other program material will be available to the Combined
Company on acceptable terms or at all or, if so available, that such material
will be acceptable to the Combined Company's subscribers. The likelihood that
program material will be unavailable to the Combined Company is significantly
mitigated by the Cable Act and various FCC regulations issued thereunder, which,
among other things, impose limits on exclusive programming contracts and
generally prohibit cable programmers in which a cable operator has an
attributable interest from discriminating against cable competitors with respect
to the price and terms and conditions of sale of programming. Only a few of the
major cable television programming services carried by Heartland are not
currently directly owned by a vertically integrated cable operator, and
Heartland historically has not had difficulty in arranging satisfactory
contracts for these services. The Cable Act is the subject of various legal
challenges and if it were found to be unconstitutional, program suppliers might
raise their prices or make their program material unavailable to the Combined
Company.
PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION
Wireless cable programming is transmitted via microwave frequencies from a
transmission facility to a small receiving antenna at each subscriber's
location, which generally requires a direct, unobstructed line-of-sight from the
transmission facility to the subscriber's receiving antenna. Therefore, in
communities with tall trees, hilly terrain, tall buildings or other obstructions
in the transmission path, wireless cable transmission can be difficult or
impossible to receive at certain locations without the use of signal boosters.
Consequently, the Combined Company may not be able to supply services to certain
potential subscribers. In addition, in limited circumstances, extremely adverse
weather can damage transmission and receiving antennas as well as transmit site
equipment.
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY
While wireless cable television is not a new technology, it is a relatively
new industry with a short operating history. Potential investors should be aware
of the difficulties and uncertainties that are normally associated with new
industries, such as lack of consumer acceptance, difficulty in obtaining
financing, increasing competition, advances in technology and changes in laws
and regulations. There can be no assurance that the wireless cable industry will
develop or continue as a viable or profitable industry.
POSSIBLE ADDITIONAL CAPITAL EXPENDITURES FOR HEARTLAND DISPOSITION ASSETS
No assurance can be given that the planned disposition of the Heartland
Disposition Assets will be consummated. Consummation of such planned disposition
may require, among other items, consents of CAI's lenders to the Newco
Transaction, financing secured by Newco on terms acceptable to CAI and
Heartland, and consents of the licensees to the assignment of channel leases to
Newco, and of the Flippin and Memphis
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<PAGE> 70
channel rights to TruVision. Accordingly, Heartland may be required to expend a
substantial amount of additional capital to maintain certain assets and/or fund
lease payments attributable to the Heartland Disposition Assets. Further, no
assurance can be given that the disposition of the Heartland Disposition Assets
will have the desired impact on the Combined Company's business or financial
affairs.
POSSIBLE ADVERSE TAX CONSEQUENCES ATTRIBUTABLE TO HEARTLAND DISPOSITION ASSETS
The cash and promissory note portion of the consideration received by
Heartland and/or its subsidiaries from consummation of the Memphis Transaction
and Newco Transaction may result in the recognition of gain for federal income
tax purposes. The amount of any tax liability attributable thereto will depend
upon numerous factors, including the tax basis of the assets conveyed, the net
operating losses available to Heartland and other factors. Certain of these
factors will depend upon the tax attributes of CMAX, AWS and TCS as of the
closing of the Transactions. There can be no assurance that sufficient tax bases
and net operating losses will exist to defray a material amount of any such
gain, thereby requiring Heartland to pay certain tax liabilities to federal
and/or state authorities. Any such payments would negatively impact the Combined
Company's cash flow.
ASSIGNABILITY OF HEARTLAND DISPOSITION ASSETS CHANNEL LEASES
Substantially all of the channel leases associated with the Heartland
Disposition Assets require the consents of the licensees prior to the assignment
thereof. No assurance can be given that such consents will be obtained to the
assignment of such channel leases to Newco in the Newco Transaction. The failure
to obtain any such consents may prevent the Newco Transaction from being
consummated, which could have a material adverse effect on the Combined
Company's business or financial affairs. See "Risk Factors -- Possible
Additional Capital Expenditures for Heartland Disposition Assets." Further, the
consent of the FCC is required prior to the assignment of any MDS channels
associated with the Heartland Disposition Assets. Heartland will take
appropriate action to obtain such consents with respect to such MDS channels to
be acquired by Heartland and thereafter conveyed to Newco as part of any Newco
Transaction. Such consents are generally received three to five months after
application is made with the FCC. Although Heartland expects to lease any
acquired MDS channels to Newco as part of any Newco Transaction pending receipt
of server approval, there can be no assurance that the FCC will consent to the
assignment of such licenses to Heartland or Newco.
CERTAIN SUBSIDIARIES NOT WHOLLY OWNED
Heartland generally conducts its business through subsidiaries. Heartland's
subsidiaries include non-operating subsidiaries that hold interests in channels,
subsidiaries that operate systems and subsidiaries that do both. Heartland also
has an operating subsidiary that installs wireless cable systems in various
markets served by Heartland and its subsidiaries. Certain of Heartland's
subsidiaries are not wholly owned and most subsidiaries are indirectly owned by
Heartland as a result of its majority ownership of other entities. Although
Heartland has a sufficient interest in its subsidiaries to be able to exercise
control over them, Heartland may owe a fiduciary duty to the holders of various
minority interests in its subsidiaries. Accordingly, Heartland may not exercise
unfettered control over such subsidiaries and may be required to deal with such
subsidiaries on terms no less favorable to such subsidiaries than could be
obtained from unaffiliated third parties. Heartland believes that all of its
dealings with its subsidiaries have been on such terms. In addition, dividends
or other distributions paid or made by such subsidiaries must be paid or made on
a pro rata basis to all stockholders.
Further, Heartland owns approximately 27% of the outstanding common stock
of Wireless One, Inc., a Delaware corporation ("Wireless One"). Although David
E. Webb and J. R. Holland, Jr., Directors of Heartland, serve as Directors of
Wireless One, Heartland cannot exercise unfettered control over this substantial
investment. Similarly, upon consummation of the Newco Transaction, Heartland
will own approximately 39.76% (prior to dilution) of the outstanding common
stock of Newco. Although David E. Webb and J.R. Holland, Jr., Directors of
Heartland, are expected to serve as Directors of Newco, Heartland will not be
able to exercise unfettered control over this proposed substantial investment.
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<PAGE> 71
CONTROL BY PRINCIPAL STOCKHOLDERS; AGREEMENT TO VOTE FOR BOARD DESIGNEE OF
JUPITER; CO-SALE-RIGHT
David E. Webb, the President and Chief Executive Officer of Heartland, L.
Allen Wheeler, a member of the Board of Directors of Heartland and Hunt Capital
Group, L.L.C. ("Hunt Capital"), a principal stockholder of Heartland and
affiliate of J. R. Holland, Jr., the Chairman of the Board of Heartland,
collectively own approximately 62.68% of the outstanding Heartland Common Stock
and, if they act together, will be able to control the election of the members
of Heartland's Board of Directors and generally to exercise control over
Heartland's affairs. Assuming consummation of each of the Transactions and an
average closing price of Heartland's Common Stock of $28, such parties will own
approximately 40.81% (33.87% if the maximum number of shares are issued) of the
outstanding common stock of the Combined Company. Accordingly, following
consummation of the Transactions, such persons acting together will not be able
to totally control the election of the members of Heartland's Board of
Directors. Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement"), entered into in connection with the private
placement of $40.2 million of 9% Convertible Subordinated Discount Notes due
2004 (the "Convertible Notes"), each of Hunt Capital, David E. Webb and L. Allen
Wheeler, have agreed to vote their shares of Heartland Common Stock (i) in favor
of the election to Heartland's Board of Directors of one designee of the
purchaser of the Convertible Notes ("Jupiter") and (ii) in favor of Heartland's
Board of Directors consisting of at least three and not more than seven members
for so long as Jupiter retains a 25% interest in the Convertible Notes
originally purchased by it and/or the shares of Heartland Common Stock issued or
issuable upon conversion thereof (the "Conversion Shares") originally issuable
to it. The agreement of such stockholders to elect Jupiter's designee to the
Board of Directors may restrict the ability of such stockholders to elect their
preferred slate of directors to manage Heartland, which may result in a member
of the Board of Directors having interests that conflict with those of the other
stockholders of Heartland. In addition, under the terms of the Stockholders'
Agreement, each of Hunt Capital, David E. Webb and L. Allen Wheeler have agreed
that, for so long as Jupiter holds such 25% interest, in the event of any
proposed sale or series of sales of Heartland Common Stock by any such
stockholder to a non-affiliate for aggregate consideration greater than $15
million or representing in excess of 5% of the outstanding Heartland Common
Stock at such time, such stockholder shall not effect such sale unless Jupiter
is permitted to participate in such sale on a pro rata basis with such
stockholder. The co-sale right may reduce the likelihood of a change in control
of Heartland because any potential purchaser of stock held by the controlling
stockholders may also be required to purchase shares owned by Jupiter.
LIMITED TRADING VOLUME AND POSSIBLE VOLATILITY OF HEARTLAND COMMON STOCK
During 1994 and for the first nine months of 1995, the average trading
volume of shares of Heartland Common Stock on Nasdaq-NMS was approximately
22,800 and 34,200 shares per day, respectively. As of December 31, 1995,
approximately 12,611,132 shares of the Heartland Common Stock were issued and
outstanding, including 8,106,825 (including 190,600 shares subject to
exercisable options) shares held by executive officers, directors and their
affiliates. In connection with the Transactions, Heartland may issue up to an
additional 10,721,302 shares (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common Stock
are issuable -- see "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions"), or 6,763,949
shares (based upon a closing average of $28 per share, the approximate closing
average of the Heartland Common Stock over the preceding ten- and 20-day trading
periods) of Heartland Common Stock, some or all of which will be liquidated by
FTW Associates, the Minneapolis Partnership and TSC in connection with their
respective plans of liquidation. In addition, some recipients of Heartland
Common Stock in the Transactions can be expected to immediately dispose of such
shares to meet tax or other obligations. There can be no assurance, given the
relatively low volume of trading typically exhibited by the Heartland Common
Stock that all of those holders seeking to dispose of Heartland Common Stock
will be able to do so or at what price such shares will be sold if dispositions
are made. It is also possible that there will be much greater volatility in the
price of the Heartland Common Stock during the period immediately preceding the
Transactions and for some time thereafter. Finally, the market price of the
Heartland Common Stock could fluctuate substantially in the future for a variety
of reasons, including performance of the Combined Company, investor expectations
for the Combined Company and the wireless cable television industry, general
economic
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<PAGE> 72
conditions and fluctuations in the overall stock market. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
NO HEARTLAND COMMON STOCK DIVIDENDS
Heartland has not paid dividends on Heartland Common Stock since its
inception and does not anticipate paying any dividends in the foreseeable
future. In addition, provisions relating to Heartland's indebtedness prohibit
the payment or accrual of dividends or any other distribution with respect to
Heartland's Common Stock until such debt is paid in full. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
POSSIBLE FUTURE ACQUISITIONS
Heartland has in the past and is in the process of making a number of
acquisitions and may in the future make additional acquisitions. The Combined
Company can be expected to seek to acquire additional channel rights, both in
its existing markets and in other markets, both directly and indirectly by
acquiring other wireless cable television providers. Such acquisitions may be in
geographic areas or markets outside of Heartland's traditional focus of small to
mid sized markets in the central United States. In addition, it is possible that
the Combined Company might make one or more acquisitions outside of the business
of providing wireless cable television services. Any such acquisitions may be
made for cash, securities, including Heartland Common Stock, or combinations
thereof. Under applicable law and regulations, in many circumstances, approval
by the Combined Company's stockholders of any such acquisitions may not be
required. The Combined Company may pay for such acquisitions in cash or by
issuing equity or debt securities. The issuance of equity to effect or finance
such acquisitions would have the effect of reducing the percentage ownership of
the Combined Company held by each pre-acquisition stockholder and the incurrence
of indebtedness in connection with such acquisitions could adversely affect the
liquidity, results of operations and financial condition of the Combined
Company.
RESCISSION RIGHTS OF PARTNERS OF MINNEAPOLIS PARTNERSHIP AND FTW PARTNERSHIP
Prior to the date hereof, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $29 million of general
partnership interests in three general partnerships, including FTW Partnership
and Minneapolis Partnership, without registration under any federal or state
securities laws. Following an 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 five percent of AWS Common Stock, without admitting or denying any
wrongdoing, consented to an SEC order to cease and desist from committing or
causing any violation and any future violations of the securities registration
provisions of the Securities Act and the broker-dealer registration provisions
of the Exchange Act. 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 rescission 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 interests 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 investment. AWS has
advised the Arizona Corporation Commission that it does not intend to make such
offer to purchase pending consummation of the transactions described herein.
On September 29, 1995, AWS and the third general partnership in which
interests were sold (the "Pittsburgh Partnership") jointly sold (the "Pittsburgh
Sale"), their respective interest in the joint venture operating the wireless
cable television system in Pittsburgh, Pennsylvania to CAI Wireless Systems,
Inc.
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("CAI"). General partners holding approximately 72% of the general partnership
interests in the Pittsburgh Partnership (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. There can be no assurance that the Minneapolis Partners and
the FTW Partners who do 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 Heartland, 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 Combined Company based on a number of theories
involving successor liability. The institution of legal action against the
Combined Company arising out of the offer and sale of general partnership
interests by AWS' predecessors could result in substantial defense costs to the
Combined Company and the diversion of efforts by the Combined Company's
management, and the imposition of liabilities against the Combined Company could
have an adverse effect on the Combined Company.
INFORMATION CONCERNING HEARTLAND
THE BUSINESS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems,
primarily in small to mid-size markets located in the central United States.
Heartland has wireless cable channel rights in 79 markets representing
approximately 8.2 million households, approximately 6.7 million of which
Heartland 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).
Heartland 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,
Heartland believes that its wireless cable television service is an attractive
alternative to existing choices for such households. Heartland estimates that
within its 79 wireless cable markets, approximately 2.4 million LOS households,
or 36% of Heartland'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.
Heartland's 79 markets include (i) 32 markets in which Heartland has
systems in operation (the "Heartland Existing Systems"), (ii) nine markets in
which Heartland's system is under construction, (iii) 23 near-term launch
markets in which Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and (iv) 15 long-term launch
markets, including 11 in which Heartland has aggregated sufficient wireless
cable channel rights to commence construction of a system and four in which
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. As of
November 30, 1995, Heartland was providing wireless cable service to an
aggregate of approximately 80,600 subscribers through 32 operational systems
located in seven states.
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 Heartland can provide subscribers with a high
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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, Heartland 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 Heartland 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 Heartland
continues to acquire channel rights. See "Information Concerning
Heartland -- The Business -- Business Strategy."
Substantially all of Heartland's subscribers have set-top converters that
are fully "impulse addressable," which will allow its subscribers to receive
impulse pay-per-view programming. Only approximately 35% of traditional
hard-wire cable operators use addressability and approximately 5% use impulse
addressability.
BUSINESS STRATEGY
Heartland's primary business objective is to develop, own and operate
wireless cable television systems in markets in which Heartland 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. Heartland 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. Heartland 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. Heartland attempts to manage system launch
and subscriber growth in order to contain system launch costs and to achieve
positive cash flow rapidly. Typically, Heartland's operating systems achieve
positive monthly operating cash flow upon obtaining an average of approximately
1,500 subscribers. Within a system, Heartland initially directs its marketing at
unpassed households, which typically have limited access to local off-air
VHF/UHF broadcast channels. Accordingly, Heartland 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, Heartland will expand the channel offering and add
subscribers while increasing such system's positive operating cash flow. As of
November 30, 1995, 17 of Heartland'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
1,500 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, Heartland estimates that each additional wireless cable subscriber
currently requires an incremental capital expenditure by Heartland 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, Heartland 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
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expenses. Finally, by locating its operations in geographic clusters, Heartland
can further contain costs by taking advantage of economies of scale in
management, sales and customer service.
Acquisition of ITFS Channel Rights. Because Heartland believes it can
launch service successfully in its markets with as few as 12 channels of
programming, Heartland focuses on development of the 20 available ITFS channels.
See "Wireless Cable Industry -- Regulatory Environment -- General." In most of
Heartland's markets, few, if any, licenses for ITFS channels had been granted by
the FCC to any non-profit educational organizations prior to Heartland's initial
development of such markets. Heartland cooperates with many non-profit
educational organizations in obtaining ITFS licenses from the FCC. Once
Heartland has secured rights to at least 12 ITFS channels in a market, Heartland
believes it can launch a commercially viable system in such market. Heartland
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.
PLANNED DIVESTITURES
Certain of the wireless cable assets currently held by Heartland and
certain of the assets sought to be acquired by Heartland in the Transactions are
not part of Heartland's current long-term business plan, either because they are
inconsistent with Heartland's focus on small to mid-sized markets with a
significant number of LOS households unpassed by traditional hard-wired cable or
because the Heartland Board felt that the consideration to be received in a
disposition thereof might be attractive when compared to developing and
operating a wireless cable system in the market. For example, Heartland will
seek to sell AWS' channel rights in Los Angeles to a third party. Also Heartland
and AWS have agreed to sell the Flippin and Memphis, Tennessee markets to
TruVision for $1.5 million and $3.9 million, respectively. Further, Heartland
has entered into the Participation Agreement with CAI pursuant to which
Heartland shall convey and sell to Newco the Maysville and Sweet Springs,
Missouri, Grand Rapids/Moline, Michigan, Napoleon/Bloom Center, Indiana, Dallas,
Ft. Worth and San Antonio, Texas, Dayton, Ohio, Salt Lake City, Utah and
Minneapolis, Minnesota markets to Newco for approximately $28.3 million of cash,
$40 million of promissory notes and a retained equity interest of approximately
39.76 percent. Each of these proposed dispositions is subject to significant
customary closing conditions, and no assurance can be given that all or any of
such assets will be disposed of on such terms. In addition, sales of assets of
Newco are dependent upon the consummation by Newco of certain financing
transactions. If the divestiture of any of such assets is not effected as
currently anticipated by the Heartland Board, the assets not disposed of will be
held by Heartland until other strategic uses can be found therefor. See "The
Combined Company -- Planned Divestitures."
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HEARTLAND EXISTING SYSTEMS AND HEARTLAND'S MARKETS
The table below provides information regarding the 79 existing markets in
which Heartland currently has wireless cable channel rights, unless otherwise
noted, as of November 30, 1995.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED NUMBER OF
TOTAL LINE-OF-SIGHT CURRENT SUBSCRIBERS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) CHANNELS(2) NOVEMBER 30, 1995
- ------------------------------------- ---------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
EXISTING SYSTEMS
Ada, OK............................ 30,399 24,319 32 6,508
Wichita Falls, TX.................. 78,290 74,376 28 6,093
Midland, TX........................ 120,037 114,035 26 5,017
Abilene, TX........................ 86,676 82,344 23 4,020
Lawton, OK......................... 97,023 92,172 27 6,334
Laredo, TX......................... 313,406(3) 297,736(3) 27 5,420
Enid, OK........................... 76,602 72,772 21 3,694
Lindsay, OK........................ 51,041 40,833 32 3,267
Ardmore, OK........................ 60,192 51,163 20 3,233
Mt. Pleasant, TX................... 33,589 26,871 16 1,684
Lufkin, TX......................... 117,534 88,150 12 --(4)
Shaw, KS........................... 47,223 42,763 30 3,961
Texarkana, TX...................... 118,204 94,563 20 1,997
Stillwater, OK..................... 54,562 40,922 20 5,428
Lubbock, TX........................ 123,934 105,323 34(5) 5,934
McLeansboro, IL.................... 80,136 60,102 34 859
Vandalia, IL....................... 73,593 55,195 20 1,365
Olney, IL.......................... 67,812 50,859 20 1,195
Lykens, OH......................... 210,800 168,640 20 700
Paragould, AR...................... 77,523 58,500 21 2,157
Sikeston, MO....................... 69,837 52,378 24 2,163
Taylorville, IL.................... 159,596 119,697 20 1,336
Peoria, IL......................... 276,446 248,801 19 762
Manhattan, KS...................... 56,473 42,355 20 945
O'Donnell, TX...................... 68,940 65,493 27 1,053
Olton, TX.......................... 32,548 30,921 28 933
Monroe City/Lakenan, MO............ 46,376 34,782 27 978
Grand Rapids/Moline, MI(6)......... 458,455 343,841 22 216
Sweet Springs, MO(6)............... 64,113 48,085 28 588
Maysville, MO(6)................... 69,307 51,980 25 557
Paris, TX.......................... 55,445 41,584 20 79
Champaign, IL(7)................... 164,992 148,493 23 2,120
--------- --------- ------
Total -- Existing Systems.......... 3,441,104 2,870,048 80,596
========= ========= ======
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------------- ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION
Corsicana/Athens, TX(9)........................... 69,161 62,245 23(10)
Harper/Freeport, IL............................... 125,269 93,952 20
Hamilton, TX...................................... 28,551 21,413 20
Peaksville, MO.................................... 48,157 36,118 15
Marion, KS........................................ 53,881 40,411 19
Sherman/Denison, TX(12)........................... 100,000 90,000 31(13)
Sterling, KS...................................... 45,213 38,431 24
Strawn/Ranger, TX................................. 34,488 25,866 20
Walnut Grove, IL.................................. 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction....... 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(14)
Adairsville, GA(11)............................... 205,662 154,247 16
Amarillo, TX...................................... 106,670 101,337 26(15)
Anthony, KS....................................... 15,798 11,845 16
Bellflower, MO.................................... 63,384 57,046 20
Bloom Center/Napoleon, IN(6)...................... 140,749 112,599 20
Bluffs, IL........................................ 46,389 34,792 20
Columbia, MO...................................... 149,622 127,179 18
Forrest City, AR.................................. 55,642 41,732 21
Flippin, TN(16)................................... 104,980 83,984 24
Holdenville, OK................................... 50,637 45,573 16
Kossuth, TX....................................... 52,490 39,368 20
Lenapah, OK....................................... 51,921 38,941 12
Mayfield, KY...................................... 175,948 155,972 21
Muskogee, OK...................................... 66,510 53,208 18
Powers Crossroads, GA(11)......................... 135,037 101,278 20
Purdin, MO........................................ 25,001 18,751 20
Rutledge, GA(11).................................. 141,370 106,028 16
Shreveport, LA.................................... 214,315 182,168 24
Springfield, MO................................... 139,706 118,750 16
Tulsa, OK......................................... 321,922 273,634 16
Tyler, TX......................................... 233,416 186,734 14
Weatherford, OK................................... 31,445 29,873 16
Wick, OH.......................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets......... 2,864,712 2,343,917
--------- ---------
LONG-TERM LAUNCH MARKETS(17)
Altus, OK......................................... 30,653 29,120 16
Burnet, TX........................................ 24,917 18,688 16
Charlotte, TX..................................... 32,771 24,578 16
Crow, TX.......................................... 71,421 57,137 12
Des Moines, IA.................................... 267,279 240,551 16
El Dorado, AR..................................... 54,727 38,310 16
Elk City, OK...................................... 26,379 21,103 17
Fischer, TX....................................... 317,039 237,779 20
Henryetta, OK..................................... 31,968 25,574 16
Ingram, TX........................................ 26,235 19,676 20
McAlester, OK..................................... 36,475 25,533 16
Miami, OK......................................... 70,820 60,197 15
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Seminole, OK...................................... 42,204 35,873 19
Sabinal, TX....................................... 15,795 11,846 20
Topeka, KS........................................ 211,762 190,586 16
--------- ---------
Total -- Long Term Launch Markets......... 1,260,445 1,036,551
--------- ---------
TOTAL -- ALL COMPANY MARKETS........................ 8,155,207 6,722,122
========= =========
</TABLE>
- ---------------
(1) Estimated Line-of-Sight Households for each market represents Heartland's
estimate of the total number of households within the service area of the
primary transmitter in each market that can receive an unobstructed signal
based on topographical and engineering analysis and other relevant factors.
(2) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(3) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(4) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(5) Includes additional channels subleased pursuant to the Sublease Agreement
with CMAX. See "The CMAX Merger -- Terms of the CMAX Merger
Agreement -- The CMAX Sublease Agreement." Channel capacity has been
increased by 12 channels in the Lubbock System, of which four are the
subject of an appeal by an unsuccessful applicant for the frequencies.
(6) These markets are included in the Heartland Disposition Assets. See "The
Combined Company -- Planned Divestitures."
(7) Heartland consummated the acquisition of the system in Champaign, Illinois
on January 16, 1996.
(8) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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 include channels with respect to which
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(9) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(10) Heartland currently subleases 7 of these channels from CMAX pursuant to the
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(11) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(12) Heartland currently subleases the wireless channel rights in the
Sherman/Denison System pursuant to the Sublease Agreement with CMAX.
(13) Of these channels, 8 are the subject of uncontested application
proceedings.
(14) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(15) Heartland currently subleases 9 of these channels from CMAX pursuant to the
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(16) Heartland is currently a party to an agreement relating to the disposition
of this market. See "The Combined Company -- Planned Divestitures."
(17) Such markets include six markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC within the
next 24 months. See "Risk Factors -- Uncertainty of Grant of Pending
Applications."
Existing Systems. Heartland currently has 32 Existing Systems. Heartland
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 Heartland'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,
Heartland's Existing Systems lease all of their
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<PAGE> 79
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 Heartland 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. Heartland currently has nine additional systems
under construction, which are located in Corsicana/Athens, Texas (certain
channels of which were subleased from CMAX pursuant to the Sublease Agreement),
Harper/Freeport, Illinois, Hamilton, Texas, Peaksville, Missouri, Marion,
Kansas, Sherman/Denison, Texas (which was subleased from CMAX pursuant to the
Sublease Agreement), Sterling, Kansas, Strawn/Ranger, Texas and Walnut Grove,
Illinois. In each of the systems under construction, Heartland has ordered
equipment to commence construction necessary to transmit on its channels in such
markets.
Generally, Heartland'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.
Near-term and Long-term Launch Markets. In these markets, Heartland has
aggregated or is aggregating additional wireless cable channel rights. In the
near-term launch markets, Heartland has aggregated sufficient wireless cable
channel rights to commence construction of a system. In six of the long-term
launch markets, Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and in four of such markets,
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. The vast
majority of Heartland's channel rights in the long-term 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
Heartland's lease agreements with applicants for channel licenses involve
channel licenses for which Competing Applications have been filed and Competing
Applications may be filed with respect to the applications to be refiled. In
each market, Heartland has carefully considered the FCC's selection criteria in
choosing the educational entities with which it has entered into lease
agreements. Heartland therefore anticipates that a substantial number of the
pending applications and applications to be refiled will be granted by the FCC
over the next 24 months. 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. See "Risk Factors -- Dependence on Channel
Leases" and "Risk Factors -- Uncertainty of Grant of Pending Applications."
Heartland currently plans to finish construction of all systems currently
under construction during the first quarter of 1996. In addition, Heartland
currently expects to construct 20 to 25 additional systems through the end of
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 Heartland to launch wireless cable service
in such markets. Heartland 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.
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<PAGE> 80
SYSTEM COSTS
Traditional hard-wire cable systems typically cost significantly more to
build than wireless cable systems. Heartland 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 Heartland 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. Heartland estimates
that each additional wireless cable subscriber currently requires an incremental
capital expenditure by Heartland 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. Heartland 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, Heartland
can further contain costs by taking advantage of economies of scale in
management, sales and customer service. Each of the Heartland'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
Heartland markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
pay-television alternatives: (1) picture quality and reliability, (2) customer
service, (3) programming features and (4) price.
Picture Quality and Reliability. Heartland's transmission facilities use
the latest available technology. Heartland 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 Heartland Existing
Systems. Wireless cable subscribers enjoy substantially outage-free, highly
reliable picture quality because there is no coaxial cable, amplifiers or
processing 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 Heartland Existing Systems, the picture quality of Heartland'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 Heartland's head-end and the
subscriber. See "Risk Factors -- Physical Limitations of Wireless Cable
Transmission."
Customer Service. Heartland has established the goal of maintaining high
levels of customer satisfaction. In furtherance of that goal, Heartland
emphasizes responsiveness and convenient installation scheduling. Heartland has
established customer retention and referral programs in an effort to obtain and
retain new subscribers. Heartland 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 as
high levels of customer service as Heartland provides. The regulations
authorized under the Cable Act will require traditional hard-wire cable
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<PAGE> 81
companies to provide improved customer service which may decrease Heartland's
competitive advantage in this area.
Programming Features. In the Heartland Existing Systems (other than the
Lufkin, Texas System) and markets under construction, Heartland 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, Heartland has the capacity to offer pay-per-view
programming and impulse addressability not currently widely offered by
traditional hard-wire cable operators. Heartland'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 Heartland'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. Heartland offers its subscribers a programming package consisting of
basic service and premium programs. Heartland 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. Heartland 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, Heartland believes it will continue
to be price competitive with traditional hard-wire cable operators with respect
to comparable programming. Heartland'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, Heartland offers a combination package consisting of basic service,
rental of the receive-site equipment and two premium channels for $29.95 per
month.
LEGAL PROCEEDINGS
On June 21, 1995, TruVision Cable, Inc. ("TruVision") filed a lawsuit in
the Circuit Court of Rankin County, Mississippi naming Heartland 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
Heartland interfered with by entering into negotiations and an alleged agreement
with AWS. In its original pleadings, TruVision alleged that Heartland 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 Heartland and actions related thereto. TruVision is also seeking
$20,000,000 in punitive damages. On July 26, 1995, Heartland filed a Motion to
Dismiss this litigation for lack of personal jurisdiction. Heartland intends to
vigorously defend this lawsuit. On November 7, 1995, Heartland and TruVision
entered into an Asset Purchase Agreement providing for the sale by Heartland 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
Heartland shall have the right to raise all defenses and counterclaims
associated therewith.
Certain subsidiaries of Heartland are named as defendants in a lawsuit in
the United States District Court, Western Division of Louisiana, Monroe
Division, commenced on May 15, 1995 by TCG of Monroe, Inc. On May 18, 1995, a
subsidiary of Heartland acquired for $100,000 cash all of the outstanding
capital
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<PAGE> 82
stock of Cotton Country Cable, Inc. ("Cotton Country") which held certain
wireless cable channel rights in the Monroe, Louisiana market. Cotton Country
owes its former shareholders $500,000, which sum is subject to offset for any
damages suffered by Cotton Country or Heartland as a result of this lawsuit.
These former shareholders are also named as defendants in the lawsuit. The
plaintiff has requested, among other items, declaratory relief and specific
performance to enforce an alleged prior contract of sale of these cable rights
to it from Cotton Country. Further, the plaintiff sought injunctive relief,
which was denied on August 8, 1995. Heartland believes all claims against its
subsidiaries are without merit and intends to vigorously defend the lawsuit. In
addition, Heartland believes that an adverse outcome, if any, would not have a
material adverse effect on Heartland. In connection with consummation of the
Wireless One Transaction (as hereinafter defined), Heartland conveyed its rights
in the Monroe, Louisiana wireless cable market to Wireless One, and agreed to
indemnify, defend and hold harmless Wireless One from and against this lawsuit.
Heartland is a party, from time to time, to routine litigation or
employment litigation incident to its business. No provision has been reflected
in the Heartland financial statements for any litigation. It is the opinion of
management that no pending litigation matter will have a material adverse effect
on Heartland's financial condition, results of operations or properties.
EMPLOYEES
As of December 31, 1995, Heartland had approximately 790 employees. None of
Heartland's employees is subject to a collective bargaining agreement. Heartland
has experienced no work stoppages and believes that it has good relations with
its employees. Heartland also presently utilizes the services of independent
contractors to build and install certain of its wireless cable systems and
market its services.
PROPERTIES
Heartland leases approximately 5,500 square feet of office space for its
executive offices in Richardson, Texas under a lease that expires September 30,
1998. Heartland pays approximately $35,000 per annum rent for such space.
Heartland 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. Heartland pays $18,000 per annum rent for such space
and the utilities are provided by the owner of the building. Heartland leases
approximately an additional 5,000 square feet of office space in Durant,
Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease that
expires March 1, 2000 subject to a 5-year renewal option. Heartland pays $29,004
per annum rent for such space. Heartland leases approximately an additional
1,126 square feet from an affiliate of Messrs. Webb and Wheeler under a lease
that expires on May 31, 2000. Heartland pays $8,448 per annum rent for such
space and the utilities are provided by the owner of the building. Heartland
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. Heartland pays $16,000 per annum rent for such
space. See "-- Certain Transactions." Heartland 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. Heartland leases
office space for the Heartland Existing Systems and will, in the future,
purchase or lease additional office space in other locations where it launches
other wireless cable systems. Heartland also owns transmission towers or leases
space on transmission towers located in its markets. The current capacity range
of Heartland's transmission facilities is from 10 to 50 watts, capable of
generating a signal over a 35 to 50 mile range. Heartland believes that office
space and space on transmission towers currently is readily available on
acceptable terms in the markets where Heartland intends to operate wireless
cable system.
RECENT TRANSACTIONS
CONSENT SOLICITATION
Between September 12, 1995 and September 29, 1995, Heartland engaged in the
solicitation of consents (the "Consent Solicitation") of the holders of its 13%
Senior Notes due 2003 (the "Senior Notes") to
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<PAGE> 83
(i) amend certain provisions of the indenture then in effect governing the
Senior Notes (the "Original Indenture") to permit Heartland to consummate the
Wireless One Transaction (as hereinafter defined) and the Transactions and (ii)
additionally amend certain definitions and covenants in the Original Indenture,
which imposed restrictions on Heartland's ability to pursue certain additional
acquisition, divestiture, financing and other opportunities that Heartland
believed were necessary to enhance the value of Heartland. The amendments
referred to in (i) and (ii) above and sought by Heartland in the Consent
Solicitation are referred to herein as the "Proposed Amendments."
In the Original Indenture Heartland 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 Heartland to consummate the Transactions and to
facilitate Heartland's ability to pursue such additional opportunities, if and
when they arise, Heartland engaged in the Consent Solicitation.
The Proposed 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
Proposed 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
Proposed Amendments. Promptly after the effectiveness of the supplemental
indenture including the Proposed Amendments, Heartland 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. Heartland paid an aggregate of
$955,000 to the holders of the Senior Notes in this regard.
EXCHANGE OFFER OF SENIOR NOTES
In connection with the issuance and sale of the Senior Notes, Heartland
agreed (i) to file within 30 days after the date of issuance of the Senior Notes
(the "Issue Date"), and to cause to become effective within 120 days after the
Issue Date (August 24, 1995), a registration statement (the "Exchange Offer
Registration Statement") with respect to a registered offer (the "Exchange
Offer") to exchange the Senior Notes for exchange notes which will have terms
identical in all material respects to the Senior Notes (the "Exchange Notes"),
except that the Exchange Notes will not contain terms with respect to transfer
restrictions, and (ii) upon the Exchange Offer Registration Statement being
declared effective, to offer the Exchange Notes in exchange for surrender of the
Senior Notes. Heartland filed the Exchange Offer Registration Statement with the
Commission on May 5, 1995, but the Exchange Offer Registration Statement has not
yet been declared effective. Since Heartland has not complied with its
registration obligations in a timely manner, it will be 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. The amount of the additional interest will
increase by an additional 0.50% per annum for each subsequent 90-day period
until such obligations are complied with, up to a maximum amount of additional
interest of 2% per annum.
THE WIRELESS ONE TRANSACTION
Effective October 24, 1995, Heartland and certain affiliates of Wireless
One, Inc., a newly formed Delaware corporation ("Wireless One") consummated a
transaction (the "Wireless One Transaction") pursuant to which Heartland 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. Heartland contributed assets
relating to 28 markets, including 16 of which were either previously held for
sale or were markets in which Heartland 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,
Heartland became the beneficial owner of approximately 26% (after exercise of
its over-allotment) of the outstanding common stock of Wireless One.
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<PAGE> 84
In connection with the Wireless One Transaction, Heartland granted Wireless
One the option to purchase the wireless cable channel rights of Heartland and
its subsidiaries in certain additional markets located in Florida, for either
Wireless One Common Stock or cash, at Wireless One's option. Further, following
consummation of the Wireless One Transaction, Heartland and Wireless One entered
into a letter of intent providing Wireless One an option, exercisable prior to
February 29, 1996, to purchase the wireless cable channel rights of Heartland in
three markets in Georgia for aggregate consideration of approximately $7.2
million, payable in cash.
Heartland and certain of the Old 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 Heartland
(at least one of whom cannot be an affiliate of Wireless One or Heartland), up
to three of whom will be designated by the Old Wireless One Stockholders who are
parties to the Wireless One Stockholders 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, Heartland 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 Heartland and its affiliates cease to own at least
five percent (5%) of the outstanding Wireless One Common Stock, Heartland 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
Heartland 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 Heartland and its affiliates cease
to own at least five percent (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, Heartland 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").
Heartland agreed to such amendments in connection with Jupiter's agreement to
consent, pursuant to the terms of the Note Purchase Agreement, to the CMAX
Merger. Such amendments included the following:
(a) Heartland'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 Heartland previously
owned or leased 16 or more channels or a lease of channel rights in any
wireless cable market where Heartland 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 Heartland 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) Heartland'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.
52
<PAGE> 85
(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
Heartland serving as a member of the Compensation Committee of Heartland.
NEWCO TRANSACTION
Effective December 12, 1995, Heartland, CAI and CS Wireless Systems, Inc.,
a Delaware corporation and wholly owned subsidiary of CAI ("Newco"), entered
into a Participation Agreement, pursuant to which Heartland or its subsidiaries
will contribute or sell to Newco the wireless cable assets and all related
liabilities of certain specified Heartland Disposition Assets. Simultaneous with
Heartland's contribution and sale of these assets to Newco, CAI or its
subsidiaries will contribute to Newco all of the outstanding capital stock of
certain of its subsidiaries. See "The Combined Company -- Planned Divestitures."
DIVIDENDS ON AND MARKET PRICES OF HEARTLAND COMMON STOCK
Heartland Common Stock has been traded on the Nasdaq-NMS under the symbol
"HART" since April 28, 1994. On December 31, 1995, there were approximately 92
holders of record of Heartland Common Stock.
The following table sets forth the high and low closing sales prices per
share of Heartland Common Stock as reported on the Nasdaq-NMS for the periods
indicated.
<TABLE>
<CAPTION>
HEARTLAND
COMMON STOCK PRICES
---------------------
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR YEAR 1994:
2nd Quarter*................................................. $ 11.50 $ 10.00
3rd Quarter.................................................. $ 15.50 $ 9.50
4th Quarter.................................................. $ 15.75 $ 11.00
CALENDAR YEAR 1995:
1st Quarter.................................................. $ 17.25 $ 11.75
2nd Quarter.................................................. $ 24.25 $ 15.50
3rd Quarter.................................................. $ 25.75 $ 19.50
4th Quarter.................................................. $ 31.50 $ 27.00
CALENDAR YEAR 1996:
1st Quarter (through January 22, 1996)....................... $ 29.75 $ 28.75
</TABLE>
- ---------------
* From April 28, 1994.
The market quotations in the chart above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. RECIPIENTS OF THIS PROXY STATEMENT ARE ENCOURAGED
TO CHECK THE MOST RECENT MARKET PRICES OF THE HEARTLAND COMMON STOCK.
No dividends have ever been paid or declared on the Heartland Common Stock.
Heartland does not expect to declare any dividends on Heartland Common Stock in
the foreseeable future. In addition, provisions relating to Heartland's
indebtedness prohibit the payment or accrual of dividends or any other
distribution with respect to Heartland's Common Stock until such debt is paid in
full.
53
<PAGE> 86
On September 11, 1995, the last full trading day prior to the public
announcement of the Transactions, the closing price per share of Heartland
Common Stock as reported on the Nasdaq-NMS was $21.50. On January 22, 1996 the
closing price per share of Heartland Common Stock as reported on the Nasdaq-NMS
was $29.25.
CALCULATION AND LISTING OF SHARES
TO BE ISSUED IN CONNECTION WITH THE TRANSACTIONS
CALCULATION
Generally. The exact number of shares of Heartland Common Stock ultimately
issued in each of the five Transactions will not be determined until the
consummation thereof. In general, and subject to certain maximums and minimums,
the number of shares of Heartland Common Stock to be issued will be determined
by dividing, in the case of each Transaction, a particular dollar amount by the
average trading price of such stock during a period preceding consummation. See
"The AWS Merger -- Terms of the AWS Merger Agreement", "The FTW
Transaction -- Terms of the FTW Agreement", "The Minneapolis Transaction --
Terms of the Minneapolis Agreement", "The CMAX Merger -- Terms of the CMAX
Merger Agreement", "The TSC Transaction -- Terms of the TSC Agreement."
Assumptions for Purposes of Calculating Maximum Shares. In determining the
maximum aggregate number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 4,500 wireless cable television subscribers to the Minneapolis
system on the relevant date based upon the capital costs of adding each
additional subscriber and the limited capital resources available, (b) the TSC
Transaction, Heartland has assumed that (i) the aggregate exchange value will
include the maximum additional subscriber consideration attributable to the TSC
Transaction of $3.5 million, (ii) Heartland will not assume any liabilities of
TSC and (iii) the Dayton system will not be sold prior to closing, and (c) the
CMAX Merger, Heartland has assumed that the CMAX Net Liabilities will not exceed
its Permitted Net Liabilities.
54
<PAGE> 87
The chart below sets forth the maximum number of shares of Heartland Common
Stock issuable in connection with the Transactions, subject to the foregoing
assumptions and assuming that Heartland elects to exercise its right to
terminate each transaction if the relevant closing average is less than the
respective specified amount. Because the number of shares of Heartland Common
Stock issuable in each Transaction either decreases or remains fixed as the
relevant closing average increases, the chart below shows the maximum number of
shares issuable at each price at which Heartland has such a termination right
($10 in the CMAX Merger, $16 in the TSC Transaction, and $17 in the Minneapolis
and FTW Transactions). At closing averages above $17 per share, the aggregate
number of shares issuable in connection with the Transactions begins to decrease
and therefore closing averages above $17 are not relevant to determining the
maximum number of shares of Heartland Common Stock issuable in connection with
the Transactions. As shown below, the maximum aggregate number of shares of
Heartland Common Stock issuable in connection with the Transactions is
10,721,302 shares, based upon a closing average of $17 per share for each
Transaction.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
-----------------------------------
$10 $16 $17
-------- -------- ---------
<S> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate.............................................. (B) 1,700,000 1,700,000
Per Share.............................................. (B) .2978 .2978
FTW Transaction(C)
Aggregate.............................................. (D) (D) 782,353
Per Unit............................................... (D) (D) 536.2255
Minneapolis Transaction(E)
Aggregate.............................................. (D) (D) 1,117,647
Per Unit............................................... (D) (D) 537.5887
CMAX Merger(F)
Aggregate.............................................. 8,081,214 5,050,759 4,753,655
Per Share.............................................. .85 .5313 .5
TSC Transaction(G)
Aggregate.............................................. (D) 2,515,625 2,367,647
Per Share.............................................. (D) 360.6114 339.3989
========= ========= ==========
Total.................................................... 8,081,214 9,266,384 10,721,302
Percent of Outstanding Shares(H)......................... 39.05 42.36 45.95
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on the fifth business day preceding the consummation of the TSC
Agreement, or CMAX Merger, as applicable (which date is contemplated to be
February 15, 1996 based upon a contemplated closing date of February 23,
1996). The closing average for the AWS Merger, FTW Transaction and
Minneapolis Transaction is the closing price of the Heartland Common Stock
over the ten-trading day period ending on the fifth business day preceding
the consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement,
as applicable (which date is contemplated to be February 15, 1996 based upon
a contemplated closing date of February 23, 1996).
(B) Calculation is based upon a merger consideration of $34 million divided by
the exchange price for the AWS Merger (equal to $20 per share for closing
averages less than $20 per share, subject to the right of AWS to terminate
the AWS Merger if such closing average is less than $12 per share). AWS
intends to exercise its termination right, upon which such Transaction will
be abandoned. Accordingly, if the exchange price is less than $20 per share
but not less than $12 per share, the aggregate merger consideration to which
AWS stockholders will be entitled will be correspondingly less than
$34,000,000. Per share calculation based upon 5,709,187 shares of AWS Common
Stock outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 1,459 general
partnership units outstanding.
(D) Heartland intends to exercise its termination right, upon which such
Transaction will be abandoned.
(E) Based upon an acquisition consideration of $19 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 2,079 general
partnership units outstanding.
(F) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
(G) Based upon an acquisition consideration of $40.25 million divided by the
exchange price (equal to the closing average). Per share calculation based
upon 6,976 shares of TSC Common Stock outstanding.
55
<PAGE> 88
(H) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
Assumptions for Purposes of Calculating Anticipated Shares. In determining
the anticipated number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 3,500 wireless cable television subscribers to the Minneapolis
system on the relevant date, (b) the TSC Transaction, Heartland has assumed (i)
the aggregate exchange value will include the additional subscriber
consideration attributable to the TSC Transaction of $1.5 million, (ii)
Heartland will assume $5 million of liabilities of TSC and (iii) the Dayton
system will not be sold prior to closing, and (c) the CMAX Merger, Heartland has
assumed that CMAX Net Liabilities will not exceed its Permitted Net Liabilities.
Because Heartland and the various parties to the Agreements anticipate that such
assumptions in the relevant Transactions will be true at the closing of each
Transaction, the calculation of the anticipated number of shares of Heartland
Common Stock issuable in connection with the Transactions reflects these
assumptions. Notwithstanding the stated assumptions for determining the
anticipated number of shares of Heartland Common Stock issuable in connection
with the Transactions, no assurance can be given that such assumptions will be
correct on the relevant closing dates. Set forth below is a chart indicating the
anticipated number of shares issuable in connection with each Transaction at
various closing averages, subject to the assumptions set forth above.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
--------------------------------------------------------------------------
$23 $26 $28 $30 $32 $34
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate................... 1,478,281 1,307,692 1,307,692 1,307,692 1,307,692 1,307,692
Per Share................... .2589 .2291 .2291 .2291 .2291 .2291
FTW Transaction(C)
Aggregate................... 578,261 578,261 578,261 578,261 578,261 578,261
Per Unit.................... 396.3406 396.3406 396.3406 396.3406 396.3406 396.3406
Minneapolis Transaction(D)
Aggregate................... 804,348 804,348 804,348 804,348 754,076 709,719
Per Unit.................... 386.892 386.892 386.892 386.892 362.711 341.375
CMAX Merger(E)
Aggregate................... 3,513,571 3,108,159 2,886,148 2,693,738 2,525,379 2,376,828
Per Share................... .3696 .3269 .3036 .2833 .2656 .25
TSC Transaction(F)
Aggregate................... 1,445,652 1,278,846 1,187,500 1,108,333 1,039,063 977,941
Per Share................... 207.2323 183.321 170.226 158.878 148.948 140.1865
========= ========= ========= ========= ========= =========
Total......................... 7,820,093 7,077,306 6,763,949 6,492,372 6,204,471 5,950,441
Percent of Outstanding
Shares(G)................... 38.28 35.95 34.91 33.99 32.98 32.06
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on the fifth business day preceding the consummation of the TSC
Agreement or CMAX Merger, as applicable (which date is contemplated to be
February 15, 1996 based upon a contemplated closing date of February 23,
1996). The closing average for the AWS Merger, FTW Transaction and
Minneapolis Transaction is the closing price of the Heartland Common Stock
over the ten-trading day period ending on the fifth business day preceding
the consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement,
as applicable (which date is contemplated to be February 15, 1996 based upon
a contemplated closing date of February 23, 1996).
(B) Based upon a merger consideration of $34 million divided by the AWS exchange
price (equal to the lesser of the closing average or $26 if the closing
average is equal to or in excess of $20, subject to the right of Heartland
to terminate the AWS Merger if such closing is more than $32 per share).
Accordingly, if the exchange price is more than $26 per share but not more
than $32 per share, the aggregate merger consideration to which AWS
stockholders will be entitled will be correspondingly more than $34,000,000.
Per share calculation based upon 5,709,187 shares of AWS Common Stock
outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by the
exchange price (equal $23 if the closing average is in excess of $23). Per
unit calculation based upon 1,459 general partnership units outstanding.
(D) Based upon an acquisition consideration of $18.5 million divided by the
exchange price (equal to (i) $23 if the closing average is greater than $23
and less than or equal to $30, and (ii) the closing average times $23,
divided by $30 if the closing average is in excess of $30). Per unit
calculation based upon 2,079 general partnership units outstanding.
56
<PAGE> 89
(E) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
(F) Based upon an acquisition consideration of $33.25 million (assumes $1.5
million of additional subscriber consideration and the assumption of $5.0
million of liabilities) divided by the exchange price (equal to the closing
average). Per share calculation based upon 6,976 shares of TSC Common Stock
outstanding.
(G) Based upon 12,611,132 shares outstanding as of December 31, 1995.
LISTING
The shares of Heartland Common Stock to be issued in connection with the
Transactions will be tradeable on the Nasdaq-NMS. Heartland intends to file the
appropriate Nasdaq National Market Notification Form for Listing of Additional
Shares and notification pursuant to SEC Rule 10b-17 immediately upon closing of
the Transactions and calculation of the exact number of shares of Heartland
Common Stock issuable in connection therewith.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Proxy Statement with respect to each person who is an executive officer or
director of Heartland:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
J.R. Holland, Jr.(1)............... 52 Chairman of the Board
David E. Webb...................... 49 President, Chief Executive Officer and
Director
John R. Bailey..................... 42 Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary
Randy R. Hendrix................... 35 Senior Vice President -- Marketing
Thomas W. Dixon.................... 48 Senior Vice President -- Operations
Robert R. Story.................... 40 Senior Vice President -- Installations
David D. Hagey..................... 35 Vice President, Controller and Assistant
Secretary
Alvin H. Lane, Jr.(2).............. 53 Director
Dennis M. O'Rourke(1).............. 53 Director
John A. Sprague.................... 43 Director
Wes W. Watkins(2).................. 57 Director
L. Allen Wheeler(1)(2)............. 63 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
J. R. Holland, Jr., began advising Heartland as a consultant in October
1992 and became Chairman of the Board of Directors in October 1993. Mr. Holland
has been employed as President of Unity Hunt Resources, Inc. since September
1991. Unity Hunt Resources is a large international, private holding company
with interests in entertainment, cable television, retail, investments, real
estate, natural resources and energy businesses. Mr. Holland is also the
President of Hunt Capital. See "Information Concerning Heartland -- Security
Ownership of Principal Stockholders and Management." From November 1988 to
September 1991, Mr. Holland was Chairman of the Board and Chief Executive
Officer of Nedinco, Inc., a large diversified, international holding company.
Prior to that, Mr. Holland was President and a director of KSA Industries, Inc.,
a private, diversified company involved in entertainment, retail, transportation
and energy businesses, and President and a director of Western Services
International, Inc., a company involved in energy services, equipment and
chemicals. Mr. Holland began his career with Booz-Allen & Hamilton, Inc., a
major management consulting firm. In addition, Mr. Holland is currently a
director of Placid Refining Company, Optical Securities Group, Inc. and Wireless
One, Inc.
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<PAGE> 90
David E. Webb, co-founder of Heartland, has been President and Chief
Executive Officer and a director of Heartland since its formation in September
1990. During 1989 and 1990, Mr. Webb began acquiring rights to wireless cable
channels. From 1979 to January 1989, Mr. Webb was a shareholder, director and
manager of Durant Cablevision, Inc. and its predecessor, a traditional hard-wire
cable system company. Mr. Webb has been a shareholder and director of several
media/communications companies involved in network and independent television
stations, AM and FM radio stations, paging and telephony. Mr. Webb is also a
director of Wireless One, Inc.
John R. Bailey, began advising Heartland as a financial consultant in July
1992 and joined Heartland in September 1993 as Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary. Mr. Bailey was named Senior Vice
President -- Finance, Chief Financial Officer, Treasurer and Secretary in August
1994. From 1988 to September 1993, Mr. Bailey was the founder and Managing
Director of Berkshire Partners, Inc., a private investment bank focusing upon
private placements and mergers and acquisitions for communications clients. From
February 1991 to February 1992, Mr. Bailey was a Senior Vice President and Chief
Financial Officer of Comstock Resources, Inc., an energy company. From October
1989 to February 1991 and from 1980 to September 1985, Mr. Bailey was employed
by Eppler, Guerin & Turner, Inc., an investment bank, as Vice
President -- Corporate Finance. Prior to 1988, Mr. Bailey was employed by Bear,
Stearns & Co., Inc. as an Associate Director and Kidder, Peabody & Co.
Incorporated as a Vice President in Corporate Finance.
Randy R. Hendrix began advising Heartland as a marketing consultant in
January 1991 and joined Heartland as Vice President -- Marketing in September
1993. Mr. Hendrix was named Senior Vice President -- Marketing in August 1994.
From 1986 to January 1991, Mr. Hendrix was employed as a Registered
Representative for the Equitable Life Assurance Society. Prior to that, Mr.
Hendrix served as Marketing Director -- Franchise Development for Curtis Mathis
Corporation, a manufacturer and retailer of electronic appliances.
Thomas W. Dixon began advising Heartland as an operations consultant in
March 1992 and joined Heartland as Vice President -- Operations in September
1993. Mr. Dixon was named Senior Vice President -- Operations in August 1994.
From 1985 to March 1992, Mr. Dixon was employed as a Vice President of Long
Distance Savers, Inc., a long distance telephone company. Mr. Dixon's
responsibilities included opening, staffing and training new company offices, as
well as sales and marketing in the Louisiana-Texas-Oklahoma tri-state area.
Robert R. Story has been an adviser to Heartland since its formation on
construction, installations and related technical matters. Mr. Story also
assisted Heartland with numerous strategic acquisitions. Previously, Mr. Story
was President of United States Wireless Cable, Inc., an Austin, Texas based
wireless cable operator. In connection with Heartland's purchase of the Lubbock
operating system in May 1995, Mr. Story was named Senior Vice
President -- Installations. Mr. Story is responsible for the development of all
residential receive sites, special application installations and the training of
Heartland personnel for these installations. Mr. Story has been a shareholder
and officer of Clear-Vue TV, Inc., Durant Cablevision, Inc. and Green Country
Radio, Inc.
David D. Hagey joined Heartland in June 1994 as Vice President, Controller
and Assistant Secretary. Prior to joining Heartland, Mr. Hagey was employed by
KPMG Peat Marwick LLP for 11 years, most recently as Senior Manager.
Alvin H. Lane, Jr., became a director of Heartland in January 1994. In
1983, Mr. Lane founded, and since then has been the President of, Lane and
Associates, a management consulting firm. Since October 1993, Mr. Lane has been
the President of AHL Finance Company, L.L.C. From 1972 to 1983, Mr. Lane was the
Chief Financial Officer and Secretary of the Dr Pepper Company. Mr. Lane is also
Chairman of the Board of Love Bottling Company, a soft drink bottling franchise.
Dennis M. O'Rourke became a director of Heartland in January 1994. In 1985,
Mr. O'Rourke founded, and since then has been the Chairman of the Board and
Chief Executive Officer of, O'Rourke Companies
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<PAGE> 91
Inc., a human resources consulting firm. Prior to that, Mr. O'Rourke was
employed in various capacities by Boise Cascade Corporation, American Hospital
Supply Corporation and General Motors Corporation.
John A. Sprague became a director of Heartland in January 1995. Since March
1994, Mr. Sprague has been the managing partner of Jupiter Partners L.P., an
investment firm. From January 1993 until February 1994, Mr. Sprague was an
independent investor. Prior to that, Mr. Sprague served as a General Partner of
Forstmann Little & Co., an investment firm. Mr. Sprague is also a director of
Insignia Financial Group, Inc.
Wes W. Watkins became a director of Heartland in January 1994. Since
January 1991, Mr. Watkins has been the President of World Export Services, Inc.,
a company that invests in telecommunications, real estate and oil production.
Mr. Watkins is also the Secretary and Representative for international trade for
the State of Oklahoma. From January 1991 until December 1993, Mr. Watkins was
the President of Global Communications, Inc., a wireless cable and satellite
telecommunications consulting corporation. Prior to that, Mr. Watkins served for
14 years as a member of the House of Representatives of the United States
Congress from the State of Oklahoma, serving on the Banking, Finance and Urban
Affairs Committee and the House Appropriations Committee.
L. Allen Wheeler, co-founder of Heartland, has served as a director of
Heartland since its formation in September 1990. Mr. Wheeler has owned and
managed diversified investments through Allen Wheeler Management, Inc., a
personal holding company, for over 20 years. Mr. Wheeler's investments have
emphasized the media/communications industries. Mr. Wheeler has been a
shareholder, director and officer of several media/communications companies
involved in network and independent television stations, AM and FM radio
stations, paging and telephony. Mr. Wheeler is currently Chairman and Chief
Executive Officer of Green Country Radio, Inc., which owns and operates one AM
and one FM radio station and a television station.
Executive officers serve at the discretion of the Board of Directors. All
directors serve on the Board of Directors of Heartland until the next annual
meeting of stockholders of Heartland and until their successors are elected and
qualified. Non-employee directors receive an annual fee of $5,000 and a meeting
fee of $500 per meeting attended, plus reimbursement of out-of-pocket expenses,
for their services as directors of Heartland. In addition, each non-employee
director of Heartland (other than Mr. Wheeler) is entitled to receive stock
options under Heartland's Stock Option Plan for Non-Employee Directors for his
services as a director. See "Information Concerning
Heartland -- Management -- Stock Option Plans." Directors who are also employees
do not receive any additional compensation for their services as directors.
The Board of Directors has established two committees. The Compensation
Committee is comprised of Messrs. Holland, O'Rourke, Wheeler and Sprague and
makes recommendations to the Board with respect to general compensation and
benefit levels, determines the compensation and benefits for Heartland's
executive officers and administers Heartland's Employee Stock Option Plan. The
Audit Committee is comprised of Messrs. Lane, Watkins and Wheeler and oversees
the activities of Heartland's independent auditors and internal accounting
controls.
59
<PAGE> 92
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation of Heartland's
Chief Executive Officer and each other executive officer of Heartland who earned
in excess of $100,000 in annual salary and bonus during Heartland's fiscal year
ended December 31, 1994 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to Heartland during Heartland's fiscal years
ended December 31, 1994 and 1993, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
TERM
COMPEN-
SATION
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------ SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS/ OTHER
SALARY BONUS COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- --------------------------------------------- ---- -------- ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb................................ 1994 $120,000 $ -- $7,306 -- $ 13,228(2)
President and Chief Executive Officer 1993 60,750(3) -- -- -- 2,250(2)
John R. Bailey............................... 1994 90,000 45,000 4,200 100,000 --
Senior Vice President -- Finance, Chief 1993 94,850(3) -- -- -- --
Financial Officer, Treasurer and Secretary
Randy R. Hendrix............................. 1994 90,000 45,000 6,668 130,000 --
Senior Vice President -- Marketing 1993 59,782(3) -- -- -- --
Thomas W. Dixon.............................. 1994 81,000 45,000 4,200 50,000 --
Senior Vice President -- Operations........ 1993 30,000(3) -- -- -- --
</TABLE>
- ---------------
(1) Other annual compensation is comprised of car allowances.
(2) Rental income paid by Heartland for its operating offices. See "Information
Concerning Heartland -- The Business -- Properties" and "Information
Concerning Heartland -- Certain Transactions."
(3) Paid by Heartland in the form of consulting fees.
Since April 1994, Mr. Holland's annual base compensation for the fiscal
year ended December 31, 1994, was $120,000. Such compensation is paid to Mr.
Holland by Unity Hunt Resources, Inc., an affiliate of Hunt Capital, which
receives a management fee equal to such amount from Heartland for the provision
of Mr. Holland's services. Mr. Holland devotes approximately 20 hours per week
to Heartland. See "Information Concerning Heartland -- Certain Transactions."
The following table sets forth, for the fiscal year ended December 31,
1994, the number of individual grants of stock options made during such fiscal
year to each of the Named Executive Officers. All options granted during the
last fiscal year were granted pursuant to the 1994 Employee Stock Option Plan
(the "Employee Option Plan") at an exercise price equal to the fair market value
on the date of grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL PRICE APPRECIATION FOR
OPTIONS/ OPTIONS/SARS EXERCISE OPTION TERM(1)
SARS GRANTED TO OR BASE ----------------------
GRANTED(2) EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ----------------------- ---------- ------------ -------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb.......... 0 N/A N/A N/A N/A N/A
John R. Bailey......... 100,000 18.8% $10.50 April 21, 2001 $427,500 $ 996,200
Randy R. Hendrix....... 130,000 24.5% $10.50 April 21, 2001 $555,700 $1,295,000
Thomas W. Dixon........ 50,000 9.4% $10.50 April 21, 2001 $213,700 $ 498,100
</TABLE>
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- ---------------
(1) Potential realizable value is based on the assumption that the price of
Heartland Common Stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the seven-year option
term. The values are calculated in accordance with rules promulgated by the
Commission and do not reflect Heartland's estimate of future stock price
appreciation.
(2) All options granted are non-qualified options granted at an exercise price
equal to fair market value on the date of grant, are 40% vested and will
continue to vest at a rate of 20% per year, subject to acceleration upon
the death of the optionee or termination of the optionee following a Change
of Control (as defined in the option agreements), and have a term of seven
years.
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1994, by each of the
Named Executive Officers and the number of options held at fiscal year end and
the aggregate value of in-the-money options held at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTION/SARS AT OPTION/SARS AT
ON VALUE FISCAL-YEAR-END FISCAL-YEAR-END
EXERCISE REALIZED (#) ($)
(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David E. Webb.................. 0 N/A N/A N/A
John R. Bailey................. -- -- 40,000/60,000 $ 90,000/$135,000
Randy R. Hendrix............... -- -- 52,000/78,000 $117,000/$175,000
Thomas W. Dixon................ -- -- 20,000/30,000 $ 45,000/$ 67,500
</TABLE>
NONCOMPETITION AGREEMENTS
Heartland has entered into noncompetition agreements with Messrs. Holland,
Webb, Bailey, Hendrix, Dixon and Wheeler. The noncompetition agreements provide
that none of such persons will engage in competitive activities during the term
of their service with Heartland and for a period of one year thereafter. In
addition, Steven G. Johnson's consulting agreement with Heartland following the
AWS Merger also contains certain noncompetition agreements associated with the
markets acquired by Heartland through the AWS Merger.
STOCK OPTION PLANS
Employee Stock Option Plan. Heartland adopted, effective upon Heartland's
initial public offering on April 28, 1994 ("the Initial Public Offering"), the
Employee Option Plan which provides for the grant to officers and employees of
both "incentive stock options" within the meaning of Section 422 of the Code and
stock options that are non-qualified for Federal income tax purposes. The total
number of shares of Heartland Common Stock for which options may be granted
pursuant to the Employee Option Plan is 950,000. The Employee Option Plan will
terminate on the tenth anniversary of the consummation of the Initial Public
Offering, and is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines which of Heartland's officers
and employees receive options, the time when options are granted, whether the
options are incentive stock options or non-qualified stock options, the terms of
such options, the exercise date of any options and the number of shares subject
to options. Members of the Compensation Committee (including Mr. Holland) are
not eligible to receive options under the Employee Option Plan. Mr. Webb is not
eligible to receive options under the Employee Option Plan. Directors who are
also employees (other than Mr. Webb) are eligible to receive options under the
Employee Option Plan. Non-employee directors are not eligible to receive options
under the Employee Option Plan.
The exercise price of incentive stock options granted under the Employee
Option Plan may not be less than 100% of the fair market value of the Heartland
Common Stock at the time of grant and the term of any
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<PAGE> 94
option may not exceed 10 years. With respect to any employee who owns stock
representing more than 10% of the voting power of the outstanding capital stock
of Heartland, the exercise price of any incentive stock option may not be less
than 110% of the fair market value of such shares at the time of grant and the
term of such option may not exceed five years.
The exercise price of a non-qualified stock option is determined by the
Compensation Committee on the date the option is granted. However, the exercise
price of a non-qualified stock option may not be less than 100% of the fair
market value of the Heartland Common Stock at the time of grant.
Options granted under the Employee Option Plan are nontransferable and,
with certain exceptions in the event of the death or disability of an optionee,
may be exercised by the optionee only during employment. Options granted under
the Employee Option Plan typically vest over a five-year period, although
options granted to certain employees (including Messrs. Bailey, Dixon and
Hendrix) are 40% vested upon grant and vest an additional 20% per year over a
three-year period. Upon the death of an optionee or the termination of the
optionee following a Change of Control (as defined in the option agreements),
the vesting of an option accelerates. Options granted under the Employee Option
Plan expire after seven years, unless terminated earlier.
Heartland has granted options to purchase an aggregate of 772,000 shares of
Heartland Common Stock to eighteen employees, including 160,000, 154,000,
130,000, 65,000 and 20,000 shares, respectively, to each of Messrs. Bailey,
Hendrix, Dixon, Story and Hagey, at a weighted average exercise price per share
equal to $13.52 per share. Options to purchase 130,000 shares of Heartland
Common Stock have been cancelled.
Stock Option Plan for Non-Employee Directors. Heartland adopted, effective
upon consummation of the Initial Public Offering, the 1994 Stock Option Plan for
Non-Employee Directors (the "Non-Employee Directors Plan"). The purpose of the
Non-Employee Directors Plan is to attract and retain the services of experienced
and knowledgeable independent directors of Heartland for the benefit of
Heartland and its stockholders and to provide additional incentive for such
directors to continue to work for the best interests of Heartland and its
stockholders through continuing ownership of Heartland Common Stock. A total of
50,000 shares of Heartland Common Stock may be issued through the exercise of
options granted pursuant to the Non-Employee Directors Plan. No option may be
granted under the Non-Employee Directors Plan after 10 years following
consummation of the Initial Public Offering.
The Non-Employee Directors Plan is administered by the Board of Directors.
Subject to the terms of the Non-Employee Directors Plan, the Board of Directors
has the sole authority to determine questions arising under, and to adopt rules
for the administration of, the Non-Employee Directors Plan. The Non-Employee
Directors Plan may be terminated at any time by the Board of Directors, but such
action will not affect options previously granted pursuant thereto.
Directors of Heartland who are not, and who have not been during the
immediately preceding 12-month period, employees of Heartland or any subsidiary
of Heartland (each, a "Non-Employee Director") are automatically participants in
the Non-Employee Directors Plan. There are currently four directors, Messrs.
Lane, O'Rourke, Sprague and Watkins, who are eligible to receive options under
the Non-Employee Directors Plan. Mr. Wheeler is excluded from participating in
the Non-Employee Directors Plan. More than one option may be granted to any one
person and be outstanding at any time.
Each Non-Employee Director who was in office on the consummation of the
Initial Public Offering (Messrs. Lane, O'Rourke and Watkins) was, upon such
consummation, automatically granted an option to acquire 4,000 shares of
Heartland Common Stock at an exercise price per share equal to $10.50. Each Non-
Employee Director who is in office on November 15 of any year (commencing with
November 15, 1995) will, on the immediately succeeding January 1, automatically
be granted an option to acquire 2,000 shares of Heartland Common Stock. The
price of shares that may be purchased upon exercise of an option is the fair
market value of the Heartland Common Stock on the date of grant, as evidenced by
the average of the high and low sales prices of Heartland Common Stock on such
date as reported on the Nasdaq-NMS. The price of shares that may be purchased
upon exercise of an option granted upon the consummation of the Initial Public
Offering is the initial public offering price. Options granted pursuant to the
Non-Employee Directors Plan,
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<PAGE> 95
except as discussed below, are exercisable in installments of 25% upon each
anniversary of the date of grant. The term of each option, except as discussed
below, is for a period not exceeding seven years from the date of grant. Options
may not be assigned or transferred except by will or by operation of the laws of
descent and distribution.
In the event of a Change in Control of Heartland (as defined below), an
option granted to a Non-Employee Director will become fully exercisable if,
within one year of such Change in Control, such Non-Employee Director ceases for
any reason to be a member of the Board of Directors. A Change in Control will be
deemed to have occurred if (a) there is consummated (i) any consolidation or
merger of Heartland in which Heartland is not the continuing or surviving
corporation or pursuant to which shares of Common Stock are converted into cash,
securities or other property, other than a merger of Heartland in which the
holders of Heartland Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of Heartland; (b) the shareholders approve any plan or proposal
for the liquidation or dissolution of Heartland; (c) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of the outstanding Heartland Common Stock; or (d) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by Heartland's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Any exercise of an option permitted in the event of a Change of Control
must be made within 180 days of the relevant Non-Employee Director's termination
as a director of Heartland.
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<PAGE> 96
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth (a) certain information regarding the
ownership of the Heartland Common Stock as of December 31, 1995 with respect to
(i) each person known by Heartland to own beneficially more than 5% of the
outstanding shares of Heartland Common Stock, (ii) each of Heartland's
directors, (iii) the Named Executive Officers and (iv) all directors and
officers as a group, and (b) the effect of the Transactions (assuming the
consummation of all of the Transactions and an average closing price during the
relevant periods of $28 per share, the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof, or $17 per share, the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions,
of Heartland Common Stock, as noted) on the amount and percentage of current
holdings of shares of Heartland Common Stock owned beneficially by each of such
persons. See "Information Concerning Heartland -- Calculation and Listing of
Shares to be Issued in Connection with the Transactions." Except as otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned. Unless otherwise indicated, the
address for each stockholder is c/o Heartland Wireless Communications, Inc., 903
North Bowser, Suite 140, Richardson, Texas 75081.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRO FORMA BENEFICIAL OWNERSHIP
BEFORE THE AFTER THE TRANSACTIONS
TRANSACTIONS(1) -----------------------------------------------
-------------------- PERCENT(2) PERCENT(3)
NO. PERCENT NO. ($17 PER SHARE) ($28 PER SHARE)
--------- ------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Hunt Capital Group, L.L.C.......... 4,000,000 31.72% 4,000,000 17.14% 20.65%
David E. Webb...................... 1,900,425 15.07 1,900,425 8.14 9.81
L. Allen Wheeler................... 2,004,800 15.90 2,004,800 8.59 10.35
Jupiter Partners, L.P.(4).......... 2,837,688 18.37 2,837,688 10.84 12.78
J. R. Holland, Jr.(5).............. -- --
Alvin H. Lane, Jr.(6).............. 5,000 * 5,000 * *
Dennis M. O'Rourke(7).............. 1,000 * 1,000 * *
John A. Sprague(8)................. -- --
Wes W. Watkins(9).................. 1,000 * 1,000 * *
John R. Bailey(10)................. 49,700 * 49,700 * *
Randy R. Hendrix(11)............... 87,600 * 87,600 * *
Thomas W. Dixon(12)................ 55,300 * 55,300 * *
All officers and directors as a
group
(11 persons)(5)(6)(7)(8)(9)
(10)(11)(12)(13)................. 4,106,825 32.08 4,106,825 17.46 20.99
</TABLE>
- ---------------
* Less than 1%.
(1) Based upon 12,611,132 shares of Heartland Common Stock outstanding on
December 31, 1995.
(2) Percentage based on 23,332,434 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common
Stock are issuable -- see "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions"),
assuming (i) that there will be 4,500 subscribers to the Minneapolis system
on the relevant date, (ii) additional subscriber consideration of $3.5
million will be paid in the TSC Transaction, (iii) assumption of no
liabilities in the TSC Transaction and (iv) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Percentage based on 19,375,081 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $28 per share, the
approximate closing average of the Heartland Common Stock over the
preceding ten- and 20-day trading periods), assuming (i) that there will be
3,500 subscribers to the Minneapolis system on the relevant date, (ii)
additional subscriber consideration of $1.5 million will be paid in the TSC
Transaction, (iii) assumption of $5 million of liabilities in the TSC
Transaction and (iv) CMAX's Net Liabilities do not exceed its Permitted Net
Liabilities. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions."
(4) Address is 30 Rockefeller Plaza, Suite 4525, New York, N.Y. 10112. Jupiter
Partners, L.P. ("Jupiter") is the holder of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the
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<PAGE> 97
principal amount of the Convertible Note (after taking into account
accretions in value) by (ii) the Conversion Price (as defined in the
Convertible Notes) then in effect. The current Conversion Price is $15.34
per share.
(5) Address is 1962 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
Mr. Holland is the sole director, Manager and President of Hunt Capital.
Hunt Capital is owned by trusts, of which Mr. Holland serves as a trustee.
Mr. Holland disclaims beneficial ownership of the shares of Heartland
Common Stock owned by Hunt Capital.
(6) Includes 1,000 options granted to Mr. Lane under the Non-Employee Directors
Plan, which are presently exercisable. Does not include 3,000 options
granted to Mr. Lane under the Non-Employee Directors Plan, which are not
presently exercisable.
(7) Includes 1,000 options granted to Mr. O'Rourke under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. O'Rourke under the Non-Employee Directors Plan,
which are not presently exercisable.
(8) Mr. Sprague is indirectly a controlling general partner of Jupiter.
Accordingly, Mr. Sprague may be deemed to be a beneficial owner of the
shares issuable to Jupiter on conversion of the Convertible Notes. Mr.
Sprague shares voting and investment power as to shares issuable to Jupiter
on conversion of the Convertible Notes with Terry J. Blumer. Mr. Sprague
disclaims beneficial ownership of such shares.
(9) Includes 1,000 options granted to Mr. Watkins under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. Watkins under the Non-Employee Directors Plan, which
are not presently exercisable.
(10) Includes 44,000 shares issuable upon the exercise of presently exercisable
options. Excludes 76,000 shares issuable upon the exercise of options that
are not presently exercisable.
(11) Includes 87,600 shares issuable upon the exercise of presently exercisable
options. Excludes 66,400 shares issuable upon the exercise of options that
are not presently exercisable.
(12) Includes 54,000 shares issuable upon the exercise of presently exercisable
options. Excludes 56,000 shares issuable upon the exercise of options that
are not presently exercisable.
(13) Includes 2,000 shares issuable upon the exercise of presently exercisable
options issued to David D. Hagey, for a total of 190,600 shares issuable
upon the exercise of presently exercisable options held by officers and
directors. Excludes 18,000 shares issuable upon the exercise of options
issued to Mr. Hagey that are not presently exercisable.
CERTAIN TRANSACTIONS
Heartland's founders, David E. Webb, the President and Chief Executive
Officer, and L. Allen Wheeler, a member 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 assets in exchange for capital stock of
WCI. In September 1993, WCI issued the Hunt Note to Unity Hunt, Inc. ("Unity
Hunt"), an affiliate of Hunt Capital, pursuant to a loan agreement that provided
for a one-year term loan in the principal amount of $988,000, to bear interest
at the rate of 10% per annum, which was secured by substantially all of the
assets of WCI. The proceeds of this loan were used primarily by WCI to acquire
wireless cable channel rights. In October 1993, Hunt Capital, a principal
stockholder of Heartland and affiliate of J. R. Holland, Jr., the Chairman of
the Board of Heartland, purchased the Hunt Note from Unity Hunt in connection
with an internal restructuring that included the dissolution of Unity Hunt. Hunt
Capital purchased the Hunt Note for $996,390 (representing the outstanding
principal balance plus accrued and unpaid interest through the date of
transfer).
Heartland 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 Heartland and Hunt Capital
contributed the Hunt Note, including accrued interest, and approximately
$2,000,000 in cash to Heartland. In exchange therefor, Messrs. Webb and Wheeler
were each issued 2,000,000 shares of Heartland Common Stock by Heartland and
Hunt Capital was issued 4,000,000 shares. In addition, Messrs. Webb and Wheeler
leased all other wireless cable channel license rights controlled, directly and
indirectly, by them to Heartland for a nominal amount and granted to Heartland
an option to purchase such license rights at a nominal price. Finally, the net
amount (approximately $68,740) of all advances made to Heartland's predecessors
by, and all advances made from Heartland's predecessors to, Messrs. Webb and
Wheeler and certain entities controlled by them engaged in the wireless cable
business was contributed to Heartland. Such advances, in the form of
non-interest-bearing cash transfers, generally arose as a result of borrowings
made or services rendered, and included various amounts loaned by a wholly-owned
subsidiary of Heartland to Reed's Rail Service, Inc., an affiliate of Messrs.
Webb
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<PAGE> 98
and Wheeler, to fund such entity's railroad repair operations and the purchase
of equipment; the outstanding balance of such indebtedness at December 31, 1992
was $117,284. Also included in such advances are various amounts loaned by
Preferred Capital Corporation, an affiliate of Messrs. Webb and Wheeler, to a
wholly-owned subsidiary of Heartland for general corporate purposes; the
outstanding balance of such indebtedness at December 31, 1992 was $42,235.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $52,078, $116,315, $376,206 and $24,000, respectively, to various entities
controlled by Messrs. Webb and Wheeler for services performed in connection with
the development of wireless cable systems or the acquisition of wireless cable
channel rights. Such payments included $52,800 during the year ended December
31, 1992 and $258,555 during the year ended December 31, 1993 to Green Country
Radio, an affiliate of Mr. Wheeler, for engineering and consulting services.
Heartland has not retained the services of such entities since the Initial
Public Offering, and does not intend to do so in the future. During the year
ended December 31, 1993, Mr. Robert R. Story was a director, officer and
minority shareholder of Green Country. Mr. Story is currently the Senior Vice
President -- Installations of Heartland.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $2,034, $17,850, $38,776 and $50,559, respectively, to an accounting firm
controlled by Mr. Webb for services rendered to Heartland.
During the year ended December 31, 1993, Heartland paid $40,600 to World
Export Services, Inc., an entity controlled by Wes W. Watkins, a director of
Heartland, for consulting services provided in connection with the acquisition
of certain wireless cable channel rights. In June 1993, World Export Services,
Inc. purchased approximately 10% and 5% minority interests, respectively, in two
of Heartland's subsidiaries for an aggregate of $45,000. Pursuant to a public
exchange offer made by Heartland pursuant to a prospectus dated February 13,
1995 wherein Heartland offered to exchange up to an aggregate of 380,000 shares
of Heartland Common Stock for the minority interests in 23 of Heartland's
subsidiaries (the "Minority Interests Exchange Offer"), World Export Services,
Inc. was issued an aggregate of 4,526 shares of Heartland Common Stock in
exchange for such minority interests.
Heartland leases approximately 2,400 square feet for its operating offices
in Durant, Oklahoma from an affiliate of Messrs. Webb and Wheeler for which the
expense amounted to approximately $18,000 annually for the years ended December
31, 1991, 1992, 1993 and 1994. Heartland also leases an aggregate of
approximately an additional 6,126 square feet of office space in Durant,
Oklahoma from affiliates of Messrs. Webb and Wheeler for which the expense
amounted to approximately $4,000 for the year ended December 31, 1994. See
"Information Concerning Heartland -- The Business -- Properties."
Messrs. Webb and Wheeler pledged certain personal assets to secure, and
personally guaranteed, notes payable by Heartland to a bank totaling $970,000.
Such notes were due in March 1995 and bore interest at variable and fixed rates
ranging from 6% to 8% at December 31, 1994. Heartland repaid such notes from the
net proceeds of its Initial Public Offering.
Mr. Holland's annual base compensation for 1994 was $120,000, which was
paid to him by Unity Hunt Resources, Inc., an affiliate of Hunt Capital of which
Mr. Holland is President, which receives a management fee equal to such amount
from Heartland for the provision of Mr. Holland's services. Mr. Holland's base
compensation for 1995 was $120,000.
In connection with a $1.0 million principal amount loan to United States
Wireless Cable, Inc. ("U.S. Wireless") by First National Bank of Durant ("First
National"), Heartland agreed to purchase such loan upon demand from First
National for the aggregate amount of principal and interest thereon plus any
other amounts owed to First National by U.S. Wireless. U.S. Wireless is a
stockholder of Heartland. The loan was paid in full upon the consummation by
Heartland's acquisition of the Lubbock market. In addition, on December 15,
1994, Heartland (i) loaned $2.0 million to U.S. Wireless, which loan was secured
by 300,000 shares of Heartland's Common Stock owned by U.S. Wireless and all of
the rights of U.S. Wireless in and to the Tulsa, Oklahoma wireless cable market,
(ii) acquired the rights of U.S. Wireless in the Amarillo, Texas market and
(iii) was granted an option to acquire the Tulsa, Oklahoma market. In May 1995,
Heartland exercised its option on the Tulsa market and closed the acquisition of
the Tulsa market. U.S. Wireless and a
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<PAGE> 99
subsidiary to U.S. Wireless ("USWS") repaid the $2.0 million loan in full upon
the consummation of the acquisition of the Tulsa market.
On May 3, 1995, Heartland acquired from Robert R. Story, a former affiliate
of USWS and U.S. Wireless and current officer of Heartland, all of the issued
and outstanding capital stock of Robert R. Story, Inc., which owns and operates
the Lubbock System, for $5.4 million in cash. Immediately prior to the
consummation of the acquisition of the Lubbock market, Robert R. Story, Inc.
acquired from USWS all of USWS's rights in the Lubbock system. Upon the
consummation of the Lubbock Acquisition, the $1,000,000 principal amount loan to
U.S. Wireless by First National was paid in full.
Pursuant to an interim loan arrangement, Hunt Capital and Mr. Wheeler
agreed to loan Heartland up to an aggregate of $4.0 million ($2.0 million each)
and Jupiter agreed to loan to Heartland, or to guarantee a bank loan to
Heartland in the amount of, $2.0 million. Borrowings under the loan agreement
could be used solely for working capital. Borrowings under the loan agreement
bore interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the loan agreement would have been due and
payable in full on June 30, 1995, subject to prepayment upon the receipt by
Heartland of cash proceeds from any financing, refinancing or sale of assets.
Amounts borrowed and repaid under the loan agreement could not be reborrowed.
Borrowings under the loan agreement were secured by the capital stock and assets
of Heartland's subsidiaries operating the Lindsay and Shaw systems. Heartland
borrowed $2.0 million under the loan agreement, funded $1.0 million each by Hunt
Capital and Mr. Wheeler. Heartland used a portion of the net proceeds of the
sale of the 100,000 Units (the "Units"), consisting of $100 million 13% Senior
Notes due 2003 and 600,000 warrants to purchase an equal number of shares of
Heartland Common Stock, to repay all amounts owed under the loan agreement on
April 26, 1995.
Pursuant to a Chemical Bank Loan arrangement (the "Chemical Bank Loan"),
Chemical Bank agreed to loan Heartland up to an aggregate of $2.0 million.
Borrowings under the Chemical Bank Loan bore interest at the prime rate plus 1%
per annum. All accrued interest on, and the principal amount of, all borrowings
under the Chemical Bank Loan would have been due and payable on demand, but in
any event not later than June 30, 1995. Heartland paid Chemical Bank a facility
fee of $5,000. Amounts borrowed and repaid under the Chemical Bank Loan could
not be reborrowed. Borrowings under the Chemical Bank Loan were guaranteed by
Jupiter and Mr. Sprague. Heartland borrowed $1.0 million under the Chemical Bank
Loan. Heartland used a portion of the net proceeds of the sale of the Units to
repay all amounts owed under the Chemical Bank Loan on April 26, 1995.
The terms of the transactions described above were determined by the
parties thereto, and Heartland believes that such transactions involving
affiliates were on terms no less favorable to Heartland than could have been
obtained from unaffiliated third parties. All future transactions between
Heartland and its officers, directors, principal stockholders and affiliates
will be on terms no less favorable to Heartland than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Board of Directors of Heartland.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND
The selected consolidated statement of operations and balance sheet data
presented below as of December 31, 1993 and 1994 and for the years ended
December 31, 1992, 1993 and 1994 were derived from the consolidated financial
statements of Heartland, which were audited by KPMG Peat Marwick LLP,
independent certified public accountants, and which are included elsewhere in
this Proxy Statement. The selected consolidated statement of operations and
balance sheet data presented below as of December 31, 1990, 1991 and 1992, and
for the period from September 1, 1990 (inception of Wireless Communications,
Inc., Heartland's predecessor in interest) to December 31, 1990 and the year
ended December 31, 1991 were derived from the consolidated financial statements
of Heartland, which were audited by KPMG Peat Marwick LLP, but which are not
included in this Proxy Statement. The selected consolidated statement of
operations and balance sheet data presented below as of September 30, 1995 and
for the nine months ended September 30, 1994 and 1995 were derived from the
unaudited consolidated financial statements of Heartland, which are included
elsewhere in this Proxy Statement and which, in the opinion of management of
Heartland, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of such unaudited
interim periods. The statement of operations data for interim periods are not
necessarily indicative of results for subsequent periods or for the full year.
This selected consolidated financial data should be read in conjunction with
"Heartland -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements (including the
notes thereto) of Heartland contained elsewhere in this Proxy Statement. See
"Index to Consolidated Financial Statements and Unaudited Pro Forma Financial
Information."
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1,
1990 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------------------------------- ---------------------------
1990 1991 1992 1993 1994 1994 1995
-------------- --------- ---------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ 205,382 $ 868,765 $ 2,229,494 $1,289,526 $ 9,292,837
----------- --------- ---------- --------- ----------- ----------- ------------
Operating expenses:
Systems operations.... -- -- 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.... -- -- -- 202,162 235,025 235,025 --
Selling, general and
administrative...... 21,026 64,158 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and
amortization........ 1,000 2,000 34,919 138,560 1,097,668 418,960 3,966,120
----------- --------- ---------- --------- ----------- ----------- ------------
Total operating
expenses........ 22,026 66,158 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss.......... (22,026) (66,158) (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income
(expense), net........ -- -- (207) (73,306) (210,113) 60,519 (6,864,367)
Equity in losses of
joint venture......... -- -- -- -- (386,985) (163,119) (128,663)
Other income
(expense)............. -- -- (37,109) (95,578) (227,204) (34,192) (475,146)
Income tax benefit...... -- -- -- -- 1,594,963 649,510 1,307,137
----------- --------- ---------- --------- ----------- ----------- ------------
Net loss.......... $(22,026) $ (66,158) $ (50,822) $(406,101) $(3,043,321) $(1,213,894) $(11,178,095)
=========== ========= ========== ========= =========== =========== ============
Net loss per common
share................... -- $ (.01) $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
=========== ========= ========== ========= =========== =========== ============
Weighted average shares
outstanding............. 8,000,000 8,000,000 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
=========== ========= ========== ========= =========== =========== ============
Other Financial Data:
EBITDA(1)............... $(21,026) $ (64,158) $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $ (1,050,936)
Capital
expenditures(2)....... 42,065 306,484 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- -------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents,
excluding restricted
investments............. $ 8,399 $ 53,246 $ 164,971 $ 815,305 $11,985,953 $37,155,064
Restricted investments.... -- -- -- -- -- 24,747,214
Total assets.............. 49,514 426,771 2,267,500 8,665,066 77,921,528 200,150,474
Long-term debt, including
current portion......... -- -- -- 1,592,529 40,505,852 140,045,039
Total stockholders'
equity.................. 6,357 173,409 1,003,882 4,492,568 30,080,885 48,293,817
</TABLE>
68
<PAGE> 101
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from September 1, 1990 (inception) to
December 31, 1990 were comprised of $10,000 for purchases of systems and
equipment and $32,065 for expenditures for leased licenses; for the year
ended December 31, 1991 were comprised of $25,000 for purchases of systems
and equipment and $281,484 for expenditures for leased licenses; for the
year ended December 31, 1992 were comprised of $604,082 for purchases of
systems and equipment and $797,655 of expenditures for leased licenses; for
the year ended December 31, 1993, $2,072,937 for purchases of systems and
equipment and $3,068,084 for expenditures for leased licenses; for the year
ended December 31, 1994, $12,414,501 for purchases of systems and equipment,
$3,354,471 for expenditures for leased licenses, $12,431,379 for the
investment in Rural Vision Joint Venture and $16,300,000 for the purchase of
certain assets from Rural Vision Joint Venture and the acquisition of the
Lindsay system; for the nine months ended September 30, 1994, $4,011,480 for
systems and equipment, $2,465,265 for leased licenses and $11,649,908 for
the investment in Rural Vision Joint Venture; and for the nine months ended
September 30, 1995, $25,575,252 for purchases of systems and equipment,
$1,592,024 of expenditures for leased licenses, $5,426,432 for the
investment in Rural Vision Joint Venture and $11,422,814 for the acquisition
of wireless cable television systems in Lubbock, Texas and Tulsa, Oklahoma
and the acquisition of certain additional assets from Rural Vision Joint
Venture.
69
<PAGE> 102
PRO FORMA FINANCIAL INFORMATION
RELATIVE TO THE TRANSACTIONS
The following unaudited pro forma condensed consolidated financial
information presents pro forma financial information of Heartland in three sets
of pro forma financial statements. The pro forma financial information consists
of (1) an Unaudited Pro Forma Condensed Combined Balance Sheet for the
Transactions as of September 30, 1995 and the related Unaudited Pro Forma
Condensed Combined Statements of Operations for the Transactions for the year
ended December 31, 1994 and the nine months ended September 30, 1995,
(collectively, the "Combined Pro Forma Statements for the Transactions"), (2) an
Unaudited Pro Forma Condensed Balance Sheet for each of the Transactions as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for each of the Transactions for the year ended
December 31, 1994 and the nine months ended September 30, 1995 (collectively,
the "Individual Pro Forma Statements for the Transactions") and (3) an Unaudited
Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 (collectively, the "Pro Forma
Statements for Consummated Events") (all such pro forma financial information
together, the "Pro Forma Statements"). The Pro Forma Statements for the
Transactions and the Individual Pro Forma Statements for the Transactions follow
on pages 71 to 94 of this Proxy Statement. The Pro Forma Statements for
Consummated Events have been included on pages F-84 to F-89 of the Proxy
Statement.
The Pro Forma Statements for the Transactions adjust the Pro Forma
Statements for Consummated Events to give effect to the Transactions as if the
Transactions had occurred on September 30, 1995 for balance sheet information
and January 1, 1994 for statement of operations information. The Pro Forma
Statements for the Transactions assume that all the Transactions and the
proposed Heartland Disposition Assets will be consummated by Heartland. However,
because there can be no certainty regarding which of the Transactions, if any,
will be consummated and because, correspondingly, it is impossible to precisely
determine the ultimate plan of disposition (some assets from each of the
Transactions will potentially be disposed of by Heartland or its predecessors),
a large number of other potential pro forma outcomes are possible. As a result,
Heartland has presented the Individual Pro Forma Statements for the Transactions
which include pro forma adjustments related to each separate Transaction and
associated disposition. This method of presentation provides readers with all of
the information necessary to recalculate, should they so desire, Heartland's pro
forma financial information under any possible scenario that might arise from
the acquisition and disposition plans described in this Proxy Statement.
The Transactions will be accounted for by the purchase method of
accounting. With respect to the Transactions, the purchase price has been
allocated on a preliminary basis to the assets and liabilities acquired based on
the estimated fair values of such assets and liabilities.
The Pro Forma Statements and accompanying notes should be read in
conjunction with Heartland's consolidated financial statements (including notes
thereto) appearing elsewhere in the Proxy Statement. The Pro Forma Statements do
not purport to represent what Heartland's results of operations or financial
position actually would have been had such transactions or events occurred on
the dates specified, or to project Heartland's results of operations or
financial position for any future period or date. The pro forma adjustments are
based upon available information and certain adjustments that Heartland's
management believes are reasonable. In the opinion of Heartland's management,
all adjustments have been made that are necessary to present fairly the Pro
Forma Statements.
70
<PAGE> 103
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET FOR THE TRANSACTIONS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
FTW MINNEAPOLIS
HEARTLAND CMAX AWS PARTNERSHIP PARTNERSHIP TECHNIVISION
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) PRO FORMA(E) PRO FORMA(F)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 47,155,064 $ 786,392 $ 5,082,653 $ -- $ -- $ 56,297
Restricted investments.......... 11,669,874 -- -- -- -- --
Net assets held for cash sale or
exchange...................... 2,200,000 -- 7,250,000 -- -- --
Note receivable................. -- -- -- -- -- --
Other current assets............ 3,035,281 673,913 89,724 -- -- 281,895
------------- ------------ ------------ ------------ ----------- -----------
Total current assets.... 64,060,219 1,460,305 12,422,377 -- -- 338,192
Systems and equipment, net...... 43,368,952 17,035,351 218,404 -- -- 6,151,964
Leased license investment,
net........................... 60,482,276 32,556,597 -- -- -- 18,687,753
Investment in Wireless One...... 14,602,442 -- -- -- -- --
Investment in CS Wireless....... -- -- -- -- -- --
Excess of cost over fair value
of net assets acquired........ 4,470,286 8,549,540 9,015,248 -- -- 6,066,024
Net assets held for exchange.... -- 43,610,341 27,498,434 16,191,304 21,913,052 10,720,791
Restricted investments.......... 13,077,340 -- -- -- -- --
Note receivable................. -- -- -- -- -- --
Other assets, net............... 10,435,034 -- 77,179 -- -- 5,300
------------- ------------ ------------ ----------- ----------- -----------
$ 210,496,549 $103,212,134 $ 49,231,642 $16,191,304 $21,913,052 $41,970,024
============= ============ ============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current portion of long-term
debt.......................... $ 616,610 $ 787,500 $ 99,442 $ -- $ -- $ 1,263,005
Other current liabilities....... 10,130,631 3,042,950 1,468,523 -- -- 2,890,995
------------ ------------ ------------ ----------- ----------- -----------
Total current
liabilities........... 10,747,241 3,830,450 1,567,965 -- -- 4,154,000
Long-term debt, less current
portion....................... 139,428,429 10,020,000 1,800,000 -- -- --
Deferred income taxes........... 1,189,080 8,549,540 9,015,248 -- -- 6,066,024
Other liabilities............... 279,695 -- 233,044 -- -- --
Stockholders' equity............ 58,852,104 80,812,144 36,615,385 16,191,304 21,913,052 31,750,000
------------ ------------ ------------ ----------- ----------- -----------
$210,496,549 $103,212,134 $ 49,231,642 $16,191,304 $21,913,052 $41,970,024
============ ============ ============ =========== =========== ===========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
------------- ------------
<S> <C> <C>
Cash and cash equivalents....... $ (10,807,500)(G) $ 68,613,369
(2,000,000)(H)
28,340,463(I)
Restricted investments.......... 11,669,874
Net assets held for cash sale or
exchange...................... 9,450,000
Note receivable................. 25,000,000(I) 25,000,000
Other current assets............ (74,316)(I) 4,006,497
------------- ------------
Total current assets.... 40,458,647 118,739,740
Systems and equipment, net...... (2,038,608)(I) 64,736,063
Leased license investment,
net........................... (2,482,706)(I) 109,243,920
Investment in Wireless One...... 14,602,442
Investment in CS Wireless....... 55,875,666(I) 55,875,666
Excess of cost over fair value
of net assets acquired........ 28,101,098
Net assets held for exchange.... (119,933,922)(I) --
Restricted investments.......... 13,077,340
Note receivable................. 15,000,000(I) 15,000,000
Other assets, net............... (1,800,000)(G) 8,717,513
------------- ------------
$ (14,920,923) $428,093,782
============= ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current portion of long-term
debt.......................... $ (787,500)(G) $ 1,979,057
Other current liabilities....... (313,423)(I) 17,219,676
------------- ------------
Total current
liabilities........... (1,100,923) 19,198,733
Long-term debt, less current
portion....................... (11,820,000)(G) 139,428,429
Deferred income taxes........... 24,819,892
Other liabilities............... 512,739
Stockholders' equity............ (2,000,000)(H) 244,133,989
------------- ------------
$ (14,920,923) $428,093,782
============= ============
</TABLE>
See accompanying notes to Pro Forma Statements
71
<PAGE> 104
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FTW MINNEAPOLIS
HEARTLAND CMAX AWS PARTNERSHIP PARTNERSHIP TECHNIVISION
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) PRO FORMA(E) PRO FORMA(F)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................ $ 7,590,823 $ 6,765,741 $ -- $ -- $ -- $ 5,735,071
----------- ----------- ---------- -------- -------- -----------
Operating expenses:
Systems operations.................. 4,188,612 3,270,598 -- -- -- 2,662,495
Selling, general and
administrative.................... 6,377,969 5,229,087 -- -- -- 1,812,854
Depreciation and amortization....... 3,263,717 4,934,844 -- -- -- 2,976,050
----------- ----------- ---------- -------- -------- -----------
Total operating expenses........ 13,830,298 13,434,529 -- -- -- 7,451,399
----------- ----------- ---------- -------- -------- -----------
Operating loss................ (6,239,475) (6,668,788) -- -- -- (1,716,328)
Interest expense...................... (4,185,033) (459,536) -- -- -- (1,388,263)
Equity in losses of investment........ (1,004,594) -- -- -- -- --
Interest income and other............. 152,450 577,217 -- -- -- --
----------- ----------- ---------- -------- -------- -----------
Loss before income taxes........ (11,276,652) (6,551,107) -- -- -- (3,104,591)
Income tax benefit.................... 2,458,812 2,265,743 -- -- -- 1,148,699
----------- ----------- ---------- -------- -------- -----------
Net loss........................ $(8,817,840) $(4,285,364) $ -- $ -- $ -- $(1,955,892)
=========== =========== ========== ======== ======== ===========
Net loss per share.................... $ (0.70) $ -- $ -- $ -- $ -- $ --
=========== =========== ========== ======== ======== ===========
Weighted average shares outstanding... 12,541,444 2,886,148 1,307,692 578,261 782,609 1,133,929
=========== =========== ========== ======== ======== ===========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ------------
<S> <C> <C>
Total revenues........................ $ -- $ 20,091,635
---------- ------------
Operating expenses:
Systems operations.................. 10,121,705
Selling, general and
administrative.................... 13,419,910
Depreciation and amortization....... 11,174,611
---------- ------------
Total operating expenses........ -- 34,716,226
---------- ------------
Operating loss................ (14,624,591)
Interest expense...................... (6,032,832)
Equity in losses of investment........ (1,004,594)
Interest income and other............. 729,667
---------- ------------
Loss before income taxes........ -- (20,932,350)
Income tax benefit.................... 1,409,641(J) 7,282,895
---------- ------------
Net loss........................ $1,409,641 $(13,649,455)
========== ============
Net loss per share.................... $ -- $ (0.71)
========== ============
Weighted average shares outstanding... -- 19,230,083
========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
72
<PAGE> 105
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FTW MINNEAPOLIS
HEARTLAND CMAX AWS PARTNERSHIP PARTNERSHIP TECHNIVISION
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) PRO FORMA(E) PRO FORMA(F)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues........................ $ 9,944,209 $ 6,674,530 $ -- $ -- $ -- $ 4,138,790
----------- ----------- ---------- -------- -------- -----------
Operating expenses:
Systems operations.................. 3,371,531 2,973,011 -- -- -- 2,056,387
Selling, general and
administrative.................... 7,689,026 4,294,351 -- -- -- 1,157,219
Depreciation and amortization....... 4,396,920 5,210,043 -- -- -- 2,116,483
----------- ----------- ---------- -------- -------- -----------
Total operating expenses........ 15,457,477 12,477,405 -- -- -- 5,330,089
----------- ----------- ---------- -------- -------- -----------
Operating loss................ (5,513,268) (5,802,875) -- -- -- (1,191,299)
Interest expense...................... (8,908,459) (945,475) -- -- -- (625,728)
Equity in losses of investees......... (1,049,583) -- -- -- -- --
Interest income and other............. 1,568,946 121,497 -- -- -- 253,352
----------- ----------- ---------- -------- -------- -----------
Loss before income taxes........ (13,902,364) (6,626,853) -- -- -- (1,563,675)
Income tax benefit.................... -- 2,333,311 -- -- -- 494,394
----------- ----------- ---------- -------- -------- -----------
Net loss........................ $(13,902,364) $(4,293,542) $ -- $ -- $ -- $(1,069,281)
=========== =========== ========== ======== ======== ===========
Net loss per share.................... $ (1.10) $ -- $ -- $ -- $ -- $ --
=========== =========== ========== ======== ======== ===========
Weighted average shares outstanding... 12,591,927 2,886,148 1,307,692 578,261 782,609 1,133,929
=========== =========== ========== ======== ======== ===========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
----------- ------------
<S> <C> <C>
Total revenues........................ $ -- $ 20,757,529
---------- ------------
Operating expenses:
Systems operations.................. 8,400,929
Selling, general and
administrative.................... 13,140,596
Depreciation and amortization....... 11,723,446
---------- ------------
Total operating expenses........ -- 33,264,971
---------- ------------
Operating loss................ -- (12,507,442)
Interest expense...................... (10,479,662)
Equity in losses of investees......... (1,049,583)
Interest income and other............. 1,943,795
---------- ------------
Loss before income taxes........ -- (22,092,892)
Income tax benefit.................... 5,011,374 (J) 7,839,079
---------- ------------
Net loss........................ $5,011,374 $(14,253,813)
========== ============
Net loss per share.................... $ -- $ (0.74)
========== ============
Weighted average shares outstanding... -- 19,280,566
========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
73
<PAGE> 106
NOTES TO COMBINED PRO FORMA STATEMENTS FOR THE TRANSACTIONS
(A) Reflects pro forma information for events previously consummated by
Heartland. See pages F-84 to F-89 for detailed pro forma adjustments
related to events previously consummated by Heartland.
(B) Reflects pro forma information for the CMAX Merger. See pages 75 to 78 for
detailed pro forma adjustments relating to the CMAX Merger.
(C) Reflects pro forma information for the AWS Merger. See pages 79 to 82 for
detailed pro forma adjustments relating to the AWS Merger.
(D) Reflects pro forma information for the FTW Transaction. See pages 83 to 86
for detailed pro forma adjustments relating to the FTW Transaction.
(E) Reflects pro forma information for the Minneapolis Transaction. See pages
87 to 90 for detailed pro forma adjustments relating to the Minneapolis
Transaction.
(F) Reflects pro forma information for the TSC Transaction. See pages 91 to 94
for detailed pro forma adjustments relating to the TSC Transaction.
(G) Reflects the repayment of certain indebtedness of CMAX by Heartland upon
consummation of the CMAX Merger and the elimination of Heartland's $1.8
million note receivable from AWS. Any differences between historical
interest expense recognized by CMAX on the retired indebtedness and
interest expense which would be recognized by Heartland on a pro forma
basis is not material.
(H) Reflects estimated costs to be incurred in connection with the issuance of
Heartland's Common Stock upon consummation of the Transactions.
(I) Reflects Heartland's contribution to Newco of the Heartland Disposition
Assets and the receipt by Heartland of (i) 39.76% of the outstanding common
shares of Newco, (ii) approximately $28.3 million in cash payable by Newco
at the closing, (iii) a $25 million promissory note payable 9 months from
closing and (iv) a $15 million promissory note payable 10 years from the
closing of the Participation Agreement.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
74
<PAGE> 107
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 786,392 $ $ 786,392 $ $ 786,392
Other current assets.............. 938,437 938,437 (264,524)(D) 673,913
----------- ------------ ------------ ------------ ------------
Total current assets.... 1,724,829 -- 1,724,829 (264,524) 1,460,305
Systems and equipment, net........ 26,447,933 26,447,933 (9,412,582)(D) 17,035,351
Leased license investment, net.... 21,271,892 45,899,604(B) 67,171,496 (34,614,899)(D) 32,556,597
Excess of cost over fair value of
net assets acquired............. -- 8,549,540(C) 8,549,540 8,549,540
Net assets held for exchange...... -- -- 43,610,341(D) 43,610,341
----------- ------------ ------------ ------------ ------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt............................ $ 787,500 $ $ 787,500 $ $ 787,500
Other current liabilities......... 3,724,614 3,724,614 (681,664)(D) 3,042,950
----------- ------------ ------------ ------------ ------------
Total current
liabilities........... 4,512,114 -- 4,512,114 (681,664) 3,830,450
Long-term debt, less current
portion......................... 10,020,000 10,020,000 10,020,000
Deferred income taxes............. -- 8,549,540(C) 8,549,540 8,549,540
Stockholders' equity.............. 34,912,540 80,812,144(A) 80,812,144 80,812,144
(34,912,540)(A)
----------- ------------ ------------ ------------ ------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
75
<PAGE> 108
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues........................ $11,283,709 $ -- $11,283,709 $(4,517,968)(D) $ 6,765,741
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations.................. 5,310,478 5,310,478 (2,039,880)(D) 3,270,598
Selling, general and
administrative................... 9,027,094 (1,382,000)(E) 7,645,094 (2,416,007)(D) 5,229,087
Depreciation and amortization....... 6,106,007 1,385,643(F) 7,919,127 (2,984,283)(D) 4,934,844
427,477(G)
----------- ----------- ----------- ----------- -----------
Total operating expenses....... 20,443,579 431,120 20,874,699 (7,440,170) 13,434,529
----------- ----------- ----------- ----------- -----------
Operating loss.............. (9,159,870) (431,120) (9,590,990) 2,922,202 (6,668,788)
Interest expense...................... (459,536) (459,536) (459,536)
Interest income and other............. 577,217 577,217 577,217
----------- ----------- ----------- ----------- -----------
Loss before income taxes....... (9,042,189) (431,120) (9,473,309) 2,922,202 (6,551,107)
Income tax benefit.................... -- 3,346,958(H) 3,346,958 (1,081,215)(D) 2,265,743
----------- ----------- ----------- ----------- -----------
Net loss....................... $(9,042,189) $ 2,915,838 $(6,126,351) $ 1,840,987 $(4,285,364)
=========== =========== =========== =========== ===========
Net loss per share.................... $ (2.12) $ (1.48)
=========== ===========
Weighted average shares outstanding... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
76
<PAGE> 109
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues.................. $10,621,647 $ -- $10,621,647 $(3,947,117)(D) $ 6,674,530
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............ 4,937,148 4,937,148 (1,964,137)(D) 2,973,011
Selling, general and
administrative............. 6,829,999 (1,364,926)(E) 5,465,073 (1,170,722)(D) 4,294,351
Depreciation and
amortization............... 7,251,068 607,918(F) 8,179,594 (2,969,551)(D) 5,210,043
320,608(G)
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 19,018,215 (436,400) 18,581,815 (6,104,410) 12,477,405
----------- ----------- ----------- ----------- -----------
Operating loss........ (8,396,568) 436,400 (7,960,168) 2,157,293 (5,802,875)
Interest expense................ (945,475) (945,475) (945,475)
Interest income and other....... 121,497 121,497 121,497
----------- ----------- ----------- ----------- -----------
Loss before income
taxes................. (9,220,546) 436,400 (8,784,146) 2,157,293 (6,626,853)
Income tax benefit.............. -- 3,131,509(H) 3,131,509 (798,198) (D) 2,333,311
----------- ----------- ----------- ----------- -----------
Net loss................. $(9,220,546) $ 3,567,909 $(5,652,637) $ 1,359,095 $(4,293,542)
=========== =========== =========== =========== ===========
Net loss per share.............. $ (1.96) $ (1.49)
=========== ===========
Weighted average shares
outstanding................... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
77
<PAGE> 110
NOTES TO PRO FORMA STATEMENTS FOR THE CMAX MERGER
The CMAX historical statement of operations for the year ended December 31,
1994 has been derived utilizing CMAX's historical audited statement of
operations for the year ended June 30, 1994 and unaudited statements of
operations for the six months ended December 31, 1993 and 1994. The CMAX
historical statement of operations for the nine months ended September 30, 1995
has been derived utilizing CMAX's historical audited statement of operations for
the year ended June 30, 1995 and unaudited statements of operations for the six
months ended December 31, 1994 and three months ended September 30, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of CMAX's historical equity and the issuance of
2,886,148 shares of Heartland Common Stock at an estimated average closing
price of $28 per share in exchange for all outstanding shares of CMAX
Common Stock. In addition, subsequent to September 30, 1995, Heartland
paid CMAX a $2.4 million deposit with respect to the sublease of certain
wireless cable channel rights in various Texas markets and agreed to loan
CMAX up to $1,000,000. With respect to the $1,000,000 loan, $500,000 was
advanced on December 29, 1995 to be used for working capital purposes and
$500,000 may be used for subscriber growth.
(B) Reflects the fair value of approximately $67.2 million assigned to leased
license investment for the acquisition of CMAX, net of historical leased
license investment. Historical balances of working capital are assumed to
approximate their fair values. Heartland has evaluated the propriety of
the carrying amounts of leased license investment with respect to each
market based on management's estimate of the fair value of each market and
expected future operating cash flows from subscribers in an individual
market, and believes such amounts to be recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the
CMAX net assets acquired. The related increase in excess purchase price
over the fair value of net identifiable assets acquired will be amortized
over an estimated useful life of 20 years. Heartland has evaluated the
propriety of the carrying amount of excess cost over fair value of net
assets acquired based on management's estimate of the fair value of
Heartland's markets and expected future operating cash flows from
subscribers, and believes such amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired
in the CMAX Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from
the pro forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of CMAX that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel and professional fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the CMAX Merger. Amortization of leased license
investment is calculated beginning with inception of service in each
respective market over an estimated useful life of 20 years. For purposes
of the Pro Forma Statements for the CMAX Merger, additional amortization
of leased license investment has been calculated from January 1, 1994
since all current operating systems (except for Waco and Temple/Kileen,
Texas systems) began service prior to such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the CMAX Merger.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
78
<PAGE> 111
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $ 1,182,65 $ 3,900,000(B) $ 5,082,653 $ $ 5,082,653
Net assets held for cash sale or
exchange....................... -- -- 7,250,000(E) 7,250,000
Other current assets............. 89,724 89,724 89,724
---------- ----------- - --------- ----------- -----------
Total current assets... 1,272,377 3,900,000 5,172,377 7,250,000 12,422,377
Systems and equipment, net....... 218,404 218,404 218,404
Leased license investment, net... 2,987,940 23,478,317(B) 23,396,257 (23,396,257)(E) --
(3,900,000)(B)
830,000(D)
Investment in joint ventures..... 2,998,398 8,353,779(B) 11,352,177 (11,352,177)(E) --
Excess of cost over fair value of
net assets acquired............ -- 9,015,248(C) 9,015,248 9,015,248
Net assets held for exchange..... -- 27,498,434(E) 27,498,434
Other assets, net................ 77,179 77,179 77,179
---------- ----------- ----------- ----------- -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt........................... $ 99,442 $ $ 99,442 $ $ 99,442
Other current liabilities........ 638,523 830,000(D) 1,468,523 1,468,523
---------- ----------- ----------- ----------- -----------
Total current
liabilities.......... 737,965 830,000 1,567,965 -- 1,567,965
Long-term debt, less current
portion........................ 1,800,000 1,800,000 1,800,000
Deferred income taxes............ -- 9,015,248(C) 9,015,248 9,015,248
Other liabilities................ 233,044 233,044 233,044
Stockholders' equity............. 4,783,289 36,615,385(A) 36,615,385 36,615,385
(4,783,289)(A)
---------- ----------- ----------- ----------- -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
79
<PAGE> 112
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 83,333 $ -- $ 83,333 $ (83,333)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations.............. --
Selling, general and
administrative............... 3,521,413 (960,001)(F) 2,911,412 (2,911,412)(E) --
350,000(G)
Depreciation and amortization... 637,049 450,762(I) 1,087,811 (1,087,811)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 4,158,462 (159,239) 3,999,223 (3,999,223) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (4,075,129) 159,239 (3,915,890) 3,915,890 --
Interest expense.................. (976,867) (976,867) 976,867(E) --
Equity in losses of investees..... (200,436) (281,439)(H) (481,875) 481,875(E) --
Interest income and other......... (474,348) (474,348) 474,348(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (5,726,780) (122,200) (5,848,980) 5,848,980 --
Income tax benefit................ -- 1,997,341(J) 1,997,341 (1,997,341)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $(5,726,780) $ 1,875,141 $(3,851,639) $ 3,851,639 --
=========== =========== =========== =========== ==========
Net loss per share................ $ (2.95) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
80
<PAGE> 113
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 75,000 $ -- $ 75,000 $ (75,000)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations..............
Selling, general and
administrative............... 1,533,152 (315,035)(F) 1,480,617 (1,480,617)(E) --
262,500(G)
Depreciation and amortization... 66,079 338,072(I) 404,151 (404,151)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 1,599,231 285,537 1,884,768 (1,884,768) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (1,524,231) (285,537) (1,809,768) 1,809,768 --
Interest expense.................. (126,119) (126,119) 126,119(E) --
Equity in losses of investees..... (136,298) (196,338)(H) (332,636) 332,636(E) --
Interest income and other......... 802,078 802,078 (802,078)(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (984,570) (481,875) (1,466,445) 1,466,455 --
Income tax benefit................ -- 417,498(J) 417,498 (417,498)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $ (984,570) $ (64,377) $(1,048,947) $ 1,048,947 $ --
=========== =========== =========== =========== ==========
Net loss per share................ $ (0.80) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
========= =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
81
<PAGE> 114
NOTES TO PRO FORMA STATEMENTS FOR THE AWS MERGER
(A) Reflects the elimination of AWS's historical equity and the issuance of
1,307,692 shares of Heartland Common Stock at an estimated market price of
$28 per share in exchange for all outstanding shares of AWS Common Stock.
Pursuant to the terms of the AWS Merger Agreement and AWS Exchange
Agreement, shares of Heartland Common Stock having an aggregate exchange
value of $3.25 million ($2.75 million if certain litigation pending
against AWS is resolved prior to the AWS Effective Time) will be placed in
escrow for approximately one year to satisfy certain indemnification
obligations of AWS to Heartland.
(B) Reflects the fair values of approximately $23.4 million and $11.4 million
assigned to leased license investment and investment in the Fort Worth and
Minneapolis joint ventures, respectively, net of historical balances. The
sale by AWS of the Memphis market for cash of $3.9 million has also been
reflected in the pro forma balance sheet. Historical balances of working
capital are assumed to approximate their fair values. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows
from subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the AWS
net assets acquired. The related increase in excess purchase price over
the fair value of net identifiable assets acquired will be amortized over
an estimated useful life of 20 years. Heartland has evaluated the
propriety of the carrying amount of excess cost over fair value of net
assets acquired based on management's estimate of the fair value of
Heartland's markets and expected future operating cash flows from
subscribers, and believes such amount to be recoverable.
(D) Reflects the recognition of liabilities for severance payments to certain
executive officers of AWS.
(E) Reflects the reclassification of certain assets and liabilities acquired
in the AWS Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from
the pro forma statements of operations.
(F) Reflects the elimination of certain historical corporate general and
administrative expenses of AWS that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel, directors and officers insurance and professional
fees.
(G) Reflects the additional expense from the non-competition and consulting
agreement with an AWS executive officer.
(H) Reflects AWS's portion of the additional losses of the Fort Worth and
Minneapolis joint ventures.
(I) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the AWS Merger.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
82
<PAGE> 115
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 25,014 $ $ 25,014 $ (25,014)(C) $ --
Other current assets............ 62,456 62,456 (62,456)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 87,470 -- 87,470 (87,470) --
Systems and equipment, net...... 1,001,027 1,001,027 (1,001,027)(C) --
Leased license investment,
net........................... 2,178,002 17,542,631(B) 19,720,633 (19,720,633)(C) --
Net assets held for exchange.... -- 16,191,304(C) 16,191,304
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ -- $ $ -- $ $ --
Other current liabilities....... 1,207,311 (637,311)(B) 570,000 (570,000)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 1,207,311 (637,311) 570,000 (570,000) --
Minority interest............... 99,742 3,948,084(B) 4,047,826 (4,047,826)(C) --
Stockholders' equity............ 1,959,446 16,191,304(A) 16,191,304 16,191,304
(1,959,446)(A)
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
83
<PAGE> 116
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 667,260 $ -- $ 667,260 $ (667,260)(C) $ --
----------- ---------- ----------- ----------- -----------
Operating expenses:
Systems operations............... 567,461 567,461 (567,461)(C) --
Selling, general and
administrative................ 695,990 (100,000)(D) 595,990 (595,990)(C) --
Depreciation and amortization.... 786,572 535,809(E) 1,322,381 (1,322,381)(C) --
----------- ----------- ----------- ----------- -----------
Total operating expenses.... 2,050,023 435,809 2,485,832 (2,485,832) --
----------- ----------- ----------- ----------- -----------
Operating loss........... (1,382,763) (435,809) (1,818,572) 1,818,572 --
Interest income and other.......... 62,281 87,161(F) 149,442 (149,442)(C) --
----------- ---------- ----------- ----------- -----------
Loss before income taxes.... (1,320,482) (348,648) (1,669,130) 1,669,130 --
Income tax benefit................. -- -- --
----------- ---------- ----------- ----------- -----------
Net loss...................... $(1,320,482) $ (348,648) $(1,669,130) $ 1,669,130 $ --
=========== ========== =========== =========== ===========
Net loss per share................. $ (2.89) $ --
=========== ===========
Weighted average shares
outstanding...................... 578,261(A) 578,261 578,261
========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
84
<PAGE> 117
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues...................... $ 451,581 $ -- $ 451,581 $ (451,581)(C) $ --
----------- ----------- ------------ ----------- -----------
Operating expenses:
Systems operations................ 396,302 396,302 (396,302)(C) --
Selling, general and
administrative................. 503,910 (75,000)(D) 428,910 (428,910)(C) --
Depreciation and amortization..... 581,451 408,612(E) 990,063 (990,063)(C) --
----------- ----------- ------------ ----------- -----------
Total operating expenses..... 1,481,663 333,612 1,815,275 (1,815,275) --
----------- ----------- ------------ ----------- -----------
Operating loss............ (1,030,082) (333,612) (1,363,694) 1,363,694 --
Interest income and other........... 44,048 66,722(F) 110,770 (110,770)(C) --
----------- ----------- ------------ ----------- -----------
Loss before income taxes..... (986,034) (266,890) (1,252,924) 1,252,924 --
Income tax benefit.................. -- -- --
----------- ----------- ------------ ----------- -----------
Net loss..................... $ (986,034) $ (266,890) $ (1,252,924) $ 1,252,924 $ --
=========== =========== ============ =========== ===========
Net loss per share.................. $ (2.17) $ --
============ ===========
Weighted average shares
outstanding....................... 578,261(A) 578,261 578,261
========= ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
85
<PAGE> 118
NOTES TO PRO FORMA STATEMENTS FOR THE FTW TRANSACTION
(A) Reflects the elimination of FTW Partnership's historical equity and the
issuance of 578,261 shares of Heartland Common Stock at an estimated
market price of $28 per share to FTW Partnership. In addition, subsequent
to September 30, 1995, Heartland had deposited in escrow $265,000 on
behalf of the FTW Partnership and agreed to make cash loans of $500,000 to
the FTW Partnership.
(B) Reflects the fair values of approximately $19.7 million and $4.0 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to
approximate their fair values. Under terms of the FTW Agreement, total
liabilities to be assumed by Heartland will not exceed $570,000 of certain
types of liabilities (including disputed liabilities). Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows
from subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired
in the FTW Transaction to net assets held for exchange based on
management's expectations with respect to such net assets. Accordingly,
historical operating results relating to such net assets are eliminated
from the pro forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of FTW Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental depreciation and amortization of leased license
investment associated with the FTW Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the FTW Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Fort Worth systems began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
86
<PAGE> 119
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 177,941 $ $ 177,941 $ (177,941)(C) $ --
Other current assets............ 223,218 223,218 (223,218)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 401,159 -- 401,159 (401,159) --
Systems and equipment, net...... 1,480,218 1,480,218 (1,480,218)(C) --
Leased license investment,
net........................... 4,603,199 25,543,892(B) 30,147,091 (30,147,091)(C) --
Net assets held for exchange.... 21,913,052(C) 21,913,052
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 (10,115,416) $21,913,052
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 2,000,000 (B) 2,000,000 (2,000,000)(C) $ --
Other current liabilities....... 811,065 811,065 (811,065)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 2,811,065 -- 2,811,065 (2,811,065) --
Minority interest............... 289,737 7,014,614(B) 7,304,351 (7,304,351)(C) --
Stockholders' equity............ 3,383,774 21,913,052(A) 21,913,052 21,913,052
(3,383,774)(A)
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 $(10,115,416) $21,913,052
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
87
<PAGE> 120
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 535,046 $ -- $ 535,046 $ (535,046)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,187,795 1,187,795 (1,187,795)(C) --
Selling, general and
administrative................ 463,156 (83,333)(D) 379,823 (379,823)(C) --
Depreciation and amortization.... 977,471 860,445(E) 1,837,916 (1,837,916)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,628,422 777,112 3,405,534 (3,405,534) --
----------- --------- ----------- ----------- ---------
Operating loss........... (2,093,376) (777,112) (2,870,488) 2,870,488 --
Interest income and other.......... 138,155 194,278(F) 332,433 (332,433)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,955,221) (582,834) (2,538,055) 2,538,055 --
Income tax benefit................. -- -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,955,221) $(582,834) $(2,538,055) $ 2,538,055 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (3.24) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
88
<PAGE> 121
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 740,595 $ -- $ 740,595 $ (740,595)(C) $ --
----------- ---------- ----------- ----------- ----------
Operating expenses:
Systems operations............... 1,092,248 1,092,248 (1,092,248)(C) --
Selling, general and
administrative................ 373,069 (75,000)(D) 298,069 (298,069)(C) --
Depreciation and amortization.... 799,154 593,465(E) 1,392,619 (1,392,619)(C) --
----------- ---------- ----------- ----------- ----------
Total operating expenses.... 2,264,471 518,465 2,782,936 (2,782,936) --
----------- ---------- ----------- ----------- ----------
Operating loss........... (1,523,876) (518,465) (2,042,341) 2,042,341 --
Interest income and other.......... 90,628 129,616(F) 220,244 (220,244)(C) --
----------- ---------- ----------- ----------- ----------
Loss before income taxes.... (1,433,248) (388,849) (1,822,095) 1,822,095 --
Income tax benefit................. -- -- --
----------- ---------- ----------- ----------- ----------
Net loss.................... $(1,433,248) $ (388,849) $(1,822,095) $ 1,822,095 $ --
=========== ========== =========== =========== ==========
Net loss per share................. $ (2.33) $ --
=========== ==========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
89
<PAGE> 122
NOTES TO PRO FORMA STATEMENTS FOR THE MINNEAPOLIS TRANSACTION
(A) Reflects the elimination of Minneapolis Partnership historical equity and
the issuance of 782,609 shares of Heartland Common Stock at an estimated
market price of $28 per share to Minneapolis Partnership. The Pro Forma
Statements for the Minneapolis Transaction do not assume the issuance of
any additional shares of Heartland Common Stock for additional subscribers
added by the Minneapolis Partnership. In addition, subsequent to September
30, 1995, Heartland made cash loans to the Minneapolis LLC in the amount
of $1,059,000.
(B) Reflects the fair values of approximately $30.1 million and $7.3 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Heartland has evaluated the propriety of the carrying
amounts of leased license investment with respect to each market based on
management's estimate of the fair value of each market and expected future
operating cash flows from subscribers in an individual market, and believes
such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the Minneapolis Transaction to net assets held for exchange based on
management's expectations with respect to such net assets. Accordingly,
historical operating results relating to such net assets are eliminated
from the pro forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of Minneapolis Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental amortization of leased license investment associated
with the Minneapolis Transaction. Amortization of leased license investment
is calculated beginning with inception of service in each respective market
over an estimated useful life of 20 years. For purposes of the Pro Forma
Statements for the Minneapolis Transaction, additional amortization of
leased license investment has been calculated from January 1, 1994 since
the Minneapolis System began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
90
<PAGE> 123
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 78,124 $ $ 78,124 $ (21,827)(D) $ 56,297
Other current assets............ 477,325 477,325 (195,430)(D) 281,895
------------ ------------ ----------- ----------- ------------
Total current
assets.............. 555,449 -- 555,449 (217,257) 338,192
Systems and equipment, net...... 9,001,797 9,001,797 (2,849,833)(D) 6,151,964
Leased license investment,
net........................... 3,552,846 23,634,608(B) 27,187,454 (8,499,701)(D) 18,687,753
Excess of cost over fair value
of net assets acquired........ -- 6,066,024(C) 6,066,024 6,066,024
Net assets held for exchange.... -- 10,720,791(D) 10,720,791
Other assets, net............... 1,441,093 (1,435,793)(B) 5,300 5,300
------------ ------------ ----------- ----------- ------------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 13,232,882 $(11,874,953)(B) 1,357,929 (94,924)(D) 1,263,005
Other current liabilities....... 3,642,071 3,642,071 (751,076)(D) 2,890,995
------------ ------------ ----------- ----------- ------------
Total current
liabilities......... 16,874,953 (11,874,953) 5,000,000 (846,000) 4,154,000
Long-term debt, less current
portion....................... 6,061,259 (6,061,259)(B) -- --
Deferred income taxes........... -- 6,066,024(C) 6,066,024 6,066,024
Stockholders' equity............ (8,385,027) 31,750,000(A) 31,750,000 31,750,000
8,385,027(A)
------------ ------------ ----------- ----------- ------------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
91
<PAGE> 124
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................... $ 6,587,547 $ -- $ 6,587,547 $ (852,476)(D) $ 5,735,071
------------ ----------- ----------- ----------- ------------
Operating expenses:
Systems operations............. 3,726,212 3,726,212 (1,063,717)(D) 2,662,495
Selling, general and
administrative.............. 2,977,792 (270,000)(E) 2,707,792 (894,938)(D) 1,812,854
Depreciation and
amortization................ 2,552,134 864,668(F) 3,718,634 (742,584)(D) 2,976,050
301,832(G)
------------ ----------- ----------- ----------- ------------
Total operating
expenses............... 9,256,138 896,500 10,152,638 (2,701,239) 7,451,399
------------ ----------- ----------- ----------- ------------
Operating loss......... (2,668,591) (896,500) (3,565,091) 1,848,763 (1,716,328)
Interest expense................. (1,491,725) (1,491,725) 103,462(D) (1,388,263)
------------ ----------- ----------- ----------- ------------
Loss before income
taxes.................. (4,160,316) (896,500) (5,056,816) 1,952,225 (3,104,591)
Income tax benefit............... -- 1,759,344(H) 1,759,344 (610,645)(D) 1,148,699
------------ ----------- ----------- ----------- ------------
Net loss.................. $ (4,160,316) $ 862,844 $(3,297,472) $ 1,341,580 $ (1,955,892)
============ =========== =========== =========== ============
Net loss per share............... $ (2.91) $ (1.72)
=========== ============
Weighted average shares
outstanding.................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
92
<PAGE> 125
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 5,029,037 $ -- $ 5,029,037 $ (890,247)(D) $ 4,138,790
Operating expenses:
Systems operations.............. 2,675,570 2,675,570 (619,183)(D) 2,056,387
Selling, general and
administrative............... 1,777,721 (202,500)(E) 1,575,221 (418,002)(D) 1,157,219
Depreciation and amortization... 2,311,943 576,755(F) 3,116,174 (999,691)(D) 2,116,483
227,476(G)
------------ ----------- ----------- ----------- ------------
Total operating expenses... 6,765,234 601,731 7,366,965 (2,036,876) 5,330,089
------------ ----------- ----------- ----------- ------------
Operating loss.......... (1,736,197) (601,731) (2,337,928) 1,146,629 (1,191,299)
Interest expense.................. (708,446) (708,446) 82,718(D) (625,728)
Interest income and other......... 253,352 253,352 253,352
------------ ----------- ----------- ----------- ------------
Income before income
taxes................... (2,191,291) (601,731) (2,793,022) 1,229,347 (1,563,675)
Income tax benefit................ -- 949,252(H) 949,252(H) (454,858) 494,394
------------ ----------- ----------- ----------- ------------
Net income................. $ (2,191,291) $ (601,731) $(1,843,770) $ 774,489 $ (1,069,281)
============ =========== =========== =========== ============
Net income per share.............. $ (1.63) $ (.94)
=========== ============
Weighted average shares
outstanding..................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
93
<PAGE> 126
NOTES TO PRO FORMA STATEMENTS FOR THE TSC TRANSACTION
The Technivision Unaudited Pro Forma Condensed Balance Sheet as of
September 30, 1995 and Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1994 and nine months ended September 30, 1995
have been determined utilizing the historical unaudited balance sheet of
Technivision as of November 30, 1995 and unaudited statements of operations for
the year ended November 30, 1994 and nine months ended November 30, 1995. The
Technivision historical statement of operations for the year ended November 30,
1994 has been derived utilizing Technivision's historical audited statement of
operations for the year ended May 31, 1995 and unaudited statements of
operations for the six months ended May 31, 1994 and 1995. The Technivision
historical statement of operations for the nine months ended November 30, 1995
has been derived utilizing Technivision's historical statement of operations for
the six months ended November 30, 1995 and three months ended May 31, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of Technivision historical equity and the issuance
of 1,133,929 shares of Heartland Common Stock at an estimated market price
of $28 per share to Technivision. The Pro Forma Statements for the TSC
Transaction do not assume the issuance of any additional shares of
Heartland Common Stock for additional subscribers added by Technivision.
Pursuant to the terms of the TSC Agreement and the TSC Exchange Agreement,
TSC Shares having an aggregate exchange value of $5 million will be placed
in escrow for approximately 18 months to satisfy certain indemnification
obligations of TSC to Heartland, and TSC Shares having an aggregate
exchange value of up to $3.6 million (currently estimated to be $1 million)
will be placed in escrow for up to six months (subject to extension) to
satisfy certain post-closing obligations of TSC to Heartland regarding
third party consents to the transfer of certain assets to Heartland.
(B) Reflects the fair value of approximately $27.2 million assigned to leased
license investment for the acquisition of Technivision, net of historical
leased license investment. Historical balances of working capital are
assumed to approximate their fair values. In addition, under terms of the
TSC Agreement, certain marketable securities of Technivision will not be
acquired by Heartland and total liabilities to be assumed by Heartland will
not exceed $5 million of liabilities of Technivision. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the
Technivision net assets acquired. The related increase in excess purchase
price over the fair value of net identifiable assets acquired will be
amortized over an estimated useful life of 20 years. Heartland has
evaluated the propriety of the carrying amount of excess cost over fair
value of net assets acquired based on management's estimate of the fair
value of Heartland's markets and expected future operating cash flows from
subscribers, and believes such amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the TSC Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of TechniVision that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the TSC Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the TSC Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Corpus Christi and Dayton systems began service prior to
such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the TSC Transaction.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
94
<PAGE> 127
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems.
Heartland has wireless cable channel rights in small to mid-size wireless cable
television markets, located principally in the central United States, with a
significant number of households not currently passed by traditional hard-wire
cable systems. WCI launched its first system, located in Ada, Oklahoma, in April
1992. Subsequently, WCI or Heartland have also launched service in Wichita
Falls, Texas; Midland, Texas; Abilene, Texas; Lawton, Oklahoma; Laredo, Texas;
Enid, Oklahoma; Monroe, Louisiana; Ardmore, Oklahoma; Mt. Pleasant, Texas;
Lufkin, Texas; Texarkana, Texas; and Stillwater, Oklahoma. On December 1, 1994,
Heartland purchased the Milano System from RuralVision Joint Venture. On
December 29, 1994, Heartland acquired the Lindsay System, for approximately $2.3
million. In addition, Heartland received the distribution of the Shaw System
from RuralVision Joint Venture on January 27, 1995. On May 3, 1995, Heartland
acquired the Lubbock System for approximately $5.4 million. The systems
described in this paragraph are referred to in this Management's Discussion as
the "Heartland Existing Systems" or "Existing Systems."
Heartland was incorporated in Delaware in October 1993 to succeed to the
wireless cable businesses previously conducted by WCI. David E. Webb, the
President and Chief Executive Officer and a principal stockholder of Heartland
and L. Allen Wheeler, a director and principal stockholder of Heartland were the
founders of WCI. Heartland's primary business strategy is to develop, own and
operate wireless cable television systems in markets in which Heartland believes
it can achieve positive cash flow and operating income in a particular market
rapidly after system launch and then expand such system while increasing such
system's operating income. Heartland executes this strategy by developing
wireless cable channel rights and locating operations in geographic clusters of
small to mid-size markets with a significant number of households not currently
passed by traditional hard-wire cable. Heartland's strategy allows it to contain
system launch costs because Heartland can launch its service with fewer channels
of programming and initially utilize lower power transmission equipment. In
addition, by developing wireless cable channel rights and locating its
operations in geographic clusters, Heartland can further contain costs by taking
advantage of economies of scale in management, sales and customer service.
Although Heartland has recorded net losses since inception, four operating
markets had positive cash flow in their first year of operations. None of the
other Systems had achieved positive cash flow or generated operating income,
primarily as a result of their early stages of development and number of
subscribers.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Management believes that period-to-period comparisons of Heartland's
consolidated financial results to date are not necessarily meaningful and should
not be relied upon as an indication of future performance due to Heartland's
historically high growth rate and system launches during the periods presented.
95
<PAGE> 128
The table below sets forth for each of the Existing Systems the launch or
acquisition date, the current channel offering and the approximate number of
subscribers at December 31, 1994:
<TABLE>
<CAPTION>
APPROXIMATE
LAUNCH OR CURRENT SUBSCRIBERS AT
ACQUISITION CHANNEL DECEMBER 31,
MARKET DATE OFFERING(1) 1994
-------------------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Ada, Oklahoma............................... April 1992 32 5,020
Wichita Falls, Texas........................ October 1993 26 2,690
Midland, Texas.............................. December 1993 26 1,420
Abilene, Texas.............................. February 1994 23 2,020
Lawton, Oklahoma............................ August 1994 27 3,150
Other Existing Systems:
Laredo, Texas............................. September 1994 27 1,110
Enid, Oklahoma(2)......................... October 1994 21 970
Monroe, Louisiana(3)...................... N/A 10 200
Lindsay, Oklahoma(4)...................... December 1994 32 1,410
Ardmore, Oklahoma......................... December 1994 20 170
Mt. Pleasant, Texas(5).................... December 1994 16 --
Lufkin, Texas(6).......................... N/A 12 --
Milano, Texas(7).......................... December 1994 26 1,680
Shaw, Kansas(8)........................... January 1995 30 3,520
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(2) Construction of the Enid System was completed in February 1993. However,
Heartland did not begin actively marketing its service in the Enid System
until October 1994 when it achieved an increase in its channel offering.
(3) Construction of the Monroe System was completed in March 1993. Heartland is
not actively marketing its service in the Monroe System because it is
awaiting action by the FCC to grant licenses, which would increase the
number of wireless cable channels available to Heartland.
(4) Heartland acquired the Lindsay System on December 29, 1994.
(5) Heartland launched the Mt. Pleasant System in December 1994.
(6) Heartland completed construction of the Lufkin System in December 1994.
Heartland 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 channels available to Heartland.
(7) Heartland acquired the Milano System on December 1, 1994.
(8) Heartland acquired the Shaw System on January 27, 1995.
Revenues
Heartland's first system, the Ada System, was launched in April 1992 and
Heartland had no revenues prior to 1992. Heartland's revenues were generated
from the following sources for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- ----------
<S> <C> <C> <C>
Subscription revenues:
Ada System........................................ $170,457 $591,741 $ 893,126
Wichita Falls System.............................. -- 15,861 313,729
Midland System.................................... -- 3,516 164,816
Abilene System.................................... -- -- 171,830
Lawton System..................................... -- -- 154,424
Other Existing Systems............................ -- 14,343 155,929
Installation and service revenues................... 34,925 243,304 375,640
-------- -------- ----------
Total..................................... $205,382 $868,765 $2,229,494
======== ======== =========
</TABLE>
96
<PAGE> 129
The following table sets forth the number of subscribers in the Heartland
Existing Systems on the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1992 1992 1992 1993 1993 1993 1993 1994 1994 1994 1994
-------- --------- -------- ---------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ada
System... 475 760 1,075 1,460 1,540 1,970 2,110 2,235 2,275 3,440 5,020
Wichita
Falls
System... -- -- -- -- -- -- 315 475 710 1,530 2,690
Midland
System... -- -- -- -- -- -- 130 370 450 690 1,420
Abilene
System... -- -- -- -- -- -- -- 140 330 1,230 2,020
Lawton
System... -- -- -- -- -- -- -- -- -- 790 3,150
Other
Existing
Systems... -- -- -- -- 10 120 180 205 220 360 5,540
</TABLE>
Historically, Heartland's subscribers have been located predominantly in
single-family homes. In the fiscal year ended December 31, 1994, the number of
subscribers located in multiple-dwelling units in the Heartland Existing Systems
(including the Shaw System) increased as a percentage of total subscribers to
approximately 9.6%. Multiple-dwelling unit subscribers typically generate lower
per-subscriber revenue than single-family units due to discounted programs
offered to these subscribers.
Subscription Revenues from Ada System. Revenues from the Ada System consist
principally of television subscription revenues. The increase in television
subscription revenues from $170,457 for 1992 to $591,741 for 1993 (a 247%
increase) and to $893,126 for 1994 (a 51% increase) is principally attributable
to an increase in the number of subscribers. The Ada System was not yet
operational on December 31, 1991. The Ada System had approximately 1,075
subscribers on December 31, 1992, approximately 2,110 subscribers on December
31, 1993 and approximately 5,020 subscribers on December 31, 1994, of which
approximately 1,580 subscribers (or 46%) were added in the last quarter of 1994.
Television subscription revenues consist of monthly fees paid by
subscribers for the Ada System's basic programming package, for premium
programming services and for equipment rental. The average monthly television
subscription revenue per Ada System subscriber in 1992, 1993 and 1994 was
$27.90, $30.27 (a 9% increase) and $26.98 (a 10% decrease), respectively. The
increase in average monthly subscription revenue per subscriber in 1993 as
compared to 1992 was primarily due to the increase in the percentage (from 61%
to 80%, respectively) of customers that rented, rather than purchased, the
receive-site equipment. The decrease in average monthly subscription revenue per
subscriber in 1994 as compared to 1993 was primarily due to the number of
subscribers added during the fourth quarter of 1994 who live in
multiple-dwelling units, which typically generate lower per-subscriber revenue
than single-family units, and certain promotional offerings of premium channel
units. During 1994, the standard charge for the basic Ada System programming
package of 29 channels (including one local off-air VHF/UHF channel) was $17.95
per month, $9.95 per month for each premium programming service and $6.00 per
month for rental of the basic receive-site equipment package. The Ada System had
approximately 5,020 subscribers on December 31, 1994, in excess of 80% of whom
rented, rather than purchased, the receive-site equipment. Heartland initiated
pay-per-view programming in the Ada System on April 1, 1995.
Subscription Revenues from Wichita Falls System. The Wichita Falls System
was launched in October 1993 with 24 channels (including four local off-air
VHF/UHF channels). The Wichita Falls System had approximately 315 subscribers on
December 31, 1993 and approximately 2,690 subscribers on December 31, 1994. The
Wichita Falls System currently offers 26 channels (including two local off-air
VHF/UHF channels which are being retransmitted). The average monthly television
subscription revenue per Wichita Falls System subscriber for 1994 was $26.46,
which consisted of the standard charge of $17.95 per month for the basic Wichita
Falls System programming package, $9.95, $8.95 and $2.95 per month,
respectively, for certain premium programming services and $6.85 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Wichita Falls System.
Subscription Revenues from Midland System. The Midland System was launched
in December 1993 with 24 channels (including four local off-air VHF/UHF
channels). The Midland System had approximately 130 subscribers on December 31,
1993 and approximately 1,420 subscribers on December 31, 1994. The average
monthly television subscription revenue per Midland System subscriber for 1994
was $23.54, which
97
<PAGE> 130
consisted of the standard charge of $19.95 per month for the basic Midland
System programming package, $9.95 for premium programming services and $9.85 per
month for rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Midland System.
Subscription Revenues from Abilene System. The Abilene System was launched
in February 1994 with 23 channels (including three local off-air VHF/UHF
channels). The Abilene System had approximately 2,020 subscribers on December
31, 1994. The average monthly television subscription revenue per Abilene System
subscribers in 1994 was $23.20, which consisted of the standard charge of $18.95
per month for the basic Abilene System programming package, $10.95 and $2.95 per
month, respectively, for premium programming services and $8.90 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Abilene System.
Subscription Revenues from Lawton System. The Lawton System was launched in
August 1994 with 19 channels (including seven local off-air VHF/UHF channels).
The Lawton System had approximately 3,150 subscribers on December 31, 1994. The
average monthly television subscription revenue per Lawton System subscribers
was $26.65 in 1994, which consisted of the standard charge of $17.95 per month
for the basic Lawton System programming package, $9.95 per month for a premium
programming service and $8.00 per month for rental of the basic receive-site
equipment package. Substantially all single-family unit subscribers in the
Lawton System rent the receive-site equipment. Multiple-dwelling unit
subscribers in the Lawton System (approximately one-third of the total number of
subscribers) do not pay a fee to rent the receive-site equipment.
Subscription Revenues from Other Existing Systems. Television subscription
revenues from Existing Systems other than the Ada System, the Wichita Falls
System, the Midland System, the Abilene System and the Lawton System were
$155,929 in 1994 compared to $14,343 in 1993. This increase is attributable to
the increase in subscriber base related to these systems, the number of systems
launched in 1994 and the acquisition in December 1994 of one of these systems.
The Laredo System was launched in September 1994 with 23 channels
(including three local off-air VHF/UHF channels). The Laredo System had
approximately 1,110 subscribers on December 31, 1994.
Heartland completed construction of the Enid System in February 1993 in
anticipation of action by the FCC to grant licenses which would increase the
number of wireless cable channel rights available to Heartland. Initially,
subscribers were obtained without active marketing efforts by Heartland. An
increase in the Enid System channel offering was achieved in September 1994 and
Heartland began actively marketing its service in the Enid System in October
1994. The Enid System currently offers 21 channels (including two local off-air
VHF/UHF channels). The Enid System had approximately 970 subscribers on December
31, 1994.
Heartland completed construction of the Monroe System, which currently
offers 10 channels (including five local off-air VHF/UHF channels), in March
1993. The Monroe System had approximately 160 subscribers on December 31, 1994.
The Monroe System was constructed in anticipation of action by the FCC to grant
licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Monroe market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
Heartland acquired the Lindsay System on December 29, 1994. The Lindsay
System currently offers 32 channels (including 10 local off-air VHF/UHF
channels). The Lindsay System had approximately 1,410 subscribers on December
31, 1994.
The Ardmore System was launched in December 1994 with 20 channels
(including four local off-air VHF/UHF channels). The Ardmore System had
approximately 170 subscribers on December 31, 1994.
The Mt. Pleasant System was launched in December 1994 with 14 channels
(including four local off-air VHF/UHF channels). The Mt. Pleasant System had no
subscribers on December 31, 1994.
98
<PAGE> 131
Heartland completed construction of the Lufkin System, which currently
offers 12 channels (including four local off-air VHF/UHF channels), in December
1994. The Lufkin System was constructed in anticipation of action by the FCC to
grant licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Lufkin market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
The Milano System was acquired on December 1, 1994 from RuralVision Joint
Venture. The Milano System currently offers 26 channels (including six local
off-air VHF/UHF channels). The Milano System had approximately 1,680 subscribers
on December 31, 1994.
The Shaw System was acquired on January 27, 1995, in accordance with the
terms of the Venture Distribution Agreement. The Shaw System currently offers 30
channels (including four local off-air VHF/UHF channels). The Shaw System had
approximately 3,520 subscribers on December 31, 1994.
Installation and Service Revenues. Installation and service revenues
represent installation fees charged by Heartland to certain new subscribers,
sales of receive-site equipment to certain subscribers and service income.
Installation fees are recognized upon origination of service to a customer to
the extent of subscriber acquisition costs incurred to obtain subscribers.
Revenue from the sale of receive-site equipment to subscribers is recognized
upon delivery of such equipment to a subscriber. Installation revenues included
installation fees of $34,925 in 1992, $27,289 in 1993 and $107,803 in 1994.
Installation fees declined as a percentage of revenues in 1994 due to selected
promotional campaigns in several of Heartland's markets during the period from
August 1994 to December 1994 and a higher level of revenues. Sales of
receive-site equipment to subscribers were $213,005 for 1993 and $237,730 for
1994, respectively. Through September 1993, installations and sales of
receive-site equipment were performed by a formerly affiliated installation
company. Subsequent to this period, such installations and sales have been
conducted through two subsidiaries of Heartland that were merged together in
December 1994. Additionally, Heartland recorded service income of $30,107 in
1994, a 900% increase from $3,010 in 1993.
In order to conserve its capital, upon system launch, Heartland initially
required the purchase (rather than the rental) of its receive-site equipment by
subscribers. Upon system launch in 1992, a new Ada System subscriber was
required to purchase the receive-site equipment for approximately $325, but no
installation fee was charged. Since September 1992, Heartland has offered
potential subscribers in the Ada System the option of purchasing the
receive-site equipment or renting such equipment for a monthly charge of
approximately $6. In the Ada System, an installation fee of $25 and a deposit of
$25 (designed to encourage the return of receive-site equipment) is currently
charged to subscribers selecting the monthly rental option. Additional fees are
charged for various other installation services. Heartland believes that
charging an up-front installation fee better qualifies potential subscribers,
reducing subscriber turnover. Reduced subscriber turnover reduces installation
and marketing expenses incurred by Heartland. Heartland currently experiences a
low rate of subscriber turnover of approximately 1.5% per month, as compared to
the rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Currently, approximately 80% of the subscribers in
the Ada System rent the receive-site equipment. Through April 1994, the other
Existing Systems required a new subscriber to purchase the receive-site
equipment. In order to accelerate system expansion after Heartland's initial
public offering in April 1994 ("Initial Public Offering"), Heartland began
offering new subscribers the option to rent receive-site equipment. Typically,
an installation fee of $50 is currently charged to subscribers selecting the
monthly rental option in the Existing Systems other than the Ada System. From
time to time, Heartland offers no-fee installation on a promotional basis.
Systems Operations and Cost of Goods Sold. 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.
Prior to 1992, Heartland had no operations and therefore no systems operations
expense. Heartland incurred $36,042 of systems operations expense in 1992 (all
related to the Ada
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System). For 1993, Heartland incurred systems operations expense of $118,649 (a
229% increase). The increase is attributable primarily to the 96% increase in
the number of subscribers during 1993 as compared to 1992. Systems operations
for 1994 increased 345% from 1993 to $527,476. The increase was attributable
primarily to the 240% increase in the average number of subscribers for 1994
compared to 1993.
Cost of goods sold includes the cost of receive-site equipment sold to
subscribers. Such costs amounted to $202,162 in 1993 and $235,025 in 1994.
Through September 1993, receive-site equipment was sold to subscribers by a
formerly affiliated installation company. Subsequent to this period, such sales
have been conducted through two subsidiaries of Heartland that were merged
together in December 1994. Subsequent to the Initial Public Offering, sales of
receive-site equipment have been nominal.
Selling, General and Administrative Expenses. Heartland 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 sales
commissions relating to the increasing number of subscribers and additional
compensation expense. SG&A increased from $147,927 for 1992 to $646,611 for 1993
(a 337% increase). During 1992, the Ada System was launched and SG&A increased
significantly due to the expense incurred in launching such system and
additional accounting and support costs and sales commissions relating to the
increasing number of subscribers. These factors and the expense incurred in
launching two more systems and constructing two other systems caused the
increase in SG&A for 1993 as compared to 1992. SG&A increased 547% to $4,183,307
in 1994 compared to $646,611 in 1993, principally due to the commencement of the
direct payment of compensation to certain of Heartland's executive officers who
had previously served as consultants and the addition of personnel, and, to a
lesser extent, increased sales commissions relating to the increasing number of
subscribers, 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 channel
rights and the excess of cost over fair value of net assets acquired.
Depreciation and amortization relating to the Ada System equipment and channel
rights began in 1992 and totaled $34,920. Depreciation and amortization expense
for the year ended December 31, 1993 included depreciation on the equipment in
the Ada, Enid, Monroe and Midland Systems as well as amortization of channel
rights for such systems and totaled $138,560, a 297% increase over the same
period in 1992 during which only the Ada System was operational. Depreciation
and amortization expense for 1994 increased 692% to $1,097,668 compared to
$138,560 in 1993. The increase was due to additional systems and equipment in
connection with systems launched throughout 1994, and increased amortization
expense on leased license investment of systems in operation and excess of cost
over fair value of net assets acquired related to the acquisition of U.S.
Wireless and the acquisition of minority interests in certain other subsidiaries
of Heartland. Heartland anticipates that depreciation and amortization expense
will increase as a result of such acquisition of minority interests in March
1995 and as additional systems are launched and more subscribers continue to
rent, rather than purchase, the receive-site equipment.
Interest Expense. In 1993, Heartland incurred interest expense of $82,916
compared to $1,392 in 1992 due to an increase in borrowed funds. In 1994,
Heartland incurred interest expense of $589,767, which included non-cash
interest of $301,125 related to one month's interest on the Heartland's 9%
Convertible Subordinated Discount Notes due 2004 (the "Convertible Notes"). The
remaining interest expense is principally related to (i) the portion of that
bridge loan provided by Internationale Nederlanden (U.S.) Capital Corporation
("ING") in the original amount of approximately $10.0 million which closed
during July, 1994 (the "ING Bridge Loan") that was used by RuralVision Joint
Venture to acquire certain RuralVision Assets that Heartland expects to retain
and (ii) interest expense on short-term borrowings that were repaid in
connection with Heartland's initial public offering in April 1994.
Interest Income. Interest income for the year ended December 31, 1994
relates to interest earned on Heartland's cash equivalents since the Initial
Public Offering.
Other Expenses. Other expenses are comprised primarily of other
non-operating expenses. In 1992, Heartland incurred $18,003 of other
non-operating expenses. For the year ended December 31, 1993,
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Heartland incurred $60,467 of other non-operating expenses, which included a
charge of $57,163 relating to a settlement with a formerly affiliated
installation company (see Note 9 of Notes to Consolidated Financial Statements
appearing as pages F-17 to F-18 elsewhere in this Proxy Statement). In 1994,
Heartland incurred a recapitalization charge of $205,575. This charge related to
costs incurred in connection with a rescinded offering of securities.
Minority Interests. In connection with the development of certain wireless
cable markets, Heartland has sold stock in certain of its subsidiaries
principally for cash. 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 such systems. Minority
ownership interests in such subsidiaries range from 5% to 49.9999% (other than
(i) Northern Oklahoma Wireless Cable, Inc., serving the Enid, Oklahoma area, in
which minority interest holders own 18% of the outstanding common stock and 100%
of the outstanding preferred stock; and (ii) Central Oklahoma Wireless Cable,
Inc., serving the Ada, Oklahoma area, in which minority interest holders own 50%
of the outstanding preferred stock). Minority interests in earnings of
subsidiaries of $19,106 and $35,111 for the years ended December 31, 1992 and
1993, respectively, relate to the minority interest owners' share of net
earnings from the Ada System and net losses from the Enid System subsidiaries
and dividends on preferred stock of the Ada and Enid System subsidiaries. The
increase in the minority interests in earnings of subsidiaries during these
periods is related to increased earnings in the Ada System, offset partially by
losses during 1993 in the Enid System. Minority interests in losses of
subsidiaries of $20,108 for the year ended December 31, 1994 relate to the
minority interest owners' share of net earnings from the Ada System subsidiary
through April 1994, losses of the Enid System subsidiary and dividends on
preferred stock issued by the Ada System ($16,715) and Enid System ($19,600)
subsidiaries. On March 15, 1995, Heartland issued an aggregate of 304,038 shares
of common stock in exchange for minority interests in 21 subsidiaries.
Income Tax Benefit. Income tax benefit of $1,594,963 for the year ended
December 31, 1994 represents the tax benefit related to Heartland's net
operating losses incurred during the period April 28, 1994 through December 31,
1994. Heartland has recognized such tax benefit to the extent of future
reversals of existing taxable temporary differences.
Net Loss. During 1991, Heartland had no revenues and incurred a loss of
$66,158, primarily due to SG&A. During 1992, Heartland's Ada System was launched
and generated operating income of $71,071 on total revenues of $205,382, which
substantially offset Heartland's expenses. Heartland incurred a net loss of
$50,822 for the year ended December 31, 1992, primarily due to the increase in
SG&A at the corporate level, the increase in other non-operating expenses and
accrued dividends on preferred stock of subsidiaries. For 1993, Heartland's Ada
System generated operating income of $256,856 on total revenues of $602,837.
Nonetheless, due to increased SG&A related to the development of Heartland's
other wireless cable markets and increased other expenses (including a
settlement charge of $57,163), Heartland incurred a net loss of $406,101. As a
result of the above factors, for the year ended December 31, 1994, Heartland
incurred a net loss of $3,043,321 as compared to a net loss of $406,101 for the
same period in 1993. Heartland expects to continue to incur net operating losses
at least through the end of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
1995 COMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1994
Revenues consist principally of subscription revenues, installation fees
(for 1994 periods) and sales of receive-site equipment to subscribers.
Subscription revenues principally consist of monthly fees paid by subscribers
for the basic programming package and for premium programming services.
Subscription revenues for the nine-month period ended September 30, 1995
increased to $9,292,837 from $984,299 for the same period in 1994, an increase
of 944%. Subscription revenues for the three-month period ended September 30,
1995 increased to $4,176,855 from $359,595 for the same period in 1994, an
increase of 1,062%. The increase in subscription revenues is principally
attributable to a 891% increase in the average number of subscribers for the
first nine months of 1995 compared to the same period in 1994. The increase in
subscribers is due to Heartland launching two systems in the third quarter of
1994 (Lawton, Oklahoma and Laredo, Texas) and two systems in the fourth quarter
of 1994 (Ardmore, Oklahoma and Mt. Pleasant, Texas); the acquisition of
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two operating systems in the fourth quarter of 1994 (Lindsay, Oklahoma and
Milano, Texas); the acquisition of one system (Shaw, Kansas) in the first
quarter of 1995; the launching of the system in Texarkana, Texas in the first
quarter of 1995; the acquisition of one system (Lubbock, Texas) and the
launching of five systems in Illinois (McLeansboro, Vandalia, Olney and
Taylorville) and Stillwater, Oklahoma in the second quarter of 1995; the
launching of the systems in Peoria, Illinois, Manhattan, Kansas, Olton and
O'Donnell, Texas, Grand Rapids, Michigan, and Monroe City, Missouri in the third
quarter of 1995; and the acquisition of the operating systems in Bucyrus, Ohio,
Paragould, Arkansas and Sikeston, Missouri in the third quarter of 1995. The
number of subscribers in Heartland's wireless cable systems increased to 64,350
at September 30, 1995 compared to 43,500 at June 30, 1995.
On a "same system" basis (comparing systems that were operational for all
of each of the three-month periods ended September 30, 1994 and 1995),
subscription revenues increased $1,102,038 or 301%, to $1,468,157 as compared to
$380,648 for the three-month period ended September 30, 1994. Same systems
during this period consisted of Heartland's Ada, Wichita Falls, Midland, Abilene
and Enid systems. The average number of subscribers in these systems increased
approximately 331% during the three months ended September 30, 1995 as compared
to the same period in 1994.
For the three and nine months ended September 30, 1994, revenues included
installation fees of $54,530 and $100,159, respectively. Installation fees for
the three and nine months ended September 30, 1995 of $63,355 and $452,853,
respectively, were offset against direct costs of subscriber installations (See
note 2 to consolidated condensed financial statements regarding change in
accounting method). Sales of receive-site equipment to subscribers were $205,068
in 1994 (none in 1995). The increase in installation fees is due to the
increased number of installations during the three- and nine-month periods ended
September 30, 1995, partially offset by lower per subscriber installation
charges in certain systems, compared to the same period of 1994. Installation
fees vary widely by system based on local market conditions. Recently, Heartland
has waived installation charges as part of selected promotional campaigns. Since
Heartland's Initial Public Offering, predominately all new subscribers rent,
rather than purchase, receive-site equipment, resulting in decreased revenues
from the sale of receive-site equipment during the nine-month period ended
September 30, 1995 compared to the nine-month period ended September 30, 1994.
Systems operations expenses include programming costs, channel lease
payments, transmitter site and tower rentals, cost of program guides and repairs
and maintenance expenditures. Programming costs, cost of program guides and
channel lease payments (with the exception of minimum payments) are variable
expenses which increase as the number of subscribers increases. Systems
operations expenses for the three- and six-month periods ended September 30,
1995 increased 775% to $1,326,358 from $151,499 and 804% to $2,894,074 from
$320,029 compared to the same periods in 1994. This increase is attributable
primarily to the 416% and 700% increases, respectively, in the average number of
subscribers for such periods in 1995 compared to such periods in 1994 and rental
expense under channel rights lease agreements of $977,241 related to
non-operational systems.
Costs of goods sold include the cost of receive-site equipment sold to
subscribers. The decrease in costs of goods sold of $65,808 and $235,025 for the
three- and nine-month periods ended September 30, 1995 from the same periods in
1994 is related to the corresponding decrease in sales of receive-site
equipment.
SG&A increased 139% to $2,796,889 from $1,169,598 and 265% to $7,449,699
from $2,042,124, respectively, for the three- and nine-month periods ended
September 30, 1995 and 1994, respectively. Heartland has experienced increasing
SG&A 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 sales
commissions relating to the increasing number of subscribers. Additionally, SG&A
increased during the first half of 1995 as compared to the corresponding period
in 1994 due to the implementation of a group health insurance plan in August
1994 and investor relations expenses.
Depreciation and amortization expense for the nine-month period ended
September 30, 1995 increased 847% to $3,966,120 from $418,960 for the
corresponding period in 1994. Additionally, depreciation and amortization
expense for the three-month period ended September 30, 1995 increased 764% to
$1,948,576
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from $229,055 for the corresponding period in 1994. The increase is due to
additional systems and equipment related to systems launched and acquired in
1994 and 1995 and additional amortization expense on leased license investment
of systems in operation and excess of costs over the fair value of assets
acquired due to acquisitions of minority interests. Heartland anticipates that
depreciation and amortization expense will increase as a result of the minority
interests exchange offer in March 1995 and as additional systems are launched
and more subscribers continue to rent, rather than purchase, the receive-site
equipment.
Interest expense increased to $8,908,459 for the nine-month period ended
September 30, 1995 from $128,789 for the corresponding period in the preceding
year. Interest expense increased to $4,516,446 for the three-month period ended
September 30, 1995 from $72,089 for the corresponding period in the preceding
year. The increase is principally due to the accretion on the Convertible Notes
that were issued in the fourth quarter of 1994 and the interest on Heartland's
13% Senior Notes due 2003 that were issued on April 26, 1995.
Interest income increased to $1,034,441 from $91,130 and $2,044,092 from
$189,308, respectively, for the three and nine-month periods ended September 30,
1995 compared to the same periods in 1994, principally due to interest earned on
the increase in Heartland's cash equivalents since the initial public offering
in April 1994 and Heartland's debt offerings in November 1994 and April 1995.
Equity in losses of RuralVision Joint Venture for the nine-month period
ended September 30, 1995, relates to the Heartland's 50% share of losses related
to the joint venture for the period January 1, 1995 through January 27, 1995.
Income tax benefit increased to $1,307,137 from $649,510 for the nine-month
period ended September 30, 1995 compared to the same period in 1994. Income tax
benefit has been recognized to the extent deferred tax assets can be realized
through future reversals of existing taxable temporary differences.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Since inception, Heartland has expended funds to lease or otherwise acquire
channel rights in various markets and systems in operation, to construct or
acquire operating systems in more than 30 markets, to commence construction of
the systems under construction, to install equipment in new subscribers' homes
and to finance initial operating losses and other working capital requirements.
Heartland intends to expand the Existing Systems and launch additional wireless
cable systems and may require funds therefore in excess of the funds currently
available to it.
Heartland's capital expenditures during the years ended December 31, 1992,
1993 and 1994 were approximately $1.4 million, $5.1 million, and $44.5 million,
respectively. For the nine months ended September 30, 1994 and 1995, Heartland's
capital expenditures were approximately $18.1 million and $44.0 million,
respectively. Such expenditures were primarily for the construction and
expansion of Heartland's wireless cable systems installation of equipment in new
subscribers' homes and the acquisition of operating systems and channel rights
in other markets.
Heartland 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 $350,000 to $500,000 for wireless cable
system transmission equipment and tower construction and incremental
installation costs of approximately $395 to $435 per subscriber for equipment,
labor and overhead charges and direct commissions. 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 $400,000, but may vary depending upon the power of the
transmission equipment.
Heartland expects that under its current plans it will have capital
expenditures of approximately $13 million during the fourth quarter of 1995 and
$60.0 million in 1996 for system construction, development, launch and expansion
activities associated with its current operating systems, systems under
construction, near-term launch markets and certain long-term launch markets.
Heartland currently expects to launch an aggregate of approximately 20, and as
many as 25, systems during the period from November 1995 through
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the end of 1996. Heartland does not anticipate any other material capital
requirements, except as set forth below with regard to certain assets to be
acquired in connection with the Transactions by Heartland. Heartland expects to
continue to incur significant capital expenditures in 1997 and subsequent years
in connection with system construction, development, launch and expansion
activities.
Under Heartland's existing debt structure, no material principal or
interest payment obligations are required (other than accrued interest due under
the Senior Notes which has been escrowed through April 1997) until October 1997.
Commencing in October 1997 and every six months thereafter through April 2003,
semi-annual accrued interest of $6.5 million under the Senior Notes is due and
payable.
On April 26, 1995, Heartland sold 100,000 Units (the "Units") consisting of
$100 million 13% Senior Notes due 2003 and 600,000 warrants to purchase an equal
number of shares of Heartland Common Stock. Heartland placed approximately $24.1
million of the approximately $95.3 million net proceeds realized from the sale
of the Units into an escrow account and used approximately $3.0 million of such
proceeds to repay indebtedness. Additionally, Heartland has used approximately
$9.5 million in connection with acquisitions for operating systems in Lubbock,
Texas and wireless cable channel rights in Tulsa, Oklahoma. During the second
and third quarter of 1995, Heartland has sold certain wireless cable channel
rights in 12 markets for approximately $3.3 million in cash and a $562,500 note
receivable, plus additional contingent consideration of up to $280,000 in cash.
Additionally, Heartland has contributed other wireless cable markets for
consideration consisting of approximately 35% of the outstanding common stock of
Wireless One and approximately $10 million in notes which was paid upon
consummation of an equity and debt offering by Wireless One and in November
1995, Heartland entered into an agreement to sell its wireless cable channel
rights in Flippin, Tennessee for $1.5 million in cash. Heartland intends to use
the balance of the net proceeds of the sale of the Units, together with cash on
hand and cash generated from operations or sale of assets, for system
construction, development, launch and expansion activities, to provide working
capital and for other general corporate purposes. Subject to certain limitations
set forth in the indenture relating to the Notes (the "Indenture"), Heartland
may use a portion of such net proceeds to acquire additional wireless cable
channel rights, including the purchase of MDS and multichannel MDS ("MMDS")
wireless cable channel rights in the December 1995 BTA auction.
Upon consummation of the Transactions, Heartland, directly or through its
ownership of AWS and CMAX, will be required to pay between $15 million and $20
million of liabilities associated with the assets acquired in the Transactions.
Such liabilities include bank indebtedness, payables, severance obligations and
similar liabilities which will be due and owing upon, or shortly following,
consummation of the Transactions. As a result of consummating the Transactions,
Heartland expects that it will incur additional capital expenditures of
approximately $15.0 million in 1996 for system construction, development, launch
and expansion activities associated with the acquired operating systems and
other acquired markets that it expects to launch in 1996. All of the operating
markets to be acquired and retained are currently generating positive monthly
operating cash flow which will supplement Heartland's capital needs in 1996.
In connection with the Newco Transaction, Heartland expects to receive
$28.3 million in cash payable by Newco at the closing and a promissory note in
the principal sum of $25 million payable nine (9) months from the closing.
Heartland expects that the remaining proceeds from the sale of the Units and the
proceeds from the Newco Transaction, together with cash on hand and cash
generated from operations, will be sufficient to satisfy Heartland's capital
needs through at least the end of 1996. In order to accelerate its growth rate,
to respond to competitive pressures or regulatory changes and, subject to
certain limitations set forth in the Indenture, to finance the acquisition of
additional wireless cable channel rights and businesses, general corporate
activities and the launch or build-out of additional systems, Heartland may,
subject to the provisions of the note purchase agreement relating to the
Convertible Notes (the "Note Purchase Agreement") and the Indenture, supplement
its existing sources of funds with financing arrangements at the operating
system level, or through additional borrowings, the sale of debt or equity
securities, joint ventures or other arrangements. Heartland is presently in the
initial stages of locating and negotiating for a suitable revolving credit
facility consistent with the terms of the Indenture and Note Purchase Agreement
with one or more third parties. Assuming such financing can be secured on
acceptable terms, management of Heartland currently intends to draw down funds
under such facility upon consummation of the Transactions to repay certain of
the
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obligations incurred or assumed in the Transactions. No assurance can be given
that Heartland will locate such an acceptable credit facility. As a further
capital resource, subject to the terms of the Note Purchase Agreement and the
Indenture, Heartland may sell or lease certain wireless cable channel rights as
appropriate opportunities become available.
As an alternative source of financing, Heartland believes a primary factor
in obtaining debt financing at the operating system level is the generation of
positive operating cash flow. As of November 30, 1995, 17 of Heartland's
operating systems are generating positive monthly cash flow. Heartland expects
that the other Existing Systems and the wireless cable systems anticipated to be
launched will generate positive monthly operating cash flow, typically within
six months from commencement of operations and after attaining 1,500
subscribers, thereby making further bank debt financing available at the
operating system level. There can be no assurance, however, that such positive
operating cash flow will be generated or will be maintained or that debt
financing will be available.
Although Heartland believes that its cash and cash equivalent assets will
be sufficient to fund the Combined Company's operations and expansion through at
least the end of 1996, there is no assurance that additional funds will not be
necessary to complete the launch, build-out and expansion of all of the Combined
Company's wireless cable systems and to bring such systems to a mature state or
that any such required additional funds would be available on satisfactory terms
and conditions, if at all. In addition, the Combined Company's capital needs
will depend in part upon the success of Heartland's and the Combined Company's
efforts to sell or otherwise dispose of the Heartland Disposition Assets and the
nature of any consideration received as a result of such dispositions. To the
extent assets and markets designated for disposition are not sold, or are not
sold for cash, the Combined Company's requirements for additional funds will be
increased. There is also no assurance that the Combined Company will not pursue,
from time to time, other opportunities to acquire additional wireless cable
channel rights and businesses that may utilize the capital currently expected to
be available for its current markets. The amount and timing of the Combined
Company's future capital requirements, if any, will depend upon a number of
factors, including programming costs, equipment costs, marketing expenses,
staffing levels, subscriber growth and competitive conditions, and any purchases
or dispositions of assets, many of which are not within the Combined Company's
control. Failure to obtain any required additional financing could materially
adversely affect the growth, cash flow or earnings of the Combined Company.
INCOME TAX MATTERS
Heartland and certain of its subsidiaries will file a consolidated Federal
tax return. Subsidiaries in which Heartland owns less than 80% of the voting
stock will file separate Federal tax returns. Heartland has had no material
state or Federal income tax expense since inception. As of December 31, 1994,
Heartland had approximately $2.9 million in net operating losses for tax
purposes, expiring in years 2005 through 2009. The Internal Revenue Code of
1986, as amended (the "Code"), limits the amount of loss carryforwards that a
company can use to offset future income upon the occurrence of certain changes
in ownership. As a result of the investment in Heartland by Hunt Capital and the
Initial Public Offering, Heartland has undergone more than a 50% change in
ownership and will therefore be limited in its utilization of its tax loss
carryforwards.
INFLATION
Heartland's management does not believe that inflation has had or is likely
to have any significant impact on Heartland's operations. Management believes
that Heartland will be able to increase subscriber rates, if necessary, to keep
pace with inflationary increases in costs.
OTHER
Heartland does not provide post-retirement or post-employment benefits
requiring charges under Statements of Financial Accounting Standards Nos. 106
and 112.
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Heartland currently intends to adopt Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" in 1996 with respect
to its financial statement disclosure. Heartland does not intend to change its
accounting method with regard to this statement.
RECOMMENDATIONS OF THE HEARTLAND BOARD;
OPINIONS OF HEARTLAND'S ADVISOR
RECOMMENDATIONS OF THE HEARTLAND BOARD OF DIRECTORS
THE HEARTLAND BOARD HAS APPROVED AND ADOPTED EACH OF THE AGREEMENTS AND THE
RELATED TRANSACTIONS AND RECOMMENDS THAT HOLDERS OF HEARTLAND COMMON STOCK VOTE
FOR APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY INCLUDING THE ISSUANCE OF HEARTLAND COMMON STOCK IN CONNECTION
THEREWITH. SEE "INFORMATION CONCERNING HEARTLAND -- CALCULATION AND LISTING OF
SHARES TO BE ISSUED IN CONNECTION WITH THE TRANSACTIONS" FOR INFORMATION
REGARDING THE NUMBER OF SHARES OF HEARTLAND COMMON STOCK ISSUABLE IN THE
TRANSACTIONS.
The Heartland Board believes that each Transaction is fair to and in the
best interest of the Heartland stockholders. The terms of each of the
Transactions are the result of arms length negotiations between Heartland and
CMAX, AWS, FTW Partnership, Minneapolis Partnership and TSC, respectively, with
each such party conducting its own analysis and acting with the advice of its
own legal counsel. In negotiating such terms, the Heartland Board considered
various factors hereafter described. L. Allen Wheeler, David E. Webb and Hunt
Capital, holders of a majority of the outstanding Heartland Common Stock, have
contractually agreed to vote their shares of Heartland Common Stock in favor of
the CMAX Merger and have expressed their current intent to vote in favor of
adopting and approving each of the other Agreements and the Transactions
contemplated thereby. Thus, assuming such parties vote in favor of the
Transactions, the approval of the Heartland stockholders is assured.
The Heartland Board approved each Transaction at a special meeting on
September 7, 1995, with each Director, other than L. Allen Wheeler, voting in
favor of each Transaction. Mr. Wheeler voted in favor of each of the
Transactions other than the CMAX Merger. Mr. Wheeler has an indirect beneficial
interest of less than 5% of CMAX Common Stock. After disclosing his beneficial
ownership of CMAX Common Stock to the Heartland Board, Mr. Wheeler abstained
from voting with regard to the CMAX Merger. The Heartland Board reaffirmed its
prior approval of each of the Transactions at a special meeting on November 29,
1995.
BACKGROUND OF THE TRANSACTIONS
In late May 1995, the Heartland Board reviewed a management proposal to
acquire AWS, and authorized officers of Heartland to proceed with negotiations
toward a definitive agreement. Thereafter, Heartland's management engaged in
negotiations with AWS and on May 25, 1995, Heartland entered into a non-binding
letter of intent with AWS providing for the potential acquisition of AWS by
Heartland. Pursuant to this letter of intent, Heartland paid $200,000 to AWS for
an exclusive "no shop" agreement pursuant to which AWS agreed, subject to
certain conditions, to refrain from seeking transactions with third parties
during the period from May 26, 1995 through June 26, 1995. The termination of
AWS's no shop obligation was subsequently extended until June 30, 1995. Further,
in connection with entering into the letter of intent with AWS, Heartland loaned
AWS $1.8 million on May 26, 1995, which loan bears interest at prime rate plus
2% and is secured by a first lien security interest in and to the wireless cable
channel rights of AWS in the Dallas, Texas wireless cable market (the "AWS
Loan").
During May 1995, at the invitation of CAI Wireless Systems, Inc. ("CAI"),
representatives of Heartland met with representatives of CAI and Bell Atlantic
Corporation ("Bell Atlantic"). Heartland, CAI and Bell Atlantic discussed a
potential transaction pursuant to which CAI or Bell Atlantic would acquire CMAX,
Heartland would acquire AWS and the assets of the two acquired entities would be
jointly contributed to a venture (the "Proposed Venture") to be owned by CAI
and/or Bell Atlantic and Heartland together with a
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cash component payable to Heartland. At this time, Bell Atlantic was a
substantial investor in CAI and CAI had approached CMAX about a purchase of CMAX
Common Stock held by Charter Wireless, but no other affiliation existed among
CAI, Bell Atlantic, AWS, CMAX and/or Heartland. The proposed transaction
included contributions by Heartland of wireless cable television channel rights
and related assets in Heartland's existing Texas markets. Management of
Heartland believed that this proposed transaction offered it an ability to
participate in the development and exploitation of wireless cable television
services in Texas markets such as Dallas, Fort Worth and San Antonio that were
outside of its traditional rural market focus. In the proposed transaction,
Heartland would have contributed certain markets located in Texas currently held
by it and the Dallas and Fort Worth markets to be obtained from AWS and FTW
Partnership. CAI and/or Bell Atlantic would have contributed the San Antonio,
Austin, Temple/Killeen, Waco, Sherman/Denison, Lubbock, Athens and Amarillo,
Texas markets to be obtained from CMAX. Following the consummation of this
transaction, the Proposed Venture would have retained or otherwise disposed of
(i) the Minneapolis system contributed by Heartland and to be obtained from AWS
and the Minneapolis Partnership, (ii) AWS's channel rights in Memphis and Los
Angeles contributed by Heartland and to be obtained from AWS and (iii) CMAX's
channel rights in Salt Lake City contributed by CAI and/or Bell Atlantic and to
be obtained from CMAX. Heartland was informed on May 24, 1995 that CMAX had
signed a "no shop" agreement with Bell Atlantic, reflecting Bell Atlantic's
interest in directly investing in the wireless cable industry outside of its
regional service area, pursuant to which CMAX agreed to discontinue discussions
with other potential investors or acquiring parties. Heartland then proceeded to
negotiate the structure of the AWS acquisition. Heartland offered to acquire the
assets of AWS in exchange for, at Heartland's option, cash or Heartland Common
Stock. AWS rejected that proposal when the parties' respective tax counsel
advised that the transaction might be treated as a taxable asset acquisition
followed by a taxable liquidation of AWS, resulting in two layers of tax on the
consideration received by the AWS Stockholders. The parties agreed that a cash
purchase of assets would cause such result. The parties also did not believe a
tax-free reorganization was possible, since Heartland's disclosed divestiture
plan of substantially all of the AWS assets would prevent the transaction from
satisfying the continuity of enterprise test of the reorganization rules. Also,
Heartland determined not to proceed with a purchase of the AWS Common Stock for
cash following termination of the discussions with CAI and Bell Atlantic for the
formation of the Proposed Venture (which would have been the source of financing
the transaction). After substantial analysis and negotiations, Heartland then
offered to acquire all of the AWS Common Stock for Heartland Common Stock in a
merger. Shortly thereafter, Heartland provided a first draft of the AWS Merger
Agreement. Significant negotiations occurred through early July (notwithstanding
the termination of the letter of intent on June 30, 1995) concerning specific
terms of the AWS Merger Agreement. Also, during this time period representatives
of Heartland commenced negotiations with representatives of FTW Partnership and
the Minneapolis Partnership.
In mid-July 1995, Heartland was informed that Bell Atlantic had terminated
its no shop agreement with CMAX and had discontinued negotiations with CMAX
citing a lack of interest in investing in the wireless cable industry directly.
Upon being informed of Bell Atlantic's decision not to pursue the acquisition of
CMAX, Heartland disclosed this fact to AWS management, with each company jointly
agreeing not to extend the exclusivity provisions of the letter of intent.
However, representatives of Heartland and AWS continued general discussions with
regard to a potential transaction. Further, general discussions continued
between Heartland and FTW Partnership and Minneapolis Partnership. Heartland
continued discussions with AWS, FTW Partnership and Minneapolis Partnership
because it believed that notwithstanding the termination of exclusivity of
negotiations between CMAX and Bell Atlantic, an opportunity to utilize some or
all of the assets acquired from AWS, FTW Partnership and Minneapolis Partnership
would likely present itself prior to the consummation of such transactions. Such
belief was based in part upon management's belief that providers of wireless
cable television services were likely to seek to consolidate their markets
geographically in the future, and that any other party conducting discussions
with CMAX would be interested in acquiring the Dallas and Fort Worth markets
Heartland would acquire from AWS.
On August 17, 1995, the Heartland Board met to discuss the decision of Bell
Atlantic not to pursue the acquisition of CMAX. Among other items discussed, the
Heartland Board considered a potential acquisition of CMAX, together with a
potential acquisition of AWS and the FTW Interest and Minneapolis Interest and a
plan for utilizing the assets of these entities once acquired. In general, the
Heartland Board proposed to
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contribute assets relating to the Dallas, Fort Worth, Los Angeles, Memphis,
Minneapolis, San Antonio and Salt Lake City markets to a newly formed entity in
exchange for common stock, cash and notes. Consistent with the view of
Heartland's management that providers of wireless cable television services
would seek to consolidate their markets geographically, Heartland's Board felt
that Heartland's financial strength would permit it to participate in the
consolidation process and to obtain in connection therewith an ongoing economic
interest in the development and exploitation of wireless cable television
services, particularly in Texas, without requiring Heartland to modify its
strategic market approach of concentrating on rural markets underserved by
traditional cable television. Following its discussion of these matters, the
Heartland Board authorized its executive officers to negotiate and execute a
non-binding letter of intent to acquire CMAX at a valuation of $8.50 per share
of CMAX Common Stock and to negotiate and execute an exclusive negotiating
agreement with AWS pursuant to which AWS would agree to negotiate exclusively
with Heartland regarding a potential transaction involving it or its assets and
Heartland would pay a $350,000 fee to AWS (in the form of a cancellation of a
portion of the outstanding balance of the AWS Loan). At this meeting, the
Heartland Board noted that the potential acquisition of CMAX and AWS would
require the consent of the holders of Heartland's Senior Discount $100 million
13% Notes Due 2003 (the "Noteholders"). The Heartland Board also noted that
Heartland had previously committed to seek the consent of the Noteholders to
consummate the Wireless One Transaction (See "Information Concerning
Heartland -- Recent Transactions"), and that the potential acquisition of CMAX
and AWS (including the FTW Interest and the Minneapolis Interest), together with
potential divestitures of certain of the acquired assets, could be sought in a
single solicitation. Following extensive discussion, the Heartland Board further
authorized Heartland management to undertake a solicitation of the Noteholders
to seek consent to the Wireless One Transaction, and, assuming approval of
definitive agreements by the Heartland Board, the AWS Merger, the CMAX Merger,
the FTW Transaction, the Minneapolis Transaction and any further transactions
negotiated by management of Heartland relating to CMAX, AWS, FTW Partnership,
Minneapolis Partnership or their respective assets. Thereafter, the Heartland
Board further authorized that such solicitation include consent to the TSC
Transaction.
Following the August 17, 1995 Heartland Board meeting, Heartland approached
CMAX with a proposal for a merger at a valuation of $8.50 per share of CMAX
Common Stock. On August 24, 1995, CMAX signed a letter of intent with Heartland
to merge with a subsidiary of Heartland at a valuation of $8.50 per share of
CMAX Common Stock in a stock-for-stock merger. The definitive CMAX Merger
Agreement was signed on September 11, 1995.
On August 17, 1995, Heartland and AWS entered into the exclusive
negotiating agreement previously authorized by the Heartland Board and,
following further negotiations, the definitive AWS Merger Agreement providing
for the merger of AWS with a subsidiary of Heartland at a valuation of $34
million of Heartland Common Stock was signed on September 11, 1995.
In August and continuing through early September 1995, Heartland continued
negotiations with FTW Partnership and Minneapolis Partnership and (i) on August
16, 1995 executed a letter of intent with FTW Partnership providing for the
acquisition of the FTW Interest for a purchase price of $13.3 million to be paid
in Heartland Common Stock, and (ii) on September 1, 1995 executed a letter of
intent with the Minneapolis Partnership providing for the acquisition of the
Minneapolis Interest for $18 million (together with the assumption of an
approximate $2.2 million loan owed by the Minneapolis Partnership to AWS) to be
paid in Heartland Common Stock. On October 4, 1995 Heartland and FTW Partnership
executed the definitive FTW Agreement and Heartland and the Minneapolis
Partnership executed the definitive Minneapolis Agreement.
During August 1995, Heartland also held discussions with TSC which were
initiated by TSC through its financial advisor concerning the potential
acquisition by Heartland of substantially all of Technivision's assets
(consisting of the wireless cable television systems of Dayton, Ohio and Corpus
Christi, Texas and channel rights in El Paso, Texas). On September 5, 1995,
Heartland and TSC entered into a letter of intent providing for the acquisition
by Heartland of substantially all of the assets of Technivision in a tax free
reorganization, with the consideration to be paid in Heartland Common Stock with
a value equal to the difference between $37 million less any and all liabilities
of TSC to be assumed by Heartland. The definitive TSC Agreement was executed on
October 19, 1995.
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At a meeting on September 7, 1995, the Heartland Board approved the
execution of definitive agreements with respect to each Transaction, subject to
customary closing conditions including receipt of approval or consent from the
Noteholders and of Jupiter Partners L.P., the holder of Heartland's Subordinate
$40 million 9% Convertible Notes due 2004 ("Jupiter"). At that meeting,
discussions continued concerning each of the Transactions, including analysis of
potential divestiture plans associated with certain of the assets to be
acquired. The Heartland Board reiterated its belief that participating in the
ownership of an entity operating wireless cable television systems focused in
certain urban markets, particularly in Texas, offered Heartland the opportunity
to participate in the development and exploitation of attractive markets that
were outside of its traditional rural market focus.
On September 11, 1995, Heartland secured the approval of Jupiter to
consummate the CMAX Merger Agreement. In September 1995, Heartland secured the
approval of the Noteholders to consummate all of the Transactions. In September
1995, Heartland secured the consent of Jupiter to execute the AWS Merger
Agreement, the FTW Agreement and the Minneapolis Agreement (consent to execute
the TSC Agreement by Jupiter was not required) and to proceed forward, but not
to consummate, any of the Transactions other than the CMAX Merger without
Jupiter's further written consent. On October 31, 1995, Jupiter extended, until
December 1, 1995, Heartland's right to continue to proceed forward, but not to
consummate (other than the CMAX Merger), the Transactions. On November 29, 1995,
Jupiter (i) extended until the expected closing dates, Heartland's right to
continue to proceed forward with, but not to consummate, the AWS Transaction,
the FTW Transaction and the Minneapolis Transaction, and (ii) consented to the
consummation of the TSC Transaction, assuming TSC agreed to extend the
termination date of the TSC Agreement from January 31, 1996 until February 29,
1996.
Commencing in September 1995, Steven G. Johnson, the Chief Executive
Officer of AWS, began to accompany representatives of Heartland to certain
meetings relating to the sale or other disposition of the Heartland Disposition
Assets. At these meetings, Heartland asked Mr. Johnson to address, from time to
time, questions raised by third parties regarding the assets of AWS constituting
part of the Heartland Disposition Assets. Mr. Johnson attended each of the
meetings to which he was invited as a representative of AWS, consistent with
AWS's rights and obligations under its agreements with Heartland. Mr. Johnson
was not compensated by Heartland in connection with these meetings nor was he
specially compensated by AWS therefor.
On October 1, 1995, Heartland retained Lazard Freres & Co. LLC
("Heartland's Advisor") to provide financial advisory services with respect to
the Transactions and entered into an engagement letter in connection therewith.
Heartland's Advisor was not involved directly in the negotiation of any of the
Transactions or the Newco Transaction. See "-- Opinions of Heartland's Advisor"
for a summary of the fairness opinions delivered by Heartland's Advisor with
respect to the Transactions and the Newco Transaction.
During September and October, 1995 Heartland met with representatives of
Pacific Telesis Co. (with AWS's approval) to discuss the divestiture of AWS's
Los Angeles, California channel rights. These negotiations terminated, without
an agreement in principle, on November 9, 1995.
During October and continuing through early December 1995, Heartland met
with representatives of CAI regarding the Newco Transaction. Following extensive
negotiations, and certain limited agreements regarding the conduct of their
respective businesses during the pendency of such negotiations, effective
December 12, 1995, Heartland and CAI entered into the Participation Agreement,
pursuant to which Heartland or its subsidiaries agreed to contribute or sell to
Newco the wireless cable assets and all related liabilities of the Maysville and
Sweet Springs, Missouri, Grand Rapids/Moline, Michigan, Napoleon/Bloom Center,
Indiana markets currently owned by Heartland and the Dallas, Ft. Worth and San
Antonio, Texas, Dayton, Ohio, Salt Lake City, Utah and Minneapolis markets to be
acquired in the Transactions for consideration consisting of (i) shares of Newco
Common Stock constituting approximately 39.76 percent of the outstanding shares
of Newco Common Stock at the closing (subject to potential dilution), (ii)
approximately $28.3 million in cash payable by Newco at the closing, (iii) a
promissory note in the principal sum of $25 million payable nine months from the
closing and secured by proceeds from the contemplated Newco Financing, and (iv)
a promissory note in the sum of $15 million payable ten years from
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the closing, and pre-payable from, among other items, asset sales and any
proceeds from any initial public offering consummated by Newco. CAI will
contribute to Newco all of the capital stock of certain subsidiaries of CAI,
which will retain all of their assets and liabilities associated with the
Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio and
Stockton/Modesto, California markets, all of which are currently held by CAI or
its subsidiaries. The Heartland Board required that the Newco Transaction close
contemporaneously with or immediately following consummation of the
Transactions. The Heartland Board believed that consummation of the
Transactions, together with consummation of the Newco Transaction, would allow
Heartland (A) to acquire additional wireless cable television systems and
channel rights (i) consistent with Heartland's rural market focus and (ii)
strategically located with Heartland's existing wireless cable television
systems in the State of Texas and (B) through Newco, the opportunity to
participate in the development and exploitation of larger wireless cable
television systems, particularly in the state of Texas, without requiring
Heartland to modify its strategic market approach of concentrating on rural
markets under served by traditional cable television. Heartland's Board
determined that Heartland's existing markets of Maysville and Sweet Springs,
Missouri, Grand Rapids/Moline, Michigan and Napoleon/Bloom Center, Indiana
should be contributed to Newco because of such markets strategic fit with Newco
and because such markets did not otherwise fit within Heartland's long-term
strategic plan.
The Heartland Board determined that the consideration to be received from
Newco was favorable both with respect to the cost of obtaining the assets to be
contributed thereto and in relation to the markets contributed by CAI in
exchange for CAI's interest in Newco. At a special meeting of the Heartland
Board on December 5, 1995, the Heartland Board authorized its executive officers
to execute the Participation Agreement and to proceed forward with consummation
of the Newco Transaction, subject to satisfaction of all customary closing
conditions, including without limitation, Newco obtaining the Newco Financing on
terms satisfactory to Heartland, certain regulatory approvals, receipt of
certain consents, and satisfactory due diligence review by Heartland of the CAI
assets to be contributed to Newco.
In connection with its discussions with third parties regarding the
Heartland Disposition Assets, representatives of Heartland and AWS entered into
discussions with TruVision Cable, Inc. ("TruVision") relating to the sale by AWS
and Heartland, respectively, of the Memphis and Flippin, Tennessee markets to
TruVision. On November 7, 1995, AWS and Heartland entered into definitive
agreements with TruVision, pursuant which TruVision will acquire AWS's Memphis
market for $3.9 million and Heartland's Flippin, Tennessee market for $1.5
million. The closing of these transactions is subject to various conditions,
including (i) resolution of certain issues relating to AWS's channel rights and
(ii) other customary closing conditions.
Heartland's Board elected to sell its wireless cable channel rights in
Flippin, Tennessee and those to be obtained from AWS in Memphis because the
Board determined that the Memphis market was larger than Heartland's traditional
markets and thus outside of its traditional demographic focus and that the
Flippin market's proximity to Memphis made development of that market otherwise
than in connection with the Memphis market less attractive. Further, such sale
facilitated the settlement of certain prior litigation commenced by TruVision
against AWS and Heartland.
Heartland's management continues to review options relative to the direct
sale of the wireless cable channel rights of AWS in the Los Angeles, California
market to a third party and will seek to dispose of such rights following
consummation of the AWS Transaction.
BOARD DELIBERATIONS
As part of its deliberations, the Heartland Board reviewed its strategy to
increase its subscriber base and LOS households through the acquisition of
wireless cable television systems and channel rights. Further, the Heartland
Board reviewed Heartland's strategy of focusing on rural markets with the
geographic area roughly consisting of the central and southwestern regions of
the United States. The Heartland Board also reviewed industry trends, including
the current and future perceived value of wireless cable television channel
rights and belief by Heartland's management that a trend toward consolidation,
both geographically and otherwise was underway, and that such trend was
consistent with general and industry economic and competitive conditions.
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In reaching its conclusion to recommend approval of the Transactions, the
Heartland Board contemplated the disposition of various of the assets to be
acquired and took into account information concerning Heartland, CMAX, AWS, FTW
Partnership, the Minneapolis Partnership and TSC acquired during the negotiating
period and also considered, without assessing relative weights to, the following
other factors which it believed in general supported approval of the
Transactions:
(i) The terms and conditions of each Transaction, including the amount
and form of consideration to be paid and the proposed consideration to be
received with respect to the Heartland Common Stock to be issued.
(ii) The historical and prospective business of Heartland, including
among other things, the current financial and future prospects of Heartland
and the Combined Company, the strategic direction of Heartland's and the
Combined Company's business, the current conditions in, and future
prospects of, the wireless cable television industry, the competitive
position of Heartland in that industry, the historical business and future
prospects of CMAX, AWS and TSC, and the proposed divestiture of the assets
to be acquired.
(iii) The geographic location of the acquired markets, together with
the anticipated divestitures, which would give Heartland the opportunity to
increase its cluster of markets, particularly in the State of Texas, and to
participate, through the Newco Transaction, in the development of
Texas-based markets and other large markets outside of its traditional
focus on small to mid-sized markets.
(iv) The effect and likelihood of consummation of the planned
divestiture of assets of the Combined Company, including analysis of the
probable conditions precedent to the consummation thereof.
(v) Historical data relating to market prices in the wireless cable
television industry.
The Heartland Board also considered a variety of potentially negative
factors in its deliberation concerning the Transactions, including, but not
limited to: (i) the potential effect on the market price of Heartland's Common
Stock if holders of a substantial portion of the shares of Heartland Common
Stock received in the Transactions determine to sell such shares following the
closing; (ii) the aggregate indebtedness of the Combined Company following
consummation of the Transactions, (iii) the possibility that the proposed
divestiture plan for the Heartland Disposition Assets (particularly the Newco
Transaction) might not be consummated promptly or on terms favorable to the
Combined Company; and (iv) the other risks described under "Risk Factors".
The Heartland Board believes that the CMAX Merger will provide Heartland
with (i) additional wireless cable television systems and channel rights
consistent with Heartland's rural market focus (Amarillo, Athens, Austin,
Lubbock, Sherman/Denison, Temple/Killeen and Waco, Texas) strategically located
with Heartland's existing wireless cable television systems in the State of
Texas and (ii) wireless cable television systems and channel rights targeted for
disposition (San Antonio, Texas and Salt Lake City, Utah) in the Newco
Transaction. The Heartland Board also believes that the TSC Transaction will
provide Heartland with (i) additional wireless cable television systems and
channel rights consistent with Heartland's rural market focus (El Paso and
Corpus Christi, Texas) strategically located with Heartland's existing wireless
cable television systems in the State of Texas and (ii) a wireless cable
television system targeted for disposition (Dayton, Ohio) in the Newco
Transaction. The Heartland Board believes that Newco, following the Newco
Transaction, will be better able to exploit the Heartland Disposition Assets
being acquired by it than the Combined Company because those assets are outside
of Heartland's traditional focus on small to middle sized markets but within
Newco's expected focus on larger metropolitan areas. In addition, because of its
larger size and anticipated financial resources, the Heartland Board believes
that Newco will be better able to develop and operate those of the Heartland
Disposition Assets to be acquired from AWS, FTW Partnership, the Minneapolis
Partnership, CMAX and TSC than the respective entities from which they are being
acquired. As a result, the Heartland Board expects the value of the cash,
promissory notes and retained equity interest to be received by the Combined
Company in exchange for the Heartland Disposition Assets will exceed the cost of
the acquisition thereof, and further offer the Combined Company a more
attractive way to participate in the
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exploitation of the markets represented thereby than retaining such assets.
Notwithstanding its favorable determination regarding the Newco Transaction, the
Heartland Board believes that if the anticipated divestiture of the Heartland
Disposition Assets is not consummated, the AWS Merger, the FTW Transaction, the
Minneapolis Transaction, the CMAX Merger (with respect to the Salt Lake City,
Utah and San Antonio, Texas, markets) and the TSC Transaction (with respect to
the Dayton, Ohio Market) will increase Heartland's competitive position in the
industry by increasing the aggregate number and size of its wireless cable
television systems at favorable acquisition costs. Such systems would then be
held for disposition or strategic exchange for other systems which the Heartland
Board believes would enhance Heartland's competitive position or better fit
Heartland's strategic market focus.
Based upon the foregoing, the Heartland Board believes that each of the
Transactions is fair to and in the best interest of Heartland and its
stockholders. Accordingly, the Heartland Board approved and adopted each of the
Agreements.
OPINIONS OF HEARTLAND'S ADVISOR
On October 1, 1995, Heartland retained Lazard Freres & Co. LLC
("Heartland's Advisor") to act as Heartland's financial advisor in connection
with the Transactions. Pursuant to such engagement, Heartland's Advisor
delivered to the Heartland Board separate written opinions, each dated January
12, 1996, for each of the Transactions to the effect that, based upon and
subject to various considerations set forth in such opinion, as of such date,
the consideration to be paid by Heartland to the Subject Entity (as defined
below) or to the holders of the Subject Entity's common stock, as the case may
be, in connection with the related Transaction is fair to Heartland from a
financial point of view. In addition, pursuant to such engagement, Heartland's
Advisor delivered to the Heartland Board its opinion, dated January 12, 1996, to
the effect that, based upon and subject to various considerations set forth in
such opinion, as of such date, the consideration to be received by Heartland in
connection with the Newco Transaction is fair to Heartland from a financial
point of view. No limitations were imposed by the Heartland Board upon
Heartland's Advisor regarding the investigations to be made or the procedures to
be followed by Heartland's Advisor in rendering its opinions. For purposes of
this and the following paragraphs, references to the "Transactions" will include
the Newco Transaction, references to the "Agreements" will include the
Participation Agreement, and references to "Subject Entities" will mean,
collectively, AWS, FTW Partnership, Minneapolis Partnership, CMAX, TSC and,
unless the context otherwise requires, Newco.
THE FULL TEXT OF THE HEARTLAND ADVISOR'S OPINIONS CONCERNING THE
TRANSACTIONS, WHICH SET FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN, ARE ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT AND ARE INCORPORATED HEREIN BY REFERENCE. HOLDERS OF HEARTLAND COMMON
STOCK ARE URGED TO READ THE OPINIONS CAREFULLY AND IN THEIR ENTIRETY. THE
HEARTLAND ADVISOR'S OPINIONS ARE DIRECTED ONLY TO THE FAIRNESS OF THE
CONSIDERATION PAYABLE OR RECEIVABLE FROM A FINANCIAL POINT OF VIEW AND DO NOT
ADDRESS ANY OTHER ASPECT OF THE TRANSACTIONS OR CONSTITUTE A RECOMMENDATION TO
ANY HEARTLAND OR OTHER STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE. THE
SUMMARY OF THE OPINIONS OF HEARTLAND'S ADVISOR SET FORTH IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINIONS.
In rendering each opinion, Heartland's Advisor: (i) reviewed the financial
terms and conditions of the related Agreement; (ii) analyzed certain historical
business and financial information relating to Heartland and the related Subject
Entity (or, in the case of the FTW and Minneapolis Partnerships and TSC, the
related wireless cable systems or assets); (iii) reviewed certain financial
forecasts and other data provided to Heartland's Advisor by Heartland relating
to the respective businesses of Heartland and the Subject Entity (separate
financial forecasts and other data prepared by CMAX and Newco were provided to
Heartland's Advisor for each such Subject Entity; Heartland's Advisor was not
furnished with separate financial forecasts or other data prepared by any other
Subject Entity, as Heartland's Advisor was told that no such forecasts or data
existed); (iv) held discussions with members of the senior management of
Heartland and the Subject
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Entity (or, in the case of FTW and Minneapolis Partnerships, AWS; however, no
discussions were held with senior management of TSC) with respect to the
businesses of Heartland and the Subject Entity (or the related wireless cable
systems or assets, as the case may be), respectively, and the possible benefits
which might be realized following the related Transaction; (v) reviewed public
information with respect to certain other companies in lines of businesses
Heartland's Advisor believed to be comparable to the businesses of Heartland and
the Subject Entity (or the related wireless cable systems or assets, as the case
may be); (vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses Heartland's Advisor
believed to be comparable to those of Heartland and the Subject Entity (or the
related wireless cable systems or assets, as the case may be); (vii) except with
respect to the Newco Transaction, reviewed the historical stock prices and
trading volumes of Heartland Common Stock (and, with respect to the AWS and CMAX
Mergers, the Common Stock of the related Subject Entity); and (viii) conducted
such other financial studies, analyses and investigations as Heartland's Advisor
deemed appropriate.
Heartland's Advisor relied upon the accuracy and completeness of the
financial and other information that was reviewed by Heartland's Advisor, and
did not assume any responsibility for the independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of Heartland or any Subject Entity (including, in the case of the
FTW and Minneapolis Partnerships and TSC, the related wireless cable systems or
assets), nor was Heartland's Advisor provided with any such appraisals. With
respect to the financial forecasts referred to above, Heartland's Advisor
assumed that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Heartland (and,
in the case of CMAX and Newco, the respective management of CMAX and Newco) as
to the future financial performance of the businesses of Heartland and each
Subject Entity (or the related wireless cable systems or assets, as the case may
be) and the projected benefits of each Transaction to Heartland. Heartland's
Advisor assumed no responsibility for and expressed no view as to such forecasts
or the assumptions on which they were based. Further, Heartland's Advisor
opinions were necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to it as of, the
date of its opinions. Heartland's Advisor's opinions do not address Heartland's
underlying business decision to effect the Transactions.
In rendering each opinion, Heartland's Advisor assumed that each
Transaction would be consummated on the terms described in the related
Agreement, without any waiver of any terms or conditions by Heartland which
individually or in the aggregate would be material, and that obtaining the
necessary regulatory approvals for the Transaction would not have an adverse
effect on Heartland, the related Subject Entity (or the related wireless cable
systems or assets, as the case may be) or the projected benefits of the
Transaction to Heartland.
Heartland's Advisor is an internationally recognized investment banking
firm that regularly engages in the valuation of businesses and their securities
in connection with mergers and acquisitions. Heartland selected Heartland's
Advisor to act as its financial advisor on the basis of Heartland's Advisor's
international reputation and familiarity with Heartland and its industry.
Heartland's Advisor was not involved directly in the negotiation of any of the
Transactions. An affiliate of Heartland's Advisor, together with BT Securities,
was the initial purchaser of the Units sold by Heartland on April 26, 1995, for
$100,000,000. In January 1995, Heartland retained Heartland's Advisor to act as
exclusive financial advisor for a six month period in connection with obtaining
a prospective senior secured bank credit facility. Heartland decided not to
arrange a senior secured bank credit facility during the six month period and
the engagement expired. The Heartland Advisor did not receive any compensation
as a result of such engagement. A significant number of general members of
Heartland's Advisor are limited partners of Jupiter. Heartland's Advisor also is
a limited partner of the general partner of Jupiter.
Pursuant to the engagement letter between Heartland and Heartland's
Advisor, Heartland agreed to pay Heartland's Advisor a fee of $300,000 for its
financial advisory services. Of this amount, $150,000 was payable upon execution
of the engagement letter, and $150,000 was payable on January 1, 1996. In
addition, a fee of $1,000,000 was payable to Heartland's Advisor upon delivery
of the fairness opinions. Heartland has also agreed to reimburse Heartland's
Advisor for expenses reasonably incurred by Heartland's Advisor (including fees
and expenses of legal counsel). In connection with the execution of the
engagement letter, Heartland and
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Heartland's Advisor also entered into an indemnification letter providing for
the indemnification of Heartland's Advisor and its members, employees, agents,
affiliates and controlling persons against certain expenses and liabilities,
including liabilities under the federal securities laws, in connection with its
services.
THE HEARTLAND MEETING
TIME, PLACE AND DATE OF HEARTLAND MEETING
This Proxy Statement is being furnished to the holders of Heartland Common
Stock in connection with the solicitation of proxies by and on behalf of the
Heartland Board for use at the Special Meeting of Stockholders of Heartland
(together with any adjournments or postponements thereof, the "Heartland
Meeting") to be held at 10:00 a.m. on February 22, 1996 at the Westin Hotel
Galleria, 13340 Dallas Parkway, Dallas, Texas 75240. The telephone number for
the location of the Heartland Meeting is (214) 934-9494.
PURPOSE OF THE HEARTLAND MEETING
At the Heartland Meeting, holders of Heartland Common Stock are being asked
to consider and vote upon a proposal to approve and adopt each of the following
Agreements and the Transactions contemplated thereby, including the issuance of
up to 10,721,302 shares of Heartland Common Stock in connection therewith:
(i) The AWS Merger Agreement attached as Appendix C hereto and the AWS
Merger;
(ii) The FTW Agreement attached as Appendix F hereto and the
transactions relating thereto;
(iii) The Minneapolis Agreement attached as Appendix K hereto and the
transactions relating thereto;
(iv) The CMAX Merger Agreement attached as Appendix O hereto and the
CMAX Merger; and
(v) The TSC Agreement attached as Appendix Q hereto and the
transactions relating thereto.
In addition, at the Heartland Meeting, the holders of the Heartland Common
Stock may consider and vote upon such other business as may properly come before
the Heartland Meeting or any adjournment or postponement thereby. See
"Recommendations of the Heartland Board; Opinions of Heartland's Advisor --
Recommendations of the Heartland Board of Directors."
Because the number of shares of Heartland Common Stock ultimately issued in
each of the five Transactions will depend upon the average market price of the
Heartland Common Stock over five separate specified periods prior to the
consummation of each such Transaction and the number of subscribers and amount
of liabilities associated with certain Transactions, Heartland has reserved the
right to terminate each such Transaction if the average price of the Heartland
Common Stock during the relevant period is less than a specified amount. If
applicable, Heartland intends to exercise each such termination right. Assuming
the exercise of such termination rights by Heartland, the aggregate number of
shares of Heartland Common Stock issuable in connection with the Transactions
will not exceed 10,721,302 shares of Common Stock (calculated based upon a
closing average of $17 per share and certain assumptions). Please see
"Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions" for the calculation of the maximum
and anticipated number of shares of Heartland Common Stock issuable at various
closing averages in connection with the Transactions.
THE HEARTLAND BOARD OF DIRECTORS HAS APPROVED EACH TRANSACTION AND RECOMMENDS A
VOTE FOR APPROVAL AND ADOPTION OF THE TRANSACTIONS.
RECORD DATE; VOTING RIGHTS
Only the holders of shares of Heartland Common Stock of record at the close
of business on January 17, 1996 (the "Heartland Record Date") are entitled to
notice of, and to vote at, the Heartland Meeting regarding the approval and
adoption of each Transaction and upon each other matter properly submitted at
the Heartland Meeting. On the Heartland Record Date there were outstanding and
entitled to vote 12,611,132
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shares of Heartland Common Stock, owned by approximately 92 holders of record.
Each share of Heartland Common Stock is entitled to one vote upon the approval
and adoption of each Transaction and any other matter properly submitted at the
Heartland Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of stockholders holding a majority of
the outstanding shares of Heartland Common Stock entitled to vote will
constitute a quorum at the Heartland Meeting. The affirmative vote of the
holders of more than 50% of the outstanding shares of Heartland Common Stock
entitled to vote is required for approval and adoption of the Agreements and the
Transactions contemplated in connection therewith, including the issuance of up
to 10,721,302 shares of Heartland Common Stock in connection therewith. See
"Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued In Connection with the Transactions." Pursuant to a Voting Agreement with
CMAX, the shares of Heartland Common Stock held by David E. Webb, the President
and Chief Executive Officer of Heartland, L. Allen Wheeler, a member of the
Board of Directors of Heartland, and Hunt Capital, a principal stockholder of
Heartland and affiliate of J. R. Holland, Jr., the Chairman of the Board of
Heartland, representing an aggregate of 7,905,225 shares of Heartland Common
Stock (approximately 62.68% of the outstanding shares of Heartland Common Stock)
have agreed to vote for the approval and adoption of the CMAX Merger Agreement
and the CMAX Merger. The Agreements are being submitted to the stockholders, for
approval or disapproval, as a group, with a single vote being taken on the group
as a whole. AS A RESULT, IF MESSRS. WEBB AND WHEELER AND HUNT CAPITAL VOTE IN
ACCORDANCE WITH THE VOTING AGREEMENT DISCUSSED ABOVE, THEY WILL VOTE FOR
APPROVAL OF EACH AGREEMENT AND APPROVAL THEREOF BY THE REQUISITE VOTE OF THE
OUTSTANDING SHARES OF HEARTLAND COMMON STOCK WILL BE ASSURED. Pursuant to
applicable Delaware law, the stockholders of Heartland who object to the
Agreement or related Transactions, or any of them, will not be afforded the
right to receive cash for their shares of Heartland Common Stock.
As of December 31, 1995, the directors, executive officers of Heartland and
their affiliates owned an aggregate of 8,106,825 shares (63.33%) of the then
outstanding shares of Heartland Common Stock, assuming the exercise in full of
options to purchase Heartland Common Stock held by such persons. See
"Information Concerning Heartland -- Security Ownership of Principal
Stockholders and Management."
Abstentions and broker non-votes (which occur when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power at that time and has not
received instructions from the beneficial owner) are counted for the purposes of
determining the presence or absence of a quorum at the Heartland Meeting.
Because the affirmative votes of the holders of a majority of the outstanding
shares of Heartland Common Stock is required to approve each of the Agreements
and the transactions contemplated in connection therewith, including the
issuance of additional shares of Heartland Common Stock, abstentions and broker
non-votes will have the same effect as negative votes.
SOLICITATION OF PROXIES AND EXPENSES
This Proxy Statement, the accompanying notice and proxy are being mailed on
or about January 26, 1996 to holders of Heartland Common Stock entitled to
notice of, and to vote at, the Heartland Meeting. The cost of preparing,
assembling, printing, filing and mailing the Proxy Statement will generally be
borne by Heartland. Brokers, nominees and fiduciaries and other custodians have
been requested to forward soliciting materials to beneficial owners of shares of
Heartland Common Stock held of record by them, and such custodians will be
reimbursed for their expenses. Certain officers, directors and employees of
Heartland may solicit proxies by telephone or personal contact. Such officers,
directors and employees will not be additionally compensated for such
solicitation (other than their regular salaries), but will be reimbursed by
Heartland for out-of-pocket expenses incurred by them in the course of such
solicitation.
PROXIES
Holders of Heartland Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope. Shares
of Heartland Common Stock represented by
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<PAGE> 148
properly executed proxies received by Heartland and not revoked will be voted at
the Heartland Meeting in accordance with the instructions contained therein. If
instructions are not contained therein, proxies will be voted (i) FOR approval
and adoption of the Agreements and the Transactions contemplated in connection
therewith, including the issuance of additional shares of Heartland Common Stock
, and (ii) in the discretion of the holders of the proxy with respect to any
other procedural matters incident to the conduct of the Heartland Meeting that
may properly come before the Heartland Meeting.
Any proxy signed and returned by a holder of Heartland Common Stock may be
revoked by such holder at any time before it is voted either by giving due
written notice of such revocation to Heartland, or by signing and duly
delivering a proxy bearing a later date, or by attending the Heartland Meeting
and voting in person. Signed but unmarked proxies will be deemed to be a vote
FOR approval and adoption of the Agreements. Attendance at the Heartland Meeting
will not in and of itself constitute a revocation of a proxy.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than those discussed in this
Proxy Statement will be brought before the Heartland Meeting. If other matters
are presented, proxies for Heartland Common Stock will be voted in accordance
with the best judgment of the proxy holders.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the next Annual Meeting
of Stockholders of Heartland must be received by Heartland by December 26, 1995
in the order to be considered for inclusion in Heartland's proxy statement
relating to such meeting.
LACK OF APPRAISAL RIGHTS
The stockholders of Heartland will not have appraisal or dissenters rights
with respect to any of the Transactions.
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THE COMBINED COMPANY
BUSINESS OF THE COMBINED COMPANY AFTER THE TRANSACTIONS
Following the consummation of the Transactions, but prior to any
dispositions of Heartland Disposition Assets consummated in connection therewith
or thereafter, Heartland, directly or through one or more subsidiaries, will
acquire all the assets and liabilities and succeed to the businesses of AWS and
CMAX and acquire substantially all of the assets and certain of the liabilities
and succeed to all of the businesses of FTW Venture, Minneapolis LLC and TSC
formerly conducted through Technivision (as operated by Heartland following
consummation of the Transactions, such businesses, assets and liabilities,
together with the current business, assets and liabilities of Heartland, are
hereinafter referred to collectively as the "Combined Company"). To the extent
that any of the AWS Merger, the CMAX Merger, the FTW Transaction, the
Minneapolis Transaction or the TSC Transaction are not consummated, the assets
and liabilities of AWS, CMAX, FTW Partnership, Minneapolis Partnership or TSC,
respectively, will not constitute a part of the Combined Company. In addition,
to the extent that any of the Heartland Disposition Assets are not sold or
otherwise disposed of by Heartland, such assets will continue to be owned and
operated by the Combined Company, but held for disposition.
The Combined Company will be in the business of developing, owning and
operating wireless cable television systems in primarily small to mid-sized
markets within the central United States. The Combined Company expects to
continue targeting small to mid-sized markets with significant numbers of LOS
households that are unpassed by traditional hard-wire cable and to otherwise
pursue the business strategy employed by Heartland to date. Assuming the
consummation of each of the Transactions and the disposition of all of the
assets constituting Heartland Disposition Assets, the Combined Company will have
wireless cable channel rights in 79 markets, representing approximately 8.2
million households, approximately 6.8 million of which Heartland estimates will
be serviceable by LOS transmissions. Heartland further estimates that within
these markets, approximately 2.4 million LOS households, or approximately 36% of
the Combined Company's total LOS households, are currently unpassed by
traditional hard-wire cable systems. The Combined Company's 79 markets will
include (i) approximately 33 markets in which the Combined Company will have
wireless cable television systems in operation, (ii) nine markets in which the
Combined Company will have wireless cable television systems under construction,
(iii) 21 near-term launch markets in which the Combined Company will have
aggregated sufficient wireless cable channel rights to commence construction of
a system and (iv) 16 long-term launch markets, including 11 in which the
Combined Company will have aggregated sufficient wireless cable channel rights
to commence construction of a system and five in which the Combined Company will
have leases with or options from applicants for channel licenses that Heartland
expects to be granted by the FCC. Assuming consummation of the Transactions and
disposition of the Heartland Disposition Assets, as of November 30, 1995, the 33
systems which Heartland anticipates the Combined Company will operate were
providing wireless cable service to approximately 117,000 subscribers. Although
management of Heartland is currently performing an ongoing evaluation regarding
the nature and scope of the operations of the Combined Company following the
consummation of the Transactions, various short- and long-term strategic
considerations will need to be addressed following such consummation with regard
to the integration and consolidation of the various businesses comprising the
Combined Company. Many of the operational and strategic decisions with respect
to the business of the Combined Company have not been made and may not be made
prior to the consummation of the Transactions. Significant uncertainties and
risks relating to the businesses and operations of the Combined Company and the
integration of its various businesses and assets exist as of the date hereof and
can be expected to continue to exist following consummation of the Transactions.
The quality, timing and manner of decisions made by management of the Combined
Company with respect to the integration and operation of its various businesses
and assets following the consummation of the Transactions will materially affect
the operations of the Combined Company and its financial results. See "Risk
Factors" and "The Combined Company Planned Divestitures."
In addition to developing, owning and operating wireless cable television
systems in small to mid-sized markets located in the central United States, the
Combined Company will have an equity investment in Wireless One which it
currently proposes to hold indefinitely. Assuming consummation of a Newco
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Transaction, the Combined Company will also have an equity interest in Newco
which it currently intends to hold indefinitely. The Wireless One and Newco
investments will permit Heartland to participate, indirectly as an equity owner,
in the ownership, development and operation of wireless cable television systems
in markets outside of Heartland's traditional demographic and geographic focus.
No assurance can be given that the Combined Company will experience an increase
in value or return on its investment, if any, in Newco. Heartland does not
anticipate receiving any cash dividends from its investment in Wireless One or
Newco, if the Newco Transaction is consummated, in the foreseeable future.
Heartland is not obligated to fund the future capital requirements of Wireless
One, and will not be required to fund the capital requirements of Newco. Because
the Combined Company is expected to hold its investment in Wireless One and its
proposed investment in Newco indefinitely, and because neither Wireless One nor
Newco is expected to pay cash dividends in the foreseeable future, neither
investment should materially affect the liquidity of the Combined Company. There
can be no assurance that a market for the Combined Company's investment in
Wireless One or Newco will exist in the future or to what extent such
investments will affect the liquidity and capital resources of the Combined
Company. See "Information Concerning Heartland -- The Business -- Recent
Transactions."
The Combined Company will continue to be subject to all of the liabilities
of Heartland, AWS and CMAX and certain of the liabilities, as discussed herein,
of FTW Partnership, the Minneapolis Partnership and TSC. Included among these
liabilities will be litigation to which Heartland, AWS and CMAX are parties.
Pursuant to the terms of the TSC Agreement, the FTW Agreement and the
Minneapolis Agreement, Heartland will only assume known liabilities. Although
Heartland anticipates that the Combined Company will continue to operate AWS and
CMAX as wholly owned subsidiaries, litigation or other liabilities affecting
those entities may still materially affect the Combined Company. For a more
complete description of litigation and other liabilities affecting AWS, FTW
Partnership, the Minneapolis Partnership, CMAX, and TSC, and their respective
assets, see Appendices B, E, J, N and P, respectively.
The summary pro forma financial information for the Combined Company
indicates pro forma annual revenues of approximately $20.1 million and operating
loss of approximately $14.6 million for the prior pro forma fiscal year. The pro
forma balance sheet for the Combined Company reflects cash of approximately
$68.6 million, working capital of approximately $99.5 million and a current
ratio of 6.18-to-one as of September 30, 1995. Management of Heartland believes
that, subject to consummation of each of the Transactions and disposition of all
of the Heartland Disposition Assets, the Combined Company will experience a
reduction in annual operating costs as a result of the elimination of
duplicative public company expenses such as investor relations, regulatory
filings and related legal and accounting costs, and as a result of the
elimination of duplicative executive officers and related staffing. See "Pro
Forma Financial Information Relative to the Transactions."
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The table below provides information regarding the 79 markets (excluding
Heartland Disposition Assets) in which Heartland has or, upon consummation of
the Transactions, will have wireless cable channel rights that it currently
intends to retain and develop.
<TABLE>
<CAPTION>
NUMBER OF
ESTIMATED ESTIMATED SUBSCRIBERS AT
TOTAL LINE-OF-SIGHT CURRENT NOVEMBER 30,
MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS(1) 1995
- --------------------------------------------- ---------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Existing Systems
Ada, OK.................................... 30,399 24,319 32 6,508
Wichita Falls, TX.......................... 78,290 74,376 28 6,093
Midland, TX................................ 120,037 114,035 26 5,017
Abilene, TX................................ 86,676 82,344 23 4,020
Lawton, OK................................. 97,023 92,172 27 6,334
Laredo, TX................................. 313,406(2) 297,736(2) 27 5,420
Enid, OK................................... 76,602 72,772 21 3,694
Lindsay, OK................................ 51,041 40,833 32 3,267
Ardmore, OK................................ 60,192 51,163 20 3,233
Mt. Pleasant, TX........................... 33,589 26,871 16 1,684
Lufkin, TX................................. 117,534 88,150 12 --(3)
Shaw, KS................................... 47,223 42,763 30 3,961
Texarkana, TX.............................. 118,204 94,563 20 1,997
Stillwater, OK............................. 54,562 40,922 20 5,428
Lubbock, TX................................ 123,934 105,323 34(4) 5,934
McLeansboro, IL............................ 80,136 60,102 18 859
Vandalia, IL............................... 73,593 55,195 20 1,365
Olney, IL.................................. 67,812 50,859 20 1,195
Lykens, OH................................. 210,800 168,640 24 700
Paragould, AR.............................. 77,523 58,500 21 2,157
Sikeston, MO............................... 69,837 52,378 24 2,163
Taylorville, IL............................ 159,596 119,697 20 1,336
Peoria, IL................................. 276,446 248,801 22 762
Manhattan, KS.............................. 56,473 42,355 20 945
O'Donnell, TX.............................. 68,940 65,493 20 1,053
Olton, TX.................................. 32,548 30,921 20 933
Monroe City/Lakenan, MO.................... 46,376 34,782 27 978
Paris, TX.................................. 55,445 41,584 20 79
Champaign, IL(5)........................... 164,992 148,493 23 2,120
Austin, TX(6).............................. 360,000 250,000 31 12,299
Temple/Killeen, TX(6)...................... 110,000 80,000 35 6,312
Waco, TX(6)................................ 100,000 80,000 35 3,860
Corpus Christi, TX(6)...................... 135,000 108,000 31 15,468
---------- ---------- ----------
Total -- Existing Systems.......... 3,554,229 2,944,142 117,174
========== ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION(8)
Corsicana/Athens, TX............................... 69,161 62,245 23(9)
Hamilton, TX....................................... 28,551 21,413 20
Harper/Freeport, IL................................ 125,269 93,952 20
Marion, KS......................................... 53,881 40,411 19
Peaksville, MO..................................... 48,157 36,118 15
Sherman/Denison, TX................................ 100,000 90,000 31(11)
Sterling, KS....................................... 45,213 38,431 24
Strawn/Ranger, TX.................................. 34,488 25,866 20
Walnut Grove, IL................................... 84,226 63,170 20
---------- ----------
Total -- Systems Under Construction........ 588,946 471,606
---------- ----------
NEAR-TERM LAUNCH MARKETS(12)
Adairsville, GA(10)................................ 205,662 154,247 16
Amarillo, TX....................................... 106,670 101,337 26(13)
Anthony, KS........................................ 15,798 11,845 16
Bellflower, MO..................................... 63,384 57,046 20
Bluffs, IL......................................... 46,389 34,792 20
Columbia, MO....................................... 149,622 127,179 18
Forrest City, AR................................... 55,642 41,732 21
Holdenville, OK.................................... 50,637 45,573 16
Kossuth, TX........................................ 52,490 39,368 20
Lenapah, OK........................................ 51,921 38,941 12
Mayfield, KY....................................... 175,948 155,972 21
Muskogee, OK....................................... 66,510 53,208 18
Powers Crossroads, GA(10).......................... 135,037 101,278 20
Purdin, MO......................................... 25,001 18,751 20
Rutledge, GA(10)................................... 141,370 106,028 16
Shreveport, LA..................................... 214,315 182,168 24
Springfield, MO.................................... 139,706 118,750 16
Tulsa, OK.......................................... 321,922 273,634 16
Tyler, TX.......................................... 233,416 186,734 14
Weatherford, OK.................................... 31,445 29,873 16
Wick, OH........................................... 336,098 268,878 21
---------- ----------
Total -- Near-Term Launch Markets.......... 2,618,983 2,147,334
---------- ----------
</TABLE>
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<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
LONG-TERM LAUNCH MARKETS(14)
Altus, OK.......................................... 30,653 29,120 16
Burnet, TX......................................... 24,917 18,688 16
Charlotte, TX...................................... 32,771 24,578 16
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(6)..................................... 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
Ingram, TX......................................... 26,235 19,676 20
McAlester, OK...................................... 36,475 25,533 16
Miami, OK.......................................... 70,820 60,197 15
Sabinal, TX........................................ 15,795 11,846 20
Seminole, OK....................................... 42,204 35,873 19
Topeka, KS......................................... 211,762 190,586 16
--------- ---------
Total -- Long-Term Launch Markets.......... 1,460,445 1,216,551
--------- ---------
Total -- All Company Markets............... 8,222,603 6,779,633
========= =========
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
the Combined Company over wireless cable channels.
(2) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(3) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(4) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 12 channels in the
Lubbock System, of these channels, 4 are the subject of an appeal by an
unsuccessful applicant for the frequencies.
(5) Heartland acquired the system in Champaign, Illinois on January 16, 1996.
(6) Heartland will acquire the Austin, Temple/Killeen, Waco, Corpus Christi and
El Paso, Texas markets upon the consummation of the Transactions.
(7) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(8) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(9) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 7 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(10) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(11) Channels acquired pursuant to the Sublease Agreement with CMAX. Of these
channels, eight are the subject of uncontested application proceedings.
(12) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(13) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 9 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(14) Such markets include seven markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC.
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MANAGEMENT OF THE COMBINED COMPANY
Following the consummation of the Transactions, management of Heartland
will manage the Combined Company and the Board of Directors of the Combined
Company will consist entirely of the Board of Directors of Heartland. Although
Heartland has entered into a consulting and noncompetition agreement with Steven
G. Johnson, the President of AWS, management of Heartland does not otherwise
expect to retain executive officers or significant numbers of other management
personnel of AWS or CMAX or to enter into employment relationships with
executive officers or management personnel of TSC, the Minneapolis Partnership
or FTW Partnership. To the extent necessary to maintain customer service and
system launch schedules, the Combined Company may retain certain nonmanagerial
employees of AWS, CMAX or TSC. Mr. Johnson has entered into a consulting and
noncompetition agreement with Heartland pursuant to which Mr. Johnson, following
consummation of the AWS Merger, will provide consulting and transition services
to the Combined Company with regard to AWS and its assets and will refrain from
competing with the Combined Company or any of its transferees in any wireless
cable television market owned or operated by AWS as of October 31, 1995 for a
period of three years. In exchange for entering into the consulting and
noncompetition agreement, Mr. Johnson will receive a total of $700,000 payable
over a two-year period. No member of the Board of Directors of AWS or CMAX will
continue to serve as a member of the Board of Directors or as an executive
officer of the Combined Company or of AWS or CMAX, respectively. No member of
the Board of Directors of TSC or of the management committees of either the
Minneapolis Partnership or FTW Partnership will serve as a member of the Board
of Directors or as an executive officer of the Combined Company or any of its
subsidiaries following the consummation of the TSC Transaction, the FTW
Transaction or the Minneapolis Transaction. See "Information Concerning
Heartland -- Management."
PRINCIPAL HOLDERS
The following table sets forth (a) the effect of the Transactions (assuming
the consummation of all of the Transactions, an average closing price during the
relevant periods of $28 per share (the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof) or $17 per share (the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions)
of Heartland Common Stock and certain other assumptions, as noted) on the amount
and percentage of present holdings of shares of Heartland Common Stock owned
beneficially by each holder of five percent or more of the shares of Heartland
Common Stock; and (b) persons that will beneficially own five percent or more of
the outstanding shares of Heartland Common Stock outstanding immediately
following the Transactions. See "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, (iv) the Dayton System will not be sold prior to the
consummation of the Transactions and (v) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
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(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the current owner of $40.0 million gross proceeds
of Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
PLANNED DIVESTITURES
In connection with approving the Transactions, Heartland's Board determined
that certain of the markets currently held by Heartland and certain of those to
be acquired in the Transactions should be disposed of, either because their
demographics are inconsistent with Heartland's focus on small to mid-sized
markets with a significant number of LOS households unpassed by traditional
hard-wired cable or because the Heartland Board felt that the consideration to
be received in a disposition thereof might be attractive when compared to
developing and operating a wireless cable system in the market. In particular,
the Heartland Board identified the Maysville and Sweet Springs, Missouri, Grand
Rapids/Moline Michigan, Napoleon/Bloom Center, Indiana and Flippin, Tennessee
markets currently owned by Heartland, and the Los Angeles, California, Dallas,
Ft. Worth and San Antonio, Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake
City, Utah and Minneapolis, Minnesota markets to be acquired in the Transactions
as being markets for which Heartland's management should seek one or more
disposition opportunities for cash, promissory notes, retained equity interests
or a combination thereof. Notwithstanding its determination to seek the sale,
exchange or other disposition of the Heartland Disposition Assets, the Heartland
Board felt that some or all of such markets, properly developed and operated,
offered attractive opportunities to participate in the wireless cable television
industry. As a result, the Heartland Board further directed Heartland's
management to seek one or more opportunities to dispose of the Heartland
Disposition Markets which might offer Heartland the ability to retain an equity
interest, directly or indirectly, in the disposed of markets.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets, of which Flippin, Tennessee is
currently owned by Heartland. Heartland will sell the Flippin market to
TruVision for $1.5 million contemporaneously with the sale to TruVision by AWS
of the Memphis market for $3.9 million (collectively, the "Memphis
Transaction"). Heartland will not retain a direct or indirect interest in these
markets.
After substantial discussions and certain limited agreements regarding the
conduct of their respective businesses during the pending of such negotiations,
effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly-owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
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The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or one or more of its
subsidiaries) will receive (i) shares of Newco common stock, $.001 par value per
share (the "Newco Common Stock"), constituting approximately 39.76% of the
outstanding shares of Newco Common Stock at the closing, (ii) approximately
$28.3 million in cash payable by Newco at the closing, (iii) a promissory note
in the principal sum of $25 million payable nine (9) months from the closing
(the "First Note") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing (the "Second Note"). The First Note will (i) require
that all of the net proceeds received by Newco from the sale of assets
(including any proceeds received prior to consummation of the Newco Transaction
from the sale of any of the assets to be contributed to Newco) shall be applied
immediately to the repayment of a portion of the First Note; (ii) require that
30% (or such higher percentage as is deemed reasonable by the underwriter for
Newco's Common Stock) of the net proceeds of any initial public offering of the
Newco Common Stock shall be applied to the repayment of the First Note; (iii)
provide assurances, satisfactory to Heartland, that, to the extent not otherwise
repaid, the First Note will be payable from $25 million of the net proceeds of
$125 million of proceeds of senior discount notes contemplated to be issued by
Newco (the "Newco Financing"), which is a condition to consummation of the Newco
Transaction, which will be appropriately secured for such purpose; and (iv) bear
interest at the effective rate of interest received by Newco from the investment
of the $25 million of the net proceeds of the Newco Financing which are security
for repayment of the First Note. The Second Note will (i) bear interest at the
annual rate of 10%, subject to adjustment as described below; (ii) require that
all of the net proceeds received by Newco from the sale of assets (including any
proceeds received prior to consummation of the Newco Transaction from the sale
of any of the assets to be contributed to Newco) shall, to the extent available
after repayment of the First Note, be applied by Newco to the repayment of a
portion of the Second Note; (iii) require that 30% (or such higher percentage as
is deemed reasonable by the underwriter for the Newco Common Stock) of the net
proceeds of any initial public offering of the Newco Common Stock shall be
applied, to the extent available after the repayment of the First Note, to the
repayment of the Second Note; (iv) provide that, if the Second Note is not paid
in full within one year of the consummation of the Newco Transaction, the annual
interest rate on the Second Note shall increase to 15% from and after the first
anniversary of the closing; and (v) provide that all interest on the Second Note
shall be payable in kind (interest computed rather than payable currently) to
the first interest payment date after the Newco senior discount notes to be
issued as part of the contemplated Newco Financing have been paid in full. The
equity interests of Heartland and CAI in Newco will be subject to dilution for
the issuance of (i) Newco Common Stock or warrants to acquire Newco Common Stock
which may be issued as a part of the Newco Financing; (ii) options to acquire
Newco Common Stock which may be issued to Newco's management; and (iii) warrants
or options to acquire up to 10% of Newco's Common Stock (prior to the issuance
of any warrants as part of the Newco Financing or options to Newco's management)
to BANX, a partnership comprised of Bell Atlantic Corporation and NYNEX
Corporation, which is a substantial investor in CAI. Within six months of
closing, CAI and Heartland will complete certain post-closing net working
capital calculations. Components of such calculations will 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 Newco for each market, increase or decrease in the number of
subscribers in each contributed system from the number of subscribers stated in
the Participation Agreement and related factors. Following such calculations, an
increase or decrease will occur in the principal amount of the promissory notes
to be received by Heartland from Newco, and CAI will either contribute or be
entitled to a distribution of cash from Newco, depending upon such calculations.
Pursuant to an agreement dated October 10, 1995, each of CAI and Heartland
agreed to cooperate in the filing of applications for continuing participation
in the public auctions for available spectrums in the multipoint and/or
multichannel distribution service in 487 basic trading areas ("BTAs") and six
(6) additional BTA-like geographic areas. The auctions were commenced by the FCC
on or about November 13, 1995 with respect to certain markets, including markets
which are expected to be conveyed to Newco. In the
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event of the award of any such licenses to either CAI or Heartland, Newco shall
reimburse such entity for the amounts paid by such party upon conveyance of the
applicable licenses to Newco.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland and that CAI has not disposed of more than one-half of
the Newco Common Stock it held on the effective date of such agreement); (ii) up
to three members designated by Heartland (provided that at least one of whom may
not be an affiliate of either CAI or Heartland and that Heartland has not
disposed of more than one-half of Newco Common Stock it held on the effective
date of such agreement); (iii) the Chief Executive Officer of Newco; and (iv)
the Chief Financial Officer of Newco. The Stockholders Agreement and Newco's
Bylaws further provide that certain transactions will require the affirmative
approval of at least 70% (7 of 9) of the Directors of Newco. Such transactions
include (i) the participation of Newco in a merger or consolidation, or the
sale, lease, exchange or other disposition of all or any substantial part of the
assets of Newco, or the liquidation of all or a substantial part of Newco; (ii)
the issuance or sale by Newco of any capital stock of Newco, including the type
and amount to be issued or sold, except for the options and warrants
contemplated as part of the transaction; (iii) the taking of any action by Newco
in its capacity as a stockholder of any subsidiary of Newco similar to the
foregoing; (iv) any increase or decrease in the total number of directorships of
Newco; (v) engaging in any business other than the designated business of Newco
(transmitting video, voice or data, inclusive of related activities and
services, including the use of wireless channels for any commercial purpose
permitted by the FCC); (vi) establishing any executive or other committee of the
Board of Newco; (vii) the creation, incurrence, assumption or guaranty of or in
any manner becoming liable by Newco or any of its subsidiaries upon any
obligation for money borrowed in excess of $10 million in the aggregate
principal amount at any time outstanding or the incurrence of any obligation in
excess of such amount in connection with the acquisition of property; (viii) the
making of or having outstanding any loans or advances to any of Newco's past or
present officers, directors or stockholders or to any member of their immediate
family; (ix) the entering into, directly or indirectly, of any arrangement,
contract or agreement not in the ordinary course of business with a monetary
value in excess of $10 million; (x) the sale or other disposal (including
contribution) of assets or capital stock (by merger or otherwise) of Newco or
any of its subsidiaries, the value of which exceeds $10 million in either
original cost or appraised value within any one-year period; (xi) the
acquisition of securities or assets by Newco or any of its subsidiaries, the
value of which exceeds $10 million in appraised value within any one year
period; (xii) any change in the business of Newco from its stated business; or
(xiii) replacement of the Chief Executive Officer or the Chief Financial Officer
of Newco.
Further, the Participation Agreement and Stockholders Agreement provide
that Newco may actively engage in discussions and activities with the goal of
(i) acquiring additional geographic markets and assets related to its business;
(ii) selling or otherwise disposing of some or all of its assets (including a
sale of all or a portion of the Newco Common Stock by merger or otherwise); and
(iii) creating one or more joint ventures or other joint operations which may
involve, among other matters, contributing all or a portion of Newco's assets to
such joint venture or operation in exchange for an equity interest therein,
cash, notes or other suitable consideration; provided, however, that (A) no such
activity shall be undertaken unless the Newco Board determines that each such
activity is in the best interest of Newco and (B) with respect to the activities
described in clauses (ii) and (iii) above, (i) such sales, contributions and
dispositions shall be limited to the markets contributed by Heartland and CAI to
Newco; (ii) if any such sales are agreed to or consummated prior to the
consummation of the Newco Transaction, the initial purchaser of the Newco
Financing shall give its written consent thereto prior to effecting the Newco
Financing; (iii) the proposed underwriter mutually selected by CAI and Heartland
for an initial public offering, if any, of the Newco Common Stock proposed to be
initiated during the first year after the closing shall state in writing that
any such proposed sale, disposition or joint venture would not have a negative
impact on said initial public offering; and (iv) Newco shall not sell,
contribute or otherwise dispose of any of its assets (or shares of Newco Common
Stock by merger or otherwise) having a value in excess of $10 million in either
original cost or appraised value unless the consideration received by Newco
shall approximate the greater of (I) the then fair market value of such asset;
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or (II) an amount equal to the aggregate of (x) the valuation given to such
assets at the time of contribution to Newco by Heartland and CAI, as the case
may be, plus (y) the amount of any cash investments made by Newco with respect
to such assets (such as new subscriber or head-end equipment) plus (z) the full
effective after tax cost to Newco of that portion of the Newco Financing
(including without limitation the interest rate, initial purchaser's discount,
cost of complying with the requirements of the Newco Financing documents and, if
applicable, cost of warrants, prepayment penalties and/or change in control
premiums) equal to the net proceeds to be received from such sale, contribution
or disposition. So long as such transaction is reasonably likely to be
consummated within one year after the date of the Participation Agreement and if
each of the above requirements are met, CAI and Heartland have each agreed to
take any and all actions (on a timely basis) necessary to effect said
transaction, including without limitation voting (or causing the vote of) all of
the shares of Newco Common Stock held by Heartland and CAI in favor of such
transaction.
If (i) the Newco Transaction is terminated without the closing having
occurred, following satisfaction of all material conditions to the closing by
Heartland specified in the Participation Agreement; (ii) CAI has not undertaken
any action reasonably calculated to prevent the closing; and (iii) Heartland has
not at any time prior to the termination of the Participation Agreement, or
within one year after such termination, engaged in a transaction involving the
sale, transfer or other disposition of at least two of the three markets of
Dallas-Fort Worth, Texas (counted as one market), Salt Lake City, Utah and
Minneapolis, Minnesota, Heartland shall pay to CAI a break-up fee equal to $3
million, which shall be payable immediately upon the consummation of such
transaction as the sole and exclusive remedy to CAI and Newco for Heartland's
failure to close the Newco Transaction in breach of the Participation Agreement.
CAI is required to pay a break-up fee of $3 million to Heartland if it fails to
consummate the Newco Transaction following satisfaction of all material
conditions to closing by CAI and it engages in a transaction involving the sale,
transfer or other disposition of the Cleveland, Ohio market prior to or within
one year following termination of the Participation Agreement, which shall be
Heartland's sole and exclusive remedy for CAI's failure to close the Newco
Transaction.
Pursuant to the Participation Agreement, all representations and warranties
of CAI and Heartland survive closing of the Newco Transaction for a period of
four months. Each party indemnifies the other from and against all damages
resulting from a breach of such representations and warranties; provided,
however, that no indemnification payment is made for any portion of the initial
$500,000 of damages claimed. Either party may reimburse the other for such
damages through a combination of cash (or, in the case of Heartland, reduction
of the First Note and Second Note) or the assignment of Newco Common Stock not
to exceed 50% of the amount of said damages, with shares thereof valued at the
values agreed upon by Heartland and CAI as of the consummation of the Newco
Transaction.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "Recommendations of the Heartland Board;
Opinions of Heartland's Advisor -- Background of the Transactions," "-- Board
Deliberations," "The Combined Company -- Business of the Combined Company After
the Transactions" and "-- Planned Divestitures."
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THE AWS MERGER
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE AWS
MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT
OF THE AWS MERGER AGREEMENT, ATTACHED HERETO AS APPENDIX C, WHICH IS
INCORPORATED HEREIN BY REFERENCE.
FOR A DESCRIPTION OF THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
HEARTLAND CONCERNING THE AWS MERGER AND REASONS GIVEN THEREFOR, TOGETHER WITH A
DESCRIPTION OF THE OPINION OF HEARTLAND'S ADVISOR, SEE "RECOMMENDATIONS OF THE
HEARTLAND BOARD; OPINIONS OF HEARTLAND'S ADVISOR."
REASONS FOR THE AWS MERGER
The Board of Directors of AWS (the "AWS Board") approved and adopted the
AWS Merger Agreement as being in the best interest of the AWS stockholders
primarily for the following reasons:
1. The AWS Merger provides for the issuance of approximately $34
million of Heartland Common Stock, a value of approximately $5.90 for each
share of AWS Common Stock, a price that represents a substantial premium
over the market price of AWS Common Stock on the date AWS and Heartland
entered into the AWS Merger Agreement.
2. The Heartland Common Stock to be received by the holders of AWS
Common Stock will be freely tradeable immediately following the
consummation of the AWS Merger, providing each holder an opportunity either
to liquidate or retain the investment in Heartland Common Stock.
3. Heartland Common Stock represents an interest in a wireless cable
company that is significantly larger than AWS, has substantially greater
financial resources than AWS, and is better situated than AWS to fully
develop its wireless cable systems.
4. The Heartland Common Stock to be received by the holders of AWS
Common Stock will be listed on the Nasdaq-NMS, which will provide such
holders greater liquidity relative to trading in AWS Common Stock.
5. Assuming the approval and consummation of the FTW Agreement and the
Minneapolis Agreement, the issuance of Heartland Common Stock to the FTW
Partners and Minneapolis Partners is likely to reduce the potential
liability arising from the prior sale of general partnership interests by a
predecessor of AWS without registration under federal or state securities
laws.
TERMS OF AWS MERGER AGREEMENT
The AWS Merger. On September 11, 1995, Heartland, AWS Merger Sub and AWS
executed the AWS Merger Agreement. Subject to the terms of the AWS Merger
Agreement, at the AWS Effective Time (as hereinafter defined), (i) AWS Merger
Sub will merge with and into AWS, (ii) the separate existence of AWS Merger Sub
will cease, (iii) AWS will be the surviving corporation in the AWS Merger (the
"AWS Surviving Corporation"), and (iv) the internal corporate affairs of the AWS
Surviving Corporation will continue to be governed by the laws of the State of
Delaware.
Certificate of Incorporation and Bylaws. The AWS Merger Agreement provides
that the Certificate of Incorporation and Bylaws of the AWS Merger Sub as in
effect immediately prior to the AWS Effective Time will become the Certificate
of Incorporation and Bylaws of the AWS Surviving Corporation.
Directors and Officers. The directors and officers of the AWS Merger Sub
(certain of the directors and executive officers of Heartland) at the AWS
Effective Time will become the directors and officers of the AWS Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal.
Conversion of AWS Common Stock in the AWS Merger. At the AWS Effective
Time, all of the issued and outstanding shares of AWS Common Stock will be
converted into the right to receive (a) upon the AWS
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Effective Time, a proportionate number of newly issued publicly tradeable shares
of Heartland Common Stock having an aggregate exchange value of approximately
$30.75 million (subject to increase to $31.25 million upon the resolution of
certain claims prior to closing), rounded up to the nearest whole share (the
"Initial AWS Distribution"), and (b) upon the expiration of the AWS Escrow
Period (as hereinafter defined), shares of Heartland Common Stock having an
aggregate exchange value of up to $3.25 million (subject to reduction to $2.75
million upon the resolution of certain claims against AWS prior to closing), as
reduced by the amount of the rounding of any fractional shares in connection
with the Initial AWS Distribution (the "Contingent AWS Distribution"). As a
result of the AWS Merger Agreement, each share of AWS Common Stock will be
converted into the right to receive (i) upon the Initial AWS Distribution,
shares of Heartland Common Stock having an exchange value of approximately $5.34
per share (subject to reduction upon the exercise of any options or warrants
prior to the AWS Effective Time for cash, as opposed to "cashless" exercise of
options or warrants (see discussion below)), and (ii) upon the Contingent AWS
Distribution (subject to reduction in connection with claims for indemnification
made by Heartland against such shares), if any, shares of Heartland Common Stock
having an exchange value of up to approximately $0.56 per share. The exchange
value of the Heartland Common Stock to be issued in the AWS Merger will be equal
to the average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS over the ten-trading-day period ending on the fifth business day
preceding the consummation of the AWS Merger (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996); provided however that if such
average is less than $20 or more than $26 per share, then the number of shares
of Heartland Common Stock to be issued in the AWS Merger will be based upon an
exchange value of $20 or $26 per share, as applicable.
The number of shares of Heartland Common Stock into which each share of AWS
Common Stock will be converted at the AWS Effective Time is based upon the
number of shares of AWS Common Stock deemed to be outstanding at the AWS
Effective Time. Pursuant to the AWS Merger Agreement, a portion of the shares of
AWS Common Stock subject to warrants and options with exercise prices less than
the exchange value per share of AWS Common Stock (collectively, such options and
warrants are referred to as "Value Options") will be deemed to be outstanding if
such Value Options remain unexercised at the AWS Effective Time. Because the AWS
Merger consideration is based upon a fixed amount ($34 million), the exercise of
any warrants or options prior to the AWS Effective Time will reduce the merger
consideration (or exchange value) per share of AWS Common Stock to be received
by each AWS stockholder. The estimated amount of the per share distributions set
forth above assumes that the Value Options remain unexercised at the AWS
Effective Time. The number of shares of AWS Common Stock deemed outstanding at
the AWS Effective Time attributable to unexercised Value Options will be
determined based upon a formula which calculates the number of shares of AWS
Common Stock that would be issued in a "cashless" exercise, meaning that a
portion of the option or warrant value is used as consideration for the exercise
of the option or warrant, resulting in the issuance of a number of shares of AWS
Common Stock upon the exercise of a Value Option net of the share consideration
deemed to have been paid in connection with such exercise. Currently, Value
Options to acquire 138,658 shares of AWS Common Stock exercisable at $3.75 per
share are outstanding, resulting in an additional 51,416 shares of AWS Common
Stock being deemed outstanding for purposes of the AWS Merger Agreement. If all
outstanding Value Options are exercised in full for cash prior to the AWS
Effective Time, then (a) an additional 138,658 shares of AWS Common Stock will
be outstanding at the AWS Effective Time; (b) AWS will receive approximately
$519,968 in cash proceeds upon the exercise of such Value Options, and (c) at
the AWS Effective Time each share of AWS Common Stock will be converted into the
right to receive (i) upon the Initial AWS Distribution, shares of Heartland
Common Stock having an exchange value of approximately $5.26 per share, and (ii)
upon the Contingent AWS Distribution (subject to reduction in connection with
claims for indemnification made by Heartland against such shares), shares of
Heartland Common Stock having an exchange value of up to $.56 per share. AWS is
negotiating to pay cash to holders of such Value Options in exchange for the
cancellation thereof. If AWS is successful and each such Value Option is
terminated, each share of AWS Common Stock will be converted at the AWS
Effective Time into the right to receive (i) upon the Initial AWS Distribution,
shares of Heartland Common Stock having an exchange value of approximately $5.39
per share and (ii) upon the Contingent AWS Distribution (subject to reduction in
connection with claims for indemnification made by Heartland against such
shares), shares of Heartland Common Stock having an exchange value of up to $.57
per share.
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Fractional Shares. No fractional shares of Heartland Common Stock will be
issued in the AWS Merger. In the Initial AWS Distribution to the holders of the
AWS Common Stock, fractional shares of Heartland Common Stock will be rounded up
to the nearest whole share. In the Contingent AWS Distribution (following the
termination of the AWS Escrow Agreement (as hereinafter defined)) to the former
holders of AWS Common Stock, Heartland will repurchase from the escrow any
fractional shares to be distributed to the former AWS Stockholders based upon
the exchange value for the Heartland Common Stock, and the cash proceeds thereof
will be distributed with any whole shares of Heartland Common Stock to the AWS
stockholders upon the liquidation of such escrow in connection with the
Contingent AWS Distribution.
Indemnity Escrow; Contingent AWS Distribution. At the closing of the AWS
Merger, the shares of Heartland Common Stock representing the Contingent AWS
Distribution will be held in escrow by Harris Trust Company of New York
("Exchange Agent") pursuant to the terms of an escrow agreement ("AWS Escrow
Agreement") for a period of approximately one year ("AWS Escrow Period"). The
AWS Escrow Agreement is attached hereto as Appendix D and is incorporated herein
by reference, and is to be attached as an exhibit to and form a part of the AWS
Exchange Agreement described below. Pursuant to the terms of the AWS Escrow
Agreement, Heartland will have the right to submit claims for indemnification to
the Exchange Agent and, following a claims procedure, recover all or a portion
of the Contingent AWS Distribution or proceeds thereof for any claims for which
indemnity is proper pursuant to the terms of the AWS Merger Agreement. Pursuant
to the AWS Escrow Agreement, Heartland is entitled to indemnification from the
escrow fund (a) for all of the damages arising from certain claims (including
liabilities of AWS determined in accordance with generally accepted accounting
principles and certain other liabilities in excess of $3.15 million subject to
adjustment), and (b) for one-half of the damages arising from other claims. The
indemnification obligations of AWS to Heartland will be limited to and satisfied
solely from the Contingent AWS Distribution. Pursuant to the terms of the AWS
Merger Agreement, if certain litigation pending against AWS is dismissed prior
to the consummation of the AWS Merger, the exchange value of the shares of
Heartland Common Stock (a) to be distributed as a part of the Initial AWS
Distribution will be increased from $30.75 million to $31.25 million, and (b) to
be held in escrow and distributed as part of the Contingent AWS Distribution
will be reduced from $3.25 million to $2.75 million. Pursuant to the terms of
the AWS Escrow Agreement, certain fees and expenses of the escrow will be paid
from the proceeds of the shares held in escrow representing the Contingent AWS
Distribution. Generally, the resolution of claims for indemnity will be decided
in accordance with the alternative dispute resolution procedures set forth in
the AWS Escrow Agreement. Daniel A. Cartwright, the Chief Financial Officer of
AWS, will serve as the representative of the former AWS Stockholders for
purposes of administering claims under the AWS Escrow Agreement, and will be
compensated $10,000 quarterly for such services from the escrow fund.
AWS Loan. Heartland has previously loaned to AWS the principal sum of $1.8
million (the "AWS Loan"). The AWS Loan is secured by a first lien on the
wireless cable channel assets of AWS in the Dallas, Texas market. Upon
consummation of the AWS Merger, the AWS Loan will remain in place as an
intercompany obligation from AWS to Heartland. The AWS Merger Agreement provides
that specified amounts ("Exclusivity Fees") are to be periodically offset
against the AWS Loan as additional consideration for the non-solicitation
covenant contained in the AWS Merger Agreement. The AWS Merger Agreement and
documents relating to the AWS Loan further provide that (a) if the AWS Merger
Agreement is terminated as a result of a competing proposal to acquire AWS or
its material assets, then the aggregate amount of all previously offset
Exclusivity Fees will be added back to the AWS Loan and the AWS Loan will be
immediately due and payable; (b) if the AWS Merger Agreement is terminated
arising from specified events (generally arising from the conduct or past
conduct of AWS or its predecessors), then the aggregate amount of all previously
offset Exclusivity Fees will be added back to the AWS Loan and the AWS Loan will
be repaid in accordance with its terms; (c) if Heartland fails to consummate the
AWS Merger after all of the conditions precedent to its obligations to
consummate the AWS Merger Agreement have been satisfied or waived, then the
remaining balance of the AWS Loan will be forfeited by Heartland as liquidated
damages; and (d) upon any other termination under the AWS Merger Agreement, the
AWS Loan (reduced by any previously offset Exclusivity Fees) will be repaid to
Heartland within one year following the date of termination of the AWS Merger
Agreement. Upon consummation of the AWS Merger, the AWS Loan (plus any
previously offset Exclusivity Fees) is to remain in place as an intercompany
obligation of Heartland.
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STOCK OPTIONS; WARRANTS
At the AWS Effective Time, no options or warrant agreements allowing the
holder to exercise rights thereunder to receive shares of AWS Common Stock after
the closing of the AWS Merger Agreement may exist. These options and warrants
also entitle the holders to certain demand registration rights. As of December
31, 1995, options and warrants to purchase approximately 713,230 shares of AWS
Common Stock were outstanding that would convert by their terms into the right
to purchase shares of Heartland 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.
EFFECTIVE TIME
Promptly following receipt of all required governmental approvals and
satisfaction or waiver (where permissible) of the other conditions to the AWS
Merger, the AWS Merger will be consummated and will become effective at the time
at which the certificate of merger to be filed pursuant to the Delaware General
Corporation Law ("DGCL") is accepted for filing by the Secretary of State of the
State of Delaware or such later date and time as may be specified in the
certificate of merger (the "AWS Effective Time"). See "The AWS
Merger -- Conditions." It is currently anticipated that if all conditions under
the AWS Merger Agreement have been satisfied or waived, where permissible,
including the approval and adoption of the AWS Merger Agreement by the
stockholders of AWS and Heartland, the AWS Effective Time will occur on or after
the later of the AWS Special Meeting or the Heartland Special Meeting.
REPRESENTATIONS AND WARRANTIES
The AWS Merger Agreement contains various representations and warranties of
the parties thereto. Generally, the representations and warranties of AWS relate
to (i) the corporate organization and standing of AWS and its subsidiaries, (ii)
the capitalization of and rights to acquire securities of or interests in AWS
and its subsidiaries, (iii) the authority and enforceability of the AWS Merger
Agreement and the non-contravention of the AWS Merger Agreement with any
agreement, law or charter document of AWS, (iv) the financial statements of AWS
and absence of undisclosed liabilities, (v) tax matters, (vi) the assets,
liabilities and operations of AWS and its subsidiaries, (vii) regulatory matters
and compliance with laws, (viii) agreements or contracts with third parties and
affiliates, (ix) consents or approvals required in connection with the AWS
Merger Agreement, (x) employee matters, (xi) disclosures regarding pending and
threatened litigation, and (xii) the accuracy of information provided by AWS for
inclusion in this Proxy Statement and the Registration Statement.
Generally, the representations and warranties of Heartland and AWS Merger
Sub relate to (i) their respective corporate organization and standing, (ii) the
authority and enforceability of the AWS Merger Agreement and the
non-contravention of the AWS Merger Agreement with any charter documents, (iii)
the absence of pending or threatened litigation, (iv) consents or approvals
required in connection with the AWS Merger Agreement, (v) capitalization, (vi)
the accuracy of Heartland's financial statements and securities filings, and
(vii) the accuracy of the information provided by Heartland or AWS Merger Sub
for inclusion in the Proxy Statement and the Registration Statement.
COVENANTS AND OBLIGATIONS
Covenants Pending the Earlier of the AWS Effective Time and the Abandonment
or Termination of the AWS Merger.The AWS Merger Agreement sets forth certain
obligations of AWS pending the earlier of the AWS Effective Time and the
abandonment or termination of the AWS Merger. See "The AWS Merger --
Termination." AWS has agreed that it will, and will cause its subsidiary to, do
the following, among other things: (i) give Heartland prior written notice
before engaging in any practice or taking any action other than in the ordinary
course of business, (ii) use reasonable efforts to keep its business,
properties, and business relationships substantially intact, (iii) pay and
perform all of its debts and liabilities except to the extent being contested in
good faith or as to which adequate liabilities have been accrued and recorded,
(iv) perform its material obligations under FCC authorizations and material
agreements, (v) comply in all material respects
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with governmental rules, (vi) not take any action that would cause or constitute
a material breach of the AWS Merger Agreement, (vii) use reasonable efforts to
preserve, protect and maintain its rights and interests in its channel leases,
FCC licenses, and material agreements, (viii) not amend or terminate any channel
lease, FCC license, permit, application or material agreement without prior
notice to Heartland, (ix) not repurchase, declare or pay any dividends, or make
any other distributions, or issue or sell any shares of capital stock, or
options or warrants with respect thereto, (x) not sell, lease or transfer any
assets except as provided for in the AWS Merger Agreement or in the ordinary
course of business, (xi) not increase the base compensation of or enter into any
new compensation arrangements with any officers, directors or employees of AWS
or pay any salaries except in the ordinary course of business, other than as
provided for in the AWS Agreement, and (xii) not transfer any interest in any
subsidiary.
Other Agreements. Pursuant to the AWS Merger Agreement, each of AWS and
Heartland is obligated to call a special meeting of its stockholders to consider
and vote upon the adoption and approval of the AWS Merger Agreement and the AWS
Merger. In addition, AWS has agreed to (i) use reasonable efforts to obtain all
consents and governmental approvals required in connection with the AWS Merger,
(ii) assist Heartland in obtaining certain estoppel certificates and additional
consents prior to the AWS Effective Time, (iii) obtain estoppel certificates
from each creditor of AWS anticipated to be owed in excess of $50,000 at the AWS
Effective Time certifying the amount owed to such person, (iv) timely file or
cause to be filed all required reports with the FCC, and (v) use reasonable
efforts to cause the holders of its options and warrants to exercise, terminate
or cancel such options or warrants.
NO SOLICITATION
Pursuant to the AWS Merger Agreement, AWS has agreed that, prior to the
consummation of the AWS Merger Agreement, neither it nor any of its officers,
directors, employees, agents, or other representatives will solicit, initiate,
encourage or engage in any discussions or negotiations with any third party
concerning a tender or exchange offer, merger, consolidation or other business
combination involving AWS or any of its subsidiaries, or any proposal to acquire
either (i) a substantial equity interest in AWS or any subsidiary, or (ii) any
material assets of AWS or any subsidiary (an "AWS Acquisition Proposal");
provided, however, that AWS may (x) furnish information to or enter into
negotiations with persons making an unsolicited offer to acquire AWS or a
substantial portion of its assets pursuant to a merger, consolidation, share
exchange or other business combination if the Board of Directors of AWS
determines that such action is required to comply with its fiduciary duty to its
stockholders, (y) comply with Rule 14e-2 promulgated under the Exchange Act, and
(z) solicit and receive offers for the sale of the wireless cable television
system owned by AWS in the Memphis, Tennessee market in accordance with the
terms of the AWS Merger Agreement. AWS has agreed to notify Heartland
immediately of any inquiries or proposals with respect to any such transactions
that are received by, or any such negotiations or discussions that are sought to
be initiated with, AWS or any of its subsidiaries.
CONDITIONS
The respective obligations of the parties to consummate the AWS Merger are
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) the effectiveness of the Registration Statement which includes
this Proxy Statement filed in connection with the AWS Merger and the receipt of
any required authorizations from state securities agencies, (ii) the absence of
any action or proceeding which is then in effect and has the effect of
prohibiting the AWS Merger or any of the transactions contemplated by the AWS
Merger Agreement or otherwise making the consummation of the AWS Merger or any
of the transactions contemplated thereby illegal, (iii) the sale of the wireless
cable system owned by AWS in the Pittsburgh, Pennsylvania market (which occurred
on September 29, 1995), and (iv) AWS's receipt of a fairness opinion from
Daniels & Associates, L.P., which fairness opinion shall not have been withdrawn
prior to the AWS Effective Time.
The obligation of Heartland to consummate the AWS Merger is also subject to
the satisfaction or waiver (where permissible) of the following conditions: (i)
the requisite approval of the AWS Merger, the FTW Transaction and the
Minneapolis Transaction by the stockholders of Heartland, (ii) the accuracy in
all
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material respects of the representations and warranties of AWS set forth in the
AWS Merger Agreement, (iii) the delivery of certain documents, certificates and
legal opinions by AWS, (iv) the absence of any material adverse change with
respect to AWS or any subsidiary of AWS, (v) the holders of no more than 10% of
the outstanding shares of AWS Common Stock immediately prior to the AWS
Effective Time shall have exercised appraisal rights, (vi) the voting trust
agreement, pursuant to which the holders of approximately 37% of the outstanding
shares of AWS Common Stock have agreed to vote in favor of the AWS Merger,
remaining in full force and effect, (vii) Heartland's prior or concurrent
acquisition of the FTW Partnership's interest in the FTW Venture and Minneapolis
Partnership's interest in the Minneapolis LLC, (viii) the receipt of a consent
letter from AWS's accountants, (ix) the performance in all material respects by
AWS of all obligations required to be performed by AWS prior to the closing of
the AWS Merger, (x) the exercise, termination or cancellation of any options or
warrants to purchase shares of AWS Common Stock that will not convert by their
terms into the right to receive shares of Heartland Common Stock, and (xi) the
average closing price per share not being greater than $32.00. See "The FTW
Transaction -- Conditions" and "The Minneapolis Transaction -- Conditions."
The obligation of AWS to consummate the AWS Merger Agreement is subject to
the satisfaction or, where permissible, waiver of the following conditions: (i)
the requisite stockholder approval of the AWS Merger by the stockholders of AWS,
(ii) the accuracy in all material respects of the representations and warranties
of Heartland and AWS Merger Sub set forth in the AWS Merger Agreement, (iii) the
delivery of certain documents, certificates and legal opinions by Heartland and
AWS Merger Sub, (iv) the absence of any change in the business or affairs of
Heartland requiring an amendment or supplement to this Proxy Statement, and (v)
the average closing price per share not being less than $12.
REGULATORY APPROVALS
In addition to the federal and state filings and approvals required under
applicable securities laws in connection with the effectiveness of the
Registration Statement of which this Proxy Statement forms a part, the AWS
Merger requires regulatory filings with the FCC for the transfer of AWS'
commercial wireless cable television licenses to Heartland.
TERMINATION
The AWS Merger Agreement may be terminated at any time prior to the AWS
Effective Time, before or after the approval of the AWS Merger Agreement by the
stockholders of AWS and Heartland, and by the mutual consent of Heartland, AWS
Merger Sub and AWS. In addition, the AWS Merger Agreement may be terminated by
AWS in the event that the conditions to closing for AWS have not been satisfied
in full or, where permissible, waived on or before February 29, 1996. The AWS
Merger Agreement may be terminated and the AWS Merger may be abandoned by
Heartland or AWS Merger Sub if the closing conditions to their performance have
not been satisfied in full or, where permissible, waived on or before February
29, 1996; provided that Heartland shall have the right to terminate the AWS
Merger Agreement within fifteen (15) days of the disclosure by AWS to Heartland
of supplemental information representing a material adverse change from
information previously disclosed to Heartland regarding AWS.
If the AWS Merger Agreement is terminated as the result of an AWS
Acquisition Proposal, then AWS shall pay to Heartland within two (2) days after
such event a fee equal to the sum of $1.8 million and the outstanding principal
and accrued interest under the AWS Loan (together with any Exclusivity Fees
previously offset against the AWS Loan). If Heartland and/or AWS Merger Sub fail
to consummate the AWS Merger after the conditions to their performance have been
satisfied or, where permissible, waived, then AWS shall not be obligated to
repay the AWS Loan and the proceeds thereof shall be retained by AWS as
liquidated damages. If the AWS Merger Agreement is terminated (i) by Heartland
arising from a supplemental adverse disclosure, (ii) by AWS or Heartland as a
result of the failure to obtain any required authorization under federal or
state securities or blue sky laws primarily as a result of past or previous acts
or omissions by AWS or related parties, (iii) by Heartland for the failure of
AWS to provide certain estoppel certificates and consents, (iv) by AWS for the
failure to obtain AWS stockholder approval, (v) by Heartland for the failure of
the representations and warranties of AWS to be true and correct in all material
respects, or
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(vi) by Heartland as a result of a material adverse change in the condition of
AWS, then all Exclusivity Fees previously offset against the AWS Loan shall be
added back to the principal balance thereof and the AWS Loan shall be repaid in
accordance with its terms with the maturity date being extended until one year
from the date of such termination. If the AWS Merger Agreement is terminated for
any other reason, then the AWS Loan (as reduced by any Exclusivity Fees
previously offset against the AWS Loan) shall be repaid in accordance with its
terms.
RESALES; AFFILIATES
The shares of Heartland Common Stock to be issued to the AWS stockholders
in connection with the AWS Merger will be freely tradeable under the Securities
Act, except for shares of Heartland Common Stock issued to any person deemed to
be an affiliate of AWS for purposes of Rule 145 under the Securities Act at the
time of the AWS Meeting ("AWS Affiliates"). AWS Affiliates may not resell the
shares of Heartland Common Stock acquired in connection with the AWS Merger
except pursuant to an effective registration statement under the Securities Act
covering such shares, or compliance with Rule 144 or Rule 145 promulgated under
the Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Pursuant to the AWS Merger Agreement, AWS
has agreed, prior to the AWS Effective Time, to deliver to Heartland a letter
identifying all persons who at the time of the AWS Meeting may be deemed to be
AWS Affiliates.
ACCOUNTING TREATMENT
The AWS Merger will be accounted for by Heartland under the "purchase
method" of accounting in accordance with generally accepted accounting
principles. Accordingly, the aggregate consideration paid by Heartland in
connection with the AWS Merger will be allocated to AWS's assets based upon
their fair values, and the results of operations of AWS will be included in the
results of operations of Heartland only for periods subsequent to the AWS
Effective Time.
INTERESTED PARTIES
If the AWS Merger is consummated, Heartland intends to terminate all AWS
employees immediately following the AWS Effective Time. Certain executive
officers of AWS, including Steven G. Johnson, Daniel A. Cartwright and Todd J.
Parriott, have employment agreements with AWS, each of which provides for
certain severance payments to be made following a termination. The total amount
of payments to be made by AWS following the termination is approximately
$830,000. Heartland has entered into a non-competition and consulting agreement
with Mr. Johnson, pursuant to which, in lieu of any amounts owed to him as a
result of the termination of his employment, Mr. Johnson will receive payment in
consideration of transactional and other assistance to be provided to Heartland
following the AWS Merger and Mr. Johnson's agreement not to compete with
Heartland or its affiliates for a period of three years following the AWS
Merger. In addition, the executive officers and directors of AWS hold options to
acquire 74,997 shares of AWS Common Stock. See "Terms of AWS the AWS
Merger -- Terms of AWS Merger Agreement -- Conversion of AWS Common Stock in the
AWS Merger." See "Information Concerning Heartland -- Certain Transactions."
VOTING AGREEMENTS
Concurrently with the execution of the AWS Merger Agreement, certain
stockholders of AWS holding approximately 37% of the outstanding shares of AWS
Common Stock placed their shares in a voting trust pursuant to the terms of a
voting trust agreement, pursuant to which such stockholders agreed to vote in
favor of the AWS Merger.
CERTAIN EXPENSES
Pursuant to the provisions of the AWS Merger Agreement, AWS is responsible
for its own expenses, including legal and accounting fees incurred in connection
with the negotiation, execution and delivery of the AWS Merger Agreement and
certain of the expenses to be incurred in connection with the consummation of
the transactions contemplated hereby.
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THE FTW TRANSACTION
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE FTW
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
FTW AGREEMENT, ATTACHED HERETO AS APPENDIX F, WHICH IS INCORPORATED HEREIN BY
REFERENCE.
FOR A DESCRIPTION OF THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
HEARTLAND CONCERNING THE FTW TRANSACTION AND THE REASONS GIVEN THEREFOR,
TOGETHER WITH A DESCRIPTION OF THE OPINION OF HEARTLAND'S ADVISOR, SEE
"RECOMMENDATIONS OF THE HEARTLAND BOARD; OPINIONS OF HEARTLAND'S ADVISOR."
REASONS FOR THE FTW TRANSACTION
The FTW Committee approved the FTW Agreement and FTW Transaction
contemplated thereunder based upon its determination that the FTW Transaction
was likely to provide the FTW Partners with increased liquidity for their
ownership interest, represented a favorable means of resolving certain claims
arising from the organization of FTW Partnership, and was likely to result in a
greater potential for long-term value than FTW Partnership would have if it
continued as a participant in the FTW Venture.
TERMS OF THE FTW AGREEMENT
Acquisition; Consideration. Effective October 4, 1995, Heartland and FTW
Partnership executed the FTW Agreement. Upon the consummation of and pursuant to
the FTW Agreement, (i) FTW Partnership will assign to Heartland substantially
all of its assets, consisting of the FTW Interest, (ii) FTW Partnership and the
FTW Partners approving the FTW Transaction will either assign (the "FTW Claim
Assignment") to Heartland or release (the "FTW Claim Release") the FTW Claims
(as hereinafter defined), (iii) Heartland will assume up to $570,000 of certain
types of liabilities (including disputed liabilities) of FTW Partnership to AWS,
and (iv) Heartland will issue to FTW Partnership newly issued freely tradeable
shares of Heartland Common Stock ("FTW Shares") having an aggregate exchange
value of $13.3 million. The exchange value for the shares of Heartland Common
Stock to be issued in connection with the FTW Agreement will be equal to the
average closing price of the Heartland Common Stock as quoted on the Nasdaq-NMS
over the ten-trading-day period ending on the fifth business day preceding the
consummation of the FTW Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996); provided that if such average
closing price is in excess of $23 per share, the exchange value shall be $23 per
share. Further, either FTW Partnership or Heartland, at its option, may
terminate the FTW Agreement if such average closing price is below $17 per
share. Heartland currently intends to exercise such right, if applicable. As a
result, a maximum of 782,353 shares of Heartland Common Stock are issuable in
connection with the FTW Agreement. The FTW Agreement also grants to Heartland a
right of first refusal with regard to the FTW Interest.
Mutual Release or Assignment of FTW Claims. FTW Partnership and AWS have
ongoing disagreements as to the respective rights and obligations of AWS on one
hand and FTW Partnership and the FTW Partners on the other. FTW Partnership
believes that the factual background of the relationship between FTW Partnership
and AWS, and certain acts (or omissions) of AWS and its current and former
officers, directors, and related parties, potentially form the basis of certain
causes of action by the FTW Partners and FTW Partnership against AWS and its
current and former officers, directors, and related parties for which FTW
Partnership could seek recovery of monetary damages. Such causes of action are
referred to herein as the FTW Claims and are further described herein. See "The
FTW Transaction -- Description of FTW Claims." On the other hand, AWS has
asserted that it is owed certain amounts, including management fees, by the FTW
Venture (for which the FTW Partners and FTW Partnership could be liable), which
assertion FTW Partnership disputes. The FTW Agreement provides two alternatives
with respect to the rights and obligations of FTW Partnership and Heartland in
regard to the FTW Claims. As one alternative, Heartland will obtain from AWS and
its current officers, directors, and certain related parties, Wireless
California, AWS
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Liquidating, L.L.C., Micom Products, Ltd., Jeffrey D. Howes, Dexter S. Cohen,
Kevin C. King and Steven G. Johnson (collectively, the "AWS Parties") execution
and delivery of a mutual release ("FTW Claim Release") in the form attached
hereto as Appendix G, which FTW Claim Release would also be executed by FTW
Partnership. FTW Partners consenting to the FTW Transaction will, by their
consent, become a party to the FTW Claim Release. The FTW Claim Release will be
a mutual release of any and all claims and causes of action that each AWS Party
and FTW Partnership and FTW Partners consenting to the FTW Transaction may have
as to any other party to the release, including, without limitation, the FTW
Claims.
In the event the FTW Claim Release is not executed by such parties, the FTW
Agreement provides that FTW Partnership and FTW Partners approving the FTW
Transaction would assign the FTW Claims (or certain of those claims) to
Heartland at the closing in the form of FTW Claim Assignment attached hereto as
Appendix H ("FTW Claim Assignment"). Through the FTW Claim Assignment, FTW
Partnership and FTW Partners approving the FTW Transaction would assign to
Heartland all of such parties' right, title, and interest in the FTW Claims,
provided however, FTW Partnership would retain an interest in the FTW Claims
from and after the closing which will allow FTW Partnership to assert the FTW
Claims in connection with or as a defense to any action brought by any AWS Party
against FTW Partnership or any FTW Partner. Additionally, through the FTW Claim
Assignment, Heartland would indemnify FTW Partnership and FTW Partners approving
the FTW Transaction from the FTW Claims as set forth in the FTW Claim
Assignment.
FTW Earnest Money; FTW Loan. In connection with the FTW Agreement,
Heartland (a) deposited in escrow $100,000 on October 12, 1995, $55,000 on
November 7, 1995, $55,000 on December 1, 1995, $55,000 on January 5, 1996 and
has agreed to deposit in escrow an additional $55,000 on the first day of each
month thereafter (collectively, "FTW Earnest Money"), and (b) has agreed to loan
to the FTW Partnership up to $500,000 (the "FTW Loan"), $350,000 of which has
been advanced through January 15, 1996. The FTW Loan is secured by a first lien
on the FTW Interest pursuant to a security agreement between Heartland and FTW
Partnership, and the proceeds thereof will be disbursed and utilized in
accordance with a loan agreement ("FTW Loan Agreement"), promissory note ("FTW
Note"), and security agreement each between FTW Partnership and Heartland
(collectively, the "FTW Loan Documents"). As set forth in the FTW Loan
Agreement, the proceeds of the FTW Loan have been or will be used by FTW
Partnership to pay certain outstanding expenses of FTW Partnership, including
legal and accounting fees, and expenses incurred or to be incurred to consummate
the FTW Transaction.
The outstanding principal balance of the FTW Note and all accrued but
unpaid interest thereon are due and payable in full on the first to occur of the
following dates: (i) if the FTW Transaction is consummated in accordance with
the FTW Agreement, then the date of closing thereunder from the proceeds of FTW
Shares to be liquidated pursuant to the FTW Liquidation Plan; (ii) if the FTW
Agreement is terminated by FTW Partnership because of the failure of any
representation or warranty made by the FTW Partnership to be true in all
material respects, or the failure of the FTW Partnership to materially perform
all of its obligations under the FTW Agreement, or if the FTW Agreement is
terminated by any party thereto arising from the failure of the FTW Transaction
to be approved by FTW Partners representing two-thirds ( 2/3) of the FTW Units,
then 90 days after the date of such termination; (iii) if the FTW Agreement is
terminated for reasons not otherwise provided for in the FTW Note, then six
months after the date of such termination; or (iv) if the FTW Agreement is
terminated as a result of a competing acquisition proposal and Heartland does
not exercise its right of first refusal regarding such acquisition proposal in
accordance with the FTW Agreement, then upon such termination.
REPRESENTATIONS AND WARRANTIES
Generally, the representations and warranties of FTW Partnership relate to
(i) the organization and operations of FTW Partnership, (ii) the absence of
undisclosed rights or liens with respect to the FTW Venture and FTW Interest,
(iii) the authority and enforceability of the FTW Agreement and the non-
contravention of the FTW Agreement with any agreement, law, or organizational
document of FTW Partnership, (iv) the financial statements of FTW Partnership
and absence of undisclosed liabilities, (v) the assets, liabilities and
operations of FTW Partnership and the FTW Venture, (vi) agreements or contracts
with third parties and affiliates, (vii) regulatory matters, and compliance with
laws, (viii) consents and approvals
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required in connection with the FTW Agreement, (ix) tax and litigation matters,
(x) the FTW Partners and the required approval for the FTW Transaction and (xi)
the accuracy of information for inclusion in the Proxy Statement and
Registration Statement. Generally, representations and warranties of Heartland
relate to (i) its corporation organization and standing, (ii) the authorization
and enforceability of the FTW Agreement and non-contravention of the FTW
Agreement with its charter documents, (iii) the absence of pending or threatened
litigation, (iv) consents and approvals required in connection with the FTW
Agreement, (v) capitalization, (vi) the accuracy of Heartland's financial
statements and securities filings, and (vii) the accuracy of information to be
included in the Proxy Statement and the Registration Statement.
COVENANTS AND OBLIGATIONS
Covenants Pending the Consummation or Termination of the FTW Agreement. FTW
Partnership has agreed that it will, and will use reasonable efforts to cause
the FTW Venture, to do the following, among other things: (i) not engage in any
practice or take any action other than in the ordinary course of business, (ii)
keep its business, properties and business relationships substantially intact,
(iii) pay and perform its debts and liabilities other than liabilities being
contested in good faith or as to which reserves have been established, (iv) not
take any action that would constitute a material breach of the FTW Agreement,
(v) use reasonable efforts to preserve, protect and maintain its rights under
various licenses and agreements, (vi) not amend or terminate any channel lease,
FCC license or other agreements, (vii) not make any distributions to FTW
Partnership, AWS or any FTW Partners, or sell or agree to sell any equity
interest or options or rights with respect thereto, (viii) not lease, transfer
or otherwise dispose of any assets, (ix) not increase the base compensation of,
enter into any new compensation arrangement with, or pay any salaries to any
employees except in the ordinary course of business, (x) not grant or transfer
any rights to the FTW Interest or FTW Claims, or (xi) not take any action that
would cause the FTW Transactions to be subject to subpart 900 of Regulation S-K,
promulgated under the Securities Act and Exchange Act ("Roll-up Rules").
Other Agreements. FTW Partnership has also agreed to assist Heartland in
obtaining all governmental approvals required in connection with the FTW
Transaction and to file, or use reasonable efforts to cause the FTW Venture to
file, all required reports with the FCC.
NO SOLICITATION
Under the FTW Agreement, FTW Partnership has agreed that neither it nor any
of its executive committee members, officers, managers, employees, agents or
other representatives will solicit, initiate or encourage any discussions or
negotiations with any third party concerning any tender or exchange offer,
merger, consolidation or other business combination involving FTW Partnership or
the FTW Venture or any proposal to acquire any substantial equity interest in,
or substantial portion of the assets of, FTW Partnership or the FTW Venture,
other than the transactions contemplated by the FTW Agreement (collectively "FTW
Acquisition Proposal"); provided, however, that FTW Partnership may furnish
information or enter into discussions with a third party that makes an
unsolicited bona fide offer to acquire FTW Partnership or a substantial portion
of its assets to the extent that the FTW Committee determines that such action
is required to comply with its fiduciary duties to the FTW Partners. FTW
Partnership has agreed to notify Heartland immediately of any inquiries or
proposals with respect to any such transaction that are received by, or any such
negotiations or discussions that are sought to be initiated with, FTW
Partnership. Further, the ability of FTW Partnership to accept a competing offer
or proposal is subject to Heartland's right of first refusal.
CONDITIONS
The respective obligations of the parties to consummate the FTW Agreement
are subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) the effectiveness of the Registration Statement which includes
this Proxy Statement, filed in connection with the FTW Transaction and the
receipt of any required authorizations from state securities agencies, (ii) the
absence of any action or proceeding which is then in effect that has the effect
of prohibiting the FTW Agreement or the FTW Transaction or otherwise making the
consummation of the FTW Transaction or any of the transactions contemplated
thereby illegal, (iii) the FTW Transaction shall have been approved by FTW
Partners holding two-thirds ( 2/3) of the
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FTW Units, (iv) Heartland shall not be required to comply with the Roll-up
Rules, and (v) the exchange value for the shares of Heartland Common Stock to be
issued in connection with the FTW Transaction shall not be less than $17 per
share.
The obligation of Heartland to consummate the FTW Transaction are also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) requisite stockholder approval of the FTW Transaction by the
stockholders of Heartland, (ii) the accuracy in all material respects of the
representations and warranties of FTW Partnership set forth in the FTW
Agreement, (iii) the delivery of certain documents, certificates and legal
opinions of FTW Partnership, (iv) the absence of any material adverse change
with regard to FTW Partnership and the FTW Venture, (v) the performance by FTW
Partnership in all material respects of its obligations under the FTW Agreement,
(vi) the receipt of a consent letter from FTW Partnership's accountants, and
(vii) the receipt of all necessary and appropriate governmental and third party
consents and approvals.
The obligation of FTW Partnership to consummate the FTW Agreement are also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) the approval of the FTW Transaction by FTW Partners holding no
less than two-thirds ( 2/3) of the FTW Units, (ii) the accuracy in all material
respects of the representations and warranties of Heartland set forth in the FTW
Agreement, (iii) the delivery of certain documents, certificates and legal
opinions by Heartland, (iv) the performance by Heartland in all material
respects of their respective obligations under the FTW Agreement, and (v) the
absence of any change in the business or its Heartland requiring an amendment or
supplement to this Proxy Statement.
REGULATORY APPROVALS
The FTW Transaction does not require any regulatory approvals other than
federal and state filings and approvals required under applicable securities
laws in connection with the effectiveness of the Registration Statement of which
this Proxy Statement forms a part.
TERMINATION
The FTW Agreement may be terminated and abandoned at any time prior to
closing, before or after the approval by the FTW Partners and the stockholders
of Heartland, by the mutual consent of Heartland and FTW Partnership. The FTW
Agreement may be terminated and the FTW Transaction abandoned by FTW Partnership
(i) if the conditions to closing for FTW Partnership have not been satisfied in
full or, where permissible, waived on or before March 15, 1996, or earlier date
set forth therein, (ii) upon a default by Heartland in its obligations under the
FTW Loan, or (iii) upon the determination by FTW Partnership that the
requirements of any governmental or regulatory authority asserting jurisdiction
with respect to the FTW Transaction requires actions that the FTW Committee, in
its sole discretion, deems unreasonable. The FTW Agreement may be terminated and
the FTW Transaction may be abandoned by Heartland (i) if the closing conditions
for the performance by Heartland have not been satisfied or, where permissible,
waived on or before March 15, 1996, or earlier date set forth in the FTW
Agreement, or (ii) at any time prior to such date, at Heartland's election, upon
written notice to FTW Partnership from Heartland and the payment (or offset
against the FTW Loan) of the FTW Earnest Money.
In the event that the FTW Agreement is terminated as a result of an FTW
Acquisition Proposal, FTW Partnership shall, within two days of such
termination, deliver to Heartland the sum of $250,000 plus the outstanding
principal and accrued interest under the FTW Loan, and the FTW Earnest Money
shall be returned to Heartland. In general, if the FTW Agreement is terminated
by Heartland as a result of a breach of a representation, warranty or covenant
of FTW Partnership, then the FTW Earnest Money is to be returned to Heartland
and the FTW Loan is to be repaid in accordance with its terms. If the FTW
Agreement is terminated for any other reason, then the FTW Earnest Money will be
offset against the FTW Loan, and the remainder of the FTW Loan shall be repaid
in accordance with its terms.
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INDEMNIFICATION
FTW Partnership has agreed to indemnify, defend and hold harmless Heartland
from and against any damages incurred by Heartland arising out of (i) the breach
of a representation or warranty under the FTW Agreement, (ii) any failure by FTW
Partnership to perform any of its obligations under the FTW Agreement, (iii) any
liabilities of FTW Partnership (including the FTW Loan), other than liabilities
assumed by Heartland; and (iv) the operations and activities of FTW Partnership
and its affiliates, including those related to the FTW Interest, prior to the
consummation of the FTW Agreement. Pursuant to the terms of the FTW Agreement,
the indemnification obligations of FTW Partnership generally continue for a
period of four years following the consummation of the FTW Agreement. Because
FTW Partnership is a general partnership, and notwithstanding the anticipated
liquidation and dissolution of FTW Partnership, the FTW Partners will remain
personally liable for the indemnification obligations of FTW Partnership under
the FTW Agreement. In connection with the FTW Liquidation Plan, the FTW
Committee anticipates liquidating FTW Shares having an aggregate value of
approximately $1,350,000 to satisfy the estimated known and contingent
liabilities of FTW Partnership. In the event that claims are asserted against
FTW Partnership in excess of the proceeds of the FTW Shares or after the
completion of the liquidation and dissolution of FTW Partnership, the FTW
Partners may be jointly and severally liable to Heartland or any other third
parties asserting claims against FTW Partnership.
Heartland has agreed to indemnify, defend and hold FTW Partnership harmless
from and against damages incurred by it by reason of or arising out of or in
connection with (i) any breach of any representation or warranty of Heartland
contained in the FTW Agreement, (ii) any failure by Heartland to perform any of
its obligations under the FTW Agreement, and (iii) liabilities of FTW
Partnership expressly assumed by Heartland pursuant to the FTW Agreement.
DESCRIPTION OF FTW CLAIMS
The nature of the legal relationship between FTW Partnership and AWS as an
informal joint venture is not disputed by FTW Partnership, and is described as
such by AWS and its auditors in various public filings with the SEC. However,
FTW Partnership and AWS have ongoing disagreements as to the specific
obligations (both past and present) of AWS to FTW Partnership and the FTW
Partners. In particular, FTW Partnership believes that the factual background of
the relationship between FTW Partnership and AWS, and certain acts (or
omissions) of AWS, Wireless California, and certain of their current and former
officers, directors, and certain other affiliated or related parties (the
"Potential Defendants"), may form the basis of certain causes of action by FTW
Partnership against the Potential Defendants for which FTW Partnership could
seek recovery of monetary damage. In general, FTW Partnership believes that it
has possible claims against the Potential Defendants for, but not limited to (i)
breach of fiduciary duties owed by the Potential Defendants to FTW Partnership
by reason of and in connection with the fiduciary relationship between the
parties, including usurpation of FTW Venture opportunities by AWS as regards the
wireless cable industry in the Dallas, Texas, Memphis, Tennessee, and Los
Angeles, California markets; self-dealing by the Potential Defendants; and use
of FTW Partnership and FTW Venture funds for unauthorized purposes by the
Potential Defendants; (ii) breach of the terms of a purported joint venture
arrangement by the Potential Defendants by their failure to cause the FTW
Venture to achieve positive cash flow, obtain debt financing, and assure the
assets of the system were both as represented to the FTW Partnership and owned
by an appropriate entity; and (iii) various securities law violations primarily
directed at affiliates of AWS (collectively, the "FTW Claims").
FTW Partnership has discussed with AWS its general position regarding the
FTW Claims, and AWS has disputed both the facts upon which such claims would be
based and the interpretation of laws that would control a resolution thereof.
Notwithstanding FTW Partnership's belief that causes of action may exist against
the Potential Defendants, FTW Partnership cannot predict the likelihood of a
favorable outcome to FTW Partnership in the event the FTW Claims are pursued.
As part of the FTW Transaction, FTW Partnership and the FTW Partners
approving the FTW Transaction will either release the AWS Parties from the FTW
Claims, or in the event the release by
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FTW Partnership and AWS is not executed, FTW Partnership will assign to
Heartland the FTW Claims (which assignment would be subject to the retention by
FTW Partnership of certain rights and which would be accompanied by certain
indemnifications of Heartland to FTW Partnership).
ACCOUNTING TREATMENT
The FTW Transaction will be accounted for by Heartland under the "purchase
method" of accounting in accordance with generally accepted accounting
principles. Accordingly, the aggregate consideration paid by Heartland in
connection with the FTW Transaction will be allocated to FTW Partnership's
assets based upon their fair values, and the results of operations of FTW
Partnership will be included in the results of operations of Heartland only for
periods subsequent to the consummation of the FTW Transaction.
INTERESTED PARTIES
In regard to the FTW Transaction, no substantial interests of any member of
the FTW Committee exists in or to the FTW Transaction, except with respect to
interests arising from the ownership of FTW Units (for which benefits relating
thereto are shared only on a pro rata basis with all other FTW Partners).
CERTAIN EXPENSES
Pursuant to the provisions of the FTW Agreement, FTW Partnership is
responsible for its own expenses, including legal and accounting fees incurred
in connection with the negotiation, execution and delivery of the FTW Agreement
and certain of the expenses to be incurred in connection with the consummation
of the transactions contemplated thereby. FTW Partnership will not be
responsible for, and Heartland will pay, the fees and expenses of the Exchange
Agent, printing costs associated with the registration of the FTW Shares and the
solicitation of the partners of FTW Partnership, filing fees with the Commission
and the FCC, fees payable to third parties for certain consents and expenses
incurred in connection with any audit of FTW Partnership's financial statements.
In addition, FTW Partnership has incurred substantial legal and accounting fees
and expenses related to the conduct of its business since its formation.
Finally, FTW Partnership will incur and be responsible for expenses relating to
its dissolution and the winding up of its affairs. These expenses will include
legal and accounting fees and expenses relating to the preparation and
distribution of FTW Partnership final tax return. The fees and expenses to be
borne by FTW Partnership will be paid from the proceeds received by FTW
Partnership in connection with the FTW Transaction. These fees and expenses will
be deducted from the gross proceeds received by FTW Partnership, or held by the
Exchange Agent on its behalf, prior to any distributions to FTW Partners. As a
result, distribution to each FTW Partner will be reduced by such partner's pro
rata share of the fees and expenses incurred by FTW Partnership prior to the FTW
Agreement and in connection with the negotiation, execution, delivery and
consummation of the transactions contemplated hereby. Through December 31, 1995,
FTW Partnership has incurred approximately $691,000 in fees and expenses to be
paid out of proceeds of the FTW Transaction and expects to incur approximately
$209,000 in additional fees and expenses to be paid therefrom after the date
hereof.
THE MINNEAPOLIS TRANSACTION
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE
MINNEAPOLIS AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE MINNEAPOLIS AGREEMENT ATTACHED HERETO AS APPENDIX K WHICH IS
INCORPORATED HEREIN BY REFERENCE.
FOR A DESCRIPTION OF THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
HEARTLAND CONCERNING THE MINNEAPOLIS TRANSACTION AND THE REASONS GIVEN THEREFOR,
TOGETHER WITH A DESCRIPTION OF THE OPINION OF HEARTLAND'S ADVISOR, SEE
"RECOMMENDATIONS OF THE HEARTLAND BOARD; OPINIONS OF HEARTLAND'S ADVISOR."
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REASONS FOR THE MINNEAPOLIS TRANSACTION
The Minneapolis Committee approved the Minneapolis Transaction and
Minneapolis Agreement based upon its determination that the Minneapolis
Transaction was likely to provide the Minneapolis Partners with increased
liquidity for their ownership interest, represented a favorable means of
resolving certain questions and concerns arising from the organization of the
Minneapolis Partnership, and was likely to result in a greater potential for
long-term value than Minneapolis Partnership would have if it continued as a
member in the Minneapolis LLC.
TERMS OF THE MINNEAPOLIS AGREEMENT
Acquisition; Consideration. On October 4, 1995, Heartland and the
Minneapolis Partnership executed the Minneapolis Agreement. Upon the
consummation of and pursuant to the Minneapolis Agreement, (i) the Minneapolis
Partnership will assign to Heartland the Minneapolis Interest, (ii) the
Minneapolis Partnership and Minneapolis Partners will assign to Heartland the
Minneapolis Claims (iii) Heartland will assume up to $2.2 million of liabilities
of the Minneapolis Partnership to AWS, and (iv) Heartland will issue to the
Minneapolis Partnership that number of shares (the "Minneapolis Shares") of
Heartland Common Stock having an aggregate exchange value equal to the sum of
(A) $18 million plus (B) $500 for each wireless cable television subscriber in
excess of 2,500 ("Additional Subscribers") on the fifth business day preceding
the consummation of the Minneapolis Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996) (currently estimated to be 1,000
Additional Subscribers, and not anticipated to exceed 2,000 Additional
Subscribers, based upon the costs of adding additional subscribers and the
capital revenues currently available to the Minneapolis LLC and Minneapolis
Partnership). Assuming there are 1,000 Additional Subscribers on the relevant
date, Minneapolis Partnership will receive Minneapolis Shares having an
aggregate exchange value of $18.5 million. The exchange value of the Heartland
Common Stock to be issued in the Minneapolis Transaction will be equal to the
average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS over the ten trading day period ending on the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 15, 1996
based upon a contemplated closing date of February 23, 1996); provided, however,
that if such average is (a) greater than or equal to $23 per share but less than
$30 per share, then the exchange value will be $23 per share, and (b) greater
than or equal to $30 per share, then the exchange value will be (i) the product
of the closing average multiplied by $23, divided by (ii) $30 per share, and the
number of Minneapolis Shares will be adjusted accordingly. Further, either
Minneapolis Partnership or Heartland, at its option, may terminate Minneapolis
Agreement is such closing average is below $17 per share. Heartland currently
intends to exercise such right. As a result, a maximum of 1,117,647 shares of
Heartland Common Stock are issuable in connection with the Minneapolis Agreement
(assuming that there will be no more than 4,500 subscribers to the Minneapolis
System on the fifth business day preceding the consummation of the Minneapolis
Agreement). The Minneapolis Agreement also grants to Heartland a right of first
refusal with regard to the Minneapolis Interest.
Assignment of Minneapolis Claims. Upon the consummation of the Minneapolis
Agreement, Minneapolis Partnership and the Minneapolis Partners approving the
Minneapolis Transaction will assign to Heartland all of such parties' right,
title and interest in the Minneapolis Claims. See "The Minneapolis
Transaction -- Description of Minneapolis Claims."
Resolutions of Disputes. Under the terms of the Minneapolis Agreement,
certain claims may be resolved by mutual agreement of the parties prior to
closing, with any agreed damages relating thereto ("Stipulated Damages") to be
paid from the liquidation of Minneapolis Shares in connection with the
dissolution of Minneapolis Partnership pursuant to the Minneapolis Liquidation
Plan (as hereinafter defined); provided that the aggregate amount of such
Stipulated Damages may not exceed $1 million. Pursuant to the terms of the
Minneapolis Agreement, claims by Heartland against Minneapolis Partnership for
breaches of the Minneapolis Agreement (other than Stipulated Damages) may only
be made during the six month period following the consummation of the
Minneapolis Transaction ("Claims Period"), and Heartland shall not have any
recourse to the Minneapolis Partners other than to the extent that the
Minneapolis Committee is in possession of the proceeds of Minneapolis Shares
liquidated for the payment of contingent claims (which Minneapolis Shares
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shall have an aggregate exchange value of at least $500,000). Any claims
asserted against the Minneapolis Partnership by Heartland after the closing of
the Minneapolis Transaction shall be subject to the alternative dispute
resolution procedures set forth in the Minneapolis Agreement.
Minneapolis Loan. In connection with the Minneapolis Agreement, Heartland
agreed to make the Minneapolis Loan. The Minneapolis Loan is secured by a first
lien on the wireless cable channel assets in the Minneapolis, Minnesota market,
and upon the consummation of the Minneapolis Agreement, the Minneapolis
Partnership will be responsible for the repayment of a portion of the
Minneapolis Loan (approximately $215,000 plus interest) from the proceeds of the
Minneapolis Shares to be liquidated in connection with the dissolution of the
Minneapolis Partnership. Approximately $575,000 of proceeds from the Minneapolis
Loan have been used to repay certain indebtedness of the Minneapolis LLC, and up
to $1 million ($484,000 of which has been advanced) of the Minneapolis Loan are
available for use for the purpose of either funding operating deficits (not to
exceed $100,000) of Minneapolis LLC or paying costs associated with adding
subscribers to the Minneapolis wireless cable television system.
REPRESENTATIONS AND WARRANTIES
Generally, the representations and warranties of Minneapolis Partnership
relate to (i) the organization and operations of Minneapolis Partnership, (ii)
the absence of undisclosed rights or liens with respect to the Minneapolis LLC
or Minneapolis Interest, (iii) the authority and enforceability of the
Minneapolis Agreement and the non-contravention of the Minneapolis Agreement
with any agreement, law, or organizational document of the Minneapolis
Partnership, (iv) the financial statements of Minneapolis Partnership and
absence of undisclosed liabilities, (v) the assets, liabilities and operations
of Minneapolis Partnership and the Minneapolis LLC, (vi) agreements or contracts
with third parties and affiliates, (vii) regulatory matters, and compliance with
laws, (viii) consents and approvals required in connection with the Minneapolis
Agreement, (ix) tax and litigation matters, (x) the Minneapolis Partners and the
required approval for the Minneapolis Transaction, and (xi) the accuracy of
information for inclusion in the Proxy Statement and in the Registration
Statement. Generally, representations and warranties of Heartland relate to (i)
its corporation organization and standing, (ii) the authorization and
enforceability of the Minneapolis Agreement and non-contravention of the
Minneapolis Agreement with its charter documents, (iii) the absence of pending
or threatened litigation, (iv) consents and approvals required in connection
with the Minneapolis Agreement, (v) capitalization, (vi) the accuracy of
Heartland's financial statements and securities filings, and (vii) the accuracy
of information to be included in the Proxy Statement and the Registration
Statement.
COVENANTS AND OBLIGATIONS
Covenants Pending the Consummation or Termination of the Minneapolis
Agreement. The Minneapolis Partnership has agreed, among other things, that
prior to the consummation of the Minneapolis Agreement or earlier termination
thereof, except as contemplated by the Minneapolis Agreement, the Minneapolis
Partnership will, and will use reasonable efforts to cause the Minneapolis LLC,
to do the following: (i) not engage in any practice or take any action other
than in the ordinary course of business, (ii) use its best efforts to keep its
business, properties and business relationships substantially intact, (iii) pay
all of its debts and liabilities except to the extent being contested in good
faith and as to which reserves have been established, (iv) not take any action
that would cause or constitute a material breach of the Minneapolis Agreement,
(v) preserve, protect and maintain its rights and channel leases, FCC licenses
and other contracts, (vi) not enter into, amend or terminate any channel lease,
FCC license, FCC permit, FCC application or other agreement, (vii) not make any
distributions to Minneapolis Partnership, AWS or the Minneapolis Partners, or
issue or sell any equity interests or options or rights with respect thereto,
(viii) not lease, transfer or otherwise dispose of any assets, (ix) not increase
in any manner the base compensation of, enter into any new compensation
arrangement with, or pay any salaries to any employees except in the ordinary
course of business, (x) not grant or transfer any rights to the Minneapolis
Interest or Minneapolis Claims, or (xi) not take any actions that would cause
the transactions contemplated hereby to be subject to subpart 900 of Regulation
S-K, promulgated under the Securities Act and the Exchange Act (the "Roll-up
Rules").
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Other Agreements. Minneapolis Partnership has also agreed to file, and to
use its best efforts to cause the Minneapolis LLC to file, all required reports
with the FCC. In addition, Minneapolis Partnership has agreed to obtain certain
consents and approvals required in connection with the Minneapolis Transaction
prior to the consummation thereof.
NO SOLICITATION
Under the Minneapolis Agreement, Minneapolis Partnership has agreed that
neither it nor any of its executive committee members, officers, managers,
employees, agents or other representatives will solicit, initiate or encourage
any discussions or negotiations with any third party concerning any tender or
exchange offer, merger, consolidation or other business combination involving
Minneapolis Partnership or the Minneapolis LLC or any proposal to acquire any
substantial equity interest in, or substantial portion of the assets of,
Minneapolis Partnership or the Minneapolis LLC (collectively "Minneapolis
Acquisition Proposal"), other than the transactions contemplated by the
Minneapolis Agreement; provided, however, that the Minneapolis Partnership may
furnish information or enter into discussions with a third party that makes an
unsolicited bona fide offer to acquire Minneapolis Partnership or the
Minneapolis LLC or a substantial portion of its assets to the extent that the
Minneapolis Committee determines that such action is required to comply with its
fiduciary duties to the Minneapolis Partners. Minneapolis Partnership has agreed
to notify Heartland immediately of any inquiries or proposals with respect to
any such transaction that are received by, or any such negotiations or
discussions that are sought to be initiated with, Minneapolis Partnership.
CONDITIONS
The respective obligations of the parties to consummate the Minneapolis
Agreement are subject to the satisfaction or, where permissible, waiver of the
following conditions: (i) the effectiveness of the Registration Statement, which
includes this Proxy Statement, filed in connection with the Minneapolis
Transaction and the receipt of any required authorizations from state securities
agencies, (ii) the absence of any action or proceeding which is then in effect
that has the effect of prohibiting the Minneapolis Agreement or the Minneapolis
Transaction or otherwise making the consummation of the Minneapolis Transactions
or any of the transactions contemplated thereby illegal, (iii) the approval of
Minneapolis Partners holding two-thirds ( 2/3) of the Minneapolis Units, (iv)
Heartland not being required to comply with the provisions of the Roll-up Rules,
and (v) the exchange value for the shares of Heartland Common Stock to be issued
in connection with the Minneapolis Transaction not being less than $17 per
share.
The obligation of Heartland to consummate the Minneapolis Agreement is also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) stockholder approval of the Minneapolis Agreement and related
issuance of shares of Heartland Common Stock by the stockholders of Heartland,
(ii) the accuracy in all material respects of the representations and warranties
of the Minneapolis Partnership set forth in the Minneapolis Agreement, (iii) the
delivery of certain documents, certificates, legal opinions and all necessary
and appropriate governmental and third party consents and approvals by the
Minneapolis Partnership, (iv) the absence of any material adverse change with
regard to the Minneapolis Partnership or Minneapolis LLC, (v) the performance by
the Minneapolis Partnership in all material respects of its obligations under
the Minneapolis Agreement, and (vi) consummation of the AWS Merger.
The obligation of the Minneapolis Partnership to consummate the Minneapolis
Agreement is also subject to the satisfaction or, where permissible, waiver of
the following conditions: (i) the approval of Minneapolis Partners holding no
less than two-thirds of the Minneapolis Units, (ii) the accuracy in all material
respects of the representatives and warranties of Heartland, (iii) the delivery
of certain documents, certificates and legal opinions by Heartland, (iv) the
performance by Heartland in all material respects of its obligations under the
Minneapolis Agreement, and (v) the absence of any change in the business or
affairs of Heartland requiring an amendment or supplement to this Proxy
Statement.
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REGULATORY APPROVALS
The Minneapolis Transaction will not require any regulatory approvals other
than federal and state filings and approvals required under applicable
securities laws in connection with the effectiveness of the Registration
Statement of which this Proxy Statement forms a part and FCC approval regarding
the transfer of control of commercial wireless cable television licenses held by
Minneapolis LLC.
TERMINATION
The Minneapolis Agreement may be terminated and abandoned at any time prior
to closing, before or after the approval by the Minneapolis Partners and the
stockholders of Heartland, by the mutual consent of Heartland and Minneapolis
Partnership. The Minneapolis Agreement may be terminated and the Minneapolis
Transaction abandoned by Minneapolis Partnership, if the conditions to closing
for the Minneapolis Partnership have not been satisfied in full or, where
permissible, waived on or before March 15, 1996. The Minneapolis Agreement may
be terminated and the Minneapolis Transaction may be abandoned by Heartland (i)
if the closing conditions for the performance by Heartland shall not have been
satisfied or, where permissible, waived on or before March 15, 1996, or (ii) at
any time prior to such date, at Heartland's election, upon written notice from
Heartland and the payment (or offset against the Minneapolis Loan) of $500,000
("Termination Fee").
In the event that the Minneapolis Agreement is terminated as a result of a
Minneapolis Acquisition Proposal, Minneapolis Partnership shall, within two days
of such termination, deliver to Heartland the sum of $750,000 plus the
outstanding principal and accrued interest under the Minneapolis Loan. In
general, if the Minneapolis Agreement is terminated by Heartland as a result of
a breach of a representation, warranty or covenant of Minneapolis Partnership,
then the Minneapolis Loan is to be repaid in accordance with its terms and the
parties will have no further liabilities or objections to each other. Generally,
if the Minneapolis Agreement is terminated for any other reason, then Heartland
will pay to Minneapolis Partnership (or offset against the Minneapolis Loan) the
Termination Fee, and the remainder of the Minneapolis Loan shall be repaid in
accordance with its terms.
INDEMNIFICATION
Pursuant to the terms of the Minneapolis Agreement, Heartland and the
Minneapolis Partnership may mutually resolve certain claims prior to the
consummation of the Minneapolis Agreement, with the amount of such claims (not
to exceed $1.0 million) to be paid to Heartland from the proceeds of Minneapolis
Shares to be liquidated in connection with the Minneapolis Liquidation Plan. The
Minneapolis Agreement provides that the representations, warranties and
covenants of the Minneapolis Partnership will survive for the six month Claims
Period during which the Minneapolis Partnership will engage in the winding-up
and liquidation of its affairs in accordance with the Minneapolis Liquidation
Plan, ("Minneapolis Liquidation Period"). During the Minneapolis Liquidation
Period, Heartland may pursue any remedies available at law or in equity against
the Minneapolis Partnership for breaches of the covenants, representations or
warranties under the Minneapolis Agreement. In addition, pursuant to the
Minneapolis Agreement, the Minneapolis Committee has agreed to liquidate
Minneapolis Shares having an aggregate exchange value of no less than $500,000
for potential claims of Heartland and third parties, and Heartland have agreed
that the proceeds of such shares will be the sole recourse to Heartland for the
breach of any representations, warranties or covenants under the Minneapolis
Agreement. Therefore, the Minneapolis Partners will not have personal liability
for any claims by Heartland under the Minneapolis Agreement following the
consummation of the Minneapolis Liquidation Plan. The resolution of disputes
between Heartland and the Minneapolis Partnership during the Minneapolis
Liquidation Period will be resolved in accordance with alternative dispute
resolution procedures set forth in the Dispute Resolution Agreement attached as
Exhibit 9.2 to the Minneapolis Agreement.
DESCRIPTION OF MINNEAPOLIS CLAIMS
Prior to the date hereof, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $11 million of general
partnership interest in the Minneapolis Partnership without registration
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under any federal or states securities laws. Following an investigation by the
Commission, AWS, Stephen G. Johnson, a director and officer of AWS and Jeffery
D. Howes, formerly a director and officer of AWS, without admitting or denying
any wrongdoing, agreed to consent to a proposed Order of the Commission to cease
and desist from committing or causing any violation and any future violations of
the securities registrations provisions of the Securities Act and the
broker-dealer registration provisions of the Exchange Act. In addition,
securities administrators in 22 states also have investigated or are presently
investigating the activities related to the unregistered sale of the general
partnership interest of the Minneapolis Partnership as well as two other general
partnerships.
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. There can be no assurances that other states will not investigate
these activities or issue similar orders.
Further research or investigation by counsel for Minneapolis Partnership
indicated that the partners might be entitled to request recision and to seek
monetary damages in addition to recision and refund of all amounts paid,
although it is possible that certain of these claims may be barred by one or
more relevant state or federal statutes of limitations.
If the claims were pursued successfully, it is possible that Minneapolis
Partnership or the individual Minneapolis partners could receive an award of
damages. However, the Minneapolis Partnership can not predict the likelihood of
unfavorable outcome if the Minneapolis Claims were pursued and whether the
defendants would have adequate resources to pay any judgment.
ACCOUNTING TREATMENT
The Minneapolis Transaction will be accounted for by Heartland under the
"purchase method" of accounting in accordance with generally accepted accounting
principles. Accordingly, the aggregate consideration paid by Heartland in
connection with the Minneapolis Transaction will be allocated to the Minneapolis
Partnership's asset based upon their fair values, and the results of operations
of the Minneapolis Partnership will be included in the results of operations of
Heartland only for periods subsequent to the consummation of the Minneapolis
Transaction.
INTERESTED PARTIES
In regard to the Minneapolis Transaction, no substantial interests of any
member of Minneapolis Committee exists in or to the Minneapolis Transaction,
except with respect to interest arising from the ownership of the Minneapolis
Units (for which benefits relating thereto are only shared on a pro rata basis
with the other Minneapolis Partners).
CERTAIN EXPENSES
Pursuant to the provisions of the Minneapolis Agreement, the Minneapolis
Partnership is responsible for its own expenses incurred in connection with the
negotiation, execution and delivery of the Minneapolis Agreement and the
consummation of the transactions contemplated thereby. Minneapolis Partnership
will not be responsible for, and Heartland will pay, the fees and expenses of
the Exchange Agent, printing costs associated with the registration of its
Minneapolis Shares and solicitation of the partners of Minneapolis Partnership
and filing fees with the Commission and FCC. Among these expenses will be legal
and accounting fees incurred and expenses relating to the conduct of the
Minneapolis Meeting. Following the Minneapolis Meeting and consummation of the
Minneapolis Transaction, if that occurs, the Minneapolis Partnership will incur
and be responsible for expenses relating to its dissolution and the winding up
of its affairs. These expenses will include legal and accounting fees and
expenses relating to the preparation and distribution of the Minneapolis
Partnership's final tax return. The fees and expenses to be borne by the
Minneapolis Partnership will be paid from the proceeds received in connection
with the Minneapolis Transaction. These fees will be
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deducted from the gross proceeds received by the Minneapolis Partnership prior
to any distributions to partners. As a result, distributions to each Minneapolis
Partner will be reduced by such partner's pro rata share of the fees and
expenses incurred by the Minneapolis Partnership in connection with the
negotiation, execution, delivery and consummation of the Minneapolis Agreement
and the transactions contemplated thereby.
THE CMAX MERGER
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE CMAX
MERGER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
CMAX MERGER AGREEMENT ATTACHED HERETO AS APPENDIX O, WHICH IS INCORPORATED
HEREIN BY REFERENCE.
FOR A DESCRIPTION OF THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
HEARTLAND CONCERNING THE CMAX MERGER AND THE REASONS GIVEN THEREFOR, TOGETHER
WITH A DESCRIPTION OF THE OPINION OF HEARTLAND'S ADVISOR. SEE, "RECOMMENDATIONS
OF THE HEARTLAND BOARD; OPINIONS OF HEARTLAND'S ADVISOR."
REASONS FOR THE CMAX MERGER
The Board of Directors of CMAX (the "CMAX Board") determined that the CMAX
Merger and the CMAX Merger Agreement are advisable and in the best interests of
CMAX and its stockholders and unanimously approved the CMAX Merger and the CMAX
Merger Agreement.
TERMS OF THE CMAX MERGER AGREEMENT
The CMAX Merger. On September 11, 1995, Heartland, CMAX Merger Sub and CMAX
executed the CMAX Merger Agreement. Subject to the terms of CMAX Merger
Agreement, at the CMAX Effective Time (as defined hereafter), (i) CMAX Merger
Sub will merge with and into CMAX, (ii) the separate existence of CMAX Merger
Sub will cease, (iii) CMAX will be the surviving corporation in the CMAX Merger
(the "CMAX Surviving Corporation"), and the internal corporate affairs of the
CMAX Surviving Corporation will continue to governed by the laws of the State of
Delaware.
Certificate of Incorporation and Bylaws. The CMAX Merger Agreement provides
that the Certificate of Incorporation and Bylaws of the CMAX Merger Sub as in
effect immediately prior to the CMAX Effective Time will become the Certificate
of Incorporation and Bylaws of the CMAX Surviving Corporation; provided,
however, that the provisions in such Certificate or Bylaws relating to director
and officer indemnification shall be substantially the same as the provisions
currently contained in the Certificate of Incorporation and Bylaws of CMAX.
Directors and Officers. The directors and officers of the CMAX Merger Sub
(certain of the directors and executive officers of Heartland) at the CMAX
Effective Time will become the directors and officers of the CMAX Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal.
Conversion of CMAX Common Stock in the CMAX Merger. At the CMAX Effective
Time, all of the issued and outstanding shares of CMAX Common Stock will be
converted into the right to receive a proportionate amount of that number of
newly issued publicly tradeable shares of Heartland Common Stock having an
aggregate exchange value of approximately $80.8 million for all the shares of
CMAX Common Stock (the "CMAX Merger Consideration") resulting in each share of
CMAX Common Stock, subject to adjustment, being converted into the right to
receive that portion of a share of Heartland Common Stock having an exchange
value of $8.50 per share. The exchange value of the Heartland Common Stock to be
issued pursuant to the CMAX Merger will be equal to the average closing price of
Heartland Common Stock as reported on the Nasdaq-NMS for the 20-trading-day
period ending on the fifth business day preceding the consummation of the CMAX
Merger (or February 15, 1996 based upon a contemplated closing date of
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February 23, 1996). If CMAX's Net Liabilities exceed its Permitted Net
Liabilities (each as defined in the CMAX Merger Agreement) (such excess being
referred to as "CMAX Excess Liabilities"), the CMAX Merger Consideration shall
be reduced by the amount of the CMAX Excess Liabilities. Further, Heartland, at
its option, may terminate the CMAX Merger Agreement if such average closing
price is below $10 per share. Heartland currently intends to exercise such
right, if applicable. As a result, a maximum of 8,081,214 shares of Heartland
Common Stock are issuable in connection with the CMAX Merger. CMAX, at its
option, may terminate the CMAX Merger Agreement if such average closing price is
above $34.00 per share.
Fractional Shares. No fractional shares of Heartland Common Stock will be
issued in the CMAX Merger. Holders of CMAX Common Stock who would otherwise have
been entitled to a fractional share of Heartland Common Stock shall be entitled
to receive cash in lieu of such fractional share based upon its exchange value.
CMAX Sublease Agreement. In connection with the execution of the CMAX
Merger Agreement, CMAX entered into a Sublease and Purchase Agreement (the
"Sublease Agreement") with Heartland. Pursuant to the terms of the Sublease
Agreement, CMAX subleased to Heartland all of its wireless cable television
rights in the Additional Texas Systems and Heartland paid CMAX a $2.4 million
non-refundable deposit for such rights. If the CMAX Merger Agreement is
terminated as a result of a breach thereof by CMAX or as a result of the
acceptance by the Board of Directors of CMAX of a competing acquisition
proposal, Heartland will acquire such wireless cable television rights for
nominal additional consideration. If the CMAX Merger Agreement is terminated for
any other reason, Heartland shall acquire such wireless cable television rights
for an amount equal to the difference between the appraised value of such rights
and the $2.4 million previously paid by Heartland. CMAX has agreed to use the
non-refundable deposit from the Sublease Agreement solely for the purposes of
marketing, purchasing equipment or paying associated labor costs.
CMAX Loan. In connection with the CMAX Merger Agreement, Heartland has
agreed to loan to CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was
advanced on December 29, 1995 to be used for working capital purposes, and (b)
$500,000 may be used for subscriber growth. The CMAX Loan will not increase the
amount of CMAX Excess Liabilities. Upon consummation of the CMAX Merger
Agreement, it is anticipated that the CMAX Loan will remain as an inter-company
obligation from CMAX to Heartland. In the event that the CMAX Merger Agreement
is not consummated, the CMAX Loan is payable August 29, 1996; provided, that if
the CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
Noncompetition Agreements. For a period of three years from and after the
date of the consummation of the CMAX Merger, Charterhouse Equity Partners, L.P.
("CEP"), an affiliate of Charter Wireless, and Tommy L. Gleason, the President
and Chief Executive Officer of CMAX, have agreed not to own or operate a
wireless cable television business within a fifty-mile radius of any wireless
television cable market acquired by Heartland from CMAX.
Sale of Salt Lake City System. Pursuant to the CMAX Merger Agreement, CMAX
has the right to solicit bids for and negotiate the sale of the Salt Lake City
System, provided that (i) CMAX shall keep Heartland fully informed regarding the
status of any negotiation regarding the sale of the Salt Lake City System; (ii)
Heartland has the right to approve, in its reasonable discretion, the terms of
any proposed disposition of the Salt Lake City System, and the execution of a
definitive agreement is subject to Heartland's approval; and (iii) the gross
proceeds of any such disposition shall be placed in an escrow account and shall
remain in such account through the closing of the CMAX Merger Agreement.
Options and Warrants. CMAX has agreed that any outstanding stock options
and warrants to purchase shares of CMAX Common Stock not exercised prior to the
CMAX Effective Time shall be terminated as of the CMAX Effective Time. As of
December 31, 1995, officers and other key employees of CMAX held a total of
117,500 outstanding stock options exercisable at a price of $12.00 per share,
which is in excess of the consideration of $8.50 per share, subject to
adjustment, to be received pursuant to the CMAX Merger.
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EFFECTIVE TIME
Promptly following the receipt of all required governmental approvals and
satisfaction or waiver (where permissible) of the other conditions to the CMAX
Merger, the CMAX Merger will be consummated and will become effective at the
time at which the certificate of merger to be filed pursuant to the DGCL is
accepted for filing by the Secretary of State of Delaware or such later date and
time as may be specified in the certificate of merger (the "CMAX Effective
Time"). See "The CMAX Merger -- Conditions." It is currently anticipated that if
all conditions under the CMAX Merger Agreement have been met or (where
applicable) waived, including the approval and adoption of the CMAX Merger
Agreement by the stockholders of CMAX and Heartland, the CMAX Effective Time
will occur on or after the later of the CMAX Special Meeting or the Heartland
Special Meeting.
REPRESENTATIONS AND WARRANTIES
The CMAX Merger Agreement contains certain representations, warranties and
agreements of CMAX, Heartland and CMAX Merger Sub. CMAX has made certain
representations and warranties regarding, without limitation, its organization
and qualification and the listing of its shares, subsidiaries, capitalization,
authority to enter into the CMAX Merger Agreement, absence of conflicts between
the CMAX Merger Agreement and other agreements and documents, financial
statements, absence of material adverse changes since June 30, 1995, taxes,
title to and condition of real and personal property, receivables, material
contracts, FCC matters, insurance, litigation, registration rights, insurance,
certain activities and services, governmental permits, compliance with laws,
environmental matters, intellectual property, encumbrances and liens on CMAX's
assets, regulatory compliance, interference issues, employee plans, finders'
fees, compliance with the Copyright Act, programming agreements, adequacy of
filings with the Commission, information regarding directors, officers and
employees, bank accounts, certain claims, site leases and site options,
affiliates for purposes of Rule 145 of the Securities Act, wireless cable
television systems and subscribers.
Each of Heartland and CMAX Merger Sub have made certain representations and
warranties regarding its organization and qualification, authority to enter into
the CMAX Merger Agreement, absence of conflicts between the CMAX Merger
Agreement and other agreements and documents, litigation, government consents
and approvals, capitalization, issuance of Heartland Common Stock, financial
statements, adequacy of filings with the Commission and finders' fees.
COVENANTS AND OBLIGATIONS
Covenants Pending the Earlier of the CMAX Effective Time and the
Abandonment or Termination of the CMAX Merger. The CMAX Merger Agreement sets
forth certain obligations of CMAX pending the earlier of the CMAX Effective Time
and the abandonment or termination of the CMAX Merger. See "The CMAX
Merger-Termination." CMAX has agreed that it will, and will cause its
subsidiaries, to do the following, among other things: (i) operate the business
of CMAX only in the ordinary course, (ii) use reasonable efforts to preserve its
business, properties and business relationships substantially intact, (iii)
comply with and perform in all material respects the provisions of all
franchises, permits, licenses, or similar authorizations relating to CMAX's
business and the payment of all obligations when due, (iv) not materially breach
or take any action which would materially breach any of the representations and
warranties of CMAX in the CMAX Merger Agreement and to limit CMAX's liabilities,
(v) keep in full force and effect all of the FCC licenses, channel leases, any
obligations with respect to signal interference, certifications and permits and
all other material agreements related to the foregoing, (vi) not terminate or
amend any of its material contracts and governmental permits, except in
accordance with the CMAX Merger Agreement, (vii) not make any distributions or
dividends of cash or securities, (viii) not cause its subsidiaries to sell any
assets, except in the ordinary course of business, (ix) pay salaries or
compensation only in the ordinary course of business, (x) not transfer any
interest in any subsidiary and (xi) maintain CMAX Common Stock as a Nasdaq-NMS
security.
Other Agreements of CMAX, Heartland and CMAX Merger Sub. Pursuant to the
CMAX Merger Agreement, each of Heartland and CMAX is obligated to call a special
meeting of its stockholders to consider and vote upon the adoption and approval
of the CMAX Merger Agreement. Subject to its fiduciary duty to
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stockholders, the Board of Directors of each of CMAX is obligated to recommend
to the stockholders the adoption and approval of the CMAX Merger Agreement. In
addition, CMAX will (i) assist Heartland in obtaining estoppel certificates in
connection with material contracts and channel leases and certain accounts
payable and (ii) timely file or cause to be filed all required reports with the
FCC.
NO SOLICITATION
CMAX has agreed that it will not, and it will not permit any of its
officers, employees, representatives or agents (collectively, "CMAX
Representatives") to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a CMAX
Acquisition Proposal (as hereafter defined) from any person or engage in any
discussion or negotiations relating thereto or accept any CMAX Acquisition
Proposal. For purposes of the CMAX Merger Agreement, the term "CMAX Acquisition
Proposal" means any proposal or offer considered by the Board of Directors of
CMAX to be bona fide, other than a proposal or offer by Heartland or any of its
affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving CMAX or any of its subsidiaries or any proposal
to acquire in any manner a substantial equity interest in (x) CMAX or any of its
subsidiaries, (y) any rights of CMAX or any of its subsidiaries to any wireless
cable channels or (z) any wireless cable television system held by CMAX.
Notwithstanding the foregoing, nothing in the CMAX Merger Agreement shall
prohibit the Board of Directors of CMAX from (i) furnishing information to or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited bona fide proposal with respect to a CMAX Acquisition Proposal,
if and only to the extent that, (A) the Board of Directors of CMAX determines in
good faith that such action is required for the Board of Directors of CMAX to
comply with its fiduciary duties to its stockholders, and (B) prior to
furnishing such information to, or entering into discussions with or
negotiations with, such person or entity, to the extent permitted by applicable
law, CMAX provides notice to Heartland to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, and (C) to the extent permitted by applicable law, CMAX keeps
Heartland informed, on a current basis, of the status of any such discussions or
negotiations; (ii) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a CMAX Acquisition Proposal; or (iii) soliciting or receiving
offers for, negotiating the sale of, or selling the Salt Lake City System. See
"The CMAX Merger -- Termination."
CMAX has agreed to promptly inform Heartland as to the fact that
information is to be provided in response to an unsolicited inquiry with respect
to a CMAX Acquisition Proposal or that an offer has been received and has agreed
to furnish to Heartland the identity of the recipient of such information or the
proponent of such offer, if applicable, and, if an offer has been received, a
description of the material terms thereof.
CMAX has also agreed to terminate all discussions heretofore held with
third parties regarding possible CMAX Acquisition Proposals. CMAX has covenanted
that it will use reasonable efforts to cause a person provided proprietary
information in accordance with the foregoing to enter into a confidentiality
agreement.
CONDITIONS
The respective obligations of the parties to consummate the CMAX Merger are
subject to the satisfaction or, where permissible, waiver of the following
conditions, among others: (i) effectiveness of the Registration Statement which
includes this Proxy Statement, filed in connection with the CMAX Merger and the
receipt of any required authorizations from state securities agencies, (ii) the
absence of any action or proceeding which is then in effect and has the effect
of prohibiting the CMAX Merger or any of the transactions contemplated by the
CMAX Merger Agreement or otherwise making the consummation of the CMAX Merger or
any of the transactions contemplated thereby illegal, and (iii) receipt of
required consents and approvals, including the termination of all applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act").
The obligations of Heartland to consummate the CMAX Merger are also subject
to the satisfaction or, where permissible, waiver of the following conditions,
among others: (i) the requisite stockholder approval of
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the CMAX Merger by the stockholders of Heartland, (ii) the accuracy in all
material respects of the representations and warranties of CMAX set forth in the
CMAX Merger Agreement, (iii) the delivery of certain documents, certificates and
legal opinions by CMAX, (iv) the absence of any material adverse change to the
business of CMAX, (v) the receipt of a letter from CMAX's accountants, (vi) the
performance in all material respects by CMAX of all obligations required to be
performed by CMAX prior to the closing of the CMAX Merger, (vii) the delivery of
non-competition agreements by Mr. Gleason and CEP, and (viii) the Closing Share
Price of Heartland Common Stock (as defined in the CMAX Merger Agreement) not
being less than $10.00 per share.
The obligations of CMAX to consummate the CMAX Merger Agreement are subject
to the satisfaction or, where permissible, waiver of the following conditions,
among others: (i) the requisite stockholder approval of the CMAX Merger by the
stockholders of CMAX, (ii) the accuracy in all material respects of the
representations and warranties of Heartland and CMAX Merger Sub set forth in the
CMAX Merger Agreement, (iii) the delivery of certain documents, certificates and
legal opinions by Heartland and CMAX Merger Sub, (iv) the performance in all
material respects by Heartland and CMAX Merger Sub of all obligations required
to be performed by Heartland and CMAX Merger Sub prior to the closing of the
CMAX Merger, (v) the absence of any change in the business or affairs of
Heartland requiring an amendment or supplement to this Proxy Statement and (vi)
the Closing Share Price of Heartland Common Stock (as defined in the CMAX Merger
Agreement) not being greater than $34.00 per share.
REGULATORY APPROVALS
In addition to the federal and state approvals required in connection with
the effectiveness of this Proxy Statement, the CMAX Merger requires the early
termination of or lapse of waiting periods under the HSR Act, which early
termination was received by Heartland and CMAX, effective as of October 26,
1995.
TERMINATION
The CMAX Merger Agreement may be terminated and the CMAX Merger may be
abandoned at any time prior to the filing of the Certificate of Merger, before
or after the approval by holders of CMAX Common Stock and Heartland Common
Stock, by the mutual consent of Heartland, CMAX Merger Sub and CMAX.
The CMAX Merger Agreement may be terminated and the CMAX Merger may be
abandoned by Heartland and CMAX Merger Sub if (a) the conditions to closing for
Heartland or CMAX Merger Sub have not been satisfied or where permissible,
waived on or before February 29, 1996, provided that if certain liabilities of
CMAX on the closing of the CMAX Merger Agreement exceed the permitted
liabilities allowed therein, Heartland shall not have the right to terminate the
CMAX Merger Agreement but may reduce the CMAX Merger Consideration by the CMAX
Excess Liabilities or (b) CMAX's stockholders do not approve the CMAX Merger and
the CMAX Merger Agreement at the CMAX Meeting.
The CMAX Merger Agreement may be terminated and the CMAX Merger may be
abandoned by CMAX if (a) Heartland or CMAX Merger Sub shall have failed to
satisfy the covenants or agreements contained in the CMAX Merger Agreement or
such covenants or agreements have not been waived on or before February 29,
1996, or (b) if the CMAX Board of Directors approves the execution of an
agreement relating to CMAX Acquisition Proposal or recommends to the CMAX
stockholders the acceptance of any CMAX Acquisition Proposal.
In the event that the CMAX Merger is terminated as a result of a CMAX
Acquisition Proposal by a third party to CMAX that is approved by the CMAX Board
or recommended to the CMAX stockholders by the CMAX Board, then CMAX shall
promptly pay to Heartland all amounts outstanding under the CMAX Loan and a fee
of $2 million as reimbursement to Heartland for all costs and expenses incurred
in connection with the CMAX Merger Agreement and the transactions contemplated
thereby. In the event of any other termination of the CMAX Merger Agreement, any
rights and remedies which any of the parties to the CMAX Merger Agreement may
have against any such other party by reason of such termination shall not be
affected thereby but shall be preserved and may be exercised in accordance in
applicable law.
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VOTING AGREEMENTS
In connection with the execution of the CMAX Merger Agreement, Charter
Wireless, the holder of approximately 52.7% of the outstanding shares of CMAX
Common Stock (or 5,010,900 shares of CMAX Common Stock) has agreed to vote all
shares held by it in favor of the CMAX Merger. ACCORDINGLY, STOCKHOLDER APPROVAL
OF THE CMAX MERGER IS ASSURED. The approval of a majority of outstanding shares
of CMAX Common Stock is required for the approval of the CMAX Merger Agreement.
INDEMNIFICATION
The CMAX Merger Agreement provides that Heartland shall, and shall cause
the CMAX Surviving Corporation to (i) not change, for three years after the
closing of the CMAX Merger Agreement, the provisions of its Certificate of
Incorporation and Bylaws in effect on the closing of the CMAX Merger Agreement,
in each case relating to indemnification of each present or former director and
officer of CMAX and its subsidiaries (together with any successor by operation
of law, individually an "Indemnified Party" and collectively the "Indemnified
Parties") in a manner which adversely affects the rights of such Indemnified
Party to indemnification thereunder and (ii) perform its obligations thereunder.
Notwithstanding the foregoing, nothing in the CMAX Merger Agreement shall
constitute a waiver of, or otherwise operate to adversely affect, the existing
rights of the Indemnified Parties under the Certificate of Incorporation or By-
laws of CMAX in effect on the date of execution of the CMAX Merger Agreement.
The CMAX Merger Agreement also provides that Heartland shall cause the CMAX
Surviving Corporation to maintain for a period of three years, directors' and
officers' liability insurance covering those persons who are currently covered
by CMAX's current directors' and officers' liability insurance policy ("D&O
Policy") on terms comparable to those now applicable to directors or officers of
CMAX, provided that Heartland may, in lieu of maintaining such existing D&O
Policy, cause comparable coverage to be provided under any other policy,
including without limitation a policy maintained for the benefit of Heartland or
any of its subsidiaries, so long as the material terms thereof are no less
advantageous to such covered persons than those of the existing D&O Policy or at
any time after September 11, 1996, elect to assume the obligations of such
covered persons of the insurance company under the D&O Policy (subject to
limits, deductions and exclusions of such D&O Policy) through the date which is
three years following the closing of the CMAX Merger Agreement.
RESALES; AFFILIATES; REGISTRATION RIGHTS
In connection with the CMAX Merger, Heartland will grant registration
rights to Charter Wireless Cable Holdings, L.L.C., the majority stockholder of
CMAX ("Charter Wireless"), with respect to shares to be issued to such
stockholder in connection with the CMAX Merger Agreement that are subject to the
restrictions on transfer contained in Rules 144 and 145 promulgated by the
Commission under the Securities Act.
ACCOUNTING TREATMENT
It is anticipated that the CMAX Merger will be accounted for by Heartland
under the "purchase method" of accounting in accordance with generally accepted
accounting principles.
INTERESTED PARTIES
Certain members of CMAX's management may receive economic benefits as a
result of the CMAX Merger and may have other interests in the CMAX Merger. The
Board of Directors was aware of these interests and considered them along with
the other matters described above under "The CMAX Merger -- Background of the
CMAX Merger."
Certain employees and management of CMAX will receive severance payments
upon the termination or the closing of the CMAX Merger Agreement in the
aggregate amount of $330,000. James E. Bray, Executive Vice President and Chief
Operating Officer, Ralph G. Kelly, Vice President -- Chief Financial Officer and
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Douglas E. Montandon, Vice President -- Marketing, will each receive $75,000
upon the closing of the CMAX Merger Agreement.
Share Ownership. As of December 31, 1995, officers of CMAX owned of record
or beneficially an aggregate of 11,600 shares of CMAX Common Stock (exclusive of
shares which could be acquired upon exercise of exercisable options pursuant to
the CMAX Option Plan since the exercise price of such options exceeds the price
per share of CMAX Common Stock to be received in the CMAX Merger) in the
individual amounts hereinafter stated under the caption Appendix N: "Information
Concerning CMAX -- Security Ownership and Principal Stockholders of CMAX," for
which they will receive the same consideration as other holders of CMAX Common
Stock. In the event the CMAX Merger is consummated, Tommy L. Gleason, President
and Chief Executive Officer, and Messrs. Bray, Kelly and Montandon, will receive
a combination of shares of Heartland Common Stock and cash equal to $63,750,
$17,000, $8,500 and $9,350, respectively, without giving any effect to any
option exercise under the CMAX Option Plan. See "The CMAX Merger -- Terms of the
CMAX Merger Agreement" and Appendix N: "Information Concerning CMAX -- Security
Ownership and Principal Stockholders and Management."
Stock Option Plan. The officers of CMAX held a total of 105,000 outstanding
stock options as of December 31, 1995 issued under the 1993 CableMaxx, Inc.
Stock Option Plan. Each of such options is exercisable at a price of $12.00 per
share which is in excess of the per share consideration to be received by the
CMAX stockholders in the CMAX Merger. Accordingly, none of such options will be
exercised in connection with the CMAX Merger and all of such options will
terminate upon the effectiveness of the CMAX Merger.
Directors' and Officers' Indemnification. The CMAX Merger Agreement
provides that for a period of three years from the CMAX Effective Time, the
current or former directors or officers of CMAX will continue to enjoy all
rights to indemnification and exculpation from liability for acts or omissions
occurring prior to the CMAX Effective Time existing in their favor as of the
date of the CMAX Merger Agreement as provided in the CMAX Certificate of
Incorporation and Bylaws. In addition, Heartland has agreed to cause to be
maintained for a period of three years from the CMAX Effective Time CMAX's D&O
Policy or other policies with comparable coverage or may at any time after
September 11, 1996 elect to assume the obligations under the D&O Policy through
the date which is three years following the closing of the CMAX Merger
Agreement. See "The CMAX Merger -- Indemnification."
MATERIAL CONTACTS
During 1994, CMAX and Heartland had preliminary discussions regarding
exchanging some of CMAX's wireless cable channel rights in some of its smaller
markets for wireless cable channel rights of Heartland and cash. Heartland later
expressed interest in possibly acquiring all of CMAX and a confidentiality
agreement was signed on February 3, 1995. Heartland discontinued its discussions
with CMAX while it pursued a high-yield debt offering.
CERTAIN EXPENSES
The CMAX Merger Agreement provides that each party will pay its own fees
and expenses incident to preparing for, entering into and carrying out the CMAX
Merger Agreement and the consummation of the CMAX Merger.
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THE TSC TRANSACTION
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE TSC
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
TSC AGREEMENT ATTACHED HERETO AS APPENDIX Q WHICH IS INCORPORATED HEREIN BY
REFERENCE.
FOR A DESCRIPTION OF THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
HEARTLAND CONCERNING THE TSC TRANSACTION AND THE REASONS GIVEN THEREFOR,
TOGETHER WITH A DESCRIPTION OF THE OPINION OF HEARTLAND'S ADVISOR, SEE,
"RECOMMENDATIONS OF THE HEARTLAND BOARD; OPINIONS OF FINANCIAL ADVISOR."
REASONS FOR THE TSC TRANSACTION
The TSC Board approved the TSC Agreement and believes the transactions
contemplated thereby are fair to, and in the best interests of, the stockholders
of TSC. In reaching its decision to approve the TSC Transaction, the TSC Board
concluded, among other things, that (i) the valuation given the assets of TSC in
the TSC Agreement were attractive in light of prevailing market conditions, (ii)
the TSC Transaction represented an attractive alternative, to the TSC
stockholder, to the other business alternatives available to TSC and (iii) the
structure of the TSC Transaction might offer a favorable tax treatment to the
TSC stockholders in comparison to other possible transactions involving TSC's
assets or the TSC Common Stock.
TERMS OF THE TSC AGREEMENT
Acquisition; Consideration. On October 19, 1995, Heartland, TSC and
Technivision executed the TSC Agreement. Upon the consummation of and pursuant
to the TSC Agreement, TSC will sell to Heartland substantially all of its
assets, consisting of the wireless cable television assets in Dayton, Ohio,
Corpus Christi, Texas, and El Paso, Texas ("TSC Markets"), and Heartland will
issue to TSC (subject to the escrow requirements described below) that number of
shares of Heartland Common Stock ("TSC Shares") having an aggregate exchange
value of (a) $36.75 million plus (b) $1,200 for each wireless cable television
subscriber on the fifth business day preceding the consummation of the TSC
Agreement (or February 15, 1996 based upon a contemplated closing date of
February 23, 1996) in excess of amounts specified in the TSC Agreement
(currently estimated to be $1.5 million, provided that the aggregate of such
additional subscriber consideration shall not exceed $3.5 million) minus (c) the
amount of certain obligations to be assumed by Heartland (not to exceed $5
million and currently anticipated to be $5 million), minus (d) certain proceeds
to be retained by TSC from any sale of the Dayton, Ohio wireless cable
television system prior to the consummation of the TSC Agreement (collectively,
the "TSC Consideration"). The exchange value for the shares of Heartland Common
Stock to be issued in the TSC Transaction will be equal to the average closing
price of the Heartland Common Stock as reported on the Nasdaq-NMS of the
20-day-trading period ending on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996). Heartland, at its option, may
terminate the TSC Agreement if such average closing price is below $16 per
share. Heartland currently intends to exercise such right, if applicable. As a
result, a maximum of 2,515,625 shares of Heartland Common Stock are issuable in
connection with the TSC Transaction.
Indemnity Escrow; Consent Escrow. Upon the consummation of the TSC
Agreement, Heartland will deliver to the Exchange Agent TSC Shares having an
aggregate exchange value of $5 million ("Indemnity Shares") to be held in escrow
pursuant to the TSC Exchange Agreement for a period of up to 18 months to
satisfy the indemnification obligations to TSC to Heartland under the TSC
Agreement, and TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be held in escrow pursuant
to the TSC Escrow Agreement (attached as Appendix R to the Proxy Statement)
pending TSC's delivery of specified FCC consents and other approvals that are
not delivered on the date the TSC Agreement is consummated ("Consent Shares").
Pursuant to the terms of the TSC Escrow Agreement, (a) the Indemnity Shares will
be held in escrow for up to 18 months ("Indemnity Period"), during which period
Heartland will have the right to submit claims for indemnification to the
Exchange Agent subject to certain minimum amounts, and, following a claims
procedure, recover Indemnity Shares or the proceeds
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thereof for any claims for which indemnity is proper pursuant to the terms of
the TSC Agreement, and (b) the Consent Shares will be held in escrow for a
period of up to six (6) months (subject to extension) ("Consent Period"), during
which period TSC is to deliver to Heartland specified FCC consents and other
approvals required under the TSC Agreement ("Required Consents"). Any remaining
Consent Shares at the expiration of the Consent Period shall be released to
Heartland.
Noncompetition. In connection with the TSC Agreement, TSC has agreed that
for a period of five (5) years following the consummation of the TSC Agreement,
it will not engage in a competing business within a 100-mile radius of the TSC
Markets.
Sale of Dayton Market. Pursuant to the TSC Agreement and subject to the
consent of certain creditors of TSC, TSC and Heartland have the right to solicit
bids for the sale of the wireless cable television assets servicing the Dayton,
Ohio market ("Dayton Market"). In the event that the sale of the Dayton Market
occurs prior to the consummation of the TSC Agreement, then TSC will be entitled
to retain up to $11.7 million ("Dayton Proceeds") of such proceeds, plus $1,200
for each wireless cable television subscriber in the Dayton Market in excess of
3,050, and Heartland will be entitled to receive any proceeds in excess thereof
("Excess Dayton Proceeds"). Upon the sale of the Dayton Market prior to the
closing under the TSC Agreement, the TSC Consideration will be reduced by the
amount of the Dayton Proceeds.
Assumption of Liabilities. Pursuant to the TSC Agreement, Heartland has
agreed to assume and pay up to $5 million of liabilities of TSC at closing, and
any liabilities so assumed shall reduce the TSC Consideration.
OTHER ASSETS
In addition to the Technivision systems, TSC currently owns certain other
assets which are not being sold to Heartland pursuant to the TSC Transaction.
Such assets are comprised of (i) two SMATV systems in New Jersey operated by
TSC's subsidiary, Clearview Inc., (ii) two notes payable from third parties and
(iii) certain investment securities. Certain of these assets have been pledged
to creditors of TSC. In addition, the marketability and/or ultimate
collectibility of certain of these assets is in doubt. TSC is currently in the
process of seeking one or more purchasers for these assets. Pursuant to the TSC
Liquidation Plan, in the event that such assets are not sold prior to
distribution date established pursuant to the TSC Liquidation Plan, such assets
may be distributed in kind to the TSC stockholders pro rata in accordance with
their interests.
REPRESENTATIONS AND WARRANTIES
Generally, the representations and warranties of TSC (and its predecessor,
Technivision) relate to (i) corporate organization and qualification, (ii)
ownership and outstanding rights to assets, (iii) capitalization, (iv) the
authority and enforceability of the TSC Agreement and non-contravention of the
TSC Agreement with other agreements, laws or organizational documents, (v) the
accuracy of the financial statements of TSC, (vi) assets, liabilities and
contracts, (vii) regulatory matters, (viii) compliance with laws, (ix)
litigation and tax matters, (x) consents and approvals required in connection
with the TSC Agreement, and (xi) the accuracy of information to be included in
the Proxy Statement and the Registration Statement. Generally, the
representations and warranties of Heartland relate to (i) its corporate
organization and standing, (ii) authorization and enforceability of the TSC
Agreement and noncontravention of the TSC Agreement with its charter documents,
(iii) the absence of pending or threatened litigation, (iv) consents and
approvals required in connection with the TSC Agreement, (v) capitalization,
(vi) the accuracy of Heartland's financial statements and securities filings and
(vii) the accuracy of information to be included in the Proxy Statement and the
Registration Statement.
COVENANTS AND OBLIGATIONS
Covenants Pending the Consummation or Termination of the TSC Agreement. TSC
has agreed, among other things, that prior to the consummation of the TSC
Agreement or earlier termination thereof and with respect to the TSC Markets,
except as contemplated by the TSC Agreement, TSC will (i) not engage in any
practice or take any action other than in the ordinary course of business, (ii)
use reasonable efforts to keep its
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business, properties and business relationships substantially in tact, (iii) pay
and perform all of its debts and obligations except to the extent being
contested in good faith and as to which adequate reserves have been established,
(iv) perform its material obligations under its governmental authorizations and
contracts, (v) comply in all material respects with all governmental rules, (vi)
not take any action that would cause a material breach of the TSC Agreement,
(vii) use reasonable efforts to preserve, protect and maintain its rights in
channel leases, FCC licenses and other agreements, (viii) not enter into, amend
or terminate any channel lease, FCC license, permit, application or contract,
(ix) not make any distributions to the TSC stockholders or sell any equity
interest or options or rights with respect thereto, (x) not sell, lease,
transfer or otherwise dispose of any assets except as contemplated in the TSC
Agreement, (xi) enter into any new compensation arrangements with its employees
or pay any salaries other than in the ordinary course of business, and (xii) not
take any action that would cause the transactions contemplated by the TSC
Agreement to be subject to Subpart 900 of Regulation S-K, promulgated under the
Securities Act and Exchange Act ("Roll-up Rules").
Other Agreements. TSC has agreed to (a) use reasonable efforts to obtain
any required consents for the transfer of wireless cable television channel
rights to Heartland, (b) provide estoppel certificates from specified parties
certifying that TSC is not in default under the relevant agreements and that the
transactions contemplated by the TSC Agreement would not cause a default
thereunder, and (c) not take any action that would cause the net operating
losses of TSC to be less than $9.5 million or deny Heartland the ability to use
such losses following the close of the TSC Agreement.
NO SOLICITATION
Pursuant to the TSC Agreement, TSC has agreed that neither it nor any of
its officers, directors or other representatives will solicit, initiate, or
encourage any discussions or negotiations with any third party concerning any
tender offer, exchange offer, merger, consolidation or other business
combination involving TSC or any proposal to acquire a substantial equity in, or
a substantial portion in the assets of, TSC, other than transactions
contemplated by the TSC Agreement.
CONDITIONS
The respective obligations of the parties to consummate the TSC Agreement
are subject to the satisfaction of or, where permissible, waiver of the
following conditions: (i) the effectiveness of the Registration Statement, filed
in connection with the TSC Transaction and the receipt of any required
authorizations from state securities agencies, (ii) the absence of any action or
proceeding which is then in effect that has the effect of prohibiting the TSC
Agreement or the TSC Transaction or otherwise making consummation of the TSC
Transaction or any other transactions contemplated thereby illegal, (iii) the
receipt of all required consents and approvals, including the termination of all
applicable waiting periods under the HSR Act, and (iv) the approval of the TSC
Transaction by certain lenders of Heartland and TSC.
The obligations of Heartland to consummate the TSC Transaction are also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) required stockholder approval of the TSC Transaction by the
stockholders of Heartland, (ii) the accuracy in all material respects of the
representations and warranties of TSC set forth in the TSC Agreement, (iii) the
delivery of certain documents, certificates and legal opinions of TSC, (iv) the
absence of any material adverse change with regard to TSC, (v) the execution of
a noncompetition agreement by TSC, (vi) the performance by TSC in all material
respects of its obligations under the TSC Agreement, (vii) the exchange value
not being less than $16 per share of Heartland Common Stock.
The obligations of TSC to consummate the TSC Transaction are also subject
to the satisfaction or, where permissible, waiver of the following conditions:
(i) the approval of the TSC Stockholders of the TSC Agreement, (ii) the accuracy
in all material respects of the representations and warranties of Heartland,
(iii) the delivery of certain documents, certificates and legal opinions by
Heartland, (iv) the performance by Heartland, in all material respects of their
respective obligations under the TSC Agreement, (v) the absence
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of any change in the business or affairs of Heartland acquiring amendment or
supplement to this Proxy Statement, and (vi) the exchange value shall not be
greater than $40 per share of Heartland Common Stock.
REGULATORY APPROVALS
In addition to the federal and state approvals required in connection with
the effectiveness of the Registration Statement of which this Proxy Statement
forms a part, Heartland and TSC have made or expect to make certain regulatory
filings with (1) the FCC for the transfer of TSC's commercial wireless cable
television licenses to Heartland and (2) the Federal Trade Commission and the
Antitrust Division of the Department of Justice pursuant to the HSR Act. The TSC
Agreement is conditioned upon notification of expiration of the waiting period
under the HSR Act.
TERMINATION
The TSC Agreement may be terminated and abandoned at any time prior to
closing, before or after the approval of the stockholders of TSC and Heartland,
by the mutual consent of Heartland and TSC. The TSC Agreement may be terminated
by TSC if the conditions to closing for TSC have not been satisfied in full or,
where permissible, waived on or before February 29, 1996. The TSC Agreement may
be terminated by Heartland (i) if the closing conditions for the performance by
Heartland have not been satisfied or, where permissible, waived on or before
February 29, 1996, or earlier date set forth therein, and (ii) in connection
with TSC's delivery of a supplemental schedule containing material changes from
any prior disclosure to Heartland, adverse to Heartland.
In the event that the TSC Agreement is terminated as a result of the
failure of TSC to receive the required consents of certain creditors to the TSC
transaction, TSC has agreed to pay Heartland the sum of $350,000 as liquidated
damages.
INDEMNIFICATION
TSC has agreed to indemnify, defend and hold harmless Heartland from and
against any damages incurred by Heartland arising out of (i) a breach of a
representation or warranty under the TSC Agreement, (ii) any failure by TSC to
perform any of its obligations under the TSC Agreement, (iii) any liabilities of
TSC, other than liabilities assumed by Heartland, and (iv) the operations and
activities of TSC and its affiliates, including activities relating to the
assets to be acquired by Heartland, prior to the consummation of the TSC
Agreement. Pursuant to the terms of the TSC Agreement, the indemnification
obligations of TSC continue for the duration of the Indemnity Period
(approximately 18 months). Heartland and TSC have agreed to the measure of
damages for breaches involving (i) the amount of net operating losses to
transfer with the assets to be acquired by Heartland, (ii) the number of
channels to which TSC has secured channel rights in each TSC Market, and (iii)
the number of subscribers in each TSC Market.
Heartland has agreed to indemnify, defend and hold TSC harmless from and
against damages incurred by TSC arising out of (i) any breach of any
representation or warranty of Heartland contained in the TSC Agreement, (ii) any
obligations assumed by Heartland, or (iii) any failure by Heartland to perform
its obligations under the TSC Agreement.
ACCOUNTING TREATMENT
As required by generally accepted accounting principles, the TSC
Transaction will be accounted for as a purchase. Under purchase accounting
principles, the assets of TSC to be purchased by Heartland and the liabilities
of TSC to be assumed by Heartland will be recorded at their fair market value on
the books and records of Heartland. Any purchase price in excess of such fair
market value will be recorded as an intangible asset (goodwill) and amortized
over its estimated useful life.
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INTERESTED PARTIES
Certain of the directors and executive officers of TSC have interests in
one or more creditors of TSC. To the extent that the TSC Transaction will result
in the payment of such creditors in full, those directors and executive officers
may be deemed to have an interest in the TSC Transaction. Except as described
above, to the knowledge of TSC, no director or executive officer of TSC has a
substantial interest, direct or indirect, in the TSC Transaction, other than any
interest arising from the ownership of securities of TSC.
WIRELESS CABLE INDUSTRY
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 Federal
Communications Commission (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 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. Heartland 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 Heartland'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 Heartland, 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 Heartland'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 Heartland, 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
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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. Heartland 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 "Wireless Cable Industry -- Competition -- Local Multi-Point
Distribution Service."
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 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. Subsequent to the September 15, 1995 deadline, the FCC
announced that it would accept new ITFS station applications, and major ITFS
modification applications not filed on or before September 15, 1995, from
October 16 through October 20, 1995. Competing applications filed in the same
window would be processed under existing comparative criteria.
Recently the FCC adopted a competitive bidding (auction) mechanism for the
award of initial licenses for MDS channels to replace the lottery procedure.
Auctions to award initial MDS licenses began on November 13, 1995. Successful
bidders will receive a blanket authorization to serve entire "Basic Trading
Areas" or "BTAs" (as defined by Rand McNally) on all MDS channels. The blanket
authorization will be subject to the submission of applications for MDS channels
demonstrating interference protection to the 35-mile-radius protected service
areas of MDS and ITFS stations licensed, or for which there is an application
for a license pending as of September 15, 1995. A BTA license holder must show
coverage of at least two-thirds of the BTA within five years of receiving the
BTA authorization. Auctions for each of the 493 BTAs commenced on November 13,
1995 for qualified bidders that had filed initial "short-form" applications and
submitted appropriate upfront payments by specified deadlines. Under the
statutory auction authority enacted in 1993, ITFS licenses are exempt from the
auction process and applications for ITFS licenses are expected to continue to
be awarded according to the FCC's existing comparative criteria.
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. Heartland's lease agreements with license holders
typically require the license holders, at Heartland's expense, to use their best
efforts, in cooperation with Heartland, to make various required filings with
the FCC in connection with the maintenance and renewal of licenses. Heartland
believes this reduces the likelihood that a license will be revoked, cancelled
or not renewed by the FCC.
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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.
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 Heartland's
unlaunched markets, Heartland has filed or will be required to file applications
with the FCC to modify licenses for unbuilt stations. In applying for these
modifications, Heartland 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.
If such changes would cause Heartland's signal to cause interference in the
FCC-protected area of another wireless cable channel license holder, Heartland
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 Heartland's ability to serve the
affected market.
When the FCC implements competitive bidding in the awarding of initial MMDS
licenses, Heartland cannot predict whether any increase in costs of renewing its
leases will result from increased license costs to the initial licensee.
However, Heartland does not believe that any such increased costs would
materially affect Heartland'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.
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 hardwire 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. These and other
aspects of the FCC's rate regulation of traditional hard-wire cable subscriber
fees have and will continue to be met by challenges both in the courts and at
the FCC. The FCC has also adopted regulations implementing the Cable Act that
require traditional hard-wire cable operators to establish standardized levels
of customer service. Heartland is currently unable to predict what effect these
regulations may have on Heartland's price and service competitiveness.
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 Heartland 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 Heartland's operating costs, make some
programming unavailable to Heartland and otherwise have a material adverse
effect on the wireless cable industry as a whole or Heartland 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
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distributors have been challenged. Heartland's costs to acquire satellite cable
and broadcast programming may be affected by the outcome of those challenges.
See "Wireless Cable Industry -- Availability of Programming." Other aspects of
the Cable Act that have been challenged, the outcome of which could adversely
affect Heartland and the wireless cable industry in general, are the Cable 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.
Legislation currently pending before Congress could materially impact
wireless cable ownership rules and the competitive environment in which
Heartland operates. The House and the Senate have passed bills, H.R. 1555 and
S.652, that, if enacted into law, would remove certain barriers to investment by
telephone companies in hard-wire cable companies. The proposed legislation would
lift the current statutory cross-ownership ban contained in the Communications
Act of 1934, as amended (the "Communications Act"), that prevents a telephone
company from using hard-wire facilities to provide cable television service to
the same community where it provides telephone service. The constitutionality of
this statutory cross-ownership ban is currently being considered by the U.S.
Supreme Court. This statutory ban has never been applied to a telephone
company's investment in wireless cable. If the pending legislation is enacted in
its current form or the U.S. Supreme Court determines that the cross-ownership
ban is unconstitutional, telephone companies operating in the markets serviced
by Heartland would be legally permitted to build, lease or purchase hard-wire
cable systems and become competitors of Heartland.
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 Heartland 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
Heartland 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
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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 Heartland are not currently directly owned by vertically integrated
multiple cable system operators and Heartland historically has not had
difficulty in arranging satisfactory contracts for these services. The basic
programming package offered in each of the Heartland 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 Heartland.
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 Heartland Existing Systems retransmit only a limited number
of broadcast channels, Heartland does not believe that the termination of the
compulsory copyright license would have a material adverse effect on Heartland.
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. Heartland
has obtained such consents in each of its Existing Systems where Heartland is
retransmitting on a wireless cable channel. Such consents will be required in
Heartland's other markets. There can be no assurance that Heartland will be able
to obtain such consents on terms satisfactory to Heartland, if at all.
PAY TELEVISION INDUSTRY TRENDS
Heartland's business will be affected by pay television industry trends
and, in order to maintain and increase its subscriber base in the years ahead,
Heartland 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, Heartland 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 Heartland 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 3-to-1 to 10-to-1. Within 12 months, Heartland believes
compression technology, allowing six to 10 channels within one 6-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. Heartland
believes traditional hard-wire cable companies will be required to expend
significant funds on upgrading current systems in order to utilize
digitally-compressed signals.
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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 Heartland, 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. Heartland
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. Heartland 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, Heartland believes that commercial
viability of interactivity in Heartland's markets is at least several years
away.
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 Heartland will to some degree
compete with these systems in marketing its services.
DIRECT BROADCAST SATELLITE
DBS involves the transmission of an encoded signal direct from a satellite
to the home user. 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. In 1994,
Hughes Communications, Inc. began offering DBS services capable of delivering
approximately 150 channels of
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programming. DBS receiver equipment for a single television set costs
approximately $700 per customer, plus installation fees. Each additional,
independent outlet requires a separate descrambling device at additional cost to
the subscriber. Primestar is offering DBS service for a monthly fee covering
programming services and equipment financing and is capable of providing
approximately 70 channels of programming. DBS subscribers pay monthly
subscription fees.
SATELLITE MASTER ANTENNA TELEVISION
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") formerly
were 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 United States Senate and the United States
House of Representatives have each passed a bill which, if enacted into law,
could lift carriers 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.
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. Heartland has obtained such consents in the Existing Systems where
Heartland is retransmitting on a wireless cable channel. See "Risk
Factors -- Factors Relevant to All of the Parties -- Government Regulation." The
FCC also has recently permitted broadcasters to acquire, subject to certain
restrictions, ownership interests in traditional hard-wire cable systems.
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.
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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.
EXPERTS
The consolidated financial statements and schedules of Heartland as of
December 31, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1994, have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Technivision as of December 31, 1994 and 1993,
and for each of the years in the three-year period ended December 31, 1994, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1994, financial statements contains an explanatory paragraph that
states that the Technivision recurring losses from operations and excess of
current liabilities over current assets raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
The consolidated balance sheets as of June 30, 1994 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows of
CMAX for the period December 18, 1992 to June 30, 1993 and the fiscal years
ended June 30, 1994 and 1995, and of the CMAX Predecessor for the period
commencing July 1, 1992 to December 17, 1992, included in this Proxy Statement
have been audited by Coopers & Lybrand L.L.P., independent certified public
accountants, as indicated in their report with respect thereto, which includes
an explanatory paragraph which states that specified circumstances raise
substantial doubt about CMAX's ability to continue as a going concern, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The financial statements of American Wireless Systems, Inc. included in
this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
The consolidated financial statements of Fort Worth Wireless Cable T.V.
Associates included in this Proxy Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report. Reference is made to
said report which includes an explanatory paragraph that describes factors
raising substantial doubt about the Company's ability to continue as a going
concern.
The consolidated financial statements of Wireless Cable TV Associates #38
included in this Proxy Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report. Reference is made to
said report which includes an explanatory paragraph that describes factors
raising substantial doubt about the Company's ability to continue as a going
concern.
LEGAL MATTERS
The validity of the shares of Heartland Common Stock being offered hereby
is being passed upon for Heartland by Arter & Hadden, 1717 Main Street, Suite
4100, Dallas, Texas 75201.
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GLOSSARY
As used in this Proxy Statement, the following terms shall have the meaning
set forth below:
"AWS" means American Wireless Systems, Inc., a Delaware corporation.
"AWS Merger" means the merger of AWS Merger Sub into AWS pursuant to the
terms of the AWS Merger Agreement.
"AWS Merger Agreement" means the Amended and Restated Agreement and Plan of
Merger dated as of September 11, 1995 among AWS, AWS Merger Sub and Heartland.
"AWS Merger Sub" means Heartland Merger Sub, Inc., a Delaware corporation
and wholly owned subsidiary of Heartland.
"CMAX" means CableMaxx, Inc., a Delaware corporation.
"CMAX Merger" means the merger of CMAX Merger Sub into CMAX pursuant to the
terms of the CMAX Merger Agreement.
"CMAX Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger dated as of September 11, 1995 among CMAX, CMAX Merger Sub and
Heartland.
"CMAX Merger Sub" means Heartland Merger Sub 2, Inc. a Delaware corporation
and wholly owned subsidiary of Heartland.
"Combined Company" means the businesses and operations of Heartland
following the consummation, to the extent consummated, of the Transactions.
"FTW Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 4, 1995 between FTW Partnership and Heartland.
"FTW Partnership" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
"FTW Transaction" means the transactions contemplated by the FTW Agreement.
"FTW Venture" means the informal joint venture between FTW Partnership and
AWS that owns and operates a wireless cable television system in Fort Worth,
Texas.
"Heartland" means Heartland Wireless Communications, Inc., a Delaware
corporation.
"Heartland Disposition Assets" means those assets of (i) Heartland, (ii)
AWS, (iii) CMAX, (iv) the FTW Venture, (v) the Minneapolis LLC and (vi) TSC,
that Heartland has determined to dispose of prior to, following or
contemporaneously with the consummation of the Transactions.
"Minneapolis Agreement" means the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 between Heartland and Minneapolis
Partnership.
"Minneapolis LLC" means American Wireless System of Minneapolis, L.L.C., a
Delaware limited liability company that owns and operates a wireless cable
television system in Minneapolis, Minnesota, of which Minneapolis Partnership
owns a 75% equity interest and AWS owns a 25% membership interest.
"Minneapolis Partnership" means Wireless Cable TV Associates # 38, a
California general partnership.
"Minneapolis Transaction" means the transactions contemplated by the
Minneapolis Agreement.
"Technivision" means Technivision, Inc., a former subsidiary of TSC that
has been merged with TSC.
"Transactions" means the AWS Merger, the CMAX Merger, the FTW Transaction,
the Minneapolis Transaction and the TSC Transaction.
"TSC" means Three Sixty Corp., a New Jersey corporation.
"TSC Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 19, 1995 among Heartland, Technivision and TSC.
"TSC Transaction" means the transactions contemplated by the TSC Agreement.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Heartland Wireless Communications, Inc.:
Independent Auditors' Report........................................................ F-3
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1992, 1993 and 1994 and for the nine months ended September 30, 1995
(unaudited)...................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-7
Notes to Consolidated Financial Statements.......................................... F-8
American Wireless Systems, Inc.:
Report of Independent Public Accountants............................................ F-22
Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-23
Statements of Operations for the ten months ended December 31, 1992, the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1994 and
1995 (unaudited)................................................................. F-24
Statements of Stockholders' Equity for the ten months ended December 31, 1992, the
years ended December 31, 1993 and 1994 and for the nine months ended September
30, 1995
(unaudited)...................................................................... F-25
Statements of Cash Flows for the ten months ended December 31, 1992, the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1994 and
1995 (unaudited)................................................................. F-26
Notes to Financial Statements....................................................... F-27
Fort Worth Wireless Cable T.V. Associates:
Report of Independent Public Accountants............................................ F-39
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-40
Consolidated Statements of Operations for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-41
Consolidated Statements of Partners' Equity for the years ended December 31, 1992,
1993 and 1994 and for the nine months ended September 30, 1995 (unaudited)....... F-42
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-43
Notes to Consolidated Financial Statements.......................................... F-44
Wireless Cable T.V. Associates #38:
Report of Independent Public Accountants............................................ F-49
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-50
Consolidated Statements of Operations for the ten months ended December 31, 1992,
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1994 and 1995 (unaudited).................................................... F-51
Consolidated Statements of Partners' Equity for the ten months ended December 31,
1992, the years ended December 31, 1993 and 1994 and the nine months ended
September 30, 1995 (unaudited)................................................... F-52
</TABLE>
F-1
<PAGE> 199
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Consolidated Statements of Cash Flows for the ten months ended December 31, 1992,
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1994 and 1995 (unaudited).................................................... F-53
Notes to Consolidated Financial Statements.......................................... F-54
CableMaxx, Inc. and Supreme Cable Co., Inc. and Subsidiaries:
Report of Independent Accountants................................................... F-59
Consolidated Balance Sheets as of June 30, 1994 and 1995, and September 30, 1995
(unaudited)...................................................................... F-60
Consolidated Statements of Operations for the period of July 1, 1992 to December 17,
1992, the period of December 18, 1992 to June 30, 1993, the years ended June 30,
1994 and 1995, and the three month periods ended September 30, 1994 and 1995,
(unaudited)...................................................................... F-61
Consolidated Statements of Stockholders' Equity for the period of December 18, 1992
to June 30, 1993, the years ended June 30, 1994 and 1995, and the three month
period ended September 30, 1995, (unaudited)..................................... F-62
Consolidated Statements of Cash Flows for the period of July 1, 1992 to December 17,
1992, the period of December 18, 1992 to June 30, 1993, the years ended June 30,
1994 and 1995, and the three month periods ended September 30, 1994 and 1995,
(unaudited)...................................................................... F-63
Notes to Consolidated Financial Statements.......................................... F-64
TechniVision, Inc.
Independent Auditors' Report........................................................ F-74
Balance Sheets as of May 31, 1994 and 1995 and November 30, 1995 (unaudited)........ F-75
Statements of Operations for the years ended May 31, 1993, 1994 and 1995 and for the
six months ended November 30, 1994 and 1995 (unaudited).......................... F-76
Statements of Stockholders' Deficit for the years ended May 31, 1993, 1994 and 1995
and for the six months ended November 30, 1995 (unaudited)....................... F-77
Statements of Cash Flows for the years ended May 31, 1993, 1994 and 1995 and for the
six months ended November 30, 1994 and 1995 (unaudited).......................... F-78
Notes to Financial Statements....................................................... F-79
Unaudited Pro Forma Financial Information:
Heartland Wireless Communications, Inc.:
Introduction to Unaudited Pro Forma Condensed Financial Statements for Consummated
Events........................................................................... F-84
Unaudited Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as
of September 30, 1995............................................................ F-85
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the year ended December 31, 1994...................................... F-86
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the nine months ended September 30, 1995.............................. F-87
Notes to Pro Forma Statements for Consummated Events................................ F-88
</TABLE>
F-2
<PAGE> 200
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, 1993 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,
1994. 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, 1993 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, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 3, 1995, except as to note 11
which is as of March 27, 1995
F-3
<PAGE> 201
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER
------------------------- 30,
1993 1994 1995
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 815,305 $11,985,953 $ 37,155,064
Restricted assets -- investments in debt
securities....................................... -- -- 11,669,874
Subscriber receivables, net of allowance for
doubtful accounts of $25,082 in 1993, $122,901 in
1994 and $551,866 in 1995........................ 74,560 219,287 1,407,830
Prepaid expenses and other.......................... 300,967 829,790 1,981,640
Note receivable (note 9)............................ -- 2,000,000 --
Assets held for sale (note 8)....................... -- 12,500,000 9,200,000
---------- ----------- ------------
Total current assets........................ 1,190,832 27,535,030 61,414,408
---------- ----------- ------------
Investment in joint venture (note 8).................. -- 12,044,392 --
Systems and equipment, net (notes 2 and 3)............ 3,036,226 16,765,179 46,027,017
Leased license investment, net of accumulated
amortization of $14,167 in 1993, $179,593 in 1994
and $785,362 in 1995 (note 8)....................... 4,286,867 16,740,139 64,726,389
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $80,815 in 1994
and $223,819 in 1995 (note 4)....................... -- 2,565,178 4,470,286
Restricted assets -- investment in debt securities.... -- -- 13,077,340
Other assets, net..................................... 151,141 2,271,610 10,435,034
---------- ----------- ------------
$8,665,066 $77,921,528 $200,150,474
========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 522,240 $ 3,840,744 $ 3,745,724
Accrued expenses and other liabilities.............. 329,783 1,062,253 6,498,639
Current portion of long-term debt (note 3).......... 338,851 19,918 616,610
---------- ----------- ------------
Total current liabilities................... 1,190,874 4,922,915 10,860,973
---------- ----------- ------------
Long-term debt, less current portion (note 3)......... 1,253,678 40,485,934 139,428,429
Deferred income taxes (note 6)........................ -- 1,045,959 1,287,560
Other long-term liabilities........................... 13,520 -- --
Minority interests in subsidiaries (note 4)........... 1,714,426 1,385,835 279,695
Stockholders' equity (note 5):
Common stock, $.001 par value; authorized 50,000,000
shares, issued 8,000,000 shares in 1993,
11,109,280 shares in 1994 and 12,476,393 shares
in 1995.......................................... 8,000 11,109 12,476
Additional paid-in capital.......................... 5,029,675 33,658,204 63,047,864
Accumulated deficit................................. (545,107) (3,588,428) (14,766,523)
---------- ----------- ------------
Total stockholders' equity.................. 4,492,568 30,080,885 48,293,817
---------- ----------- ------------
Commitments and contingencies (notes 7, 8 and 10) $8,665,066 $77,921,528 $200,150,474
========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 202
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 NINE MONTHS ENDED SEPTEMBER 30
------------------------------------- ------------------------------
1992 1993 1994 1994 1995
-------- ---------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
-------- ---------- ----------- ----------- ------------
Operating expenses:
Systems operations.................... 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.................... -- 202,162 235,025 235,025 --
Selling, general and administrative... 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and amortization......... 34,919 138,560 1,097,668 418,960 3,966,120
-------- ---------- ----------- ----------- ------------
Total operating expenses...... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
-------- ---------- ----------- ----------- ------------
Operating loss................ (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Other income (expense):
Interest income....................... 1,185 9,610 379,654 189,308 2,044,092
Interest expense...................... (1,392) (82,916) (589,767) (128,789) (8,908,459)
Equity in losses of joint venture
(note 8)........................... -- -- (386,985) (163,119) (128,663)
Other expense (notes 3, 4 and 9)...... (37,109) (95,578) (227,204) (34,192) (475,146)
-------- ---------- ----------- ----------- ------------
Total other income
(expense)................... (37,316) (168,884) (824,302) (136,792) (7,468,176)
-------- ---------- ----------- ----------- ------------
Loss before income taxes...... (50,822) (406,101) (4,638,284) (1,863,404) (12,485,232)
Income tax benefit (note 6)............. -- -- 1,594,963 649,510 1,307,137
-------- ---------- ----------- ----------- ------------
Net loss...................... $(50,822) $ (406,101) $(3,043,321) $(1,213,894) $(11,178,095)
======== ========== =========== =========== ============
Net loss per common share............... $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
======== ========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 203
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991.................. 8,000,000 $ 8,000 $ 253,593 $ (88,184) $ 173,409
Equity transactions of subsidiaries (note
4)........................................ -- -- 881,235 -- 881,235
Net loss.................................... -- -- -- (50,822) (50,822)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1992........ 8,000,000 8,000 1,134,828 (139,006) 1,003,822
Formation of Heartland Wireless
Communications, Inc. (note 1)............. -- -- 3,000,000 -- 3,000,000
Equity transactions of subsidiaries (note
4)........................................ -- -- 807,472 -- 807,472
Other (note 9).............................. -- -- 87,375 -- 87,375
Net loss.................................... -- -- -- (406,101) (406,101)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1993........ 8,000,000 8,000 5,029,675 (545,107) 4,492,568
Issuance of common stock pursuant to initial
public offering (note 5).................. 2,415,000 2,415 22,349,798 -- 22,352,213
Issuance of common stock for acquisitions
(note 4).................................. 694,280 694 6,278,731 -- 6,279,425
Net loss.................................... -- -- -- (3,043,321) (3,043,321)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1994........ 11,109,280 11,109 33,658,204 (3,588,428) 30,080,885
Issuance of common stock, primarily for
minority interests and other acquisitions
(unaudited)............................... 1,367,113 1,367 29,389,660 -- 29,391,027
Net loss (unaudited)........................ -- -- -- (11,178,095) (11,178,095)
---------- ------- ----------- ------------ -----------
Balance, September 30, 1995
(unaudited)..................... 12,476,393 $12,476 $63,047,864 $(14,766,523) $48,293,817
========== ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 204
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------------- --------------------------
1992 1993 1994 1994 1995
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (50,822) $ (406,101) $ (3,043,321) $(1,213,894) $(11,178,095)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 34,919 138,560 1,097,668 418,960 3,966,120
Deferred income tax benefit................... -- -- (1,594,963) (649,510) (1,307,137)
Accretion on convertible discount
notes....................................... -- -- 301,125 -- 3,156,858
Equity in losses of joint venture............. -- -- 386,985 163,119 128,663
Other......................................... 5,100 65,668 (16,205) 7,890 12,216
Changes in assets and liabilities:
Subscriber receivables...................... (6,123) (68,437) (57,362) (21,942) (1,160,242)
Inventories................................. -- (251,172) -- -- --
Prepaid expenses and other.................. (6,496) (395,300) (656,061) (308,385) (765,834)
Accounts payable, accrued expenses and other
liabilities.............................. 51,442 809,962 4,292,617 567,250 4,789,383
----------- ----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities............................. 28,020 (106,820) 710,483 (1,036,512) (2,358,068)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Investment in joint venture..................... -- -- (12,431,379) (11,649,908) (5,426,432)
Proceeds from assets held for sale.............. -- -- -- -- 3,323,250
Purchases of systems and equipment.............. (604,082) (2,072,937) (12,414,501) (4,011,480) (25,575,252)
Expenditures for leased licenses................ (797,655) (3,068,084) (3,354,471) (2,465,265) (1,592,024)
Restricted assets -- investment in debt
securities.................................... -- -- -- (7,283,777) (24,747,214)
Acquisitions.................................... -- -- (16,300,000) -- (11,422,814)
Issuance of note receivable..................... -- -- (2,000,000) -- --
Other........................................... -- -- -- -- (2,250,000)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities............................. (1,401,737) (5,141,021) (46,500,351) (25,410,430) (67,690,486)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......... -- 2,000,000 22,352,213 22,283,365 --
Proceeds from Units Offering.................... -- -- -- -- 100,000,000
Proceeds from minority interest owners.......... 1,430,900 1,553,355 -- -- --
Purchase of minority interests.................. -- -- (1,608,895) (1,408,858) --
Proceeds from short-term borrowings and notes
payable....................................... -- 2,992,364 10,408,542 10,408,542 3,070,070
Proceeds from convertible discount notes........ -- -- 40,150,000
Payments on short-term borrowings and notes
payable....................................... -- (399,835) (11,946,344) (2,001,071) (3,105,977)
Payments to stockholders and affiliates......... (523,493) (727,189) -- -- --
Proceeds from stockholders and affiliates....... 578,035 479,480 -- -- --
Debt issuance costs............................. -- -- (2,395,000) (495,000) (4,783,975)
Other........................................... -- -- -- -- 37,547
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities............................. 1,485,442 5,898,175 56,960,516 28,786,978 95,217,665
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 111,725 650,334 11,170,648 2,340,036 25,169,111
Cash and cash equivalents at beginning of
period.......................................... 53,246 164,971 815,305 815,305 11,985,953
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end of period........ $ 164,971 $ 815,305 $ 11,985,953 $ 3,155,341 $ 37,155,064
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 205
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1994
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1994 AND 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and History
Heartland Wireless Communications, Inc. (the "Company") develops, owns and
operates wireless cable television systems. The Company has wireless cable
channel rights in various wireless cable television markets located primarily in
the central United States. The Company's first operational system, located in
Ada, Oklahoma, commenced operations in April 1992. Currently, the Company
provides service in fifteen markets located in Texas, Oklahoma, Kansas and
Louisiana. 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) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and costs associated with subscriber installations are
capitalized. Upon subscriber disconnect, the Company continues to depreciate the
full capitalized installation cost subsequent to the disconnection. Depreciation
and amortization are recorded on a straight-line basis for financial reporting
purposes over useful lives ranging from 6 to 10 years. Repair and maintenance
costs are charged to expense when incurred; renewals and betterments are
capitalized.
Equipment awaiting installation consists primarily of accessories, parts
and supplies for subscriber installations and is stated at the lower of average
cost or market.
(d) Leased License Investment
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Costs incurred to acquire 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, 1994, approximately $12,040,000 of the
leased license investment was not yet subject to amortization. The Company
continually reevaluates the propriety of the carrying amounts of the leased
license investment with respect to each market as well as the amortization
period based on
F-8
<PAGE> 206
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management's estimate of the fair value of each market to determine whether
current events and circumstances warrant adjustments to the carrying amounts or
a revised estimate of the useful life.
(e) 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 ($237,730 in 1994 and $213,005 in 1993).
Installation fees are recognized upon origination of service to a subscriber to
the extent of costs incurred to obtain subscribers. Installation revenues in
excess of such costs will be deferred and amortized over six years.
(f) Systems Operations
Systems operations expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
(g) 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.
(h) Sales of Subsidiary Stock
Gains and losses from the sales of stock by the Company's majority-owned
subsidiaries are accounted for as equity transactions in consolidation.
(i) 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 8,000,000 for the years
ended December 31, 1992 and 1993, 10,041,000 for the year ended December 31,
1994 and 9,693,000 and 11,624,000 for the nine-month periods ended September 30,
1994 and 1995, respectively. The weighted average number of common shares
outstanding in each period gives retroactive effect to an 8,000-for-one split of
the Company's common stock (see note 5).
Shares issuable upon exercise of stock options and warrants 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.
(j) 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, 1992 and 1993, the Company had noncash
investing and financing activities. During 1992, an affiliate contributed
systems and equipment in the amount of $133,403 for preferred stock in a
subsidiary of the Company. During 1993, the Company acquired certain systems and
equipment by assuming notes payable in the amount of $388,017, 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 $114,511.
Cash paid during 1993 and 1994 for interest was $67,124 and $296,596,
respectively (none in 1992).
F-9
<PAGE> 207
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial information of the Company contains all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of September 30, 1995, and the
results of operations and cash flows for the nine months ended September 30,
1994 and 1995. These results are not necessarily indicative of the results to be
expected for the full fiscal year.
(2) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Equipment awaiting installation............................. $ 336,920 $ 3,034,453
Subscriber premises equipment and installation costs........ 676,347 6,581,632
Transmission equipment and system construction costs........ 1,969,039 7,350,607
Office furniture and equipment.............................. 139,946 406,936
Buildings and leasehold improvements........................ 70,286 145,550
---------- -----------
3,192,538 17,519,178
Accumulated depreciation and amortization................... (156,312) (753,999)
---------- -----------
$3,036,226 $16,765,179
========== ===========
</TABLE>
As of December 31, 1994, equipment awaiting installation and approximately
$914,000 of transmission equipment and system construction costs were not yet
subject to depreciation.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Convertible subordinated discount notes..................... $ -- $40,451,125
Notes payable............................................... 1,592,529 54,727
---------- -----------
1,592,529 40,505,852
Less current portion........................................ 338,851 19,918
---------- -----------
$1,253,678 $40,485,934
========== ===========
</TABLE>
On November 30, 1994, the Company consummated the private placement of
$40,150,000 in gross proceeds of 9% Convertible Subordinated Discount Notes
("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. The Note Purchase Agreement contains 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.
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
F-10
<PAGE> 208
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As the Convertible Notes have been outstanding
for only a short period of time, the carrying amounts of borrowings outstanding
at December 31, 1994 approximate estimated fair value.
On March 31, 1994, the Company entered into an agreement with a bank for a
$15,000,000 Revolving Credit Facility (the "Facility"). Outstanding borrowings
under the Facility will bear interest at the bank's corporate base rate plus
1.5% per annum or LIBOR plus 4.0% per annum, at the Company's option. The
Facility will be on a revolving basis for three years with all outstanding
borrowings at the end of the third year converting to a term loan payable in
equal quarterly installments over three years. The Company must pay an annual
commitment fee of 3/8% per annum on the unused portion of the Facility. The
total amount of borrowings under the Facility will be subject to certain
limitations. Borrowings under the Facility will be secured by substantially all
the Company's assets and the capital stock of the Company's subsidiaries. The
Facility contains certain restrictive covenants that, among other things,
require the Company to satisfy certain financial ratios, and limit the ability
of the Company and its subsidiaries to pay dividends, repurchase Company stock
and incur additional indebtedness. No amounts were outstanding under the
Facility at December 31, 1994. Prior to borrowing any funds under the Facility,
the Company would need to obtain a waiver from the bank of certain conditions
and covenants relating to the sale of the Convertible Notes. The Company does
not currently intend to borrow any funds under the Facility. The Company is
actively pursuing alternative bank financing on terms, including an increased
amount of a facility, which the Company believes are more favorable than those
under the Facility.
In 1994, the Company incurred a recapitalization charge of $205,575 that is
included in other expense in the accompanying statement of operations. This
charge related to costs incurred in connection with a rescinded offering of debt
securities.
Aggregate maturities of long-term debt as of December 31, 1994 for the five
years ending December 31, 1999 are as follows: 1995 -- $19,918; 1996 -- $21,054
and 1997 -- $13,755.
(4) MINORITY INTERESTS
In connection with the development of certain wireless cable television
markets, the Company has sold stock in certain of its subsidiary companies
principally for cash. Total consideration received from the sales of subsidiary
stock amounted to $1,430,900 in 1992 and $1,553,355 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. Minority ownership interests in
the outstanding common stock of such subsidiary companies range from 5% to
49.9999%.
As a result of the sales of subsidiary stock, the Company's investment in
majority-owned subsidiaries increased by $881,235 in 1992 and $807,472 in 1993.
Such increases have 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 increases since the Company
ultimately expects to recover its investments in the subsidiaries in a tax-free
manner.
Certain of the Company's subsidiaries have issued preferred stock, a
portion of which is held by outside third parties. Preferred stock owned by
outside third parties in the amounts of $453,935 at December 31, 1993 and 1994
has been reflected as minority interests in the accompanying consolidated
balance sheets. Dividends on the preferred stock accrue at 8% of the stated
value per share per year and are cumulative. Preferred stock dividends of the
subsidiaries with respect to the third party ownership were $14,006 in 1992,
$26,606 in 1993 and $36,315 in 1994 and are included in other expense in the
accompanying statements of operations.
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
F-11
<PAGE> 209
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,609,000 in cash and 44,280 restricted shares of common stock.
The acquisitions of the minority ownership interests were accounted for as
purchases. For financial reporting purposes, the total purchase price was
approximately $7,882,000 and assumes a value per share of $8.93 to $10.75 for
the restricted shares. The excess (approximately $2,646,000) of the purchase
price over the fair value of the net identifiable assets acquired will be
amortized on a straight-line basis over 20 years. Pro forma disclosures that
include the effects of the acquisitions of the minority interests would not be
materially different from historical information and have not been presented.
In February 1995, the Company offered to exchange approximately 380,000
shares of its common stock for the minority interests in certain of its
subsidiaries (the "Minority Interest Exchange Offer"). The exchange ratio with
respect to each minority interest was determined by management of the Company
based upon the estimated fair market value of each respective subsidiary. The
Minority Interest Exchange Offer expired on March 15, 1995. On March 15, 1995,
Heartland issued an aggregate of 304,038 shares of common stock in exchange for
minority interests in 21 subsidiaries.
(5) STOCKHOLDERS' EQUITY
(a) Change in Capital Structure
On January 18, 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-one 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
On April 28, 1994, the Company completed an initial public offering of
2,100,000 shares of its common stock. On June 9, 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 $22.3 million. The net proceeds have been used to repay
indebtedness, construct operating systems, finance operating losses in certain
markets and corporate overhead, acquire certain minority interests in
subsidiaries, acquire or secure the Company's existing channel rights and fund a
portion of the acquisition of certain RuralVision Joint Venture assets.
(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 key 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 are 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
F-12
<PAGE> 210
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1994 activity in stock options under
these plans:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE RANGE
--------- ----------------
<S> <C> <C>
Granted.................................................. 543,000 $10.50 - $11.125
Cancelled................................................ (130,000) $10.50
--------
Outstanding at December 31, 1994....................... 413,000 $10.50 - 11.125
========
Exercisable at December 31, 1994....................... 148,000 $10.50
========
</TABLE>
As of December 31, 1994, 587,000 shares were available for grant under the
stock option plans.
(6) INCOME TAXES
Income tax benefit of $1,594,963 for the year ended December 31, 1994
consists of a deferred tax benefit.
Income tax benefit for the years ended December 31, 1992, 1993 and 1994
differed from the amount computed by applying the U.S. federal income tax rate
of 34% to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- ----------
<S> <C> <C> <C>
Computed "expected" tax benefit................... $(17,299) $(138,074) $(1,577,017)
Amortization of goodwill.......................... -- -- 27,540
State tax benefit, net............................ -- -- (103,500)
Loss for which no tax benefit was recognized...... 17,299 138,074 58,014
-------- --------- -----------
$ -- $ -- $(1,594,963)
======== ========= ===========
</TABLE>
F-13
<PAGE> 211
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts..................................... $ 8,528 $ 45,473
Basis differences between assigned values and tax bases
of stock of subsidiaries.............................. -- 791,453
Investment in joint venture.............................. -- 609,668
Accretion on Convertible Notes........................... -- 115,486
Leased license investment, principally due to start-up
costs not yet deductible for tax purposes............. 120,538 120,538
Net operating loss carryforwards......................... 136,359 1,082,567
--------- ----------
Total gross deferred tax assets.................. 265,425 2,765,185
Less valuation allowance................................. (183,295) (791,553)
--------- ----------
Net deferred tax assets.......................... 82,130 1,973,632
--------- ----------
Deferred tax liabilities:
Systems and equipment, principally due to differences in
depreciation.......................................... (82,130) (81,575)
Leased license investment................................ -- (2,938,016)
--------- ----------
Total gross deferred tax liabilities............. (82,130) (3,019,591)
--------- ----------
Net deferred tax liability....................... $ -- $1,045,959
========= ==========
</TABLE>
The net changes in the total valuation allowance for the years ended
December 31, 1994 and 1993 were increases of $183,295 and $791,553,
respectively. 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, 1994, the Company has approximately $2,926,000 of
federal income tax loss carryforwards which expire in years 2005 through 2009.
(7) LEASES
The Company leases from third parties channel rights licensed by the FCC.
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 the Company's channel leases range
from 5 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
provide for either a right of first refusal or automatic renewal of their terms
upon FCC renewal of the underlying license, grant the Company a right of first
refusal to purchase the channels after the expiration of the lease and/or
require the parties to negotiate renewal 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.
F-14
<PAGE> 212
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payments under the channel rights lease agreements 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. Channel
rights lease expense was $1,000, $25,260 and $94,865 for the years ended
December 31, 1992, 1993 and 1994, respectively.
In connection with the purchase of certain assets on December 1, 1994 for
RuralVision Joint Venture as discussed in note 8, the Company is obligated under
channel rights lease agreements which require royalty payments upon grant of the
channel rights. Channel rights lease expense was $72,132 for year ended December
31, 1994.
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 $24,375, $41,761 and $205,210 for the years ended December
31, 1992, 1993 and 1994, respectively.
Future minimum lease payments due under channel rights leases for
operational systems and other noncancellable operating leases in effect at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
DECEMBER 31, LEASES LEASES
- ------------ --------- ---------
<S> <C> <C>
1995........................................... $1,481,275 $25,941
1996........................................... 1,599,500 26,139
1997........................................... 1,650,000 25,573
1998........................................... 1,649,450 16,461
1999........................................... 1,629,100 1,212
</TABLE>
(8) RURALVISION ACQUISITION
On August 19, 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") have a 50% interest, purchased
certain assets (the "Rural Vision 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 $50.0 million for the RuralVision
Assets was comprised of a $46.0 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 have guaranteed the payment of the RuralVision Note.
As of December 31, 1994, the remaining balance outstanding under the RuralVision
Note was $8.0 million. The Company's investment in RuralVision Joint Venture has
been accounted for under the equity method of accounting.
On January 27, 1995, the Company, Cross Country and RuralVision entered
into 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 balance of the RuralVision Note, (ii) paid
$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 (iii) 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 with a carrying amount of approximately
$16.0 million. As part of this transaction, the Company granted to Cross Country
the right to "put" or sell certain remaining RuralVision Joint Venture assets to
the Company for $3.25 million (reduced dollar for dollar by the proceeds of any
prior partial sales of such assets) on May 17, 1995. Although the Company
remains a 50% partner in RuralVision Joint Venture, the Company, pursuant to the
Venture Distribution Agreement, has no economic interest in any remaining
RuralVision Joint Venture assets or liabilities other than certain immaterial
amounts
F-15
<PAGE> 213
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of office furniture and equipment. As a result, subsequent to January 27, 1995,
the carrying amount of the Company's investment in RuralVision Joint Venture is
zero.
Summarized condensed financial information of RuralVision Joint Venture
follows:
BALANCE SHEET AS OF
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
Current assets, including assets to be sold of $20,000,000............ $20,969,043
Systems and equipment................................................. 6,118,015
Leased license investment............................................. 4,626,244
-----------
$31,713,302
===========
LIABILITIES AND VENTURERS' EQUITY
Current liabilities, including notes payable of $9,000,000............ $10,537,272
Venturers' equity..................................................... 21,176,030
-----------
$31,713,302
===========
</TABLE>
STATEMENT OF OPERATIONS FOR THE
PERIOD FROM AUGUST 19, 1994 (INCEPTION) TO
DECEMBER 31, 1994
<TABLE>
<S> <C>
Subscription revenues................................................. $ 1,269,184
Operating expenses.................................................... 2,043,154
-----------
Net loss.................................................... $ (773,970)
===========
</TABLE>
On December 1, 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 $14.0 million in cash. The Company
has allocated the purchase price on a preliminary basis to the assets acquired
and liabilities assumed based on the estimated fair values of such assets and
liabilities.
In connection with the Company's allocation of the purchase price of the
acquisition on December 1, 1994, the Company has identified wireless cable
channel rights in certain markets which management expects to sell and has
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. The assets held for sale as of December 31, 1994 represent
wireless cable channel rights in 26 markets.
Management's determination of the carrying amount of the assets held for
sale is based on a number of factors including the markets' stage of
development; the value of any channel rights lease agreements held by a market;
the potential number of households in the relevant market; the number of
channels available in the relevant market; the number of channel rights granted
or pending in the relevant market; the capital necessary to commence operations
in the relevant market; competitive factors; and the estimated rental payments
under channel rights lease agreements and certain other costs that will be
capitalized during the estimated holding period. The Company expects to sell
certain markets within one year from the date of acquisition from RuralVision
Joint Venture. Rental expense under channel rights lease agreements and other
costs associated with the assets held for sale amounting to approximately
$30,000 have been capitalized and included in assets held for sale. Since the
assets held for sale are nonoperating markets, no other operating profit or loss
has been
F-16
<PAGE> 214
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excluded from the Company's 1994 consolidated statement of operations.
Additionally, any difference between the carrying amounts and the sale prices on
the ultimate disposition of the assets held for sale will be treated as an
adjustment of the original purchase price allocation.
Although the Company expects to sell the assets held for sale for $12.5
million ($21.5 million subsequent to the Venture Distribution Agreement) within
one year from the date of their acquisition from RuralVision Joint Venture,
there can be no assurance that any sales will be consummated. The Company has
entered into definitive agreements and letters of intent to sell certain of the
assets held for sale for $4.19 million comprised of $3.515 million of cash and a
$675,000 note receivable. In the event the Company is unable to dispose of the
assets held for sale within such time frame, the Company would fund
approximately $500,000 to $750,000 of rental payments and other costs related to
the assets held for sale through August 1995 from the Company's existing
available cash, proceeds from the sale of assets held for sale, or other sources
of financing, if secured. In addition, if the Company is unable to dispose of
certain of the assets held for sale the Company may be required, due to the
expiration of construction permits, to construct operating systems for certain
assets held for sale. The amount of such funding would approximate $3,000,000
for the period from the estimated date of disposition through December 31, 1995.
Should construction of operating systems of certain assets held for sale be
required, the Company believes that the value of the constructed systems would
be significantly enhanced. However, based on the estimated dates of disposition,
the Company currently does not anticipate that such construction will be
required during 1995. The amount and timing of the Company's obligations to fund
rental payments and other costs attributable to the assets held for sale will
depend upon a number of factors, many of which are not within the control of the
Company, including the timing of the disposition of the assets held for sale,
programming costs and equipment costs.
Unaudited consolidated condensed pro forma results of operations for 1993
and 1994, as if the December 1, 1994 acquisition of assets from RuralVision
Joint Venture discussed above had occurred at the beginning of the respective
periods, follow:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Subscription revenues...................................... $1,709,433 $ 3,087,379
========== ===========
Net loss................................................... $ (565,005) $(3,870,410)
========== ===========
Loss per common share...................................... $ (.07) $ (.35)
========== ===========
</TABLE>
(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 $68,743 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.
The Company paid $134,165 in 1992, $414,982 in 1993 and $74,559 in 1994 to
various affiliates for services performed in connection with the development of
wireless cable television systems, acquisition of wireless cable channel rights
and certain administrative services.
During 1993, an entity owned by a director of the Company was paid $40,660
for consulting services provided in connection with the acquisition of certain
wireless cable channel rights. Such amount has been included as part of the
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.
F-17
<PAGE> 215
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$114,969 in exchange for forgiveness of advances of $172,132 to a formerly
affiliated installation company. The Company has reflected the settlement of
$57,163 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
$18,000 in 1992 and 1993 and $22,224 in 1994.
On December 15, 1994, the Company entered into an agreement with a
stockholder and its affiliate pursuant to which the Company loaned $2.0 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 bears interest at 12% per annum with
all accrued interest and the outstanding principal balance due on June 15, 1995.
In addition, on December 15, 1994, the affiliate granted to the Company an
option for the Company to acquire the Tulsa, Oklahoma wireless cable market. The
option is exercisable at any time after January 20, 1995 and continuing through
June 15, 1995. The purchase price to be paid upon any exercise of the option is
up to a maximum of $5.2 million, subject to adjustment based on the number of
granted channels. In addition, the affiliate has the right to obtain a release
of this option at any time prior to June 15, 1995, by payment of a $300,000
release price and payment in full of the loan.
(10) COMMITMENTS AND CONTINGENCIES
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1994
through 1998. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain minimums.
In connection with a $1,000,000 loan from a bank to a stockholder of the
Company, the Company has agreed to purchase such loan upon demand from the bank
for the aggregate amount of principal and interest thereon plus any other
amounts owed to the bank by the stockholder. The loan is secured by all of the
wireless cable assets of the stockholder relating to the Lubbock, Texas market,
including wireless cable channel rights, equipment and accounts receivable.
The Company is a party to a legal proceeding incidental to its business
which, in the opinion of management, is not expected to have a material adverse
effect on the Company's consolidated financial position or operating results.
(11) SUBSEQUENT EVENT
Pursuant to a loan agreement dated March 27, 1995 (the "Loan Agreement"),
two stockholders of the Company have agreed to loan the Company up to an
aggregate of $4.0 million ($2.0 million each) and a holder of the Convertible
Notes has agreed to loan to the Company, or to guarantee a bank loan to the
Company in the amount of, $2.0 million. Borrowings under the Loan Agreement may
be used solely for working capital. Borrowings under the Loan Agreement will
bear interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the Loan Agreement will be due and payable in
full on June 30, 1995, subject to prepayment upon the receipt by the Company of
cash proceeds from any financing, refinancing or sale of assets. Amounts
borrowed and repaid under the Loan Agreement may not be reborrowed. Borrowings
under the Loan Agreement will be secured by the capital stock and assets of two
of the Company's operating subsidiaries. As of March 27, 1995, the Company had
borrowed $2.0 million under the Loan Agreement, funded $1.0 million each by the
two stockholders.
F-18
<PAGE> 216
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) OTHER SUBSEQUENT INFORMATION (UNAUDITED)
(a) Accounting Change
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 and to conform its accounting practices with those of other
companies in the wireless cable industry. 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 estimated average subscription term
(presently six years). 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. The Company periodically evaluates the estimated amortization
period and the recoverability of these costs to determine whether circumstances
warrant adjustments to the carrying amounts or revised estimates of the useful
life. An impairment loss would be recognized if the expected future operating
cash flows from subscribers in an individual market are less than the carrying
amount of subscriber installation costs in such market.
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 nine-month
period ended September 30, 1995 was to decrease net loss by approximately
$210,000 ($.02 per common share).
(b) Units Offering
On April 26, 1995, the Company consummated a private placement of 100,000
units (the "Units") consisting of $100.0 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 realized from the sale of the Units
into an escrow account and used approximately $3.0 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. As
of September 30, 1995, the Company had not caused such registration statement to
become effective within the 120-day period. 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 will increase by an
additional 0.50% per annum for each subsequent 90-day period until such
obligations are complied with, up to a maximum amount of additional interest of
2.00% per annum.
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 and the Transactions (as hereinafter defined) and
additionally amend certain definitions and covenants. The proposed amendments to
the indenture received
F-19
<PAGE> 217
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approval of approximately 95.5% in aggregate principle 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.
The amounts placed in the escrow account have been invested in U.S.
Treasury Notes. As of September 30, 1995, $100.0 million aggregate principal
amount of the Senior Notes remain outstanding.
(c) Acquisitions of Minority Interests in Subsidiaries
On March 15, 1995, the Company consummated the Minority Interest Exchange
offer and 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). The
Company has used the purchase method to account for the acquisitions of these
minority interests. For financial statement 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 purchase price
over the fair value of net identifiable assets acquired and will be amortized
over a 20-year period.
Pro forma disclosures that include the effects of the acquisitions of the
minority interests are not materially different from historical information and
are not presented.
(d) Rural Vision Joint Venture
On May 17, 1995, Cross Country exercised its right to sell certain
remaining RuralVision Joint Venture assets to the Company and, as a consequence,
the Company acquired such 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.
In connection with the RuralVision Distribution and the Company's
acquisition of other wireless cable channel rights from RuralVision Joint
Venture in December 1994, the Company identified wireless cable channel rights
in certain markets which will be either sold, exchanged or conveyed. The
remaining balance at September 30, 1995 of $9.2 million of assets held for sale
represents assets that were sold or conveyed for cash subsequent to September
30, 1995.
(e) Other Acquisitions and Divestitures
In May 1995, the Company purchased an operating wireless cable system in
the Lubbock, Texas market and wireless cable channel rights in the Tulsa,
Oklahoma market for approximately $5.4 million (plus approximately $0.2 million
of acquisition-related costs) and $3.8 million (plus approximately $0.1 million
of acquisition-related costs) in cash, respectively (the "Lubbock and Tulsa
Acquisitions").
In May 1995, the Company sold certain wireless cable channel rights in five
markets to an unaffiliated entity for $2.7 million in cash. These assets
comprised a portion of the assets held for sale.
On July 18, 1995, the Company privately placed 1,029,707 shares of its
common stock to RuralVision Joint Venture in exchange for $20,000,000 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 $20,000,000 in cash (the
"Cross Country Acquisition").
Summarized below is the unaudited pro forma information for the nine months
ended September 30, 1994 and 1995 as if the Cross Country Acquisition and the
Lubbock and Tulsa Acquisitions had been consummated as of the beginning of 1994
and 1995. The pro forma information does not purport to represent
F-20
<PAGE> 218
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1994 1995
----------- ------------
<S> <C> <C>
Revenues........................................ $ 3,075,000 $ 10,872,000
=========== ============
Net loss........................................ $(1,655,000) $(11,794,000)
=========== ============
Net loss per common share....................... $ (.54) $ (.93)
=========== ============
</TABLE>
(f) Wireless One
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 $10.0 million of notes. A portion of these assets comprise the
assets held for sale presented in the accompanying balance sheet. Wireless One
is a newly-formed corporation into which Wireless One Operating Company, a
privately-held wireless cable company, was merged. On October 18, 1995, Wireless
One completed an initial public offering of 3,000,000 shares of its common stock
and, concurrently therewith, consummated the sale of $150,000,000 in gross
proceeds of 13% Senior Notes due 2003. As a result and pursuant to the merger
agreement, Wireless One repaid the $10.0 million of notes from the proceeds of
the offerings.
In October 1995, the Company executed an agreement to sell wireless cable
channel rights in Flippen, Tennessee for $1.5 million in cash. The transaction
is subject to customary closing conditions, including each party's Board of
Directors and lender approvals, due diligence review and other conditions.
(g) Pending Acquisitions
In September 1995, the Company executed an agreement to acquire Cablemaxx,
Inc. ("Cablemaxx") for approximately $80.8 million in common stock of the
Company. The agreement provides for the conversion of the common stock of
Cablemaxx at a rate of $8.50 per share, subject to adjustment, into common stock
of the Company, with the exchange rate determined by the average price of the
Company's common stock preceding the closing date of the transaction.
In September 1995, the Company entered into agreements to acquire American
Wireless Cable Systems, Inc. ("AWS") and the assets of Wireless Cable TV
Associates #38 (the "Minneapolis Partnership") and Fort Worth Wireless Cable TV
Associates (the "Fort Worth Partnership") for an aggregate of approximately
$65.3 million of common stock of the Company.
In October 1995, the Company entered into a definitive agreement with
Technivision, Inc. ("Technivision") whereby the Company will acquire
substantially all of the assets of Technivision for approximately $36.75 million
of the Company's common stock, less an amount of assumed obligations which shall
not exceed $5.0 million.
These transactions (collectively, the "Transactions") are subject to
certain conditions, including, without limitation, approval by the shareholders
of each company.
The Company is also currently pursuing opportunities to dispose of certain
wireless cable channel rights, presently held by or sought to be acquired by the
Company pursuant to the Transactions, and expects to sell, contribute or
exchange such assets in one or more transactions.
F-21
<PAGE> 219
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
American Wireless Systems, Inc.:
We have audited the accompanying balance sheets of American Wireless
Systems, Inc. (a Delaware corporation) as of December 31, 1993 and 1994, and the
related statements of operations, stockholders' equity and cash flows for the
ten months ended December 31, 1992, and the years ended December 31, 1993 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Wireless Systems,
Inc. as of December 31, 1993 and 1994, and the results of its operations and its
cash flows for the ten months ended December 31, 1992, and the years ended
December 31, 1993 and 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 19, 1995.
F-22
<PAGE> 220
AMERICAN WIRELESS SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
AND SEPTEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents (note 2).................. $3,244,275 $ 376,621 $ 1,182,653
Marketable securities (note 2)...................... 2,318,252 -- --
Income tax receivable (note 10)..................... 401,316 -- --
Debt issuance costs (note 2)........................ 591,957 -- --
Prepaid expenses and other current assets........... 227,180 186,242 89,724
---------- ----------- -----------
Total current assets...................... 6,782,980 562,863 1,272,377
Property and equipment, at cost, net (note 2)....... 228,782 431,790 218,404
Investments in and advances to joint ventures (note
4)................................................ 1,208,709 3,436,048 2,998,398
Investments in wireless cable systems (notes 1 and
4)................................................ 957,813 2,430,866 2,987,940
License deposits and other assets (note 2).......... 123,009 88,333 77,179
---------- ----------- -----------
$9,301,293 $ 6,949,900 $ 7,554,298
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 300,939 $ 482,342 $ 419,186
Accrued liabilities............................... 389,779 345,063 219,337
Convertible subordinated notes payable (note 7)... 7,707,000 -- --
Notes payable -- current portion.................. -- -- 99,442
---------- ----------- -----------
Total current liabilities................. 8,397,718 827,405 737,965
---------- ----------- -----------
Deferred compensation (note 6)...................... -- 354,636 233,044
---------- ----------- -----------
Notes payable (note 1).............................. -- -- 1,800,000
---------- ----------- -----------
Commitments and contingencies (note 9)
Stockholders' equity (notes 1, 3, 7, 8, 9 and 10):
Common stock, $.01 par value, 40,000,000 shares
authorized, 3,346,841 shares outstanding in
1993 and 5,709,187 shares outstanding in 1994
and 1995 (unaudited)........................... 33,468 57,092 57,092
Additional paid-in capital........................ 9,671,629 20,239,069 20,239,069
Accumulated deficit............................... (8,801,522) (14,528,302) (15,512,872)
---------- ----------- -----------
Total stockholders' equity................ 903,575 5,767,859 4,783,289
---------- ----------- -----------
$9,301,293 $ 6,949,900 $ 7,554,298
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-23
<PAGE> 221
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992,
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Management fees........................ $ -- $ -- $ 83,333 $ 58,333 $ 75,000
----------- ----------- ----------- ----------- ----------
General and administrative expenses:
Compensation........................... 1,786,719 1,502,006 1,920,002 1,554,057 630,070
Outside services....................... 552,018 476,008 1,111,104 409,267 335,807
Other.................................. 1,019,789 780,920 1,127,356 807,536 633,354
----------- ----------- ----------- ----------- ----------
Total expenses................. 3,358,526 2,758,934 4,158,462 2,770,860 1,599,231
----------- ----------- ----------- ----------- ----------
Loss from operations..................... (3,358,526) (2,758,934) (4,075,129) (2,712,527) (1,524,231)
----------- ----------- ----------- ----------- ----------
Loss from operations of joint ventures... (85,210) (184,906) (200,436) (157,794) (136,298)
----------- ----------- ----------- ----------- ----------
Other income (expense), net
Interest expense....................... -- (775,525) (976,867) (978,695) (126,119)
Other (note 7)......................... -- 69,205 (474,348) (528,080) 802,078
----------- ----------- ----------- ----------- ----------
-- (706,320) (1,451,215) (1,506,775) 675,959
----------- ----------- ----------- ----------- ----------
Net loss................................. $(3,443,736) $(3,650,160) $(5,726,780) $(4,377,096) $ (984,570)
=========== =========== =========== =========== ==========
Net loss per share (note 2).............. $ (1.33) $ (1.16) $ (1.26) $ (1.06) $ (.17)
=========== =========== =========== =========== ==========
Weighted average shares outstanding...... 2,595,689 3,159,397 4,540,362 4,135,431 5,709,187
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE> 222
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992,
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1992.................... 2,469,120 $ 1,333 $ 2,667 $ (1,707,626) $(1,703,626)
Sale of common stock to officer........... 102,880 56 111 -- 167
Assumption of net liabilities by
shareholders (note 3)................... -- 24,331 7,202,219 -- 7,226,550
Issuance of common stock in connection
with Short Takes, Inc. merger, net of
offering costs of $102,060 (note 1)..... 546,666 5,467 561,473 -- 566,940
Net loss.................................. -- -- -- (3,443,736) (3,443,736)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1992................ 3,118,666 31,187 7,766,470 (5,151,362) 2,646,295
Private placements of common stock, net of
offering costs of $361,123 (note 1)..... 346,666 3,466 2,547,411 -- 2,550,877
Redemption of common stock owned by
Wireless California (note 3)............ (258,333) (2,583) (2,167,417) -- (2,170,000)
Contribution of income tax receivable
(note 10)............................... -- -- 401,316 -- 401,316
Conversion of notes....................... 126,509 1,265 973,982 -- 975,247
Common stock issued....................... 13,333 133 149,867 -- 150,000
Net loss.................................. -- -- -- (3,650,160) (3,650,160)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1993................ 3,346,841 33,468 9,671,629 (8,801,522) 903,575
Private placements of common stock, net of
offering costs of $48,990 (note 1)...... 240,000 2,400 1,964,610 -- 1,967,010
Conversion of notes....................... 2,105,679 21,057 8,542,356 -- 8,563,413
Exercise of common stock warrants at
$3.75................................... 667 7 2,493 -- 2,500
Exercise of common stock warrants at
$3.00................................... 13,333 133 39,867 -- 40,000
Common stock to be issued................. 2,667 27 29,973 -- 30,000
Contribution of income tax receivable
(note 10)............................... -- -- (11,859) -- (11,859)
Net loss.................................. -- -- -- (5,726,780) (5,726,780)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1994................ 5,709,187 57,092 20,239,069 (14,528,302) 5,767,859
Net loss (unaudited)...................... -- -- -- (984,570) (984,570)
--------- -------- ----------- ------------ -----------
Balance, September 30, 1995 (unaudited)... 5,709,187 $ 57,092 $20,239,069 $(15,512,872) $ 4,783,289
========= ======== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE> 223
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992,
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(3,443,736) $(3,650,160) $(5,726,780) $(4,377,096) $ (984,570)
Adjustments to reconcile net loss to cash used
for operating activities:
Depreciation and amortization............... 34,321 442,933 637,049 613,717 66,079
Loss on disposal of assets.................. -- 16,136 55,043 49,090 200,357
Gain on sale of assets...................... -- -- -- -- (786,646)
Loss from operations of joint ventures...... 85,210 184,906 200,436 157,794 136,298
Repricing of common stock warrants (note
7)........................................ -- -- 425,000 425,000 --
Deferred compensation (note 6).............. -- -- 529,462 566,381 --
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses
and other assets....................... 46,292 (198,332) 438,793 (128,280) 96,518
Decrease (increase) in accounts payable
and accrued liabilities................ (291,485) 530,142 232,831 (2,276) (199,321)
----------- ----------- ----------- ----------- ----------
Net cash used for operating
activities........................... (3,569,398) (2,674,375) (3,208,166) (2,695,670) (1,471,285)
----------- ----------- ----------- ----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment......... (160,960) (77,055) (287,291) (241,677) (40,035)
Investment in and advances to wireless cable
systems..................................... (749,395) (755,271) (3,820,312) (3,546,334) (662,090)
Purchases of marketable securities............ -- (2,318,252) -- -- --
Proceeds from sales of marketable
securities.................................. -- -- 2,438,604 1,325,950 --
Proceeds from sale of wireless cable
television system........................... -- -- -- -- 1,250,000
Deposits made on license acquisitions......... -- (69,122) -- -- 1,154
----------- ----------- ----------- ----------- ----------
Net cash used for investing
activities........................... (910,355) (3,219,700) (1,668,999) (2,462,061) 549,029
----------- ----------- ----------- ----------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable..................................... -- -- -- -- 2,800,000
Proceeds from issuance of convertible notes
payable..................................... -- 8,736,000 -- -- --
Payment of notes payable...................... -- -- -- -- (1,071,712)
Net proceeds from sale of common
stock....................................... 567,107 2,550,877 2,009,511 2,009,511 --
Redemption of common stock.................... -- (2,170,000) -- -- --
Deferred debt issuance costs.................. -- (1,083,371) -- -- --
Cash received from affiliates................. 4,425,875 525,000 -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by financing
activities........................... 4,992,982 8,558,506 2,009,511 2,009,511 1,728,288
----------- ----------- ----------- ----------- ----------
Net (decrease) increase in cash and cash
equivalents................................... 513,229 2,664,431 (2,867,654) (3,148,220) 806,032
Cash and cash equivalents, beginning of
year/period................................... 66,615 579,844 3,244,275 3,244,275 376,621
----------- ----------- ----------- ----------- ----------
Cash and cash equivalents, end of year/period... $ 579,844 $ 3,244,275 $ 376,621 $ 96,055 $1,182,653
=========== =========== =========== =========== ==========
Supplemental disclosure of cash flow
information -- cash paid during the
year/period for interest...................... $ -- $ -- $ 351,510 $ 351,510 $ 134,566
=========== =========== =========== =========== ==========
Supplemental disclosure of noncash activities --
During 1993 and 1994, respectively, 126,509
and 2,105,679 shares of the Company's common
stock were issued pursuant to the conversion
of $975,247 and $8,563,413 in principal amount
of convertible notes payable plus accrued
interest......................................
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE> 224
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993 AND SEPTEMBER 30, 1995 (UNAUDITED)
(1) BACKGROUND, ORGANIZATION AND OPERATIONS
(a) Background and Organization
American Wireless Systems, Inc. (the Company) was originally incorporated
in Minnesota in 1988 as Short Takes, Inc. The Company ceased its prior business
activities in April 1991, at which time the Company began searching for a
suitable business for acquisition or merger. Its sole asset was cash of $669,000
on December 17, 1992, when it acquired certain operating assets and liabilities
of AWS, Inc. (formerly American Wireless Systems, Inc.), a California
corporation (Wireless California) in exchange for 2,572,000 shares of common
stock which represented 82.5% of the outstanding common stock of the Company.
For accounting purposes, this transaction has been treated as an issuance of
common stock for cash by Wireless California (the reverse acquisition). See Note
3 for additional discussion of this transaction.
In April 1993, the stockholders approved changing the Company's name from
Short Takes, Inc. to American Wireless Systems, Inc. In addition, the Company
was reincorporated in the state of Delaware and declared a reverse stock split
of 1-for-2.5. On October 18, 1994, the stockholders of the Company approved a
reverse stock split of 1-for-3. The accompanying financial statements have been
retroactively restated to reflect these reverse stock splits.
(b) Operations
The Company currently owns an interest in and manages the operations of
wireless cable television systems in Minneapolis and Fort Worth, and holds an
interest in or owns the rights to certain wireless cable television channels in
Los Angeles, Dallas, Memphis and formerly Pittsburgh. Wireless cable is an
emerging business that provides television programming to subscribers by
transmitting a signal via microwave frequencies licensed by the Federal
Communications Commission (FCC) to antennae located at the subscriber's
premises.
The Company's wireless cable systems are all in either the initial
development stage or in the early operating stage; therefore, significant
additional investment will be required to develop those systems to a level which
will provide positive cash flow.
During 1993 and 1994, the Company raised an aggregate of approximately
$13,664,000, including $8,736,000 of convertible subordinated notes (the
"Notes") through three private placements of common stock and notes. The Notes
matured July 15, 1994, and have been converted into shares of the Company's
common stock (see Note 7).
In April 1994, the Company filed a Registration Statement on Form SB-2 in
connection with a proposed public offering, which was amended to include the
offer and sale of 2,500,000 units, each unit consisting of two shares of common
stock and one warrant to purchase one share of common stock. For a variety of
reasons, the Company elected not to proceed with the proposed offering.
Since January 1995, the Company has been pursuing various financing options
which culminated in signing of an Agreement Of Merger with Heartland Wireless
Communications, Inc. (Heartland) on September 11, 1995 (the "Merger Agreement").
The Merger Agreement provides for the Company's stockholders to exchange their
stock in the Company for stock in Heartland. The Merger with Heartland will give
the Company's stockholders $34,000,000 in Heartland common stock, of which
$30,750,000 will be distributed immediately and $3,250,000 will be held in
escrow for one year to indemnify Heartland for potential liabilities (Note 9).
The conversion ratio into Heartland common stock will be the trading price of
Heartland stock based on the average closing price for the 10 trading days
ending on the fifth day before consummation of the Merger, provided Heartland's
trading price is at least $20 per share and not greater than
F-27
<PAGE> 225
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$26 per share. If Heartland's trading price is below $20 per share, the exchange
price will be $20 per share; if the trading price is above $26 per share, the
exchange price will be $26 per share.
In February and April 1995, the Company obtained loans totalling $1,000,000
from a shareholder of the Company. These loans carried an interest rate of 15%
per annum, were secured by various assets of the Company and were paid off in
September 1995.
In connection with the Merger Agreement, the Company received a $200,000
nonrefundable deposit and a loan for $1,800,000. The promissory note, dated May
26, 1995 and amended August 17, 1995, is due 12 months after the Heartland
Merger Agreement is consummated or abandoned, carries an interest rate of 2%
above the prime rate with interest payable quarterly, and is secured by a
security interest in the Company's wireless channel rights in the Dallas market.
On September 29, 1995, the Company sold its assets in the Pittsburgh market
for $1,250,000 in cash.
The Company is currently negotiating to sell its assets in the Memphis
market for $3,900,000. The Company is currently involved in litigation with the
same company that has offered to purchase this market. According to the proposed
agreement, at the time of closing of this transaction, all litigation between
the two parties will be withdrawn and all claims will be waived (note 9).
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of the
following accounting policies: (a) Cash Equivalents
The Company considers all highly liquid investments and time deposits with
an initial maturity of three months or less to be cash equivalents.
(b) Marketable Securities
Marketable securities are carried at the lower of cost or market. The
Company primarily invests in treasury securities.
(c) Debt Issuance Costs
The costs associated with the issuance of debt are deferred and amortized
over the life of the debt using the effective interest rate method. Amortization
of debt issuance costs for the years ended December 31, 1994 and 1993, was
approximately $592,000 and $405,000, respectively.
(d) Property and Equipment
Property and equipment represent corporate furniture and equipment
unrelated to the wireless cable television systems. Property and equipment are
recorded at cost and are depreciated using the straight-line method over the
estimated useful lives of the related assets.
F-28
<PAGE> 226
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31, SEPTEMBER 30,
LIFE --------------------- 1995
(YEARS) 1993 1994 -------------
----------- -------- -------- (UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment................... 5 $ 86,074 $112,083 $ 103,756
Furniture and fixtures............... 7 60,645 58,093 26,369
Office and other equipment........... 5-7 135,461 384,782 213,508
Autos................................ 5 4,700 -- --
-------- -------- ---------
286,880 554,958 343,633
Less accumulated depreciation........ (58,098) (123,168) (125,229)
-------- -------- ---------
$228,782 $431,790 $ 218,404
======== ======== =========
</TABLE>
(e) Investment in Joint Ventures
The Company accounts for its investments in joint ventures under the equity
method of accounting.
(f) Investment in Wireless Cable Systems
Investment in wireless cable systems consists principally of payments for
channel rights which are amortized over their estimated useful life of ten years
once placed in service.
(g) License Deposits
License deposits represent deposits made under agreements to acquire FCC
frequency rights.
(h) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes (SFAS No.
109). Under SFAS No. 109, deferred taxes are provided based on the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities, using enacted tax rates in the years in which
the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Net Loss Per Share
The calculation of net loss per share is based on the weighted average
number of shares outstanding. Common stock equivalents are not considered as
their effect would be anti-dilutive.
(j) Unaudited Financial Information
The financial statements as of September 30, 1995, and for the nine months
ended September 30, 1994 and 1995, have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished herein reflects, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
such periods.
(3) THE REVERSE ACQUISITION
Wireless California, the predecessor to certain of the Company's wireless
cable operations, was incorporated in April 1991 to acquire and subsequently
sell or develop wireless cable systems in various
F-29
<PAGE> 227
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
markets in the United States. In accordance with the terms of the asset purchase
agreement between Wireless California and the Company, only the assets and
liabilities related solely to the Wireless California wireless cable systems
development and operations were acquired by the Company. The transaction
specifically excluded any assets or liabilities related to Wireless California's
activities in selling its interests in the wireless cable systems (see Note 9).
Subsequent to the reverse acquisition, Wireless California began to wind
down its affairs until, on August 30, 1993, its remaining net assets (consisting
primarily of common stock of the Company) were distributed to its shareholders
who then contributed such assets, except for the common stock of the Company, to
a limited liability corporation, AWS Liquidating, L.L.C. (AWS LLC).
In connection with its private placements in 1993, the Company redeemed
138,333 shares of common stock owned by Wireless California and 120,000 shares
of common stock of the Company owned by the shareholders of Wireless California.
The redemption price of $8.40 per share was equal to the offering price in the
private placements. A substantial amount of the proceeds were used to discharge
the remaining obligations of Wireless California.
(4) INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND WIRELESS CABLE SYSTEMS
Investments in and advances to joint ventures and wireless cable systems
represent the historical costs incurred to develop the wireless cable systems,
including the acquisition of the FCC frequency rights and the head-end
transmission equipment and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
MARKET 1993 1994 1995
------------------------------------------------ ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Jointly Owned Systems:
Minneapolis/St. Paul, Minnesota............... $ 545,655 $ 436,446 $ 345,819
Advances to Minneapolis/St. Paul, Minnesota... -- 2,050,882 2,079,386
Ft. Worth, Texas.............................. 261,720 243,054 205,389
Advances to Ft. Worth, Texas.................. -- 253,177 367,804
Pittsburgh, Pennsylvania...................... 401,334 452,489 --
---------- ---------- -----------
$1,208,709 $3,436,048 $ 2,998,398
========== ========== ===========
Wholly Owned Systems:
Los Angeles, California....................... $ -- $ 972,653 $ 1,469,444
Memphis, Tennessee............................ 571,462 733,153 799,960
Dallas, Texas................................. 386,351 725,060 718,536
---------- ---------- -----------
$ 957,813 $2,430,866 $ 2,987,940
========== ========== ===========
</TABLE>
(a) Jointly Owned Systems
The Company currently owns an equity interest in operating wireless cable
systems in Minneapolis, Minnesota (AWS-Minneapolis) (25% interest) and Ft.
Worth, Texas (AWS-Ft. Worth) (20% interest) and formerly owned an equity
interest in a wireless cable system under development in Pittsburgh,
Pennsylvania (25% interest).
The Minneapolis system has been in operation since March 1993. The
Company's joint venture partner is a general partnership which was formed to
acquire an interest in and jointly develop and operate the Minneapolis wireless
cable system. In accordance with the terms of the joint venture agreement,
losses are to be allocated in accordance with contributed capital and profits
are to be allocated (i) in accordance with
F-30
<PAGE> 228
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contributed capital to the extent of previously allocated losses and then (ii)
25% to the Company and 75% to the general partnership.
In April 1994, the Company loaned the Minneapolis general partnership
$2,000,000 to fund additional development of the system. The loan bears interest
at 8% per annum and was originally payable in full in 18 months. Prior to the
due date, the Company agreed to extend the maturity of the loan until the
earlier of (i) February 28, 1996 or (ii) the abandonment of the Heartland Merger
Agreement. In the event that the loan is not repaid by the due date, the Company
will receive an additional equity interest in the Minneapolis joint venture of
approximately 10%.
AWS-Minneapolis received additional funding in May 1995 of $550,000 from
Tsunami Capital Corporation (Tsunami). The loan was made by Tsunami in
anticipation of a reverse merger between AWS-Minneapolis and Tsunami. The loan
is due December 31, 1995, and carries an interest rate of 12% per annum.
On October 4, 1995, the Company's joint venture partner signed a contract
to sell its 75% interest in AWS-Minneapolis to Heartland. As part of this
agreement Heartland agreed to loan AWS-Minneapolis up to $1,575,000, of which
$575,000 will be used to repay Tsunami and the remainder to fund subscriber
growth.
The Ft. Worth system has been in operation since November 1992. The
Company's joint venture partner is a general partnership which was formed to
acquire an interest in and jointly develop and operate the Ft. Worth wireless
cable system. The Ft. Worth system has been operated through an informal joint
venture agreement. The accompanying financial statements include an estimate of
the Company's pro rata losses in this system.
AWS-Ft. Worth does not have sufficient funds to continue development of the
system. The Company's joint venture partner also does not have funds to
contribute to the joint venture and has expressed its belief that either
Wireless California or the Company is obligated to provide additional funds to
develop the system to a positive cash flow position. Neither Wireless California
nor the Company believes it has such an obligation; however, the Company is
negotiating the terms of additional funding to continue development of the
system in conjunction with definitive joint venture and management agreements.
In order to protect the Company's interest in the assets of AWS-Ft. Worth, the
Company has advanced $253,177 through December 31, 1994 and an additional
$114,627 during 1995 to fund negative cash flow of the system and maintain the
current subscriber base.
On October 4, 1995, the Company's joint venture partner in AWS-Ft. Worth
signed a contract with Heartland to sell its 80% interest in AWS-Ft. Worth.
Pursuant to the agreement, Heartland has agreed to assume up to $570,000 of
amounts due to the Company. Additionally, Heartland has agreed to loan the Ft.
Worth partnership $500,000 secured by its interest in AWS-Ft. Worth.
The Pittsburgh system is still in its initial development stage. On
September 29, 1995, the Company sold all of its interest in the assets of the
Pittsburgh market for $1,250,000 in cash.
Selected combined balance sheet data related to the Company's jointly owned
operating systems is as follows (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1993 1994 1995
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $ 461 $ 402 $ 450
Total assets....................................... 12,001 10,846 9,713
Total liabilities.................................. 296 790 1,577
Members equity..................................... 11,705 10,056 8,136
AWS' interest...................................... 725 525 389
</TABLE>
F-31
<PAGE> 229
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Selected combined operating data related to the Company's jointly owned
operating systems is as follows (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- --------------------------
1992 1993 1994 1994 1995
----- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 146 $ 1,064 $ 1,187 $ 822 $ 1,191
Operating expenses................ (947) (3,814) (4,363) (3,181) (3,494)
----- ------- ------- --------- ---------
Net loss.......................... $(801) $(2,750) $(3,176) $ (2,359) $ (2,303)
===== ======= ======= ========= =========
AWS' interest..................... $ (85) $ (185) $ (200) $ (158) $ (136)
===== ======= ======= ========= =========
</TABLE>
(b) Wholly Owned Systems
The Company's investment in wholly owned systems consists primarily of the
costs to acquire the rights to FCC licenses in Dallas (16), Los Angeles (9) and
Memphis (22). The lease agreements provide for the Company to pay for the excess
airtime use, new transmission equipment and all other operating expenses of the
channels including co-location costs.
The Company is currently negotiating a contract to sell its assets in the
Memphis market for $3,900,000 to TruVision Cable, Inc. (TruVision) (Note 9).
(5) RELATED PARTIES
(a) Wireless California
Since the reverse acquisition on December 17, 1992, the Company has entered
into certain transactions with Wireless California, including the redemption of
258,333 shares of common stock owned by Wireless California and the shareholders
of Wireless California (see Note 3), certain transactions related to income
taxes (see Note 10), the purchase of additional FCC licenses not covered by the
original acquisition agreement for $80,000 and the payment of certain lease
expenses related to the Pittsburgh wireless cable system. In 1994, the Company
advanced $35,000 to pay administrative penalties assessed Wireless California by
the State of Arizona (see Note 9). The members of AWS L.L.C. have agreed to
reimburse the Company upon sale of the previously escrowed shares (see Note 8).
All transactions with Wireless California subsequent to August 1993 have been
approved by a majority of the independent directors of the Company.
(b) AWS-Ft. Worth and AWS-Minneapolis
The Company serves as the manager and operator of the Minneapolis joint
venture. The terms of the Management Agreement, which was signed in April 1994,
provide for annual management service fees equal to the greater of 5% of
collected gross revenues or $100,000.
The Company also serves as the manager to the Ft. Worth joint venture
although no formal management agreement exists. No management service fees have
been accrued relative to the Ft. Worth system.
In its capacity as manager, the Company contracted for subscriber
installation services and subscriber equipment on behalf of AWS-Ft. Worth and
AWS-Minneapolis to Wireless Technologies, Inc. (WTI), a Texas corporation
engaged in the business of providing subscriber installation services and
distributing subscriber equipment with respect to traditional and wireless cable
systems. WTI is a wholly owned subsidiary of North American Cable Corporation
(NACC), a Texas corporation engaged in the engineering, construction and
maintenance of cable television systems, local area networks, fiber optic
networks and wireless cable television systems, with operations and business
experience in the United States, England and several other countries around the
world. A former officer and director of the Company beneficially owns 50% of the
stock of North American Cable Corporation.
F-32
<PAGE> 230
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WTI purchased certain of the subscriber equipment that it sold to AWS-Ft.
Worth and AWS-Minneapolis from Micom Products, Ltd., a Delaware limited
liability company engaged in the distribution of subscriber equipment for
wireless cable systems. Micom is owned by the beneficial owners of approximately
36% of the Company's common stock.
In 1992, 1993 and 1994, payments were made by the Company, Wireless
California and the joint ventures to WTI of $421,650, $924,054 and $74,449,
respectively, for installation services and related subscriber equipment. In
1992, 1993 and 1994, payments were made by WTI to Micom of $22,018, $114,644 and
$2,766, respectively, for subscriber equipment.
(c) American Wireless Systems, Inc.
In connection with the acquisition of the rights to utilize the FCC
licenses in Los Angeles (Note 4), the Company agreed to pay a finder's fee of
$75,000 to the president of NACC as consideration for the introduction of the
Company to the license holder of the eight channels.
In February and April 1995, the Company obtained loans totalling $1,000,000
from a shareholder of the Company who is a principal in the firm which served as
the placement agent for the Company's private offerings in 1993 and 1994 (Note
1). In addition, this individual and certain other related entities are
shareholders of the Company's common stock.
(6) SEVERANCE AGREEMENT
Effective August 1994, an individual who held the position of Chairman of
the Board, President and Chief Financial Officer resigned. In connection with
such resignation, this individual entered into a severance agreement with the
Company, whereby the Company agreed to pay this individual his annual base
salary, as provided by the terms of his employment agreement, a bonus, if any,
consistent with the bonuses awarded to certain other officers and certain other
expenses for a period of three years. As a result, the Company recognized
approximately $566,000 of expense in the third quarter of 1994, of which
approximately $355,000 is a long-term liability. Upon the consummation of the
merger with Heartland (Note 1), the unpaid portion becomes due and payable in
full.
In September 1994, this individual resigned as a director of the Company.
In connection with such resignation, the Company granted this individual a
warrant to acquire 33,333 shares of common stock at $8.40 per share. This
warrant was granted on October 1, 1994, has a ten-year term and became fully
exercisable on April 1, 1994.
(7) CONVERTIBLE SUBORDINATED NOTES PAYABLE
At December 31, 1993, the Company had $7,707,000 in convertible
subordinated notes ("Notes") outstanding. Through May 1994, $462,000 in
principal amount of the Notes had been converted into shares of the Company's
common stock. The remaining $7,245,000 in Notes were called for prepayment by
the Company in May 1994. Holders of $4,232,000 in principal amount of the Notes
elected to receive cash payment for their investment as opposed to converting
their Notes into shares of the Company's common stock. Because the Company did
not anticipate the relatively high level of repayment, the Company did not have
adequate funds available to pay all of the Noteholders who elected repayment. In
accordance with the terms of the Notes, the conversion price of the Notes was
adjusted from $8.40 per share to $3.75 per share. Following the redemption date,
the Company agreed to permit all of the Noteholders, including the Noteholders
that had elected repayment, to elect repayment or to convert their Notes into
shares of the Company's common stock at the adjusted conversion price of $3.75
per share. Holders of all but $703,500 in principal amount of the Notes agreed
to convert their Notes into shares of the Company's common stock at $3.75 per
share. The placement agent for the Notes arranged for the holders of the
remaining $703,500 in
F-33
<PAGE> 231
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal amount of the Notes to sell their Notes to certain accredited
investors who converted such Notes into shares of common stock at $3.75 per
share by September 30, 1994.
As consideration for services rendered in connection with the conversion of
the Notes, the Company agreed to adjust the exercise price of existing warrants
held by the placement agent to acquire 165,732 shares of common stock held by
certain affiliates of the placement agent. As a result, the Company recognized
other expense of approximately $425,000 in the third quarter of 1994.
In connection with the issuance of the Notes in 1993, the Company also
granted contingent warrants (see Note 8).
(8) STOCKHOLDERS' EQUITY
(a) Outstanding Warrants and Options
As of December 31, 1994, the Company had outstanding warrants and options
as follows:
<TABLE>
<S> <C>
Warrants to acquire common stock assumed in the reverse acquisition;
exercisable at $10.08 through November 1996............................. $ 27,066
Warrants to acquire common stock assumed in the reverse acquisition;
exercisable at $3.75 through April 1995................................. 19,333
Warrants to acquire common stock issued to the placement agent in
connection with the 1993 private placements; exercisable at $3.75
through August and November 1998........................................ 138,666
Contingent warrants to acquire common stock issued to the Noteholders in
connection with the 1993 private placements; exercisable at $12.00
through July 1995....................................................... 15,833
Contingent warrants to acquire common stock issued to the Noteholders in
connection with the 1993 private placements; exercisable at $12.00
through July 1996....................................................... 330,833
Warrants to acquire common stock issued to a third party for services
provided to the Company; exercisable at $6.75 through August 2004....... 8,333
Warrants to acquire common stock issued to a private investor; exercisable
at $12.00 through July 1996............................................. 60,000
Warrants to acquire common stock issued to a former officer and director
of the Company in connection with a severance agreement; exercisable at
$8.40 through September 2004............................................ 33,333
</TABLE>
(b) Escrowed Shares
Approximately 1.88 million shares of the Company's outstanding common
stock, which were owned by the former owners of Wireless California, were
released from escrow in February 1995. The shares were pledged by the former
shareholders to secure the indemnification of the Company by Wireless California
for potential losses incurred from claims arising out of the prior offerings of
general partnership interests by Wireless California (see Note 9). In December
1994, the Company made a $35,000 claim on the escrowed shares for an advance to
Wireless California (see Note 5). All but 50,000 shares were released from
escrow and distributed to the members of AWS L.L.C. in February 1995. The
remaining 50,000 shares have been retained to potentially fund a claim made by
the Company which is currently being disputed by AWS L.L.C. The shares will
remain in escrow until the dispute is resolved. No other claims were made on the
escrowed shares.
(c) Stock Option Plan
In April 1993, the Company adopted the 1993 Stock Option Plan (the Plan)
which reserved 416,666 shares of common stock to be issued to officers,
directors, key employees and independent consultants who
F-34
<PAGE> 232
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
provide valuable services to the Company. The terms of the options are to be
established by the Board of Directors on the date of grant.
Activity in the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- ------------
<S> <C> <C>
Options outstanding at December 31, 1992...................... -- --
Granted....................................................... 151,666 $6.75-$15.75
Canceled...................................................... -- --
Exercised..................................................... -- --
-------
Options outstanding at December 31, 1993...................... 151,666 $6.75-$15.75
Granted....................................................... 25,000 $15.75
Canceled...................................................... (13,333) $6.75-$15.75
Exercised..................................................... -- --
-------
Options outstanding at December 31, 1994...................... 163,333 $6.75-$15.75
Granted....................................................... -- --
Canceled (unaudited).......................................... (48,333) $6.75-$ 8.40
Exercised..................................................... -- --
-------
Options outstanding at September 30, 1995 (unaudited)......... 115,000 $6.75-$15.75
=======
Options available for grant (unaudited)....................... 301,666
=======
Exercisable at end of period (unaudited)...................... 74,582 $6.75-$15.75
=======
</TABLE>
Prior to the completion of the merger with Heartland, the Company intends
to terminate the Plan.
(9) COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company leases office space, equipment and licenses under various
operating leases. Future obligations under these leases are as follows for years
ending December 31:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
1995............................................. $ 568,000
1996............................................. 265,000
1997............................................. 255,000
1998............................................. 170,000
1999............................................. 48,000
Thereafter....................................... 72,000
----------
$1,378,000
==========
</TABLE>
(b) Prior Offerings of General Partnership Interests by Wireless California
Prior to the sale of certain assets by Wireless California to the Company,
approximately $29,000,000 was raised in connection with the offering of general
partnership interests in three general partnerships, each of which was formed
for the purpose of acquiring an interest in the rights to develop and operate a
wireless cable television system in Ft. Worth, Minneapolis and Pittsburgh.
Through an affiliate, Wireless California participated in the offer and sale of
the general partnership interests without registration under any federal or
state securities laws based on the belief that the general partnership interests
did not constitute securities
F-35
<PAGE> 233
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under federal and applicable state laws. Certain current and former officers and
directors of the Company were formerly officers and directors of Wireless
California.
Following an investigation by the Securities and Exchange Commission (the
Commission) involving the activities of Wireless California in connection with
the offer and sale of the general partnership interests as described above, the
Company and certain of its current and former officers, without admitting or
denying any wrongdoing, agreed to consent to an order of the Commission to cease
and desist from committing or causing any violation and any future violations of
the securities registration provisions of the 1993 Act and the broker-dealer
registration provisions of the Exchange Act.
Securities administrators in 22 states also have conducted or are presently
conducting investigations of the activities related to the unregistered sale of
the general partnership interests described above. The actions taken by the
various state securities administrators range from no action taken to the
issuance of 15 cease and desist orders and consent orders pursuant to which
Wireless California, the issuing general partnerships, and certain officers of
Wireless California were required to cease selling general partnership interests
without registration, to offer rescission to individuals who purchased general
partnership interests and, in certain cases, to pay administrative penalties. In
addition, AWS L.L.C. has entered into a consent order with the State of Illinois
pursuant to which AWS L.L.C. agreed to cease and desist from selling general
partnership interests without registration, to pay an administrative penalty,
and to cause a rescission offer to be made to Illinois residents. Following an
investigation by the State of Arizona, AWS L.L.C. and current and former
officers of the Company consented to an order of the Arizona Corporation
Commission to cease and desist from selling securities unless the sale is
registered or exempt from registration and to the imposition of an
administrative penalty against AWS L.L.C. The Company also consented to a
separate order that requires the Company to make an offer of rescission to all
general partners who are Arizona residents or who were offered and sold their
interests from Arizona. To the knowledge of the Company, there are no other
active federal or state regulatory proceedings or investigations.
Following the completion of the Company's proposed public offering, the
Company intended to effect a rescission offer to purchase the interests of the
general partners in the three general partnerships that own an interest in joint
ventures with the Company. Due to the Company's inability to complete the
offering and its current lack of funds, the Company is currently unable to offer
to purchase the general partnership interests, and will not have the ability to
complete the orders of rescission imposed by the State of Arizona unless
alternative financing is obtained or alternatives to rescission are arranged.
Accordingly, the Company will seek to amend the order to provide for
alternatives to rescission, although there can be no assurance that the Company
will be successful in this regard. The Arizona order provides that if the offers
to purchase are not made, the Company will be required to pay to the Arizona
Corporation Commission an amount equal to the amount of the investment made by
all general partners who are Arizona residents, or approximately $566,000, plus
interest from the time of investment. There can be no assurance that the Company
will be able to satisfy the Arizona rescission orders.
Since October 31, 1992, Wireless California, the general partnerships and
the current and former officers of the Company have ceased all activities
involving the offer and sale of general partnership interests, although one of
the general partnerships continued to raise funds through capital calls to
existing general partners after such date. In addition to the rescission offer
described above, Wireless California and the general partnership issuers
voluntarily elected to offer to purchase the general partnership interests of
certain general partners in exchange for cash in an amount equal to the funds
contributed by such general partners. As of October 19, 1995, approximately
1,170 of the approximately 1,930 purchasers of general partnership interests had
been offered rescission or a return of their investment by Wireless California
or the general partnership issuers and approximately 80 had accepted the offer,
all of which have been paid. None of such offers, however, were necessarily
conducted in accordance with the statutory requirements of the various states.
To the extent such requirements were not met, potential securities liability
arising from the offer and sale of the general
F-36
<PAGE> 234
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
partnership interests will not be statutorily eliminated until the statutes of
limitation with respect to such claims have expired or an offer is made in
accordance with the statutory rescission requirements of any state.
In September 1995, AWS and the Pittsburgh general partnership sold all of
their wireless cable assets in the Pittsburgh market to a publicly held wireless
cable company. As consideration for the sale of its assets in the Pittsburgh
market, the Pittsburgh general partnership received approximately $11,250,000 in
cash and short-term notes, which amount exceeded the aggregate amount that would
have been required if all Pittsburgh general partners were offered and accepted
rescission.
There can be no assurance that current general partners or any governmental
agency will not institute proceedings against Wireless California or the Company
as the successor to Wireless California based on a failure to register the
general partnership interests in connection with a public offering or for
damages based on alleged omissions or misrepresentations of material information
in connection with the sale of such interests. In connection with the
acquisition of certain assets of Wireless California, the Company expressly
disclaimed any liabilities of Wireless California arising out of the offer and
sale of the general partnership interests described above. There is a
possibility, however, that a successful claim against Wireless California could
be asserted against the Company based on a number of theories involving
successor liability. The institution of legal action against the Company arising
out of the offer and sale of general partnership interests by Wireless
California could result in substantial defense costs to the Company and the
diversion of efforts by the Company's management, and the imposition of
liabilities which could have a material adverse effect on the Company. Based on
its experience to date, however, taking into account the status of
investigations by various state securities administrators, the absence of any
asserted claim for rescission having been instituted by any of the general
partners against any of the general partnerships, Wireless California or the
Company, the Company's assessment of the current value of the general
partnership interests, the relatively small number of general partners who have
accepted previous offers by Wireless California or its shareholders to purchase
general partnership interests, the existence of a number of possible defenses to
any claims asserted against it, the existence and terms of the agreements
between the Fort Worth and Minneapolis general partnerships and Heartland (Note
4) and other factors, the Company does not believe the ultimate resolution of
this matter will have a material impact on its financial condition or its
results of operations.
(c) Other Contingencies
The Company is currently named as a defendant in two separate lawsuits. On
May 16, 1995, William R. Jenkins, the former Chief Executive Officer of the
Company, filed a lawsuit in Arizona state court alleging breach of his
employment contract and requesting as damages all amounts due under the
employment contract, treble damages under the Arizona statute, attorney's fees
and costs. On June 2, 1995, the Company filed a Petition to Compel Arbitration
and an Answer including counterclaims. The Company estimates that the amount due
under Mr. Jenkins' employment contract, if he were successful, is approximately
$167,000. The Company maintains that no amounts are due to Mr. Jenkins as he was
terminated for cause and breached his employment contract. The Company believes
it has adequate grounds to successfully defend this lawsuit.
On June 21, 1995, TruVision, with whom the Company had entered into a
letter of intent relating to the sale of the Company's Memphis assets, filed a
lawsuit, as amended on June 29, 1995, in the state of Mississippi alleging that
the Company breached the letter of intent, that the parties entered into a
binding agreement which was breached, and that the Company committed fraud and
negligent misrepresentation. The Company disputes these claims based on the
position that it lawfully terminated the letter of intent. The Amended Complaint
requests damages in the amount of $28,196,642 and punitive damages in the amount
of $20,000,000, together with interest and all costs of court. The Company
believes it has adequate grounds to successfully defend this lawsuit. The
Company is currently negotiating with TruVision to sell its assets in the
Memphis market under a new contract. According to the terms of the contract, at
the time of closing, each party will sign a release of all claims against the
other.
F-37
<PAGE> 235
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is also the subject of two threatened lawsuits. American
Telecasting, Inc. ("ATI") has sent letters to the Company claiming that the
Company breached a term sheet and has requested payment of $1,800,000 as the
alleged termination fee owed to ATI under the term sheet, plus expenses. The
Company has responded to ATI and disputes all of ATI's claims. The Company
believes that ATI's claims are without merit and would vigorously defend any
lawsuit filed.
By letter dated January 31, 1995, Laidlaw Holdings, Inc. ("Laidlaw"), the
underwriter of the Company's proposed public offering, claims that the Company
owes Laidlaw $182,165 as accountable expenses under a Letter Agreement between
the parties dated November 20, 1994. A follow-up letter was sent to the Company
on July 13, 1995. By letter dated February 3, 1995, from the Company to Laidlaw,
the Company asserted that Laidlaw terminated the Letter Agreement and believes
that if a claim is filed by Laidlaw, the Company has adequate grounds to
successfully defend the claim.
(10) INCOME TAXES
In connection with the reverse acquisition, the basis in the assets
acquired and liabilities assumed by the Company were substantially the same for
book and tax purposes.
For income tax reporting purposes, the Company was included in the
consolidated tax returns of Wireless California through August 13, 1993, the
date that Wireless California's ownership interest in the Company dropped below
80%. As a result, the net operating losses generated by the Company from
December 18, 1992 (the date subsequent to the reverse acquisition) through
August 13, 1993, of approximately $1,000,000 were utilized by Wireless
California to reduce its tax obligations and to recapture approximately $300,000
of previously paid taxes. In exchange, Wireless California agreed to contribute
this refund to the capital of the Company.
Since December 18, 1992, the Company has generated $8,199,000 in net
operating losses of which $890,000 was utilized by Wireless California through
August 13, 1993, and an additional $310,000 has been recognized for financial
reporting purposes to recapture taxes previously paid by Wireless California as
described above. Approximately $517,000 in net operating losses were utilized to
offset taxable income in prior year consolidated tax returns filed with Wireless
California. As of December 31, 1994, therefore, the Company has approximately
$6,482,000 in net operating loss carryforwards available for financial reporting
and income tax purposes which expire in 2009.
In 1994 and 1995, there were no material temporary differences between
financial reporting and income tax reporting. As a result, at December 31, 1994
and September 30, 1995 (unaudited), the Company has a net deferred tax asset of
approximately $2,593,000 and $2,931,000, respectively, which relates primarily
to its available net operating loss carryforwards. As the realizability of this
tax asset is solely dependent on the Company's ability to generate future
taxable income, this asset has been fully reserved.
F-38
<PAGE> 236
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee and Partners of
Fort Worth Wireless Cable T.V. Associates:
We have audited the accompanying consolidated balance sheets of FORT WORTH
WIRELESS CABLE T.V. ASSOCIATES (WCTVA or the Partnership) (a general
partnership) as of December 31, 1993 and 1994, and the related consolidated
statements of operations, partners' equity and cash flows for the years ended
December 31, 1992, 1993 and 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WCTVA as of December 31,
1993 and 1994, and the results of their operations and their cash flows for the
years ended December 31, 1992, 1993 and 1994, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As discussed in
Note 1 to the financial statements, the Partnership has incurred losses since
inception and expects to incur additional losses until it is able to generate
sufficient income to cover operating expenses. The Partnership currently does
not have sufficient cash reserves to cover such anticipated losses. These
factors raise substantial doubt about the Partnership's ability to continue as a
going concern. The Partnership's current plans are also discussed in Note 1. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 19, 1995.
F-39
<PAGE> 237
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1995
1993 1994 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 1).................. $ 94,898 $ 21,836 $ 25,014
Accounts receivable................................. 90,458 51,750 45,931
Prepaid expenses and other current assets........... 18,230 23,923 16,525
---------- ---------- -----------
Total current assets........................ 203,586 97,509 87,470
Investment in wireless systems and equipment, at cost,
net (notes 1 and 4)................................. 4,463,630 3,763,423 3,179,029
---------- ---------- -----------
$4,667,216 $3,860,932 $ 3,266,499
========== ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............ $ 85,451 $ 300,047 $ 547,286
Advances from affiliates (note 1)................... 109,730 471,613 660,025
---------- ---------- -----------
Total current liabilities................... 195,181 771,660 1,207,311
---------- ---------- -----------
Minority interest (note 1)............................ 206,073 143,792 99,742
---------- ---------- -----------
Commitments and contingencies (note 6)
Partners' equity (note 2):
General partners' equity............................ 7,384,979 6,064,497 5,078,463
Less syndication costs........................... (3,119,017) (3,119,017) (3,119,017)
---------- ---------- -----------
Total partners' equity...................... 4,265,962 2,945,480 1,959,446
---------- ---------- -----------
$4,667,216 $3,860,932 $ 3,266,499
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-40
<PAGE> 238
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------
1992 1993 1994 1994 1995
--------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber.................. $ 55,119 $ 646,745 $ 650,214 $ 493,034 $ 443,564
Installation................ 76,121 84,554 7,517 6,112 5,054
Other....................... 13,141 60,578 9,529 6,113 2,963
--------- ----------- ----------- ----------- ----------
Total revenues...... 144,381 791,877 667,260 505,259 451,581
--------- ----------- ----------- ----------- ----------
Operating expenses:
Operating and
installation............. 232,148 594,747 567,461 420,763 396,302
Selling and marketing....... 106,422 101,089 3,206 3,393 3,144
General and
administrative........... 299,792 412,652 692,784 541,721 500,766
Depreciation and
amortization............. 250,215 754,116 786,572 608,724 581,451
--------- ----------- ----------- ----------- ----------
Total operating
expenses.......... 888,577 1,862,604 2,050,023 1,574,601 1,481,663
--------- ----------- ----------- ----------- ----------
Loss from operations.......... (744,196) (1,070,727) (1,382,763) (1,069,342) (1,030,082)
Minority interest in losses... 76,446 57,689 62,281 47,974 44,048
--------- ----------- ----------- ----------- ----------
Net loss...................... $(667,750) $(1,013,038) $(1,320,482) $(1,021,368) $ (986,034)
========= =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-41
<PAGE> 239
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL TOTAL
PARTNERS' SYNDICATION PARTNERS'
EQUITY COSTS EQUITY
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1991............................ $ 4,959,517 $(2,424,000) $ 2,535,517
Capital contributions................................. 4,668,750 (695,017) 3,973,733
Return of capital..................................... (550,000) -- (550,000)
Net loss.............................................. (667,750) -- (667,750)
----------- ----------- -----------
Balance, December 31, 1992............................ 8,410,517 (3,119,017) 5,291,500
Return of capital..................................... (12,500) -- (12,500)
Net loss.............................................. (1,013,038) -- (1,013,038)
----------- ----------- -----------
Balance, December 31, 1993............................ 7,384,979 (3,119,017) 4,265,962
Net loss.............................................. (1,320,482) -- (1,320,482)
----------- ----------- -----------
Balance, December 31, 1994............................ 6,064,497 (3,119,017) 2,945,480
Net loss (unaudited).................................. (986,034) -- (986,034)
----------- ----------- -----------
Balance, September 30, 1995 (unaudited)............... $ 5,078,463 $(3,119,017) $ 1,959,446
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-42
<PAGE> 240
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $ (667,750) $(1,013,038) $(1,320,482) $(1,021,368) $(986,034)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization........ 250,215 754,116 786,572 608,724 581,451
Gain on sale of equipment............ -- -- -- -- (9,048)
Loss on disposal of assets........... -- -- -- -- 4,570
Minority interest in losses.......... (76,446) (57,689) (62,281) (47,974) (44,048)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable...................... (48,335) (42,123) 38,708 37,282 5,819
(Increase) decrease in prepaid
expenses and other current
assets.......................... (24,170) 5,940 (5,693) (1,569) 7,398
Increase (decrease) in accounts
payable and accrued
liabilities..................... 241,045 (155,594) 214,596 132,914 247,239
---------- ---------- ---------- ----------- ---------
Net cash used for operating
activities.................... (325,441) (508,388) (348,580) (291,991) (192,653)
---------- ---------- ---------- ----------- ---------
Cash flows from investing activities:
Investment in wireless systems and
equipment............................ (1,933,269) (738,967) (86,365) (62,761) (22,984)
Proceeds from sale of equipment......... -- -- -- -- 30,403
---------- ---------- ---------- ----------- ---------
Net cash (used for) provided by
investing activities.......... (1,933,269) (738,967) (86,365) (62,761) 7,419
---------- ---------- ---------- ----------- ---------
Cash flows from financing activities:
Cash contributed by (returned to)
partners, net........................ 4,118,750 (12,500) -- -- --
Syndication costs paid.................. (695,017) -- -- -- --
Net advances (to) from affiliates....... (257,254) 366,984 361,883 285,780 188,412
---------- ---------- ---------- ----------- ---------
Net cash provided by (used for)
financing activities.......... 3,166,479 354,484 361,883 285,780 188,412
---------- ---------- ---------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents............................. 907,769 (892,871) (73,062) (68,972) 3,178
Cash and cash equivalents, beginning of
period.................................. 80,000 987,769 94,898 94,898 21,836
---------- ---------- ---------- ----------- ---------
Cash and cash equivalents, end of
period.................................. $ 987,769 $ 94,898 $ 21,836 $ 25,926 $ 25,014
========== ========== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-43
<PAGE> 241
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
(1) ORGANIZATION
(a) Background, Nature of Organization and Significant Accounting Policies
Fort Worth Wireless Cable T.V. Associates (the Partnership), a California
general partnership, was formed as of July 1, 1992. The Partnership is comprised
of certain partners of Wireless Cable T.V. Associates #34 (WCTVA), a California
general partnership, which was formed in 1991, who exchanged their interest in
WCTVA for an interest in the Partnership, and some new partners who were
admitted to the Partnership upon contributing cash thereto. Upon its formation,
the Partnership acquired the assets and assumed the operations of WCTVA.
Concurrent with its formation, WCTVA entered into a Services and
Acquisition Agreement (the Agreement) with American Wireless Systems, Inc., a
California corporation (Wireless California). Under the terms of the Agreement,
Wireless California was obligated to provide various services including
assistance with Federal Communications Commission (FCC) filings, market
projections, and engineering services involving equipment assurances and new
market evaluation assistance. In addition, Wireless California was to coordinate
construction of broadcast facilities (commonly referred to as head-end
equipment) and assign to WCTVA a 75% interest in certain FCC licenses.
Wireless Cable television is an emerging business that provides television
programming to subscribers by transmitting a signal via microwave frequencies
licensed by the FCC to antennae located at the subscriber's premises.
The development and operations of the system have been conducted through an
informal joint venture relationship between the Partnership and American
Wireless Systems, Inc., a Delaware corporation (AWS-Delaware), which acquired
its interest in the informal joint venture from Wireless California in December
1992. American Wireless Systems of Ft. Worth (AWS-Ft. Worth), a general
partnership, has been established through which the operations of the informal
joint venture have been conducted. AWS-Ft. Worth was initially capitalized
through the contribution by WCTVA and Wireless California of their respective
interests in the FCC licenses and head-end equipment. Subsequent to the
formation of AWS-Ft. Worth, the Partnership acquired an additional 4.99%
interest in AWS-Ft. Worth such that the ownership is now 79.99% for the
Partnership and 20.01% for AWS-Delaware.
(b) Operations
The system had approximately 1,900 and 1,750 subscribers at December 31,
1993 and 1994, respectively, which is not sufficient to provide positive cash
flow. Additionally, neither the joint venture nor the Partnership has sufficient
funds to support the installation of additional subscribers sufficient to enable
the joint venture to reach a positive cash flow. The Partnership's joint venture
partner, AWS-Delaware, has indicated that it is not required to provide any
funding to support system growth, however, AWS-Delaware has advanced $253,177
from May 1, 1993 to December 31, 1994, and an additional $114,627 during 1995
(unaudited) to fund negative cash flow. Such advances are included in advances
from affiliates in the accompanying consolidated financial statements.
On September 11, 1995, AWS-Delaware and Heartland Wireless Communications,
Inc. ("Heartland") executed an Agreement and Plan of Merger, pursuant to which a
wholly-owned subsidiary of Heartland would be merged into AWS and AWS would
become a wholly-owned subsidiary of Heartland. On October 4, 1995, the
Partnership and Heartland executed an Asset Purchase Agreement (the "Fort Worth
Agreement") pursuant to which Heartland would purchase the Partnership's 79.99%
interest in AWS-Ft. Worth. Pursuant to the Fort Worth Agreement, Heartland has
agreed to assume up to $570,000 of liabilities associated with its joint venture
interest. The consideration to be paid to the Partnership under the Fort Worth
Agreement is
F-44
<PAGE> 242
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$13.3 million payable in Heartland Common Stock, based upon an exchange value
equal to the average trading price of Heartland Common Stock over the 10-day
period ending five business days prior to closing; provided that if such closing
average is in excess of $23.00 per share, then the exchange value will be $23.00
per share. Subject to approval of two-thirds of the partners, the Partnership
has agreed to effectuate the Agreement and Plan of Liquidation and, in
connection therewith, liquidate shares of Heartland Common Stock having an
aggregate exchange value in an amount necessary to satisfy certain known and
contingent liabilities of the Partnership.
In connection with the Fort Worth Agreement, Heartland has funded an Escrow
Agreement with a third-party escrow agent in the amount of $100,000, and is
obligated to fund an additional $55,000 per month starting November 1, 1995,
until the transaction closes. In addition, Heartland has agreed to loan the
Partnership $500,000 secured by the Partnership's interest in AWS-Ft. Worth. The
loan carries an interest rate of 10% per annum prior to maturity and is due in
accordance with the terms of the documents evidencing and securing the loan.
(c) Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and AWS-Ft. Worth. All significant intercompany accounts have
been eliminated in consolidation.
(d) Cash Equivalents
The Partnership considers all highly liquid instruments and time deposits
with an initial maturity of three months or less to be cash equivalents.
(e) Property and Equipment
Property and equipment is stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets.
(f) Frequency Rights
Included in investment in wireless systems and equipment is $3,218,864,
$3,231,364 and $3,231,364 of frequency rights as of December 31, 1993 and 1994,
and September 30, 1995 (unaudited), respectively, which are being amortized over
a ten-year period.
(g) Revenue Recognition
Subscription revenues are recognized in the period of service. Installation
fees are recognized as revenues upon subscriber hook-up.
(h) Income Taxes
No income tax liability or benefit is presented in the accompanying
consolidated financial statements as it will accrue to the partners.
(i) Unaudited Financial Information
The unaudited financial statements as of September 30, 1995, and for the
nine months ended September 30, 1994 and 1995, have been prepared by the
Partnership without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The information included herein, reflects,
in the
F-45
<PAGE> 243
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and results of
operations for such periods.
(2) PARTNERS' EQUITY
In 1991 WCTVA, sold approximately 800 general partnership units at $6,250
each, which provided capital of $5,000,000. Subsequent to their initial
contribution, certain partners requested a return of their capital; therefore,
$40,483 of the gross proceeds were returned. The initial offer and sale of WCTVA
interests were made by Wireless California (Note 6). Approximately $2,424,000
was paid for costs incurred in connection with the offering. Such costs are
reflected as an offset to equity in the accompanying consolidated financial
statements.
As discussed in note 1, the Partnership was formed in July 1992. The
partners of WCTVA were given the option to either exchange their interest in
WCTVA for an interest in the Partnership or to receive a return of their initial
contribution. The owners of 88 WCTVA partnership units elected to receive a
return of their contribution. An additional 747 units of the Partnership were
sold which provided additional capital of $4,668,750. The offer and sale of the
Partnership units were also made by Wireless California. Approximately $695,000
was paid for costs incurred in connection with this offering. Such costs are
reflected as an offset to equity in the accompanying consolidated financial
statements.
(3) JOINT VENTURE
As indicated in note 1, AWS-Ft. Worth has been operated through an informal
joint venture agreement (the "Agreement"). Key aspects of the Agreement utilized
in the development of the accompanying consolidated financial statements are as
follows:
(a) Initial Capital Contributions
Each member contributed to AWS-Ft. Worth their respective interests in the
wireless cable system assets to the joint venture in exchange for their
ownership interests of 79.99% (the Partnership) and 20.01% (AWS-Delaware.) The
accompanying consolidated financial statements reflect such contributed assets
at their respective owners' historical cost which does not directly correlate to
the ownership interests.
(b) Allocations of Profits and Losses
Profits and losses have been allocated in accordance with the respective
ownership percentages (the initial ownership percentages as adjusted for
additional cash contributions).
(c) Management
Wireless California, and it's successor, AWS-Delaware, have provided
management services to the joint venture since its inception. These services
have been provided through an informal management agreement. Management services
expense of $16,666, $100,000, $100,000, $75,000 and $75,000 has been provided in
the accompanying consolidated financial statements for the years ended December
31, 1992, 1993 and 1994, and the nine months ended September 30, 1994 and 1995
(unaudited), respectively.
F-46
<PAGE> 244
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENT IN WIRELESS SYSTEMS AND EQUIPMENT
Investment in wireless systems and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ------------------------ SEPTEMBER 30,
IN YEARS 1993 1994 1995
----------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Frequency rights................... 10 $3,218,864 $3,231,364 $ 3,231,364
Broadcast equipment and
inventory........................ 3-7 2,094,317 2,166,958 2,157,402
Vehicles........................... 5 48,593 48,689 48,173
Office equipment................... 5-7 100,653 101,582 93,053
Leasehold improvements............. 7 5,534 5,534 8,770
---------- ---------- ------------
5,467,961 5,554,127 5,538,762
Less: Accumulated depreciation and
amortization..................... (1,004,331) (1,790,704) (2,359,733)
---------- ---------- ------------
$4,463,630 $3,763,423 $ 3,179,029
========== ========== ============
</TABLE>
(5) RELATED PARTY TRANSACTIONS
The Partnership had several transactions with Wireless California including
the original sale of general partnership interests, the transactions
contemplated under the services and acquisition agreement and the informal joint
venture and management agreements. In addition to the Partnership and AWS-Ft.
Worth, AWS-Delaware is the minority owner of a wireless cable system joint
venture with another partnership in Minneapolis/St. Paul, Minnesota.
AWS-Ft. Worth had contracted subscriber installation services to Wireless
Technologies, Inc. (WTI), a Texas corporation engaged in the business of
providing subscriber installation services and distributing subscriber equipment
with respect to traditional and wireless cable systems. WTI is a wholly owned
subsidiary of North American Cable Corporation, a Texas corporation engaged in
the engineering, construction and maintenance of cable television systems, local
area networks, fiber optic networks and wireless cable television systems, with
operations in the United States, England and several other countries around the
world. A former Chief Executive Officer and Director of AWS-Delaware
beneficially owns 50% of the stock of North American Cable Corporation.
WTI purchased certain of the subscriber equipment that it sold to AWS-Ft.
Worth from Micom Products, Ltd. (Micom), a Delaware limited liability company
engaged in the distribution of subscriber equipment for traditional and wireless
cable systems. Micom is owned by the beneficial owners of approximately 36% of
AWS-Delaware.
In 1992 and 1993, payments of $196,860 and $542,521, respectively, were
made to WTI for installation services and related subscriber equipment. In 1992,
payments of $22,018 were made by WTI to Micom. Effective July 1993, AWS-Ft.
Worth ceased utilizing the services of WTI.
F-47
<PAGE> 245
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES
(a) Commitments
AWS-Ft. Worth leases office space under an operating lease. Future
obligations under this lease are as follows for years ending December 31:
<TABLE>
<S> <C>
1995.............................................. $ 57,968
1996.............................................. 60,570
1997.............................................. 61,200
1998.............................................. 15,300
--------
$195,038
========
</TABLE>
Lease expense of $34,224, $62,347, $55,830, $41,873 and $43,060 has been
recorded for the years ended December 31, 1992, 1993 and 1994, and the nine
months ended September 30, 1994 and 1995 (unaudited), respectively.
AWS-Ft. Worth holds frequency rights to 14 wireless cable channels in the
Ft. Worth market under several leases. Thirteen local broadcast channels are
also transmitted for a total programming package of 27 channels. The channel
leases have original lease periods from five to ten years with options to renew.
Future minimum lease payments for the FCC licenses are as follows for years
ending December 31:
<TABLE>
<S> <C>
1995.............................................. $108,300
1996.............................................. 108,300
1997.............................................. 60,500
1998.............................................. 1,200
1999.............................................. 1,200
Thereafter........................................ 2,900
--------
$282,400
========
</TABLE>
Lease expense of $62,918, $93,013, $90,460, $63,235 and $81,225 has been
recorded for the years ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1994 and 1995 (unaudited), respectively.
(b) Contingencies
The original formation of WCTVA and the subsequent formation of the
Partnership involved the sale of general partnership interests without
registration under any federal or state securities laws based on the belief that
the general partnership interests did not constitute securities under federal
and applicable state laws. As of December 31, 1994, securities administrators in
20 states as well as the Securities and Exchange Commission (SEC) have conducted
or are currently conducting investigations of the activities related to the
unregistered sale of the general partnership interests.
To date, the investigations have focused on Wireless California and its
successor AWS-Delaware, the Partnership's joint venture partner in AWS-Ft.
Worth, however, there is a possibility that future actions could be taken
against the Partnership. Such actions could involve fines, administrative
penalties and the requirement for the Partnership to file information with the
SEC pursuant to the Securities Exchange Act of 1934, as amended. Management
believes that any such penalties or fines should be the responsibility of
Wireless California and does not believe that any such actions will have a
material impact on its financial condition or its operations.
F-48
<PAGE> 246
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee and Partners of
Wireless Cable T.V. Associates #38:
We have audited the accompanying consolidated balance sheets of Wireless
Cable T.V. Associates #38 (WCTVA or the Partnership) (a general partnership) as
of December 31, 1993 and 1994, and the related consolidated statements of
operations, partners' equity and cash flows for the ten months ended December
31, 1992 and the years ended December 31, 1993 and 1994. These consolidated
financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly,
in all material respects, the financial position of WCTVA as of December 31,
1993 and 1994, and the results of their operations and their cash flows for the
ten months ended December 31, 1992 and the years ended December 31, 1993 and
1994, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As discussed in
Note 1 to the financial statements, the Partnership has incurred losses since
inception and expects to incur additional losses until it is able to generate
sufficient income to cover operating expenses. The Partnership currently does
not have sufficient cash reserves to cover such anticipated losses. These
factors raise substantial doubt about the Partnership's ability to continue as a
going concern. The Partnership's current plans are also discussed in Note 1. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 19, 1995.
F-49
<PAGE> 247
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1995
1993 1994 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 1)................ $ 167,897 $ 620,058 $ 177,941
Accounts receivable............................... 17,862 111,848 197,300
Prepaid expenses and other current assets......... 69,999 13,840 25,918
---------- ---------- -----------
Total current assets...................... 255,758 745,746 401,159
Investment in wireless systems and equipment, at
cost, net (notes 1 and 5)......................... 7,135,982 6,679,478 6,083,417
---------- ---------- -----------
$7,391,740 $7,425,224 $ 6,484,576
========== ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 74,690 $ 162,033 $ 177,199
Advances from affiliates.......................... -- 49,112 55,304
Notes payable and obligations under capital lease
(notes 1 and 4)................................ 26,287 2,016,692 2,578,562
---------- ---------- -----------
Total current liabilities................. 100,977 2,227,837 2,811,065
---------- ---------- -----------
Minority interest (note 1).......................... 518,520 380,365 289,737
---------- ---------- -----------
Commitments and contingencies (note 7)
Partners' equity (note 2):
General partners' equity.......................... 11,388,243 9,433,022 7,999,774
Less syndication costs......................... (4,616,000) (4,616,000) (4,616,000)
---------- ---------- -----------
Total partners' equity.................... 6,772,243 4,817,022 3,383,774
---------- ---------- -----------
$7,391,740 $7,425,224 $ 6,484,576
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-50
<PAGE> 248
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1992 1993 1994 1994 1995
-------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber.................. $ 9,261 $ 220,537 $ 459,215 $ 285,484 $ 643,381
Installation................ -- 31,584 11,360 8,629 10,896
Other....................... 14,433 20,031 64,471 35,644 86,318
-------- ----------- ----------- ----------- -----------
Total revenues...... 23,694 272,152 535,046 329,757 740,595
-------- ----------- ----------- ----------- -----------
Operating expenses:
Operating and
installation............. 62,053 690,835 1,187,795 826,474 1,092,248
Selling and marketing....... 237 70,881 71,317 39,539 11,137
General and
administrative........... 26,446 443,772 391,839 236,332 361,932
Depreciation and
amortization............. 6,158 738,860 977,471 719,045 799,154
-------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 94,894 1,944,348 2,628,422 1,821,390 2,264,471
-------- ----------- ----------- ----------- -----------
Loss from operations.......... (71,200) (1,672,196) (2,093,376) (1,491,633) (1,523,876)
Minority interest in losses... 8,764 127,217 138,155 102,488 90,628
-------- ----------- ----------- ----------- -----------
Net loss...................... $(62,436) $(1,544,979) $(1,955,221) $(1,389,145) $(1,433,248)
======== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-51
<PAGE> 249
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL TOTAL
PARTNERS' SYNDICATION PARTNERS'
EQUITY COSTS EQUITY
---------- ---------- ----------
<S> <C> <C> <C>
Balance, February 28, 1992 (inception).............. $ -- $ -- $ --
Capital contributions............................... 12,075,082 (4,616,000) 7,459,082
Net loss............................................ (62,436) -- (62,436)
---------- ----------- ----------
Balance, December 31, 1992.......................... 12,012,646 (4,616,000) 7,396,646
Capital contributions............................... 920,576 -- 920,576
Net loss............................................ (1,544,979) -- (1,544,979)
---------- ----------- ----------
Balance, December 31, 1993.......................... 11,388,243 (4,616,000) 6,772,243
Net loss............................................ (1,955,221) -- (1,955,221)
---------- ----------- ----------
Balance, December 31, 1994.......................... 9,433,022 (4,616,000) 4,817,022
Net loss (unaudited)................................ (1,433,248) -- (1,433,248)
---------- ----------- ----------
Balance, September 30, 1995 (unaudited)............. $7,999,774 $(4,616,000) $3,383,774
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-52
<PAGE> 250
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $ (62,436) $(1,544,979) $(1,955,221) $(1,389,145) $(1,433,248)
Adjustments to reconcile net loss
to net cash provided by (used
for) operating activities:
Depreciation and amortization... 6,158 738,860 977,471 719,045 799,154
Minority interest in losses..... (8,764) (127,217) (138,155) (102,488) (90,628)
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable........ (3,631) (14,222) (93,986) 15,524 (85,452)
(Increase) decrease in prepaid
expenses and other current
assets..................... (5,901) (64,098) 56,159 (497) (29,078)
Increase (decrease) in
accounts payable and
accrued liabilities........ 177,855 (103,166) 87,343 152,593 51,231
---------- ----------- ----------- ---------- ----------
Net cash provided by (used
for) operating
activities............... 103,281 (1,114,822) (1,066,389) (604,968) (788,021)
---------- ----------- ----------- ---------- ----------
Cash flows from investing activities:
Investment in wireless systems and
equipment....................... (5,983,256) (1,214,519) (520,967) (334,408) (203,093)
---------- ----------- ----------- ---------- ----------
Net cash used for investing
activities............... (5,983,256) (1,214,519) (520,967) (334,408) (203,093)
---------- ----------- ----------- ---------- ----------
Cash flows from financing activities:
Cash contributed by partners,
net............................. 12,075,082 920,576 -- -- --
Proceeds from issuance of notes
payable......................... -- -- 2,000,000 2,000,000 550,000
Net advances (to) from
affiliates...................... (178,844) 178,844 49,112 (104,336) 6,192
Syndication costs paid............. (4,616,000) -- -- -- --
Payments on capital lease.......... -- (2,445) (9,595) (4,797) (7,195)
---------- ----------- ----------- ---------- ----------
Net cash provided by
financing activities..... 7,280,238 1,096,975 2,039,517 1,890,867 548,997
---------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents................... 1,400,263 (1,232,366) 452,161 951,491 (442,117)
Cash and cash equivalents, beginning
of period.......................... -- 1,400,263 167,897 167,897 620,058
---------- ----------- ----------- ---------- ----------
Cash and cash equivalents, end of
period............................. $1,400,263 $ 167,897 $ 620,058 $1,119,388 $ 177,941
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-53
<PAGE> 251
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
(1) ORGANIZATION:
(a) Background, Nature of Organization and Significant Accounting Policies
Wireless Cable T.V. Associates #38 (WCTVA or the Partnership) was formed in
February 1992 to develop and operate a wireless cable television system in
Minneapolis, Minnesota as a joint venture partner with American Wireless
Systems, Inc., a California corporation (Wireless California).
Wireless cable television is an emerging business that provides television
programming to subscribers by transmitting a signal via microwave frequencies
licensed by the Federal Communications Commission (FCC) to antennae located at
the subscriber's premises.
Concurrent with its formation, WCTVA entered into a Services and
Acquisition Agreement (the "Agreement") with Wireless California. Under the
terms of the Agreement, Wireless California provided various services including
assistance with Federal Communications Commission (FCC) filings, market
projections, and engineering services involving equipment assurances and new
market evaluation assistance. In addition, Wireless California coordinated
construction of broadcast facilities (commonly referred to as head-end
equipment) and assigned to WCTVA a 75% interest in certain FCC licenses
previously held by Wireless California.
Subsequent to the construction of the head-end equipment in March 1993, the
development and operations of the system have been conducted through a joint
venture relationship between WCTVA and Wireless California (see Note 3).
American Wireless Systems of Minneapolis L.L.C. ("AWS-Minneapolis"), a limited
liability company, was established through which the operations of the joint
venture have been conducted. AWS-Minneapolis was initially capitalized through
the contribution by WCTVA and Wireless California of their respective interests
in the FCC licenses and head-end equipment.
In December 1992, the Partnership's joint venture partner, Wireless
California, sold substantially all of its assets, including its remaining 25%
interest in AWS Minneapolis, to a publicly traded company which also
subsequently assumed the name of American Wireless Systems, Inc.
("AWS-Delaware"). The former shareholders of Wireless California, beneficially
own approximately 36% of AWS-Delaware.
(b) Operations
The system, which was launched in March 1993, had approximately 800 and
2,200 subscribers at December 31, 1993 and 1994, respectively, which is not
sufficient to provide positive cash flow. Additionally, neither the joint
venture nor the Partnership has sufficient funds to support the installation of
additional subscribers to enable the joint venture to reach positive cash flow.
As a result of these factors, in April 1994, the Partnership borrowed $2,000,000
from AWS-Delaware to fund additional development of the system. AWS-Minneapolis
received additional funding in May 1995, of $550,000 from Tsunami Capital Corp.
("Tsunami"). The loan was made by Tsunami in anticipation of a reverse merger
between AWS-Minneapolis and Tsunami.
On September 11, 1995, AWS-Delaware and Heartland Wireless Communications,
Inc. ("Heartland") executed an Agreement and Plan of Merger pursuant to which a
wholly-owned subsidiary of Heartland would be merged into AWS-Delaware and
AWS-Delaware would become a wholly-owned subsidiary of Heartland. On October 4,
1995, the Partnership and Heartland executed an Asset Purchase Agreement
pursuant to which the Partnership agreed to sell to Heartland its membership
interest in AWS-Minneapolis ("Minneapolis Agreement"). In addition, pursuant to
the Minneapolis Agreement, Heartland has agreed to assume the obligation to
repay the $2,000,000 note owned by the Partnership to AWS-Delaware. The
consideration to be paid to the Partnership under the Minneapolis Agreement is
$18 million (plus the assumption of liabilities)
F-54
<PAGE> 252
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus $500 per subscriber added from October 4, 1995 to the closing date, payable
in Heartland Common Stock, based upon an exchange value equal to either (a) the
lesser of $23 per share and the average closing price of Heartland Common Stock
as reported on the Nasdaq Stock Market's National Market over the ten-
trading-day period ending on the fifth business day preceding the date of the
closing of the Minneapolis Agreement or (b) if such closing average is equal to
or in excess of $30 per share, then (i) the product of the closing average
multiplied by $23, divided by (ii) $30. Subject to the approval of two-thirds of
the partners, the Partnership has agreed to effectuate the Agreement and Plan of
Liquidation and, in connection therewith, liquidate shares of Heartland Common
Stock having an aggregate exchange value in an amount necessary to satisfy
certain contingent liabilities of the Partnership.
In connection with the Heartland transaction, AWS-Minneapolis received a
$1,575,000 loan from Heartland of which $575,000 was utilized to pay the Tsunami
note plus interest and the remaining $1,000,000 can be utilized to fund
subscriber growth. The $1,000,000 loan can be drawn down in increments of not
less than $25,000 and not more than $250,000, and carries an interest rate of
prime plus 2%, as defined, and is due on the earlier of (i) the closing of the
Heartland transaction, (ii) the termination of the Heartland transaction, as
defined, or (iii) February 28, 1997.
(c) Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and AWS-Minneapolis. All significant intercompany accounts have
been eliminated in consolidation.
(d) Cash Equivalents
The Partnership considers all highly liquid instruments and time deposits
with an initial maturity of three months or less to be cash equivalents. At
December 31, 1993 and 1994 and September 30, 1995 (unaudited), cash equivalents
include a $105,000 restricted deposit collateralizing the AWS-Minneapolis office
lease.
(e) Property and Equipment
Property and equipment is stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets.
(f) Frequency Rights
Included in investment in wireless systems and equipment is $6,204,332 of
frequency rights as of December 31, 1993 and 1994 and September 30, 1995
(unaudited), which are being amortized over a ten-year period.
(g) Revenue Recognition
Subscription revenues are recognized in the period of service. Installation
fees are recognized as revenues upon subscriber hook-up.
(h) Income Taxes
No income tax liability or benefit is presented in the accompanying
consolidated financial statements as it will accrue to the partners.
(i) Unaudited Consolidated Financial Information
The unaudited consolidated financial statements as of September 30, 1995,
and for the nine months ended September 30, 1994 and 1995, have been prepared by
the Partnership without audit, pursuant to the
F-55
<PAGE> 253
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rules and regulations of the Securities and Exchange Commission. The information
furnished herein, reflects, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for such periods.
(2) PARTNERS' EQUITY
In 1992, WCTVA sold approximately 1,744 general partnership units at $6,250
each, which provided capital of $10,900,000. Additional funds of $1,175,082 (188
units) and $920,576 (147 units) were contributed by existing partners during
1992 and 1993, respectively. The initial offer and sale of WCTVA units were made
by Wireless California. WCTVA reimbursed Wireless California approximately
$4,616,000 for costs incurred in connection with the offering. Such costs are
reflected as an offset to equity in the accompanying consolidated financial
statements.
(3) JOINT VENTURE
As indicated in Note 1, the Minneapolis wireless cable system has been
operated through a joint venture agreement (the "Agreement"). A summary of the
provisions of this agreement are as follows:
(a) Initial Capital Contributions
Each member contributed to AWS-Minneapolis their respective interests in
the wireless cable system assets to the joint venture in exchange for their
initial ownership interests of 75% (the Partnership) and 25% (AWS-Delaware.) The
accompanying consolidated financial statements reflect such contributed assets
at their respective owners' historical cost which does not directly correlate to
the ownership interests.
(b) Additional Capital Contributions
The Partnership is to make additional cash contributions to develop and
operate the system as it deems necessary. AWS-Delaware is only permitted to make
additional contributions with the consent of the Partnership.
(c) Allocations of Profits and Losses
Profits and losses are to be allocated in accordance with the respective
ownership percentages (the initial ownership percentages as adjusted for
additional cash contributions).
(d) Cash Distributions
Distributions of available operating cash flows are to be made in
accordance with the member's existing capital contribution percentages.
(e) Management
AWS-Delaware has provided management services to the joint venture since
its inception under the terms of a management agreement which provides for an
annual fee to AWS-Delaware equal to the greater of 5% of collected gross
revenues or $100,000 annually. The Partnership has the right to terminate the
management agreement upon 30 days' prior notice. Management services expense of
$-0-, $-0-, $83,333, $58,334 and $75,000 has been provided for the ten months
ended December 31, 1992 and the years ended December 31, 1993 and 1994 and the
nine months ended September 30, 1994 and 1995 (unaudited), respectively.
F-56
<PAGE> 254
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASE
Notes payable, including accrued interest, and obligations under capital
lease consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1993 1994 1995
------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to AWS-Delaware, interest at 8%, due
February 28, 1995; secured by a 10% interest in
the joint venture, as defined................... $ -- $2,000,000 $2,000,000
Note payable to Tsunami, interest at 12%, due
December 31, 1995, subject to alternate payment
arrangements, as defined........................ -- -- 569,067
Obligations under capital lease, aggregate monthly
payments of $810 through September 1996......... 26,287 16,692 9,495
------- ---------- ----------
$26,287 $2,016,692 $2,578,562
======= ========== ==========
</TABLE>
(5) INVESTMENT IN WIRELESS SYSTEMS AND EQUIPMENT
Investment in wireless systems and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE ---------------------- 1995
IN YEARS 1993 1994 -------------
----------- --------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C>
Frequency rights....................... 10 $6,204,332 $6,204,332 $ 6,204,332
Broadcast equipment and inventory...... 3-7 1,513,430 2,010,842 2,240,796
Vehicles............................... 5 77,271 77,271 77,271
Office equipment....................... 5-7 83,279 106,834 78,747
Leasehold improvements................. 7 1,450 1,450 1,450
---------- ---------- ------------
7,879,762 8,400,729 8,602,596
Less: Accumulated depreciation and
amortization......................... (743,780) (1,721,251) (2,519,179)
---------- ---------- ------------
$7,135,982 $6,679,478 $ 6,083,417
========== ========== ============
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The Partnership had several transactions with Wireless California including
the original sale of general partnership interests and the transactions
contemplated under the services and acquisition agreement. In addition to the
Partnership and AWS-Minneapolis, AWS-Delaware is the minority owner of a
wireless cable system joint venture with another general partnership in Ft.
Worth, Texas.
In its capacity as manager of AWS-Minneapolis, AWS-Delaware contracted
subscriber installation services to Wireless Technologies, Inc. (WTI), a Texas
corporation engaged in the business of providing subscriber installation
services and distributing subscriber equipment with respect to traditional and
wireless cable systems. WTI is a wholly owned subsidiary of North American Cable
Corporation, a Texas corporation engaged in the engineering, construction and
maintenance of cable television systems, local area networks, fiber optic
networks and wireless cable television systems, with operations in the United
States, England and several other countries around the world. A former Chief
Executive Officer and Director of AWS-Delaware beneficially owns 50% of the
stock of North American Cable Corporation.
WTI purchased certain of the subscriber equipment that it sold to
AWS-Minneapolis from Micom Products, Ltd. (Micom), a Delaware limited liability
company engaged in the distribution of subscriber equipment for traditional and
wireless cable systems. Micom is owned by the beneficial owners of approximately
36% of AWS-Delaware.
F-57
<PAGE> 255
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, payments of $381,534 were made to WTI for installation services
and related subscriber equipment. In 1993 and 1994, payments of $114,644 and
$2,766, respectively, were made by WTI to Micom. Effective August 1993,
AWS-Minneapolis ceased utilizing the services of WTI.
(7) COMMITMENTS AND CONTINGENCIES
(a) Commitments
Beginning January 1, 1993, AWS-Minneapolis began leasing office space under
an operating lease. Future obligations under this lease are as follows for years
ending December 31:
<TABLE>
<S> <C>
1995.............................................. $ 89,496
1996.............................................. 98,280
1997.............................................. 98,280
1998.............................................. 98,280
--------
$384,336
========
</TABLE>
Lease expense of $62,378, $57,269, $43,541 and $66,971 has been recorded
for the years ended December 31, 1993 and 1994, and for the nine months ended
September 30, 1994 and 1995 (unaudited).
AWS-Minneapolis holds frequency rights to 21 wireless cable channels in the
Minneapolis market under several leases. Eight local broadcast channels are also
transmitted for a total programming package of 29 channels. The channel leases
have original lease periods from five to ten years with options to renew. Future
minimum lease payments for the FCC licenses are as follows for years ending
December 31:
<TABLE>
<S> <C>
1995............................................. $ 368,488
1996............................................. 371,488
1997............................................. 324,988
1998............................................. 303,988
1999............................................. 303,988
Thereafter....................................... 467,912
----------
$2,140,852
==========
</TABLE>
Lease expense of $21,292, $248,350, $317,180, $235,610 and $263,560 has been
recorded for the ten months ended December 31, 1992 and the years ended December
31, 1993 and 1994, and for the nine months ended September 30, 1994 and 1995
(unaudited), respectively.
Contingencies
The original formation of WCTVA involved the sale of general partnership
interests without registration under any federal or state securities laws based
on the belief that the general partnership interests did not constitute
securities under federal and applicable state laws. Securities administrators in
22 states as well as the Securities and Exchange Commission (SEC) have conducted
or are currently conducting investigations of the activities related to the
unregistered sale of the general partnership interests.
To date, the investigations have focused on Wireless California and its
successor, AWS-Delaware, the Partnership's joint venture partner in
AWS-Minneapolis, however, there is a possibility that future actions could be
taken against the Partnership. Such actions could involve fines, administrative
penalties and the requirement for the Partnership to file required 1934 Act
information with the SEC. Management believes that any such penalties or fines
should be the responsibility of Wireless California and does not believe that
any such actions will have a material impact on its financial condition or its
operations.
F-58
<PAGE> 256
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CableMaxx, Inc.
Supreme Cable, Inc.
We have audited the accompanying consolidated balance sheets of CableMaxx,
Inc. as of June 30, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period December 18, 1992
to June 30, 1993 and for the years ended June 30, 1994 and 1995. We have also
audited the consolidated statements of operations and cash flows of Supreme
Cable Co., Inc. and Subsidiaries (the "Predecessor") for the period from July 1,
1992 to December 17, 1992. These financial statements are the responsibility of
CableMaxx, Inc.'s and the Predecessor's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CableMaxx, Inc. as of June 30, 1994 and 1995, and the results of its operations
and its cash flows for the period from December 18, 1992 to June 30, 1993 and
the years ended June 30, 1994 and 1995, and the consolidated results of
operations and cash flows of the Predecessor for the period from July 1, 1992 to
December 17, 1992, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11, the Company
has entered into a merger agreement which is pending approval. However, the
Company's inability to generate through operations or borrow under its revolving
credit facility sufficient cash flows to fund operations, the Company's
expectation that it will not meet certain financial covenant requirements under
its revolving credit facility and the Company's inability to meet the debt
service requirements as currently exist under its revolving credit facility
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustment
relating to the recoverability of asset carrying amounts or the amount of
liabilities that might result should the Company be unable to continue as a
going concern.
COOPERS & LYBRAND L.L.P.
Austin, Texas
August 25, 1995
F-59
<PAGE> 257
CABLEMAXX, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- SEPTEMBER 30,
1994 1995 1995
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents........................... $ 875,963 $ 2,206,303 $ 786,392
Investments......................................... 13,682,358 -- --
Subscriber receivables, net of allowance for
doubtful accounts of approximately $211,000,
$64,000, and $86,000 (unaudited) as of June 30,
1994 and 1995 and September 30, 1995,
respectively...................................... 398,602 341,974 457,733
Prepaids and other.................................. 653,054 318,300 480,704
Systems and equipment, net.......................... 24,681,896 27,424,267 26,447,933
Intangible assets, net.............................. 12,910,798 21,663,254 21,271,892
----------- ----------- -------------
Total assets.............................. $53,202,671 $51,954,098 $ 49,444,654
=========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities............ $ 5,131,799 $ 2,687,361 $ 2,851,680
Due to affiliates................................... 260,198 235,476 366,004
Subscriber deposits................................. 262,089 207,241 198,751
Deferred revenue.................................... 262,650 307,954 308,179
Notes payable....................................... 3,200,000 10,807,500 10,807,500
----------- ----------- -------------
Total liabilities........................ . 9,116,736 14,245,532 14,532,114
----------- ----------- -------------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding........ -- -- --
Common stock, $.01 par value; 20,000,000 shares
authorized, 8,600,000, 9,507,311, and 9,507,311
(unaudited) shares issued and outstanding as of
June 30, 1994 and 1995 and September 30, 1995,
respectively................................... 86,000 95,073 95,073
Additional paid-in capital........................ 53,274,159 57,670,727 57,670,727
Accumulated deficit............................... (9,274,224) (20,057,234) (22,853,260)
----------- ----------- -------------
Total stockholders' equity................ 44,085,935 37,708,566 34,912,540
----------- ----------- -------------
Total liabilities and stockholders'
equity.................................. $53,202,671 $51,954,098 $ 49,444,654
=========== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-60
<PAGE> 258
CABLEMAXX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR
CONSOLIDATED
------------
PERIOD FROM PERIOD FROM
JULY 1, 1992 DECEMBER 18, THREE MONTHS ENDED
TO DECEMBER 1992 TO JUNE YEAR ENDED YEAR ENDED SEPTEMBER 30,
17, 30, JUNE 30, JUNE 30, -------------------------
1992 1993 1994 1995 1994 1995
------------ ------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 1,834,789 $ 2,276,602 $ 7,709,411 $ 13,463,076 $ 3,143,660 $ 3,633,462
------------ ------------ ----------- ------------ ----------- -----------
Operating expenses:
Systems operations............ 855,503 1,091,694 3,758,927 6,301,007 1,441,821 1,540,162
Selling, general and
administrative............. 1,028,220 1,335,557 7,125,701 9,051,185 2,188,320 2,080,532
Depreciation and
amortization............... 1,149,138 1,338,356 4,239,005 8,274,058 1,732,175 2,514,350
------------ ------------ ----------- ------------ ----------- -----------
Total operating
expenses............ 3,032,861 3,765,607 15,123,633 23,626,250 5,362,316 6,135,044
------------ ------------ ----------- ------------ ----------- -----------
Operating loss.................. (1,198,072) (1,489,005) (7,414,222) (10,163,174) (2,218,656) (2,501,582)
Interest expense................ (343,214) (288,320) (505,928) (875,109) (100,502) (311,169)
Other income.................... 505,488 2,073 421,178 255,273 81,569 16,725
------------ ------------ ----------- ------------ ----------- -----------
Net loss.............. $ (1,035,798) $ (1,775,252) $(7,498,972) $(10,783,010) $(2,237,589) $(2,796,026)
============ ============ =========== ============ =========== ===========
Net loss per share.............. $ (0.35) $ (1.05) $ (1.21) $ (0.26) $ (0.29)
============ =========== ============ =========== ===========
Weighted average number of
shares outstanding............ 5,100,000 7,141,667 8,902,437 8,600,000 9,507,311
============ =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-61
<PAGE> 259
CABLEMAXX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ -------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 18, 1992.... -- -- -- -- -- -- --
Issuance of common stock...... -- -- 5,100,000 $51,000 $15,199,000 -- $15,250,000
Net loss for period........... -- -- -- -- -- $(1,775,252) (1,775,252)
---- ----- --------- ------- ---------- ----------- -----------
Balance, June 30, 1993........ -- -- 5,100,000 51,000 15,199,000 (1,775,252) 13,474,748
---- ----- --------- ------- ---------- ----------- -----------
Issuance of common stock...... -- -- 3,500,000 35,000 38,075,159 -- 38,110,159
Net loss for the year......... -- -- -- -- -- (7,498,972) (7,498,972)
---- ----- --------- ------- ---------- ----------- -----------
Balance, June 30, 1994........ -- -- 8,600,000 86,000 53,274,159 (9,274,224) 44,085,935
==== ===== ========= ======= =========== ============ ===========
Issuance of common stock...... -- -- 907,311 9,073 4,396,568 -- 4,405,641
Net loss for the year......... -- -- -- -- -- (10,783,010) (10,783,010)
---- ----- --------- ------- ---------- ----------- -----------
Balance, June 30, 1995........ -- -- 9,507,311 95,073 57,670,727 (20,057,234) 37,708,566
---- ----- --------- ------- ---------- ----------- -----------
Net loss, for the three months
ended September 30, 1995
(unaudited)................. -- -- -- -- -- (2,796,026) (2,796,026)
Balance September 30, 1995
(unaudited)................. -- -- 9,507,311 $95,073 $57,670,727 $(22,853,260) $34,912,540
==== ===== ========= ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-62
<PAGE> 260
CABLEMAXX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
CONSOLIDATED
------------
PERIOD FROM PERIOD FROM
JULY 1, DECEMBER 18, THREE MONTHS ENDED
1992 TO 1992 TO YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 17, JUNE 30, JUNE 30, JUNE 30, ---------------------------
1992 1993 1994 1995 1994 1995
------------ ------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(1,035,798) $(1,775,252) $ (7,498,972) $(10,783,010) $ (2,237,589) $(2,796,026)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation and amortization... 1,149,138 1,338,356 4,239,005 8,274,058 1,732,175 2,514,350
Interest capitalized into notes
payable....................... -- -- 150,000 157,500 -- --
(Gain)/loss on sale of
short-term investments........ -- -- (100,164) 16,696 16,696 --
Accretion of discount on
short-term
investments................... -- -- (238,561) (76,567) (76,567) --
Changes in assets and
liabilities:
Subscriber receivables........ 200,353 (28,055) (259,539) 56,628 (129,824) (115,759)
Prepaids and other............ (200,973) (44,675) (571,390) 334,754 (63,829) (162,404)
Accounts payable and accrued
liabilities................. 652,411 1,154,420 735,938 (2,828,438) (3,004,028) (152,681)
Due to affiliates............. -- 203,629 56,569 (24,722) (223,495) 130,528
Subscriber deposits........... (28,455) (16,158) (78,080) (54,848) (9,822) (8,490)
Deferred revenue.............. -- -- 170,166 45,304 28,977 225
----------- ----------- ------------ ------------ ------------ -----------
Net cash provided by (used
in) operating
activities................ 736,676 832,265 (3,395,028) (4,882,645) (3,967,306) (590,257)
----------- ----------- ------------ ------------ ------------ -----------
Cash flows from investing
activities:
Acquisition of wireless cable
systems......................... -- (12,372,712) -- --
Purchases of systems and
equipment....................... (654,581) (3,175,684) (14,445,866) (9,414,480) (2,620,827) (804,667)
Purchases of rights/options....... (27,073) -- (3,248,830) (5,456,264) (19,497) (24,987)
Purchase of trademark/tradename... -- (10,000) -- -- -- --
Purchase of investments........... -- -- (69,470,839) -- -- --
Proceeds from sale of
investments..................... -- -- 56,127,206 13,742,229 13,742,229 --
----------- ----------- ------------ ------------ ------------ -----------
Net cash used in investing
activities................ (681,654) (15,558,396) (31,038,329) (1,128,515) 11,101,905 (829,654)
----------- ----------- ------------ ------------ ------------ -----------
Cash flows from financing
activities:
Proceeds from issuance of common
stock........................... -- 12,500,000 38,110,159 -- -- --
Proceeds from borrowings.......... 64,797 2,854,161 3,689,692 7,450,000 -- --
Repayments of borrowings.......... (577,778) (153,322) (6,490,531) -- -- --
Loan acquisition costs............ -- (474,708) -- (108,500) -- --
----------- ----------- ------------ ------------ ------------ -----------
Net cash provided by (used
in) financing
activities................ (512,981) 14,726,131 35,309,320 7,341,500 -- --
----------- ----------- ------------ ------------ ------------ -----------
Net increase (decrease) in cash..... (457,959) -- 875,963 1,330,340 7,134,599 (1,419,911)
Cash and cash equivalents, beginning
of period......................... 502,406 -- -- 875,963 875,963 2,206,303
----------- ----------- ------------ ------------ ------------ -----------
Cash and cash equivalents, end of
period............................ $ 44,447 $ -- $ 875,963 $ 2,206,303 $ 8,010,562 $ 786,392
=========== =========== ============ ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-63
<PAGE> 261
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following notes, insofar as they are applicable to the three month
periods ended September 30, 1994 and 1995, are not audited. In management's
opinion, all adjustments consisting of only normal recurring accruals considered
necessary for the fair presentation of such financial statements are included.
Interim results are not necessarily indicative of results for a full year.
(1) DESCRIPTION OF BUSINESS
CableMaxx, Inc. develops, owns and operates wireless cable television
systems and currently provides wireless cable television service to subscribers
in Austin, San Antonio, Temple/Killeen and Waco, Texas.
On December 18, 1992, Charter Cable Corporation and Charter Cable (San
Antonio), Inc. acquired the Austin and San Antonio wireless cable systems from
certain sellers (collectively, the "Predecessor"). These corporations were
wholly-owned by Charter Wireless Cable Holdings, L.L.C. ("Charter Holdings").
Charter Holdings is owned by an affiliate of Charterhouse Group International,
Inc. ("Charterhouse"), Galaxy Cablevision, L.P. ("Galaxy") and Galaxy
Management, Inc. CableMaxx, Inc. was capitalized with $12,500,000 cash,
$2,000,000 previously deposited with the Predecessor by Galaxy, and an ownership
interest in Charter Holdings valued at $750,000 which was conveyed to the
Predecessor in connection with the acquisition.
In September 1993, Charter Cable (San Antonio), Inc. was merged with and
into Charter Cable Corporation, which changed its name to CableMaxx, Inc. and
which simultaneously increased its authorized and outstanding shares of $.01 par
value Common Stock to 20,000,000 and 5,100,000 shares, respectively. This merger
and change in capital structure have been reflected in the financial statements
as of June 30, 1993. The Board of Directors is authorized to determine all
rights and privileges associated with the preferred stock, including dividend
and voting rights, redemption provisions and liquidation preferences.
In November 1993, CableMaxx, Inc. sold in an initial public offering
("IPO"), 3,500,000 shares of its common stock, par value $.01 per share ("Common
Stock"), at an initial price of $12.00 per share, resulting in net proceeds to
the Company of $38,110,159 after underwriting discounts and costs in connection
with the IPO.
In connection with the IPO, in November 1993, CableMaxx, Inc. granted to
one of the representatives of the Underwriters warrants to purchase an aggregate
of 100,000 shares of Common Stock (the "Warrants"). The consideration for the
Warrants was $10,000. The Warrants are exercisable from November 29, 1994
through November 28, 1998, at an exercise price of $14.40 per share of Common
Stock, subject to adjustment pursuant to the terms of the Warrants.
In December, 1994, in order to create a holding company structure to
facilitate CableMaxx, Inc.'s access to sources of financing, CM Newco, Inc., a
wholly-owned subsidiary of CableMaxx Holdings, Inc. ("Holdings"), was merged
with and into CableMaxx, Inc. As a result of such merger, (i) Holdings changed
its name to CableMaxx, Inc. (the "Company"), is now owned by the stockholders of
the former CableMaxx, Inc., immediately prior to such merger, and (ii)
CableMaxx, Inc., which changed its name to CableMaxx (Texas), Inc., is now a
wholly-owned subsidiary of the Company.
The accompanying balance sheets as of June 30, 1994 and 1995 and the
statements of operations and cash flows for the period December 18, 1992 to June
30, 1993 and for the years ended June 30, 1994 and 1995 include the consolidated
accounts of the Company. All significant intercompany balances and transactions
between the entities have been eliminated.
F-64
<PAGE> 262
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Acquisitions
On December 18, 1992, the Company acquired assets and assumed liabilities
related to the Austin and San Antonio wireless cable operations of the
Predecessor. The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the total acquisition cost has been allocated to
the net assets acquired based on the fair values of the assets and liabilities
at the date of acquisition. The results of operations of the Austin and San
Antonio wireless cable systems are included in the financial statements since
the date of acquisition. The acquisition included the following assets and
liabilities (amounts rounded):
<TABLE>
<CAPTION>
ACQUIRED PREDECESSOR COST
ASSETS AND OF ACQUIRED ASSETS
LIABILITIES AND LIABILITIES
---------- ------------------
<S> <C> <C>
Accounts receivable, net................................ $ 111,000 $ 111,000
Systems and equipment................................... 8,095,000 7,295,000
Intangible assets....................................... 10,397,000 224,000
Deposits................................................ 37,000 37,000
Subscriber deposits and deferred revenue................ (517,000) (517,000)
----------- -----------
Net assets acquired........................... $18,123,000 $7,150,000
=========== ===========
</TABLE>
The acquisition costs consisted of the following (amounts rounded):
<TABLE>
<S> <C> <C>
Cash paid to Predecessor and certain of their
affiliates............................................ $9,934,000
Amount previously deposited with Predecessor by
Galaxy................................................ 2,000,000
Subordinated seller note................................ 3,000,000
Ownership interest in Charter Holdings.................. 750,000
Acquisition costs....................................... 2,439,000
-----------
$18,123,000
===========
</TABLE>
The ownership interest in Charter Holdings was purchased from the
Predecessor by Galaxy for $750,000 in February 1993.
In connection with the acquisition, the Company also received options to
acquire wireless cable channel leases, tower leases and head-end sites in the
Sherman/Denison, Temple/Killeen, Waco, Lubbock, Athens and Amarillo, Texas
markets which did not constitute existing operating wireless cable systems. For
an aggregate price of approximately $1,133,000, the Company exercised these
options in April 1994, and reimbursed Galaxy approximately $217,000 for costs
necessary to maintain the options assets and properties during the option
period. Upon exercise of the options, the Company negotiated a settlement with a
third party totalling $500,000 to terminate all disputes and claims related to
channel rights in certain of the aforementioned markets. All such costs are
classified as "Intangible assets -- channel rights."
In February 1995, the Company completed the acquisition of wireless cable
channel rights in Salt Lake City, Utah for approximately $11 million, consisting
of cash in the amount of $6.6 million and the issuance of 907,311 shares of
common stock. These rights do not constitute an existing operating wireless
cable system. Under the Acquisition Agreement, the Company is obligated to
maintain the related licenses and perform all other obligations imposed under
each channel lease.
(b) Cash and Cash Equivalents
All investments including repurchase agreements purchased with remaining
maturities of three months or less are cash equivalents. Cash and cash
equivalents balances generally do not exceed FDIC coverage.
F-65
<PAGE> 263
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Investments
At June 30, 1994, the Company's short-term investments consisted primarily
of U.S. Government instruments and were carried at the lower of amortized cost
or market, with cost approximating market at fiscal year end. Realized gains or
losses if any are determined on the specific identification method and are
reflected in income.
(d) Systems and Equipment
Systems and equipment is carried at cost and includes the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and outside contractor costs associated with subscriber
installations including successful and unsuccessful transmission reception
testing are capitalized. Upon subscriber disconnect, the Predecessor expensed
remaining unamortized installation labor and certain materials. The Company has
elected to depreciate the full capitalized installation cost subsequent to
disconnect. Capitalized installation costs are accounted for under the composite
method. Cost of maintenance and repairs is charged to expense as incurred. Upon
sale or retirement, the related cost and accumulated depreciation are removed
from their respective accounts, and any resulting gain or loss is credited or
charged to income.
Systems and equipment is depreciated as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------- ---------------------------------
METHOD TERM METHOD TERM
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Wireless cable systems:
Subscriber installations:
Material..................... Straight-line 5.5 to 7 years Straight-line 7 years
Outside contract labor....... Straight-line 3 years Straight-line 7 years
Head-end, tower and transmission
equipment.................... Straight-line 7 to 10 years Straight-line 7 to 20 years
Vehicles, furniture and
equipment....................... Straight-line 3 to 10 years Straight-line 5 years
Leasehold improvements............ Straight-line 10 years -- --
</TABLE>
During the fiscal years ended June 30, 1994 and 1995 the Company
transferred ownership of installation materials to independent contractors. As a
result, ownership of materials removed from disconnected homes remains with the
independent contractors. Accordingly, the lives for this equipment are shorter
than estimated in prior years. The Company has changed the useful lives for
installation materials to 5.5 years, effective July 1, 1994. The effect of this
change in estimate increased depreciation expense and increased net loss in the
year ended June 30, 1995 by approximately $543,000. The effect of this change
was not significant in the year ended June 30, 1994.
F-66
<PAGE> 264
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Intangible Assets
Intangible assets are amortized as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------- ------------------------------------
METHOD TERM METHOD TERM
-------------------- --------- -------------- -------------------
<S> <C> <C> <C> <C>
Channel rights and goodwill.... Straight-line 15 years Straight-line Original term of
channel lease -- 5
to 10 years
Trademark/tradename............ Straight-line 15 years Straight-line 10 years
Loan acquisition costs......... Straight-line which 6 years -- --
approximates
interest method
</TABLE>
Channel rights and goodwill include the allocation of the excess of
purchase price over the fair value of tangible assets and liabilities acquired.
The Company reviews goodwill for impairment from time to time, measuring
impairment based upon expected future undiscounted cash flows from operations.
(f) Revenue Recognition
Revenues from subscribers are recognized in the month that the service is
provided. Installation fees are recognized as revenue upon origination of
service to subscribers to the extent of any costs incurred to obtain the
subscriber, which are expensed as incurred.
(g) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between tax basis of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory 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.
(3) SYSTEMS AND EQUIPMENT
Systems and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Wireless cable systems.................................... $26,606,302 $35,805,422
Vehicles, furniture and equipment......................... 1,678,329 2,156,052
Building and leasehold improvements....................... 704,474 820,102
Land...................................................... 50,030 50,030
----------- -----------
29,039,135 38,831,606
Accumulated depreciation and amortization................. (4,357,239) (11,407,339)
----------- -----------
$24,681,896 $27,424,267
=========== ===========
</TABLE>
F-67
<PAGE> 265
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Channel rights and goodwill............................... $13,645,276 $23,507,181
Loan acquisition costs.................................... 475,644 584,144
Trademark/tradename....................................... 10,000 10,000
----------- -----------
14,130,920 24,101,325
Accumulated amortization.................................. (1,220,122) (2,438,071)
----------- -----------
$12,910,798 $21,663,254
=========== ===========
</TABLE>
(5) NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1994 1995
---------- -----------
<S> <C> <C>
Revolving credit and term loan............................. $ 50,000 $ 7,500,000
Subordinated seller note................................... 3,150,000 3,307,500
---------- -----------
$3,200,000 $10,807,500
========== ===========
</TABLE>
On December 18, 1992, the Company entered into a revolving credit and term
loan agreement (the "Agreement") with Fleet National Bank allowing it to borrow
up to $14.5 million to fund up to $1 million of closing costs in connection with
the acquisition and for working capital and capital expenditures in connection
with the construction, ownership and operation of the existing wireless cable
systems.
Advances under the Agreement are subject to limits based on multiples of
the Company's annualized adjusted net operating income and certain other
performance factors. As a result of such limits, the Company's availability
under the Agreement will vary over time. Subject to certain mandatory payment
provisions as set forth in the Agreement, amounts borrowed are not required to
be repaid prior to December 31, 1995 at which time the outstanding amounts
borrowed convert to a term loan with quarterly repayments of principal due as
follows:
<TABLE>
<CAPTION>
ANNUAL
PERCENTAGE OF
OUTSTANDING
QUARTERLY DATES PRINCIPAL DUE
------------------------------------------------------------------------ -------------
<S> <C>
March 31, 1996 through December 31, 1996................................ 21%
March 31, 1997 through December 31, 1997................................ 37%
March 31, 1998 through December 31, 1998................................ 42%
</TABLE>
In addition to the specified quarterly principal repayments, the Agreement
provides for a mandatory repayment based upon excess cash flow, as defined, for
annual periods ending December 31, 1996 and after.
Interest on the revolving credit and term loan is due on the last day of
each quarter. The Company has the option to elect either a fixed rate or
floating rate based on prime or LIBOR plus applicable margin of interest from
time to time throughout the term of the loan. The interest rate in effect on
amounts borrowed under this Agreement was 11.58% at June 30, 1995. The Company
is also required to pay a commitment fee
F-68
<PAGE> 266
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equal to one-half of one percent of the unused portion of the line of credit.
Amounts borrowed are collateralized by substantially all of the Company's
assets, including its interests in channel lease agreements.
The Agreement contains restrictions on capital expenditures and payments to
affiliates, as well as certain restrictive covenants that require the Company to
maintain specific financial ratios, minimum subscriber levels and minimum net
operating income, among other criteria, as defined by the Agreement. While the
Company has obtained a waiver of fiscal 1995 covenant violations, it expects to
violate certain of these restrictive financial covenants during fiscal 1996,
resulting in expected events of default under the existing terms of the
Agreement and leading to possible acceleration of indebtedness by the Lender.
The Company is currently seeking to amend the Agreement in order to resolve
these expected events of default. The Company obtained a waiver for a covenant
violation for the fiscal quarter ended September 30, 1995 (unaudited).
The current Agreement does not provide for any more advances to the
Company. Current cash reserves may not be sufficient to meet future operating
needs and liabilities. In connection with the proposed merger discussed in Note
11, the Company sold its channel rights in Sherman, Lubbock, Amarillo and Athens
for approximately $2.4 million (unaudited). In addition, the merger agreement
was amended to allow the Company to borrow, if necessary, up to $1,000,000
(unaudited). The Company expects that these funds will enable the Company to
continue operations through the proposed closing date of the merger. If the
merger is not completed, the Company will have to find additional funding for
operations. Management will continue to negotiate and seek to amend the current
revolving credit facility and also pursue other areas of financing.
The subordinated seller note is payable to the Predecessor as part of the
consideration for the Company's acquisition of the wireless cable systems. The
note is due December 18, 1998. Interest accrues on the note at the rate of 10%
per annum. Fifty percent of interest accrued for the preceding twelve-month
period as of each anniversary date is payable on the last day of the month of
the next anniversary date. The remaining accrued interest is payable at 10% per
annum on the note's due date. Obligations under this note are subordinated to
the Company's indebtedness under the Agreement, and are subject to acceleration
upon the occurrence of certain events.
As of June 30, 1995, the aggregate scheduled maturities of notes payable
due for each of the next five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------- ---------
<S> <C>
1996.............................................. $ 787,500
1997.............................................. 2,175,000
1998.............................................. 2,962,500
1999.............................................. 4,882,500
</TABLE>
(6) INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. The Company has a net operating loss
carryforward for income tax purposes of approximately $19,211,000, which expires
beginning in 2007. SFAS 109 requires that the tax benefit of net operating
losses be reported as an asset to the extent management assesses the utilization
of such net operating losses to be more likely than not. Since the Company has
had net losses since inception, a valuation allowance of approximately
$6,807,000 has been recorded to offset the deferred tax asset.
F-69
<PAGE> 267
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The source of these differences and tax effect of each is as
follows (amounts rounded):
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liability:
Excess book basis over tax basis........................ $ (559,000) --
Deferred tax assets:
Net operating loss carryforward...................... 3,491,000 $ 6,532,000
Deferred revenue..................................... 89,000 105,000
Allowance for doubtful accounts...................... 72,000 22,000
Accrued liabilities.................................. 51,000 23,000
Excess of tax over book basis........................ -- 125,000
----------- -----------
3,703,000 6,807,000
Valuation allowance....................................... (3,144,000) (6,807,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The valuation allowance adjustments of $2,541,000 and $3,663,000 for 1994
and 1995, respectively, offset the income tax benefit computed by applying the
U.S. Federal statutory tax rates to pretax loss.
(7) COMMITMENTS AND CONTINGENCIES
The Company and its Predecessor lease from third parties channel rights
licensed by the Federal Communication Commission ("FCC"). Under FCC rules, the
base term of each lease cannot exceed the term of the underlying FCC license.
FCC licenses for wireless cable frequencies range from five to ten years, and
there is no automatic renewal of such licenses. The use of such frequencies by
the third party lessors is subject to regulation by the FCC, and therefore the
Company's ability to enjoy the benefit of these leases is dependent upon the
third party lessors' continuing compliance with applicable regulations. The
remaining terms of the Company's leases range from approximately one year to
seven years. Most of the Company's leases provide for renewal of their terms
upon FCC renewal of the underlying license or require the parties to negotiate
renewal in good faith. Although the Company has no reason to believe that its
leases will not be renewed or that the underlying FCC licenses will be canceled
or not renewed, such event would prevent the Company from delivering programming
over the affected frequencies, which could have a material adverse effect on the
Company. Channel rights lease agreements generally require payments based on the
greater of specified minimums or amounts based upon various factors including
subscriber levels, subscriber revenues, the cost of transmission equipment and
facilities, and facility operating costs as specified in the agreements.
Payments under the leases 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. Channel rights lease expenses were
approximately $168,000, $539,000 and $875,000 for the period from December 18,
1992 to June 30, 1993 and for the years ended June 30, 1994 and 1995,
respectively, and $198,000 and $240,000 for the three months ended September 30,
1994 and 1995, (unaudited) respectively.
F-70
<PAGE> 268
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments due under channel rights leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------- --------
<S> <C>
1996................................................ $516,400
1997................................................ 555,500
1998................................................ 560,500
1999................................................ 479,500
2000................................................ 360,000
</TABLE>
The Company and its Predecessor also have operating leases for office space
and equipment, land for head-ends, and transmission facilities. Rental expenses
incurred in connection with these leases approximated $64,000, $173,000 and
$408,000 for the period from December 18, 1992 to June 30, 1993 and for the
years ended June 30, 1994 and 1995, respectively, and $83,000 and $117,000 for
the three months ended September 30, 1994 and 1995, (unaudited) respectively.
Future minimum lease payments under such leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------- --------
<S> <C>
1996................................................ $434,100
1997................................................ 420,800
1998................................................ 427,600
1999................................................ 440,500
2000................................................ 361,200
</TABLE>
Wireless cable system equipment, excluding television-top converters which
are provided by the Company, site reception testing and installation are
provided through a third party contractor under three year agreement commencing
in fiscal year 1994, which establish rate structures for such equipment and
services by service area subject to periodic adjustment, specifying minimum
charges aggregating $28,400 per month.
(8) RELATED PARTY TRANSACTIONS
Prior to the IPO, the Company incurred management fees and expenses
pursuant to the terms of a management agreement with Galaxy Management, Inc., an
affiliate of Galaxy, under which it managed a significant portion of the
Company's business. In addition to reimbursing expenses, the Company paid a
management fee based on 3.5% of operating revenues as defined in the management
agreement. Subsequent to the IPO, Galaxy Management, Inc. ceased to manage the
Company's business, but continued to provide certain administrative services for
the Company for which it receives reimbursement for certain of its salaries and
expenses. Management fees and reimbursable expenses incurred in association with
these agreements approximated $269,000 for the period from December 18, 1992 to
June 30, 1993 and $523,000 and $320,000 for the years ended June 30, 1994 and
1995, respectively, and $88,000 and $47,000 for the three months ended September
30, 1994 and 1995, (unaudited) respectively. The Company's president and CEO who
receives an annual salary of $200,000 under provisions of a two-year employment
agreement is the principal stockholder and president of Galaxy Management, Inc.
The Company shares certain operational and administrative expenses and
facilities in Austin, Texas with Galaxy and its affiliates, and certain of its
customer service representatives and executive and administrative personnel also
provide such services for Galaxy. Shared expenses are allocated based upon the
Company subscribers to Galaxy subscribers in Austin, Texas. Total expenses
allocated to Galaxy for the period from December 18, 1992 to June 30, 1993 and
for the years ended June 30, 1994 and 1995 approximated $100,000,
F-71
<PAGE> 269
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,000 and $0, respectively, and $0 and $0 for the three months ended September
30, 1994 and 1995, (unaudited) respectively.
Pursuant to the terms of a financial consulting agreement with
Charterhouse, the Company was charged a consulting fee at the rate of $400,000
per annum through the IPO closing date and at the rate of $280,000 per annum
thereafter. Expenses incurred in connection with this agreement approximated
$214,000 for the period December 18, 1992 to June 30, 1993, and $330,000 and
$280,000 for the years ended June 30, 1994 and 1995, respectively, and $70,000
and $70,000 for the three months ended September 30, 1994 and 1995, (unaudited)
respectively. Payments in connection with this agreement are subordinated under
the Company's revolving credit and term loan agreement. Certain directors of the
Company also serve as officers of Charterhouse. In addition, certain other
directors of the Company are also officers of Charter Communications.
Commencing after the IPO through October 1994, the Company was charged a
consulting fee of $10,000 per month under an agreement with Charter
Communications. Expenses incurred in connection with this agreement approximated
$70,000 and $40,000 for the years ended June 30, 1994 and 1995, respectively,
and $30,000 and $0 for the three months ended September 30, 1994 and 1995,
(unaudited) respectively.
Amounts related to the above arrangements are included in due to affiliates
as of June 30, 1994 and 1995.
In connection with negotiating and structuring the acquisition,
Charterhouse and Galaxy were paid fees of $330,000 and $500,000, respectively,
which have been included in the purchase price allocation.
(9) SUPPLEMENTAL CASH FLOWS DISCLOSURES
The Company and its Predecessor paid $119,000, $359,000 and $709,000 in
interest (net of amounts capitalized into principal on notes payable) for the
periods from December 18, 1992 to June 30, 1993 and for the years ended June 30,
1994 and 1995, respectively, and $20,000 and $148,000 for the three months ended
September 30, 1994 and 1995, (unaudited) respectively.
The Predecessor had noncash investing and financing activities related to
the acquisition and initial capitalization as disclosed in Notes 1 and 2. The
Company had obligations amounting to approximately $2,853,000 and $384,000
related to systems and equipment additions which are included in accounts
payable at June 30, 1994 and June 30, 1995, respectively, and $1,318,000 and
$317,000 for the three months ended September 30, 1994 and 1995, (unaudited)
respectively. Noncash financing activities included $150,000 and $157,500 of
interest capitalized into the principal balance of notes payable during the
years ended June 30, 1994 and June 30, 1995, respectively, and $0 and $0 for the
three months ended September 30, 1994 and 1995, (unaudited) respectively.
(10) STOCK OPTION PLAN
In December 1993, the Company adopted the CableMaxx, Inc. 1993 Stock Option
Plan (the "Plan"). The Plan, which is administered by a committee of the
Company's Board of Directors, provides for the grant of incentive stock options
and nonqualified stock options to key managerial employees and consultants of
the Company as determined by the committee. The Plan provides that the total
number of shares of Common Stock that may be subject to options shall be 250,000
shares. The exercise price of the options granted under the Plan shall be at
least 100% of the fair market value of the Common Stock on the date of grant. As
of June 30, 1995, options for 117,500 shares have been granted at an exercise
price of $12.00 per share, with one-third being exercisable.
F-72
<PAGE> 270
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBSEQUENT EVENTS (UNAUDITED)
In September 1995, the Company entered into a agreement (the "Merger
Agreement") to merge with a subsidiary of Heartland Wireless Communications,
Inc. ("Heartland"). The Merger Agreement provides for the conversion of the
common stock of the Company at value of $8.50 per share, subject to adjustment,
into Heartland common stock, with the exchange ratio determined by the average
price of Heartland stock preceding the transaction date. The transaction is
subject to approval by the shareholders' of each company and is subject, among
other things, to consent by the Heartland bondholders. Should the Merger
Agreement be terminated as a result of a third party acquisition proposal that
is approved by the Board of Directors of the Company or recommended to the
stockholders of the Company by the Board of Directors, a $2 million fee is
payable to Heartland.
In October 1995, the Company sold certain channel rights to Heartland for
approximately $2.4 million subject to adjustment to the appraised value of such
channel rights should the Merger Agreement be terminated for any reason other
than the Company's breach thereof or the Company's acceptance of a third party's
acquisition proposal.
In connection with the Merger Agreement on December 26, 1995, the Company
entered into a Loan Agreement (the "CMAX Loan") with Heartland for up to
$1,000,000 bearing interest at a published prime rate plus 2% of which (a)
$500,000 was advanced on December 29, 1995 to be used for working capital
purposes, and (b) $500,000 is to be used for subscriber growth funded at a rate
of $500 per additional subscriber. The CMAX Loan will not increase the amount of
CMAX Excess Liabilities as set forth in the Merger Agreement. Upon consummation
of the Merger Agreement, it is anticipated that the CMAX Loan will remain as an
inter-company obligation from the Company to Heartland. In the event that the
CMAX Merger Agreement is not consummated, the CMAX Loan is payable August 29,
1996; provided, that if the Merger Agreement is terminated as a result of a
competing acquisition proposal, then the CMAX Loan will be immediately due and
payable.
F-73
<PAGE> 271
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TechniVision, Inc.:
We have audited the accompanying balance sheets of TechniVision, Inc. as of
May 31, 1994 and 1995, and the related statements of operations, stockholders'
deficit and cash flows for each of the years in the three-year period ended May
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TechniVision, Inc. as of May
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended May 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has incurred cumulative losses since inception
of $14,870,712 through May 31, 1995, and as of that date current liabilities
exceeded current assets by $15,086,000. Additional capital or financing is
needed to enable the Company to meet its debt service requirements in fiscal
year 1996. These factors, as more fully discussed in note 2, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
Dallas, Texas
October 25, 1995
F-74
<PAGE> 272
TECHNIVISION, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOVEMBER
MAY 31, MAY 31, 30,
1994 1995 1995
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................................ $ 3,197 $ 51,637 $ 78,124
Subscriber receivables, net of allowance for
doubtful accounts of $48,996 in 1994 and $80,715
in 1995.......................................... 349,702 386,390 324,281
Prepaid expenses and other.......................... 51,287 38,147 153,044
----------- ----------- -----------
Total current assets........................ 404,186 476,174 555,449
Investment in equity security (note 6)................ -- 1,638,629 1,134,473
Systems and equipment, net (notes 3 and 4)............ 10,310,235 9,401,638 9,001,797
Leased license investment, net of accumulated
amortization of $668,739 in 1994 and $863,504 in
1995................................................ 3,238,648 3,144,649 3,552,846
Other assets, net..................................... 405,166 216,495 306,620
----------- ----------- -----------
$14,358,235 $14,877,585 $14,551,185
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................... $ 1,909,767 $ 1,990,880 $ 2,676,813
Accounts payable -- affiliates...................... 63,312 468,886 158,905
Accrued expenses and other liabilities.............. 1,185,073 1,642,771 806,353
Current portion of long-term debt (note 4).......... 11,875,980 11,043,590 12,276,898
Note payable -- affiliates.......................... 489,201 415,906 955,984
----------- ----------- -----------
Total current liabilities................... 15,523,333 15,562,033 16,874,953
Long-term debt, less current portion (note 4)......... 7,177,542 6,198,499 6,061,259
Stockholders' deficit:
Common stock, $1 par value; authorized 30,000
shares, issued 30,000 shares in 1994 and 1995.... 30,000 30,000 30,000
Paid-in capital..................................... 6,208,311 7,957,765 7,957,765
Accumulated deficit................................. (14,580,951) (14,870,712) (16,372,792)
----------- ----------- -----------
Total stockholders' deficit................. (8,342,640) (6,882,947) (8,385,027)
Commitments (notes 5 and 8)
=========== =========== ===========
$14,358,235 $14,877,585 $14,551,185
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 273
TECHNIVISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MAY 31 NOVEMBER 30
----------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription......................... $ 3,796,172 $ 5,214,508 $ 6,663,988 $3,330,288 $3,268,823
Installation......................... 107,750 225,067 92,145 41,417 63,528
----------- ----------- ----------- ---------- ----------
Total revenues............... 3,903,922 5,439,575 6,756,133 3,371,705 3,332,351
----------- ----------- ----------- ---------- ----------
Operating expenses:
Systems operations................... 1,709,254 2,991,486 3,642,681 2,086,496 1,749,005
Selling, general and
administrative.................... 1,617,598 2,664,162 2,803,415 1,138,360 1,364,880
Depreciation and amortization........ 1,977,352 2,371,891 2,623,736 1,323,662 1,299,603
----------- ----------- ----------- ---------- ----------
Total operating expenses..... 5,304,204 8,027,539 9,069,832 4,548,518 4,413,488
----------- ----------- ----------- ---------- ----------
Operating loss............... (1,400,282) (2,587,964) (2,313,699) (1,176,813) (1,081,137)
----------- ----------- ----------- ---------- ----------
Other income (expense):
Gain on sale of assets (note 6)...... -- -- 3,362,230 -- 253,352
Interest expense..................... (1,063,620) (959,647) (1,338,292) (543,326) (674,295)
Other expense........................ -- (105,000) -- -- --
----------- ----------- ----------- ---------- ----------
Total other income
(expense).................. (1,063,620) (1,064,647) 2,023,938 (543,326) (420,943)
----------- ----------- ----------- ---------- ----------
Net loss..................... $(2,463,902) $(3,652,611) $ (289,761) (1,720,139) (1,502,080)
=========== =========== =========== ========== ==========
Net loss per common share.............. $ (82.13) $ (121.75) $ (9.66) $ (57.34) (50.07)
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE> 274
TECHNIVISION, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1992............... 30,000 $30,000 $4,739,185 $ (8,464,438) $(3,695,253)
Net investment by parent............ -- -- 1,183,344 -- 1,183,344
Net loss............................ -- -- -- (2,463,902) (2,463,902)
------ ------- ---------- ------------- -----------
Balance, May 31, 1993............... 30,000 30,000 5,922,529 (10,928,340) (4,975,811)
Net investment by parent............ -- -- 285,782 -- 285,782
Net loss............................ -- -- -- (3,652,611) (3,652,611)
------ ------- ---------- ------------- -----------
Balance, May 31, 1994............... 30,000 30,000 6,208,311 (14,580,951) (8,342,640)
Net investment by parent............ -- -- 1,749,454 -- 1,749,454
Net loss............................ -- -- -- (289,761) (289,761)
------ ------- ---------- ------------- -----------
Balance, May 31, 1995............... 30,000 30,000 7,957,765 (14,870,712) (6,882,947)
Net loss (unaudited)................ -- -- -- (1,502,080) (1,502,080)
------ ------- ---------- ------------- -----------
Balance, November 30, 1995
(unaudited)....................... 30,000 $30,000 $7,957,765 $(16,372,792) $(8,385,027)
====== ======= ========== ============ ===========
</TABLE>
See accompanying notes to financial statements
F-77
<PAGE> 275
TECHNIVISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MAY 31, NOVEMBER 30,
-------------------------------------- ------------------------
1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(2,463,902) $(3,652,611) $ (289,761) $(1,720,139) $(1,502,080)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization.... 1,977,352 2,371,891 2,623,736 1,323,662 1,299,603
Gain on sale of assets........... -- -- (3,362,230) -- (253,352)
Changes in assets and
liabilities:
Subscriber receivables......... (35,566) (176,261) (36,688) (146,225) (62,109)
Prepaid expenses and other..... (45,088) (139,846) 23,875 (57,090) (114,897)
Accounts payable, accrued
expenses and other
liabilities................. (220,915) 128,918 944,385 544,053 8,425
----------- ----------- ----------- --------- ---------
Net cash provided by (used
in) operating
activities................ (788,119) (1,467,909) (96,683) (55,739) (624,410)
----------- ----------- ----------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets........ -- -- 1,958,575 -- 757,508
Purchases of systems and
equipment........................ (1,225,104) (4,506,900) (1,514,824) (501,726) (603,216)
Expenditures for leased licenses.... -- (139,098) (163,354) (81,677) --
----------- ----------- ----------- --------- ---------
Net cash provided by (used
in)
investing activities...... (1,225,104) (4,645,998) 280,397 (583,403) 154,292
----------- ----------- ----------- --------- ---------
Cash flows from financing activities:
Net investment by parent............ 1,183,344 285,782 1,749,454 988,824 --
Advances from investors............. 1,124,000 5,876,000 -- -- --
Proceeds (payments) on notes
payable.......................... (294,370) (46,178) (1,884,728) (309,728) 496,605
----------- ----------- ----------- --------- ---------
Net cash provided by (used
in) financing
activities................ 2,012,974 6,115,604 (135,274) 679,096 496,605
----------- ----------- ----------- --------- ---------
Net increase (decrease) in cash....... (249) 1,697 48,440 39,954 26,487
Cash at beginning of period........... 1,749 1,500 3,197 3,197 51,637
----------- ----------- ----------- --------- ---------
Cash at end of period................. $ 1,500 $ 3,197 $ 51,637 $ 43,151 $ 78,124
=========== =========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-78
<PAGE> 276
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED MAY 31, 1995
(INFORMATION AS OF NOVEMBER 30, 1995 AND FOR THE SIX-MONTH PERIODS
ENDED NOVEMBER 30, 1994 AND 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
TechniVision, Inc. ("TechniVision" or the "Company") develops, owns and
operates wireless cable television systems. The Company currently has wireless
cable channel rights in three markets (Dayton, Ohio and El Paso and Corpus
Christi, Texas) and has operational systems in the Dayton and Corpus Christi
markets. The Company is a majority-owned subsidiary of Three Sixty Corp. ("Three
Sixty").
(b) Investment in Equity Security
The Company's investment in equity security is stated at cost and earnings
are realized as dividends are received.
(c) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and costs associated with initial subscriber
installations are capitalized. Upon subscriber disconnect, the Company continues
to depreciate the full capitalized installation cost subsequent to the
disconnection. Depreciation and amortization are recorded on a straight-line
basis for financial reporting purposes over useful lives ranging from 3 to 10
years. Repair and maintenance costs are charged to expense when incurred;
renewals and betterments are capitalized.
Equipment awaiting installation consists primarily of accessories, parts
and supplies for subscriber installations and is stated at the lower of average
cost or market.
(d) Intangible Assets
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Costs incurred to acquire channel rights issued by the Federal
Communications Commission ("FCC") are deferred and amortized ratably over an
estimated useful life of 20 years beginning with inception of service in each
respective market. As of May 31, 1994 and 1995, approximately $276,567 and
$184,155 of the leased license investment was not yet subject to amortization.
The Company continually reevaluates the propriety of the carrying amounts of the
leased license investment based on undiscounted future cash flows with respect
to each market as well as the amortization period to determine whether current
events or circumstances warrant adjustments to the carrying amounts or a revised
estimate of the useful life.
(e) Revenue Recognition
Revenues from subscribers are recognized in the period that the service is
provided. Installation fees are recognized upon origination of service to a
subscriber to the extent of costs incurred to obtain subscribers. Installation
revenues in excess of such costs will be deferred and amortized over six years.
(f) Systems Operations
Systems operations expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
F-79
<PAGE> 277
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Income Taxes
The Company is included in the consolidated federal income tax return of
Three Sixty. Total current and deferred tax expense is allocated to the Company
as if such taxes were calculated on a separate return basis under the asset and
liability method prescribed by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." For the three years ended May 31, 1995, no
tax benefit or expense was recorded by the Company as a result of losses
incurred by the Company.
(h) Statements of Cash Flows
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Cash paid for interest during 1993, 1994 and 1995 was $1,049,926, $780,570
and $1,334,496, respectively.
(i) Interim Financial Information
In the opinion of management, the accompanying unaudited condensed
financial information of the Company contains all adjustments, consisting only
of those of a recurring nature, necessary to present fairly the Company's
financial position as of November 30, 1995, and the results of its operations
and its cash flows for the six-month periods ended November 30, 1994 and 1995.
These results are not necessarily indicative of the results to be expected for
the full fiscal year.
(2) REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. As shown on the accompanying balance sheet, the
Company's current liabilities exceeded its current assets by $15,086,000 at May
31, 1995. In addition, the Company has sustained losses through May 31, 1995 of
$14,780,712. In order for the Company to meet its debt service requirements in
fiscal year 1996, the Company must obtain additional capital or financing. Given
these facts, the ability of the Company to continue as a going concern and the
recoverability of a major portion of its recorded asset amounts is dependent
upon its ability to meet its financing requirements on a continuing basis.
The Company and its stockholders have been exploring financing and
capitalization alternatives, including the possibility of a sale of the Company
or its assets. As a result, in October 1995, the Company entered into a
definitive agreement with Heartland Wireless Communications, Inc. ("Heartland")
whereby Heartland will acquire substantially all of the assets of the Company
for approximately $36.75 million of Heartland common stock, less an amount of
assumed obligations which shall not exceed $5.0 million. This transaction is
subject to certain conditions and there can be no assurance that the Company
will be able to consummate such transaction. The financial statements do not
include any adjustments relating to the recoverability of recorded asset amounts
or amounts of liabilities that might be necessary depending upon the outcome of
these uncertainties.
F-80
<PAGE> 278
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at May 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Equipment awaiting installation........................... $ 497,757 $ 385,596
Subscriber premises equipment and installation costs...... 10,865,123 11,762,796
Transmission equipment and system construction costs...... 3,384,604 3,922,033
Office furniture and equipment............................ 1,063,133 1,200,060
Buildings and leasehold improvements...................... 342,199 342,199
----------- ----------
16,152,816 17,612,684
Accumulated depreciation and amortization................. (5,842,581) (8,211,046)
----------- ----------
$10,310,235 $9,401,638
=========== ==========
</TABLE>
As of May 31, 1994 and 1995, equipment awaiting installation and
approximately $285,435 and $230,481 of transmission equipment and system
construction costs were not yet subject to depreciation.
(4) LONG-TERM DEBT
Long-term debt at May 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Philips Credit Corporation................................ $10,000,000 $ 9,326,358
Addison Group............................................. 1,660,000 1,600,000
Investor advances/UCL Disgorgement Fund................... 7,000,000 6,000,000
Other..................................................... 393,522 315,731
----------- -----------
19,053,522 17,242,089
Less current portion...................................... 11,875,980 11,043,590
----------- -----------
$ 7,177,542 $ 6,198,499
=========== ===========
</TABLE>
In 1990, TechniVision and Philips Credit Corporation ("PCC") entered into a
credit agreement, as amended, whereby the Company could borrow a maximum of
$10.0 million to finance principally the construction of and initial operational
costs for the wireless cable system located in Corpus Christi. As of May 31,
1995, outstanding borrowings under the credit agreement amounted to $9,326,000.
The note is secured by an interest in certain assets of the Company and bears
interest at a rate floating at prime (9.00% at May 31, 1995) plus 1.85%.
The Company has failed to make payments to PCC in accordance with the
credit agreement and has failed to comply with certain financial and other
covenants. As a result, on March 27, 1995, PCC and the Company entered into a
forbearance agreement which, among other things, extended the due date of the
note to January 2, 1996, contingent upon the Company entering into an agreement
by September 30, 1995 to sell the assets of the Company.
In connection with Three Sixty's acquisition of TechniVision in October
1989, the Company entered into a compensation agreement with the seller that
provided for additional payments during the first five years after launching a
market based on the number of subscribers added or a payment of $750,000 for
each market sold during such period. Amounts paid under the compensation
agreement with respect to additional subscribers are recorded as additional
leased license investment. As of May 31, 1995, the Company has remaining
obligations of $1,600,000 relating to the Dayton and Corpus Christi systems. The
notes are secured by security interests in certain assets of the Company and
bear interest at rates ranging from 8% to 10%. The obligations are currently
due, and the lenders may, at their option, give notice that the amounts
outstanding are
F-81
<PAGE> 279
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
immediately payable. As discussed in note 2, the Company and its stockholders
have been exploring financing and capitalization alternatives, including the
possibility of a sale of the Company or its assets. If the sale of the Company
to Heartland is consummated, an additional $750,000 will be payable to the
seller related to the El Paso market.
During 1993, the Company entered into a series of agreements with certain
third parties for the purpose of raising capital for the development of the
Dayton, Corpus Christi, El Paso and Salt Lake City systems. The third parties
were to receive interests in such systems in consideration for raising the
agreed upon capital. Solely as a result of having received funds derived from
securities laws violations committed by others, the Company was named as a
relief defendant by the Securities and Exchange Commission ("SEC"). As a result,
in February 1995, the Company voluntarily entered into an agreement with the SEC
to disgorge the sum of $7.0 million, representing the proceeds it received from
securities laws violations committed by others. The note is noninterest-bearing
and is payable in full on December 31, 1996 or upon the sale of TechniVision. In
April 1995, the Company paid $1.0 million on the note out of the proceeds from
the sale of the Salt Lake City market (see note 6).
(5) LEASES
The Company leases from third parties channel rights licensed by the FCC.
Under FCC policy, the base term of most of these leases cannot exceed ten years
from the time the lessee begins using the leased channel rights. FCC licenses
for wireless cable channels range from five to ten years, and there is no
automatic renewal of such licenses. The use of such channels by third parties is
subject to regulation by the FCC and, therefore, the Company's ability to
continue to enjoy the benefits of these leases is dependent upon the third party
lessor's continuing compliance with applicable regulations. The remaining terms
of the Company's channel leases range from less than one year to 10 years. Most
of the Company's leases provide for automatic renewal of their terms upon FCC
renewal of the underlying license, grant the Company a right of first refusal
and/or require the parties to negotiate renewal in good faith. Although the
Company does not believe that the termination of or failure to renew a single
channel lease could adversely affect the Company, several of such terminations
or failures in one or more markets that the Company actively serves could have a
material adverse effect on the Company. Channel rights lease agreements
generally require payments based on the greater of specified minimums or amounts
based upon various factors, such as subscriber levels or subscriber revenues.
Payments under the channel rights lease agreements 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. Channel
rights lease expense was $61,190, $123,510 and $169,964 for the years ended May
31, 1993, 1994 and 1995, respectively.
The Company also has certain operating leases for office space and
transmission tower space. Rent expense incurred in connection with other
operating leases was $90,059, $142,326 and $159,383 for the years ended May 31,
1993, 1994 and 1995, respectively.
Future minimum lease payments due under channel rights leases for
operational systems and other noncancellable operating leases in effect at May
31, 1995 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
MAY 31, LEASES LEASES
- ----------- -------- --------
<S> <C> <C>
1996............................................ $307,889 $148,770
1997............................................ 307,889 158,970
1998............................................ 325,889 163,170
1999............................................ 361,889 116,000
2000............................................ 361,889 99,600
</TABLE>
F-82
<PAGE> 280
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) SETTLEMENT AGREEMENT/SALE OF SALT LAKE CITY MARKET
In February 1995, the Company sold its wireless cable channel rights in the
Salt Lake City market to CableMaxx, Inc. ("CableMaxx"). The sales price
consisted of cash of $5.85 million and 907,311 restricted shares of CableMaxx
common stock. In April 1995, the Company entered into a settlement agreement
with various third parties with respect to certain claims and disputes which
arose in connection with the development of the Dayton, Corpus Christi, El Paso
and Salt Lake City systems (see note 4). The settlement agreement provided for,
among other things, the dismissal of certain actions and mutual releases of
claims among the parties and the manner of distribution among the parties to the
settlement agreement of the cash and CableMaxx common stock from the sale of the
Salt Lake City wireless cable channel rights. As a result of the sale of the
channel rights and the settlement agreement, the Company received 50% of the
proceeds from the sale and recorded a gain from the sale of the Salt Lake City
channel rights of $3,362,000 during the year ended May 31, 1995.
(7) RELATED PARTY TRANSACTIONS
The Company paid $305,496 in 1993, $1,055,029 in 1994 and $632,130 in 1995
to various affiliates for services performed in connection with the development
of wireless cable television systems and certain administrative services.
(8) COMMITMENTS
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1994
through 1997. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain minimums.
F-83
<PAGE> 281
HEARTLAND WIRELESS COMMUNICATIONS, INC.
PRO FORMA FINANCIAL INFORMATION FOR CONSUMMATED EVENTS
The following Pro Forma Statements for Consummated Events present pro forma
financial information of the Company with respect to various events (other than
the Transactions). The Pro Forma Statements for Consummated Events are further
adjusted for the effects of the Transactions as set forth on pages 71 to 94 of
the Registration Statement.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet for
Consummated Events as of September 30, 1995 gives effect to (i) the October 18,
1995 contribution of wireless cable systems located in Milano, Texas and Monroe,
Louisiana and wireless cable channel rights in other markets located in Texas,
Louisiana, Alabama, Georgia and Florida to Wireless One (the "Wireless One
Transaction"), (ii) the issuance of approximately 91,000 shares of Heartland
Common Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One, (iii) the issuance by Wireless One of the $10.0 million of
Wireless One notes as part of the Wireless One Transaction and the subsequent
repayment of such notes, and (iv) the increase in the Company's equity interest
in Wireless One as part of the Wireless One Transaction as if such events had
occurred on September 30, 1995. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 give effect to (i) the
issuance of 2,415,000 shares of Heartland Common Stock in the Company's initial
public offering in April 1994, (ii) the sale in November 1994 of the Convertible
Notes, (iii) the 1994 acquisitions of wireless cable systems in Milano, Texas
and Lindsay, Oklahoma, (iv) the 1995 acquisitions of wireless cable systems in
Shaw, Kansas, Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas and Sikeston,
Missouri and wireless cable channel rights in certain non-operating markets, (v)
the 1994 and 1995 purchases by and distribution to the Company of certain
non-operating markets previously owned by RuralVision Joint Venture, (vi) the
issuance of 998,318 shares of Heartland Common Stock in 1994 and 1995 in
exchange for minority interests in certain of the Company's subsidiaries, (vii)
the issuance in July 1995 of 1,029,707 shares of Heartland Common Stock to
RuralVision Joint Venture in exchange for $20,000,000 cash, (viii) the
elimination of historical revenues and expenses associated with the wireless
cable systems located in Milano, Texas and Monroe, Louisiana which were
contributed to Wireless One in connection with the Wireless One Transaction and
(ix) the Company's equity in pro forma losses of Wireless One, as if such events
had occurred on January 1, 1994.
The pro forma statements of operations financial information does not give
effect to the sale of the Notes by the Company in April 1995. Assuming the Notes
had been issued on January 1, 1994, interest expense, amortization of related
debt issuance costs and amortization of debt discount would have increased by
approximately $14 million and $4.6 million for the year ended December 31, 1994
and the nine months ended September 30, 1995, respectively.
The Pro Forma Statements for Consummated Events and accompanying notes
should be read in conjunction with the Company's consolidated financial
statements (including notes thereto) appearing elsewhere in the Prospectus. The
Pro Forma Statements for Consummated Events do not purport to represent what the
Company's results of operations or financial position actually would have been
had such events occurred on the dates specified, or to project the Company's
results of operations or financial position for any future period or date. The
pro forma adjustments are based upon available information and certain
adjustments that management believes are reasonable. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the Pro Forma Statements for Consummated Events.
F-84
<PAGE> 282
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET FOR CONSUMMATED EVENTS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
WIRELESS
HISTORICAL ONE HEARTLAND
HEARTLAND TRANSACTION PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 37,155,064 $10,000,000 (B) $47,155,064
Restricted investments....................... 11,669,874 -- 11,669,874
Net assets held for cash sale or exchange.... 9,200,000 (7,000,000)(B) 2,200,000
Other current assets......................... 3,389,470 (354,189)(A) 3,035,281
------------ ----------- -----------
Total current assets............... 61,414,408 2,645,811 64,060,219
Systems and equipment, net................... 46,027,017 (2,658,065)(A) 43,368,952
Leased license investment, net............... 64,726,389 (4,244,113)(A) 60,482,276
Investment in Wireless One................... -- 14,044,155 (A) 14,602,442
(10,000,000)(B)
2,000,000 (C)
8,558,287 (D)
Notes receivable............................. -- --
Excess of cost over fair value of net assets
acquired................................... 4,470,286 4,470,286
Restricted investments....................... 13,077,340 13,077,340
Net assets held for exchange................. -- --
Other assets , net........................... 10,435,034 10,435,034
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt............ $ 616,610 $ $ 616,610
Other current liabilities.................... 10,244,363 (113,732)(A) 10,130,631
------------ ----------- ------------
Total current
liabilities...................... 10,860,973 (113,732) 10,747,241
Long-term debt, less current portion......... 139,428,429 139,428,429
Deferred income taxes........................ 1,287,560 (98,480)(A) 1,189,080
Other liabilities............................ 279,695 279,695
Stockholders' equity......................... 48,293,817 2,000,000 (C) 58,852,104
8,558,287 (D)
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-85
<PAGE> 283
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Total revenues.................................................... $ 2,229,494 $ 5,472,554 (E) $ (111,225)(M) $ 7,590,823
----------- ----------- ---------- -----------
Operating expenses:
Systems operations.............................................. 762,501 2,362,388 (E) (55,590)(M) 4,188,612
1,119,313 (F)
Selling, general and administrative............................. 4,183,307 2,300,261 (E) (105,599)(M) 6,377,969
Depreciation and amortization................................... 1,097,668 1,322,786 (E) (44,931)(M) 3,263,717
68,778 (G)
819,416 (H)
----------- ----------- ---------- -----------
Total operating expenses.................................. 6,043,476 7,992,942 (206,120) 13,830,298
----------- ----------- ---------- -----------
Operating loss............................................ (3,813,982) (2,520,388) 94,895 (6,239,475)
Interest expense.................................................. (589,767) (3,595,266)(I) (4,185,033)
Equity in losses of investees..................................... (386,985) 386,985 (J) (1,004,594)(N) (1,004,594)
Interest income and other......................................... 152,450 -- 152,450
----------- ----------- ---------- -----------
Loss before income taxes.................................. (4,638,284) (5,728,669) (909,699) (11,276,652)
Income tax benefit................................................ 1,594,963 863,849 (K) 2,458,812
----------- ----------- ---------- -----------
Net loss.................................................. $(3,043,321) $(4,864,820) $ (909,699) $(8,817,840)
=========== =========== ========== ===========
Net loss per share................................................ $ (0.30) $ (0.70)
===========
Weighted average shares outstanding............................... 10,041,000 2,407,412 (L) 93,032 (C) 12,541,444
=========== =========== ========== ===========
</TABLE>
See accompanying notes to pro forma statements.
F-86
<PAGE> 284
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues................................................. $ 9,292,837 $1,283,545 (O) $ (632,173)(M) $ 9,944,209
------------ ----------- ---------- ------------
Operating expenses:
Systems operations........................................... 2,894,074 627,144 (O) (399,687)(M) 3,371,531
250,000 (P)
Selling, general and administrative.......................... 7,449,699 587,774 (O) (348,447)(M) 7,689,026
Depreciation and amortization................................ 3,966,120 350,966 (O) (193,962)(M) 4,396,920
256,602 (Q)
17,194 (G)
------------ ----------- ---------- ------------
Total operating expenses............................... 14,309,893 2,089,680 (942,096) 15,457,477
------------ ----------- ---------- ------------
Operating loss......................................... (5,017,056) (806,135) 309,923 (5,513,268)
Interest expense............................................... (8,908,459) (8,908,459)
Equity in losses of investees.................................. (128,663) 128,663 (J) (1,049,583)(N) (1,049,583)
Interest income and other...................................... 1,568,946 1,568,946
------------ ----------- ---------- ------------
Loss before income taxes............................... (12,485,232) (677,472) (739,660) (13,902,364)
Income tax benefit............................................. 1,307,137 (1,307,137)(K) --
------------ ----------- ---------- ------------
Net loss............................................... $(11,178,095) $(1,984,609) (739,660) $(13,902,364)
============ =========== ========== ============
Net loss per share............................................. $(0.96) $(1.10)
============
Weighted average shares outstanding............................ 11,624,000 874,895 (L) 93,032 (C) 12,591,927
============ =========== ========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-87
<PAGE> 285
HEARTLAND WIRELESS COMMUNICATIONS, INC.
NOTES TO PRO FORMA STATEMENTS FOR CONSUMMATED EVENTS
(A) Reflects the contribution of wireless cable systems located in Milano, Texas
and Monroe, Louisiana and wireless cable channel rights in other markets
located in Texas, Louisiana, Alabama, Georgia and Florida to Wireless One.
(B) Reflects the issuance by Wireless One of the $10.0 million of Wireless One
notes as part of the Wireless One Transaction and subsequent repayment of
such notes.
(C) Reflects the issuance of approximately 93,000 shares of Heartland Common
Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One.
(D) Reflects the increase in Heartland's equity interest in Wireless One as part
of the Wireless One Transaction as if such event had occurred on September
30, 1995. Subsequent to the Wireless One Transaction, Heartland's equity
interest in Wireless One was approximately 26.6%.
(E) Reflects the historical revenues and expenses associated with the
acquisitions of wireless cable systems in Milano, Texas in December 1994,
Lindsay, Oklahoma in December 1994, Shaw, Kansas in January 1995, Lubbock,
Texas in May 1995, Lykens, Ohio in July 1995, Paragould, Arkansas in July
1995, and Sikeston, Missouri in July 1995, until the respective acquisition
dates of such systems.
(F) Reflects the incremental lease rental payments associated with the 1994 and
1995 purchases by and distribution to Heartland of certain non-operating
markets previously owned by RuralVision Joint Venture.
(G) Reflects incremental amortization of the excess purchase price over the fair
value of net identifiable assets acquired associated with the acquisitions
of certain minority interests. Amortization of the excess purchase price
over the fair value of net identifiable assets acquired is based on an
estimated useful life of 20 years.
(H) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Milano,
Texas, Lindsay, Oklahoma, Shaw, Kansas, Lubbock, Texas, Lykens, Ohio,
Paragould, Arkansas, and Sikeston, Missouri. The acquisition dates of each
respective system are set forth in note (E). Amortization of leased license
investment is calculated beginning with inception of service in each
respective market.
(I) Reflects incremental interest expense on $40 million of Convertible Notes
issued by Heartland in November 1994 at a rate of 9.0% and incremental
amortization of related debt issuance costs by the interest method over the
life of such notes.
(J) Reflects the reversal of equity in losses in RuralVision Joint Venture due
to the termination of such venture in January 1995 and acquisition of such
venture's markets by Heartland.
(K) Reflects the adjustment to income tax benefit related to pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable differences.
(L) Reflects the incremental increase in weighted average shares of Heartland
Common Stock outstanding related to the issuance of 2,415,000 shares in
Heartland's initial public offering in April 1994, the exchange of 694,280
and 304,038 shares for minority interests in certain of the Company's
subsidiaries in 1994 and 1995, respectively, and the issuance of 1,029,707
shares in July 1995 to RuralVision Joint Venture in exchange for
$20,000,000 cash.
(M) Reflects the elimination of historical revenues and expenses associated with
the wireless cable systems located in Milano, Texas and Monroe, Louisiana
which were contributed to Wireless One.
F-88
<PAGE> 286
(N) Reflects Heartland's equity in pro forma losses of Wireless One as if the
Wireless One Transaction had occurred on January 1, 1994.
(O) Reflects the historical revenues and expenses associated with the wireless
cable systems in Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas, and
Sikeston, Missouri until their respective acquisition dates. The
acquisition dates of each respective system are set forth in note (E).
(P) Reflects the incremental lease rental payments associated with the 1995
purchases by and distribution to the Company of certain non-operating
markets previously owned by RuralVision Joint Venture.
(Q) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Lubbock,
Texas, Lykens, Ohio, Paragould, Arkansas, and Sikeston, Missouri. The
acquisition dates of each respective system are set forth in note (E).
Amortization of leased license investment is calculated beginning with
inception of service in each respective market.
F-89
<PAGE> 287
A
APPENDIX A
HEARTLAND FAIRNESS OPINIONS
<PAGE> 288
A
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
January 12, 1996
The Board of Directors
Heartland Wireless Communications, Inc.
903 North Bowser, Suite 140
Richardson, Texas 75081
Dear Members of the Board:
We understand that Heartland Wireless Communications, Inc. (the "Company"),
Heartland Merger Sub, Inc., a wholly owned subsidiary of the Company ("Sub"),
and American Wireless Systems, Inc. ("AWS") have entered into an Agreement and
Plan of Merger dated as of September 11, 1995 (the "Agreement"), pursuant to
which Sub will be merged with and into AWS, with AWS becoming a wholly owned
subsidiary of the Company (the "Merger"). Under the Agreement, upon consummation
of the Merger, the Company will issue to holders of common stock, par value $.01
per share ("AWS Common Stock"), of AWS that number of shares of common stock,
par value $.001 per share ("Company Common Stock"), of the Company having an
aggregate exchange value of $34,000,000, subject to certain reductions and
escrow requirements as set forth in the Agreement. The exchange value for
Company Common Stock will be equal to the average closing price of Company
Common Stock as reported on Nasdaq-NMS over the ten-trading day period ending on
the fifth business day preceding consummation of the Merger, unless such average
is less than $20 or more than $26 per share, in which event the exchange value
will be $20 or $26 per share, as applicable. Based on the current trading price
for Company Common Stock and the above-described price collar mechanism, the
aggregate market value of the shares of Company Common Stock to be issued to the
holders of AWS Common Stock would equal, as of the date hereof, approximately
$37,923,000.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the consideration to be paid by the Company to the
holders of AWS Common Stock in connection with the Merger. In rendering this
opinion, we have:
(i) reviewed the financial terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and AWS;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company relating to the respective businesses of the Company and
AWS (we have not been furnished with financial forecasts or other data
prepared by AWS, as we have been told that no such forecasts or data
exist);
(iv) held discussions with members of the senior management of the
Company and AWS with respect to the businesses of the Company and AWS,
respectively, and the possible benefits which might be realized following
the Merger;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of the Company and AWS;
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe to be
comparable to those of the Company and AWS;
(vii) reviewed the historical stock prices and trading volumes of
Company Common Stock and AWS Common Stock; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and
other information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or AWS, nor have we been provided with any such appraisals. With respect
to the financial forecasts referred to above, we have
A-1
<PAGE> 289
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the respective businesses of the Company
and AWS and the projected benefits of the Merger to the Company. We assume no
responsibility for and express no view as to such forecasts or the assumptions
on which they are based. Further, our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. Our opinion does not address the
Company's underlying business decision to effect the Merger.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement, without waiver of any terms
or conditions by the Company which individually or in the aggregate would be
material, and that obtaining the necessary regulatory approvals for the Merger
will not have an adverse effect on the Company, AWS or the projected benefits of
the Merger to the Company.
Lazard Freres & Co. LLC has acted as financial advisor to the Company in
connection with the Merger, although we were not involved directly in the
negotiation of the Merger. We will receive a fee for our services, a substantial
portion of which is payable upon delivery of this opinion. Lazard has in the
past provided and is currently providing investment banking and financial
advisory services to the Company, for which we received customary fees. In
addition, a significant number of general members of Lazard are limited partners
of Jupiter Partners L.P., a significant securityholder of the Company. Lazard
also is a limited partner of the general partner of Jupiter Partners L.P.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be paid by the Company to the holders of AWS Common Stock in
connection with the Merger is fair to the Company from a financial point of
view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PETER R. EZERSKY
Managing Director
A-2
<PAGE> 290
A
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
January 12, 1996
The Board of Directors
Heartland Wireless
Communications, Inc.
903 North Bowser, Suite 140
Richardson, Texas 75081
Dear Members of the Board:
We understand that Heartland Wireless Communications, Inc. (the "Company")
and Fort Worth Wireless Cable T.V. Associates ("FTW Partnership") have entered
into an Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 (the "Agreement"), pursuant to which FTW Partnership will transfer to the
Company its 79.99% equity interest in a joint venture that owns and operates a
wireless cable television system (the "FTW System") in Forth Worth, Texas (the
"Acquisition"). Under the Agreement, upon consummation of the Acquisition,
Heartland will issue to FTW Partnership that number of shares of common stock,
par value $.001 per share ("Company Common Stock"), of the Company having an
aggregate exchange value of $13,300,000. The exchange value for Company Common
Stock will be equal to the average closing price of Company Common Stock as
reported on Nasdaq-NMS over the ten-trading day period ending on the fifth
business day preceding consummation of the Acquisition, unless such average is
in excess of $23 per share, in which event the exchange value will be $23 per
share. Based on the current trading price for Company Common Stock and the
above-described price collar mechanism, the aggregate market value of the shares
of Company Common Stock to be issued to FTW Partnership would equal, as of the
date hereof, approximately $16,770,000. In addition, pursuant to the Agreement,
Heartland will assume up to $570,000 of certain liabilities of FTW Partnership,
and FTW Partnership and its partners who approve the Acquisition will assign to
Heartland or release certain claims against American Wireless Systems, Inc., its
predecessors and their respective affiliates.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the consideration to be paid by the Company to FTW
Partnership in connection with the Acquisition. In rendering this opinion, we
have:
(i) reviewed the financial terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and the FTW System;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company relating to the respective businesses of the Company and
the FTW System (we have not been furnished with financial forecasts or
other data prepared by FTW Partnership or American Wireless Systems, Inc.
("AWS"), which manages the FTW System, as we have been told that no such
forecasts or data exist);
(iv) held discussions with members of the senior management of the
Company and AWS with respect to the businesses of the Company and the FTW
System, respectively, and the possible benefits which might be realized
following the Acquisition;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of the Company and the FTW System;
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe to be
comparable to those of the Company and the FTW System;
(vii) reviewed the historical stock prices and trading volumes of
Company Common Stock; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
A-3
<PAGE> 291
We have relied upon the accuracy and completeness of the financial and
other information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or FTW Partnership (including the FTW System), nor have we been provided
with any such appraisals. With respect to the financial forecasts referred to
above, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the
businesses of the Company and the FTW System and the projected benefits of the
Acquisition to the Company. We assume no responsibility for and express no view
as to such forecasts or the assumptions on which they are based. Further, our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Our opinion does not address the Company's underlying business decision
to effect the Acquisition.
In rendering our opinion, we have assumed that the Acquisition will be
consummated on the terms described in the Agreement, without waiver of any terms
or conditions by the Company which individually or in the aggregate would be
material, and that obtaining the necessary regulatory approvals for the
Acquisition will not have an adverse effect on the Company, the FTW System or
the projected benefits of the Acquisition to the Company.
Lazard Freres & Co. LLC has acted as financial advisor to the Company in
connection with the Acquisition, although we were not involved directly in the
negotiation of the Acquisition. We will receive a fee for our services, a
substantial portion of which is payable upon delivery of this opinion. Lazard
has in the past provided and is currently providing investment banking and
financial advisory services to the Company, for which we received customary
fees. In addition, a significant number of general members of Lazard are limited
partners of Jupiter Partners L.P., a significant securityholder of the Company.
Lazard also is a limited partner of the general partner of Jupiter Partners L.P.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be paid by the Company to FTW Partnership in connection with
the Acquisition is fair to the Company from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PETER R. EZERSKY
Managing Director
A-4
<PAGE> 292
A
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
January 12, 1996
The Board of Directors
Heartland Wireless
Communications, Inc.
903 North Bowser, Suite 140
Richardson, Texas 75081
Dear Members of the Board:
We understand that Heartland Wireless Communications, Inc. (the "Company")
and Wireless Cable TV Associates #38 ("Minneapolis Partnership") have entered
into an Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 (the "Agreement"), pursuant to which Minneapolis Partnership will transfer
to the Company its 75% membership interest in and to a limited liability company
that owns and operates a wireless cable television system (the "Minneapolis
System") in Minneapolis, Minnesota (the "Acquisition"). Under the Agreement,
upon consummation of the Acquisition, the Company will issue to Minneapolis
Partnership that number of shares of common stock, par value $.001 per share
("Company Common Stock"), of the Company having an aggregate exchange value
equal to the sum of (i) $18,000,000 plus (ii) $500 for each wireless cable
television subscriber in excess of 2,500 as of the fifth business day prior to
consummation of the Acquisition. The exchange value for Company Common Stock
will be equal to either (a) the lesser of $23 per share and the average closing
price of Company Common Stock as reported on Nasdaq-NMS over the ten-trading day
period ending on the fifth business day preceding consummation of the
Acquisition or (b) if such average closing price is equal to or in excess of $30
per share, then (x) the product of such average closing price multiplied by $23
divided by (y) $30 per share. Based on the current trading price for Company
Common Stock and the above-described price collar mechanism, the aggregate
market value of the shares of Company Common Stock to be issued to Minneapolis
Partnership would equal, as of the date hereof, approximately $22,696,000. In
addition, pursuant to the Agreement, Heartland will assume up to $2,200,000 of
certain liabilities of Minneapolis Partnership, and Minneapolis Partnership and
its partners who approve the Acquisition will assign to Heartland certain claims
against American Wireless Systems, Inc., its predecessors and their respective
affiliates.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the consideration to be paid by the Company to
Minneapolis Partnership in connection with the Acquisition. In rendering this
opinion, we have:
(i) reviewed the financial terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and the Minneapolis System;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company relating to the respective businesses of the Company and
the Minneapolis System (we have not been furnished with financial forecasts
or other data prepared by Minneapolis Partnership or American Wireless
Systems, Inc. ("AWS"), which manages the Minneapolis System, as we have
been told that no such forecasts or other data exist);
(iv) held discussions with members of the senior management of the
Company and AWS with respect to the businesses of the Company and the
Minneapolis System, respectively, and the possible benefits which might be
realized following the Acquisition;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of the Company and the Minneapolis System;
A-5
<PAGE> 293
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe to be
comparable to those of the Company and the Minneapolis System;
(vii) reviewed the historical stock prices and trading volumes of
Company Common Stock; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and
other information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or Minneapolis Partnership (including the Minneapolis System), nor have
we been provided with any such appraisals. With respect to the financial
forecasts referred to above, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of the Company as to the future financial
performance of the businesses of the Company and the Minneapolis System and the
projected benefits of the Acquisition to the Company. We assume no
responsibility for and express no view as to such forecasts or the assumptions
on which they are based. Further, our opinion is necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. Our opinion does not address the
Company's underlying business decision to effect the Acquisition.
In rendering our opinion, we have assumed that the Acquisition will be
consummated on the terms described in the Agreement, without waiver of any terms
or conditions by the Company which individually or in the aggregate would be
material, and that obtaining the necessary regulatory approvals for the
Acquisition will not have an adverse effect on the Company, the Minneapolis
System or the projected benefits of the Acquisition to the Company.
Lazard Freres & Co. LLC has acted as financial advisor to the Company in
connection with the Acquisition, although we were not involved directly in the
negotiation of the Acquisition. We will receive a fee for our services, a
substantial portion of which is payable upon delivery of this opinion. Lazard
has in the past provided and is currently providing investment banking and
financial advisory services to the Company, for which we received customary
fees. In addition, a significant number of general members of Lazard are limited
partners of Jupiter Partners L.P., a significant securityholder of the Company.
Lazard also is a limited partner of the general partner of Jupiter Partners L.P.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be paid by the Company to Minneapolis Partnership in connection
with the Acquisition is fair to the Company from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PETER R. EZERSKY
Managing Director
A-6
<PAGE> 294
A
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
January 12, 1996
The Board of Directors
Heartland Wireless
Communications, Inc.
903 North Bowser, Suite 140
Richardson, Texas 75081
Dear Members of the Board:
We understand that Heartland Wireless Communications, Inc. (the "Company"),
Heartland Merger Sub 2, Inc., a wholly owned subsidiary of the Company ("Sub"),
and CableMaxx, Inc. ("CMAX") have entered into an Amended and Restated Agreement
and Plan of Merger dated as of September 11, 1995 (the "Agreement"), pursuant to
which Sub will be merged with and into CMAX, with CMAX becoming a wholly owned
subsidiary of the Company (the "Merger"). Under the Agreement, upon consummation
of the Merger, the Company will issue to the holders of common stock, par value
$.01 per share ("CMAX Common Stock"), of CMAX that number of shares of common
stock, par value $.001 per share ("Company Common Stock"), of the Company having
an aggregate exchange value of $80,812,143, subject to reduction for certain
liabilities of CMAX in excess of $13,635,000. The exchange value for Company
Common Stock will be equal to the average closing price of Company Common Stock
as reported on Nasdaq-NMS over the twenty-trading day period ending on the fifth
business day preceding consummation of the Merger.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the consideration to be paid by the Company to the
holders of CMAX Common Stock in connection with the Merger. In rendering this
opinion, we have:
(i) reviewed the financial terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and CMAX;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company and CMAX relating to their respective businesses;
(iv) held discussions with members of the senior management of the
Company and CMAX with respect to the businesses of the Company and CMAX,
respectively, and the possible benefits which might be realized following
the Merger;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of the Company and CMAX;
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe to be
comparable to those of the Company and CMAX;
(vii) reviewed the historical stock prices and trading volumes of
Company Common Stock and CMAX Common Stock; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and
other information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or CMAX, nor have we been provided with any such appraisals. With
respect to the financial forecasts referred to above, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the Company and CMAX as
to the future financial performance of their businesses and the projected
benefits of the Merger to the Company. We assume no responsibility for and
express no view as to such forecasts or the assumptions on which they are
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<PAGE> 295
based. Further, our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof. Our opinion does not address the Company's underlying
business decision to effect the Merger.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Agreement, without waiver of any terms
or conditions by the Company which individually or in the aggregate would be
material, and that obtaining the necessary regulatory approvals for the Merger
will not have an adverse effect on the Company, CMAX or the projected benefits
of the Merger to the Company.
Lazard Freres & Co. LLC has acted as financial advisor to the Company in
connection with the Merger, although we were not involved directly in the
negotiation of the Merger. We will receive a fee for our services, a substantial
portion of which is payable upon delivery of this opinion. Lazard has in the
past provided and is currently providing investment banking and financial
advisory services to the Company, for which we received customary fees. In
addition, a significant number of general members of Lazard are limited partners
of Jupiter Partners L.P., a significant securityholder of the Company. Lazard
also is a limited partner of the general partner of Jupiter Partners L.P.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be paid by the Company to the holders of CMAX Common Stock in
connection with the Merger is fair to the Company from a financial point of
view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PETER R. EZERSKY
Managing Director
A-8
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A
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
January 12, 1996
The Board of Directors
Heartland Wireless
Communications, Inc.
903 North Bowser, Suite 140
Richardson, Texas 75081
Dear Members of the Board:
We understand that Heartland Wireless Communications, Inc. (the "Company"),
Three Sixty Corp. ("TSC") and Technivision, Inc. ("Technivision"), formerly a
subsidiary of TSC that has been merged with and into TSC, have entered into an
Amended and Restated Asset Purchase Agreement dated as of October 19, 1995 (the
"Agreement"), pursuant to which TSC will transfer to the Company substantially
all the assets formerly held by Technivision, consisting of wireless cable
television assets (the "Assets") in Dayton, Ohio, Corpus Christi, Texas and El
Paso, Texas (the "Acquisition"). Under the Agreement, upon consummation of the
Acquisition, Heartland will issue, subject to certain reductions and escrow
arrangements, to TSC that number of shares of common stock, par value $.001 per
share ("Company Common Stock"), of the Company having an aggregate exchange
value equal to the sum of (i) $36,750,000 plus (ii) $1,200 for each wireless
cable television subscriber on the fifth day preceding consummation of the
Acquisition in excess of amounts specified in the Agreement (provided that the
aggregate of such additional subscriber consideration will not exceed
$3,500,000), minus (iii) the amount of any obligations of TSC assumed by the
Company (not to exceed $5,000,000) minus (iv) if the wireless cable television
assets of TSC relating to the Dayton, Ohio market are sold prior to consummation
of the Acquisition, certain proceeds thereof to be retained by TSC. The exchange
value for Company Common Stock will be equal to the average closing price of
Company Common Stock as reported on Nasdaq-NMS over the twenty-trading day
period ending on the fifth business day preceding consummation of the
Acquisition.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the consideration to be paid by the Company to TSC in
connection with the Acquisition. In rendering this opinion, we have:
(i) reviewed the financial terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and the Assets;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company relating to the respective businesses of the Company and
the Assets (we have not been furnished with financial forecasts or other
data prepared by TSC, as we have been told that no such forecasts or other
data exist);
(iv) held discussions with members of the senior management of the
Company with respect to the respective businesses of the Company and the
Assets and the possible benefits which might be realized following the
Acquisition;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of the Company and the Assets;
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe to be
comparable to those of the Company and the Assets;
(vii) reviewed the historical stock prices and trading volumes of
Company Common Stock; and
(viii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
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We have relied upon the accuracy and completeness of the financial and
other information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company or TSC (including the Assets), nor have we been provided with any such
appraisals. With respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the respective businesses of the Company
and the Assets and the projected benefits of the Acquisition to the Company. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based. Further, our opinion is necessarily based
on economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Our opinion does not
address the Company's underlying business decision to effect the Acquisition.
In rendering our opinion, we have assumed that the Acquisition will be
consummated on the terms described in the Agreement, without waiver of any terms
or conditions by the Company which individually or in the aggregate would be
material, and that obtaining the necessary regulatory approvals for the
Acquisition will not have an adverse effect on the Company, the Assets or the
projected benefits of the Acquisition to the Company.
Lazard Freres & Co. LLC has acted as financial advisor to the Company in
connection with the Acquisition, although we were not involved directly in the
negotiation of the Acquisition. We will receive a fee for our services, a
substantial portion of which is payable upon delivery of this opinion. Lazard
has in the past provided and is currently providing investment banking and
financial advisory services to the Company, for which we received customary
fees. In addition, a significant number of general members of Lazard are limited
partners of Jupiter Partners L.P., a significant securityholder of the Company.
Lazard also is a limited partner of the general partner of Jupiter Partners L.P.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be paid by the Company to TSC in connection with the
Acquisition is fair to the Company from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PETER R. EZERSKY
Managing Director
A-10
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A
[LETTERHEAD OF LAZARD FRERES & CO. LLC]
January 12, 1996
The Board of Directors
Heartland Wireless
Communications, Inc.
903 North Bowser, Suite 140
Richardson, Texas 75081
Dear Members of the Board:
We understand that Heartland Wireless Communications, Inc. (the "Company"),
CAI Wireless Systems, Inc. ("CAI") and CS Wireless Systems, Inc., a wholly owned
subsidiary of CAI ("CS Wireless"), have entered into a Participation Agreement
dated as of December 12, 1995 (the "Agreement"), pursuant to which CS Wireless
will be reorganized as a joint venture between the Company and CAI. Under the
Agreement, the Company and CAI will contribute certain of their respective
wireless cable assets (including, in the case of the Company, certain assets to
be acquired in pending transactions) in exchange for a number of shares of
common stock, par value $.001 per share ("CS Common Stock"), of CS Wireless
initially equal to 39.76482% and 60.23518%, respectively, of the CS Common Stock
outstanding on the date of such contribution. In addition, the Company will
receive a cash payment from CS Wireless equal to $28,340,463 and two promissory
notes of CS Wireless, having the terms set forth in the Agreement, in an
aggregate principal amount equal to $40,000,000. In connection with the
reorganization of CS Wireless, BANX, an affiliate of Bell Atlantic Corporation
and NYNEX Corporation, will be issued warrants of CS Wireless exercisable for
10% of the CS Common Stock on a fully-diluted basis. Upon the exercise of such
warrants, the Company and CAI would hold 35.788338% and 54.211662%;
respectively, of the outstanding CS Common Stock. In addition, CAI, the Company
and CS Wireless will enter into a Stockholders' Agreement in the form attached
to the Agreement to set forth, among other things, certain governance provisions
with respect to CS Wireless and to establish certain requirements with respect
to ownership of CS Common Stock.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the consideration to be received by the Company in
connection with the reorganization of CS Wireless. In rendering this opinion, we
have:
(i) reviewed the financial terms and conditions of the Agreement;
(ii) analyzed certain historical business and financial information
relating to the Company and CS Wireless;
(iii) reviewed certain financial forecasts and other data provided to
us by the Company and CS Wireless relating to their respective businesses;
(iv) held discussions with members of the senior management of the
Company and CS Wireless with respect to the businesses of the Company and
CS Wireless, respectively, and the possible benefits which might be
realized following the reorganization of CS Wireless;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable to the
businesses of the Company and CS Wireless;
(vi) reviewed the financial terms of certain recent business
combinations involving companies in lines of businesses we believe to be
comparable to those of the Company and CS Wireless; and
(vii) conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and
other information that have been reviewed by us, and have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or liabilities of the
Company, CAI or CS Wireless, nor have we been provided with any such appraisals.
With respect to the financial forecasts referred
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to above, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the Company and CS Wireless as to the future financial
performance of their businesses and the projected benefits of the reorganization
of CS Wireless. We assume no responsibility for and express no view as to such
forecasts or the assumptions on which they are based. Further, our opinion is
necessarily based on economic, monetary, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. Our
opinion does not address the Company's underlying business decision to enter
into the Agreement.
In rendering our opinion, we have assumed that CS Wireless will be
reorganized on the terms described in the Agreement, without waiver of any terms
or conditions by the Company which individually or in the aggregate would be
material, and that obtaining the necessary regulatory approvals for such
reorganization will not have an adverse effect on the Company, CS Wireless or
the projected benefits of such reorganization to the Company.
Lazard Freres & Co. LLC has acted as financial advisor to the Company in
connection with the reorganization of CS Wireless, although we were not involved
directly in the negotiation of such reorganization. We will receive a fee for
our services, a substantial portion of which is payable upon delivery of this
opinion. Lazard has in the past provided and is currently providing investment
banking and financial advisory services to the Company, for which we received
customary fees. In addition, a significant number of general members of Lazard
are limited partners of Jupiter Partners L.P., a significant securityholder of
the Company. Lazard also is a limited partner of the general partner of Jupiter
Partners L.P.
Based on and subject to the foregoing, we are of the opinion that the
consideration to be received by the Company in connection with the
reorganization of CS Wireless is fair to the Company from a financial point of
view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ PETER R. EZERSKY
Managing Director
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<PAGE> 300
[B]
APPENDIX B
INFORMATION CONCERNING AWS
<PAGE> 301
B
TABLE OF CONTENTS
<TABLE>
<S> <C>
Business of AWS....................................................................... B-1
AWS -- Selected Financial Information................................................. B-12
AWS -- Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... B-13
Dividends on and Market Value of AWS Common Stock..................................... B-20
Security Ownership of Certain Beneficial Owners and Management of AWS................. B-21
Comparison of Rights of Security Holders of Heartland and AWS......................... B-22
</TABLE>
B-i
<PAGE> 302
B
BUSINESS OF AWS
AWS was incorporated under Minnesota law in November 1988 to conduct an
unrelated business. In 1991, AWS discontinued this business. AWS remained
inactive until December 17, 1992, when AWS acquired various wireless cable
assets, including the interests in the wireless cable systems in Fort Worth and
Minneapolis described below, and certain wireless cable channel rights in Dallas
and Pittsburgh, from American Wireless Systems, Inc., a California corporation
("Wireless California"), which was the predecessor to AWS's wireless cable
business.
AWS maintains its principal executive offices at 7426 East Stetson Drive,
Suite 220, Scottsdale, Arizona 85251, and its telephone number is (602)
994-4301.
GENERAL
AWS currently owns a minority interest in and manages the operations of
wireless cable systems in Minneapolis and Fort Worth, and owns the rights to
certain wireless cable channels in Dallas, Los Angeles and Memphis. The
Minneapolis and Fort Worth markets combined have approximately 1,500,000
households, of which AWS estimates approximately 1,325,000 are serviceable by
LOS transmissions.
AWS owns a 25% beneficial interest in the Minneapolis LLC, which started
operations in March 1993. As of November 30, 1995 the Minneapolis system
provided 29 channels of service, including eight local television stations, to
approximately 2,740 subscribers. AWS owns an interest in and manages the
operations of the Minneapolis LLC pursuant to joint venture and management
agreements with the Minneapolis LLC and the Minneapolis Partnership, its joint
venture partner. In connection with these agreements, AWS has lent the
Minneapolis Partnership $2,000,000, which has been contributed to the
Minneapolis LLC to meet operating expenses and to fund the costs of subscriber
growth.
AWS owns a 20.01% beneficial interest in FTW Venture, which started
operations in November 1992. As of November 30, 1995 the FTW system provided 27
channels of service, including 13 local television stations, to approximately
1,550 subscribers. AWS also has acquired the rights to eight additional wireless
cable channels that AWS anticipates will be added to the Fort Worth system.
AWS directly owns the rights to 16 wireless cable channels in Dallas, nine
wireless cable channels in Los Angeles and 22 wireless cable channels in
Memphis. In Dallas, AWS is negotiating to acquire additional wireless cable
channel rights. AWS currently does not expect to acquire additional channel
capacity in Los Angeles. AWS believes single-family residential service could be
launched in Los Angeles with nine channels if digital compression technology
becomes available on economically favorable terms. Digital compression
technology permits the transmission of more than one channel in the bandwidth
currently used to transmit a single channel. On November 7, 1995, AWS entered
into a contract with TruVision Cable, Inc. ("TruVision") to sell all of AWS'
assets in Memphis for $3,900,000 in cash. AWS anticipates this transaction will
close before February 29, 1996. See Appendix B "Information Concerning
AWS -- Business of AWS -- Legal Proceedings."
In April 1994, AWS filed a Registration Statement on Form SB-2 in
connection with a proposed public offering of common stock. For a variety of
reasons, including AWS' difficulties in securing the necessary clearances to
offer and sell its securities from various government authorities and obtaining
approval to list its securities for trading on Nasdaq, as well as the fact that
AWS' independent public accountants could not, at that time, express an opinion
on AWS' December 31, 1994 financial statements as required by the registration
provisions of the Securities Act of 1933, AWS was unable to complete its
offering as contemplated. Accordingly, AWS was not successful in obtaining
sufficient funds required to develop, launch and expand the existing and
proposed wireless cable systems in which it holds an interest. In addition, due
to its lack of revenues and inability to obtain financing, AWS did not believe
it had the ability to secure the necessary funds for continued development of
these systems. Accordingly, AWS pursued a number of options, including the sale
of one or more of its assets, merger with a third party or the sale of AWS as a
whole.
B-1
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MARKETS
AWS and the joint ventures in which it owns an interest currently own,
lease or are negotiating to acquire wireless cable channel rights in
Minneapolis, Fort Worth, Dallas, Los Angeles, and Memphis. AWS selected these
markets based on the size of the market, availability of wireless cable channels
on acceptable terms, demographics of subscribers in the market, the quality and
scope of existing traditional cable services, and the suitability of the market,
based on topography and foliage, to wireless cable signal transmission.
The following table sets forth certain information as of November 30, 1995
concerning each of AWS' markets. Information regarding potentially serviceable
households is subject to assumptions and estimates which AWS believes to be
reasonable. There can be no assurance that the actual numbers will not differ
materially from those set forth below.
<TABLE>
<CAPTION>
EXISTING SYSTEMS PROPOSED SYSTEMS
------------------------------ -------------------------------
MINNEAPOLIS(1) FORT WORTH(1) DALLAS LOS ANGELES MEMPHIS TOTAL
-------------- ------------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
MSA Ranking(2)................ 14 35 12 1 50
Estimated Number of TV
Households(3)............... 958,900 539,700 981,500 3,029,500 376,900 5,886,500
Potentially Serviceable
Households(4)............... 882,200 442,500 872,400 2,726,500 350,600 5,274,200
Number of Wireless Cable
Subscribers................. 2,740 1,550 -- -- -- 4,290
Wireless Cable Channels
Licensed or Leased by
Company..................... 21(5) 22(6) 16 9 22
Estimated Number of Cable
Subscribers................. 450,700 264,400 480,900 1,787,400 218,600 3,202,000
Estimated Number of Households
Passed by Cable............. 939,800 528,900 961,900 2,968,900 369,400 5,768,900
</TABLE>
- ---------------
(1) The existing systems in Minneapolis and Fort Worth are owned by joint
ventures in which AWS owns a minority interest of 25% and 20.01%,
respectively. Information shown is for each system as a whole and has not
been adjusted to reflect AWS' minority interest in such system.
(2) Metropolitan Statistical Area ranking in terms of population using 1990
census data.
(3) Estimates are derived from 1990 census data on households within the
projected service area (signal pattern).
(4) Represents AWS' estimate of households that are potentially serviceable by
AWS' existing or proposed systems, after adjustment for the anticipated
coverage loss due to obstruction of wireless cable signals by terrain
obstructions, but does not reflect adjustments due to the use of beambenders
(which would increase the number of potentially serviceable households) or
dense foliage (which would decrease the number of potentially serviceable
households).
(5) Does not include four channels for which an application is currently pending
before the FCC.
(6) Includes 8 channels which must be co-located at AWS' headend transmission
facility before programming may be effected on these channels.
Each of AWS's markets has up to 33 channels available for wireless cable
transmission. AWS believes that it needs sufficient channel capacity to offer a
minimum of 14 channels of commercial cable programming to successfully market
its wireless cable services to single-family residential consumers and to
compete with traditional hard-wire cable operators, although this number may
vary in a particular market. The ability of wireless cable systems to
accommodate local or "over-the-air" television programming, including ABC, CBS,
NBC, Fox and PBS, increases the number of channels available to the subscriber.
Subject to securing additional financing, management of AWS intends to pursue
upgrading each of its systems to 50 watts.
MINNEAPOLIS
The Minneapolis LLC is owned by a joint venture between AWS, which owns a
25% equity interest, and the Minneapolis Partnership, which owns a 75% equity
interest. The system commenced operations in March 1993 and, as of November 30,
1995, had approximately 2,740 subscribers.
B-2
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B
Channels and Programming. The Minneapolis system currently offers
subscribers 21 wireless cable channels and eight local television stations for a
total of 29 channels of programming. The Minneapolis LLC also has acquired the
rights to four additional wireless cable channels for which an application is on
file at the FCC and which must be approved before these channels can be added to
the Minneapolis System. The programming offered to subscribers by the
Minneapolis LLC is set forth below.
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING CHANNEL PROGRAMMING
- -------- ----------------------------------- -------- ------------------------
<C> <S> <C> <S>
2 KTCA (PBS) 17 KTCI (PBS)
3 CNN 18 MTV
4 WCCO (CBS) 19 USA NETWORK
5 KSTP (ABC) 20 THE DISCOVERY CHANNEL
6 ESPN 21 THE NASHVILLE NETWORK
7 TBS (Atlanta) 22 ARTS & ENTERTAINMENT
8 WGN (Chicago) 23 KLGT (Independent)
9 KMSP (Independent) 24 NICKELODEON
10 MIDWEST SPORTS CHANNEL 25 THE FAMILY CHANNEL
11 KARE (NBC) 26 LIFETIME TELEVISION
12 THE WEATHER CHANNEL 27 TURNER NETWORK TELEVISION
13 SHOWTIME* 28 MIND EXTENSION UNIVERSITY
14 THE DISNEY CHANNEL* 29 KITN (Fox)
15 THE MOVIE CHANNEL* 30 PAY-PER-VIEW
16 HBO*
<CAPTION>
</TABLE>
- ---------------
* Premium channels
Demographics. The Minneapolis-St. Paul Metropolitan Statistical Area
("MSA") is the 14th largest in the country in terms of population with a
population of 2,464,124. The Minneapolis-St. Paul Designated Market Area ("DMA")
is the 14th largest television market in the country. The Minneapolis LLC
transmits signals to subscribers in the Minneapolis-St. Paul market at 10 watts.
If upgraded to 50 watts, the Minneapolis LLC's signal pattern will encompass an
estimated 958,900 television households, approximately 8% of which are shadowed
by LOS terrain obstructions. Accordingly, AWS estimates that 882,200 television
households in the market are serviceable by LOS transmissions. This estimate of
potentially serviceable television households does not include households that
could be added through the use of beambenders or exclude households that cannot
be served due to signal blockage created by foliage or some other limitation
(e.g., rooftop antenna restrictions).
Terrain and Foliage. Minneapolis has relatively flat terrain. The
transmission facility for the Minneapolis LLC is located on top of the tallest
building in Minneapolis. Management of AWS believes that this location provides
an acceptable LOS angle to serve the market. AWS considers the foliage in the
Minneapolis market to be moderate.
Competition. AWS estimates that within its signal pattern there are
approximately 939,800 households passed by traditional cable (98% of television
households) with approximately 450,700 cable subscribers (48% of households
passed). The primary competitors are Paragon Cable, Continental Cablevision and
King Cable, which have approximately 23%, 19% and 11%, respectively, of the
cable subscribers in the Minneapolis market. Paragon Cable offers a basic
service of 52 channels with addressable converter and remote control plus
Showtime, The Movie Channel and The Disney Channel for $42.23 per month.
Continental Cablevision offers a 50 channel basic service package plus Showtime,
The Movie Channel and The Disney Channel for $53.04 per month. King Cable offers
a 46 channel basic service package plus Showtime, The Movie Channel and The
Disney Channel for $53.04 per month. The Minneapolis system offers a basic
service package of 25 channels with addressable converter and remote control
plus Showtime, The Movie Channel and The Disney Channel for $28.90 per month.
System Management. AWS and the Minneapolis Partnership have formalized
their joint venture arrangement by forming the Minneapolis LLC as a limited
liability company pursuant to the terms of a
B-3
<PAGE> 305
limited liability company agreement. The agreement provides for additional
capital contributions or loans to be made by either member subject to certain
conditions. Losses are to be allocated in accordance with contributed capital
and profits are to be allocated (i) in accordance with contributed capital to
the extent of previously allocated losses and then (ii) 25% to AWS and 75% to
the Minneapolis Partnership. The agreement also provides that AWS will manage
the system in accordance with the terms of a management agreement. The
management agreement provides that the Minneapolis LLC will pay AWS an annual
management fee equal to the greater of $100,000 or 5% of gross revenue received
by the system. AWS lent the Minneapolis Partnership $2,000,000, which has been
contributed to the Minneapolis LLC to pay operating expenses of the system and
to fund the cost of installing additional subscribers in Minneapolis. The
Minneapolis LLC has also entered into a loan agreement with Heartland pursuant
to which the Minneapolis LLC will borrow up to $1,575,000. Of this amount,
$575,000 was used to repay a short term loan in October 1995. The remaining
$1,000,000 available under the loan agreement will be disbursed in non-revolving
draws of up to $250,000 and used to add subscribers to and fund certain
operating expenses of the Minneapolis LLC. The full amount of the loan, together
with interest accrued on the outstanding principal amount, is due and payable on
February 28, 1997 unless the loan matures earlier in accordance with its terms.
FORT WORTH
The Fort Worth system is owned by the FTW Venture, a joint venture between
AWS, which owns a 20.01% equity interest, and the FTW Partnership, which owns a
79.99% equity interest. The Fort Worth system commenced operations in November
1992 and as of November 30, 1995 had approximately 1,550 subscribers.
Channels and Programming. The Fort Worth system currently offers
subscribers 14 wireless cable channels and 13 local television stations, for a
total of 27 channels of programming. AWS also has acquired the rights to eight
additional wireless cable channels which must be co-located at the head-end
transmission facility before these channels can be added to the Fort Worth
system. The programming offered to subscribers by the Fort Worth system is set
forth below.
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING CHANNEL PROGRAMMING
- ------- -------------------- ------- ------------------------------------
<C> <S> <C> <C>
2 KDTN (PBS) 15 USA
3 CNN 16 THE DISCOVERY CHANNEL
4 KDFW (CBS) 17 HBO*
5 KXAS (NBC) 18 THE WEATHER CHANNEL
6 SHOWTIME* 19 NICKELODEON
7 THE DISNEY CHANNEL* 20 CMTV
8 WFAA (ABC) 21 KXTA (Independent)
9 KDFA (Fox) 22 WTBS (Atlanta)
10 ESPN 23 WOR (New York)
11 KTVT (Independent) 24 KDFI (Independent)
12 TNN 25 KXTX (Independent)
13 KERA (PBS) 26 KHSX (Home Shopping Network)
14 WGN (Chicago) 27 KFWD (Telemundo)
28 KDTX (Trinity Broadcasting Network)
</TABLE>
- ---------------
* Premium channels
Demographics. The Fort Worth-Arlington MSA is the 35th largest in the
country in terms of population with a population of 1,332,053. The Fort
Worth-Arlington MSA constitutes part of the larger Fort Worth-Dallas DMA, which
is the eighth largest television market in the country. The Fort Worth system
transmits signals to subscribers in the Fort Worth-Arlington market at 10 watts.
If upgraded to 50 watts, the Fort Worth system's signal pattern will encompass
an estimated 539,700 television households, approximately 18% of which are
shadowed by LOS terrain obstructions. Accordingly, AWS estimates that 442,500
television households in the market are serviceable by LOS transmissions. This
estimate of potentially serviceable television households does not include
households that could be added through the use of beambenders or
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B
exclude households that cannot be served due to signal blockage created by
foliage or some other limitation (e.g., rooftop antenna restrictions).
Terrain and Foliage. Fort Worth is a relatively flat area with moderate
foliage. The transmission tower for the Fort Worth system is located on one of
the tallest buildings in Fort Worth, which allows clear transmission to the
farthest edges of the projected service area. The location of this tower in
relation to other large buildings in Fort Worth minimizes coverage loss in this
market. Accordingly, AWS believes that Fort Worth is an excellent market for the
transmission of wireless cable.
Competition. AWS estimates that within its signal pattern there are
approximately 528,900 households passed by traditional cable (98% of television
households) with approximately 264,400 cable subscribers (50% of households
passed). Marcus Cable, the dominant traditional cable operator with
approximately 35% of the cable subscribers in the Fort Worth market, offers a
basic service of 57 channels plus Showtime and The Disney Channel for $46.26 per
month. The Fort Worth system offers a basic service of 24 channels plus Showtime
and The Disney Channel for $24.45 per month.
System Development. Currently, neither the FTW Partnership nor the FTW
Venture has sufficient funds to install additional subscribers. In addition, AWS
and the FTW Venture have not entered into formal joint venture and management
agreements. AWS is currently advancing an average of $30,000 per month to the
joint venture to cover operating expenses of the Fort Worth system. As of
December 31, 1995, AWS has advanced over $400,000.
DALLAS
Channels. AWS currently holds the licenses or leases the rights to 16
wireless cable channels in Dallas. These channels have not been co-located. With
13 local television stations available, AWS anticipates that the system could
provide at least 29 channels of programming.
Demographics. The Dallas MSA is the 12th largest in the country in terms of
population with a population of 2,553,362. The Dallas MSA constitutes part of
the larger Fort Worth-Dallas DMA, which is the eighth largest television market
in the country. The channels are currently authorized to transmit at 10 watts.
If increased to 50 watts, the signal pattern would encompass an estimated
981,500 television households, about 12% of which are shadowed by LOS terrain
obstructions. Accordingly, AWS estimates that 872,400 television households in
the market are serviceable by LOS transmissions. This estimate of potentially
serviceable television households does not include households that could be
added through the use of beambenders or exclude households that could not be
served due to signal blockage created by foliage or some other limitation (e.g.,
rooftop antenna restrictions).
Terrain and Foliage. Dallas is a relatively flat area with moderate
foliage. Accordingly, Dallas is an ideal market for the transmission of wireless
cable.
Competition. AWS believes that the primary cable operators in Dallas are
TCI, Telecable and Paragon, which have approximately 32%, 9% and 6%,
respectively, of the cable subscribers in the Dallas market. AWS estimates that
within its signal pattern there are approximately 961,900 households passed by
traditional cable (98% of television households) with approximately 480,900
cable subscribers (50% of households passed).
LOS ANGELES
Channels. AWS currently holds the rights to utilize the excess capacity
provided by eight educational wireless cable channels in Los Angeles and one
additional commercial wireless cable channel. There is substantial competition
in Los Angeles among cable companies attempting to acquire a sufficient number
of wireless cable channels to develop a wireless cable system. AWS currently
does not have sufficient channel capacity to commence operations marketed to
residential subscribers. AWS believes that a single-family residential service
could be launched in Los Angeles with nine channels if digital compression
technology becomes available on economically favorable terms. With 17 local
television stations available, AWS anticipates that the Los Angeles system could
provide at least 26 channels of programming.
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Demographics. The Los Angeles-Long Beach MSA is the largest in the country
in terms of population with a population of 8,863,164. The Los Angeles DMA is
the second largest television market in the country. AWS estimates that a system
using a transmitter output power of 50 watts will encompass an estimated
3,029,500 television households, about 10% of which are shadowed by LOS terrain
obstructions. Accordingly, AWS estimates that 2,726,500 television households in
the market are serviceable by LOS transmissions. This estimate of potentially
serviceable television households does not include households that could be
added through the use of beambenders or exclude households that could not be
served due to signal blockage created by foliage or some other limitation (e.g.,
rooftop antenna restrictions).
Terrain and Foliage. The Los Angeles metropolitan area is a slightly hilly
coastal plain with limited foliage. The anticipated transmission sight in the
San Gabriel mountains east of Los Angeles is over 6,000 feet above sea level and
provides excellent LOS transmission to the Los Angeles metropolitan area.
Accordingly, AWS believes that Los Angeles is an excellent market for
transmission of wireless cable.
Competition. The primary cable operators in Los Angeles include Continental
Cablevision, Century Southwest Cable Television, Crown Media and TCI, which have
approximately 11%, 9%, 6% and 5%, respectively, of the cable subscribers in the
Los Angeles market. AWS estimates that within its signal pattern there are
approximately 2,968,900 households passed by traditional cable (98% of
television households) with approximately 1,787,400 traditional cable
subscribers (60% of households passed).
MEMPHIS
Channels and Programming. AWS currently leases the rights to 22 wireless
cable channels in Memphis. On November 7, 1995, AWS entered into a contract with
TruVision to sell all of its assets in Memphis to TruVision for $3,900,000 in
cash. AWS anticipates this transaction will close by February 29, 1996. The
purchase price will be reduced by $250,000 for each channel that cannot be
transferred to TruVision up to a maximum reduction of $500,000. See Appendix B:
"Information Concerning AWS -- Business of AWS -- Legal Proceedings."
Demographics. The Memphis MSA is the 50th largest in the country in terms
of population with a population of 981,747. The Memphis DMA is the 42nd largest
television market in the country. With transmitter output power of 50 watts,
AWS' signal pattern will encompass an estimated 376,900 television households,
about 7% of which are shadowed by LOS terrain obstructions. Accordingly, AWS
estimates that 350,600 television households in the market are serviceable by
LOS transmissions. This estimate of potentially serviceable television
households does not include households that could be added through the use of
beambenders nor exclude households that could not be served due to signal
blockage created by foliage or some other limitation (e.g., rooftop antenna
restrictions).
Terrain and Foliage. Memphis is characterized by fairly flat terrain,
although there are numerous areas of dense foliage which may block AWS' signal,
which AWS expects will significantly reduce the number of households that can
receive AWS' wireless cable transmissions.
Competition. AWS estimates that within its signal pattern there are
approximately 369,400 households passed by traditional cable (98% of television
households) with approximately 218,600 cable subscribers (59% of households
passed). The primary competitor is Time Warner, which has approximately 71% of
the cable subscribers in the Memphis market.
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[B]
PRICING
The following table sets forth a comparison of AWS' monthly charge for its
most popular service package, including basic service plus the indicated premium
channels, addressable converter and remote control, to the traditional hard-wire
cable subscriber's monthly charge for a comparable package of service in the
same market.
<TABLE>
<CAPTION>
TRADITIONAL CABLE PERCENTAGE
MARKET OPERATOR(1) AWS DIFFERENCE
-------------------------------------------------- ----------------- ------- ----------
<S> <C> <C> <C>
Fort Worth(2)..................................... $ 46.26 $24.45 47%
Minneapolis(3).................................... $ 42.23 $28.90 32%
</TABLE>
- ---------------
(1) Monthly charge shown is that of the dominant traditional cable operator in
the specified market.
(2) Service package consists of basic service plus Showtime and The Disney
Channel.
(3) Service package consists of basic service plus Showtime, The Movie Channel
and The Disney Channel.
In Fort Worth, the dominant hard-wire cable system offers a 57-channel
basic service that includes 19 satellite-delivered cable channels and 12 local
television stations. By comparison, AWS delivers a 24-channel basic service that
includes 11 satellite-delivered cable channels and 13 local television stations.
Of the 11 satellite-delivered basic cable networks carried by AWS, seven are in
the top 11 rated cable networks as rated by Neilsen. Two of the remaining four
channels, The Nashville Network and Country Music Television, are popular in the
Fort Worth metropolitan area.
In Minneapolis, the dominant hard-wire cable operator offers a 52-channel
basic service that includes 32 satellite-delivered cable channels and eight
local television stations. By comparison, AWS delivers a 24-channel basic
service that includes 16 satellite-delivered channels and eight local television
stations. Of these 16 satellite-delivered basic cable networks carried by AWS,
12 are in the top 15 rated cable networks as rated by Neilsen. One of the
remaining four channels, Midwest Sports Channel, is a popular regional sports
network.
AWS typically uses third-party contractors to install subscribers to its
systems and charges an installation fee of approximately $50 per installed
subscriber. This fee can be raised or lowered periodically to influence the
volume of new subscribers. In addition, AWS offers remote controls and
additional outlets at rates comparable to those charged by local traditional
cable operators.
On average, the installation of each additional wireless cable subscriber
requires an incremental capital expenditure of approximately $530, assuming 50%
of wireless cable subscribers request two outlets in the household. This amount
consists of $420 of material costs (including one converter per outlet) and $110
of installation labor costs. AWS does not incur these capital expenditures until
the time of the subscription. Generally, AWS can recover and reuse the material
component of the capital cost (approximately $345) if a subscriber disconnects
service. Although the incremental cost of installation for an additional
traditional cable subscriber is less than the incremental cost of installation
for an additional wireless cable subscriber, traditional hard-wire cable systems
typically cost significantly more to build or purchase than wireless cable
systems, resulting in debt burdens per subscriber generally higher than the debt
burden per subscriber of wireless cable operators such as AWS. Moreover, the
costs of maintaining wireless cable systems are lower than those of traditional
hard-wire cable systems.
MARKETING AND CUSTOMER SERVICE
AWS primarily offers two basic tiers of residential service. The basic
package includes all channels other than premium channels. The second tier of
service includes the basic package plus two or three premium channels and a
remote control. A significant majority of AWS' subscribers have selected the
second tier of service which consists of basic service plus Showtime and The
Disney Channel (and in Minneapolis, The Movie Channel). AWS typically offers
these premium channels in its family package in order to qualify for a
discounted rate offered by the premium programming provider to systems which
meet certain penetration
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levels relative to the number of subscribers to that system. "Penetration level"
means the number of subscribers who purchase premium programming compared to the
total number of subscribers to that system. Because traditional hard-wire cable
operators typically are unable to meet these specified penetration levels, AWS
has a competitive cost advantage compared to such traditional cable operators
regarding the provision of The Disney Channel, Showtime and The Movie Channel.
AWS markets its residential service directly to potential subscribers,
combining door-to-door delivery of promotional materials with telemarketing and
personal solicitation. Because wireless cable technology requires LOS
transmission, AWS initially conducts a survey to identify a specific area within
a market that is well suited to the reception of wireless cable signals. To
conduct this survey, AWS uses a site data vehicle equipped with a telescopic
boom and global positioning satellite system that permits AWS to gather data
regarding signal reception for each household passed by the site data vehicle.
This data is entered into a central computer system for subsequent use by
marketing, dispatch and inventory personnel.
Once a specific area has been targeted, AWS typically delivers a package of
promotional materials to each household within the target market area. The
marketing package used generally includes a brochure and video describing
wireless cable and its advantages. Shortly thereafter a telemarketer contacts
each household within the target market area and attempts to sell service to the
prospective subscriber or schedule an appointment with an AWS salesperson. The
sales personnel emphasize comparable picture quality and better service at a
lower price than traditional hard-wire cable systems can provide.
In addition to price and comparable programming, AWS competes on a quality
of service basis. Within its signal range, the picture quality of AWS' service
is comparable to or better than that received by traditional hard-wire cable
subscribers because there is less opportunity for signal degradation between
AWS' headend facility and the subscriber. Wireless cable service also has proven
very reliable, primarily due to the absence of distribution system components
that can fail and thereby cause system-wide outages. AWS is positioning itself
as a reliable, cost-effective alternative to traditional hard-wire cable systems
by delivering a high quality signal throughout its signal area and more
personalized service to its subscribers than traditional cable operators.
PROPERTIES
AWS leases its executive office space in Scottsdale. The term of the lease
is through February 1998. AWS believes that the leased space is adequate for its
current and reasonably anticipated needs. The Minneapolis LLC leases
approximately 12,700 square feet of office and warehouse space in Minneapolis
pursuant to a lease which expires in December 1998. The FTW Venture leases
approximately 15,000 square feet of office and warehouse space in Fort Worth
pursuant to a lease that expires in April 1996. In addition to office space, AWS
leases space on the top of buildings or transmission towers located in the
markets where it operates wireless cable systems. AWS locates its wireless cable
transmitters on these buildings or towers. Currently, AWS believes that office
space and space on buildings or transmission towers currently is readily
available on acceptable terms in the markets where AWS operates or owns wireless
cable channel rights.
LEGAL PROCEEDINGS
Prior to the sale of certain assets by Wireless California to AWS,
approximately $29,000,000 was raised in connection with the offering of general
partnership interests in the Minneapolis Partnership, the FTW Partnership and
the Pittsburgh Partnership, each of which was formed for the purpose of
acquiring an interest in the rights to develop and operate a wireless cable
television system in Minneapolis, Fort Worth, and Pittsburgh, respectively.
Through an affiliate, Wireless California participated in the offer and sale of
the general partnership interests without registration under any federal or
state securities laws based on the belief that the general partnership interests
did not constitute securities under federal and applicable state laws. Certain
current and former officers and directors of AWS were formerly officers and
directors of Wireless California.
Following an investigation by the Commission involving the activities of
Wireless California in connection with the offer and sale of the general
partnership interests as described above, AWS and certain of its current and
former officers, without admitting or denying any wrongdoing, agreed to consent
to an order of
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B
the Commission to cease and desist from committing or causing any violation and
any future violations of the securities registration provisions of the
Securities Act and the broker-dealer registration provisions of the Exchange
Act.
Securities administrators in 22 states also have conducted or are presently
conducting investigations of the activities related to the unregistered sale of
the general partnership interests described above. The actions taken by the
various state securities administrators range from no action taken to the
issuance of 15 cease and desist orders and consent orders pursuant to which
Wireless California, the issuing general partnerships, and certain officers of
Wireless California were required to cease selling general partnership interests
without registration, to offer rescission to individuals who purchased general
partnership interests and, in certain cases, to pay administrative penalties. In
addition, AWS Liquidating, L.L.C., the entity into which Wireless California was
liquidated ("AWS L.L.C."), has entered into a consent order with the State of
Illinois pursuant to which AWS L.L.C. agreed to cease and desist from selling
general partnership interests without registration, to pay an administrative
penalty, and to cause a rescission offer to be made to Illinois residents. AWS
L.L.C. did not comply with the order and the State of Illinois filed a complaint
on August 14, 1995. Following an investigation by the State of Arizona, AWS
L.L.C. and current and former officers of AWS consented to an order of the
Arizona Corporation Commission to cease and desist from selling securities
unless the sale is registered or exempt from registration and to the imposition
of an administrative penalty against AWS L.L.C. AWS also consented to a separate
order that requires AWS to make an offer of rescission to all general partners
who are Arizona residents or who were offered and sold their interests from
Arizona. To the knowledge of AWS, there are no other active federal or state
regulatory proceedings or investigations.
AWS is currently attempting to amend the Arizona order to provide for
alternatives to rescission, although there can be no assurance that AWS will be
successful in this regard. The Arizona order currently provides that if the
rescission offers are not made, AWS will be required to pay to the Arizona
Corporation Commission an amount equal to the amount of the investment made by
all general partners who are Arizona residents, or approximately $566,000, plus
interest from the time of investment. There can be no assurance that AWS will be
able to satisfy the Arizona rescission order.
Since October 31, 1992, Wireless California, the general partnerships and
the current and former officers of AWS have ceased all activities involving the
offer and sale of general partnership interests, although one of the general
partnerships continued to raise funds through capital calls to existing general
partners after such date. In addition to the rescission offers described above,
Wireless California and the general partnership issuers voluntarily elected to
offer to purchase the general partnership interests of certain general partners
in exchange for cash in an amount equal to the funds contributed by such general
partners. As of the date of this Proxy Statement/Prospectus, approximately 1,170
of the approximately 1,930 purchasers of general partnership interests had been
offered rescission or a return of their investment by Wireless California or the
general partnership issuers and approximately 80 had accepted the offer, all of
which have been paid. None of such offers, however, were necessarily conducted
in accordance with the statutory requirements of the various states. To the
extent such requirements were not met, potential securities liability arising
from the offer and sale of the general partnership interests will not be
statutorily eliminated until the statutes of limitation with respect to such
claims have expired or an offer is made in accordance with the statutory
rescission requirements of any state.
In September 1995, AWS and the Pittsburgh general partnership sold all of
their wireless cable assets in the Pittsburgh market to a publicly held wireless
cable company. As consideration for the sale of its assets in the Pittsburgh
market, the Pittsburgh general partnership received approximately $11,250,000 in
cash and short term notes, which amount exceeded the aggregate amount that would
have been required if all Pittsburgh general partners were offered and accepted
rescission. Additionally, holders of approximately 72% of the Pittsburgh general
partnership interests executed and delivered releases relieving AWS, Wireless
California and certain related parties from any claims including claims arising
from the offer and sale of the general partnership interests.
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There can be no assurance that current general partners or any governmental
agency will not institute proceedings for rescission against Wireless California
or AWS as the successor to Wireless California based on a failure to register
the general partnership interests in connection with a public offering or for
damages based on alleged omissions or misrepresentations of material information
in connection with the sale of such interests. In connection with the
acquisition of certain assets of Wireless California, AWS expressly disclaimed
any liabilities of Wireless California arising out of the offer and sale of the
general partnership interests described above. There is a possibility, however,
that a successful claim against Wireless California could be asserted against
AWS based on a number of theories involving successor liability. The institution
of legal action against AWS arising out of the offer and sale of general
partnership interests by Wireless California could result in substantial defense
costs to AWS and the diversion of efforts by AWS' management, and the imposition
of liabilities against AWS could have a material adverse effect on AWS. Based on
its experience to date, however, taking into account the status of
investigations by various state securities administrators, the absence of any
asserted claim for rescission having been instituted by any of the general
partners against any of the general partnerships, Wireless California or AWS,
AWS' assessment of the current value of the general partnership interests, the
relatively small number of general partners who have accepted previous offers by
Wireless California or its shareholders to purchase general partnership
interests, the existence of a number of possible defenses to any claims asserted
against it, the existence and terms of the FTW Agreement and the Minneapolis
Agreement, and other factors, AWS does not believe the ultimate resolution of
this matter will have a material adverse impact on its financial condition.
AWS is currently named as a defendant in two separate lawsuits. On May 16,
1995, William R. Jenkins, the former Chief Executive Officer of AWS, filed a
lawsuit in Arizona state court alleging breach of his employment contract and
requesting as damages all amounts due under the employment contract, treble
damages under the Arizona statute, attorney's fees and costs. On June 2, 1995,
AWS filed a Petition to Compel Arbitration and an Answer including
counterclaims. As a result, the dispute was referred to an arbitration hearing
and the lawsuit was dismissed. AWS estimates that the amount due under Mr.
Jenkins' employment contract, if he were successful, would be approximately
$167,000, which amount could be trebled under the Arizona statute.
On June 21, 1995, TruVision, with whom AWS had entered into a letter of
intent relating to the sale of AWS' Memphis assets for $2,200,000, filed a
lawsuit, as amended on June 29, 1995, in the Circuit Court of Rankin County,
Mississippi alleging that AWS breached the letter of intent, that the parties
entered into a binding agreement which AWS breached, and that AWS committed
fraud and negligent misrepresentation. AWS disputes these claims based on the
position that it lawfully terminated the letter of intent. The Amended Complaint
requests damages in the amount of $28,196,642 and punitive damages in the amount
of $20,000,000, together with interest and all costs of court. On November 7,
1995, AWS entered into an agreement with TruVision pursuant to which AWS has
agreed to sell, with Heartland's consent, the Memphis assets to TruVision for
$3,900,000. The agreement provides for the settlement and release of all claims
by and among AWS, TruVision and Heartland relating to the Memphis assets,
subject to consummation of the AWS Merger Agreement. Further, each agreement
provides that, prior to closing, each party agrees that the lawsuit filed by
TruVision 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 Heartland shall have
the right to raise all defenses and counterclaims associated therewith.
AWS believes it has adequate grounds to successfully defend both lawsuits.
AWS does not expect that a judgment against AWS, if any, would have a material
adverse effect on its financial condition or results of operations.
AWS is also the subject of two threatened lawsuits. American Telecasting,
Inc. ("ATI") has sent letters to AWS claiming that 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.
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[B]
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.
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AWS
SELECTED FINANCIAL INFORMATION
The selected statement of operations and balance sheet data presented below
as of December 31, 1993 and 1994 and for the ten months ended December 31, 1992
and the years ended December 31, 1993 and 1994 were derived from the financial
statements of AWS, which were audited by Arthur Andersen LLP, independent
certified public accountants, and which are included elsewhere in this Proxy
Statement/Prospectus. The selected statement of operations and balance sheet
data presented below as of February 29, 1992 and for the period from April 17,
1991 (inception) to February 29, 1992 were derived from the financial statements
of AWS, which were audited by Arthur Andersen LLP, but which are not included in
this Proxy Statement/Prospectus. The selected statement of operations and
balance sheet data presented below as of September 30, 1995 and for the nine
months ended September 30, 1994 and 1995 were derived from the unaudited
financial statements of AWS, which are included elsewhere in this Proxy
Statement/Prospectus and which, in the opinion of management of AWS, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such unaudited interim periods. The
statement of operations data for interim periods are not necessarily indicative
of results for subsequent periods or for the full year. This selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
(including the notes thereto) of AWS contained elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 17, 1991 TEN MONTHS NINE MONTHS ENDED
(INCEPTION) TO ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
FEBRUARY 29, DECEMBER 31, -------------------------- --------------------------
1992(1) 1992(1) 1993 1994 1994 1995
-------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues........................... $ -- $ -- $ -- $ 83,333 $ 58,333 $ 75,000
------------ ----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............... -- -- -- -- -- --
Selling, general and
administrative................. 2,819,810 3,324,205 2,316,001 3,521,413 2,157,143 1,533,152
Depreciation and amortization.... 4,785 34,321 442,933 637,049 613,717 66,079
------------ ----------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,824,595 3,358,526 2,758,934 4,158,462 2,770,860 1,599,231
------------ ----------- ----------- ----------- ----------- -----------
Operating loss..................... (2,824,595) (3,358,526) (2,758,934) (4,075,129) (2,712,527) (1,524,231)
Interest income (expense), net..... 16,969 -- (775,525) (976,867) (978,695) (126,119)
Equity in losses of joint
venture.......................... -- (85,210) (184,906) (200,436) (157,794) (136,298)
Other income (expense)............. 1,100,000 -- 69,205 (474,348) (528,080) 802,078
------------ ----------- ----------- ----------- ----------- -----------
Net loss..................... $ (1,707,626) $(3,443,736) $(3,650,160) $(5,726,780) $(4,377,096) $ (984,570)
============ =========== =========== =========== =========== ===========
Net loss per common share............ -- $ (1.33) $ (1.16) $ (1.26) $ (1.06) $ (.17)
============ =========== =========== =========== =========== ===========
Weighted average shares
outstanding........................ -- 2,595,689 3,159,397 4,540,362 4,135,431 5,709,187
============ =========== =========== =========== =========== ===========
Other Financial Data:
EBITDA(2).......................... $ (2,819,810) $(3,324,205) $(2,316,001) $(3,438,080) $(2,098,810) $(1,458,152)
Capital expenditures(3)............ $ 2,237,170 $ 910,355 $ 832,326 $ 4,107,603 $ 3,788,011 $ 702,125
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY
29, DECEMBER 31,
----------- -------------------------------------- SEPTEMBER 30,
1992 1992 1993 1994 1995
----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 66,615 $ 579,844 $3,244,275 $ 376,621 $ 1,182,653
Total assets.......................................... 4,471,753 2,808,651 9,301,293 6,949,900 7,554,298
Long-term debt, including current portion............. 44,445 -- 7,707,000 -- 1,899,442
Total stockholders' equity (deficit).................. (1,703,640) 2,648,075 903,575 5,767,859 4,783,289
</TABLE>
- ---------------
(1) On December 17, 1992, AWS acquired the wireless cable operations of Wireless
California. For accounting purposes, this transaction was treated as an
issuance of stock for cash by Wireless California (a reverse acquisition).
All income and expense items are comparable with the exception of other
income (expense) for the period from April 17, 1991 to February 29, 1992
which is an income tax benefit item.
(2) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(3) Capital expenditures for the period from April 17, 1991 (inception) to
February 29, 1992 were comprised of $71,185 for purchase of systems and
equipment and $2,165,985 of expenditures for investment in wireless systems;
for the year ended December 31, 1992 were comprised of $160,960 for
purchases of systems and equipment and $749,395 for expenditures for
investment in wireless systems; For the year ended December 31, 1993 were
comprised of $77,055 for purchases of systems and equipment, $755,271 for
expenditures for investment in wireless systems; for the year ended December
31, 1994 were comprised of $287,291 for purchases of systems and equipment,
$3,820,312 for expenditures for investment in wireless systems; for the nine
months ended September 30, 1994 were comprised of $241,677 for purchase of
systems and equipment and $3,546,334 of expenditures for investment in
wireless systems; and for the nine months ended September 30, 1995 were
comprised of $40,035 for purchase of systems and equipment and $662,090 of
expenditures for investment in wireless systems.
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B
AWS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
American Wireless Systems, Inc. ("AWS") currently owns a minority interest
in and manages the operations of wireless cable systems in Minneapolis,
Minnesota and Fort Worth, Texas and owns the rights to certain wireless cable
television rights in Los Angeles, California, Dallas, Texas and Memphis,
Tennessee. Launched in March 1993 and November 1992, respectively, the
Minneapolis and Fort Worth systems served approximately 2,740 and 1,550
subscribers, respectively, as of November 30, 1995.
The wireless cable business is a capital intensive business. Initially,
significant capital is required to acquire the rights to wireless cable
channels, construct the headend facility, co-locate the channels and fund
negative cash flow until the system is able to install a sufficient number of
subscribers to fund its operating expenses. After operations have been launched,
AWS estimates that the incremental cost per subscriber is approximately $530
(assuming one-half of the subscribers order additional outlets which require
additional equipment and labor). AWS does not expect either of the Minneapolis
or Fort Worth systems to provide cash flow unless significant additional capital
can be obtained.
The Minneapolis and Fort Worth systems are operational. However, the
Minneapolis and Fort Worth systems are currently installing a minimal number of
subscribers each month. AWS' proposed wireless cable systems in Los Angeles,
Dallas and Memphis are currently in the development stage. None of the systems
has sufficient subscribers, or the financing necessary to add sufficient
subscribers, to generate positive cash flow from operations.
AWS will require additional financing in the first quarter of 1996 to fund
its operating expenses; however, AWS anticipates that the proposed AWS Merger
will be consummated prior to the close of the first quarter of 1996, thereby
eliminating AWS' need to fund future operating and development expenses. Under
the terms of the AWS Merger Agreement with Heartland, AWS stockholders will
receive approximately $34,000,000 in Heartland Common Stock, subject to
adjustments in certain events. If the AWS Merger is not consummated, AWS will
continue to pursue other financing options including the sale of some or all of
its assets or a merger with a third party.
In Minneapolis, AWS owns a 25% membership interest in the Minneapolis LLC,
which owns and operates the Minneapolis system. The limited liability company
agreement governing the Minneapolis LLC requires AWS' joint venture partner,
Minneapolis Partnership, to contribute all financing required by the Minneapolis
system. Pursuant to a management agreement, AWS currently serves as the manager
of the Minneapolis LLC. In April, 1994 AWS lent Minneapolis Partnership
$2,000,000, which has been contributed to Minneapolis LLC to fund the operation
of the system. In May 1995, the Minneapolis LLC obtained a loan of $550,000 from
Tsunami Capital Corp. ("Tsunami"). In October 1995, the Minneapolis LLC obtained
a loan commitment for $1,575,000 from Heartland, of which $575,000 was used to
repay the Tsunami loan, including interest, and $1,000,000 ($484,000 of which
has been advanced as of December 31, 1995) of which is available to add
subscribers and pay for certain corporate overhead. The Minneapolis LLC will
require additional funding beyond the $1,000,000 during the first quarter of
1996 to continue installing subscribers. If the AWS Merger is not consummated,
AWS will assist its joint venture partner in its efforts to obtain additional
funding for Minneapolis LLC.
AWS owns a 20.01% equity interest in the entity that owns and operates the
Fort Worth system (the "FTW Venture") and currently serves as the manager of the
FTW Venture pursuant to an informal management agreement, but to date has not
been compensated for its efforts. In addition, the joint venture agreement
between AWS and FTW Partnership, AWS' joint venture partner in the FTW Venture,
is informal. Over the past two and one-half years, AWS and FTW Partnership have
been negotiating the terms of a definitive joint venture arrangement and a
management agreement to formalize the relationship; however, to date, no
agreement has been reached. AWS is currently advancing approximately $30,000 per
month to the FTW Venture to fund negative cash flow. As of December 31, 1995,
AWS has advanced approximately $400,000 to the FTW Venture. If the AWS Merger is
not consummated, AWS will continue to negotiate with
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FTW Partnership with respect to formal joint venture and management agreements
and additional funding for the system.
In Dallas, AWS currently owns or leases the rights to 16 wireless cable
channels. From September 1994 to December 1994, AWS prepared for the launch of a
wireless cable system in Dallas which would offer a business-oriented
programming package to subscribers. AWS anticipated that funding for the launch
would be available from the proceeds of AWS' proposed public offering in 1994.
Because the proposed offering was not successful, a launch has been delayed
indefinitely.
In Los Angeles, AWS currently owns or leases the rights to nine wireless
cable channels. AWS intended to launch a wireless cable system in Los Angeles
which would offer a business oriented programming package to business
subscribers. Until additional financing is obtained, AWS does not plan to launch
a wireless cable system in Los Angeles.
In order to expand the Dallas and Los Angeles systems to include
residential subscribers, AWS believes additional channel capacity must be
acquired, either through the acquisition of additional channel rights or the use
of digital compression. AWS has encountered and expects to continue to encounter
substantial competition in acquiring additional channel capacity in Dallas and
Los Angeles.
In Memphis, AWS owns or leases the rights to 22 wireless cable channels. On
November 7, 1995 AWS entered into a contract to sell its assets in the Memphis
market to TruVision for $3,900,000 in cash. AWS anticipates that this
transaction will close before February 29, 1996. AWS is currently involved in
litigation with TruVision. According to the AWS Merger Agreement, at the closing
of such agreement, all litigation between AWS and TruVision will be withdrawn
and all claims will be waived.
On September 29, 1995, AWS sold its assets in the Pittsburgh market for
$1,250,000 in cash.
RESULTS OF OPERATIONS
Years Ended December 31, 1994 and December 31, 1993. As described above,
AWS has interests in, but does not have any wholly owned operating wireless
cable systems, and therefore had no operating revenue in either 1994 or 1993.
AWS received management fees from the Minneapolis system of $83,333 in 1994
only.
For the years ended December 31, 1994 and December 31, 1993, AWS had net
losses of $5,726,780 and $3,650,160, respectively. General and administrative
expenses increased by approximately $1,400,000 for the year ended December 31,
1994 as compared to the year ended December 31, 1993. The primary components of
general and administrative expenses include compensation, professional services,
including legal and accounting services, rental expense, depreciation and travel
and entertainment. Compensation expense increased approximately $418,000 for the
year ended December 31, 1994 as compared to the year ended December 31, 1993.
This increase was due primarily to authorization of a severance package for AWS'
former President and Chairman of the Board pursuant to which AWS recognized
approximately $566,000 in compensation expense. This was offset by the lack of
employee bonuses in 1994, which were approximately $105,000 in 1993. Outside
services expense increased approximately $635,000 for the year ended December
31, 1994 as compared to the year ended December 31, 1993, primarily due to the
expenses associated with AWS' proposed public offering. See "-- Liquidity and
Capital Resources." Other general and administrative expenses increased
approximately $346,000 for the year ended December 31, 1994 as compared to the
year ended December 31, 1993, primarily due to expenses associated with
maintaining the assets in the Dallas and Pittsburgh markets.
During 1994 and 1993, AWS raised an aggregate of approximately $13,664,000
through three private placements of Common Stock and convertible subordinated
notes (the "Notes"). Interest expense, including amortization of debt issuance
costs, on the Notes totalled $976,867 for the year ended December 31, 1994 and
$775,525 for the year ended December 31, 1993. The increase was due to
approximately two additional months of interest accrued in 1994 as compared to
1993.
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[B]
Other income decreased approximately $544,000 from $69,205 for the year
ended December 31, 1993 to other expense of $474,348 for the year ended December
31, 1994 primarily due to recognition of $425,000 of other expense associated
with repricing certain warrants.
Minneapolis LLC began adding subscribers in March 1993 and continued adding
subscribers to the system until August 1993, when the Minneapolis LLC's cash
resources were nearly depleted. In April 1994, AWS lent its joint venture
partner $2,000,000, which has been contributed to the Minneapolis LLC to fund
operating expenses and subscriber growth. This loan bears interest at a per
annum rate of 8% and is due in full on February 28, 1996. In the event this loan
is not repaid when due, AWS will receive an additional equity interest in the
Minneapolis LLC of approximately 10%. The system had approximately $520,000 in
revenue during 1994 and approximately $272,000 in revenue during 1993. The
increase in revenue was due to the addition of approximately 1900 subscribers in
1994. Operating expenses in 1994 were approximately $1,591,000 and approximately
$1,149,000 in 1993. The increase was due to the addition of approximately 900
more subscribers in 1994 as compared to 1993. Depreciation expense increased to
approximately $977,000 in 1994 from approximately $739,000 in 1993. The increase
was due to the addition of subscriber, headend and office equipment. The
Minneapolis LLC's net loss was approximately $2,048,000 in 1994 and
approximately $1,616,000 in 1993. The change was due to the re-launch of the
system in April 1994 and the addition of 900 more subscribers in 1994 as
compared to 1993. AWS' share of those losses was approximately $138,000 in 1994
and $127,000 in 1993. AWS' allocated losses are based on contributed capital
rather than its beneficial interest. Accordingly, AWS' allocated share of the
losses on a percentage basis is less than its beneficial interest.
The FTW Venture began adding subscribers in November 1992 and subscribers
continued to be added to the system until April 1993, when the FTW Venture's
cash resources were nearly depleted. The system had revenue of approximately
$667,000 during 1994 and approximately $792,000 during 1993. The decrease in
revenue was due to the loss of approximately 500 subscribers from its subscriber
base due to disconnections. Operating expenses were approximately $1,008,000 in
1994 and approximately $1,056,000 in 1993. The decrease was due to the lack of
installation activity throughout 1994. Depreciation expense increased to
approximately $787,000 in 1994 from approximately $754,000 in 1993. The increase
was due to the addition of subscriber equipment to complete a minimal number of
installations in order to offset the decline in the subscriber base due to
disconnections. The FTW Venture's net loss was approximately $1,128,000 in 1994
and approximately $1,018,000 in 1993. The net loss is comparable, which reflects
the effect of increased revenues and operating costs when the system was
actively installing subscribers in early 1993. AWS' share of these operating
losses was approximately $62,000 in 1994 and $58,000 in 1993. AWS' recorded
losses are based on the anticipated terms of the joint venture agreement, which
AWS currently is negotiating.
Year Ended December 31, 1993 and Ten Months Ended December 31, 1992. General
and administrative expenses declined by approximately $600,000 for the year
ended December 31, 1993 as compared to the ten-month period ended December 31,
1992. The primary components of general and administrative expenses include
compensation, professional services including legal and accounting services,
rental expense, depreciation and travel and entertainment. Compensation expense
declined $285,000 for the year ended December 31, 1993 as compared with the
ten-month period ended December 31, 1992, reflecting decreases in executive
compensation partially offset by an increase in the number of employees. Other
general and administrative expenses, including outside services, declined
$315,000 as the result of the imposition by management of tighter controls over
expenditures.
The losses from operations of the joint ventures increased from $85,210 in
1992 to $184,906 in 1993. The increase was due primarily to the beginning of
operations in Minneapolis and a full year of operations in Fort Worth.
The Minneapolis LLC began adding subscribers in March 1993 and continued
adding subscribers to the system until August 1993, when the Minneapolis LLC's
cash resources were nearly depleted. The Minneapolis LLC had approximately
$10,000 in revenue during 1992 and approximately $272,000 in revenue during
1993. The increase in revenue was due to the launch of the Minneapolis system
and the addition of approximately
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950 subscribers in 1993. Operating expenses were approximately $89,000 in 1992
and approximately $1,149,000 in 1993. The increase was also due to the launch of
the system in 1993. Depreciation expense increased from approximately $6,000 in
1992 to approximately $739,000 in 1993 due to the addition of subscriber,
headend and office equipment. The Minneapolis LLC's net loss was approximately
$71,000 in 1992 and approximately $1,616,000 in 1993. The change was also due to
the launch of the system in 1993. AWS' share of these losses was $9,000 in 1992
and $127,000 in 1993. AWS' allocated losses are based on contributed capital
rather than its beneficial interest. Accordingly, AWS' allocated share of losses
on a percentage basis is less than its beneficial interest.
The FTW Venture began adding subscribers in November 1992. Subscribers
continued to be added to the system until April 1993, when the joint venture's
cash resources were nearly depleted. The FTW Venture had revenue of
approximately $144,000 in 1992 and $792,000 in 1993. The increase in revenue was
due to the addition of approximately 1,630 subscribers in 1993 compared to 550
subscribers in 1992 and a full 12 months of operations in 1993. Operating
expenses in 1992 were approximately $638,000 and approximately $1,109,000 in
1993. The increase was due to a full 12 months of operations in 1993.
Depreciation expense increased from $250,000 in 1992 to $754,000 in 1993 due to
the addition of subscriber, headend and office equipment. The joint venture's
net loss was $744,000 in 1992 and $1,071,000 in 1993. The change was due to a
full 12 months of operations in 1993. AWS' share of these operating losses was
$76,000 in 1992 and $58,000 in 1993. AWS' recorded losses are based on the
anticipated terms of the joint venture agreement, which AWS currently is
negotiating.
Interest expense, including amortization of debt issuance costs, on the
Notes totalled $775,525 for 1993. There was no interest expense in 1992.
Nine Months Ended September 30, 1995 and September 30, 1994. As previously
noted, AWS has interests in, but does not have any wholly owned operating
wireless cable systems, and therefore had no operating revenue for the nine
months ended September 30, 1995 or September 30, 1994. AWS received management
fees from the Minneapolis system of $75,000 for the nine months ended September
30, 1995 and $58,333 for the nine months ended September 30, 1994 only.
For the nine months ended September 30, 1995 and September 30, 1994, AWS
had net losses of $984,570 and $4,377,096, respectively. General and
administrative expenses decreased by approximately $1,172,000 for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. A decrease in compensation of approximately $924,000 for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994 comprises the majority of the decrease in total general and
administrative expenses. Compensation decreased due to recognition of
approximately 566,000 in September 1994 of compensation expense related to
authorization of a severance package to a former officer as well as the
reduction in the number of employees including one executive officer and
approximately ten staff personnel in January and February 1995. The remaining
decrease in general and administrative expenses was the result of relocating the
corporate office to a more economical facility in February 1995. Interest
expense decreased approximately $853,000 because $7,707,000 of the Notes were
converted in September 1994 and, therefore, no interest was incurred on the
Notes for the nine months ended September 30, 1995. Other income for the nine
months ended September 30, 1995 is primarily comprised of approximately a
$787,000 gain from the sale of the Company's interest in the Pittsburgh market.
Other expense for the nine months ended September 30, 1994 is primarily
comprised of $425,000 in expense related to repricing certain of the Company's
outstanding warrants.
The $2,000,000 lent to the Minneapolis Partnership was subsequently
contributed to the Minneapolis LLC in April 1994. The Minneapolis LLC obtained a
loan of $550,000 in May 1995 from Tsunami, to fund the installation of
subscribers and operating overhead. This loan bore interest at a per annum rate
of 12% and was due in full on the earlier of December 31, 1995 or the date that
certain merger discussions between Tsunami and the Minneapolis LLC were halted.
In connection with the proposed Heartland transaction, Minneapolis LLC received
a loan of up to $1,575,000 in October 1995, of which $575,000 was used to repay
Tsunami.
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[B]
The Minneapolis LLC had approximately $739,000 in revenue for the nine
months ended September 30, 1995 as compared to approximately $317,000 in revenue
for the nine months ended September 30, 1994. The increase of approximately
$422,000 was due to the addition of approximately 1,260 subscribers. Operating
expenses were approximately $1,446,000 for the nine months ended September 30,
1995 and $1,089,000 for the nine months ended September 30, 1994. The increase
of approximately $357,000 is due to the addition of approximately 960 more
subscribers for the nine months ended September 30, 1995 as compared to the nine
months ended September 30, 1994. Depreciation expense increased to approximately
$799,000 for the nine months ended September 30, 1995 as compared to
approximately $719,000 for the nine months ended September 30, 1994. The
increase was due to the addition of subscriber, headend and office equipment.
The Minneapolis LLC's net loss was approximately $1,506,000 for the nine months
ended September 30, 1995 as compared to $1,490,000 for the nine months ended
September 30, 1994. The change was due to increased operating expenses from the
addition of approximately 960 more subscribers over the nine months ended
September 30, 1995 as compared to the nine months ended September 30, 1994. AWS'
share of these losses was approximately $91,000 for the nine months ended
September 30, 1995 and $104,000 for the nine months ended September 30, 1994.
The FTW Venture did not have funding available to actively install
subscribers. Therefore, the FTW Venture's primary focus was to maintain the
subscriber base for both nine month periods ended September 30, 1994 and
September 30, 1995. The FTW Venture had revenue of approximately $452,000 for
the nine months ended September 30, 1995 and approximately $505,000 for the nine
months ended September 30, 1994. The decrease was due to the loss of subscribers
due to disconnections between the two periods. Operating expenses were
approximately $668,000 for the nine months ended September 30, 1995 and
approximately $768,000 for the nine months ended September 30, 1994. The
decrease of approximately $100,000 is due to reductions in operating and
overhead expenses. Depreciation expense was approximately $581,000 for the nine
months ended September 30, 1995 and approximately $609,000 for the nine months
ended September 30, 1994. The decrease of approximately $28,000 was due to the
write off of subscriber equipment. The FTW Venture's net loss was approximately
$798,000 for the nine months ended September 30, 1995 and approximately $869,000
for the nine months ended September 30, 1994. The net loss is similar because
operating activities during the two periods were comparable. AWS' share of these
losses was approximately $45,000 for the nine months ended September 30, 1995
and $54,000 for the nine months ended September 30, 1994.
INCOME TAXES
AWS follows the provisions of Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." In connection with the reverse
acquisition of Wireless California on December 17, 1992, the basis in the assets
acquired and liabilities assumed by AWS were substantially the same for book and
tax purposes; therefore, no significant deferred tax assets or liabilities
existed. During the year ended December 31, 1993, AWS was able to utilize a
portion of its losses generated to recapture previous taxes paid by Wireless
California. Such recapture has been treated as a capital contribution to AWS by
Wireless California.
At December 31, 1994, AWS had no significant deferred tax assets or
liabilities. AWS has available net operating loss carry forwards of
approximately $6,482,000 that begin expiring in 2009. The net operating loss
carry forward for the nine months ended September 30, 1995 is approximately
$7,328,000. No benefit from these net operating loss carryforwards has been
realized in AWS' financial statements.
LIQUIDITY AND CAPITAL RESOURCES
All of AWS' wireless cable systems are either in the development stage or
early operating stage. AWS' efforts to date have been directed primarily toward
the acquisition of channel rights and launch of systems. As a result of
difficulties encountered in raising significant capital arising from the
problems associated with the prior offer and sale of general partnership
interests, AWS has been unable to obtain the financing required to sufficiently
develop its markets to be able to generate significant revenues. Accordingly,
AWS has incurred losses since inception, and expects to incur additional losses.
For the years ended December 31, 1993 and December 31, 1994, AWS had net losses
from operations of $2,758,934 and $4,075,129, respectively, and net
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losses of $3,650,160 and $5,726,780, respectively. Since none of AWS' existing
or proposed systems have advanced beyond the early operating or development
stage, AWS anticipates that it will be dependent upon external financing and
continue to incur losses. Due to AWS' financing constraints, AWS was unable to
produce audited financial statements for the fiscal year ended December 31, 1994
until October 19, 1995.
The AWS Convertible Notes were due on July 15, 1994 and originally were
convertible into AWS common stock at $8.40 per share. In addition, the
noteholders of the Notes received contingent warrants to acquire up to 346,666
shares of AWS common stock at $12 per share. Through May 11, 1994, holders of
$1,491,000 in principal amount of the Notes had converted their Notes into AWS
common stock. The remaining $7,245,000 in Notes were called for prepayment by
AWS in May 1994. Due to an unanticipated decline in AWS' share price, among
other factors, holders of $4,232,000 in principal amount of the Notes elected to
accept repayment rather than convert their Notes into shares of AWS' common
stock. Because AWS did not anticipate the relatively high level of repayment,
AWS did not have adequate funds available to pay all of the noteholders who
elected repayment. As a result, the conversion price of the Notes was adjusted
from $8.40 per share to $3.75 per share in accordance with their terms.
Following the redemption date, AWS agreed to permit all of the noteholders,
including the noteholders that had elected repayment, to elect repayment or to
convert their Notes into shares of AWS' common stock at the adjusted conversion
price of $3.75 per share. Holders of all but $703,500 in principal amount of the
Notes agreed to convert their Notes into shares of AWS' common stock at $3.75
per share. The placement agent for the Notes arranged for the holders of the
remaining $703,500 in principal amount of the Notes to sell their Notes to
certain accredited investors who agreed to convert such Notes into shares of AWS
common stock at $3.75 per share by September 30, 1994. As a consequence, none of
the Notes remain outstanding and 2,047,920 additional shares of AWS common stock
were issued at an effective purchase price of $3.75 per share.
As consideration for services rendered in connection with conversion of the
Notes, AWS agreed to adjust the exercise price of existing warrants to acquire
169,333 shares of AWS common stock held by certain affiliates of the placement
agent of the Notes. As a result, AWS recognized expense of approximately
$425,000 in the third quarter of 1994.
Since January 1995, AWS has pursued various financing options which
culminated in signing the AWS Merger Agreement with Heartland on September 11,
1995. The AWS Merger Agreement calls for AWS stockholders to exchange their
stock in AWS for Heartland Common Stock. The conversion price per share of
Heartland Common Stock will be the average of the closing prices of Heartland
Common Stock during the 10 trading days ending on the fifth business day before
the closing of the AWS Merger. If Heartland's trading price is below $20 per
share, the exchange price will be $20 per share; if the trading price is above
$26 per share, the exchange price will be $26 per share.
In February and April 1995, AWS obtained loans totalling $1,000,000 from an
AWS stockholder. These loans bore interest at a per annum rate of 15%, were
secured by various assets of AWS and were repaid in full in September 1995.
On May 25, 1995, AWS and Heartland entered into a non-binding letter of
intent providing for the potential acquisition of AWS by Heartland. Pursuant to
this letter of intent, Heartland paid $200,000 to AWS for an exclusive "no shop"
agreement pursuant to which AWS agreed, subject to certain conditions, to
refrain from seeking transactions with third parties during the period from May
26, 1995 through June 26, 1995. The termination of AWS' no shop obligation was
subsequently extended until June 30, 1995. The $200,000 was deposited into an
escrow account by Heartland and released to AWS on June 23, 1995 pursuant to the
letter of intent. In addition, Heartland loaned to AWS $1,800,000 on May 26,
1995, which loan bears interest at a prime rate plus two percent and is secured
by a first lien security interest in and to the wireless cable channel rights of
AWS in the Dallas, Texas wireless cable market (the "AWS Loan"). The AWS Loan is
secured by AWS' interest in all of its assets related to the Dallas, Texas
market pursuant to the asset security agreement between AWS and Heartland. The
AWS Loan bears interest at the lesser of the maximum rate of interest allowed by
applicable law or two percent over the prime rate with interest payable every
three months beginning October 1, 1995. The AWS Loan is due on or before January
31, 1997. The AWS Merger Agreement provides that specified amounts ("Exclusivity
Fees") are to be periodically offset against the
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B
AWS Loan as additional consideration for the non-solicitation covenant in the
AWS Merger Agreement. If AWS terminates or fails to consummate the AWS Merger as
a result of certain specified events, payment of the AWS Loan may be accelerated
and previously offset Exclusivity Fees may be added back to the AWS Loan. If
Heartland terminates or fails to consummate the AWS Merger after all conditions
to its obligations have been satisfied or waived, then the balance of the AWS
Loan may be forfeited as liquidated damages. "The AWS Merger -- Terms of the AWS
Merger Agreement -- AWS Loan."
On September 29, 1995, AWS sold its assets in the Pittsburgh market for
$1,250,000 in cash.
On June 21, 1995, TruVision, with whom AWS has entered into a letter of
intent relating to the sale of AWS' Memphis assets, filed a lawsuit, as amended
on June 29, 1995, in the state of Mississippi alleging that AWS breached the
letter of intent, that the parties entered into a binding agreement which AWS
breached, and that AWS committed fraud and negligent misrepresentation. AWS
disputes these claims based on the proposition that it lawfully terminated the
letter of intent. The Amended Complaint requests damages in the amount of
$28,196,642 and punitive damages in the amount of $20,000,000, together with
interest and all costs of court. On November 7, 1995, AWS entered into an
agreement pursuant to which AWS has agreed to sell, with Heartland's consent,
the Memphis assets to TruVision for $3,900,000. The agreement provides for the
settlement and release of all claims by and among AWS, TruVision and Heartland
relating to the Memphis assets, subject to consummation of the AWS Merger
Agreement. Further, each agreement provides that, prior to closing, each party
agrees that the lawsuit filed by TruVision 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 will have the right to pursue the lawsuit,
and AWS and Heartland will have the right to raise all defenses and
counterclaims associated therewith.
The FTW Venture does not have sufficient funds to continue development of
the Fort Worth system. The FTW Partnership also does not have funds to
contribute to the FTW Venture and has expressed its belief that AWS is obligated
to provide additional funds to develop the system to a positive cash flow
position. AWS does not believe it has such an obligation. In order to protect
AWS' interest in the assets of the FTW Venture, AWS has advanced over $400,000
to the FTW Venture through December 31, 1995. The funds were used to fund
negative cash flow of the system and maintain the current subscriber base. If
the AWS Merger is not consummated, AWS will continue to negotiate the terms of
additional funding to continue development of the system in conjunction with
definitive joint venture and management agreements.
Given AWS' inability to acquire sufficient financing to launch and add a
significant number of subscribers to its wireless cable systems, AWS does not
believe that any of its systems will generate sufficient cash flow to meet
operating expenses in the near future. If additional financing is not obtained
to continue development of its systems or if the AWS Merger or alternative
financing is not obtained as outlined above, AWS' assets and current operating
activities could be materially and adversely affected.
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DIVIDENDS ON AND MARKET VALUE OF AWS COMMON STOCK
AWS Common Stock has been traded since 1989 in the over-the-counter market
and currently is quoted on the OTC Bulletin Board. The following table sets
forth, for the periods indicated, the high and low bid quotations per share for
the Common Stock as adjusted to reflect (i) the recapitalization of the Common
Stock effected on April 27, 1993, pursuant to which each 2.5 outstanding shares
of Common Stock were converted into one share of Common Stock and (ii) a
one-for-three reverse stock split of the Common Stock effected on October 18,
1994, pursuant to which each three outstanding shares of Common Stock were
converted into one share of Common Stock. There can be no assurance that the
adjusted prices would accurately reflect the actual prices of the Common Stock
had the recapitalization occurred prior to the periods indicated. These
quotations reflect inter-dealer prices, without adjustments for retail mark-ups,
mark-downs or commissions, and do not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Calendar Year 1993:
1st Quarter.............................................. $15.00 $11.25
2nd Quarter.............................................. 13.89 4.68
3rd Quarter.............................................. 28.50 9.00
4th Quarter.............................................. 36.00 20.25
Calendar Year 1994:
1st Quarter.............................................. 24.75 18.00
2nd Quarter.............................................. 24.00 10.50
3rd Quarter.............................................. 13.50 7.89
4th Quarter.............................................. 8.63 3.75
Calendar Year 1995:
1st Quarter.............................................. 5.50 2.88
2nd Quarter.............................................. 4.75 4.00
3rd Quarter.............................................. 4.81 3.00
4th Quarter.............................................. 4.63 3.00
Calendar Year 1996:
1st Quarter (through January 22, 1996)................... 4.69 4.50
</TABLE>
AWS has not paid dividends on its Common Stock and does not anticipate that
it will do so in the future. AWS currently does not intend to declare or pay any
cash dividends, but intends to retain any future earnings for reinvestment in
its business. Payments of dividends in the future will depend upon AWS's growth,
profitability, financial condition and other factors which the Board of
Directors may deem relevant.
On September 11, 1995, the last trading day prior to the public
announcement of the AWS Merger, the last sale bid price of AWS Common Stock was
$4.375 per share, as reported on the OTC Bulletin Board. On January 22, 1996,
the last sale bid price of AWS Common Stock as reported on the OTC Bulletin
Board was $4.625. On January 17, 1996, there were approximately 358 holders of
record of AWS Common Stock.
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B
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AWS
The following table sets forth as of December 31, 1995 certain information
regarding the outstanding shares of AWS Common Stock beneficially owned by each
person who is known by AWS to own beneficially or exercise voting or dispositive
control over more than 5% of AWS Common Stock, by each of AWS' directors, by
each of the named executive officers and by all directors and officers as a
group. Unless otherwise indicated below, to the knowledge of AWS, all persons
listed below have sole voting and investment power with respect to their shares
of AWS Common Stock, except to the extent that authority is shared by spouses
under applicable law.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED(1) CLASS(1)
-------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Steven G. Johnson(2).................................... 439,696 7.70%
Robert A. Mayer(2)...................................... 48,656 *
John R. Hardesty(2)..................................... 38,743 *
James N. Orth(2)........................................ 16,666 *
Daniel A. Cartwright(2)................................. 12,500(3) *
Todd J. Parriott(2)..................................... 12,500(3) *
All directors and executive officers as a group (six
persons).............................................. 568,761 9.81%
Jeffrey D. Howes(4)..................................... 500,606 8.77%
Dexter S. Cohen(5)...................................... 438,606 7.68%
Kevin C. King(5)........................................ 438,606 7.68%
</TABLE>
- ---------------
* Less than one percent
(1) Includes shares of AWS Common Stock issuable to the identified person
pursuant to convertible securities that may be exercised or converted
within 60 days after December 31, 1995. In calculating the percentage of
ownership, shares issuable to the identified person upon exercise of stock
options or contingent warrants are deemed to be outstanding for the purpose
of computing the percentage of shares of AWS Common Stock owned by such
person but are not deemed to be outstanding for the purpose of computing
the percentage of shares of AWS Common Stock owned by any other
stockholders.
(2) Each of such persons may be reached through the Company at 7426 East Stetson
Drive, Suite 220, Scottsdale, Arizona 85251.
(3) Includes options to acquire 12,500 shares of AWS Common Stock granted under
the Company's 1993 Stock Option Plan.
(4) Mr. Howes may be reached at 11300 West Olympic Boulevard, Suite 700, Los
Angeles, California 90064.
(5) Each of such individuals may be reached at CK Capital Corporation, 180
Newport Center Drive, Suite 180, Newport Beach, California 92660.
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COMPARISON OF RIGHTS OF SECURITY HOLDERS OF HEARTLAND AND AWS
The rights of the stockholders of AWS are governed by the Delaware General
Corporation Law (the "DGCL") and the Certificate of Incorporation and Bylaws of
AWS. Upon the consummation of the AWS Merger Agreement, the former AWS
stockholders will become stockholders ("Minority Holders") of Heartland, a
Delaware corporation. As stockholders of Heartland, such Minority Holders'
rights will differ in certain respects from those rights presently held since
their rights will be governed by the Heartland Certificate of Incorporation (the
"Heartland Certificate") and Bylaws (the "Heartland Bylaws") rather than the
Certificate of Incorporation and Bylaws of AWS.
Certain differences and similarities between the rights of AWS'
stockholders and those of Heartland's stockholders are set forth below. This
summary is not intended to be relied upon as an exhaustive list of differences
or a detailed description and analysis of the provisions discussed and is
qualified in its entirety by the DGCL, the Heartland Certificate, Heartland
Bylaws and the Certificate of Incorporation and Bylaws of AWS.
GENERALLY
The Certificate of Incorporation of AWS (the "AWS Certificate") authorizes
an aggregate of 40,000,000 shares of common stock, par value $.01 per share (the
"AWS Common Stock") and an aggregate of 5,000,000 shares of serial preferred
stock, par value $.01 per share (the "AWS Preferred Stock"). As of December 31,
1995, 5,709,187 shares of AWS Common Stock were issued by AWS and no shares of
AWS Preferred Stock were issued.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of common stock, par value $.001
per share ("Heartland Common Stock"), and 10,000,000 shares of preferred stock,
par value $.01 per share ("Heartland Preferred Stock"). As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Heartland Preferred Stock have been issued.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. (the
"NASD"). Even if the shares of any class or series of stock meet the
requirements of clause (i) or (ii) above, appraisal rights are available for
such class or series if the holders thereof receive in the merger or
consolidation anything except: (a) shares of stock of the corporation surviving
or resulting from such merger or consolidation; (b) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 stockholders or, only under the DGCL, designated as a national market
system security on an inter-dealer quotation system by the NASD; (c) cash in
lieu of fractional shares of the corporations described in clause (a) or (b) of
this sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c).
The stockholders of Heartland will not receive dissenters or appraisal
rights. The stockholders of AWS will receive dissenters and appraisal rights.
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[B]
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
Pursuant to the AWS Certificate, AWS has elected not to be governed by
Section 203 of the DGCL until such time, if ever, as both of the following
conditions exist: (i) Section 203 by its terms would, but for the provision in
the AWS Certificate, apply to AWS and (ii) no stockholder owns more than 25% of
the outstanding voting stock of AWS. Once AWS shall become governed by Section
203 pursuant to the preceding conditions, AWS shall be governed by Section 203
for as long as the terms shall apply, regardless of whether any one stockholder
shall thereafter hold more than 25% of the outstanding voting stock of AWS.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
The Heartland Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
Pursuant to the AWS Certificate, an amendment to the provisions in the AWS
Certificate regarding (i) removal of directors; (ii) alteration of the Bylaws by
stockholders; and (iii) special meetings of the stockholders requires, in
addition to the requirements imposed by law, the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the combined voting power of all
shares of stock entitled to vote. In addition, no provision imposing cumulative
voting in the election of directors may be added to the AWS Certificate unless
such action is approved by an affirmative vote of at least sixty-six and
two-thirds percent (66 2/3%) of the combined voting power of all shares of stock
entitled to vote.
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AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws is
vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests it in the board of directors. The Heartland
Certificate and the AWS Certificate (subject to the restriction described above)
each vest in their respective Boards of Directors the power to adopt, alter,
amend, or repeal Bylaws.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation.
Neither the Heartland Certificate nor the AWS Certificate provide for preemptive
rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide any additional requirements
regarding the distribution of dividends. The AWS Certificate does not provide
any additional requirements regarding the distribution of dividends.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. The Heartland Bylaws do not
alter the effective period of a proxy. The AWS Bylaws do not alter the effective
period of a proxy.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate does not provide additional requirements
regarding stockholder action by written consent.
Pursuant to the AWS Certificate, no action that is required or permitted to
be taken by the AWS stockholders at any annual or special meeting of the
stockholders may be effected by written consent in lieu of a meeting of the
stockholders unless the action to be effected by written consent of stockholders
and the taking of such action by such written consent have been expressly
approved in advance by the Board of Directors of AWS.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of the stockholders may be called
by the Board of Directors or by such person or persons as may be authorized by
the Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit
the Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of Heartland
Common Stock, to call a special meeting of stockholders for any purpose or
purposes.
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B
The AWS Certificate permits only the Board of Directors or a committee of
the Board of Directors (whose powers and authority includes the power to call
such meetings) to call a special meeting of the stockholders for any purpose or
purposes. No other such person or persons may call a special meeting of the
stockholders of AWS.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. Neither the
Heartland Certificate nor the AWS Certificate provide for cumulative voting for
the election of directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. The Heartland Certificate does not fix the number
of directors.
Pursuant to the AWS Certificate, the number of board members shall be not
fewer than three (3) but shall not be greater than fifteen (15), the exact
number to be determined by a resolution adopted by the Board of Directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Neither Heartland nor AWS have established a classified
Board of Directors.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by the written consent of the stockholders.
Pursuant to the AWS Certificate, any director may be removed from office
only by the affirmative vote of the holders of record of at least sixty-six and
two-thirds percent (66 2/3%) of the combined voting power of the outstanding
shares of all classes and series of AWS stock entitled to vote thereon, voting
together as a single class. Notwithstanding the foregoing, and as otherwise
provided by law, whenever the holders of AWS Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors, the
foregoing provision will not apply with respect to the director or directors
elected by holders of AWS Preferred Stock.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen,
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and until their successors have been duly elected and qualified. In addition,
if, at the time of the filing of any such vacancy or newly created directorship,
the directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
Neither the Heartland Certificate nor the Heartland Bylaws provide
additional requirements regarding vacancies on its Board of Directors. Neither
the AWS Certificate nor the AWS Bylaws provide additional requirements regarding
vacancies on its Board of Directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL. The AWS Certificate
provides that such persons shall be indemnified to the full extent authorized by
the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys's fees. The DGCL
states that any indemnification, unless ordered by a court, shall be made only
upon a determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland and AWS to advance reasonable expenses to a
director or officer after such person provides an undertaking to repay the
corporation if it is determined that the required standard of conduct has not
been met. This indemnification and advancement of expenses is not exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS.
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of
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[B]
certain provisions of the DGCL; (iv) any transaction from which the director
derived an improper personal benefit; or (v) any act or omission prior to the
adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate provides a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL. The AWS Certificate provides a provision eliminating the
personal liability for monetary damages of its directors to the fullest extent
permitted under the DGCL.
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[C]
APPENDIX C
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
<PAGE> 330
C
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 11, 1995
BETWEEN
AMERICAN WIRELESS SYSTEMS, INC.
(A DELAWARE CORPORATION)
AND
HEARTLAND MERGER SUB, INC.
(A DELAWARE CORPORATION)
<PAGE> 331
[C]
AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
is made and entered into as of the 11th day of September, 1995, by and among
AMERICAN WIRELESS SYSTEMS, INC., a Delaware corporation ("AWS"), HEARTLAND
MERGER SUB, INC., a Delaware corporation ("MergerSub") and HEARTLAND WIRELESS
COMMUNICATIONS, INC., a Delaware corporation ("Heartland").
WITNESSETH:
WHEREAS, the respective Boards of Directors of AWS, MergerSub and Heartland
have approved the merger of MergerSub with and into AWS pursuant and subject to
the terms and conditions of this Agreement, whereby each issued and outstanding
share of common stock, par value $.01 per share, of AWS ("AWS Common Share")
will be converted into the right to receive the Conversion Amount as hereinafter
defined; and
WHEREAS, AWS, Heartland and MergerSub (also known as Heartland MergerSub,
Inc.) have previously entered into an Agreement and Plan of Merger, dated as of
the date hereof ("Original Agreement"), and have agreed to amend and restate the
Original Agreement as provided herein; and
WHEREAS, AWS, MergerSub and Heartland desire to make certain
representations, warranties and agreements in connection with the Merger and
also to set forth the various conditions to the Merger; and
WHEREAS, the Board of Directors of AWS, MergerSub and Heartland have
adopted resolutions approving this Agreement; and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 12 hereof.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. THE MERGER
1.1 THE MERGER. At the Effective Time, MergerSub will merge with and into
AWS (the "Merger") in accordance with the terms and conditions of this
Agreement. AWS shall be the corporation surviving the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware. The Merger shall have the effects specified under the Delaware General
Corporation Law ("DGCL").
1.2 EFFECT OF THE MERGER. (A) EFFECTIVE TIME. At the Effective Time,
subject in all instances to each of the terms, conditions, provisions and
limitations contained in this Agreement, (i) MergerSub will merge with and into
AWS by the filing with the Secretary of the State of Delaware of a Certificate
of Merger; (ii) each AWS Common Share outstanding at the Effective Time, by said
occurrence and with no further action on the part of the holder thereof, shall
be transformed and converted into the right to receive, upon surrender of the
certificate for such AWS Common Share, the Conversion Amount, without interest
or any similar payment thereon or with respect thereto; (iii) each share of
common stock of MergerSub outstanding prior to the Merger will, by said
occurrence and with no further action on the part of the holder thereof, be
transformed and converted into one share of common stock of the Surviving
Corporation, so that thereafter Heartland will be the sole and exclusive owner
of equity securities of the Surviving Corporation; (iv) each warrant or AWS
Stock Option to acquire AWS Common Stock outstanding at the Effective Time and
not exercised or terminated, which are convertible by their respective terms
into the right to receive Heartland Common Shares upon the consummation of the
Merger, shall be so converted; and (v) the Surviving Corporation shall be the
owner of all of the business, assets, rights and other attributes thereto of, or
held by, either AWS or MergerSub.
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(B) CONVERSION AMOUNT. On the Closing Date, each outstanding AWS Common
Share shall be converted into the right to receive the number of Heartland
Common Shares (the "Conversion Amount") equal to the sum of (i) the Initial
Amount and (ii) upon the expiration of the Escrow Period and after any
adjustments in accordance with Article 11, the Contingent Amount. As used
herein, the "Initial Amount" shall mean the number of Heartland Common Shares
equal to the product of (i) the Initial Consideration divided by the Merger
Consideration, multiplied by (ii) the Conversion Ratio, and the "Contingent
Amount" shall mean the number of Heartland Common Shares equal to the product of
(i) the Contingent Consideration divided by the Merger Consideration, multiplied
by (ii) the Conversion Ratio, subject to adjustment as provided in Article 11,
as such amounts may be adjusted for the rounding of fractional shares as
provided in Section 2.1(i). As used herein, the "Conversion Ratio" means the
number of Heartland Common Shares to be exchanged for each AWS Common Share,
which number of Heartland Common Shares is equal to (i) the Merger Consideration
divided by (ii) the product of (A) the total number of Outstanding AWS Shares at
the Effective Time multiplied by (B) the Exchange Price.
(C) OUTSTANDING AWS SHARES. As used herein, the "Outstanding AWS Shares"
means (i) the total number of AWS Common Shares outstanding at the Effective
Time plus (ii) the aggregate number of AWS Common Shares, determined for each
AWS Stock Option or warrant to acquire AWS Common Shares outstanding at the
Effective Time, equal to the quotient of (A) the AWS Share Value minus the
exercise price of such option or warrant, divided by (B) the AWS Share Value. As
used herein, the "AWS Share Value" means the Merger Consideration divided by the
aggregate number of AWS Common Shares outstanding at the Effective Time.
(D) EXCHANGE PRICE. As used herein, "Exchange Price" means (i) if the
Closing Share Price is greater than or equal to the Minimum Collar Price and
less than or equal to the Maximum Collar Price, then the Closing Share Price,
(ii) if the Closing Share Price is less than the Minimum Collar Price, then the
Minimum Collar Price, or (iii) if the Closing Share Price is greater than the
Maximum Collar Price, then the Maximum Collar Price; subject to each party's
respective right to terminate this Agreement as set forth in Section 10.2 or
10.3, as applicable, for the failure of the applicable condition precedent to
the Merger set forth in Section 8.15 or 9.6, as applicable, if the Closing Share
Price is either greater than the Maximum Termination Price or less than the
Minimum Termination Price.
(E) CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
certificate of incorporation of the Surviving Corporation shall be the
certificate of incorporation of MergerSub immediately prior to the Effective
Time.
(F) BYLAWS OF THE SURVIVING CORPORATION. The bylaws of the Surviving
Corporation shall be the bylaws of MergerSub immediately prior to the Effective
Time.
(G) BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The board
of directors and officers of MergerSub immediately prior to the Effective Time
shall be the board of directors and the officers of the Surviving Corporation,
respectively, immediately upon the Effective Time, and such persons shall serve
in such positions for the respective terms provided by law or in the bylaws of
the Surviving Corporation and until their respective successors are elected and
qualified.
(H) HEARTLAND TO ESTABLISH ESCROW. Harris Trust Company of New York
("Harris") shall act as exchange agent hereunder (the "Exchange Agent"). In the
event Harris is unable or unwilling to act as the Exchange Agent, AWS and
Heartland shall, upon mutual agreement, seek to select a comparable party to act
as Exchange Agent. Heartland Common Shares shall be held by the Exchange Agent
pursuant to the terms of an Escrow Agreement (the "Escrow Agreement") in the
form attached hereto as Exhibit 1.2(h) hereto. Immediately prior to the
Effective Time, Heartland shall deposit, or cause to be deposited, with the
Exchange Agent, in trust for the holders of AWS Common Shares the aggregate
Conversion Amount issuable pursuant to Section 1.2(i) in exchange for
outstanding AWS Common Shares (the "Exchange Fund").
(I) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of AWS Common Shares a
letter of transmittal, which shall specify that delivery shall be effected, and
risk of loss and title to the certificates representing AWS Common Shares (the
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[C]
"Certificates") shall pass, only upon actual delivery of the Certificates to the
Exchange Agent and shall contain instructions for use in effecting the surrender
of the Certificates in exchange for the Conversion Amount. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall receive in
exchange therefor (subject to the rounding of any fractional shares as provided
in this Section 1.2(i)) the Initial Amount and shall be entitled to receive,
upon the expiration of the Escrow Period, the Contingent Amount (as adjusted in
accordance with Article 11) for the AWS Common Shares represented by such
Certificate, and the Certificate so surrendered shall forthwith be cancelled.
Until surrendered as contemplated by this Section 1.2(i), each Certificate
shall, at and after the Effective Time, be deemed to represent only the right to
receive, upon surrender of such Certificate, the Conversion Amount with respect
to each AWS Common Share represented thereby in accordance with the terms of
this Agreement, as follows:
(i) Upon the Closing Date, each holder of a Certificate shall receive
the Initial Amount (rounded up to the nearest whole Heartland Common Share)
for the AWS Common Shares represented by a Certificate; and
(ii) Upon the expiration of the Escrow Period and upon the
satisfaction of the conditions set forth in Article 11 (subject to the
adjustments provided for therein), each holder of a Certificate shall be
entitled to receive the Contingent Amount, minus any fractional shares not
distributed pursuant to Subsection (i) above ("Holdback Amount") for the
AWS Common Shares represented by a Certificate, subject to adjustment as
provided in Article 11.
(J) DIVIDENDS; TRANSFER TAXES. No dividends or other distributions that are
declared on or after the Effective Time on Heartland Common Shares or are
payable to the holders of record of Heartland Common Shares on or after the
Effective Time will be paid to persons entitled by reason of the Merger to
receive Heartland Common Shares until such persons surrender their Certificates,
as provided in this Article 1. Subject to the effect of applicable law, there
shall be paid to the record holder of Heartland Common Shares (i) at the time of
such surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions theretofore paid with respect to whole
Heartland Common Shares and having a record date on or after the Effective Time
and a payment date prior to such surrender and (ii) at the appropriate payment
date or as promptly as practicable thereafter, the amount of dividends or other
distributions payable with respect to Heartland Common Shares and having a
record date on or after the Effective Time but prior to surrender and a payment
date subsequent to surrender. In no event shall the person entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any dividends, cash in lieu of fractional
shares or Heartland Common Shares are 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 Exchange Agent any
transfer or other taxes required by reason of the issuance of Heartland Common
Shares in a name other than that of the registered holder of the Certificate
surrendered or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
(K) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
Heartland Common Shares shall be issued upon the surrender for exchange of
Certificates pursuant to this Article 1, and, except as provided in this Section
1.2(k), no dividend or other distribution, stock split or interest shall relate
to any such fractional security, and such fractional interests shall not entitle
the owner thereof to vote or to any rights of a security holder of Heartland. In
lieu of any fractional security, each holder of AWS Common Shares who would
otherwise have been entitled to a fraction of a Heartland Common Share upon
surrender of Certificates for exchange pursuant to this Article 1 will be paid
an amount in cash (without interest) equal to the value of the fractional share
based upon the Closing Share Price. No fractional interests shall be issued in
connection with the disbursement of the Initial Amount, as further provided in
Section 1.2(i). Upon the expiration of the Escrow Period, in connection with the
distribution of Heartland Common Shares remaining in the Exchange Fund,
Heartland shall repurchase any fractional shares from the Exchange Fund at the
Exchange Price, and
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the proceeds thereof shall be disbursed to the former holders of AWS Common
Shares as a part of the Contingent Amount, in accordance with the Escrow
Agreement.
(L) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Common Shares which remain
undistributed to the former holders of AWS Common Shares for three (3) months
after the expiration of the Escrow Period shall be delivered to Heartland, upon
demand of Heartland, and any former holders of AWS Common Shares who have not
theretofore complied with this Article 1 shall thereafter look only to the
Surviving Corporation and Heartland for payment of their claim for the
Conversion Amount into which such AWS Common Shares are convertible, any cash in
lieu of fractional Heartland Common Shares, and any dividends or distributions
with respect to Heartland Common Shares.
(M) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All Heartland Common
Shares issued, and all cash paid pursuant to this Section 1.2, upon the
surrender for exchange of Certificates in accordance with the terms hereof,
shall be deemed to have been issued or paid, as the case may be, in full
satisfaction of all rights pertaining to the AWS Common Shares.
(N) CLOSING OF AWS TRANSFER BOOKS. At the Effective Time, the stock
transfer books of AWS shall be closed and no transfer of AWS Common Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be cancelled and exchanged as provided in
this Article 1.
(O) FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of AWS, or (ii)
otherwise to carry out the purposes of this Agreement, the Surviving Corporation
and its proper officers and directors or their designees shall be authorized to
execute and deliver, in the name and on behalf of each such corporation, all
such deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of each of such corporations, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of such corporations and otherwise to carry out the purposes of this
Agreement.
(P) DISSENTERS' RIGHTS. To the extent that holders of AWS Common Shares
exercise dissenters' rights pursuant to applicable provisions of the DGCL, the
AWS Common Shares of such holders shall not be converted to a right to receive
the Conversion Amount, but Heartland Common Shares representing the Conversion
Amount attributable to such shares shall be held by Escrow Agent subject to the
provisions of such law. If any such holder fails to perfect or withdraws or
loses its dissenter's rights, such AWS Common Shares shall then be treated as if
they had been converted as of the Effective Time into a right to receive the
Conversion Amount (in accordance with Section 1.2(i)).
1.3 CLOSING. The Closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date (the "Closing Date") to be specified by the parties, which
shall be no later than the fifth (5th) business day after the satisfaction or
waiver of the conditions set forth in Articles 7, 8 and 9 hereof, unless another
date or place is agreed to in writing by the parties hereto, at the offices of
Arter, Hadden, Johnson & Bromberg, Dallas, Texas, or some other mutually
agreeable location in Dallas, Texas.
1.4 ESCROW NOTE. Upon the Closing of the Merger, the aggregate amount of
all Exclusivity Fees (as defined in Section 6.17) previously offset against the
Escrow Note (as defined in Section 6.17) shall be added back to the principal
amount outstanding under the Escrow Note and shall be repaid in accordance with
the terms thereof.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF AWS.
AWS hereby represents and warrants to Heartland and MergerSub, that as of
the date hereof, and subject to the provisions of Article 3 and Article 11:
2.1 ORGANIZATION; GOOD STANDING. AWS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
AWS is qualified as a foreign corporation in all jurisdictions in which it is
required to qualify as a result of the conduct of its business or ownership of
its properties and where the failure to be so qualified would have a Material
Adverse Effect, which jurisdictions are set forth in Schedule 2.1.
2.2 SUBSIDIARIES. AWS Holdings, Inc., a Delaware corporation ("AWS
Holdings"), the Texas joint venture formed to own and operate a wireless cable
television system in Fort Worth, Texas ("AWS Fort Worth") and American Wireless
System of Minneapolis, L.L.C., a Delaware limited liability company that owns
and operates a wireless cable television system in Minneapolis, Minnesota ("AWS
Minneapolis"), are the only Subsidiaries of AWS. Except as set forth on Schedule
2.2, (a) AWS owns directly, free and clear of liens, all outstanding shares or
equity interests of AWS Holdings, and all such shares are validly issued, fully
paid, non-assessable and not subject to preemptive rights, (b) AWS owns
directly, free and clear of liens, a 20.01% joint venture interest in AWS Fort
Worth and (c) AWS owns directly, free and clear of liens, a 25% membership
interest in AWS Minneapolis. Except as set forth on Schedule 2.2, there are no
outstanding subscriptions, options, warrants, calls, conversion or exchange
rights, commitments or agreements of any character obligating AWS Minneapolis,
AWS Holdings, or to the Knowledge of AWS, AWS Fort Worth, to issue, deliver or
sell additional shares of its capital stock or equity interests of any class or
any securities convertible into or exchangeable for any such capital stock or
equity interests, and there are no rights of first refusal, transfer
restrictions or similar rights or obligations with respect to the ownership
interests of AWS in any Subsidiary. Except as set forth on Schedule 2.2, AWS
does not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, Joint Venture, association or other Person. Schedule 2.2 sets
forth the record and, to the Knowledge of AWS, the beneficial owners of AWS Fort
Worth, AWS Minneapolis, and the equity owners of any partnership or similar
organization (other than AWS) formed to own an equity interest in AWS Fort Worth
or AWS Minneapolis.
2.3 CAPITALIZATION. The authorized capital stock of AWS as of the date of
this Agreement consists of 40,000,000 shares of common stock, $.01 par value per
share, of which 5,709,187 are issued and outstanding. Schedule 2.3 sets forth as
of the date of this Agreement, a true and correct list of all outstanding
options, warrants, calls, puts, commitments and other rights to purchase, or
securities or other rights convertible or exchangeable into, capital stock of
AWS indicating the record and, to the Knowledge of AWS, the beneficial owner
thereof, the exercise, conversion or exchange price and period thereof, the term
and any vesting or other conditions thereof. All securities issued or issuable
by AWS have been paid for and delivered in accordance with the terms of
applicable agreements or instruments, duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders; none of such securities were issued in violation of the
preemptive rights of any holder of any security of AWS or any similar rights
granted by AWS or applicable laws.
2.4 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. AWS has the corporate
power and authority to conduct the business and activities conducted by it and
to own or lease the assets owned or leased by it. AWS has the corporate power
and authority (subject to shareholder approval as set forth in Section 9.1 and
obtaining all required Consents as set forth in Sections 5.2 and 8.3) to execute
and deliver this Agreement and all other documents required to be executed and
delivered by AWS hereunder, to consummate the transactions hereby contemplated,
and to take all other actions required to be taken by AWS pursuant to the
provisions hereof. This Agreement and all other documents required to be
executed and delivered by AWS hereunder have been duly authorized by all
corporate action necessary on the part of AWS (subject to shareholder approval
as set forth in Section 9.1 and obtaining all required Consents as set forth in
Sections 5.2 and 8.3) and have been duly or will when executed and delivered be
duly executed and delivered by AWS and
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constitute the legal, valid and binding obligations of AWS, enforceable against
AWS in accordance with their terms. Except as disclosed in Schedule 2.4, neither
the execution nor the delivery of this Agreement and all other documents
required to be executed and delivered by AWS hereunder or the consummation of
the transactions hereby contemplated by AWS (i) conflicts with or constitutes
any violation or breach of the Certificate of Incorporation or the Bylaws of
AWS; (ii) to the Knowledge of AWS, constitutes any violation or breach of, or
gives any other Person any rights (including any right of acceleration,
termination or cancellation) under, any Material Contract, License, Channel
Lease, Governmental Permit, or other document or agreement to which AWS is a
party; (iii) to the Knowledge of AWS, constitutes a violation of any Order or
Legal Requirement; or (iv) to the Knowledge of AWS, will result in the creation
of any Lien on any of the assets or properties of AWS.
2.5 FINANCIAL STATEMENTS. (A) Schedule 2.5 lists the audited financial
statements of AWS as of, and for the period(s) ending, December 31, 1992 and
1993 including the balance sheets and related statements of income and expense,
and unaudited consolidated financial statements of AWS and each Subsidiary as of
and for the year ending December 31, 1994 and the three (3) month periods ending
March 31, 1995 and June 30, 1995 (collectively, the "Financial Statements"). The
Financial Statements and all notes thereto are complete and correct in all
material respects, in accordance with the books and records of AWS and each
Subsidiary, fairly present the financial position and results of operations of
AWS and each Subsidiary as of the date thereof and for the periods referenced
therein, all in accordance with GAAP, and have been delivered to Heartland.
(B) Since June 30, 1995, except as set forth on Schedule 2.5, (i) AWS, AWS
Holdings, AWS Minneapolis and, to the Knowledge of AWS, AWS Fort Worth have
conducted its or their businesses in the ordinary, regular course thereof; (ii)
there has been no change in the financial condition of AWS, AWS Holdings, AWS
Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth which has had a
Material Adverse Effect, or any damage, destruction or loss, not covered by
insurance, which has had a Material Adverse Effect, or any change in the nature,
or in the condition, of the businesses of AWS, AWS Holdings, AWS Minneapolis or,
to the Knowledge of AWS, AWS Fort Worth which has had a Material Adverse Effect;
or any event, condition or state of facts or any character whatsoever, the
occurrence of which has had a Material Adverse Effect; and (iii) except in the
ordinary and regular course of its or their businesses, neither AWS, AWS
Holdings, AWS Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth has made
any dispositions of any of its or their assets; disposed of any records relating
to its or their assets or properties; borrowed any funds; incurred, assumed or
become subject to any obligation or liability, indebtedness for borrowed money,
absolute or contingent; paid, discharged, or satisfied any claim, liability or
obligation, absolute, accrued, contingent or otherwise; cancelled any debts owed
to it or them; waived any claims or rights of value; granted or extended any
power of attorney; or acted as any guarantor.
(C) Neither AWS, AWS Holdings, AWS Minneapolis nor, to the Knowledge of
AWS, AWS Fort Worth has any Liabilities (including, without limitation, any
Liabilities arising from the Pittsburgh Sale Agreements), except as described or
provided for in the Financial Statements or otherwise set forth on Schedule 2.5
which individually or in the aggregate would constitute a Material Adverse
Effect. There has been no capital stock of AWS repurchased, any dividend
declared or paid or any distribution made by AWS with respect to such capital
stock, since June 30, 1995.
2.6 TAXES.
(A) All federal, state, county, local and foreign taxes, including without
limitation, income, excise, payroll, sales, use, unemployment, social security,
occupation, franchise, property, and other taxes, duties or charges
(collectively, "Taxes") levied, assessed, or imposed upon AWS or any Subsidiary
or its or their businesses, assets or properties as of such date have been duly
and fully paid or have been adequately provided for on the Balance Sheet of AWS
or any Subsidiary as of June 30, 1995. In addition, all filings, returns, and
reports with respect to Taxes required by any foreign or domestic law or
regulation to be filed by AWS or any Subsidiary on or prior to the date hereof
have been duly and timely filed. There are no agreements, waivers or other
arrangements (oral or written) providing for extensions of time with respect to
the assessment or collection of unpaid Taxes, nor are there any actions, suits,
proceedings, inquiries, investigations or claims of
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any nature or kind whatsoever now pending or, to the Knowledge of AWS,
threatened, against AWS or any Subsidiary with respect to any such returns or
reports, or any such Taxes, or any matters under discussion with any federal,
state, county, local or other authority relating to Taxes.
(B) Except as otherwise disclosed on Schedule 2.6, (i) AWS and each
Subsidiary has made all payments of estimated Taxes required to be made under
Section 6655 of the Code and any comparable provisions of state, local, federal
or other law; (ii) all amounts of any Taxes, including payroll and federal
excise taxes, that are required to be collected or withheld by AWS or any
Subsidiary have been duly collected or withheld, and have been duly remitted or
deposited in accordance with law; (iii) no power of attorney has been granted by
AWS or any Subsidiary that is currently in force with respect to any matter
relating to Taxes; (iv) none of AWS nor any Subsidiary has any deferred gain or
loss (A) arising from deferred inter-company transactions, within the meaning of
Treas. Regs. Section 1.1502-13 or any successor regulations, or (B) with respect
to the stock or obligations of any member of the affiliated group of which AWS
is the common parent, as described in Treas. Regs. Section 1.1502-14; (v) no
taxes relating to periods ending before December 31, 1994 were paid by or
charged to any Subsidiary on or after such date; (vi) neither AWS nor any
Subsidiary is required to include in income any adjustment pursuant to Section
481(a) of the Code (or any similar provision of law or regulations) by reason of
a change in accounting method, nor is the IRS or any other taxing authority
considering any such change in accounting method; (vii) neither AWS nor any
Subsidiary has disposed of any property which has been accounted for Tax
purposes under the installment method; (viii) other than AWS Fort Worth, AWS
Minneapolis, and the Joint Venture owning the wireless cable television system
in Pittsburgh, Pennsylvania, neither AWS nor any Subsidiary owns any interest in
any entity which is characterized as a partnership for federal income tax
purposes; (ix) neither AWS nor any Subsidiary would be liable for any increase
in Tax under Section 47 of the Code, were such entity to dispose of all of its
assets on the Closing Date; (x) neither AWS nor any Subsidiary will have any
"non-recaptured net Section 1231 losses," within the meaning of Section 1231(c)
of the Code on the Closing Date; (xi) no election under Section 1504(d) of the
Code has been made with respect to any Subsidiary; (xii) no claim or assertion
has been made against AWS or any Subsidiary by any tax authority in any
jurisdiction in which no tax return has been filed by AWS or said Subsidiary
that it may be subject to Tax in that jurisdiction or otherwise is required to
file a tax return.
(C) AWS has a regular tax operating loss carryforward from its last filed
federal corporate income tax return for the year ending February 28, 1994, in
the amount of $2,447,845. The March 1, 1994 through December 31, 1994, tax
return has not yet been prepared, but AWS has estimated a net operating loss for
that year of 4.8 million dollars leaving a total net operating loss through
December 31, 1994, of approximately $7,250,000. AWS represents that it has not
undergone a Section 382 ownership change which would limit the ability to
utilize these losses.
2.7 PROPERTY.
(A) Schedule 2.7(a) lists and describes, as of the date thereof, all of the
Equipment, except small hand tools, office equipment and supplies, and similar
equipment which are generally described by category and number.
(B) Schedule 2.7(b) lists all Facilities, designating whether such Facility
is owned or leased, including whether there is any construction-in-progress of
any towers, fixtures, vaults or pedestals attributable to any Site.
(C) AWS and each Subsidiary own and hold good title, free and clear of any
Liens, to all of the Equipment and Facilities, except as set forth on Schedule
2.7(c) or 2.9, and all of such Equipment and Facilities necessary to the conduct
of the business of AWS and each Subsidiary at their present levels of operation
is in serviceable condition; conforms to or complies with all applicable Orders
and Legal Requirements, the violation of which has not had or would not have a
Material Adverse Effect; and constitutes all of the Equipment and Facilities
that are used, usable, held for use in or in conjunction with or otherwise
associated with, required or necessary to the business operations of AWS and
each Subsidiary.
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2.8 RECEIVABLES. All accounts receivable of AWS and each Subsidiary
reflected in the Balance Sheet of AWS or each Subsidiary, as applicable, as of
June 30, 1995, represent valid obligations arising from sales made in the
ordinary and regular course of the Business. The accounts receivable reflected
in the Balance Sheet of AWS or each Subsidiary, as applicable, as of June 30,
1995, are net of reserves therefor, valid receivables that have arisen in the
ordinary course of the operations of AWS and each Subsidiary and, to the
Knowledge of AWS, are net of reserves therefor, collectible and not subject to
setoff or counterclaim, nor to any agreement to reduce or discount.
2.9 CONTRACTS.
(A) Except as set forth elsewhere on Schedules 2.10, 2.11, 2.26 or 2.31,
Schedule 2.9 sets forth a complete and correct list of the following types of
contracts to which AWS or any Subsidiary is a party and which as of the date
hereof are executory in nature or under which AWS or any Subsidiary has any
obligation to pay, or right to receive, money; provided that the contracts to be
disclosed pursuant to subsections (xiii) or (xiv) below shall include all of
such contracts to which AWS or any Subsidiary is or has ever been a party
(collectively, the "Material Contracts"):
(i) all contracts of a character required to be described in AWS's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994 or
Quarterly Report Form 10-Q for the fiscal quarter ended June 30, 1995;
(ii) all Channel Leases;
(iii) all contracts or agreements of any kind with any director,
executive officer or other officer of AWS or any Subsidiary;
(iv) any loan agreements, lease agreements, notes, mortgages,
indentures, guarantees, security agreements, letters of credit, financing
documents or other agreements for the borrowing or lending of money by AWS
or any Subsidiary in excess of $25,000;
(v) all agreements relating to the acquisition of any Subsidiary;
(vi) all Joint Venture agreements;
(vii) all agreements involving an aggregate amount in excess of
$50,000 to provide goods or perform services or for the payment for goods
or services;
(viii) any commitment or agreement for any capital expenditure or
leasehold improvement in excess of $25,000;
(ix) any agreement, contract or commitment limiting or restraining AWS
or any Subsidiary from engaging or competing in any manner or in any
business;
(x) all programming agreements;
(xi) all agreements with respect to resolution of interference issues;
(xii) all collective bargaining agreements, employment agreements,
consulting agreements and severance agreements;
(xiii) all agreements for the offer or sale of securities whether
outstanding on the date hereof or to which AWS or any Subsidiary has been a
party in the past;
(xiv) all agreements with investment bankers or brokers whether
outstanding on the date hereof or to which AWS or any Subsidiary has been a
party in the past;
(xv) all agreements under which either AWS or any Subsidiary is
entitled to indemnification and under which the potential claims subject to
indemnification could reasonably be expected to exceed $25,000;
(xvi) all agreements to which either AWS or any Subsidiary is a party
and involving an aggregate amount in excess of $10,000 under which either
AWS or any Subsidiary or the other party to the
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agreement has, or has been alleged to have, breached, failed to perform
under or otherwise failed to comply with the terms of, such agreement;
(xvii) any agreement with any Governmental Authority;
(xviii) any material agreement, contract or commitment not made in the
ordinary course of business; and
(xix) any agreement or other arrangement with any Affiliate of AWS, or
any Subsidiary or, to the Knowledge of AWS, any former officer or director
of AWS (such agreements or arrangements shall be separately identified or
described in such other Schedules or in Schedule 2.9 as "Affiliate
Agreements").
(B) True and correct copies of all the Material Contracts have been
delivered to Heartland by or on behalf of AWS. To the Knowledge of AWS, each of
the Material Contracts is valid and enforceable in accordance with its terms. To
the Knowledge of AWS, neither AWS nor any Subsidiary is in default in the
performance, observance or fulfillment of any material obligation, covenant or
condition contained therein, and no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute such a default
thereunder.
2.10 FCC MATTERS.
(A) Schedule 2.10(a) is a true and correct list of all Channel Leases.
Except as set forth on Schedule 2.10(a), (i) AWS and each Subsidiary have
performed in all material respects all obligations required to be performed by
it under each of the Channel Leases; (ii) all of the Channel Leases are legal,
valid and binding obligations enforceable against them in accordance with their
respective terms and in full force and effect, and there are no defaults (or to
the Knowledge of AWS events which, with notice or lapse of time or both, would
constitute a default) by AWS or any other party to any such Channel Leases;
(iii) Channel Leases set forth in the name of Persons other than AWS or a
Subsidiary, as lessee, are identified on Schedule 2.10(a) and have been duly and
validly assigned with all requisite consents and approvals of all parties
thereto to AWS or a Subsidiary, and remain in full force and effect as if AWS or
a Subsidiary were the initial "lessee" thereunder; (iv) to the Knowledge of AWS,
no default or termination has been threatened in writing under any of the
Channel Leases by any party thereto; and (v) the Channel Leases comply in all
respects with the Act and the FCC Rules, and each of the Channel Leases, and all
amendments thereto, have been filed with and approved by the FCC.
(B) Listed in Schedule 2.10(b) are all of the Licenses and FCC Permits held
or leased by AWS or any Subsidiary. All Licenses and FCC Permits are in the name
of the Person set forth in Schedule 2.10(b). All reports or other documents
required to be filed by AWS or any Subsidiary and to the Knowledge of AWS, any
third party, with respect to any such Licenses have been filed. The Licenses and
the FCC Permits listed on Schedule 2.10(b), constitute all of the Authorizations
held or leased by AWS and are all of the Authorizations used, useable, held for
use in or in conjunction with or otherwise associated with, required or
necessary for AWS and Subsidiary to lawfully conduct its and their business
operations. To the Knowledge of AWS, each of the Licenses and the FCC Permits,
except as otherwise expressly noted on Schedule 2.10(b), (i) is currently and
validly held by the Person identified as the holder thereof on Schedule 2.10(b);
(ii) authorizes said holder to construct and operate a facility transmitting
video and audio programming on the Channels; (iii) was validly issued; (iv) is
validly existing and in full force and effect; and (v) is not subject to any
conditions other than such conditions as are generally applicable to licenses
and permits issued by the FCC with respect to ITFS, MDS or MMDS Channels. To the
Knowledge of AWS, there are no existing or threatened investigations, inquiries
or proceedings by or before the FCC or other Governmental Entity which, if
adversely determined, would result in the revocation, cancellation, suspension,
forfeiture or material adverse modification of any Application or Material
Authorization.
(C) Schedule 2.10(c) indicates all Applications and all amendments or other
filings thereto. To the Knowledge of AWS, the information contained in each
Application is true and correct in all material respects, and each Person which
is a signatory to an Application is authorized under FCC rules to file such
Application.
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(D) Except as otherwise expressly noted on Schedule 2.10(d), AWS and each
Subsidiary and, to the Knowledge of AWS, the FCC Licensees and the FCC
Permittees have each submitted to the FCC, the FAA and all other Governmental
Authorities all notices, reports and other documents which have been or are
required by the Act, the FCC Rules, the FAA Rules and other Legal Requirements,
the Licenses and the FCC Permits except where the failure to do so would not (i)
have a Material Adverse Effect; or (ii) hinder the ability of AWS and Subsidiary
to fully perform its and their material obligations under this Agreement. Except
as otherwise expressly noted on Schedule 2.10(d), to the Knowledge of AWS, no
petitions to deny or informal objections have been filed against any of the
amendments listed on Schedule 2.10(c). True and accurate copies of all
amendments, notices, reports and other documents filed by AWS and, to the
Knowledge of AWS, the FCC Licensees and the FCC Permittees with respect to the
Licenses and the FCC Permits, with the FCC, the FAA, the copyright office and
other governmental authorities have been either delivered to Heartland by AWS or
otherwise identified by AWS and made available for Heartland's review.
2.11 INSURANCE. Schedule 2.11 is a certificate of insurance which lists
all insurance policies held by AWS and which are in full force and effect.
2.12 LITIGATION. Except as set forth on Schedule 2.12, there is no
Proceeding, in each case domestic or foreign, pending or, to the Knowledge of
AWS, threatened against, or involving the properties or business of AWS or any
Subsidiary which (a) questions the validity of the issuance of the capital stock
or equity interests of AWS or any Subsidiary, this Agreement or any action taken
or to be taken by AWS pursuant to or in connection with this Agreement; (b) is
required to be, and has not been so, disclosed in the filings with the SEC by
AWS (and such proceedings are as summarized in such SEC Filings accurately
summarized in all material respects); (c) materially adversely affects the
Channel Leases or FCC Licenses or the operation of the Channels and transmission
facilities relating thereto and the Wireless Cable Business; or (d) would
otherwise have a Material Adverse Effect.
2.13 REGISTRATION RIGHTS. Except as set forth on Schedule 2.13, no Person
has rights to the registration of any securities of AWS, AWS Holdings, AWS
Minneapolis or, to the Knowledge of AWS, AWS Fort Worth.
2.14 KEY-PERSON INSURANCE. Neither AWS nor any Subsidiary has any
key-person insurance on the life of any officer, director or employee of AWS,
AWS Holdings, AWS Minneapolis or, to the Knowledge of AWS, AWS Fort Worth.
2.15 CERTAIN ACTIVITIES AND SERVICES. Except as set forth on Schedule
2.15, neither AWS, AWS Holdings, AWS Minneapolis nor, to the Knowledge of AWS,
AWS Fort Worth engages in any business other than the Wireless Cable Business.
2.16 GOVERNMENTAL PERMITS. AWS and each Subsidiary own, hold or possess
all Governmental Permits which are necessary to entitle it to own or lease,
operate and use its assets and to carry on and conduct their business as
currently conducted, except with respect to Applications for which Licenses have
not been granted, if any.
2.17 COMPLIANCE WITH LAWS. To the Knowledge of AWS, except for violations
that would not have a Material Adverse Effect, AWS and each Subsidiary have
complied in all respects with all applicable Legal Requirements and Orders of
any Governmental Authority having jurisdiction over it or them or its or their
operations, including, but not limited to, all FCC Rules and any laws (including
Environmental Laws), rules or regulations regulating, if applicable, zoning,
fair and equal employment practices, the safety of the workplace, the discharge
of materials into the Environment or otherwise relating to the protection of the
Environment, antitrust, anti-monopoly or anti-competitive activities, wages,
hours, collective bargaining and the payment of withholding and social security
taxes. Except as set forth on Schedule 2.17, there are no Orders outstanding and
in effect against AWS or any Subsidiary, its or their assets, the transactions
contemplated by this Agreement, or, to the Knowledge of AWS, any of the parties
to Channel Leases, other than Orders issued with respect to the wireless cable
industry generally and in the normal course of regulation, which would,
individually or in the aggregate: (i) have a Material Adverse Effect, or (ii)
hinder in any material respect the ability of AWS or any Subsidiary to fully
perform its or their material obligations under this Agreement.
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Except as set forth in Schedule 2.17, AWS has not received any notice (written
or otherwise) from any Person to the effect that, or otherwise been advised
that, AWS or any Subsidiary is not in compliance with any applicable law,
ordinance, regulation, building or zoning law, and AWS and each Subsidiary have
no Knowledge that any presently existing circumstances would result in a
violation of any such law, statute, ordinance or regulation, the non-compliance
with which would have a Material Adverse Effect.
2.18 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 2.18, to the
Knowledge of AWS:
(A) Neither AWS nor any Subsidiary, nor any predecessor thereof or
anyone else, has Managed or Released any Hazardous Substances at, on, in,
to or from any property or business now or previously owned, operated,
leased, controlled, used, occupied or conducted by AWS or any Subsidiary,
or any predecessor thereof in quantities or concentrations which violate
any applicable Environmental Law such as to have a Material Adverse Effect.
(B) Neither AWS nor any Subsidiary has received any request for
information, notice of claims, demand or notification that it is or may be
a potentially responsible party with respect to any investigation or
clean-up of any threatened or actual release of any Hazardous Substance,
and no environmental inspections, audits, tests, reviews or other analysis
are being conducted in relation to any property now or previously owned,
operated, leased, controlled, used, occupied or conducted by AWS or any
Subsidiary.
(C) No written notification of a Release or threat of Release of a
Hazardous Substance has been filed by or on behalf of AWS or any Subsidiary
in relation to any property or business now or previously owned, operated,
leased, controlled, used, occupied or conducted by AWS or any Subsidiary.
(D) There are no facts or circumstances related to environmental
matters concerning its properties or business now or previously owned,
operated, leased, controlled, used, occupied, or conducted by AWS or any
Subsidiary, or any predecessor thereof, that would reasonably be expected
to lead to any material future environmental claims, liabilities or
responsibilities against Heartland or against AWS or any Subsidiary, or any
predecessor thereof.
2.19 INTELLECTUAL PROPERTY. To the Knowledge of AWS, Schedule 2.19 is a
true and correct list of all Intellectual Property owned or used by AWS or any
Subsidiary. To the Knowledge of AWS, no person has any right to receive any
royalty or similar payment arising from the Intellectual Property. Except as set
forth on Schedule 2.19, AWS owns each of said properties; has not granted to any
other Person any interest in any of said properties, as licensee or otherwise;
and has filed all certificates, affidavits and other documents, and taken all
other actions, necessary to retain its title to said properties and to keep the
same in effect. To the Knowledge of AWS, none of said properties is invalid and
none infringes upon the personal or property rights of any third party.
2.20 LIENS. Except as set forth on Schedule 2.20, AWS and each Subsidiary
have good title to all of its and their assets, free and clear of all Liens,
except for the lien, if any, of current Taxes not yet due and payable and except
for those assets disposed of in the ordinary course of business.
2.21 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, to the Knowledge of AWS, AWS, each Subsidiary, the
Licensees and the FCC Permittees, are in material compliance with, and not in
default under or in violation of, the Act, the FCC Rules, the FAA Rules, the
Copyright Act, the Copyright Rules, and other Legal Requirements applicable to
the Licenses or FCC Permits. Except as otherwise expressly noted on the
Schedules attached hereto, to the Knowledge of AWS, neither AWS nor any
Subsidiary has received any notice of noncompliance with, default under or
violation of the Act, the FCC Rules, the FAA Rules, the Copyright Act, the
Copyright Rules, other Legal Requirements and the applicable Licenses or FCC
Permits. Except as set forth in Schedule 2.21, to the Knowledge of AWS, no
condition exists or event has occurred with respect to AWS or any Subsidiary,
the Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which,
in itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a violation of the Act, any FCC Rule, any FAA Rule, the
Copyright Act or the Copyright Rules; (ii) constitute a default in the due
performance and observation of any term, covenant or condition of any of the
Licenses or FCC Permits, (iii) result in a forfeiture, the denial, dismissal
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or rejection of any of the Schedule 2.10(c) or 2.10(d) amendments, or the
suspension, termination, revocation, material impairment, material adverse
modification or non-renewal of any License or FCC Permit, or (iv) adversely
affect any of the material rights of AWS or any Subsidiary, any FCC Licensee or
FCC Permittee under any of the Licenses or FCC Permits.
2.22 INTERFERENCE. To the Knowledge of AWS, except as set forth in
Schedule 2.22, neither AWS or any Subsidiary, nor any other party to a Channel
Lease Agreement, has accepted the electrical interference to the channels from
any source, has consented to the grant of any application involved with the FCC
that demonstrates any electrical interference to the Channels, or has failed to
timely petition to deny any application that proposes facilities which
demonstrate that they would cause objectionable electrical interference to the
Channels. To the Knowledge of AWS, except as otherwise expressly noted on
Schedule 2.22, neither AWS, any Subsidiary, any FCC Licensee, any FCC Permittee,
nor any other party to a Channel Lease Agreement, will experience interference
which will materially and adversely impact operation of the Facilities it has
constructed and/or operated, or is constructing once such Facilities are
constructed and operated, or will create interference which will materially and
adversely impact the operation of other facilities licensed by the FCC to other
Persons; for purposes of this Section 2.22, interference shall be deemed to
exist if within an FCC Licensee's protected service area, the ratio of the
desired signal to the undesired signal, at the antenna input terminals of the
affected receiver, is less than 45 dB.
2.23 EMPLOYEE PLANS. To the Knowledge of AWS:
(A) Schedule 2.23 sets forth a true and complete list of each
"employee benefit plan," as such term is defined in section 3(3) of the
ERISA, whether or not subject to ERISA, and each bonus, incentive or
deferred compensation, severance, termination, retention, change of
control, stock option, stock appreciation, stock purchase, phantom stock or
other equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former employee of
AWS or any Subsidiary or the beneficiaries or dependents of any such
employee or former employee (such employees, former employees,
beneficiaries and dependents collectively, the "Employees") or under which
any Employee is or may become eligible to participate or derive a benefit
and that is or has been maintained or established by AWS or to which AWS or
any Subsidiary contributes or is or has been obligated or required to
contribute or with respect to which AWS or any Subsidiary may have any
liability or obligation (collectively, the "Plans"). AWS has not
communicated to any Employee any intention or commitment to modify any Plan
or to establish or implement any other employee or retiree benefit or
compensation arrangement.
(B) All Plans conform (and at all times within the five years
preceding the date hereof have conformed) in all material respects to, and
are being administered and operated (and have at all times within the five
years preceding the date hereof been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable laws. All returns, reports and disclosure statements required to
be made under ERISA and the Code with respect to all Plans have been timely
filed or delivered. There have not been any "prohibited transactions," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Plans, that could subject AWS or any Subsidiary to any
penalty or tax imposed under the Code or ERISA. Neither AWS nor any
Subsidiary maintains or has maintained any Plan qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code.
Neither AWS nor any Subsidiary has any announced plan or legally binding
commitment to create any Plans or to materially amend or modify any
existing Plan.
(C) There are no pending or threatened claims asserted or instituted
against (i) any Plans or its assets, (ii) any fiduciary with respect to any
such Plan or (iii) AWS or any Subsidiary or any of its officers, directors
or employees under ERISA or any other applicable laws and rules and
regulations promulgated thereunder, or claiming benefit payments other than
those made in the ordinary operation of such plans, nor is there any basis
for such claim. To the Knowledge of AWS, the Plans are not the subject of
any investigation, audit or action by any governmental agency, including,
but not limited to, the IRS,
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the Department of Labor, the Equal Employment Opportunity Commission or the
Pension Benefit Guaranty Corporation ("PBGC").
2.24 FINDER'S FEES. Except as set forth on Schedule 2.24, neither AWS, AWS
Holdings, AWS Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth has taken
any action which would impose upon Heartland any obligation or liability to any
person for finder's fees, agent's commissions or like payments in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
2.25 COPYRIGHT ACT. Except as set forth in Schedule 2.25, AWS and each
Subsidiary have submitted all requisite notices (if any are required) under the
Copyright Act of 1976, as amended (together with all rules and regulations
thereunder, the "Copyright Act"), for the carriage of all broadcast stations as
currently carried over any of the Wireless Cable Television Systems. Except as
set forth in Schedule 2.25, AWS and each Subsidiary have filed with the
Copyright Office all required documents, instruments and statements of account
and has remitted payments of all required royalty fees with respect to the
compulsory licenses provided for in Section 111 of the Copyright Act for the
carriage of broadcast signals in connection with the Wireless Cable Television
Systems. Except as set forth in Schedule 2.25, neither AWS nor any Subsidiary is
liable to any Person for copyright infringement under the Copyright Act as a
result of its business operations. Except as set forth in Schedule 2.25, there
have been no inquiries received from the Copyright Office, or, any other party,
which questioned such statements of account or any copyright royalty payments
made by AWS or any Subsidiary with respect to the Wireless Cable Television
Systems, and no claim, action or demand for copyright infringement or for
non-payment of royalties is pending or, to the Knowledge of AWS, threatened
against AWS or any Subsidiary with respect to the Wireless Cable Television
Systems.
2.26 PROGRAMMING AGREEMENTS. Schedule 2.26 sets forth a true and correct
list of all agreements for programming and for each programming agreement (i)
the name of the programmer; (ii) the programming service; (iii) the rate, and
all factors that affect rate changes through the end of the term of such
agreement; (iv) the term and any rights for early termination or extensions of
the term of any party thereof; (v) any renegotiation rights; (vi) the relevant
channels and geographic market; and (vii) any provisions relating to
advertising. Neither AWS, AWS Holdings, AWS Minneapolis nor, to the Knowledge of
AWS, AWS Fort Worth is a party to any agreements providing for the
retransmission of any broadcast signals.
2.27 SEC FILINGS. AWS has previously delivered to Heartland the AWS SEC
Filings. Except as set froth in Schedule 2.27, each AWS SEC Filing was timely
filed with the SEC and does not contain a misstatement of a material fact or an
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading as of the time such document was filed.
Except as set forth in Schedule 2.27, no other document or report has been
required to be filed by AWS with the SEC which has not been filed, and no event
or transaction has occurred prior to the date hereof, which will hereafter be
required to be disclosed by AWS in a Form 10-Q, Form 8-K or similar filing.
2.28 DIRECTORS, OFFICERS AND EMPLOYEES. Schedule 2.28 sets forth a list of
all directors and officers of AWS and AWS Holdings and managers of AWS Fort
Worth and AWS Minneapolis. Except as set forth on Schedule 2.28, neither AWS,
AWS Holdings, AWS Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth has
any outstanding loans or extension of credit to, or any contracts, agreements or
understandings with, any executive officer or director or member of their
immediate family or any person with which any such person has a material
relationship. Schedule 2.28 sets forth a list of (a) the names and positions of
each employee of AWS, AWS Holdings, AWS Minneapolis and, to the Knowledge of
AWS, AWS Fort Worth who was paid an aggregate compensation for the fiscal year
ended December 31, 1994 in excess of $50,000, together with the amount thereof;
and (b) any agreement or arrangement with any current or former employees,
officers or directors of such parties that would entitle such person to receive
any compensation or other payment upon or arising from (i) the termination of
such person's services as an employee, officer or director, or (ii) the
consummation of the Merger, together with the amount thereof (such aggregate
amount, other than the amount payable to Steven G. Johnson, is referred to
herein as "Severance Obligations"). AWS has made available to Heartland a true
and correct copy of the current payroll which lists all employees of
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AWS, AWS Holdings, AWS Minneapolis and, to the Knowledge of AWS, AWS Fort Worth
by category of employment and salary.
2.29 BANK ACCOUNTS, ETC. Schedule 2.29 sets forth a list of all (i) bank
accounts of AWS, AWS Holdings, AWS Minneapolis and, to the Knowledge of AWS, AWS
Fort Worth and the persons authorized to draw thereon and the balances thereof
as of the date of this Agreement; (ii) safe deposit boxes of AWS, AWS Holdings,
AWS Minneapolis and, to the Knowledge of AWS, AWS Fort Worth and the persons who
have access thereto; and (iii) powers of attorney for tax purposes or otherwise
and a summary of the terms thereof.
2.30 CERTAIN CLAIMS. With respect to the Potential Claims (as defined in
Section 6.13), AWS has previously delivered to Heartland a claim inventory for
each Potential Claim that contains copies of all written correspondence between
AWS and the potential claimant, and summaries of all material oral
correspondence between such parties. Each such claim inventory is true and
correct in all material respects.
2.31 SITE LEASES AND SITE OPTIONS. Schedule 2.31 sets forth a true and
correct list of each Site Lease and Site Option which AWS or any Subsidiary is a
party or is otherwise bound. Each Site Lease and Site Option allows for the use
and operation on the leased property of transmitters, antenna structures,
antennas and other associated facilities, and permits the transmissions from the
property of signals containing video and audio programming.
2.32 SUBSCRIBERS. Schedule 2.32 sets forth a true and correct list of the
number of subscribers for each Wireless Cable Television System.
2.33 FURTHER REPRESENTATION. No representation or warranty of AWS
contained in this Agreement contains any untrue statement of, or omits to state,
a material fact necessary in order to make the statements made herein, in light
of the circumstances under which they are made, not misleading. To the Knowledge
of AWS, all books, statements, documents, schedules and records furnished or
given by it to Heartland or Heartland's agents during the negotiation of or
preparatory to the execution of this Agreement or the consummation of the
transactions contemplated hereby, are true, complete and genuine (and contain no
misstatements or omissions of material facts).
ARTICLE 3. SCOPE OF AWS REPRESENTATIONS AND WARRANTIES.
3.1 MINNEAPOLIS AND FORT WORTH MARKETS. AWS owns a 25% membership interest
in AWS Minneapolis and a 20.01% venture interest in AWS Fort Worth, which
entities were formed to own and operate wireless cable television systems in
Minneapolis, Minnesota ("Minneapolis System") and Fort Worth, Texas ("Fort Worth
System"), and each of which are a Subsidiary of AWS for purposes of this
Agreement. AWS is presently acting as the manager of the Fort Worth System and
AWS Minneapolis but has no right to remain in the position of manager of either
the Fort Worth System and AWS Minneapolis should AWS's Joint Venture partners
terminate AWS as manager. AWS shall use reasonable efforts to assist Heartland
in acquiring the interest of third parties in AWS Minneapolis and AWS Fort
Worth. All representations, warranties and covenants regarding AWS and its
Subsidiaries contained herein shall, to the extent provided in such
representation, warranty or covenant, include, without limitation, AWS
Minneapolis and AWS Fort Worth; provided that Heartland's right to
indemnification as provided in Article 11 and in the Escrow Agreement for
breaches of representations, warranties and covenants by AWS with respect to the
Fort Worth System or Minneapolis System shall be reduced to reflect the
percentage ownership interest of AWS in AWS Fort Worth or AWS Minneapolis,
meaning that the liability of AWS for any Damages arising therefrom shall be
proportionately reduced; provided further that all representations and
warranties regarding the Fort Worth System shall be limited to the Knowledge of
AWS. In the event AWS is terminated as the manager of either AWS Fort Worth or
AWS Minneapolis after the date hereof but prior to the Closing Date, then the
representations and warranties contained herein with respect to such
Subsidiaries shall be true and correct as of the date hereof and the date of
such termination, AWS shall be in compliance with all covenants contained in
Article 5 and to the extent applicable Article 6 regarding such Subsidiaries as
of such termination date, and AWS shall have no liabilities hereunder for
breaches of either (a) the representations and warranties made by AWS with
respect to such Subsidiary arising from changes in conditions or circumstances
occurring after the date of termination, or (b) the failure to perform any
covenants regarding such Subsidiaries after any such
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termination; provided, however, that AWS shall use its good faith efforts to
remain as the manager of each such Subsidiary through the Closing Date and shall
not voluntarily withdraw or resign as the manager of either such Subsidiary.
3.2 PITTSBURGH MARKET. AWS has agreed to sell its interest in the Joint
Venture ("Pittsburgh Venture") which operates the wireless cable television
system in the Pittsburgh, Pennsylvania area ("Pittsburgh System") and has
entered into that certain agreement ("Pittsburgh Sale Agreement") in connection
therewith. The Pittsburgh Sale Agreement is a Material Contract and is listed on
Schedule 2.9. As set forth in Section 7.4 hereof, the consummation of the sale
of the Pittsburgh Market in accordance with the terms of the Pittsburgh Sale
Agreement is a condition precedent to the closing of the Merger. None of the
representations, warranties or schedules contained in this Agreement are being
made with respect to or contain the assets being transferred to or liabilities
being assumed by the purchaser of the Pittsburgh System under the Pittsburgh
Sale Agreement; provided that nothing contained herein shall limit the
indemnification obligations of AWS hereunder for liabilities arising under or
from the Pittsburgh Sale Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF MERGERSUB AND HEARTLAND.
Heartland and MergerSub each hereby represent and warrant to AWS and to the
shareholders of AWS, the following:
4.1 ORGANIZATION AND GOOD STANDING. Heartland is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MergerSub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
4.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has
corporate power and authority (subject to shareholder approval as set forth in
Section 8.1) to execute and deliver this Agreement and all other documents
required to be executed by Heartland hereunder, to consummate the transactions
hereby contemplated, and to take all other actions required to be taken by
Heartland pursuant to the provisions hereof. This Agreement and all other
documents required to be executed and delivered by Heartland hereunder have been
duly authorized by all corporate action necessary on the part of Heartland
(subject to shareholder approval as set forth in Section 8.1) and have been duly
or will when executed and delivered be duly executed and delivered by Heartland,
and constitute the legal, valid and binding obligations of Heartland enforceable
against Heartland in accordance with their terms. Neither the execution nor the
delivery of this Agreement and all the documents required to be executed and
delivered by Heartland hereunder or the consummation of the transactions hereby
contemplated by Heartland conflict with or constitute any violation or breach of
the Certificate of Incorporation or the Bylaws of Heartland. MergerSub has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. MergerSub has
corporate power and authority (subject to shareholder approval as set forth in
Section 8.1) to execute and deliver this Agreement and all other documents
required to be executed by MergerSub, to consummate the transactions hereby
contemplated, and to take all other actions required to be taken by MergerSub
pursuant to the provisions hereof. This Agreement and all other documents
required to be executed and delivered by MergerSub hereunder have been duly
authorized by all corporate action necessary on the part of MergerSub (subject
to shareholder approval as set forth in Section 8.1) and have been duly or will
when executed and delivered be duly executed and delivered by MergerSub, and
constitute the legal, valid and binding obligations of MergerSub enforceable
against MergerSub in accordance with their terms. Neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by MergerSub hereunder or the consummation of the transactions hereby
contemplated by MergerSub conflict with or constitute a violation or breach of
the Certificate of Incorporation or the Bylaws of MergerSub.
4.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby. There is no Proceeding pending or, to MergerSub's
Knowledge, threatened against or affecting MergerSub
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that could reasonably be expected to result in issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated hereby.
4.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents or the filing of the Registration Statement, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority is required on behalf of Heartland or MergerSub in
connection with the execution, delivery or performance of this Agreement and all
documents contemplated hereby or the transactions contemplated hereby.
4.5 CAPITALIZATION. The authorized capital stock of Heartland as of the
date hereof consists of 50,000,000 shares of common stock, par value $.001 per
share, and 10,000,000 of preferred stock, par value $.01 per share, of which
12,476,393 shares of Heartland common stock are issued and outstanding and no
shares of preferred stock have been issued. Heartland Common Shares to be issued
pursuant to this Agreement will be, upon issuance, validly issued, fully paid
and non-assessable.
4.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the date thereof and for
the periods referenced therein, all in accordance with GAAP.
4.7 SEC FILINGS. Heartland has previously delivered to AWS copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three (3) month periods ended March 31, 1995 and June 30, 1995, (iii)
its Registration Statement on Form S-3 (File No. 33-94838) declared effective by
the SEC on August 4, 1995, and (iv) all Form 8-Ks filed with the SEC after June
30, 1995 and prior to the date of this Agreement ("Heartland SEC Filings"). Each
such filing was timely filed with the SEC, and did not contain any misstatement
of material fact or an omission of a material fact required to be stated therein
necessary to make the statements therein not misleading as of the time such
document was filed. Heartland has filed all documents required to be filed with
the SEC. As of their respective dates, such reports complied in all material
respects with the applicable requirements of the Securities Exchange Act of
1934, as amended.
4.8 FINDER'S FEES. Heartland has not taken any action which would impose
upon AWS any obligation or liability to any person for finder's fees, agent's
commissions or like payments in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
4.9 FURTHER REPRESENTATION. No representation or warranty of MergerSub or
Heartland contained in this Agreement contains or will contain any untrue
statement of, or omit to state, a material fact necessary in order to make the
statements made herein, in light of the circumstances under which they are made,
not misleading. To the Knowledge of Heartland and MergerSub, all books,
statements, documents, schedules and records furnished or given by it or them to
AWS or AWS's agents during the negotiation of or preparatory to the execution of
this Agreement or the consummation of the transactions contemplated hereby, are
true, complete and genuine (and contain no misstatement or omissions of material
facts).
ARTICLE 5. COVENANTS OF AWS.
AWS hereby agrees to perform as follows:
5.1 OPERATION PRIOR TO THE CLOSING DATE. Subject to the provisions of
Section 5.4, from the date hereof through the Closing Date:
(A) AWS shall give Heartland prior written notice before AWS, AWS
Holdings, AWS Minneapolis or, to the Knowledge of AWS, AWS Fort Worth,
shall engage in any practice, take any action or enter into any transaction
other than in the customary and ordinary course of business.
(B) AWS will, and will cause each Subsidiary to, use reasonable
efforts to keep its business, properties and business relationships
substantially intact.
(C) AWS will (i) pay and perform all of its debts, liabilities and
obligations as and when due, except to the extent either (A) being
contested in good faith or (B) as to which adequate liabilities have been
accrued and recorded (determined in accordance with GAAP), (ii) perform its
material obligations
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under all Authorizations and Material Contracts, and (iii) comply in all
material respects with all Governmental Rules.
(D) AWS agrees that (i) AWS will not take any action, and will
endeavor in good faith not to permit any event to occur, which would cause
or constitute a material breach; (ii) AWS will, in the event of, and
promptly after the occurrence of, or promptly after becoming aware of the
occurrence of or the impending or threatened occurrence of, any event which
would cause or constitute a material breach or would, if it had occurred
immediately prior to the date hereof, have caused or constituted a material
breach of any of the representations and warranties set forth in said
Article 2, give notice thereof to Heartland; (iii) use reasonable efforts
not to allow the aggregate Net Permitted Liabilities (excluding the
indebtedness evidenced by the Escrow Note) of AWS on the Closing Date to
exceed the Net Permitted Liability Basket; and (iv) AWS shall use
reasonable efforts to prevent or promptly to remedy such breach.
(E) AWS will, and will cause each of its Subsidiaries to, use
reasonable efforts to preserve, protect and maintain its and their rights
and interests in the Channel Leases, FCC Licenses, and Material Contracts,
including, but not limited to, filing or having licensees or permittees
file with the FCC any and all reports, applications or other documents
necessary to preserve the FCC Licenses in full force and effect.
(F) AWS will not, and will not cause any of its Subsidiaries to, enter
into, amend or terminate, or agree to enter into, amend, except to comply
with this Agreement, or terminate any Channel Lease, License, Permit,
Application or Material Contract without giving prior written notice to
Heartland.
(G) AWS shall not repurchase, declare or pay any dividends, or make
any other distributions consisting of cash or marketable securities or any
contribution thereof, nor shall AWS or any of its Subsidiaries issue, sell
or agree to sell any shares of its capital stock, or any securities
convertible into, or options with respect to, or warrants to purchase or
rights to subscribe for, any shares of its capital stock.
(H) AWS will not, and will not cause any of its Subsidiaries to, sell,
lease, transfer or otherwise dispose of any of its assets, except as
provided for by, or contemplated in, this Agreement, or in the ordinary
course of business.
(I) AWS will not, and will not cause any of its Subsidiaries to,
increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of its directors,
officers or employees, pay bonuses to any such director, officer of
employee, to the extent the aggregate of the foregoing exceeds $250
(provided that none of such $250,000 shall be paid to any directors of
AWS), or pay any salaries except in the ordinary course of business, except
as required under any existing written employment agreement with any
officer, director or employee of AWS or any Subsidiary.
(J) AWS shall not transfer any interest in any Subsidiary.
5.2 ESTOPPEL CERTIFICATES AND CONSENTS. Except as otherwise provided
herein, AWS shall use reasonable efforts to obtain or cause to be made, all
consents, governmental authorizations, approvals and filings necessary by virtue
of the Merger contemplated by this Agreement on or before the Closing Date, so
as to endeavor to ensure that the Surviving Corporation will as of the Effective
Time enjoy all of the rights and privileges currently enjoyed by AWS and each
Subsidiary under each of the Channel Leases, Licenses and Material Contracts.
Upon request of Heartland, AWS shall assist Heartland to obtain from each of the
other respective parties to each of such Channel Leases and Material Contracts
(a) estoppel certificates in the form of Exhibit 5.2 ("Estoppel Certificates"),
certifying (i) that AWS or a Subsidiary, as applicable, is not in breach or
violation of or in default under any of such Channel Leases or Material
Contracts and that it will not be by virtue of the transaction contemplated
hereby, and (ii) other matters specified therein, and (b) consents ("Affiliate
Transfer Consents") to future assignments of the rights thereunder to an
affiliate of Heartland as further described therein. AWS shall seek any
appropriate amendments, modifications or changes to each of such Channel Leases
and Material Contracts so as to ensure that after the Effective Time, the
licensees,
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permittees or other parties thereto notify Heartland directly in the event of a
breach or violation of or default under any such Channel Lease or Material
Contract. In addition to the other Estoppel Certificates to be delivered
pursuant to this Section 5.2, AWS shall obtain Estoppel Certificates, dated no
more than 15 days prior to the Closing Date, from each Person that would be
owed, or is anticipated to be owed, in excess of $50,000 on the Closing Date,
certifying the amount then owed to such Person and amount anticipated to be
owing to such Person by AWS as of the Closing Date ("Account Estoppels").
5.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. AWS shall, and shall cause
each Subsidiary to:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to either AWS or any
Subsidiary remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
modification result from changes in the FCC's rules or policies of general
applicability. After the applications are filed for FCC consent to the
transfer of control of the FCC Licenses for said Channels to Heartland or
an affiliate of Heartland, AWS shall file, or cause to be filed, at the
request of and as an accommodation to Heartland, such reasonable
applications for modification of their outstanding construction permits or
licenses to implement the Merger. AWS shall utilize reasonable efforts to
prosecute in good faith all applications, reports and submissions submitted
in accordance with this Section 5.3.
(B) use reasonable efforts to assure that the licensees or permittees
under the Channel Leases timely file all applications, reports, and other
submissions in such form and with such information as may be required by
the FCC, including, but not limited to, renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that such FCC Licenses remain in full force and effect without
material adverse alteration or modification, except to the extent that such
alteration or modification result from changes in the FCC's rules or
policies of general applicability. AWS shall use its reasonable efforts to
assure that the licensees or permittees under the Channel Leases diligently
prosecute in good faith all such applications, reports and submissions. AWS
shall promptly disclose to Heartland any information it receives regarding
any conditions or circumstances that would cause, or might cause, the FCC
to decline to issue such authorizations as may be necessary or desirable to
keep the Licenses in full force and effect.
5.4 NO SOLICITATION. Subject to the provisions of Section 6.18 (regarding
the sale of the Memphis Market), from and after the date hereof, AWS will not,
and will not authorize any of its officers, directors, employees, agents and
other representatives or those of any Subsidiary (collectively, "AWS
Representatives") to, solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal
(as defined herein) from any Person or engage in any discussion or negotiations
relating thereto, or accept any Acquisition Proposal. AWS shall immediately
cease and cause to be terminated any existing solicitation, discussion or
negotiation with any parties conducted heretofore by AWS or any AWS
Representatives with respect to any of the foregoing. To the extent permitted by
applicable law, AWS will promptly notify Heartland of any such discussion or
negotiations, requests for such information or the receipt of any Acquisition
Proposal, including the identity of the person or group engaging in such
discussions or negotiations requesting such information or making such
Acquisition Proposal, and the material terms and conditions of any Acquisition
Proposal. As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer considered by the Board of Directors of AWS to be bona fide,
other than a proposal or offer by Heartland or any of its affiliates, for a
tender or exchange offer, a merger, consolidation or other business combination
involving AWS or any Subsidiary or any proposal to acquire in any manner (a) a
substantial equity interest in AWS or any Subsidiary, (b) any rights of AWS or
any Subsidiary to any Channels or (c) any Wireless Cable Television System.
Notwithstanding the foregoing, nothing in this Section 5.4 shall prohibit the
Board of Directors of AWS from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
bona fide proposal to acquire AWS or any Subsidiary pursuant to a merger,
consolidation, share exchange, purchase of a substantial portion of the assets,
business combination or some other transaction, if, and only to the extent that
(A) the Board of Directors determines in good faith that such
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action is required for the Board of Directors to comply with its fiduciary duty
to its stockholders, (B) prior to furnishing such information to, or entering
into discussions with or negotiations with, such person or entity, to the extent
permitted by applicable law, AWS provides notice to Heartland to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person or entity, and (C) to the extent permitted by applicable law,
AWS keeps Heartland informed, on a current basis, of the status of any such
discussions or negotiations; (ii) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal; and (iii) soliciting or
receiving offers for negotiating the sale of, or selling, the Memphis Market in
accordance with Section 6.18. AWS will use reasonable efforts to cause a person
provided proprietary information in accordance with the foregoing to enter into
a confidentiality agreement.
5.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, AWS will have audits conducted and completed so that AWS can provide
audited financial statements of AWS as of, and for the period ending, December
31, 1994, including the balance sheets and related statements of income and
expense, and such financial statements shall conform in all material respects
with the unaudited financial statements previously delivered by AWS to
Heartland.
5.6 DELIVERY OF SCHEDULES OR OTHER ITEMS. Notwithstanding any other
statements contained herein to the contrary, AWS shall deliver to Heartland all
schedules and documents stated to have been delivered herein on or before
December 13, 1995.
5.7 RESIGNATION OF DIRECTORS OF AWS. AWS shall deliver to Heartland on the
Closing Date, except as otherwise requested by Heartland, the written
resignation of all directors of AWS and AWS Holdings.
ARTICLE 6. ADDITIONAL AGREEMENTS.
6.1 SHAREHOLDERS MEETING. AWS and Heartland shall each take all action
necessary in accordance with applicable law and in accordance with their
respective certificates of incorporation and bylaws to convene a meeting of
their respective stockholders as promptly as practicable after the Registration
Statement is declared effective by the SEC, to consider and vote upon the
approval of this Agreement. AWS and Heartland each, through its board of
directors, shall recommend to its stockholders (and, if applicable, its lenders)
approval of this Agreement and shall use reasonable efforts to obtain approval
and adoption of this Agreement by such stockholders and lenders.
6.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as
practicable a Registration Statement on Form S-4 ("Registration Statement")
with respect to the Heartland Common Shares issuable in the Merger and in
the acquisition of the Fort Worth Interest and Minneapolis Interest, a
portion of which shall also serve as the joint proxy statement/prospectus
with respect to the meetings of the stockholders of Heartland and AWS to
approve the Merger, and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as soon as
practicable. Heartland shall also take any action required to be taken
under blue sky or securities laws in connection with Heartland Common
Shares prior to the Closing. AWS shall furnish Heartland all information
concerning AWS and its Subsidiaries and the holders of its common stock
required for use in the Registration Statement, and AWS shall take such
other actions as Heartland may reasonably request in connection with the
preparation of such Registration Statement and the actions to be taken by
AWS pursuant to this Section 6.2. None of the information furnished by or
on behalf of AWS for use in the Registration Statement shall contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
(B) AWS shall prepare and file with the SEC as soon as practicable a
proxy statement that will be the same proxy statement/prospectus contained
in the Registration Statement and a form of proxy, in connection with the
vote of AWS's stockholders with respect to the consummation of the
transactions set forth in this Agreement (such proxy statement/prospectus,
together with any amendments thereof or supplements thereto, in any case in
the form or forms mailed to AWS's stockholders, is herein called the "Proxy
Statement"). Heartland shall furnish AWS all information concerning
Heartland and MergerSub
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required for use in the Proxy Statement, and Heartland shall take such
other action as AWS may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by or
on behalf of Heartland for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact
necessary to make the statements contained therein not misleading.
6.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours be permitted reasonable access to the Facilities and
AWS's corporate offices; will be permitted to make copies of or abstracts from
all of the books and records, financial and operating data and other information
of AWS and each Subsidiary; and will be permitted to discuss the affairs and
accounts of AWS and each Subsidiary with the directors, officers, employees,
counsel, and accountants of AWS and each Subsidiary. Such investigation shall
not, however, affect the representations and warranties of AWS set forth in
Article 2 hereof. In the event the transactions contemplated hereby should not
close for any reason, Heartland agrees that it will promptly return to AWS all
such documents (including copies thereof) furnished by or on behalf of AWS
and/or each Subsidiary to Heartland and its representatives and Heartland shall
hold in confidence and shall not use or disclose to any third party any
information concerning AWS and/or each Subsidiary obtained from such documents
or otherwise in connection with the transactions contemplated by this Agreement
unless (a) such information was at the time of its use or disclosure to any
third party by Heartland in the public domain other than as a result of any
breach of this provision by Heartland or (b) such disclosure is required by law.
6.4 COMPLIANCE WITH SECURITIES ACT. AWS has caused to be prepared and
delivered to Heartland and MergerSub a list identifying all persons who, to the
Knowledge of AWS, as of the date hereof, may be deemed to be "Affiliates" of AWS
and its Subsidiaries as that term is defined under Paragraphs (c) and (d) of
Rule 145 of the Securities Act ("Rule 145 Affiliates"), and prior to the Closing
Date, AWS shall cause to be prepared and delivered to Heartland and MergerSub an
updated list (reasonably satisfactory to counsel for Heartland) identifying all
persons who at the time of AWS's shareholder meeting may be deemed to be a Rule
145 Affiliate.
6.5 STOCK OPTIONS.
(A) All options and stock appreciation rights previously granted, if
any, under any AWS stock option plan for its directors or employees or the
directors or employees of any Subsidiary (the "AWS Stock Option Plans")
that are unexercised, whether or not then exercisable (the "AWS Stock
Options"), shall be, on or prior to the Effective Time, immediately
exercisable. AWS will permit all of the AWS Stock Options to be exercised
by the tender to AWS of any of (i) cash in the amount of the exercise
price, (ii) shares of Common Stock of AWS with a fair market value (as such
term is defined in the AWS Stock Option Plans) equal to the exercise price,
or (iii) the withholding by AWS of whole shares of Common Stock of AWS
having a fair market value equal to the exercise price from the shares
issued upon the exercise of the AWS Stock Options. Holders of the AWS Stock
Options who so exercise such Stock Options prior to the Effective Time
shall be entitled to exchange the shares of AWS Common Stock subject to
such Stock Options for the Conversion Amount on the same basis as the other
shareholders of AWS Common Stock. Any AWS Stock Options remaining
unexercised at the Effective Time shall be either terminated or, if such
AWS Stock Option is convertible by its terms into the right to receive
Heartland Common Shares upon the consummation of the Merger, so converted.
All AWS Stock Option Plans shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of
AWS or any Subsidiary, shall be deleted as of the Effective Time, and AWS
shall take all action necessary to ensure that following the Effective Time
no participant in any AWS Stock Option Plan or other plans, programs or
arrangements shall have any right thereunder to acquire equity securities
of AWS, the Surviving Corporation or any subsidiary thereof, and to
terminate all such rights.
(B) AWS shall cause each holder of Non-Plan Options (whether or not
exercisable) to consent to the cancellation of the Non-Plan Options to take
effect on or prior to the Effective Time in consideration
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for the payment to such holders of the Conversion Amount for each share of
AWS Common Stock subject to the Non-Plan Options, upon the payment by each
holder of the applicable option exercise price. AWS will permit holders of
Non-Plan Options to tender the applicable option exercise price by the
tender to AWS of any of (i) cash in the amount of the exercise price, (ii)
shares of Common Stock of AWS with a fair market value equal to the
exercise price, or (iii) the withholding by AWS of whole shares of Common
Stock of AWS having a fair market value equal to the exercise price from
the shares issued upon the exercise of the Non-Plan Options. Cancellation
of the Non-Plan Options in exchange for the consideration set forth in this
Section 6.5 shall be deemed a release of any and all rights each holder had
or may have had in the Non-Plan Options or the AWS Common Stock in respect
of such options. The agreement or resolutions referenced in clauses (i) and
(ii) of this subsection (b) shall be terminated and be of no further force
and effect following the Effective Time. "Non-Plan Options" shall mean the
options to acquire AWS common stock that are unexercised and were
previously granted to Jeffrey D. Howes and Ernie Huls.
(C) No employee of AWS or any Subsidiary who held options for AWS
Common Stock prior to the Effective Time shall have any right to
participate in Heartland's stock option plan with respect to all or any
portion of any calendar year unless expressly so provided in any agreement
between Heartland and such employee.
6.6 WARRANTS. AWS will use reasonable efforts to cause each holder of
warrants to acquire AWS Common Stock (whether or not then exercisable) to
consent to the cancellation of such warrants to take effect on or prior to the
Effective Time in consideration of the payment to such holder of the Conversion
Amount for each share of AWS Common Stock subject to such warrant, upon the
payment by such holder of the applicable warrant exercise price. Cancellation of
such warrants in exchange for the consideration set forth in this Section 6.6
shall be deemed a release of any and all rights the holder had or may have had
in the warrant or the AWS Common Stock in respect of such warrant.
6.7 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity; (b) the obtaining of all necessary
consents, approvals or waivers from third parties; (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed; and (d) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement.
6.8 PUBLIC ANNOUNCEMENTS. Heartland and MergerSub, on the one hand, and
AWS, on the other hand, will consult with each other before issuing any press
release with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release prior to such consultation, unless
otherwise required under applicable law.
6.9 NOTIFICATION OF CERTAIN MATTERS. AWS shall give to Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement and prior to the Effective
Time under any note, license, agreement or other instrument or obligation other
than in respect of defaults which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect; and (ii) any
Material Adverse Effect or the occurrence of any event which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect. Heartland shall give AWS (a) from and
after the date of this Agreement, prompt notice of the occurrence of any event
that would require
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Heartland to file a current report on Form 8-K or issue a press release under
applicable securities laws, and (b) from and after the date of the mailing of
the Proxy Statement, prompt notice of the occurrence of any event that would
require the information regarding Heartland contained in the Proxy Statement to
be amended or supplemented under applicable securities laws. Each party shall
give the other prompt notice of any written notice or other written
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement.
6.10 LETTERS OF AWS'S ACCOUNTANTS. AWS shall use reasonable efforts to
cause to be delivered to Heartland a letter of Arthur Andersen, LLP, AWS's
independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to
Heartland, in form and substance reasonably satisfactory to Heartland and
customary in scope and substance for consent letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement ("Accountant's Consent Letter").
6.11 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act, and will use their
respective best efforts to obtain an early termination of the applicable waiting
period, and will make any further filings pursuant thereto that may be
necessary, proper, or advisable.
6.12 D&O INSURANCE; RELEASE. Until the first anniversary of the Effective
Time, Heartland shall cause the Surviving Corporation to maintain in effect with
respect to matters occurring prior to the Effective Time, to the extent
available, the policies of directors' and officers' liability insurance
currently maintained by AWS; provided that the Surviving Corporation may
substitute therefor policies containing coverage, terms and conditions which are
no less advantageous. On the Closing Date, Heartland shall, and shall cause the
Surviving Corporation to, execute a written release of the parties listed on
Schedule 6.12 in the form attached hereto as Exhibit 6.12 ("Release").
6.13 CERTAIN CLAIMS. Prior to the Effective Time, AWS shall use reasonable
efforts to respond to and defend any claims asserted (a) by TruVision Cable,
Inc. ("TruVision") relative to the wireless cable rights and assets of AWS in
Memphis, Tennessee ("Memphis Market"), (b) by American Telecasting, Inc. ("ATI")
relative to the acquisition of AWS, (c) by Laidlaw regarding certain broker
fees, and (d) by William Jenkins arising from the termination of his employment
with AWS (collectively the "Potential Claims"). AWS shall give Heartland prior
written notice of any settlement of a Potential Claim.
6.14 SEC FILINGS. AWS shall cause to be filed and deliver to Heartland its
Form 10-KSB for the fiscal year ended December 31, 1994 and its Form 10-QSB for
the period ended March 31, 1995, and June 30, 1995, and all periodic and current
reports required to be filed with the SEC for all periods after the execution of
this Agreement through the Closing Date. Heartland shall cause to be filed and
deliver to AWS all periodic and current reports required to be filed with SEC
for all periods after the execution of this Agreement through the Closing Date.
6.15 ACQUISITION OF CERTAIN INTERESTS. Heartland shall use reasonable good
faith efforts to enter into a binding contract to acquire (a) the 79.99% joint
venture interest held by Fort Worth Wireless Cable TV Associates, a California
general partnership, in AWS Fort Worth ("Fort Worth Interest") and (b) the 75%
membership interest held by WCTVA38, a California general partnership, in AWS
Minneapolis ("Minneapolis Interest"), and to have such agreement (or a letter of
intent for such agreement) executed within forty-five (45) days from the date of
this Agreement. As a part of Heartland's good faith effort to acquire such
interests, Heartland shall initially offer to acquire the Minneapolis Interest
for $15,000,000 and the Fort Worth Interest for $10,000,000, in each case with
customary closing conditions and representations, warranties, indemnifications
and releases reasonably acceptable to Heartland.
6.16 SUPPLEMENTAL SCHEDULES. AWS may supplement any Schedule to this
Agreement (a) at any time through the date of the Due Diligence Notice without
the consent or approval of Heartland, and (b) after the date of the Due
Diligence Notice but prior to the Closing Date without the prior consent or
approval of Heartland; provided that, if the disclosure in such supplemental
Schedule represents a material change from
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any disclosure to Heartland on or prior to the date of the Due Diligence Notice,
adverse to Heartland, Heartland shall be entitled to terminate this Agreement
within fifteen (15) days of its receipt of such supplemental Schedule, as
further provided in Article 10.
6.17 EXCLUSIVITY FEE. As consideration for the covenant of AWS contained
in Section 5.4, Heartland shall pay to AWS, until the Closing hereunder or
earlier termination hereof in accordance with Article 10, a fee ("Exclusivity
Fee") of $350,000 upon the date of the execution of this Agreement and $150,000
on the first date of each calendar month thereafter. The Exclusivity Fee shall
be paid solely from the offset of such amounts against the accrued interest and
outstanding principal amount under the Promissory Note from AWS to Heartland
dated May 26, 1995 in the original principal amount of $1,800,000 ("Escrow
Note") (all of which remains outstanding as of the date hereof), which offset
shall occur automatically and without further notice from Heartland on each such
date until the Closing under or earlier termination of this Agreement.
6.18 SALE OF MEMPHIS MARKET. Notwithstanding any provisions contained
herein to the contrary, AWS shall have the right to solicit bids for and
negotiate the sale of the Wireless Cable Television System and related assets
servicing the Memphis Market; provided that (i) AWS shall keep Heartland fully
informed regarding the status of any negotiations regarding the sale of the
Memphis Market or offers therefor, including without limitation, the identity of
the proposed purchaser and the consideration offered or requested, (ii)
Heartland shall have the right to approve, in its reasonable discretion, the
terms of any disposition of the Memphis Market for an aggregate consideration of
less than $3,900,000 and AWS shall not execute a definitive agreement to dispose
of the Memphis Market for an aggregate consideration of less than $3,900,000
without Heartland's written approval, which shall not be unreasonably withheld,
and (iii) the gross proceeds of any such disposition received by AWS ("Memphis
Proceeds") shall reduce, dollar for dollar, the amount of the Net Permitted
Liability Basket, and the excess Memphis Proceeds (meaning the amount of Memphis
Proceeds in excess of $3,150,000, subject to adjustment as provided in Section
6.21 below) shall either be placed into an escrow account and shall remain in
such account through the Closing Date or shall reduce, dollar for dollar, the
Merger Consideration.
6.19 TERMINATION OF CERTAIN AGREEMENTS. On the Closing Date and at the
request of Heartland, AWS shall terminate any Affiliate Agreements and
employment or other management agreements designated by Heartland.
6.20 EXHIBITS. Heartland and AWS agree that any Exhibits not attached
hereto on the date hereof shall be prepared and attached on or before December
29, 1995, and agree to cooperate and negotiate in good faith in the preparation
of such exhibits.
6.21 BTA AMOUNT. Heartland and AWS intend to enter into an agreement ("BTA
Agreement") with regard to the proposed FCC auction ("BTA Auction") of MDS
frequencies in certain "Basic Trading Areas" and similar geographic regions
throughout the United States (collectively "BTAs"), and agree that any amounts
paid to acquire MDS frequencies in the BTA Auction (including any nonrefunded
deposits associated therewith) ("BTA Amounts") will increase dollar for dollar
the Net Permitted Liability Basket.
ARTICLE 7. CONDITIONS PRECEDENT TO MERGER.
The obligation of the parties hereto to consummate the Merger is subject to
fulfillment, or written waiver signed by all parties hereto, of each of the
following conditions precedent on or prior to the Closing Date or the date
specified therein.
7.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
7.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting
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the Merger or any of the transactions contemplated hereby or otherwise making
the consummation of the Merger or any of the transactions contemplated hereby
illegal.
7.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, any Governmental Authority in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby by AWS, Heartland and MergerSub, shall have been made or
obtained (as the case may be) without restrictions.
7.4 SALE OF PITTSBURGH SYSTEM. The sale of the Pittsburgh System shall be
consummated in accordance with the terms of the Pittsburgh Sale Agreement.
7.5 DUE DILIGENCE NOTICE. Heartland shall have delivered to AWS written
notice ("Due Diligence Notice") that Heartland is satisfied, in its sole
discretion, with the results of the due diligence investigations of AWS
conducted through the date of the Due Diligence Notice, which date shall be not
later than December 13, 1995. Heartland's failure to deliver such notice within
the time period specified herein shall constitute a waiver of such condition by
Heartland and a waiver of its right to terminate this Agreement for matters set
forth in the Disclosure Schedules delivered to Heartland on or before December
6, 1995.
7.6 Intentionally Omitted.
7.7 OTHER ACQUISITIONS. Heartland shall have delivered to AWS written
notice ("Notice of Agreement") that it has entered into binding agreements to
acquire the Fort Worth Interest and Minneapolis Interest. Such notice shall be
delivered within forty-five (45) days of the execution of this Agreement, and
shall be accompanied by a copy of the agreement to acquire the Fort Worth
Interest or Minneapolis Interest, as applicable.
7.8 FAIRNESS OPINIONS. AWS shall have delivered to Heartland and Merger
Sub (i) on or before the 20th day following the date of this Agreement, an
opinion of the AWS Advisor as to the fairness of the Merger to the stockholders
of AWS from a financial point of view and (ii) on or before the date the joint
proxy statement/prospectus constituting a part of the Registration Statement
referred to in Section 6.2(a) shall be first mailed to stockholders of AWS, a
letter from the AWS Advisor, dated as of the date of such joint proxy
statement/prospectus, confirming its opinion (collectively, the "Fairness
Opinion"). The Fairness Opinion shall be satisfactory in form and substance to
AWS on the date of initial delivery thereof and on the date of any confirmation
thereof contemplated in the preceding sentence, and on the Closing Date shall
not have been withdrawn.
7.9 EXHIBITS. On or before December 29, 1995, Heartland and AWS shall have
agreed upon the form of each exhibit to this Agreement and each such Exhibit
shall be attached hereto.
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY HEARTLAND AND MERGERSUB.
The obligations of Heartland and MergerSub to consummate the Merger are
subject to fulfillment, or written waiver signed by Heartland and MergerSub, of
each of the following conditions precedent on or prior to the Closing Date.
8.1 STOCKHOLDER APPROVAL. The Merger and the acquisition of the Fort Worth
Interest and Minneapolis Interest shall have been approved by the requisite vote
of the holders of Heartland Common Shares in accordance with applicable law and
its Certificate of Incorporation and Bylaws.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by AWS shall be true and correct in all material respects when
made and shall be true and correct in all material respects as if originally
made on and as of the Closing Date.
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8.3 AWS DOCUMENTS. AWS shall have delivered the following to Heartland in
form and substance satisfactory to Heartland and its counsel:
(A) A certificate signed by the chief executive officer of AWS, on
behalf of and in his capacity as an officer of AWS, confirming, on and as
of the Closing Date, that each representation and warranty set forth in
Section 2 hereof was true and correct in all material respects on the date
made and is true and correct in all material respects on and as of the
Closing Date and that AWS is in compliance with the applicable covenants
set forth in Articles 5, 6 and 7.
(B) Evidence that Channel Leases are in place for the Channels and
that such agreements are in full force and effect.
(C) An opinion of special counsel to AWS and an opinion of FCC counsel
to AWS and each Subsidiary in the forms attached hereto as Exhibit 8-3(c).1
and Exhibit 8-3(c).2, respectively.
(D) The minute books, bylaws, certificate of incorporation and other
organizational documents of AWS and each Subsidiary and the stock books and
stock ledgers of AWS Holdings.
(E) All Account Estoppels and Estoppel Certificates and other
necessary and appropriate governmental and third party Consents, approvals
and clearances for consummation of the transactions contemplated herein,
including, but not limited to, receipt of a "final" order by the FCC
approving, without any materially adverse or onerous conditions, of the
transfer of control of AWS as licensee of the owned Licenses. For purposes
of this Section, the term "final" shall mean an order of the FCC which has
not been stayed and, by lapse of time or otherwise, is no longer subject to
administrative or judicial reconsideration, review, appeal or stay.
8.4 NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect
to AWS or any Subsidiary, or their respective assets from the date hereof
through the Closing Date which would have a Material Adverse Effect.
8.5 DISSENTERS' RIGHTS. The shareholders of AWS Common Stock requesting an
appraisal of their shares of AWS Common Stock or exercising the dissenter rights
referred to in Section 1.2(p) hereof shall not hold more than an aggregate of
10% of all outstanding AWS Common Shares.
8.6 VOTING TRUST AGREEMENT. Each of the AWS shareholders identified on
Schedule 8.6 shall have executed the Voting Trust Agreement in the form attached
hereto as Exhibit 8.6 and such agreement shall be in effect on the Closing Date.
8.7 ACQUISITIONS OF OTHER INTERESTS. Heartland shall have acquired, or
shall simultaneously acquire, the Fort Worth Interest and Minneapolis Interest.
8.8 ACCOUNTANT'S CONSENT LETTER. Heartland shall have received from AWS
the Accountant's Consent Letter.
8.9 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF AWS. Each of the
conditions precedent to the obligations of AWS set forth in Article 7 or 9 shall
have been satisfied or waived by AWS, except for the provisions of Section 9.1,
which shall be satisfied and may not be waived by AWS.
8.10 AWS OBLIGATIONS PERFORMED. All obligations of AWS to be performed
hereunder through and including the Closing Date shall have been performed in
all material respects.
8.11 WARRANTS. Each warrant to purchase AWS Common Shares that would give
the holder thereof the right to purchase any shares of capital stock of AWS
(meaning warrants that do not by their terms convert into the right to purchase
Heartland Common Shares) after the Closing Date shall have been exercised,
cancelled or otherwise terminated.
8.12 CLOSING SHARE PRICE. The Closing Share Price shall not be greater
than the Maximum Termination Price.
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ARTICLE 9. CONDITIONS PRECEDENT TO CLOSING BY AWS.
The obligation of AWS to consummate the Merger is subject to fulfillment,
or written waiver signed by AWS, of each of the following conditions precedent
on or prior to the Closing Date.
9.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of the AWS Common Shares in accordance with
applicable law and its Certificate of Incorporation and Bylaws.
9.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland and/or MergerSub shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as if originally made on and as of the Closing Date.
9.3 HEARTLAND AND/OR MERGERSUB DOCUMENTS. Heartland and/or MergerSub, as
the applicable case may be, shall have executed and delivered to AWS in form and
substance satisfactory to AWS and to counsel:
(A) A certificate of the chief executive officer of Heartland and
MergerSub, on behalf of and in his respective capacity as an officer of
Heartland or MergerSub, confirming, on and as of the Closing Date, that
each of the representations and warranties set forth in Section 4 hereof
was true and correct in all material respects on the date made and are true
and correct in all material respects on and as of the Closing Date.
(B) An opinion of counsel to Heartland and/or MergerSub in the form
attached hereto as Exhibit 9.3.
(C) The Escrow Agreement, executed by Heartland and the Exchange
Agent.
9.4 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF HEARTLAND AND
MERGERSUB. Each of the conditions precedent to the obligations of Heartland and
MergerSub set forth in Article 8 shall have been satisfied or otherwise waived
by Heartland and MergerSub.
9.5 HEARTLAND AND MERGERSUB OBLIGATIONS PERFORMED. All obligations of
Heartland and MergerSub to be performed hereunder through and including the
Closing Date shall have been performed in all material respects.
9.6 CLOSING SHARE PRICE. The Closing Share Price shall not be less than
the Minimum Termination Price.
9.7 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the Proxy Statement to be
amended or supplemented under applicable securities laws.
ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the shareholders of AWS and Heartland, by the
mutual consent of Heartland, MergerSub and AWS.
10.2 TERMINATION BY AWS. This Agreement may be terminated and the Merger
may be abandoned by AWS if the Closing conditions set forth in Articles 7 and 9
shall not have been satisfied in full or waived on or before February 29, 1996.
10.3 TERMINATION BY HEARTLAND OR MERGERSUB. This Agreement may be
terminated and the Merger may be abandoned by Heartland or MergerSub if the
Closing conditions set forth in Articles 7 and 8 shall not have been satisfied
in full or waived on or before February 29, 1996; provided that Heartland shall
have the absolute right to terminate this Agreement (a) at any time prior to the
date of the Due Diligence Notice or (b) within fifteen (15) days after the
occurrence of an event described in Section 6.16.
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
(A) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 10, no party hereto (or any directors or
officers) shall have any liability or further obligation to the other parties to
this Agreement, except as provided in Article 10, and the remedies set forth
below shall be
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each party's sole and exclusive remedy for any claims arising from this
Agreement or the termination thereof. The payments specified below to be made
hereunder are each party's reasonable estimate of the Damages arising from the
other party's conduct leading to the termination hereof, and shall constitute
liquidated damages for any claims based thereon.
(B) In the event that any Person shall have made an Acquisition Proposal
and the Board of Directors of AWS approves the execution of an agreement
relating thereto or recommends to the AWS stockholders the acceptance of any
Acquisition Proposal, then AWS shall promptly, but in no event later than two
(2) days after the date of such event, pay Heartland a fee equal to the sum of
(i) One Million Eight Hundred Thousand Dollars ($1,800,000) and (ii) the
outstanding principal and accrued interest under the Escrow Note, and (iii) the
aggregate amount of all Exclusivity Fees previously offset against the Escrow
Note pursuant to Section 6.17, which amount shall be paid by wire transfer of
same day funds. AWS acknowledges that the agreements contained in this Section
10.4(b) are integral parts of the transactions contemplated in this Agreement,
and that, without these agreements, Heartland and MergerSub would not enter into
this Agreement; accordingly, if AWS fails to promptly pay the amount due and
pursuant to Section 10.4(b), and, in order to obtain such payment, Heartland or
MergerSub commences a suit which results in a judgment against AWS for the fee
set forth in this subparagraph (b), the non-prevailing party shall pay the
prevailing party its cost and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the fee at the interest
rate specified in the Escrow Note in effect on the date such payment was
required to be made.
(C) In the event that Heartland and/or MergerSub fail to consummate the
Merger after all conditions set forth in Articles 7 and 8 have been satisfied or
waived, then the indebtedness evidenced by the Escrow Note and the lien of the
Asset Security Agreement ("Security Agreement") dated of even date therewith
shall immediately, and without further acts or actions by Heartland or
MergerSub, be released and discharged, AWS shall have no obligation to repay the
amounts outstanding under the Escrow Note, Heartland shall release the security
interest created by the Security Agreement, Heartland shall execute written
releases of all UCC-1 financing statements executed to perfect the lien of the
Security Agreement, the parties shall have no further obligations hereunder or
under the Escrow Note or Security Agreement, and this Agreement shall terminate.
(D) In the event that this Agreement is terminated (i) by Heartland in
accordance with Section 6.16, (ii) by either party for the failure of the
condition precedent set forth in Section 7.1 primarily as a result of past or
present acts or omissions of AWS, predecessors or Affiliates of AWS, or their
respective officers, directors or agents, (iii) by Heartland for the failure of
the condition precedent set forth in Section 8.3(e) arising solely from the
failure to obtain an FCC Consent, (iv) by AWS for the failure of the condition
precedent set forth in Section 9.1, or (v) by Heartland for the failure of the
condition precedent set forth in Section 8.2 or Section 8.4, then all
Exclusivity Fees previously offset against the Escrow Note shall be added back
to the principal balance of the Escrow Note and the Escrow Note shall thereafter
be repaid to Heartland in accordance with the terms thereof; provided that, upon
any such termination, the Escrow Note shall be modified to enter the maturity
date thereof until the date which is one (1) year from the date of such
termination.
(E) In the event that this Agreement is terminated for any reason other
than as set forth in subsections (b), (c) or (d) above, then the Escrow Note
(less any Exclusivity Fees offset against the Escrow Note in accordance with
Section 6.17, prorated through the date of termination) shall be repaid in
accordance with its terms, and the parties shall have no further liabilities to
each other (other than the obligation of AWS under the Escrow Note and Security
Agreement); provided that, upon any such termination, the Escrow Note shall be
modified to enter the maturity date thereof until the date which is one (1) year
from the date of such termination.
ARTICLE 11. CONDITIONS FOR RELEASE OF HOLDBACK AMOUNT
11.1 PROVISIONS REGARDING REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATIONS. The statements, certifications, representations and warranties
made by AWS in this Agreement, in any Schedule, or in any Exhibit,
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certificate or other instrument delivered by or on behalf of AWS or any
Subsidiary pursuant to this Agreement shall survive the Merger for a period of
one year from the Closing Date. Subject to the limitations contained in Section
3.1 regarding the Fort Worth System and Minneapolis System, AWS shall indemnify
and hold Heartland and MergerSub, their respective officers and directors
("Heartland Indemnitees") harmless from any and all Damages relating to or
arising from the following ("Primary Claims"):
(A) the existence of any Net Permitted Liabilities (excluding the
indebtedness evidenced by the Escrow Note) on the Closing Date in excess of
$3,150,000 ("Net Permitted Liability Basket"), as adjusted pursuant to
Sections 6.18 and 6.21;
(B) any material breach of the representations and warranties
contained in Section 2.30, which breach may be established by (i) the
discovery of undisclosed correspondence, documents or other materials
originated by or established to have been received by AWS relating to a
Potential Claim, or (ii) the admission, statement or testimony of any
executive officer or director of AWS (including, without limitation,
statements or disclosures in interrogatory responses, deposition testimony,
settlement negotiations or other Proceedings), which conflicts with or
contradicts any disclosure which is the subject of the representations and
warranties contained in Section 2.30;
(C) any Potential Claims of Laidlaw and Jenkins; and
(D) any Claims arising from the willful malfeasance or any fraudulent
acts of AWS or its officers or directors;
and AWS shall indemnify and hold the Heartland Indemnitees harmless from
fifty percent (50%) of any Damages relating to or arising out of the
following ("Secondary Claims"), to the extent such Damages are not the
subject of a Primary Claim:
(X) any breach or nonperformance (partial or total) of or in any
representation or warranty or covenant of AWS contained in this
Agreement;
(Y) any Partnership Claims; and
(Z) the Potential Claims of ATI and TruVision; provided that AWS
shall not have any liability to the Heartland Indemnitees hereunder for
any Damages arising from the Potential Claim of TruVision in excess of
$1,800,000 (meaning the maximum liability of AWS to the Heartland
Indemnitees hereunder for such claim shall be $900,000);
provided that, with respect to Secondary Claims, Heartland shall not make
any claim for a Secondary Claim less than $10,000 ("Minimum Claim Amount"),
and Heartland shall not assert any claims hereunder, until the aggregate
amount of all Secondary Claims exceeds $250,000 ("Secondary Claim Floor"),
and then Heartland shall only have the right to make claims hereunder for
Secondary Claims to the extent that the aggregate amount of the Secondary
Claims exceeds the Secondary Claim Floor. AWS, Heartland and MergerSub
acknowledge and agree that, for purposes of determining the Secondary Claim
Floor, one hundred percent (100%) of all Secondary Claims equal to or
greater than the Minimum Claim Amount shall be included, and that the
indemnification obligations of AWS for Secondary Claims in excess of the
Secondary Claim Floor shall be limited to fifty percent (50%) of such
excess.
11.2 ESCROW HOLDBACK. The Holdback Amount shall be held by the Exchange
Agent pursuant to the terms of the Escrow Agreement (attached as Exhibit
1.2(h)), which shall remain in effect until the expiration of the Escrow Period.
The indemnification obligations of AWS shall be limited to and satisfied solely
from the Holdback Amount in accordance with the terms of the Escrow Agreement.
Upon the expiration of the Escrow Period, the Contingent Amount to be received
by each former holder of AWS Common Shares shall be proportionately reduced by
the aggregate of the Primary Claims and Secondary Claims properly charged
against the Holdback Amount, to the extent such Holdback Amount is reduced by
such claim as provided in the Escrow Agreement and herein. It is acknowledged
and agreed that there shall be no remedy or other recourse by Heartland or
MergerSub, or its successors or assigns, against AWS or its shareholders, or
their successors and assigns (but only in their capacity as shareholders) of any
nature whatsoever, including, but not limited to, breaches of the
representations, warranties or covenants of this Agreement, other than to the
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Holdback Amount, and that the Holdback Amount shall be the sole remedy and
recourse by Heartland or MergerSub against AWS or its shareholders (but only in
their capacity as shareholders).
11.3 ADJUSTMENT TO CONTINGENT CONSIDERATION AND INITIAL CONSIDERATION. In
the event that the Potential Claim of TruVision is resolved and AWS and
Heartland receive a full release from TruVision regarding its Potential Claim
prior to the Closing Date, then (i) the Contingent Consideration shall be
reduced by $500,000 and (ii) the Initial Consideration shall be increased by
$500,000.
ARTICLE 12. DEFINITIONS.
12.1 The terms used in this Agreement have the respective meanings
specified or referred to in this Article 12:
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
5.4.
"ACT" means The Communication Act of 1934, as amended.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person.
"AFFILIATE TRANSFER CONSENTS" shall have the meaning set forth in
Section 5.2
"ANNUAL FCC REPORT" means the reports which a licensee in the MMDS
service is required to file annually with the FCC pursuant to Section
21.911 of the FCC Rules.
"APPLICATION" means a pending application by AWS or Institution or
other Parties to the FCC for a License.
"ATI" shall have the meaning set forth in Section 6.13.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to AWS by a
Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with the provision of wireless
cable services, including the licenses, permits, authorizations,
franchises, grants, registrations, certificates, consents and waivers
listed on Schedules 2.10(b) and 2.10(d).
"AWS ADVISOR" shall mean Daniels & Associates.
"AWS COMMON SHARES" shall mean all of the issued and outstanding
capital stock of AWS immediately before the Merger.
"AWS SEC FILINGS" means AWS's Form 10-KSB filed for the fiscal years
ended December 31, 1993 and 1994, Form SB-2 (File No. 33-78354) filed with
the SEC on April 29, 1994, Form SB-2 (File No. 33-75190) filed with the SEC
on February 14, 1993, and all intervening Form 10-QSBs, 8-Ks and proxy
statements filed with the SEC.
"AWS FORT WORTH" shall have the meaning set forth in Section 2.2.
"AWS HOLDINGS" shall have the meaning set forth in Section 2.2.
"AWS MINNEAPOLIS" shall have the meaning set forth in Section 2.2.
"AWS REPRESENTATIVES" shall have the meaning set forth in Section 5.4.
"AWS SHARE VALUE" shall have the meaning set forth in Section 1.2(c).
"AWS STOCK OPTION PLANS" shall have the meaning set forth in Section
6.5(a).
"AWS STOCK OPTIONS" shall have the meaning set forth in Section
6.5(a).
"CERTIFICATES" shall have the meaning set forth in Section 1.2(i).
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"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the AWS or Subsidiary.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.3.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.3.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Common
Shares the average of the closing prices of such stock as reported on the
NASDAQ NMS for the ten (10) trading days ending on the fifth (5th) business
day prior to the Closing Date. In the event that the Heartland Common
Shares do not trade on any date within such ten-day period, the closing
price for such date shall be deemed to be the closing price for the day
preceding such date of purposes of determining the Closing Share Price.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENTS" means the consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Material Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for Heartland to conduct the
operations currently conducted by AWS after the Closing, but does not
include Affiliate Transfer Consents.
"CONTINGENT AMOUNT" shall have the meaning set forth in Section
1.2(b).
"CONTINGENT CONSIDERATION" means $3,250,000, as adjusted pursuant to
Section 11.3.
"CONVERSION AMOUNT" shall be the amount of consideration per share for
the acquisition of AWS as provided for in Section 1.2(b).
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DGCL" means the Delaware General Corporation Law.
"DUE DILIGENCE NOTICE" shall have the meaning set forth in Section
7.5.
"EFFECTIVE TIME" shall mean the date and time of the filing of the
applicable certificate of merger in the State of Delaware.
"EMPLOYEE" shall have the meaning set forth in Section 2.23(a).
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants,
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contaminants or hazardous or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, and including electro-magnetic fields
or discharges into the Environment, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, which are now or may hereafter be applicable to AWS.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGREEMENT" shall have the meaning set forth in Section 1.2(h).
"ESCROW NOTE" shall have the meaning set forth in Section 6.17.
"ESCROW PERIOD" means the period commencing on the Closing Date and
continuing for a period of one year, as extended pending the resolution of
any Claims made within one year of the Closing Date and pending the
administration of such Claims, as further provided in the Escrow Agreement.
"ESTOPPEL CERTIFICATE" shall have the meaning set forth in Section
5.2.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.2(h).
"EXCHANGE FUND" shall have the meaning set forth in Section 1.2(h).
"EXCHANGE PRICE" shall have the meaning set forth in Section 1.2(d).
"EXCLUSIVITY FEE" shall have the meaning set forth in Section 6.17.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means all of the plants, offices, broadcast towers,
antenna towers, head-ends, studios, control centers and other real property
interests and related facilities which are either owned by AWS or leased by
or the use of which are leased by the AWS.
"FAIRNESS OPINION" shall have the meaning set forth in Section 7.8.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5.
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"FORT WORTH INTEREST" shall have the meaning set forth in Section
6.15.
"FORT WORTH SYSTEM" shall have the meaning set forth in Section 3.1
"GAAP" means generally accepted accounting principles in effect as of
the applicable time or the date of any financial statements in the United
States of America. The term "generally accepted accounting principles"
shall mean accounting principles which are (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors as generally accepted accounting principles, and
(b) such that a certified public accountant would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an
unqualified opinion as to financial statements in which such principles
have been properly applied.
"GAAP LIABILITIES" means liabilities on the Closing Date which would
be properly reportable on a balance sheet for AWS as of the Closing Date
prepared in accordance with GAAP.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government or any federal, state or local regulatory
authority.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority to AWS or Subsidiary.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND COMMON SHARES" means shares of common stock, $.001 par
value per share, Heartland Wireless Communications, Inc.
"HEARTLAND INDEMNITEES" shall have the meaning set forth in Section
11.1.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
4.7.
"HOLDBACK AMOUNT" shall have the meaning set forth in Section 1.2(i).
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"INITIAL AMOUNT" shall have the meaning set forth in Section 1.2(b).
"INITIAL CONSIDERATION" means $30,750,000, as adjusted pursuant to
Section 11.3.
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with AWS or
any Subsidiary.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of AWS or
any Affiliate of AWS which are used or available for use in connection with
the Business.
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"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"JOINT VENTURE" means a joint venture, partnership, limited liability
company or other similar arrangement, whether in corporate, partnership or
other legal form; provided that in no event shall any corporate Subsidiary
of any Person be considered a Joint Venture to which such Person is a
party.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is actually aware or has
reason to know, after due inquiry, of such fact or other matter; and (b)
with respect to a Person (other than an individual) "knowledge" of a
particular fact or other matter if any individual who is serving as a
director or officer of such Person has "knowledge" of such fact or other
matter.
"LAIDLAW" means Laidlaw Holdings, Inc.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline applicable to or against
AWS or Subsidiary.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals which are required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance against any assets or properties
of AWS or its Subsidiaries.
"MANAGE OR MANAGEMENT" means the use, possession, processing,
generation, treatment, storage, disposal, recycling, transportation or
arranging for the transportation of any Hazardous Substance.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in or is reasonably likely to result in a material adverse change
in (i) the financial condition, business, operations or properties of AWS
or any Subsidiary, taken as a whole other than general economic change over
which neither AWS nor any Subsidiary has any control; (ii) the ability of
AWS or any Subsidiary prior to the Effective Time to perform its
obligations under this Agreement, or (iii) the validity or enforceability
of this Agreement.
"MATERIAL CONTRACTS" shall have the meaning set forth in Section 2.9.
"MAXIMUM COLLAR PRICE" means $26.00.
"MAXIMUM TERMINATION PRICE" means $32.00.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MEMPHIS MARKET" shall have the meaning set forth in Section 6.12.
"MEMPHIS PROCEEDS" shall have the meaning set forth in Section 6.18.
"MERGER" means the merger described in Section 1.1.
"MERGER CONSIDERATION" means $34,000,000.00.
"MINIMUM CLAIM AMOUNT" shall have the meaning set forth in Section
11.1.
"MINIMUM COLLAR PRICE" means $20.00.
"MINIMUM TERMINATION PRICE" means $12.00.
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"MINNEAPOLIS INTEREST" shall have the meaning set forth in Section
6.15.
"MINNEAPOLIS SYSTEM" shall have the meaning set forth in Section 3.1.
"MMDS" means the Multichannel Multipoint Distribution Service.
"NET PERMITTED LIABILITIES" means (i) Permitted Liabilities minus (ii)
cash held in deposit accounts to be retained and available for use by the
Surviving Corporation following the Merger.
"NET PERMITTED LIABILITY BASKET" shall have the meaning set forth in
Section 11.1(a).
"NON-PLAN OPTIONS" shall have the meaning set forth in Section 6.5(a).
"NOTICE OF AGREEMENT" shall have the meaning set forth in Section 7.7.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator as to which AWS or Subsidiary
is a party.
"OUTSTANDING AWS SHARES" shall have the meaning set forth in Section
1.2(c).
"PARTNERSHIP CLAIMS" shall mean the aggregate claims for Damages
arising from the organization of Wireless Cable T.V. Associates No. 34,
Wireless Cable T.V. Associates No. 37, Wireless Cable T.V. Associates No.
38, or Fort Worth Wireless Cable T.V. Associates, each a California general
partnership.
"PBGC" shall have the meaning set forth in Section 2.23(c).
"PERMITTED LIABILITIES" shall mean the sum of (i) GAAP Liabilities,
(ii) Severance Obligations (excluding Severance Obligations which are
included in the calculation of GAAP Liabilities), and (iii) twenty-five
percent (25%) of the indebtedness of AWS Minneapolis to Heartland
outstanding under that certain promissory note in the original principal
amount of $560,000 for the purpose of repaying the loan to Tsunami Capital
Corporation.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"PITTSBURGH SALE AGREEMENT" shall have the meaning set forth in
Section 3.2.
"PITTSBURGH SYSTEM" shall have the meaning set forth in Section 3.2.
"PLANS" shall have the meaning set forth in Section 2.23(a).
"POTENTIAL CLAIMS" shall have the meaning set forth in Section 6.13.
"PRIMARY CLAIMS" shall have the meaning set forth in Section 11.1.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 6.2(b).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
6.2(a).
"RELEASE" means the releasing, spilling, leaking, discharging,
pumping, pouring, emitting, emptying, ejecting, leaching, dumping,
disposing or allowing to escape any Hazardous Substance.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 6.4.
"SEC" means the United States Securities and Exchange Commission.
"SECONDARY CLAIMS" shall have the meaning set forth in Section 11.1.
"SECONDARY CLAIM FLOOR" shall have the meaning set forth in Section
11.1.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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[C]
"SECURITY AGREEMENT" shall have the meaning set forth in Section
10.4(c).
"SEVERANCE OBLIGATIONS" shall have the meaning set forth in Section
2.28.
"SITE" means a wireless cable television site with respect to which
AWS is operating a Wireless Cable Business and transmitting programming to
subscribers in connection therewith.
"SITE LEASE" shall mean an agreement for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"SUBSIDIARY" means AWS Holdings, AWS Forth Worth and AWS Minneapolis,
or any other entity in which AWS has the ability to direct the management
or affairs, excluding the Pittsburgh Venture.
"SUPPLEMENTAL DISCLOSURE" shall have the meaning set forth in Section
12.11.
"SURVIVING CORPORATION" shall have the meaning set forth in Section
1.1.
"TAX" or "TAXES" shall have the meaning set forth in Section 2.6.
"TRUVISION" shall have the meaning set forth in Section 6.13.
"US TRUST" means U.S. Trust Company of Texas, N.A.
"VOTING TRUST AGREEMENT" shall have the meaning set forth in Section
8.6.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
"WIRELESS CABLE TELEVISION SYSTEMS" means the Dallas, Fort Worth, Los
Angeles, Memphis and Minneapolis wireless cable television systems, whether
or not operational, and all assets relating thereto.
12.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 13. MISCELLANEOUS.
13.1 EXPENSES OF THE TRANSACTION. Each of AWS, Heartland and MergerSub
agrees to pay its own fees and expenses in connection with this Agreement and
the transactions hereby contemplated.
13.2 FURTHER ASSURANCES. Each of AWS, Heartland and MergerSub agrees that
it will, at any time and from time to time after the Closing Date, upon the
request of the other party, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required from time to time in order to effectuate the provisions and
purposes of this Agreement.
13.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to Heartland, to:
Heartland Wireless Communications, Inc.
902 N. Bowser, Suite 140
Richardson, Texas 75081
Attn: John R. Bailey
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With copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75202
Attn: Victor B. Zanetti
If to AWS, to:
American Wireless Systems, Inc.
7426 E. Stetson Drive
Suite 220
Scottsdale, AZ 85251
Attn: Steven G. Johnson
With copy to:
O'Connor Cavanagh
One East Camelback Road
Suite 1100
Phoenix, AZ 85012
Attn: Richard Stagg
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
13.4 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
13.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits hereto, sets forth the entire agreement and understanding among the
parties as to the subject matter hereof.
13.6 SEVERABILITY. If any provision of this Agreement or the application
of any provision hereof to any person or in any circumstances is held invalid,
the remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
13.7 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any party hereto except with the
prior written consent of the other parties. Any purported assignment contrary to
the terms of this Agreement shall be void.
13.8 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Date, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland and AWS; provided,
Heartland and AWS shall be entitled to disclose the transactions contemplated
hereby without the prior approval of the other, but with prior notice to the
other, to the extent reasonably necessary for Heartland or AWS to comply with
applicable securities laws.
13.9 CHOICE OF LAW. This Agreement shall be deemed to have been made in,
and shall be construed in accordance with the laws of the State of Delaware, and
its validity, construction, interpretation and legal effect shall be governed by
the laws of the State of Delaware applicable to contracts entered into and
performed entirely therein.
13.10 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
13.11 SCHEDULES. The Schedules referred to herein and delivered to
Heartland and/or MergerSub upon execution hereof are hereby made a part of this
Agreement. All Schedules delivered to Heartland and/or
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[C]
MergerSub shall be subject to modification prior to the Closing Date, provided
that such modifications are designated as a "Supplemental Disclosure" and
delivered pursuant to notice given in accordance with Section 13.3.
13.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
IN WITNESS WHEREOF each of the parties hereto has executed this Agreement
as of the day and year first above written.
AWS:
AMERICAN WIRELESS SYSTEMS, INC.
By: /s/ STEVEN G. JOHNSON
Name: Steven G. Johnson
Title: President/CEO
HEARTLAND:
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: CFO
MERGERSUB:
HEARTLAND MERGERSUB, INC.
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: CFO
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[D]
APPENDIX D
AWS ESCROW AGREEMENT
<PAGE> 369
D -------
EXHIBIT 1.2(H)
ESCROW AGREEMENT
[NOTE: THIS AGREEMENT IS INTENDED TO ADDRESS THE $3.25 MM
HOLDBACK. DISTRIBUTION OF THE $30.75 MM AMOUNT WILL
BE HANDLED IN AN EXCHANGE AGENT AGREEMENT]
THIS ESCROW AGREEMENT(the "Agreement") is made as of , 1996
by and among AMERICAN WIRELESS SYSTEMS, INC., a Delaware corporation ("AWS"),
HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware corporation ("Heartland"),
HARRIS TRUST COMPANY OF NEW YORK (the "Escrow Agent") and Daniel A. Cartwright
(the "Stockholder Representative"). Capitalized terms used but not defined
herein shall have the meanings given to them in that certain Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of
September 11, 1995, among AWS, Heartland and Heartland Merger Sub, Inc. ("Merger
Sub").
RECITALS:
WHEREAS, AWS, Heartland and Merger Sub have entered into the Merger
Agreement to provide for the merger of Merger Sub with and into AWS (the
"Merger"); and
WHEREAS, the Closing of the transactions contemplated by the Merger
Agreement is taking place as of the date hereof and, in connection with the
distribution of the shares of Heartland Common Stock to be issued to the AWS
Stockholders in the Merger, Heartland and the Escrow Agent have also entered
into the Exchange Agent Agreement (herein so called); and
WHEREAS, Heartland has relied upon the representations, warranties and
covenants of AWS provided in the Merger Agreement and in schedules, certificates
and other documents delivered pursuant to the Merger Agreement; and
WHEREAS, pursuant to Article 11 of the Merger Agreement, AWS has agreed, as
the sole remedy and recourse of Heartland against AWS and its shareholders (but
only in their capacity as shareholders of stock subject to this Agreement), to
indemnify and hold the Heartland Indemnitees harmless from Primary Claims and
the Secondary Claims (collectively, the "Claims") as further provided therein.
NOW, THEREFORE, to induce Heartland to proceed with the Closing and the
Merger, and in consideration of such Closing and Merger, and in further
consideration of the mutual covenants and agreements contained herein and in the
Merger Agreement, and intending to be legally bound, the parties hereto do
hereby agree as follows:
1. APPOINTMENT OF STOCKHOLDER REPRESENTATIVE.
AWS hereby appoints the Stockholder Representative, and the Stockholder
Representative agrees to act, as the representative of the persons entitled to
receive (subject to the terms hereof and the Merger Agreement) the Holdback
Amount, in accordance with this Escrow Agreement. No bond shall be required of
the Stockholder Representative, and the Stockholder Representative shall receive
$10,000 quarterly as compensation for services hereunder. The Escrow Agent,
Heartland and AWS are hereby relieved from any liability for any acts done by
them, or any of them, in accordance with any such resolution, action, decision,
consent or instruction of the Stockholder Representative.
2. APPOINTMENT OF ESCROW AGENT; ESCROW FUND.
(A) Heartland, AWS and the Stockholder Representative hereby appoint the
Escrow Agent, and the Escrow Agent hereby agrees to act, as the agent of such
parties in performing the duties of the Escrow Agent provided herein. As
compensation for Escrow Agent's services hereunder, Escrow Agent shall receive a
compensation of $2,500 ($1,500 of which shall be payable upon the execution
hereof and $1,000 of which
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shall be payable upon the termination of this Agreement) and the reimbursement
of all other Administrative Costs (as such term is defined in Section 6(d)).
(B) On the date hereof, Heartland shall cause to be deposited with the
Escrow Agent Heartland Common Shares (the "Escrow Shares") representing the
Contingent Amount (subject to adjustment for the rounding of fractional shares
as provided in Section 1.2(i) of the Merger Agreement) to be received by the
holders of AWS Common Shares ("AWS Stockholders") pursuant to the Merger
Agreement, such deposit, together with any dividends or other distributions paid
thereon, to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth herein. Upon compliance with the terms hereof, Heartland shall
be entitled to receive payment from the Escrow Fund for all Claims for which
Heartland or the Surviving Corporation is entitled to indemnification under
Article 11 of the Merger Agreement. The indemnification obligations of AWS to
Heartland or the Surviving Corporation under Article 11 of the Merger Agreement
shall be limited to the Escrow Fund.
(C) The Escrow Agent shall hold, safeguard and dispose of the Escrow Fund
in accordance with the terms hereof.
(D) For purposes of this Agreement, each Escrow Share shall have a value
equal to $ (the "Exchange Value") and such valuation shall apply
throughout the duration of the Escrow Period.
3. ESCROW PERIOD. The escrow created hereby shall remain in existence until the
date all of the Escrow Shares and other assets in the Escrow Fund have been
distributed in accordance herewith (such period being referred to herein as the
"Escrow Period").
4. CLAIM SUBMISSION PERIOD. With respect to each Claim, Heartland shall deliver
(in accordance with Section 13 below) to the Escrow Agent within one (1) year
from the date hereof (the "Claim Submission Period"), a certificate signed by an
executive officer of Heartland ("Officer's Certificate"):
(I) stating that Heartland or the Surviving Corporation has paid,
suffered or properly accrued, or Heartland or the Surviving Corporation in
good faith reasonably anticipates that Heartland or the Surviving
Corporation will have to pay, suffer or accrue, Damages in an aggregate
stated amount (including, without limitation, any anticipated professional
and other fees and costs associated therewith) and, with respect to a
Qualifying Offer, that the Qualifying Offer (a copy of which is to be
attached to the Officer's Certificate) has been made and not accepted
within the time period specified therein and the amount of additional
Damages (meaning attorneys' fees and other expenses) associated therewith);
and further stating that Heartland or the Surviving Corporation is entitled
to indemnification out of the Escrow Fund pursuant to this Agreement and
the Merger Agreement; and
(II) specifying in reasonable detail (A) the individual items of
Damages included in the amount so stated (or the amount of the Qualifying
Offer and additional Damages, such as attorneys' fees and other expenses,
associated therewith), (B) the date each such item was paid or properly
accrued or the basis for such anticipated liability, (C) the nature of the
liability, misrepresentation, breach of warranty or covenant or other
matter to which such items are related, (D) whether the Claim constitutes a
Primary Claim or a Secondary Claim, and (E) if the Claim is a Secondary
Claim, the aggregate of all Secondary Claims agreed to or determined to be
proper hereunder.
Upon the Escrow Agent's receipt of the Officer's Certificate, such Claim shall
be administered by the Escrow Agent pursuant to Section 6 below.
5. THIRD PARTY CLAIMS; QUALIFYING OFFERS; QUARTERLY REPORTS.
(A) Within 15 days after receipt by Heartland of notice of any Claim by a
third party relating to transactions, matters or events occurring or existing on
or prior to the Effective Time as to which indemnification may be sought under
Article 11 of the Merger Agreement (a "Third Party Claim," which includes,
without limitation, the Potential Claims and Partnership Claims), Heartland
shall deliver to the Stockholder Representative written notice thereof; provided
that the omission to so notify the Stockholder Representative will not affect
Heartland's right of recourse to the Escrow Fund hereunder and that Heartland
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D
shall not be required to deliver notice of the Potential Claims disclosed in, or
other Claims disclosed in any schedule to, the Merger Agreement. The Stockholder
Representative shall have the right to participate in any such proceeding and
Heartland shall have the right (but not the duty) to control the defense
thereof. Whether or not the Stockholder Representative chooses to participate in
the defense of any proceeding involving a Third Party Claim, each party hereto
and their respective successors and assigns agree to cooperate in the defense
and to take all actions in connection with such defense as may be reasonably
requested.
(B) At any time during the first eleven (11) months of the Claim Submission
Period, Heartland shall have the right to make a written offer to the adverse
party in any Third Party Claim to settle such Claim for an amount specified in
such offer (a "Qualifying Offer"), and Heartland shall give such third party no
less than twenty (20) days to accept such Qualifying Offer. If a Qualifying
Offer is accepted and the Claim is settled, Heartland may seek indemnification
for such Claim within the Claim Submission Period in accordance with Section 4.
If such Qualifying Offer is rejected or not accepted within such twenty (20) day
period, then Heartland shall be entitled to seek indemnification within ten (10)
days from the earlier of Heartland's receipt of a written rejection of a
Qualifying Offer or the expiration of such twenty (20) day period for the amount
of such Qualifying Offer (together with all expenses and costs relating thereto,
including without limitation attorneys' fees) from the Escrow Fund in accordance
with Section 4.
(C) Heartland shall use reasonable efforts to provide to the Stockholder
Representative a report on each date which is three, six and nine months from
the date hereof identifying with reasonable detail any potential Claim or
circumstances which may lead to a Claim that have not previously been the
subject of a Claim Notice; provided, that the failure of Heartland to deliver
such report or identify any Claim shall not constitute a waiver of or otherwise
affect any rights of Heartland hereunder or under the Merger Agreement with
regard to such Claim.
6. ADMINISTRATION OF CLAIMS.
(A) ACCEPTED CLAIMS. At the time of delivery of an Officer's Certificate to
the Escrow Agent pursuant to Section 4, a duplicate copy of such Officer's
Certificate shall be delivered by Heartland to the Stockholder Representative
("Claim Notice"). The Stockholder Representative shall have a period of ten (10)
business days from its receipt of a Claim Notice ("Rejection Period") to review
the Officer's Certificate and deliver to Heartland and Escrow Agent written
notice of its rejection of all or a portion of the Claim referenced therein
("Rejection Notice"). If no Rejection Notice is received by Heartland and Escrow
Agent within the Rejection Period, then such Claim shall become an "Accepted
Claim."
(B) REJECTED CLAIMS. For any Claim which is the subject of a Rejection
Notice (a "Rejected Claim"), the Stockholder Representative and Heartland shall
attempt in good faith to agree upon the rights of the respective parties with
respect to such Claim. If the Stockholder Representative and Heartland so agree,
a memorandum setting forth such agreement shall be prepared and signed by
Heartland and the Stockholder Representative and shall be furnished to the
Escrow Agent and such Rejected Claim shall become an "Accepted Claim."
(C) RESOLUTION OF DISPUTE. If no such agreement between the Stockholder
Representative and Heartland can be reached with respect to a Rejected Claim
after good faith negotiation within thirty (30) days of Heartland's receipt of a
Rejection Notice, Heartland and the Stockholder Representative shall mutually
select an independent third party (the "Designated Party") whose determination
of the Rejected Claim and the amount of Damage (if any) associated therewith
shall be final, nonappealable and binding; provided that, with respect to Claims
which are the subject of a Qualifying Offer, the Designated Party shall only be
entitled to determine whether such Claim is subject to the indemnification
obligations of AWS under the Merger Agreement (and if so, whether a Primary or
Secondary Claim); and the Designated Party shall have no authority to reduce or
increase the amount of such Claim from the amount of the Qualifying Offer and
Damages associated therewith. The Designated Party shall be a person
knowledgeable regarding the wireless cable television business and the value of
related assets, and shall be generally knowledgeable with regard to business and
financial matters. In the event Heartland and the Stockholder Representative
fail to agree upon the Designated Party within forty (40) days after Heartland's
receipt of a Rejection Notice, the Designated
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Party shall be the managing partner of the Denver, Colorado offices of an
independent "Big Six" accounting firm other than KPMG Peat Marwick, L.L.P. and
Arthur Andersen, LLP, as selected jointly by the managing partner of the Denver,
Colorado office of said firms or their respective designees, and in the absence
of said joint election, as selected by the managing partner of the Denver,
Colorado office of KPMG Peat Marwick, L.L.P. or his designee. Upon the
determination of the Designated Party in accordance herewith with respect to a
Rejected Claim, the determination of the value of such Claim, if any, by the
Designated Party shall become an "Accepted Claim." All determinations by a
Designated Party hereunder shall be made in accordance with the expedited
commercial rules of the American Arbitration Association.
(d) ADMINISTRATIVE COSTS AND STOCKHOLDERS EXPENSES.
(I) All costs and expenses of administering this Agreement (including,
without limitation, fees and expenses of the Escrow Agent and any
Designated Party) ("Administrative Costs") shall be borne equally by
Heartland and the Escrow Fund. Administrative Costs shall be paid by
Heartland within fifteen (15) business days after Heartland's receipt of an
invoice from the Escrow Agent therefor. Within five (5) business days of
either the payment of such costs to the Escrow Agent or Heartland's
delivery to the Escrow Agent of evidence that such Administrative Cost has
been paid, Heartland shall be entitled to receive Escrow Shares having an
aggregate Exchange Value equal to fifty percent (50%) of the amount of such
payment. Heartland shall be under no obligation to bear any expenses
pursuant to this Section 6(d) at any time that the Escrow Fund shall be
exhausted or following the termination of this Agreement.
(II) The Escrow Agent shall be indemnified and saved harmless by
Heartland from and against any and all liability, including all expenses
reasonably incurred in its defense, to which the Escrow Agent shall be
subjected by reason of any action taken or omitted or any investment or
disbursement of any part of the Escrow Fund made by the Escrow Agent
pursuant to this Agreement, unless caused by the gross negligence or
willful misconduct of the Escrow Agent. The costs and expenses of enforcing
this right of indemnification shall also be paid by Heartland, and this
right of indemnification shall survive the termination of this Agreement,
and/or the resignation or removal of the Escrow Agent. The indemnification
and other obligations of Heartland to the Escrow Agent set forth in this
Subsection 6(d)(ii) shall be borne by Escrow Fund, and the Escrow Agent
shall release to Heartland Escrow Shares having an aggregate Exchange Value
equal to the amount of any such payment by Heartland within five (5)
business days of the Escrow Agent's receipt of a written request by
Heartland therefor; provided that if the Escrow Agent is entitled to
indemnification in excess of the aggregate Exchange Value of the Escrow
Shares and any other amounts in the Escrow Fund, then such indemnification
obligation shall be borne directly by Heartland.
(III) The Stockholder Representative shall be entitled to
indemnification from the Escrow Fund (or Heartland, subject to the
limitations set forth below) for any liabilities, costs or expenses,
arising from actions or decisions made in good faith in managing and
discharging his or her duties and responsibilities in accordance with the
terms hereof ("Indemnified Amounts"). All Indemnified Amounts, costs and
expenses of, and compensation payable to, the Stockholder Representative
(including, without limitation, those payable to attorneys and other third
parties hired by the Stockholder Representative) ("Stockholder Expenses")
shall be advanced by Heartland upon the submission by the Stockholder
Representative of a certificate ("Representative's Certificate") certifying
(A) the nature of the expenses incurred, (B) the amount of the expenses
incurred, and (C) that the expenses were properly incurred in connection
with the performance of the duties of the Stockholder Representative
hereunder and, with respect to Indemnified Amounts, that such
indemnification or reimbursement is proper hereunder. Heartland shall have
ten (10) business days to review the Representative's Certificate and
deliver its written objection to any expenses contained therein to the
Stockholder Representative and Escrow Agent. In the event that Heartland
does not object to any expenses in the Representative Certificate within
such ten (10) day period, Heartland shall, within five (5) business days
thereafter, pay to the Stockholder Representative or its designee the
Stockholder Expenses identified in the Representative's Certificate. If
Heartland and the Stockholder Representative cannot agree on the propriety
of a Stockholder Expense identified in a Representative's Certificate, then
such matter shall be referred to the Designated Party and
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D -------
decided in accordance with Section 6(c) hereof. At any time after the
payment of a Stockholder Expense, Heartland shall be entitled to submit the
Representative's Certificate along with a certificate signed by an
executive officer of Heartland that the Stockholder Expenses referred to in
the Representative's Certificate have been paid, and within five (5) days
from the receipt of such items by the Escrow Agent, the Escrow Agent shall
release to Heartland Escrow Shares having an aggregate Exchange Value equal
to one hundred percent (100%) of such Stockholder Expenses. Notwithstanding
the foregoing, Heartland shall have no obligation to pay or reimburse any
Stockholder Expenses (other than Indemnified Amounts) at any time in which
the aggregate amount of outstanding Claims submitted to the Escrow Agent
that are to be paid from the Escrow Fund exceed the value of the Escrow
Shares remaining in the Escrow Fund. In the event that there are
insufficient Escrow Shares in the Escrow Fund to satisfy an Indemnified
Amount, then Heartland shall pay such Indemnified Amount to the Stockholder
Representative; provided that such obligation of Heartland shall be limited
to the aggregate Exchange Value of Escrow Shares released to Heartland
hereunder, other than Escrow Shares released to Heartland in connection
with the payment of an Indemnified Amount.
(E) PAYMENT OF CLAIMS AND EXPENSES. The Administrative Costs and
Stockholder Expenses shall be paid in accordance with Section 6(d) above.
Once a Claim has become an Accepted Claim in accordance with the terms of
this Agreement, the Escrow Agent shall, within five (5) business days of
the written request of Heartland, deliver to Heartland Escrow Shares having
an aggregate Exchange Value equal to the amount of the Claim for which
Heartland is entitled to indemnification, rounded to the nearest whole
share (with fractional shares equal to or less than .50 being rounded
down).
7. EXPIRATION OF ESCROW PERIOD.
(A) Upon expiration of the Escrow Period, any Escrow Shares and any other
assets (including dividends) remaining in the Escrow Fund shall be delivered to
the AWS Stockholders on a prorata basis based upon the number of shares of
Heartland Common Stock received by each such AWS Stockholder upon the
distribution of the Initial Amount in the Merger in accordance with the Exchange
Agent Agreement. Such shares and any other amounts shall be distributed in
accordance with the Exchange Agent Agreement to which this Escrow Agreement is
attached. Any fractional shares remaining in the Escrow Fund shall be
repurchased by Heartland for the aggregate Exchange Value for such Escrow Shares
and the proceeds thereof shall be distributed among the AWS Stockholders. The
wire transfer instructions for the transfer of such funds are as follows:
Chemical Bank, ABA #021000128, for the account of Harris Trust Company of New
York, as Escrow Agent for Heartland Wireless Communications, Inc., Account No.
617999988. The Escrow Agent shall be authorized to draw funds from such account
and to prepare checks in the amount appropriate for inclusion with the mailing
of the certificates evidencing Heartland Common Stock upon the termination of
this Escrow Agreement. All checks, other than checks delivered at the Escrow
Agent's window or to the Book-Entry Transfer Facilities, shall be forwarded by
first class mail.
(B) Following the expiration of the Escrow Period and distribution in
accordance herewith of the Escrow Fund, the Escrow created hereby and this
Agreement, other than the provisions of Section 11 and the indemnification
obligations contained in Sections 6(d)(ii) and 6(d)(iii) hereof and under the
Exchange Agent Agreement, shall terminate.
8. DISTRIBUTIONS; VOTING; TRANSFER RESTRICTIONS.
(A) Any cash dividends, dividends payable in securities or other
distributions of any kind (including, without limitation, any shares received
upon a stock split) made in respect of any securities in the Escrow Fund shall
be added to the Escrow Fund and become a part thereof. The Escrow Agent shall
invest any cash held in the Escrow Fund in an interest-bearing account or money
market instruments in accordance with written instructions from Heartland. Any
interest payable on the funds shall be added to the Escrow Fund and become a
part thereof. The parties acknowledge that the Escrow Agent shall not be liable
for any diminution in the Escrow Fund due to losses resulting from investments
made pursuant to this Agreement.
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(B) The Escrow Shares shall be issued and held in the name of the Escrow
Agent. Upon receipt of written notice from Heartland of a proposed meeting of
Heartland stockholders, the Escrow Agent will arrange for the mailing of a
request for instructions to vote ("Request for Instructions") to each former AWS
Stockholder with regard to that number of whole Escrow Shares such person would
be entitled to receive if the Escrow Fund were disbursed as of the record date
for the meeting at which such Escrow Shares are entitled to vote. The Escrow
Agent hereby grants to the Stockholder Representative an irrevocable proxy to
vote the Escrow Shares and shall deliver to the Stockholder Representative the
results of the responses to Requests for Instructions. The Stockholder
Representative shall have voting rights with respect to the Escrow Shares (and
on any voting securities added to the Escrow Fund) so long as such Escrow Shares
or other voting securities are held in the Escrow Fund; provided that the
Stockholder Representative shall vote Escrow Shares for which Requests for
Instructions are returned in accordance therewith. The Escrow Agent shall
execute and deliver to the Stockholder Representative, upon request, all such
proxies, forms for election or other instruments which it receives as may be
required with respect to the Escrow Shares in order to give effect to the
foregoing.
(C) Former AWS Stockholders shall not transfer, and the Escrow Agent shall
not be required to register the transfer of, any interest in the Escrow Shares
until the expiration of the Escrow Period and distribution of the Escrow Shares,
if any, to the AWS Stockholders. Any purported transfer in violation of this
Section 8(c) shall be void.
9. STOCKHOLDER REPRESENTATIVE'S RIGHTS AND RESPONSIBILITIES.
(A) The Stockholder Representative is vested with the authority, duty and
responsibility to represent the interests of the AWS Stockholders in the Escrow
Fund as set forth herein, and the Stockholder Representative agrees to manage
and discharge his or her duties and responsibilities as agent in accordance with
the terms hereof. The resolution, action, decision, consent or instruction of
the Stockholder Representative shall be final, conclusive and absolutely binding
upon each of the AWS Stockholders, and Heartland may rely upon any such
resolution, action, decision, consent or instruction of the Stockholder
Representative as being the resolution, action, decision, consent or instruction
of each and all of the AWS Stockholders. Notwithstanding anything to the
contrary contained herein, express or implied, the Stockholder Representative
shall not be personally liable for actions or decisions taken or made in good
faith in managing and discharging his or her duties and responsibilities in
accordance with the terms hereof.
(B) In discharging his or her duties and responsibilities hereunder, the
Stockholder Representative shall have all rights and powers necessary and
incident to the proper discharge thereof, including, without limitation, the
right and power to engage and pay for professional and other services. Without
limitation upon the foregoing, the Stockholder Representative shall have the
duty and authority on behalf of the AWS Stockholders to do any thing required of
the Stockholder Representative under this Agreement, including without
limitation:
(I) to interpret and construe the provisions of this Agreement;
(II) to determine and resolve any disputes that may arise under this
Agreement, using his or her best efforts to dispose of all such disputes by
agreed settlement;
(III) to retain counsel and third parties with regard to Claims or the
defense thereof and to incur fees and expenses on behalf of the Escrow Fund
in connection therewith;
(IV) to give any and all written instructions to the Escrow Agent for
disbursement of the Escrow Fund, or any part thereof; and
(V) to perform all other acts as deemed appropriate by the Stockholder
Representative on behalf of AWS to fully effectuate and carry out the
provisions of this Agreement.
(C) To the extent that any funds or property representing proceeds received
in respect of or relating to any Claim are held or come to be held by the
Stockholder Representative after all of his duties hereunder are discharged,
such funds shall be delivered to the Escrow Agent and held in, and constitute a
part of, the Escrow Fund.
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D
(D) In the event of the death, disability or resignation of Daniel A.
Cartwright as Stockholder Representative, the members of the AWS Board of
Directors immediately preceding the AWS Merger shall designate a successor
member to fill each vacancy so created. Such appointment and designation shall
be immediately effective and shall be binding on all AWS Stockholders.
10. ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES.
To induce the Escrow Agent to act hereunder, it is further agreed that:
(A) The Escrow Agent shall not be under any duty to give the property
held hereunder any greater degree of care than it gives its own similar
property. The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Agreement, and the Escrow Agent shall not be
liable except for the performance of such duties as are specifically set
forth in this Agreement, and no implied covenants or obligations shall be
read into this Agreement against the Escrow Agent.
(B) The Escrow Agent may act upon advice of counsel in reference to
any matter connected herewith and shall not be liable for any acts or
omissions while acting in good faith and exercising reasonable judgment.
(C) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(D) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(E) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(F) The Escrow Agent is authorized to rely on the written instructions
of the Stockholder Representative as being the act of all of the AWS
Stockholders and the written instructions of the President or any executive
officer of Heartland as being the act of Heartland.
(G) This Agreement sets forth the exclusive duties of the Escrow Agent
with respect to any and all matters pertinent hereto and no implied duties
or obligations of the Escrow Agent shall be read into this Agreement.
(H) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
(I) The Escrow Agent shall be deemed to have fully complied with its
obligations hereunder to transfer the Escrow Shares by delivery to the
transfer agent of Heartland (the "Transfer Agent") of the Escrow Shares,
all in form satisfactory to such Transfer Agent, of certificates properly
endorsed for transfer with instructions to the Transfer Agent to issue in
the name of and deliver to the person to whom such transfer is to be made a
certificate or certificates for the required number of shares. Transfer
taxes, if any, applicable to such transfer shall be payable by the person
to whom the Escrow Shares are being transferred.
(J) The Escrow Agent shall be fully protected in acting in accordance
with any written instructions given to it hereunder and believed by it to
have been executed by the proper parties. The Escrow Agent's duties shall
be determined only with reference to this Agreement and applicable laws and
is not charged with any duties or responsibilities in connection with any
other document or agreement.
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11. RECORDS; FINAL ACCOUNTING.
The Escrow Agent shall maintain a record of all Claims against the Escrow
Fund filed with it pursuant to Sections 4 and 5, a record of all such Claims
which shall become payable claims as provided in Section 5 and a record of all
payments or distributions from the Escrow Fund. Upon the termination or
resignation of the Escrow Agent or termination or expiration of this Agreement,
the Escrow Agent shall within ten (10) business days deliver to Heartland and
the Stockholder Representative a full and final accounting with regard to the
Escrow Fund.
12. RESIGNATION OF ESCROW AGENT.
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder by
giving written notice thereof to Heartland and the Stockholder Representative.
Such resignation shall become effective following such written notice upon the
earlier of the appointment by Heartland and the Stockholder Representative of a
successor Escrow Agent that accepts the appointment and agrees to be bound by
the provisions of this Agreement or the expiration of 60 days thereafter. Upon
the effectiveness of such resignation, all duties of the Escrow Agent so
resigning shall cease, other than the duty to account in accordance with Section
11. Heartland and the Stockholder Representative shall have the right to
terminate the appointment of the Escrow Agent hereunder by giving written notice
thereof to the Escrow Agent, specifying the date upon which such termination
shall take effect. A condition precedent to such termination shall be the
designation of a successor Escrow Agent that has accepted the appointment and
agreed to be bound by the provisions of this Agreement. In the event of such
termination, the Escrow Agent shall turn over and deliver to such successor
Escrow Agent the Escrow Fund, and any other sums and the records and instruments
held by it under this Agreement and render the accounting required by Section
11.
13. NOTICES.
All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized, overnight courier, or mailed by registered or certified mail (return
receipt requested), postage prepaid, or sent by facsimile (followed by a copy
sent by courier or registered or certified mail) to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
hereunder):
To Heartland:
903 N. Bowser, Ste. 140
Richardson, TX 75081
Telefax: 214/479-1023
Attn: Chief Financial Officer
with a copy to:
Victor B. Zanetti, Esq.
Arter, Hadden, Johnson & Bromberg
1717 Main, Ste. 4100
Dallas, TX 75201
Telefax: 214/741-7139
To the Stockholder Representative:
Daniel A. Cartwright
_______________________________
_______________________________
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D
with a copy to:
------------------------------------
------------------------------------
------------------------------------
To the Escrow Agent:
Harris Trust Company of New York
-----------------------------------
-----------------------------------
-----------------------------------
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of delivery by nationally recognized, overnight courier, on the
business day following dispatch, (c) in the case of mailing, on the 5th business
day following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
14. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto.
15. GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely in Delaware.
16. PREVAILING PARTY.
In the event of any dispute which results in a suit or other legal
proceeding to construe or enforce any provision of this Agreement or because of
an alleged breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the parties agree that the prevailing party or
parties (in addition to all other amounts and relief to which such party or
parties may be entitled to recover) may recover from the non-prevailing party or
parties reasonable attorneys' fees and other costs incurred in any action or
proceeding.
17. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall constitute an original hereof, but all of which together
shall constitute one agreement.
IN WITNESS WHEREOF the undersigned have executed this Agreement as of the
day and year first above written.
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By:
---------------------------
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Title:
----------------------------
AMERICAN WIRELESS SYSTEMS, INC.
By:
-------------------------------
Title:
----------------------------
HARRIS TRUST COMPANY OF NEW YORK
By:
-------------------------------
Title:
----------------------------
STOCKHOLDER REPRESENTATIVE
----------------------------------
----------------------------------
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E
APPENDIX E
INFORMATION CONCERNING FTW PARTNERSHIP
<PAGE> 380
E
TABLE OF CONTENTS
<TABLE>
<S> <C>
Business of FTW Partnership........................................................... E-1
FTW Partnership -- Selected Financial Information..................................... E-2
FTW Partnership -- Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... E-3
Market for and Distributions on FTW Units............................................. E-5
FTW Unit Ownership of Certain Persons and Management.................................. E-5
Comparison of Rights of Equity Holders of Heartland and FTW Partnership............... E-7
</TABLE>
E-i
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E
BUSINESS OF FTW PARTNERSHIP
Fort Worth Wireless Cable T.V. Associates, a California general partnership
("FTW Partnership") was formed pursuant to the Agreement of General Partnership
of FTW Partnership (the "FTW Partnership Agreement") as of July 1, 1992 among
the partners thereof. The purposes for which FTW Partnership was organized
include the following: (i) to acquire the assets and assume the liabilities of
Wireless Cable T.V. Associates #34 (the "FTW Predecessor Partnership"), a
California general partnership which owned a 75% interest in a wireless cable
television system in the metropolitan area of Fort Worth, Texas (the "FTW
System"), and (ii) to acquire additional equipment and facilities necessary to
operate the wireless cable system acquired from the FTW Predecessor Partnership.
The FTW Predecessor Partnership had been formed in 1991 upon the
contribution of capital by the partners thereof which capital was to fund the
development and operation of a wireless cable television system in Fort Worth,
Texas. However, when the FTW Predecessor Partnership had insufficient funds to
"launch" its system, additional capital for the proposed system was raised
pursuant to the formation of FTW Partnership, which purchased all of the assets
of the FTW Predecessor Partnership. This additional capital consisted of
proceeds from the sale of units of FTW Partnership ("FTW Units") to partners of
the FTW Predecessor Partnership as well as new investors who became partners in
FTW Partnership ("FTW Partners"). In addition, the partners of the FTW
Predecessor Partnership who are FTW Partners exchanged their units in the FTW
Predecessor Partnership for FTW Units.
FTW Partnership's business consists of the ownership of a 79.99% equity
interest ("FTW Interest") in the joint venture that owns and operates the FTW
System (the "FTW Venture"). American Wireless Systems, Inc. ("AWS") beneficially
owns the remaining 20.01% interest in the FTW Venture, and manages the
operations of the Fort Worth System. For a description of the wireless cable
television industry and the wireless cable television service provided by FTW
Venture, see "Information Concerning AWS -- Business of AWS." Neither FTW
Partnership nor FTW Venture have ever operated profitably, nor have any
distributions on equity ever been paid by either entity.
As of December 31, 1995, the FTW Partnership has (and has previously had)
no full-time employees. During that time, FTW Partnership has not paid any
compensation to any of the nine members of the management committee of FTW
Committee ("FTW Committee") although such persons have effectively worked
part-time for FTW Partnership. Of the nine members of the FTW Committee, one
person devotes approximately 50% of his time to FTW Partnership's business;
other members of the FTW Committee devote 10% or less of their time to FTW
Partnership's business. FTW Partnership has reimbursed the expenses of the
members of the FTW Committee in connection with their attendance at meetings and
incidental expenses, as well as the expenses of certain FTW Partners
participating in FTW Committee meetings at the request of the FTW Committee.
FTW Partnership does not itself own or lease any real property. FTW
Partnership owns a 79.99% interest in FTW Venture, which leases various
facilities in Arlington and Fort Worth, Texas, including office and warehouse
space, transmission sites and tower sites.
FTW Partnership is not a party to, and none of FTW Partnership's property
is subject to, any pending legal proceedings. However, the failure of FTW
Partnership to resolve (through litigation, arbitration, settlement, or
otherwise) certain claims FTW Partnership may have against AWS could have a
materially adverse effect on FTW Partnership's business, results of operations,
and financial condition. (See "The FTW Transaction -- Description of FTW
Claims")
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FTW PARTNERSHIP
SELECTED FINANCIAL INFORMATION
The selected consolidated statement of operations and balance data presented
below as of December 31, 1993 and 1994 and for the years ended December 31,
1992, 1993 and 1994 were derived from the financial statements of FTW
Partnership, which were audited by Arthur Andersen LLP, independent certified
public accountants, and which are included elsewhere in this Proxy
Statement/Prospectus. The selected unaudited consolidated statement of
operations and balance sheet data presented below as of December 31, 1991 and
for the period from June 2, 1991 (inception) to December 31, 1991 were derived
from the unaudited consolidated financial statements of FTW Partnership which
are not included in this Proxy Statement/Prospectus. The selected unaudited
statement of operations and balance data presented below as of September 30,
1995 and for the nine months ended September 30, 1994 and 1995 were derived from
the unaudited financial statements of FTW Partnership, which are included
elsewhere in this Proxy Statement/Prospectus and which, in the opinion of
management of FTW Partnership, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for such unaudited interim periods. The statement of operations data for interim
periods are not necessarily indicative of results for subsequent periods or for
the full year. This selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements (including
the notes thereto) of FTW Partnership contained elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 2,
1991 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER ---------------------------------------- --------------------------
31, 1991(3) 1992 1993 1994 1994 1995
------------ ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $ -- $ 144,381 $ 791,877 $ 667,260 $ 505,259 $ 451,581
---------- ---------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............... -- 232,148 594,747 567,461 420,763 396,302
Selling, general and
administrative................. -- 406,214 513,741 695,990 545,114 503,910
Depreciation and amortization.... -- 250,215 754,116 786,572 608,724 581,451
---------- ---------- ----------- ----------- ----------- -----------
Total operating expenses..... -- 888,577 1,862,604 2,050,023 1,574,601 1,481,663
---------- ---------- ----------- ----------- ----------- -----------
Operating loss..................... -- (744,196) (1,070,727) (1,382,763) (1,069,342) (1,030,082)
Minority interest in losses........ -- 76,446 57,689 62,281 47,974 44,048
---------- ---------- ----------- ----------- ----------- -----------
Net loss..................... $ -- $ (667,750) $(1,013,038) $(1,320,482) $(1,021,368) $ (986,034)
========== ========== =========== =========== =========== ===========
Other Financial data:
EBITDA(1).......................... $ -- $ (493,981) $ (316,611) $ (596,191) $ (460,618) $ (448,631)
Capital expenditures(2)............ $2,522,682 $1,933,269 $ 738,967 $ 86,365 $ 62,761 $ 22,984
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995
----------- ---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 106,682 $ 987,769 $ 94,898 $ 21,836 $ 25,014
Total assets.................................... 2,602,682 5,812,973 4,667,216 3,860,932 3,266,499
Long-term debt, including current portion....... -- -- -- -- --
Total partners' equity.......................... 2,576,000 5,291,500 4,265,962 2,945,480 1,959,446
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from June 2, 1991 (inception) to
December 31, 1991 were comprised of $-0- for purchase of systems and
equipment and $2,522,682 of expenditures for leased licenses; for the year
ended December 31, 1992 were comprised of $1,498,371 for purchase of systems
and equipment and $434,898 of expenditures for leased licenses; for the year
ended December 31, 1993 were comprised of $738,967 for purchase of systems
and equipment and $-0- for expenditures for leased licenses; for the year
ended December 31, 1994 were comprised of $73,865 for purchase of systems
and equipment and $12,500 for expenditures for leased licenses; for the nine
months ended September 30, 1994 were comprised of $62,761 for purchase of
systems and equipment and $-0- of expenditure for leased licenses; for the
nine months ended September 30, 1995 were comprised of $22,984 for purchase
of systems and equipment and $-0- of expenditures for leased licenses.
(3) FTW Partnership was capitalized during 1991, and began initial development
of the system, which consisted of capital expenditures only. There were no
operations during this period.
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E
FTW PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The wireless cable business is a capital intensive business and to date the
FTW System has been financed through capital contributed by the FTW Partners and
funds provided by AWS. Initially, significant capital is required to acquire the
rights to wireless cable channels, construct the headend facility, co-locate the
channels and fund negative cash flow until the system is able to install a
sufficient number of subscribers to fund its operating expenses. After
operations have been launched, the estimated incremental cost per subscriber is
approximately $530 (assuming one-half of the subscribers order additional
outlets which require additional equipment and labor). FTW Partnership does not
expect its system to provide positive cash flow unless significant additional
capital can be obtained.
FTW Partnership will require additional financing in the first quarter of
1996 to fund its administrative expenses and the FTW Venture requires funding of
operating and development expenditures on a continuing basis. However, FTW
Partnership anticipates that the proposed sale of its FTW Interest to Heartland
(if approved by FTW Partners representing two-thirds ( 2/3) of the FTW Units)
will be consummated prior to the close of the first quarter of 1996, thereby
eliminating FTW Partnership's need to fund future operating and development
expenses. Under the terms of the Amended and Restated Asset Purchase Agreement
between Heartland and FTW Partnership (the "FTW Agreement"), if the subject
transaction is consummated, FTW Partnership will receive Heartland Common Stock
with an aggregate exchange value of $13,300,000.
The FTW Venture operates through an informal joint venture arrangement. The
FTW Partnership and AWS have been unable to reach an agreement regarding their
respective rights and obligations relative to providing financing for the FTW
System. AWS serves as the manager of the FTW Venture through an informal
arrangement.
RESULTS OF OPERATIONS
Years Ended December 31, 1994 and December 31, 1993. FTW Partnership's
assets consist primarily of its 79.99% equity interest in the FTW Venture and
cash. The FTW Venture began adding subscribers in October 1992. The FTW Venture
continued adding subscribers to the system until April 1993, when the FTW
Venture's cash resources were nearly depleted. Since May 1993, AWS has been
funding the operations of the FTW Venture. FTW Partnership had approximately
$667,000 in revenue during 1994 and approximately $792,000 in revenue during
1993. The decrease in revenue was due to the loss of approximately 500
subscribers in 1994. Operating expenses (exclusive of depreciation and
amortization) in 1994 were approximately $1,263,000 and approximately $1,108,000
in 1993. The decrease was due to the lack of installation activity in 1994 as
compared to 1993. Depreciation expense increased to approximately $787,000 in
1994 from approximately $754,000 in 1993. The increase was due to the addition
of subscriber equipment to complete the minimum number of installations in order
to offset the decline in subscriber base due to disconnections. FTW
Partnership's net loss was approximately $1,320,000 in 1994 and approximately
$1,013,000 in 1993. The increase in the net loss reflects the effect of
decreased installation revenues and increased general and administrative
expenses. FTW Partnership's allocated losses from the FTW Venture are based on
contributed capital rather than its beneficial percentage interest. Accordingly,
FTW Partnership's allocated share of the losses on a percentage basis is more
than its beneficial interest. FTW Partnership's share of losses of the FTW
Venture was approximately $1,066,000 for the year ended December 31, 1994 and
$961,000 for the year ended December 31, 1993.
Years Ended December 31, 1993 and December 31, 1992. The system had revenue
of approximately $144,000 in 1992 and $792,000 in 1993. The increase in revenue
was due to the addition of approximately 1,630 subscribers in 1993 compared to
550 subscribers in 1992 and a full 12 months of operations in 1993. Operating
expenses (exclusive of depreciation and amortization) in 1992 were approximately
$638,000 and approximately $1,108,000 in 1993. Again, the increase was due to a
full 12 months of operations in 1993. Depreciation expense increased from
$250,000 in 1992 to $754,000 in 1993 due to the addition of subscriber, headend
and office equipment. FTW Partnership's net loss was approximately $667,750 and
$1,013,038 in 1992 and 1993, respectively. The change was due to a full 12
months of operations in 1993. The FTW
E-3
<PAGE> 384
Partnership's allocated losses from the FTW Venture are based on contributed
capital rather than its beneficial interest. Accordingly, the FTW Partnership's
allocated share of losses on a percentage basis is more than its beneficial
interest.
Nine Months Ended September 30, 1995 and September 30, 1994. The FTW
Partnership did not have funding available to actively install subscribers,
therefore the FTW Partnership attempted to maintain the subscriber base for both
nine month periods ended September 30, 1994 and September 30, 1995. The FTW
Partnership had revenue of approximately $452,000 for the nine months ended
September 30, 1995 and approximately $505,000 for the nine months ended
September 30, 1994. The decrease is due to the loss of subscribers due to
disconnections between the two periods. Operating expenses (exclusive of
depreciation and amortization) were approximately $900,000 for the nine months
ended September 30, 1995 and approximately $966,000 for the nine months ended
September 30, 1994. The decrease of approximately $66,000 is due to decreases in
operating and overhead expenses. Depreciation expense was approximately $581,000
for the nine months ended September 30, 1995 and approximately $609,000 for the
nine months ended September 30, 1994. The decrease of approximately $28,000 is
due to the write off of subscriber equipment. The FTW Partnership's net loss was
approximately $986,000 for the nine months ended September 30, 1995 and
approximately $1,021,000 for the nine months ended September 30, 1994. The
decrease in the net loss was due to the decrease in operating expenses. FTW
Partnership's share of losses of the FTW Venture was approximately $754,000 for
the nine months ended September 30, 1995 and $821,000 for the nine months ended
September 30, 1994.
INCOME TAXES
FTW Partnership does not have income tax liability or benefit due to the
fact that all tax attributes of FTW Partnership are passed through to its
partners.
LIQUIDITY AND CAPITAL RESOURCES
The FTW System is in the early stages of operation. Its focus since October
1992, has been to add subscribers to the system to the extent funds were
available for that purpose. The FTW System is currently operating at a negative
cash flow level. FTW Partnership has limited financial resources, has incurred
losses since inception and expects to incur additional losses. For the years
ended December 31, 1993 and December 31, 1994, FTW Partnership had net losses of
$1,013,038 and $1,320,482, respectively. Since the FTW System is still in the
early operating stage, FTW Partnership anticipates that it will depend on
external financing to develop the FTW System and continue to incur losses. As a
result, in their independent public accountants reports for years ended December
31, 1993 and December 31, 1994, there was an explanatory paragraph that
described factors raising substantial doubt about FTW Partnership's ability to
continue as a going concern.
The current operations of the FTW Venture are being funded by AWS. The
current cash requirements of the FTW System are approximately $30,000 per month.
As of December 31, 1995, AWS has provided over $400,000 to fund operations.
If the FTW Agreement is consummated, FTW Partnership will transfer to
Heartland the FTW Interest for Heartland Common Stock with an aggregate exchange
value of $13.3 million and the assumption of up to $570,000 of potential
liabilities of the FTW Partnership to AWS. If the transactions contemplated by
the FTW Agreement are consummated, the FTW Partnership will distribute sales
proceeds (in the form of FTW Shares) with an aggregate value of approximately
$11,950,000 (or approximately $8,190 per FTW Unit) to the FTW Partners. The
remainder of the sales proceeds from the FTW Transaction (also in the form of
FTW Shares and with an estimated aggregate value of $1,350,000) will be sold on
behalf of the FTW Partnership, and the proceeds thereof will be utilized by the
FTW Partnership to wind down operations and pay or reserve for certain known and
contingent liabilities consisting primarily of legal and accounting fees,
reimbursable expenses incurred by the FTW Committee, repayment of the FTW Loan
and all expenses incurred by FTW Partnership to consummate the sale of the FTW
Interest to Heartland.
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E
Pursuant to the FTW Agreement Heartland has agreed to loan to FTW
Partnership up to $500,000. Proceeds of the loan will be available to fund
certain obligations of FTW Partnership. The $500,000 loan can be drawn down in
increments of not less than $25,000 and carries an interest rate of 10% per
annum. As of January 15, 1996, $350,000 of such loan has been advanced.
FTW Partnership does not currently have sufficient financing to develop the
FTW system to the point where it can generate positive cash flow. If additional
financing is not obtained to continue the development of the FTW System or if
the transactions contemplated by the FTW Agreement are not consummated as
detailed above, FTW Partnership's assets and current operating activities could
be materially and adversely affected.
MARKET FOR AND DISTRIBUTIONS ON FTW UNITS
There is no market or market price for the FTW Units. To the contrary, no
FTW Partner may transfer such units, except in accordance with specific
provisions of the FTW Partnership Agreement.
As of December 31, 1995, there were approximately 602 FTW Partners or
assignees thereof. As of that date, each member of the FTW Committee owned less
than one percent (1%) of the outstanding FTW Units, although the members of the
FTW Committee as a group (nine persons) owned 1.58% of the outstanding FTW
Units. Upon consummating the transactions contemplated by the FTW Agreement,
proforma based on current ownership of FTW Units, each FTW Partner would own
less than 1% of the outstanding shares of Heartland Common Stock.
The FTW Partnership has never made any distributions to FTW Partners in
respect of the FTW Units.
FTW UNIT OWNERSHIP OF CERTAIN PERSONS AND MANAGEMENT
The following table sets forth, as of December 31, 1995, the FTW Units
beneficially owned by (i) each member of the FTW Committee, and (ii) the FTW
Committee as a group (nine persons). "Percent of Total FTW Units" is based on
1,459 FTW Units outstanding. The persons named below have sole voting and
investment power with respect to all FTW Units owned, unless otherwise noted. As
of December 31, 1995, no FTW Partner beneficially owned more than five percent
(5%) of the FTW Units.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENT OF TOTAL
OF BENEFICIAL OWNER FTW UNITS FTW UNITS
-------------------------------------------------------- --------- ----------------
<S> <C> <C>
Michael Leo............................................. 2(1) *
11718 Barrington Court
Suite 228
Los Angeles, CA 90049
Donald McGee............................................ 2(2) *
200 Balboa Court
Irving, Texas 75062
Daniel Stevens.......................................... 3 *
1080 St. Jean
Florissant, MO 63031
Peggy Sumner............................................ 2 *
211 Santa Barbara
Corpus Christi, TX 78411
George William Walker, Jr............................... 2 *
821 Miner Road
Crownsville, MD 21032
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENT OF TOTAL
OF BENEFICIAL OWNER FTW UNITS FTW UNITS
-------------------------------------------------------- --------- ----------------
<S> <C> <C>
Edwin Watts............................................. 4 *
2014 Rockcreek Drive
Arlington, TX 76010
Terry Wertz............................................. 2 *
1215 Yellowbrick Road
Pendleton, IN 46064
Loran Whitehorn, Jr..................................... 4 *
15018 Zieglinde Dr.
Lake Elsinore, CA 92530
James Williamson........................................ 2 *
30 Thomas Oaks Dr.
Pottstown, PA 19464
FTW Committee as a group (9 persons).................... 23 1.58%
</TABLE>
- ---------------
* Less than 1%
(1) Represents FTW Units beneficially owned by XTALK Associates, a business
trust organization of which Mr. Leo is manager.
(2) Represents FTW Units beneficially owned by Mr. McGee through BD2 Inc., a
corporation which is owned 50% by Mr. McGee.
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E
COMPARISON OF RIGHTS OF EQUITY HOLDERS
OF HEARTLAND AND FTW PARTNERSHIP
The rights of the FTW Partners in FTW Partnership are governed by the
California Uniform Partnership Act (the "UPA"). Upon the tender and acceptance
of their shares of Heartland Common Stock and the consummation of the FTW
Agreement, the former FTW Partners will become stockholders ("Minority Holders")
of Heartland, a Delaware corporation. As stockholders of a Delaware corporation,
their rights will differ in certain respects from those of a holder of a
partnership interest in a California general partnership. Their rights will also
be governed by the Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of the FTW Partners
and those of Heartland's stockholders are set forth below. This summary is not
intended to be relied upon as an exhaustive list of differences or a detailed
description and analysis of the provisions discussed and is qualified in its
entirety by the DGCL, the UPA and by the Heartland Certificate and Heartland
Bylaws and the Agreement of General Partnership of FTW Partnership (the "FTW
Partnership Agreement").
GENERALLY
Unless a creditor otherwise agrees, each FTW Partner is liable, jointly and
severally, for each of the debts and obligations of the FTW Partnership,
including those arising as a result of the operation of the FTW Venture and its
wireless cable television business. FTW Partnership is not an incorporated
entity, but a general partnership organized pursuant to the UPA. The FTW
Partnership Agreement does not state a period of duration for the partnership,
but instead provides that dissolution of FTW Partnership shall occur upon the
earliest of (i) the failure of the partnership to maintain its licenses or other
channel rights as contemplated in the FTW Partnership Agreement; (ii) the
termination of the license or other lease rights relating to alternative
channels; (iii) the election, by a majority vote of the partners, to terminate
the partnership; or (iv) the date that the partnership does not hold any
interest, whether as owner, secured creditor or otherwise, in the license. FTW
Partnership is structured whereby proprietary interests in the FTW Partnership
are acquired in units, (a "FTW Unit"). As of December 31, 1995, 1,459 FTW Units
were outstanding and no FTW Partner owned more than 5% of the outstanding FTW
Units.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Heartland Preferred Stock have been issued. Stockholders of
Heartland are generally not liable for its debts and obligations.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
Pursuant to the UPA, a California general partnership may be merged into
(i) another general partnership; (ii) a limited partnership; or (iii) a limited
liability company, provided that the merger is specifically permitted by the
general partnership agreement and was approved by at least a majority in
interest in profits from current operations of all general partners. The FTW
Partnership Agreement provides that no partner shall sell, convey, assign, or
encumber all or a portion of its FTW Units, unless the partner first offers the
FTW Units to the FTW Partnership. Furthermore, no assignee shall have the right
to become an FTW partner in place of the assignor unless (i) a duly executed and
acknowledged written instrument of assignment has been filed with the
partnership; (ii) the assignee has executed assignment documents acceptable to
the other partners; and (iii) the transfer complies with all federal and state
securities and FCC laws as evidenced by a legal opinion acceptable to the other
partners.
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DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or, designated as a national market system security on an inter-dealer
quotation system by the NASD. Even if the shares of any class or series of stock
meet the requirements of clause (i) or (ii) above, appraisal rights are
available for such class or series if the holders thereof receive in the merger
or consolidation anything except: (a) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (b) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or held of record by
more than 2,000 stockholders or, only under the DGCL, designated as a national
market system security on an inter-dealer quotation system by the NASD; (c) cash
in lieu of fractional shares of the corporations described in clause (a) or (b)
of this sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c).
The stockholders of Heartland will not receive dissenters or appraisal
rights in connection with the Transactions. Neither the UPA nor the FTW
Partnership Agreement have any provisions which give the FTW Partners dissenters
or appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED PARTIES
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
Neither the UPA nor the FTW Partnership Agreement have any provisions
similar to that of Section 203 of the DGCL.
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<PAGE> 389
E
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
The Heartland Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
A California general partnership is not required to file any organizational
document with the Secretary of State's office. As a result, no provision exists
under either the UPA or the FTW Partnership Agreement to amend such a document.
AMENDMENTS TO BYLAWS OR PARTNERSHIP AGREEMENT
Under the DGCL, the power to adopt, alter and repeal the Bylaws is vested
exclusively in the stockholders, except to the extent that the Certificate of
Incorporation vests it in the Board of Directors. The Heartland Certificate
vests in its Board of Directors the power to adopt, amend or repeal Bylaws.
The UPA does not provide any provisions relating to amendments of a
partnership agreement. Pursuant to the FTW Partnership Agreement, an amendment
to the FTW Partnership Agreement requires the consent of a majority of the FTW
Units. In addition, the FTW Partnership Agreement may not be amended without the
consent of the partner(s) to be adversely affected by the amendment to (i) alter
the interest of a partner in income, gain, losses, deductions, credits and
distributions; (ii) increase, add or alter any obligation of any partner; (iii)
affect the status of the partnership as a partnership for federal income tax
purposes; or (iv) alter any provisions in the FTW Partnership Agreement
regarding allocation of profits and losses, distributions to partners and power,
duties and restrictions of the partners.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
Heartland Certificate does not provide for preemptive rights.
Neither the UPA nor the FTW Partnership Agreement have any provisions
relating to preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide any additional requirements
regarding the distribution of dividends.
Pursuant to the FTW Partnership Agreement, distributions of distributable
cash (any excess of total cash received by the partnership after reasonable
working capital requirements are met) shall be made quarterly no later than
thirty (30) days after the end of the fiscal quarter. Distributions are to be
distributed to the partners in the following order and priority: (i) first, to
the partners in proportion to and the extent of their adjusted capital
contribution; and (ii) thereafter, the balance, if any, to the partners in
proportion to the number of Units owned by each.
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<PAGE> 390
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. The Heartland Bylaws do not
alter the effective period of a proxy. Neither the UPA nor the FTW Partnership
Agreement have any provisions relating to the execution or use of proxies by the
partners of a California general partnership.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate does not provide additional requirements
regarding stockholder action by written consent.
The UPA provides that all partners have equal rights in the management and
conduct of the partnership business. Pursuant to the FTW Partnership Agreement,
each FTW Partner has the absolute right to participate in the management and
control of the FTW Partnership and the partnership business in proportion to the
number of FTW Units owned by such partner. Each FTW Partner shall have one (1)
vote for each FTW Unit owned and all voting shall require a majority vote of a
quorum (meaning a majority of Units). FTW Partners vote on election of FTW
Partners to serve on a management committee, which committee shall devote such
time to the FTW Partnership business as shall be necessary to efficiently and
prudently manage the business of the FTW Partnership. The management committee
may not, without prior written consent of a majority of the FTW Partners (i)
sell, transfer or otherwise dispose of the partnership's license; (ii) dissolve
the partnership, except as specifically provided in the FTW Partnership
Agreement; (iii) change the nature of the partnership business; (iv) continue
the partnership after expiration of its term; (v) do any act which would make it
impossible to carry on the ordinary business of the partnership; (vi) confess a
judgment against the partnership; (vii) do any act in contravention of the FTW
Partnership Agreement; or (viii) execute or deliver any assignment for the
benefit of the creditors of the partnership.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the Board of Directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of the
Heartland Common Stock, to call a special meeting of stockholders for any
purpose or purposes.
Neither the UPA nor the FTW Partnership Agreement make any provisions
regarding special meetings.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The Heartland
Certificate does not provide for cumulative voting for the election of
directors.
Neither the UPA nor the FTW Partnership Agreement make any provisions for
cumulative voting.
NUMBER AND ELECTION OF DIRECTORS/MANAGERS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. The Heartland Certificate does not fix the number
of directors.
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E
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Heartland has not established a classified board of
directors.
The UPA makes no provision for the number or election of managers. Pursuant
to the FTW Partnership Agreement, the FTW Partners have elected a management
committee to manage the business affairs of the FTW Partnership.
REMOVAL OF DIRECTORS/MANAGERS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by written consent of the stockholders.
The UPA makes no provision for the removal of managers. The FTW Partnership
Agreement provides that the other partners shall have the right to replace any
or all members of the management committee and to assume the duties of the
management committee upon the written vote of the majority of the FTW Units.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filing of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements
regarding vacancies on its Board of Directors.
Neither the UPA nor the FTW Partnership Agreement make any provisions
regarding vacancies.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him
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<PAGE> 392
or her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Under the UPA, a partnership must indemnify every partner with respect to
payments made and personal liabilities reasonably incurred by a partner in the
ordinary and proper conduct of the partnership business, or for the preservation
of the partnership business or property. Pursuant to the FTW Partnership
Agreement, the partnership shall indemnify each partner, any employee or agent
of each partner, and any partnership, employee or agent, against any loss or
threat of loss as a result of any claim or legal proceeding related to the
performance or nonperformance of any act concerning the activities of the
partnership so long as any party against whom the claim is made is not guilty of
fraud, gross negligence or bad faith in such performance or nonperformance. The
indemnification provided shall include payment of reasonable attorneys' fees or
other expenses incurred in settling any claim or threatened action or incurred
in any finally adjudicated legal proceeding, and the removal of any liens
affecting any property of the indemnitee shall be made from the assets of the
partnership. All judgments against the partnership and a partner, wherein a
partner (including any employee, partner, officer and/or director of a partner
or its partners) is entitled to indemnification, must first be satisfied from
partnership assets before the partner is responsible for these obligations.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate contains a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL.
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E
Under the UPA, all partners are jointly and severally liable for everything
chargeable to the partnership regarding (i) a partner's wrongful act or omission
when acting in the ordinary course of the business of the partnership or with
the authority of the co-partners; and (ii) a partner's breach of trust to a
third party. All partners are jointly liable for all other debts and obligations
of the partnership. Pursuant to the FTW Partnership Agreement, no partner shall
be liable to the other partners for any act or omission provided the partner is
not guilty of fraud, gross negligence or bad faith in such performance or
failure.
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<PAGE> 394
F
APPENDIX F
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
<PAGE> 395
F
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
DATED AS OF OCTOBER 4, 1995
BETWEEN
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
AS SELLER,
AND
HEARTLAND WIRELESS COMMUNICATION, INC.
AS BUYER
<PAGE> 396
F
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. CLOSING; EXCHANGE.......................................................... F-1
1.1 Closing, Closing Time, Date and Place.................................... F-1
1.2 Transfer of Venture Interest; Assignment of AWS Claims................... F-1
1.3 Consideration............................................................ F-2
1.4 Liquidation of Seller; Distribution of Distributable Shares.............. F-2
1.5 Distribution Procedures.................................................. F-2
1.6 Registration of Acquisition Shares....................................... F-3
1.7 Dividends; Transfer Taxes................................................ F-3
1.8 Return of Exchange Fund.................................................. F-3
1.9 Further Assurances....................................................... F-3
1.10 Earnest Money............................................................ F-3
1.11 Extension of Closing Date................................................ F-4
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER................................... F-4
2.1 Organization; Doing Business............................................. F-4
2.2 Outstanding Rights....................................................... F-4
2.3 Authority; Enforceability; Non-Contravention............................. F-4
2.4 Financial Statements..................................................... F-4
2.5 Property................................................................. F-5
2.6 Receivables.............................................................. F-5
2.7 Contracts................................................................ F-5
2.8 FCC Matters.............................................................. F-6
2.9 Insurance................................................................ F-7
2.10 Litigation............................................................... F-7
2.11 Governmental Permits..................................................... F-7
2.12 Compliance With Laws..................................................... F-7
2.13 Environmental Matters.................................................... F-7
2.14 Intellectual Property.................................................... F-8
2.15 Liens.................................................................... F-8
2.16 Regulatory Compliance.................................................... F-8
2.17 Interference............................................................. F-8
2.18 Employees; Benefit Plans................................................. F-8
2.19 Finder's Fees............................................................ F-9
2.20 Programming Agreements................................................... F-9
2.21 Further Representation................................................... F-9
2.22 Certain Activities....................................................... F-9
2.23 Partnership Books and Records............................................ F-9
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND................................ F-9
3.1 Organization and Good Standing........................................... F-9
3.2 Authority; Enforceability; Non-Contravention............................. F-9
3.3 Litigation............................................................... F-10
3.4 Consents and Approvals................................................... F-10
3.5 Capitalization........................................................... F-10
3.6 Financial Statements..................................................... F-10
3.7 SEC Filings.............................................................. F-10
</TABLE>
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ARTICLE 4. COVENANTS OF SELLER........................................................ F-10
4.1 Operation Prior to the Closing Date...................................... F-10
4.2 Consents................................................................. F-11
4.3 Renewal or Extension of FCC Authorizations............................... F-11
4.4 No Solicitation.......................................................... F-12
4.5 Audit of Financial Statements............................................ F-12
ARTICLE 5. ADDITIONAL AGREEMENTS...................................................... F-13
5.1 Shareholders and Partners Meeting........................................ F-13
5.2 Registration Statement and Proxy Statement............................... F-13
5.3 Access................................................................... F-14
5.4 Compliance with the Securities Act....................................... F-14
5.5 Reasonable Efforts....................................................... F-14
5.6 Public Announcements..................................................... F-15
5.7 Notification of Certain Matters.......................................... F-15
5.8 Letters of Seller's Accountants.......................................... F-15
5.9 Hart-Scott-Rodino Act Filing............................................. F-15
5.10 Heartland Loan........................................................... F-15
5.11 Right of First Refusal................................................... F-15
5.12 Employees................................................................ F-16
5.13 Exhibits................................................................. F-16
5.14 Delivery of Schedules and Other Items.................................... F-16
5.15 Certain Limitations...................................................... F-16
5.16 AWS Claims............................................................... F-16
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION........................................ F-17
6.1 Registration Statement................................................... F-17
6.2 No Order................................................................. F-17
6.3 Other Approvals.......................................................... F-17
6.4 Exhibits................................................................. F-17
6.5 Partner Approval......................................................... F-17
6.6 Applicability of the Roll-up Rules....................................... F-17
6.7 Closing Share Price...................................................... F-17
6.8 Lenders' Consents........................................................ F-17
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.......................................... F-17
7.1 Stockholder and Other Approval........................................... F-17
7.2 Representations and Warranties........................................... F-18
7.3 Seller's Documents....................................................... F-18
7.4 Registration Statement Effective......................................... F-18
7.5 No Material Adverse Change............................................... F-18
7.6 Audited Financial Statements............................................. F-18
7.7 Accountant's Consent Letter.............................................. F-18
7.8 Seller's Obligations Performed........................................... F-18
7.9 Consents and Approvals................................................... F-18
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING............................................. F-18
8.1 Partner Approval......................................................... F-19
8.2 Representations and Warranties........................................... F-19
8.3 Heartland Documents...................................................... F-19
8.4 Heartland Obligations Performed.......................................... F-19
8.5 No Material Changes...................................................... F-19
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ARTICLE 9. INDEMNIFICATION............................................................ F-19
9.1 Provisions Regarding Representations and Warranties...................... F-19
9.2 Indemnification by Seller................................................ F-19
9.3 Limitation on Claims of Heartland........................................ F-19
9.4 Indemnification by Heartland............................................. F-20
9.5 Limitation on Claims of Seller........................................... F-20
9.6 Notice of Claims......................................................... F-20
9.7 Third Party Claims....................................................... F-20
ARTICLE 10. TERMINATION............................................................... F-21
10.1 Termination by Mutual Consent............................................ F-21
10.2 Termination by Seller.................................................... F-21
10.3 Termination by Heartland................................................. F-21
10.4 Effect of Termination and Abandonment.................................... F-21
ARTICLE 11. DEFINITIONS............................................................... F-22
11.1 Definitions.............................................................. F-22
11.2 Defined Terms............................................................ F-28
ARTICLE 12. POST-CLOSING COVENANTS.................................................... F-28
12.1 Cooperation and Exchange of Information.................................. F-28
ARTICLE 13. MISCELLANEOUS............................................................. F-28
13.1 Expenses of the Transaction.............................................. F-28
13.2 Notices.................................................................. F-28
13.3 No Modification Except in Writing........................................ F-29
13.4 Entire Agreement......................................................... F-29
13.5 Severability............................................................. F-29
13.6 Assignment............................................................... F-29
13.7 Publicity; Announcements................................................. F-29
13.8 Consent to Jurisdiction.................................................. F-30
13.9 Captions; Construction................................................... F-30
13.10 Schedules................................................................ F-30
13.11 Counterparts............................................................. F-30
EXHIBITS:
1.3 Exchange Agreement
1.4 Agreement and Plan of Liquidation
1.10 Escrow Agreement
5.4 Lock-Up
5.10(a) Heartland Loan Agreement
5.10(b) Heartland Note
5.10(c) Heartland Security Agreement
7.3(b) Legal Opinion of Seller's Counsel
7.3(d)-1 Assignment of Venture Interest
7.3(d)-2 Assignment of AWS Claims
8.3(b) Legal Opinion of Heartland's Counsel
8.3(d) Release or Indemnification Agreement
SCHEDULES:
1.2 Excluded Assets
2.2 Outstanding Rights
2.3 Adverse Disclosures Regarding Authority, Enforceability and
Non-Competition
2.4 Financial Statements
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2.5(a) Equipment
2.5(b) Facilities
2.5(c) Exceptions to Title
2.6 Receivables
2.7 Contracts
2.8(a) Channel Leases
2.8(b) Licenses and FCC Permits
2.8(c) Applications
2.8(d) Adverse Channel Disclosures
2.9 Insurance
2.10 Litigation
2.11 Adverse Disclosures Regarding Governmental Permits
2.12 Adverse Disclosures Regarding Compliance with Laws
2.14 Intellectual Property
2.15 Liens
2.17 Interference
2.18 Employees
2.20 Programming Agreements
2.23 Partners
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AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (the "Agreement"), is
made and entered into as of the 4th day of October, 1995, by and between FORT
WORTH WIRELESS CABLE T.V. ASSOCIATES, a California general partnership
("Seller") and HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware Corporation
("Heartland").
W I T N E S S E T H:
WHEREAS, Seller and American Wireless Systems, Inc., a Delaware corporation
("AWS") are the sole joint venturers in the joint venture ("Venture") owning
100% of the wireless cable television assets that provide wireless cable
television service in the metropolitan area of Fort Worth, Texas (the "Market");
and
WHEREAS, Seller owns an 79.99% equity interest in the Venture ("Venture
Interest"), and desires to sell, and Heartland desires to purchase, the Venture
Interest; and
WHEREAS, AWS and Heartland have entered into that certain Agreement and
Plan of Merger dated September 11, 1995 ("Merger Agreement"), pursuant to which
a wholly owned subsidiary of Heartland ("Merger Sub") will be merged with and
into AWS and the Merger Sub will succeed to AWS's interest in the Venture; and
WHEREAS, in connection with the proposed acquisition of the Venture
Interest by Heartland as set forth herein ("Acquisition"), Heartland and Seller
desire to make certain representations and warranties regarding their respective
operations and, with respect to Seller, matters relating to the Venture and the
Market; and
WHEREAS, Seller, Heartland and a wholly owned subsidiary of Heartland
("Hartacq") have previously executed an Asset Purchase Agreement ("Original
Agreement") dated as of the date hereof, pursuant to which the Venture Interest
would be acquired by Hartacq; and
WHEREAS, Seller and Heartland have agreed that the Venture Interest will be
acquired by Heartland directly, and have agreed to amend and restate the
Original Agreement to so provide and to extend certain dates contained therein;
and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. CLOSING; EXCHANGE.
1.1 CLOSING, CLOSING TIME, DATE AND PLACE. The closing (the "Closing") of
the transactions set forth herein shall take place at 10:00 A.M., Dallas, Texas
time, following satisfaction of the closing conditions set forth in Articles 6,
7 and 8 at the offices of Arter, Hadden, Johnson & Bromberg, 1717 Main, Ste.
4100, Dallas, Texas 75201, or at such other time or at such other place as
Heartland and Seller may agree, but no later than January 31, 1996, subject to
extension as provided in Section 1.11. (Hereinafter, such date, as extended, is
referred to as the "Closing Date", such time on the Closing Date is referred to
as the "Closing Time", and such offices are referred to as the "Closing Place".)
1.2 TRANSFER OF VENTURE INTEREST; ASSIGNMENT OF AWS CLAIMS. Seller agrees
that, at the Closing Time and at the Closing Place, it shall transfer to
Heartland all right, title, and interest in and to the Venture Interest and
assign to Heartland, subject to the terms of Section 5.16, the AWS Claims. To
the Knowledge of Seller, any and all assets, real, personal and mixed, tangible
and intangible, used in the conduct of the Wireless Cable Business and
operations of Joint Venture (the "Business") (including but not limited to all
Contracts, Governmental Permits, Licenses, Equipment, Documents, Facilities,
Prepaid Subscriber Fees, Causes of Action, Intellectual Property, accounts,
accounts receivable, credits, prepaid expenses, advance payments, security
deposits, prepaid items, goodwill and other intangible assets of the Business,
and any other real,
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personal, tangible or intangible property or rights of Seller used or useful in
the conduct of the Business) (collectively, the "Assets"), whether held in the
name of Seller, any of its equity owners or otherwise, are owned by the Venture,
and, except as set forth on Schedule 1.2 (such assets being referred to as the
"Excluded Assets"), Seller does not own or have any material rights to any
assets other than the Venture Interest and AWS Claims.
1.3 CONSIDERATION. As consideration for the sale of the Venture Interest
and assignment of the AWS Claims by Seller, upon the Closing Date Heartland
shall (a) assume the Assumed Liabilities and (b) deliver to the Exchange Agent
the number of shares of common stock, $.001 par value per share, of Heartland
("Heartland Shares") equal to (i) Thirteen Million Three Hundred Thousand and
no/100 Dollars ($13,300,000) ("Purchase Price") divided by (ii) the Exchange
Price (such Heartland Shares being referred to as the "Acquisition Shares"),
which Acquisition Shares shall be held by the Exchange Agent pending their
distribution to, or liquidation on behalf of, the Partners pursuant to the terms
of an Exchange Agreement in the form attached as Exhibit 1.3 (such Acquisition
Shares, any dividends thereon or proceeds thereof being referred to herein as
the "Exchange Fund"). As used herein, the term "Exchange Price" shall mean (i)
if the Closing Share Price is greater than or equal to $23.00 per share, then
$23.00 or (ii) if the Closing Share Price is less than $23.00 per share, then
the Closing Share Price; subject to each party's right to terminate this
Agreement as set forth in Section 6.7 if the Closing Share Price is less than
$17.00 per share.
1.4 LIQUIDATION OF SELLER; DISTRIBUTION OF DISTRIBUTABLE SHARES. Subject to
the provisions of the Exchange Agreement and to the requirements of the
California Revised Uniform Partnership Act, the Exchange Agent (on behalf of and
at the direction of Seller) shall (a) deliver to Seller's equity owners
("Partners") on the Closing Date Acquisition Shares having an aggregate Exchange
Price equal to the Purchase Price minus the sum of (i) the Liquidated
Liabilities and (ii) an amount determined by the Executive Committee as
necessary and appropriate to satisfy Seller's contingent liabilities (which
amount shall not be less than $500,000) (such Heartland Shares being referred to
as the "Distributable Shares") and (b) in connection with resales to be made by
Seller, pursuant to the Registration Statement, deliver the remaining
Acquisition Shares (the "Liquidated Shares"), each in completing the winding-up
and liquidation of Seller pursuant to the terms of the Agreement and Plan of
Liquidation attached as Exhibit 1.4. Such liquidation shall be made as specified
in the Seller's organizational and governing documents with due regard and as
required by the California Revised Uniform Partnership Act. Fractional Heartland
Shares will not be issued in connection with the delivery of the Distributable
Shares, but shall be added to the Liquidated Shares and the remaining proceeds
thereof shall be distributed among the Partners in accordance with the Agreement
and Plan of Liquidation. Seller's executive committee ("Executive Committee")
shall establish a record date for the purposes of determining the Partners of
Seller entitled to receive the Distributable Shares or proceeds of the
Liquidated Shares ("Distribution Record Date"). In the discretion of Seller's
Executive Committee, such record date may, but shall not be required to be, the
Closing Date but in no event shall the Distribution Record Date be later than
the Closing Date. Seller shall (i) certify to Heartland a list of Partners, as
shown on Seller's books and records, on each of the date hereof, the date of the
mailing of Seller's Disclosure Statement, and the Closing Date, and (ii) shall
indemnify and hold Heartland harmless from any inaccuracies in such lists. Any
purported transfer of an interest in Seller shall be immediately reported by
Seller to Heartland.
1.5 DISTRIBUTION PROCEDURES. At the time of the mailing of the Seller's
Disclosure Statement, the Exchange Agent shall mail to each Partner a letter of
transmittal in a form mutually acceptable to Heartland and Seller which shall
contain instructions regarding each Partner's receipt of their respective
portions of the Distributable Shares. Upon the return of the duly executed
letter of transmittal (the execution of which shall also constitute such
Partner's consent and approval of (i) the sale of the Venture Interest pursuant
to the terms of this Agreement, (ii) the adoption of the Agreement and Plan of
Liquidation, and (iii) the release or assignment of the AWS Claims), each
Partner shall be entitled to receive the number of Distributable Shares equal to
such Partner's percentage ownership interest of Seller multiplied by the number
of Distributable Shares, and upon the completion of the dissolution and winding
up of Seller, such Partner's pro rata interest in the remaining proceeds, if
any, of the Liquidated Shares. Until the letter of transmittal is executed and
returned to the Exchange Agent by a Partner and surrendered as contemplated by
this Section 1.5 or as otherwise provided in the Exchange Agreement, each
Partner's interest in the Seller shall, at and after the
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Closing Date, be deemed to represent only the right to receive such Partner's
pro rata interest in the Distributable Shares and the remaining proceeds, if
any, of the Liquidated Shares.
1.6 REGISTRATION OF ACQUISITION SHARES. As soon as practicable after the
execution of this Agreement, Heartland shall file a registration statement on
Form S-4 (the "Registration Statement") with the SEC for the purpose of
registering the Acquisition Shares for either (i) distribution to Seller's
equity owners (with respect to the Distributable Shares) or (ii) distribution to
the Partnership and concurrent offering for sale to the public (with respect to
the Liquidated Shares), each pursuant to the Agreement and Plan of Liquidation.
Heartland shall pay all costs of registration, excluding attorneys' fees and
accounting fees of Seller's counsel and its independent accountants (other than
audit expenses), and costs and expenses associated with the solicitation of
proxies or consents relative to the Acquisition from Seller's partners.
Heartland will use reasonable efforts to cause the Registration Statement to
become effective as soon as practicable. Subject to Sections 5.2(b) and 5.15,
Seller shall cooperate and use reasonable efforts to supply Heartland with all
requisite information necessary to complete the Registration Statement,
including, but not limited to, information relative to solicitations of the
Partners for approval of the transactions contemplated herein.
1.7 DIVIDENDS; TRANSFER TAXES. Any dividends or other distributions that
are declared on or after the Closing Date on Heartland Shares or are payable to
the holders of record of Heartland Shares on or after the Effective Time will be
paid to the person(s) entitled to receive such Heartland Shares. In no event
shall the person entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. If any
dividends, cash in lieu of fractional shares or Heartland Shares are to be paid
to or issued in a name other than that of a Partner as indicated on Seller's
books and records, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of Heartland Shares in a name other
than that of the registered Partner or shall establish to the satisfaction of
the Escrow Agent that such tax has been paid or is not applicable.
1.8 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Shares which remain
undistributed to the former Partners of Seller for six (6) months after the
Closing Date shall be delivered to Seller and administered pursuant to the
Agreement and Plan of Liquidation, and any former Partners of Seller who have
not theretofore complied with this Article 1 shall thereafter look only to the
Seller for payment of any liquidating distributions, Distributable Shares and
any dividends or distributions with respect to Heartland Shares; provided that
the Exchange Agent shall, upon its receipt of written request from Seller,
periodically disburse cash proceeds from the Exchange Fund for purpose
consistent with the Agreement and Plan of Liquidation, as further specified in
the Exchange Agreement.
1.9 FURTHER ASSURANCES. If at any time after the Closing Date Heartland on
the one hand, or Seller on the other, shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in Heartland, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of Seller, or (b)
otherwise to carry out the purposes of this Agreement, Heartland or Seller, as
the case may be, and its proper officers and directors or their designees shall
be authorized to execute and deliver, in the name and on behalf of Seller or
Heartland, as the case may be, all such deeds, bills of sale, assignments and
assurances and do, in the name and on behalf of each of such entities, all such
other acts and things necessary, desirable or proper to vest, perfect or confirm
its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of such entities and otherwise to carry
out the purposes of this Agreement.
1.10 EARNEST MONEY. Heartland shall deposit in escrow with Escrow Agent (a)
on the date hereof One Hundred Thousand and No/100 Dollars ($100,000.00)
(together with any interest thereon, the "Initial Earnest Money") and (b)
commencing on November 1, 1995 and on the first day of each month thereafter
until the earlier of the Closing hereunder or termination of this Agreement,
Fifty Five Thousand and No/100 Dollars ($55,000.00) (each payment, together with
any interest thereon, being the "Additional Earnest Money" and together with the
Initial Earnest Money referred to as the "Earnest Money"), which Earnest
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Money shall be held and disbursed pursuant to the terms of this Agreement and
the Escrow Agreement attached as Exhibit 1.10. Any interest accruing on the
Earnest Money shall be for the benefit of the party receiving such Earnest
Money, and any income tax thereon shall be paid by such party; provided that if
the Earnest Money has not been disbursed on or prior to December 31, 1995, any
taxes thereon shall by payable by Heartland.
1.11 EXTENSION OF CLOSING DATE. In the event that the Registration
Statement has been declared effective on or before January 31, 1996 but the
Closing hereunder has not occurred, Heartland shall have the right to extend the
Closing Date until March 15, 1996 upon written notice to Seller; provided,
however, that if the Registration Statement has been declared effective on or
before December 31, 1995, and Seller has obtained the required consent from its
Partners pursuant to Section 6.5 on or before January 31, 1996, Seller's consent
to any such extension shall be required, which consent may be withheld at
Seller's sole discretion.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
To induce Heartland to enter into this Agreement, Seller hereby represents
and warrants to Heartland that:
2.1 ORGANIZATION; DOING BUSINESS. Seller is, and at the Closing Time shall
be, a partnership organized under the laws of the State of California. Except
for business conducted by or on behalf of the Venture, Seller has conducted no
business and owns no material assets outside of the State of Texas.
2.2 OUTSTANDING RIGHTS. Except as set forth on Schedule 2.2, (a) Seller
owns, free and clear of any liens, the Venture Interest; (b) there are no rights
of first refusal, transfer restrictions (other than restrictions generally
imposed under applicable securities laws) or similar rights or obligations with
respect to the Venture Interest; (c) the Venture Interest represents a 79.99%
interest in the Venture; and (d) to the Knowledge of Seller, there are no
outstanding subscriptions, options, conversion or exchange rights, commitments
or agreements of any character relating to the Venture or the Venture Interest.
2.3 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Except as set forth on
Schedule 2.3, Seller and, to the Knowledge of Seller, the Venture have full
power and authority to conduct all of the business and activities conducted by
it (including without limitation the Business) and to own or lease all of the
Assets owned or leased by them. Seller has full power and authority (subject to
the approval of Seller's Partners as set forth in Section 6.5) to execute and
deliver this Agreement and all other documents required to be executed and
delivered by Seller hereunder, to consummate the transactions hereby
contemplated, and to take all other actions required to be taken by Seller
pursuant to the provisions hereof. This Agreement and all other documents
required to be executed and delivered by Seller hereunder have been duly
authorized by all action necessary on the part of Seller (subject to the
approval of Seller's Partners as set forth in Section 6.5) and have been duly or
will be duly executed and delivered by Seller and constitute the legal, valid
and binding obligations of Seller, enforceable against Seller in accordance with
their terms. Except as set forth on Schedule 2.3, neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by Seller hereunder or the consummation of the transactions hereby
contemplated by Seller will (i) conflict with or constitute any violation or
breach of the Partnership Agreement of Seller, (ii) subject to the consent of
AWS to the transfer of the Venture Interest ("AWS Consent"), constitute any
violation or breach of, or give any other Person any rights (including any right
of acceleration, termination or cancellation) under, any Contract, License,
Governmental Permit, or similar document to which Seller is a party or is bound,
either which constitute a portion of the Assets or by which the Assets may be
affected, or (iii) constitute a violation of any Order or Legal Requirement, or
(iv) result in the creation of any Lien on any of the Assets.
2.4 FINANCIAL STATEMENTS. (A) Schedule 2.4 lists the financial statements
of Seller for the periods set forth therein (collectively, the "Financial
Statements"). The Financial Statements are in accordance with the books and
records of Seller; are complete and correct; fairly present the financial
position and results of operations of Seller and, to the Knowledge of Seller,
with respect to the Market and the Business, as of the dates thereof and for the
periods referenced therein; are in accordance with GAAP; and have been delivered
to Heartland.
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(B) Since the date of the Financial Statements, except as set forth on
Schedule 2.4, (i) Seller has conducted its business in the ordinary, regular
course thereof; (ii) there has been no change in the business of Seller or, to
the Knowledge of Seller, the Venture, or in the condition, financial or
otherwise, of Seller or, to the Knowledge of Seller, the Venture, or assets or
liabilities reflected in the Financial Statements which have had a Material
Adverse Effect upon the Venture Interest or Assets; or any damage, destruction
or loss, whether or not covered by insurance, which has had a Material Adverse
Effect on the Venture Interest, the Business or the Assets or which is
substantial in amount, or any change in the nature; or in the condition, of the
business of Seller which has had a Material Adverse Effect upon the Venture
Interest or the Assets; or any event, condition or state of facts or any
character whatsoever, the occurrence of which has had a Material Adverse Effect
upon the Venture Interest or the Assets; (iii) except in the ordinary and
regular course of its business, Seller and, to the Knowledge of Seller, the
Venture, have not made any dispositions of any of the Venture Interest, AWS
Claims, or Assets; disposed of any records relating to the Venture Interest, AWS
Claims, or Assets; borrowed any funds; incurred, assumed or become subject to
any obligation or liability, indebtedness for borrowed money, absolute or
contingent paid; discharged, or satisfied any claim, liability or obligation,
absolute, accrued, contingent or otherwise; cancelled any debts owed to it or
waived any claims or rights of value; granted or extended any power of attorney;
or acted as any guarantor, all with respect to or as relate to the Venture
Interest or Assets; and (iv) Seller and, to the Knowledge of Seller, the
Venture, have not done any act or permitted to be done any act or admitted any
act which has or will cause the breach of any representation or warranty of
Seller set forth in this Agreement.
(C) Seller and, to the Knowledge of Seller, the Venture have no
Liabilities, absolute, contingent or otherwise, direct or indirect, material or
immaterial, asserted or unasserted, attributable to Seller, the Venture, the
Business or the Assets, except as set forth on Schedule 2.4 attached hereto. To
the Knowledge of Seller, there has been no change in the business financial
condition, operations or prospects of the Venture since the date of the most
recent Financial Statement which could have Material Adverse Effect.
2.5 PROPERTY. To the Knowledge of Seller:
(A) Schedule 2.5(a) lists and describes in detail as of the date
thereof all of the Equipment, except small hand tools and similar equipment
which are generally described by category and number.
(B) Schedule 2.5(b) lists all Facilities, designating whether such
Facility is owned or leased, including whether there is no
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site.
(C) The Venture owns and holds good and marketable title to all of the
Equipment and Facilities, except as set forth on Schedules 2.5(c) or 2.7,
and all of such Equipment and Facilities is in good and serviceable
condition; conforms to or complies with all applicable Orders and Legal
Requirements; and constitutes all of the Equipment and Facilities that are
used, usable, held for use in or in conjunction with or otherwise
associated with, required or necessary to the ownership and operation of
the Business.
2.6 RECEIVABLES. To the Knowledge of Seller, all accounts receivable of the
Business are reflected in Schedule 2.6 and represent, and at the Closing Time
will represent, valid obligations arising from sales made in the ordinary and
regular course of the Business. To the Knowledge of Seller, the accounts
receivable are valid receivables that have arisen in the ordinary course of the
operation of the Venture's Business in the Market and are collectible and not
subject to setoff or counterclaim, nor to any agreement to reduce or discount.
2.7 CONTRACTS.
(A) Schedule 2.7 is a complete and correct list of all Contracts to
which Seller or, to the Knowledge of Seller, the Venture, is a party or is
otherwise bound other than (i) policies of insurance which are listed in
Schedule 2.9 and (ii) Channel Leases which are listed in Schedule 2.8(a).
(B) To the Knowledge of Seller, except as set forth on Schedule 2.7,
(i) Seller and the Venture, as applicable, have performed in all respects
all obligations required to be performed by it under each of the Contracts;
(ii) all of the Contracts are legal, valid and binding obligations
enforceable in accordance with
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their respective terms and in full force and effect and there are no
defaults (or events which, with notice or lapse of time or both, would
constitute a default) by the Seller or the Venture, as applicable, or any
other party to any such Contract; and (iii) no default under any of the
Contracts will be caused by the consummation of the transactions
contemplated hereby; and (iv) Seller and the Venture (as applicable) shall
have performed and discharged all obligations due or accrued under each
Contract relating to periods prior to and including the Closing Date. There
exists no management or related agreements between Seller and any of its
Affiliates with respect to the Assets or Venture Interest which would
require Heartland to make any payment whatsoever in the form of management
fees or related payments to Seller or its Affiliates with respect to the
Venture Interest, Assets or Business following the Closing.
(C) To the Knowledge of Seller, each Site Lease and Site Option allows
for the use and operation on the leased property of transmitters, antenna
structures, antennas and other associated facilities and permits the
transmission from the property of signals containing video and audio
programming.
(D) To the Knowledge of Seller, true, complete and accurate copies of
all Contracts have been delivered to Heartland by Seller.
2.8 FCC MATTERS.
(A) To the Knowledge of Seller, Schedule 2.8(a) is a complete and
correct list of all Channel Leases and, except as set forth on Schedule
2.8(a), (i) the Venture has performed in all respects all obligations
required to be performed by it under each of the Channel Leases; (ii) all
of the Channel Leases are legal, valid and binding obligations enforceable
in accordance with their respective terms and in full force and effect and
there are no defaults (or events which, with notice or lapse of time or
both, would constitute a default) by the Venture, or any other party to any
such Channel Leases; (iii) no default under any of the Channel Leases will
be caused by the consummation of the transactions contemplated hereby; (iv)
Channel Leases set forth in the name of Persons other than the Venture, as
lessee, have been duly and validly assigned with all requisite consents and
approvals of all parties thereto to the Venture, and remain in full force
and effect as if the Venture were the initial "lessee" thereunder; (v) no
default or termination has been threatened in writing under any of the
Channel Leases by any party thereto; and (vi) the Channel Leases comply in
all respects with the Act and the FCC Rules and, each of the Channel
Leases, and all amendments thereto, have been filed with and approved by
the FCC.
(B) To the Knowledge of Seller, listed in Schedule 2.8(b) are all of
the Licenses and FCC Permits held or leased by the Venture; all Licenses
and FCC Permits are in the name of the Person set forth in Schedule 2.8(b);
all reports or other documents required to be filed with respect to any
such License have been timely filed; and the Licenses and the FCC Permits
listed on Schedule 2.8(b) attached hereto constitute all of the
Authorizations held or leased by the Venture and are all of the
Authorizations used, useable, held for use in or in conjunction with or
otherwise associated with, required or necessary for the Venture to
lawfully conduct its business operations. Except as otherwise expressly
noted on Schedule 2.8(b), to the Knowledge of Seller, each of the Licenses
and the FCC Permits (i) is currently and validly held by the Person
identified as the holder thereof on Schedule 2.8(b), (ii) authorizes said
holder to construct and operate a facility transmitting video and audio
programming on the Channels, (iii) was validly issued, (iv) is validly
existing and in full force and effect, and (v) is not subject to any
conditions other than such conditions as are generally applicable to
licenses and permits issued by the FCC with respect to ITFS, MDS or MMDS
Channels. To Seller's Knowledge, there are no existing or threatened
investigations, inquiries or proceedings by or before the FCC or other
Governmental Entity which could result in the revocation, cancellation,
suspension, forfeiture or material adverse modification of any
Authorization or Application.
(C) To Seller's Knowledge, Schedule 2.8(c) indicates all Applications
and all amendments or other filings thereto. To Seller's Knowledge, the
information contained in each Application is materially true and correct,
and each Person which is a signatory to an Application is authorized under
FCC rules to file such Application.
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(D) Except as otherwise expressly noted on Schedule 2.8(d), Seller
and, to Seller's Knowledge, the Venture, AWS, the FCC Licensees and the FCC
Permittees have each timely submitted to the FCC, the FAA and all other
Governmental Authorities all notices, reports and other documents which
have been or are required by the Act, the FCC Rules, the FAA Rules and
other Legal Requirements, the Licenses and the FCC Permits except where the
failure to do so would not (i) have a Material Adverse Effect, (ii) hinder
the Venture's ability to fully perform its material obligations under this
Agreement. Except as otherwise expressly noted on Schedule 2.8(d), to the
Knowledge of Seller, no petitions to deny or informal objections have been
filed against any of the amendments listed on Schedule 2.8(c). True,
complete and accurate copies of all amendments, notices, reports and other
documents filed, to Seller's Knowledge, by the Venture, AWS, the FCC
Licensees and the FCC Permittees with respect to the Licenses and the FCC
Permits with the FCC, the FAA, the Copyright Office and other Governmental
Authorities have been delivered to Heartland.
2.9 INSURANCE. Schedule 2.9 is a complete and correct list and brief
description of all insurance policies held by the Seller or to Seller's
Knowledge, the Venture, related to the Venture Interest or the Assets, each of
which are in full force and effect.
2.10 LITIGATION. Except as set forth in Schedule 2.10, there is no
Proceeding pending, or to Seller's Knowledge threatened, against Seller or the
Venture relating to the Venture Interest or the Assets or the propriety or
validity of the transactions contemplated hereby. Except as set forth in said
Schedule 2.10, neither Seller nor, to the Knowledge of Seller, the Venture, is
subject to or in default under or with respect to any Order. There are no
judgments of any court which in any way may currently constitute the lien or at
some future time may be perfected into a lien upon or against the Venture
Interest or any portion of the Assets, and, there is no Proceeding pending or
threatened against, relating to or affecting the Venture Interest or any portion
of the Assets.
2.11 GOVERNMENTAL PERMITS. Except as set forth in Schedule 2.11, Seller,
or, to the Knowledge of Seller, the Venture, owns, holds or possesses all
Governmental Permits which are necessary to entitle it to own or lease, operate
and use its Assets and to carry on and conduct its business as currently
conducted except with respect to Applications for which Licenses have not been
granted, if any.
2.12 COMPLIANCE WITH LAWS. Except as set forth in Schedule 2.12, Seller
and, to the Knowledge of Seller, the Venture, have complied in all respects with
all applicable Legal Requirements and Orders of any Governmental Authority
having jurisdiction over it or its operations, including, but not limited to,
all FCC Rules and any laws (including Environmental Laws), rules or regulations
regulating, if applicable, zoning, fair and equal employment practices, the
safety of the workplace, the discharge of materials into the Environment or
otherwise relating to the protection of the Environment, antitrust, antimonopoly
or anticompetitive activities, wages, hours, collective bargaining and the
payment of withholding and social security taxes. There are no Orders
outstanding or in effect against or relating to Seller, or, to the Knowledge of
Seller, the Venture, the Assets, the transactions contemplated by this
Agreement, or to any of the Channel Leases, other than Orders issued with
respect to the wireless cable industry generally and in the normal course of
regulation, which could, individually or in the aggregate, (i) have a Material
Adverse Effect, (ii) hinder Seller's ability to fully perform its material
obligations under this Agreement, or (iii) eliminate or materially diminish the
benefits of this Agreement for Heartland. Except as set forth in Schedule 2.12,
Seller has not received any notice (written or otherwise) from any Person to the
effect that, or otherwise been advised that, Seller or the Venture is not in
compliance with any applicable law, ordinance, regulation, building or zoning
law relating to the Assets or the Business and Seller has no reason to
anticipate that any presently existing circumstances are likely to result in a
violation of any such law, statute, ordinance or regulation.
2.13 ENVIRONMENTAL MATTERS. (A) Neither Seller nor, to the Knowledge of
Seller, the Venture, has used, generated, manufactured, refined, transported,
treated, stored, leaked, poured, emitted, emptied, released, discharged,
disposed, spilled or handled Hazardous Substances in material violation of any
Environmental Law with respect to the property under Seller's or the Venture's
control at any Facility.
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(B) Seller has no Knowledge of any prior owner, occupant, tenant or user of
any Facility that has ever used, generated, manufactured, refined, transported,
treated, stored, leached, leaked, poured, emitted, emptied, released,
discharged, disposed, spilled or handled Hazardous Substances in material
violation of any Environmental Law, at, on or from the property under Seller's
or the Venture's control at any Facility.
(C) Seller has not received notice of any pending or threatened Proceeding,
Order or citizen suit instituted by any private party, employee or Governmental
Authority arising out of the conduct or the operations of its business, in
connection with Environmental Laws, or as a result of any Environmental
Condition relating to the property under Seller's or the Venture's control at
any Facility.
2.14 INTELLECTUAL PROPERTY. Neither Seller nor, to the Knowledge of Seller,
the Venture owns or uses any Intellectual Property in the Business.
2.15 LIENS. Except as set forth on Schedule 2.15, the Seller has good,
marketable and valid title to the Venture Interest, and, to the Knowledge of
Seller, Venture has good, valid and marketable title to all of its Assets, each
free and clear of all Liens, except for the lien, if any, of current Taxes not
yet due and payable.
2.16 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, Seller and, to Seller's Knowledge, the Venture, the
FCC Licensees and the FCC Permittees are in material compliance with, and not in
default under or in violation of, the Act, the FCC Rules, the FAA Rules, the
Copyright Act, the Copyright Rules and other Legal Requirements applicable to
the Licenses or FCC Permits. Except as otherwise expressly noted on the
Schedules attached hereto, Seller has no Knowledge and has received no notice of
noncompliance with, default under or violation of the Act, the FCC Rules, the
FAA Rules, the Copyright Act, the Copyright Rules, other Legal Requirements and
the applicable Licenses or FCC Permits. No condition exists or event has
occurred with respect to Seller and, to Seller's Knowledge, the Venture, the
Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which, in
itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a violation of the Act, any FCC Rule, any FAA Rule, the
Copyright Act or the Copyright Rules, (ii) constitute a default in the due
performance and observation of any term, covenant or condition of any of the
Licenses or FCC Permits, (iii) result in a forfeiture, the denial, dismissal or
rejection of any of the Schedule 2.8(c) or 2.8(d) amendments, or the suspension,
termination, revocation, material impairment, material adverse modification or
nonrenewal of any License or FCC Permit, or (iv) adversely affect any of the
material rights of Seller, the Venture, any FCC Licensee or FCC Permittee under
any of the Licenses or FCC Permits.
2.17 INTERFERENCE. Neither Seller, nor, to Seller's Knowledge, the Venture
or any party to a Channel Lease, has accepted the electrical interference to the
Channels from any source, has consented to the grant of any application involved
with the FCC that is likely to result in any electrical interference to the
Channels, or has failed to timely petition to deny any application that proposes
facilities that could reasonably be anticipated to cause objectionable
electrical interference to the Channels. Except as otherwise expressly noted on
Schedule 2.17 attached hereto, neither Seller, nor, to Seller's Knowledge, the
Venture, any FCC Licensee or FCC Permittee or any other party to a Channel
Lease, is likely to experience interference which will adversely impact
operation of the Facilities it has constructed and/or operated, or is
constructing once such Facilities are constructed and operated, or is likely to
create interference which will adversely impact the operation of other
facilities licensed by the FCC to other Persons; for purposes of this Section
2.17, interference shall be deemed to exist if within an FCC Licensee's
protected service area, the ratio of the desired signal to the undesired signal,
at the antenna input terminals of the affected receiver, is less than 45 dB.
2.18 EMPLOYEES; BENEFIT PLANS. To Seller's Knowledge, the employees listed
on Schedule 2.18 are the Venture's or Seller's only employees associated with
the Market. To Seller's Knowledge, except as set forth on Schedule 2.18 hereof,
neither Seller nor the Venture has or has had any bonus, deferred compensation,
incentive compensation, severance or termination pay, hospitalization or other
medical, stock purchase, stock option, pension, life or other insurance, profit
sharing or retirement plan, agreement or arrangement, or other employee benefit
plan or arrangement, whether formal or informal, and whether legally binding or
not, maintained or contributed to by Seller ("Benefit Plan"). To Seller's
Knowledge, neither Seller nor the Venture has been a party to a "multiemployer
plan" as that term is defined in Section 3(37) of the Employee
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Retirement Income Security Act of 1974, as amended. To Seller's Knowledge, with
respect to the Benefit Plans listed on Schedule 2.18 hereof, (i) all payments
due from Seller or the Venture to date for the employees with respect to such
Plans have been made and all amounts properly accrued to date as Liabilities of
Seller or the Venture are set forth on Schedule 2.18 hereof; and (ii) all
reports and information relating to such Plan required to be filed with any
governmental entity have been filed. Seller has not (i) experienced any material
labor disputes or work stoppages, or (ii) received any notice that there is any
unfair labor practice, charge or complaint pending or threatened, except as is
already set out herein.
2.19 FINDER'S FEES. Neither Seller nor, to the Knowledge of Seller, the
Venture has taken any action which would impose upon Heartland any obligation or
liability to any person for finder's fees, agent's commissions or like payments
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.20 PROGRAMMING AGREEMENTS. To Seller's Knowledge, Schedule 2.20 sets
forth a true and complete list of all agreements for programming and for each
programming agreement (i) the name of the programmer, (ii) the programming
service, (iii) the rate, and all factors that affect rate changes through the
end of the term of such agreement, (iv) the term and any rights for early
termination or extensions of the term of any party thereof, (v) any
renegotiation rights, (vi) the relevant channels, and (vii) any provisions
relating to advertising.
2.21 FURTHER REPRESENTATION. No representation or warranty of Seller
contained in this Agreement contains or will contain any untrue statement of, or
will omit to state, a material fact necessary in order to make the statements
made herein, in light of the circumstances under which they are made, not
misleading. All books, statements, documents, schedules and records furnished or
given by it to Heartland or their agents during the negotiation of or
preparatory to the execution of this Agreement or the consummation of the
transactions contemplated hereby, are true, complete and genuine and contain no
material misrepresentations or omissions of material facts.
2.22 CERTAIN ACTIVITIES. Neither Seller nor, to the Knowledge of Seller,
the Venture engages in any business other than the Wireless Cable Business in
the Market. The Venture Interest, the AWS Claims and the Excluded Assets are the
only material assets of Seller.
2.23 PARTNERSHIP BOOKS AND RECORDS. Schedule 2.23 contains a true and
correct list of each Partner of Seller, indicating the percentage interest owned
by each such person. Under the applicable provisions of Seller's Partnership
Agreement and applicable law, the approval of a majority of the general
partnership interest in Seller is required to approve and adopt the Agreement
and the transactions contemplated hereby.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND.
Heartland hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION AND GOOD STANDING. Heartland is a Delaware corporation
duly organized, validly existing and in good standing under the laws of
Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has the
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.8 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 6.8 and 7.1) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement or any of the documents required to
be executed and delivered by Heartland
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hereunder or the consummation of the transactions hereby contemplated by
Heartland conflict with or constitute any violation or breach of the Certificate
of Incorporation or the Bylaws of Heartland.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby.
3.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents (if any), or the filing of the Registration Statement, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Authority is required on behalf of Heartland in
connection with the execution, delivery or performance of this Agreement and all
documents contemplated hereby or the transactions contemplated hereby.
3.5 CAPITALIZATION. Heartland is authorized to issue 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 of preferred stock, par
value $.01 per share. As of the date hereof, 12,476,393 shares of Heartland
common stock are issued and outstanding and no shares of preferred stock have
been issued. The Acquisition Shares to be issued pursuant to this Agreement will
be, upon issuance, validly issued, fully paid and non-assessable.
3.6 FINANCIAL STATEMENTS. The financial statements contained in Heartland
SEC Filings are correct and complete and fairly present the financial position
and results of operations of Heartland as of the date thereof and for the
periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to Seller copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three (3) month periods ended March 31, 1995 and June 30, 1995, (iii)
its Form S-3 Registration Statement (33-94838) declared effective by the SEC on
August 4, 1995 and (iv) all Form 8-Ks filed with the SEC after June 30, 1995 and
prior to the date of this Agreement ("Heartland SEC Filings"). Each such filing
was timely filed with the SEC, and did not contain any misstatement of material
fact or an omission of a material fact required to be stated therein necessary
to make the statements therein not misleading as of the time such document was
filed. Heartland has filed all documents required to be filed with the SEC. As
of their respective dates, such reports complied in all material respects with
the applicable requirements of the Securities Exchange Act of 1934, as amended,
and Securities Act of 1933, as amended.
ARTICLE 4. COVENANTS OF SELLER.
Seller hereby agrees to perform as follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. From the date hereof through the
Closing Date:
(A) Seller shall not, and shall not cause the Venture to, engage in
any practice, take any action or enter into any transaction other than in
the customary and ordinary course of business without the consent of
Heartland.
(B) Seller will use reasonable efforts to keep the business,
properties and business relationships substantially intact.
(C) Seller will pay and perform all of its debts, liabilities and
obligations as and when due, except (i) to the extent being contested in
good faith or (ii) as to which adequate reserves (determined in accordance
with GAAP) have been established (which Heartland acknowledges may be paid
at Closing).
(D) Seller agrees that (i) Seller will not take any action, and will
endeavor in good faith not to permit any event to occur, which would cause
or constitute a material breach of this Agreement; (ii) Seller will, in the
event of, and promptly after the occurrence of, or promptly after becoming
aware of the occurrence of or the impending or threatened occurrence of,
any event which would cause or constitute a material breach or would, if it
had occurred immediately prior to the date hereof, have caused or
constituted a material breach of any of the representations and warranties
set forth in said Article 2,
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give notice thereof to Heartland; and (iii) Seller shall use reasonable
efforts to prevent or promptly to remedy such breach.
(E) Seller will use reasonable efforts to, and to cause the Venture
to, preserve, protect and maintain their rights and interests in the
Channel Leases, FCC Licenses, and Contracts, including, but not limited to,
filing or having licensees or permittees file with the FCC any and all
reports, applications or other documents necessary to preserve the FCC
Licenses in full force and effect.
(F) Seller shall not, and shall not cause the Venture to, enter into,
amend or terminate, or agree to enter into, amend, except to comply with
this Agreement, or terminate any Channel Lease, License, Permit,
Application or Contract.
(G) Seller shall not, and shall not cause the Venture to, make any
distributions to Seller, AWS or any Partners, as applicable, nor shall
Seller issue or cause the Venture to issue, sell or agree to sell any
equity interests or options or rights with respect thereto.
(H) Seller shall not, and shall not cause the Venture to, sell, lease,
transfer or otherwise dispose of any assets of Seller or the Venture, as
applicable, except as provided for by, or contemplated in, this Agreement.
(I) Seller shall not, and shall not cause the Venture to, increase in
any manner the base compensation of, or enter into any new bonus or
incentive agreement or arrangement with, any of its managers, officers or
employees, pay bonuses to any such manager, officer or employee, nor shall
Seller pay any salaries except in the ordinary course of business.
(J) Seller shall not grant or transfer any rights to the Venture
Interest or AWS Claims.
(K) Seller shall not take any actions which would cause the
transactions contemplated hereby to be subject to Subpart 900 of Regulation
S-K, promulgated under the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Roll-up Rules").
4.2 CONSENTS. Except as otherwise provided herein, Seller shall, upon the
request and with the assistance of Heartland, obtain or cause to be made, all
consents, governmental authorizations, approvals and filings as may be necessary
by virtue of the transaction contemplated by this Agreement on or before the
Closing Date, so as to ensure that the Venture will continue to enjoy all of the
rights and privileges currently under each of the Channel Leases, Licenses and
Contracts. Upon request of Heartland, Seller shall assist Heartland to obtain
from each of the other respective parties to each of such Channel Leases and
Material Contracts estoppel certificates certifying that neither Seller nor the
Venture is in breach or violation of or in default under any of such Channel
Leases or Contracts and that it would not be by virtue of the transactions
contemplated hereby. Seller shall, upon the request and with the assistance of
Heartland, seek any appropriate amendments, modifications or changes to each of
such Channel Leases and Contracts so as to ensure that the licensees, permittees
or other parties thereto notify Heartland directly in the event of a breach or
violation of or default under any such Channel Lease or Contract. In addition to
the foregoing, Seller shall obtain a written consent from AWS consenting to the
transfer of the Venture Interest to Heartland, admitting Heartland as a joint
venturer in the Venture, and acknowledging that such transfer will not cause a
dissolution of the Venture.
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. Seller shall, and shall use
reasonable efforts to cause the Venture to:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to the Venture remain in
full force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's Rules or policies of general applicability. After the
applications are filed for FCC consent to the transfer of control of the
FCC Licenses for said Channels to Heartland or an affiliate of Heartland,
Seller shall join in filing (subject to the consent of AWS), at the request
of and as an accommodation to
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Heartland, such applications for modification of their outstanding
construction permits or licenses to implement the purposes contemplated
hereunder. Seller shall utilize reasonable efforts to diligently and
properly prosecute in good faith all applications, reports and submissions
submitted in accordance with this Section 4.3.
(B) assure that the licensees or permittees under the Channel Leases
timely file all applications reports, and other submissions in such form
and with such information as may be required by the FCC, including, but not
limited to, renewal applications, applications for extensions of time to
complete construction and Annual FCC Reports, to assure that such FCC
Licenses remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
modification result from changes in the FCC's rules or policies of general
applicability. Seller shall, and shall use reasonable efforts to cause the
Venture to, use reasonable efforts to assure that the licensees or
permittees under the Channel Leases diligently prosecute in good faith all
such applications, reports and submissions. Seller shall promptly disclose
to Heartland any information it receives regarding any condition or
circumstance that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. From and after the date hereof, Seller will not, and
will not authorize or permit any of its Executive Committee members, officers,
managers, employees, agents and other representatives (collectively, "Seller
Representatives") to solicit, initiate or encourage any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to, an
Acquisition Proposal (as defined herein) from any person, or engage in any
discussion or negotiations relating thereto or accept any Acquisition Proposal.
Seller shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Seller or any Seller Representatives
with respect to any of the foregoing. Seller will promptly notify Heartland of
any such discussion or negotiations, requests for such information or the
receipt of any Acquisition Proposal, including the identity of the person or
group engaging in such discussions or negotiations, requesting such information
or making such Acquisition Proposal and the material terms and conditions of any
Acquisition Proposal. As used in this Agreement "Acquisition Proposal" shall
mean any proposal or offer, other than a proposal or offer by Heartland or any
of its Affiliates, for a tender or exchange offer, a merger, consolidation or
other business combination involving Seller or the Venture or any proposal to
acquire in any manner a substantial equity interest in, a substantial portion of
the assets of, or any rights to any Channels or Licenses of, Seller or the
Venture. Notwithstanding the foregoing and subject to Heartland's rights set
forth in Section 5.11, nothing in this Section 4.4 shall prohibit the Executive
Committee of Seller from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
bona fide proposal to acquire Seller pursuant to a merger, consolidation,
exchange, purchase of a substantial portion of the assets, business combination
or some other transaction, if, and only to the extent that (A) the Executive
Committee determines in good faith that such action is required for the
Executive Committee to comply with its fiduciary duty to its Partners, (B) prior
to furnishing such information to, or entering into discussions with or
negotiations with, such person or entity, Seller provides written notice to
Heartland to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) Seller keeps
buyer informed, on a current basis, of the status of any such discussions or
negotiations; and (ii) in complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. Seller will use reasonable
efforts to cause a person provided proprietary information in accordance with
the foregoing to enter into a confidentiality agreement.
4.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, Seller will have audits conducted and completed, at the expense of
Heartland or AWS, so that Seller can provide audited financial statements of
Seller as of, and for the period ending, December 31, 1994, including the
balance sheets and related statements of income and expense and for any other
period for which audited financial statements are required in the Registration
Statement.
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ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS AND PARTNERS MEETING. Heartland shall take all action
necessary in accordance with applicable law and in accordance with its
certificate of incorporation and bylaws to convene a meeting of its stockholders
promptly after the Registration Statement is declared effective by the SEC to
consider and vote upon the approval of this Agreement. Seller shall take all
action necessary in accordance with applicable law and its partnership agreement
to obtain the approval of the transactions described in this Agreement by its
Partners promptly after the Registration Statement is declared effective by the
SEC to consider and vote upon the approval of this Agreement. Seller and
Heartland each, through its Executive Committee or board of directors, as
applicable, shall recommend to its partners or stockholders (and, if applicable,
its lenders) approval of this Agreement and shall use reasonable efforts to
obtain approval and adoption of this Agreement by such partners, stockholders
and lenders. Seller acknowledges that the consummation of the transactions
contemplated by this Agreement by Heartland requires (and therefore is subject
to) the approval of certain lenders of Heartland, and Heartland agrees to seek
to obtain the written approval of such lenders on or before December 1, 1995.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as
practicable the Registration Statement containing a proxy
statement/prospectus in connection with the registration under the
Securities Act of Heartland Shares issuable pursuant to the terms of this
Agreement, a portion of which shall also serve as the proxy statement with
respect to the meetings of the stockholders of Heartland to approve the
Acquisition and a portion of which shall constitute the prospectus to be
delivered to the Partners of Seller with regard to Heartland Shares
issuable pursuant to this Agreement, and shall use all reasonable efforts
to have the Registration Statement declared effective by the SEC as soon as
practicable. Heartland shall also take any action required to be taken
under blue sky or securities laws in connection with Heartland Shares prior
to the Closing. Subject to Sections 5.2(b) and 5.15, Seller shall furnish
Heartland all information concerning Seller and the holders of its equity
interests required for use in the Registration Statement, and take such
other actions as Heartland may reasonably request in connection with the
preparation of such Registration Statement and the actions to be taken by
Seller pursuant to this Section 5.2. None of the information furnished by
or on behalf of Seller for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
(B) Seller shall prepare as soon as practicable a disclosure statement
(together with any amendments thereof or supplements thereto in the form or
forms distributed to Seller's Partners, the "Seller Disclosure Statement")
for distribution to Seller's Partners in connection with the solicitation
of proxies or consents to the consummation of the transactions set forth in
this Agreement. Seller contemplates preparing the Seller Disclosure
Statement as a separate document designed to inform Seller's Partners with
respect to all material aspects of the Acquisition and further anticipates
transmitting the proxy statement/prospectus constituting a part of the
Registration Statement to Seller's Partners. Seller's Disclosure Statement
shall be in form and substance satisfactory to Heartland and shall comply
with applicable law relating thereto and to the use thereof contemplated in
this Agreement. Seller's Disclosure Statement shall be delivered to
Heartland for filing by Heartland with the SEC as a part of or in
connection with the Registration Statement. Subject to Section 10.2, Seller
shall make such modifications in Seller's Disclosure Statement as Heartland
shall request at any time prior to the distribution thereof to Seller's
Partners. When distributed to Seller's Partners, the Seller's Disclosure
Statement shall be accompanied by such additional materials as Heartland
shall require. Subject to Section 10.2, following distribution of the
Seller Disclosure Statement to Seller's Partners, Seller shall distribute
such amendments or supplements thereto as Heartland shall require.
Heartland shall furnish Seller all information concerning Heartland
required for use in the Seller's Disclosure Statement, and Heartland shall
take such other action as Seller may reasonably request in connection with
the preparation of the Seller Disclosure Statement. None of the information
furnished by or on behalf of Heartland for use in the Registration
Statement shall contain any material misstatement of fact or omit to state
a material fact
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or any fact necessary to make the statements contained therein not
misleading. The Seller's Disclosure Statement shall not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
5.3 ACCESS. Subject to the consent of AWS (with respect to the operations
and properties of the Venture), Heartland and its officers, employees and
representatives (including independent public accountants, investment bankers,
environmental consultants and counsel), as applicable, will at all reasonable
times during regular business hours be permitted reasonable access to the
Facilities and Seller's principal offices, will be permitted to make copies of
or abstracts from all of the books and records, financial and operating data and
other information of Seller and will be permitted to discuss the affairs, and
accounts of Seller with the Executive Committee, AWS, manager, officers,
employees, counsel, and accountants of Seller. Such investigation shall not,
however, affect the representations and warranties of Seller set forth in
Article 2 hereof; provided that in the event that Heartland acquires actual
knowledge of any fact or circumstance prior to the mailing of Seller's
Disclosure Statement that represents a breach of any representation, warranty or
covenant of Seller to the extent, and only to the extent, such representation,
warranty or covenant relates to the Venture (including, without limitation, the
Assets or the Business) Heartland shall deliver to Seller written notice of the
same; provided further, that to the extent that the Registration Statement
contains any information that conflicts with the representations, warranties or
covenants of Seller under this Agreement, to the extent, and only to the extent
that such representations, warranties or covenants relate to the Venture
(including, without limitation, the Assets or the Business), then Heartland
shall be deemed to have waived such breach. In the event the transactions
contemplated hereby should not close for any reason, Heartland agrees that it
will promptly return to Seller all such documents (including copies thereof)
furnished by Seller to Heartland and its representatives and Heartland shall
hold in confidence and shall not use or disclose to any third party any
information concerning Seller obtained from such documents or otherwise in
connection with the transactions contemplated by this Agreement unless (a) such
information (i) previously disclosed to Heartland by AWS prior to the date
hereof, (ii) subsequently disclosed to Heartland by AWS in connection with the
preparation of the Merger Agreement, or (iii) was at the time of its use or
disclosure to any third party by Heartland in the public domain other than as a
result of any breach of this provision by Heartland or (b) such disclosure is
required by law; provided that notwithstanding the termination of this
Agreement, Heartland shall have the right to use or disclose any information
delivered by Seller to Heartland hereunder in connection with the Merger
Agreement and any registration statement relating thereto. Nothing contained
herein shall be deemed to require Seller to deliver or make available to
Heartland any information which Seller reasonably believes is subject to an
attorney-client or other privilege and which, if disclosed, would no longer be
subject to such privilege.
5.4 COMPLIANCE WITH THE SECURITIES ACT. Seller has caused to be prepared
and delivered to Heartland a list identifying all persons who, as of the date
hereof, may be deemed to be "Affiliates" of Seller as that term is defined under
Paragraphs (c) and (d) of Rule 145 of the Securities Act ("Rule 145
Affiliates"), and prior to the Closing Date, Seller shall cause to be prepared
and delivered to Heartland an updated list (reasonably satisfactory to counsel
for Heartland) identifying all persons who at the time of Seller's partner
meeting may be deemed to be a Rule 145 Affiliate. Seller shall use all
reasonable efforts to cause each person who is identified as a Rule 145
Affiliate in such list to delivered to Heartland on or prior to the Closing Date
a written agreement, in the form attached hereto as Exhibit 5.4, that such Rule
145 Affiliate will not sell, pledge, transfer or otherwise dispose of any
Distributable Shares issued to such Rule 145 Affiliate pursuant to this
Agreement, except pursuant to an effective Registration Statement or in
compliance with Rule 145 or an exemption from the registration requirements of
the Securities Act.
5.5 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Acquisition and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
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may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity, (b) the obtaining of all necessary
consents, approvals or waivers from third parties, (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed, (d) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement and (e) not to take, commit, or
agree in writing or otherwise to take, any action which would make any
representation or warranty of such party contained in this Agreement untrue or
incorrect in any material respect as of the date when made or as of a future
date.
5.6 PUBLIC ANNOUNCEMENTS. Heartland and Seller will consult with each other
before issuing any press release with respect to the transactions contemplated
by this Agreement, and shall not issue any such press release prior to such
consultation, unless otherwise required under applicable law.
5.7 NOTIFICATION OF CERTAIN MATTERS. Seller shall give Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement and prior to the Effective
Time under any note, license, agreement or other instrument or obligation, which
notice or other communication is received by any member of the Executive
Committee or Ed Pankey (ii) any Material Adverse Effect or the occurrence of any
event which, so far as reasonably can be foreseen at the time of its occurrence,
is reasonably likely to result in a Material Adverse Effect on such party, or
(iii) any written notice or other written communication from any third party
received by any member of the Executive Committee or Ed Pankey alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
5.8 LETTERS OF SELLER'S ACCOUNTANTS. Seller shall cooperate with Heartland
in connection with Heartland's obtaining a letter ("Accountant's Consent
Letter") from the auditors engaged pursuant to Section 4.5, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Heartland, in form and substance reasonably
satisfactory to Heartland and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
5.9 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and will use their respective best efforts
to obtain an early termination of the applicable waiting period, and will make
any further filings pursuant thereto that may be necessary, proper, or
advisable.
5.10 HEARTLAND LOAN. Concurrently with the execution of this Agreement,
Heartland has agreed to loan ("Heartland Loan") to Seller up to Five Hundred
Thousand and No/100 Dollars, which funds are to be disbursed and used for the
purposes set forth in the loan agreement in the form attached as Exhibit 5.10(a)
("Heartland Loan Agreement") and the promissory note and security agreement
executed in connection therewith. The Heartland Loan shall be evidenced by a
promissory note ("Heartland Note") in the form attached hereto as Exhibit
5.10(b), and secured by a first and superior lien granted by Seller in and to
the Venture Interest created pursuant to the terms of a Security Agreement
("Heartland Security Agreement") in the form attached as Exhibit 5.10(c).
5.11 RIGHT OF FIRST REFUSAL. Notwithstanding any other provisions of this
Agreement to the contrary (including, without limitation, Section 4.4), Seller
hereby grants to Heartland a right of first refusal to purchase or otherwise
acquire any assets or interests that are the subject of an Acquisition Proposal,
determined by the Executive Committee to be bona fide and that the Executive
Committee intends to accept, upon the terms set forth for this Section 4.4. Upon
the Executive Committee's receipt an Acquisition Proposal that it determines is
bona fide and that it determines to accept, the terms of such proposal shall be
delivered to Heartland in a written notice ("Offer Notice") which shall contain
a copy of any written Acquisition Proposal or a summary of the material terms of
any oral Acquisition Proposal. Heartland shall have a period of
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ten (10) business days from its receipt of an Offer Notice to exercise its right
of first refusal to consummate the transaction which is the subject of the
Acquisition Proposal by written notice to Seller of such election ("Election
Notice"). If Heartland so elects to exercise such right, Heartland shall then
proceed to consummate the Acquisition Proposal in accordance with the terms
described in the Offer Notice; provided that (a) in the event the consent of
Heartland's shareholders or lenders is required, Heartland shall have a period
of thirty (30) days to obtain such consents, (b) in the event that consent of
any other third party (such as the FCC or a License holder) is required, Seller
shall be responsible for, and Heartland shall cooperate in, obtaining such
consent, and (c) any proposed closing of a transaction described in an
Acquisition Proposal shall occur no earlier than (i) ten (10) days after
Heartland's delivery of the Election Notice or (ii) ten (10) days from the date
of Heartland's receipt of any consent referred to in clause (a) or (b) above,
whichever is later. In the event that Heartland fails to deliver to Seller an
Election Notice within the time period specified herein, Seller may consummate
the Acquisition Proposal upon the terms and conditions described to Heartland in
the Offer Notice, and upon the consummation of the transaction described in the
Offer Notice, Heartland's rights hereunder shall terminate; provided that
Heartland's rights hereunder shall not terminate upon the consummation of any
Acquisition Proposal with an Affiliate of Seller. In the event any terms and
conditions of the Acquisition Proposal deviate or are subsequently modified in
any material aspect from the terms described to Heartland in the Offer Notice,
then Seller shall resubmit the Offer Notice to Heartland as if a new Acquisition
Proposal had been received. Heartland's right of first refusal granted in this
Section 5.11 shall terminate upon termination of this Agreement.
5.12 EMPLOYEES. From and after the date hereof through the Closing Date or
earlier termination of this Agreement, Heartland shall have the right to contact
any employees of Seller and/or, subject to the consent of AWS, the Venture
regarding the potential employment of such persons following the Closing Date.
Any such employees hired by Heartland shall be considered "newly hired," and
Heartland shall not be responsible for any benefit or compensation of such
persons arising prior to the Closing Date.
5.13 EXHIBITS. Heartland and Seller agree that any Exhibits not attached
hereto on the date hereof shall be prepared and attached on or before November
30, 1995, and agree to cooperate and negotiate in good faith in the preparation
of such Exhibits.
5.14 DELIVERY OF SCHEDULES AND OTHER ITEMS. Notwithstanding any other
statements contained herein to the contrary, Seller shall deliver to Heartland
all Schedules and documents stated to have been delivered herein on or before
October 20, 1995.
5.15 CERTAIN LIMITATIONS. Heartland acknowledges that the Venture has been
managed by AWS and that Seller has little or no independent information
regarding the Venture's operations, properties, assets or liabilities
(including, without limitation, the Assets and the Business), other than
information provided to Seller by AWS, and that the representations and
warranties of Seller regarding the Venture are limited to the Knowledge of
Seller principally derived from inquiry of and/or information provided by AWS.
Heartland and Seller further acknowledge and agree that (i) notwithstanding any
language to the contrary contained herein, express or implied (including without
limitation the use of the words "shall" or "will" with respect to certain
covenants and obligations of Seller), that Seller's obligations with respect to
either (A) obtaining, preparing and/or delivering information regarding the
Venture, the Assets, the Business or information regarding Seller or Seller's
Partners that is not in Seller's possession, or (B) preparing (or responding to
request from the Heartland, the SEC or any state regulatory authority regarding)
the Registration Statement or Seller's Disclosure Statement, shall be limited to
Seller's reasonable efforts, without the expenditure of any significant amounts
or the commencement of litigation, and Seller shall not be in breach of this
agreement so long as Seller has taken reasonable efforts to perform or cause the
performance of such covenants or obligations; and (ii) the parties' respective
obligations for fees and expenses associated with the performance of the
covenants and transactions contemplated hereby shall be subject to the
provisions of Section 13.1.
5.16 AWS CLAIMS. If, at Closing, Seller on one hand, and the AWS Parties on
the other, do not execute a mutual release of any and all claims and causes of
action that each such party may have as to the other party, in a form reasonably
acceptable to the parties thereto (the "Mutual Releases"), then Seller shall
retain an interest in the AWS Claims from and after Closing which will allow
Seller to assert the AWS Claims, in
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whole or in part, in connection with or as a defense to any action brought by
AWS or an AWS Party against Seller or any Partner of Seller. The form of the
agreement implementing this provision shall be attached hereto as Exhibit 5.16.
In the event that upon the Closing Heartland consummates the Merger Agreement
with AWS and AWS delivers the release contemplated by Section 8.3(d), then
Seller shall indemnify Heartland for any costs or expenses to Heartland
attributable to any indemnification obligations of AWS existing immediately
prior to September 11, 1995 (to which Heartland would succeed by operation of
law pursuant to the Merger Agreement) to the AWS Parties, in the stated
capacity, if any, arising from any actions or proceedings between the AWS
Parties, on the one hand, and Seller or any Partner on the other.
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION.
The obligation of the parties hereto to consummate the Acquisition is
subject to the fulfillment, or written waiver signed by all parties hereto, of
each of the following conditions precedent on or prior to the Closing Date or
the date specified therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
6.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the acquisition or the transactions contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Closing Date with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing Date from any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Seller and Heartland shall have been made or obtained (as the case may
be) without restrictions.
6.4 EXHIBITS. On or before November 30, 1995, Heartland and Seller shall
have agreed upon the form of each Exhibit to this Agreement and each such
Exhibit shall be attached hereto.
6.5 PARTNER APPROVAL. The sale of the Venture Interest, the Partner's
release or assignment of the AWS Claims, the Agreement and Plan of Liquidation
and all other transactions contemplated hereunder shall have been approved by
the Partners holding two-thirds ( 2/3) of the outstanding equity and voting
interest of Seller.
6.6 APPLICABILITY OF THE ROLL-UP RULES. Heartland and Seller shall not be
required to comply with the Roll-up Rules in consummating the Acquisition in
accordance with the terms of this Agreement.
6.7 CLOSING SHARE PRICE. The Closing Share Price shall not be less than
$17.00 per Heartland Share.
6.8 LENDERS' CONSENTS. Heartland shall have delivered to Seller written
notice ("Approval Notice") that the Acquisition has been approved or consented
to by Jupiter Partners, L.P. and the holders of $100,000,000 of 13% Senior Notes
due 2003 of Heartland relative to the transactions contemplated by this
Agreement on or before December 1, 1995.
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.
The obligations of Heartland to consummate the Acquisition are subject to
the fulfillment, or written waiver signed by Heartland, of each of the following
conditions precedent on or prior to the Closing Date.
7.1 STOCKHOLDER AND OTHER APPROVAL. The Acquisition shall have been
approved by the requisite votes of the holders of Heartland Shares in accordance
with applicable law and its Certificate of Incorporation and Bylaws.
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7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Seller shall be true and correct in all material respects when
made and shall be true and correct in all material respects as if initially made
on and as of the Closing Date.
7.3 SELLER'S DOCUMENTS. Seller shall have delivered the following to
Heartland in form and substance satisfactory to Heartland and its counsel:
(A) A certificate signed by an authorized member of Seller's Executive
Committee confirming, on and as of the Closing Date, that each
representation and warranty set forth in Section 2 hereof was true and
correct in all material respects on the date made and is true and correct
in all material respects on and as of the Closing Date and that Seller is
in compliance with the applicable covenants set forth in Articles 4, 5 and
6 hereof.
(B) An opinion of special counsel to Seller in the form attached
hereto as Exhibit 7.3(b).
(C) Copies of the partnership records, list of Partners, minute books,
operating agreements and organization documents of Seller.
(D) An Assignment of Venture Interest in the form attached hereto as
Exhibit 7.3(d)-1 and either (i) an Assignment of AWS Claims in the form of
Exhibit 7.3(d)-2 or (ii) the Mutual Release in the form of Exhibit 5.16.
7.4 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
been declared effective by the SEC in accordance with the Securities Act and the
rules and regulations promulgated thereunder.
7.5 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred with respect to Seller, the Venture, the Venture Interest or Assets, or
prospects of any thereof from the date hereof through the Closing Date, and as
of the Closing Date, the Liabilities of Seller (a) to AWS associated with the
Venture or the Business shall not exceed (i) if the Closing Date is on or before
January 31, 1996, $510,000; (ii) if the Closing Date is between February 1 and
February 29, 1996, $540,000; and (iii) if the Closing Date is between March 1
and March 31, 1996, $570,000; and (b) to any other third parties (directly or
indirectly through the Venture) other than Liquidated Liabilities shall not
exceed $100,000 in the aggregate.
7.6 AUDITED FINANCIAL STATEMENTS. Heartland shall have obtained audited
financial statements of Seller as of, and for the period ending, December 31,
1994, and for any other periods for which audited financial statements of Seller
are required for the Regulation Statement, including balance sheets and related
statements of income and expense, and such financial statements shall conform in
all material respects to the unaudited financial statements previously delivered
by Seller to Heartland.
7.7 ACCOUNTANT'S CONSENT LETTER. Heartland shall have received the
Accountant's Consent Letter.
7.8 SELLER'S OBLIGATIONS PERFORMED. All obligations of Seller to be
performed to the Closing Date shall have been performed in all material
respects.
7.9 CONSENTS AND APPROVALS. All necessary and appropriate governmental and
third party consents, approvals and clearances for consummation of the
transactions contemplated herein, including, but not limited to, receipt of the
AWS Consent and a "final" order by the FCC approving, without any materially
adverse or onerous conditions, Heartland (or a commonly owned entity) as
licensee of the owned FCC Licenses. For purposes of this Section, the term
"final" shall mean an order of the FCC which has not been stayed and, by lapse
of time or otherwise, is no longer subject to administrative or judicial
reconsideration, review, appeal or stay.
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to consummate the Acquisition is subject to
fulfillment, or written waiver signed by Seller, of each of the following
conditions precedent on or prior to the Closing Date.
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8.1 PARTNER APPROVAL. The Acquisition shall have been approved by the
requisite votes (but in no event less than a two-thirds ( 2/3) vote) of Seller's
Partners in accordance with applicable law and its partnership agreement and/or
other organizational documents.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
8.3 HEARTLAND DOCUMENTS. Heartland shall have executed and delivered to
Seller in form and substance satisfactory to Seller and its counsel:
(A) A certificate of an executive officer of Heartland confirming, on
and as of the Closing Date, that each of the representations and warranties
set forth in Section 3 hereof was true and correct in all material respects
on the date made and is true and correct in all material respects on and as
of the Closing Date.
(B) An opinion of counsel to Heartland addressed to Seller in the form
attached hereto as Exhibit 8.3(b).
(C) The Exchange Agreement, executed by Heartland and the Exchange
Agent.
(D) Either the Mutual Release in the form of Exhibit 5.16, if
reasonably obtainable, or an assumption and indemnification from such
claims in the form attached hereto as Exhibit 8.3(d); provided that if
Heartland consummates the Merger Agreement with AWS on or before the
Closing Date, then Heartland shall deliver or cause AWS to deliver to
Seller the Mutual Release.
8.4 HEARTLAND OBLIGATIONS PERFORMED. All obligations of Heartland to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.5 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the proxy statement to be
amended or supplemented under applicable securities laws.
ARTICLE 9. INDEMNIFICATION.
9.1 PROVISIONS REGARDING REPRESENTATIONS AND WARRANTIES. All statements,
certifications, representations and warranties made by the parties hereto in
this Agreement, in any Schedule, or in any Exhibit, certificate or other
instrument delivered pursuant to this Agreement shall survive the Closing for a
period of two years. All covenants, agreements and indemnifications made by the
parties hereto in this Agreement, in any Schedule or in any Exhibit, certificate
or other instrument delivered pursuant to this Agreement shall survive the
Closing for a period of four (4) years.
9.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend and hold
harmless Heartland from and against, and shall reimburse Heartland with respect
to, any and all Damages incurred by Heartland by reason of or arising out of or
in connection with:
(A) any breach of any representation or warranty of Seller contained
or referred to herein, in any Schedule hereto, or in any certificate or
other instrument executed by Seller in connection with this Agreement;
(B) any failure by Seller to perform any of its agreements, covenants
or other obligations herein or in any other document executed by it in
connection with this Agreement;
(C) the Excluded Liabilities; or
(D) the operations and activities of Seller and its Affiliates,
including those related to the Venture Interest and the Assets, prior to
and including the Closing Date.
9.3 LIMITATION ON CLAIMS OF HEARTLAND. Notwithstanding anything in Section
9.2 hereof to the contrary, Heartland shall not have any claim against Seller
pursuant to Section 9.2 hereof to the extent that Heartland
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receives payment with regard to such claim from any third party provided that
Heartland need not pursue or exhaust remedies, if any, against such third party.
If, at any time after Seller has made an indemnifying payment to Heartland with
respect to a claim hereunder, Heartland receives (or has a right to receive)
payment with respect to such claim from a third party, Heartland will promptly
refund Seller the aggregate amount of such third party payments or will assign
to Seller the rights of Heartland to receive such third party payment (provided,
however, that Seller shall not be entitled to receive from Heartland, whether by
way of payment from Heartland or by way of collection pursuant to rights
assigned by Heartland, or any combination thereof, an aggregate amount greater
than the aggregate amount of the indemnifying payments made by Seller to
Heartland with respect to such claim).
9.4 INDEMNIFICATION BY HEARTLAND. Heartland shall indemnify, defend and
hold harmless Seller from and against, and shall reimburse Seller for, any and
all Damages incurred by it by reason of or arising out of or in connection with:
(A) any breach of any representation or warranty of Heartland
contained or referred to herein, or in any certificate, or other instrument
executed by it in connection with this Agreement;
(B) any Assumed Liabilities; or
(C) any failure by Heartland to perform any of its agreements,
covenants or other obligations herein or in any other document executed by
it in connection with this Agreement.
9.5 LIMITATION ON CLAIMS OF SELLER. Notwithstanding anything in Section 9.4
hereof to the contrary, Seller shall not have any claim against Heartland
pursuant to Section 9.4 hereof to the extent that Seller receives payment with
regard to such claim from any third party provided that Seller need not pursue
or exhaust remedies, if any, against such third party. If, at any time after
Heartland has made an indemnifying payment to Seller with respect to a claim
hereunder, Seller receives (or has a right to receive) payment with respect to
such claim from a third party, Seller will promptly refund Heartland the
aggregate amount of such third party payments or will assign to Heartland the
rights of Seller to receive such third party payment (provided, however, that
Heartland shall not be entitled to receive from Seller, whether by way of
payment from Seller or by way of collection pursuant to rights assigned by
Seller, or any combination thereof, an aggregate amount greater than the
aggregate amount of the indemnifying payments made by Heartland to Seller with
respect to such claim).
9.6 NOTICE OF CLAIMS. Any party seeking indemnification hereunder (an
"Indemnitee") shall give to each party obligated to provide indemnification to
such Indemnitee (an "Indemnitor") a notice (a "Claim Notice") describing in
reasonable detail the facts giving rise to any claim for indemnification
hereunder and shall include in such Claim Notice (if then known) the amount or
the method of computation of the amount of such claim, and a reference to the
provision of this Agreement or any other agreement, document or instrument
executed hereunder or in connection herewith upon which such claim is based.
9.7 THIRD PARTY CLAIMS. In the event of any third party claim, deficiency
or demand asserted or any action commenced or notice given of any audit,
administrative or other proceeding against an Indemnitee (a "Claim"), as to
which indemnification may be sought from an Indemnitor, the Indemnitee shall
promptly deliver a Claim Notice to the Indemnitor; provided, however, that the
failure by the Indemnitee to give such prompt notice shall not release the
Indemnitor of its indemnification obligations hereunder, except to the extent
such failure prejudices the Indemnitor. The Indemnitor shall be entitled to
assume the defense of any Claim, with counsel reasonably satisfactory to the
Indemnitee, if the Indemnitor shall agree in writing within fifteen (15) days
after receipt of such Claim Notice that it is required, pursuant to this Article
9, to indemnify the Indemnitee for the full amount of such Claim (the "Claim
Acknowledgement Procedure"). If the Indemnitor assumes the defense of any Claim,
the Indemnitee shall cooperate with the Indemnitor in connection therewith, and
the Indemnitee shall be kept informed with respect to, and shall have the right
to participate in, the contest, defense, settlement or compromise of any such
Claim. If the Indemnitor does not assume the defense of any such Claim, does not
comply with the Claim Acknowledgement Procedure, fails in the reasonable
judgment of the Indemnitee to conduct such defense in a satisfactory manner, or
fails to engage counsel reasonably satisfactory to the Indemnitee, the
Indemnitee shall be entitled to conduct the defense of
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such Claim at the Indemnitor's expense. In any case, the Indemnitor may not
settle or compromise any such Claim without the prior written consent of each
Indemnitee, which in the case of a settlement solely involving monetary damages
shall not be unreasonably withheld.
ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the Partners of Seller and shareholders of
Heartland, by the mutual consent of Heartland and Seller.
10.2 TERMINATION BY SELLER. This Agreement may be terminated and the
Acquisition may be abandoned by Seller either (a) if the Closing conditions set
forth in Articles 6 and 8 shall not have been satisfied in full or waived on or
before January 31, 1996, unless such date is extended pursuant to the terms of
Section 1.11, or earlier date set forth therein, (b) at any time prior to such
date upon a default by Heartland in its obligations under the Heartland Loan
Agreement or documents executed in connection therewith or (c) in the event that
Heartland or any governmental or regulatory authority asserting jurisdiction
with respect to the transactions contemplated in this Agreement shall require a
modification to the form or substance of Seller's Disclosure Statement or the
taking of any action in connection with the solicitation of Seller's Partners
with respect to the transactions contemplated herein which Seller deems, in its
sole discretion, unreasonable, inappropriate or burdensome, in the circumstances
in which Seller shall find itself at the time.
10.3 TERMINATION BY HEARTLAND. This Agreement may be terminated and the
Acquisition may be abandoned by Heartland either (a) if the Closing conditions
set forth in Articles 6 and 7 shall not have been satisfied in full or waived on
or before January 31, 1996, unless such date is extended pursuant to the terms
of Section 1.11, or earlier date set forth therein, or (b) at any time prior to
such date, at Heartland's election, upon written notice from Heartland, upon the
payment (or offset against the Heartland Note) of the Earnest Money, as set
forth in Section 10.4(d) below; provided, however, that the right of Heartland
to terminate this Agreement pursuant to this Section 10.3 shall be subordinate
to the right of Seller to terminate this Agreement pursuant to Section 10.2(c).
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
(A) In the event of termination of this Agreement and the abandonment
of the Acquisition pursuant to this Article 10, no party hereto (or any
directors, managers or officers) shall have any liability or further
obligation to the other parties to this Agreement, except as provided in
Article 10, and the remedies set forth below shall be each party's sole and
exclusive remedy for such claims. The payments to be made hereunder are
each party's reasonable estimate of the Damages arising from the other
party's conduct leading to the termination hereof, and shall constitute
liquidated damages for any claims based thereon.
(B) In the event that any Person shall have made an Acquisition
Proposal and the Executive Committee of Seller approves the execution of an
agreement relating thereto or recommends to the Partners the acceptance of
any Acquisition Proposal and Heartland does not exercise its right of first
refusal set forth in Section 5.11, then Seller shall promptly, but in no
event later than two (2) days after the date of the expiration of the
period in which Heartland may deliver the Election Notice (or earlier date
if Heartland delivers to Seller a written waiver of its right of first
refusal), pay Heartland a fee equal to the sum of (i) Two Hundred Fifty
Thousand Dollars ($250,000) and (ii) the outstanding principal and accrued
interest under the Heartland Note, and all Earnest Money shall be released
to Heartland. Seller acknowledges that the agreements contained in this
Section 10.4(b) are integral parts of the transactions contemplated in this
Agreement, and that, without these agreements, Heartland would not enter
into this Agreement; accordingly, if Seller fails to promptly pay the
amount due and pursuant to Section 10.4(b), and, in order to obtain such
payment, Heartland commences a suit which results in a judgment against
Seller for the fee set forth in this subparagraph (b) or forecloses under
the Heartland Security Agreement, the non-prevailing party shall pay the
prevailing party its cost and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the fee
at
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the interest rate specified in the Heartland Note in effect on the date
such payment was required to be made.
(C) In the event that this Agreement is terminated (i) by Heartland
pursuant to Section 10.3 because of the failure of a condition precedent
set forth in Section 7.2 or 7.8, or (ii) by either party pursuant to
Section 10.2 or 10.3, as applicable, arising from the failure of the
condition precedent set forth in Section 6.5 (and to the extent arising
from the failure of such condition, the condition set forth in Section
6.6), then the Escrow Agent shall disburse the Earnest Money to Heartland,
and Seller shall repay the Heartland Note in accordance with the terms
thereof.
(D) In the event that this Agreement is terminated for any reason
other than as set forth in subsections (b) or (c) above or in connection
with Heartland's exercise of its right of first refusal (as set forth in
Section 5.11, upon the consummation of which this Agreement shall terminate
without the payment of any additional consideration, other than as
specified in the Offer Notice), then Escrow Agent shall disburse the
Earnest Money deposited by Heartland through such date to Heartland to the
extent (but only to the extent) the amount of the Heartland Loan exceeds
the amount of the Earnest Money to be disbursed, the amount of the Earnest
Money so disbursed shall be offset against the amount of the Heartland
Note, and Seller shall thereafter repay the Heartland Note (as reduced) in
accordance with the terms thereof.
ARTICLE 11. DEFINITIONS.
11.1 DEFINITIONS. The terms used in this Agreement have the respective
meanings specified or referred to in this Article 9:
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in
Section 5.8.
"ACQUISITION" shall have the meaning set forth in the Recitals.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACQUISITION SHARES" shall have the meaning set forth in Section 1.3.
"ACT" means The Communication Act of 1934, as amended.
"ADDITIONAL EARNEST MONEY" shall have the meaning set forth in Section
1.10.
"APPLICATION" means a pending application by Seller or Institution or
other Parties to the FCC for a License.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person. For purposes of this Agreement, the term "Affiliate" of any party
hereto shall not include AWS or its predecessors.
"ASSETS" shall have the meaning set forth in Section 1.2
"ASSUMED LIABILITIES" means the (i) Liabilities of Seller (directly or
indirectly through the Venture) for indebtedness owed to AWS as of the
Closing Date associated with the operations of the Venture and the
Business, to the extent and only to the extent such indebtedness (including
any accrued interest thereon) does not exceed on or before January 31,
1996, $510,000; on or before February 29, 1996, $540,000; and on or before
March 31, 1996, $570,000; (ii) any contingent Liabilities of Seller to AWS
arising from matters disclosed in Schedule 2.4 and (iii) any Liabilities
associated with the Venture Interest arising after the Closing Date.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to Seller by a
Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with any Market and the provision
thereon of wireless
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cable services in and around any Market, including the licenses, permits,
authorizations, franchises, grants, registrations, certificates, consents
and waivers listed on Schedule 2.8(a), (b) and (c).
"AWS CLAIMS" means all causes of action, lawsuits, litigation files,
demands, judgments and claims of any nature available to or being pursued
by Seller or any Partner, as applicable, against AWS or any AWS Party.
"AWS CONSENT" shall have the meaning set forth in Section 2.3.
"AWS PARTIES" means (i) AWS or its current officers, directors, or
existing Affiliates in their capacity as such; (ii) Micom Products, Ltd., a
Delaware limited liability company; and (iii) Steven G. Johnson (both in
his individual capacity and in his capacity as a party listed in clause (i)
above).
"BENEFIT PLAN" shall have the meaning set forth in Section 2.18.
"BUSINESS" shall have the meaning set forth in Section 1.2.
"CAUSES OF ACTION" means all causes of action, lawsuits, litigation
files, demands, judgments, and claims of any nature available to or being
pursued by Seller with respect or relating to the Business or the
ownership, use, function, or value of any Asset, whether arising by way of
counterclaim or otherwise, other than AWS Claims.
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the Seller.
"CLAIM" shall have the meaning set forth in Section 9.7.
"CLAIM ACKNOWLEDGEMENT PROCEDURE" shall have the meaning set forth in
Section 9.7.
"CLAIM NOTICE" shall have the meaning set forth in Section 9.6.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.1.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.1.
"CLOSING PLACE" means the offices where the Closing shall take place
on the Closing Date as provided for in Section 1.1.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the ten (10) trading days ending on the fifth (5th) business day prior
to the Closing Date. In the event that the Heartland Shares do not trade on
any day within such ten-day period, the closing price for any such day
shall be deemed to be the closing price for the date preceding such date
for purposes of determining the Closing Share Price.
"CLOSING TIME" means the time on the Closing Date that the Closing
shall take place as provided for in Section 1.1.
"CONSENT" means any and consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for the Business to be
conducted or the Assets to be used or available for use in the conduct of
the Business after the Closing Date substantially in the manner as before
the Closing Date.
"CONTRACTS" means all Channel Leases, Site Leases, Site Options,
programming agreements, equipment leases, management agreements, joint
venture agreements, notes, guaranties, covenants not to
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compete, employment agreements, consulting agreements, permits,
participation agreements, policies, purchase and sale orders, quotations
and other executed or executory commitments understandings and instruments
to which Seller or the Venture is a party, or of which Seller or the
Venture is to receive the benefit or by which any of the Assets of Seller
or the Venture is bound relating to the Market or Business, whether written
or oral and whether originally entered into by Seller or the Venture or
another party.
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DISTRIBUTABLE SHARES" shall have the meaning set forth in Section
1.4.
"DISTRIBUTION RECORD DATE" shall have the meaning set forth in Section
1.4.
"DOCUMENTS" means, with respect to the Venture Interest, Business or
the Assets, all applications, engineering or market or other studies,
reports, and analysis or memoranda, or records and other documents or data
related to the Venture Interest or the Business which are in the possession
or under the control of Seller whether or not any such document is
reproduced or maintained on paper or stored or retained in or on audio or
video tapes or computer hardware disks or by other electronic, magnetic or
other means or methods.
"EARNEST MONEY" shall have the meaning set forth in Section 1.10.
"ELECTION NOTICE" shall have the meaning set forth in Section 5.11.
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on or off the Site, whether yet discovered, which could or does
result in Damages, including any condition resulting from the operations of
the Venture or Seller.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, and
including electro-magnetic fields or discharges into the Environment, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, which are now or may
hereafter be applicable to Seller, the Venture, the Venture Interest, or
any Assets.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property used or available for
use in the Business or located at any of the Facilities and related to the
Business.
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"ESCROW AGENT" means US Trust Company.
"EXCHANGE AGENT" shall mean Norwest Bank Minneapolis, National
Association.
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section 1.3.
"EXCHANGE PRICE" shall have the meaning set forth in Section 1.3.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.2.
"EXCLUDED LIABILITIES" shall mean any Liabilities of Seller (direct or
indirect through the Venture) other than Assumed Liabilities, including,
without limitation, the Heartland Loan.
"EXECUTIVE COMMITTEE" shall have the meaning set forth in Section 1.4.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means, with respect to the Business or the Assets, all of
the plants, offices, broadcast towers, antenna towers, head-ends, studios,
control centers and other real property interests and related facilities
which are either owned by the Venture or Seller or leased by or the use of
which are leased by the Venture or Seller.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.4.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are
consistent with the principles promulgated and adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Govern-
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mental Authority; (d) without limitation, which contains gasoline, diesel
fuel or other petroleum hydrocarbons or volatile organic compounds; (e)
without limitation, which contains polychlorinated byphenyls (PCBs) or
asbestos or urea formaldehyde foam insulation; or (f) without limitation,
which contains or emits radioactive particles, waves or materials,
including radon gas and electro-magnetic fields.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND LOAN" shall have the meaning set forth in Section 5.10.
"HEARTLAND LOAN AGREEMENT" shall have the meaning set forth in Section
5.10.
"HEARTLAND NOTE" shall have the meaning set forth in Section 5.10.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HEARTLAND SECURITY AGREEMENT" shall have the meaning set forth in
Section 5.10.
"HEARTLAND SHARES" shall have the meaning set forth in Section 1.3.
"HSR ACT" shall have the meaning set forth in Section 5.9.
"INDEMNITEE" shall have the meaning set forth in Section 9.6.
"INDEMNITOR" shall have the meaning set forth in Section 9.6.
"INITIAL EARNEST MONEY" shall have the meaning set forth in Section
1.10.
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with Seller,
the Venture or their respective Affiliates.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of Seller
or any Affiliate of Seller which are used or available for use in
connection with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if: (i) such individual is actually aware
of such fact or other matter; or (ii) an individual should have known of
such fact or other matter in the course of conducting a reasonable
investigation concerning the truth or existence of such fact or other
matter; (b) with respect to a Person (other than an individual) "knowledge"
of a particular fact or other matter if any individual who is serving as a
manager, director or officer of such Person has "knowledge" of such fact or
other matter; and (c) with respect to warranties made by Seller, that
Seller, based upon a reasonable investigation, believes the warranty is
true. A "reasonable investigation" by Seller with respect to the Venture,
the Business or the Assets shall be deemed to have been made in the event
Seller requests that AWS confirm the representations and warranties are
true and correct, and if AWS refuses to confirm the accuracy of such
representations and warranties, the reason for such refusal.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
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"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals necessary or required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance.
"LIQUIDATED LIABILITIES" shall mean all Excluded Liabilities, other
than Liabilities of Seller arising through the Venture, the Business or the
Assets, whether to AWS or any other third parties, except to the extent
Seller elects to pay such Liabilities with the proceeds of the Liquidated
Shares as a part of its Agreement and Plan of Liquidation.
"LIQUIDATED SHARES" shall have the meaning set forth in Section 1.4.
"MARKET" means the Fort Worth, Texas Standard Metropolitan Area.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in, or is reasonably likely to result in, a material adverse change
in the business, operations, properties, prospects relating to the Venture
Interest taken as a whole other than general economic change over which
Seller has no control.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MMDS" means the Multichannel Multipoint Distribution Service.
"OFFER NOTICE" shall have the meaning set forth in Section 5.11.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator.
"PARTIES" shall mean all parties to Contracts other than Seller from
which Consents are required.
"PERMITTED ENCUMBRANCES" means deposits under Workmen's Compensation,
Unemployment Insurance or Social Security laws, or to secure statutory
obligations or surety or other similar bonds; mechanics, suppliers,
carriers, warehousemen's or other similar liens; liens securing Taxes,
government charges or other governmental levies which are not yet due and
payable, or being contested in good faith by appropriate proceedings with
adequate reserves in conformity with generally accepted accounting
principles; and the interest or title of any lessor in property pursuant to
a lease of that property.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"PREPAID SUBSCRIBER FEES" means all amounts received by Seller or the
Venture from customers or subscribers in the Market (whether held as cash,
cash equivalents or otherwise) for periods of service from and after the
Closing Date.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PURCHASE PRICE" shall have the meaning set forth in Section 1.3.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
1.6.
"ROLL-UP RULES" shall have the meaning set forth in Section 4.1.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 5.4.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in the Recitals.
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"SELLER'S DISCLOSURE STATEMENT" shall have the meaning set forth in
Section 5.2(b).
"SELLER'S REPRESENTATIVE" shall have the meaning set forth in Section
4.4.
"SITE" means a wireless cable television site with respect to which
Seller is operating a Wireless Cable Business and transmitting programming
to subscribers in connection therewith.
"SITE LEASE" shall mean a Contract for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"VENTURE" shall have the meaning set forth in the Recitals.
"VENTURE INTEREST" shall have the meaning set forth in the Recitals.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
11.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 12. POST-CLOSING COVENANTS.
12.1 COOPERATION AND EXCHANGE OF INFORMATION. Following the Closing,
Heartland and Seller shall provide to each other, upon reasonable prior notice
and during normal business hours, access to the books and records in the
possession of the other which relate to the Venture Interest or the Assets to
the extent such access may be required (i) to facilitate the investigation,
litigation and final disposition of any claims which have been made or may be
made against (A) Seller that relate to the Venture Interest for periods of time
prior to the Closing, or (B) Heartland that relate to the Venture Interest for
periods of time from and after the Closing; and (ii) for any other reasonable
business purpose, but in either case only to the extent that such access does
not unreasonably interfere with the business and operations of such party or
violate any law, order, contract or license applicable to such party.
ARTICLE 13. MISCELLANEOUS.
13.1 EXPENSES OF THE TRANSACTION. Each of Seller and Heartland agrees to
pay its own fees and expenses in connection with this Agreement and the
transactions hereby contemplated; provided that (a) the following fees and
expenses shall be the responsibility of Heartland: (i) the fees of the Exchange
Agent, (ii) the printing costs for the Registration Statement, Seller's
Disclosure Statement and any other solicitation materials, (iii) costs of
mailing the Seller's Disclosure Statement and any other solicitation materials
mailed therewith, (iv) SEC filing fees for the filing of the Registration
Statement, (v) FCC filing or Consent fees arising from the transactions
contemplated hereby, (vi) fees payable to third parties for obtaining any other
Consents necessary to consummate the transactions contemplated hereby, and (vii)
expenses for the audit of Seller's financial statements; (b) Seller shall be
solely responsible for any brokerage fees or commissions payable with regard to
the sale of the Liquidated Shares; and (c) the fees and expenses of the Escrow
Agent shall be paid by the party receiving the Earnest Money. The parties
acknowledge and agree that Seller shall be entitled to use a portion of the
proceeds of the Heartland Loan for the payment of its costs incurred in
connection with this Agreement, as further set forth in the Heartland Loan
Agreement.
13.2 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
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If to Heartland, to:
Heartland Wireless Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Fax: (214) 479-1023
Attn: Mr. John R. Bailey
With copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75201
Fax: (214) 741-7139
Attn: Victor B. Zanetti, Esq.
If to Seller, to:
Fort Worth Wireless Cable TV Associates
200 Balboa Court
Irving, TX 75062
Fax: (214) 541-7761
Attn: Mr. Don McGee
With copy to:
Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, TX 75201
Fax: (214) 999-6170
Attn: Robert E. Morrison, Esq.
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided. Any notice personally
delivered or transmitted via facsimile after 5:30 p.m. in Dallas, Texas shall be
deemed to have been received on the following day.
13.3 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
13.4 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits (if any) hereto, sets forth the entire agreement and understanding
among the parties as to the subject matter hereof.
13.5 SEVERABILITY. If any provision of this Agreement or the application of
any provision hereof to any person or in any circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
13.6 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by Seller except with the prior written consent of Heartland. Any
purported assignment by Seller contrary to the terms of this Agreement shall be
void. Notwithstanding the foregoing, Heartland may assign this Agreement and all
of its rights and obligations hereunder, to any party. Promptly following said
assignment, Heartland shall notify Seller of the name of said assignee.
13.7 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Time, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland
F-29
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and Seller; provided, Heartland shall be entitled to disclose the transactions
contemplated hereby without the prior approval of Seller to the extent
reasonably necessary for Heartland to comply with applicable securities laws.
13.8 CONSENT TO JURISDICTION. This Agreement shall be deemed to have been
made in, and shall be construed in accordance with the laws of the State of
Texas, and its validity, construction, interpretation and legal effect shall be
governed by the laws of the State of Texas applicable to contracts entered into
and performed entirely therein. Heartland and Seller hereby irrevocably submit
to the jurisdiction of the state courts of the State of Texas and to the
jurisdiction of the United States District Court for the Northern District of
Texas, for the purpose of any suit, action or other proceeding arising out of or
based upon this Agreement or the subject matter hereof or thereof brought by
either party or its successors or assigns. Each party hereby waives, and agrees
not to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court. Each party hereby consents to service of process by
registered mail at the address to which notices are to be given. Each party
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other party. Final judgment
against either party in any such action, suit or proceeding shall be conclusive,
and may be enforced in other jurisdictions (x) by suit, action or proceeding on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability therein described or
(y) in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that the party may at its option bring suit, or
institute other judicial proceedings against the other party or any of its
Assets in any state or Federal court of the United States or of any country or
place where that party or such Assets may be found.
13.9 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
13.10 SCHEDULES. The Schedules referred to herein and delivered to
Heartland upon execution hereof are hereby made a part of this Agreement, and
may not be changed, substituted or altered without Heartland's prior written
consent.
13.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
F-30
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F
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
SELLER:
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES,
a California general partnership
By: /s/ DONALD MCGEE
Name: Donald McGee
Title: Co-Chairman
Management Committee
HEARTLAND WIRELESS
COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: Chief Financial Officer
F-31
<PAGE> 431
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 N. Bowser, Suite 140
Richardson, Texas 75081
December 13, 1995
Fort Worth Wireless Cable T.V. Associates
200 Balboa Court
Irving, Texas 75062
Re: Extension of Certain Dates under the
Amended and Restated Asset Purchase Agreement
Gentlemen:
Reference is hereby made to that certain Amended and Restated Asset
Purchase Agreement dated as of October 4, 1995 between Fort Worth Wireless Cable
T.V. Associates ("FTW") and Heartland Wireless Communications, Inc.
("Heartland"), as amended by the letter agreement dated November 30, 1995 (as
amended, the "Agreement"). Capitalized terms not defined herein shall have the
meaning ascribed thereto in the Agreement.
By their signatures hereto, FTW and Heartland each agree to extend the
Exhibit Delivery Date from December 13, 1995 until December 29, 1995.
Except as set forth herein, the remaining terms of the Agreement shall be
unaltered and remain in full force and effect. This letter may be executed in
one or more counterparts and by facsimile signature.
Yours very truly,
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
By: /s/ DONALD MCGEE
Title: Co-Chairman
Management Committee
F-32
<PAGE> 432
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 N. Bowser, Suite 140
Richardson, Texas 75081
November 30, 1995
Fort Worth Wireless Cable T.V. Associates
200 Balboa Court
Irving, Texas 75062
Re: Extension of Certain Dates under the
Amended and Restated Asset Purchase Agreement
Gentlemen:
Reference is hereby made to that certain Amended and Restated Asset
Purchase Agreement dated as of October 4, 1995 ("Signing Date") between Fort
Worth Wireless Cable T.V. Associates ("FTW") and Heartland Wireless
Communications, Inc. ("Heartland") (the "Agreement"). Capitalized terms not
defined herein shall have the meaning ascribed thereto in the Agreement.
Pursuant to Section 5.13 of the Agreement, FTW and Heartland have agreed
that any Exhibit not attached thereto on the Signing Date may be prepared and
attached on or before November 30, 1995 (the "Exhibit Delivery Date"), and to
cooperate and negotiate in good faith in the preparation of such Exhibits.
Pursuant to Section 6.4 of the Agreement, the Agreement of FTW and Heartland on
the form of each Exhibit and the attachment thereof to the Agreement on or
before the Exhibit Delivery Date is a condition precedent to the obligations of
FTW and Heartland to close under the Agreement. By their signatures hereto, FTW
and Heartland each agree to extend the Exhibit Delivery Date until December 13,
1995.
By their signatures hereto, the parties hereto agree that Section 6.8 and
all references thereto and to the Approval Notice in this Agreement shall be
deleted in their entirety.
Except as set forth herein, the remaining terms of the Agreement shall be
unaltered and remain in full force and effect. This letter may be executed in
one or more counterparts and by facsimile signature.
Yours very truly,
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
By: /s/ DONALD MCGEE
Title: Co-Chairman
Management Committee
F-33
<PAGE> 433
G
APPENDIX G
FTW CLAIM RELEASE
<PAGE> 434
G
MUTUAL RELEASE
This Mutual Release ("Release") is executed to be effective the day of
February, 1996, by the AWS Parties (as hereafter defined) and the FWW Parties
(as hereafter defined) for the mutual benefit of the FWW Parties and the AWS
Parties.
RECITALS:
Capitalized terms in these Recitals have the definitions set forth in
paragraph 1. Heretofore, FWW and Heartland entered into the Purchase Agreement.
A part of the consideration for the execution of the Purchase Agreement is the
delivery by AWS and FWW of this mutual Release.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
RELEASE
1. DEFINITIONS. Capitalized terms have the definitions set forth in the
provisions of this Release. The following terms shall have the indicated
definitions or the meanings set forth in the indicated part of this Release:
(a) "Additional AWS Parties" means Dexter A. Cohen, Jeffrey D. Howes
and Kevin C. King, if and only if such person or persons execute this
Release as an "AWS Party."
(b) "Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or is a member of the immediate family of any
of the foregoing Persons, whether or not living under the same roof with
such Person. For purposes of this Release, the term "Affiliate" does not
include AWS or its predecessors.
(c) "Approving Partners" means the general partners of FWW voting (by
consent, proxy or otherwise) for the approval of the transactions
contemplated by the Purchase Agreement (including, without limitation, the
dissolution and liquidation of FWW and the execution of this Release), as
further described in the Proxy Statement.
(d) "AWS" means American Wireless Systems, Inc., a Delaware
corporation.
(e) "AWS Parties" means (i) AWS, or its current officers, directors,
or existing Affiliates in their capacity as such; (ii) Micom Products,
Ltd., a Delaware limited liability company; (iii) Steven G. Johnson (both
in his individual capacity and in his capacity as a party listed in (i)
above and (iv) any Additional AWS Parties.
(f) "Consent" means the written form of approval of the Approving
Partners of the transactions contemplated by the Purchase Agreement
(including, without limitation, the dissolution and liquidation of FWW and
the execution of this Release).
(g) "FWW" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
(h) "FWW Parties" means FWW, the Approving Partners, present and
former management committee members, agents, servants, employees, assigns,
predecessors (including, without limitation, Wireless Cable T.V. Associates
No. 34, a California general partnership, and the partners thereof),
successors and legal representatives.
(i) "Heartland" means Heartland Wireless Communications, Inc., a
Delaware corporation.
(j) "Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity.
G-1
<PAGE> 435
(k) "Proxy Statement" means the Proxy Statement/Prospectus and
Disclosure Statement dated January , 1996 relative to the proposed
distribution of shares of common stock, $.001 par value per share of
Heartland.
(l) "Purchase Agreement" means that certain Amended and Restated Asset
Purchase Agreement between FWW and Heartland dated effective October 4,
1995.
2. AWS RELEASE. The AWS Parties release and forever discharge the FWW
Parties from any and all causes of action, demands, rights and claims of any
nature, now or hereafter available to or owned by the AWS Parties or any AWS
Party, as applicable, against FWW or any FWW Party. It is intended that the
claims and causes of action (collectively the "AWS Claims") released pursuant to
this paragraph shall include those known, unknown, fixed or contingent.
Provided, however, this Release is not intended to nor does it release any
claims arising subsequent to the date hereof.
3. FWW RELEASE. FWW and the Approving Partners release and forever
discharge the AWS Parties from any and all causes of action, demands, rights and
claims of any nature, now or hereafter available to or owned by FWW and the
Approving Partners against AWS or any AWS Party. It is intended that the claims
and causes of action (collectively the "FWW Claims") released pursuant to this
paragraph shall include those known, unknown, fixed or contingent, and shall
include, without limitation, the claims described in the Proxy Statement.
Provided, however, this Release is not intended to nor does it release any
claims arising subsequent to the date hereof.
4. AWS REPRESENTATIONS. The AWS Parties each jointly and severally
represent and warrant to the FWW Parties the following:
(a) the execution and delivery of this Release has been duly
authorized and approved by all appropriate parties and authorities and this
Release is binding on and enforceable against the AWS Parties;
(b) The AWS Parties have not transferred, assigned, encumbered or
otherwise burdened any of the AWS Claims; and
(c) The AWS Parties are the sole owners of the AWS Claims free and
clear of all liens, security interests, rights or powers.
5. FWW REPRESENTATIONS. FWW and the Approving Partners represent and
warrant to the AWS Parties the following:
(a) the execution and delivery of this Release has been duly
authorized and approved by all appropriate parties and authorities and this
Release is binding on and enforceable against FWW and the Approving
Partners;
(b) FWW and the Approving Partners have not transferred, assigned,
encumbered or otherwise burdened any of the FWW Claims;
(c) FWW and the Approving Partners, as applicable, are the sole owners
of the FWW Claims free and clear of all liens, security interests, rights
or powers; and
(d) FWW and each Approving Partner has read and had the opportunity to
discuss with legal counsel the effect of this Release and has received and
read the Proxy Statement, including without limitation, the portions
thereof describing certain claims that may be asserted by the FWW Parties
which are included in this Release.
6. LIMITATIONS; SURVIVAL. The remedy for the breach of any representation
contained herein shall be limited strictly to a remedy against the party
actually breaching the representation (meaning that, without limitation, FWW and
each Approving Partner shall in no event be liable for the breach of any
representation by any other party hereto). The representations contained herein
shall survive for the period specified for statements, certifications,
representations and warranties pursuant to Section 9.1 of the Purchase
Agreement.
G-2
<PAGE> 436
G
7. APPLICABLE LAW. Except to the extent the laws of the United States are
applicable, this Release shall be construed in accordance with the laws of the
State of Texas. Any litigation involving the terms of this Release shall be
brought in the appropriate state or United States Court in the State of Texas.
8. COUNTERPARTS. This Release may be executed in one or more counterparts,
each of which shall be deemed an original. Each FWW Party acknowledges that the
approval of the transactions contemplated by the Purchase Agreement shall
constitute each Approving Partner's agreement to be bound by and receive the
benefits of this Release, and that the execution of any written document
approving such transaction shall constitute the execution and approval of this
Release. This Release may also be executed by facsimile signature.
9. WAIVER. Each party hereto knowingly and voluntarily waives any and all
provisions of any applicable law (including, without limitation, any statutes,
common law, regulation or other legal requirement or concept) relating to this
Release or limiting the scope or effect hereof, including, without limitation,
the provisions of Section 1542 of the California Civil Code, which provides that
"A general release does not extend to claims which a creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the
debtor. . . . " Each party hereto acknowledges that this waiver is an essential
and material term of this Release.
Executed to be effective the day of February, 1996.
AWS PARTIES:
AMERICAN WIRELESS SYSTEMS, INC.,
a Delaware corporation
By:
-------------------------------
Steven G. Johnson,
President and Chief Executive
Officer
MICOM PRODUCTS, LTD., a Delaware
limited liability company
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
----------------------------------
Steven G. Johnson
Additional AWS Parties:
----------------------------------
Dexter A. Cohen
----------------------------------
Jeffrey D. Howes
----------------------------------
Kevin C. King
G-3
<PAGE> 437
FWW PARTIES:
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES, a California general
partnership
By:
----------------------------------
Don McGee, Member of the Executive
Committee of the Management
Committee
Approving Partners:
------------------------------------
[signature on form of Consent
shall constitute the execution
hereof by such parties]
G-4
<PAGE> 438
H
APPENDIX H
FTW CLAIM ASSIGNMENT
<PAGE> 439
ASSIGNMENT OF CLAIMS
This Assignment of Claims ("Assignment") is executed to be effective the
day of February, 1996, by FWW (as hereafter defined) and Heartland (as
hereafter defined).
RECITALS:
Capitalized terms in these Recitals have the definitions set forth in
paragraph 1. Heretofore, FWW and Heartland entered into the Purchase Agreement.
A part of the consideration for the execution of the Purchase Agreement is the
execution and delivery of this Assignment.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ASSIGNMENT
1. DEFINITIONS. Capitalized terms have the definitions set forth in the
provisions of this Assignment. The following terms shall have the indicated
definitions or the meanings set forth in the indicated part of this Assignment:
(a) "Additional AWS Party" means any of Dexter Cohen, Jeffrey Howes
and/or Kevin C. King, if and only if such person(s) elects to execute the
release contemplated in Paragraph 3.
(b) "Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or is a member of the immediate family of any
of the foregoing Persons, whether or not living under the same roof with
such Person. For purposes of this Assignment, the term "Affiliate" of any
party hereto shall not include AWS or its predecessors.
(c) "Approving Partners" means the general partners of FWW voting (by
consent, proxy or otherwise) for the approval of the transactions
contemplated by the Purchase Agreement (including, without limitation, the
dissolution and liquidation of FWW and the execution of this Assignment),
as further described in the Proxy Statement.
(d) "Assumed Liabilities" has the meaning given in the Purchase
Agreement.
(e) "AWS" means American Wireless Systems, Inc., a Delaware
corporation.
(f) "AWS Parties" means (i) AWS, or its current officers, directors,
or existing Affiliates in their capacity as such; (ii) Micom Products,
Ltd., a Delaware limited liability company; (iii) Steven G. Johnson (both
in his individual capacity and in his capacity as a party listed in (i)
above and (iv) any Additional AWS Parties.
(g) "Consent" means the written form of approval of the Approving
Partners of the transactions contemplated by the Purchase Agreement
(including, without limitation, the dissolution and liquidation of FWW and
the execution of this Assignment).
(h) "FWW" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
(i) "FWW Parties" means FWW, its general partners, present and former
management committee members, agents, servants, employees, assigns,
predecessors (including, without limitation, Wireless Cable T.V. Associates
No. 34, a California general partnership, and the partners thereof),
successors and legal representatives.
(j) "Heartland" means Heartland Wireless Communications, Inc., a
Delaware corporation.
(k) "Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity.
H-1
<PAGE> 440
(l) "Proxy Statement" means the Proxy Statement/Prospectus and
Disclosure Statement dated January , 1996 relative to the proposed
distribution of shares of common stock, $.001 par value per share of
Heartland.
(m) "Purchase Agreement" means that certain Amended and Restated Asset
Purchase Agreement between FWW and Heartland dated effective October 4,
1995.
2. ASSIGNMENT. Subject to the provisions and reservations contained in
paragraph 3., FWW and the Approving Partners hereby assign, sell, transfer and
deliver to Heartland all causes of action, demands, rights and claims of any
nature, now or hereafter available to or owned by FWW and the Approving Partners
against AWS or any AWS Party. It is intended that the claims and causes of
action (collectively the "FWW Claims") assigned pursuant to this paragraph shall
include those known, unknown, fixed or contingent, and shall include, without
limitation, the claims described in the Proxy Statement. Provided, however, FWW
and the Approving Partners are not assigning any claims arising subsequent to
the date hereof.
3. RESERVATIONS. The assignment in paragraph 2. is conditioned upon the
receipt by FWW of a release from each of the AWS Parties releasing the FWW
Parties from any and all causes of action, demands, rights and claims of any
nature whatsoever, whether known or unknown, fixed or contingent, now or
hereafter available to or owned by the AWS Parties against the FWW Parties. If
any AWS Party fails to deliver such a release to FWW prior to or
contemporaneously with the execution of this Assignment (a "Non-Releasing AWS
Party"), FWW expressly reserves the right to assert the AWS Claims against any
such Non-Releasing AWS Party, and FWW shall retain the AWS Claims as they relate
to any Non-Releasing AWS Party. In addition, FWW reserves the right to assert
the AWS Claims in any action or proceeding brought by any Person against any FWW
Party and retains its interest in the AWS Claims to the extent necessary to
assert the AWS Claims in any such action or proceeding.
4. INDEMNIFICATION. Heartland agrees to indemnify, protect, defend and hold
harmless FWW and each Approving Partner from and against any and all causes of
action, damages, demands, lawsuits, judgments and expenses, including attorneys'
fees, rights and claims of any nature, known or unknown, fixed or contingent,
now or hereafter available to or owned by the AWS Parties or any AWS Party, as
applicable, including but not limited to the Assumed Liabilities (collectively,
the "AWS Claims"), against FWW or any Approving Partner. Provided, however, this
indemnification is not intended nor does it cover any claims arising subsequent
to the date hereof. In the event of the assertion of any AWS Claim against FWW
or any Approving Partner, Heartland shall assume on behalf of FWW or such
Approving Partner and conduct with due diligence and in good faith the defense
thereof with counsel reasonably satisfactory to FWW or such Approving Partner;
provided, however, that FWW and the Approving Partner shall have the right, at
their option, to be represented therein by advisory counsel of their own
selection and at their own expense. In the event of failure by Heartland to
fully perform in accordance with this indemnification provision, FWW or the
applicable Approving Partner may, at their option, and without relieving
Heartland of its obligations hereunder, may so perform, but all costs and
expenses so incurred by FWW or the Approving Partner in that event shall be
reimbursed by Heartland to FWW or the Approving Partner, together with interest
on the same from the date any such expense was paid by FWW or the Approving
Partner until reimbursed by Heartland, at the rate of interest provided to be
paid on judgments under the laws of the State of Texas. The indemnification
provided in this Paragraph 4 does not cover, and specifically excludes, any
claims brought by a Non-Releasing AWS Party in the event that FWW has reserved
its right to assert the FWW claims against such Non-Releasing AWS Party pursuant
to Paragraph 3 hereof, and has not assigned the FWW claims to Heartland with
regard to such Non-Releasing AWS Party.
5. REPRESENTATIONS.
(a) FWW and the Approving Partners represent and warrant to Heartland the
following:
(i) the execution and delivery of this Assignment has been duly
authorized and approved by all appropriate parties and authorities and this
Assignment is binding on and enforceable against FWW and the Approving
Partners;
H-2
<PAGE> 441
(ii) FWW and the Approving Partners, as applicable, have not otherwise
transferred, assigned, encumbered or otherwise burdened any of the FWW
Claims; and
(iii) FWW and the Approving Partners, as applicable, are the sole
owners of the FWW Claims free and clear of all liens, security interests,
rights or powers.
(iv) FWW and each Approving Partner has read and had the opportunity
to discuss with legal counsel the effect of this Assignment and has
received and read the Proxy Statement, including without limitation, the
portions thereof describing certain claims that may be asserted by FWW
which are included in this Assignment.
(b) The remedy for the breach of any representation contained herein shall
be limited strictly to a remedy against the party actually breaching the
representation, such that FWW and each Approving Partner shall in no event be
liable for the breach of any representation by any other party hereto.
(c) The representations contained herein shall survive for the period
specified for statements, certifications, representations and warranties
pursuant to Section 9.1 of the Purchase Agreement.
6. APPLICABLE LAW. Except to the extent the laws of the United States are
applicable, this Release shall be construed in accordance with the laws of the
State of Texas. Any litigation involving the terms of this Release shall be
brought in the appropriate state or United States Court in the State of Texas.
7. WAIVER. Each party hereto knowingly and voluntarily waives any and all
provisions of any applicable law (including, without limitation, any statutes,
common law, regulation or other legal requirement or concept) relating to this
Assignment or limiting the scope or effect hereof. Each party hereto
acknowledges that this waiver is an essential and material term of this
Assignment.
Executed to be effective the day of February, 1996.
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES, a California general
partnership
By:
----------------------------------
Don McGee, Member of the Executive
Committee of the Management
Committee
HEARTLAND WIRELESS
COMMUNICATIONS, INC., a Delaware
corporation
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Approving Partners:
------------------------------------
[signature on form of Consent
shall constitute the execution
hereof by such parties]
H-3
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I
APPENDIX I
FTW LIQUIDATION PLAN
<PAGE> 443
I
AGREEMENT AND PLAN OF LIQUIDATION
OF
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
This Agreement and Plan of Liquidation of Fort Worth Wireless Cable T.V.
Associates ("Plan") is made by Fort Worth Wireless Cable T.V. Associates, a
California general partnership (the "Partnership") and provides for the complete
winding up, liquidation, and dissolution of the Partnership by providing for the
distribution to its partners (the "Partners") of the net proceeds of the
Partnership (after paying or providing for all liabilities and expenses of the
Partnership) to be realized from the sale of the Partnership's assets.
RECITALS:
A. The Partnership is a California general partnership formed as of July 1,
1992 pursuant to the Partnership Agreement of Fort Worth Wireless Cable T.V.
Associates (the "Partnership Agreement"). The Partnership and American Wireless
Systems, Inc. ("AWS") have heretofore been co-venturer's in the informal joint
venture (the "Joint Venture") owning 100% of the wireless cable television
assets that provide wireless cable television service in the metropolitan area
of Fort Worth, Texas (the "Fort Worth System"). The Partnership has heretofore
owned a 79.99% interest in the Joint Venture (the "Venture Interest").
B. The Partnership has entered into the Amended and Restated Asset Purchase
Agreement between the Partnership and Heartland Wireless Communications, Inc.
("Heartland") dated as of October 4, 1994 (the "Agreement") pursuant to which
the Partnership agreed to sell and assign to Heartland substantially all of the
assets ("Partnership Assets") of the Partnership (including its Venture Interest
and certain claims the Partnership and Partners may have against AWS and AWS
related parties) in exchange for the assumption by Heartland of up to $570,000
of certain known potential liabilities and certain contingent liabilities of the
Partnership to AWS, and the issuance, for ultimate distribution to the Partners,
and in part, for liquidation and satisfaction of obligations of the Partnership,
of a number of shares of common stock of Heartland having an aggregate exchange
value of Thirteen Million Three Hundred Thousand and No/100 Dollars
($13,300,000) (the "Purchase Price"). The Agreement also contemplates the
liquidation and dissolution of the Partnership. The Agreement and this Plan are
subject to approval of Partners representing at least two-thirds (66 2/3%) of
the outstanding ownership units of the Partnership ("Partnership Units").
C. Upon the sale and assignment of the Partnership Assets to Heartland, the
Partnership shall not have any ongoing business activities, and the management
committee of the Partnership (the "Management Committee") has determined that
the best interests of the Partnership and the Partners would be served by the
liquidation and dissolution of the Partnership and the winding up of its affairs
pursuant to this Plan. By approval of the Agreement, the Partners approve,
authorize, and consent to the voluntary liquidation and dissolution of the
Partnership, and hereby direct that such liquidation and dissolution be effected
as promptly as possible in accordance with this Plan (the "Liquidation").
TERMS OF PLAN
1. SALE OF PARTNERSHIP ASSETS AND TERMINATION OF BUSINESS. The Partnership
shall consummate the sale of Partnership Assets as contemplated by the
Agreement, and upon the closing of the sale, the Partnership shall not perform
business activities except as required for winding up its affairs (including
post-closing obligations of the Partnership under the Agreement), preserving the
value of its assets, and distributing its assets in accordance with this Plan.
2. RECEIPT OF THE ACQUISITION SHARES. Pursuant to the Agreement, Heartland
shall deliver to Harris Trust Company of New York (the "Exchange Agent") the
number of shares of common stock, $.001 par value per share, of Heartland (the
"Acquisition Shares") equal to the Purchase Price divided by the an exchange
price ("Exchange Price") calculated as the average closing price of the
Heartland common stock as quoted on the NASDAQ National Market System over the
ten day period ending on the fifth business day preceding the closing of the
Agreement (provided that if such average closing price is in excess of $23.00
per share, the
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Exchange Price shall be $23.00). The Exchange Agent is hereby authorized by the
Partnership to receive delivery of the Acquisition Shares (for distribution in
whole shares, but not fractional shares, to the Partners in accordance with this
Plan) (the "Distributable Shares") having an aggregate Exchange Price equal to
the Purchase Price minus a number of such shares sold to yield proceeds to the
Partnership in an amount equal to the sum of (i) Total Liquidated Liabilities,
and (ii) the Contingency Reserve. The amount of the "Total Liquidated
Liabilities" shall be the amount of the known liquidated liabilities of the
Partnership (other than those assumed by the Buyer), including without
limitation reimbursement by the Partnership to Management Committee members for
expenses incurred by such members on behalf of the Partnership, accounting fees,
legal fees, and all expenses incurred by the Partnership to consummate the sale
of Partnership Assets to the Buyer. The Contingency Reserve shall be the amount
of $350,000.00, which amount has been determined by the Management Committee as
the sum that, as of the closing of the Agreement, should reasonably be retained
by the Partnership to satisfy contingent or other future liabilities of the
Partnership; provided, however, that in the event the Mutual Release (as such
term is defined in the Agreement) is not obtained at Closing, the Contingency
Reserve shall be $450,000.00. The Exchange Agent is also hereby authorized by
the Partnership to receive delivery from Heartland of all remaining Acquisition
Shares (for resale by the Partnership), the sale of which shares shall result in
proceeds to the Partnership equal to the Total Liquidated Liabilities, the
Contingency Reserve, and the value of Acquisition Shares excluded from
Distributable Shares by virtue of being fractional shares not distributable to
the Partners by the terms of the Agreement (collectively, the "Liquidated
Shares").
3. DISTRIBUTION OF DISTRIBUTABLE SHARES. The Partnership hereby instructs
the Exchange Agent, on behalf of the Partnership, to distribute the
Distributable Shares to the Partners based on the pro rata ownership of each
Partner in the outstanding Partnership Units, as reflected on Exhibit A attached
hereto. Provided, however, no fractional shares shall be issued in connection
with the delivery of the Distributable Shares; instead, any fractional shares
shall be added to other Liquidated Shares and proceeds thereof shall be
distributed to the Partners along with any distributions (by or on behalf of the
Partnership) of the proceeds of the Liquidated Shares.
4. RESALE OF THE LIQUIDATED SHARES. The Partnership hereby instructs the
Exchange Agent, on behalf of the Partnership, to resell the Liquidated Shares in
the open market or in private transactions as instructed by the Liquidating
Partner (defined below), and to pay from the proceeds thereof such amounts and
to such persons or entities as instructed by the Liquidating Partner.
5. UTILIZATION OF PROCEEDS OF LIQUIDATED SHARES. The Liquidating Partner
shall, on behalf of the Partnership, pay and/or distribute (or cause the
Exchange Agent to pay and/or distribute) Distributable Funds (defined below), if
any, in the following order:
(a) Payment of the Total Liquidated Liabilities (it being understood
that the Exchange Agent and the Liquidating Partner shall cooperate so as to
provide, to the extent possible, for funds available for payment of the Total
Liquidated Liabilities upon the closing of sale of Partnership Assets under the
Agreement).
(b) Payment of any debts, liabilities, or obligations of the Partnership
not satisfied by payment of the Total Liquidated Liabilities or provided for by
establishment of the Contingency Reserve.
(c) Distribution to each Partner of that portion of the proceeds of the
sale of Liquidated Shares representing proceeds of fractional shares that would
have been delivered to such Partner in the event fractional shares had been
distributed by the Exchange Agent.
(d) Distribution to the Partners in accordance with the Partnership
Agreement (which requires that such amounts be first distributed to the Partners
in proportion to, and to the extent of, their capital account; and next to the
Partners in proportion to the number of Partnership Units owned by each).
For purposes of this Plan, the term "Distributable Funds" shall refer to
the net cash assets or cash equivalents of the Partnership reduced by the amount
which, in the sole reasonable discretion of the Liquidating Partner, is
necessary to provide a reasonable reserve for any future claims, expenses, or
contingencies that may be incurred during the remainder of the Liquidation. To
the extent all funds cannot be
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I
distributed because of contingent liabilities of the Partnership, subsequent
distributions of the Distributable Funds, if any, shall be made no less often
than quarterly.
6. TRANSFER OF UNDISTRIBUTED ASSETS TO LIQUIDATING PARTNER. The
Distributable Shares shall be distributed by the Exchange Agent in accordance
with the procedures set forth in the Exchange Agent Agreement between the
Partnership, Heartland, and the Exchange Agent (the "Exchange Agreement"). On
the date six (6) months following the closing of the Agreement, the Exchange
Agent shall deliver to the Liquidating Partner all assets or other rights held
by the Exchange Agent for the benefit of the Partnership or its Partners,
including without limitation: (i) Distributable Shares held by the Exchange
Agent as a result of any Partner's failure to comply with established procedures
for receipt of his or her respective Distributable Shares or the inability to
locate a Partner, (ii) undistributed dividends or other distributions paid to
the Exchange Agent on the Acquisition Shares, (iii) remaining proceeds of the
sale of Liquidated Shares, and (iv) Liquidated Shares, if any, not sold by the
Exchange Agent (collectively, the "Undistributed Assets").
At the sole option of the Liquidating Partner, the Liquidating Partner may
(but is not required to) take reasonable steps during the Liquidation to attempt
to locate Partners who have failed to provide an accurate mailing address to the
Partnership; provided, however, any expenses directly incurred in attempting to
locate a Partner shall offset any distributions otherwise payable to such
Partner.
7. COMPLETION OF LIQUIDATION BY THE LIQUIDATING PARTNER. After receipt of
the Undistributed Assets but in no event later than completion of all other
aspects of the Liquidation, the Liquidating Partner is authorized to and shall
sell the Distributable Shares of each Partner that has not been located by the
Partnership ("Unlocated Partner"). The proceeds of such sale(s), along with all
other funds distributable to an Unlocated Partner shall be transferred by the
Liquidating Partner on behalf of the Partnership to a state official, trustee,
or other person authorized by law to receive distributions for the benefit of
each Unlocated Partner as may be determined by the Liquidating Partner. Such
proceeds shall thereafter be held solely for the benefit of and ultimate
distribution to each respective Unlocated Partner entitled to receive same. In
no event shall any of such proceeds revert to or become the property of the
Partnership.
In addition, in the event the Liquidating Partner receives as Undistributed
Assets any Liquidated Shares from the Exchange Agent (as the result of the
Exchange Agent being previously unable to sell such shares for the benefit of
the Partnership on acceptable terms), the Liquidating Partner shall sell such
shares on behalf of the Partnership. After receipt of the Undistributed Assets
and sale of any remaining Liquidated Shares, the Liquidating Partner shall take
any and all other actions as may be reasonably necessary to promptly resolve any
matters with respect to which any portion of the Contingency Reserve is being
held. Upon resolution of all such matters, the Liquidation shall be deemed
complete.
8. ALLOCATION OF INCOME AND/OR LOSS. Net Income and net loss of the
Partnership as a result of the sale of the Partnership's Assets, and following
the date of adoption of this Plan, shall be determined and allocated to the
Partners' capital accounts in accordance with the terms of the Partnership
Agreement.
9. PROVISIONS FOR LIQUIDATING PARTNER. The terms and provisions of this
Plan shall be carried out by the Partnership by and through a liquidating
partner (the "Liquidating Partner"). Until a successor is duly selected by the
Management Committee, BD2, Inc., a Texas corporation, shall serve as Liquidating
Partner. The Liquidating Partner and the Partnership agree to the following:
(a) The Liquidating Partner shall receive compensation for its services
hereunder as may be provided for in the Partnership Agreement, if any, and shall
serve without bond.
(b) The Liquidating Partner shall not be personally liable (and shall be
fully indemnified by the Partnership) for any assessments, charges, or damages,
or for any obligations in carrying out or effectuating the purposes of this
Plan; provided, however, that nothing shall relieve the Liquidating Partner from
liabilities arising out of his own willful misconduct, bad faith, or gross
negligence.
(c) The Liquidating Partner shall not be responsible in any manner
whatsoever for the validity or sufficiency of this Plan.
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(d) The Liquidating Partner is entitled to act upon any paper or
document believed by him to be genuine.
(e) The Liquidating Partner may retain and consult with legal counsel,
accountants, and other appropriate professionals, and any act or failure to act
done or omitted in good faith in accordance with the opinion of any such person
shall create no liability on the part of the Liquidating Partner. The
Liquidating Partner may pay reasonable compensation to such persons for services
rendered.
(f) The Liquidating Partner shall not be liable for any acts or
omissions of any agents or attorneys elected or appointed by or acting for him
or the Partnership.
(g) The Liquidating Partner shall keep, or cause to be kept, (at the
Partnership's expense) just, true, and, correct books of account, which shall
reflect all of the receipts and disbursements of the accounts of the Partnership
in connection with the Liquidation.
10. POWERS OF LIQUIDATING PARTNER. The Liquidating Partner shall have the
following powers:
(a) To act on behalf of the Partnership after the closing of the sale of
the Partnership Assets under the Agreement as regards any decision,
authorization, or action required or contemplated under the Agreement or
Exchange Agreement, which includes without limitation, authority to ask for and
receive Undistributed Assets from the Exchange Agent.
(b) To invest amounts received by the Partnership pending distribution,
but such investment powers shall be limited to powers to invest in fully insured
demand and time deposits in banks and savings institutions, or the highest grade
of temporary investments such as short-term certificates of deposit or treasury
bills.
(c) To pay proper expenses of the Partnership, including without
limitation the reasonable and necessary expenses incurred in completing the
Liquidation.
(d) Sell, and hold the proceeds of the sale of, in accordance with the
terms of this Plan, any Distributable Shares not properly claimed by a Partner.
(e) Maintain financial and other records, at the Partnership's expense,
of the Liquidation.
(f) Cause to be prepared and filed, and execute on behalf of the
Partnership, all appropriate tax returns, reports, or filings required of the
Partnership.
(f) Generally, to do everything necessary or advisable in order to carry
out the purposes of this Plan.
11. RESIGNATION OR REMOVAL OF THE LIQUIDATING PARTNER. The Liquidating
Partner may resign at any time by delivering to the other members of the
Management Committee a written resignation, in which event the resignation shall
take effect immediately. The Liquidating Partner may be removed upon a finding
by the other members of the Management Committee that the Liquidating Partner
has failed to carry out the responsibilities of his position as set forth
herein. Upon the death, dissolution, bankruptcy, resignation, removal, or
inability to act as Liquidating Partner, the remaining members of the Management
Committee shall promptly select a replacement to fill the vacancy of the
Liquidating Partner.
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I
12. TERMINATION OF POSITION. The position of Liquidating Partner shall
continue only so long as reasonably necessary to complete the Liquidation under
this Plan. Upon completion of the Liquidation, the Liquidating Partner shall
thereupon be fully released and discharged and his duties shall cease.
Dated , 1996
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES,
a California general partnership
By:
-------------------------------
Donald McGee, Co-Chairman,
Management Committee
Accepted and Agreed to as Liquidating Partner
BD2, Inc., a Texas corporation
By:
---------------------------
Donald McGee, President
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APPENDIX J
INFORMATION CONCERNING THE MINNEAPOLIS PARTNERSHIP
<PAGE> 449
J
TABLE OF CONTENTS
<TABLE>
<S> <C>
Business of Minneapolis Partnership................................................... J-1
Minneapolis Partnership -- Selected Financial Information............................. J-2
Minneapolis Partnership -- Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... J-3
Market For and Distributions on Minneapolis Partnership Interests..................... J-5
General Partnership Interests of Certain Persons and Management....................... J-6
Comparison of Rights of Equity Holders of Heartland and Minneapolis Partnership....... J-6
</TABLE>
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BUSINESS OF MINNEAPOLIS PARTNERSHIP
Description of Minneapolis Partnership. Wireless Cable TV Associates #38, a
California general partnership (the "Minneapolis Partnership") was formed for
the purpose of acquiring a 75% interest in the assets compromising the wireless
cable television system in Minneapolis, Minnesota. The remaining 25% interest in
the assets was retained by AWS.
In January 1993, the Minneapolis Partnership contributed its 75% interest
in the assets used in the wireless cable television system in Minneapolis,
Minnesota to a limited liability company, American Wireless System of
Minneapolis LLC (the "Minneapolis LLC") in return for a 75% membership interest.
Simultaneously, AWS contributed its 25% interest in the asset in return for
a 25% interest in the Minneapolis, LLC. AWS was elected as Chief Manager. The
Minneapolis LLC entered into a Management Agreement with AWS for the management
of the wireless cable system.
By the summer of 1993, it became apparent to the Minneapolis Committee that
the Minneapolis Partnership, and the Minneapolis LLC, did not have sufficient
capital to meet the LLC's operating expenses and increase the Minneapolis LLC's
subscriber base. Moreover, without a significant increase in its subscriber
base, the Minneapolis Committee determined that near term profitability was
unlikely. (See "The Minneapolis Transaction and Background of Minneapolis
Transaction").
Since the formation of the Minneapolis LLC and the contribution of the
Minneapolis Partnership of its 75% interest in the assets to the Minneapolis
LLC, the Minneapolis Partnership has neither owned directly any of the assets
used in the operation of the wireless cable system, nor directly conducted the
business of the operation of the wireless cable system in Minneapolis,
Minnesota.
Description of the Minneapolis LLC. The Minneapolis LLC was formed under
the name American Wireless System of Minneapolis, LLC. The members are the
Minneapolis Partnership which currently holds a 75% membership interest and AWS
which holds a 25% membership interest. The LLC owns and operates the wireless
cable system in the Minneapolis/St. Paul Minnesota metropolitan area. (For a
description of the wireless cable television industry and the wireless cable
television service provided by the Minneapolis LLC, see "Information Concerning
AWS -- Business of AWS".)
Employees. As of January 12, 1996, the Minneapolis Partnership has (and has
previously had) no full-time employees. During that time, the Minneapolis
Partnership has not paid any compensation to any of the 9 members of the
Minneapolis Committee, although such persons have effectively worked part-time
for the Minneapolis Partnership. Of the 9 original members of the management
committee, two have resigned, leaving 7 remaining members. The members of the
Management Committee devote 10% or less of their time to the Minneapolis
Partnership's business. The Minneapolis Partnership has reimbursed the expenses
of the members of the Management Committee in connection with their attendance
at meetings and incidental expenses as well as the expenses of certain
Minneapolis Partnership partners participating in management committee meetings
at the request of the management committee.
Properties. The Minneapolis Partnership does not itself own or lease any
real property. However, as discussed herein (see "Information Concerning
AWS -- Business of AWS"), the Minneapolis Partnership owns a 75% interest in the
Minneapolis LLC. The Minneapolis LLC leases various facilities in Egan,
Minnesota, a suburb of Minneapolis, Minnesota, including office and warehouse
space, transmission sites and tower sites.
Legal Proceedings. The Minneapolis Partnership is not a party to, and none
of the Minneapolis Partnership's property is subject to any pending legal
proceedings. However, the failure of the Minneapolis Partnership to resolve
(through litigation, arbitration, settlement or otherwise), certain potential
claims that the Minneapolis Partnership may have against AWS could have a
materially adverse effect on the Minneapolis Partnership's business, result of
operations and financial condition. (See "The Minneapolis
Transaction -- Minneapolis Claims".)
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MINNEAPOLIS PARTNERSHIP
SELECTED FINANCIAL INFORMATION
The selected consolidated statement of operations and balance sheet data
presented below as of December 31, 1993 and 1994 and for the ten months ended
December 31, 1992 and the years ended December 31, 1993 and 1994 were derived
from the consolidated financial statements of Minneapolis Partnership, which
were audited by Arthur Andersen LLP, independent certified public accountants,
and which are included elsewhere in this Proxy Statement/Prospectus. The
selected consolidated statement of operations and balance sheet data presented
below as of September 30, 1995 and for the nine months ended September 30, 1994
and 1995 were derived from the unaudited financial statements of Minneapolis
Partnership, which are included elsewhere in this Proxy Statement/Prospectus and
which, in the opinion of management of Minneapolis Partnership, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such unaudited interim periods. The
statement of operations data for interim periods are not necessarily indicative
of results for subsequent periods or for the full year. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements (including the notes thereto) of
Minneapolis Partnership contained elsewhere in this Proxy Statement/Prospectus.
See "Index to Financial Statements."
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28,
1992
(INCEPTION) YEAR ENDED NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------- -------------------------
1992 1993 1994 1994 1995
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $ 23,694 $ 272,152 $ 535,046 $ 329,757 $ 740,595
---------- ---------- ----------- ----------- -----------
Operating expenses:
Systems operations........................ 62,053 690,835 1,187,795 826,474 1,092,248
Selling, general and administrative....... 26,683 514,653 463,156 275,871 373,069
Depreciation and amortization............. 6,158 738,860 977,471 719,045 799,154
---------- ---------- ----------- ----------- -----------
Total operating expenses.............. 94,894 1,944,348 2,628,422 1,821,390 2,264,471
---------- ---------- ----------- ----------- -----------
Operating loss.............................. (71,200) (1,672,196) (2,093,376) (1,491,633) (1,523,876)
Interest expense, net....................... -- -- -- -- --
Minority interests in losses................ 8,764 127,217 138,155 102,488 90,628
---------- ---------- ----------- ----------- -----------
Net loss.............................. $ (62,436) $(1,544,979) $(1,955,221) $(1,389,145) $(1,433,248)
========== =========== =========== =========== ===========
Other Financial Data:
EBITDA(1)................................... $ (65,042) $ (933,336) $(1,115,905) $ (772,588) $ (724,722)
Capital expenditures(2)..................... $5,983,256 $ 1,214,519 $ 520,967 $ 334,408 $ 203,093
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------------------------- 30,
1992 1993 1994 1995
---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $1,400,263 $ 167,897 $ 620,058 $ 177,941
Total assets................................. 8,220,286 7,391,740 7,425,224 6,484,576
Long-term debt, including current portion.... -- 26,287 2,016,692 2,578,562
Total partners' equity....................... 7,396,646 6,772,243 4,817,022 3,383,774
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from February 28, 1992 (inception) to
December 31, 1992 were comprised of $428,269 for purchase of systems and
equipment and $5,554,987 of expenditures for leased licenses; for the year
ended December 31, 1993 were comprised of $35,938 for purchase of systems
and equipment and $1,178,581 for expenditures for leased licenses; for the
year ended December 31, 1994 were comprised of $520,967 for purchase of
systems and equipment and $-0- for expenditures for leased licenses; for the
nine months ended September 30, 1994 were comprised of $334,408 for purchase
of systems and equipment and $-0- of expenditures for leased licenses; for
the nine months ended September 30, 1995 were comprised of $203,093 for
purchase of systems and equipment and $-0- of expenditures for leased
licenses.
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MINNEAPOLIS PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Minneapolis Partnership owns as its principal asset a 75% membership
interest in the Minneapolis LLC, which owns and operates a wireless cable system
in Minneapolis, Minnesota. The Minneapolis system was launched in March 1993
and, as of November 30, 1995, served approximately 2,740 subscribers.
The wireless cable business is a capital intensive business and to date
Minneapolis LLC has been financed through capital contributed by the partners of
Minneapolis Partnership and various loans. Initially, significant capital is
required to acquire the rights to wireless cable channels, construct the headend
facility, co-locate the channels and fund negative cash flow until the system is
able to install a sufficient number of subscribers to fund its operating
expenses. After operations have been launched, the estimated incremental cost
per subscriber is approximately $530 (assuming one-half of the subscribers order
additional outlets which require additional equipment and labor). Minneapolis
Partnership does not expect its system to provide positive cash flow unless
significant additional capital can be obtained.
Minneapolis Partnership will require additional financing in the first
quarter of 1996 to fund its operating expenses. However, Minneapolis Partnership
anticipates that the sale of its assets to Heartland Wireless Communications,
Inc. ("Heartland") will be consummated prior to the close of the first quarter
of 1996, thereby eliminating the Minneapolis Partnership's need to fund future
operating and development expenses. Under the terms of the Minneapolis
Agreement, it is anticipated that the Minneapolis Partnership will receive
shares of Heartland common stock having an aggregate exchange value of $18.5
million (assuming $500,000 of additional subscribers consideration), subject to
adjustments in certain events. If the Heartland transaction is not consummated,
the Minneapolis Partnership will pursue other financing options including the
sale of its interest in the Minneapolis LLC.
Pursuant to the Minneapolis LLC organizational agreement, the Minneapolis
Partnership is required to contribute all of the financing required by the
system. Pursuant to the management agreement the Minneapolis Partnership's joint
venture partner, American Wireless System, Inc. ("AWS") serves as the manager of
the Minneapolis LLC. Minneapolis Partnership borrowed $2,000,000 from AWS to
fund the Minneapolis LLC. These funds allowed the Minneapolis LLC to install
approximately 2,700 subscribers. In May 1995, the Minneapolis LLC obtained a
loan of $550,000 from Tsunami Capital Corp. ("Tsunami"). In October 1995,
Minneapolis obtained a loan commitment of up to $1,575,000 from Heartland, of
which $575,000 was used to repay the Tsunami loan. The system will require
additional funding in the first quarter of 1996 to continue adding subscribers.
If the Minneapolis transaction is not consummated, the Minneapolis Partnership
will be required to obtain additional financing.
RESULTS OF OPERATIONS
Years Ended December 31, 1994 and December 31, 1993. The Minneapolis
Partnership's assets consist of its 75% membership's interest in the Minneapolis
LLC and cash. The Minneapolis LLC began adding subscribers in March 1993.
Minneapolis LLC continued adding subscribers to the system until August 1993,
when the Minneapolis LLC's cash resources were nearly depleted. In April 1994,
the Minneapolis Partnership borrowed $2,000,000 from AWS. The Minneapolis
Partnership contributed these loan proceeds to the Minneapolis LLC to fund
operating expenses and subscriber growth. This loan carries an interest rate of
8% per annum and is due in full on February 26, 1996. In the event this loan is
not repaid when due, AWS will receive an additional equity interest in the
Minneapolis LLC of approximately 10%. The Partnership had approximately $535,000
in revenue during 1994 and approximately $272,000 in revenue during 1993. The
increase in revenue was due to the addition of approximately 1900 subscribers in
1994. Operating expenses in 1994 were approximately $1,651,000 and approximately
$1,205,000 in 1993. The increase was due to the addition of approximately 900
more subscribers in 1994 as compared to 1993. Depreciation expense increased to
approximately $977,000 in 1994 from approximately $739,000 in 1993. The increase
was due to the addition of subscriber, headend, and office equipment. The
Minneapolis Partnership's net loss was approximately $1,955,000 in 1994 and
approximately $1,545,000 in 1993. The change was due to the re-launch of the
system in April 1994 and the addition of 900 more subscribers in 1994 as
compared to 1993. The Minneapolis
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Partnership's share of those losses was approximately $1,910,000 in 1994 and
$1,489,000 in 1993. The Minneapolis Partnership's allocated losses are based on
contributed capital rather than its beneficial interest. Accordingly, the
Minneapolis Partnership's allocated share of the losses on a percentage basis is
more than its beneficial interest.
Year Ended December 31, 1993 and December 31, 1992. The Minneapolis LLC
began adding subscribers in March 1993. The joint venture continued adding
subscribers to the system until August 1993, when the Minneapolis LLC's cash
resources were nearly depleted. The Minneapolis LLC had approximately $10,000 in
revenue during 1992 and approximately $272,000 in revenue during 1993. The
increase in revenue was due to the launch of the system and the addition of
approximately 950 subscribers in 1993. Operating expenses in 1992 were
approximately $89,000 and approximately $1,205,000 in 1993. The increase was due
to the launch of the system in 1993. Depreciation expense increased from
approximately $6,000 in 1992 to approximately $739,000 in 1993 due to the
addition of subscriber, headend and office equipment. The Minneapolis LLC's net
loss was approximately $71,000 in 1992 and approximately $1,672,000 in 1993. The
change was due to the launch of the system in 1993. The Minneapolis
Partnership's share of these losses was $62,436 and $1,544,979 in 1992 and 1993,
respectively. The Minneapolis Partnership's allocated losses are based on
contributed capital rather than its beneficial interest. Accordingly, the
Minneapolis Partnership's allocated share of losses on a percentage basis is
more than its beneficial interest.
Nine Months Ended September 30, 1995 and September 30, 1994. In April 1995,
the Minneapolis LLC's operating funds were nearly depleted. The Minneapolis LLC
obtained a loan of $550,000 in May 1995 from Tsunami to fund the installation of
subscribers and operating overhead. In connection with the proposed Heartland
transaction, the Minneapolis LLC received a loan commitment of up to $1,575,000
in October 1995, of which $575,000 was used to repay Tsunami and the remaining
$1,000,000 will be used to fund subscriber growth.
The Minneapolis Partnership had approximately $741,000 in revenue for the
nine months ended September 30, 1995 as compared to approximately $330,000 in
revenue for the nine months ended September 30, 1994. The increase of
approximately $411,000 is due to an increase of approximately 1,260 subscribers
to the subscriber base. Operating expenses were approximately $1,465,000 for the
nine months ended September 30, 1995 and $1,102,000 for the nine months ended
September 30, 1994. The increase of approximately $363,000 is due to the expense
attributed to the addition of approximately 960 more subscribers for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. Depreciation expense increased to approximately $799,000 for the nine
months ended September 30, 1995 as compared to approximately $719,000 for the
nine months ended September 30, 1994. The increase was due to the addition of
subscriber, headend and office equipment. Minneapolis Partnership's net loss was
approximately $1,433,000 for the nine months ended September 30, 1995 as
compared to $1,389,000 for the nine months ended September 30, 1994. The change
was due to the addition of approximately 960 more subscribers over the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. The Minneapolis Partnership's share of these losses was approximately
$1,415,000 for the nine months ended September 30, 1995 and $1,388,000 for the
nine months ended September 30, 1994.
INCOME TAXES
The Minneapolis Partnership does not have income tax liability or benefit
due to the fact that all tax attributes of the Minneapolis Partnership are
passed through to its partners.
LIQUIDITY AND CAPITAL RESOURCES
The Minneapolis System is in the early stages of operation. Its focus since
March 1993 has been to add subscribers to the system. The Minneapolis LLC is
currently operating at a negative cash flow level. The Minneapolis Partnership
has limited financial resources, has incurred losses since inception and expects
to incur additional losses. For the years ended December 31, 1993 and December
31, 1994, the Minneapolis Partnership had net losses from operations of
$1,544,979 and $1,955,221, respectively. Because the Minneapolis System is still
in the early operating stage, the Minneapolis Partnership anticipates that it
will depend on
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external financing to develop the Minneapolis LLC system and continue to incur
losses. As a result, in their independent public accountants reports for years
ended December 31, 1993 and December 31, 1994, there was an explanatory
paragraph that described factors raising substantial doubt about the Minneapolis
Partnership's ability to continue as a going concern.
In November 1992, the Minneapolis Partnership under the terms of its
partnership agreement raised $2,095,658 from its partners to begin operations of
the system. In April 1994, the Minneapolis Partnership borrowed $2,000,000 from
AWS its joint venture partner to fund additional development of the system. The
loan carries an interest rate of 8% per annum, is collateralized by 10% of the
Minneapolis LLC and is due February 28, 1996. The Minneapolis LLC borrowed
$550,000 from Tsunami to fund operations of the system. The loan was made by
Tsunami in anticipation of a merger, the loan carried an interest rate of 12%
and was due December 31, 1995. The note was repaid in October 1995 with the
proceeds of the loan from Heartland.
In October 1995, the Minneapolis Partnership signed a contract to sell its
interest in Minneapolis LLC to Heartland. The Minneapolis Agreement allows
Heartland to purchase all right, title and interest in and to the Minneapolis
LLC that the Minneapolis Partnership owns. In connection with this agreement
Heartland has agreed to assume certain liabilities associated with the wireless
assets.
If the Minneapolis Transaction is consummated, the Minneapolis Partnership
will retain shares with an estimated exchange value of $1.5 million (or $721.50
per Minneapolis Unit) to wind down operations and pay certain known and
contingent liabilities. The remainder of the sales proceeds from the Minneapolis
Transaction, with an estimated exchange value of $17 million (or $8,177 per
Minneapolis Unit) will be distributed to the Minneapolis Partners. The known and
contingent liabilities include the following: repayment of the Heartland Loan;
payment of certain Heartland Claims in amounts that may aggregate to no more
than $1,000,000; legal fees for the representation in the Minneapolis
Transaction and for completion of the Plan of Liquidation; accounting fees for
preparation of the Minneapolis Partnership federal and state income tax returns
for 1995 and 1996.
The Minneapolis Partnership does not currently have sufficient financing to
develop its wireless cable system to the point were it can generate positive
cash flow. If additional financing is not obtained to continue the development
of its wireless cable system or if the proposed Minneapolis asset purchase
transaction is not consummated as detailed above, the Minneapolis Partnership's
assets and current operating activities could be materially adversely affected.
MARKET FOR AND DISTRIBUTIONS ON MINNEAPOLIS PARTNERSHIP INTERESTS
There is no market or market price for the interests held by the
Minneapolis Partners in the Minneapolis Partnership. To the contrary, no
Minneapolis Partner may transfer his, her or its interest in the Minneapolis
Partnership, except in accordance with the specific provisions of the
Minneapolis Partnership Agreement.
As of December 31, 1995, there were approximately 742 Minneapolis Partners.
As of that date, each member of the Minneapolis Committee owned less than one
percent (1%) of the outstanding general partnership interests in the Minneapolis
Partnership, although the members of the Minneapolis Committee as a group (7
persons) beneficially own approximately one and one-half percent (1 1/2%) of the
outstanding general partnership interests in the Minneapolis Partnership. Upon
effectuating the Minneapolis Transaction pro forma based on current ownership of
general partnership interests in the Minneapolis Partnership, each Minneapolis
Partner would own less than one percent (1%) of the outstanding shares of
Heartland Common Stock.
The Minneapolis Partnership has never made any distributions to Minneapolis
Partners in respect of the general partnership interests in the Minneapolis
Partnership.
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GENERAL PARTNERSHIP INTERESTS OF CERTAIN PERSONS AND MANAGEMENT
As of December 31, 1995, no member of the Minneapolis Committee owned more
than one (1%) of the general partnership interests in the Minneapolis
Partnership; however, the Minneapolis Committee as a group (7 persons) held
approximately one and one-half percent (1 1/2%) of the general partnership
interests therein. As of December 31, 1995, no Minneapolis Partner beneficially
owned more than one percent (1%) of the general partnership interests therein.
COMPARISON OF RIGHTS OF EQUITY HOLDERS OF
HEARTLAND AND MINNEAPOLIS PARTNERSHIP
The rights of the Minneapolis Partners in the Minneapolis Partnership are
governed by the UPA. Upon the tender and acceptance of their shares of Heartland
Common Stock and the consummation of the Minneapolis Agreement, the former
Minneapolis Partners will become stockholders ("Minority Holders") of Heartland,
a Delaware corporation. As stockholders of a Delaware corporation, their rights
will differ in certain respects from those of a holder of a partnership interest
in a California general partnership. Their rights will also be governed by the
Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of the Minneapolis
Partners and those of Heartland's stockholders are set forth below. This summary
is not intended to be relied upon as an exhaustive list of differences or a
detailed description and analysis of the provisions discussed and is qualified
in its entirety by the DGCL, the UPA, the Heartland Certificate, the Heartland
Bylaws and the Agreement of General Partnership of the Minneapolis Partnership
(the "Minneapolis Partnership Agreement").
GENERALLY
The Minneapolis Partnership is not an incorporated entity, but a general
partnership organized pursuant to the UPA. Unless a creditor otherwise agrees,
each Minneapolis Partner is liable, jointly and severally, for the debts and
obligations of the Minneapolis Partnership. The Minneapolis Partnership
Agreement does not state a period of duration for the partnership, but instead
provides that dissolution of the Minneapolis Partnership shall occur upon the
earliest of (i) the failure of the partnership to maintain its licenses or other
channel rights as contemplated in the Minneapolis Partnership Agreement; (ii)
the termination of the license or other lease rights relating to alternative
channels; (iii) the election, by a majority vote of the partners, to terminate
the partnership; or (iv) the partnership does not hold any interest, whether as
owner, secured creditor or otherwise, in the license. The Minneapolis
Partnership is structured whereby proprietary interests in the partnership are
acquired in units, (a "Minneapolis Unit"). As of December 31, 1995, 2,079
Minneapolis Units were outstanding and each Minneapolis Partner owned less than
1% of the outstanding Minneapolis Units.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Preferred Stock have been issued. Stockholders of Heartland are
generally not responsible for its debts and obligations.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
Pursuant to the UPA, a California general partnership may be merged into
(i) another general partnership; (ii) a limited partnership; or (iii) a limited
liability company, provided that the merger is specifically permitted by the
general partnership agreement and was approved by at least a majority in
interest in profits from current operations of all general partners. The
Minneapolis Partnership Agreement provides that no partner shall sell, convey,
assign, or encumber all or a portion of its Minneapolis Units, unless the
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partner first offers the Minneapolis Units to the partnership. Furthermore, no
assignee shall have the right to become a partner in place of the assignor
unless (i) a duly executed and acknowledged written instrument of assignment has
been filed with the partnership; (ii) the assignee has executed a written
acceptance and adoption of the provisions of the Minneapolis Partnership
Agreement; and (iii) the transfer complies with all federal and state securities
and FCC laws.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the NASD. Even if the shares of any class or series of stock
meet the requirements of clause (i) or (ii) above, appraisal rights are
available for such class or series if the holders thereof receive in the merger
or consolidation anything except: (a) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (b) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or held of record by
more than 2,000 stockholders or, only under the DGCL, designated as a national
market system security on an inter-dealer quotation system by the NASD; (c) cash
in lieu of fractional shares of the corporations described in clause (a) or (b)
of this sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c).
The stockholders of Heartland will not receive dissenters or appraisal
rights in connection with the Transactions. Neither the UPA nor the Minneapolis
Partnership Agreement have any provisions which give the Minneapolis Partners
dissenters or appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
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Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
Neither the UPA nor the Minneapolis Partnership Agreement have any
provisions similar to that of Section 203 of the DGCL.
AMENDMENTS TO CERTIFICATE OF INCORPORATION OR PARTNERSHIP AGREEMENT
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
The Heartland Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
A California general partnership is not required to file any organizational
documents with the Secretary of State's office. As a result, no provision exists
under either the UPA or the Minneapolis Agreement to amend such a document.
AMENDMENTS TO BYLAWS OR PARTNERSHIP AGREEMENT
Under the DGCL, the power to adopt, alter and repeal the Bylaws is vested
exclusively in the stockholders, except to the extent that the Certificate of
Incorporation vests it in the Board of Directors. The Heartland Certificate
vests in its Board of Directors the power to adopt, amend or repeal Bylaws.
The UPA does not provide any provisions relating to amendments to a
partnership agreement. Pursuant to the Minneapolis Partnership Agreement, an
amendment to the Minneapolis Partnership Agreement requires the consent of a
majority of the Units. In addition, the Minneapolis Partnership Agreement may
not be amended without the consent of the partner(s) to be adversely affected by
the amendment to (i) alter the interest of a partner in income, gain, losses,
deductions, credits and distributions; (ii) increase, add or alter any
obligation of any partner; (iii) affect the status of the partnership as a
partnership for federal income tax purposes; or (iv) alter any provisions in the
Minneapolis Partnership Agreement regarding allocation of profits and losses,
distributions to partners and power, duties and restrictions of the partners.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
Heartland Certificate does not provide for preemptive rights.
Neither the UPA nor the Minneapolis Partnership Agreement have any
provisions relating to the preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide additional requirements
regarding the distribution of dividends.
Pursuant to the Minneapolis Partnership Agreement, distributions of
distributable cash (any excess of total cash received by the partnership after
reasonable working capital requirements are met) shall be made
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quarterly no later than thirty (30) days after the end of the fiscal quarter.
Distributions are to be distributed to the partners in the following order and
priority: (i) first, to the partners in proportion to and the extent of their
adjusted capital contribution; and (ii) thereafter, the balance, if any, to the
partners in proportion to the number of Minneapolis Units owned by each.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. The Heartland Bylaws do not
alter the effective period of a proxy. Neither the UPA nor the Minneapolis
Partnership Agreement make any provisions for the execution or use of proxies by
the partners of a California general partnership.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate does not provide additional requirements
regarding stockholder action by written consent.
The UPA provides that all partners have equal rights in the management and
conduct of the partnership business. Pursuant to the Minneapolis Partnership
Agreement, each Minneapolis Partner has the absolute right to participate in the
management and control of the Minneapolis Partnership and the partnership
business in proportion to the number of Minneapolis Units owned by such partner.
Each Minneapolis Partner shall have one (1) vote for each Minneapolis Unit owned
and all voting shall require a majority vote of a quorum (meaning a majority of
Minneapolis Units). Minneapolis Partners vote on election of Minneapolis
Partners to serve on the management committee, which committee shall devote such
time to the Minneapolis Partnership business as shall be necessary to
efficiently and prudently manage the business of the Minneapolis Partnership.
The management committee may not, without prior written consent of a majority of
the partners (i) sell, transfer or otherwise dispose of the partnership's
license; (ii) dissolve the partnership, except as specifically provided in the
Minneapolis Partnership Agreement; (iii) change the nature of the partnership
business; (iv) continue the partnership after expiration of its term; (v) do any
act which would make it impossible to carry on the ordinary business of the
partnership; (vi) confess a judgment against the partnership; (vii) do any act
in contravention of the Minneapolis Partnership Agreement; or (viii) execute or
deliver any assignment for the benefit of the creditors of the partnership.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the Board of Directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of the
Heartland Common Stock, to call a special meeting of stockholders for any
purpose or purposes.
Neither the UPA nor the Minneapolis Partnership Agreement make any
provisions regarding special meetings.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The Heartland
Certificate does not provide for cumulative voting for the election of
directors.
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Neither the UPA nor the Minneapolis Partnership Agreement make any
provisions for cumulative voting.
NUMBER AND ELECTION OF DIRECTORS/MANAGERS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. The Heartland Certificate does not fix the number
of directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Heartland has not established a classified board of
directors.
The UPA makes no provision for the number or election of managers. Pursuant
to the Minneapolis Partnership Agreement, the Minneapolis Partners have elected
a management committee to manage the business affairs of the Minneapolis
Partnership.
REMOVAL OF DIRECTORS/MANAGERS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed with or without cause, at any time by vote at an
election of directors or by written consent of the stockholders.
The UPA makes no provision for the removal of directors. The Minneapolis
Partnership Agreement provides that the other partners shall have the right to
replace any or all members of the management committee and to assume the duties
of the management committee upon the written vote of the majority of the Units.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filing of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements
regarding vacancies on its Board of Directors.
Neither the UPA nor the Minneapolis Partnership Agreement make any
provisions regarding vacancies.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Under the UPA, a partnership must indemnify every partner with respect to
payments made and personal liabilities reasonably incurred by a partner in the
ordinary and proper conduct of the partnership business, or for the preservation
of the partnership business or property. Pursuant to the Minneapolis Partnership
Agreement, the partnership shall indemnify each partner, any employee or agent
of each partner, and any partnership, employee or agent, against any loss or
threat of loss as a result of any claim or legal proceeding related to the
performance or nonperformance of any act concerning the activities of the
partnership so long as any party against whom the claim is made is not guilty of
fraud, gross negligence or bad faith in such performance or nonperformance. The
indemnification provided shall include payment of reasonable attorneys' fees or
other expenses incurred in settling any claim or threatened action or incurred
in any finally adjudicated legal proceeding, and the removal of any liens
affecting any property of the indemnitee shall be made from the assets of the
partnership. All judgments against the partnership and a partner, wherein a
partner (including any employee, partner, officer and/or director of a partner
or its partners) is entitled to indemnification, must first be satisfied from
partnership assets before the partner is responsible for these obligations.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a
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fiduciary duty as a director. However, no such provision can eliminate or limit
the liability of a director for (i) any breach of the director's duty of loyalty
to the corporation or its stockholders; (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate contains a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL.
Under the UPA, all partners are jointly and severally liable for everything
chargeable to the partnership regarding (i) a partner's wrongful act or omission
when acting in the ordinary course of the business of the partnership or with
the authority of the co-partners; and (ii) a partner's breach of trust to a
third party. All partners are jointly liable for all other debts and obligations
of the partnership. Pursuant to the Minneapolis Partnership Agreement, no
partner shall be liable to the other partners for any act or omission provided
the partner is not guilty of fraud, gross negligence or bad faith in such
performance or failure.
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K
APPENDIX K
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
<PAGE> 463
K
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
DATED AS OF OCTOBER 4, 1995
BETWEEN
WIRELESS CABLE TV ASSOCIATES NO. 38
AS SELLER
AND
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AS BUYER
<PAGE> 464
K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. CLOSING; EXCHANGE.......................................................... K-1
1.1 Closing, Closing Time, Date and Place.................................... K-1
1.2 Transfer of LLC Interest; Assignment of AWS Claims....................... K-1
1.3 Consideration............................................................ K-2
1.4 Liquidation of Seller; Distribution of Distributable Shares.............. K-2
1.5 Distribution Procedures.................................................. K-2
1.6 Registration of Acquisition Shares....................................... K-3
1.7 Dividends; Transfer Taxes................................................ K-3
1.8 Return of Exchange Fund.................................................. K-3
1.9 Further Assurances....................................................... K-3
1.10 Extension of Closing Date................................................ K-3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER................................... K-4
2.1 Organization; Doing Business............................................. K-4
2.2 Outstanding Rights....................................................... K-4
2.3 Authority; Enforceability; Non-Contravention............................. K-4
2.4 Financial Statements..................................................... K-4
2.5 Property................................................................. K-5
2.6 Receivables.............................................................. K-5
2.7 Contracts................................................................ K-5
2.8 FCC Matters.............................................................. K-6
2.9 Insurance................................................................ K-7
2.10 Litigation............................................................... K-7
2.11 Governmental Permits..................................................... K-7
2.12 Compliance With Laws..................................................... K-7
2.13 Environmental Matters.................................................... K-7
2.14 Intellectual Property.................................................... K-7
2.15 Taxes and Fees........................................................... K-8
2.16 Liens.................................................................... K-8
2.17 Regulatory Compliance.................................................... K-8
2.18 Interference............................................................. K-8
2.19 Employees; Benefit Plans................................................. K-8
2.20 Finder's Fees............................................................ K-9
2.21 Programming Agreements................................................... K-9
2.22 Further Representation................................................... K-9
2.23 Certain Activities....................................................... K-9
2.24 Partnership Books and Records............................................ K-9
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND................................ K-9
3.1 Organization and Good Standing........................................... K-9
3.2 Authority; Enforceability; Non-Contravention............................. K-9
3.3 Litigation............................................................... K-9
3.4 Consents and Approvals................................................... K-9
3.5 Capitalization........................................................... K-10
3.6 Financial Statements..................................................... K-10
3.7 SEC Filings.............................................................. K-10
ARTICLE 4. COVENANTS OF SELLER........................................................ K-10
4.1 Operation Prior to the Closing Date...................................... K-10
4.2 Consents................................................................. K-11
</TABLE>
K-i
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
4.3 Renewal or Extension of FCC Authorizations............................... K-11
4.4 No Solicitation.......................................................... K-12
4.5 Audit of Financial Statements............................................ K-12
ARTICLE 5. ADDITIONAL AGREEMENTS...................................................... K-12
5.1 Shareholders and Partners Meeting........................................ K-12
5.2 Registration Statement and Proxy Statement............................... K-13
5.3 Access................................................................... K-13
5.4 Compliance with the Securities Act....................................... K-13
5.5 Reasonable Efforts....................................................... K-14
5.6 Public Announcements..................................................... K-14
5.7 Notification of Certain Matters.......................................... K-14
5.8 Letters of Seller's Accountants.......................................... K-14
5.9 Hart-Scott-Rodino Act Filing............................................. K-14
5.10 Employees................................................................ K-14
5.11 Right of First Refusal................................................... K-15
5.12 Exhibits................................................................. K-15
5.13 Heartland Loan........................................................... K-15
5.14 Delivery of Schedules and Other Items.................................... K-16
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION........................................ K-16
6.1 Registration Statement................................................... K-16
6.2 No Order................................................................. K-16
6.3 Other Approvals.......................................................... K-16
6.4 Fairness Opinions........................................................ K-16
6.5 Partner Approval......................................................... K-16
6.6 Applicability of the Roll-up Rules....................................... K-16
6.7 Closing Share Price...................................................... K-16
6.8 Intentionally Omitted.................................................... K-16
6.9 Exhibits................................................................. K-16
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.......................................... K-16
7.1 Stockholder and Other Approval........................................... K-16
7.2 Representations and Warranties........................................... K-16
7.3 Seller's Documents....................................................... K-16
7.4 Registration Statement Effective......................................... K-17
7.5 No Material Adverse Change............................................... K-17
7.6 Satisfaction or Waiver of Conditions Precedent of Seller................. K-17
7.7 Seller's Obligations Performed........................................... K-17
7.8 Consummation of Merger Agreement......................................... K-17
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING............................................. K-17
8.1 Partner Approval......................................................... K-17
8.2 Representations and Warranties........................................... K-17
8.3 Heartland Documents...................................................... K-17
8.4 Satisfaction or Waiver of Conditions Precedent of Heartland.............. K-18
8.5 Heartland Obligations Performed.......................................... K-18
8.6 No Material Changes...................................................... K-18
ARTICLE 9. CERTAIN CLAIMS............................................................. K-18
9.1 Pre-Closing Claims....................................................... K-18
9.2 Post-Closing Claims...................................................... K-18
</TABLE>
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ARTICLE 10. TERMINATION............................................................... K-19
10.1 Termination by Mutual Consent............................................ K-19
10.2 Termination by Seller.................................................... K-19
10.3 Termination by Heartland................................................. K-19
10.4 Effect of Termination and Abandonment.................................... K-19
ARTICLE 11. DEFINITIONS............................................................... K-20
11.1 Definitions.............................................................. K-20
11.2 Defined Terms............................................................ K-25
ARTICLE 12. POST-CLOSING COVENANTS.................................................... K-25
12.1 Cooperation and Exchange of Information.................................. K-25
ARTICLE 13. MISCELLANEOUS............................................................. K-26
13.1 Expenses of the Transaction.............................................. K-26
13.2 Further Assurances....................................................... K-26
13.3 Notices.................................................................. K-26
13.4 No Modification Except in Writing........................................ K-26
13.5 Entire Agreement......................................................... K-27
13.6 Severability............................................................. K-27
13.7 Assignment............................................................... K-27
13.8 Publicity; Announcements................................................. K-27
13.9 Consent to Jurisdiction.................................................. K-27
13.10 Captions; Construction................................................... K-27
13.11 Schedules................................................................ K-27
13.12 Counterparts............................................................. K-28
EXHIBITS:
1.3 Exchange Agreement
1.4 Agreement and Plan of Liquidation
5.4 Lock-Up
7.3(c) Legal Opinion of Seller's Counsel
7.3(f)-1 Assignment of LLC Interest
7.3(f)-2 Assignment of AWS Claims
8.3 Legal Opinion of Heartland's Counsel
9.2 Dispute Resolution Agreement
</TABLE>
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<S> <C> <C>
SCHEDULES:
1.2 Excluded Assets
2.2 Outstanding Rights
2.4 Financial Statements
2.5(a) Equipment
2.5(b) Facilities
2.5(c) Exceptions to Title
2.6 Receivables
2.7 Contracts
2.8(a) Channel Leases
2.8(b) Licenses and FCC Permits
2.8(c) Applications
2.8(d) Adverse Channel Disclosures
2.9 Insurance
2.10 Litigation
2.14 Intellectual Property
2.16 Liens
2.18 Interference
2.19 Employees; Benefit Plans
2.21 Programming Agreements
2.24 Partners
</TABLE>
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AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (the "Agreement"), is
made and entered into as of the 4th day of October, 1995, by and between
WIRELESS CABLE TV ASSOCIATES NO. 38, a California general partnership
("Seller"), and HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware Corporation
("Heartland").
W I T N E S S E T H:
WHEREAS, Seller and American Wireless Systems, Inc., a Delaware corporation
("AWS") are the sole members in American Wireless System of Minneapolis, L.L.C.,
a Delaware limited liability company ("LLC") owning 100% of the wireless cable
television assets necessary and appropriate to provide wireless cable television
service in the metropolitan area of Minneapolis, Minnesota (the "Market");
WHEREAS, Seller owns a 75% equity interest in the LLC ("LLC Interest"), and
desires to sell, and Heartland desires to purchase, the LLC Interest; and
WHEREAS, AWS and Heartland have entered into that certain Agreement and
Plan of Merger dated September 11, 1995 ("Merger Agreement"), pursuant to which
a wholly owned subsidiary of Heartland ("Merger Sub") will be merged with and
into AWS and the Merger Sub will succeed to AWS's interest in the LLC; and
WHEREAS, in connection with the proposed acquisition of the LLC Interest by
Heartland as set forth herein ("Acquisition"), Heartland and Seller desire to
make certain representations and warranties regarding their respective
operations and, with respect to Seller, matters relating to the LLC and the
Market; and
WHEREAS, Seller, Heartland and a wholly owned subsidiary of Heartland
("Hartacq") have previously executed an Asset Purchase Agreement, dated as of
the date hereof ("Original Agreement"), pursuant to which the LLC Interest and
AWS Claims (as defined herein) would be acquired by Heartland; and
WHEREAS, Seller and Heartland have agreed to amend and restate the Original
Agreement as amended to extend certain dates and clarify other matters contained
therein; and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. CLOSING; EXCHANGE.
1.1 CLOSING, CLOSING TIME, DATE AND PLACE. The closing (the "Closing") of
the transactions set forth herein shall take place at 10:00 A.M., Dallas, Texas
time, following satisfaction of the closing conditions set forth in Articles 6,
7 and 8 at the offices of Arter, Hadden, Johnson & Bromberg, 1717 Main, Ste.
4100, Dallas, Texas 75201, or at such other time or at such other place as
Heartland and Seller may agree, but no later than January 31, 1996, subject to
extension as provided in Section 1.11. (Hereinafter, such date, as extended, is
referred to as the "Closing Date", such time on the Closing Date is referred to
as the "Closing Time", and such offices are referred to as the "Closing Place".)
1.2 TRANSFER OF LLC INTEREST; ASSIGNMENT OF AWS CLAIMS. Seller agrees that,
at the Closing Time and at the Closing Place, it shall transfer to Heartland all
right, title, and interest in and to the LLC Interest and assign to Heartland
the AWS Claims. Any and all assets, real, personal and mixed, tangible and
intangible, used in the conduct of the Wireless Cable Business and operations of
the LLC (the "Business") (including but not limited to all Contracts,
Governmental Permits, Licenses, Equipment, Documents, Facilities, Prepaid
Subscriber Fees, Causes of Action, Intellectual Property, accounts, accounts
receivable, credits, prepaid expenses, advance payments, security deposits,
prepaid items, goodwill and other intangible assets of the Business, and any
other real, personal, tangible or intangible property or rights of Seller used
or useful in the conduct of the Business) (collectively, the "Assets"), whether
held in the name of Seller, any of its equity owners or otherwise, are owned by
the LLC. Except as set forth on Schedule 1.2 (such assets being referred to as
the "Excluded Assets"), Seller does not own or have any rights to any assets
other than the LLC Interest and AWS Claims.
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1.3 CONSIDERATION. As consideration for the sale of the LLC Interest and
assignment of the AWS Claims by Seller, upon the Closing Date Heartland shall
(a) assume the Assumed Liabilities and (b) deliver to the Exchange Agent the
number of shares of common stock, $.001 par value per share, of Heartland
("Heartland Shares") equal to (i) the sum of (A) Eighteen Million and no/100
Dollars ($18,000,000) plus (B) $500 multiplied by each Additional Subscriber
(collectively, the "Purchase Price") divided by (ii) the Exchange Price (such
Heartland Shares being referred to as the "Acquisition Shares"), which
Acquisition Shares shall be held by the Exchange Agent pending their
distribution to, or liquidation on behalf of, the Partners pursuant to the terms
of an Exchange Agreement in the form attached as Exhibit 1.3 (such Acquisition
Shares, any dividends thereon or proceeds thereof being referred to herein as
the "Exchange Fund"). As used herein, the term "Exchange Price" shall mean (i)
if the Closing Share Price is greater than or equal to $23.00 per share but less
than $30.00 per share, then $23.00; (ii) if the Closing Share Price is greater
than or equal to $30.00 per share, then (A) the product of the Closing Share
Price multiplied by $23, divided by (B) $30; or (iii) if the Closing Share Price
is less than $23.00 per share, then the Closing Share Price; subject to each
party's right to terminate this Agreement as set forth in Section 6.7 if the
Closing Share Price is less than $17.00 per share.
1.4 LIQUIDATION OF SELLER; DISTRIBUTION OF DISTRIBUTABLE SHARES. Subject to
the provisions of the Exchange Agreement and to the requirements of the
California Revised Uniform Partnership Act, the Exchange Agent (on behalf of and
at the direction of Seller) (a) shall deliver to Seller's equity owners
("Partners") on the Closing Date Acquisition Shares having an aggregate Exchange
Price equal to the Purchase Price minus the sum of (i) the Excluded Liabilities
and (ii) an amount determined by the Executive Committee as necessary and
appropriate to satisfy Seller's contingent liabilities (which amount shall not
be less than $500,000) (such Heartland Shares being referred to as the
"Distributable Shares") and (b) in connection with resales to be made by Seller
pursuant to the Registration Statement, deliver the remaining Acquisition Shares
(the "Liquidated Shares") for the benefit of Seller, each in completing the
winding-up and liquidation of Seller pursuant to the terms of the Agreement and
Plan of Liquidation attached as Exhibit 1.4 in accordance with the Exchange
Agent Agreement. Such liquidation shall be made as specified in the Seller's
organizational and governing documents with due regard and as required by the
California Revised Uniform Partnership Act. Fractional Heartland Shares will not
be issued in connection with the delivery of the Distributable Shares, but shall
be added to the Liquidated Shares and the remaining proceeds thereof shall be
distributed among the Partners in accordance with the Agreement and Plan of
Liquidation. The Agreement and Plan of Liquidation shall provide for the
disposition of the Seller's assets, satisfaction of Seller's liabilities and
termination of the existence of Seller for purposes other than the winding-up
and liquidation of Seller. After Seller's receipt of the requisite Partner
approval of the Agreement and Plan of Liquidation, Seller will not engage in any
business activity except as appropriate to wind up and liquidate its business
and affairs. Seller's executive committee ("Executive Committee") shall
establish a record date for the purposes of determining the Partners of Seller
entitled to receive the Distributable Shares or proceeds of the Liquidated
Shares ("Distribution Record Date"). In the discretion of Seller's Executive
Committee, such record date may, but shall not be required to be, the Closing
Date but in no event shall the Distribution Record Date be later than the
Closing Date. Seller's Executive Committee shall also prohibit any transfer of
an interest in Seller from and after the date of this Agreement, and any such
transfer shall be null and void. Any purported transfer of an interest in Seller
shall be immediately reported by Seller to Heartland. Seller shall (i) certify
to Heartland a list of Partners, as shown on Seller's books and records, on each
of the date hereof, the date of the mailing of the Proxy Statement, and the
Closing Date and (ii) shall indemnify and hold Heartland harmless from any
inaccuracies in such lists, subject to the limitations set forth in Article 9
below. Seller's Executive Committee, in its discretion, may also require each
Partner to surrender any evidences of the partnership interests of Seller prior
to receiving any distribution of Acquisition Shares (or the proceeds thereof),
and may establish such procedures for the distribution of the Acquisition Shares
(or proceeds thereof) as it deems necessary and appropriate.
1.5 DISTRIBUTION PROCEDURES. At the time of the mailing of the Proxy
Statement, the Exchange Agent shall mail to each Partner a letter of transmittal
which shall contain instructions regarding each Partner's receipt of their
respective portions of the Distributable Shares. Upon the return of the duly
executed letter of transmittal (the execution of which shall also constitute
such Partner's consent and approval of (i) the sale of
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the LLC Interest pursuant to the terms of this Agreement, (ii) the adoption of
the Agreement and Plan of Liquidation, and (iii) the assignment of the AWS
Claims), each Partner shall be entitled to receive the number of Distributable
Shares equal to such Partner's percentage ownership interest of Seller
multiplied by the number of Distributable Shares, and upon the completion of the
dissolution and winding up of Seller, such Partner's pro rata interest and the
remaining proceeds, if any, of the Liquidated Shares. Until the letter of
transmittal is executed and returned to the Escrow Agent by a Partner and
surrendered as contemplated by this Section 1.5, each Partner's interest in the
Seller shall, at and after the Closing Date, be deemed to represent only the
right to receive such Partner's pro rata interest in the Distributable Shares
and the remaining proceeds, if any, of the Liquidated Shares.
1.6 REGISTRATION OF ACQUISITION SHARES. As soon as practicable after the
execution of this Agreement, Heartland shall file a registration statement on
Form S-4 (the "Registration Statement") with the SEC for the purpose of
registering the Acquisition Shares for either (i) distribution to Seller's
equity owners (with respect to the Distributable Shares) or (ii) distribution to
the Partnership and concurrent reoffering for sale to the public (with respect
to the Liquidated Shares), each pursuant to the Agreement and Plan of
Liquidation. Heartland shall pay all costs of registration and the cost of
obtaining approval from all state and federal regulatory authorities, excluding
attorneys' fees and accounting fees of Seller's counsel and its independent
accountants, and costs and expenses associated with the solicitation of proxies
from Seller's shareholders. Heartland will use reasonable efforts to cause the
Registration Statement to become effective as soon as practicable. Seller shall
cooperate and use its best efforts to supply Heartland with all requisite
information necessary to complete the Registration Statement, including, but not
limited to, information relative to proxy solicitations of the Partners for
approval of the transactions contemplated herein.
1.7 DIVIDENDS; TRANSFER TAXES. Any dividends or other distributions that
are either declared on or after the Closing Date on Heartland Shares or payable
to the holders of record of Heartland Shares on or after the Effective Time will
be paid to the persons entitled to receive such Heartland Shares. In no event
shall the person entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. If any
dividends, cash in lieu of fractional shares or Heartland Shares are to be paid
to or issued in a name other than that of a Partner as indicated on Seller's
books and records, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of Heartland Shares in a name other
than that of the registered Partner or shall establish to the satisfaction of
the Escrow Agent that such tax has been paid or is not applicable.
1.8 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Shares which remain
undistributed to the former Partners of Seller for one year after the Closing
Date shall be delivered to Seller and administered pursuant to the Agreement and
Plan of Liquidation, and any former Partners of Seller who have not theretofore
complied with this Article 1 shall thereafter look only to the Seller for
payment of any liquidating distributions, Distributable Shares and any dividends
or distributions with respect to Heartland Shares.
1.9 FURTHER ASSURANCES. If at any time after the Closing Date Heartland
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in Heartland, its right, title
or interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of Seller, or (b) otherwise to carry out the purposes of
this Agreement, Heartland and its proper officers and directors or their
designees shall be authorized to execute and deliver, in the name and on behalf
of Seller, all such deeds, bills of sale, assignments and assurances and do, in
the name and on behalf of each of such corporations, all such other acts and
things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such corporations and otherwise to carry out
the purposes of this Agreement.
1.10 EXTENSION OF CLOSING DATE. In the event that the Registration
Statement has been declared effective on or before January 31, 1996 but the
Closing hereunder has not occurred, Heartland shall have the right to extend the
Closing Date until March 15, 1996 upon written notice to Seller.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
To induce Heartland to enter into this Agreement, Seller hereby represents
and warrants to Heartland that:
2.1 ORGANIZATION; DOING BUSINESS. Seller is, and at the Closing Time shall
be, a partnership organized under the laws of the State of California. Seller
has conducted no business and owns no assets outside of the State of Minnesota.
2.2 OUTSTANDING RIGHTS. Except as set forth on Schedule 2.2, (a) Seller
owns, free and clear of any liens, the LLC Interest; (b) there are no rights of
first refusal, transfer restrictions (other than restrictions generally imposed
under applicable securities laws) or similar rights or obligations with respect
to the LLC Interest; (c) the LLC Interest represents a 75% interest in the LLC;
and (d) to the Knowledge of Seller, there are no outstanding subscriptions,
options, conversion or exchange rights, commitments or agreements of any
character relating to the LLC or the LLC Interest.
2.3 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Seller and, to the
Knowledge of Seller, the LLC have full power and authority to conduct all of the
business and activities conducted by it (including without limitation the
Business) and to own or lease all of the Assets owned or leased by them. Seller
has full power and authority (subject to the approval of Seller's Partners as
set forth in Section 6.5) to execute and deliver this Agreement and all other
documents required to be executed and delivered by Seller hereunder, to
consummate the transactions hereby contemplated, and to take all other actions
required to be taken by Seller pursuant to the provisions hereof. This Agreement
and all other documents required to be executed and delivered by Seller
hereunder have been duly authorized by all action necessary on the part of
Seller (subject to the approval of Seller's Partners as set forth in Section
6.5) and have been duly or will be duly executed and delivered by Seller and
constitute the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their terms. Neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by Seller hereunder or the consummation of the transactions hereby
contemplated by Seller will (i) conflict with or constitute any violation or
breach of the Partnership Agreement of Seller, (ii) subject to the consent of
AWS to the transfer of the LLC Interest ("AWS Consent"), constitute any
violation or breach of, or give any other Person any rights (including any right
of acceleration, termination or cancellation) under, any Contract, License,
Governmental Permit, or similar document to which Seller is a party or is bound,
either which constitute a portion of the Assets or by which the Assets may be
affected, or (iii) constitute a violation of any Order or Legal Requirement, or
(iv) result in the creation of any Lien on any of the Assets.
2.4 FINANCIAL STATEMENTS. (A) Schedule 2.4 lists the audited financial
statements of Seller as of, and for the period(s) ending December 31, 1994, an
unaudited financial statements of Seller for the period ended June 30, 1995
including the balance sheets and related statements of income and expense
(collectively, the "Financial Statements"). The Financial Statements are in
accordance with the books and records of Seller; are complete and correct;
fairly present the financial position and results of operations of Seller and,
to the Knowledge of Seller, with respect to the Market and the Business, as of
the dates thereof and for the periods referenced therein; are in accordance with
GAAP; and have been delivered to Heartland.
(B) Since the date of the Financial Statements, except as set forth on
Schedule 2.4, (i) Seller has conducted its business (including without
limitation the Business) in the ordinary, regular course thereof; (ii) there has
been no change in the business of Seller or, to the Knowledge of Seller, the
LLC, or in the condition, financial or otherwise, of Seller or, to the Knowledge
of Seller, the LLC, or assets or liabilities reflected in the Financial
Statements which have had a Material Adverse Effect upon the LLC Interest or
Assets; or any damage, destruction or loss, whether or not covered by insurance,
which has had a Material Adverse Effect on the LLC Interest, the Business or the
Assets or which is substantial in amount, or any change in the nature; or in the
condition, of the business of Seller which has had a Material Adverse Effect
upon the LLC Interest or the Assets; or any event, condition or state of facts
or any character whatsoever, the occurrence of which has had a Material Adverse
Effect upon the LLC Interest or the Assets; (iii) except in the ordinary and
regular course of its business, Seller and, to the Knowledge of Seller, the LLC,
have not made any dispositions of any of the LLC Interest, AWS Claims, or
Assets; disposed of any records relating to
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the LLC Interest, AWS Claims, or Assets; borrowed any funds; incurred, assumed
or become subject to any obligation or liability, indebtedness for borrowed
money, absolute or contingent paid; discharged, or satisfied any claim,
liability or obligation, absolute, accrued, contingent or otherwise; cancelled
any debts owed to it or waived any claims or rights of value; granted or
extended any power of attorney; or acted as any guarantor, all with respect to
or as relate to the LLC Interest or Assets; and (iv) Seller and, to the
Knowledge of Seller, the LLC, have not done any act or permitted to be done any
act or admitted any act which has or will cause the breach of any representation
or warranty of Seller set forth in this Agreement.
(C) Seller and, to the Knowledge of Seller, the LLC have no Liabilities,
absolute, contingent or otherwise, direct or indirect, material or immaterial,
asserted or unasserted, attributable to Seller, the LLC, the Business or the
Assets, except as set forth on Schedule 2.4 attached hereto. To the Knowledge of
Seller, there has been no change in the business financial condition, operations
or prospects of the LLC since the date of the most recent Financial Statement
which could have Material Adverse Effect.
2.5 PROPERTY. To the Knowledge of Seller:
(A) Schedule 2.5(a) lists and describes in detail as of the date
thereof all of the Equipment, except small hand tools and similar equipment
which are generally described by category and number.
(B) Schedule 2.5(b) lists all Facilities, designating whether such
Facility is owned or leased, including whether there is no
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site.
(C) The LLC owns and holds good and marketable title to all of the
Equipment and Facilities, except as set forth on Schedules 2.5(c) or 2.7,
and all of such Equipment and Facilities is in good and serviceable
condition; conforms to or complies with all applicable Orders and Legal
Requirements; and constitutes all of the Equipment and Facilities that are
used, usable, held for use in or in conjunction with or otherwise
associated with, required or necessary to the ownership and operation of
the Business.
2.6 RECEIVABLES. To the Knowledge of Seller, all accounts receivable of the
Business are reflected in Schedule 2.6 and represent, and at the Closing Time
will represent, valid obligations arising from sales made in the ordinary and
regular course of the Business. To the Knowledge of Seller, the accounts
receivable are valid receivables that have arisen in the ordinary course of the
operation of the LLC's Business in the Market and are collectible and not
subject to setoff or counterclaim, nor to any agreement to reduce or discount.
2.7 CONTRACTS. (A) Schedule 2.7 is a complete and correct list of all
Contracts to which Seller or, to the Knowledge of Seller, the LLC, is a party or
is otherwise bound other than (i) policies of insurance which are listed in
Schedule 2.9 and (ii) Channel Leases which are listed in Schedule 2.8(a).
(B) Except as set forth on Schedule 2.7, the Seller and, to the Knowledge
of Seller, the LLC, as applicable, have performed in all respects all
obligations required to be performed by it under each of the Contracts. Except
as set forth on Schedule 2.7, to the Knowledge of Seller, all of the Contracts
are legal, valid and binding obligations enforceable in accordance with their
respective terms and in full force and effect and there are no defaults (or
events which, with notice or lapse of time or both, would constitute a default)
by the Seller or, to the Knowledge of Seller, the LLC, as applicable, or any
other party to any such Contract. Except as otherwise set forth in Schedule 2.7,
to the Knowledge of Seller, no default under any of the Contracts will be caused
by the consummation of the transactions contemplated hereby, and Seller and, to
the Knowledge of Seller, the LLC (as applicable), shall have performed and
discharged all obligations due or accrued under each Contract relating to
periods prior to and including the Closing Date. There exists no management or
related agreements between Seller and any of its Affiliates with respect to the
Assets or LLC Interest which would require Heartland to make any payment
whatsoever in the form of management fees or related payments to Seller or its
Affiliates with respect to the LLC Interest, Assets or Business following the
Closing.
(C) To the Knowledge of Seller, each Site Lease and Site Option allows for
the use and operation on the leased property of transmitters, antenna
structures, antennas and other associated facilities and permits the
transmission from the property of signals containing video and audio
programming.
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(D) To the Knowledge of Seller, true, complete and accurate copies of all
Contracts have been delivered to Heartland by Seller.
2.8 FCC MATTERS.
(A) To the Knowledge of Seller, Schedule 2.8(a) is a complete and
correct list of all Channel Leases and, except as set forth on Schedule
2.8(a), (i) the LLC has performed in all respects all obligations required
to be performed by it under each of the Channel Leases; (ii) all of the
Channel Leases are legal, valid and binding obligations enforceable in
accordance with their respective terms and in full force and effect and
there are no defaults (or events which, with notice or lapse of time or
both, would constitute a default) by the LLC, or any other party to any
such Channel Leases; (iii) no default under any of the Channel Leases will
be caused by the consummation of the transactions contemplated hereby; (iv)
Channel Leases set forth in the name of Persons other than the LLC, as
lessee, have been duly and validly assigned with all requisite consents and
approvals of all parties thereto to the LLC, and remain in full force and
effect as if the LLC were the initial "lessee" thereunder; (v) no default
or termination has been threatened in writing under any of the Channel
Leases by any party thereto; and (vi) the Channel Leases comply in all
respects with the Act and the FCC Rules and, each of the Channel Leases,
and all amendments thereto, have been filed with and approved by the FCC.
(B) To the Knowledge of Seller, listed in Schedule 2.8(b) are all of
the Licenses and FCC Permits held or leased by the LLC; all Licenses and
FCC Permits are in the name of the Person set forth in Schedule 2.8(b); all
reports or other documents required to be filed with respect to any such
License have been timely filed; and the Licenses and the FCC Permits listed
on Schedule 2.8(b) attached hereto constitute all of the Authorizations
held or leased by the LLC and are all of the Authorizations used, useable,
held for use in or in conjunction with or otherwise associated with,
required or necessary for the LLC to lawfully conduct its business
operations. Except as otherwise expressly noted on Schedule 2.8(b), to the
Knowledge of Seller, each of the Licenses and the FCC Permits (i) is
currently and validly held by the Person identified as the holder thereof
on Schedule 2.8(b), (ii) authorizes said holder to construct and operate a
facility transmitting video and audio programming on the Channels, (iii)
was validly issued, (iv) is validly existing and in full force and effect,
and (v) is not subject to any conditions other than such conditions as are
generally applicable to licenses and permits issued by the FCC with respect
to ITFS, MDS or MMDS Channels. To Seller's Knowledge, there are no existing
or threatened investigations, inquiries or proceedings by or before the FCC
or other Governmental Entity which could result in the revocation,
cancellation, suspension, forfeiture or material adverse modification of
any Authorization or Application.
(C) To Seller's Knowledge, Schedule 2.8(c) indicates all Applications
and all amendments or other filings thereto. To Seller's Knowledge, the
information contained in each Application is materially true and correct,
and each Person which is a signatory to an Application is authorized under
FCC rules to file such Application.
(D) Except as otherwise expressly noted on Schedule 2.8(d), Seller
and, to Seller's Knowledge, the LLC, AWS, the FCC Licensees and the FCC
Permittees have each timely submitted to the FCC, the FAA and all other
Governmental Authorities all notices, reports and other documents which
have been or are required by the Act, the FCC Rules, the FAA Rules and
other Legal Requirements, the Licenses and the FCC Permits except where the
failure to do so would not (i) have a Material Adverse Effect, (ii) hinder
the LLC's ability to fully perform its material obligations under this
Agreement. Except as otherwise expressly noted on Schedule 2.8(d), to the
Knowledge of Seller, no petitions to deny or informal objections have been
filed against any of the amendments listed on Schedule 2.8(c). True,
complete and accurate copies of all amendments, notices, reports and other
documents filed, to Seller's Knowledge, by the LLC, AWS, the FCC Licensees
and the FCC Permittees with respect to the Licenses and the FCC Permits
with the FCC, the FAA, the Copyright Office and other Governmental
Authorities have been delivered to Heartland.
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2.9 INSURANCE. Schedule 2.9 is a complete and correct list and brief
description of all insurance policies held by the Seller or to Seller's
Knowledge, the LLC, related to the LLC Interest or the Assets, each of which are
in full force and effect.
2.10 LITIGATION. Except as set forth in Schedule 2.10, there is no
Proceeding pending, or to Seller's Knowledge threatened, against Seller or the
LLC relating to the LLC Interest or the Assets or the propriety or validity of
the transactions contemplated hereby. Except as set forth in said Schedule 2.10,
neither Seller nor, to the Knowledge of Seller, the LLC, is subject to or in
default under or with respect to any Order. There are no judgments of any court
which in any way may currently constitute the lien or at some future time may be
perfected into a lien upon or against the LLC Interest or any portion of the
Assets, and, there is no Proceeding pending or threatened against, relating to
or affecting the LLC Interest or any portion of the Assets.
2.11 GOVERNMENTAL PERMITS. Seller, or, to the Knowledge of Seller, the LLC,
owns, holds or possesses all Governmental Permits which are necessary to entitle
it to own or lease, operate and use its Assets and to carry on and conduct its
business as currently conducted except with respect to Applications for which
Licenses have not been granted, if any.
2.12 COMPLIANCE WITH LAWS. Seller and, to the Knowledge of Seller, the LLC,
have complied in all respects with all applicable Legal Requirements and Orders
of any Governmental Authority having jurisdiction over it or its operations,
including, but not limited to, all FCC Rules and any laws (including
Environmental Laws), rules or regulations regulating, if applicable, zoning,
fair and equal employment practices, the safety of the workplace, the discharge
of materials into the Environment or otherwise relating to the protection of the
Environment, antitrust, antimonopoly or anticompetitive activities, wages,
hours, collective bargaining and the payment of withholding and social security
taxes. There are no Orders outstanding or in effect against or relating to
Seller, the LLC, the Assets, the transactions contemplated by this Agreement, or
to any of the Channel Leases, other than Orders issued with respect to the
wireless cable industry generally and in the normal course of regulation, which
could, individually or in the aggregate, (i) have a Material Adverse Effect,
(ii) hinder Seller's ability to fully perform its material obligations under
this Agreement, or (iii) eliminate or materially diminish the benefits of this
Agreement for Heartland. Seller has not received any notice (written or
otherwise) from any Person to the effect that, or otherwise been advised that,
Seller or the LLC is not in compliance with any applicable law, ordinance,
regulation, building or zoning law relating to the Assets or the Business and
Seller has no reason to anticipate that any presently existing circumstances are
likely to result in a violation of any such law, statute, ordinance or
regulation.
2.13 ENVIRONMENTAL MATTERS. (A) Neither Seller nor, to the Knowledge of
Seller, the LLC, has used, generated, manufactured, refined, transported,
treated, stored, leaked, poured, emitted, emptied, released, discharged,
disposed, spilled or handled Hazardous Substances in material violation of any
Environmental Law with respect to the property under Seller's or the LLC's
control at any Facility.
(B) Seller has no Knowledge of any prior owner, occupant, tenant or user of
any Facility that has ever used, generated, manufactured, refined, transported,
treated, stored, leached, leaked, poured, emitted, emptied, released,
discharged, disposed, spilled or handled Hazardous Substances in material
violation of any Environmental Law, at, on or from the property under Seller's
or the LLC's control at any Facility.
(C) Seller has not received notice of any pending or threatened Proceeding,
Order or citizen suit instituted by any private party, employee or Governmental
Authority arising out of the conduct or the operations of its business, in
connection with Environmental Laws, or as a result of any Environmental
Condition relating to the property under Seller's or the LLC's control at any
Facility.
2.14 INTELLECTUAL PROPERTY. Schedule 2.14 is a complete and correct list of
all Intellectual Property owned or used by the LLC in the Business. To the
Knowledge of Seller, no person has any right to receive any royalty or similar
payment arising from the Intellectual Property. Except as set forth on said
Schedule 2.14, to the Knowledge of Seller, the LLC owns each of said properties;
has not granted to any other Person any interest in any of said properties, as
licensee or otherwise; and has filed all certificates, affidavits and other
documents, and taken all other actions, necessary to retain its title to said
properties and to keep the same in effect. None of said properties is invalid
and none infringes upon the personal or property rights of any third party.
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2.15 TAXES AND FEES. Seller and, to the Knowledge of Seller, the LLC have
each timely filed all Federal, state and local Tax returns required to be filed
by Seller or the LLC. Seller and, to the Knowledge of Seller, the LLC have each
paid and shall pay all Taxes due and payable for all periods ending prior to the
Closing Date.
2.16 LIENS. Except as set forth on Schedule 2.16, the Seller has good,
marketable and valid title to the LLC Interest, and, to the Knowledge of Seller,
LLC has good, valid and marketable title to all of its Assets, each free and
clear of all Liens, except for the lien, if any, of current Taxes not yet due
and payable.
2.17 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, Seller and, to Seller's Knowledge, the LLC, the FCC
Licensees and the FCC Permittees are in material compliance with, and not in
default under or in violation of, the Act, the FCC Rules, the FAA Rules, the
Copyright Act, the Copyright Rules and other Legal Requirements applicable to
the Licenses or FCC Permits. Except as otherwise expressly noted on the
Schedules attached hereto, Seller has no Knowledge and has received no notice of
noncompliance with, default under or violation of the Act, the FCC Rules, the
FAA Rules, the Copyright Act, the Copyright Rules, other Legal Requirements and
the applicable Licenses or FCC Permits. No condition exists or event has
occurred with respect to Seller and, to Seller's Knowledge, the LLC, the
Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which, in
itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a violation of the Act, any FCC Rule, any FAA Rule, the
Copyright Act or the Copyright Rules, (ii) constitute a default in the due
performance and observation of any term, covenant or condition of any of the
Licenses or FCC Permits, (iii) result in a forfeiture, the denial, dismissal or
rejection of any of the Schedule 2.8(c) or 2.8(d) amendments, or the suspension,
termination, revocation, material impairment, material adverse modification or
nonrenewal of any License or FCC Permit, or (iv) adversely affect any of the
material rights of Seller, the LLC, any FCC Licensee or FCC Permittee under any
of the Licenses or FCC Permits.
2.18 INTERFERENCE. Neither Seller, nor, to Seller's Knowledge, the LLC or
any party to a Channel Lease, has accepted the electrical interference to the
Channels from any source, has consented to the grant of any application involved
with the FCC that is likely to result in any electrical interference to the
Channels, or has failed to timely petition to deny any application that proposes
facilities that could reasonably be anticipated to cause objectionable
electrical interference to the Channels. Except as otherwise expressly noted on
Schedule 2.18 attached hereto, neither Seller, nor, to Seller's Knowledge, the
LLC, any FCC Licensee or FCC Permittee or any other party to a Channel Lease, is
likely to experience interference which will adversely impact operation of the
Facilities it has constructed and/or operated, or is constructing once such
Facilities are constructed and operated, or is likely to create interference
which will adversely impact the operation of other facilities licensed by the
FCC to other Persons; for purposes of this Section 2.18, interference shall be
deemed to exist if within an FCC Licensee's protected service area, the ratio of
the desired signal to the undesired signal, at the antenna input terminals of
the affected receiver, is less than 45 dB.
2.19 EMPLOYEES; BENEFIT PLANS. The employees listed on Schedule 2.19 are
the LLC's or Seller's only employees associated with the Market. Except as set
forth on Schedule 2.19 hereof, neither Seller nor, to the Knowledge of Seller,
the LLC has or has had any bonus, deferred compensation, incentive compensation,
severance or termination pay, hospitalization or other medical, stock purchase,
stock option, pension, life or other insurance, profit sharing or retirement
plan, agreement or arrangement, or other employee benefit plan or arrangement,
whether formal or informal, and whether legally binding or not, maintained or
contributed to by Seller ("Benefit Plan"). Neither Seller nor the LLC has been a
party to a "multiemployer plan" as that term is defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended. With respect to the
Benefit Plans listed on Schedule 2.19 hereof, (i) all payments due from Seller
or the LLC to date for the employees with respect to such Plans have been made
and all amounts properly accrued to date as Liabilities of Seller or the LLC are
set forth on Schedule 2.19 hereof; and (ii) all reports and information relating
to such Plan required to be filed with any governmental entity have been filed.
Seller has not (i) experienced any material labor disputes or work stoppages, or
(ii) received any notice that there is any unfair labor practice, charge or
complaint pending or threatened, except as is already set out herein.
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2.20 FINDER'S FEES. Neither Seller nor, to the Knowledge of Seller, the LLC
has taken any action which would impose upon Heartland any obligation or
liability to any person for finder's fees, agent's commissions or like payments
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.21 PROGRAMMING AGREEMENTS. Schedule 2.21 sets forth a true and complete
list of all agreements for programming and for each programming agreement (i)
the name of the programmer, (ii) the programming service, (iii) the rate, and
all factors that affect rate changes through the end of the term of such
agreement, (iv) the term and any rights for early termination or extensions of
the term of any party thereof, (v) any renegotiation rights, (vi) the relevant
channels, and (vii) any provisions relating to advertising.
2.22 FURTHER REPRESENTATION. No representation or warranty of Seller
contained in this Agreement contains or will contain any untrue statement or
will admit to or state a material fact necessary in order to make the statements
made herein, in light of the circumstances under which they are made, not
misleading. All books, statements, documents, schedules and records furnished or
given by it to Heartland or its agents during the negotiation of or preparatory
to the execution of this Agreement or the consummation of the transactions
contemplated hereby, are true, complete and genuine and contain no material
misrepresentations or omissions of material facts.
2.23 CERTAIN ACTIVITIES. Neither Seller nor, to the Knowledge of Seller,
the LLC engages in any business other than the Wireless Cable Business in the
Market. The LLC Interest, the AWS Claims and the Excluded Assets are the only
assets of Seller.
2.24 PARTNERSHIP BOOKS AND RECORDS. Schedule 2.24 contains a true and
correct list of each Partner of Seller, indicating the percentage interest owned
by each such person. Under the applicable provisions of Seller's Partnership
Agreement and applicable law, the vote of a majority of the general partnership
interest in Seller is required to approve and adopt the Agreement and the
transactions contemplated hereby.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND.
Heartland hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION AND GOOD STANDING. Heartland is a Delaware corporation
duly organized, validly existing and in good standing under the laws of
Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has the
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.8 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 6.8 and 7.1) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement or any of the documents required to
be executed and delivered by Heartland hereunder or the consummation of the
transactions hereby contemplated by Heartland conflict with or constitute any
violation or breach of the Certificate of Incorporation or the Bylaws of
Heartland.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby.
3.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents (if any), or the filing of the Registration Statement, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Authority is required on behalf of Heartland in
connection with the
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execution, delivery or performance of this Agreement and all documents
contemplated hereby or the transactions contemplated hereby.
3.5 CAPITALIZATION. Heartland is authorized to issue 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 of preferred stock, par
value $.01 per share. As of the date hereof, 12,476,393 shares of Heartland
common stock are issued and outstanding and no shares of preferred stock have
been issued. The Acquisition Shares to be issued pursuant to this Agreement will
be, upon issuance, validly issued, fully paid and non-assessable.
3.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the date thereof and for
the periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to Seller copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three (3) month periods ended March 31, 1995 and June 30, 1995, (iii)
its Form S-3 Registration Statement (33-94838) declared effective by the SEC on
August 4, 1995 and (iv) all Form 8-Ks filed with the SEC after June 30, 1995 and
prior to the date of this Agreement ("Heartland SEC Filings"). Each such filing
was timely filed with the SEC, and did not contain any misstatement of material
fact or an omission of a material fact required to be stated therein necessary
to make the statements therein not misleading as of the time such document was
filed. Heartland has filed all documents required to be filed with the SEC. As
of their respective dates, such reports complied in all material respects with
the applicable requirements of the Securities Exchange Act of 1934, as amended.
ARTICLE 4. COVENANTS OF SELLER.
Seller hereby agrees to perform as follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. From the date hereof through the
Closing Date:
(A) Seller shall not, and shall not cause the LLC to, engage in any
practice, take any action or enter into any transaction other than in the
customary and ordinary course of business without the consent of Heartland.
(B) Seller will use its best efforts to keep the business, properties
and business relationships substantially intact.
(C) Seller will, and will use its best efforts to cause the LLC to,
(a) pay and perform all of its debts, liabilities and obligations as and
when due, except to the extent being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been
established, (b) perform its material obligations under all Authorizations
and Contracts, and (c) comply in all material respects with all
Governmental Rules.
(D) Seller agrees that (i) Seller will not take any action, and will
endeavor in good faith not to permit any event to occur, which would cause
or constitute a material breach of this Agreement; (ii) Seller will, in the
event of, and promptly after the occurrence of, or promptly after becoming
aware of the occurrence of or the impending or threatened occurrence of,
any event which would cause or constitute a material breach or would, if it
had occurred immediately prior to the date hereof, have caused or
constituted a material breach of any of the representations and warranties
set forth in said Article 2, give notice thereof to Heartland; and (iii)
Seller shall use its best efforts to prevent or promptly to remedy such
breach.
(E) Seller will use its best efforts to, and to cause the LLC to,
preserve, protect and maintain their rights and interests in the Channel
Leases, FCC Licenses, and Contracts, including, but not limited to, filing
or having licensees or permittees file with the FCC any and all reports,
applications or other documents necessary to preserve the FCC Licenses in
full force and effect.
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(F) Seller shall not, and shall not cause the LLC to, enter into,
amend or terminate, or agree to enter into, amend, except to comply with
this Agreement, or terminate any Channel Lease, License, Permit,
Application or Contract.
(G) Seller shall not, and shall not cause the LLC to, make any
distributions to Seller, AWS or any Partners, as applicable, nor shall
Seller issue or cause the LLC to issue, sell or agree to sell any equity
interests or options or rights with respect thereto.
(H) Seller shall not, and shall not cause the LLC to, sell, lease,
transfer or otherwise dispose of any assets of Seller or the LLC, as
applicable, except as provided for by, or contemplated in, this Agreement.
(I) Seller shall not, and shall not cause the LLC to, increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of its managers, officers or employees,
pay bonuses to any such manager, officer or employee, nor shall Seller pay
any salaries except in the ordinary course of business.
(J) Seller shall not grant or transfer any rights to the LLC Interest
or AWS Claims.
(K) Seller shall not take any actions which would cause the
transactions contemplated hereby to be subject to Subpart 900 of Regulation
S-K, promulgated under the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Roll-up Rules").
4.2 CONSENTS. Except as otherwise provided herein, Seller shall obtain or
cause to be made, all consents, governmental authorizations, approvals and
filings as may be necessary by virtue of the transaction contemplated by this
Agreement on or before the Closing Date, so as to ensure that the LLC will
continue to enjoy all of the rights and privileges currently under each of the
Channel Leases, Licenses and Contracts. Upon request of Heartland, Seller shall
assist Heartland to obtain from each of the other respective parties to each of
such Channel Leases and Material Contracts estoppel certificates certifying that
neither Seller nor the LLC is in breach or violation of or in default under any
of such Channel Leases or Contracts and that it would not be by virtue of the
transactions contemplated hereby. Seller shall seek any appropriate amendments,
modifications or changes to each of such Channel Leases and Contracts held in
the name of Seller or under which Seller is to receive notices of default so as
to ensure that the licensees, permittees or other parties thereto notify
Heartland directly in the event of a breach or violation of or default under any
such Channel Lease or Contract. In addition to the foregoing, Seller shall
obtain a written consent from AWS consenting to the transfer of the LLC Interest
to Heartland, admitting Heartland as a member in the LLC, and acknowledging that
such transfer will not cause a dissolution of the LLC.
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. Seller shall, and shall use
its best efforts to cause the LLC to:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to the LLC remain in full
force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's Rules or policies of general applicability. After the
applications are filed for FCC consent to the transfer of control of the
FCC Licenses for said Channels to Heartland or an affiliate of Heartland,
Seller shall file, at the request of and as an accommodation to Heartland,
such applications for modification of their outstanding construction
permits or licenses to implement the purposes contemplated hereunder.
Seller shall utilize its best efforts to diligently and properly prosecute
in good faith all applications, reports and submissions submitted in
accordance with this Section 4.3.
(B) assure that the licensees or permittees under the Channel Leases
timely file all applications reports, and other submissions in such form
and with such information as may be required by the FCC, including, but not
limited to, renewal applications, applications for extensions of time to
complete construction and Annual FCC Reports, to assure that such FCC
Licenses remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
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modification result from changes in the FCC's rules or policies of general
applicability. Seller shall, and shall use its best efforts to cause the
LLC to, use its best efforts to assure that the licensees or permittees
under the Channel Leases diligently prosecute in good faith all such
applications, reports and submissions. Seller shall promptly disclose to
Heartland any information it receives regarding any condition or
circumstance that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. From and after the date hereof, Seller will not, and
will not authorize or permit any of its Executive Committee members, officers,
managers, employees, agents and other representatives (collectively, "Seller
Representatives") to solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to, an Acquisition Proposal
(as defined herein) from any person, or engage in any discussion or negotiations
relating thereto or accept any Acquisition Proposal. Seller shall immediately
cease and cause to be terminated any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any parties conducted
heretofore by Seller or any Seller Representatives with respect to any of the
foregoing. Seller will promptly notify Heartland of any such discussion or
negotiations, requests for such information or the receipt of any Acquisition
Proposal, including the identity of the person or group engaging in such
discussions or negotiations, requesting such information or making such
Acquisition Proposal and the material terms and conditions of any Acquisition
Proposal. As used in this Agreement "Acquisition Proposal" shall mean any
proposal or offer, other than a proposal or offer by Heartland or any of its
Affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving Seller or the LLC or any proposal to acquire in
any manner a substantial equity interest in, a substantial portion of the assets
of, or any rights to any Channels or Licenses of, Seller or the LLC.
Notwithstanding the foregoing and subject to Heartland's rights set forth in
Section 5.11, nothing in this Section 4.4 shall prohibit the Executive Committee
of Seller from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal to acquire Seller pursuant to a merger, consolidation, exchange,
purchase of a substantial portion of the assets, business combination or some
other transaction, if, and only to the extent that (A) the Executive Committee
determines in good faith that such action is required for the Executive
Committee to comply with its fiduciary duty to its Partners, (B) prior to
furnishing such information to, or entering into discussions with or
negotiations with, such person or entity, Seller provides written notice to
Heartland to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) Seller keeps
buyer informed, on a current basis, of the status of any such discussions or
negotiations; and (ii) in complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. Seller will use reasonable
efforts to cause a person provided proprietary information in accordance with
the foregoing to enter into a confidentiality agreement.
4.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, Seller will have audits conducted and completed so that Seller can
provide audited financial statements of Seller as of, and for the period ending,
December 31, 1994, including the balance sheets and related statements of income
and expense and any subsequent proceeds required by Regulation S-K promulgated
under the Securities Act.
ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS AND PARTNERS MEETING. Heartland shall take all action
necessary in accordance with applicable law and in accordance with its
certificate of incorporation and bylaws to convene a meeting of its stockholders
promptly after the Registration Statement is declared effective by the SEC to
consider and vote upon the approval of this Agreement. Seller shall take all
action necessary in accordance with applicable law and its partnership agreement
to convene a meeting of its Partners promptly after the Registration Statement
is declared effective by the SEC to consider and vote upon the approval of this
Agreement. Seller and Heartland each, through its Executive Committee or board
of directors, as applicable, shall recommend to its partners or stockholders
(and, if applicable, its lenders) approval of this Agreement and shall use
reasonable efforts to obtain approval and adoption of this Agreement by such
partners, stockholders and lenders. Seller acknowledges that the consummation of
the transactions contemplated by this Agreement by Heartland
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requires (and therefore is subject to) the approval of certain lenders of
Heartland, and Heartland agrees to seek to obtain the written approval of such
lenders on or before December 1, 1995.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as
practicable the Registration Statement containing a proxy
statement/prospectus in connection with the registration under the
Securities Act of the Heartland Shares issuable pursuant to the terms of
this Agreement, a portion of which shall also serve as the joint proxy
statement/prospectus with respect to the meetings of the stockholders of
Heartland and partners of Seller to approve the Acquisition, and shall use
all reasonable efforts to have the Registration Statement declared
effective by the SEC as soon as practicable. Heartland shall also take any
action required to be taken under blue sky or securities laws in connection
with the Heartland Shares prior to the Closing. Seller shall furnish
Heartland all information concerning Seller and the holders of its equity
interests required for use in the Registration Statement, and Seller shall
take such other actions as Heartland may reasonably request in connection
with the preparation of such Registration Statement and the actions to be
taken by Seller pursuant to this Section 5.2. None of the information
furnished by or on behalf of Seller for use in the Registration Statement
shall contain any material misstatement of fact or omit to state a material
fact or any fact necessary to make the statements contained therein not
misleading.
(B) Seller shall prepare and file with the SEC as soon as practicable
a proxy statement that will be the same proxy statement/prospectus
contained in the Registration Statement and a form of proxy, in connection
with the vote of Seller's partners with respect to the consummation of the
transactions set forth in this Agreement (such proxy statement/prospectus,
together with any amendments thereof or supplements thereto, in any case in
the form or forms mailed to Seller's partners, is herein called the "Proxy
Statement"). Heartland shall furnish Seller all information concerning
Heartland required for use in the Proxy Statement, and Heartland shall take
such other action as Seller may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by or
on behalf of Heartland for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
5.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours be permitted reasonable access to the Facilities and
Seller's principal offices, will be permitted to make copies of or abstracts
from all of the books and records, financial and operating data and other
information of Seller and will be permitted to discuss the affairs, and accounts
of Seller with the Executive Committee, AWS, manager, officers, employees,
counsel, and accountants of Seller. Such investigation shall not, however,
affect the representations and warranties of Seller set forth in Article 2
hereof. In the event the transactions contemplated hereby should not close for
any reason, Heartland agrees that it will promptly return to Seller all such
documents (including copies thereof) furnished by Seller to Heartland and its
representatives and Heartland shall hold in confidence and shall not use or
disclose to any third party any information concerning Seller obtained from such
documents or otherwise in connection with the transactions contemplated by this
Agreement unless (a) such information (i) previously disclosed to Heartland by
AWS prior to the date hereof, (ii) subsequently disclosed to Heartland by AWS in
connection with the preparation of the Merger Agreement, or (iii) was at the
time of its use or disclosure to any third party by Heartland in the public
domain other than as a result of any breach of this provision by Heartland or
(b) such disclosure is required by law; provided that notwithstanding the
termination of this Agreement, Heartland shall have the right to use or disclose
any information delivered by Seller to Heartland hereunder in connection with
the Merger Agreement and any registration statement relating thereto.
5.4 COMPLIANCE WITH THE SECURITIES ACT. Seller has caused to be prepared
and delivered to Heartland a list identifying all persons who, as of the date
hereof, may be deemed to be "Affiliates" of Seller as that term is defined under
Paragraphs (c) and (d) of Rule 145 of the Securities Act ("Rule 145
Affiliates"), and prior to the Closing Date, Seller shall cause to be prepared
and delivered to Heartland an updated list (reasonably
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satisfactory to counsel for Heartland) identifying all persons who at the time
of Seller's partner meeting may be deemed to be a Rule 145 Affiliate. Seller
shall use all reasonable efforts to cause each person who is identified as a
Rule 145 Affiliate in such list to delivered to Heartland on or prior to the
Closing Date a written agreement, in the form attached hereto as Exhibit 5.4,
that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise
dispose of any Distributable Shares issued to such Rule 145 Affiliate pursuant
to this Agreement, except pursuant to an effective Registration Statement or in
compliance with Rule 145 or an exemption from the registration requirements of
the Securities Act.
5.5 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Acquisition and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity, (b) the obtaining of all necessary
consents, approvals or waivers from third parties, (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed, (d) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement and (e) not to take, commit, or
agree in writing or otherwise to take, any action which would make any
representation or warranty of such party contained in this Agreement untrue or
incorrect in any material respect as of the date when made or as of a future
date.
5.6 PUBLIC ANNOUNCEMENTS. Heartland and Seller will consult with each other
before issuing any press release with respect to the transactions contemplated
by this Agreement, and shall not issue any such press release prior to such
consultation, unless otherwise required under applicable law.
5.7 NOTIFICATION OF CERTAIN MATTERS. Seller shall give Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement and prior to the Effective
Time under any note, license, agreement or other instrument or obligation, (ii)
any Material Adverse Effect or the occurrence of any event which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect on such party, or (iii) Seller's receipt
of any written notice or other written communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
5.8 LETTERS OF SELLER'S ACCOUNTANTS. Seller shall cause to be delivered to
Heartland a letter ("Accountant's Consent Letter") from the accountants engaged
pursuant to Section 4.5, dated a date within two business days before the date
on which the Registration Statement shall become effective and addressed to
Heartland, in form and substance reasonably satisfactory to Heartland and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
5.9 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and will use their respective best efforts
to obtain an early termination of the applicable waiting period, and will make
any further filings pursuant thereto that may be necessary, proper, or
advisable.
5.10 EMPLOYEES. From and after the date hereof through the Closing Date or
earlier termination of this Agreement, Heartland shall have the right to contact
any employees of Seller and/or the LLC regarding the potential employment of
such persons following the Closing Date. Any such employees hired by Heartland
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shall be considered newly hired and Heartland shall not be responsible for any
benefits to such employees arising prior to the Closing Date.
5.11 RIGHT OF FIRST REFUSAL. Notwithstanding any other provisions of this
Agreement to the contrary (including, without limitation, Section 4.4), Seller
hereby grants to Heartland a right of first refusal ("Right of First Refusal")
to purchase or otherwise acquire the LLC Interest upon the receipt of an offer
therefor, determined by the Executive Committee to be bona fide and that the
Executive Committee intends to accept ("Qualifying Offer"), upon the terms set
forth for this Section 5.11. Upon the Executive Committee's receipt of a
Qualifying Offer, the terms of such Qualifying Offer shall be delivered to
Heartland in a written notice ("Offer Notice") which shall contain a copy of any
written Qualifying Offer or a summary of the material terms of any oral
Qualifying Offer. Heartland shall have a period of ten (10) business days from
its receipt of an Offer Notice to exercise its Right of First Refusal by written
notice to Seller of such election ("Election Notice"). If Heartland so elects to
exercise the Right of First Refusal, Heartland shall then proceed to consummate
the Qualifying Offer in accordance with the terms described in the Offer Notice;
provided that (a) in the event the consent of Heartland's shareholders or
lenders is required, Heartland shall have a period of thirty (30) days to obtain
such consents, (b) in the event that consent of any other third party (such as
the FCC or a License holder) is required, Seller shall be responsible for, and
Heartland shall cooperate in, obtaining such consent, and (c) any proposed
closing of a transaction described in a Qualifying Offer shall occur no earlier
than (i) twenty (20) days after Heartland's delivery of the Election Notice or
(ii) twenty (20) days from the date of Heartland's receipt of any consent
referred to in clause (b) or (c) above, whichever is later. In the event that
Heartland fails to deliver to Seller an Election Notice within the time period
specified herein or (ii) fails to obtain any consent referred to in clause (a)
of the preceding sentence within the time period specified therein, then Seller
may consummate the transaction described in the Offer Notice upon the terms and
conditions described to Heartland in the Offer Notice, and upon the consummation
of the transaction described in the Offer Notice, Heartland's rights hereunder
shall terminate; provided that Heartland's rights hereunder shall not terminate
upon the consummation of any transaction described in the Offer Notice with an
Affiliate of Seller. In the event any terms and conditions of the Transaction
described in the Offer Notice deviate or are subsequently modified in any
material aspect from the terms described to Heartland in the Offer Notice, then
Seller shall resubmit the Offer Notice to Heartland as if a new Qualifying Offer
had been receive. In the event Heartland elects to exercise its Right of First
Refusal and consummates the transaction described in the Offer Notice, then this
Agreement shall terminate and the parties shall have no further rights or
obligations hereunder. Heartland's right of first refusal granted in this
Section 5.11 shall continue so long as Seller (or any Affiliate of Seller) owns
the LLC Interest.
5.12 EXHIBITS. Heartland and Seller agree that any Exhibits not attached
hereto on the date hereof shall be prepared and attached on or before December
1, 1995, and agree to cooperate and negotiate in good faith in the preparation
of such Exhibits.
5.13 HEARTLAND LOAN. Concurrently with the execution hereof, Heartland and
the LLC have executed that certain Loan Agreement, pursuant to which Heartland
will loan (i) to the LLC approximately $575,000, which indebtedness shall be
evidenced by a promissory note ("Primary Note"), the proceeds of which shall be
used to repay certain indebtedness of the LLC to Tsunami Capital Corporation,
and (ii) to the LLC up to $1,000,000.00, which indebtedness shall be evidenced
by a promissory note ("Subscriber Note"), the proceeds of which ("Restricted
Proceeds") shall be used solely for the following purposes: (A) up to $100,000
of the Restricted Proceeds may be used to fund operating deficits of the LLC
attributable to periods from and after the date hereof, and (B) the remainder of
such Restricted Proceeds shall be used to purchase broadcast transmission
equipment or receive-site equipment or pay labor costs associated with the
installation thereof. Upon the written request of Heartland, Seller shall, or
shall cause the LLC to, furnish written evidence reasonably satisfactory to
Heartland that such Restricted Proceeds were used in accordance with the
provisions of this Section 5.13, which evidence shall include copies of third
party receipts and invoices and evidence of the payment thereof.
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5.14 DELIVERY OF SCHEDULES AND OTHER ITEMS. Notwithstanding any statements
contained herein to the contrary, Seller shall deliver to Heartland all
schedules and documents stated to have been delivered herein on or before
November 7, 1995.
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION.
The obligation of the parties hereto to consummate the Acquisition is
subject to the fulfillment, or written waiver signed by all parties hereto, of
each of the following conditions precedent on or prior to the Closing Date or
the date specified therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
6.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the acquisition or the transactions contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Closing Date with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing Date from any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Seller and Heartland shall have been made or obtained (as the case may
be) without restrictions.
6.4 FAIRNESS OPINIONS. Intentionally omitted.
6.5 PARTNER APPROVAL. The sale of the LLC Interest, the Partner's release
or assignment of the AWS Claims, the Agreement and Plan of Liquidation and all
other transactions contemplated hereunder shall have been approved by the
Partners holding two-thirds ( 2/3) of the outstanding equity and voting interest
of Seller.
6.6 APPLICABILITY OF THE ROLL-UP RULES. Heartland and Seller shall not be
required to comply with the Roll-up Rules in consummating the Acquisition in
accordance with the terms of this Agreement.
6.7 CLOSING SHARE PRICE. The Closing Share Price shall not be less than
$17.00 per Heartland Share.
6.8 INTENTIONALLY OMITTED.
6.9 EXHIBITS. On or before December 29, 1995, Heartland and Seller shall
have agreed upon the form of each Exhibit to this Agreement and each such
Exhibit shall be attached hereto.
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.
The obligations of Heartland to consummate the Acquisition are subject to
the fulfillment, or written waiver signed by Heartland, of each of the following
conditions precedent on or prior to the Closing Date.
7.1 STOCKHOLDER AND OTHER APPROVAL. The Acquisition shall have been
approved by the requisite votes of the holders of Heartland Shares in accordance
with applicable law and its Certificate of Incorporation and Bylaws.
7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Seller shall be true and correct in all material respects when
made and shall be true and correct in all material respects as if initially made
on and as of the Closing Date.
7.3 SELLER'S DOCUMENTS. Seller shall have delivered the following to
Heartland in form and substance satisfactory to Heartland and its counsel:
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(A) A certificate signed by an authorized member of Seller's Executive
Committee confirming, on and as of the Closing Date, that each
representation and warranty set forth in Section 2 hereof was true and
correct in all material respects on the date made and is true and correct
in all material respects on and as of the Closing Date and that Seller is
in compliance with the applicable covenants set forth in Articles 4 and 5
hereof.
(B) Evidence that Channel Leases are in place for the Channels and
that such agreements shall be effective and fully enforceable.
(C) An opinion of special counsel to Seller in the form attached
hereto as Exhibit 7.3(c).
(D) The partnership records, list of Partners, minute books, operating
agreements and organization documents of Seller.
(E) All necessary and appropriate governmental and third party
consents, approvals and clearances for consummation of the transactions
contemplated herein, including, but not limited to, receipt of the AWS
Consent and a "final" order by the FCC approving, without any materially
adverse or onerous conditions, Heartland (or a commonly owned entity) as
licensee of the owned FCC Licenses. For purposes of this Section, the term
"final" shall mean an order of the FCC which has not been stayed and, by
lapse of time or otherwise, is no longer subject to administrative or
judicial reconsideration, review, appeal or stay.
(F) An Assignment of LLC Interest in the form attached hereto as
Exhibit 7.3(f)-1 and an Assignment of AWS Claims in the form of Exhibit
7.3(f)-2.
(G) The Dispute Resolution Agreement.
7.4 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
been declared effective by the SEC in accordance with the Securities Act and the
rules and regulations promulgated thereunder.
7.5 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred with respect to Seller, the LLC, the LLC Interest or Assets, or
prospects of any thereof from the date hereof through the Closing Date.
7.6 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF SELLER. Each of the
conditions precedent to the obligations of Seller set forth in Article 6 or 8
shall have been satisfied or waived by Seller.
7.7 SELLER'S OBLIGATIONS PERFORMED. All obligations of Seller to be
performed to the Closing Date shall have been performed in all material
respects.
7.8 CONSUMMATION OF MERGER AGREEMENT. The Merger Agreement between Merger
Sub, Heartland and AWS shall have been consummated.
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to consummate the Acquisition is subject to
fulfillment, or written waiver signed by Seller, of each of the following
conditions precedent on or prior to the Closing Date.
8.1 PARTNER APPROVAL. The Acquisition shall have been approved by the
requisite votes (but in no event less than a two-thirds ( 2/3) vote) of Seller's
Partners in accordance with applicable law and its partnership agreement and/or
other organizational documents.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
8.3 HEARTLAND DOCUMENTS. Heartland shall have executed and delivered to
Seller in form and substance satisfactory to Seller and its counsel:
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(A) A certificate of an executive officer of Heartland confirming, on
and as of the Closing Date, that each of the representations and warranties
set forth in Section 3 hereof was true and correct in all material respects
on the date made and is true and correct in all material respects on and as
of the Closing Date.
(B) An opinion of counsel to Heartland addressed to Seller in the form
attached hereto as Exhibit 8.3.
(C) The Exchange Agreement, executed by Heartland and the Exchange
Agent.
(D) The Dispute Resolution Agreement.
8.4 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF HEARTLAND. The
conditions precedent to the obligations of Heartland set forth in Article 7
shall have been satisfied or otherwise waived by Heartland.
8.5 HEARTLAND OBLIGATIONS PERFORMED. All obligations of Heartland to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.6 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the proxy statement to be
amended or supplemented under applicable securities laws.
ARTICLE 9. CERTAIN CLAIMS.
9.1 PRE-CLOSING CLAIMS. In the event that Heartland reasonably believes, at
any time on or prior to the Closing Date, that (i) any representation or
warranty of Seller hereunder is not true as of the date hereof, or (ii) any
representation or warranty of Seller will not be true, or any covenant or
obligation of Seller hereunder will not be performed, on or prior to the Closing
Date, then Heartland shall deliver to Seller written notice of such matter(s)
("Claim Notice") describing in detail the nature of the alleged or anticipated
breach or default under this Agreement and the amount of the damages reasonably
anticipated to be suffered by Heartland as the result of such breach or default.
Upon Seller's receipt of a Claim Notice, Seller may, at any time prior to the
Closing Date, either (a) acknowledge in writing the breach or default by Seller
hereunder and agree to the amount of damages specified in the Claim Notice, (b)
negotiate with Heartland to resolve the matters set forth in the Claim Notice,
the resolution of which, if any, shall be set forth in writing, or (c) deny or
dispute the matters set forth in the Claim Notice and elect not to resolve such
matter (in which case, Heartland would be entitled to exercise any rights
provided in this Agreement in the event that any representation or warranty of
Seller hereunder is not true and correct as of the applicable date or Seller
fails to perform any covenant or obligation hereunder). If Seller agrees to the
damages set forth in the Claim Notice or Seller and Heartland resolve such
matters in writing, the agreed damages, if any, arising from such claim
("Stipulated Damages") shall constitute a portion of the Excluded Liabilities
and shall be paid to Heartland upon the liquidation of the Liquidated Shares.
Notwithstanding anything else contained herein to the contrary, in no event may
the aggregate amount of the Stipulated Damages exceed $1,000,000.00.
9.2 POST-CLOSING CLAIMS. The representations, warranties and covenants of
Seller hereunder shall survive for the six-month period following the Closing
Date ("Claim Period"). During the Claim Period, Heartland shall be entitled to
pursue any claims arising from the breach of the representations, warranties or
covenants of Seller hereunder in accordance with applicable law, to the extent
and only to the extent that Seller is in possession of proceeds of the
Liquidated Shares which have been allocated to contingent claims (which amount
shall not be less than $500,000.00), and then only to the extent that such
proceeds have not previously been disbursed by or on behalf of Seller to satisfy
contingent claims of Seller. Heartland shall not have any recourse to Seller or
its Partners other than to such proceeds of the Liquidated Shares. Any claims by
Heartland during the Claim Period shall be subject to the alternate dispute
resolution procedures set forth in Exhibit 9.2 attached hereto ("Dispute
Resolution Agreement") and each party agrees to be bound thereby.
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ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Acquisition may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the Partners of Seller and
shareholders of Heartland, by the mutual consent of Heartland and Seller.
10.2 TERMINATION BY SELLER. This Agreement may be terminated and the
Acquisition may be abandoned by Seller if the Closing conditions set forth in
Articles 6 and 8 shall not have been satisfied in full or waived on or before
January 31, 1996, unless such date is extended pursuant to the terms of Section
1.10.
10.3 TERMINATION BY HEARTLAND. This Agreement may be terminated and the
Acquisition may be abandoned by Heartland either (a) if the Closing conditions
set forth in Articles 6 and 7 shall not have been satisfied in full or waived on
or before January 31, 1996, unless such date is extended pursuant to the terms
of Section 1.10 or (b) at any time prior to such date, at Heartland's election
upon written notice from Heartland and the payment of the amount specified in
Section 10.4(d) or (e) below, as applicable.
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
(A) In the event of termination of this Agreement and the abandonment
of the Acquisition pursuant to this Article 10, no party hereto (or any
directors, managers or officers) shall have any liability or further
obligation to the other parties to this Agreement, except as provided in
Article 10, and the remedies set forth below shall be each party's sole and
exclusive remedy for any claims arising from this Agreement or the
termination thereof. The payments to be made hereunder are each party's
reasonable estimate of the Damages arising from the other party's conduct
leading to the termination hereof, and shall constitute liquidated damages
for any claims based thereon.
(B) In the event that any Person shall have made an Acquisition
Proposal and the Executive Committee of Seller approves the execution of an
agreement relating thereto or recommends to the Partners the acceptance of
any Acquisition Proposal and Heartland does not exercise its right of first
refusal set forth in Section 5.11, then Seller shall promptly, but in no
event later than two (2) days after the date of the expiration of the
period in which Heartland may deliver the Election Notice (or earlier date
if Heartland delivers to Seller a written waiver of its right of first
refusal), (i) pay Heartland a fee of Seven Hundred Fifty Thousand Dollars
($750,000), and (ii) pay to Heartland the aggregate principal balance, plus
any accrued interest, outstanding on such date under the Primary Note and
Subscriber Note (upon the payment of which such notes shall be discharged
and Heartland shall release any liens securing the same). Seller
acknowledges that the agreements contained in this Section 10.4(b) are
integral parts of the transactions contemplated in this Agreement, and
that, without these agreements, Heartland would not enter into this
Agreement; accordingly, if Seller fails to promptly pay the amount due and
pursuant to Section 10.4(b), and, in order to obtain such payment,
Heartland commences a suit which results in a judgment against Seller for
the fee set forth in this subparagraph (b) the non-prevailing party shall
pay the prevailing party its cost and expenses (including attorneys' fees)
in connection with such suit, together with interest on the amount of the
fee at the interest rate specified in the Subscriber Note in effect on the
date such payment was required to be made.
(C) In the event that this Agreement is terminated (i) by Heartland
pursuant to Section 10.2 arising from the failure of a condition precedent
set forth in Section 7.2 or 7.7, or (ii) by either party pursuant to
Sections 10.2 or 10.3, as applicable, arising from the failure of the
condition precedent set forth in Section 6.5 or 6.6, then this Agreement
shall terminate and the parties shall have no further obligation or
liability to each other.
(D) This Agreement may be terminated by Heartland in its sole
discretion at any time prior to (i) November 1, 1995, upon the payment to
Seller of a fee equal to One Hundred Thousand Dollars ($100,000), or (ii)
December 1, 1995, upon the payment to Seller of a fee equal to One Hundred
Sixty Five Dollars ($165,000).
(E) In the event that this Agreement is terminated for any reason
other than as set forth in subsections (b), (c) or (d) above or in
connection with Heartland's exercise of its Right of First Refusal
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(as set forth in Section 5.11, upon the consummation of which this
Agreement shall terminate without the payment of any additional
consideration, other than as specified in the Offer Notice), then Heartland
shall pay to Seller Five Hundred Thousand Dollars ($500,000).
(F) The parties acknowledge and agree (i) that nothing contained
herein shall affect the obligation of the LLC to repay the Subscriber Note
and Primary Note in accordance with the terms thereof, and (ii) that
Heartland, at its election, may in lieu of paying the termination fees
specified in subsections (d) and (e) above, offset such amounts against
amounts owing under the Primary Note and Subscriber Note.
ARTICLE 11. DEFINITIONS.
11.1 DEFINITIONS. The terms used in this Agreement have the respective
meanings specified or referred to in this Article 9:
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in
Section 5.8.
"ACQUISITION" shall have the meaning set forth in the Recitals.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACQUISITION SHARES" shall have the meaning set forth in Section 1.3.
"ACT" means The Communication Act of 1934, as amended.
"ADDITIONAL SUBSCRIBERS" means the number of subscribers receiving and
paying for wireless cable television transmissions from the LLC in the
Market equal to (i) the number of such subscribers on the date which is
five (5) business days prior to the Closing Date minus (ii) the number of
such subscribers on the date hereof of (meaning 2,500 subscribers).
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person. For purposes of this Agreement, the term "Affiliate" of any party
shall not include AWS or its predecessors.
"APPLICATION" means a pending application by Seller or Institution or
other Parties to the FCC for a License.
"ASSETS" shall have the meaning set forth in Section 1.2.
"ASSUMED LIABILITIES" means the Liabilities of Seller for indebtedness
owed to AWS as of the Closing Date, to the extent and only to the extent
such indebtedness (including any accrued interest thereon) does not exceed
Two Million Two Hundred Thousand Dollars ($2,200,000.00), and any
liabilities associated with the LLC Interest arising after the Closing
Date.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to Seller by a
Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with any Market and the provision
thereon of wireless cable services in and around any Market, including the
licenses, permits, authorizations, franchises, grants, registrations,
certificates, consents and waivers listed on Schedule 2.8(b).
"AWS CLAIMS" means all causes of action, lawsuits, litigation files,
demands, judgments and claims of any nature available to or being pursued
by Seller or any Partner, as applicable, against AWS or its predecessor,
current or former officers or directors, or Affiliates.
"AWS CONSENT" shall have the meaning set forth in Section 2.3.
"BENEFIT PLAN" shall have the meaning set forth in Section 2.19.
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"BUSINESS" shall have the meaning set forth in Section 1.2.
"CAUSES OF ACTION" means all causes of action, lawsuits, litigation
files, demands, judgments, and claims of any nature available to or being
pursued by Seller with respect or relating to the Business or the
ownership, use, function, or value of any Asset, whether arising by way of
counterclaim or otherwise, other than AWS Claims.
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the Seller.
"CLAIM NOTICE" shall have the meaning set forth in Section 9.1.
"CLAIM PERIOD" shall have the meaning set forth in Section 9.2.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.1.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.1.
"CLOSING PLACE" means the offices where the Closing shall take place
on the Closing Date as provided for in Section 1.1.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the ten (10) trading days ending on the fifth (5th) business day prior
to the Closing Date. In the event that the Heartland Shares do not trade on
any date within such ten-day period, the closing price for such date shall
be deemed to be the closing price for the day preceding such date for
purposes of determining the Closing Share Price.
"CLOSING TIME" means the time on the Closing Date that the Closing
shall take place as provided for in Section 1.1.
"CONSENT" means any and consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for the Business to be
conducted or the Assets to be used or available for use in the conduct of
the Business after the Closing Date substantially in the manner as before
the Closing Date.
"CONTRACTS" means all Channel Leases, Site Leases, Site Options,
programming agreements, equipment leases, management agreements, joint
venture agreements, notes, guaranties, covenants not to compete, employment
agreements, consulting agreements, permits, participation agreements,
policies, purchase and sale orders, quotations and other executed or
executory commitments understandings and instruments to which Seller or the
LLC is a party, or of which Seller or the LLC is to receive the benefit or
by which any of the Assets of Seller or the LLC is bound relating to the
Market or Business, whether written or oral and whether originally entered
into by Seller or the LLC or another party.
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
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"DISPUTE RESOLUTION AGREEMENT" shall have the meaning set forth in
Section 9.2.
"DISTRIBUTABLE SHARES" shall have the meaning set forth in Section
1.4.
"DISTRIBUTION RECORD DATE" shall have the meaning set forth in Section
1.4.
"DOCUMENTS" means, with respect to the LLC Interest, Business or the
Assets, all applications, engineering or market or other studies, reports,
and analysis or memoranda, or records and other documents or data related
to the LLC Interest or the Business which are in the possession or under
the control of Seller whether or not any such document is reproduced or
maintained on paper or stored or retained in or on audio or video tapes or
computer hardware disks or by other electronic, magnetic or other means or
methods.
"ELECTION NOTICE" shall have the meaning set forth in Section 5.11.
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on or off the Site, whether yet discovered, which could or does
result in Damages, including any condition resulting from the operations of
the LLC or Seller.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, and
including electro-magnetic fields or discharges into the Environment, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, which are now or may
hereafter be applicable to Seller, the LLC, the LLC Interest, or any
Assets.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property used or available for
use in the Business or located at any of the Facilities and related to the
Business.
"EXCHANGE AGENT" shall mean Harris Trust Company of New York.
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section 1.3.
"EXCHANGE PRICE" shall have the meaning set forth in Section 1.3.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.2.
"EXCLUDED LIABILITIES" shall mean (i) any Liabilities of Seller other
than Assumed Liabilities and (ii) 37.5% of the indebtedness outstanding
under the Primary Note.
"EXECUTIVE COMMITTEE" shall have the meaning set forth in Section 1.4.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
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"FACILITIES" means, with respect to the Business or the Assets, all of
the plants, offices, broadcast towers, antenna towers, head-ends, studios,
control centers and other real property interests and related facilities
which are either owned by the LLC or Seller or leased by or the use of
which are leased by the LLC or Seller.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.4.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are (a)
consistent with the principles promulgated and adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles, and (b) such that a certified public accountant
would, insofar as the use of accounting principles is pertinent, be in a
position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated byphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HEARTLAND SHARES" shall have the meaning set forth in Section 1.3.
"HSR ACT" shall have the meaning set forth in Section 5.9.
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which
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is a qualified applicant for and has entered into a Channel Lease with
Seller, the LLC or their respective Affiliates.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of Seller
or any Affiliate of Seller which are used or available for use in
connection with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if: (i) such individual is actually aware
of such fact or other matter; or (ii) an individual should have known of
such fact or other matter in the course of conducting a reasonable
investigation concerning the truth or existence of such fact or other
matter; (b) with respect to a Person (other than an individual) "knowledge"
of a particular fact or other matter if any individual who is serving as a
manager, director or officer of such Person has "knowledge" of such fact or
other matter; and (c) with respect to warranties made by Seller, that
Seller, based upon a reasonable investigation, believes the warranty is
true.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals necessary or required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance.
"LIQUIDATED SHARES" shall have the meaning set forth in Section 1.4.
"LLC" shall have the meaning set forth in the Recitals.
"LLC INTEREST" shall have the meaning set forth in the Recitals.
"MARKET" means the Minneapolis, Minnesota Standard Metropolitan Area.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in, or is reasonably likely to result in, a material adverse change
in the business, operations, properties, prospects relating to the LLC
Interest taken as a whole other than general economic change over which
Seller has no control.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MMDS" means the Multichannel Multipoint Distribution Service.
"OFFER NOTICE" shall have the meaning set forth in Section 5.11.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator.
"PARTIES" shall mean all parties to Contracts other than Seller from
which Consents are required.
"PERMITTED ENCUMBRANCES" means deposits under Workmen's Compensation,
Unemployment Insurance or Social Security laws, or to secure statutory
obligations or surety or other similar bonds; mechanics, suppliers,
carriers, warehousemen's or other similar liens; liens securing Taxes,
government charges or other governmental levies which are not yet due and
payable, or being contested in good faith
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by appropriate proceedings with adequate reserves in conformity with
generally accepted accounting principles; and the interest or title of any
lessor in property pursuant to a lease of that property.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"PREPAID SUBSCRIBER FEES" means all amounts received by Seller or the
LLC from customers or subscribers in the Market (whether held as cash, cash
equivalents or otherwise) for periods of service from and after the Closing
Date.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 5.2(b).
"PURCHASE PRICE" shall have the meaning set forth in Section 1.3.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
1.6.
"ROLL-UP RULES" shall have the meaning set forth in Section 4.1.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 5.4.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in the Recitals.
"SELLER'S REPRESENTATIVE" shall have the meaning set forth in Section
4.4.
"SITE" means a wireless cable television site with respect to which
Seller is operating a Wireless Cable Business and transmitting programming
to subscribers in connection therewith.
"SITE LEASE" shall mean a Contract for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"STIPULATED DAMAGES" shall have the meaning set forth in Section 9.1.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
11.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 12. POST-CLOSING COVENANTS.
12.1 COOPERATION AND EXCHANGE OF INFORMATION. Following the Closing,
Heartland and Seller shall provide to each other, upon reasonable prior notice
and during normal business hours, access to the books and records in the
possession of the other which relate to the LLC Interest or the Assets to the
extent such access may be required (i) to facilitate the investigation,
litigation and final disposition of any claims which have been made or may be
made against (A) Seller that relate to the LLC Interest for periods of time
prior to the Closing, or (B) Heartland that relate to the LLC Interest for
periods of time from and after the Closing; and (ii) for any other reasonable
business purpose, but in either case only to the extent that such access does
not unreasonably interfere with the business and operations of such party or
violate any law, order, contract or license applicable to such party.
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ARTICLE 13. MISCELLANEOUS.
13.1 EXPENSES OF THE TRANSACTION. Each of Seller and Heartland agrees to
pay its own fees and expenses in connection with this Agreement and the
transactions hereby contemplated; provided that (a) the following fees and
expenses shall be the responsibility of Heartland: (i) the fees of the Exchange
Agent, (ii) the printing costs for the Registration Statement and any other
solicitation materials, (iii) the cost of mailing the Proxy Statement/Prospectus
and any other solicitation materials mailed therewith, (iv) SEC filing fees for
the filing of the Registration Statement, and (v) FCC filing or Consent Fees
arising from or necessary to consummate the transactions contemplated hereby;
and (b) Seller shall be solely responsible for any brokerage fees or commissions
payable with regard to the sale of the Liquidated Shares.
13.2 FURTHER ASSURANCES. Each of Seller and Heartland agrees that it will,
at any time and from time to time after the Closing Date, upon the request of
the other party, do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered, all such further acts, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required from time to time in order to effectuate the provisions and purposes of
this Agreement.
13.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to Heartland, to:
Heartland Wireless Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Fax: (214) 479-1023
Attn: John R. Bailey
With copy to:
Victor B. Zanetti
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75201
If to Seller, to:
Wireless Cable TV Associates No. 38
c/o Mansfield & Tanick, P.A.
1560 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3383
Attn: Earl H. Cohen
With copy to:
Earl Cohen
Mansfield & Tanick, P.A.
1560 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3383
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
13.4 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by
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performance in accordance with its terms or by a writing signed by the party to
which performance is to be rendered.
13.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits (if any) hereto, sets forth the entire agreement and understanding
among the parties as to the subject matter hereof.
13.6 SEVERABILITY. If any provision of this Agreement or the application of
any provision hereof to any person or in any circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
13.7 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by Seller except with the prior written consent of Heartland. Any
purported assignment by Seller contrary to the terms of this Agreement shall be
void. Notwithstanding the foregoing, Heartland may assign this Agreement and all
of its rights and obligations hereunder, to any party. Promptly following said
assignment, Heartland shall notify Seller of the name of said assignee.
13.8 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Time, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland and Seller;
provided, Heartland shall be entitled to disclose the transactions contemplated
hereby without the prior approval of Seller to the extent reasonably necessary
for Heartland to comply with applicable securities laws.
13.9 CONSENT TO JURISDICTION. This Agreement shall be deemed to have been
made in, and shall be construed in accordance with the laws of the State of
Texas, and its validity, construction, interpretation and legal effect shall be
governed by the laws of the State of Texas applicable to contracts entered into
and performed entirely therein. Heartland and Seller hereby irrevocably submit
to the jurisdiction of the state courts of the State of Texas and to the
jurisdiction of the United States District Court for the Northern District of
Texas, for the purpose of any suit, action or other proceeding arising out of or
based upon this Agreement or the subject matter hereof or thereof brought by
either party or its successors or assigns. Each party hereby waives, and agrees
not to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court. Each party hereby consents to service of process by
registered mail at the address to which notices are to be given. Each party
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other party. Final judgment
against either party in any such action, suit or proceeding shall be conclusive,
and may be enforced in other jurisdictions (x) by suit, action or proceeding on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability therein described or
(y) in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that the party may at its option bring suit, or
institute other judicial proceedings against the other party or any of its
Assets in any state or Federal court of the United States or of any country or
place where that party or such Assets may be found.
13.10 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
13.11 SCHEDULES. The Schedules referred to herein and delivered to
Heartland upon execution hereof as delivered in accordance with Section 5.14 are
hereby made a part of this Agreement, and may not be changed, substituted or
altered without Heartland's prior written consent.
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13.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year first above written.
SELLER:
WIRELESS CABLE TV ASSOCIATES No.
38,
a California general partnership
By:/s/ CARL TURNER
Carl Turner, M.D.
Chairman of Management
Committee
By:/s/ DAMON OSTIS
Damon Ostis
Deputy Chairman of Management
Committee
BUYER:
HEARTLAND WIRELESS
COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: Chief Financial Officer
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EXHIBIT 9.2
DISPUTE RESOLUTION AGREEMENT
THIS DISPUTE RESOLUTION AGREEMENT (the "Agreement") dated February , 1996
between WIRELESS CABLE TV ASSOCIATES NO. 38 ("Seller"), a California general
partnership, and HEARTLAND WIRELESS COMMUNICATIONS, INC. ("Heartland"), a
Delaware corporation. Capitalized terms used but not defined herein shall have
the meanings given to them in that certain Amended and Restated Asset Purchase
Agreement (the "Purchase Agreement") dated as of October 5, 1995 between Seller
and Heartland.
RECITALS:
WHEREAS, Seller and Heartland have entered into the Purchase Agreement in
order to provide for the sale by Seller to Heartland of the LLC Interest, as set
forth in the Purchase Agreement (the "Purchase"); and
WHEREAS, Heartland has relied upon the representations, warranties and
covenants of Seller set forth in the Purchase Agreement and in schedules,
certificates and other documents delivered pursuant to the Purchase Agreement;
and
WHEREAS, pursuant to Section 9.2 of the Purchase Agreement, Heartland is
entitled, during the Claim Period, to pursue claims arising from the breach of
such representations, warranties and covenants and, in connection therewith, the
parties to the Purchase Agreement have agreed to enter into this Agreement in
order to establish a mechanism for resolving promptly any disputes which may
arise regarding any such claims;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Purchase Agreement, and intending to be legally
bound, the parties hereto do hereby agree as follows:
ARTICLE 1. CLAIMS.
1.1 CLAIM SUBMISSION. With respect to each claim ("Claim") made by
Heartland during the Claim Period pursuant to Section 9.2 of the Purchase
Agreement, Heartland shall deliver to Seller a certificate signed by an
executive officer of Heartland (an "Officer's Certificate"):
(a) stating that Heartland has paid, suffered or properly accrued, or
Heartland in good faith reasonably anticipates that Heartland will have to
pay, suffer or accrue, Damages in an aggregate stated amount (including,
without limitation, any anticipated professional and other fees and costs
associated therewith) and, with respect to a Qualifying Offer (as
hereinafter defined), that the Qualifying Offer (a copy of which is to be
attached to the Officer's Certificate) has been made and not accepted
within the time period specified therein and the amount of additional
Damages (meaning attorneys' fees and other expenses associated therewith);
and further stating that Heartland is entitled to payment by Seller of the
amount of such Claim pursuant to this Agreement and Section 9.2 of the
Purchase Agreement; and
(b) specifying in reasonable detail (i) the individual items of
Damages included in the amount so stated (or the amount of the Qualifying
Offer and additional Damages, such as attorneys' fees and other expenses,
associated therewith), (ii) the date each such item was paid or properly
accrued or the basis for such anticipated liability, and (iii) the nature
of the liability, misrepresentation, breach of warranty or covenant or
other matter to which such items is related.
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Upon Seller's receipt of the Officer's Certificate, such Claim shall be treated
as set forth in Section 1.3 below.
1.2 THIRD PARTY CLAIMS; QUALIFYING OFFERS.
(a) Within 15 days after receipt by Heartland of notice of any Claim by a
third party (a "Third Party Claim") for which Heartland intends to seek payment
from Seller pursuant to Section 9.2 of the Purchase Agreement, Heartland shall
deliver to Seller written notice thereof; provided that the omission to so
notify Seller will not affect Heartland's right of recourse hereunder and that
Heartland shall not be required to deliver notice of other Claims disclosed in
the Purchase Agreement or in any schedule thereto. Seller shall have the right
to participate in any such proceeding and Heartland shall have the right (but
not the duty) to control the defense thereof. Whether or not Seller chooses to
participate in the defense of any proceeding involving a Third Party Claim, each
party hereto and their respective successors and assigns agree to cooperate in
the defense and to take all actions in connection with such defense as may be
reasonably requested.
(b) At any time during the first five (5) months of the Claim Period,
Heartland shall have the right to make a written offer to the adverse party in
any Third Party Claim to settle such Claim for an amount specified in such offer
(a "Qualifying Offer"), and Heartland shall give such third party no less than
twenty (20) days to accept such Qualifying Offer. If a Qualifying Offer is
accepted and the Claim is settled, Heartland may seek payment from Seller for
such Claim within the Claim Period in accordance with Section 1.1. If such
Qualifying Offer is rejected or not accepted within such twenty (20) day period,
then Heartland shall be entitled to seek payment from Seller within ten (10)
days from the earlier of Heartland's receipt of a written rejection of a
Qualifying Offer or the expiration of such twenty (20) day period for the amount
of such Qualifying Offer (together with all expenses and costs relating thereto,
including without limitation attorneys' fees) from Seller in accordance with
Section 1.1.
1.3 TREATMENT OF CLAIMS.
(a) Accepted and Rejected Claims. Seller shall have a period of ten (10)
business days from its receipt of an Officer's Certificate delivered to it
pursuant to Section 1.1 ("Rejection Period") to review the Officer's Certificate
and deliver to Heartland written notice of its rejection of all or a portion of
the Claim referenced therein ("Rejection Notice"). If no Rejection Notice is
received by Heartland within the Rejection Period, then such Claim shall become
an "Accepted Claim."
(b) Administration of Rejected Claims. For any Claim which is the subject
of a Rejection Notice (a "Rejected Claim"), Seller and Heartland shall attempt
in good faith to agree upon the rights of the respective parties with respect to
such Claim. If Seller and Heartland so agree, a memorandum setting forth such
agreement shall be prepared and signed by Heartland and Seller and such Rejected
Claim shall become an "Accepted Claim."
(c) Resolution of Dispute. If no such agreement between Seller and
Heartland can be reached with respect to a Rejected Claim after good faith
negotiation within thirty (30) days of Heartland's receipt of a Rejection
Notice, Heartland and Seller shall each select an independent third party (the
"Designated Party") whose determination of the Rejected Claim and the amount of
Damage (if any) associated therewith shall be final, nonappealable and binding;
provided that, with respect to Claims which are the subject of a Qualifying
Offer, the Designated Party shall only be entitled to determine whether such
Claim is subject to payment by Seller to Heartland under Section 9.2 of the
Purchase Agreement; and the Designated Party shall have no authority to reduce
or increase the amount of such Claim from the amount of the Qualifying Offer and
Damages associated therewith. The Designated Party shall be a person
knowledgeable regarding the wireless cable television business and the value of
related assets, and shall be generally knowledgeable with regard to business and
financial matters. In the event Heartland and Seller fail to agree upon the
Designated Party within forty (40) days after Heartland's receipt of a Rejection
Notice, the Designated Party shall be the managing partner of the Dallas, Texas
office of an independent "Big Six" accounting firm other than KPMG Peat Marwick,
L.L.P. and Arthur Andersen & Co., as selected jointly by the managing partner of
the Dallas, Texas offices of said firms or their respective designees, and in
the absence of said joint election, as selected by the managing partner of the
Dallas, Texas office of or his designee. Upon the
determination of the Designated Party in accordance herewith with respect to a
Rejected Claim, the determination of the value of such Claim, if any, by the
Designated Party shall become an "Accepted Claim."
K-31
<PAGE> 499
All determinations by a Designated Party hereunder shall be made in accordance
with the expedited commercial rules of the American Arbitration Association.
(d) Payment of Claims. Subject to the provisions of Section 9.2 of the
Purchase Agreement (including, without limitation, the limitation of the
recourse of Heartland to the proceeds of the Liquidated Shares), once a Claim
has become an Accepted Claim in accordance with the terms of this Agreement,
Seller shall, within five (5) business days of such date, pay to Heartland the
amount of such Claim.
1.4 COSTS AND EXPENSES. All costs and expenses of the Designated Party
shall be borne equally by Seller and Heartland. All other costs and expenses
shall be borne by the party incurring such costs and expenses.
ARTICLE 2. MISCELLANEOUS
2.1 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be given in accordance with Section 13.3
of the Purchase Agreement to the parties at the addresses for such parties set
forth in such Section 13.3.
2.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties hereto.
2.3 GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
2.4 PREVAILING PARTY. In the event of any dispute which results in a suit
or other legal proceeding to construe or enforce any provision of this Agreement
or because of an alleged breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the parties agree that the prevailing
party or parties (in addition to all other amounts and relief to which such
party or parties may be entitled to recover) may recover from the nonprevailing
party or parties reasonable attorneys' fees and other costs incurred in any
action or proceeding.
2.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original
hereof, but all of which together shall constitute one agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
WIRELESS CABLE TV ASSOCIATES NO. 38
a California general partnership
By:
-----------------------------------------
Carl Turner, M.D.
Chairman of Management Committee
By:
-----------------------------------------
Damon Ostis
Deputy Chairman of Management Committee
K-32
<PAGE> 500
L
APPENDIX L
MINNEAPOLIS CLAIM ASSIGNMENT
<PAGE> 501
L
EXHIBIT 7.3 (F-2)
ASSIGNMENT OF AWS CLAIMS
THIS ASSIGNMENT OF AWS CLAIMS ("Assignment") is made and entered into on
this day of , 1996 ("Effective Date") by and between
Wireless Cable TV Associates #38, a California general partnership ("Seller"),
and each general partner of Seller approving the transactions ("Approving
Partners") contemplated by the Purchase Agreement (as defined below)
(collectively, Seller and each Approving Partner are referred to as "Assignor")
and Heartland Wireless Communications, Inc., a Delaware corporation
("Assignee").
WITNESSETH:
WHEREAS, Seller and Assignee have executed that certain Amended and
Restated Asset Purchase Agreement ("Purchase Agreement") dated as of October 4,
1995, pursuant to which Seller is to convey to Assignee a 75% equity interest
("Membership Interest") in American Wireless System of Minneapolis, LLC, a
Delaware limited liability company ("LLC") that owns 100% of the wireless cable
television assets that provide wireless cable television service in the
metropolitan area of Minneapolis, Minnesota the ("Market").
WHEREAS, pursuant to the Purchase Agreement and the consents solicited
thereby, Assignor has agreed to assign to Assignee the AWS Claims held by
Assignor against the AWS Parties (defined below);
WHEREAS, Assignor and Assignee desire to evidence the assignment of the AWS
Claims to Assignee;
NOW, THEREFORE, for and in consideration of the above-stated premises, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Assignor and Assignee do hereby agree as follows:
1. Definitions. The terms used in this Assignment shall have the respective
meanings set forth below:
"Affiliate" means with respect to any Person, or any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or is a member of the immediate family of any
of the foregoing Persons, whether or not living under the same roof with
such Person.
"AWS" means American Wireless Systems, Inc., a Delaware corporation.
"AWS Claims" means any and all causes of action, demands, rights and
claims of any nature, now or hereafter available to or owned by Assignor
against any AWS Party, whether known, unknown, fixed or contingent.
"AWS Parties" means AWS, its predecessors, current or former directors
or officers of AWS or its predecessors, or any Affiliate of AWS.
"Consent" shall mean the written approval of the Approving Partners of
the transactions contemplated by the Purchase Agreement (including, without
limitation, the dissolution and liquidation of Seller and the execution of
this Assignment).
"Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or governmental
authority.
"Proxy Statement" means the Proxy Statement/Prospectus dated January
1996 relative to the proposed distribution of shares of common stock, $.001
par value per share, of Heartland.
2. Assignment. Each Assignor does hereby SELL, ASSIGN, TRANSFER AND DELIVER
to Assignee the AWS Claims, to have and to hold the above AWS Claims unto
Assignee and its successors and assigns, forever.
L-1
<PAGE> 502
3. Representations of Assignor. Each Assignor represents and warrants unto
Assignee the following:
(a) The execution and delivery of this Assignment has been duly
authorized and approved by all appropriate parties and authorities and this
Assignment is binding on and enforceable against each Assignor;
(b) Assignor has not transferred, assigned, encumbered or otherwise
burdened any of the AWS Claims;
(c) Each Assignor owns the AWS Claims purported to be transferred
hereby free and clear of all liens, security interests, rights or powers;
and
(d) Each Assignor has read and had the opportunity to discuss with
legal counsel the effect of this Assignment and has received and read the
Proxy Statement, including without limitation the portions thereof
describing certain claims that may be enacted by Assignor which are
included in that Assignment.
Notwithstanding the foregoing representations and warranties, Assignor makes no
representations or warranties regarding the passage or tolling of any applicable
statutes or limitations with regard to the AWS Claims, the validity of the AWS
Claims, the value (if any) of the AWS Claims, or the collectability of the AWS
Claims.
4. Applicable Law. Except to the extent the laws of the United States are
applicable, this Assignment shall be construed in accordance with the laws of
the State of Texas, and any litigation involving the terms of this Assignment
shall be brought in the appropriate state or United States court in the State of
Texas.
5. Certain Waivers. Each party hereto knowingly and voluntarily waives any
and all provisions of applicable law (including, without limitation, any
statutes, common law, regulation or other legal requirement or concept) relating
to this Assignment or limiting the scope or effect hereof. To the extent
applicable to this Assignment, each Assignee hereby waives all rights provided
by the following statutory language of section 1542 of the California Civil Code
(and any securities provisions provided under the laws of any other state):
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially effected his settlement
with the debtor."
6. Counterparts. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original. Each Assignor and
Assignee acknowledge that the approval of the transactions contemplated by the
Purchase Agreement shall constitute each Approving Partner's agreement to be
bound by the terms of this Assignment and that the execution of any written
document approving such transaction shall constitute the execution and approval
of the terms of this Assignment. This Assignment may also be executed by
facsimile signature.
L-2
<PAGE> 503
L
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of
the day and year first above written.
Seller: Wireless Cable Television Associates #38,
a California General Partnership
By:
---------------------------------------
Printed Name:
-----------------------------
Its:
--------------------------------------
Approving
Partner:
------------------------------------------
(Entity) By:
---------------------------------------
Printed Name:
-----------------------------
Its:
--------------------------------------
Approving
Partner:
(Individual) Printed Name:
-----------------------------
Assignee: Heartland Wireless Communications, Inc.,
a Delaware corporation
By:
---------------------------------------
Printed Name:
-----------------------------
Its:
--------------------------------------
L-3
<PAGE> 504
M
APPENDIX M
MINNEAPOLIS LIQUIDATION PLAN
<PAGE> 505
M
PLAN OF LIQUIDATION
OF
WIRELESS CABLE TV ASSOCIATES #38
1. The General Partners ("General Partners") of Wireless Cable TV
Associates #38, a California general partnership ("the Partnership"), hereby
approve, authorize and consent to the voluntary dissolution of the Partnership,
and hereby direct that such dissolution be affected as promptly as possible in
accordance with the Plan of Liquidation set forth herein.
2. Effective October 4, 1995, the Partnership entered into the Amended and
Restated Asset Purchase Agreement by and between Heartland Wireless
Communications, Inc. ("Heartland") and the Partnership pursuant to which
Heartland proposes to purchase the Partnership's 75% membership interest in and
to American Wireless System of Minneapolis, LLC, a Delaware limited liability
company that owns and operates the wireless cable television system in
Minneapolis, Minnesota and issue to the Partnership in exchange therefore shares
of common stock, $.001 par value per share, of Heartland ("Acquisition Shares").
Upon the closing of the transaction contemplated by the Amended and Restated
Asset Purchase Agreement which is anticipated to occur no later than February
28, 1996, the Partnership shall not perform business activities thereafter
except as required for the winding up of its affairs, preserving the value of
its assets and distributing its assets in accordance with this plan.
3. Net income and net loss of the Partnership following the date of
adoption of this plan shall be determined and allocated to the General Partners'
capital accounts in accordance with the terms of the General Partnership
Agreement of the Partnership. After giving effect to such allocations, (a) the
Acquisition Shares or liquidation proceeds thereof and (b) the proceeds from the
liquidation of the Partnership's remaining assets and collection of any accounts
receivable of the Partnership are to be distributed in the following order of
priority: (i) first, to the payment and discharge of all of the Partnership's
debts and liabilities; (ii) second, to the creation of any reserves which the
Management Committee of the Partnership deems necessary and in accordance with
the Asset Purchase Agreement; (iii) to the General Partners in proportion and to
the extent to their capital accounts; and (iv) the balance, if any, to the
General Partners in proportion to the general partnership owned by each of them.
4. The members of the Management Committee of the Partnership, or any one
of them, shall execute and file all tax returns, certificates, documents and
information required to be filed by reason of the complete liquidation and
dissolution of the Partnership.
5. The members of the Management Committee of the Partnership shall
consummate this Plan of Liquidation as set forth herein and shall have full
power and authority to adopt all resolutions, execute all documents, file all
papers and take all actions they deem necessary or advisable for the complete
liquidation and dissolution of the Partnership.
M-1
<PAGE> 506
N
APPENDIX N
INFORMATION CONCERNING CMAX
<PAGE> 507
N
TABLE OF CONTENTS
<TABLE>
<S> <C>
Business of CMAX.................................................................... N-1
CMAX -- Selected Consolidated Financial Information................................. N-11
Pro Forma Information of 1992 Acquisition........................................... N-12
CMAX -- Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. N-13
Dividends on and Market Value of CMAX Common Stock.................................. N-21
Security Ownership of Principal Stockholders and Management......................... N-22
Comparison of Rights of Holders of Heartland and CMAX............................... N-23
</TABLE>
N-i
<PAGE> 508
N
BUSINESS OF CMAX
CMAX owns, develops and operates wireless cable television systems and
currently provides subscription television services to approximately 34,300
subscribers (as of November 30, 1995) in a cluster of wireless cable television
systems located in Texas (the "Texas Cluster"). The Texas Cluster provides
service to customers in a 250 mile long and 70 mile wide area encompassing the
cities of San Antonio, Austin, Temple/Killeen and Waco through the utilization
of four separate head-end/transmission facilities. CMAX also presently holds
wireless cable channel rights in Sherman/Denison, Lubbock, Athens and Amarillo,
Texas (the "Additional Texas Systems") and Salt Lake City, Utah (the "Salt Lake
City System"). CMAX estimates that the Texas Cluster, the Additional Texas
Systems and the Salt Lake City System collectively represent approximately
1,614,000 households which can be served by LOS transmissions. CMAX also
estimates that approximately 233,000 households in these markets are not passed
by traditional hard-wire cable systems. Unless the context requires otherwise,
the term "CMAX" shall refer to CableMaxx, Inc. and its subsidiaries through
which it conducts business.
On September 11, 1995, CMAX signed the Agreement and Plan of Merger ("CMAX
Merger Agreement") among CMAX, Heartland and CMAX Merger Sub. Pursuant to the
CMAX Merger Agreement, at the closing, CMAX Merger Sub will be merged with and
into CMAX, and the stockholders of CMAX will receive newly issued publicly
tradeable shares of Heartland Common Stock valued at $8.50 per share of CMAX
common stock, subject to adjustment. Effective upon the closing of the CMAX
Merger, CMAX will become a wholly owned subsidiary of Heartland. The total
consideration under the CMAX Merger Agreement is valued at approximately $80.8
million, subject to adjustment. The consummation of the CMAX Merger Agreement is
subject to customary closing conditions, including the approval of the
stockholders of CMAX. There can be no assurance that all such conditions will be
met.
In connection with the execution of the CMAX Merger Agreement, the
principal stockholders of CMAX and Heartland, respectively, executed voting
agreements agreeing to vote all shares of CMAX or Heartland Common Stock held by
them, as the case may be, in favor of the CMAX Merger Agreement in connection
with any meetings of the stockholders of CMAX or Heartland, as the case may be.
Such agreements will remain in effect until the termination or consummation of
the CMAX Merger Agreement by its terms.
Also in connection with the execution of the CMAX Merger Agreement, CMAX
entered into the Sublease Agreement with Heartland. Pursuant to the terms of the
Sublease Agreement, CMAX subleased to Heartland all of its wireless cable
television rights in the Additional Texas Systems and paid CMAX a $2.4 million
non-refundable deposit for such rights. If the CMAX Merger Agreement is
terminated as a result of a breach thereof by CMAX or as a result of a competing
acquisition proposal, Heartland will acquire such wireless cable television
rights for nominal additional consideration. If the CMAX Merger Agreement is
terminated for any other reason, Heartland shall acquire such wireless cable
television rights for an amount equal to the difference between the appraised
value of such rights and the $2.4 million previously paid by Heartland.
Also, in connection with the CMAX Merger Agreement, Heartland agreed to
loan to CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced
on December 29, 1995 to be used for working capital purposes, and (b) $500,000
may be used for subscriber growth. The CMAX Loan will not increase the amount of
CMAX Excess Liabilities. Upon consummation of the CMAX Merger Agreement, it is
anticipated that the CMAX Loan will remain as an inter-company obligation from
CMAX to Heartland. In the event that the CMAX Merger Agreement is not
consummated, the CMAX Loan is payable August 29, 1996; provided, that if the
CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
Wireless cable television programming is transmitted through the air via
microwave frequencies in a direct line-of-sight from the transmission facility
to an antenna located at the subscriber's location by utilizing up to 200 MHz of
radio spectrum allocated by the FCC for wireless cable operations. Wireless
cable technology eliminates the extensive networks of cable and amplifiers
utilized by traditional hard-wire cable operators which substantially reduces
the cost to build, operate and maintain a television distribution system. Unlike
a traditional hard-wire cable system, a significant portion of the capital costs
of a wireless cable system are not incurred until shortly before a subscriber
has been added and is about to generate revenue for CMAX.
N-1
<PAGE> 509
Management believes that CMAX provides customers with (i) an equivalent or
higher quality picture, (ii) a more reliable signal resulting in fewer
transmission disruptions and (iii) lower average monthly rates, compared to
those generally provided by traditional hard-wire cable operators. Despite these
lower rates, CMAX's average monthly service revenue per subscriber has increased
from $30.22 in fiscal 1993 to $30.75 in fiscal 1994 to $32.76 in fiscal 1995.
The estimated 1994 national average monthly service revenue per subscriber for
comparable services for traditional hard-wire cable operators was $28.24
according to Paul Kagan Associates, Inc., a national media research firm. CMAX
believes that its average monthly service revenue per subscriber is comparable
to that of traditional hard-wire cable operators primarily as a result of the
relatively high number of CMAX customers who pay for premium service and
multiple television outlets. Like traditional hard-wire cable operators, CMAX
offers a full range of basic and premium programming including local off-air
channels, A&E, CNN, The Disney Channel, HBO, MTV, USA Network and WTBS. All of
CMAX's set-top converters are addressable, allowing its subscribers to receive
pay-per-view programming.
In December 1992, a newly organized affiliate of Charterhouse Group
International, Inc. ("Charterhouse"), together with Galaxy Cablevision, L.P.
("Galaxy Cablevision") and Galaxy Management, Inc. ("Galaxy") acquired CMAX's
business (the "1992 Acquisition") from certain sellers (collectively, the "CMAX
Predecessor"). In connection with the 1992 Acquisition, CMAX entered into a
$14.5 million revolving credit and term loan facility from Fleet National Bank
(the "CMAX Credit Facility"). In November 1993, CMAX effected an initial public
offering of 3,500,000 shares of its Common Stock (the "CMAX IPO") from which it
raised gross proceeds of $42.0 million. In February 1995 CMAX acquired the Salt
Lake City System for a price of approximately $11.0 million.
BUSINESS STRATEGY
CMAX's strategy is to own, develop and operate wireless cable channel
systems with full channel line-ups in geographic clusters which focus on
mid-sized cities and their surrounding areas. This clustering enables CMAX to
take advantage of economies of scale in management, customer service, training
and marketing. CMAX believes these economies help to reduce the number of
subscribers required for a system to reach a break-even operating cash flow.
CMAX also intends to focus on cities that have growing populations and stable
economic bases, particularly in cities in which it believes it is less likely to
face competition from alternative forms of entertainment. CMAX has implemented
several strategies, including requiring up-front payments for the cost of
installation and the first month's service, in order to attract subscribers that
are less likely to disconnect voluntarily or to be disconnected as a result of
delinquent payment.
CMAX's marketing strategy is to attract potential subscribers in the
following priority: (i) households in geographical areas not passed by
traditional hard-wire cable systems; (ii) commercial establishments which are
currently not passed by traditional hard-wire cable systems; (iii) households
which are passed by, but currently do not subscribe to, traditional hard-wire
cable systems; and (iv) households subscribing to traditional hard-wire cable
systems.
To differentiate its product offering from other subscription television
providers, CMAX uses marketing themes of dependability, price, popular
programming, picture quality and customer service.
- Dependability. CMAX's subscribers enjoy a substantially higher level of
signal reliability compared to traditional hard-wire cable subscribers. This
higher level of dependability is the result of the elimination of the extensive
network of coaxial cables, amplifiers and processing equipment between the
head-end/transmission facility and the subscriber's location. In addition, CMAX
has installed back-up power systems and redundant components in all of its
head-end/transmission facilities which virtually eliminate the potential for
system outages due to power or component failures. Traditional hard-wire cable
systems on the other hand are subject to failure due to multiple components in
their networks of coaxial cable and amplifiers. If a failure does occur in
CMAX's system, it is generally easier to diagnose and repair due to the smaller
number of system components.
- Price. CMAX offers its customers attractively priced program packages
which it believes are generally lower than those for comparable programming
offered by its traditional hard-wire cable competitors. A key
N-2
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N
component of CMAX's product offering is the inclusion of The Disney Channel as
part of its basic plus subscription package. All of CMAX's competitors currently
charge an additional fee for this channel. CMAX believes including The Disney
Channel as part of CMAX's basic plus service makes its service more attractive
to families.
- Popular Programming. CMAX offers a full range of basic and premium
programming featuring the most popular channels. CMAX also offers instructional
programming in conjunction with educational institution partners. In addition,
all of CMAX's set-top converters are fully addressable, allowing subscribers to
receive pay-per-view programming which provides subscribers with access to
movies, special sporting events and concerts.
- Picture Quality. CMAX emphasizes that wireless picture transmission
generally offers an equivalent or higher quality picture than traditional
hard-wire cable because there is less opportunity for signal degradation between
CMAX's head-end and the subscriber's location. In contrast, in a traditional
hard-wire cable system, each time a television signal passes through an
amplifier, some measure of signal noise is added which can result in a grainier
picture.
- Customer Service. CMAX has established the goal of maintaining high
levels of customer satisfaction. To this end, CMAX seeks to provide superior
customer service through extended daily customer service hours (7am to 7pm),
flexible installation scheduling, responsiveness to customer inquiries and
well-trained uniformed field personnel. CMAX also has a policy of calling new
subscribers three times over a 45-day period after installation to ensure that
the subscriber is satisfied with the installation and understands all the
features of CMAX's equipment.
CMAX'S MARKETS
The following table outlines the markets in which CMAX is operating or in
which CMAX holds or has the right to acquire wireless cable channel rights as of
November 30, 1995:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
MHZ OF RADIO LINE-OF- HOUSEHOLDS
DMA NUMBER OF SPECTRUM NUMBER OF SIGHT UNPASSED
MARKET RANK(1) CHANNELS(4) AVAILABLE LAUNCH DATE SUBSCRIBERS HOUSEHOLDS BY CABLE
- -------------------- ------- --------- ------------ -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Austin.............. 65 31 186 November 1989 12,299 250,000 50,000
San Antonio......... 39 37 186 March 1993 11,805 440,000 45,000
Temple/Killeen...... 98(2) 35 186 April 1994 6,312 80,000 25,000
Waco................ 98(2) 35 186 July 1994 3,860 80,000 25,000
Salt Lake City...... 37 27(5) 162 (10) -- 434,000 20,000
Sherman/Denison*.... 159 31(6) 186 (10) -- 90,000 30,000
Amarillo*........... 130 9(7) 54 (10) -- 80,000 8,000
Lubbock*............ 152 12(8) 72 (10) -- 100,000 30,000
Athens, Texas*...... 8(3) 7(9) 42 (10) -- 60,000 NA
--------- ----------- ---------
Total........... -- -- -- -- 34,276 1,614,000 233,000
========= =========== =========
</TABLE>
- ---------------
* CMAX's wireless cable channel rights in this market are covered by the
Sublease Agreement which gives Heartland the right to acquire such wireless
cable channel rights.
(1) DMA rank is the Designated Market Areas ranking of television homes among
United States markets as determined by the Nielsen Media Research Company
for the 1994/1995 television season.
(2) Temple/Killeen and Waco share the same DMA household market.
(3) Athens shares the same DMA household market with Dallas, Texas.
(4) Includes 6, 4 and 4 off-air channels in San Antonio, Temple/Killeen and
Waco, respectively. CMAX's primary traditional hard-wire competitors in
each of the markets included within the Texas Cluster offer between 39 and
58 channels to their subscribers.
(5) Of these channels, 7 are the subject of pending applications.
(6) Of these channels, 8 are the subject of uncontested application
proceedings.
(7) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(8) Of these channels, 4 are the subject of an appeal by an unsuccessful
applicant for the frequencies.
(9) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(10) CMAX has not yet set a launch date for these systems. There can be no
assurance that the systems in these markets will be launched.
N-3
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CMAX, as a whole, has experienced negative cash flow from operations in
each year since its formation due to its system development, expansion and
acquisition activities. Until sufficient cash flow is generated from operations
CMAX will have to utilize external sources of funding to satisfy its working
capital needs. Accordingly, in order to conserve cash pending the availability
of external funding, CMAX has, since June 30, 1994, reduced the rate of growth
of new subscribers. CMAX believes that it needs between 3,000 and 5,000
subscribers to generate operating cash flow in any of its markets. Operating
cash flow is revenue less costs of sales other than depreciation and other
non-cash charges. All four of the systems in the Texas Cluster are presently
generating positive operating cash flow, while CMAX has experienced negative
cash flow.
The Texas Cluster
Austin. The city of Austin is the state capital of Texas and is the home of
numerous state agencies which employ approximately 119,000 people within the
five county area in and surrounding Austin. Additionally, Austin is the home of
the main campus of the University of Texas which has an enrollment of
approximately 50,000 students. CMAX presently provides service to nearly 3,000
dormitory rooms at the University of Texas at Austin. According to the 1990
census, the Austin metropolitan area had a total population of 781,572 which
grew 45.6% from 1980 to 1990. Austin has experienced job growth of approximately
5.1% over the past five years, and its metropolitan-wide unemployment rate for
July 1995 was 3.4%, significantly below the national average of 5.7% for the
same period. Austin is the fourth largest metropolitan area in Texas and its DMA
ranking as reported by the Nielsen Media Research Company for 1994/1995 is
sixty-fifth nationally in the number of television households.
The following table sets forth a description of the programming currently
offered by the Austin system:
AUSTIN CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- -------- ----------------------------------- -------- -----------------------------------
<S> <C> <C> <C>
2 KBVO (FOX) 21 Access*
3 KVUE (ABC) 22 Trinity Broadcast Network*
4 KXAN (NBC) 23 The Weather Channel
5 KEYE (CBS) 24 The Nashville Network
6 ESPN 25 Country Music Television*
7 CNN 26 Concordia College*
8 Home Sports Entertainment* 27 The Learning Channel*
9 KLRU (PBS) 28 ACCI
10 The Family Channel 29 ACCII*
11 TBS Superstation 30 Black Entertainment Television*
12 Turner Network Television 31 HBO
13 KVCTV 32 Showtime
14 Nickelodeon 33 The Movie Channel
15 The Disney Channel 34 QVC Shopping*
16 American Movie Classics 35 Home Shopping*
17 USA Network 36 Pay Per View
18 Headline News 37 MTV
19 The Discovery Channel 39 Univision
20 Arts & Entertainment
<CAPTION>
</TABLE>
- ---------------
* These channels are only available during certain parts of the day.
San Antonio. According to the 1990 census, the San Antonio metropolitan
area had a total population of 1,302,099 which grew 21.5% from 1980 to 1990. San
Antonio has experienced job growth of approximately 2.8% over the past five
years, and its metropolitan-wide unemployment rate for July 1995 was 5.0%, below
the national average of 5.7% for the same period. San Antonio is the third
largest metropolitan area in Texas and its DMA ranking as reported by the
Nielsen Media Research Company for 1994/1995 is thirty-ninth nationally in the
number of television households.
N-4
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N
The following table sets forth a description of the programming currently
offered by the San Antonio system: San Antonio Channel Offerings
SAN ANTONIO CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<S> <C> <C> <C>
2 Preview Guide 22 USA Network
3 CNN 23 The Weather Channel
4 KMOL (NBC) San Antonio+ 24 The Nashville Network
5 KENS (CBS) San Antonio+ 25 Country Music Television
6 ESPN 26 MTV
7 KRRT (UPN) 27 American Movie Classics
8 Home Sports Entertainment 28 C-Span House of Representatives
9 KLRN (PBS) San Antonio+ 29 KABB (FOX) San Antonio+
10 The Family Channel 30 Arts & Entertainment
11 Black Entertainment Television 31 HBO
12 KSAT (ABC) San Antonio+ 32 Showtime
13 WTBS (IND) Atlanta 33 The Movie Channel
14 Nickelodeon 34 FLIX
15 The Disney Channel 35 QVC Shopping/Pay-Per-View
16 The Learning Channel 36 Cable Video Store
17 Mind Extension University* 37 Pay-Per-View I
18 Headline News* 38 Pay-Per-View II
19 The Discovery Channel 39 WGN
20 Turner Network Television 41 Univision
21 EWTN Catholic Network 60 Telemundo+
</TABLE>
- ---------------
+ These channels are received off-air through an additional antenna at the
subscriber's location.
* These channels are only available during certain parts of the day.
Temple/Killeen. The cities of Temple and Killeen, Texas are located 55
miles northeast of Austin and are the home of Fort Hood, one of the U.S. Army's
largest bases worldwide. According to the 1990 census, the Temple/Killeen
metropolitan area had a total population of 255,301 which grew 19% from 1980 to
1990. The Temple/Killeen metropolitan area has experienced job growth of 4.0%
over the past five years and its metropolitan-wide unemployment rate for July
1995 was 5.2%, below the national average of 5.7% for the same period. The DMA
ranking of Temple/Killeen as reported by the Nielsen Media Research Company for
1994/1995 is ninety-eighth nationally in the number of television households.
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The following table sets forth a description of the programming currently
offered by the Temple/Killeen system:
TEMPLE/KILLEEN CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<S> <C> <C> <C>
1 Preview Channel 19 Turner Classic Movies
2 KWTX (CBS) Waco+ 20 Home Sports Entertainment
3 KCEN (NBC) Temple+ 21 MTV
4 KNCT Killeen 22 The Nashville Network
5 KXXV (ABC) Waco+ 23 Country Music Television
6 ESPN 24 Black Entertainment Television
7 KWKT (FOX) Waco+ 25 The Weather Channel
8 USA Network 26 Headline News
9 The Disney Channel 27 C-SPAN*
10 CNN 28 EWTN Catholic Network
11 Discovery Channel 30 HBO
12 Arts & Entertainment 31 Showtime
13 Nickelodeon 32 The Movie Channel
14 The Family Channel 33 QVC*
15 Univision 34 Mind Extension University*
16 American Movie Classics 35 Turner Network Television
17 The Learning Channel 36 Trinity Broadcasting Network*
18 TBS 38 Request*
</TABLE>
- ---------------
+ These channels are received off-air through an additional antenna at the
subscriber's location.
* These channels are only available during certain parts of the day.
Waco. Waco is located 90 miles northeast of Austin and is the home of
Baylor University, which has an enrollment of approximately 12,500 students.
According to the 1990 census, the Waco metropolitan area had a total population
of 189,123 which grew 10.8% from 1980 to 1990. Waco has experienced job growth
of approximately 2.2% over the past five years, and its metropolitan-wide
unemployment rate for July 1995 was 5.4%, below the national average of 5.7% for
the same period. The DMA ranking of Waco as reported by the Nielsen Media
Research Company for 1994/1995 is ninety-eighth nationally in the number of
television households.
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N
The following table sets forth a description of the programming currently
offered by the Waco system: Waco Channel Offerings
WACO CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<S> <C> <C> <C>
1 Preview Channel 19 Turner Classic Movies
2 KWTX (CBS) Waco+ 20 Home Sports Entertainment
3 KCEN (NBC) Temple+ 21 MTV
4 KNCT Killeen 22 The Nashville Network
5 KXXV (ABC) Waco+ 23 Country Music Television
6 ESPN 24 Black Entertainment Television
7 KWKT (FOX) Waco+ 25 The Weather Channel
8 USA Network 26 Headline News
9 The Disney Channel 27 C-SPAN*
10 CNN 28 EWTN Catholic Network
11 Discovery Channel 30 HBO
12 Arts & Entertainment 31 Showtime
13 Nickelodeon 32 The Movie Channel
14 The Family Channel 33 QVC*
15 Univision 34 Mind Extension University
16 American Movie Classics 35 Turner Network Television
17 The Learning Channel 36 Trinity Broadcasting Network*
18 TBS 38 Request*
</TABLE>
- ---------------
+ These channels are received off-air through an additional antenna at the
subscriber's location.
* These channels are only available during certain parts of the day.
CMAX transmits the signal for the Austin system at 100 watts and the San
Antonio, Temple/Killeen and Waco systems at 50 watts. CMAX estimates each
system's coverage radius to be approximately 35 miles.
Salt Lake City. The city of Salt Lake City is the state capital of Utah and
is the home of the world headquarters of the Church of Jesus Christ of
Latter-day Saints and the University of Utah, which has an enrollment of
approximately 24,100 students. According to the 1990 census, the Salt Lake City
metropolitan area had a total population of 1,072,227 which grew 17.8% from 1980
to 1990. Salt Lake City has experienced job growth of approximately 4.48% over
the past five years, and its metropolitan-wide unemployment rate for June 1995
was 3.2%, one of the lowest rates in the United States for the same period. Salt
Lake City is the largest metropolitan area in Utah and its DMA ranking as
reported by the Nielsen Media Research Company for 1994/1995 is thirty-seventh
nationally in the number of television households.
The Additional Texas Systems are subject to the Sublease Agreement which
gives Heartland the right to acquire such systems. In the markets for some of
the Additional Texas Systems, CMAX believes that additional channels have been
assembled by third parties, which could make it uneconomic for CMAX to develop
such systems. No assurances can be given that, in the event the transactions
contemplated by the Sublease Agreement are not consummated, CMAX will be
successful in obtaining sufficient additional channel leases to enable CMAX to
operate wireless cable systems in each such market.
MARKETING
CMAX has established marketing and sales operations in the Texas Cluster
and plans to establish similar marketing and sales operations as additional
systems are launched. CMAX's direct sales efforts are primarily door-to-door by
its sales force which, as of December 31, 1995, was comprised of 3 individuals
in Austin, 9 individuals in San Antonio, 6 individuals in Temple/Killeen and 6
individuals in Waco. Members of the sales force are responsible for assigned
geographic areas and are compensated on a commission basis. CMAX
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also utilizes telemarketing to potential subscribers responding to CMAX's
promotional activities. In addition, CMAX utilizes television, direct mail,
radio and print advertising and special events to further its marketing efforts.
INSTALLATION
Subscriber installation in the Texas Cluster is provided for various fixed
fees by independent contractors who assume the inventory risk of all
installation material, including antennae, masts and down converters, but not
set-top converters, which are provided by, and remain the property of, CMAX.
This arrangement eliminates CMAX's need to maintain an installation workforce
and reduces the amount of inventory it must carry.
COMPETITION
Wireless cable television operators face competition from a number of other
sources, including potential competition from emerging trends and technologies
in the cable television industry, some of which are described below. Many of
CMAX's competitors have far greater financial resources than CMAX.
Traditional Hard-Wire Cable. CMAX believes that its primary competition is
from traditional hard-wire cable operators. CMAX's primary traditional hard-wire
competitors in the Texas Cluster during fiscal 1995 included Time Warner Cable
in Austin, Paragon Houston Industries, Inc. in San Antonio and Metrovision in
Temple/Killeen and Waco, all of which are significantly larger and have
substantially greater financial resources than CMAX. Time Warner Cable has
recently announced the proposed acquisition of Paragon Houston Industries, Inc.
in San Antonio and Metrovision in Temple/Killeen and Waco. Currently, these
primary traditional hard-wire cable competitors in the Texas Cluster offer
between 39 and 58 channels to their subscribers compared to between 31 and 37
channels offered by CMAX. The technology used by such operators is a coaxial
cable system which transmits signals from a head-end, delivering local and
satellite-delivered programming via a distribution network consisting of
amplifiers, cable and other components to subscribers.
Direct Broadcast Satellite ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the home user. 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 receiver equipment for a single television set
costs approximately $700 per customer, plus installation fees. Each additional,
independent outlet requires a separate descrambling device at additional cost to
the subscriber.
Due to the cost of receiving equipment as well as the broader availability
of local programming offered by wireless cable systems, CMAX believes that
wireless cable systems currently enjoy a comparative cost and local programming
advantage over DBS systems.
Telephone Companies. Under the Communications Act of 1934, as amended (the
"Communications Act"), local exchange carriers ("LECs") are currently prohibited
from providing video programming directly to subscribers in their respective
telephone service areas. Certain Federal courts have recently ruled, however,
that this "teleco-cable cross-ownership ban" abridges the First Amendment rights
of LECs under the U.S. Constitution. These rulings are currently under appeal or
are expected to be appealed. Proposals to lift the teleco-cable cross-ownership
ban are also currently under review by the U.S. Congress. In light of these
court decisions, the FCC has indicated that it will look favorably on waivers of
the teleco-cable cross-ownership ban under certain circumstances. The FCC
already permits LECs to provide "video dialtone" 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. The FCC has ruled that the
teleco-cable cross-ownership ban does not apply to wireless cable.
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, only it operates without a franchise from a local
authority. SMATV operates under an agreement with a private landowner to service
one or more
N-8
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N
multiple dwelling units. 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 ("GHz") band.
Local Multi-Point Distribution Service. In 1993, the FCC proposed to
redesignate the 28 GHz band to create a new video programming delivery service
referred to as local multipoint distribution service ("LMDS"). As proposed by
the FCC, LMDS would provide two licensees up to 49 channels each for the
distribution of video programming in prescribed geographic areas. Numerous
satellite system operators, including, among others, the National Aeronautics
and Space Administration, Motorola Satellite Communications, Inc., Hughes Space
and Communications Co., Ameritech, and Loral Quilcomm Satellite Services, Inc.,
opposed in whole or in part, the redesignation of the 28 GHz band for video
distribution. The FCC recently proposed that the 28 GHz band be shared by
terrestrial and satellite services, that competitive bidding be used to award
LMDS and satellite authorizations, and that LMDS authorizations be based on 493
geographic areas known as basic trading areas ("BTAs").
Satellite Receive Dishes. Satellite receive dishes are generally seven to
twelve foot dishes mounted in the yards of homes to receive television signals
from orbiting satellites. Until the implementation of scrambling, 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
CMAX competes with these systems to some degree in marketing its services.
Off-Air Local Broadcasts. Off-air local broadcasts (e.g., ABC, NBC, CBS,
Fox and PBS) provide a free programming alternative to the public. CMAX
currently retransmits certain off-air local broadcasts to its wireless cable
subscribers, but its ability to do so is generally dependent upon receipt of
retransmission consent.
Video Stores. Retail stores rent video tapes and are a major participant in
the television program delivery industry. According to the Cable Television's
Fact Book, in 1994 there were approximately 76,312,700 households with video
cassette recorders in the United States.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to utilize specified
frequencies, the operator must then obtain the right to use the programming to
be transmitted over those frequencies.
General. Currently, with the exception of the retransmission of off-air
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 CMAX has been
significantly mitigated by the Cable Act and various FCC regulations promulgated
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 and terms and conditions of sale of programming. Of the major cable
television programming services carried by CMAX, only ESPN, USA Network and A&E
are not currently directly owned by vertically integrated multiple cable system
operators, and CMAX historically has not had difficulty in arranging
satisfactory contracts for these services.
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, as amended, certain cable systems and
wireless 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 with and the payment of certain fees to the U.S. Copyright Office.
Certain FCC rules require wireless and traditional hard-wire cable
operators to secure the consent of certain local commercial television broadcast
stations in order to retransmit their signals. However, wireless
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<PAGE> 517
cable systems, unlike traditional hard-wire cable systems, are not required
under the FCC's "must carry" rules to retransmit a specified number of local
commercial television or qualified low power television signals. Although there
can be no assurances that CMAX will be able to obtain requisite broadcaster
consents, CMAX believes in most cases it will be able to do so for little or no
additional cost.
EMPLOYEES
As of December 31, 1995, CMAX had a total of 153 employees, 42 of whom were
located in Austin, 49 of whom were located in San Antonio, 37 of whom were
located in Temple/Killeen and 25 of whom were located in Waco. Of such
employees, 39 provide technical services, 81 are office personnel and customer
service representatives (of which 22 are part-time), 24 are marketing and sales
staff and 9 are executive and administrative personnel. New subscriber
installations are performed by an independent contractor, thus reducing the
number of persons employed by CMAX. None of CMAX's employees is subject to a
collective bargaining agreement. CMAX has experienced no work stoppages and
believes that its relations with its employees are good.
PROPERTY OF CMAX
CMAX leases approximately 17,000 square feet in Austin, approximately
29,000 square feet in San Antonio and approximately 10,000 square feet in Waco
for its customer service and warehouse needs. Such leases run through April
2010, mid-April 2004 and May 1999, respectively. CMAX also leases approximately
6,800 square feet in Austin for its executive offices pursuant to a lease
expiring in December 1999. CMAX owns an approximately 10,000 square foot
customer service and warehouse facility in the Temple/Killeen area. CMAX
believes that space meeting its physical and cost requirements is readily
available in Austin, San Antonio and Waco and intends to lease new facilities
upon the expiration of its current leases. In addition to office space, CMAX
leases land on which it has constructed its head-ends and transmission towers
for the Texas Cluster. CMAX's beambenders are located on private lots with the
landlord receiving free wireless cable service or nominal rent. CMAX believes
that office space and space for head-ends and transmission towers are readily
available on acceptable terms in the markets where CMAX intends to operate
wireless cable systems.
LEGAL PROCEEDINGS
CMAX is not a party to any litigation that would have a material adverse
effect on its business.
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N
CMAX
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated statement of operations and balance sheet data
presented below for the periods ended December 17, 1992 and June 30, 1993 and
the fiscal years ended June 30, 1994 and 1995 and as of June 30, 1994 and 1995,
were derived from the consolidated financial statements of CMAX and the
predecessor of CMAX's business (the "CMAX Predecessor"), which are included
elsewhere in this Proxy Statement/Prospectus. The selected consolidated
statement of operations data presented below for the fiscal years ended June 30,
1991 and 1992 were derived from the financial statements of CMAX Predecessor,
but which are not included in this Proxy Statement/Prospectus. The pro forma
statement of operations data give effect to the acquisition of the Austin and
San Antonio Systems in December 1992 (the "1992 Acquisition") as if it had
occurred July 1, 1992. See "Pro Forma Information for 1992 Acquisition." The
statement of operations data for the three months ended September 30, 1994 and
1995 and the balance sheet data as of September 30, 1995 have been derived from
the unaudited financial statements of CMAX included elsewhere in this
Proxy/Prospectus, but, in the opinion of CMAX, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. The results for the three months ended September 30, 1994
and 1995 are not necessarily indicative of results to be expected for a full
fiscal year. The selected consolidated financial data should be read in
conjunction with "CMAX -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
(including the notes thereto) of CMAX and CMAX Predecessor contained elsewhere
in this Proxy Statement/Prospectus. See "Index to Consolidated Financial
Statements and Unaudited Pro Forma Information."
<TABLE>
<CAPTION>
CMAX PREDECESSOR(1) CMAX
------------------------------------ -------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
FISCAL
FISCAL YEAR ENDED PERIOD FROM PERIOD FROM YEAR
JUNE 30, JULY 1, 1992 DECEMBER 18, ENDED
------------------ TO DECEMBER 1992 TO JUNE JUNE 30,
1991 1992 17, 1992 30, 1993 1993(2)
------- ------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................. $ 1,182 $ 2,675 $ 1,835 $ 2,277 $ 4,112
Operating expenses:
Systems operations........................... 658 1,282 856 1,092 1,948
Selling, general and administrative.......... 1,467 1,855 1,028 1,336 2,436
Depreciation and amortization................ 781 1,661 1,149 1,338 2,317
------- ------- ------- ------- -------
Total operating expenses................. 2,906 4,798 3,033 3,766 6,701
------- ------- ------- ------- -------
Operating loss................................. (1,724) (2,123) (1,198) (1,489) (2,589)
Interest expense............................... (193) (713) (343) (288) (525)
Other income................................... 3 5 505 2 7
------- ------- ------- ------- -------
Loss before minority interest............ (1,914) (2,831) (1,036) (1,775) (3,107)
Minority interest in consolidated net loss..... 245 176 -- -- --
------- ------- ------- ------- -------
Net loss................................. $(1,669) $(2,655) $ (1,036) $ (1,775) $(3,107)
======= ======= ======= ======= =======
Net loss per common share........................ -- -- -- $ (0.35) $ (0.61)
======= ======= ======= ======= =======
Weighted average shares outstanding.............. -- -- -- 5,100 5,100
======= ======= ======= ======= =======
Other Financial Data:
EBITDA(3)...................................... -- -- $ (49) $ (151) $ (272)
Capital expenditures(4)........................ -- -- 655 21,768 22,423
<CAPTION>
CMAX
-----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED THREE MONTHS ENDED
JUNE 30, SEPTEMBER 30,
------------------- ------------------
1994 1995 1994 1995
------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................. $ 7,709 $ 13,463 $ 3,144 $ 3,633
Operating expenses:
Systems operations........................... 3,759 6,301 1,442 1,540
Selling, general and administrative.......... 7,125 9,051 2,188 2,081
Depreciation and amortization................ 4,239 8,274 1,732 2,514
------- -------- ------- -------
Total operating expenses................. 15,123 23,626 5,362 6,135
------- -------- ------- -------
Operating loss................................. (7,414) (10,163) (2,218) (2,502)
Interest expense............................... (506) (875) (101) (311)
Other income................................... 421 255 82 17
------- -------- ------- -------
Loss before minority interest............ (7,499) (10,783) (2,237) (2,796)
Minority interest in consolidated net loss..... -- -- -- --
------- -------- ------- -------
Net loss................................. $(7,499) $(10,783) $(2,237) $(2,796)
======= ======== ======= =======
Net loss per common share........................ $ (1.05) $ (1.21) $ (0.26) $ (0.29)
======= ======== ======= =======
Weighted average shares outstanding.............. 7,142 8,902 8,600 9,507
======= ======== ======= =======
Other Financial Data:
EBITDA(3)...................................... $(3,175) $ (1,889) $ (486) $ 12
Capital expenditures(4)........................ 17,299 9,798 3,939 1,122
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1994 1995 1995
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term investments.................................. $14,558 $ 2,206 $ 786
Total assets.......................................................................... 53,203 51,954 49,445
Long-term debt........................................................................ 3,200 10,808 10,808
Total stockholders' equity............................................................ 44,086 37,709 34,913
</TABLE>
- ---------------
(1) Includes consolidated operations of CMAX Predecessor's Austin and San
Antonio systems, the assets of which were acquired by CMAX on December 18,
1992.
(2) Presented on a pro forma basis as if the 1992 Acquisition had occurred on
July 1, 1992.
(3) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(4) Capital expenditures for the period from December 18, 1992 to June 30, 1993
were comprised of $3,645 for purchases of systems and equipment and $18,123
for the purchase of certain wireless cable systems. Capital expenditures for
all other periods presented consist solely of purchases of systems and
equipment.
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PRO FORMA INFORMATION OF 1992 ACQUISITION
CMAX acquired the assets of the CMAX Predecessor's Austin and San Antonio
wireless cable television systems in the 1992 Acquisition on December 18, 1992.
The Pro Forma Statement of Operations for the year ended June 30, 1993 has been
derived from the CMAX Predecessor's audited statement of operations for the
period from July 1, 1992 to December 17, 1992 and CMAX's audited statement of
operations for the period from December 18, 1992 to June 30, 1993. The Pro Forma
Information gives effect to the 1992 Acquisition as if it had occurred July 1,
1992.
The 1992 Acquisition was accounted for as a purchase. In accordance with
Accounting Principles Board Opinion No. 16, the purchase price was allocated to
the assets acquired and liabilities assumed based on the fair value of such
assets and liabilities. The Pro Forma Information has been prepared by CMAX and
all adjustments have been made by CMAX based on assumptions deemed appropriate
by CMAX. The Pro Forma Information is presented for information purposes only
and does not purport to be indicative of the results of operations which
actually would have occurred had the 1992 Acquisition occurred on July 1, 1992
or which may be expected to occur in the future. The Pro Forma Information
should be read in conjunction with the Consolidated Financial Statements and
Notes included elsewhere in this Proxy/Prospectus.
<TABLE>
<CAPTION>
CMAX
--------------------------------------------------------------
CMAX
PREDECESSOR
-----------
PERIOD FROM PERIOD FROM PRO FORMA
JULY 1, 1992 TO DECEMBER 18, FISCAL YEAR
DECEMBER 17, 1992 TO JUNE ENDED JUNE
1992 30, 1993 ADJUSTMENTS 30, 1993
--------------- ------------- ----------- -----------
(AS REPORTED) (AS REPORTED)
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Total revenues..................... $ 1,835 $ 2,277 $ 4,112
Operating expenses:
Systems operations............... 856 1,092 1,948
Selling, general and
administrative................ 1,028 1,336 $ 72(1) 2,436
Depreciation and amortization.... 1,149 1,338 (170)(2) 2,317
------- ------- -------- -------
Total operating
expenses............... 3,033 3,766 (98) 6,701
------- ------- -------- -------
Operating loss..................... (1,198) (1,489) 98 (2,589)
Interest expense................... (343) (288) 106(3) (525)
Other income....................... 505 2 (500)(4) 7
------- ------- -------- -------
Net loss................. $(1,036) $(1,775) $ (296) $(3,107)
======= ======= ======== =======
</TABLE>
- ---------------
(1) Represents executive compensation and related charges as reported by the
CMAX Predecessor totalling $192,000 for the fiscal year ended June 30,
1993, which have been reversed and replaced by a pro forma charge for
management and consulting fees to CMAX affiliates totalling 3.5% of total
revenue and $400,000 annually, respectively.
(2) Represents an increase in depreciation and amortization resulting from
step-up in system and equipment assets and intangibles as a result of
CMAX's acquisition of certain CMAX Predecessor assets including channel
rights amortization related to the certain options of approximately
$308,000 for the fiscal year ended June 30, 1993, offset by a reduction in
depreciation expense resulting from CMAX's utilization of composite
depreciable lives for installation assets in the amount of $478,000 for the
fiscal year ended June 30, 1993. See Note 2 to the Notes to Consolidated
Financial Statements.
(3) Represents interest expense as reported on CMAX Predecessor borrowings
principally from stockholders and related parties totalling $343,000 for
the fiscal year ended June 30, 1993, which has been reversed and replaced,
for the fiscal year ended June 30, 1993, by interest on CMAX's $3,000,000
subordinated seller note and the CMAX Credit Facility as if the maximum
amount borrowed during the fiscal year ended June 30, 1993 was outstanding
during the entire period.
(4) Represents a forfeited nonrefundable purchase option extension payment not
considered a component of the acquired operations.
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N
CMAX -- MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, and other financial information appearing
elsewhere in this Proxy Statement/Prospectus. For purposes of this Section,
references to CMAX include the CMAX Predecessor.
OVERVIEW
CMAX is a wireless cable operator with current operations in Austin, San
Antonio, Temple/Killeen and Waco. CMAX's four operating systems currently
provide wireless cable service to approximately 34,300 subscribers (as of
November 30, 1995) in the Texas Cluster. In addition to its existing operating
systems, CMAX has significant channel positions in Salt Lake City, Utah, and
holds wireless cable channel rights in the Additional Texas Systems. In managing
its portfolio of wireless channel rights, CMAX may, at its option, exchange
existing rights in unlaunched markets for existing channel rights of others in
markets which have a greater strategic value to CMAX or sell, or lease such
channel rights.
In December 1992, CMAX's business was acquired from the CMAX Predecessor by
a newly-organized affiliate of Charterhouse together with Galaxy Cablevision for
$15.7 million. CMAX's recent financial performance reflects CMAX's brief
operating history, the significant costs incurred to launch new systems and the
expansion of CMAX's infrastructure in order to manage the expected growth in its
subscriber base. See "-- Results of Operations."
CMAX's strategy is to own, develop and operate wireless cable channel
systems with full channel line-ups in geographic clusters which focus on
mid-sized cities and their surrounding areas. This clustering enables CMAX to
take advantage of economies of scale in management, customer service, training
and marketing. CMAX believes these economies help to reduce the number of
subscribers required for a system to reach a break-even operating cash flow.
The growth of CMAX's subscriber base requires a substantial ongoing capital
investment. A significant portion of the cost of a wireless cable system is
incurred incrementally as subscribers are added to the system. The capital cost
of adding a new subscriber is approximately $360 per installation plus convertor
boxes, of which approximately $100 of materials plus converter boxes are
recoverable upon disconnect. See "-- Liquidity and Capital Resources."
On September 11, 1995, CMAX signed the CMAX Merger Agreement, with
Heartland and its wholly-owned subsidiary, CMAX MergerSub. Pursuant to the CMAX
Merger Agreement, at the closing, CMAX MergerSub will be merged with and into
CMAX, and the stockholders of CMAX will receive newly issued publicly tradeable
shares of Heartland Common Stock valued at $8.50 per share of CMAX Common Stock,
subject to adjustment. Effective upon the closing, CMAX will become a wholly
owned subsidiary of Heartland. The total consideration under the CMAX Merger
Agreement is valued at approximately $80.8 million, subject to adjustment. The
consummation of the CMAX Merger Agreement is subject to customary closing
conditions, including the approval of the stockholders of CMAX. There can be no
assurance that all such conditions will be met.
Also in connection with the execution of the CMAX Merger Agreement, CMAX
entered into the Sublease Agreement with Heartland. Pursuant to the terms of the
Sublease Agreement, CMAX subleased to Heartland all of its wireless cable
television rights in the Additional Texas Systems and paid CMAX a $2.4 million
non-refundable deposit for such rights. If the CMAX Merger Agreement is
terminated as a result of a breach thereof by CMAX or as a result of a competing
acquisition proposal, Heartland will acquire such wireless cable television
rights for nominal additional consideration. If the CMAX Merger Agreement is
terminated for any other reason, Heartland shall acquire such wireless cable
television rights for an amount equal to the difference between the appraised
value of such rights and the $2.4 million previously paid by Heartland.
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<PAGE> 521
Also, in connection with the CMAX Merger Agreement, Heartland agreed to
loan to CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced
on or about December 29, 1995 to be used for working capital purposes, and (b)
$500,000 may be used for subscriber growth. The CMAX Loan will not increase the
amount of CMAX Excess Liabilities. Upon consummation of the CMAX Merger
Agreement, it is anticipated that the CMAX Loan will remain as an inter-company
obligation from CMAX to Heartland. In the event that the CMAX Merger Agreement
is not consummated, the CMAX Loan is payable August 29, 1996; provided, that if
the CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
RESULTS OF OPERATIONS
Fiscal Years Ended June 30, 1993, 1994 and 1995
The following table presents, for the periods indicated, the amounts and
percentages of CMAX's revenues represented by certain expense items. All
statement of operations information in the table and the discussion and analysis
that follows with respect to the fiscal year ended June 30, 1993 is derived from
the pro forma financial information which gives effect to the 1992 Acquisition
as if it had occurred on July 1, 1992.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------------
PRO FORMA 1993 1994 1995
------------------- ------------------ ------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
-------- -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......................... $ 4,112 100.0% $ 7,709 100.0% $ 13,463 100.0%
Operating expenses:
Systems operations.................... 1,948 47.4% 3,759 48.8% 6,301 46.8%
Selling, general and administrative... 2,436 59.2% 7,125 92.4% 9,051 67.2%
Depreciation and amortization......... 2,317 56.4% 4,239 55.0% 8,274 61.5%
------- ------ ------- ------ -------- ------
Total operating expenses........... 6,701 163.0% 15,123 196.2% 23,626 175.5%
------- ------ ------- ------ -------- ------
Operating loss.......................... (2,589) (7,414) (10,163)
Interest expense........................ (525) 12.8% (506) 6.6% (875) 6.5%
Other income............................ 7 0.2% 421 5.5% 255 1.9%
------- ------ ------- ------ -------- ------
Net loss................................ $(3,107) $(7,499) $(10,783)
======= ======= ========
Subscriber data:
Number of subscribers at period end... 11,475 28,024 33,123
Average monthly service revenue per
subscriber......................... $ 30.22 $ 30.75 $ 32.76
</TABLE>
N-14
<PAGE> 522
N
CMAX and the CMAX Predecessor have experienced increasing net losses during
each period of their operations. These net losses are attributable to the
start-up costs, marketing and advertising costs, interest expense and
depreciation and amortization of capital expenditures resulting from the
development of the Texas Cluster. These costs are higher during periods when a
new system is being launched and during periods when many subscribers are being
added to CMAX's systems. CMAX expects to continue experiencing net losses for at
least the next several years as a result of expansion of the Texas Cluster. This
period of losses could continue longer, especially if CMAX is unable to obtain
additional sources of financing.
The following table presents, as of the dates indicated, the number of
subscribers in each market in the Texas Cluster.
<TABLE>
<CAPTION>
SYSTEM JUNE 30, JUNE 30, JUNE 30,
LAUNCH DATE 1993 1994 1995
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of subscribers at period end in:
Austin.................................. November 1989 9,959 14,249 12,443
San Antonio............................. March 1993 1,516 11,520 11,846
Temple/Killeen.......................... April 1994 -- 2,255 5,738
Waco.................................... July 1994 -- -- 3,096
------ ------ ------
Total........................... 11,475 28,024 33,123
====== ====== ======
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1993, 1994 AND 1995
Revenue Analysis
Total revenues for CMAX increased 87.5% or $3,597,000 from fiscal 1993 to
fiscal 1994 and 74.6% or $5,754,000 from fiscal 1994 to fiscal 1995. The
increase in total revenue was primarily due to the increase in the average
number of subscribers and an increase in the number of premium subscription
units sold to subscribers during such periods. The following table sets forth
the various components of revenue for the fiscal years ended June 30, 1993, 1994
and 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------------
PRO FORMA 1993 1994 1995
------------------ ------------------ -------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Basic revenue......................... $2,540 61.8% $4,675 60.6% $ 8,068 59.9%
Premium and pay-per-view revenue...... 1,045 25.4% 1,665 21.6% 3,031 22.5%
Other revenue......................... 527 12.8% 1,369 17.8% 2,364 17.6%
------ ------ ------ ------ ------- ------
Total revenues.............. $4,112 100.0% $7,709 100.0% $13,463 100.0%
====== ====== ====== ====== ======= ======
</TABLE>
Basic Revenue. Basic revenue increased 84.1% or $2,135,000 from fiscal 1993
to fiscal 1994, and increased 72.6% or $3,393,000 from fiscal 1994 to fiscal
1995. The increase from fiscal 1993 to fiscal 1994 was primarily the result of
an increase in the average number of subscribers in the Austin and San Antonio
Systems, plus the addition of subscribers in the Temple/Killeen System which
commenced operations in April 1994. The increase from fiscal 1994 to fiscal 1995
was primarily the result of an increase in the average number of subscribers,
due chiefly to the subscriber gains in Temple/Killeen and Waco.
Premium and Pay-Per-View Revenue. Premium and pay-per-view revenue
increased 59.3% or $620,000 from fiscal 1993 to fiscal 1994, and increased 82.0%
or $1,366,000 from fiscal 1994 to fiscal 1995. The increase in premium and
pay-per-view revenue was primarily due to the increase in subscribers discussed
above. CMAX's ratio of premium units to basic subscribers at June 30, 1994 and
1995 was 142% and 138%, respectively. This favorable ratio is the result of
CMAX's retail policy of packaging and discounting premium services. Following
the 1992 Acquisition, CMAX offered The Disney Channel, previously a premium
channel, as part of its basic plus service package at all systems.
N-15
<PAGE> 523
Other Revenue. Other revenue is comprised primarily of service and
installation revenue, fees for additional outlets and late fees. Other revenue
was 12.8% of total revenues in fiscal 1993, 17.8% of total revenues in fiscal
1994 and 17.6% in fiscal 1995. At the end of fiscal 1993 CMAX began charging
installation fees and late fees. The increase from fiscal 1993 to fiscal 1994
was due to a full year of recognizing installation revenue, an increase in the
number and percentage of additional outlets sold and the effect of a full year
of charging late fees to customers. The decrease during fiscal 1995 to 17.6% of
revenue was due to the reduced revenue from installation fees as a result of
less installation activity. CMAX believes that charging an up-front installation
fee better qualifies potential subscribers. Reduced subscriber turnover improves
the overall profitability and cash flow of CMAX's business.
Operating Expense Analysis
Total operating expenses increased 125.7% or $8,422,000 from fiscal 1993 to
fiscal 1994 and 56.2% or $8,503,000 from fiscal 1994 to fiscal 1995. The
increase in operating expenses was primarily due to the significant development
of CMAX's corporate infrastructure and the expansion of CMAX's Texas Cluster
into Temple/Killeen and Waco. The expansion of CMAX's infrastructure was
designed to enable it to serve a larger subscriber base in the future. Further
increases in operating expenses were due to an increase in the average number of
subscribers during such periods. Operating expenses are comprised of the
following: systems operations; selling, general and administrative; and
depreciation and amortization. The following table sets forth information
regarding CMAX's operating expenses for the fiscal years ended June 30, 1993,
1994 and 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------
PRO FORMA 1993 1994 1995
----------------- ------------------ ------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
System operations................. $1,948 47.4% $ 3,759 48.8% $ 6,301 46.8%
Selling, general and
administrative.................. 2,436 59.2% 7,125 92.4% 9,051 67.2%
Depreciation and amortization..... 2,317 56.4% 4,239 55.0% 8,274 61.5%
------ ----- -----
Total operating
expenses.............. $6,701 $15,123 $23,626
====== ===== =====
</TABLE>
Systems Operations. Systems operations expenses increased 93.0% or
$1,811,000 from fiscal 1993 to fiscal 1994 and 67.6% or $2,542,000 from fiscal
1994 to fiscal 1995. Systems operations expenses are comprised primarily of
programming (which is the largest component); channel leases; and technical and
maintenance costs. Programming expenses increased from fiscal 1993 to fiscal
1994 and from fiscal 1994 to fiscal 1995 primarily as a result of increases in
the number of subscribers, contractual rate increases and increases in the
average number of channels available for programming. Channel leasing costs are
a function of the number of subscribers and total revenues, and such costs have
increased as the number of systems, subscribers and corresponding revenue have
increased.
Selling, General and Administrative. Selling, general and administrative
expenses increased 192.5% or $4,689,000 from fiscal 1993 to fiscal 1994 and
increased 27.0% or $1,926,000 from fiscal 1994 to fiscal 1995. Selling, general
and administrative expenses are comprised primarily of the following expenses:
administrative salaries and management fees; advertising and marketing; sales
commissions; bad debt expense; insurance; copyright; and facilities expense.
Increases in selling, general and administrative expenses from fiscal 1993 to
fiscal 1994 and from fiscal 1994 to fiscal 1995 are primarily the result of the
significant development of CMAX's corporate infrastructure, costs resulting from
CMAX's status as a public company, and the launching of the San Antonio,
Temple/Killeen and Waco Systems. Administrative salaries increased as a result
of additional employees required to manage and operate CMAX's systems, which
increased during fiscal 1994 from two to three such systems and increased from
three to four such systems during fiscal 1995.
Advertising and marketing expenses increased from fiscal 1993 to fiscal
1994 as a result of an increased number of subscribers from 11,475 to 28,024
during fiscal 1994 and the initiation of and preparation for
N-16
<PAGE> 524
N
operations in Temple/Killeen and Waco. As a result of slower subscriber growth,
advertising and marketing and sales commissions expenses decreased from fiscal
1994 to fiscal 1995.
Depreciation and Amortization. Depreciation and amortization increased
83.0% or $1,922,000 from fiscal 1993 to fiscal 1994, and 95.2% or $4,035,000
from fiscal 1994 to fiscal 1995. The increase from fiscal 1993 to fiscal 1994
and from fiscal 1994 to fiscal 1995 is due to increased amortization of
intangibles as a result of the 1992 Acquisition and increased depreciation
associated with the increased base of property and equipment installed to serve
CMAX's larger subscriber base.
Interest Expense Analysis
Interest expense decreased 3.6% or $19,000 from fiscal 1993 to fiscal 1994
due to a reduction of debt levels following the CMAX IPO. Interest expense
increased by 73.0% or $369,000 from fiscal 1994 to fiscal 1995 due to increased
borrowings under the CMAX Credit Facility.
Other Income Analysis
Other income consists primarily of interest income. Interest income
increased during fiscal 1994 primarily as a result of interest earned on the
proceeds held by CMAX following the CMAX IPO. Interest income decreased during
fiscal 1995 as the balance of cash and cash equivalents decreased.
RESULTS OF OPERATIONS
Fiscal Quarters Ended September 30, 1994 and 1995
The following table sets forth the percentage relationship of selected
statement of operations items versus revenues for the periods indicated. Dollar
amounts in the table below are in thousands.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1994 1995
------------------- -------------------
% OF % OF
AMOUNT REVENUE AMOUNT REVENUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues............................... $ 3,144 100.0% $ 3,633 100.0%
Operating expenses:
System operations.......................... 1,442 45.9% 1,540 42.4%
Selling, general and administrative........ 2,188 69.6% 2,081 57.3%
Depreciation and amortization.............. 1,732 55.1% 2,514 69.2%
----- ------- -----
Total operating expenses........... 5,362 170.5% 6,135 168.9%
----- ------- -----
Operating loss............................... (2,218) (70.5)% (2,502) (68.9)%
Interest expense............................. (101) (3.2)% (311) (8.6)%
Other income................................. 82 2.6% 17 0.5%
----- ------- -----
Net loss........................... $(2,237) (71.2)% $(2,796) (77.0)%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1994 1995
------ ------
<S> <C> <C>
Number of subscribers at period end................................ 30,432 33,357
Average number of subscribers...................................... 29,448 33,143
</TABLE>
CMAX separately accounts for general and administrative costs incurred by
the four operating systems and by the corporate administrative staff. Costs
incurred by the corporate administrative staff for the three months ended
September 30, 1995, were approximately $620,000, and were included in Selling,
General and Administrative expenses on the Statements of Operations. Excluding
these corporate administrative costs and excluding operating costs related to
the unbuilt markets, each of the four operating systems generated operating
income before depreciation and amortization and the total operating income
before depreciation and
N-17
<PAGE> 525
amortization for the four markets combined was approximately $674,000 for the
three months ended September 30, 1995.
CMAX has experienced increasing net losses during each period of its
operation. These losses are attributable to start-up costs, marketing costs and
depreciation and amortization of capital expenditures related to the development
of the existing systems. These costs are higher during the periods when new
systems are being launched and during periods when many subscribers are being
added to the systems. CMAX expects to continue experiencing net losses through
the date of the merger with Heartland as a result of the continued expansion in
the existing systems.
REVENUE ANALYSIS
Total revenues for the three months ended September 30, 1995, for CMAX
increased 15.6% when compared to the similar quarter of the prior year. These
increases were primarily due to the increase in the number of subscribers
between years. Average monthly service revenue per subscriber for the quarter
ended September 30, 1995 was $33.69, excluding installation revenue and late
charges. Average monthly service revenue per subscriber for the quarter ended
September 30, 1995, was $32.15, excluding installation revenue and late charges.
The following tables set forth the various components of revenue for the
three months ended September 30, 1995 and 1994. Dollar amounts below are in
thousands.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1994 1995
------------------ ------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Basic............................................ $1,879 59.8% $2,063 56.8%
Premiums & PPV................................... 705 22.4% 884 24.3%
Other Revenue.................................... 560 17.8% 686 18.9%
------ ----- ------ -----
Total Revenue.......................... $3,144 100.0% $3,633 100.0%
------ ----- ------ -----
</TABLE>
Basic Revenue. Basic revenue increased $184,000 or 9.8%, for the quarter
ended September 30, 1995 when compared to the similar quarter in the prior year.
This increase was due to the increase in the average number of subscribers,
primarily as a result of the growth of the operating systems in Temple and Waco.
Premium and Pay-Per-View Revenue. Premium and pay-per-view revenue
increased $179,000 or 25.4% for the quarter ended September 30, 1995 when
compared to the similar quarter in the prior year. This increase is primarily
the result of the increase in the number of premium services subscribed to by
customers and, second, the result of an increase in Pay-Per-View revenue from
$76,000 to $164,000 between periods. CMAX's ratio of premium units per basic
subscriber decreased slightly to approximately 138% during the three months
ended September 30, 1995, from approximately 140% during the quarter ended
September 30, 1994.
Other Revenue. Other revenue increased $126,000 or 22.5% for the quarter
ended September 30, 1995 when compared to the similar quarter of the prior year.
Other revenue consists primarily of installation revenue, fees for additional
outlets and late charges. The increase in other revenue for the three months
ended September 30, 1995 was primarily due to the increase in subscribers.
N-18
<PAGE> 526
N
OPERATING EXPENSE ANALYSIS
Total operating expenses increased 14.4% or $773,000 when comparing the
quarter ended September 30, 1995 to September 30, 1994. The increase was
primarily due to the increase in the number of subscribers served and the
significant level of start-up costs associated with launching wireless service
into new markets. The following table sets forth information regarding CMAX's
operating expenses for the three months ended September 30, 1995 and 1994.
Dollar amounts are in the thousands.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1994 1995
------------------ ------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Systems operations................................ $1,442 45.9% $1,540 42.4%
Selling, general and administrative............... 2,188 69.6% 2,081 57.3%
Depreciation and amortization..................... 1,732 55.1% 2,514 69.2%
------ ------ ------ ------
Total operating expenses................ $5,362 170.5% $6,135 168.9%
====== ====== ====== ======
</TABLE>
Systems Operations. Systems operations costs increased by $98,000 or 6.8%
during the quarter ended September 30, 1995 when compared to the similar quarter
during 1994. As a percent of revenue, system operations costs have decreased
slightly during the current quarter as certain fixed operating costs are being
supported by a larger subscriber base. However, the majority of operating costs
are variable and have increased consistent with the increases in subscribers
served. These variable costs include programming costs and channel lease costs.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by 4.9% or $107,000 for the quarter ended September 30, 1995
versus the quarter ended September 30, 1994. Selling, general and administrative
expenses are composed primarily of marketing and advertising, administrative and
customer service salaries and facilities expense. Administrative and customer
service salaries rose as a result of additional employees required to manage and
operate CMAX's systems, which increased from three to four such systems between
the comparable periods. However, selling expenses decreased by approximately
$215,000 between comparable quarters, primarily due to a lower volume of
customer sales during the current quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased by $782,000 or 45.2% during the quarter ended September 30, 1995,
versus the similar quarter of 1994. This increase is due to depreciation related
to the increased base of systems and equipment and, second, due to additional
amortization related to the increased base of intangible assets following the
purchase of channel rights in Salt Lake City.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Cash flow generated from CMAX's operations has not been sufficient to fund the
cost of operations, and servicing existing indebtedness, and CMAX expects this
trend to continue. In fiscal years 1993, 1994 and 1995 and for the three months
ended September 30, 1994 and 1995, net cash used in (provided by) operations and
investing activities approximated $14.7 million, $34.6 million, $6.2 million,
($7.1) million and $1.4 million, respectively. Included in those amounts are
capital expenditures and acquisitions of approximately $16.2 million, $17.7
million, $14.9 million, $3.9 million and $1.1 million, respectively.
On September 11, 1995, CMAX signed the CMAX Merger Agreement, with
Heartland and its wholly owned subsidiary, CMAX Merger Sub. Pursuant to the CMAX
Merger Agreement, at the closing, CMAX Merger Sub will be merged with and into
CMAX, and the stockholders of CMAX will receive newly issued publicly tradeable
shares of Heartland Common Stock valued at $8.50 per share of CMAX Common Stock,
subject to adjustment. Effective upon the closing, CMAX will become a wholly
owned subsidiary of Heartland. The total consideration under the CMAX Merger
Agreement is valued at approximately
N-19
<PAGE> 527
$80.8 million, subject to adjustment. The consummation of the CMAX Merger
Agreement is subject to customary closing conditions, including the approval of
the stockholders of CMAX. There can be no assurance that all such conditions
will be met.
During December 1992, CMAX's business was acquired from the CMAX
Predecessor for a purchase price of $15.7 million, comprised of a $3.0 million
subordinated note due December 1998 bearing interest at 10% per annum,
application of a $2.0 million deposit, $9.9 million in cash, and an interest in
Charter Wireless Cable Holdings, L.L.C. As part of the 1992 Acquisition, the
CMAX Predecessor granted options to CMAX to purchase wireless channel rights in
Temple/Killeen and Waco systems and the Additional Texas Systems.
During the period after the 1992 Acquisition through June 30, 1993, CMAX
financed its subscriber additions in its Austin System and the launch of the San
Antonio System primarily from proceeds from borrowings under its existing $14.5
million CMAX Credit Facility. On November 29, 1993, CMAX consummated an initial
public offering of 3,500,000 shares of CMAX Common Stock at an initial public
offering price of $12.00 per share. CMAX raised gross proceeds of $42.0 million,
resulting in net proceeds to CMAX of approximately $38.1 million. Proceeds of
the CMAX IPO were utilized to reduce outstanding indebtedness under the CMAX
Credit Facility, for working capital needs, to construct transmission facilities
and establish offices in the Temple/Killeen and Waco Systems, and to finance the
capital expenditures associated with subscriber additions in the Texas Cluster
Systems. In addition, CMAX utilized approximately $3.2 million of the proceeds
of the CMAX IPO to exercise the option from the CMAX Predecessor to acquire the
wireless channel rights in the Temple/Killeen and Waco systems and the
Additional Texas Systems.
In February 1995, CMAX completed the acquisition of wireless cable channel
rights to the Salt Lake City System from Technivision, Inc., Omnivision, Inc.
and Interactive Communications Network, Inc. for a purchase price of
approximately $11.0 million, which included $6.6 million in cash and the
issuance of a total of 907,311 restricted shares of CMAX Common Stock to such
sellers and their designees, valued at approximately $4.4 million.
CMAX believes that continuing expansion of the Texas Cluster will require
significant ongoing capital investment. The initial capital costs required to
construct a head-end/transmission facility and establish an operations facility
are estimated at approximately $1.3 million per market. The incremental capital
costs associated with adding a new subscriber are estimated to be approximately
$360 per installation plus the cost of converters, depending on the type of
set-top converter utilized. Utilizing refurbished subscriber equipment removed
from former customers, however, significantly reduces the cost of adding an
additional subscriber. Approximately $100 of materials plus the converter boxes
are recoverable upon disconnect.
As of June 30, 1994 and 1995 and September 30, 1995, outstanding borrowings
under the CMAX Credit Facility were $50,000, $7,500,000 and $7,500,000,
respectively. Such outstanding amount of $7,500,000 represents the present
availability under such bank financing.
In order to fund the cost of operations through the closing date of the
CMAX Merger Agreement, CMAX has entered into the Sublease Agreement with
Heartland. Pursuant to the terms of the Sublease Agreement, CMAX subleased to
Heartland all of its wireless cable television rights in the Additional Texas
Systems and, Heartland paid CMAX a $2.4 million non-refundable deposit for such
rights. If the CMAX Merger Agreement is terminated as a result of a breach
thereof by CMAX or as a result of the acceptance by the Board of Directors of
CMAX of a competing acquisition proposal, Heartland will acquire such wireless
cable television rights for nominal additional consideration. If the CMAX Merger
Agreement is terminated for any other reason, Heartland shall acquire such
wireless cable television rights for an amount equal to the difference between
the appraised value of such rights and the $2.4 million previously paid by
Heartland.
In connection with the CMAX Merger Agreement, Heartland agreed to loan to
CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced December
29, 1996 to be used for working capital purposes, and (b) $500,000 may be used
for subscriber growth. The CMAX Loan will not increase the amount of CMAX Excess
Liabilities. Upon consummation of the CMAX Merger Agreement, it is anticipated
that the CMAX Loan will remain as an inter-company obligation from CMAX to
Heartland. In the event that the CMAX Merger Agreement is not consummated, the
CMAX Loan is payable August 29, 1996; provided,
N-20
<PAGE> 528
N
that if the CMAX Merger Agreement is terminated as a result of a competing
acquisition proposal, then the CMAX Loan will be immediately due and payable.
If the transactions contemplated by the CMAX Merger Agreement are not
consummated, CMAX will have to find additional funding for ongoing operations.
Management will continue to negotiate and seek to amend the current CMAX Credit
Facility and also pursue other areas of financing.
If the merger with Heartland is not consummated, CMAX will have to find
additional financing for ongoing operations. Management will then attempt to
negotiate to amend the existing credit facility and also pursue other areas of
financing.
The operation of CMAX's business requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
operations. Management believes that CMAX's existing cash and cash equivalents
and the CMAX Credit Facility will not be sufficient to fund presently
foreseeable operations. In addition, there is no assurance that alternative
sources of funding will be available on satisfactory terms and conditions, if at
all. Accordingly, if the proposed merger agreement with Heartland is not
consummated, CMAX may be unable to continue as a going concern.
DIVIDENDS ON AND MARKET VALUE OF CMAX COMMON STOCK
The Common Stock, $.01 par value, of CMAX (the "CMAX Common Stock"), began
trading on the Nasdaq-NMS under the symbol "CMAX" on November 19, 1993. The
following table sets forth, on a per share basis for the periods shown, the high
and low closing bid prices of the CMAX Common Stock as reported by the
Nasdaq-NMS. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The price of the CMAX Common Stock in its initial public offering was $12.00 per
share.
<TABLE>
<CAPTION>
CLOSING SALE
PRICE
----------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended June 30, 1994:
Second Quarter (from November 19, 1993).......................... $12.25 $10.00
Third Quarter.................................................... $13.12 $10.25
Fourth Quarter................................................... $11.25 $ 6.31
Fiscal Year Ended June 30, 1995:
First Quarter.................................................... $ 8.00 $ 6.25
Second Quarter................................................... $ 8.00 $ 3.00
Third Quarter.................................................... $ 6.25 $ 3.88
Fourth Quarter................................................... $ 7.75 $ 5.25
Fiscal Year Ended June 30, 1996:
First Quarter.................................................... $ 8.00 $ 6.00
Second Quarter................................................... $ 7.75 $ 6.59
Third Quarter (through January , 1996)......................... $ $
</TABLE>
On January , 1996, the reported last sale price for the CMAX Common Stock
as reported on the Nasdaq NMS was $ per share and there were approximately
100 holders of record and approximately 1,400 beneficial owners of the CMAX
Common Stock.
CMAX has never declared or paid any cash dividends and does not expect to
declare any such dividends for the foreseeable future. Payment of any future
dividends will depend upon earnings and capital requirements of CMAX, CMAX's
credit facilities and other factors CMAX's Board of Directors considers
appropriate. CMAX currently intends to retain earnings, if any, to support
continuing growth and expansion.
The terms of the CMAX Credit Facility prohibit CMAX from paying cash
dividends.
N-21
<PAGE> 529
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS OF CMAX
DIRECTORS AND OFFICER OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership as of December 31, 1995 as to each (i) director, (ii) the four most
highly compensated executive officers of CMAX, including CMAX's Chief Executive
Officer, and (iii) all directors and executive officers of CMAX as a group:
<TABLE>
<CAPTION>
SHARES OF
CMAX PERCENT OF
NAME OF COMMON STOCK CMAX
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
-------------------------------------------------------------------------- ------------
<S> <C> <C>
David J. Aldrich........................................ -- --
Barry L. Babcock........................................ 4,000 *
James E. Bray (1)....................................... 27,000 *
Thomas C. Dircks (2).................................... 1,000 *
A. Lawrence Fagan (2)................................... -- --
Tommy L. Gleason (1) (3)................................ 47,500 *
Jerald L. Kent.......................................... 2,000 *
Ralph G. Kelly (1)...................................... 26,000 *
Douglas E. Montandon (1)................................ 16,100 *
George H. More III...................................... 1,000 *
Ronald L. Voss (3)...................................... -- --
All directors and executive directors as a group
(11 persons) (1)(2)(3)................................ 124,600 1.3%
</TABLE>
- ---------------
* Less than 1%.
(1) The beneficial ownership of shares shown includes stock options exercisable
within 60 days of the filing, which were granted to various individuals in
this table, or included in this group, pursuant to the 1993 CableMaxx, Inc.
Stock Option Plan (the "CMAX Option Plan"). The exercise price per share
for such options is $12.00 per share, which is greater than the
consideration of $8.50 per share to be received by CMAX stockholders in the
CMAX Merger. Pursuant to the CMAX Option Plan and the CMAX Merger
Agreement, stock options held by such individuals and other option holders
are exercisable in full, without regard to any limitations on
exercisability contained in such individual's stock option agreement,
during the period prior to the consummation of the CMAX Merger, including
40,000 shares for Tommy L. Gleason, Jr., 25,000 shares for James E. Bray,
25,000 shares for Ralph G. Kelly and 15,000 shares for Douglas E.
Montandon.
(2) A. Lawrence Fagan is an executive officer, director and stockholder of
Charterhouse and Thomas C. Dircks is an executive officer of Charterhouse.
Each of Messrs. Fagan and Dircks disclaims beneficial ownership of the
shares of CMAX Common Stock beneficially owned by Charter Wireless. See
"Security Ownership and Principal Stockholders of CMAX -- Other Ownership
of CMAX's Common Stock."
(3) Tommy L. Gleason, Jr. is the individual general partner of Galaxy
Cablevision and an affiliate of Mr. Gleason is the corporate General
Partner of Galaxy Cablevision. In addition, Mr. Gleason is the principal
stockholder of Galaxy. Ronald L. Voss is the Vice President of Corporate
Development and the corporate general partner of Galaxy Cablevision and
certain of its affiliates. Each of Messrs. Gleason and Voss disclaims
beneficial ownership of the shares of CMAX Common Stock beneficially owned
by Charter Wireless. See "Security Ownership and Principal Stockholders of
CMAX -- Other Ownership of CMAX's Common Stock."
N-22
<PAGE> 530
N
OTHER OWNERSHIP OF CMAX'S COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership as of December 31, 1995 as to each person known to CMAX to be the
beneficial owners of more than 5% of the outstanding shares of CMAX Common
Stock:
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME OF CMAX COMMON STOCK CMAX COMMON
BENEFICIAL OWNER BENEFICIALLY OWNED STOCK
-------------------------------------------------------------------------- ------------
<S> <C> <C>
Charter Wireless Cable Holdings, L.L.C.(1).............. 5,010,900 52.7%
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, New York 10022
Weiss, Peck & Greer, L.L.C.(2).......................... 699,494 7.4%
One New York Plaza
New York, New York 10004
</TABLE>
- ---------------
(1) Each of CEP, Galaxy, Galaxy Cablevision and the Predecessor are members of
Charter Wireless Holdings. Their respective ownership interests in Charter
Wireless are as follows: CEP: 74%; Galaxy Cablevision: 15%; Galaxy: 6%; and
the CMAX Predecessor: 5%. The general partner of CEP is an affiliate of
Charterhouse. Accordingly, Charterhouse which may be deemed to control
Charter Wireless. As a result of the foregoing, all of the shares of CMAX
Common Stock held by Charter Wireless would, for purposes of Section 13(d)
of the Exchange Act be considered to be beneficially owned by Charterhouse.
(2) Weiss, Peck & Greer, L.L.C. is a limited liability company organized under
Delaware law ("Weiss Peck") which is registered under Section 15 of the
Exchange Act and is registered under Section 203 of the Investment Advisers
Act of 1940, as amended. As of December 31, 1995, Weiss Peck held 699,494
shares of CMAX Common Stock for the discretionary accounts of certain
clients. For purposes of Section 13(d) of the Exchange Act, such shares
would be considered to be beneficially owned by Weiss Peck. Weiss Peck
disclaims beneficial ownership of such shares. The principals of Weiss Peck
also disclaim beneficial ownership of such shares other than those shares
of CMAX Common Stock owned of record by such principals.
As of December 31, 1995, CMAX's management knows of no other beneficial
owner of CMAX of greater than 5% of the outstanding shares of CMAX Common Stock.
COMPARISON OF RIGHTS OF SECURITY HOLDERS OF
HEARTLAND AND CMAX
The rights of the stockholders of CMAX are governed by the DGCL. Upon the
consummation of the CMAX Merger Agreement, the former CMAX stockholders will
become minority stockholders ("Minority Holders") of Heartland, a Delaware
corporation. As stockholders of Heartland, such Minority Holders' rights will
differ in certain respects from those presently held since their rights will
also be governed by the Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of CMAX's
shareholders and those of Heartland's stockholders are set forth below. This
summary is not intended to be relied upon as an exhaustive list of differences
or a detailed description and analysis of the provisions discussed and is
qualified in its entirety by the DGCL, the Heartland Certificate, the Heartland
Bylaws and the Certificate of Incorporation and Bylaws of CMAX.
N-23
<PAGE> 531
GENERALLY
The Certificate of Incorporation of CMAX (the "CMAX Certificate")
authorizes an aggregate of 20,000,000 shares of common stock, par value $.01 per
share (the "CMAX Common Stock") and an aggregate of 5,000,000 shares of
preferred stock, par value $.01 per share (the "CMAX Preferred Stock"). As of
December 31, 1995, 9,507,311 shares of CMAX Common Stock have been issued by
CMAX and no shares of CMAX Preferred Stock have been issued.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock, and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Heartland Preferred Stock have been issued.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets prior to be
consummation.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the NASD. Even if the shares of any class or series of stock
meet the requirements of clause (i) or (ii) above, appraisal rights are
available for such class or series if the holders thereof receive in the merger
or consolidation anything except: (a) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (b) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or held of record by
more than 2,000 stockholders or designated as a national market system security
on an inter-dealer quotation system by the NASD; (c) cash in lieu of fractional
shares of the corporations described in clause (a) or (b) of this sentence; or
(d) any combination of shares of stock and cash in lieu of fractional shares
described in the foregoing clauses (a), (b) and (c).
The stockholders of Heartland and CMAX will not receive dissenters or
appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the
N-24
<PAGE> 532
N
holders of at least two-thirds ( 2/3) of the shares not involved in the
transaction; or (d) under certain other circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland and CMAX have not adopted an amendment to their Certificate of
Incorporation or Bylaws electing not to be governed by these provisions.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
Neither the Heartland Certificate nor the CMAX Certificate provides for
additional requirements regarding amendments to its Certificate of
Incorporation.
AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws is
vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests it in the board of directors. The Heartland
Certificate and the CMAX Certificate each vest in their respective Boards of
Directors the power to adopt, alter, amend, or repeal Bylaws.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation.
Neither the Heartland Certificate nor the CMAX Certificate provide for
preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide additional requirements
regarding the distribution of dividends.
The Certificate of Incorporation of CMAX provides that the shares of CMAX
Common Stock shall be entitled to receive a dividend only as declared from time
to time by the Board of Directors and only (i) after requirements with respect
to prior dividend rights of holders of CMAX Preferred Stock are met; (ii) after
requirements with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts; and (iii) subject to any other conditions which
may be fixed by the Board of Directors.
N-25
<PAGE> 533
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. Neither the Heartland Bylaws
nor the CMAX Bylaws alter the effective period of a proxy.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate and the CMAX Certificate do not provide
additional requirements regarding stockholder action by written consent.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of Heartland
Common Stock, to call a special meeting of stockholders for any purpose or
purposes.
The CMAX Bylaws provide that the Board of Directors or the Chairman of the
Board may call a special meeting of the shareholders. In addition, upon the
written request of a majority of the Board of Directors or of the holders of a
majority of CMAX's issued and outstanding capital stock that is entitled to
vote, the President or Secretary is required to call a special meeting of the
stockholders.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. Neither the
Heartland Certificate nor the CMAX Certificate provides for cumulative voting
for the election of directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. Heartland's Certificate does not fix the number of
directors.
The CMAX Bylaws fix the number of directors at eight (8). The CMAX Bylaws
also provide that the number of Directors may be changed by either a majority of
the Board of Directors or by the stockholders.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Neither Heartland nor CMAX have established a classified
Board of Directors.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect
N-26
<PAGE> 534
N
such director if then cumulatively voted at an election of the entire board of
directors or of the class of directors of which such director is a part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by the written consent of the stockholders.
Under the CMAX Bylaws, a director may be removed from office with or
without cause, by the vote of the stockholders.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or by Bylaws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filling of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements
regarding vacancies of directors.
Under the CMAX Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the number of directors may
be filled for the unexpired portion of the term by a majority of the remaining
directors, even though that majority constitutes less than a quorum.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL. The CMAX Certificate
provides that such persons shall be indemnified to the full extent authorized by
the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested
N-27
<PAGE> 535
directors is not obtainable, or even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel; or (iii) by the
stockholders.
The DGCL requires Heartland and CMAX to advance reasonable expenses to a
director or officer after such person provides an undertaking to repay the
corporation if it is determined that the required standard of conduct has not
been met. This indemnification and advancement of expenses is not exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS.
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
Each of the Heartland Certificate and the CMAX Certificate provides a
provision eliminating the personal liability for monetary damages of its
directors to the fullest extent permitted by the DGCL.
N-28
<PAGE> 536
O
APPENDIX O
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
<PAGE> 537
O
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 11, 1995
BETWEEN
CABLEMAXX, INC.
(A DELAWARE CORPORATION)
AND
HEARTLAND MERGER SUB 2, INC.
(A DELAWARE CORPORATION)
AND
HEARTLAND WIRELESS COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
<PAGE> 538
O
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1. THE MERGER.................................................................. O-1
1.1 The Merger................................................................. O-1
1.2 Effect of the Merger....................................................... O-1
1.3 Closing.................................................................... O-4
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF CABLEMAXX................................. O-4
2.1 Organization; Good Standing; Listing....................................... O-4
2.2 Subsidiaries............................................................... O-4
2.3 Capitalization............................................................. O-4
2.4 Authority; Enforceability; Non-Contravention............................... O-5
2.5 Financial Statements....................................................... O-5
2.6 Taxes...................................................................... O-6
2.7 Property................................................................... O-6
2.8 Receivables................................................................ O-7
2.9 Contracts.................................................................. O-7
2.10 FCC Matters................................................................ O-8
2.11 Insurance.................................................................. O-9
2.12 Litigation................................................................. O-9
2.13 Registration Rights........................................................ O-9
2.14 Key-Person Insurance....................................................... O-9
2.15 Certain Activities and Services............................................ O-9
2.16 Governmental Permits....................................................... O-10
2.17 Compliance With Laws....................................................... O-10
2.18 Environmental Matters...................................................... O-10
2.19 Intellectual Property...................................................... O-10
2.20 Liens...................................................................... O-11
2.21 Regulatory Compliance...................................................... O-11
2.22 Interference............................................................... O-11
2.23 Employee Plans............................................................. O-11
2.24 Finder's Fees.............................................................. O-12
2.25 Copyright Act.............................................................. O-12
2.26 Programming Agreements..................................................... O-12
2.27 SEC Filings................................................................ O-12
2.28 Directors, Officers and Employees.......................................... O-13
2.29 Bank Accounts, etc......................................................... O-13
2.30 Certain Claims............................................................. O-13
2.31 Site Leases and Site Options............................................... O-13
2.32 Rule 145 Affiliates........................................................ O-13
2.33 Wireless Cable Television Systems; Subscribers............................. O-13
2.34 Further Representation..................................................... O-13
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MERGERSUB AND HEARTLAND................... O-13
3.1 Organization and Good Standing............................................. O-14
3.2 Authority; Enforceability; Non-Contravention............................... O-14
3.3 Litigation................................................................. O-14
3.4 Governmental Consents and Approvals........................................ O-14
3.5 Capitalization............................................................. O-14
3.6 Financial Statements....................................................... O-15
</TABLE>
O-i
<PAGE> 539
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.7 SEC Filings................................................................ O-15
3.8 Finder's Fees.............................................................. O-15
3.9 Further Representation..................................................... O-15
ARTICLE 4. COVENANTS OF CABLEMAXX...................................................... O-15
4.1 Operation Prior to the Closing Date........................................ O-15
4.2 Estoppel Certificates...................................................... O-16
4.3 Renewal or Extension of FCC Authorizations................................. O-16
4.4 No Solicitation............................................................ O-17
ARTICLE 5. ADDITIONAL AGREEMENTS....................................................... O-17
5.1 Shareholders Meeting....................................................... O-17
5.2 Registration Statement and Proxy Statement; Listing of Heartland Common
Shares..................................................................... O-18
5.3 Access..................................................................... O-18
5.4 Compliance with Securities Act; Registration Rights Agreement.............. O-19
5.5 Stock Options.............................................................. O-19
5.6 Warrants................................................................... O-19
5.7 Reasonable Efforts......................................................... O-19
5.8 Public Announcements....................................................... O-20
5.9 Notification of Certain Matters............................................ O-20
5.10 Letters of CableMaxx's Accountants......................................... O-20
5.11 Hart-Scott-Rodino Act Filing............................................... O-20
5.12 SEC Filings................................................................ O-20
5.13 Termination of Certain Agreements.......................................... O-20
5.14 Sale of Salt Lake City Market.............................................. O-21
5.15 Exhibits................................................................... O-21
5.16 Use of Proceeds from Sublease/Option Agreement............................. O-21
5.17 Indemnification............................................................ O-21
5.18 Repayment of Indebtedness.................................................. O-22
5.19 Net Liabilities............................................................ O-22
5.20 Resignation of Directors of CableMaxx...................................... O-22
5.21 Heartland Loan............................................................. O-22
5.22 Interference Resolution.................................................... O-22
ARTICLE 6. CONDITIONS PRECEDENT TO MERGER.............................................. O-22
6.1 Registration Statement..................................................... O-22
6.2 No Order................................................................... O-22
6.3 Other Approvals............................................................ O-22
6.4 Lender's Consents.......................................................... O-23
6.5 Fairness Opinions.......................................................... O-23
ARTICLE 7. CONDITIONS PRECEDENT TO CLOSING BY HEARTLAND AND MERGERSUB.................. O-23
7.1 Stockholder Approval....................................................... O-23
7.2 Representations and Warranties............................................. O-23
7.3 CableMaxx Documents........................................................ O-23
7.4 No Material Adverse Change................................................. O-23
7.5 Dissenters' Rights......................................................... O-23
7.6 Accountant's Consent Letter................................................ O-23
7.7 CableMaxx Obligations Performed............................................ O-24
7.8 Satisfaction or Waiver of Conditions Precedent of CableMaxx................ O-24
7.9 Non-Competition............................................................ O-24
7.10 Terminal Price............................................................. O-24
7.11 Audit Results.............................................................. O-24
</TABLE>
O-ii
<PAGE> 540
O
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY CABLEMAXX................................ O-24
8.1 Stockholder Approval....................................................... O-24
8.2 Representations and Warranties............................................. O-24
8.3 Heartland and/or MergerSub Documents....................................... O-24
8.4 Satisfaction or Waiver of Conditions Precedent of Heartland and
MergerSub.................................................................. O-24
8.5 Heartland and MergerSub Obligations Performed.............................. O-24
8.6 No Material Changes........................................................ O-24
8.7 Terminal Price............................................................. O-24
ARTICLE 9. TERMINATION; ADJUSTMENTS TO MERGER CONSIDERATION............................ O-25
9.1 Termination by Mutual Consent.............................................. O-25
9.2 Termination by CableMaxx................................................... O-25
9.3 Termination by Heartland or MergerSub; Adjustment to Merger
Consideration.............................................................. O-25
9.4 Termination Resulting from Acquisition Proposals........................... O-25
9.5 Effect of Termination...................................................... O-25
ARTICLE 10. DEFINITIONS................................................................ O-25
10.2 Defined Terms.............................................................. O-31
ARTICLE 11. MISCELLANEOUS.............................................................. O-31
11.1 Expenses of the Transaction................................................ O-31
11.2 Further Assurances......................................................... O-31
11.3 Notices.................................................................... O-31
11.4 No Modification Except in Writing.......................................... O-32
11.5 Entire Agreement........................................................... O-32
11.6 Severability............................................................... O-32
11.7 Assignment................................................................. O-32
11.8 Publicity; Announcements................................................... O-32
11.9 Choice of Law.............................................................. O-32
11.10 Captions; Construction..................................................... O-32
11.11 Schedules; Exhibits........................................................ O-33
11.12 Counterparts............................................................... O-33
11.13 No Survival................................................................ O-33
</TABLE>
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AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
is made and entered into as of the 11th day of September, 1995, by and among
CABLEMAXX, INC., a Delaware corporation ("CableMaxx"), HEARTLAND MERGER SUB 2,
INC., a Delaware corporation ("MergerSub"), and HEARTLAND WIRELESS
COMMUNICATIONS, INC., a Delaware corporation ("Heartland").
WITNESSETH:
WHEREAS, the respective Boards of Directors of CableMaxx, MergerSub and
Heartland have approved the merger of MergerSub with and into CableMaxx pursuant
and subject to the terms and conditions of this Agreement, whereby each issued
and outstanding share of common stock, par value $.01 per share, of CableMaxx
("CableMaxx Common Share") will be converted into the right to receive the
Conversion Amount (as hereinafter defined);
WHEREAS, CableMaxx, MergerSub and Heartland have previously executed the
Agreement and Plan of Merger, also dated as of the date hereof ("Original
Agreement"), and desire to amend the Original Agreement to provide for the
extension of certain dates and a loan from Heartland to CableMaxx as further
provided herein;
WHEREAS, CableMaxx, MergerSub and Heartland desire to make certain
representations, warranties and agreements in connection with the Merger and
also to set forth the various conditions to the Merger;
WHEREAS, the Board of Directors of CableMaxx, MergerSub and Heartland have
adopted resolutions approving this Agreement;
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 10 hereof.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows: ARTICLE 1. THE MERGER
1.1 THE MERGER. At the Effective Time, MergerSub will merge with and into
CableMaxx (the "Merger") in accordance with the terms and conditions of this
Agreement. CableMaxx shall be the corporation surviving the Merger (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware. The Merger shall have the effects specified under the DGCL.
1.2 EFFECT OF THE MERGER.
(A) EFFECTIVE TIME. At the Effective Time, subject in all instances to
each of the terms, conditions, provisions and limitations contained in this
Agreement, (i) MergerSub will merge with and into CableMaxx by the filing
with the Secretary of the State of Delaware of a Certificate of Merger;
(ii) each CableMaxx Common Share outstanding at the Effective Time, by said
occurrence and with no further action on the part of the holder thereof,
shall be transformed and converted into the right to receive, upon
surrender of a certificate representing such CableMaxx Common Share
("Certificate"), the Conversion Amount, without interest or any similar
payment thereon or with respect thereto; (iii) each share of common stock
of MergerSub outstanding prior to the Merger will, by said occurrence and
with no further action on the part of the holder thereof, be transformed
and converted into one share of common stock of the Surviving Corporation,
so that thereafter Heartland will be the sole and exclusive owner of equity
securities of the Surviving Corporation; and (iv) the Surviving Corporation
shall be the owner of all of the business, assets, rights and other
attributes thereto of, or held by, either CableMaxx or MergerSub.
(B) CONVERSION AMOUNT. On the Closing Date, each outstanding CableMaxx
Common Share shall be converted into the right to receive the number of
Heartland Common Shares (the "Conversion
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Amount") equal to (i) Merger Consideration divided by (ii) the product of
(A) the number of CableMaxx Common Shares outstanding at the Effective
Time, multiplied by (B) the Closing Share Price; subject to each party's
respective right to terminate this Agreement as set forth in Section 9.2 or
9.3, as applicable, for the failure of the applicable condition precedent
to the Merger set forth in Section 7.13 or 8.7, as applicable, if the
Terminal Price is either greater than the Maximum Termination Price or less
than the Minimum Termination Price.
(C) CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
certificate of incorporation of the Surviving Corporation shall be the
certificate of incorporation of Merger Sub immediately prior to the
Effective Time; provided that the provisions in such certificate relating
to director and officer indemnification shall be substantially the same as
the provisions currently contained in the certificate of incorporation of
CableMaxx.
(D) BYLAWS OF THE SURVIVING CORPORATION. The bylaws of the Surviving
Corporation shall be the bylaws of MergerSub immediately prior to the
Effective Time; provided that the provisions in such bylaws relating to
director and officer indemnification shall be substantially the same as the
provisions currently contained in the bylaws of CableMaxx.
(E) BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
board of directors and officers of MergerSub immediately prior to the
Effective Time shall be the board of directors and the officers of the
Surviving Corporation, respectively, immediately upon the Effective Time,
and such persons shall serve in such positions for the respective terms
provided by law or in the bylaws of the Surviving Corporation and until
their respective successors are elected and qualified.
(F) HEARTLAND TO ESTABLISH ESCROW. Harris Trust Company of New York
shall act as exchange agent hereunder (the "Exchange Agent"). In the event
Harris Trust Company of New York is unable or unwilling to act as the
Exchange Agent, CableMaxx and Heartland shall, upon mutual agreement, seek
to select a comparable party to act as Exchange Agent. Heartland Common
Shares shall be held by the Exchange Agent pursuant to the terms of an
Exchange Agreement (the "Exchange Agreement") in the form attached hereto
as Exhibit 1.2(f) hereto. Immediately prior to the Effective Time,
Heartland shall deposit, or cause to be deposited, with the Exchange Agent,
in trust for the holders of CableMaxx Common Shares the aggregate
Conversion Amount (together with cash in an amount sufficient to be issued
in lieu of fractional shares) issuable pursuant to Section 1.2(b) in
exchange for outstanding CableMaxx Common Shares (the "Exchange Fund").
(G) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of CableMaxx
Common Shares a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon actual delivery of the Certificates to the Exchange Agent
and shall contain instructions for use in effecting the surrender of the
Certificates in exchange for the Conversion Amount). Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Certificate shall
receive in exchange therefor the Conversion Amount for the CableMaxx Shares
represented by such Certificate, and the Certificate so surrendered shall
forthwith be canceled. Until surrendered as contemplated by this Section
1.2(g), each Certificate shall, at and after the Effective Time, be deemed
to represent only the right to receive, upon surrender of such Certificate,
the Conversion Amount with respect to each CableMaxx Common Share
represented thereby in accordance with the terms of this Agreement.
(H) DIVIDENDS; TRANSFER TAXES. No dividends or other distributions
that are declared on or after the Effective Time on Heartland Common Shares
or are payable to the holders of record of Heartland Common Shares on or
after the Effective Time will be paid to persons entitled by reason of the
Merger to receive Heartland Common Shares until such persons surrender
their Certificates, as provided in this Article 1. Subject to the effect of
applicable law, there shall be paid to the record holder of Heartland
Common Shares (i) at the time of such surrender or as promptly as
practicable thereafter, the amount of any dividends or other distributions
theretofore paid with respect to whole Heartland Common Shares and having a
record date on or after the Effective Time and a payment date prior to such
surrender and
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(ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount of dividends or other distributions payable with
respect to Heartland Common Shares and having a record date on or after the
Effective Time but prior to surrender and a payment date subsequent to
surrender. In no event shall the person entitled to receive such dividends
or other distributions be entitled to receive interest on such dividends or
other distributions. If any dividends, cash in lieu of fractional shares or
Heartland Common Shares are 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
Exchange Agent any transfer or other taxes required by reason of the
issuance of Heartland Common Shares in a name other than that of the
registered holder of the Certificate surrendered or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(I) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional Heartland Common Shares shall be issued upon the surrender for
exchange of Certificates pursuant to this Article 1, and, except as
provided in this Section 1.2(i), no dividend or other distribution, stock
split or interest shall relate to any such fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder of Heartland. In lieu of any fractional
security, each holder of CableMaxx Common Shares who would otherwise have
been entitled to a fraction of a Heartland Common Share upon surrender of
Certificates for exchange pursuant to this Article 1 will be paid an amount
in cash (without interest) equal to the value of the fractional share based
upon the Closing Share Price. Any such payment of cash in lieu of
fractional Heartland Common Shares shall be delivered to each former holder
of CableMaxx Common Shares by check concurrent with the delivery of the
portion of the Conversion Amount represented by Heartland Common Shares.
(J) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Common Shares which
remain undistributed to the former holders of CableMaxx Common Shares for
six (6) months after the Effective Time shall be delivered to Heartland,
upon demand of Heartland, and any former holders of CableMaxx Common Shares
who have not theretofore complied with this Article 1 shall thereafter look
only to the Surviving Corporation and Heartland for payment of their claim
for the Conversion Amount into which such CableMaxx Common Shares are
convertible, any cash in lieu of fractional Heartland Common Shares, and
any dividends or distributions with respect to Heartland Common Shares.
(K) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All Heartland Common
Shares issued, and all cash paid pursuant to this Section 1.2, upon the
surrender for exchange of Certificates in accordance with the terms hereof,
shall be deemed to have been issued or paid, as the case may be, in full
satisfaction of all rights pertaining to the CableMaxx Common Shares.
(L) CLOSING OF CABLEMAXX TRANSFER BOOKS. At the Effective Time, the
stock transfer books of CableMaxx shall be closed and no transfer of
CableMaxx Common Shares shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall
be canceled and exchanged as provided in this Article 1.
(M) FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties
or assets of CableMaxx, or (ii) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors
or their designees shall be authorized to execute and deliver, in the name
and on behalf of each such corporation, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of each of
such corporations, all such other acts and things necessary, desirable or
proper to vest, perfect or confirm its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or
assets of such corporations and otherwise to carry out the purposes of this
Agreement.
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(N) CERTAIN ADJUSTMENTS. The Closing Share Price, Terminal Price,
Maximum Termination Price, Minimum Termination Price, Conversion Amount
and/or number of Heartland Common Shares, as applicable, to be issued in
connection with the Merger shall be subject to appropriate adjustment in
the event of a stock split, stock dividend, cash dividend or distribution,
asset dividend or distribution or other corporate distribution,
reorganization or recapitalization subsequent to the date hereof on or
prior to the Effective Time.
1.3 CLOSING. The Closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date (the "Closing Date") to be specified by the parties, which
shall be no later than the fifth (5th) business day after the satisfaction or
waiver of the conditions set forth in Articles 6, 7 and 8 hereof, unless another
date or place is agreed to in writing by the parties hereto, at the offices of
Arter, Hadden, Johnson & Bromberg, Dallas, Texas, or some other mutually
agreeable location in Dallas, Texas; provided that the Closing Date shall occur
on or before February 29, 1996.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF CABLEMAXX.
CableMaxx hereby represents and warrants to Heartland and MergerSub that as
of the date hereof:
2.1 ORGANIZATION; GOOD STANDING; LISTING. CableMaxx is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. CableMaxx is qualified as a foreign corporation in all jurisdictions
in which it is required to qualify as a result of the conduct of its business or
ownership of its properties and where the failure to be so qualified would have
a Material Adverse Effect, which jurisdictions are set forth in Schedule 2.1.
The CableMaxx Common Shares are currently quoted and traded on the NASDAQ-NMS.
CableMaxx is in compliance with the NASDAQ-NMS listing standards as promulgated
by the National Association of Securities Dealers, Inc., and has not received
any notices and is not aware of any circumstances which may adversely affect
such listing.
2.2 SUBSIDIARIES. CableMaxx (Texas), Inc. ("CM Texas") is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware. CM Texas is qualified as a foreign corporation in all
jurisdictions in which it is required to qualify as a result of the conduct of
its business or ownership of its properties and where the failure to be so
qualified would have a Material Adverse Effect, which jurisdictions are set
forth in Schedule 2.2. Supreme Cable Metroplex, Inc. ("SCM") is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Texas. SCM is qualified as a foreign corporation in all jurisdictions
in which it is required to qualify as a result of the conduct of its business or
ownership of its properties and where the failure to be so qualified would have
a Material Adverse Effect, which jurisdictions are set forth in Schedule 2.2. CM
Texas and SCM are the only Subsidiaries of CableMaxx. CableMaxx owns directly,
free and clear of liens, all outstanding shares of CM Texas, and all such shares
are validly issued, fully paid, non-assessable and not subject to preemptive
rights, and CM Texas owns directly, free and clear of liens, all outstanding
shares of SCM, and all such shares are validly issued, fully paid,
non-assessable and not subject to preemptive rights. Except as set forth on
Schedule 2.2,there are no outstanding subscriptions, options, warrants, calls,
conversion or exchange rights, commitments or agreements of any character
obligating any Subsidiary to issue, deliver or sell additional shares of its
capital stock or equity interests of any class or any securities convertible
into or exchangeable for any such capital stock or equity interests, and there
are no rights of first refusal, transfer restrictions or similar rights or
obligations with respect to the ownership interests of CableMaxx in any
Subsidiary. Except as set forth on Schedule 2.2, CableMaxx does not own,
directly or indirectly, any shares of stock or any other equity or long-term
debt securities of any corporation or have any equity interest in any firm,
partnership, Joint Venture, association or other Person.
2.3 CAPITALIZATION. The authorized capital stock of CableMaxx as of the
date of this Agreement, consists of 20,000,000 shares of common stock, $.01 par
value per share, of which 9,507,311 are issued and outstanding, and 5,000,000
shares of preferred stock, $.01 par value per share, of which no shares have
been issued. Schedule 2.3 sets forth as of the date of this Agreement, a true
and correct list of all outstanding options, warrants, calls, puts, commitments
and other rights to purchase, or securities or other rights convertible or
exchangeable into, capital stock of CableMaxx indicating the record and, to the
Knowledge of
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CableMaxx, the beneficial owner thereof, the exercise, conversion or exchange
price and period thereof, the term and any vesting or other conditions thereof.
All securities issued or issuable by CableMaxx or any Subsidiary have been paid
for and delivered in accordance with the terms of applicable agreements or
instruments, duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by reason of being such
holders; none of such securities were issued in violation of the preemptive
rights of any holder of any security of CableMaxx or any Subsidiary or any
similar rights granted by CableMaxx or any Subsidiary or applicable laws.
2.4 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. CableMaxx and each
Subsidiary have the corporate power and authority to conduct the business and
activities conducted by it or them and to own or lease the assets owned or
leased by it or them. CableMaxx has the corporate power and authority (subject
to shareholder approval as set forth in Section 8.1) to execute and deliver this
Agreement and all other documents required to be executed and delivered by
CableMaxx hereunder, to consummate the transactions hereby contemplated, and to
take all other actions required to be taken by CableMaxx pursuant to the
provisions hereof. This Agreement and all other documents required to be
executed and delivered by CableMaxx hereunder have been duly authorized by all
corporate action necessary on the part of CableMaxx (subject to shareholder
approval as set forth in Section 8.1) and have been duly or will when executed
and delivered be duly executed and delivered by CableMaxx and constitute the
legal, valid and binding obligations of CableMaxx, enforceable against CableMaxx
in accordance with their terms. Except as disclosed in Schedule 2.4, neither the
execution nor the delivery of this Agreement and all other documents required to
be executed and delivered by CableMaxx hereunder or the consummation of the
transactions hereby contemplated by CableMaxx (i) conflicts with or constitutes
any violation or breach of the Certificate of Incorporation or the Bylaws of
CableMaxx; (ii) constitutes any violation or breach of, or gives any other
Person any rights (including any right of acceleration, termination or
cancellation) under, any Material Contract, License, Channel Lease, Governmental
Permit, or other document or agreement to which CableMaxx or any Subsidiary is a
party; or (iii) constitutes a violation of any Order or Legal Requirement; or
(iv) will result in the creation of any Lien on any of the assets or properties
of CableMaxx or any Subsidiary.
2.5 FINANCIAL STATEMENTS. (A) Schedule 2.5 lists the audited financial
statements of CableMaxx as of, and for the fiscal years ending June 30, 1992,
1993 and 1994 and the unaudited financial statement for the fiscal year ending
June 30, 1995, including the balance sheets and related statements of income and
expense (collectively, the "Financial Statements"). The Financial Statements and
all notes thereto are complete and correct, in accordance with the books and
records of CableMaxx and each Subsidiary, fairly present the financial position
and results of operations of CableMaxx and each Subsidiary as of the date
thereof and for the periods referenced therein, all in accordance with GAAP, and
have been delivered to Heartland.
(B) Since June 30, 1995, except as set forth on Schedule 2.5, (i)
CableMaxx and the Subsidiaries have conducted its or their businesses in
the ordinary, regular course thereof; (ii) there has been no change in the
financial condition of CableMaxx or any Subsidiary which has had a Material
Adverse Effect, or any damage, destruction or loss, not covered by
insurance, which has had a Material Adverse Effect, or any change in the
nature, or in the condition, of the businesses of CableMaxx and the
Subsidiaries which has had a Material Adverse Effect; or any event,
condition or state of facts or any character whatsoever, the occurrence of
which has had a Material Adverse Effect; and (iii) except in the ordinary
and regular course of its or their businesses, neither CableMaxx nor any
Subsidiary has made any dispositions of any of assets; disposed of any
records relating to assets or properties; borrowed any funds; incurred,
assumed or become subject to any obligation or liability, indebtedness for
borrowed money, absolute or contingent; paid, discharged, or satisfied any
claim, liability or obligation, absolute, accrued, contingent or otherwise;
canceled any debts owed to it or them; waived any claims or rights of
value; granted or extended any power of attorney; or acted as any
guarantor.
(C) Neither CableMaxx nor any Subsidiary has any material Liabilities
or Severance Obligations, except as described in the Financial Statements
or otherwise set forth on Schedule 2.5. Except as set forth on Schedule
2.5, there has been no change in the business, financial condition,
operations or prospects of
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CableMaxx or any Subsidiary, any repurchase of any capital stock of
CableMaxx, any dividend declared or paid or any distribution made by
CableMaxx with respect to such capital stock, since June 30, 1995 which has
had or reasonably could be anticipated to have a Material Adverse Effect.
2.6 TAXES.
(A) All federal, state, county, local and foreign taxes, including
without limitation, income, excise, payroll, sales, use, unemployment,
social security, occupation, franchise, property, and other taxes, duties
or charges (collectively, "Taxes") levied, assessed, or imposed upon
CableMaxx or any Subsidiary or its or their businesses, assets or
properties as of such date have been duly and fully paid or have been
adequately provided for on the Balance Sheet of CableMaxx or any Subsidiary
as of June 30, 1995. In addition, all filings, returns, and reports with
respect to Taxes required by any foreign or domestic law or regulation to
be filed by CableMaxx or any Subsidiary on or prior to the date hereof have
been duly and timely filed. Except as set forth in Schedule 2.6, there are
no agreements, waivers or other arrangements (oral or written) providing
for extensions of time with respect to the assessment or collection of
unpaid Taxes, nor, except as set forth on Schedule 2.6, are there any
actions, suits, proceedings, inquiries, investigations or claims of any
nature or kind whatsoever now pending or, to the Knowledge of CableMaxx,
threatened, against CableMaxx or any Subsidiary with respect to any such
returns or reports, or any such Taxes, or any matters under discussion with
any federal, state, county, local or other authority relating to Taxes.
(B) Except as otherwise disclosed on Schedule 2.6, (i) CableMaxx and
each Subsidiary has made all payments of estimated Taxes required to be
made under Section 6655 of the Code and any comparable provisions of state,
local, federal or other law; (ii) all amounts of any Taxes, including
payroll and federal excise taxes, that are required to be collected or
withheld by CableMaxx or any Subsidiary have been duly collected or
withheld, and have been duly remitted or deposited in accordance with law;
(iii) no power of attorney has been granted by CableMaxx or any Subsidiary
that is currently in force with respect to any matter relating to Taxes;
(iv) none of CableMaxx nor any Subsidiary has any deferred gain or loss (A)
arising from deferred inter-company transactions, within the meaning of
Treas. Regs. Section 1.1502-13 or any successor regulations, or (B) with
respect to the stock or obligations of any member of the affiliated group
of which CableMaxx is the common parent, as described in Treas. Regs.
Section 1.1502-14; (v) no taxes relating to periods ending before June 30,
1994 were paid by or charged to any Subsidiary on or after such date; (vi)
neither CableMaxx nor any Subsidiary is required to include in income any
adjustment pursuant to Section 481(a) of the Code (or any similar provision
of law or regulations) by reason of a change in accounting method, nor is
the IRS or any other taxing authority considering any such change in
accounting method; (vii) neither CableMaxx nor any Subsidiary has disposed
of any property which has been accounted for Tax purposes under the
installment method; (viii) neither CableMaxx nor any Subsidiary owns any
interest in any entity which is characterized as a partnership for federal
income tax purposes; (ix) neither CableMaxx nor any Subsidiary would be
liable for any increase in Tax under Section 47 of the Code, were such
entity to dispose of all of its assets on the Closing Date; (x) neither
CableMaxx nor any Subsidiary will have any "non-recaptured net Section 1231
losses," within the meaning of Section 1231(c) of the Code on the Closing
Date; (xi) no election under Section 1504(d) of the Code has been made with
respect to any Subsidiary; and (xii) no claim or assertion has been made
against CableMaxx or any Subsidiary by any tax authority in any
jurisdiction in which no tax return has been filed by CableMaxx or said
Subsidiary that it may be subject to Tax in that jurisdiction or otherwise
is required to file a tax return.
(C) CableMaxx has a regular tax operating loss carryforward from its
last filed federal corporate income tax return for the year ending June 30,
1994, in the approximate amount of $9.5 million. CableMaxx represents that
it has not undergone a Section 382 ownership change which would limit the
ability to utilize these losses.
2.7 PROPERTY.
(A) Schedule 2.7(a) contains a general description, by category, as of
the date thereof, all of the Equipment, except small hand tools, office
equipment and supplies, and similar equipment.
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(B) Schedule 2.7(b) lists all Facilities, designating whether such
Facility is owned or leased, including whether there is any
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site.
(C) CableMaxx and each Subsidiary own and hold good title, free and
clear of any Liens, to all of the owned Equipment and owned Facilities,
except as set forth on Schedule 2.7(c) or 2.9, and all of such Equipment
and Facilities necessary to the conduct of the business of CableMaxx and
each Subsidiary at their present levels of operation is in serviceable
condition, conforms to or complies in all material respects with all
applicable Orders and Legal Requirements and constitutes all of the
Equipment and Facilities that are used, usable, held for use in or in
conjunction with or otherwise associated with, required or necessary to the
business operations of CableMaxx and each Subsidiary.
2.8 RECEIVABLES. All accounts receivable of CableMaxx and each Subsidiary
reflected in the Balance Sheet of CableMaxx or each Subsidiary, as applicable,
as of June 30, 1995, represent valid obligations arising from sales made in the
ordinary and regular course of the Business. The accounts receivable reflected
in the Balance Sheet of CableMaxx or each Subsidiary, as applicable, as of June
30, 1995, are net of reserves therefor, valid receivables that have arisen in
the ordinary course of the operations of CableMaxx and each Subsidiary and, are
net of reserves therefor, collectible and not subject to setoff or counterclaim,
nor to any agreement to reduce or discount.
2.9 CONTRACTS.
(A) Except as set forth elsewhere on Schedules 2.10, 2.11, 2.26 or
2.31, Schedule 2.9 sets forth a complete and correct list of the following
types of contracts to which CableMaxx or any Subsidiary is a party or is
otherwise bound (the "Material Contracts"):
(i) all contracts of a character required to be described in
CableMaxx's Annual Report on Form 10-K for the fiscal year ended June
30, 1994 or Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1995;
(ii) all Channel Leases;
(iii) all contracts or agreements of any kind with any director,
executive officer or other officer of CableMaxx or any Subsidiary;
(iv) any loan agreements, lease agreements, notes, mortgages,
indentures, guarantees, security agreements, letters of credit,
financing documents or other agreements for the borrowing or lending of
money by CableMaxx or any Subsidiary in excess of $25,000;
(v) all agreements relating to the acquisition of any Subsidiary;
(vi) all Joint Venture agreements;
(vii) all agreements involving an aggregate amount in excess of
$50,000 to provide goods or perform services or for the payment for
goods or services;
(viii) any commitment or agreement for any capital expenditure or
leasehold improvement in excess of $25,000;
(ix) any agreement, contract or commitment limiting or restraining
CableMaxx or any Subsidiary from engaging or competing in any manner or
in any business;
(x) all programming agreements;
(xi) all agreements with respect to resolution of interference
issues;
(xii) all collective bargaining agreements, employment agreements,
consulting agreements and severance agreements;
(xiii) all agreements for the offer or sale of securities;
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(xiv) all agreements with investment bankers or brokers;
(xv) all agreements under which either CableMaxx or any Subsidiary
is entitled to indemnification and under which the potential claims
subject to indemnification could reasonably be expected to exceed
$25,000;
(xvi) all agreements to which either CableMaxx or any Subsidiary is
a party and involving an aggregate amount in excess of $10,000 under
which, since January 1, 1994, either CableMaxx or any Subsidiary or the
other party to the agreement has, or has been alleged to have, breached,
failed to perform under or otherwise failed to comply with the terms of,
such agreement;
(xvii) any agreement with any Governmental Authority;
(xviii) any material agreement, contract or commitment not made in
the ordinary course of business; and
(xix) any agreements or other arrangements with any Affiliates of
CableMaxx or any Subsidiary (such agreements or arrangements to be
separately identified or described in such other Schedules or Schedule
2.9 as "Affiliate Agreements").
(B) True and correct copies of all the Material Contracts have been
delivered to Heartland by or on behalf of CableMaxx. Each of the Material
Contracts is valid and enforceable in accordance with its terms. Neither
CableMaxx nor any Subsidiary is in default in any material respect in the
performance, observance or fulfillment of any material obligation, covenant
or condition contained therein, and, to the Knowledge of CableMaxx, no
event has occurred which with or without the giving of notice or lapse of
time, or both, would constitute such a default thereunder.
2.10 FCC MATTERS.
(A) Schedule 2.10(a) is a true and correct list of all Channel Leases
setting forth (i) the lessor/licensee and lessee, (ii) the frequency rights
and/or Channels leased/call signal, (iii) the payments thereunder, (iv) the
term of the Channel Lease, (v) the number of Channels available for analog,
(vi) any material obligations continuing after the termination of the
Channel Lease, (vii) any material conditions that are unfulfilled under a
Channel Lease, and (viii) a summary of the obligations of the lessee under
the Channel Leases and restrictions on full time usage. Except as set forth
on Schedule 2.10(a), (i) CableMaxx and each Subsidiary have performed in
all material respects all obligations required to be performed by it under
each of the Channel Leases; (ii) all of the Channel Leases are legal, valid
and binding obligations enforceable against them in accordance with their
respective terms and in full force and effect, and there are no defaults
(or to the Knowledge of CableMaxx events which, with notice or lapse of
time or both, would constitute a default) by CableMaxx or any other party
to any such Channel Leases; (iii) Channel Leases set forth in the name of
Persons other than CableMaxx or a Subsidiary, as lessee, are identified on
Schedule 2.10(a) and have been duly and validly assigned with all requisite
consents and approvals of all parties thereto to CableMaxx or a Subsidiary,
and remain in full force and effect as if CableMaxx or a Subsidiary were
the initial "lessee" thereunder; (iv) since January 1, 1994, no default or
termination has been threatened in writing under any of the Channel Leases
by any party thereto; and (v) the Channel Leases comply in all material
respects with the Act and the FCC Rules, and each of the Channel Leases,
and all amendments thereto, to the extent required, have been filed with
and approved by the FCC.
(B) Listed in Schedule 2.10(b) are all of the Licenses and FCC
Permits, and all amendments or other pending filings thereto (except
Applications), held or leased by CableMaxx or any Subsidiary. No Licenses
or FCC Permits are held by CableMaxx or any Subsidiary, and except as set
forth on Schedule 2.10(b), no FCC Consents will be required in connection
with the Merger. All reports or other documents required to be filed with
respect to any such Licenses have been filed, except where the failure to
do so could not reasonable be anticipated to hinder the ability of
CableMaxx, any Subsidiary or the holder of any License to receive the
benefits thereof. The Licenses and the FCC Permits listed on Schedule
2.10(b), constitute all of the Authorizations held or leased by CableMaxx
and are all of the
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Authorizations used, useable, held for use in or in conjunction with or
otherwise associated with, required or necessary for CableMaxx and
Subsidiary to lawfully conduct its and their business operations as
currently conducted. Each of the Licenses and the FCC Permits, except as
otherwise expressly noted on Schedule 2.10(b), (i) is currently held by the
Person identified as the holder thereof on Schedule 2.10(b); (ii)
authorizes said holder to construct and operate a facility transmitting
video and audio programming on the Channels; (iii) is existing and in full
force and effect; and (iv) is not subject to any conditions other than such
conditions as are generally applicable to licenses and permits issued by
the FCC with respect to ITFS, MDS or MMDS Channels. There are no existing
or, to the Knowledge of CableMaxx, threatened investigations, inquiries or
proceedings by or before the FCC or other Governmental Entity which, if
adversely determined, could be reasonably anticipated to result in the
revocation, cancellation, suspension, forfeiture or material adverse
modification of any Authorization or Application.
(C) Schedule 2.10(c) indicates all Applications and all amendments or
other filings thereto. To the Knowledge of CableMaxx, the information
contained in each Application is true and correct in all material respects,
and each Person which is a signatory to an Application is authorized under
FCC rules to file such Application.
(D) Except as otherwise expressly noted on Schedule 2.10(d), CableMaxx
and each Subsidiary and, to the Knowledge of CableMaxx, the FCC Licensees
and the FCC Permittees have each submitted to the FCC, the FAA and all
other Governmental Authorities all notices, reports and other documents
which have been or are required by the Act, the FCC Rules, the FAA Rules
and other Legal Requirements, the Licenses and the FCC Permits except where
the failure to do so would not (i) have a Material Adverse Effect, or (ii)
hinder the ability of CableMaxx or any Subsidiary to fully perform its and
their material obligations under this Agreement. Except as otherwise
expressly noted on Schedule 2.10(d), no petitions to deny or, to the
Knowledge of CableMaxx, informal objections have been filed against any of
the amendments listed on Schedule 2.10(c). True and accurate copies of all
material amendments, notices, reports and other documents filed by
CableMaxx and, to the Knowledge of CableMaxx, the FCC Licensees and the FCC
Permittees with respect to the Licenses and the FCC Permits, with the FCC,
the FAA, the copyright office and other governmental authorities have been
either delivered to Heartland by CableMaxx or otherwise identified by
CableMaxx and made available for Heartland's review.
2.11 INSURANCE. Schedule 2.11 is a certificate of insurance which lists
all insurance policies held by CableMaxx and which are in full force and effect.
2.12 LITIGATION. Except as set forth on Schedule 2.12, there is no claim
or Proceeding, in each case domestic or foreign, pending or, to the Knowledge of
CableMaxx, threatened against, or involving the properties or business of
CableMaxx or any Subsidiary which (a) questions the validity of the issuance of
the capital stock of CableMaxx or any Subsidiary, this Agreement or any action
taken or to be taken by CableMaxx pursuant to or in connection with this
Agreement; (b) is required to be, and has not been so, disclosed in the filings
with the SEC by CableMaxx (and such proceedings are as summarized in such SEC
Filings accurately summarized in all material respects); (c) materially
adversely affects the Channel Leases or FCC Licenses or the operation of the
Channels and transmission facilities relating thereto and the Wireless Cable
Business; or (d) would otherwise have a Material Adverse Effect (such claims or
Proceedings being collectively referred to as the "Potential Claims").
2.13 REGISTRATION RIGHTS. Except as set forth on Schedule 2.13, no Person
has rights to the registration of any securities of CableMaxx or any Subsidiary.
2.14 KEY-PERSON INSURANCE. Neither CableMaxx nor any Subsidiary has any
key-person insurance on the life of any officer, director or employee of
CableMaxx or any Subsidiary.
2.15 CERTAIN ACTIVITIES AND SERVICES. Except as set forth on Schedule
2.15, neither CableMaxx nor any Subsidiary engages in any business other than
the Wireless Cable Business.
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2.16 GOVERNMENTAL PERMITS. CableMaxx and each Subsidiary own, hold or
possess all material Governmental Permits which are necessary to entitle it to
own or lease, operate and use its assets and to carry on and conduct their
business as currently conducted, except with respect to Applications for which
Licenses have not been granted, if any.
2.17 COMPLIANCE WITH LAWS. CableMaxx and each Subsidiary have complied in
all material respects with all applicable Legal Requirements and Orders of any
Governmental Authority having jurisdiction over it or them or its or their
operations, including, but not limited to, all material FCC Rules and any laws
(including Environmental Laws), rules or regulations regulating, if applicable,
zoning, fair and equal employment practices, the safety of the workplace, the
discharge of materials into the Environment or otherwise relating to the
protection of the Environment, antitrust, anti-monopoly or anti-competitive
activities, wages, hours, collective bargaining and the payment of withholding
and social security taxes. Except as set forth on Schedule 2.17, there are no
Orders outstanding and in effect against CableMaxx or any Subsidiary, its or
their assets, the transactions contemplated by this Agreement, or, to the
Knowledge of CableMaxx, any of the parties to Channel Leases, other than Orders
issued with respect to the wireless cable industry generally and in the normal
course of regulation, which would, individually or in the aggregate: (i) have a
Material Adverse Effect, or (ii) hinder in any material respect the ability of
CableMaxx or any Subsidiary to fully perform its or their material obligations
under this Agreement. Except as set forth in Schedule 2.17, CableMaxx has not
received any written notice or, to its Knowledge, oral notice from any Person to
the effect that, or otherwise been advised that, CableMaxx or any Subsidiary is
not in compliance with any applicable law, ordinance, regulation, building or
zoning law, and CableMaxx and each Subsidiary have no reason to reasonably
anticipate that any existing circumstances are likely to result in a violation
of any material law, statute, ordinance or regulation, the non-compliance or
partial compliance with which could reasonably be anticipated to have a Material
Adverse Effect.
2.18 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 2.18:
(A) Neither CableMaxx nor any Subsidiary, nor to the Knowledge of
CableMaxx, any predecessor thereof or anyone else, has Managed or Released
any Hazardous Substances at, on, in, to or from any property or business
now or previously owned, operated, leased, controlled, used, occupied or
conducted by CableMaxx or any Subsidiary, or any predecessor thereof in
quantities or concentrations which violate any applicable Environmental Law
such as to have a Material Adverse Effect.
(B) Neither CableMaxx nor any Subsidiary has received any request for
information, notice of claims, demand or notification that it is or may be
a potentially responsible party with respect to any investigation or
clean-up of any threatened or actual release of any Hazardous Substance,
and, to the Knowledge of CableMaxx, no environmental inspections, audits,
tests, reviews or other analysis are being conducted in relation to any
property now or previously owned, operated, leased, controlled, used,
occupied or conducted by CableMaxx or any Subsidiary.
(C) No written notification of a Release or threat of Release of a
Hazardous Substance has been filed by or on behalf of CableMaxx or any
Subsidiary in relation to any property or business now or, to the Knowledge
of CableMaxx, previously owned, operated, leased, controlled, used,
occupied or conducted by CableMaxx or any Subsidiary.
(D) There are no facts or circumstances related to environmental
matters concerning its properties or business now or previously owned,
operated, leased, controlled, used, occupied, or conducted by CableMaxx or
any Subsidiary, or any predecessor thereof, that reasonably could be
expected to lead to any future environmental claims, liabilities or
responsibilities against Heartland or against CableMaxx or any Subsidiary,
or any predecessor thereof that could reasonably be anticipated to have a
Material Adverse Effect.
2.19 INTELLECTUAL PROPERTY. Schedule 2.19 is a true and correct list of
all Intellectual Property owned or used by CableMaxx or any Subsidiary. No
person has any right to receive any royalty or similar payment arising from the
Intellectual Property. Except as set forth on Schedule 2.19, CableMaxx owns each
of said properties; has not granted to any other Person any interest in any of
said properties, as licensee or otherwise;
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and has filed all certificates, affidavits and other documents, and taken all
other actions, necessary to retain its title to said properties and to keep the
same in effect. None of said properties is invalid and none infringes upon the
personal or property rights of any third party.
2.20 LIENS. Except as set forth on Schedule 2.20, CableMaxx and each
Subsidiary have good and marketable title to all of its and their owned assets,
free and clear of all Liens, except for the lien, if any, of current Taxes not
yet due and payable and except for those assets disposed of in the ordinary
course of business.
2.21 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, CableMaxx and each Subsidiary, and to the Knowledge
of CableMaxx, the Licensees and the FCC Permittees, are in material compliance
with, and not in material default under or in material violation of, the Act,
the FCC Rules, the FAA Rules, the Copyright Act, the Copyright Rules, and other
Legal Requirements applicable to the Licenses or FCC Permits. Except as
otherwise expressly noted on the Schedules attached hereto, neither CableMaxx
nor any Subsidiary has received any notice of noncompliance with, default under
or violation of the Act, the FCC Rules, the FAA Rules, the Copyright Act, the
Copyright Rules, other Legal Requirements and the applicable Licenses or FCC
Permits. Except as set forth in Schedule 2.21, to the Knowledge of CableMaxx, no
condition exists or event has occurred with respect to CableMaxx or any
Subsidiary, the Licensees, the FCC Permittees, or any of the Licenses or FCC
Permits which, in itself or with giving of notice or the lapse of time or both,
would (i) constitute or result in a material violation of the Act, any FCC Rule,
any FAA Rule, the Copyright Act or the Copyright Rules; (ii) constitute a
material default in the due performance and observation of any term, covenant or
condition of any of the Licenses or FCC Permits, (iii) result in a forfeiture,
the denial, dismissal or rejection of any of the Schedule 2.10(c) or 2.10(d)
amendments, or the suspension, termination, revocation, material impairment,
material adverse modification or non-renewal of any License or FCC Permit, or
(iv) adversely affect any of the material rights of CableMaxx or any Subsidiary,
any FCC Licensee or FCC Permittee under any of the Licenses or FCC Permits.
2.22 INTERFERENCE. Except as set forth in Schedule 2.22, neither CableMaxx
nor any Subsidiary, nor to the Knowledge of CableMaxx, any other party to a
Channel Lease, has agreed to accept objectionable electrical interference to the
Channels from any source, has consented to the grant of any application filed
with the FCC that demonstrates any objectionable electrical interference to the
Channels, or has failed to timely petition to deny any application that proposes
facilities which demonstrate that they would cause objectionable electrical
interference to the Channels. Except as otherwise expressly noted on Schedule
2.22, neither CableMaxx nor any Subsidiary, nor, to the Knowledge of CableMaxx,
any FCC Licensee or FCC Permittee or any other party to a Channel Lease
Agreement, will experience interference which will materially and adversely
impact operation of the Facilities it has constructed and/or operated, or is
constructing once such Facilities are constructed and operated, or will create
interference which will materially and adversely impact the operation of other
facilities licensed by the FCC to other Persons; for purposes of this Section
2.22, interference shall be deemed to exist if within an FCC Licensee's
protected service area, the ratio of the desired signal to the undesired signal,
at the antenna input terminals of the affected receiver, is less than 45 dB,
unless frequency offset or other engineering solutions are employed.
2.23 EMPLOYEE PLANS.
(A) Schedule 2.23 sets forth a true and complete list of each
"employee benefit plan," as such term is defined in section 3(3) of the
ERISA, whether or not subject to ERISA, and each bonus, incentive or
deferred compensation, severance, termination, retention, change of
control, stock option, stock appreciation, stock purchase, phantom stock or
other equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former employee of
CableMaxx or any Subsidiary or the beneficiaries or dependents of any such
employee or former employee (such employees, former employees,
beneficiaries and dependents collectively, the "Employees") or under which
any Employee is or may become eligible to participate or derive a benefit
and that is or has been maintained or established by CableMaxx or to which
CableMaxx
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or any Subsidiary contributes or is or has been obligated or required to
contribute or with respect to which CableMaxx or any Subsidiary may have
any liability or obligation (collectively, the "Plans"). CableMaxx has not
communicated to any Employee any intention or commitment to modify any Plan
or to establish or implement any other employee or retiree benefit or
compensation arrangement.
(B) All Plans conform (and at all times within the five years
preceding the date hereof have conformed) in all material respects to, and
are being administered and operated (and have at all times within the five
years preceding the date hereof been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable laws. All returns, reports and disclosure statements required to
be made under ERISA and the Code with respect to all Plans have been timely
filed or delivered. There have not been any "prohibited transactions," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Plans, that could subject CableMaxx or any Subsidiary
to any penalty or tax imposed under the Code or ERISA. Except as disclosed
in Schedule 2.23, neither CableMaxx nor any Subsidiary maintains or has
maintained any Plan qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code. Neither CableMaxx nor any
Subsidiary has any announced plan or legally binding commitment to create
any Plans or to materially amend or modify any existing Plan.
(C) There are no pending or, to the Knowledge of CableMaxx, threatened
claims asserted or instituted against (i) any Plans or its assets, (ii) any
fiduciary with respect to any such Plan or (iii) CableMaxx or any
Subsidiary or any of its officers, directors or employees under ERISA or
any other applicable laws and rules and regulations promulgated thereunder,
or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there any basis for such claim. To the
Knowledge of CableMaxx, the Plans are not the subject of any investigation,
audit or action by any governmental agency, including, but not limited to,
the IRS, the Department of Labor, the Equal Employment Opportunity
Commission or the Pension Benefit Guaranty Corporation ("PBGC").
2.24 FINDER'S FEES. Except as set forth on Schedule 2.24, neither
CableMaxx nor any Subsidiary has taken any action which would impose any
obligation or liability to any person for finder's fees, agent's commissions or
like payments in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
2.25 COPYRIGHT ACT. Except as set forth in Schedule 2.25, CableMaxx and
each Subsidiary have submitted all requisite notices (if any are required) under
the Copyright Act of 1976, as amended (together with all rules and regulations
thereunder, the "Copyright Act"), for the carriage of all broadcast stations as
currently carried over any of the Wireless Cable Television Systems. Except as
set forth in Schedule 2.25, CableMaxx and each Subsidiary have filed with the
Copyright Office all required documents, instruments and statements of account
and has remitted payments of all required royalty fees with respect to the
compulsory licenses provided for in Section 111 of the Copyright Act for the
carriage of broadcast signals in connection with the Wireless Cable Television
Systems. Except as set forth in Schedule 2.25, neither CableMaxx nor any
Subsidiary is liable to any Person for copyright infringement under the
Copyright Act as a result of its business operations. Except as set forth in
Schedule 2.25, there have been no unresolved inquiries received from the
Copyright Office, or, any other party, which questioned such statements of
account or any copyright royalty payments made by CableMaxx or any Subsidiary
with respect to the Wireless Cable Television Systems to which a response has
not been filed, and no claim, action or demand for copyright infringement or for
non-payment of royalties is pending or, to the Knowledge of CableMaxx,
threatened against CableMaxx or any Subsidiary with respect to the Wireless
Cable Television Systems.
2.26 PROGRAMMING AGREEMENTS. Schedule 2.26 sets forth a true and correct
list of all agreements for programming and for each programming agreement.
Except as set forth on Schedule 2.26, neither CableMaxx nor any Subsidiary is a
party to any agreements providing for the retransmission of any broadcast
signals.
2.27 SEC FILINGS. CableMaxx has previously delivered to Heartland the
CableMaxx SEC Filings. Each CableMaxx SEC Filing was timely filed with the SEC
and does not contain a misstatement of a material fact or an omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading as of the time such document was filed. Except as set
forth in Schedule 2.27, no other
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document or report required to have been be filed by CableMaxx with the SEC has
not been filed, and no event or transaction has occurred prior to the date
hereof which will hereafter be required to be disclosed by CableMaxx in a Form
10-Q, Form 8-K or similar filing.
2.28 DIRECTORS, OFFICERS AND EMPLOYEES. Schedule 2.28 sets forth a list of
all directors, officers or managers of CableMaxx and each Subsidiary. Except as
set forth on Schedule 2.28, neither CableMaxx nor any Subsidiary has any
outstanding loans or extension of credit to, or any contracts, agreements or
understandings with, any executive officer or director or member of their
immediate family or any person with which any such person has a material
relationship. Schedule 2.28 sets forth a list of (a) the names and positions of
each employee of CableMaxx and each Subsidiary who was paid an aggregate
compensation for the fiscal year ended June 30, 1995 in excess of $75,000,
together with the amount thereof; and (b) any agreements or arrangements with
any current or former employees, officers or directors that would entitle such
person to receive any compensation or other payments upon or arising from either
(i) the termination of such person's services as an employee, officer or
director or (ii) the consummation of the Merger, together with the amount
thereof (such aggregate amount referred to herein as "Severance Obligations").
CableMaxx has made available to Heartland a true and correct copy of the current
payroll which lists all employees of CableMaxx and each Subsidiary by category
of employment and salary.
2.29 BANK ACCOUNTS, ETC. Schedule 2.29 sets forth a list of all (i) bank
accounts of CableMaxx and each Subsidiary and the persons authorized to draw
thereon and the balances thereof as of July 31, 1995; (ii) safe deposit boxes of
CableMaxx and each Subsidiary and the persons who have access thereto; and (iii)
powers of attorney for tax purposes or otherwise and a summary of the terms
thereof.
2.30 CERTAIN CLAIMS. With respect to the Potential Claims listed on
Schedule 2.12, CableMaxx has previously delivered to Heartland a claim inventory
for each Potential Claim that contains copies of all material written
correspondence between CableMaxx, any Subsidiary, and the potential claimant,
and summaries of all material oral correspondence between such parties. Each
such claim inventory is true and correct in all material respects.
2.31 SITE LEASES AND SITE OPTIONS. Schedule 2.31 sets forth a true and
correct list of each Site Lease and Site Option which CableMaxx or any
Subsidiary is a party or is otherwise bound. Each Site Lease and Site Option
allows for the use and operation on the leased property of transmitters, antenna
structures, antennas and other associated facilities, and permits the
transmissions from the property of signals containing video and audio
programming.
2.32 RULE 145 AFFILIATES. The only Person deemed to be an "Affiliate" of
CableMaxx or any Subsidiary as such term is defined under Paragraphs (c) and (d)
of Rule 145 of the Securities Act (a "Rule 145 Affiliate") is Charter Wireless
Cable Holdings, L.L.C. ("CWCH").
2.33 WIRELESS CABLE TELEVISION SYSTEMS; SUBSCRIBERS. The Wireless Cable
Television Systems constitute all of the wireless cable channel rights or
pending applications to acquire wireless cable channel rights of CableMaxx.
Schedule 2.33 sets forth a true and correct list of the number of subscribers
for each Wireless Cable Television System as of August 31, 1995.
2.34 FURTHER REPRESENTATION. No representation or warranty of CableMaxx
contained in this Agreement contains any untrue statement of, or omits to state,
a material fact necessary in order to make the statements made herein, in light
of the circumstances under which they are made, not misleading. Copies of all
documents listed in the Schedules and furnished or given by CableMaxx to
Heartland or Heartland's agents are true, complete and genuine.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MERGERSUB AND HEARTLAND.
Heartland and MergerSub each hereby represent and warrant to CableMaxx and
to the shareholders of CableMaxx, the following:
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3.1 ORGANIZATION AND GOOD STANDING. Heartland is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MergerSub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.4 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 6.4 and 7.1) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement and all the documents required to
be executed and delivered by Heartland hereunder or the consummation of the
transactions hereby contemplated by Heartland conflict with or constitute (i)
any violation or breach of the Certificate of Incorporation or the Bylaws of
Heartland or (ii) subject to lender approval as set forth in Section 6.4, any
material violation or breach of any contract or agreement of Heartland, the
result of which would have a Material Adverse Effect. MergerSub has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. MergerSub has
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.4 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by MergerSub, to
consummate the transactions hereby contemplated, and to take all other actions
required to be taken by MergerSub pursuant to the provisions hereof. This
Agreement and all other documents required to be executed and delivered by
MergerSub hereunder have been duly authorized by all corporate action necessary
on the part of MergerSub (subject to shareholder approval and obtaining lenders'
Consents as set forth in Sections 6.4 and 7.1) and have been duly or will when
executed and delivered be duly executed and delivered by MergerSub, and
constitute the legal, valid and binding obligations of MergerSub enforceable
against MergerSub in accordance with their terms. Neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by MergerSub hereunder or the consummation of the transactions hereby
contemplated by MergerSub conflict with or constitute a violation or breach of
the Certificate of Incorporation or the Bylaws of MergerSub.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby. There is no Proceeding pending or, to MergerSub's
Knowledge, threatened against or affecting MergerSub that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby. Except as described in Heartland's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1995, Heartland is not a party to any
Proceeding, the adverse resolution of which is reasonably anticipated to have a
Material Adverse Effect.
3.4 GOVERNMENTAL CONSENTS AND APPROVALS. Other than any filings required
under the HSR Act, FCC Consents (if any) or the filing of the Registration
Statement, no consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Authority is required on behalf of Heartland
or MergerSub in connection with the execution, delivery or performance of this
Agreement and all documents contemplated hereby or the transactions contemplated
hereby.
3.5 CAPITALIZATION. The authorized capital stock of Heartland as of the
date hereof consists of 50,000,000 shares of common stock, par value $.001 per
share, and 10,000,000 of preferred stock, par value $.01 per share, of which
12,476,393 shares of Heartland common stock are issued and outstanding and no
shares of preferred stock have been issued. Heartland Common Shares to be issued
pursuant to this Agreement will be, upon issuance, validly issued, fully paid
and non-assessable.
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3.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the dates thereof and for
the periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to CableMaxx copies of
(i) its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form
10-Q for the three (3) month periods ended March 31, 1995 and June 30, 1995,
(iii) its Registration Statement on Form S-3 (File No. 33-94838) declared
effective by the SEC on August 4, 1995, and (iv) all Form 8-Ks filed with the
SEC after June 30, 1995 and prior to the date of this Agreement ("Heartland SEC
Filings"). Each such filing was timely filed with the SEC, and did not contain
any misstatement of material fact or an omission of a material fact required to
be stated therein necessary to make the statements therein not misleading as of
the time such document was filed. Heartland has filed all documents required to
be filed with the SEC. As of their respective dates, such reports complied in
all material respects with the applicable requirements of the Securities Act or
Exchange Act, as applicable. No other document or report required to have been
filed by Heartland with the SEC has not been filed, and no event or transaction
has occurred prior to the date hereof that will hereafter be required to be
disclosed by Heartland in a Form 10-Q, Form 8-K or similar filing.
3.8 FINDER'S FEES. Heartland has not taken any action which would impose
upon CableMaxx any obligation or liability to any person for finder's fees,
agent's commissions or like payments in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
3.9 FURTHER REPRESENTATION. No representation or warranty of MergerSub or
Heartland contained in this Agreement contains or will contain any untrue
statement of, or omit to state, a material fact necessary in order to make the
statements made herein, in light of the circumstances under which they are made,
not misleading. Copies of all documents specified herein to have been delivered
by Heartland to CableMaxx or CableMaxx's agents, are true, complete and genuine.
ARTICLE 4. COVENANTS OF CABLEMAXX.
CableMaxx hereby agrees to perform as follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. Subject to the provisions of
Sections 4.4 and 5.14, from the date hereof through the Closing Date:
(A) Neither CableMaxx nor any of its Subsidiaries shall engage in any
practice, take any action or enter into any transaction other than in the
customary and ordinary course of business without the consent of Heartland.
(B) CableMaxx shall, and shall cause each Subsidiary to, use its best
efforts to keep its business, properties and business relationships
substantially intact.
(C) CableMaxx shall and shall cause each Subsidiary to (i) pay and
perform all of its debts, liabilities and obligations as and when due,
except to the extent being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been established, (ii)
perform its material obligations under all Authorizations and Material
Contracts, and (iii) comply in all material respects with all Governmental
Rules.
(D) CableMaxx shall (i) not take any action, and shall endeavor in
good faith not to permit any event to occur, which would cause or
constitute a material breach, or would, if such action or event had
occurred prior to the date of this Agreement, have caused or constituted a
material breach, of any of the representations and warranties set forth in
Article 2 hereof; (ii) in the event of, and promptly after the occurrence
of, or promptly after becoming aware of the occurrence of or the impending
or threatened occurrence of, any event which would cause or constitute a
material breach or would, if it had occurred immediately prior to the date
hereof, have caused or constituted a material breach of any of the
representations and warranties set forth in Article 2, give notice thereof
to Heartland; (iii) endeavor in good faith not take any action which would
result in the aggregate Net Liabilities of CableMaxx and its Subsidiaries
on the Closing Date to exceed $13.635 million (such amount, subject to
adjustment as
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provided in Section 5.22, being the "Permitted Net Liabilities"); and (iv)
use its best efforts to prevent or promptly to remedy such breach.
(E) CableMaxx and each of its Subsidiaries shall use their best
efforts to preserve, protect and maintain their rights and interests in the
Channel Leases, FCC Licenses, and Material Contracts, including, but not
limited to, filing or requesting that licensees or permittees file with the
FCC any and all reports, applications or other documents necessary to
preserve the FCC Licenses in full force and effect.
(F) CableMaxx shall not, and shall not cause any of its Subsidiaries
to enter into, amend or terminate, or agree to enter into, amend or
terminate, except to comply with this Agreement, any Channel Lease,
License, Permit, Application or Material Contract.
(G) CableMaxx shall not repurchase, declare or pay any dividends, or
make any other distributions consisting of cash or marketable securities or
any contribution thereof, nor shall CableMaxx or any of its Subsidiaries
issue, sell or agree to sell any shares of its capital stock, or any
securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe for, any shares of its capital stock.
(H) CableMaxx shall not, and shall not cause any of its Subsidiaries
to sell, lease, transfer or otherwise dispose of any of its assets, except
as provided for by, or contemplated in, this Agreement, or in the ordinary
course of business.
(I) CableMaxx shall not, and shall not cause any of its Subsidiaries
to, increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of its directors,
officers or employees, pay bonuses to any such director, officer of
employee, or pay any salaries except in the ordinary course of business,
except as required under any existing written employment agreement with any
officer, director or employee of CableMaxx or any Subsidiary.
(J) CableMaxx shall not transfer any interest in any Subsidiary.
(K) CableMaxx shall maintain, and shall not take any action that may
jeopardize, the designation of the CableMaxx Common Shares as a NASDAQ-NMS
security.
4.2 ESTOPPEL CERTIFICATES. Upon request of Heartland, CableMaxx shall
assist Heartland to obtain from each of the other respective parties to each
Channel Lease and Material Contract estoppel certificates in the form of Exhibit
4.2 ("Estoppel Certificates"), certifying that CableMaxx or the Subsidiaries, as
applicable, is not in breach or violation of or in default under any of such
Channel Leases or Material Contracts or arrangements and that it would not be by
virtue of the transaction contemplated hereby. In addition to the other Estoppel
Certificates to be obtained pursuant to this Section 4.2, CableMaxx shall obtain
either (i) estoppel certificates or (ii) other evidence of amounts owed
reasonably satisfactory to Heartland, dated no more than fifteen (15) days prior
to the Closing Date, from each Person (other than the State of Texas or parties
to programming agreements) that will be owed, or is anticipated to be owed, in
excess of $100,000 on the Closing Date, certifying the amount then owed to such
Person and amount anticipated to be owing to such Person by CableMaxx or any
Subsidiary as of the Closing Date ("Account Estoppels").
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. CableMaxx shall, and shall
cause each Subsidiary to:
(A) timely file, or cause to be filed, all material applications,
reports and other submissions in such form and with such information as may
be required by the FCC, including but not limited to renewal applications,
applications for extensions of time to complete construction and Annual FCC
Reports, to assure that all Channels licensed or authorized to either
CableMaxx or any Subsidiary remain in full force and effect without
material adverse alteration or modification, except to the extent that such
alteration or modification results from changes in the FCC's rules or
policies of general applicability. After the applications, if any, are
filed for FCC consent to the transfer of control of the FCC Licenses for
said Channels to Heartland or an affiliate of Heartland, CableMaxx shall
file, or cause to be filed, at the request of and as an accommodation to
Heartland, such applications for modification of their outstanding
construction Permits or Licenses as are reasonably required to implement
the Merger. CableMaxx shall utilize its best efforts to diligently
prosecute in good faith all applications, reports and submissions submitted
in accordance with this Section 4.3.
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(B) use its best efforts to assure that the licensees or permittees
under the Channel Leases timely file all applications, reports, and other
submissions in such form and with such information as may be required by
the FCC, including, but not limited to, renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that such FCC Licenses remain in full force and effect without
material adverse alteration or modification, except to the extent that such
alteration or modification result from changes in the FCC's rules or
policies of general applicability. CableMaxx shall use its reasonable
efforts to assure that the licensees or permittees under the Channel Leases
diligently prosecute in good faith all such applications, reports and
submissions. CableMaxx shall promptly disclose to Heartland any information
it receives regarding any conditions or circumstances that would cause, or
might cause, the FCC to decline to issue such authorizations as may be
necessary or desirable to keep the Licenses in full force and effect.
4.4 NO SOLICITATION. Subject to the provisions of Section 5.14 (regarding
the proposed sale of the Salt Lake City Market), from and after the date hereof,
CableMaxx will not, and will not authorize or permit any of its officers,
directors, employees, agents and other representatives or those of any
Subsidiary (collectively, "CableMaxx Representatives") to directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, an Acquisition Proposal (as defined
herein) from any Person or engage in any discussion or negotiations relating
thereto or accept any Acquisition Proposal. CableMaxx shall immediately cease
and cause to be terminated any existing solicitation, discussion or negotiation
with any parties conducted heretofore by CableMaxx or any CableMaxx
Representatives with respect to any of the foregoing. To the extent permitted by
applicable law, CableMaxx will promptly notify Heartland of any such discussion
or negotiations, requests for such information or the receipt of any Acquisition
Proposal, including (a) the identity of the person or group engaging in such
discussions or negotiations, requesting such information or making such
Acquisition Proposal and (b) the material terms and conditions of any
Acquisition Proposal. As used in this Agreement, "Acquisition Proposal" shall
mean any proposal or offer considered by the Board of Directors of CableMaxx to
be bona fide, other than a proposal or offer by Heartland or any of its
Affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving CableMaxx or any Subsidiary or any proposal to
acquire in any manner a substantial equity interest in (x) CableMaxx or any
Subsidiary, (y) any rights of CableMaxx or any Subsidiary to any Channels or (z)
any Wireless Cable Television System. Notwithstanding the foregoing, nothing in
this Section 4.4 shall prohibit the Board of Directors of CableMaxx from (i)
furnishing information to or entering into discussions or negotiations with, any
person or entity that makes an unsolicited bona fide proposal to acquire
CableMaxx or any Subsidiary pursuant to a merger, consolidation, share exchange,
purchase of a substantial portion of the assets, business combination or some
other transaction, if, and only to the extent that (A) the Board of Directors
determines in good faith that such action is required for the Board of Directors
to comply with its fiduciary duty to its stockholders, (B) prior to furnishing
such information to, or entering into discussions with or negotiations with,
such person or entity, to the extent permitted by applicable law, CableMaxx
provides notice to Heartland to the effect that it is furnishing information to,
or entering into discussions or negotiations with, such person or entity, and
(C) to the extent permitted by applicable law, CableMaxx keeps Heartland
informed, on a current basis, of the status of any such discussions or
negotiations; (ii) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal and (iii) soliciting or receiving offers
for, negotiating the sale of, or selling the Salt Lake City Market in accordance
with Section 5.14. CableMaxx will use reasonable efforts to cause a Person
provided proprietary information in accordance with the foregoing to enter into
a confidentiality agreement.
ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS MEETING. CableMaxx and Heartland shall each take all
action necessary in accordance with applicable law and in accordance with their
respective certificates of incorporation and bylaws to convene a meeting of
their respective stockholders as promptly as practicable after the Registration
Statement is declared effective by the SEC, to consider and vote upon the
approval of this Agreement. CableMaxx (subject to the provisions of Sections 4.4
and Section 9.4) and Heartland each, through its board of directors, shall
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recommend to its stockholders (and, if applicable, its lenders) approval of this
Agreement and shall use reasonable efforts to obtain approval and adoption of
this Agreement by such stockholders and lenders. CableMaxx acknowledges that the
consummation of the transactions contemplated by this Agreement by MergerSub and
Heartland requires (and therefore is subject to) the approval of the holders of
the Senior Notes and Heartland agrees to seek to obtain the written approval of
such holders on or before October 9, 1995.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT; LISTING OF HEARTLAND
COMMON SHARES.
(A) Heartland shall prepare and file with the SEC as soon as
practicable a Registration Statement on Form S-4 ("Registration Statement")
with respect to the Heartland Common Shares issuable in the Merger, a
portion of which shall also serve as the joint proxy statement/prospectus
with respect to the meetings of the stockholders of Heartland and CableMaxx
to approve the Merger, and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as soon as
practicable. Heartland shall also take any action required to be taken
under blue sky or securities laws in connection with Heartland Common
Shares prior to the Closing. CableMaxx shall furnish Heartland all
information concerning CableMaxx and its Subsidiaries and the holders of
its common stock required for use in the Registration Statement, and
CableMaxx shall take such other actions as Heartland may reasonably request
in connection with the preparation of such Registration Statement and the
actions to be taken by CableMaxx pursuant to this Section 5.2. None of the
information furnished by or on behalf of CableMaxx for use in the
Registration Statement shall contain any material misstatement of fact or
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(B) CableMaxx shall prepare and file with the SEC as soon as
practicable a proxy statement that will be the same proxy
statement/prospectus contained in the Registration Statement and a form of
proxy, in connection with the vote of CableMaxx's stockholders with respect
to the consummation of the transactions set forth in this Agreement (such
proxy statement/prospectus, together with any amendments thereof or
supplements thereto, in any case in the form or forms mailed to CableMaxx's
stockholders, is herein called the "Proxy Statement"). Heartland shall
furnish CableMaxx all information concerning Heartland and MergerSub
required for use in the Proxy Statement, and Heartland shall take such
other action as CableMaxx may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by or
on behalf of Heartland for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
(C) Within a reasonable period of time after the Closing Date,
Heartland shall file with the National Association of Securities Dealer,
Inc. a Nasdaq National Market Notification Form for Listing Additional
Shares and Notification Pursuant to SEC Rule 10b-17 with regard to the
Heartland Common Shares to be issued in the Merger.
5.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours be permitted reasonable access to the Facilities and
CableMaxx's corporate offices; will be permitted to make copies of or abstracts
from all of the books and records, financial and operating data and other
information of CableMaxx and each Subsidiary; and will be permitted to discuss
the affairs and accounts of CableMaxx and each Subsidiary with the directors,
officers, employees, counsel, and accountants of CableMaxx and each Subsidiary.
Such investigation shall not, however, affect the representations and warranties
of CableMaxx set forth in Article 2 hereof. In the event the transactions
contemplated hereby should not close for any reason, Heartland agrees that it
will promptly return to CableMaxx all such documents (including copies thereof)
furnished by or on behalf of CableMaxx and/or each Subsidiary to Heartland and
its representatives and Heartland shall hold in confidence and shall not use or
disclose to any third party any information concerning CableMaxx and/or each
Subsidiary obtained from such documents or otherwise in connection with the
transactions contemplated by this Agreement unless (a) such information was at
the time of its use or disclosure to any third party by Heartland in the public
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domain other than as a result of any breach of this provision by Heartland or
(b) such disclosure is required by law.
5.4 COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS AGREEMENT. Prior
to the Closing Date, CableMaxx shall cause to be prepared and delivered to
Heartland and MergerSub an updated list (reasonably satisfactory to counsel for
Heartland) identifying all persons in addition to CWCH who at the time of
CableMaxx's shareholder meeting may be deemed to be a Rule 145 Affiliate. On the
Closing Date, Heartland and CWCH shall execute a Registration Rights Agreement
in the form attached as Exhibit 5.4 providing for the registration of the sale
of the Heartland Common Shares to be received by CWCH in the Merger, as further
provided therein.
5.5 STOCK OPTIONS.
(A) All options and stock appreciation rights previously granted, if
any, under any CableMaxx stock option plan for its directors or employees
or the directors or employees of any Subsidiary (the "CableMaxx Stock
Option Plans") that are unexercised, whether or not then exercisable (the
"CableMaxx Stock Options"), shall be, on or prior to the Effective time,
immediately exercisable. CableMaxx will permit all of the CableMaxx Stock
Options to be exercised by the tender to CableMaxx of any of (i) cash in
the amount of the exercise price, (ii) shares of Common Stock of CableMaxx
with a fair market value (as such term is defined in the CableMaxx Stock
Option Plans) equal to the exercise price, or (iii) the withholding by
CableMaxx of whole shares of Common Stock of CableMaxx having a fair market
value equal to the exercise price from the shares issued upon the exercise
of the CableMaxx Stock Options. Holders of the CableMaxx Stock Options who
so exercise such Stock Options prior to the Effective Time shall be
entitled to exchange the shares of CableMaxx Common Stock subject to such
Stock Options for the Conversion Amount on the same basis as the other
shareholders of CableMaxx Common Stock. Any Stock Options remaining
unexercised at the Effective Time shall be terminated. All CableMaxx Stock
Option Plans shall terminate as of the Effective Time and the provisions in
any other plan, program or arrangement providing for the issuance or grant
of any other interest in respect of the capital stock of CableMaxx or any
Subsidiary shall be deleted as of the Effective Time. CableMaxx shall take
all action necessary to ensure that following the Effective Time no
participant in any CableMaxx Stock Option Plan or other plans, programs or
arrangements shall have any right thereunder to acquire equity securities
of CableMaxx, the Surviving Corporation or any subsidiary thereof, and to
terminate all such rights.
(B) No employee of CableMaxx or any Subsidiary who held options for
CableMaxx Common Stock prior to the Effective Time shall have any right to
participate in Heartland's stock option plan with respect to all or any
portion of any calendar year unless expressly so provided in any agreement
between Heartland and such employee.
(C) The proceeds received by CableMaxx upon the exercise of any option
from the date hereof through the Closing Date shall be placed in a separate
escrow account and shall remain in such account through the Closing Date.
5.6 WARRANTS. CableMaxx shall cause each holder of warrants to acquire
CableMaxx Common Shares (whether or not then exercisable) to consent to either
(i) the cancellation of such warrants to take effect on or prior to the
Effective Time in consideration of the payment to such holder of the Conversion
Amount for each share of CableMaxx Common Shares subject to such warrant, upon
the payment by such holder of the applicable warrant exercise price or (ii) the
termination thereof. Cancellation of such warrants in exchange for the
consideration set forth in this Section 5.6 shall be deemed a release of any and
all rights the holder had or may have had in the warrant or the CableMaxx Common
Stock in respect of such warrant. Any warrants remaining unexercised at the
Effective Time shall be terminated. The proceeds received by CableMaxx upon the
exercise of any warrant from the date hereof through the Closing Date shall be
placed in a separate escrow account and shall remain in such account through the
Closing Date.
5.7 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to
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be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity; (b) the obtaining of all necessary
consents, approvals or waivers from third parties; (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed; and (d) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement.
5.8 PUBLIC ANNOUNCEMENTS. Heartland and MergerSub, on the one hand, and
CableMaxx, on the other hand, will consult with each other before issuing any
press release with respect to the transactions contemplated by this Agreement,
and shall not issue any such press release prior to such consultation, unless
otherwise required under applicable law.
5.9 NOTIFICATION OF CERTAIN MATTERS. CableMaxx shall give to Heartland
prompt notice of: (i) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the date of this Agreement and prior to the
Effective Time under any note, license, agreement or other instrument or
obligation other than in respect of defaults which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect;
and (ii) any Material Adverse Effect or the occurrence of any event which, so
far as reasonably can be foreseen at the time of its occurrence, is reasonably
likely to result in a Material Adverse Effect. Heartland shall give CableMaxx
(a) from and after the date of this Agreement, prompt notice of the occurrence
of any event that would require Heartland to file a current report on Form 8-K
or issue a press release under applicable securities laws, and (b) from and
after the date of the mailing of the Proxy Statement, prompt notice of the
occurrence of any event that would require the information regarding Heartland
contained in the Proxy Statement to be amended or supplemented under applicable
securities laws. Each party shall give the other prompt notice of any written
notice or other written communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
5.10 LETTERS OF CABLEMAXX'S ACCOUNTANTS. CableMaxx shall use reasonable
efforts to deliver to Heartland a letter of Coopers & Lybrand, L.L.P.,
CableMaxx's independent auditors, dated a date within two business days before
the date on which the Registration Statement shall become effective and
addressed to Heartland, in form and substance reasonably satisfactory to
Heartland and customary in scope and substance for consent letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement ("Accountant's Consent Letter").
5.11 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act, and will use their
respective best efforts to obtain an early termination of the applicable waiting
period, and will make any further filings pursuant thereto that may be
necessary, proper, or advisable.
5.12 SEC FILINGS. CableMaxx and Heartland shall cause to be filed all
periodic and current reports required to be filed with the SEC for all periods
after the execution of this Agreement through the Closing Date.
5.13 TERMINATION OF CERTAIN AGREEMENTS. On or prior to the Closing Date
and at the request of Heartland, CableMaxx shall terminate all Affiliate
Agreements without compensation and employment or other management agreements
without compensation except as set forth in Schedule 2.28, as designated by
Heartland.
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5.14 SALE OF SALT LAKE CITY MARKET. Notwithstanding any provisions
contained herein to the contrary, CableMaxx shall have the right to solicit bids
for and negotiate the sale of the Wireless Cable Television System and related
assets servicing the Salt Lake City, Utah Standard Metropolitan Area
(collectively, such assets are referred to as the "Salt Lake City Market");
provided that (i) CableMaxx shall keep Heartland fully informed regarding the
status of any negotiations regarding the sale of Salt Lake City Market or offers
therefor, including without limitation, the identity of the proposed purchaser
and the consideration offered or requested, (ii) Heartland shall have the right
to approve, in its reasonable discretion, the terms of any proposed disposition
of the Salt Lake City Market, and CableMaxx (or any Subsidiary) shall not
execute a definitive agreement to dispose of the Salt Lake City Market without
Heartland's written approval, and (iii) the gross proceeds of any such
disposition shall be placed in an escrow account and shall remain in such
account through the Closing Date.
5.15 EXHIBITS. Heartland and CableMaxx agree that any Exhibits not
attached hereto on the date hereof shall be prepared and attached on or before
December 29, 1995, and agree to cooperate and negotiate in good faith in the
preparation of such Exhibits.
5.16 USE OF PROCEEDS FROM SUBLEASE/OPTION AGREEMENT. CableMaxx and
Heartland have entered into a Sublease Agreement with Option to Purchase
("Sublease/Option Agreement") with regard to certain wireless cable markets
identified therein. CableMaxx hereby covenants and agrees that any proceeds
received by CableMaxx from Heartland ("Sublease Proceeds") (whether in the form
of lease or sublease rentals, payments of option or purchase amounts, or
otherwise) shall be used by CableMaxx solely for the purposes of marketing,
purchasing transmission equipment, set top converters, home antennae and masts,
or paying labor costs associated with the installation thereof ("Permitted
Subscriber Expenditures"). CableMaxx shall, upon written request of Heartland,
furnish written evidence reasonably satisfactory to Heartland that such Sublease
Proceeds were used in accordance with the provisions of this Section 5.16, which
shall include copies of third party receipts and invoices and evidence of the
payment thereof.
5.17 INDEMNIFICATION.
(A) SURVIVING CORPORATION INDEMNIFICATION PROVISIONS. Heartland agrees
to cause the Surviving Corporation (i) not to change, for three years after
the Closing Date, the provisions of its certificate of incorporation and
bylaws in effect on the Closing date in each case relating to
indemnification of each present or former director and officer of CableMaxx
and its Subsidiaries (together with any successor by operation of law,
individually an "Indemnified party" and collectively the "Indemnified
Parties") in a manner which adversely affects the rights of such
Indemnified Party to indemnification thereunder and (ii) to perform its
obligations thereunder. Notwithstanding the foregoing, nothing in this
Agreement shall constitute a waiver of, or otherwise operate to adversely
affect, the existing rights of the Indemnified Parties under the
certificate of incorporation or bylaws of CableMaxx in effect on the date
hereof.
(B) D&O INSURANCE. Heartland will cause the Surviving Corporation to
maintain in effect for a period of three (3) years, directors' and
officers' liability insurance covering those persons ("Covered Persons")
who are currently covered by CableMaxx's current directors' and officers'
liability insurance policy (a copy of which has heretofore been delivered
to Heartland) ("D&O Policy") on terms comparable to those now applicable to
directors or officers of CableMaxx, provided, that Heartland may, in lieu
of maintaining such existing directors' and officers' liability insurance,
either (i) cause comparable coverage to be provided for such period under
any other policy, including, without limitation, a policy maintained for
the benefit of Heartland or any of its Subsidiaries, so long as the
material terms thereof are no less advantageous to the Covered Persons than
those of the D&O Policy, or (ii) at any time after one year from the date
hereof, elect to assume the obligations to the Covered Persons of the
insurance company under the D&O Policy (subject to limits, deductibles and
exclusions of such D&O Policy) through the date which is three (3) years
following the Closing Date.
(C) EFFECT OF SUBSECTIONS (A) AND (B). The provisions of Subsections
(a) and (b) of this Section 5.17 shall survive the Closing Date, are
intended to benefit each of the Indemnified Parties and
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Covered Parties, as applicable (each of whom shall be entitled to enforce
such subsections against the Surviving Corporation or Heartland, as the
case may be).
5.18 REPAYMENT OF INDEBTEDNESS. Immediately prior to Closing, Heartland
shall advance to CableMaxx sufficient funds to enable CableMaxx to repay and
discharge, and CableMaxx upon receiving such advance shall so repay and
discharge, the indebtedness ("Subordinated Indebtedness") evidenced by that
certain Subordinated Non-Negotiable Note, dated December 18, 1992, by Charter
Cable Corporation and Charter Cable (San Antonio), Inc., predecessors to a
Subsidiary of CableMaxx, to Supreme Cable Co., Inc.
5.19 NET LIABILITIES. Within fifteen (15) days prior to the Closing Date,
but no later than ten (10) days prior to the Closing Date, CableMaxx shall
deliver to Heartland an estimate of the Net Liabilities anticipated at the
Closing, with reasonable detail showing the calculation of such amount.
Heartland shall be entitled to discuss the information used to calculate the Net
Liabilities with any officers, attorneys, accountants, representatives, agents,
contractors or lenders of CableMaxx or its Subsidiaries to verify the
calculation of such amount, and CableMaxx shall cooperate in good faith in
assisting Heartland to verify the Net Liabilities and providing Heartland and
its representatives access to information necessary to verify such calculation.
5.20 RESIGNATION OF DIRECTORS OF CABLEMAXX. CableMaxx shall deliver to
Heartland, except as otherwise requested by Heartland, the written resignation
of all directors of CableMaxx and each Subsidiary.
5.21 HEARTLAND LOAN. On December 26, 1995, Heartland and CableMaxx shall
enter into the Loan Agreement attached as Exhibit 5.21 (the "Heartland Loan").
For purposes of determining the Net Liabilities of CableMaxx, (a) the obligation
of CableMaxx to repay the Heartland Loan shall be excluded as a liability, and
(b) the amount of the unspent proceeds of the Heartland Loan shall be subtracted
from the cash or cash equivalents of CableMaxx (which amount would otherwise
reduce the amount of Net Liabilities).
5.22 INTERFERENCE RESOLUTION. Notwithstanding any of the covenants to the
contrary contained herein, CableMaxx may pay up to $75,000 (the amount of such
payment being referred to as the "Interference Resolution Amount") to resolve
certain disclosed channel interference arising from Provo, Utah, and the
Permitted Net Liabilities shall be increased by the Interference Resolution
Amount.
5.23 PAYMENT OF APPROVED EXPENSES. At Closing, Heartland shall pay all
expenses owed to the parties listed on Schedule 5.23, provided that such parties
deliver to Heartland any of the following: (i) Estoppel Certificates, (ii)
Account Estoppels or (iii) similar evidence of the amounts owed reasonably
satisfactory to Heartland; provided further that the aggregate amount of such
payments shall not exceed the Permitted Net Liabilities.
ARTICLE 6. CONDITIONS PRECEDENT TO MERGER.
The obligation of the parties hereto to consummate the Merger is subject to
fulfillment, or written waiver signed by all parties hereto, of each of the
following conditions precedent on or prior to the Closing Date or the date
specified therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
6.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting the Merger or any of the transactions contemplated hereby or
otherwise making the consummation of the Merger or any of the transactions
contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, any Governmental Authority in connection with the execution
and delivery of this Agreement and the
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consummation of the transactions contemplated hereby by CableMaxx, Heartland and
MergerSub, shall have been made or obtained (as the case may be) without
restrictions.
6.4 LENDER'S CONSENTS. Heartland shall have delivered to CableMaxx written
notice ("Approval Notice") that the merger has been approved or consented to by
the holders of the Senior Notes of Heartland relative to the transactions
contemplated by this Agreement on or before October 9, 1995.
6.5 FAIRNESS OPINIONS. CableMaxx shall have delivered to Heartland and
MergerSub on or before the tenth (10th) day following the date of this
Agreement, an opinion of the CableMaxx Advisor as to the fairness of the Merger
to the stockholders of CableMaxx from a financial point of view (the "Fairness
Opinion"). The Fairness Opinion shall be satisfactory in form and substance to
CableMaxx.
ARTICLE 7. CONDITIONS PRECEDENT TO CLOSING BY HEARTLAND AND MERGERSUB.
The obligations of Heartland and MergerSub to consummate the Merger are
subject to fulfillment, or written waiver signed by Heartland and MergerSub, of
each of the following conditions precedent on or prior to the Closing Date.
7.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of Heartland Common Shares in accordance with
applicable law and its Certificate of Incorporation and Bylaws.
7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by CableMaxx shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
7.3 CABLEMAXX DOCUMENTS. CableMaxx shall have delivered the following to
Heartland in form and substance reasonably satisfactory to Heartland and its
counsel:
(A) A certificate signed by the chief executive officer of CableMaxx,
on behalf of and in his capacity as an officer of CableMaxx, confirming, on
and as of the Closing Date, that each of the representations and warranties
set forth in Section 2 hereof was true and correct in all material respects
on the date made and are true and correct in all material respects on and
as of the Closing Date and that CableMaxx is in compliance in all material
respects with the applicable covenants set forth in Articles 4, 5 and 6.
(B) An opinion of special counsel to CableMaxx and an opinion of FCC
counsel to CableMaxx and each Subsidiary in the forms attached hereto as
Exhibit 7-3(c).1 and Exhibit 7-3(c).2, respectively.
(C) The minute books, bylaws, certificate of incorporation of
CableMaxx and each Subsidiary and the stock books and stock ledgers of each
Subsidiary.
(D) Substantially all of the Estoppel Certificates and all of the
Account Estoppels; provided that, if CableMaxx is unable to obtain
substantially all of the Estoppel Certificates to be delivered hereunder on
or prior to the Closing Date, CableMaxx shall have the right to provide in
lieu thereof, and Heartland shall accept, any of (i) evidence reasonably
satisfactory to Heartland that all payments under the contract which is the
subject of such non-delivered Estoppel Certificate have been made during
the preceding twelve (12) months, (ii) copies of all correspondence, if
any, received from the other party to such contract during the preceding
twelve (12) months (none of which shall indicate any default or dispute has
arisen thereunder) or (iii) evidence reasonably satisfactory to Heartland
(such as an invoice or other billing statement) of the amount owed to such
creditor, vendor, supplier or third party.
7.4 NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect
to CableMaxx or any Subsidiary, or their respective assets from the date hereof
through the Closing Date which would have a Material Adverse Effect.
7.5 DISSENTERS' RIGHTS. The shareholders of CableMaxx Common Stock shall
not be entitled to exercise any appraisal remedies or other dissenter's rights
under DGCL in connection with the Merger.
7.6 ACCOUNTANT'S CONSENT LETTER. Heartland shall have received from
CableMaxx the Accountant's Consent Letter.
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7.7 CABLEMAXX OBLIGATIONS PERFORMED. All obligations of CableMaxx to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
7.8 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF CABLEMAXX. Each of
the conditions precedent to the obligations of CableMaxx set forth in Article 6
or 8 shall have been satisfied or waived by CableMaxx, except for the provisions
of Section 8.1, which shall be satisfied and may not be waived by CableMaxx.
7.9 NON-COMPETITION. The persons identified on Schedule 7.9 shall have
executed a Non-Competition Agreement in the form attached hereto as Exhibit 7.9.
7.10 TERMINAL PRICE. The Terminal Price shall not be less than the Minimum
Termination Price.
7.11 AUDIT RESULTS. The information contained in the audited financial
statement of CableMaxx and its Subsidiaries for the fiscal year ended June 30,
1995 shall conform in all material respects to the information contained in the
unaudited financial statement delivered to Heartland on or prior to the date
hereof for such fiscal year.
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY CABLEMAXX.
The obligation of CableMaxx to consummate the Merger is subject to
fulfillment, or written waiver signed by CableMaxx, of each of the following
conditions precedent on or prior to the Closing Date.
8.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of the CableMaxx Common Shares in accordance with
applicable law and its Certificate of Incorporation and Bylaws.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland and/or MergerSub shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as if originally made on and as of the Closing Date.
8.3 HEARTLAND AND/OR MERGERSUB DOCUMENTS. Heartland and/or MergerSub, as
the applicable case may be, shall have executed and delivered to CableMaxx in
form and substance reasonably satisfactory to CableMaxx and to counsel:
(A) A certificate of the chief executive officer of Heartland and
MergerSub, on behalf of and in his respective capacity as an officer of
Heartland or Merger Sub, confirming, on and as of the Closing Date, that
each of the representations and warranties set forth in Section 4 hereof
was true and correct in all material respects on the date made and are true
and correct in all material respects on and as of the Closing Date.
(B) An opinion of counsel to Heartland and/or MergerSub in the form
attached hereto as Exhibit 8.3.
(C) The Registration Rights Agreement, executed by Heartland.
8.4 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF HEARTLAND AND
MERGERSUB. Each of the conditions precedent to the obligations of Heartland and
MergerSub set forth in Article 8 shall have been satisfied or otherwise waived
by Heartland and MergerSub.
8.5 HEARTLAND AND MERGERSUB OBLIGATIONS PERFORMED. All obligations of
Heartland and MergerSub to be performed hereunder through and including the
Closing Date shall have been performed in all material respects.
8.6 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the Proxy Statement to be
amended or supplemented under applicable securities laws.
8.7 TERMINAL PRICE. The Terminal Price shall not be greater than the
Maximum Termination Price.
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ARTICLE 9. TERMINATION; ADJUSTMENTS TO MERGER CONSIDERATION.
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the shareholders of CableMaxx and Heartland, by
the mutual consent of Heartland, MergerSub and CableMaxx.
9.2 TERMINATION BY CABLEMAXX. This Agreement may be terminated and the
Merger may be abandoned by CableMaxx if the closing conditions set forth in
Articles 6 and 8 shall not have been satisfied in full or waived on or before
February 29, 1996 or the date specified therein.
9.3 TERMINATION BY HEARTLAND OR MERGERSUB; ADJUSTMENT TO MERGER
CONSIDERATION. This Agreement may be terminated and the Merger may be abandoned
by Heartland or MergerSub if the closing conditions set forth in Articles 6 and
7 shall not have been satisfied in full or waived on or before February 29, 1996
or the date specified therein; provided that if on the Closing Date the Net
Liabilities exceed the Permitted Net Liabilities (such excess being referred to
as "Excess Net Liabilities"), (i) Heartland shall not have the right to
terminate this Agreement or abandon the Merger, and (ii) the Merger
Consideration shall be automatically reduced by the amount of the Excess Net
Liabilities.
9.4 TERMINATION RESULTING FROM ACQUISITION PROPOSALS. In the event that
any Person shall have made an Acquisition Proposal and the Board of Directors of
CableMaxx either approves the execution of an agreement relating thereto or
recommends to the CableMaxx stockholders the acceptance of any Acquisition
Proposal, then CableMaxx shall promptly, but in no event later than two days
after the date of such Board approval or recommendation, (a) pay Heartland a fee
of Two Million Dollars ($2,000,000) and (b) prepay all principal and accrued
interest outstanding under the Heartland Loan, by wire transfer of same day
funds as liquidated damages, this Agreement shall terminate and the parties
shall have no further liability or obligations hereunder. CableMaxx acknowledges
that the agreements contained in this Section 9.4 are integral parts of the
transactions contemplated in this Agreement, and that, without these agreements,
Heartland and MergerSub would not enter into this Agreement; accordingly, if
CableMaxx fails to promptly pay the amount due and pursuant to Section 9.4, and,
in order to obtain such payment, Heartland or MergerSub commences a suit which
results in a judgment against CableMaxx for the fee set forth in this Section
9.4, the non-prevailing party shall pay the prevailing party its cost and
expenses (including attorneys' fees) in connection with such suit, together with
interest on such amounts at the interest rate applicable to the Heartland Loan.
9.5 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and abandonment of the Merger other than (i) as provided in Section
9.4 above, in which case the payment of the amount specified therein shall be
deemed to be liquidated damages for any claims under this Agreement arising from
a termination resulting from an Acquisition Proposal or (ii) by Heartland
arising from the failure of the condition precedent set forth in Section 6.4, in
which case this Agreement shall terminate and the parties shall have no
liabilities or obligations to each other hereunder, each party shall have all
rights at law or in equity against the other, if any.
ARTICLE 10. DEFINITIONS.
10.1 The terms used in this Agreement have the respective meanings
specified or referred to in this Article 12:
"ACCOUNT ESTOPPELS" shall have the meaning set forth in Section 4.2.
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in
Section 5.10.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACT" means The Communication Act of 1934, as amended.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a
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member of the immediate family of any of the foregoing Persons, whether or
not living under the same roof with such Person.
"AFFILIATE AGREEMENTS" shall have the meaning set forth in Section
2.9.
"ANNUAL FCC REPORT" means the reports which a licensee in the MMDS
service is required to file annually with the FCC pursuant to Section
21.911 of the FCC Rules.
"APPLICATION" means a pending application by CableMaxx or Institution
or other Parties to the FCC for a License.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to CableMaxx
by a Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with the provision of wireless
cable services, including the licenses, permits, authorizations,
franchises, grants, registrations, certificates, consents and waivers
listed on Schedules 2.10(b) and 2.10(d).
"CABLEMAXX ADVISOR" means Bear, Stearns & Co., Inc.
"CABLEMAXX COMMON SHARE" shall have the meaning set forth in the
Recitals.
"CABLEMAXX COMMON SHARES" shall mean all of the issued and outstanding
capital stock of CableMaxx immediately before the Merger.
"CABLEMAXX REPRESENTATIVES" shall have the meaning set forth in
Section 4.4.
"CABLEMAXX SEC FILINGS" means CableMaxx's Form 10-K filed for the
fiscal years ended June 30, 1993 and 1994, Form S-4 (File No. 33-82862)
filed with the SEC on October 20, 1994, Form 10-Qs filed for the fiscal
quarters ended September 30, 1994, December 31, 1994 and March 31, 1995,
and all intervening Form 10-Ks, 10-Qs, 8-Ks and proxy statements filed with
the SEC.
"CABLEMAXX STOCK OPTION PLANS" shall have the meaning set forth in
Section 4.5(a).
"CABLEMAXX STOCK OPTIONS" shall have the meaning set forth in Section
4.5(a).
"CERTIFICATES" shall have the meaning set forth in Section 1.2(a).
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the CableMaxx or Subsidiary.
"CLOSE" or "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.3.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.3.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Common
Shares the average of the closing prices of such stock as reported on the
NASDAQ NMS for the twenty (20) trading days ending on the fifth (5th)
business day prior to the Closing Date. In the event that the Heartland
Common Shares do not trade on any day during such twenty-day period, then
the closing price for such date shall be deemed to be the closing price for
the day preceding such date for purposes of determining the Closing Share
Price.
"CM TEXAS" means CableMaxx (Texas), Inc., a Delaware corporation.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENTS" means the consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Material Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other
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transaction contemplated by this Agreement, or (ii) necessary or desirable
for Heartland to conduct the operations currently conducted by CableMaxx
after the Closing.
"CONVERSION AMOUNT" shall be the amount of consideration per share for
the acquisition of CableMaxx as provided for in Section 1.2(b).
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"COVERED PERSONS" shall have the meaning set forth in Section 5.17(b).
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DGCL" means the Delaware General Corporation Law.
"D&O POLICY" shall have the meaning set forth in Section 5.17(b).
"EFFECTIVE TIME" shall mean the date and time of the filing of the
applicable certificate of merger in the State of Delaware.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
2.23(a).
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, and
including electro-magnetic fields or discharges into the Environment, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, which are now or may
hereafter be applicable to CableMaxx.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESTOPPEL CERTIFICATE" shall have the meaning set forth in Section
4.2.
"EXCHANGE ACT" means the Security Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.2(f).
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section
1.2(f).
"EXCHANGE FUND" shall have the meaning set forth in Section 1.2(f).
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"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means all of the plants, offices, broadcast towers,
antenna towers, head-ends, studios, control centers and other real property
interests and related facilities which are either owned by CableMaxx or
leased by or the use of which are leased by the CableMaxx.
"FAIRNESS OPINION" shall have the meaning set forth in Section 6.5.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America. The term "generally
accepted accounting principles" shall mean accounting principles which are
(a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles, and (b) such that a certified public accountant
would, insofar as the use of accounting principles is pertinent, be in a
position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government or any federal, state or local regulatory
authority.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority to CableMaxx or Subsidiary.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials and including radon gas.
"HEARTLAND" shall have the meaning set forth in the Recitals.
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"HEARTLAND COMMON SHARES" means shares of common stock, $.001 par
value per share, Heartland Wireless Communications, Inc.
"HEARTLAND LOAN" shall have the meaning set forth in Section 5.21.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"INDEMNIFIED PARTIES" shall have the meaning set forth in Section
5.17(a).
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with CableMaxx
or any Subsidiary.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of
CableMaxx or any Affiliate of CableMaxx which are used or available for use
in connection with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"JOINT VENTURE" means a joint venture, partnership, limited liability
company or other similar arrangement, whether in corporate, partnership or
other legal form; provided that in no event shall any corporate Subsidiary
of any Person be considered a Joint Venture to which such Person is a
party.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is aware or should
reasonably be aware, after due inquiry, of such fact or other matter; (b)
with respect to a Person (other than an individual) "knowledge" of a
particular fact or other matter if any individual who is serving as a
director or officer of such Person has "knowledge" of such fact or other
matter; and (c) with respect to the warranties made by CableMaxx that
CableMaxx, based upon a reasonable investigation, believes is true.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline applicable to or against
CableMaxx or Subsidiary.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals which are required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance against any assets or properties
of CableMaxx or its Subsidiaries.
"MANAGE OR MANAGEMENT" means the use, possession, processing,
generation, treatment, storage, disposal, recycling, transportation or
arranging for the transportation of any Hazardous Substance.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in or is reasonably likely to result in a material adverse change
in (i) the financial condition, business, operations, properties or
prospects of CableMaxx or any Subsidiary taken as a whole, other than
either general economic changes or regulatory or competitive changes that
affect the wireless cable television industry generally over which neither
CableMaxx nor any Subsidiary has no control; (ii) the ability of CableMaxx
or any Subsidiary prior to the Effective Time to perform its obligations
under this Agreement, or (iii) the validity or enforceability of this
Agreement.
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"MATERIAL CONTRACTS" shall have the meaning set forth in Section 2.9.
"MAXIMUM TERMINATION PRICE" means $34.00 per share.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MINIMUM TERMINATION PRICE" means $10.00 per share.
"MERGER" means the merger described in Section 1.1.
"MERGER CONSIDERATION" means $80,812,143, as adjusted pursuant to
Section 9.3.
"MMDS" means the Multichannel Multipoint Distribution Service.
"NASDAQ-NMS" means the National Association of Securities Dealers
Automated Quotation National Market System.
"NET LIABILITIES" means certain liabilities of CableMaxx (including,
without limitation, the Subordinated Indebtedness to be repaid at or prior
to Closing) less cash or cash equivalents (other than any escrowed proceeds
from the sale of the Salt Lake City Market), calculated as of the Closing
Date consistent with Schedule A.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator as to which CableMaxx or
Subsidiary is a party.
"PBGC" shall have the meaning set forth in Section 2.23(c).
PERMITTED SUBSCRIBER EXPENDITURES" shall have the meaning set forth in
Section 5.16.
"PERMITTED NET LIABILITIES" shall have the meaning set forth in
Section 4.1(d).
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"POTENTIAL CLAIMS" shall have the meaning set forth in Section 2.12.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 5.2(b).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
5.2(a).
"RELEASE" means the releasing, spilling, leaking, discharging,
pumping, pouring, emitting, emptying, ejecting, leaching, dumping,
disposing or allowing to escape any Hazardous Substance.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 2.32.
"SCM" means Supreme Cable Metroplex, Inc., a Texas corporation.
"SALT LAKE CITY MARKET" shall have the meaning set forth in Section
6.15.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR NOTES" means the $100 million of 13% Senior Notes due 2003 of
Heartland.
"SEVERANCE OBLIGATIONS" shall have the meaning set forth in Section
2.28.
"SITE" means a wireless cable television site with respect to which
CableMaxx is operating a Wireless Cable Business and transmitting
programming to subscribers in connection therewith.
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"SITE LEASE" shall mean an agreement for the lease of real estate or
power space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"SUBORDINATED INDEBTEDNESS" shall have the meaning set forth in
Section 5.18.
"SUBSIDIARY" means CM Texas, SCM or any other entity in which
CableMaxx has the ability to direct the management or affairs.
"SURVIVING CORPORATION" shall have the meaning set forth in Section
1.1.
"TAX" OR "TAXES" shall have the meaning set forth in Section 2.6.
"TERMINAL PRICE" means with respect to Heartland Common Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the five (5) trading days ending on the fifth (5th) business day prior
to the Closing Date. In the event that the Heartland Common Shares do not
trade on any day during such five-day period, then the closing price for
such date shall be deemed to be the closing price for the day preceding
such date for purposes of determining the Terminal Price.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
"WIRELESS CABLE TELEVISION SYSTEMS" means the Austin, Texas; San
Antonio, Texas; Temple/Kileen, Texas; Waco, Texas; Salt Lake City, Utah;
Sherman/Denison, Texas; Amarillo, Texas; Lubbock, Texas; and Athens, Texas
wireless cable television systems and/or channel rights in such geographic
areas.
10.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 11. MISCELLANEOUS.
11.1 EXPENSES OF THE TRANSACTION. Each of CableMaxx, Heartland and
MergerSub agrees to pay its own fees and expenses in connection with this
Agreement and the transactions hereby contemplated.
11.2 FURTHER ASSURANCES. Each of CableMaxx, Heartland and MergerSub agrees
that it will, at any time and from time to time after the Closing Date, upon the
request of the other party, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required from time to time in order to effectuate the provisions and
purposes of this Agreement.
11.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to Heartland, to:
Heartland Wireless Communications, Inc.
902 N. Bowser, Suite 140
Richardson, Texas 75081
Attn: Mr. John R. Bailey
Phone: (214) 479-9244
Fax: (214) 479-1023
With copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
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Dallas, TX 75202
Attn: Victor B. Zanetti, Esq.
Phone: (214) 761-4475
Fax: (214) 741-7139
If to CableMaxx, to:
CableMaxx, Inc.
6850 Austin Center Blvd., Suite 320
Austin, Texas 78731
Attn: Mr. Tommy L. Gleason, Jr.
Phone: (512) 345-1001
Fax: (512) 345-2557
With copy to:
Proskauer Rose Goetz & Mendelsohn, L.L.P.
1585 Broadway
New York, New York 10036
Attn: Stephen W. Rubin, Esq.
Phone: (212) 969-3000
Fax: (212) 969-2900
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
11.4 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
11.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits hereto, sets forth the entire agreement and understanding among the
parties as to the subject matter hereof.
11.6 SEVERABILITY. If any provision of this Agreement or the application
of any provision hereof to any person or in any circumstances is held invalid,
the remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
11.7 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any party hereto except with the
prior written consent of the other parties. Any purported assignment contrary to
the terms of this Agreement shall be void.
11.8 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Date, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland and CableMaxx;
provided, Heartland and CableMaxx shall be entitled to disclose the transactions
contemplated hereby without the prior approval of the other, but with prior
notice to the other, to the extent reasonably necessary for Heartland or
CableMaxx to comply with applicable securities laws.
11.9 CHOICE OF LAW. This Agreement shall be deemed to have been made in,
and shall be construed in accordance with the laws of the State of Delaware, and
its validity, construction, interpretation and legal effect shall be governed by
the laws of the State of Delaware applicable to contracts entered into and
performed entirely therein.
11.10 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a
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limitation of the item described. All words used herein shall be construed to be
of such gender as the circumstances require.
11.11 SCHEDULES; EXHIBITS. The Schedules referred to herein and delivered
to Heartland and/or MergerSub upon execution hereof are hereby made a part of
this Agreement. Subject to Section 5.15, all Exhibits referred to herein are
hereby made a part of this Agreement.
11.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
11.13 NO SURVIVAL. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant to this Agreement (other than
the agreements contained or referred to in Sections 5.4 (registration rights
agreement), 5.17 (indemnification and insurance obligations), and 7.9
(non-competition) which shall continue for the periods specified therein) shall
be conditions to the Merger and shall not survive the Merger.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
CABLEMAXX:
CABLEMAXX, INC.
By: /s/ TOMMY L. GLEASON
Tommy L. Gleason
President
HEARTLAND:
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
John R. Bailey
Chief Financial Officer
HEARTLAND MERGER SUB 2, INC.:
By: /s/ JOHN R. BAILEY
John R. Bailey
Chief Financial Officer
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APPENDIX P
INFORMATION CONCERNING TSC
<PAGE> 575
P -------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Business of TSC...................................................................... P-1
TSC -- Selected Financial Information................................................ P-8
TSC -- Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... P-9
Dividends on and Market Value of TSC Common Stock.................................... P-10
Security Ownership of Principal Stockholders and Management of TSC................... P-10
Comparison of Rights of Security Holders of Heartland and TSC........................ P-11
</TABLE>
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BUSINESS OF TSC
Technivision has developed, owned and operated wireless cable television
systems in Corpus Christi, Texas and Dayton, Ohio. In addition, Technivision
owned the rights to develop and operate a wireless cable television system with
27 channels in El Paso, Texas. Management estimates that the Corpus Christi, El
Paso and Dayton markets have approximately 795,000 households of which 588,000
are serviceable by LOS transmissions. The Corpus Christi system, which was
launched in April 1990, provides 31 channels of service, including six off-air
local television stations, to approximately 15,468 subscribers as of November
30, 1995. The Dayton system, which was launched in November 1993, provides 31
channels of service, including five off-air local television stations, to
approximately 3,242 subscribers as of November 30, 1995.
In January 1996, Technivision was merged into its parent corporation, TSC,
in order to facilitate the TSC Transaction. In addition to the Technivision
systems, TSC owns and operates SMATV systems in New Jersey and engages in
certain other business activities. Because the TSC Transaction relates only to
the Technivision systems, no description of the other business activities of TSC
is contained in this Proxy Statement/Prospectus. Unless the context otherwise
requires, references herein to TSC relate to TSC as successor to the
Technivision assets.
The executive offices of TSC are located at 120 Floral Avenue, New
Providence, New Jersey and its telephone number is (908) 665-0094. See "The TSC
Transaction -- Information Concerning TSC."
SEC CONSENT; ARRANGEMENTS WITH PHILIPS CREDIT CORP.
Technivision acquired the right to build wireless cable television systems
in Corpus Christi, Texas, El Paso, Texas, Dayton, Ohio and Salt Lake City, Utah
in 1989. Following the acquisition, Technivision sought to raise the funds
necessary to finance the construction and operations of the TSC systems.
Technivision received a proposal from Philips to provide sufficient financing
for that purpose. Unfortunately, Technivision ultimately received only a portion
of the funds needed due to adverse conditions in the credit markets generally.
With the reduced level of funding made available by Philips, Technivision began
to build the system in Corpus Christi because management believed that it was
the closest to being ready to launch. In April 1990, the system in Corpus
Christi commenced commercial operation.
The construction and operation of the Corpus Christi system required
significant amounts of capital. By April 1991, the funds provided by Philips had
been fully employed to acquire the necessary equipment, obtain licensing and
programming rights, and build the installed base of subscribers for the system.
Thereafter, Technivision began to seek additional funding for its operations
from new sources of capital. Representatives
of Technivision met with potential sources of funding over a period that
stretched from the fall of 1990 through the fall of 1992, but were unable to
obtain any financing commitments.
Commencing in November 1992, representatives of Technivision began
negotiations with a group led by Mr. Greg Parker regarding a proposed equity
infusion. Ultimately, on January 8, 1993 Technivision entered into certain
financing arrangements with an entity formed by Mr. Parker. Pursuant to those
arrangements, Mr. Parker agreed to cause certain entities to be formed which
would raise money from investors to invest in joint ventures to be formed by Mr.
Parker. In exchange, Technivision would contribute its wireless cable television
rights to those joint ventures. However, according to a complaint subsequently
filed by the Commission against Mr. Parker and his associates, Mr. Parker raised
the money to be invested in the joint ventures through the illegal sale of
securities to the public. Although the proposed transfers of the Technivision
systems never took place because Technivision was unable to procure Philips'
consent thereto, Technivision ultimately received approximately $7 million from
the entities formed by Mr. Parker which were used to finance the expansion of
the Corpus Christi system and the construction of the Dayton system. In
addition, in September 1994, Technivision sold the rights to the Salt Lake City
system to CMAX for $10.2 million, a portion of which was ultimately paid to the
Parker group.
Upon becoming aware of the nature of Mr. Parker's conduct, Technivision
sought to terminate all ties with him. In order to avoid the potential adverse
effects of protracted proceedings regarding Mr. Parker's activities,
Technivision entered into the Consent pursuant to which Technivision agreed to
repay all amounts it
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had received from the entities formed by Parker to the Trust. Pursuant to the
Consent, Technivision is required to sell the TSC systems on or prior to
December 31, 1996 and to pay the Trust $7 million out of the proceeds of such
sale. As a result of the liquidation of certain other assets, Technivision had
reduced the amount owed to the Trust to approximately $6 million as of November
1, 1995. Upon the merger of Technivision into TSC, TSC succeeded to
Technivision's obligations under the Consent.
In connection with the negotiation of the Consent, Technivision also
entered into discussions with Philips regarding the terms and conditions of the
repayment of Technivision's loan. Pursuant to the terms of the Forbearance
Agreement (as amended), Technivision agreed to sell the TSC systems under a
specified time schedule. In exchange, Philips agreed to refrain from exercising
certain remedies available to it as a result of Technivision's default in the
terms of its loan. In addition, Philips agreed that if its loan was repaid on or
prior to March 31, 1996, Philips would forego its right to share in the proceeds
of the sale of the TSC systems. In the event that Technivision does not repay
Philips by March 31, 1996, or upon the occurrence of certain other events, under
the terms of the Forbearance Agreement, Technivision will not be entitled to the
benefits described above and Philips will have the right after April 30, 1996 to
obtain possession of the TSC systems through an instrument of peaceful
possession delivered by Technivision at the time the Forbearance Agreement was
executed. Upon the merger of Technivision into TSC, TSC succeeded to
Technivision's obligations to Philips and under the Forbearance Agreement.
INDUSTRY OVERVIEW
Wireless cable television programming is transmitted through the air via
microwave frequencies in a direct line-of-sight from the transmission facility
to an antenna located at the subscriber's location by utilizing up to 200 MHz of
radio spectrum allocated by the FCC for wireless cable operations. Wireless
cable technology eliminates the extensive networks of cable and amplifiers
utilized by traditional hard-wire cable operators which substantially reduces
the cost to build, operate and maintain a television distribution system. Unlike
a traditional hard-wire cable system, a significant portion of the capital costs
of a wireless cable system are not incurred until shortly before a subscriber
has been added and is about to generate revenue for TSC. Management believes
that the Technivision systems provide customers with (i) an equivalent or higher
quality picture, (ii) a more reliable signal resulting in fewer transmission
disruptions and (iii) lower average monthly rates, compared to those generally
provided by traditional hard-wire cable operators. The estimated 1994 national
average monthly service revenue per subscriber for comparable services for
traditional hard-wire cable operators was $28.24 according to Paul Kagan
Associates, Inc., a national media research firm. Management believes that
Technivision's average monthly service revenue per subscriber is comparable to
that of traditional hard-wire cable operators primarily as a result of the
relatively high number of customers of the Technivision systems who pay for
premium service and multiple television outlets. Like traditional hard-wire
cable operators, the Technivision systems offer a full range of basic and
premium programming including local off-air channels, A&E, CNN, The Disney
Channel, HBO, MTV, USA Network and WTBS. All of Technivision's set-top
converters are addressable, allowing its subscribers to receive pay-per-view
programming.
BUSINESS STRATEGY
Technivision's business strategy had been to acquire the rights to operate
wireless cable television systems in geographic areas where a combination of
appropriate topography and population density made the proposed systems
economically viable. In pursuit of this strategy, Technivision acquired the
rights to construct and operate wireless cable television systems in Corpus
Christi, Texas, El Paso Texas, Dayton, Ohio and Salt Lake City, Utah (which was
sold in September 1994 to CMAX). As described above, the Corpus system was
launched in April 1990. The Dayton system became operational in November 1993.
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The marketing strategy for the Technivision systems is to attract potential
subscribers in the following priority: (i) households in geographical areas not
passed by traditional hard-wire cable systems; (ii) commercial establishments
which are currently not passed by traditional hard-wire cable systems; (iii)
households which are passed by, but currently do not subscribe to, traditional
hard-wire cable systems; and (iv) households subscribing to traditional
hard-wire cable systems.
To differentiate their product offering from other subscription television
providers, the Technivision systems use marketing themes of dependability,
price, popular programming, picture quality and customer service.
- Dependability. Subscribers of the Technivision systems enjoy a
substantially higher level of signal reliability compared to traditional
hard-wire cable subscribers. This higher level of dependability is the result of
the elimination of the extensive network of coaxial cables, amplifiers and
processing equipment between the head-end/transmission facility and the
subscriber's location. In addition, back-up power systems and redundant
components have been installed in all of the head-end/transmission facilities of
the Technivision systems which virtually eliminate the potential for system
outages due to power or component failures. Traditional hard-wire cable systems
on the other hand are subject to failure due to multiple components in their
networks of coaxial cable and amplifiers. If a failure does occur in a
Technivision system, it is generally easier to diagnose and repair due to the
smaller number of system components.
- Price. Customers of the Technivision systems receive attractive priced
program packages which management believes are generally lower than those for
comparable programming offered by traditional hard-wire cable competitors. A key
component of the product offering of the Technivision systems is the inclusion
of The Disney Channel as part of their basic plus subscription package. Certain
competitors currently charge an additional fee for this channel. Management
believes including The Disney Channel as part of the basic plus service of the
Technivision systems makes their service more attractive to families.
- Popular Programming. The Technivision systems offer a full range of basic
and premium programming featuring the most popular channels. The Technivision
systems also offer instructional programming in conjunction with educational
institution partners. In addition, all of their set-top converters are fully
addressable, allowing subscribers to receive pay-per-view programming which
provides subscribers with access to movies, special sporting events and
concerts.
- Picture Quality. Technivision emphasizes that wireless picture
transmission generally offers an equivalent or higher quality picture than
traditional hard-wire cable because there is less opportunity for signal
degradation between its head-end and the subscriber's location. In contrast, in
a traditional hard-wire cable system, each time a television signal passes
through an amplifier, some measure of signal noise is added which can result in
a grainier picture.
- Customer Service. Each Technivision system has established the goal of
maintaining high levels of customer satisfaction. To this end, each Technivision
system seeks to provide superior customer service through extended daily
customer service hours (8a.m. to 6p.m.), flexible installation scheduling,
responsiveness to customer inquiries and well-trained uniformed field personnel.
MARKETS
The following table outlines the markets in which the Technivision systems
are operating or in which TSC holds or has the right to acquire wireless cable
channel rights as of November 30, 1995:
<TABLE>
<CAPTION>
DMA AVAILABLE SERVED
MARKET RANK(1) CHANNELS(2) SPECTRUM LAUNCH DATE SUBSCRIBERS HOUSEHOLDS BY CABLE
- --------------------------------- ------- ----------- --------- -------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Corpus Christi................... 128 37 186 April 1990 15,468 135,000 60,000
Dayton........................... 53 36 186 November 1993 3,242 460,000 235,000
El Paso.......................... 100 27 162 (3) -- 200,000 100,000
Total.................... -- -- -- -- 18,710 795,000 395,000
====== ======= =======
</TABLE>
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- ---------------
(1) DMA rank is the Designated Market Areas ranking of television homes among
United States markets as determined by the Nielsen Media Research Company
for the 1994/1995 television season.
(2) Includes 6 off-air channels in Corpus Christi and 5 off-air channels in
Dayton, respectively.
(3) At this time, TSC has no plans to launch this system.
Technivision, as a whole, has experienced negative cash flow from
operations in each year since its formation due to its system development,
expansion and acquisition activities. Until sufficient cash flow is generated
from operations external sources of funding will have to be utilized to satisfy
the working capital needs of the Technivision systems. Accordingly, in order to
conserve cash pending the availability of external funding, Technivision has,
since June 30, 1994, reduced the rate of growth of new subscribers. Management
estimates that between 3,000 and 5,000 subscribers are needed to generate
operating cash flow in any of the Technivision markets. Operating cash flow is
revenue less costs of sales other than depreciation and other non-cash charges.
The Corpus Christi system is presently generating positive operating cash flow
while the Dayton system has experienced negative cash flow.
CORPUS CHRISTI
Corpus Christi. Corpus Christi is the sixth largest port in the United
States (in terms of tonnage). According to the 1990 census, the Corpus Christi
metropolitan area had a total population of approximately 350,000 which grew
approximately 7.3% from 1980 to 1990. Corpus Christi has experienced job growth
of approximately 4.1% over the past five years. Corpus Christi is the seventh
largest metropolitan area in Texas and its DMA ranking as reported by the
Nielsen Media Research Company for 1994/1995 is 128th nationally in the number
of television households.
The following table sets forth a description of the programming currently
offered by the Corpus system:
CORPUS CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
2 C-SPAN 17 TBS-Superstation Atlanta
3 KIII (ABC) 18 HBO
4 The Weather Channel 19 Home Shopping Club/Preview Guide
5 USA Network 20 The Nashville Network
6 KRIS (NBC) 21 The Disney Channel
7 Turner Classic Movies 22 ESPN
8 Arts & Entertainment 23 Cinemax
9 WGN (Chicago) 24 Discovery
10 KZTV (CBS) 25 MTV
11 Sci-Fi Channel 26 Del Mar College/The Learning Channel*
12 Turner Network Television 27 Catholic Community Network
13 KDF (Fox) 28 KORO
14 Headline News 29 CNN
15 Nickelodeon 30 The Family Channel
16 KEDT (PBS) 31 Pay Per View
32 Galavision
</TABLE>
Dayton. According to the 1990 census, the Dayton metropolitan area had a
total population of approximately 574,000 which grew approximately 1.0% from
1980 to 1990. Dayton is the sixth largest metropolitan area in Ohio and its DMA
ranking as reported by the Nielsen Media Research Company for 1994/1995 is 53rd
nationally in the number of television households.
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The following table sets forth a description of the programming currently
offered by the Dayton system:
DAYTON CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
2 WDTN (ABC) 28 USA Network
3 ESPN 29 The Learning Channel
4 Sci-Fi Channel 30 CNN
5 The Weather Channel 33 Sinclair College
6 Turner Network Television 21 The Disney Channel
7 WHIO (CBS) 34 Nickelodeon
8 FOX 35 The Nashville Network
9 WGN (Chicago) 37 Lifetime
14 WPTO -- Oxford 39 The Family Channel
16 Greater Dayton PBS 42 The Disney Channel
17 TBS-Superstation Atlanta 44 Cinemax
18 HBO 48 Discovery
22 WKEF (NBC) 50 Arts & Entertainment
24 Mind Extension University 51 MTV
25 Pay Per View 52 Headline News
54 QVC
</TABLE>
MARKETING
Marketing and sales operations are maintained in Corpus Christi and Dayton.
Each TSC system engages in television, direct mail, radio and print advertising
and special events promotions to generate leads for its marketing efforts.
Telemarketers then contact potential subscribers responding to those promotional
activities.
INSTALLATION
Subscriber installation in Corpus Christi is provided for various fixed
fees by independent contractors using equipment which the Corpus Christi system
purchases on an as-needed basis. In Dayton, installation is handled by in-house
personnel also using equipment owned by the Dayton system.
COMPETITION
Wireless cable television operators face competition from a number of other
sources, including potential competition from emerging trends and technologies
in the cable television industry, some of which are described below. Many
competitors of the TSC systems have far greater financial resources than either
TSC or Technivision.
Traditional Hard-Wire Cable. TSC believes that the primary competition for
the Technivision systems is from traditional hard-wire cable operators. Primary
traditional hard-wire competitors in Corpus Christi include Tele-Communications,
Inc. ("TCI") and Falcon and in Dayton include TimeWarner, TCI and Continental
Cablevision, all of which are significantly larger and have substantially
greater financial resources than TSC. Currently, these primary traditional
hard-wire cable competitors offer between 39 and 58 channels to their
subscribers compared to the 31 channels offered by the TSC systems. The
technology used by such operators is a coaxial cable system which transmits
signals from a head-end. delivering local and satellite-delivered programming
via a distribution network consisting of amplifiers, cable and other components
to subscribers.
Direct Broadcast Satellite ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the home user. 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 roof top or in the yard. DBS receiver equipment for a single television set
costs approximately $700 per customer,
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plus installation fees. In additional, each independent outlet requires a
separate de-scrambling device at additional cost to the subscriber.
Due to the cost of receiving equipment as well as the broader availability
of local programming offered by wireless cable systems, management believes that
wireless cable systems currently enjoy a comparative cost and local programming
advantage over DBS systems, although no assurance can be given that such
advantage will continue.
Telephone Companies. Under the Communications Act of 1934, as amended (the
"Communications Act"), local exchange carriers ("LECs") are currently prohibited
from providing video programming directly to subscribers in their respective
telephone service areas. Certain Federal Courts have recently ruled, however,
that this "teleco-cable cross-ownership ban" abridges the First Amendment rights
of LECs under the U.S. Constitution. These rulings are currently under appeal or
are expected to be appealed. Proposals to lift the teleco-cable cross-ownership
ban are also currently under review by the U.S. Congress. In light of these
court decisions, the FCC has indicated that it will look favorably on waivers of
the teleco-cable cross-ownership ban under certain circumstances. The FCC
already permits LECs to provide "video dialtone" service, thereby allowing such
carriers to make available to multiple service providers on a non discriminatory
common carrier bass, a basic platform that will permit end users to access video
program services provided by others. The FCC has ruled that the teleco-cable
cross-ownership ban does not apply to wireless cable.
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, only it operates without a franchise from a local
authority. SMATV operates under an agreement with a private landowner to service
one or more multiple dwelling units. 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 ("GHz") band.
Local Multi-Point Distribution Service. In 1993, the FCC proposed to
re-designate the 28 GHz band to create a new video programming delivery service
referred to as local multipoint distribution service ("LMDS"). As proposed by
the FCC, LMDS would provide two licensees up to 49 channels each for the
distribution of video programming in prescribed geographic areas. Numerous
satellite system operators, including, among others, the National Aeronautics
and Space Administration, Motorola Satellite Communications, Inc., Hughes Space
and Communications Co., Ameritech, and Loral Quilcomm Satellite Services, Inc.,
opposed in whole or in part, the redesignation of the 28 GHz band for video
distribution. The FCC recently proposed that the 28 GHz band be shared by
terrestrial and satellite services, that competitive bidding be used to award
LMDS and satellite authorizations, and that LMDS authorizations be based on 493
geographic areas known as basic training areas ("BTAs").
Satellite Receive Dishes. Satellite receive dishes are generally seven to
twelve foot dishes mounted in the yards of homes to receive television signals
from orbiting satellites. Until the implementation of scrambling, 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
TSC competes with these systems to some degree in marketing its services.
Off-Air Local Broadcasts. Off-air local broadcasts (e.g., ABC, NBC, CBS,
Fox and PBS) provide a free programming alterative to the public. Each TSC
system currently re-transmits certain off-air local broadcasts to its wireless
cable subscribers, but its ability to do so is generally dependent upon receipt
of re-transmission consent.
Video Stores. Retail stores rent video tapes and are a major participant in
the television program delivery industry. According to the Cable Television's
Fact Book, in 1994 there were approximately 76,312,700 households with video
cassette recorders in the United States.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to utilize specified
frequencies, the operator must then obtain the right to use the programming to
be transmitted over those frequencies.
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General. Currently, with the exception of the re-transmission of off-air
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 TSC systems has been
significantly mitigated by the Cable Act and various FCC regulations promulgated
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 and terms and conditions of sale of programming. Of the major cable
television programming services carried by the TSC systems, only ESPN, USA
Network and A&E are not currently directly owned by vertically integrated
multiple cable system operators, and the Technivision systems historically have
not had difficulty in arranging satisfactory contracts for these services.
Copyright. Under the federal copyright laws, permission from the copyright
holder generally must be secured before a video program may be re-transmitted.
Under Section III of the Copyright Act, as amended, certain cable systems and
wireless 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 with and the payment of certain fees to the U.S. Copyright Office.
Certain FCC rules require wireless and traditional hard-wire cable
operators to secure the consent of certain local commercial television broadcast
stations in order to re-transmit their signals. However, wireless cable systems,
unlike traditional hard-wire cable systems, are not required under the FCC's
"must carry" rules to re-transmit a specified number of local commercial
television or qualified low power television signals. Although there can be no
assurances that the TSC systems will be able to obtain requisite broadcaster
consents, management believes in most cases the TSC systems will be able to do
so for little or no additional cost.
EMPLOYEES
As of November 1, 1995, the Technivision systems had a total of 61
employees, 43 of whom were located in Corpus Christi, and 18 of whom were
located in Dayton. Of such employees, 21 provide technical services, 24 are
office personnel and customer service representatives, eight are marketing and
sales staff and eight are executive and administrative personnel. None of such
employees is subject to a collective bargaining agreement. The TSC systems have
experienced no work stoppages and Management believes that relations with such
employees are good.
PROPERTY
The Technivision systems lease approximately 7,360 square feet in Corpus
Christi and approximately 6,400 square feet in Dayton for their customer service
and warehouse needs. Such leases run through March 2000 and June 1998,
respectively. Management believes that space meeting the physical and cost
requirements of the Technivision systems is readily available in each of these
locations at market rates. In addition to office space, the Technivision systems
lease land on which their head-ends and transmission towers are constructed in
Corpus Christi, Dayton and El Paso. Management believes that office space and
space for head-ends and transmission towers are readily available on acceptable
terms in the markets where the Technivision systems are located.
LEGAL PROCEEDINGS
TSC is not currently a party to any litigation that would have an adverse
effect on its business. See "-- SEC Consent; Arrangements with Philips Credit
Corp."
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TSC
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected statement of operations and balance sheet data presented below
as of May 31, 1994 and 1995 and for the years ended May 31, 1993, 1994 and 1995
were derived from the financial statements of TechniVision, which were audited
by KPMG Peat Marwick LLP, independent certified public accountants, and which
are included elsewhere in this Proxy Statement/Prospectus. The selected
statement of operations and balance sheet data presented below as of May 31,
1991, 1992 and 1993, and for the years ended May 31, 1991 and 1992 were derived
from the financial statements of TechniVision, but which are not included in
this Proxy Statement/Prospectus. The selected statement of operations and
balance sheet data presented below as of November 30, 1995 and for the six
months ended November 30, 1994 and 1995 were derived from the unaudited
financial statements of TechniVision, which are included elsewhere in this Proxy
Statement/Prospectus and which, in the opinion of management of TechniVision,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such unaudited interim
periods. The statement of operations data for interim periods are not
necessarily indicative of results for subsequent periods or for the full year.
This selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements (including the notes thereto) of TechniVision contained
elsewhere in this Proxy Statement/Prospectus. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.................. $ 2,360,694 $ 2,086,528 $ 3,903,922 $ 5,439,575 $ 6,756,133 $ 3,371,705 $ 3,332,351
Operating expenses:
Systems operations...... 1,054,109 1,743,387 1,709,254 2,991,486 3,642,681 2,086,496 1,749,605
Selling, general and
administrative........ 1,074,606 1,562,002 1,617,598 2,664,162 2,803,415 1,138,360 1,364,880
Depreciation and
amortization.......... 879,242 1,600,147 1,977,352 2,371,891 2,623,736 1,323,662 1,299,603
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 3,007,957 4,905,536 5,304,204 8,027,539 9,069,832 4,548,518 4,413,488
Operating loss............ (647,263) (2,819,008) (1,400,282) (2,587,964) (2,313,699) (1,176,813) (1,081,137)
Interest expense, net..... (746,271) (1,061,354) (1,063,620) (959,647) (1,338,292) (543,326) (674,295)
Other income (expense).... (536,759) -- -- (105,000) 3,362,230 -- 253,352
----------- ----------- ----------- ---------- ----------- ---------- ----------
Net loss............ $(1,930,266) $(3,880,362) $(2,463,902) $(3,652,611) $ (289,761) $(1,720,139) $(1,502,080)
=========== =========== =========== =========== =========== =========== ===========
Net loss per common share... $ (64.34) $ (124,34) $ (82.13) $ (121.75) $ (9.66) $ (57.34) $ (50.07)
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding............... 30,000 30,000 30,000 30,000 30,000 30,000 30,000
=========== =========== =========== =========== =========== =========== ===========
Other Financial Data:
EBITDA(1)................. $ 231,979 $(1,218,861) $ 577,070 $ (216,073) $ 310,037 $ 146,849 $ 218,466
Capital expenditures(2)... $ 6,850,043 $ 171,266 $ 1,255,104 $ 4,645,998 $ 1,678,188 $ 501,726 $ 603,216
</TABLE>
<TABLE>
<CAPTION>
MAY 31, NOVEMBER
----------------------------------------------------------- 30,
1991 1992 1993 1994 1995 1995
--- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............. $ 57,471 $ 1,749 $ 1,500 $ 3,197 $ 51,637 $ 78,124
Total assets........................... 13,104,004 10,668,693 9,998,929 14,358,235 14,877,585 14,551,185
Long-term debt, including current
portion.............................. 10,059,494 10,999,402 11,941,820 19,053,522 17,242,089 18,338,157
Total stockholders' equity (deficit)... 33,249 (3,695,253) (4,975,811) (8,342,640) (6,882,947) (8,385,027)
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the fiscal year ended May 31, 1991 were comprised
of $6,796,147 for purchase of systems and equipment and $53,896 of
expenditures for leased licenses; for the fiscal year ended May 31, 1992
were comprised of $171,266 for purchases of systems and equipment; for the
fiscal year ended May 31, 1993 were comprised of $1,225,104 for the purchase
of system and equipment; for the fiscal year ended May 31, 1994 were
comprised of $4,506,900 for purchases of system and equipment and $139,098
for expenditures for leased licenses; for the fiscal year ended May 31, 1995
were comprised of $1,514,822 for purchases of system and equipment and
$163,354 for expenditures for leased licenses; for the six months ended
November 30, 1994 were comprised of $501,726 for purchase of systems and
equipment and for the six months ended November 30, 1995 $603,216 for the
purchase of systems and equipment.
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P
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenue Analysis. Total revenues for Technivision increased 39.4% or
$1,535,653 from fiscal 1993 to 1994 and 24.2% or $1,316,558 from fiscal 1994 to
1995. Revenues increased primarily due to the increase in the average number of
subscribers and an increase in the number of premium subscription units sold to
subscribers during such periods.
Basic Revenue. Basic Revenue increased 38.1% or $946,076 from fiscal 1993
to fiscal 1994 and increased 33.8% or $1,159,777 from fiscal 1994 to fiscal
1995. The increase from fiscal 1993 to fiscal 1994 was primarily the result of
an increase in the average number of subscribers in the Corpus system and the
addition of subscribers in the Dayton system which commenced operations in
November 1993. The increase from fiscal 1994 to fiscal 1995 was primarily the
result of an increase in the average number of subscribers in the Corpus and
Dayton systems.
Premium and Pay-Per-View Revenue. Premium and pay-per-view revenue
increased 9.8% or $125,820 from fiscal 1993 to fiscal 1994, and increased 13.3%
or $188,342 from fiscal 1994 to fiscal 1995. The increase in premium and
pay-per-view revenue was primarily due to the increase in subscribers discussed
above. Technivision's ratio of premium units to basic subscribers for fiscal
1995 was 63%, which is slightly below the estimated national ratio for the
traditional hard-wire cable industry in 1995 of 73% according to Paul Kagan
Associates, Inc. Technivision offers The Disney Channel, previously a premium
channel, as part of its basic service package at its systems.
Other Revenue. Other revenue is comprised primarily of service and
installation revenue, fees for additional outlets and late fees. Other revenue
was 11.0% of total revenues in fiscal 1994 and 8.4% of total revenues in fiscal
1995. The decrease from fiscal 1994 to fiscal 1995 primarily resulted from the
increase in basic and premium revenues as they relate to the total revenue.
Operating Expense Analysis. Total operating expenses increased 51.3% or
$2,723,335 from fiscal 1993 to fiscal 1994 and 13.0% or $1,042,293 from fiscal
1994 to fiscal 1995. The increase in operating expenses was primarily due to the
expansion of Technivision's Corpus and Dayton operations. Further increases in
operating expenses were due to an increase in the average number of subscribers
during such periods. Operating expenses are comprised of the following: systems
operations; selling, general and administrative; and depreciation and
amortization.
Systems Operations. Systems operations expenses increased 75.0% or
$1,282,232 from fiscal 1993 to fiscal 1994 and 21.8% or $651,195 from fiscal
1994 to fiscal 1995. Systems operations expenses are comprised primarily of
programming (which is the largest component); channel leases; and technical and
maintenance costs. Programming expenses increased from fiscal 1993 to fiscal
1994 and from fiscal 1994 to fiscal 1995 primarily as a result of increases in
the number of subscribers, contractual rate increases and increases in the
average number of channels available for programming. Channel leasing costs are
a function of the number of subscribers and total revenues, and such costs have
increased as the number of systems, subscribers and corresponding revenue have
increased.
Selling, General and Administrative. Selling, general and administrative
expenses increased 64.7% or $1,046,564 from fiscal 1993 to fiscal 1994 and
increased 5.2% or $139,253 from fiscal 1994 to fiscal 1995. Selling, general and
administrative expenses are comprised primarily of the following expenses:
administrative salaries and management fees; advertising and marketing; bad debt
expense; insurance; copyright; and facilities expense. Salaries and management
fees increased from fiscal 1993 to fiscal 1994 primarily as a result of
increases in the subscriber base and the launching of the Dayton system.
Increases in selling, general and administrative expenses from fiscal 1994 to
fiscal 1995 are primarily the result of the continued increase of the subscriber
base in the Corpus and Dayton systems.
Depreciation and Amortization. Depreciation and amortization increased
19.9% or $394,539 from fiscal 1993 to fiscal 1994 and 10.6% or $251,845 from
fiscal 1994 to fiscal 1995. The increase from fiscal 1993 to
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<PAGE> 585
fiscal 1994 and from fiscal 1994 to fiscal 1995 is due to increased depreciation
associated with the increased base of property and equipment installed to serve
Technivision's larger subscriber base.
Interest Expense Analysis. Interest expense decreased 9.8% or $103,973 from
fiscal 1993 to fiscal 1994 due to reductions in interest rate levels. Interest
expense increased 39.5% or $378,645 from fiscal 1994 to fiscal 1995 due to the
increase in debt levels accruing interest.
Other Income Analysis. Other income consists primarily of the gain on sale
of assets in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Cash flow generated from Technivision's operations has not been sufficient to
fund the cost of operations, the cost of expanding the Corpus and Dayton systems
and servicing existing indebtedness, and the Company expects this trend to
continue as it expands and develops the systems. In fiscal years 1993, 1994 and
1995, net cash used in operations and investing activities approximated $2.0
million, $6.5 million and $.5 million, respectively. Included in those amounts
are capital expenditures of approximately $1.2 million, $4.9 million and $1.5
million, respectively.
During the period through May 31, 1995, Technivision financed its
subscriber additions in its systems primarily from advances from its parent and
investors. Approximately $7 million was lent by investors during this period and
$3 million was advanced from the parent.
Technivision believes that the development of its markets will require
significant ongoing capital investment. The incremental capital costs associated
with adding a new subscriber are estimated to be between $360 and $600,
depending on the amount of installation materials and number and type of set-top
converter utilized. Utilizing refurbished subscriber equipment removed from
former customers, however, significantly reduces the cost of adding an
additional subscriber by $100 to $200, depending upon the amount of installation
materials and type of set-top converter utilized
The operation of the TSC systems requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
operations, expansion of the subscriber base and system development. In
addition, as described under "Risk Factors" above, significant amounts of
additional financing would be necessary to repay amounts owed to creditors of
TSC. Management believes that TSC's existing cash and cash equivalents will not
be sufficient to fund the presently foreseeable needs of the TSC systems. In
addition, management believes that it is unlikely that alternative sources of
funding will be available on satisfactory terms and conditions, if at all.
Accordingly, if the TSC Transaction is not consummated, TSC may be unable to
continue as a going concern. See "Risk Factors."
DIVIDENDS ON AND MARKET VALUE OF TSC COMMON STOCK
MARKET PRICE OF TSC COMMON STOCK; DIVIDENDS
The TSC Common Stock is not listed on any exchange or traded or quoted in
any established securities market. TSC has never declared or paid any cash
dividends and does not expect to declare any such dividends for the foreseeable
future. Payment of any future dividends will depend upon earnings and capital
requirements of TSC, TSC's credit facilities and other factors TSC's Board of
Directors considers appropriate. TSC currently intends to retain earnings, if
any, to support continuing growth and expansion. TSC is prevented from paying
any dividends to its shareholders under the terms of TSC's indebtedness.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT OF TSC
The following table presents certain information regarding the beneficial
ownership as of November 1, 1995 of (i) each director, (ii) the executive
officers of TSC, (iii) all directors and executive officers of TSC as a group,
and (iv) each person who, to the knowledge of TSC, is a beneficial owner of 5%
or more of the outstanding shares of TSC Common Stock. The business address of
each person listed below is 120 Floral
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P
Avenue, New Providence, New Jersey 07974. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES(1) PERCENTAGE OF OUTSTANDING
- -------------------------------------------------- ------------------- -------------------------
<S> <C> <C>
Walter J. Mecleary................................ 1,168(2) 16.2%
Three Sixty Associates............................ 790 11.0
Salvatore Lamarca................................. 790(3) 11.0
Richard G. Nowalk................................. 790(4) 11.0
Roy D. Tartaglia.................................. 762(5)(6) 10.9
Richard A. Thomas................................. 630(5) 9.0
Waterville Partners, L.P. ........................ 575 8.1
Robert D. Bilodeau................................ 543(7) 7.7
Earnest H. Manuwald............................... 495(8) 7.0
Barry Weshnak..................................... 399(9) 5.7
Rand Capital Corp. ............................... 400 5.7
Robert H. Greenwood............................... 230 3.3
All directors and executive
officers as a group (9 persons)................. 3,217 50.0%
</TABLE>
- ---------------
(1) Includes shares issuable upon conversion of TSC's Convertible Debentures
(the "Debentures").
(2) Includes 595 shares owned by Three Sixty Associates ("Associates") plus 195
shares issuable upon the conversion of Debentures owned by Associates. Mr.
Mecleary is a General Partner of Associates and therefore is deemed to have
beneficial ownership of all shares held by Associates. Mr. Mecleary
disclaims beneficial ownership of all of such shares except to the extent
of his pecuniary interest therein.
(3) Consists of 595 shares owned by Associates plus 195 shares issuable upon the
conversion of Debentures owned by Associates. Mr. Lamarca is a General
Partner of Associates and therefore is deemed to have beneficial ownership
of all shares held by Associates. Mr. Lamarca disclaims beneficial
ownership of all of such shares except to the extent of his pecuniary
interest therein.
(4) Consists of 595 shares owned by Associates plus 195 shares issuable upon the
conversion of Debentures owned by Associates. Mr. Nowalk is a General
Partner of Associates and therefore is deemed to have beneficial ownership
of all shares held by Associates. Mr. Nowalk disclaims beneficial ownership
of all of such shares except to the extent of his pecuniary interest
therein.
(5) Includes 470 shares held by RTK Corporation ("RTK"). Mr. Tartaglia and Mr.
Thomas jointly control RTK and therefore are deemed to share beneficial
ownership of all shares held by RTK.
(6) Includes 132 shares held by Mr. Tartaglia's spouse.
(7) Includes 140 shares held by Mr. Bilodeau's spouse and 20 shares issuable to
Mr. Bilodeau's spouse upon conversion of the Debentures.
(8) Includes 120 shares held by Mr. Manuwald's spouse and 40 shares issuable to
Mr. Manuwald's spouse upon conversion of the Debentures.
(9) Includes 69 shares held in trust for Mr. Weshnak's children for which Mr.
Weshnak act as trustee and 5 shares issuable to the trust upon conversion
of the Debentures.
COMPARISON OF RIGHTS OF SECURITY HOLDERS OF HEARTLAND AND TSC
The rights of the stockholders of TSC are governed by the NJBCA. Upon the
tender and acceptance of their shares of Heartland Common Stock and the
consummation of the TSC Agreement, the former TSC stockholders will become
minority stockholders ("Minority Holders") of Heartland, a Delaware corporation.
As stockholders of Heartland, such Minority Holders rights will differ in
certain respects from those presently held since their rights will also be
governed by the Heartland Certificate and Heartland Bylaws.
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Certain differences and similarities between the rights of TSC's
stockholders and those of Heartland's stockholders are set forth below. This
summary is not intended to be relied upon as an exhaustive list of differences
or a detailed description and analysis of the provisions discussed and is
qualified in its entirety by the DGCL, the NJBCA, the Heartland Certificate, the
Heartland Bylaws and the Certificate of Incorporation and Bylaws of TSC.
GENERALLY
The Certificate of Incorporation of TSC (the "TSC Certificate"), as amended
by the Certificate of Amendment to the Certificate of Incorporation of TSC,
dated June 2, 1987, authorizes an aggregate of 12,000 shares of common stock, no
par value (the "TSC Common Stock"). As of December 31, 1995, 6,976 shares of TSC
Common Stock have been issued.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Preferred Stock have been issued.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange, of all or substantially all the corporation's assets to be
consummated.
Under the NJBCA, approvals of mergers and consolidations and of sales of
all or substantially all of the assets of the corporation, other than in the
ordinary course of the business of such corporation, requires the approval of a
majority of the outstanding shares of the corporation, except that no vote of
stockholders of the corporation surviving a merger (unless its Certificate of
Incorporation provides otherwise) is necessary if: (i) the plan of merger does
not amend the certificate of incorporation of the surviving corporation which is
required by the provisions of the NJBCA to be approved by the shareholders; (ii)
each shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations, and rights,
immediately after; (iii) the number of voting shares outstanding immediately
after the merger, plus the number of voting shares issuable on conversion of
other securities or on exercise of rights and warrants issued pursuant to the
merger, will not exceed by more than 40% the total number of voting shares of
the surviving corporation outstanding immediately before the merger; and (iv)
the number of participating shares outstanding immediately after the merger,
plus the number of participating shares issuable on conversion of other
securities or on exercise of rights and warrants issued pursuant to the merger,
will not exceed by more than 40% the total number of participating shares of the
surviving corporation outstanding immediately before the merger. The TSC
Certificate does not provide additional requirements regarding business
combinations.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or, only under the DGCL, designated as a national market system
security on an inter-dealer quotation system by the NASD. Even if the shares of
any class or series of stock meet the requirements of clause (i) or (ii) above,
appraisal rights are available for such class or series if the holders thereof
receive in the merger or consolidation anything except: (a) shares of stock of
the corporation surviving or resulting from such merger or consolidation; (b)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national securities exchange
or held of record by more than 2,000 stockholders or, only under the DGCL,
designated as a national market system security on an inter-dealer quotation
system by the NASD; (c) cash in lieu of fractional shares of the
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P
corporations described in clause (a) or (b) of this sentence; or (d) any
combination of shares of stock and cash in lieu of fractional shares described
in the foregoing clauses (a), (b) and (c). The stockholders of Heartland will
not receive dissenters or appraisal rights in connection with the Transaction.
Under the NJBCA, stockholders generally have the right to demand and
receive payment of the fair value of their stock in the event of a sale, lease,
exchange or other disposition of all or substantially all of the assets of a
corporation not in the usual or regular course of business as conducted by such
corporation, provided that, unless the Certificate of Incorporation otherwise
provides, the stockholder shall not have the right to dissent (i) with respect
to shares of a class or series which, at the record date fixed to determine the
shareholders entitled to vote upon such transaction, is listed on a national
securities exchange or is held of record by not less than 1,000 holders; or (ii)
from a transaction pursuant to a plan of dissolution of a corporation which
provides for distribution of substantially all of its net assets to shareholders
in accordance with their respective interests within one year after the date of
such transaction, where such transaction is wholly for (a) cash or (b) shares,
obligations or other securities which, upon consummation or the plan of
dissolution will either be listed on a national securities exchange or held of
record by not less than 1,000 holders; or (c) cash and other such securities; or
(iii) from a sale pursuant to an order of a court having jurisdiction.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
Under the NJBCA, section 14A:10A-4 provides, among other things, that no
resident domestic corporation may engage in any business combination with any
"interested stockholder" of such corporation (defined as a holder of 10% or more
of stock) for a period of five years unless that business combination is
approved by the Board of Directors prior to the date on which the interested
stockholder made its stock acquisition. In addition to the restrictions stated
in the preceding sentence, no such corporation may engage in a business
combination with an interested stockholder other than one in which (i) the Board
of Directors has approved such business combination prior to such interested
stockholder's stock acquisition date; (ii) such
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<PAGE> 589
business combination is approved by the affirmative vote of the holders of
two-thirds ( 2/3) of the voting stock not beneficially owned by that interested
stockholder at a meeting called for such purpose; or (iii) the aggregate amount
of cash and the market value, as of the consummation date, of consideration to
be received per share by holders of outstanding shares of common stock in the
business combination is at least equal to a certain "fair price" as determined
by various criteria set forth in the statute, subject to certain provisions.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate requires an affirmative
vote of a majority of all shares outstanding and entitled to be cast on the
matter. If any such amendment would adversely affect the rights of any holders
of shares of a class or series of stock, the vote of the holders of a majority
of all outstanding shares of the class or series, voting as a class, is also
necessary to authorize such amendment. The Heartland Certificate does not
provide additional requirements regarding amendments to its Certificate of
Incorporation.
Under the NJBCA, amendments to the Certificates of Incorporation must be
approved by the Board of Directors, adopted and approved by the affirmative vote
of holders of a majority of all shares entitled to vote thereon and in addition,
if any class or series of shares is entitled to vote thereon, a majority of the
votes cast in each class vote; except that if the Certificate of Incorporation
requires the vote of a greater proportion of all or any class of the
stockholders than is required by the NJBCA to effect such amendment, such
provision shall control and may not be amended, altered or repealed except by
such greater vote. The TSC Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws is
vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests it in the board of directors. The Heartland
Certificate vests in its Board of Directors the power to adopt, alter, amend, or
repeal Bylaws.
Under the NJBCA, the power to adopt, alter, amend and appeal the Bylaws is
vested exclusively in the board of directors, unless such power is reserved to
the shareholders in the Certificate of Incorporation, but Bylaws made by the
board of directors may be altered or repealed, and new Bylaws made by the
shareholders. The shareholders may prescribe in the Bylaws that any bylaw made
by them shall not be altered or repealed by the board of directors. Pursuant to
the Bylaws of TSC (the "TSC Bylaws"), the TSC Bylaws may be altered, amended or
repealed by the shareholders or the Board of Directors; provided that any Bylaw
adopted, amended or repealed by the shareholders may be amended or repealed by
the Board of Directors, unless the resolution of the shareholders adopting such
Bylaw expressly reserves to the shareholders the right to amend or repeal it.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
Heartland Certificate does not provide for preemptive rights.
Under the NJBCA, a stockholder does not possess preemptive rights unless
its rights are specifically granted in the Certificate of Incorporation.
Pursuant to the Certificate of Amendment to the Certificate of Incorporation of
TSC, dated November 30, 1988, a resolution by the shareholders gave the
stockholders of TSC Common Stock preemptive rights, exercisable by written
notice to TSC given within 30 days after receipt of notice from TSC to such
stockholders, to acquire ratably, (i) any shares of TSC Common Stock hereafter
issued or sold; (ii) any warrants, options or rights hereafter issued or sold to
subscribe for, purchase, or otherwise acquire shares of TSC Common Stock; and
(iii) any securities hereafter issued or sold which are exchanged for or
convertible into shares of TSC Common Stock; but in any case only at such
prices, and upon such terms and conditions, as may be determined from time to
time by the Board of Directors. However, no preemptive rights shall exist with
respect to the issuance of (a) securities of TSC issued upon exercise,
conversation or exchange of any warrant, option or rider security which itself
was, when issued, subject to the provisions of the provision or (b) securities
of TSC issued with respect to any stock rights outstanding as of
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June 3, 1987, specifically and including all 8% convertible debentures issued in
connection with the private placement memorandum of June 26, 1986, and all
additional stock rights provided for in connection with such offering.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired. The Heartland Certificate does not provide
additional requirements regarding the distribution of dividends.
Under the NJBCA, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation; provided, however, that a corporation may not make
a distribution if, after giving effect thereto, either (i) the corporation would
be unable to pay its debts as they become due in the usual course of its
business; or (ii) the corporation's total assets would be less than its total
liabilities. The corporation may pay dividends on its shares in cash, in its own
shares, in its bonds or in other property, including the shares or bonds of
other corporations. The TSC Certificate does not provide additional requirements
regarding the distribution of dividends.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid for more than three years
after its date unless otherwise provided in the proxy. The Heartland Bylaws do
not alter the effective period of a proxy.
Under the NJBCA, no proxy is valid for more than eleven months, unless a
longer period is expressly provided in the proxy. The TSC Bylaws do not alter
the effective period of a proxy.
STOCKHOLDER ACTION
Action requiring the vote of stockholders may be taken without a meeting,
without prior notice and without a vote, by the written consent of stockholders
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which all shares entitled to vote thereon were
present and acted. The Heartland Certificate does not provide additional
requirements regarding stockholder action by written consent.
Action requiring the vote of stockholders may be taken without a meeting,
by the written consent of stockholders having not less than the minimum number
of votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voting, except that written
consent for the annual election of directors must be unanimous. The TSC Bylaws
provide that the shareholders may act without a meeting, if, prior or subsequent
to such action, each shareholder who would have been entitled to vote upon such
action shall consent in writing to such action. Such written consent or consents
shall be filed in the minute book of TSC. Owners of non-voting shares must
either consent or be notified in the case of mergers, consolidations or sales of
substantially all assets.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of Heartland
Common Stock, to call a special meeting of stockholders for any purpose or
purposes.
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<PAGE> 591
Under the NJBCA, special meetings may be called by the President, the
Chairman of the Board, a majority of the directors, stockholders of not less
than 10% of the shares entitled to vote at the meeting (unless the Articles of
Incorporation or Bylaws provide for a smaller percentage) or such other officers
or persons as may be provided in the Articles of Incorporation or Bylaws.
However, if a corporation fails to hold its annual meeting within a period of 30
days after the date designated therefor, or if no date has been designated for a
period of 13 months after its last annual meeting, the Superior Court may, upon
the application of any shareholder, summarily order the meeting. The TSC Bylaws
provide that a special meeting of the shareholders may be called for any purpose
by the President or the Board of Directors.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The Heartland
Certificate does not provide for cumulative voting for the election of
directors.
The NJBCA permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The TSC
Certificate does not provide for cumulative voting for the election of
directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. Heartland's Certificate does not fix the number of
directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Heartland has not established a classified board of
directors or managers.
Under the NJBCA, the Board of Directors of a corporation shall consist of
one or more members. Subject to any provisions contained in the Certificate of
Incorporation, the Bylaws shall specify the number of directors, or that the
number of directors shall not be less than a stated minimum nor more than a
stated maximum, with the actual number to be determined in the manner prescribed
in the Bylaws, except as to the number constituting the first board. Pursuant to
the TSC Bylaws, the number of board members shall not be fewer than three (3),
but shall not be greater than twenty-five (25). The Certificate of Amendment to
the Certificate of Incorporation of TSC, dated May 15, 1985, fixed the number of
board members at 16.
Under the NJBCA, a corporation may provide in its Certificate of
Incorporation for the classification of its directors in respect to the time for
which they shall severally hold office, but no class of directors shall hold
office for a term shorter than one year or longer than five years, and the term
of office of at least one class shall expire in each year. No classification of
directors shall be effective prior to the first annual meeting of shareholders.
TSC has not established a classified board.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part. The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by the written consent of the stockholders.
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Under the NJBCA, one or more or all the directors of a corporation may be
removed for cause, or, unless otherwise provided in the Certificate of
Incorporation, without cause by the shareholders by the affirmative vote of the
majority of the votes cast by the holders of shares entitled to vote for the
election of directors, except that (i) in any case where cumulative voting is
authorized, if less than the total number of directors then serving on the board
of directors is to be removed by the shareholders, no one of the directors may
be so removed if the votes cast again his removal would be sufficient to elect
him if then voted cumulatively at the election of the entire board or, if there
are classes of directors, at an election of the class of directors of which he
is part; (ii) a director elected by a class vote, as authorized by section
14A:6-4(2) of the NJBCA, may be removed only by a class vote of the holders of
shares entitled to vote for his election; (iii) if the Certificate of
Incorporation requires a greater vote than a plurality of the votes cast for the
election of directors, no director may be removed except by the greater vote
required to elect him, and (iv) shareholders of a corporation whose board of
directors is classified as provided in section 14A:6-4(1) of the NJBCA shall not
be entitled to remove directors without cause. The Certificate of Incorporation
or a Bylaw adopted by the shareholders may provide that the board of directors
shall have the power to remove directors for cause and to suspend directors
pending a final determination that cause exists for removal. The TSC Bylaws do
not provide additional requirements regarding the removal of directors.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filling of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements regarding
vacancies of directors.
Under the NJBCA, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, any directorship not filled at the annual meeting,
any vacancy, however caused, occurring in the board, and newly created
directorships resulting from an increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the remaining directors
even though less than a quorum of the board, or by a sole remaining director. A
director so elected by the board shall hold office until the next succeeding
annual meeting of shareholders and until his successor shall have been elected
and qualified. Unless otherwise provided in the Certificate of Incorporation or
Bylaws when one or more directors shall resign from the board effective at a
future date, a majority of the directors, then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations have become
effective, and each director so chosen shall hold office as herein provided in
the filling of other vacancies. Any directorship not filled by the board may be
filled by the shareholders at any annual meeting or at a special meeting of
shareholders called for that purpose. If by reason of death, resignation or
other cause a corporation has no directors in office, any shareholder or the
executor or administrator of a deceased shareholder may call a special meeting
of shareholders for the election of directors. The TSC Bylaws provide that any
vacancy in the board, including a vacancy caused by an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, even though less than a quorum of the board, or by a sole remaining
director.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Under the NJBCA, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the New Jersey
Superior Court determines that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court shall deem proper. The TSC Bylaws do not provide any additional
provisions with respect to indemnification of directors.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the NJBCA's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The NJBCA
states that any indemnification, unless ordered by a court, shall be made only
upon a determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The
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determination may be made (i) by a majority vote of a quorum of disinterested
directors; (ii) if a quorum of disinterested directors is not obtainable, or
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel; or (iii) by the stockholders.
The NJBCA requires TSC to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS.
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate provides a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL.
The NJBCA provides that a director of a corporation who votes for, or
concurs in for any of the following corporate actions shall be jointly and
severally liable to the corporation for the benefit of its creditors or
shareholders, to the extent of any injuries suffered by such persons, as a
result of such action: (i) the declaration of any dividend or any distribution
of assets to shareholders contrary to the provisions of this act or contrary to
any restrictions contained in the Certificate of Incorporation; (ii) the
purchase of the shares of the corporation contrary to the provisions of this act
or contrary to any restrictions contained in the Certificate of Incorporation;
(iii) the distribution of assets to shareholders during or after dissolution of
the corporation without paying, or adequately providing for, all known debts,
obligations and liabilities of the corporation, except that directors shall be
liable only to the extent of the value of assets so distributed and to the
extent that such debts, obligations and liabilities of the corporation are not
thereafter paid, discharged, or barred by statute or otherwise; (iv) the
complete liquidation of the corporation and distribution of all of its assets to
its shareholders without dissolving or providing for the dissolution of the
corporation and the payment of all fees, taxes and other expenses incidental
thereto, except that the director shall be liable only to the extent of the
value of the assets so distributed and to the extent that such fees, taxes and
other expenses incidental to dissolution are not thereafter paid; and (v) the
making of any loan to an officer, director or employee of the corporation or of
any subsidiary thereof contrary to the provisions of this act. Any director
against whom a claim is successfully asserted under the NJBCA shall be entitled
to contribution from the other directors who voted for, or concurred in, the
action upon which the claim is asserted. The TSC Certificate does not provide
any additional provisions with respect to limitations of personal liability of
directors.
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Q
APPENDIX Q
AMENDED AND RESTATED
TSC ASSET PURCHASE AGREEMENT
<PAGE> 596
Q
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
BY AND AMONG
THREE SIXTY CORP.,
TECHNIVISION, INC.,
AND
HEARTLAND WIRELESS COMMUNICATIONS, INC.
OCTOBER 19, 1995
<PAGE> 597
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TABLE OF CONTENTS
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ARTICLE 1. CLOSING; EXCHANGE........................................................... Q-2
1.1 Purchase and Sale of Assets............................................ Q-2
1.2 Acquisition Consideration.............................................. Q-2
1.3 Liquidation of Seller; Creation of Escrows: Distribution of Shares..... Q-2
1.4 Prorations............................................................. Q-4
1.5 Further Assurances..................................................... Q-5
1.6 Closing, Closing Time, Date and Place.................................. Q-5
1.7 Allocation of Acquisition Consideration................................ Q-5
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.................................... Q-5
2.1 Organization; Qualification............................................ Q-5
2.2 Title to Assets; Outstanding Rights.................................... Q-5
2.3 Capitalization......................................................... Q-5
2.4 Authority; Enforceability; Non-Contravention........................... Q-6
2.5 Financial Statements................................................... Q-6
2.6 Property............................................................... Q-7
2.7 Receivables............................................................ Q-7
2.8 Contracts.............................................................. Q-7
2.9 FCC Matters............................................................ Q-8
2.10 Insurance.............................................................. Q-9
2.11 Litigation............................................................. Q-9
2.12 Governmental Permits................................................... Q-9
2.13 Compliance With Laws................................................... Q-9
2.14 Environmental Matters.................................................. Q-9
2.15 Intellectual Property.................................................. Q-9
2.16 Taxes and Fees......................................................... Q-10
2.17 Regulatory Compliance.................................................. Q-10
2.18 Interference........................................................... Q-11
2.19 Employees.............................................................. Q-11
2.20 Finder's Fees.......................................................... Q-11
2.21 Programming and Retransmission Agreements.............................. Q-11
2.22 Certain Activities..................................................... Q-12
2.23 Subscribers............................................................ Q-12
2.24 Others Approvals....................................................... Q-12
2.25 Further Representation................................................. Q-12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND................................. Q-12
3.1 Organization; Qualification............................................ Q-12
3.2 Authority; Enforceability; Non-Contravention........................... Q-12
3.3 Litigation............................................................. Q-12
3.4 Consents and Approvals................................................. Q-12
3.5 Capitalization......................................................... Q-12
3.6 Financial Statements................................................... Q-13
3.7 SEC Filings............................................................ Q-13
3.8 ....................................................................... Q-13
3.9 ....................................................................... Q-13
3.10 Finder's Fees.......................................................... Q-13
3.11 Further Representation................................................. Q-13
</TABLE>
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ARTICLE 4. COVENANTS OF SELLER......................................................... Q-13
4.1 Operation Prior to the Closing Date.................................... Q-13
4.2 Consents............................................................... Q-14
4.3 Renewal or Extension of FCC Authorizations............................. Q-14
4.4 No Solicitation........................................................ Q-15
4.5 Audit of Financial Statements.......................................... Q-15
4.6 Reorganization......................................................... Q-15
4.7 NOLs................................................................... Q-15
ARTICLE 5. ADDITIONAL AGREEMENTS....................................................... Q-16
5.1 Shareholders Meeting................................................... Q-16
5.2 Registration Statement and Proxy Statement............................. Q-16
5.3 Access................................................................. Q-17
5.4 Compliance with the Securities Act..................................... Q-17
5.5 Reasonable Efforts..................................................... Q-17
5.6 Public Announcements................................................... Q-18
5.7 Notification of Certain Matters........................................ Q-18
5.8 Hart-Scott-Rodino Act Filing........................................... Q-18
5.9 Employees.............................................................. Q-18
5.10 Exhibits and Schedules................................................. Q-18
5.11 Sale of Dayton, Ohio Market............................................ Q-18
5.12 Noncompetition......................................................... Q-19
5.13 Excess Consents........................................................ Q-19
5.14 Updated Schedules...................................................... Q-19
5.15 Lender Arrangements.................................................... Q-20
ARTICLE 6. GENERAL CONDITIONS TO CLOSING............................................... Q-21
6.1 Registration Statement................................................. Q-21
6.2 No Order............................................................... Q-21
6.3 Other Approvals........................................................ Q-21
6.4 Heartland Lenders' Consents............................................ Q-21
6.5 Seller Creditors' Consents............................................. Q-21
6.6 Lender Arrangements.................................................... Q-21
6.7 Exhibits............................................................... Q-21
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING........................................... Q-21
7.1 Heartland Approval..................................................... Q-21
7.2 Representations and Warranties......................................... Q-22
7.3 Seller's Documents..................................................... Q-22
7.4 No Material Adverse Change............................................. Q-22
7.5 Non-Competition........................................................ Q-22
7.6 Seller's Obligations Performed......................................... Q-22
7.7 Heartland's Investigation.............................................. Q-22
7.8 Closing Share Price.................................................... Q-23
7.9 Minimum Consents....................................................... Q-23
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.............................................. Q-23
8.1 Stockholder Approval................................................... Q-23
8.2 Representations and Warranties......................................... Q-23
8.3 Heartland's Documents.................................................. Q-23
8.4 Heartland Obligations Performed........................................ Q-23
8.5 No Material Changes.................................................... Q-23
8.6 Closing Share Price.................................................... Q-23
</TABLE>
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ARTICLE 9. INDEMNIFICATION............................................................. Q-23
9.1 Provisions Regarding Representations and Warranties.................... Q-23
9.2 Indemnification by Seller.............................................. Q-24
9.3 Limitation on Claims of Heartland...................................... Q-24
9.4 Indemnification by Heartland........................................... Q-24
9.5 Limitation on Claims of Seller......................................... Q-24
9.6 Notice of Claims....................................................... Q-25
9.7 Third Party Claims..................................................... Q-25
ARTICLE 10. TERMINATION................................................................ Q-25
10.1 Termination............................................................ Q-25
10.2 Termination by Seller.................................................. Q-25
10.3 Termination by Heartland............................................... Q-25
10.4 Effect of Termination.................................................. Q-26
ARTICLE 11. DEFINITIONS................................................................ Q-26
11.1 Definitions............................................................ Q-26
11.2 Defined Terms.......................................................... Q-33
ARTICLE 12. GENERAL PROVISIONS AND OTHER AGREEMENTS.................................... Q-34
12.1 Notices................................................................ Q-34
12.2 Fees and Expenses...................................................... Q-34
12.3 Interpretation......................................................... Q-34
12.4 Counterparts........................................................... Q-34
12.5 Miscellaneous.......................................................... Q-35
</TABLE>
EXHIBITS
<TABLE>
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Exhibit 1.2 Form of Assumption Agreement
Exhibit 1.3(a) Form of Exchange Agreement
Exhibit 1.3(c) Three Sixty Liquidation Plan
Exhibit 4.3 Form of Estoppel Certificate
Exhibit 5.4 Lock-Up Agreement for Rule 145 Affiliates
Exhibit 5.13 Form of Management/Option Agreement
Exhibit 7.3(a) Form of Bill of Sale
Exhibit 7.3(e)-1 Form of Seller Legal Opinion
Exhibit 7.3(e)-2 Form of Seller FCC Opinion
Exhibit 7.5 Form of Non-Competition Agreement
Exhibit 8.3 Form of Heartland Legal Opinion
</TABLE>
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SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 Excluded Assets
Schedule 2.2 Exceptions to Title; Outstanding Rights
Schedule 2.3 Three Sixty Stockholders and Holders of Certain Rights
Schedule 2.4 Adverse Disclosure Regarding Non-Contravention
Schedule 2.5 Financial Statements
Schedule 2.6(a) Equipment
Schedule 2.6(b) Facilities
Schedule 2.6(c) Non-owned Property
Schedule 2.7 Accounts Receivable
Schedule 2.8 Contracts
Schedule 2.9(a) Channel Leases
Schedule 2.9(b) Licenses and FCC Permits
Schedule 2.9(c) Applications
Schedule 2.9(d) Adverse FCC Disclosures
Schedule 2.10 Insurance
Schedule 2.11 Litigation
Schedule 2.13 Adverse Disclosures Regarding Compliance with Laws
Schedule 2.14 Adverse Disclosures Regarding Environmental Matters
Schedule 2.15 Intellectual Property
Schedule 2.16 Adverse Disclosures Regarding Taxes
Schedule 2.16(c) NOLs as of May 31, 1995
Schedule 2.17 Adverse Disclosures Regarding Regulatory Compliance
Schedule 2.18 Interference
Schedule 2.19 Employees
Schedule 2.21 Programming and Retransmission Agreements
Schedule 2.22 Certain Activities
Schedule 2.23 Subscribers
Schedule 5.13 Required Consents; Stipulated Consent Amounts
Schedule 7.5 Persons to Execute Non-Competition Agreement
</TABLE>
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<PAGE> 601
Q
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this "Agreement"), is
made and entered into as of the 19th day of October, 1995, by and between THREE
SIXTY CORP., a New Jersey corporation ("Seller"), TECHNIVISION, INC., a Texas
corporation ("Technivision"), and HEARTLAND WIRELESS COMMUNICATIONS, INC., a
Delaware corporation ("Heartland").
RECITALS OF THE PARTIES:
WHEREAS, Seller owns substantially all of the Common Stock of Technivision;
WHEREAS, Technivision is the owner of certain wireless cable television
assets necessary and appropriate to provide wireless cable television service in
the metropolitan areas of Corpus Christi, Texas, El Paso, Texas and Dayton, Ohio
(collectively, the "Markets") and is so providing such service in the Corpus
Christi, Texas and Dayton, Ohio Markets;
WHEREAS, Seller has agreed, prior to the Effective Date, to cause
Technivision to be merged with and into Seller ("Reorganization"), in connection
with which Seller will be the surviving corporation and succeed by operation of
law to the assets and liabilities of Technivision;
WHEREAS, Seller desires to sell, and Heartland desires to purchase,
substantially all of the assets and certain of the liabilities of Technivision
relating to the Markets, in accordance with the terms and conditions set forth
herein;
WHEREAS, pursuant to this Agreement, Seller and Heartland intend to effect
a tax-free reorganization under Sections 354 and 368(a)(1)(C) of the Code,
whereby Seller will transfer to Heartland the Assets;
WHEREAS, within one year following the Closing Date and pursuant to a plan
of reorganization, Seller will dissolve (the "Dissolution") and, pursuant to the
Dissolution, will distribute Heartland's Shares and any other assets of Seller
as of such time to the Three Sixty Stockholders, subject to the arrangements
that provide for the payment of, or reserving for, all contingent and other
liabilities of Seller (other than the Assumed Liabilities);
WHEREAS, this Agreement, together with the authorizations of the Board of
Directors of Seller and the Three Sixty Stockholders are intended to constitute
the plan of reorganization pursuant to which the reorganization under Sections
354 and 368(a)(1)(C) of the Code will be effected;
WHEREAS, Seller, Technivision, Heartland and a wholly owned subsidiary of
Heartland ("Hartacq") have previously entered into an Asset Purchase Agreement
("Original Agreement") dated as of the date hereof, pursuant to which the Assets
(as defined herein) would be acquired by Hartacq;
WHEREAS, Seller, Technivision and Heartland have agreed that the Assets
will be acquired by Heartland directly, and have agreed to amend and restate the
Original Agreement to so provide and to extend certain dates contained therein;
and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11 hereto.
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the representations and warranties, conditions and promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby adopt the above recitals and agree as follows:
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AGREEMENTS:
ARTICLE 1. CLOSING; EXCHANGE.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of the
Operative Documents, the parties hereto agree that, at the Closing Time and at
the Closing Place, Seller shall sell, transfer, assign, convey and deliver to
Heartland and Heartland shall purchase from Seller, all of Seller's right,
title, and interest in and to any and all assets, real, personal and mixed,
tangible and intangible, used in the conduct of the Business (including, but not
limited to, all Contracts, Governmental Permits (to the extent assignable),
Licenses (to the extent assignable), Equipment, Documents, Facilities (to the
extent assignable), Prepaid Subscriber Fees, Causes of Action, Intellectual
Property (to the extent assignable), Customer Data, Real Property, supplier
data, accounts, accounts receivable, credits, prepaid expenses, advance
payments, security deposits, prepaid items, goodwill and other intangible assets
of the Business (general and specific), and any other real, personal, tangible
or intangible property or rights of Seller used or held for use in the conduct
of the Business) (collectively, the "Assets") free and clear of all Liens, other
than the Permitted Encumbrances. Notwithstanding those assets listed in this
Section 1.1, the foregoing definition of Assets shall exclude those items
specifically identified on Schedule 1.1 hereto (the "Excluded Assets"); provided
that, to the extent the Excluded Assets purport to exclude cash or deposit
accounts, the parties agree that any cash or deposit accounts representing
Prepaid Subscriber Fees shall, subject to Section 1.4, constitute a portion of
the Assets. Seller, Technivision and Heartland acknowledge and agree that (a)
substantially all of the Assets are currently owned by Technivision, (b) prior
to the Effective Date, Seller shall have succeeded to the ownership of the
Assets by operation of law pursuant to the Reorganization, and (c) the
description of the Assets is intended to include all assets (other than Excluded
Assets) currently held by either Technivision or Seller, which Assets shall be
held by Seller as of the Closing Date.
1.2 ACQUISITION CONSIDERATION. As consideration for the sale of the Assets
by Seller, upon the Closing, Heartland shall (a) assume the Assumed Liabilities
pursuant to the terms of an Assumption Agreement, the form of which is attached
as Exhibit 1.2 hereto ("Assumption Agreement") and (b) deliver to the Exchange
Agent that number of Heartland Shares ("Acquisition Shares") equal to (i) the
Acquisition Consideration divided by (ii) the Closing Share Price, subject to
each party's right to terminate this Agreement as set forth in Section 10.2 or
10.3, as applicable, if the Closing Share Price is either greater than the
Maximum Termination Price or less than the Minimum Termination Price. As used
herein, the term "Acquisition Consideration" shall mean the sum of (A) Thirty
Six Million Seven Hundred Fifty Thousand Dollars ($36,750,000) plus (B) the
Additional Subscriber Consideration, minus (C) the amount of Permitted GAAP
Liabilities minus (D) any Dayton Proceeds other than Additional Dayton
Consideration. On or prior to the Closing Date, Seller shall designate those
GAAP Liabilities (and the amounts thereof) which shall constitute Permitted GAAP
Liabilities (and thereby Assumed Liabilities) hereunder.
1.3 LIQUIDATION OF SELLER; CREATION OF ESCROWS: DISTRIBUTION OF SHARES.
(a) EXCHANGE FUND. At the Closing, Heartland shall deposit the Acquisition
Shares with Harris Trust Company of New York as exchange agent (the "Exchange
Agent") to be held thereby pursuant to the terms of that Exchange Agreement
attached as Exhibit 1.3(a) hereto (the "Exchange Agreement") as part of the
pending liquidation of Seller and subsequent distribution of such Acquisition
Shares pursuant to the Three Sixty Liquidation Plan (as defined below). In the
event Harris Trust Company of New York is unable or unwilling to act as Exchange
Agent, Heartland and the Sellers shall, upon mutual agreement, seek to select a
comparable party to act as Exchange Agent. The Acquisition Shares deposited with
the Escrow Agent and any dividends thereon or proceeds thereof shall be referred
to herein as the "Exchange Fund."
(b) ESCROW SHARES. The Exchange Agent shall hold a number of Acquisition
Shares equal to (i) $5,000,000 divided by the Closing Share Price ("Escrow
Shares") in escrow ("Escrow") for a period of up to eighteen (18) months
following the Closing Date ("Escrow Period"), in accordance with the terms of
the Exchange Agreement, for the purpose of satisfying the post-closing
indemnification obligations of Seller to Heartland under this Agreement and (ii)
the aggregate of the "Stipulated Consent Amounts" for the Excess Consents that
have not been obtained prior to the Closing Date divided by the Closing Share
Price ("Consent
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Q
Shares") in escrow ("Consent Escrow") for a period of up to six (6) months
following the Closing Date ("Consent Period"), in accordance with the terms of
the Exchange Agreement. The Acquisition Shares, other than the Escrow Shares and
Consent Shares, shall be referred to herein as the "Initial Shares."
(c) DISTRIBUTION OF SHARES.
(I) The Acquisition Shares shall be held by the Exchange Agent pending
their distribution or liquidation pursuant to the terms of the Exchange
Agreement and the Agreement and Plan of Liquidation attached as Exhibit 1.3(c)
hereto (the "Three Sixty Liquidation Plan") which provides, among other things,
for the disposition of the Seller's assets (including specifically the Initial
Shares and, upon release from the escrows created pursuant to the Exchange
Agreement, any Escrow Shares and Consent Shares), satisfaction of, or reserve
for, Seller's liabilities, and subsequent termination of existence of Seller.
(II) In accordance with the terms and provisions of the Three Sixty
Liquidation Plan and Section 1.3(c)(i) hereunder, Seller hereby undertakes to
prepare as soon as practicable after the execution of this Agreement, a proxy
statement/prospectus and a form of proxy, in connection with the solicitation by
the Board of Directors of Seller respecting the Three Sixty Liquidation Plan and
the other transactions set forth in this Agreement to be included in the
Registration Statement to be filed by Heartland with the SEC (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, herein called the "Proxy Statement"). Thereafter, on the basis of such
Registration Statement and subject to the provisions of the Exchange Agreement
and the requirements of applicable law, the Exchange Agent (on behalf of and at
the direction of Seller) (a) shall deliver to Seller or the Three Sixty
Stockholders, as applicable, on the Closing Date, a number of Acquisition Shares
("Distributable Shares") equal to the number of Initial Shares minus that number
of Heartland Shares having an aggregate Closing Share Price equal to the sum of
(i) the Excluded GAAP Liabilities and (ii) an amount determined by the Board of
Directors of Seller in its discretion as necessary and appropriate to satisfy
Seller's contingent liabilities (including, without limitation, any Dissenters'
Payments), (b) pursuant to the terms of the Three Sixty Liquidation Plan, either
deliver a portion of the Acquisition Shares to certain Creditors (as defined in
Section 5.1) or, in connection with resales to be made by Seller to the public
pursuant to the Registration Statement, deliver the remaining Initial Shares
(collectively, the "Liquidated Shares") for the benefit of Seller, (c) shall
hold during the Consent Period the Consent Shares and shall deliver to Heartland
any Consent Shares that have not been distributed pursuant to the terms of the
Exchange Agreement to Seller or the Three Sixty Stockholders upon the expiration
of the Consent Period, and (d) shall hold during the Escrow Period the Escrow
Shares (other than Escrow Shares that are to be released prior to the expiration
of the Escrow Period) and shall distribute any Escrow Shares that have not been
delivered to Heartland or previously distributed to the Three Sixty Stockholders
pursuant to the terms of the Exchange Agreement upon the expiration of the
Escrow Period, all in completing the winding-up and liquidation of Seller
pursuant to the terms of the Three Sixty Liquidation Plan. Fractional Heartland
Shares will not be issued in connection with the delivery of the Distributable
Shares, but shall be added to the Liquidated Shares and the remaining proceeds
thereof shall be distributed in accordance with the Three Sixty Liquidation
Plan. After Seller's receipt of the requisite Three Sixty Stockholders' approval
of the Three Sixty Liquidation Plan, Seller will not engage in any business
activity except as expressly contemplated hereby or as appropriate to wind up
and liquidate its business and affairs. The Board of Directors of Seller shall
establish a record date for the purposes of determining the Three Sixty
Stockholders entitled to receive the Distributable Shares, any remaining
proceeds of the Liquidated Shares and/or any remaining Escrow Shares or Consent
Shares ("Distribution Record Date"). In the discretion of the Board of Directors
of Seller such record date may, but shall not be required to be, the Closing
Date but in no event shall the Distribution Record Date be later than the
Closing Date. Seller shall (i) certify to Heartland a list of Three Sixty
Stockholders, as shown on Seller's books and records, on each of the date
hereof, the date of the mailing of the Proxy Statement, and the Closing Date and
(ii) shall indemnify and hold Heartland and the Exchange Agent harmless from any
inaccuracies in such lists.
(D) DISTRIBUTION PROCEDURES. At the time of the mailing of the Proxy
Statement, the Exchange Agent shall mail to each Three Sixty Stockholder a
letter of transmittal which shall contain instructions regarding each such Three
Sixty Stockholder's receipt of their respective portion of (i) the Distributable
Shares, (ii) the
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proceeds of the Liquidated Shares after satisfaction of the Seller's claims and
obligations, if any, (iii) any Consent Shares to be distributed to the Three
Sixty Stockholders, and/or (iv) any remaining Escrow Shares upon the expiration
of the Escrow Period, or earlier release of Escrow Shares from the Escrow. Upon
the return of the duly executed letter of transmittal, each Three Sixty
Stockholder shall be entitled to receive (i) the number of Distributable Shares
equal to such Three Sixty Stockholder's percentage ownership interest of Seller
multiplied by the number of Distributable Shares, (ii) upon the completion of
the dissolution and winding up of Seller, such Three Sixty Stockholder's pro
rata interest in the remaining proceeds, if any, of the Liquidated Shares, (iii)
upon the distribution of Consent Shares from the Consent Escrow, such Three
Sixty Stockholder's pro rata interest in such Consent Shares and (iv) upon the
expiration of the Escrow Period or earlier release of Escrow Shares from the
Escrow, such Three Sixty Stockholder's pro rata interest in the remaining Escrow
Shares, if any. As contemplated by the Three Sixty Liquidation Plan, until the
letter of transmittal is executed and returned to the Exchange Agent by a Three
Sixty Stockholder and surrendered as contemplated by this Section 1.3(d), each
Three Sixty Stockholder's interest in the Seller shall, at and after the Closing
Date, be deemed to represent only the right to receive such Three Sixty
Stockholder's pro rata interest in (i) the Distributable Shares, (ii) the
remaining proceeds, if any, of the Liquidated Shares, (iii) any Consent Shares
to be distributed to the Three Sixty Stockholders, and (iv) any remaining Escrow
Shares.
(E) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Shares which remain
undistributed for three (3) months after the expiration of the Escrow Period
shall be delivered to Seller, and any Three Sixty Stockholders who have not
theretofore complied with the distribution procedures of Section 1.3(d) above
shall thereafter look only to Seller for their portion of the Acquisition Shares
(or proceeds thereof).
(F) CERTAIN ADJUSTMENTS. The Closing Share Price, Maximum Termination
Price, Minimum Termination Price, and/or number of Heartland Shares to be issued
in connection with this Agreement, as applicable, shall be subject to
appropriate adjustment in the event of a stock split, stock dividend, cash
dividend or distribution, asset dividend or distribution or other corporate
distribution, reorganization, or recapitalization subsequent to the date hereof
on or prior to the Closing Date.
(G) DIVIDEND; TRANSFER TAXES. Any dividends or other distributions that are
declared on or after the Closing Date on Heartland Shares or payable to the
holders of record of Heartland Shares upon or after the Closing Date will be
paid to the person(s) entitled to receive such Heartland Shares. In no event
shall the person entitled to receive such distributions or other distributions
be entitled to receive interest on such dividends or other distributions. If any
dividends, cash in lieu of fractional shares or Heartland Shares are to be paid
or issued in a name other than that of the person entitled thereto as indicated
on Seller's books and records, it shall be a condition of such exchange that the
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of Heartland Shares in a name
other than that of the person so entitled or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
(H) DISSENTERS' AND APPRAISAL RIGHTS. TSC shall be responsible for the
payment of any amounts payable in connection with the exercise of dissenters' or
appraisal rights by any Three Sixty Stockholder arising in connection with this
Agreement (such payments being collectively referred to herein as "Dissenters'
Payments").
1.4 PRORATIONS. Seller and Heartland shall each pay their respective pro
rata portion of all 1995 ad valorem or similar personal property taxes under any
property or lease included in the Assets. Seller shall pay to Heartland at the
Closing (or designate as Permitted GAAP Liabilities) estimated ad valorem or
similar personal property taxes for the current year (based on the prior year's
taxes) pro rated to the Closing Date. Seller shall make available to Heartland
copies of all statements and assessments reflecting such prior year's taxes.
Heartland shall pay such sum and any additional amounts required to pay such
taxes in full to the appropriate taxing authorities when due, prior to becoming
delinquent. Heartland shall promptly forward to Seller, after receipt by
Heartland, copies of all 1995 tax assessments under any such property or lease.
If the 1995 taxes are greater than the prior year's taxes, Seller shall pay (or
designate as Permitted GAAP Liabilities) its pro rata share of any difference
promptly upon notice of such taxes having been paid by
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Q
Heartland. If such 1995 taxes are less than the prior year's taxes, Heartland
shall refund to Seller its pro rata share of such reduction upon payment by
Heartland. Except as provided in this Section 1.4, Heartland shall have no other
liability for Taxes payable by Seller (including income Taxes) relating to the
operations or business of Seller or the transactions contemplated by this
Agreement. Subscriber fees (cash) shall be prorated for the month of Closing.
1.5 FURTHER ASSURANCES. If at any time after the Closing Date Heartland
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in Heartland, Seller's right,
title or interest in, to or under any of the Assets, or (b) to carry out the
purposes of this Agreement, Seller shall promptly undertake such actions as
requested by either in writing. If at any time after the Closing Date, Seller
shall consider or be advised that any agreements, assurances or any other acts
or things are necessary, desirable or proper to (y) confirm Heartland's
assumption of the Assumed Liabilities or (z) to carry out the purposes of this
Agreement, Heartland shall promptly undertake such actions as requested by
Seller in writing.
1.6 CLOSING, CLOSING TIME, DATE AND PLACE. The closing (the "Closing") of
the transactions set forth herein shall take place at 10:00 a.m., Dallas, Texas
time, following satisfaction of the closing conditions set forth in Articles 6,
7 and 8 at the offices of Arter, Hadden, Johnson & Bromberg, 1717 Main Street,
Suite 4100, Dallas, Texas 75201, or at such other time and/or at such other
place as Heartland and Seller may agree, but no later than February 29, 1996.
(Hereinafter, such date is referred to as the "Closing Date", such time on the
Closing Date is referred to as the "Closing Time", and such offices are referred
to as the "Closing Place".)
1.7 ALLOCATION OF ACQUISITION CONSIDERATION. Prior to the Closing Date,
Seller and Heartland shall mutually agree on the allocation of the Acquisition
Consideration among the Assets.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND TECHNIVISION.
Seller and Technivision, jointly and severally, hereby represent and
warrant to Heartland the following:
2.1 ORGANIZATION; QUALIFICATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey.
Seller is qualified as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure so to qualify
would not have a Material Adverse Effect. Technivision is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. Technivision is qualified as a foreign corporation in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure so to qualify would not have a Material Adverse Effect.
2.2 TITLE TO ASSETS; OUTSTANDING RIGHTS. Except as set forth on Schedule
2.2, (a) Seller or Technivision, as applicable, has good, marketable and
indefeasible title to the Assets and such Assets are free and clear of any and
all Liens, except the Permitted Encumbrances; (b) there are no rights of first
refusal, transfer restrictions (other than restrictions generally imposed under
applicable securities laws) or similar rights or obligations with respect to the
Assets; and (c) there are no outstanding subscription rights, options,
conversion or exchange rights, commitments or agreements of any character
relating to the Business or the Assets. Except for the Excluded Assets, neither
Seller nor Technivision owns, or otherwise has any rights to, any assets other
than the Assets.
2.3 CAPITALIZATION. The authorized capital stock of Seller consists of
12,000 shares of common stock, no par value per share, of which 6,976 shares are
issued and outstanding as of October 11, 1995. Schedule 2.3 hereto contains a
complete and accurate list of the holders of any class or series of capital
stock of Seller (including, without limitation, the Three Sixty Stockholders) as
of the date hereof. Seller is the owner and holder of substantially all of the
issued and outstanding capital stock of Technivision, and there are no
outstanding options, warrants, calls, puts, commitments or other rights to
purchase, or securities or other rights convertible or exchangeable into,
capital stock of Technivision. Schedule 2.3 sets forth, as of the date hereof, a
complete and accurate list of all outstanding options, warrants, calls, puts,
commitments and other rights to
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<PAGE> 606
purchase, or securities or other rights convertible or exchangeable into,
capital stock of Seller indicating the record and, to the Knowledge of Seller or
Technivision (as applicable) the beneficial owner thereof, the exercise,
conversion or exchange price and period thereof, the term and any vesting or
other conditions thereof. All securities issued or issuable by Seller have been
paid for and delivered in accordance with the terms of applicable agreements
instruments and Legal Requirements, are duly authorized and validly issued and
are fully paid and nonassessable; the holders thereof have no rights of
rescission with respect thereto; none of such securities were issued in
violation of the preemptive rights of any holder of any security of Seller or
any similar rights granted by Seller or applicable laws.
2.4 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Seller or Technivision,
as applicable, has corporate power and authority to conduct the business and
activities conducted by it (including without limitation the Business) and to
own or lease all of the Assets owned or leased by it. Seller or Technivision, as
applicable, has the corporate power and authority (subject to shareholders
approval and obtaining lenders' consent to the sale of the Assets and/or
proposed Recapitalization as set forth in Sections 8.1 and 6.5) to execute and
deliver this Agreement and all other documents required to be executed and
delivered by Seller or Technivision, as applicable, hereunder, to consummate the
transactions hereby contemplated, and to take all other actions required to be
taken by Seller or Technivision, as applicable, pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Seller or Technivision, as applicable, hereunder have been duly
authorized by all corporate action necessary on the part of Seller or
Technivision, as applicable (subject to shareholders approval and obtaining
lenders' consent to the sale of the Assets and/or proposed Recapitalization as
set forth in Sections 8.1 and 6.5) and have been duly or will be duly executed
and delivered by Seller or Technivision, as applicable, and constitute, or when
executed and delivered will constitute, the legal, valid and binding obligations
of Seller or Technivision, as applicable, enforceable against Seller or
Technivision, as applicable, in accordance with their terms. Except as set forth
in Schedule 2.4, neither the execution nor delivery of this Agreement or any of
the other Operative Documents to be executed and delivered by Seller or
Technivision, as applicable, or the consummation of the transactions hereby
contemplated by Seller or Technivision (including, without limitation, the
Reorganization) will (subject to shareholders approval and obtaining lenders'
consent to the sale of the Assets and/or proposed Recapitalization as set forth
in Sections 8.1 and 6.5) (i) conflict with or constitute any violation or breach
of the Certificate of Incorporation or Bylaws of Seller or Technivision, as
applicable, (ii) constitute any violation or breach of, or give any other Person
any rights (including any right of acceleration, termination or cancellation)
under, any Contract, License, Governmental Permit, or similar document to which
Seller or Technivision, as applicable, is a party or is bound, either which
constitute a portion of the Assets or by which the Assets may be affected, (iii)
constitute a violation of any Order or Legal Requirement, or (iv) result in the
creation of any Lien on any of the Assets.
2.5 FINANCIAL STATEMENTS. (a) Schedule 2.5 lists the consolidated financial
statements of Seller as of, and for the period(s) ending May 31, 1995, including
the balance sheets and related statements of income and expense (collectively,
the "Financial Statements"). The Financial Statements have been prepared in
accordance with the books and records of Seller; are complete and correct;
fairly present the financial position and results of operations of Seller as of
the date and for the periods covered thereby; are in accordance with GAAP; and
have been delivered to Heartland.
(B) Since the date of the Financial Statements, except as set forth on
Schedule 2.5, (i) Seller or Technivision, as applicable, has conducted its
business (including, without limitation, the Business) in the ordinary and
regular course thereof; (ii) there has been no change in the business of Seller
or Technivision (including, without limitation, the Business) or, in the
condition, financial or otherwise, of Seller or Technivision or assets or
liabilities reflected in the Financial Statements which have had a Material
Adverse Effect on Seller or Technivision; or any damage, destruction or loss,
whether or not covered by insurance, which has had a Material Adverse Effect on
Seller or Technivision or which is substantial in amount; or any change in the
nature, or in the condition, of the business of Seller or Technivision which has
had a Material Adverse Effect on Seller or Technivision; or any event, condition
or state of facts of any character whatsoever, the occurrence of which has had a
Material Adverse Effect on Seller or Technivision, other than the general
economic conditions and events, conditions or states of facts affecting the
wireless cable television industry
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Q
generally; (iii) except in the ordinary and regular course of its business,
neither Seller nor Technivision has made any dispositions of any of the Assets;
disposed of any records relating to the Assets; borrowed any funds; become
subject to any obligation or liability, indebtedness for borrowed money,
absolute or contingent; paid, discharged, or satisfied any claim, liability or
obligation, absolute, accrued, contingent or otherwise; cancelled any debts owed
to it; waived any claims or rights of value; granted or extended any power of
attorney; or acted as any guarantor, all with respect to or as it may relate to
the Assets; and (iv) neither Technivision nor Seller has done any act or
permitted to be done any act or omitted to perform any act which has or will
cause the breach of any representation or warranty of Technivision or Seller set
forth in this Agreement.
(C) Neither Seller nor Technivision has any material Liabilities
attributable to Seller, Technivision, the Business or the Assets, except as
disclosed in the Financial Statements or set forth on Schedule 2.5 attached
hereto.
2.6 PROPERTY. Schedule 2.6(a) contains a general description, by category,
as of the date thereof, of all of the Equipment, except small hand tools and
similar equipment. Schedule 2.6(b) lists all Facilities, designating whether
such Facility is owned or leased, including whether there is any
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site. Such Equipment and Facilities are in serviceable
condition; conform to or comply in all material respects with all applicable
Orders and Legal Requirements; and constitute all of the Equipment and
Facilities that are used or held for use in the Business. Schedule 2.6(c) sets
forth a description of all real and personal property currently leased or
otherwise occupied, used or exploited by Seller or Technivision in the Business
but not owned by Seller or Technivision.
2.7 RECEIVABLES. Schedule 2.7 contains a complete and accurate list of all
accounts receivable (including aged accounts receivables, loan receivables and
advances) of the Business as of May 31, 1995 which represent bona fide
obligations arising from sales made in the ordinary and regular course of the
Business in the Markets. Except as set forth on Schedule 2.7, the accounts
receivable (net of reserves therefor) are collectible and not subject to setoff
or counterclaim, nor to any agreement to reduce or discount.
2.8 CONTRACTS. (A) Schedule 2.8 is a complete and accurate list of all
Contracts to which Seller or Technivision is a party or is otherwise bound other
than (i) policies of insurance which are listed in Schedule 2.10, (ii)
programming agreements which are listed on Schedule 2.21, (iii) Channel Leases
which are listed in Schedule 2.9(a), and (iv) Contracts under which the
liability or aggregate payments of Seller or Technivision, as applicable, during
any twelve-month period from and after the date hereof is reasonably anticipated
to be less than $10,000.
(B) Except as set forth on Schedule 2.8, Seller or Technivision has
performed in all material respects all obligations required to be performed by
it under each of the Contracts. Except as set forth on Schedule 2.8, all of the
Contracts are legal, valid and binding obligations of Seller or Technivision
enforceable in accordance with their respective terms and in full force and
effect and there are no defaults (or events which, with notice or lapse of time
or both, would constitute a default) by the Seller or Technivision or, to the
Knowledge of Seller or Technivision, any other party to any such Contract.
Except as otherwise set forth in Schedule 2.8, no default under any of the
Contracts will be caused by the consummation of the transactions contemplated
hereby, and Seller or Technivision shall have performed and discharged all
obligations due or accrued under each Contract relating to periods prior to and
including the Closing Date. Except as set forth and separately identified on
Schedule 2.8, there exists no management or related agreements between Seller or
Technivision and any of their respective Affiliates with respect to the Assets
which would require Heartland to make any payment whatsoever in the form of
management fees or related payments to Seller or its Affiliates with respect to
the Assets or Business following the Closing.
(C) Each Site Lease and Site Option allows for the use and operation on the
leased property of transmitters, antenna structures, antennas and other
associated facilities and permits the transmission from the property of signals
containing video and audio programming.
(D) True, complete and accurate copies of all Contracts have been delivered
to Heartland by Seller.
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2.9 FCC MATTERS.
(A) Schedule 2.9(a) is a complete and accurate list of all Channel Leases
and, except as set forth on Schedule 2.9(a), (i) Seller or Technivision has
performed, in all respects, all obligations required to be performed by it under
each of the Channel Leases; (ii) all of the Channel Leases are legal, valid and
binding obligations enforceable in accordance with their respective terms and in
full force and effect and there are no defaults (or, to the Knowledge of Seller
or Technivision (as applicable) events which, with notice or lapse of time or
both, would constitute a default) by Seller or Technivision, or any other party
to any such Channel Leases; (iii) no default under any of the Channel Leases
will be caused by the consummation of the transactions contemplated hereby; (iv)
Channel Leases set forth in the name of Persons other than Seller or
Technivision, as lessee, have been duly and validly assigned with all requisite
consents and approvals of all parties thereto to Seller or Technivision, and
remain in full force and effect as if Seller or Technivision were the initial
"lessee" thereunder; (v) no default or termination has been threatened in
writing under any of the Channel Leases by any party thereto; and (vi) the
Channel Leases comply in all material respects with the Act and the FCC Rules
and, each of the Channel Leases, and all amendments thereto, have been filed
with and approved by the FCC.
(B) Schedule 2.9(b) is a complete and accurate list of all of the Licenses
and FCC Permits held or leased by Seller or Technivision; all Licenses and FCC
Permits are in the name of the Person set forth in Schedule 2.9(b). Except as
set forth in Schedule 2.9(b), all reports or other documents required to be
filed with respect to any such License have been timely filed; and the Licenses
and the FCC Permits listed on Schedule 2.9(b)attached hereto constitute all of
the Authorizations held or leased by the Seller and are all of the
Authorizations used, useable, held for use in or in conjunction with or
otherwise associated with, required or necessary for Seller or Technivision to
lawfully conduct its business operations as currently conducted. Except as
otherwise expressly noted on Schedule 2.9(b), each of the Licenses and the FCC
Permits (i) is currently held by the Person identified as the holder thereof on
Schedule 2.9(b), (ii) authorizes said holder to construct and operate a facility
transmitting video and audio programming on the Channels, and (iii) is in full
force and effect, and (iv) is not subject to any conditions other than such
conditions as are generally applicable to licenses and permits issued by the FCC
with respect to ITFS, MDS or MMDS Channels. Except as set forth in Schedule
2.9(b), there are no existing or, to the Knowledge of Seller, or Technivision
(as applicable) threatened investigations, inquiries or proceedings by or before
the FCC or other Governmental Body which could result in the revocation,
cancellation, suspension, forfeiture or material adverse modification of any
Authorization or Application.
(C) Schedule 2.9(c) is a complete and accurate list of all Applications and
all amendments or other filings thereto. To the Knowledge of Seller or
Technivision (as applicable) the information contained in each Application is
materially true and correct, and each Person which is a signatory to an
Application is authorized under FCC rules to file such Application.
(D) Except as otherwise expressly noted on Schedule 2.9(d), Seller or
Technivision, as applicable, and, to the Knowledge of Seller or Technivision (as
applicable), the FCC Licensees and the FCC Permittees have each timely submitted
to the FCC, the FAA and all other Governmental Bodies all notices, reports and
other documents which have been or are required by the Act, the FCC Rules, the
FAA Rules and other Legal Requirements, the Licenses and the FCC Permits except
where the failure to do so would not (i) have a Material Adverse Effect on the
business of Seller or Technivision, as applicable, or (ii) hinder the ability or
Seller or Technivision, as applicable, to fully perform its material obligations
under this Agreement. Except as otherwise expressly noted on Schedule 2.9(d), no
petitions to deny or informal objections have been filed against any of the
amendments listed on Schedule 2.9(c). True, complete and accurate copies of all
amendments, notices, reports and other documents filed by the Seller or
Technivision, as applicable, and, to the Knowledge of Seller or Technivision (as
applicable), the FCC Licensees and the FCC Permittees with respect to the
Licenses and the FCC Permits with the FCC, the FAA, the Copyright Office and
other Governmental Bodies have been delivered to Heartland.
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2.10 INSURANCE. Schedule 2.10 contains a complete and accurate list and
brief description of all insurance policies currently held by the Seller or
Technivision, as applicable, related to the Assets, all of which are in full
force and effect as of the date hereof.
2.11 LITIGATION. Except as set forth in Schedule 2.11, there is no
Proceeding pending, or to Seller's Knowledge threatened, against Seller or
Technivision, as applicable, relating to the Assets or the propriety or validity
of the transactions contemplated hereby. Except as set forth in said Schedule
2.11, (a) neither Seller nor Technivision is subject to or in default under or
with respect to any Order, (b) there are no judgments of any court which in any
way may currently constitute a Lien or at some future time may be perfected into
a Lien upon or against any portion of the Assets, and (c) there is no Proceeding
pending or, to the Knowledge of Seller or Technivision (as applicable),
threatened against, relating to or affecting any portion of the Assets.
2.12 GOVERNMENTAL PERMITS. Seller or Technivision, as applicable, owns,
holds or possesses all material Governmental Permits which are necessary to
entitle it to own or lease, operate and use its Assets and to carry on and
conduct its business as currently conducted except with respect to Applications
for which Licenses have not been granted, if any.
2.13 COMPLIANCE WITH LAWS. Seller or Technivision, as applicable, has
complied in all material respects with all applicable Legal Requirements and
Orders of any Governmental Body having jurisdiction over it or its operations,
including, but not limited to, all material FCC Rules and any laws, rules or
regulations regulating, if applicable, zoning, fair and equal employment
practices, the safety of the workplace, antitrust, antimonopoly or
anticompetitive activities, wages, hours, collective bargaining and the payment
of withholding and social security taxes. Except as set forth in Schedule 2.13,
there are no Orders outstanding and in effect against or relating to Seller,
Technivision, the Assets, the transactions contemplated by this Agreement, or,
to the Knowledge of Seller or Technivision (as applicable) any of the parties to
the Channel Leases, other than Orders issued with respect to the wireless cable
industry generally and in the normal course of regulation, which could,
individually or in the aggregate, (i) have a Material Adverse Effect, or (ii)
hinder in any material respect the ability of Seller or Technivision to fully
perform their respective material obligations under this Agreement. Except as
set forth on Schedule 2.13 neither Seller nor Technivision has received any
notice (written or otherwise) from any Person to the effect that, or otherwise
been advised that, either Seller or Technivision is not in compliance with any
applicable law, ordinance, regulation, building or zoning law relating to the
Assets or the Business, and neither Seller nor Technivision has any reason to
anticipate that any presently existing circumstances are likely to result in a
violation of any such law, statute, ordinance or regulation, the non-compliance
or partial compliance with which could reasonably be anticipated to have a
Material Adverse Effect.
2.14 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 2.14,
(A) Neither Seller nor Technivision has used, generated, manufactured,
refined, transported, treated, stored, leaked, poured, emitted, emptied,
released, discharged, disposed, spilled or handled Hazardous Substances in
violation of any Environmental Law with respect to the property under Seller's
control at any Facility.
(B) Neither Seller nor Technivision has any Knowledge of any prior owner,
occupant, tenant or user of any Facility that has ever used, generated,
manufactured, refined, transported, treated, stored, leached, leaked, poured,
emitted, emptied, released, discharged, disposed, spilled or handled Hazardous
Substances in violation of any Environmental Law, at, on or from the property
under control of Seller or Technivision at any Facility.
(C) Neither Seller nor Technivision has received notice of any pending or
threatened Proceeding, Order or citizen suit instituted by any private party,
employee or Governmental Body arising out of the conduct or the operations of
its business, in connection with Environmental Laws, or as a result of any
Environmental Condition relating to the property under control of Seller or
Technivision at any Facility.
2.15 INTELLECTUAL PROPERTY. Schedule 2.15 contains a complete and accurate
list of all Intellectual Property owned or used by the Seller or Technivision in
the Business. No person has any right to receive any royalty or similar payment
arising from the Intellectual Property. Except as set forth on said Schedule
2.15,
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either Seller or Technivision owns each of said properties; and has filed all
certificates, affidavits and other
documents, and taken all other actions, necessary to retain its title to said
properties and to keep the same in effect. Except as set forth on Schedule 2.15,
neither Seller nor Technivision has granted to any other Person any interest in
any of said properties, as licensee or otherwise. None of said properties is
invalid and none infringes upon the personal or property rights of any third
party.
2.16 TAXES AND FEES.
(A) All federal, state, county, local and foreign taxes, including, without
limitation, income, excise, payroll, sales, use, unemployment, social security,
occupation, franchise, property and other taxes, duties or charges
(collectively, the "Taxes") levied, assessed, or imposed upon Seller or
Technivision or their respective businesses, assets or properties as of such
date have been duly and fully paid or have been adequately provided for on the
consolidated balance sheet of Seller as of May 31, 1995 constituting a part of
the Financial Statements. In addition, all filings, returns or reports with
respect to Taxes required by any foreign or domestic law or regulation to be
filed by Seller or Technivision on or prior to the date hereof have been duly
and timely filed. There are no agreements, waivers or other arrangements (oral
or written) providing for extensions of time with respect to the assessment or
collection of unpaid Taxes, nor, except as set forth on Schedule 2.16, are there
any actions, suits, proceedings, inquiries, investigations or claims of any
nature or any kind whatsoever now pending or, to the Knowledge of Seller or
Technivision, threatened, against Seller or Technivision with respect to any
such returns or reports, or any such Taxes or any matters under discussion with
any federal, state, county, local or other authorities relating to Taxes.
(B) Except as otherwise disclosed on Schedule 2.16, (i) Seller or
Technivision, as applicable, has made all payments of estimated Taxes required
to be made under Section 6655 of the Code and any comparable provisions of
state, local, federal or other law; (ii) all amounts of any Taxes, including
payroll and federal excise taxes, that are required to be collected or withheld
by Seller or Technivision have been duly collected or withheld, and have been
duly remitted or deposited in accordance with law; (iii) no power of attorney
has been granted by Seller or Technivision that is currently in force with
respect to any matter relating to Taxes; (iv) neither Seller nor Technivision,
as applicable, has had any deferred gain or loss (A) arising from deferred
inter-company transactions, within the meaning of Treas. Regs. Section 1.1502-13
or any successor regulations, or (B) with respect to the stock or obligations of
any member of the affiliated group of Seller of which Seller is the common
parent, as described in Treas. Regs. Section 1.1502-14; (v) no taxes relating to
periods ending before May 31, 1995 were paid by or charged to any subsidiary of
Seller on or after such date; (vi) neither Seller nor Technivision is required
to include in income any adjustment pursuant to Section 481(a) of the Code (or
any similar provision of law or regulation) by reason of a change in accounting
method, nor is the IRS or any other taxing authority considering any such change
in accounting method; (vii) neither Seller nor Technivision has disposed of any
property which has been accounted for Tax purposes under the installment method;
(viii) neither Seller nor Technivision owns any interest in any entity which is
characterized as a partnership for federal income tax purposes; (ix) neither
Seller nor Technivision is liable for any increase in Tax under Section 47 of
the Code, were such entity to dispose of all of its assets on the Closing Date;
(x) neither Seller nor Technivision will have any "non-recaptured net Section
1231 losses," within the meaning of Section 1231(c) of the Code on the Closing
Date; (xi) no election under Section 1504(d) of the Code has been made with
respect to any subsidiary; and (xii) no claim or assertion has been made against
Seller or Technivision, as applicable, by any tax authority in any jurisdiction
in which no tax return has been filed by Seller or Technivision, as applicable,
that it may be subject to Tax in that jurisdiction or otherwise is required to
file a tax return.
(C) Seller has regular tax operating loss carryforward from its last filed
federal corporate income tax return for the year ending May 31, 1995, in the
approximate amount set forth in Schedule 2.16(c). Seller represents that it has
not undergone a Section 382 ownership change which would limit the ability to
utilize these losses.
2.17 REGULATORY COMPLIANCE. Except as otherwise expressly set forth on
Schedule 2.17, Seller or Technivision, as applicable, and, to the Knowledge of
Seller or Technivision (as applicable), the FCC Licensees and FCC Permittees are
in material compliance with, and not in default under or in violation of, the
Act, the FCC Rules, the FAA Rules, the Copyright Act, the Copyright Rules and
other Legal Requirements
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Q
applicable to the Licenses or FCC Permits. Except as otherwise expressly noted
on the Schedules attached hereto, neither Seller nor Technivision has any no
Knowledge and has received no notice of noncompliance with, default under or
violation of the Act, the FCC Rules, the FAA Rules, the Copyright Act, the
Copyright Rules, other Legal Requirements and the applicable Licenses or FCC
Permits. No condition exists or event has occurred with respect to Seller, the
Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which, in
itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a material violation of the Act, any FCC Rule, any FAA
Rule, the Copyright Act or the Copyright Rules, (ii) constitute a material
default in the due performance and observation of any term, covenant or
condition of any of the Licenses or FCC Permits, (iii) result in a forfeiture,
the denial, dismissal or rejection of any of the Schedule 2.9(c) or 2.9(d)
amendments, or the suspension, termination, revocation, material impairment,
material adverse modification or nonrenewal of any License or FCC Permit, or
(iv) adversely affect any of the material rights of Seller, any FCC Licensee or
FCC Permittee under any of the Licenses or FCC Permits.
2.18 INTERFERENCE. Neither Seller, Technivision nor, to the Knowledge of
Seller, or Technivision (as applicable), any party to a Channel Lease, has
accepted the electrical interference to the Channels from any source, has
consented to the grant of any application involved with the FCC that is likely
to result in any electrical interference to the Channels, or has failed to
timely petition to deny any application that proposes facilities that could
reasonably be anticipated to cause objectionable electrical interference to the
Channels. Except as otherwise expressly noted on Schedule 2.18 attached hereto,
neither Seller nor Technivision nor, to the Knowledge of Seller or technivision
(as applicable), any FCC Licensee or FCC Permittee or any other party to a
Channel Lease, is likely to experience interference which will adversely impact
operation of the Facilities it has constructed and/or operated, or is
constructing once such Facilities are constructed and operated, or is likely to
create interference which will adversely impact the operation of other
facilities licensed by the FCC to other Persons; for purposes of this Section
2.18, interference shall be deemed to exist if within an FCC Licensee's
protected service area, the ratio of the desired signal to the undesired signal,
at the antenna input terminals of the affected receiver, is less than 45 dB,
unless frequency offset or other engineering solutions are employed.
2.19 EMPLOYEES. The employees listed on Schedule 2.19 are the only
employees of Seller or Technivision associated with the Markets. Except as set
forth on Schedule 2.19 hereof, neither Technivision nor Seller has any bonus,
deferred compensation, incentive compensation, severance or termination pay,
hospitalization or other medical, stock purchase, stock option, pension, life or
other insurance, profit sharing or retirement plan, agreement or arrangement, or
other employee benefit plan or arrangement, whether formal or informal, and
whether legally binding or not, maintained or contributed to by Seller or
Technivision, as applicable ("Benefit Plan"), and neither Seller nor
Technivision has any continuing unfulfilled obligations under any similar
benefit plans that may have been terminated prior to the date hereof. Neither
Seller nor Technivision has been a party to a "multiemployer plan" as that term
is defined in Section 3(37) of the Employee Retirement Income Security Act of
1974, as amended. With respect to the Benefit Plans listed on Schedule 2.19
hereof, (i) all payments due from Seller or Technivision, as applicable, to date
for the employees with respect to such Benefit Plans have been made and all
amounts properly accrued to date as Liabilities of Seller or Technivision, as
applicable, are set forth on Schedule 2.19 hereof; and (ii) all reports and
information relating to such Benefit Plan required to be filed with any
governmental entity have been filed. Neither Technivision nor Seller has (i)
experienced any material labor disputes or work stoppages, or (ii) received any
notice that there is any unfair labor practice, charge or complaint pending or
threatened, except as is already set out herein.
2.20 FINDER'S FEES. Neither Technivision nor Seller has taken any action
which would impose upon Heartland any obligation or liability to any person for
finder's fees, agent's commissions or like payments in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. Subject to the provisions of Section 12.2, Seller shall be
solely responsible for any costs for any broker fee payable to Gerard Klauer
Mattison & Co., Inc. (or any other party engaged by Seller or Technivision).
2.21 PROGRAMMING AND RETRANSMISSION AGREEMENTS. Schedule 2.21 sets forth a
true and complete list of all agreements (a) for programming and (b) providing
for the retransmission of any broadcast signals.
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2.22 CERTAIN ACTIVITIES. Except as set forth on Schedule 2.22, neither
Technivision nor Seller engages in any business other than the Business in the
Markets.
2.23 SUBSCRIBERS. Schedule 2.23 sets forth a true and correct list of the
number of Bona Fide Subscribers in each Market as of the date hereof.
2.24 OTHER APPROVALS. No filings shall be required under the HSR Act with
respect to the acquisition by TSC of the Acquisition Shares in accordance with
the terms of this Agreement.
2.25 FURTHER REPRESENTATION. No representation or warranty of Seller
contained in this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to or state a material fact necessary in
order to make the statements made herein, in light of the circumstances under
which they are made, not misleading. All books, statements, documents, schedules
and records furnished or given by it to Heartland or its agents during the
negotiation of or preparatory to the execution of this Agreement or the
consummation of the transactions contemplated hereby, are, as of their
respective dates, true, complete and genuine and contain no material
misrepresentations or omissions of material facts.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND.
Heartland hereby represents and warrants to Seller and Technivision, and to
each of them, the following :
3.1 ORGANIZATION; QUALIFICATION. Heartland is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has the
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 7.1 and 6.4) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 7.1 and 6.4) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement and all the documents required to
be executed and delivered by Heartland hereunder or the consummation of the
transactions hereby contemplated by Heartland conflict with or constitute (i)
any violation or breach of the Certificate of Incorporation or the Bylaws of
Heartland or (ii) subject to lender approval as set forth in Section 6.4, any
material violation or breach of any contract or agreement of Heartland, the
result of which would have a Material Adverse Effect.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated hereby. Except as described in Heartland's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1995, Heartland is not
a party to any Proceedings, the adverse resolution of which is reasonably
anticipated to have a Material Adverse Effect.
3.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents (if any), or the filing of the Registration Statement, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Body is required on behalf of Heartland in connection
with the execution, delivery or performance of this Agreement and all documents
contemplated hereby or the transactions contemplated hereby.
3.5 CAPITALIZATION. Heartland is authorized to issue 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share. As of August 31, 1995, 12,476,393 shares of
Heartland Common Stock are issued and outstanding and no shares of preferred
stock
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Q
have been issued. The Acquisition Shares to be issued pursuant to this Agreement
will be, upon issuance, validly issued, fully paid and non-assessable, and
subject to no pre-emptive or other subscription rights.
3.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the date thereof and for
the periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to Seller copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three month periods ended March 31, 1995 and June 30, 1995, (iii) its
Form S-3 Registration Statement (33-94838) declared effective by the SEC on
August 4, 1995 and (iv) all Form 8-Ks filed with the SEC after December 31, 1994
and prior to the date of this Agreement ("Heartland SEC Filings"). Each such
filing was timely filed with the SEC, and did not contain any misstatement of
material fact or an omission of a material fact required to be stated therein
necessary to make the statements therein not misleading as of the time such
document was filed. Heartland has filed all documents required to be filed with
the SEC. As of their respective dates, such reports complied in all material
respects with the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). No other document or report required to
have been filed by Heartland with the SEC has not been filed, and no event or
transaction has occurred prior to the date hereof that will hereafter be
required to be disclosed by Heartland in a Form 10-Q, Form 8-K or similar
filing.
3.8 Intentionally omitted.
3.9 Intentionally omitted.
3.10 FINDER'S FEES. No person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from Heartland
or any of its subsidiaries in connection with this Agreement or any of the
transactions contemplated hereby.
3.11 FURTHER REPRESENTATION. No representation or warranty of Heartland
contained in this Agreement contains or will contain any untrue statements of
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances under
which they are made, not misleading.
ARTICLE 4. COVENANTS OF SELLER.
Prior to the Closing Date or the termination of this Agreement as provided
herein, Seller or Technivision, as applicable, hereby agrees to perform as
follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. From the date hereof through the
Closing Date, except as expressly disclosed or set forth in this Agreement,
Technivision shall, and Seller, with respect to the Assets or the Business,
shall:
(A) not engage in any practice, take any action or enter into any
transaction other than in the customary and ordinary course of business
without the consent of Heartland;
(B) use reasonable efforts to keep the business, properties and
business relationships substantially intact;
(C) (i) pay and perform all of its debts, liabilities and obligations
as and when due, except to the extent being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
established, (ii) perform its material obligations under all Authorizations
and Contracts, and (iii) comply in all material respects with all
Governmental Rules;
(D) (i) not take any action, and will endeavor in good faith not to
permit any event to occur, which would cause or constitute a material
breach of this Agreement; (ii) in the event of, and promptly after the
occurrence of, or promptly after becoming aware of the occurrence of or the
impending or threatened occurrence of, any event which would cause or
constitute a material breach or would, if it had occurred immediately prior
to the date hereof, have caused or constituted a material breach of any of
the
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representations and warranties set forth in Article 2 hereof, give notice
thereof to Heartland; and (iii) use its best efforts to prevent or promptly
to remedy such breach;
(E) use reasonable efforts to preserve, protect and maintain its
rights and interests in the Channel Leases, FCC Licenses, and Contracts,
including, but not limited to, filing or having licensees or permittees
file with the FCC any and all reports, applications or other documents
necessary to preserve the FCC Licenses in full force and effect;
(F) not, enter into, amend or terminate, or agree to enter into,
amend, except to comply with this Agreement, or terminate any Channel
Lease, License, Permit, Application or Contract;
(G) not make any distributions to the Three Sixty Stockholders nor
shall Seller issue, sell or agree to sell any equity interests or options
or rights with respect thereto;
(H) not sell, lease, transfer or otherwise dispose of any Assets
except as provided for by, or contemplated in, this Agreement;
(I) except in the ordinary course of business, not pay any salaries
to, increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of its managers,
officers or employees; or pay bonuses to any such manager, officer or
employee;
(J) not take any actions which would cause the transactions
contemplated hereby to be subject to Subpart 900 of Regulation S-K,
promulgated under the Securities Act and the Exchange Act (the "Roll-up
Rules").
4.2 CONSENTS. Except as otherwise provided herein (including, without
limitation, Section 5.13), Seller or Technivision, as applicable, shall, at its
sole cost and expense, use reasonable efforts to obtain or cause to be made, all
Consents, governmental authorizations, approvals and filings as may be necessary
by virtue of the transactions contemplated by this Agreement (including, without
limitation, the Reorganization) on or before the Closing Date, so as to ensure
that Heartland will continue to enjoy following the Closing all of the rights
and privileges currently held by Seller or Technivision, as applicable, under
each of the Channel Leases, Licenses and Contracts. Upon request of Heartland,
Seller or Technivision, as applicable, shall assist Heartland to obtain from
each of the other respective parties to each of such Channel Leases or Contracts
estoppel certificates in the form attached as Exhibit 4.3 ("Estoppel
Certificates") certifying that neither Technivision nor Seller, as applicable,
is in breach or violation of or in default under any of such Channel Leases or
Contracts and that it would not be by virtue of the transactions contemplated
hereby. At the request of Heartland, Seller or Technivision shall use reasonable
efforts to obtain with each Consent an Estoppel Certificate. Seller or
Technivision shall seek any appropriate amendments, modifications or changes to
each of such Channel Leases and Contracts so as to ensure that the licensees,
permittees or other parties thereto notify Heartland directly in the event of a
breach or violation of or default under any such Channel Lease or Contract.
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. Seller or Technivision, as
applicable, shall:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to the Seller remain in
full force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's Rules or policies of general applicability. After the
applications are filed for FCC consent to the transfer of control of the
FCC Licenses for said Channels to Heartland or an Affiliate of Heartland,
Seller or Technivision, as applicable, shall file, at the request of and as
an accommodation to Heartland such applications for modification of their
outstanding construction permits or licenses to implement the purposes
contemplated hereunder. Seller or Technivision, as applicable, shall
utilize its best efforts to diligently and properly prosecute in good faith
all applications, reports and submissions submitted in accordance with this
Section 4.3.
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(B) assure that the licensees or permittees under the Channel Leases
timely file all applications reports, and other submissions in such form
and with such information as may be required by the FCC, including, but not
limited to, renewal applications, applications for extensions of time to
complete construction and Annual FCC Reports, to assure that such FCC
Licenses remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
modification result from changes in the FCC's rules or policies of general
applicability. Seller or Technivision, as applicable, shall use its best
efforts to assure that the licensees or permittees under the Channel Leases
diligently prosecute in good faith all such applications, reports and
submissions. Seller or Technivision, as applicable, shall promptly disclose
to Heartland any information it receives regarding any condition or
circumstance that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. Subject only to the provisions of Section 5.11
hereunder (regarding the proposed sale of the Dayton, Ohio Market), from and
after the date hereof, neither Seller nor Technivision will, or will authorize
or permit any of their respective officers, employees, agents and other
representatives (collectively, "Seller Representatives") to solicit, initiate or
encourage (including by way of furnishing information) any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to, an Acquisition Proposal (as defined herein) from any person, or engage in
any discussion or negotiations relating thereto or accept any Acquisition
Proposal. Seller or Technivision, as applicable, shall immediately cease and
cause to be terminated any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any parties conducted heretofore by
Seller or Technivision, as applicable, or any Seller Representatives with
respect to any of the foregoing. Seller or Technivision, as applicable, will
promptly notify Heartland of any such discussion or negotiations, requests for
such information or the receipt of any Acquisition Proposal, including the
identity of the person or group engaging in such discussions or negotiations,
requesting such information or making such Acquisition Proposal and the material
terms and conditions of any Acquisition Proposal. As used in this Agreement
"Acquisition Proposal" shall mean any proposal or offer, other than a proposal
or offer by Heartland or any of its Affiliates, for a tender or exchange offer,
a merger, consolidation or other business combination involving Seller or
Technivision, as applicable, or any proposal to acquire in any manner a
substantial equity interest in, a substantial portion of the assets of, or any
rights to any Channels or Licenses of, Seller or Technivision, as applicable.
4.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, Seller shall have audits conducted and completed by an accounting
firm of national reputation, reasonably acceptable to Heartland so that Seller
can provide audited financial statements of Seller as of, and for the period
ending, May 31, 1995, including the balance sheets and related statements of
income and expense, and any other periods required by Regulation 3-05 of
Regulation S-X.
4.6 REORGANIZATION. On or prior to the Effective Date, Seller shall cause
the Reorganization to occur, Seller shall be the surviving corporation of the
Reorganization, and the certificate of incorporation for the surviving
corporation shall be that of Seller. At the time of such Reorganization, Seller
and Technivision shall have obtained all necessary Consents so that Seller shall
succeed to all rights of Technivision in the Assets held by Technivision
immediately prior to the Reorganization, and no continuing default under any
Contract, License or other Asset shall be caused thereby. Upon the consummation
of the Reorganization, Seller shall succeed to all obligations and liabilities
of Technivision for the covenants, representations and warranties of
Technivision contained herein, as if such representations and warranties were
made by Seller as of the date hereof and such covenant was made directly by
Seller to Purchaser hereunder. On the Closing Date, Seller shall remake all
representations or warranties of Technivision contained herein, subject to
Section 5.14, and shall be responsible for the performance of all covenants of
Technivision hereunder.
4.7 NOLS. Neither Seller nor Technivision shall take any action, other than
the sale of the Dayton Market as contemplated in Section 5.11, which would cause
the net operating losses of Seller on the Closing Date to be less than $9.5
million or deny Heartland the ability to use the full amount of such net
operating losses after the Closing Date.
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ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS MEETING. Seller shall take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of the Three Sixty Stockholders promptly after the
Registration Statement is declared effective by the SEC to consider and vote
upon the approval of this Agreement, the Three Sixty Liquidation Plan and the
other transactions contemplated hereby. Seller shall, through its Board of
Directors, recommend to the Three Sixty Stockholders approval of all such action
and shall use reasonable efforts to obtain approval and adoption by such Three
Sixty Stockholders. Seller acknowledges that the consummation of the
transactions contemplated by this Agreement by Heartland requires (and therefore
is subject to), among other things, (a) the approval of certain lenders of
Heartland, and (b) the approval of the holders of the Heartland Shares of the
issuance of a block of Heartland Shares, certain (but not all) of which are
issuable pursuant to the terms hereof. Heartland shall take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
Bylaws and to convene a meeting of its stockholders promptly after the
Registration Statement is declared effective by the SEC to consider and vote
upon the issuance of the Acquisition Shares. Heartland shall, through its Board
of Directors, recommend to the Heartland stockholders the approval of such
action and shall use reasonable efforts to obtain the approval and adoption by
such Heartland stockholders. Heartland shall use reasonable efforts to obtain
the written approval of its lenders on or before December 1, 1995. Heartland
acknowledges that the consummation of the transactions contemplated by this
Agreement (including, without limitation, the Three Sixty Liquidation Plan) by
Seller requires (and therefore is subject to), among other things, the approval
of (a) the stockholders of Three Sixty, (b) the UCL Disgorgement Trust (the
"Trust"), (c) Philips Credit Corporation ("Philips"), (d) Howard Addison,
Charles Lowe and Bruce Davis (collectively, the "Addison Group"), and (e)
certain other creditors of Seller (collectively, the Trust, Phillips and the
Addison Group are referred to as the "Creditors"). Seller shall use reasonable
efforts to obtain the written approval of the Creditors within ten (10) days of
the Effective Date.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as practicable
after the execution of this Agreement a Registration Statement on Form S-4 (the
"Registration Statement") in connection with the registration under the
Securities Act of the offer and sale of the Acquisition Shares. Heartland shall
include the Proxy Statement as part of the joint proxy statement/prospectus
required in the Registration Statement. Heartland shall use all reasonable
efforts to have the Registration Statement declared effective by the SEC as soon
as practicable after the filing thereof. Heartland shall also take any action
required to be taken under applicable "blue sky" or state securities laws in
connection with the Heartland Shares to be registered thereby prior to the
Closing. Seller shall furnish Heartland all information concerning Seller or
Technivision, as applicable, and the Three Sixty Stockholders required for use
in the Registration Statement, and Seller shall take such other actions as
Heartland may reasonably request in connection with the preparation of such
Registration Statement and the actions to be taken by Seller pursuant to this
Section 5.2. None of the information furnished by or on behalf of Seller for use
in the Registration Statement or Proxy Statement, and neither the Registration
Statement when declared effective nor the Proxy Statement when mailed to the
Three Sixty Stockholders (or any supplement or amendment thereto) shall contain
any material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading. All documents
which Seller or Technivision are responsible for filing with the SEC and any
regulatory authority in connections with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable law.
(B) Heartland shall furnish Seller all information concerning (i) Heartland
and (ii) the other entities to be acquired by Heartland required for use in the
Proxy Statement ("Heartland Information"), and Heartland shall take such other
action as Seller may reasonably request in connection with the preparation of
the Proxy Statement. None of the Heartland Information, and neither the
Registration Statement when declared effective nor the Proxy Statement when
mailed to the Three Sixty Stockholders (or any supplement or amendment thereto),
shall contain any material misstatement of fact or omit to state a material fact
or any fact necessary to make the statements contained therein not misleading.
All documents which Heartland is
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responsible for filing with the SEC and any regulatory authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law.
(C) Heartland will bear all costs and expenses (including its legal,
accounting and printing costs and filing fees payable to the SEC and other
Governmental Bodies but excluding attorneys' fees and accounting fees of Sellers
and costs and expenses associated with the solicitation of proxies from the
Three Sixty Stockholders) related to the preparation and filing of the
Registration Statement.
(D) Within a reasonable period of time after the Closing Date, Heartland
shall file with the National Association of Securities Dealers, Inc. a Nasdaq
National Market Notification Form for Listing of Additional Shares and
Notification Pursuant to SEC Rule 10b-17 with regard to the Heartland Shares to
be issued in connection with this Agreement.
5.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours upon reasonable notice be permitted reasonable access to
the Facilities and the offices of Seller and Technivision, will be permitted to
make copies of or abstracts from all of the books and records, financial and
operating data and other information of Seller and Technivision relating solely
to the Business and the Assets and will be permitted to discuss the affairs, and
accounts of Seller and Technivision relating solely to the Business and the
Assets with the Board of Directors, officers, employees, counsel, and
accountants of Seller and Technivision. Such investigation shall not, however,
affect the representations and warranties of Seller and Technivision set forth
in Article 2 hereof. All such information shall be subject to the terms of the
Confidentiality Agreement between Heartland and Technivision dated September 5,
1995 ("Confidentiality Agreement").
5.4 COMPLIANCE WITH THE SECURITIES ACT. Seller has caused to be prepared
and delivered to Heartland a list identifying all persons who, as of the date
hereof, may be deemed to be "Affiliates" of Seller as that term is defined under
Paragraphs (c) and (d) of Rule 145 of the Securities Act ("Rule 145
Affiliates"), and prior to the Closing Date, Seller shall cause to be prepared
and delivered to Heartland an updated list (reasonably satisfactory to counsel
for Heartland) identifying all persons who at the time of Seller's stockholders
meeting may be deemed to be a Rule 145 Affiliate. Seller shall use all
reasonable efforts to cause each person who is identified as a Rule 145
Affiliate in such updated list to deliver to Heartland on or prior to the
Closing Date a written agreement, in the form attached hereto as Exhibit 5.4,
that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise
dispose of any Distributable Shares, Consent Shares or Escrow Shares issued to
such Rule 145 Affiliate pursuant to this Agreement, except pursuant to the
effective Registration Statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act.
5.5 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement,
including (a) the obtaining of all necessary actions or non-actions, waivers,
consents and approvals from Governmental Bodies and the making of all necessary
registrations and filings (including filings with Governmental Bodies) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any Governmental Body, (b)
the obtaining of all necessary consents, approvals or waivers from third
parties, (c) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Body
vacated or reversed, (d) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement and (e) not to take, commit, or agree in writing or otherwise to take,
any action which would make any representation or warranty of such party
contained in this Agreement untrue or incorrect in any material respect as of
the date when made or as of a future date.
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5.6 PUBLIC ANNOUNCEMENTS. Heartland, on the one hand, and Seller and
Technivision, on the other hand, will consult with each other before issuing any
press release or other communication with respect to the transactions
contemplated by this Agreement and shall not issue any such press release prior
to such consultation and the consent of such other party, provided, however,
that if either of such parties has a duty to disclose such information under the
Securities Act, the Exchange Act or other Legal Requirement such party may upon
prior notice to the other party and its legal counsel as set forth herein,
disclose such information; provided, further, that if the timing of any required
disclosure renders consultation with the other party impractical and the failure
to timely disclose could be deemed a material violation of applicable law,
consultation is not required hereunder provided notice is given to the other
party as soon as reasonably practical.
5.7 NOTIFICATION OF CERTAIN MATTERS. Seller shall give Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement under any note, license,
agreement or other instrument or obligation, and (ii) any Material Adverse
Effect or the occurrence of any event which, so far as reasonably can be
foreseen at the time of its occurrence, is reasonably likely to result in a
Material Adverse Effect on such party. Heartland shall give Seller (a) from and
after the date of this Agreement, prompt notice of the occurrence of any event
that would require Heartland to file a current report on Form 8-K or issue a
press release under applicable securities laws, and (b) from and after the date
of the mailing of the Proxy Statement, prompt notice of the occurrence of any
event that would require the Heartland Information contained in the Proxy
Statement to be amended or supplemented under applicable securities laws. Each
party shall give the other prompt notice the receipt of any written notice or
other written communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement.
5.8 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and will use their respective reasonable
efforts to obtain an early termination of the applicable waiting period, and
will make any further filings pursuant thereto that may be necessary, proper, or
advisable; provided, however, that no party hereto shall be required to respond
to a "second request" in connection therewith.
5.9 EMPLOYEES. From and after the date hereof through the Closing Date or
earlier termination of this Agreement, Heartland shall have the right to contact
any employees of Seller or Technivision involved in the Business regarding the
potential employment of such persons following the Closing Date. Any such
employees hired by Heartland shall be considered newly hired and Heartland shall
not be liable to or responsible for any benefits to such employees arising prior
to the Closing Date.
5.10 EXHIBITS AND SCHEDULES. Heartland and Seller agree that (a) any
Exhibits not attached hereto on the date hereof shall be prepared and attached
on or before December 29, 1995, and agree to cooperate and negotiate in good
faith in the preparation of such Exhibits, (b) any Schedules not attached hereto
on the date hereof may be attached on or before December 20, 1995; provided that
Purchaser shall have the absolute right to terminate this Agreement without
liability within ten (10) days after the initial delivery of any such Schedule,
as further provided in Section 10.3.
5.11 SALE OF DAYTON, OHIO MARKET. Subject to the consent of Philips, the
Trust and the Addison Group, notwithstanding any provisions contained herein to
the contrary, Seller or Technivision, as applicable, and Heartland shall have
the right to solicit bids for and negotiate the sale of wireless cable
television assets held for the purpose of servicing the Market located in
Dayton, Ohio (collectively, such assets are referred to as the "Dayton Market");
provided that (i) Seller or Technivision, as applicable and Heartland shall keep
each other fully informed regarding the status of any negotiations regarding the
sale of the Dayton Market or offers therefor, including without limitation, the
identity of the proposed purchaser and the consideration offered or requested,
(ii) Heartland shall have the right to approve, in its sole discretion, the
terms of any proposed disposition of the Dayton Market, and neither Seller nor
Technivision shall execute a definitive agreement to
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dispose of the Dayton Market without such written approval by Heartland, and
(iii) the gross proceeds of the sale of the Dayton Market (less reasonable
transaction costs, but excluding any taxes or brokerage fees payable to Gerard
Klauer Mattison & Co.) (the "Dayton Consideration") shall be payable as follows:
(I) $11.7 million plus the Additional Dayton Consideration (collectively, the
"Dayton Proceeds") shall be paid to Seller and shall constitute an Excluded
Asset, and (II) the excess, if any, of the Dayton Consideration over the Dayton
Proceeds ("Excess Dayton Proceeds") shall be paid to Heartland upon such
disposition (in cash to the extent the gross proceeds from such disposition
consist of cash) as compensation to Heartland for services rendered in
connection with such disposition. To the extent that the Dayton Consideration is
payable other than in cash or instruments in a stated amount, Seller and
Heartland shall mutually agree to the valuation of such assets. Other than
Gerard Klauer Mattison & Co., neither party currently has any arrangements with
any brokers regarding the sale of the Dayton Market, and neither party shall
enter into any such arrangement without the approval of the other.
5.12 NONCOMPETITION. Seller agrees that if the transactions contemplated by
this Agreement are consummated, the Seller shall not, for a period of five (5)
years after the Closing Date, directly or indirectly, alone or with others,
Engage in any Competing Business within a one hundred (100) mile radius of any
Market. For purposes of this Agreement, (a) "Engage" means that the Seller is or
becomes an owner or operator or, directly or indirectly, a shareholder, lender,
borrower, consultant, partner, joint venturer, or participant in any other
capacity whatsoever in any business enterprise (regardless of whether it is a
corporation, partnership, sole proprietorship or business association);
provided, however, that Seller may own up to five percent (5%) of the voting
securities of any company engaged in a Competing Business solely as a passive
investor and (b) a "Competing Business" shall mean any business enterprise which
is engaged in the business of owning, leasing or operating ITFS, MDS or MMDS
Channels.
5.13 EXCESS CONSENTS. If Seller or Technivision, as applicable, fails to
deliver any of the Primary Consents or Secondary Consents (collectively, "Excess
Consents") prior to the Closing Date, then the Consent Shares attributable to
such Excess Consents shall be held in the Consent Escrow for the Consent Period
in accordance with the terms of the Exchange Agreement. In the event Seller or
Technivision, as applicable, is unable to obtain an Excess Consent prior to the
Closing Date, using reasonable efforts, then the Contract or License that is the
subject of such Excess Consent shall remain in the name of Seller or
Technivision, as applicable, and Seller or Technivision, as applicable, shall
retain title to such Contract or License for Heartland's account pending the
obtaining of such Excess Consent (with an Estoppel Certificate containing no
adverse disclosures). Revenue therefrom, if any, shall be the property of
Heartland. In the event that any FCC Consent is not obtained prior to the
Closing Date with regard to any MDS or MMDS Channels, such Channels shall be
subleased to Heartland pending Seller's obtaining such Consent pursuant to the
terms of a management/option agreement in the form attached hereto as Exhibit
5.13. If any Excess Consent which is not obtained prior to the Closing is
obtained prior to the expiration of the Consent Period, Seller shall have the
right to direct the Exchange Agent to release Consent Shares having an aggregate
Closing Share Price equal to the Stipulated Consent Amount related to such
Excess Consent to Seller or as Seller otherwise directs, without offset or
deduction of any kind or nature whatsoever in accordance with the terms of the
Exchange Agreement. If an Excess Consent is not obtained on or before the
expiration of the Consent Period, Seller shall, at its option upon written
notice to Heartland and Exchange Agent, either extend the Consent Period pending
the receipt of an Excess Consent, or forfeit the Stipulated Consent Amount
related to such Excess Consent and direct the Exchange Agent to pay such amount
to Heartland or as Heartland otherwise directs, without offset or deduction of
any kind or nature whatsoever. Any such Consent Shares held by the Exchange
Agent shall not be deemed to be part of the Escrow Shares for any purpose
hereunder.
5.14 UPDATED SCHEDULES. Seller shall have the right to update the Schedules
to be delivered hereunder at any time prior to (a) December 20, 1995 without the
consent or approval of Heartland, and (b) after December 20, 1995 but prior to
the tenth (10th) day preceding the Closing Date without the prior consent or
approval of Heartland; provided that if the disclosure in such updated or
supplemented Schedule represents a material change from any disclosure to
Heartland on or prior to December 20, 1995, adverse to Heartland, Heartland
shall, within five (5) days of Seller's delivery of such supplemental Schedule,
deliver to Seller written notice of any objection to such supplemental Schedule,
and if Seller does not deliver to Heartland
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written notice that Seller has elected to withdraw its supplemental Schedule
within five (5) days thereafter, then Heartland shall have the right to
terminate this Agreement within fifteen (15) days of their receipt of such
updated or supplemented Schedule, as further provided in Section 10.3, in which
case Seller's delivery of such supplemental Schedule shall be deemed to be a
breach of this Agreement ("Schedule Breach"). If Heartland does not terminate
this Agreement as provided herein and proceeds to Close under this Agreement,
then, except as provided below with respect to Adverse Subscriber Disclosure or
Adverse Channel Disclosure, Heartland shall be deemed to have accepted such
supplemental Schedule and waived the Schedule Breach; provided further that
Seller shall not have the right to supplement any Schedule within ten (10) days
prior to the Closing Date.
In addition to and not in limitation of Heartland's right to terminate this
Agreement as provided above, in the event that the final updated Schedules
delivered by Seller or Technivision, as the case may be, disclose that the
number of Bona Fide Subscribers in (x) the Corpus Market ("Corpus Subscribers")
is less than 15,300 or (y) in the Dayton Market ("Dayton Subscribers") is less
than 3,050 (such Schedule constituting an "Adverse Subscriber Disclosure"), then
Heartland shall have the right to Close under this Agreement without waiving its
claim for Damages arising from such Schedule Breach, and shall be entitled to
indemnification from the Escrow Shares for Damages in an amount equal to $1,200
times the sum of (A)(i) 15,300 minus (ii) the actual number of Corpus
Subscribers and (B)(i) 3,050 minus (ii) the actual number of Dayton Subscribers
("Subscriber Damages"); provided, however, that the provisions of this sentence
relating to the Dayton Market shall not apply in the event that the Dayton
Market is sold pursuant to Section 5.11 prior to Closing.
In addition to and not in limitation of Heartland's right to terminate this
Agreement as provided above, in the event that the final updated Schedules
delivered by Seller or Technivision, as the case may be, disclose that the
number of Channels leased by Seller or Technivision in (x) the Corpus Market
(the "Corpus Channels") is less than 31 (the "Corpus Denominator"), (y) the
Dayton Market (the "Dayton Channels") is less than 31 (the "Dayton
Denominator"), or (z) in the El Paso Market (the "El Paso Channels") is less
than 27 (the "El Paso Denominator) (such Schedule constituting an "Adverse
Channel Disclosure"), then Heartland shall have the right to Close under this
Agreement without waiving its claim for Damages arising from such Schedule
Breach, and shall be entitled to indemnification from the Escrow Shares for
Damages in the following amounts (collectively, "Channel Damages"):
(x) with respect to the Corpus Market, an amount equal to the product
of (A) $20,050,000 and (B) one minus a fraction, the numerator of which is
the Corpus Channels and the denominator of which is the Corpus Denominator;
(y) with respect to the Dayton Market, an amount equal to the product
of (A) $11,700,000 and (B) one minus a fraction, the numerator of which is
the Dayton Channels and the denominator of which is the Dayton Denominator;
(z) with respect to the El Paso Market, an amount equal to the product
of (A) $5,000,000 and (B) one minus a fraction, the numerator of which is
the El Paso Channels and the denominator of which is the El Paso
Denominator;
provided, however, that the provisions of this sentence relating to the
Dayton Market shall not apply in the event that the Dayton Market is sold
pursuant to Section 5.11 prior to Closing. Heartland and Seller acknowledge
and agree that the Subscriber Damages and Channel Damages are reasonable
estimates of the Damages attributed to the relevant Schedule Breach and
shall constitute liquidated damages hereunder.
5.15 LENDER ARRANGEMENTS. Heartland and Seller acknowledge that it is their
mutual intention that the Creditors shall receive Acquisition Shares at the
Closing, whether resulting from the recapitalization of the indebtedness held by
the Creditors ("Recapitalization") or otherwise, pursuant to the Three Sixty
Liquidation Plan in satisfaction of any amounts owed to them so that (i) such
Acquisition Shares will be freely transferrable by the Creditors and (ii)
neither Heartland nor Seller will recognize any gain for federal income tax
purposes in connection with the delivery of such shares to the Creditors or the
disposition of those shares
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by the Creditors. In accordance with the foregoing, the parties agree to
negotiate in good faith to structure the transactions contemplated hereby so
that the intent of the parties described in the preceding sentence is realized;
provided that Heartland shall not have any obligation to grant to such Creditors
any registration rights or file additional registration statements relative to
the Acquisition Shares to be received by such Creditors.
ARTICLE 6. GENERAL CONDITIONS TO CLOSING.
The obligation of the parties hereto to consummate the transactions
contemplated by this Agreement is subject to fulfillment, or written waiver
signed by all parties hereto, of each of the following conditions precedent on
or prior to the Closing Date or the date set forth therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received and shall be in full force and
effect.
6.2 NO ORDER. No Governmental Body or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting the transactions contemplated by this Agreement or otherwise
making the consummation of the transactions contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated and all filings required to be made with, and all,
subject to Section 5.13, consents, approvals, permits and authorizations
required to be obtained from, any Governmental Body in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by any of the parties hereto shall have been
made or obtained (as the case may be) without restrictions.
6.4 HEARTLAND LENDERS' CONSENTS. The transactions contemplated by this
Agreement shall have been approved or consented to by Jupiter Partners, L.P. and
the holders of the $100,000,000 of 13% Senior Notes due 2003 of Heartland on or
before December 1, 1995, and Heartland shall have delivered to Seller written
notice of the same ("Heartland Approval Notice").
6.5 SELLER CREDITORS' CONSENTS. The transactions contemplated by this
Agreement and the Recapitalization or other transaction agreed to by the parties
pursuant to Section 5.15 shall have been approved or consented to by the
Creditors within ten (10) days after the Effective Date, and Seller shall have
delivered to Heartland on or prior to such date written notice of the same
("Seller's Approval Notice").
6.6 LENDER ARRANGEMENTS. Heartland and Seller shall have reached a mutual
agreement on the structure of the transactions described in Section 5.15 on or
before December 1, 1995.
6.7 EXHIBITS. Seller and Heartland shall have agreed on the form of all
exhibits hereto, and such exhibits shall be attached hereto, on or before
December 29, 1995.
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.
The obligation of Heartland to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, or written waiver signed by
Heartland, of each of the following conditions precedent on or prior to the
Closing Date or the date specified therein.
7.1 HEARTLAND APPROVAL. The transactions contemplated by this Agreement
shall have been approved by the requisite votes of the holders of Heartland
Shares in accordance with applicable law, its Certificate of Incorporation and
Bylaws.
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7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Seller or Technivision shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as if initially made on and as of the Closing Date.
7.3 SELLER'S DOCUMENTS. Seller shall have executed and/or delivered the
following to Heartland in form and substance reasonably satisfactory to
Heartland and its counsel:
(A) Bill of Sale in the form attached as Exhibit 7.3(a).
(B) Intentionally omitted.
(C) A certificate signed by the President of Seller (i) confirming, on
and as of the Closing Date, that each representation and warranty set forth
in Section 2 hereof was true and correct in all material respects on the
date made and, subject to the provisions of Section 5.14, is true and
correct in all material respects on and as of the Closing Date, (ii) that
Seller is in compliance in all material respects with the applicable
covenants set forth in Articles 4, 5 and 6 hereof and (iii) confirming that
the copies of the resolutions duly adopted by the Board of Directors of
Seller and Technivision, as applicable, and Three Sixty Stockholders
approving the execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby are true and correct
in all respects and have not been superseded or amended in any way.
(D) Subject to Section 5.13, evidence that Channel Leases are in place
for the Channels and that such agreements shall be effective and fully
enforceable.
(E) An opinion of special counsel to Seller and an opinion of FCC
counsel to Seller substantially to the effect set forth in Exhibit 7.3(e)-1
and Exhibit 7.3(e)-2, respectively.
(F) Certified copies of the Certificate of Incorporation, Bylaws,
minute books, transfer ledgers and any other organizational documents of
Seller.
(G) Subject to Section 5.13, all necessary and appropriate
governmental and third party Consents, approvals and clearances for
consummation of the transactions contemplated herein, including, but not
limited to, a "final" order by the FCC approving, without any materially
adverse or onerous conditions, Heartland (or a commonly owned entity) as
licensee of the owned FCC Licenses. For purposes of this Section, the term
"final" shall mean an order of the FCC which has not been stayed and, by
lapse of time or otherwise, is no longer subject to administrative or
judicial reconsideration, review, appeal or stay.
(H) Possession or constructive possession of the Assets.
7.4 NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect
to Seller, the Assets, the Business or prospects of any thereof from the date
hereof through the Closing Date which would have a Material Adverse Effect.
7.5 NON-COMPETITION. The persons identified on Schedule 7.5 shall have
executed non-competition agreements in the form attached hereto as Exhibit 7.5.
7.6 SELLER'S OBLIGATIONS PERFORMED. All obligations of Seller to be
performed to the Closing Date shall have been performed in all material
respects.
7.7 HEARTLAND'S INVESTIGATION. The investigation by Heartland and its
representatives in connection with the transactions contemplated by this
Agreement shall not have caused Heartland, or its respective representatives to
become aware of any facts or circumstances which relate to the business,
operations, assets, properties, liabilities, financial conditions, results of
operation or affairs of Seller that, in the good faith business judgment of
Heartland represents a material adverse change or a state of facts that could
reasonably be expected to result in a material adverse change in the Business,
operations, Assets, properties or prospects of Seller or Technivision, as
applicable. Heartland shall deliver, based upon its review of the Schedules and
other information delivered on or prior to December 20, 1995, to Seller a
written notice (the "Due Diligence Notice") that Heartland are satisfied with
the results of their due diligence investigations of Seller or prior to
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December 29, 1995. Heartland's failure to deliver the Due Diligence Notice on or
prior to December 29, 1995 shall constitute a waiver of this condition by
Heartland.
7.8 CLOSING SHARE PRICE. The Closing Share Price shall not be less than the
Minimum Termination Price.
7.9 MINIMUM CONSENTS. Seller shall have delivered to Heartland the Minimum
Consents required for each Market in a form reasonably acceptable to Heartland.
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to fulfillment, or written waiver signed by Seller, of
each of the following conditions precedent on or prior to the Closing Date or
the date specified therein.
8.1 STOCKHOLDER APPROVAL. The transactions contemplated by this Agreement
shall have been approved by the requisite votes of the Three Sixty Stockholders
in accordance with applicable law and its Certificate of Incorporation and
Bylaws.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
8.3 HEARTLAND'S DOCUMENTS. Heartland shall have executed and/or delivered
to Seller in form and substance reasonably satisfactory to Seller and its
counsel:
(A) Assumption Agreement.
(B) A certificate signed by an executive officer of Heartland (i)
confirming, on and as of the Closing Date, that each of the representations
and warranties set forth in Section 3 hereof was true and correct in all
material respects on the date made and is true and correct in all material
respects on and as of the Closing Date, (ii) that Heartland is in material
compliance with the applicable covenants set forth in Articles 5 and 6
hereof and (iii) confirming that the resolutions adopted by the Board of
Directors of Heartland approving the execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby is
true and correct in all respects and has not been amended or superseded in
any way.
(C) An opinion of counsel to Heartland addressed to Seller
substantially to the effect set forth in Exhibit 8.3.
(D) The Exchange Agreement, executed by Heartland and the Exchange
Agent.
8.4 HEARTLAND OBLIGATIONS PERFORMED. All obligations of Heartland to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.5 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the Proxy Statement to be
amended or supplemented under applicable securities laws.
8.6 CLOSING SHARE PRICE. The Closing Share Price shall not be greater than
the Maximum Termination Price.
ARTICLE 9. INDEMNIFICATION.
9.1 PROVISIONS REGARDING REPRESENTATIONS AND WARRANTIES. All statements,
certifications, representations and warranties made by the parties hereto in
this Agreement, in any Schedule, or in any Exhibit, certificate or other
instrument delivered pursuant to this Agreement shall survive the Closing until
the expiration of the Escrow Period. All covenants, agreements and
indemnifications made by the parties hereto in this Agreement, in any Schedule
or in any Exhibit, certificate or other instrument delivered pursuant to this
Agreement shall survive the Closing until the expiration of the Escrow Period.
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9.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend and hold
harmless Heartland from and against, and shall reimburse Heartland with respect
to, any and all Damages incurred by Heartland by reason of or arising out of or
in connection with:
(A) any breach of any representation or warranty of Seller contained
or referred to herein, in any Schedule hereto, or in any certificate or
other instrument executed by Seller in connection with this Agreement;
(B) any failure by Seller to perform any of its agreements, covenants
or other obligations herein or in any other document executed by it in
connection with this Agreement;
(C) the Excluded Liabilities; or
(D) the operations and activities of Seller and its Affiliates,
including the Assets, prior to and including the Closing Date; provided
that Heartland shall not make any claims until the aggregate of such claims
exceeds $100,000, and then Heartland shall only have the right to make
claims hereunder to the extent such claims do not exceed the value of the
Escrow Shares, except that Heartland shall be entitled to seek up to the
full amount of the Acquisition Consideration with respect to the breach of
Section 2.2 (Title to Assets; Outstanding Rights) hereunder; provided
further that if a claim is asserted by Heartland for a breach of the
covenant contained in Section 4.7, the parties agree that the Damages
arising therefrom shall be equal to the product of (a) the difference
between $9.5 million (as reduced in connection with any sale of the Dayton
Market as provided in Section 5.11) minus the actual net operating losses
of Seller to which Acquisition will succeed on the Closing Date multiplied
by (b) thirty-five percent (35%); provided further that if a claim is
asserted by Heartland relative to a Schedule Breach arising from an Adverse
Subscriber Disclosure or Adverse Channel Disclosure, the parties agree that
Heartland shall be entitled to indemnification from Escrow Shares for the
amount of the Subscriber Damages or Channel Damages, as applicable, as
further provided in Section 5.14. The provisions of this Section 9.2 shall
constitute the sole and exclusive remedy of Heartland for any breach of the
representations, warranties, covenants and agreements of Seller or
Technivision hereunder.
9.3 LIMITATION ON CLAIMS OF HEARTLAND. Notwithstanding anything in Section
9.2 hereof to the contrary, Heartland shall not have any claim against Seller
pursuant to Section 9.2 hereof to the extent that Heartland receives payment
with regard to such claim from any third party provided that Heartland need not
pursue or exhaust remedies, if any, against such third party. If, at any time
after Seller has made an indemnifying payment to Heartland with respect to a
claim hereunder, Heartland receives (or has a right to receive) payment with
respect to such claim from a third party, Heartland will promptly refund Seller
the aggregate amount of such third party payments or will assign to Seller the
rights of Heartland to receive such third party payment (provided, however, that
Seller shall not be entitled to receive from Heartland, whether by way of
payment from Heartland or by way of collection pursuant to rights assigned by
Heartland, or any combination thereof, an aggregate amount greater than the
aggregate amount of the indemnifying payments made by Seller to Heartland with
respect to such claim).
9.4 INDEMNIFICATION BY HEARTLAND. Heartland shall indemnify, defend and
hold harmless Seller from and against, and shall reimburse Seller for, any and
all Damages incurred by it by reason of or arising out of or in connection with:
(A) any breach of any representation or warranty of Heartland
contained or referred to herein, or in any certificate, or other instrument
executed by it in connection with this Agreement;
(B) any Assumed Obligations; or
(C) any failure by purchasers to perform any of its agreements,
covenants or other obligations herein or in any other document executed by
it in connection with this Agreement.
9.5 LIMITATION ON CLAIMS OF SELLER. Notwithstanding anything in Section 9.4
hereof to the contrary, Seller shall not have any claim against Heartland
pursuant to Section 9.4 hereof to the extent that Seller receives payment with
regard to such claim from any third party provided that Seller need not pursue
or exhaust remedies, if any, against such third party. If, at any time after
Heartland has made an indemnifying
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payment to Seller with respect to a claim hereunder, Seller receives (or has a
right to receive) payment with respect to such claim from a third party, Seller
will promptly refund Heartland the aggregate amount of such third party payments
or will assign to Heartland the rights of Seller to receive such third party
payment (provided, however, that Heartland shall not be entitled to receive from
Seller, whether by way of payment from Seller or by way of collection pursuant
to rights assigned by Seller, or any combination thereof, an aggregate amount
greater than the aggregate amount of the indemnifying payments made by Heartland
to Seller with respect to such claim).
9.6 NOTICE OF CLAIMS. In the event Seller shall seek indemnification
hereunder, Seller shall give to Heartland a notice (a "Seller Claim Notice")
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such Seller Claim Notice (if then
known) the amount or the method of computation of the amount of such claim, and
a reference to the provision of this Agreement or any other agreement, document
or instrument executed hereunder or in connection herewith upon which such claim
is based. In the event Heartland shall seek indemnification hereunder, Heartland
shall comply with the indemnification claim procedure set forth in the Exchange
Agreement.
9.7 THIRD PARTY CLAIMS. In the event of any third party claim, deficiency
or demand asserted or any action commenced or notice given of any audit,
administrative or other proceeding against Seller (a "Seller Claim"), as to
which indemnification may be sought from Heartland, as applicable, Seller shall
promptly deliver a Seller Claim Notice to Heartland; provided, however, that the
failure by Seller to give such prompt notice shall not release Heartland of its
indemnification obligations hereunder, except to the extent such failure
materially prejudices Heartland. Heartland shall have the right to defend and
direct the defense against any such Seller Claim, in its name or in the name of
Seller, as the case may be, at the expense of Heartland and with counsel
selected by Heartland and reasonably satisfactory to Seller unless (i) such
Seller Claim seeks an order, injunction or other equitable relief against
Seller, or (ii) Seller shall have reasonably concluded that (x) there is a
conflict of interest between the Seller and Heartland in the conduct of the
defense of such Seller Claim or (y) Seller has one or more defenses not
available to Heartland. Seller shall have the right to participate in the
defense of any Seller Claim with counsel employed at its own expense; provided,
however, that in the case of any Seller Claim described in clause (i) or (ii) of
the preceding sentence or as to which Heartland has not in fact employed counsel
to assume the defense of such Seller Claim within fifteen (15) days after
receipt of such Seller Claim Notice that Heartland is required, pursuant to this
Article 9 to indemnify Seller for the full amount of such Seller Claim, the
reasonable fees and disbursements of such counsel shall be at the expense of
Heartland. In any case, Heartland may not settle or compromise any such Seller
Claim without the prior written consent of Seller, which in the case of a
settlement solely involving monetary damages shall not be unreasonably withheld.
In the event of any third party claim, deficiency or demand asserted or any
action commenced or notice given of any audit, administrative or other
proceeding against Heartland as to which indemnification may be sought from
Seller, Heartland shall proceed in accordance with the claims procedures set
forth in the Exchange Agreement.
ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Closing Date, before or after the
respective meetings of the stockholders of Seller and Heartland, by the mutual
consent of the parties.
10.2 TERMINATION BY SELLER. This Agreement may be terminated by Seller (a)
if the Closing conditions set forth in Articles 6 and 8 shall not have been
satisfied in full or waived on or before February 29, 1996 or the date specified
therein, (b) at any time on or prior to December 29, 1995 upon written notice to
Heartland upon the failure of the Closing conditions set forth in Sections 6.4,
6.6, or 6.7, or (c) upon the failure of the Closing condition set forth in
Section 6.5.
10.3 TERMINATION BY HEARTLAND. This Agreement may be terminated by
Heartland if the Closing conditions set forth in Articles 6 and 7 shall not have
been satisfied in full or waived on or before February 29, 1996 or the date
specified therein, or (b) at any time on or prior to December 29, 1995 upon
written notice to Seller (i) in accordance with Section 5.10(b) or (ii) upon the
failure of the Closing conditions set forth in
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Sections 6.4, 6.6, 6.7 or 7.7, (c) in accordance with Section 5.14(b), or (d)
upon the failure of the Closing condition set forth in Section 6.5; provided
that Heartland shall not have the right to terminate this Agreement arising from
a breach of the covenant set forth in Section 4.7, the Damages from which shall
be calculated in accordance with Section 9.2 and administered pursuant to the
terms of the Exchange Agreement.
10.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided herein, this Agreement shall become wholly void and have
no further force and effect except as hereinafter provided; there shall be no
continuing obligations on the part of Heartland, Acquisition, Technivision or
Seller (or their respective officers or directors) except to comply with the
provisions of the Confidentiality Agreement; Section 12.2 (Fees and Expenses)
and except as otherwise provided herein. Nothing contained herein shall relieve
any party from liability for its breach of this Agreement; provided that the
parties hereby agree that upon a termination (a) by Seller or Heartland pursuant
to Sections 10.2(b) or 10.3(b), as applicable, neither party shall have any
liability to the other under this Agreement, (b) by Seller or Heartland pursuant
to Sections 10.2(c) or 10.3(d), as applicable, Seller shall pay to Heartland
Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00), which the parties
agree is a reasonable estimate of the expenses to be incurred by Heartland
hereunder.
ARTICLE 11. DEFINITIONS.
11.1 DEFINITIONS. The terms used in this Agreement have the respective
meanings specified or referred to in this Article 11:
"ACQUISITION CONSIDERATION" shall have the meaning set forth in
Section 1.2
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACQUISITION SHARES" shall have the meaning set forth in Section 1.2.
"ACT" means The Communication Act of 1934, as amended.
"ADDISON GROUP" shall have the meaning set forth in Section 5.1.
"ADDITIONAL DAYTON CONSIDERATION" means the aggregate number of Bona
Fide Subscribers on the date that the Dayton Market is sold, if at all, in
accordance with Section 5.11, in excess of 3,050, multiplied by $1,200;
provided that in no event shall the Additional Dayton Consideration exceed
$3,500,000.
"ADDITIONAL SUBSCRIBER CONSIDERATION" means the lesser of (i) $1,200
multiplied by each Additional Subscriber; and (ii) an amount equal to
$3,500,000 minus the Additional Dayton Consideration (if the Dayton Market
is sold prior to Closing).
"ADDITIONAL SUBSCRIBERS" means the aggregate number of Bona Fide
Subscribers on the fifth (5th) business day prior to the Closing Date equal
to the sum of (i) the number of Bona Fide Subscribers being served by the
Corpus Christi, Texas Market in excess of 15,300 and (ii) the number of
Bona Fide Subscribers being served by the Dayton Market in excess of 3,050;
provided that, if the Dayton Market is sold prior to Closing, then any
Additional Subscribers attributable to the Dayton Market shall be excluded
from the calculation of the Additional Subscriber Consideration.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person.
"AGREEMENT" shall mean this Asset Purchase Agreement, as amended, if
at all.
"APPLICATION" means a pending application by Seller, Technivision, or
any Institution or other Parties to the FCC for a License related to the
Markets.
"ASSETS" shall have the meaning set forth in Section 1.1.
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"ASSUMPTION AGREEMENT" shall mean an executed Assumption Agreement in
the form of Exhibit 1.2 hereto.
"ASSUMED LIABILITIES" means (i) Permitted GAAP Liabilities, (ii) the
obligations of Seller under the Contracts and Licenses arising from and
attributable to periods occurring after the Closing Date, (iii)
counterclaims arising from Causes of Action (to the extent and any to the
extent that the amount of such counterclaim does not exceed the amount
being asserted in the Cause of Action), (iv) ad valorem or similar Taxes to
be prorated pursuant to Section 1.4 and (v) all liabilities and obligations
arising from the operation of the Business for periods commencing after the
Closing.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to Seller or
Technivision, as applicable, by a Governmental Body which is used, useable
or held for use in or in conjunction with or otherwise associated with any
of the Markets and the provision thereon of wireless cable services in and
around any Market, including the licenses, permits, authorizations,
franchises, grants, registrations, certificates, consents and waivers
listed on Schedule 2.9.
"BENEFIT PLAN" shall have the meaning set forth in Section 2.19.
"BILL OF SALE" shall mean a Bill of Sale in the form of Exhibit
7.3(a).
"BONA FIDE SUBSCRIBERS" means a customer or subscriber receiving and
paying for regular monthly basic wireless cable television services in a
Market who has paid for at least one (1) full month of basic service in
full without discount, whose service rates are not less 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
services provided more than sixty (60) days before the date of
determination.
"BUSINESS" means the business of transmitting programming to
subscribers in the Markets through the use of MMDS, MDS or ITFS licenses as
conducted by Seller or Technivision on the date hereof.
"CAUSES OF ACTION" means all causes of action, lawsuits, litigation
files, demands, judgments, and claims of any nature available to or being
pursued by Seller or Technivision with respect or relating to the Business
or the ownership, use, function, or value of any Asset, whether arising by
way of counterclaim or otherwise.
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the Seller or Technivision, as
applicable, in the Markets.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.6.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.6.
"CLOSING PLACE" means the offices where the Closing shall take place
on the Closing Date as provided for in Section 1.6.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the twenty (20) trading days ending on the fifth (5th) business day
prior to the Closing Date. In the event that the Heartland Shares do not
trade on any date within such twenty-day period, then the closing price for
such date shall be deemed to be the closing price for the day preceding
such date on which such trading took place for purposes of determining the
Closing Share Price.
"CLOSING TIME" means the time on the Closing Date that the Closing
shall take place as provided for in Section 1.6.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COMPETING BUSINESS" shall have the meaning set forth in Section 5.12.
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in
Section 5.3.
"CONSENT" means any and all consents (including, without limitation,
FCC Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for the Business to be
conducted or the Assets to be used or available for use in the conduct of
the Business after the Closing Date substantially in the manner as before
the Closing Date.
"CONSENT ESCROW" shall have the meaning set forth in Section 1.3(b).
"CONSENT PERIOD" shall have the meaning set forth in Section 1.3(b).
"CONSENT SHARES" shall have the meaning set forth in Section 1.3(b).
"CONTRACTS" means all Channel Leases, Site Leases, Site Options,
leasehold interests in and to ITFS lease agreements, subscriber contracts,
programming agreements, tower and equipment leases, management agreements,
joint venture agreements, notes, guaranties, covenants not to compete,
employment agreements, consulting agreements, permits, participation
agreements, policies, purchase and sale orders, quotations and other
executed or executory commitments understandings and instruments with
respect to the Business to which Seller or Technivision is a party, or of
which Seller or Technivision is to receive the benefit or by which any of
the Assets of Seller or Technivision is bound relating to the Markets or
Business, whether written or oral and whether originally entered into by
Seller or Technivision or another party.
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"CREDITORS" shall have the meaning set forth in Section 5.1.
"CUSTOMER DATA" means all of the customer lists, records, databases,
lists of potential customers, sales and service records, telephone numbers
and other customer data (including credit data) of Seller or Technivision
relating to the Business.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DAYTON MARKET" shall have the meaning set forth in Section 5.11.
"DAYTON PROCEEDS" shall have the meaning set forth in Section 5.11.
"DISSENTERS' PAYMENTS" shall have the meaning set forth in Section
1.3(h).
"DISTRIBUTABLE SHARES" shall have the meaning set forth in Section
1.3(c).
"DISTRIBUTION RECORD DATE" shall have the meaning set forth in Section
1.3(c).
"DOCUMENTS" means, with respect to the Business or the Assets, all
applications, engineering or market or other studies, reports, and analysis
or memoranda, or records and other documents or data related to the
Business or the Assets which are in the possession or under the control of
Seller or Technivision whether or not any such document is reproduced or
maintained on paper or stored or retained in or on audio or video tapes or
computer hardware disks or by other electronic, magnetic or other means or
methods.
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"DUE DILIGENCE NOTICE" shall have the meaning set forth in Section
7.7.
"EFFECTIVE DATE" shall mean the time and date that the Registration
Statement is declared effective by the SEC.
"ENGAGE" shall have the meaning set forth in Section 5.12.
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on or off the Site, whether yet discovered, which could or does
result in Damages, including any condition resulting from the operations of
Seller or Technivision.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
Environment, including, without limitation, all Legal Requirements of
courts and other Governmental Bodies pertaining to reporting, licensing,
permitting, investigation, remediation, and removal of, emissions,
discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pesticides, petroleum or petroleum products,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, and including
electro-magnetic fields or discharges into the Environment, or relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, which are now or may hereafter be
applicable to Seller, Technivision or any Assets.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers,
waveguides, combiners and related items, subscriber receive equipment, all
other equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property and goods owned by
Seller or Technivision and used or held for use in the Business.
"ESCROW" shall have the meaning set forth in Section 1.3(b).
"ESCROW PERIOD" shall have the meaning set forth in Section 1.3(b).
"ESCROW SHARES" shall have the meaning set forth in Section 1.3(b).
"ESTOPPEL CERTIFICATES" shall have the meaning set forth in Section
4.3.
"EXCESS CONSENTS" shall mean the Primary Consents and Secondary
Consents.
"EXCESS DAYTON PROCEEDS" shall have the meaning set forth in Section
5.11.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.3(a).
"EXCHANGE AGREEMENT" shall mean an executed Exchange Agreement in the
form of Exhibit 1.3(a) hereto.
"EXCHANGE FUND" shall have the meaning set forth in Section 1.3(a).
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.1.
"EXCLUDED GAAP LIABILITIES" shall mean any GAAP Liabilities of Seller
on the Closing Date other than Permitted GAAP Liabilities.
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"EXCLUDED LIABILITIES" shall mean any Liabilities of Seller other than
the Assumed Liabilities.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means, with respect to the Business or the Assets, all of
the plants, offices, broadcast towers, antenna towers, head-ends, studios,
control centers, leasehold improvements, and other real property interests
and related facilities which are either owned by the Seller or
Technivision, as applicable, or leased by or the use of which are leased by
Seller or Technivision, as applicable.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC LICENSEE" shall mean a person who holds a License authorized by
the FCC.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are (a)
consistent with the principles promulgated and adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles, and (b) such that a certified public accountant
would, insofar as the use of accounting principles is pertinent, be in a
position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"GAAP LIABILITIES" means Liabilities on the Closing Date that would be
properly reportable on a balance sheet for Seller as of the Closing Date
prepared in accordance with GAAP.
"GOVERNMENTAL BODY" means any federal, state, local, municipal,
foreign or other government.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Body.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Body; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated byphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
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"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND APPROVAL NOTICE" shall have the meaning set forth in
Section 6.4.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HEARTLAND SHARES" shall mean shares of common stock, $.001 par value
per share, of Heartland.
"HSR ACT" shall have the meaning set forth in Section 5.8.
"INITIAL SHARES" shall have the meaning set forth in Section 1.3(b).
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with Seller,
or any of it Affiliates.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of Seller
or any Affiliate of Seller which are used or held for use in connection
with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is aware or should
reasonably be aware, after due inquiry, of such fact or other matter; (b)
with respect to a Person (other than an individual) "knowledge" of a
particular fact or other matter if any individual who is serving as a
director or executive officer of such Person has "knowledge" of such fact
or other matter; and (c) with respect to warranties made by Seller or
Technivision, as applicable, that Seller or Technivision, as applicable,
based upon a reasonable investigation, believes the warranty is true.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals necessary or required to transmit
commercial programming, educational programming or any other use currently
authorized by law, including, without limitation, all rights, title and
interest in and to all MDS and MMDS commercial channel licenses associated
with the Markets.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest, or encumbrance of any kind.
"LIQUIDATED SHARES" shall have the meaning set forth in Section
1.3(c).
"MARKETS" shall collectively refer to the metropolitan areas of Corpus
Christi, Texas, El Paso, Texas and Dayton, Ohio and "MARKET" shall refer to
one of such markets as the context of the provision shall note.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in, or is reasonably likely to result in, a material adverse change
in the business, operations, assets, properties or prospects of the
specified entity, or would affect, in any material respect, such entity's
ability to perform its obligations under this Agreement.
"MAXIMUM TERMINATION PRICE" shall mean $40.00 per share.
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"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MINIMUM CONSENTS" shall mean (a) with respect to the Dayton Market
and Corpus Christi Market, Consents for the transfer to Heartland of the
rights of Seller (i) broadcast or head-end facilities in each Market and
(ii) 23 Channels in each Market, and (b) with respect to the El Paso
Market, Consents for the transfer to Heartland of the rights of Seller in
(i) the broadcast or head-end facilities in such Market and (ii) 20
Channels in such Market.
"MINIMUM TERMINATION PRICE" shall mean $16.00 per share.
"MMDS" means the Multichannel Multipoint Distribution Service.
"NASDAQ-NMS" shall mean the Nasdaq Stock Market's National Market.
"OPERATIVE DOCUMENTS" shall mean this Agreement, the Assumption
Agreement, the Bill of Sale, the Exchange Agreement, the Three Sixty
Liquidation Plan and all other agreements, instruments, documents and
certificates executed and delivered by or on behalf of the parties hereto
at or prior to the Closing pursuant to this Agreement.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Body or by any arbitrator.
"PARTIES" shall mean all parties to Contracts other than Seller or
Technivision from which Consents are required.
"PERMITTED ENCUMBRANCES" means deposits under Workmen's Compensation,
Unemployment Insurance or Social Security laws, or to secure statutory
obligations or surety or other similar bonds; government charges or other
governmental levies which are not yet due and payable, or being contested
in good faith by appropriate proceedings with adequate reserves in
conformity with generally accepted accounting principles; statutory liens
imposed by law incurred in the ordinary course of business or obligations
not yet due to carriers, warehousemen, laborers or materialmen; easements
and restrictions of record relative to the Real Property that do not affect
title thereto or interfere with or prohibit the current use of such Real
Property by Seller or Technivision; liens or encumbrances arising from any
Assumed Liabilities; and the interest or title of any lessor in property
pursuant to a lease of that property.
"PERMITTED GAAP LIABILITIES" means GAAP Liabilities as of the Closing
Date, to the extent and only to the extent such GAAP Liabilities, in the
aggregate, do not exceed $5.0 million.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental Body.
"PHILIPS" shall have the meaning set forth in Section 5.1.
"PREPAID SUBSCRIBER FEES" means all amounts received by Seller or
Technivision from customers or subscribers in the Markets (whether held as
cash, cash equivalents or otherwise) for periods of service from and after
the Closing Date.
"PRIMARY CONSENT" shall mean a Consent to the transfer of the rights
of Seller to Heartland in the first four Channels in a Market in excess of
Channels subject to Minimum Consents in the Market.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 1.3(c).
"REAL PROPERTY" shall mean include tower locations and related real
property rights.
"RECAPITALIZATION" shall have the meaning set forth in Section 5.15.
"REORGANIZATION" shall have the meaning set forth in the Recitals.
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"REGISTRATION STATEMENT" shall have the meaning set forth in Section
5.2.
"REQUIRED CONSENTS" shall have the meaning set forth in Section 5.13.
"ROLL-UP RULES" shall have the meaning set forth in Section 4.1(j).
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 5.4.
"SEC" means the Securities and Exchange Commission.
"SECONDARY CONSENT" shall mean a Consent to the transfer of the rights
of Seller to Heartland in up to three Channels in a Market in excess of
Channels subject to Minimum Consents and Primary Consents in a Market.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in the Recitals.
"SELLER CLAIM" shall have the meaning set forth in Section 9.7.
"SELLER CLAIM NOTICE" shall have the meaning set forth in Section 9.6.
"SELLER'S APPROVAL NOTICE" shall have the meaning set forth in Section
6.5.
"SELLER'S REPRESENTATIVES" shall have the meaning set forth in Section
4.4.
"SITE" means a wireless cable television site with respect to which
Seller or Technivision is operating the Business or any part thereof and
transmitting programming to subscribers in connection therewith.
"SITE LEASE" shall mean a Contract for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"STIPULATED CONSENT AMOUNT" shall mean with respect to any Primary
Consent, $225,000 per Channel subject to a Primary Consent, and with
respect to any Secondary Consent, $100,000, per Channel subject to a
Secondary Consent.
"TAXES" shall mean any federal, state, local or foreign income, sales,
excise, real or personal property or other taxes, assessments, fees,
levies, imposts, duties, deductions or other charges of any nature
whatsoever (including, without limitation, interests and penalties) imposed
by any Legal Requirement.
"TECHNIVISION" shall have the meaning set forth in the Recitals.
"THREE SIXTY COMMON STOCK" shall mean all of the issued and
outstanding shares of common stock, no par value, of Seller.
"THREE SIXTY LIQUIDATION PLAN" shall have the meaning set forth in
Section 1.3(c).
"THREE SIXTY STOCKHOLDERS" shall mean the holders of the Three Sixty
Common Stock.
"TRUST" shall have the meaning set forth in Section 5.1.
11.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
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ARTICLE 12. GENERAL PROVISIONS AND OTHER AGREEMENTS
12.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if and when delivered personally or
transmitted by telex, telecopy (receipt confirmed) or telegram, mailed by
registered or certified mail (return receipt requested) or sent by a recognized
next business day courier to the following persons at the following addresses
(or at such other address for a party as shall be specified by like notice):
(A) If to Heartland:
Heartland Wireless Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Attention: John R. Bailey
Telecopy: (214) 479-1023
with a copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, Texas 75201
Attention: Victor B. Zanetti, Esq.
Telecopy: (214) 741-7139
(B) If to Seller:
Technivision, Inc.
c/o Nowalk & Associates
Constitution Center
880 Route 130 North
Cranbury, New Jersey 08512
Attention: Mr. Richard Nowalk
Telecopy: (609) 655-5271
with a copy to:
Young Dimero & Sayovitz
414 Eagle Rock Avenue
West Orange, New Jersey 07052
Attention: Bob Greenwood, Esq.
Telecopy: (201) 669-8149
12.2 FEES AND EXPENSES. Except as otherwise expressly set forth herein,
each of the parties hereto shall pay their own costs, fees and expenses,
including, but not limited to, costs and expenses associated with legal counsel,
accountants and other advisers. Seller shall be solely responsible for any costs
(i) for any broker fee payable to Gerard Klauer Mattison & Co., Inc. (or any
other party engaged by Seller) and (ii) associated with securing necessary
consents or approvals for the assignment of the Assets to Heartland. Seller
shall have the right to designate all such fees and expenses, including fees and
disbursements of counsel and other advisors, as Permitted GAAP Liabilities to be
paid by Heartland at the Closing.
12.3 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
12.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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12.5 MISCELLANEOUS. This Agreement (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to and shall not confer upon any other person any rights or
remedies hereunder or otherwise with respect to the subject matter hereof,
except for rights that may expressly arise as a consequence of the Transaction;
(c) may not be assigned by operation of law or otherwise; (d) has been drafted
by all of the parties to this Agreement and should not be construed against any
of the parties hereto; (e) shall be governed in all respects, including
validity, interpretation and effect by the substantive laws of the State of
Delaware without regard to conflict of law provisions; and (f) shall be binding
upon and inure to the benefit of each party's successors and assigns.
[The remainder of this page has intentionally been left blank]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed by their duly authorized officer.
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
------------------------------
Name: John R. Bailey
----------------------------
Title:
---------------------------
TECHNIVISION, INC.
By: /s/ ROBERT BILODEAU
-----------------------------
Name: Robert Bilodeau
---------------------------
Title: President
--------------------------
THREE SIXTY CORP.
By: /s/ ROBERT BILODEAU
-----------------------------
Name: Robert Bilodeau
---------------------------
Title: President
--------------------------
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APPENDIX R
TSC INDEMNITY ESCROW AGREEMENT
<PAGE> 638
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ESCROW AGREEMENT
[To be attached to Exchange Agreement]
THIS ESCROW AGREEMENT (the "Agreement") is made as of , 1996
by and among THREE SIXTY CORPORATION, a New Jersey corporation ("TSC"),
HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware corporation ("Heartland"),
and HARRIS TRUST COMPANY OF NEW YORK (the "Escrow Agent"). Capitalized terms
used but not defined herein shall have the meanings given to them in that
certain Amended and Restated Asset Purchase Agreement (the "Purchase
Agreement"), dated as of October 19, 1995, among Heartland, TSC and
Technivision, Inc., a Texas corporation ("Technivision").
RECITALS:
WHEREAS, TSC, Technivision and Heartland have entered into the Purchase
Agreement in order to provide for the sale by TSC to Heartland of substantially
all of the assets and certain of the liabilities formerly held by Technivision
(subsequently merged with and into TSC), as set forth in the Purchase Agreement
(the "Purchase"); and
WHEREAS, the Closing of the Purchase is taking place as of the date hereof;
and
WHEREAS, Heartland has relied upon the representations, warranties and
covenants of TSC and Technivision provided in the Purchase Agreement and in
schedules, certificates and other documents delivered pursuant to the Purchase
Agreement; and
WHEREAS, pursuant to Article 9 of the Purchase Agreement, TSC has agreed to
indemnify and hold Heartland harmless from and against certain losses,
obligations, liabilities and damages, as further provided therein and, in
connection therewith, the parties to the Purchase Agreement have agreed,
pursuant to Section 1.3(b) thereof, to establish an escrow for the purpose of
satisfying such indemnification obligations (the "Indemnity Escrow"); and
WHEREAS, pursuant to Section 5.13 of the Purchase Agreement, TSC and
Technivision have agreed to deliver to Heartland the Excess Consents and, in
connection with such agreement, the parties to the Purchase Agreement have
agreed, pursuant to Section 1.3(b) thereof, to establish an escrow for the
purpose of ensuring the obtaining of such consents (the "Consent Escrow");
NOW, THEREFORE, to induce Heartland to proceed with the Closing of the
Purchase, and in consideration of such Closing and in further consideration of
the mutual covenants and agreements contained herein and in the Purchase
Agreement, and intending to be legally bound, the parties hereto do hereby agree
as follows:
ARTICLE 1. TSC AS REPRESENTATIVE; APPOINTMENT OF ESCROW AGENT
1.1 TSC AS REPRESENTATIVE OF THREE SIXTY STOCKHOLDERS.
TSC shall act as the representative of the persons entitled to receive
(subject to the terms hereof and the Purchase Agreement) the Escrow Shares and
the Consent Shares, in accordance with this Escrow Agreement. No bond shall be
required of TSC, and TSC shall not receive compensation for services hereunder.
The Escrow Agent is hereby relieved from any liability for any acts done by it
in accordance with any resolution, action, decision, consent or instruction of
TSC.
1.2 APPOINTMENT OF ESCROW AGENT; EXCHANGE VALUE.
(A) Heartland and TSC hereby appoint the Escrow Agent, and the Escrow Agent
hereby agrees to act, as the agent of such parties in performing the duties of
the Escrow Agent provided herein. As compensation for Escrow Agent's services
hereunder, Escrow Agent shall receive compensation of $1,500 payable within ten
(10) days from the date hereof, $1,000 upon the last to occur of the termination
of the Consent Escrow and
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the Indemnity Escrow, and the reimbursement of all other Administrative Costs
(as such term is defined in Section 4.2).
(B) For purposes of this Agreement, each Heartland Share constituting
Escrow Shares or Consent Shares shall have a value equal to $ (the
"Exchange Value") and such valuation shall apply throughout the duration of this
Agreement.
ARTICLE 2. INDEMNITY ESCROW
2.1 INDEMNITY ESCROW.
(A) On the date hereof, Heartland shall cause to be deposited with the
Escrow Agent the Escrow Shares, such deposit, together with any dividends or
other distributions paid thereon properly allocable to the Escrow Shares in
accordance with the Purchase Agreement, to constitute an escrow fund (the
"Indemnity Fund") to be governed by the terms set forth herein. Upon full
compliance with all of the terms hereof, Heartland shall be entitled to receive
payment from the Indemnity Fund for all claims ("Claims") for which Heartland is
entitled to indemnification under Article 9 of the Purchase Agreement.
(B) The Escrow Agent shall hold, safeguard and dispose of the Indemnity
Fund in accordance with the terms hereof, and shall treat such fund as a trust
fund in accordance with the terms hereof and not as the property of TSC, the
Three Sixty Stockholders or Heartland.
(C) The Indemnity Fund created hereby shall remain in existence until the
date all of the Escrow Shares and other assets in the Indemnity Fund have been
distributed in accordance herewith (such period being referred to herein as the
"Indemnity Period").
2.2 CLAIM SUBMISSION PERIOD. In order to assert a Claim against the Indemnity
Fund, Heartland shall deliver (in accordance with Section 5.1 below) to TSC and
the Escrow Agent within eighteen (18) months from the date hereof (as such
period may be extended for certain Third Party Claims pursuant to Section 2.3(b)
below, the "Claim Submission Period"), a certificate signed by an executive
officer of Heartland ("Officer's Certificate"):
(I) stating that Heartland has paid, suffered or properly accrued, or
Heartland in good faith reasonably anticipates that Heartland will have to
pay, suffer or accrue, Damages in an aggregate stated amount (including,
without limitation, any anticipated professional and other fees and costs
associated therewith) ; and further stating that Heartland is entitled to
indemnification out of the Indemnity Fund pursuant to this Agreement and
the Purchase Agreement; and
(II) specifying in reasonable detail (A) the individual items of
Damages included in the amount so stated, (B) the date each such item was
paid or properly accrued or the basis for such anticipated liability, and
(C) the nature of the liability, misrepresentation, breach of warranty or
covenant or other matter to which such items is related.
Upon the Escrow Agent's and TSC's receipt of the Officer's Certificate, such
Claim shall be administered by the Escrow Agent pursuant to Section 2.4 below.
2.3 THIRD PARTY CLAIMS.
(A) Within 15 days after receipt by Heartland of notice ("Third Party Claim
Notice") of any Claim by a third party ("Third Party Claim"), Heartland shall
deliver to TSC written notice thereof; provided that the omission to so notify
TSC will not affect Heartland's right of recourse to the Indemnity Fund
hereunder so long as TSC is not prejudiced thereby. TSC shall have the right to
defend and direct the defense against any such Third Party Claim, at the expense
of TSC and with counsel selected by TSC and reasonably satisfactory to Heartland
unless (i) such Third Party Claim seeks an order, injunction or other equitable
relief against Heartland, or (ii) Heartland shall have reasonably concluded that
(x) there is a conflict of interest between TSC and Heartland in the conduct of
the defense of such Third Party Claim or (y) Heartland has one or more defenses
not available to TSC. Heartland shall have the right to participate in the
defense of any Third Party
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Claim with counsel employed at its own expense; provided, however, that in the
case of any Third Party Claim described in clause (i) or (ii) of the preceding
sentence or as to which TSC has not in fact employed counsel to assume the
defense of such Third Party Claim within fifteen (15) days after receipt of such
Third Party Claim Notice that TSC is required, pursuant to Article 9 of the
Purchase Agreement, to indemnify Heartland, the reasonable fees and
disbursements of such counsel shall be at the expense of TSC. In any case, TSC
may not settle or compromise any such Third Party Claim without the prior
written consent of Heartland, which in the case of a settlement solely involving
monetary damages shall not be unreasonably withheld.
(B) If Heartland has delivered to TSC and Escrow Agent a Third Party Claim
Notice within eighteen (18) months from the date of this Agreement and the Claim
that is the subject of such notice has not been resolved within such 18-month
period, then the Claim Submission Period with respect to each such Third Party
Claim shall be extended until the final resolution of such Claim.
2.4 ADMINISTRATION OF CLAIMS.
(A) ACCEPTED AND REJECTED CLAIMS. TSC shall have a period of ten (10)
business days from its receipt of an Officer's Certificate ("Rejection Period")
to review the Officer's Certificate and deliver to Heartland and Escrow Agent
written notice of its rejection of all or a portion of the Claim referenced
therein ("Rejection Notice"). During the Rejection Period, Heartland shall, upon
written request from TSC, make available or provide any records reasonably
requested by TSC relevant to such Claim, and such Rejection Period shall be
tolled until five business days following the receipt by TSC of such records. If
no Rejection Notice is received by Heartland and Escrow Agent within the
Rejection Period, then such Claim shall become an "Accepted Claim."
(B) ADMINISTRATION OF REJECTED CLAIMS. For any Claim which is the subject
of a Rejection Notice (a "Rejected Claim"), TSC and Heartland shall attempt in
good faith to agree upon the rights of the respective parties with respect to
such Claim. If TSC and Heartland so agree, a memorandum setting forth such
agreement shall be prepared and signed by Heartland and TSC and shall be
furnished to the Escrow Agent and such Rejected Claim shall become an "Accepted
Claim."
(C) RESOLUTION OF DISPUTES. If no such agreement between TSC and Heartland
can be reached with respect to a Rejected Claim after good faith negotiation
within thirty (30) days of Heartland's receipt of a Rejection Notice, Heartland
and TSC shall mutually select an independent third party (the "Designated
Party") whose determination of the Rejected Claim and the amount of Damage (if
any) associated therewith shall be final, nonappealable and binding. The
Designated Party shall be a person knowledgeable regarding the wireless cable
television business and the value of related assets, and shall be generally
knowledgeable with regard to business and financial matters. In the event
Heartland and TSC fail to agree upon the Designated Party within forty (40) days
after Heartland's receipt of a Rejection Notice, the Designated Party shall be
the managing partner of the offices of an independent "Big Six"
accounting firm other than KPMG Peat Marwick, L.L.P., as selected jointly by TSC
and Heartland, and in the absence of said joint election, as selected by the
managing partner of the office of KPMG Peat Marwick, L.L.P. or
his designee. Upon the determination of the Designated Party in accordance
herewith with respect to a Rejected Claim, the determination of the value of
such Claim, if any, by the Designated Party shall become an "Accepted Claim."
All determinations by a Designated Party hereunder shall be made in accordance
with the expedited commercial rules of the American Arbitration Association.
(D) PAYMENT OF CLAIMS. Subject to Section 9.2 of the Purchase Agreement,
once a Claim has become an Accepted Claim in accordance with the terms of this
Agreement, the Escrow Agent shall, within five (5) business days of the written
request of Heartland, deliver to Heartland Escrow Shares having an aggregate
Exchange Value equal to the amount of the Claim for which Heartland is entitled
to indemnification, rounded down to the nearest whole share.
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ARTICLE 3. CONSENT ESCROW
3.1 CONSENT ESCROW.
(A) On the date hereof, Heartland shall cause to be deposited with the
Escrow Agent the Consent Shares, such deposit, together with any dividends or
other distributions paid thereon properly allocable to the Consent Shares in
accordance with the Purchase Agreement, to constitute an escrow fund (the
"Consent Fund") to be governed by the terms set forth herein. Upon compliance
with the terms hereof, TSC shall be entitled to receive disbursement of the
Consent Shares from the Consent Fund for disbursement to the Three Sixty
Stockholders.
(B) The Escrow Agent shall hold, safeguard and dispose of the Consent Fund
in accordance with the terms hereof, and shall treat such fund as a trust fund
in accordance with the terms hereof and not as the property of TSC, the Three
Sixty Stockholders or Heartland.
(C) The Consent Escrow created hereby shall remain in existence for six (6)
months from the date of this Agreement or earlier termination of the Consent
Escrow; provided, however, that TSC shall have the right to extend the Consent
Escrow for two additional six-month periods upon written notice to Heartland and
the Escrow Agent (such period as it may be extended pursuant to the terms
hereof) being referred to herein as the "Consent Period").
3.2 ADMINISTRATION OF CONSENT FUND.
(A) During the Consent Period, TSC may deliver to the Escrow Agent and
Heartland copies of Excess Consents received by it together with written
instructions to the Escrow Agent requesting the Escrow Agent to deliver to TSC
Consent Shares having an aggregate Exchange Value equal to the Stipulated
Consent Amounts specified for the Excess Consent covered thereby (the
"Instructions"). If the Escrow Agent receives Contrary Instructions (as defined
in subparagraph (c) of this Section 3.2) from Heartland within fifteen (15)
calendar days after the receipt of the Instructions by Heartland, the Escrow
Agent shall promptly deliver a copy of such Contrary Instructions to TSC and
shall take no action with respect to the Consent Fund as to the amount in
dispute with respect to such Instructions, but shall continue to hold the
affected portion of the Consent Fund until jointly directed by Heartland and TSC
or until such dispute is resolved in accordance with Section 3.2(d) below. If
the Escrow Agent does not receive Contrary Instructions from Heartland within
such fifteen (15) day period or if such Contrary Instructions apply only to a
portion of the Excess Consents covered thereby, Consent Shares having an
aggregate Exchange Value equal to the sum of the Stipulated Consent Amounts
relating to the Consent(s) set forth in the Instructions as to which there is no
dispute, rounded to the nearest whole share (with fractional shares equal to or
greater than .5 being rounded up), shall be released from the Consent Escrow
("Released Consent Shares") and shall be disbursed in accordance with the Three
Sixty Liquidation Plan, as directed in writing by TSC, within five business days
thereafter.
(B) Instructions (i) shall be in writing, addressed to the Escrow Agent,
dated currently, and signed on behalf of TSC by officers thereof, (ii) shall
refer to this Agreement, (iii) shall identify the Excess Consent as a Primary
Consent or Secondary Consent, and (iv) shall be accompanied by a copy of each
such Consent (the original of which shall be delivered to Heartland by TSC).
(C) "Contrary Instructions" shall mean the filing of a notice with the
Escrow Agent by Heartland (which Heartland shall concurrently send to TSC)
stating that the Instructions delivered by TSC are inaccurate (with a reasonably
detailed description setting forth the basis of such inaccuracy) and that all or
a portion of the Consent Fund should not be disbursed in connection with such
Instructions until the resolution of such dispute in accordance with Section
3.2(d) below.
(D) In the event that Contrary Instructions are filed with the Escrow Agent
by Heartland and Heartland and TSC do not execute mutual instructions to the
Escrow Agent regarding the resolution of such dispute within ten business days
of Heartland's delivery of Contrary Instructions, then the Designated Party
(selected in accordance with Section 2.4(c) hereof) shall determine whether the
Instructions and Excess Consent that is the subject thereof are sufficient for
purposes of this Agreement and the Purchase Agreement, and the
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determination of the Designated Party shall be final, not appealable and
binding. All determinations by a Designated Party hereunder shall be made in
accordance with the expedited commercial rules of the American Arbitration
Association.
ARTICLE 4. EXPIRATION OF ESCROWS; COSTS; CERTAIN RESPONSIBILITIES
4.1 EXPIRATION OF ESCROW PERIODS.
(A) Subject to the provisions of Section 4(d) below regarding the early
release of Escrow Shares from the Indemnity Fund, upon resolution of each Claim
that is the subject of a properly submitted Officer's Certificate within the
Claim Submission Period, any Escrow Shares remaining in the Indemnity Fund and
any dividends or distributions paid with respect thereto shall be delivered in
accordance with the Three Sixty Liquidation Plan, as directed in writing by TSC.
Any fractional shares remaining in the Indemnity Fund shall be repurchased by
Heartland for the aggregate Exchange Value for such Escrow Shares and the
proceeds thereof shall be distributed on the basis set forth in the preceding
sentence.
(B) Upon the expiration of the Consent Period, the Escrow Agent shall
deliver to Heartland any Consent Shares remaining in the Consent Fund after
delivery of the Released Consent Shares pursuant to Section 3.2(a) above.
(C) Following the expiration of the Indemnity Period and the Consent Period
and distribution in accordance herewith of the Indemnity Fund and the Consent
Fund, the escrows created hereby and this Agreement, other than the provisions
of Section 4.6 shall terminate.
(D) If, upon the date which is one year from the date hereof, Heartland has
not submitted Officer's Certificates relating to Claims that, in the aggregate,
exceed $500,000, then Escrow Agent shall, within five business days of such
date, release from the Indemnity Fund and deliver, in accordance with the Three
Sixty Liquidation Plan (as directed in writing by TSC), Escrow Shares having an
aggregate Exchange Value of $1.3 million. If, upon the date which is one (1)
year from the date hereof, Heartland has submitted Officer's Certificates
relating to Claims that, in the aggregate, exceed $500,000, then Escrow Agent
shall, within five (5) business days of such date, release from the Indemnity
Fund and deliver, in accordance with the Three Sixty Liquidation Plan (as
directed in writing by TSC), Escrow Shares having an aggregate Exchange Value
equal to the difference between (a) $1.3 million minus (b) a product of .26
multiplied by the aggregate amount of such Claims. If, on the date which is
eighteen months from the date hereof, there are any outstanding Rejected Claims
or Third Party Claims for which Heartland has delivered Third Party Claim
Notices, the Escrow Agent shall release from the Indemnity Fund all Escrow
Shares other than Disputed Escrow Shares. As used herein, the term "Disputed
Escrow Shares" means Escrow Shares that are the subject of an unresolved
Rejected Claim or Third Party Claim Notice on the date which is eighteen months
from the date hereof having an aggregate Exchange Value equal to the maximum
amount of Damages set forth in such Officer's Certificate or Third Party Claim
Notice (or in the absence of a specified amount, an amount agreed to in writing
by Heartland and TSC).
4.2 ADMINISTRATIVE COSTS AND INDEMNIFICATION.
All costs and expenses of administering this Agreement (including, without
limitation, fees and expenses of the Escrow Agent and any Designated Party)
("Administrative Costs") shall be borne equally by the Indemnity Fund and
Heartland. The Escrow Agent shall from time to time invoice such costs and
expenses in accordance with its standard practice and provide copies thereof to
TSC and Heartland. Within fifteen (15) business days after Heartland's receipt
of an invoice from the Escrow Agent, Heartland shall pay to the Escrow Agent the
amount of such invoice for use by the Escrow Agent in paying or reimbursing such
costs and expenses and the Escrow Agent shall thereupon deliver to Heartland
Escrow Shares having an aggregate Exchange Value equal to 50% of the amount of
the related invoice rounded down to the nearest whole share. The Escrow Agent
shall be indemnified and saved harmless by TSC and Heartland from and against
any and all liability, including all expenses reasonably incurred in its
defense, to which the Escrow Agent shall be
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subject by reason of any action taken or omitted or any investment or
disbursement of any part of the Escrow Funds made by the Escrow Agent pursuant
to this Escrow Agreement, unless caused by the gross negligence or willful
misconduct of the Escrow Agent. The costs and expenses of enforcing this right
of indemnification shall also be paid by TSC and Heartland. This right of
indemnification shall survive the termination of this Agreement and/or the
resignation or removal of the Escrow Agent.
4.3 VOTING.
(A) The Escrow Agent shall invest any cash held in either Escrow Fund in an
interest-bearing account or money market instruments in accordance with written
instructions from TSC. Any interest payable on the funds shall be added to the
appropriate Escrow Fund and become a part thereof. The parties acknowledge that
the Escrow Agent shall not be liable for any diminution in the Escrow Fund due
to losses resulting from investments made pursuant to this Escrow Agreement.
(B) The Escrow Shares and the Consent Shares shall be issued and held in
the name of the Escrow Agent, and the Escrow Agent hereby grants to TSC an
irrevocable proxy to vote the Escrow Shares and the Consent Shares. TSC shall
have voting rights with respect to the Escrow Shares and the Consent Shares (and
on any voting securities added to the respective escrow funds) held by the
Escrow Agent so long as such Escrow Shares or Consent Shares or other voting
securities are held in the Escrow Fund. The Escrow Agent shall execute and
deliver to TSC upon request all such proxies, forms for election or other
instruments which it receives as may be required with respect to the Escrow
Shares and the Consent Shares in order to give effect to the foregoing.
4.4 TSC'S RESPONSIBILITIES HEREUNDER.
TSC is vested with the authority, duty and responsibility to represent the
interests of the Three Sixty Stockholders in the escrow funds as set forth
herein, and TSC agrees to manage and discharge its duties and responsibilities
as agent in accordance with the terms hereof. The resolution, action, decision,
consent or instruction of TSC shall be final, conclusive and absolutely binding
upon each of the Three Sixty Stockholders, and Heartland and the Escrow Agent
may rely upon any such resolution, action, decision, consent or instruction of
TSC as being the resolution, action, decision, consent or instruction of each
and all of the Three Sixty Stockholders.
4.5 ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES.
To induce the Escrow Agent to act hereunder, it is further agreed that:
(A) The Escrow Agent shall not be under any duty to give the property
held hereunder any greater degree of care than it gives its own similar
property. The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Escrow Agreement, and the Escrow Agent shall
not be liable except for the performance of such duties as are specifically
set forth in this Agreement, and no implied covenants or obligations shall
be read into this Agreement against the Escrow Agent.
(B) The Escrow Agent may act upon advice of counsel in reference to
any matter connected herewith and shall not be liable for any acts or
omissions while acting in good faith and exercising reasonable judgment.
(C) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(D) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(E) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any
court. In case
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the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person by reason of such compliance, notwithstanding
any such order, judgment or decree being subsequently reversed, modified,
annulled, set aside, vacated or found to have been entered without
jurisdiction.
(F) The Escrow Agent is authorized to rely on the written instructions
of TSC as being the act of all of the Three Sixty Stockholders and the
written instructions of the President or any executive officer of Heartland
as being the act of Heartland.
(G) This Agreement sets forth the exclusive duties of the Escrow Agent
with respect to any and all matters pertinent hereto and no implied duties
or obligations of the Escrow Agent shall be read into this Agreement.
(H) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
(I) The Escrow Agent shall be deemed to have fully complied with its
obligations hereunder to transfer the Escrow Shares and Consent Shares by
delivery to the transfer agent of Heartland (the "Transfer Agent") of the
Escrow Shares and Consent Shares, all in form satisfactory to such Transfer
Agent, of certificates properly endorsed for transfer with instructions to
the Transfer Agent to issue in the name of and deliver to the person to
whom such transfer is to be made a certificate or certificates for the
required number of shares. Transfer taxes, if any, applicable to such
transfer shall be payable by the person whom the Escrow Shares and Consent
Shares, as the case may be, are being transferred.
(J) The Escrow Agent shall be fully protected in acting in accordance
with any instructions given to it hereunder and believed by it to have been
executed by the proper parties. The Escrow Agent's duties shall be
determined only with reference to this Agreement and applicable laws and is
not charged with any duties or responsibilities in connection with any
other document or agreement.
4.6 RECORDS; FINAL ACCOUNTING.
The Escrow Agent shall maintain a record of all Claims against the
Indemnity Fund filed with it pursuant to Sections 2.2 and 2.3, a record of all
such Claims which shall become payable claims as provided in Section 2.3 and a
record of all payments or distributions from the Indemnity Fund and the Consent
Fund. Upon the termination or resignation of the Escrow Agent or termination or
expiration of this Agreement, the Escrow Agent shall within ten (10) business
days deliver to Heartland and TSC a full and final accounting with regard to the
Indemnity Fund and the Consent Fund.
4.7 RESIGNATION OF ESCROW AGENT.
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder by
giving written notice thereof to Heartland and TSC. Such resignation shall
become effective following such written notice upon the earlier of the
appointment by Heartland and TSC of a successor Escrow Agent that accepts the
appointment and agrees to be bound by the provisions of this Agreement or the
expiration of 60 days thereafter. Upon the effectiveness of such resignation,
all duties of the Escrow Agent so resigning shall cease, other than the duty to
account in accordance with Section 4.6. Heartland and TSC shall have the right
to terminate the appointment of the Escrow Agent hereunder by giving written
notice thereof to the Escrow Agent, specifying the date upon which such
termination shall take effect. A condition precedent to such termination shall
be the designation of a successor Escrow Agent that has accepted the appointment
and agreed to be bound by the provisions of this Agreement, or an agreement
executed by Heartland and TSC directing the release or payment of the remaining
Escrow Shares or amounts in the Indemnity Fund. In event of such termination,
the Escrow Agent shall turn over and deliver to such successor Escrow Agent the
Indemnity Fund, the Consent Fund, and any other sums and the records and
instruments held by it under this Agreement and render the accounting required
by Section 4.6.
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ARTICLE 5. MISCELLANEOUS
5.1 NOTICES.
All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized, overnight courier, or mailed by registered or certified mail (return
receipt requested), postage prepaid, or sent by facsimile (followed by a copy
sent by courier or registered or certified mail) to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
hereunder):
To Heartland:
John R. Bailey
903 N. Bowser, Suite 104
Richardson, TX 75081
Telefax: 214/479-1023
with a copy to:
Victor B. Zanetti, Esq.
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75201
Telefax: 214/741-7139
To TSC:
c/o Nowalk & Associates
Constitution Center
880 Route 130 North
Cranbury, New Jersey 08512
Attn: Mr. Richard Nowalk
Telefax: (609) 655-5271
with a copy to:
Young, Dimero & Sayovitz
414 Eagle Rock Avenue
West Orange, New Jersey 07052
Attn: Bob Greenwood, Esq.
Telefax: (201) 669-8149
To the Escrow Agent:
Harris Trust Company of New York
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery or by a nationally recognized
overnight courier, on the date of such delivery, (b) in the case of mailing, on
the date received, and (c) in the case of a facsimile, when the party receiving
such facsimile shall have confirmed receipt of the communication.
5.2 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto.
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5.3 GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely in Delaware.
5.4 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall constitute an original hereof, but all of which together
shall constitute one agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By:
-------------------------
Title:
----------------------
THREE SIXTY CORPORATION
By:
-------------------------
Title:
----------------------
HARRIS TRUST COMPANY OF NEW YORK
By:
-------------------------
Title:
----------------------
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APPENDIX S
TSC LIQUIDATION PLAN
<PAGE> 648
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PLAN OF LIQUIDATION OF THREE SIXTY CORP.
WHEREAS, the Corporation is about to sell substantially all of its assets
in exchange for the stock of Heartland Wireless Communications, Inc., a Delaware
corporation ("Heartland"), in an exchange governed by Sections 354 and
368(a)(1)(C) of the Internal Revenue Code, as amended (the "Code") pursuant to
an Agreement among Heartland, Technivision, Inc. and Three Sixty Corp.
("Corporation") dated October 19, 1995 (the "Heartland Agreement") and
WHEREAS, in accordance with such section of the Code, the Corporation must
liquidate as soon as reasonably practical, therefore it is
RESOLVED, that this Board of Directors hereby adopts the following plan of
liquidation of the assets of the Corporation:
1. The following plan of liquidation is adopted for the assembling and
marshaling of the assets of the Corporation, the paying of all known debts
and liabilities or the making of adequate provisions of the creditors and
debtors of the Corporation, and the distribution of the remaining assets
among the shareholders according to their respective rights and interests.
2. The Heartland Agreement is hereby ratified and approved. The
Corporation shall sell substantially all of its assets pursuant to the
Heartland Agreement, subject to the assumption by Heartland of certain of
its business liabilities.
3. Ancillary to the Heartland Agreement, the Corporation shall enter
into an agreement (the "TSC Exchange Agreement") among Heartland, the
Corporation and Harris Trust Company of New York (the "Exchange Agent") for
the purpose of effecting the delivery of the Heartland shares to be
received by the Corporation pursuant to the Heartland Agreement. The
Exchange Agent shall participate in the liquidation and distribution of the
assets of the Corporation as described in Section 1.3 of the Heartland
Agreement and under the TSC Exchange Agreement.
4. All liabilities and obligations of the Corporation will be paid or
discharged, or adequate provision will be made for any remaining
liabilities and obligations of the Corporation including federal and state
tax liabilities. Such payments shall be made from the Heartland shares
delivered to the Exchange Agent or otherwise from the assets of the
Corporation. In particular, obligations to Philips Credit Corp. and the SEC
shall be satisfied immediately upon closing of the Heartland Agreement.
5. The officers of the Corporation are authorized to sell (or to
request the Exchange Agent or others to sell with respect to the Heartland
shares) any or all corporate assets on the terms and conditions, and for
the consideration, that the officers deem reasonable or expedient, and to
execute any instruments necessary to transfer title to these assets.
6. After the provision for, or the payment of, the known debts and
liabilities of the Corporation, and the creation of any reserves deemed
reasonable by the officers, the officers of the Corporation are authorized
and directed to distribute the remaining assets of the Corporation to the
shareholders of record of the Corporation on the date of closing of the
Heartland Agreement (or such earlier date as the Board may hereafter
determine) in the following manner:
a. with respect to any cash held by the Corporation, by
distributing to each shareholder of record an amount of cash equal to
the proportion that the shares owned by the shareholder bears to the
total issued and outstanding shares of the Corporation;
b. with respect to assets consisting of shares of stock in any
other corporation, by distributing to each shareholder of record the
number of shares of any such stock that results from dividing the number
of such shares by the number of shares of the Corporation issued and
outstanding, the manner of distributing fractional shares to be left to
the discretion of the Corporation's officers; such shares of stock to be
distributed to include (but not be limited to) potentially, shares of
stock of Heartland Communications, Inc., CableMaxx, Inc., Transworld
Telecommunications, Inc., Dom's
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Tele Cable, Inc., and any subsidiary of the Corporation, including
Clearview Cable, Inc. and Three Sixty Delaware, Inc.;
c. with respect to any other assets, by distributing to each
shareholder of record an undivided interest in each of the assets equal
to the proportion that the shares of the Corporation owned by each
shareholder bears to the total issued and outstanding shares of the
Corporation; and
d. at the time that the officers and directors determine that all
liabilities of the Corporation have been paid or adequately provided for
and there is no further need for a reserve fund, the balance in the
reserve fund, if any, shall be distributed as provided above.
To the extent that the direct distribution to the shareholders of the
Corporation of any non-cash assets of the Corporation is impossible or
impractical, the officers are hereby authorized to establish such
liquidating trust or trusts as they deem necessary or desirable for the
prompt effectuation of the plan of liquidation. The Board may, but need
not, make one or more interim distributions, provided it is satisfied that
any such distribution shall not interfere with the ability of the
corporation to pay in full all actual or contingent claims of creditors.
7. The distribution of the assets shall be made to the shareholders of
the Corporation on the following conditions:
a. that each shareholder properly endorse and surrender the
certificate or certificates evidencing that shareholder's ownership of
shares of the Corporation;
b. that the distribution shall be in complete satisfaction of the
rights of each shareholder of the Corporation upon distribution and
liquidation of assets; and
c. that this plan of liquidation and distribution be approved by
the shareholders.
8. The officers of the Corporation are authorized and directed to take
appropriate measures to obtain the shareholders' approval of the plan of
liquidation authorized in these resolutions, including soliciting approval
at a shareholders meeting pursuant to a joint proxy statement-prospectus
filed as part of a Registration Statement on Form S-4 by Heartland.
9. The officers of the Corporation are authorized to do whatever acts
and to take whatever steps that may be necessary or convenient to effect
these resolutions, including, but not limited to, the execution of any
instruments required to vest title to the assets of the Corporation in the
shareholders (or in any liquidating trust).
10. The Board is authorized:
(a) to continue the employment of officers and other employees to
the extent reasonably necessary to carry out the provisions of this plan
and to retain counsel, accountants, and other experts to assist it in
effecting the dissolution and liquidation of the corporation in an
orderly, expeditious, and economical fashion;
(b) to cause the corporation to establish reserves, to provide for
the administration of the reserves, and to purchase insurance to provide
for the payment of pending contested, contingent, known or unknown
liabilities that might be asserted in the future; and
(c) to cause the corporation to take the steps necessary to notify
creditors to present their claims in writing and to bar such claims if
not presented within the times prescribed by law.
11. The Corporation shall not undertake any new business activities
after the closing of the Heartland transaction, but it shall fulfill its
existing contractual obligations.
12. The Corporation shall be dissolved, as proposed by the Board and
approved by the shareholders. The officers and directors shall take all
steps necessary to effect the formal dissolution of the Corporation by
filing a certificate of dissolution with the Secretary of State of New
Jersey. The certificate shall be filed
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at whatever time the Board deems appropriate, taking into account the
nature of the winding up business activities of the Corporation and
relevant, legal, tax and regulatory requirements.
13. The current members of the Board and the current officers shall
remain the same, notwithstanding the dissolution of the corporation,
subject to their removal or replacement as provided in the by-laws of the
Corporation and by law.
14. The only business activities of the Corporation following
dissolution shall be those necessary or desirable for the purpose of
winding up the affairs of the Corporation, as determined by the board in
its business judgment.
15. The officers and directors of the Corporation are authorized and
directed to take any action necessary or proper to carry out, perform,
implement, and consummate this plan of liquidation and distribution and to
wind up corporate affairs as soon as feasible following the closing of the
sale of substantially all of the assets of the Corporation to Heartland, in
exchange for its stock pursuant to the Heartland Agreement.
16. This plan may be amended from time to time by the Board of
Directors. Any amendment, however, that would permit the Corporation to
engage in new business activities or cause the Corporation to engage in its
existing business activities for longer than one year from the date of
adoption of this plan must be approved by the shareholders.
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<TABLE>
<S> <C>
APPENDICES
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[A] Appendix A -- Heartland Fairness Opinions
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
[B] Appendix B -- Information Concerning AWS
[C] Appendix C -- Amended and Restated AWS Merger Agreement
[D] Appendix D -- AWS Escrow Agreement
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
[E] Appendix E -- Information Concerning FTW Partnership
[F] Appendix F -- Amended and Restated FTW Asset Purchase Agreement
[G] Appendix G -- FTW Claim Release
[H] Appendix H -- FTW Claim Assignment
[I] Appendix I -- FTW Liquidation Plan
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
[J] Appendix J -- Information Concerning Minneapolis Partnership
[K] Appendix K -- Amended and Restated Minneapolis Asset Purchase Agreement
[L] Appendix L -- Minneapolis Claim Assignment
[M] Appendix M -- Minneapolis Liquidation Plan
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
[N] Appendix N -- Information Concerning CMAX
[O] Appendix O -- Amended and Restated CMAX Merger Agreement
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
[P] Appendix P -- Information Concerning TSC
[Q] Appendix Q -- Amended and Restated TSC Asset Purchase Agreement
[R] Appendix R -- TSC Escrow Agreement
[S] Appendix S -- TSC Liquidation Plan
----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 652
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JANUARY 25, 1996
PROXY STATEMENT
FOR
<TABLE>
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AMERICAN WIRELESS SYSTEMS, INC. WIRELESS CABLE TV
7426 E. STETSON DRIVE ASSOCIATES #38
SUITE 220 C/O MANSFIELD & TANICK, P.A.
SCOTTSDALE, ARIZONA 85251 1560 INTERNATIONAL CENTRE
SPECIAL MEETING OF STOCKHOLDERS 900 SECOND AVENUE SOUTH
TO BE HELD ON FEBRUARY 22, 1996 MINNEAPOLIS, MINNESOTA 55402
SPECIAL MEETING OF THE PARTNERS
TO BE HELD ON FEBRUARY 22, 1996
</TABLE>
PROSPECTUS
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UP TO 3,600,000 SHARES OF COMMON STOCK
---------------------
This Proxy Statement/Prospectus and the accompanying appendices and other
materials are being furnished in connection with (1) the solicitation of proxies
by the Board of Directors of American Wireless Systems, Inc., a Delaware
corporation ("AWS"), to be used at a Special Meeting of Stockholders of AWS to
be held on February 22, 1996 (the "AWS Meeting"); (2) the solicitation of
written consents by the Management Committee of Fort Worth Wireless Cable T.V.
Associates, a California general partnership ("FTW Partnership"), for approval
of certain transactions discussed herein ("FTW Consent Solicitation"); and (3)
the solicitation of written consents by the Management Committee of Wireless
Cable TV Associates #38, a California general partnership ("Minneapolis
Partnership"), to be used at a Special Meeting of the Partners to be held on
February 22, 1996 (the "Minneapolis Meeting"). The AWS Meeting, the FTW Consent
Solicitation and the Minneapolis Meeting are collectively referred to herein as
the "Meetings."
The proxies or consents solicited hereby for the Meetings may be revoked,
subject to the procedures described herein, at any time up to and including the
date of the applicable Meetings.
SEE "RISK FACTORS" BEGINNING ON PAGE 28 FOR A DISCUSSION OF CERTAIN
IMPORTANT FACTORS THAT SHOULD BE CONSIDERED IN ADDITION TO THE OTHER INFORMATION
HEREIN, BEFORE VOTING UPON THE VARIOUS TRANSACTIONS TO BE CONSIDERED AT THE
MEETINGS.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/ PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
All undefined capitalized terms shall have the meanings set forth in the
Glossary on page 220 of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus and the accompanying appendices, Proxy
Cards and Consent Cards are first being mailed to the stockholders of AWS and to
the general partners of the FTW Partnership and the Minneapolis Partnership on
or about January 26, 1996.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY 26, 1996.
<PAGE> 653
TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................................. 2
SUMMARY................................................................................ 3
The Industry......................................................................... 3
The Parties.......................................................................... 3
The Meeting.......................................................................... 8
The AWS Merger, FTW Transaction and Minneapolis Transaction.......................... 11
Certain Information Regarding Other Transactions..................................... 22
The Combined Company................................................................. 23
RISK FACTORS........................................................................... 28
Factors Relevant to All of the Parties............................................... 28
Factors Specific to AWS Stockholders................................................. 38
Factors Specific to FTW Partners..................................................... 40
Factors Specific to Minneapolis Partners............................................. 42
INFORMATION CONCERNING HEARTLAND....................................................... 43
The Business......................................................................... 43
Recent Transactions.................................................................. 53
Dividends on and Market Prices of Heartland Common Stock............................. 55
Calculation and Listing of Shares to be Issued in Connection with the Transactions... 56
Management........................................................................... 59
Security Ownership of Principal Stockholders and Management.......................... 66
Certain Transactions................................................................. 67
INFORMATION CONCERNING AWS............................................................. 70
Business of AWS...................................................................... 70
Dividends on and Market Value of AWS Common Stock.................................... 80
Security Ownership of Certain Beneficial Owners and Management of AWS................ 81
INFORMATION CONCERNING FTW PARTNERSHIP................................................. 82
Business of FTW Partnership.......................................................... 82
Market for and Distributions on FTW Units............................................ 82
FTW Unit Ownership of Certain Persons and Management................................. 83
INFORMATION CONCERNING MINNEAPOLIS PARTNERSHIP......................................... 84
Business of Minneapolis Partnership.................................................. 84
Market for and Distributions on Minneapolis Partnership Interests.................... 85
General Partnership Interests of Certain Persons and Management...................... 85
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS....................................... 85
THE COMBINED COMPANY................................................................... 87
Business of the Combined Company After the Transactions.............................. 87
Management of the Combined Company................................................... 92
Principal Holders.................................................................... 92
Planned Divestitures................................................................. 93
Reasons for the Transactions......................................................... 96
PRO FORMA FINANCIAL INFORMATION RELATIVE TO THE TRANSACTIONS........................... 98
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND............................... 123
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 125
AWS -- SELECTED FINANCIAL INFORMATION.................................................. 136
AWS -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 137
FTW PARTNERSHIP -- SELECTED FINANCIAL INFORMATION...................................... 144
FTW PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................ 145
MINNEAPOLIS PARTNERSHIP -- SELECTED FINANCIAL INFORMATION.............................. 148
MINNEAPOLIS PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................... 149
</TABLE>
i
<PAGE> 654
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THE AWS MEETING........................................................................ 151
Time, Place and Date of AWS Meeting.................................................. 151
Purpose of the AWS Meeting........................................................... 151
Record Date; Voting Rights........................................................... 152
Vote Required........................................................................ 152
Solicitation of Proxies and Expenses................................................. 152
Proxies.............................................................................. 152
Other Matters to be Considered....................................................... 153
Stockholder Proposals................................................................ 153
THE FTW CONSENT SOLICITATION........................................................... 153
The Written Consent Procedure........................................................ 153
Purpose of the Written Consents...................................................... 153
Voting Rights........................................................................ 154
Vote Required........................................................................ 154
THE MINNEAPOLIS PARTNERSHIP MEETING.................................................... 155
Time, Place and Date of Minneapolis Partnership Meeting.............................. 155
Purpose of Minneapolis Partnership Meeting........................................... 155
Voting Rights........................................................................ 155
Vote Required........................................................................ 155
Expenses............................................................................. 156
Consents............................................................................. 156
Other Matters to be Considered....................................................... 156
THE AWS MERGER......................................................................... 157
Background of the AWS Merger......................................................... 157
Recommendation of the AWS Board of Directors; Reasons for the AWS Merger............. 158
Opinion of AWS Advisor............................................................... 158
Terms of AWS Merger Agreement........................................................ 159
Stock Options; Warrants.............................................................. 162
Effective Time....................................................................... 162
Exchange of Certificates............................................................. 162
Representations and Warranties....................................................... 163
Covenants and Obligations............................................................ 164
No Solicitation...................................................................... 164
Conditions........................................................................... 165
Regulatory Approvals................................................................. 165
Termination.......................................................................... 165
Resales; Affiliates.................................................................. 166
Accounting Treatment................................................................. 166
Federal Income Tax Consequences...................................................... 166
Appraisal Rights..................................................................... 168
Interested Parties................................................................... 171
Voting Agreements.................................................................... 171
Certain Expenses..................................................................... 171
THE FTW TRANSACTION.................................................................... 171
Background of the FTW Transaction.................................................... 171
Recommendation of the FTW Committee; Reasons for the FTW Transaction................. 175
Terms of FTW Agreement............................................................... 177
Distribution of FTW Shares........................................................... 179
Representations and Warranties....................................................... 179
Covenants and Obligations............................................................ 179
No Solicitation...................................................................... 180
Conditions........................................................................... 180
Regulatory Approvals................................................................. 181
Termination.......................................................................... 181
Indemnification...................................................................... 181
Description of FTW Claims............................................................ 182
Accounting Treatment................................................................. 182
</TABLE>
ii
<PAGE> 655
<TABLE>
<S> <C>
Certain Federal Income Tax Consequences.............................................. 182
Absence of Dissenters and Appraisal Rights........................................... 183
Interested Parties................................................................... 183
Certain Expenses..................................................................... 183
THE MINNEAPOLIS TRANSACTION............................................................ 184
Background of the Minneapolis Transaction............................................ 184
Recommendation of the Minneapolis Committee; Reasons for the Minneapolis
Transaction....................................................................... 185
Terms of Minneapolis Agreement....................................................... 186
Distribution of Minneapolis Shares................................................... 188
Representations and Warranties....................................................... 188
Covenants and Obligations............................................................ 189
No Solicitation...................................................................... 189
Conditions........................................................................... 189
Regulatory Approvals................................................................. 190
Termination.......................................................................... 190
Indemnification...................................................................... 190
Description of Minneapolis Claims.................................................... 191
Accounting Treatment................................................................. 191
Certain Federal Income Tax Consequences.............................................. 192
Absence of Dissenters and Appraisal Rights........................................... 192
Interested Parties................................................................... 192
Certain Expenses..................................................................... 192
WIRELESS CABLE INDUSTRY................................................................ 193
Cable Industry Overview.............................................................. 193
Wireless Cable Technology............................................................ 193
Traditional Hard-Wire Cable Technology............................................... 193
Regulatory Environment............................................................... 194
Availability of Programming.......................................................... 197
Pay Television Industry Trends....................................................... 198
Competition.......................................................................... 199
COMPARISON OF RIGHTS OF SECURITY HOLDERS OF HEARTLAND AND AWS.......................... 201
COMPARISON OF RIGHTS OF EQUITY HOLDERS OF HEARTLAND AND FTW PARTNERSHIP................ 207
COMPARISON OF RIGHTS OF EQUITY HOLDERS OF HEARTLAND AND MINNEAPOLIS PARTNERSHIP........ 213
EXPERTS................................................................................ 219
LEGAL MATTERS.......................................................................... 219
GLOSSARY............................................................................... 220
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION.......................................................................... F-1
</TABLE>
iii
<PAGE> 656
APPENDICES
<TABLE>
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- --------------------------------------------------------------------------------------------
Appendix A -- Amended and Restated AWS Merger Agreement
Appendix B -- AWS Escrow Agreement
Appendix C -- AWS Fairness Opinion
Appendix D -- Notice of Appraisal Rights Applicable to AWS Stockholders
- --------------------------------------------------------------------------------------------
Appendix E -- Amended and Restated FTW Asset Purchase Agreement
Appendix F -- FTW Claim Release
Appendix G -- FTW Claim Assignment
Appendix H -- FTW Liquidation Plan
Appendix I -- FTW Disclosure Statement
- --------------------------------------------------------------------------------------------
Appendix J -- Amended and Restated Minneapolis Asset Purchase Agreement
Appendix K -- Minneapolis Claim Assignment
Appendix L -- Minneapolis Liquidation Plan
- --------------------------------------------------------------------------------------------
</TABLE>
iv
<PAGE> 657
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR CONSENTS OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HEARTLAND, AWS, FTW
PARTNERSHIP, MINNEAPOLIS PARTNERSHIP, OR ANY OTHER PERSON OR ENTITY. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES, OR THE SOLICITATION OF A PROXY OR CONSENT, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF HEARTLAND, AWS, FTW PARTNERSHIP OR MINNEAPOLIS PARTNERSHIP SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
AVAILABLE INFORMATION
Heartland and AWS are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC" or
"Commission"). The reports, proxy statements and other information filed by
Heartland and AWS with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. The common stock of Heartland is listed on the Nasdaq Stock
Market's National Market ("Nasdaq-NMS") and the common stock of AWS is listed on
the Nasdaq Stock Market's OTC Bulletin Board. Reports, proxy statements and
other information concerning Heartland and AWS can also be inspected at the
offices of The National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
Heartland has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued pursuant to the transactions
described herein and certain other transactions to be consummated
contemporaneously with the transactions described herein (the "Other
Transactions"). The Registration Statement contains one proxy statement and
three proxy statement/prospectuses. As permitted by the rules and regulations of
the Commission, this Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement. In particular, certain
information relating to the Other Transactions is omitted from this Proxy
Statement/Prospectus. Copies of the Registration Statement containing such
omitted information are available from the Commission upon payment of certain
fees prescribed by the Commission or without charge from Heartland as described
below. Statements contained in this Proxy Statement/Prospectus or in any
document incorporated by reference in this Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete. In each instance, reference is hereby made to the copy of
such contract or other document filed as an appendix and/or exhibit to the
Registration Statement or such other document and each such statement is
qualified in all respects by such reference.
TO OBTAIN, WITHOUT CHARGE, COPIES OF THE OTHER PROXY STATEMENT/PROSPECTUSES
CONSTITUTING PART OF THE REGISTRATION STATEMENT, PLEASE CONTACT HEARTLAND AT 903
N. BOWSER, SUITE 140, RICHARDSON, TEXAS 75081, TELEPHONE NUMBER (214) 479-9244.
The term "Heartland" when used herein shall mean Heartland Wireless
Communications, Inc. and its subsidiaries and affiliates through which it
conducts business, unless the context indicates otherwise. The term "AWS" when
used herein shall mean American Wireless Systems, Inc. and its one subsidiary
through which it conducts business, unless the context indicates otherwise.
2
<PAGE> 658
SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement/Prospectus. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement/Prospectus, the Appendices hereto and the material incorporated
by reference, all of which should be carefully reviewed. The information
contained herein with respect to Heartland, AWS, FTW Partnership and Minneapolis
Partnership has been supplied by each such respective entity. Additionally, the
information contained herein with respect to the AWS Merger, the FTW Transaction
and the Minneapolis Transaction is qualified by reference to the AWS Merger
Agreement, the FTW Agreement and the Minneapolis Agreement, attached hereto as
Appendix A, E and J, respectively, and incorporated herein by reference. Unless
otherwise indicated, year-end financial and other information referencing a
particular year with respect to Heartland, AWS, FTW Partnership or Minneapolis
Partnership is as of or for the fiscal year ended December 31. Cross-references
in this Summary refer to indicated captions or portions of this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus is one of four proxy statements or
prospectuses that are contained in the Registration Statement of which this
Proxy Statement/Prospectus constitutes a part. Each proxy statement/prospectus,
including this Proxy Statement/Prospectus, describes one or more of five
separate but related transactions pursuant to which Heartland proposes to (i)
cause a wholly owned subsidiary to merge with and into AWS, (ii) cause a wholly
owned subsidiary to merge with and into CMAX, (iii) acquire FTW Partnership's
79.99% joint venture interest in and to the joint venture that owns and operates
the wireless cable television system in Fort Worth, Texas, (iv) acquire the
Minneapolis Partnership's 75% membership interest in and to American Wireless
System of Minneapolis, L.L.C., a limited liability company that owns and
operates the wireless cable television system in Minneapolis, Minnesota, and (v)
acquire substantially all of the assets formerly held by Technivision
(collectively the "Transactions"). To obtain, without charge, copies of any
other proxy statement or prospectus contained therein, see "Additional
Information." For a summary discussion of the transactions that are not the
subject of this Proxy Statement/Prospectus ("Other Transactions"), see "Certain
Information Regarding Other Transactions."
EACH OF THE AWS MERGER, THE FTW TRANSACTION AND THE MINNEAPOLIS TRANSACTION (AS
HEREINAFTER DEFINED) INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS."
THE INDUSTRY
Wireless cable is an alternative to traditional hard-wire cable television
systems that offers various types of programming including local off-air VHF/UHF
channels (such as ABC, CBS, NBC and Fox) and premium channels (such as HBO,
Showtime, Disney, MTV, etc.). Like traditional hard-wire cable, 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. Generally, this requires that
subscribers 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). See "Wireless
Cable Industry."
THE PARTIES
HEARTLAND WIRELESS COMMUNICATIONS, INC.
General. Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), develops, owns and operates wireless cable television systems
primarily in small to mid-size markets located in the central United States. As
of November 30, 1995, Heartland had wireless cable channel rights in 79 existing
markets representing approximately 8.2 million households, approximately 6.7
million of which Heartland estimates are serviceable by LOS transmissions.
Heartland currently operates wireless cable television systems in 32 markets,
representing approximately 3.4 million households, approximately 2.9 million of
which
3
<PAGE> 659
Heartland estimates are serviceable by LOS transmissions. On November 30, 1995,
Heartland's existing wireless cable television systems provided service to
approximately 80,600 subscribers.
Certain of the wireless cable assets presently held by or sought to be
acquired by Heartland pursuant to the Transactions are not included in the
discussion of Heartland's business because such assets are not part of
Heartland's current long-term business plan (the excluded assets being
collectively referred to as the "Heartland Disposition Assets"). Heartland is
currently pursuing opportunities to dispose of the Heartland Disposition Assets
and expects to sell, contribute or exchange such assets in one or more
transactions. See "Summary -- The Combined Company -- Planned Divestitures".
Although no assurance can be given that any or all of the Heartland Disposition
Assets will be disposed of on terms acceptable to Heartland or when such
transactions might be consummated, if such dispositions are consummated,
Heartland will have acquired pursuant to the Transactions wireless cable channel
rights in nine markets representing an aggregate of approximately 1.3 million
households, approximately 1.0 million of which can be served by LOS
transmissions, and four operating systems serving an aggregate of approximately
37,940 subscribers as of November 30, 1995. Assuming the Transactions are
consummated and the Heartland Disposition Assets are sold, contributed or
exchanged, Heartland would hold wireless cable channel rights in 79 markets (33
operating markets serving approximately 117,000 subscribers) representing
approximately 8.2 million households, approximately 6.8 million of which
Heartland estimates are serviceable by LOS transmission. See "The Combined
Company -- Business of the Combined Company After the Transactions."
Heartland estimates that, within the 79 wireless cable markets following
the consummation of the Transactions and the proposed divestitures,
approximately 2.4 million LOS households, or approximately 36% of Heartland'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 executive offices of Heartland are located at 903 N. Bowser, Suite 140,
Richardson, Texas 75081, and its telephone number is (214) 479-9244. See
"Information Concerning Heartland."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Heartland. The data was
derived from the more detailed information and the consolidated financial
statements of Heartland appearing elsewhere in this Proxy Statement/Prospectus.
The data should be read in conjunction with "Selected Consolidated Financial
Information of Heartland," "Heartland -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) of Heartland contained elsewhere in
this Proxy Statement/Prospectus. See "Index to Consolidated Financial Statements
and Unaudited Pro Forma Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ---------------------------
1992 1993 1994 1994 1995
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................... $ 205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
Total operating expenses......................... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss................................... (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income (expense), net................... (207) (73,306) (210,113) 60,519 (6,864,367)
Income tax benefit............................... -- -- 1,594,963 649,510 1,307,137
Net loss......................................... (50,822) (406,101) (3,043,321) (1,213,894) (11,178,095)
Net loss per common share........................ $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
Weighted average shares outstanding................ 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
Operating and Other Financial Data:
EBITDA(1)........................................ $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $ (1,050,936)
Capital expenditures(2).......................... 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
Number of systems in operation (at end of
period).......................................... 1 5 13 8 30
Estimated LOS households in systems in operation
(at end of period)............................... 24,319 371,652 1,108,230 843,904 2,723,365
Subscribers (at end of period)..................... 1,076 2,731 19,838 8,040 64,357
</TABLE>
4
<PAGE> 660
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted
investments..................................... $ 815,305 $11,985,953 $ 37,155,064
Restricted investments............................ -- -- 24,747,214
Total assets...................................... 8,665,066 77,921,528 200,150,474
Long-term debt, including current portion......... 1,592,529 40,505,852 140,045,039
Total stockholders' equity........................ 4,492,568 30,080,885 48,293,817
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the year ended December 31, 1992 were comprised of
$604,082 for purchases of systems and equipment and $797,655 of expenditures
for leased licenses; for the year ended December 31, 1993, $2,072,937 for
purchases of systems and equipment and $3,068,084 for expenditures for
leased licenses; for the year ended December 31, 1994, $12,414,501 for
purchases of systems and equipment, $3,354,471 for expenditures of leased
licenses, $12,431,379 for the investment in Rural Vision Joint Venture and
$16,300,000 for the purchase of certain assets from Rural Vision Joint
Venture and the acquisition of the Lindsay, Oklahoma system; for the nine
months ended September 30, 1994, $4,011,480 for systems and equipment and
$2,465,265 for leased licenses and $11,649,908 for the investment in
RuralVision Joint Venture; and for the nine months ended September 30, 1995,
$25,575,252 for purchases of system and equipment, $1,592,024 for
expenditures for leased licenses, $5,426,432 for the investment in Rural
Vision Joint Venture and $11,422,814 for the acquisition of wireless cable
television systems in Lubbock, Texas and Tulsa, Oklahoma and the acquisition
of certain additional assets from Rural Vision Joint Venture.
AMERICAN WIRELESS SYSTEMS, INC.
General. American Wireless Systems, Inc., a Delaware corporation ("AWS"),
currently owns a minority interest in and manages the operations of wireless
cable systems in Minneapolis, Minnesota and Fort Worth, Texas and owns the
rights to certain wireless cable rights in Dallas, Texas, Los Angeles,
California and Memphis, Tennessee. The Minneapolis and Fort Worth markets
combined have approximately 1,500,000 households, of which AWS estimates
approximately 1,325,000 are serviceable by LOS transmissions.
AWS owns a 25% membership interest in American Wireless System of
Minneapolis, L.L.C., a Delaware limited liability company ("Minneapolis LLC"),
that owns and operates the Minneapolis system, which system was launched in
March 1993. The Minneapolis system provides 29 channels of service, including
eight local television stations, to approximately 2,740 subscribers as of
November 30, 1995. AWS owns an interest in and manages the operations of the
Minneapolis system pursuant to joint venture and management agreements with
Minneapolis LLC and its joint venture partner, Wireless Cable TV Associates #38
("Minneapolis Partnership"), the owner of the 75% membership interest in the
Minneapolis LLC. In connection with these agreements, AWS has loaned to
Minneapolis Partnership $2,000,000, the proceeds of which have been contributed
to the Minneapolis LLC and used to fund operating expenses and the costs of
subscriber growth.
AWS owns a 20.01% beneficial interest in a joint venture that owns and
operates the Fort Worth system (the "FTW Venture"), which system was launched in
November 1992. The Fort Worth system provides 27 channels of service, including
13 local television stations, to approximately 1,550 subscribers as of November
30, 1995. AWS also has acquired the rights to eight additional wireless cable
channels that AWS anticipates will be added to the Fort Worth system.
AWS directly owns the rights to 16 wireless cable channels in Dallas, nine
wireless cable channels in Los Angeles and 22 wireless cable channels in
Memphis. In Dallas, AWS is negotiating to acquire additional wireless cable
channel rights. On November 7, 1995, AWS entered into a contract with TruVision
Cable, Inc. ("TruVision") to sell all of AWS's assets in Memphis for $3,900,000
in cash. Pursuant to the AWS Merger Agreement, at least $750,000 of the proceeds
of such transaction will be held in a deposit account for the benefit of
Heartland pending the consummation of the AWS Merger and the remaining proceeds
will be used to offset the permitted liabilities of AWS. AWS anticipates that
this transaction will close by February 29, 1996.
5
<PAGE> 661
The executive offices of AWS are located at 7426 East Stetson Drive, Suite
220, Scottsdale, Arizona 85251, and its telephone number is (602) 994-4301. See
"Information Concerning AWS."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for AWS. The data was derived
from the more detailed information and the financial statements of AWS appearing
elsewhere in this Proxy Statement/Prospectus. The data should be read in
conjunction with "AWS -- Selected Financial Information,"
"-- AWS -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements (including the notes
thereto) of AWS contained elsewhere in this Proxy Statement/Prospectus. See
"Index to Consolidated Financial Statements and Unaudited Pro Forma
Information."
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- --------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues(1).................. $ -- $ -- $ 83,333 $ 58,333 $ 75,000
Total operating expenses........... 3,358,526 2,758,934 4,158,462 2,770,860 1,599,231
Operating loss..................... (3,358,526 ) (2,758,934) (4,075,129) (2,712,527) (1,524,231)
Interest expense, net.............. -- (775,525) (976,867) (978,695) (126,119)
Net loss........................... (3,443,736 ) (3,650,160) (5,726,780) (4,377,096) (984,570)
Net loss per common share............ $ (1.33 ) $ (1.16) $ (1.26) $ (1.06) $ (.17)
Weighted average shares
outstanding........................ 2,595,689 3,159,397 4,540,362 4,135,431 5,709,187
Other Financial Data:
EBITDA(2).......................... $(3,324,205 ) $(2,316,001) $(3,438,080) $(2,098,810) $(1,458,152)
Capital expenditures(3)............ $ 910,355 $ 832,326 $ 4,107,603 $ 3,788,011 $ 702,125
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................................... $3,244,275 $ 376,621 $ 1,182,653
Total assets................................................... 9,301,293 6,949,900 7,554,298
Long-term debt, including current portion...................... 7,707,000 -- 1,899,442
Total stockholders' equity..................................... 903,575 5,767,859 4,783,289
</TABLE>
- ---------------
(1) Since inception AWS' only revenue source has been from management fees. The
first such fees were received in March 1994. Because AWS owns a minority
interest in each of the systems it currently operates, AWS does not
recognize revenues from operations from these systems.
(2) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(3) For the year ended December 31, 1992 capital expenditures were comprised of
$160,960 for purchases of property and equipment and $749,395 for
expenditures for investment in wireless systems; for the year ended December
31, 1993 capital expenditures were comprised of $77,055 for purchases of
property and equipment and $755,271 for expenditures for investment in
wireless systems; for the year ended December 31, 1994 capital expenditures
were comprised of $287,291 for purchases of property and equipment and
$3,820,312 for expenditures for investment in wireless systems; for the nine
months ended September 30, 1994 capital expenditures were comprised of
$241,677 for purchase of property and equipment and $3,546,334 of
expenditures for investment in wireless systems; and for the nine months
ended September 30, 1995 capital expenditures were comprised of $40,035 for
purchase of property and equipment and $662,090 of expenditures for
investment in wireless systems.
HEARTLAND MERGER SUB, INC.
Heartland Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("AWS Merger Sub"), was formed by Heartland for the
purpose of effecting the transaction described herein with AWS. AWS Merger Sub
does not maintain executive offices. AWS Merger Sub's mailing address is c/o
Heartland Wireless Communications, Inc., 903 N. Bowser, Suite 140, Richardson,
Texas 75081 and the telephone number is (214) 479-9244.
6
<PAGE> 662
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
General. Fort Worth Wireless Cable T.V. Associates, a California general
partnership ("FTW Partnership"), owns as its principal asset a 79.99% interest
(the "FTW Interest") in the FTW Venture, the owner and operator of the Fort
Worth system. AWS owns the remaining 20.01% beneficial interest in FTW Venture.
FTW Partnership does not maintain executive offices. FTW Partnership
matters may be directed to its legal counsel in care of Robert E. Morrison, Esq.
at Brown McCarroll & Oaks Hartline, 300 Crescent Court, Suite 1400, Dallas,
Texas 75201 and the telephone number is (214) 999-6100. See "Information
Concerning FTW Partnership" and the FTW Disclosure Statement attached as
Appendix I.
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for FTW Partnership. The data
was derived from the more detailed information and the consolidated financial
statements of FTW Partnership appearing elsewhere in this Proxy
Statement/Prospectus. The data should be read in conjunction with "FTW
Partnership -- Selected Financial Information," "-- FTW
Partnership -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements (including the
notes thereto) of FTW Partnership contained elsewhere in this Proxy
Statement/Prospectus. See "Index to Consolidated Financial Statements and
Unaudited Pro Forma Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------------
1992 1993 1994 1994 1995
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues....................................... $ 144,381 $ 791,877 $ 667,260 $ 505,259 $ 451,581
Total operating expenses........................... 888,577 1,862,604 2,050,023 1,574,601 1,481,663
Operating loss..................................... (744,196) (1,070,727) (1,382,763) (1,069,342) (1,030,082)
Net loss........................................... (667,750) (1,013,038) (1,320,482) (1,021,368) (986,034)
Other Financial Data:
EBITDA(1).......................................... $ (493,981) $ (316,611) $ (596,191) $ (460,618) $ (448,631)
Capital expenditures(2)............................ $1,933,269 $ 738,967 $ 86,365 $ 62,761 $ 22,984
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................................... $ 94,898 $ 21,836 $ 25,014
Total assets............................................................ 4,667,216 3,860,932 3,266,499
Long-term debt, including current portion............................... -- -- --
Total partners' equity.................................................. 4,265,962 2,945,480 1,959,446
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should to be considered as an alternative
to net income as a measure of operating results or to cash flows as a
measure of funds available for discretionary or other liquidity purposes.
(2) Capital expenditures for the year ended December 31, 1992 were comprised of
$1,498,371 for purchase of systems and equipment and $434,898 of
expenditures for leased licenses; for the year ended December 31, 1993 were
comprised of 738,967 for purchase of systems and equipment and $-0- for
expenditures for leased licenses; for the year ended December 31, 1994 were
comprised of $73,865 for purchase of systems and equipment and $12,500 for
expenditures for leased licenses; for the nine months ended September 30,
1994 were comprised of $62,761 for purchase of systems and equipment and
$-0- of expenditures for leased licenses; for the nine months ended
September 30, 1995 were comprised of $22,984 for purchase of systems and
equipment and $-0- of expenditures for leased licenses.
WIRELESS CABLE TV ASSOCIATES #38
General. Wireless Cable TV Associates #38, a California general partnership
("Minneapolis Partnership"), owns as its principal asset a 75% membership
interest (the "Minneapolis Interest") in Minneapolis LLC, the owner and operator
of the Minneapolis system. AWS owns the remaining 25% membership interest in
Minneapolis LLC.
7
<PAGE> 663
Minneapolis Partnership does not maintain executive offices. Minneapolis
Partnership matters may be directed to its legal counsel in care of Earl H.
Cohen, Esq. at Mansfield & Tanick, 1560 International Center, 900 Second Avenue
South, Minneapolis, Minnesota, 55402 and the telephone number is (612) 339-4295.
See "Information Concerning Minneapolis Partnership."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Minneapolis Partnership. The
data was derived from the more detailed information and the consolidated
financial statements of Minneapolis Partnership appearing elsewhere in this
Proxy Statement/Prospectus. The data should be read in conjunction with
"Minneapolis Partnership -- Selected Financial Information," " -- Minneapolis
Partnership -- Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements (including the
notes thereto) of Minneapolis Partnership contained elsewhere in this Proxy
Statement/Prospectus. See "Index to Consolidated Financial Statements and
Unaudited Pro Forma Information."
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28,
1992
(INCEPTION) NINE MONTHS ENDED
TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- ---------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................ $ 23,694 $ 272,152 $ 535,046 $ 329,757 $ 740,595
Total operating expenses...................... 94,894 1,944,348 2,628,422 1,821,390 2,264,471
Operating loss................................ (71,200) (1,672,196) (2,093,376) (1,491,633) (1,523,876)
Net loss...................................... (62,436) (1,544,979) (1,955,221) (1,389,145) (1,433,248)
Other Financial Data:
EBITDA(1)..................................... $ (65,042) $ (933,336) $(1,115,905) $ (772,588) $ (724,722)
Capital expenditures(2)....................... $ 5,983,256 $ 1,214,519 $ 520,967 $ 334,408 $ 203,093
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ---------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................................ $ 167,897 $ 620,058 $ 177,941
Total assets............................................................. 7,391,740 7,425,224 6,484,576
Long-term debt, including current portion................................ 26,287 2,016,692 2,578,562
Total partners' equity................................................... 6,772,243 4,817,022 3,383,774
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the ten months ended December 31, 1992 were
comprised of $428,269 for purchase of systems and equipment and $5,554,987
of expenditures for leased licenses; for the year ended December 31, 1993
were comprised of $35,938 for purchase of systems and equipment and
$1,178,581 for expenditures for leased licenses; for the year ended December
31, 1994 were comprised of $520,967 for purchase of systems and equipment
and $-0- for expenditures for leased licenses; for the nine months ended
September 30, 1994 were comprised of $334,408 for purchase of systems and
equipment and $-0- of expenditures for leased licenses; for the nine months
ended September 30, 1995 were comprised of $203,093 for purchase of systems
and equipment and $-0-of expenditures for leased licenses.
THE MEETINGS
AWS MEETING
Time, Place and Date. A Special Meeting of Stockholders of AWS (the "AWS
Meeting") is scheduled to be held on February 22, 1996 at the Westin Hotel
Galleria, 13340 Dallas Parkway, Dallas, Texas, 75240 (214) 934-9494, commencing
at 10:00 a.m. local time.
Record Date; Shares Entitled to Vote. Holders of record of AWS common
stock, par value $.01 per share ("AWS Common Stock"), at the close of business
on January 17, 1996 (the "AWS Record Date") will be entitled to notice of, and
to vote at, the AWS Meeting. At the close of business on the AWS Record Date,
8
<PAGE> 664
5,709,187 shares of AWS Common Stock were issued and outstanding. Each
outstanding share of AWS Common Stock is entitled to one vote with respect to
each matter to be voted on at the AWS Meeting.
Purpose. At the AWS Meeting, AWS' stockholders will consider and vote upon
a proposal to approve the Amended and Restated Agreement and Plan of Merger,
dated as of September 11, 1995 (the "AWS Merger Agreement"), by and among AWS,
Heartland and AWS Merger Sub, pursuant to which AWS Merger Sub will be merged
with and into AWS (the "AWS Merger") and AWS will become a wholly owned
subsidiary of Heartland.
Vote Required. The affirmative vote of a majority of the outstanding shares
of AWS Common Stock is required to adopt and approve the AWS Merger Agreement
and the AWS Merger. Because the affirmative vote of a majority of the
outstanding shares of AWS Common Stock is required, abstentions and broker non-
votes will have the effect of negative votes. The percentage of outstanding
shares of AWS Common Stock entitled to vote with regard to the AWS Merger
Agreement held by AWS directors, executive officers and their affiliates,
assuming the exercise in full of options to purchase AWS Common Stock held by
such persons as of December 31, 1995, is 9.81%, or 568,761 shares of AWS Common
Stock, 436,106 of which currently are subject to the voting trust described
below. Certain record and beneficial holders of approximately 37% of the
outstanding shares of AWS Common Stock have placed such shares in a voting trust
pursuant to which, among other things, such shares will be voted in favor of
adopting and approving the AWS Merger Agreement and the AWS Merger. Pursuant to
applicable Delaware law, the stockholders of AWS who object to the AWS Merger
and vote against or abstain from voting in favor thereof may be afforded certain
appraisal rights including the right to receive cash for their shares of AWS
Common Stock. Any stockholder who wishes to exercise appraisal rights, or
preserve his or her right to do so, should carefully review the discussion set
forth in "The AWS Merger -- Appraisal Rights" and a copy of Section 262 of the
Delaware General Corporation Law, which is attached to this Proxy
Statement/Prospectus as Appendix D.
FTW CONSENT SOLICITATION
Written Consents; Partners Entitled to Vote. No meeting of the general
partners of FTW Partnership (the "FTW Partners") to vote on the FTW Transaction
(as hereafter defined) is currently scheduled. Instead, the Management Committee
of FTW Partnership ("FTW Committee") is soliciting approval of the FTW
Transaction from the FTW Partners by written consent. Each copy of this Proxy
Statement/Prospectus mailed to the FTW Partners (along with the separate FTW
Disclosure Statement) is accompanied by a written consent form ("Written
Consent") which is being furnished for use by the FTW Partners in voting for or
against approval of the FTW Transaction. Under the Agreement of General
Partnership of FTW Partnership ("FTW Partnership Agreement"), each unit of
ownership in FTW Partnership ("FTW Unit") is entitled to one vote on the FTW
Transaction for which consents are being solicited. The Written Consent is the
form by which this vote will be exercised by a FTW Partner for FTW Units owned
by such FTW Partner. Each FTW Partner owning a FTW Unit in accordance with the
provisions of the FTW Partnership Agreement will be entitled to vote on the FTW
Transaction through execution of a Written Consent.
Purpose. Through the Written Consents, the FTW Partners will consider and
vote upon a proposal to approve the Amended and Restated Asset Purchase
Agreement, dated as of October 4, 1995 (the "FTW Agreement"), by and between FTW
Partnership and Heartland, pursuant to which (i) FTW Partnership will sell to
Heartland the FTW Interest; (ii) Heartland will issue to FTW Partnership that
number of newly issued publicly tradeable shares (the "FTW Shares") of Heartland
common stock, par value $.001 per share ("Heartland Common Stock") having an
aggregate exchange value of $13.3 million; (iii) Heartland will assume up to
$570,000 of certain types of liabilities (including disputed liabilities) of FTW
Partnership to AWS; and (iv) FTW Partnership and the FTW Partners approving the
FTW Agreement will assign ("FTW Claim Assignment") to Heartland or release (the
"FTW Claim Release") certain claims (the "FTW Claims") against AWS, its
predecessors and certain related parties. As part of the approval of the FTW
Agreement, the FTW Partners will be asked to approve the liquidation and
dissolution of the FTW Partnership (the "FTW Liquidation") in accordance with
the terms and conditions of the Agreement and Plan of Liquidation attached as
Appendix H to this Proxy Statement/Prospectus (the "FTW Liquidation Plan"),
pursuant to which the FTW Shares will be distributed. The transactions
contemplated by the FTW
9
<PAGE> 665
Agreement, the FTW Claim Release or FTW Claim Assignment, as applicable, the FTW
Liquidation Plan, and the consummation thereof, are collectively referred to
herein as the "FTW Transaction."
Vote Required. Pursuant to the terms of the FTW Agreement, the affirmative
vote of the FTW Partners representing two-thirds ( 2/3) of the outstanding FTW
Units is necessary to approve the FTW Agreement and the FTW Transaction. The
percentage of currently outstanding FTW Units entitled to be voted by FTW
Committee members and their affiliates is 1.58% or 23 FTW Units. On an
individual basis, each member of the FTW Committee owns less than one percent
(1%) of the outstanding FTW Units. Because the affirmative vote and consent of
FTW Partners holding two-thirds ( 2/3) of the FTW Units is required to approve
the FTW Agreement, abstentions or other non-votes will have the effect of
negative votes.
THE FTW PARTNERS ARE BEING ASKED TO APPROVE AND ADOPT THE FTW AGREEMENT,
FTW RELEASE (OR FTW CLAIM ASSIGNMENT, AS APPLICABLE), FTW LIQUIDATION PLAN AND
TRANSACTIONS RELATED THERETO AS A PART OF ONE APPROVAL. THE FTW PARTNERS ARE NOT
BEING REQUESTED, AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE
FTW AGREEMENT, FTW CLAIM RELEASE (OR FTW CLAIM ASSIGNMENT, AS APPLICABLE), FTW
LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
MINNEAPOLIS PARTNERSHIP MEETING
Time, Place and Date. A Special Meeting of the general partners of
Minneapolis Partnership (the "Minneapolis Partnership Meeting") is scheduled to
be held on February 22, 1996 at the Westin Hotel Galleria, 13340 Dallas Parkway,
Dallas, Texas, 75240 (214) 934-9494 commencing at 10:00 a.m. local time.
At December 31, 1995 there were 2,079 general partnership units
("Minneapolis Units") of Minneapolis Partnership, held by 742 general partners
of Minneapolis Partnership (the "Minneapolis Partners") entitled to vote at the
Minneapolis Partnership Meeting. In accordance with the applicable provisions of
the partnership agreement for Minneapolis Partnership (the "Minneapolis
Partnership Agreement), each unit of ownership in Minneapolis Partnership
("Minneapolis Unit") is entitled to one vote with respect to each matter to be
voted on at the Minneapolis Partnership Meeting.
Purpose. At the Minneapolis Partnership Meeting, the Minneapolis Partners
will consider and vote upon a proposal to approve the Amended and Restated Asset
Purchase Agreement, dated as of October 4, 1995 (the "Minneapolis Agreement"),
pursuant to which (i) Minneapolis Partnership will sell to Heartland
substantially all of its assets, consisting of a 75% membership interest in the
Minneapolis LLC, (ii) Heartland will issue to Minneapolis Partnership that
number of newly issued publicly tradeable shares (the "Minneapolis Shares") of
Heartland Common Stock having an aggregate exchange value equal to the sum of
(A) $18 million plus (B) $500 for each wireless cable television subscriber in
excess of 2,500 ("Additional Subscribers") as of the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 15, 1996
based upon a contemplated closing date of February 23, 1996) (currently
estimated to be 1,000 Additional Subscribers as of the relevant date and not
anticipated to exceed 2,000 Additional Subscribers), (iii) Heartland will assume
up to $2.2 million of liabilities of Minneapolis Partnership to AWS, and (iv)
Minneapolis Partnership and the Minneapolis Partners approving the Minneapolis
Agreement will assign to Heartland certain claims (the "Minneapolis Claims")
against AWS, its predecessors and their respective affiliates (the "Minneapolis
Claim Assignment"). As a part of the approval of the Minneapolis Agreement, the
Minneapolis Partners will be asked to approve the liquidation and dissolution of
the Minneapolis Partnership (the "Minneapolis Liquidation") in accordance with
the terms and conditions of the Agreement and Plan of Liquidation attached as
Appendix L to this Proxy Statement/Prospectus (the "Minneapolis Liquidation
Plan"), pursuant to which the Minneapolis Shares will be distributed. The
transactions contemplated by the Minneapolis Agreement, the Minneapolis Claim
Assignment, the Minneapolis Liquidation Plan, and the consummation thereof, are
collectively referred to herein as the "Minneapolis Transaction." In addition,
at the Minneapolis Partnership Meeting, Minneapolis Partners may consider and
vote upon such other matters as may properly come before the Minneapolis
Partnership Meeting or any adjournment or postponement thereof.
10
<PAGE> 666
Vote Required. Pursuant to the terms of the Minneapolis Agreement, the
affirmative vote of Minneapolis Partners representing two-thirds ( 2/3) of the
Minneapolis Units is necessary to approve the Minneapolis Agreement and the
Minneapolis Transaction. AWS owns less than 1% of the Minneapolis Units. The
percentage of currently outstanding Minneapolis Units entitled to be voted by
Minneapolis Committee members and their affiliates is 1.34% or 27.8 Minneapolis
Units. On an individual basis, each member of the Minneapolis Committee owns
less than one percent (1%) of the outstanding Minneapolis Units. Because the
affirmative vote or consent of partners holding two-thirds ( 2/3) of the
Minneapolis Units is required to approve the Minneapolis Agreement, abstentions
or other non-votes will have the effect of negative votes. Applicable California
partnership law does not provide for any dissenters or appraisal rights to the
Minneapolis Partners abstaining from voting or voting against the Minneapolis
Transaction.
AT THE MINNEAPOLIS PARTNERSHIP MEETING, THE MINNEAPOLIS PARTNERS WILL BE
ASKED TO APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT, THE MINNEAPOLIS CLAIM
ASSIGNMENT, MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO AS A
PART OF ONE APPROVAL. THE MINNEAPOLIS PARTNERS ARE NOT BEING REQUESTED, AND WILL
NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT,
MINNEAPOLIS CLAIM ASSIGNMENT, MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS
RELATED THERETO.
THE AWS MERGER, FTW TRANSACTION AND MINNEAPOLIS TRANSACTION
MERGER OF HEARTLAND AFFILIATE WITH AND INTO AWS
AWS Merger; Consideration. Upon the consummation of the AWS Merger, AWS
Merger Sub will be merged with and into AWS, and AWS will be the surviving
corporation. Under the AWS Merger Agreement, all of the shares of AWS Common
Stock outstanding immediately prior to the effective time of the AWS Merger (the
"AWS Effective Time") will be converted into the right to receive a
proportionate number of newly issued publicly tradeable shares of Heartland
Common Stock having an aggregate exchange value of approximately $34 million
(subject to certain reductions and the escrow requirements discussed below),
resulting in each such share of AWS Common Stock, subject to certain
adjustments, being converted into the right to receive shares of Heartland
Common Stock having an exchange value of approximately $5.90 per share of AWS
Common Stock, of which shares having an exchange value of approximately $0.56
per share of AWS Common Stock will be held in the escrow described below. The
exchange value of the Heartland Common Stock to be issued in the AWS Merger will
be equal to the average closing price of the Heartland Common Stock as reported
on the Nasdaq-NMS over the ten-trading-day period ending on the fifth business
day preceding the consummation of the AWS Merger (or February 15, 1996 based
upon a contemplated closing date of February 23, 1996); provided however that if
such average is less than $20 or more than $26 per share, then the number of
shares of Heartland Common Stock to be issued in the AWS Merger will be based
upon an exchange value of $20 or $26 per share, as applicable. As a result, a
maximum of 1,700,000 shares of Heartland Common Stock are issuable in connection
with the AWS Merger. See "The AWS Merger -- Terms of the AWS Merger Agreement."
Please see "Information Concerning Heartland -- Calculation and Listing of
Shares to be Issued in Connection with the Transactions" for the calculation of
the maximum and anticipated number of shares of Heartland Common Stock issuable
at various closing averages in connection with the Transactions. IN THE EVENT
THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE
NASDAQ-NMS OVER THE SEVEN TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996
(REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION
PERIOD) IS GREATER THAN $34 OR LESS THAN $23, AWS STOCKHOLDERS WILL BE PROVIDED
WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE AWS STOCKHOLDERS
WHO WISH TO DO SO TO CHANGE THEIR VOTE.
At the closing of the AWS Merger, shares of Heartland Common Stock to be
delivered to the AWS stockholders having an aggregate exchange value of up to
$3.25 million will be held in escrow pursuant to the terms of an escrow
agreement ("AWS Escrow Agreement") for a period of approximately one year. A
form of the AWS Escrow Agreement is attached as Appendix B to this Proxy
Statement/Prospectus. Pursuant to the
11
<PAGE> 667
terms of the AWS Escrow Agreement, Heartland will have the right to submit
claims to the Exchange Agent (defined below) and, following a claims procedure,
seek to recover the escrowed shares or proceeds thereof for any claims for which
indemnity is proper pursuant to the terms of the AWS Merger Agreement. The AWS
Escrow Agreement includes provisions pursuant to which certain claims are fully
indemnified by AWS from the escrow fund (including all liabilities in excess of
$3.15 million, subject to adjustment) and other claims are shared equally by the
escrow fund and Heartland. Pursuant to the terms of the AWS Escrow Agreement, if
certain litigation pending against AWS is dismissed prior to the consummation of
the AWS Merger, the exchange value of the shares of Heartland Common Stock to be
held in escrow will be reduced from $3.25 million to $2.75 million and the
exchange value of the shares of Heartland Common Stock initially to be
distributed to the AWS stockholders will be increased from $30.75 million to
$31.25 million. See "The AWS Merger -- Terms of the AWS Merger
Agreement -- Indemnity Escrow; Contingent AWS Distribution."
Heartland has previously loaned to AWS the principal sum of $1.8 million
(the "AWS Loan"). The AWS Loan is secured by a first lien on the wireless cable
channel rights of AWS in the Dallas, Texas market. Upon the consummation of the
AWS Merger, the AWS Loan will remain in place as an intercompany obligation from
AWS to Heartland. The AWS Merger Agreement provides that specified amounts
("Exclusivity Fees") are to be periodically offset against the AWS Loan as
additional consideration for the non-solicitation covenant contained in the AWS
Merger Agreement. The AWS Merger Agreement and documents relating to the AWS
Loan further provide (a) if the AWS Merger Agreement is terminated as a result
of a competing proposal to acquire AWS or its material assets, then the
aggregate amount of all previously offset Exclusivity Fees will be added back to
the AWS Loan and the AWS Loan will be immediately due and payable; (b) if the
AWS Merger Agreement is terminated as a result of certain specified events
(generally arising from the conduct or past conduct of AWS or its predecessors),
then the aggregate amount of all previously offset Exclusivity Fees will be
added back to the AWS Loan and the AWS Loan is to be repaid in accordance with
its terms; (c) if Heartland fails to consummate the AWS Merger after all of the
conditions precedent to its obligations to consummate the AWS Merger Agreement
have been satisfied or waived, then the remaining balance of the AWS Loan will
be forfeited by Heartland as liquidated damages; and (d) upon any other
termination under the AWS Merger Agreement, the AWS Loan (reduced by any
previously offset Exclusivity Fees) is to be repaid to Heartland within one year
following the date of termination of the AWS Merger Agreement. See "The AWS
Merger -- Terms of the AWS Merger Agreement -- AWS Loan."
Exchange of Shares of AWS Common Stock. Harris Trust Company of New York
has been selected to act as an exchange agent (the "Exchange Agent") pursuant to
the terms of the Exchange Agent Agreement ("AWS Exchange Agreement") among
Heartland, AWS and the Exchange Agent (to be executed immediately prior to the
AWS Effective Time) for the purpose of effectuating the delivery of the shares
of Heartland Common Stock (or proceeds thereof) to be issued in the AWS Merger.
Pursuant to the terms of the AWS Merger Agreement and AWS Exchange Agreement,
shares of Heartland Common Stock having an aggregate exchange value of $30.75
million (or $31.25 million if certain litigation pending against AWS is resolved
prior to the AWS Effective Time) will be distributed to the former AWS
stockholders, and shares of Heartland Common Stock having an aggregate exchange
value of $3.25 million ($2.75 million if certain litigation pending against AWS
is resolved prior to the AWS Effective Time) will be placed in escrow for
approximately one year to satisfy certain indemnification obligations of AWS to
Heartland. Promptly after the AWS Effective Time, Heartland will cause the
Exchange Agent to send to each holder of AWS Common Stock at the AWS Effective
Time a Letter of Transmittal advising such holders of the terms of the exchange
of AWS Common Stock effected by the AWS Merger and the procedures for
surrendering AWS stock certificates in exchange for the consideration provided
for in the AWS Merger Agreement. ELECTIONS BY AWS STOCKHOLDERS MADE IN THE
LETTER OF TRANSMITTAL ARE IRREVOCABLE. AWS STOCKHOLDERS ARE REQUESTED NOT TO
SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE AGENT. See "The AWS
Merger -- Exchange of Certificates."
Upon the initial distribution of Heartland Common Stock, all fractional
shares will be rounded up to the nearest whole share, and the contingent
distribution, if any, will be proportionately reduced by the amount of such
rounding. Upon the expiration of the AWS Escrow Agreement, holders of AWS Common
Stock will
12
<PAGE> 668
receive cash in lieu of fractional shares of Heartland Common Stock. See "The
AWS Merger -- Terms of the AWS Merger Agreement -- Fractional Shares."
Stock Options; Warrants. Upon the AWS Effective Time, no options or warrant
agreements allowing the holder to exercise rights thereunder to receive shares
of AWS Common Stock shall exist. However, at the AWS Effective Time, any
unexercised warrants will be converted into warrants to purchase shares of
Heartland Common Stock on an adjusted basis. The holders of such warrants have
certain demand registration rights attached to the warrant agreements that will
survive the AWS Merger. See "The AWS Merger -- Stock Options; Warrants."
Recommendation of AWS Board of Directors; Reasons for the AWS Merger.
The Board of Directors of AWS (the "AWS Board") has approved and adopted
the AWS Merger Agreement and recommends that the stockholders of AWS vote FOR
the AWS Merger and thereby approve and adopt the AWS Merger Agreement. The AWS
Board recommends approval primarily for the following reasons:
1. The AWS Merger provides for the issuance of approximately $34
million of Heartland Common Stock, a value of approximately $5.90 for each
share of AWS Common Stock, a price that represents a substantial premium
over the market price of AWS Common Stock on the date AWS and Heartland
entered into the AWS Merger Agreement.
2. The Heartland Common Stock to be received by the holders of AWS
Common Stock will be freely tradeable immediately following the
consummation of the AWS Merger, providing each holder an opportunity either
to liquidate or retain the investment in Heartland Common Stock.
3. Heartland Common Stock represents an interest in a wireless cable
company that is significantly larger than AWS, has substantially greater
financial resources than AWS, and is better situated than AWS to fully
develop its wireless cable systems.
4. The Heartland Common Stock to be received by the holders of AWS
Common Stock will be listed on the Nasdaq-NMS, which will provide such
holders greater liquidity relative to trading in AWS Common Stock.
5. Assuming the approval and consummation of the FTW Agreement and the
Minneapolis Agreement, the issuance of Heartland Common Stock to the FTW
Partners and Minneapolis Partners is likely to reduce the potential
liability arising from the prior sale of general partnership interests by a
predecessor of AWS without registration under federal or state securities
laws.
Opinion of AWS Advisor. Daniels & Associates, L.P. ("AWS Advisor"),
delivered its oral opinion to the AWS Board of Directors on October 27, 1995,
and its written opinion dated as of September 11, 1995, updated as of the date
of this Proxy Statement/Prospectus, to the effect that, as of each such date,
and subject to certain matters as stated in its opinion, the consideration to be
received in connection with the AWS Merger is fair, from a financial point of
view, to the stockholders of AWS. A copy of the opinion of the AWS Advisor is
attached to this Proxy Statement/Prospectus as Appendix C and should be read in
its entirety. See "The AWS Merger -- Opinion of AWS Advisor."
Risk Factors. The proposed AWS Merger involves substantial risk. The
following risk factors, together with all of the other information appearing in
this Proxy Statement/Prospectus, should be carefully considered by stockholders,
in light of their particular investment objectives and financial circumstances,
prior to determining how to vote: (i) there are significant uncertainties and
risks relating to the integration of AWS' and Heartland's operations in the
event that the planned divestiture of the assets of AWS is not consummated; (ii)
Heartland may in the future make additional acquisitions or may be unsuccessful
in consummating planned divestitures, each of which could adversely affect the
liquidity, results of operation and financial condition of Heartland; (iii)
substantial risks are associated with the potential volatility in the market
price of the Heartland Common Stock upon consummation of the Transactions and
subsequent liquidation of shares of Heartland Common Stock to satisfy certain
obligations of the parties to the Transactions; and
13
<PAGE> 669
(iv) simultaneously with the AWS Merger, Heartland proposes to enter into
several other transactions the result of which, if consummated, will be to
substantially increase the number of shares of Heartland Common Stock
outstanding. See "Risk Factors."
Certain Federal Income Tax Consequences. The AWS Merger will be treated as
a fully taxable exchange between Heartland and each holder of AWS Common Stock.
Accordingly, each AWS stockholder will recognize a gain or loss (depending upon
his or her adjusted tax basis) on the exchange. For a discussion of the
methodology for calculating gain or loss, see "The AWS Merger -- Federal Income
Tax Consequences."
Accounting Treatment. The AWS Merger will be accounted for by Heartland
under the "purchase method" of accounting in accordance with generally accepted
accounting principles. See "The AWS Merger -- Accounting Treatment."
Appraisal Rights. Under applicable Delaware law, holders of the AWS Common
Stock not voting in favor of the AWS Merger have certain appraisal rights with
respect to their shares, and, as a result, may be entitled to receive, in cash,
fair value for such shares from Heartland, provided that such holders comply
with the appropriate procedures for appraisal rights required by applicable
Delaware law. Heartland may, at its option, decline to consummate the AWS Merger
if holders of an aggregate of more than 10% of the outstanding shares of AWS
Common Stock exercise such appraisal rights. See "The AWS Merger -- Appraisal
Rights."
Conditions to Consummation of the AWS Merger. Consummation of the AWS
Merger is conditioned upon the fulfillment or waiver (where permissible) of
certain conditions set forth in the AWS Merger Agreement. For a detailed
description of the conditions to the AWS Merger, see "The AWS Merger --
Conditions."
Regulatory Approvals. In addition to the federal and state regulatory
approvals required in connection with the effectiveness of the Registration
Statement of which this Proxy Statement/Prospectus forms a part, Heartland and
AWS have made or expect to make certain regulatory filings with the Federal
Communications Commission ("FCC") for the transfer of AWS' commercial wireless
cable television licenses to Heartland. The AWS Merger Agreement is conditioned
upon receipt of FCC approval regarding the transfer of such commercial wireless
cable television licenses. See "The AWS Merger -- Regulatory Approvals."
Effective Time of the AWS Merger. If the AWS Merger is approved by the
requisite vote of the stockholders of AWS and the other conditions to the
consummation of the AWS Merger are satisfied or waived (where permissible), the
AWS Merger will become immediately effective at the time a Certificate of Merger
is duly filed with the Secretary of State of the State of Delaware. See "The AWS
Merger -- Effective Time." The Certificate of Merger for the AWS Merger will be
filed only upon satisfaction or waiver of the conditions contained in the AWS
Merger Agreement. See "The AWS Merger -- Conditions," and "-- Termination."
Termination of the AWS Merger Agreement. In general, the AWS Merger
Agreement may be terminated (i) by mutual consent of Heartland and AWS, (ii) by
either Heartland or AWS if the AWS Merger has not been consummated by February
29, 1996, and (iii) under certain other circumstances. See "The AWS
Merger -- Termination."
Interests of Certain Persons in AWS Merger. If the AWS Merger is
consummated, Heartland intends to terminate all AWS employees immediately
following the AWS Effective Time. Certain executive officers of AWS, including
Steven G. Johnson, Daniel A. Cartwright and Todd J. Parriott, have employment
agreements with AWS, certain of which provides for certain severance payments to
be made following a termination. The total amount of payments to be made to
those officers by AWS following their terminations is approximately $830,000.
Heartland has entered into a non-competition and consulting agreement with Mr.
Johnson pursuant to which, in lieu of any amounts owed to him as a result of any
termination of his employment, Mr. Johnson will receive approximately $700,000
over a period of two years in consideration of transitional and other assistance
to be provided to Heartland following the AWS Merger and Mr. Johnson's agreement
not to compete with Heartland or its affiliates for a period of three years
following the AWS Merger. See "Information Concerning Heartland -- Certain
Transactions."
14
<PAGE> 670
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the AWS Common Stock certain historical pro forma and
equivalent pro forma per share financial information as of December 31, 1994 and
the year then ended, and as of September 30, 1995 and the nine months then
ended. All such information is presented on a per share basis. The pro forma
amounts included in the table below are based on the purchase method of
accounting and a preliminary allocation of the purchase price. Neither Heartland
nor AWS has declared any cash dividends. The following information should be
read in conjunction with and is qualified in its entirety by reference to the
historical consolidated financial statements and accompanying notes of Heartland
and AWS and "Pro Forma Financial Information Relative to the Transactions" and
other pro forma financial information included elsewhere in this Proxy
Statement/ Prospectus.
<TABLE>
<CAPTION>
HEARTLAND AWS
--------- ------
<S> <C> <C>
Book Value Per Share as of
December 31, 1994.............................................. $ 2.71 $ 1.01
September 30, 1995............................................. $ 3.87 $ .84
Pro Forma Equivalent Book Value Per Share as of September 30,
1995(1)........................................................ $ 12.66 $ 2.90
Net Loss Per Share
for the year ended December 31, 1994........................... $ (.30) $(1.26)
for the nine months ended September 30, 1995................... $ (.96) $ (.17)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................... $ (.71) $ (.16)
for the nine months ended September 30, 1995................... $ (.74) $ (.17)
</TABLE>
- ---------------
(1) The pro forma information for AWS reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Heartland
by the exchange ratio, assuming that (i) 1,307,692 shares of Heartland
Common Stock are issued upon consummation of the AWS Merger, resulting in an
exchange ratio of one Heartland share for 4.366 AWS shares (ii) the closing
average and the closing price of Heartland Common Stock on the closing date
of the AWS Merger is $28 and (iii) all of the Transactions are consummated.
Comparative Market Price Data. The Heartland Common Stock is listed on the
Nasdaq-NMS under the symbol "HART" and the AWS Common Stock is listed on the
Nasdaq Stock Market's-OTC Bulletin Board under the symbol "AWSY."
On September 11, 1995, the last full trading day preceding the public
announcement of the execution of the AWS Merger Agreement, the closing sale
price per share of Heartland Common Stock was $21.50 and the last sale bid price
per share of the AWS Common Stock was $4.375. As of January 22, 1996, the
closing sale price per share of Heartland Common Stock was $29.25 and the last
sale bid price per share of AWS Common Stock was $4.625. Stockholders AWS are
urged to obtain current market quotations for Heartland Common Stock and AWS
Common Stock.
The following table sets forth the last sale bid or closing sale price per
share of AWS Common Stock or Heartland Common Stock, respectively, as reported
on the appropriate exchanges, and the equivalent per share price of AWS Common
Stock on September 11, 1995, the business date preceding public announcement of
the AWS Merger, and on January 22, 1996.
<TABLE>
<CAPTION>
EQUIVALENT
AWS HEARTLAND PER SHARE
COMMON STOCK COMMON STOCK PRICE
------------ ------------ ----------
<S> <C> <C> <C>
September 11, 1995........................... $4.375 $21.50 $ 5.96
January 22, 1996............................. $4.625 $29.25 $ 6.70
</TABLE>
15
<PAGE> 671
TRANSACTION WITH FTW PARTNERSHIP
FTW PARTNERS AND OTHER INTERESTED PARTIES SHOULD CAREFULLY READ AND
CONSIDER THE FTW DISCLOSURE STATEMENT ATTACHED AS APPENDIX I HERETO.
Asset Purchase; Consideration. Pursuant to the FTW Agreement, (i) FTW
Partnership will assign to Heartland the FTW Interest, (ii) FTW Partnership and
the FTW Partners approving the FTW Transaction will assign (the "FTW Claim
Assignment") to Heartland or release (the "FTW Claim Release") the FTW Claims,
(iii) Heartland will assume up to $570,000 of certain types of liabilities
(including disputed liabilities) of FTW Partnership to AWS, and (iv) Heartland
will issue to FTW Partnership the FTW Shares having an aggregate exchange value
of $13.3 million. The exchange value for the shares of Heartland Common Stock to
be issued in connection with the FTW Agreement will be equal to the average
closing price of the Heartland Common Stock as quoted on the Nasdaq-NMS over the
ten-trading-day period ending on the fifth business day preceding the
consummation of the FTW Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996); provided that if such average
closing price is in excess of $23 per share, the exchange value will be $23 per
share. Further, either FTW Partnership or Heartland, at its option, may
terminate the FTW Agreement if such average closing price is below $17 per
share. Heartland currently intends to exercise such right, if applicable. As a
result, a maximum of 782,353 shares of Heartland Common Stock are issuable in
connection with the FTW Agreement. The FTW Agreement also grants to Heartland a
right of first refusal with regard to the FTW Interest. See "The FTW
Transaction -- Terms of the FTW Agreement." Please see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection with
the Transactions" for the calculation of the maximum and anticipated number of
shares of Heartland Common Stock issuable at various closing averages in
connection with the Transactions. IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF
THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL
MARKET OVER THE SEVEN TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996
(REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION
PERIOD) IS GREATER THAN $34 OR LESS THAN $23, THE FTW PARTNERS WILL BE PROVIDED
WITH AN ADDITIONAL WRITTEN CONSENT TO ENABLE SUCH FTW PARTNERS WHO WISH TO DO SO
TO CHANGE THEIR VOTE.
In connection with the FTW Agreement, Heartland (a) deposited in escrow
$100,000 on October 12, 1995, $55,000 on November 7, 1995, $55,000 on December
1, 1995, $55,000 on January 5, 1996 and has agreed to deposit in escrow an
additional $55,000 on the first day of each month thereafter (collectively, "FTW
Earnest Money"), and (b) has agreed to loan to FTW Partnership up to $500,000
("FTW Loan"), $350,000 of which has been advanced through January 15, 1996, to
enable FTW Partnership to pay accrued expenses of FTW Partnership, primarily
legal fees, accounting fees, and reimbursable expenses incurred by members of
FTW Committee. The FTW Loan is secured by a first lien on the FTW Interest
pursuant to the terms of a security agreement between Heartland and FTW
Partnership. Upon the consummation of the FTW Transaction, the FTW Loan will be
repaid to Heartland from the proceeds of FTW Shares to be liquidated in
connection with the dissolution of FTW Partnership. See "The FTW
Transaction -- Terms of the FTW Agreement -- FTW Earnest Money; FTW Loan."
Distribution; Dissolution and Liquidation. As a part of the approval of the
FTW Agreement, the FTW Partners are being asked to approve and adopt the FTW
Liquidation Plan, pursuant to which the FTW Shares will be distributed. To
facilitate the distribution of the FTW Shares, Harris Trust Company of New York
has been selected to act as an exchange agent (the "Exchange Agent") for the
purpose of effectuating the delivery of the FTW Shares. Pursuant to the terms of
the FTW Agreement and the Exchange Agent Agreement among FTW Partnership,
Heartland and the Exchange Agent ("FTW Exchange Agreement"), Heartland will
deliver to the Exchange Agent the FTW Shares for distribution on behalf of FTW
Partnership in accordance with the terms of the FTW Liquidation Plan. The FTW
Committee anticipates that upon the consummation of the FTW Transaction, FTW
Shares having an aggregate value of approximately $1,350,000 (or approximately
$925 per FTW Unit) will be sold by the Exchange Agent on behalf of FTW
Partnership (in the open market or as otherwise directed by the FTW Committee)
to satisfy the known and contingent claims of FTW Partnership, and FTW Shares
having an aggregate value of approximately $11,950,000 (or approximately $8,190
per FTW Unit) will be available for distribution to the FTW Partners (assuming
receipt
16
<PAGE> 672
of stock worth $13.3 million at closing). Upon the completion of the FTW
Liquidation, any remaining FTW Shares (or proceeds thereof) will be distributed
among the FTW Partners.
Recommendation of the FTW Committee; Reasons for the FTW Transaction.
The FTW Committee has approved the FTW Agreement and FTW Transaction
contemplated thereunder, and recommends that the FTW Partners vote FOR approval
of the FTW Transaction and thereby approve and adopt the FTW Agreement and FTW
Liquidation Plan. The FTW Committee believes that the FTW Transaction will
provide the FTW Partners with increased liquidity for their ownership interest,
is a favorable means of resolving certain claims arising from the organization
of FTW Partnership, and will result in a greater potential for long-term value
than FTW Partnership would have if it continued as a participant in the FTW
Venture. See "The FTW Transaction -- Recommendation of the FTW Committee;
Reasons for the FTW Transaction."
Opinion of FTW Advisor. The FTW Committee has elected not to retain a
financial advisor in connection with the FTW Transaction.
Risk Factors. The proposed FTW Transaction involves substantial risk. The
following risk factors together with all of the other information appearing in
this Proxy Statement/Prospectus and the FTW Disclosure Statement should be
carefully considered by the FTW Partners, in light of their particular
investment objectives and financial circumstances, prior to determining how to
vote: (i) there are significant uncertainties and risks relating to the
integration of the entities' operations in the event that the planned
divestiture of the Fort Worth system is not consummated; (ii) the value of the
FTW Claims to be released or assigned to Heartland may, together with the
consideration to be received for the FTW Interest, be more or less valuable than
the Heartland Common Stock to be received by the FTW Partners upon the
dissolution of FTW Partnership; (iii) Heartland may in the future make
additional acquisitions or may be unsuccessful in consummating planned
divestitures, each of which could adversely affect the liquidity, results of
operations and financial condition of Heartland; (iv) the FTW Partners, as
general partners, are jointly and severally liable for the obligations and
liabilities of FTW Partnership, including, without limitation, any liabilities
or obligations to Heartland arising under the FTW Agreement; (v) substantial
risks are associated with the potential volatility in the market price of the
Heartland Common Stock upon the consummation of the Transactions and subsequent
liquidation of shares of Heartland Common Stock to satisfy certain obligations
of the parties to the Transactions; (vi) there is a risk that FTW Partnership
will be unable to fulfill its liquidating obligations from the proceeds of the
FTW Shares anticipated to be liquidated pursuant to the FTW Liquidation Plan;
and (vii) simultaneously with the FTW Transaction, Heartland proposes to enter
into several other transactions the result of which, if consummated, will be to
substantially increase the number of shares of Heartland Common Stock
outstanding. See "Risk Factors" herein, and "Risk Factors" within the FTW
Disclosure Statement attached as Appendix I, for a discussion of certain other
factors that should be considered carefully by the stockholders of Heartland and
FTW Partners in evaluating the FTW Transaction.
Certain Federal Income Tax Consequences. If consummated, the FTW
Transaction will be treated as a taxable transaction of FTW Partnership, and
each FTW Partner will report a proportionate share of any taxable gain
recognized by FTW Partnership. See "The FTW Transaction -- Certain Federal
Income Tax Consequences."
Accounting Treatment. The FTW Transaction will be accounted for by
Heartland under the "purchase method" of accounting in accordance with generally
accepted accounting principles. See "The FTW Transaction -- Accounting
Treatment."
Dissenters Rights. Pursuant to the terms of the FTW Agreement, the approval
of FTW Partners owning two-thirds( 2/3) of the outstanding FTW Units is required
to approve the FTW Transaction. Under applicable California partnership law, FTW
Partners that do not approve the FTW Transaction will not be entitled to
exercise dissenters or appraisal rights. See "The FTW Transaction -- Absence of
Dissenters and Appraisal Rights."
17
<PAGE> 673
Conditions to Consummation of the FTW Transaction. The consummation of the
FTW Agreement is conditioned upon the fulfillment or waiver (where permissible)
of certain conditions set forth in the FTW Agreement. For a detailed description
of the conditions to the FTW Agreement, see "The FTW Transaction -- Conditions."
Regulatory Approvals. The FTW Transaction does not require any regulatory
approvals other than federal and state approvals required in connection with the
effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus forms a part. See "The FTW Transaction -- Regulatory
Approvals."
Consummation of the FTW Agreement. If the FTW Transaction is approved by
the requisite vote of the FTW Partners and the other conditions to the
consummation of the FTW Transaction are satisfied or waived where permissible,
the FTW Agreement will be consummated upon the transfer of the FTW Interest, the
assignment or release of the FTW Claims, and the delivery of the FTW Shares to
the Exchange Agent. It is anticipated that such transactions will occur as soon
as practicable after the satisfaction or waiver where permissible of the
conditions noted above. It is anticipated that the FTW Liquidation Plan will be
consummated within one year of the consummation of the FTW Agreement.
Termination of the FTW Agreement. In general, the FTW Agreement may be
terminated (i) by mutual consent of Heartland and FTW Partnership, (ii) by
either Heartland or FTW Partnership if the FTW Agreement has not been
consummated by March 15, 1996, and (iii) under certain other circumstances. See
"The FTW Transaction -- Termination."
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the FTW Units certain historical pro forma and
equivalent pro forma per share financial information as of December 31, 1994 and
the year then ended and as of September 30, 1995 and the nine months then ended.
All such information is presented on a per share basis. Neither Heartland nor
FTW Partnership has paid any cash dividends or distributions. The pro forma
amounts included in the table below are based on the purchase method of
accounting and a preliminary allocation of the purchase price. The following
information should be read in conjunction with and is qualified in its entirety
by reference to the historical financial statements and accompanying notes of
Heartland and FTW Partnership and "Pro Forma Financial Information Relative to
the Transactions" and other pro forma financial information included elsewhere
in this Proxy Statement/ Prospectus.
<TABLE>
<CAPTION>
FTW
HEARTLAND PARTNERSHIP
--------- -----------
<S> <C> <C>
Book Value Per Share (Unit) as of
December 31, 1994............................................ $ 2.71 $ 2,018.83
September 30, 1995........................................... $ 3.87 $ 1,343.01
Pro Forma Equivalent Book Value Per Share (Unit) as of
September 30, 1995(1)........................................ $ 12.66 $ 5,023.81
Net Loss Per Share (Unit)
for the year ended December 31, 1994......................... $ (.30) $ (905.06)
for the nine months ended September 30, 1995................. $ (.96) $ (675.83)
Pro Forma Equivalent Net Loss Per Share (Unit)(1)
for the year ended December 31, 1994......................... $ (.71) $ (281.75)
for the nine months ended September 30, 1995................. $ (.74) $ (293.65)
</TABLE>
- ---------------
(1) The pro forma information for FTW Partnership reflects an "equivalent" pro
forma adjustment determined by multiplying the pro forma information of
Heartland by the exchange ratio, assuming that (i) 578,261 shares of
Heartland Common Stock are issued upon consummation of the FTW Transaction,
resulting in an exchange ratio of one Heartland share for .00252 Units of
the FTW Partnership, (ii) the closing average and the closing price of
Heartland Common Stock on the closing date of the FTW Transaction is $28,
and (iii) all of the Transactions are consummated.
18
<PAGE> 674
Comparative Market Price Data. The FTW Units are not traded on any public
exchange or automated quotation system, and, as a result no market price is
available for such interests as of September 11, 1995. On September 11, 1995,
the last full trading day preceding the public announcement of Heartland's
intent to purchase the FTW Interest, the closing price per share of Heartland
was $21.50. As of January 22, 1996, the closing sale price per share of
Heartland Common Stock was $29.25. FTW Partners are urged to obtain current
market quotations for Heartland Common Stock.
TRANSACTION WITH MINNEAPOLIS PARTNERSHIP
Asset Purchase; Consideration. Pursuant to the terms of the Minneapolis
Agreement, (i) Minneapolis Partnership will assign to Heartland the Minneapolis
Interest, (ii) Minneapolis Partnership and Minneapolis Partners approving the
Minneapolis Agreement will assign to Heartland the Minneapolis Claims, (iii)
Heartland will assume up to $2.2 million of liabilities of Minneapolis
Partnership to AWS, and (iv) Heartland will issue to Minneapolis Partnership the
Minneapolis Shares having an aggregate exchange value equal to the sum of (A)
$18 million plus (B) $500 for each wireless cable television subscriber in
excess of 2,500 ("Additional Subscribers") as of the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 16, 1996
based upon a contemplated closing date of February 23, 1996) (currently
anticipated to be 1,000 Additional Subscribers on the relevant date, and not
anticipated to exceed 2,000 Additional Subscribers). Under the terms of the
Minneapolis Agreement, certain claims may be resolved by mutual agreement of the
parties prior to closing, with any agreed damages relating thereto ("Stipulated
Damages") to be paid from the liquidation of Minneapolis Shares in connection
with the dissolution of Minneapolis Partnership; provided that the aggregate
amount of such Stipulated Damages may not exceed $1 million. Pursuant to the
terms of the Minneapolis Agreement, claims by Heartland against Minneapolis
Partnership for breaches of the Minneapolis Agreement (other than Stipulated
Damages) may only be made during the six-month period following the consummation
of the Minneapolis Agreement, and Heartland will not have any recourse to
Minneapolis Partners other than to the extent that the Minneapolis Committee is
in possession of the proceeds of Minneapolis Shares liquidated for the payment
of contingent claims (which Minneapolis Shares will have an aggregate exchange
value of at least $500,000). Any claims asserted against Minneapolis Partnership
by Heartland after the closing of the Minneapolis Transaction will be subject to
the alternative dispute resolution procedures set forth in the Minneapolis
Agreement.
The exchange value of the Heartland Common Stock to be issued in the
Minneapolis Transaction will be equal to the average closing price of the
Heartland Common Stock as reported on the Nasdaq-NMS over the ten-trading-day
period ending on the fifth business day preceding the consummation of the
Minneapolis Agreement (or February 15, 1996 based upon a contemplated closing
date of February 23, 1996); provided, however, that if such average is (a)
greater than or equal to $23 per share but less than $30 per share, then the
exchange value will be $23 per share, and (b) greater than or equal to $30 per
share, then the exchange value will be (i) the product of the closing average
multiplied by $23, divided by (ii) $30, and the number of Minneapolis Shares
will be adjusted accordingly. Further, either Minneapolis Partnership or
Heartland, at its option, may terminate the Minneapolis Agreement if such
average closing price is below $17 per share. Heartland currently intends to
exercise such right, if applicable. As a result, a maximum of 1,117,647 shares
of Heartland Common Stock are issuable in connection with the Minneapolis
Agreement (assuming that there are 4,500 subscribers on the relevant date.) See
"The Minneapolis Transaction -- Terms of Minneapolis Agreement." Please see
"Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions" for the calculation of the maximum
and anticipated number of shares of Heartland Common Stock issuable at various
closing averages in connection with the Transactions. IN THE EVENT THAT THE
AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE
NASDAQ-NMS OVER THE SIX TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996
(REPRESENTING THE FIRST SIX DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION
PERIOD) IS GREATER THAN $34 OR LESS THAN $23, THE MINNEAPOLIS PARTNERS WILL BE
PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO ENABLE SUCH MINNEAPOLIS PARTNERS
WHO WISH TO DO SO TO CHANGE THEIR VOTE.
19
<PAGE> 675
In connection with the Minneapolis Agreement, Heartland has agreed to loan
to the Minneapolis LLC up to $1,575,000 (the "Minneapolis Loan"), of which (a)
$575,000 was advanced on October 31, 1995 and used to repay an existing
obligation, and (b) $1 million ("Subscriber Proceeds") may be used for general
working capital purposes (not to exceed $100,000) and for subscriber growth.
Heartland advanced $250,000 of the Subscriber Proceeds on October 31, 1995 and
$234,000 on December 20, 1995 to fund working capital needs and subscriber
growth. The Minneapolis Loan is secured by a first lien on the wireless cable
channel assets in the Minneapolis, Minnesota market, and, upon the consummation
of the Minneapolis Transaction, the Minneapolis Partnership will be responsible
for the repayment of a portion of the Minneapolis Loan (approximately $215,000)
from the proceeds of the Minneapolis Shares to be liquidated in connection with
the dissolution of the Minneapolis Partnership. The Minneapolis Agreement also
grants to Heartland a right of first refusal with regard to the Minneapolis
Interest. See "The Minneapolis Transaction -- Terms of Minneapolis
Agreement -- Minneapolis Loan."
Distribution; Dissolution and Liquidation. As a part of the approval of the
Minneapolis Agreement, the Minneapolis Partners are being asked to approve the
Minneapolis Liquidation Plan, pursuant to which the Minneapolis Shares will be
distributed. To facilitate the distribution of the Minneapolis Shares, Harris
Trust Company of New York has been selected to act as an exchange agent (the
"Exchange Agent") for the purpose of effectuating the delivery of the
Minneapolis Shares. Pursuant to the terms of the Minneapolis Agreement and the
Exchange Agent Agreement among the Minneapolis Partnership, Heartland and the
Exchange Agent ("Minneapolis Exchange Agreement"), Heartland will deliver to the
Exchange Agent the Minneapolis Shares for distribution in accordance with the
terms of the Minneapolis Liquidation Plan. The Minneapolis Committee anticipates
that upon the consummation of the Minneapolis Transaction, Minneapolis Shares
having an aggregate value of approximately $1.5 million (or $721.50 per
Minneapolis Unit) will be sold by the Exchange Agent on behalf of Minneapolis
Partnership (in the open market or as otherwise directed by the Minneapolis
Committee) to satisfy the known and contingent claims of the Minneapolis
Partnership and to pay the Minneapolis Partnership's costs of the Minneapolis
Transactions and to pay certain costs associated with the winddown and
termination of the Minneapolis Partnership's operation, and Minneapolis Shares
having an aggregate value equal to $17 million (or $8,177 per Minneapolis Unit)
will be available for distribution to the Minneapolis Partners. Upon the
completion of the Minneapolis Liquidation, any remaining Minneapolis Shares (or
proceeds thereof) will be distributed among the Minneapolis Partners. No
fractional shares will be issued in connection with the Minneapolis Transaction.
Instead, fractional Minneapolis Shares will be liquidated by the Exchange Agent
on behalf of Minneapolis Partnership and distributed in accordance with the
Minneapolis Liquidation Plan.
Recommendation of the Minneapolis Committee; Reasons for the Minneapolis
Transaction.
The Minneapolis Committee has approved the Minneapolis Transaction and
Minneapolis Agreement and recommends that the Minneapolis Partners vote FOR the
Minneapolis Transaction and thereby approve and adopt the Minneapolis Agreement
and Minneapolis Liquidation Plan. The Minneapolis Committee believes that the
Minneapolis Transaction will provide the Minneapolis Partners with increased
liquidity for their ownership interest, is a favorable means of resolving
certain questions and concerns arising from the organization of the Minneapolis
Partnership, and will result in a greater potential for long-term value than
Minneapolis Partnership would have if it continued as a member in the
Minneapolis LLC. See "The Minneapolis Transaction -- Recommendation of the
Minneapolis Committee; Reasons for the Minneapolis Transaction."
Opinion of Minneapolis Advisor. The Minneapolis Committee has elected not
to retain a financial advisor in connection with the Minneapolis Transaction.
Risk Factors. The proposed Minneapolis Transaction involves substantial
risk. The following risk factors, together with all the other information
appearing in this Proxy Statement/Prospectus should be carefully considered by
the Minneapolis Partners, in light of their particular investment objections and
financial circumstances, prior to determining how to vote: (i) there are
significant uncertainties and risks relating to the integration of the entities'
operations in the event that the planned divestiture of the Minneapolis system
is not consummated; (ii) the value of the Minneapolis Claims to be released or
assigned to Heartland may, together
20
<PAGE> 676
with the consideration to be received for the Minneapolis Interest, be more or
less valuable than the Heartland Common Stock to be received by the Minneapolis
Partners upon the dissolution of the Minneapolis Partnership; (iii) Heartland
may in the future make additional acquisitions or may be unsuccessful in
consummating planned divestitures, each of which could adversely affect the
liquidity, results of operations and financial condition of Heartland; (iv) the
Minneapolis Partners, as general partners, are jointly and severally liable for
the obligations and liabilities of the Minneapolis Partnership; (v) substantial
risks are associated with the potential volatility in the market of the
Heartland Common Stock upon the consummation of the Transactions and subsequent
liquidation of shares of Heartland Common Stock to satisfy certain obligations
of the parties to the Transactions; (vi) there is a risk that the Minneapolis
Partnership will be unable to fulfill its liquidating obligations from the
proceeds of the Minneapolis Shares anticipated to be liquidated pursuant to the
Minneapolis Liquidation Plan; and (vii) simultaneously with the Minneapolis
Transaction, Heartland proposes to enter into several other transactions the
result of which, if consummated, will be to substantially increase the number of
shares of Heartland Common Stock outstanding. See "Risk Factors."
Certain Federal Income Tax Consequences. If consummated, the Minneapolis
Transaction will be treated as a taxable transaction of the Minneapolis
Partnership, and each Minneapolis Partner will report a proportionate share of
any taxable gain recognized by Minneapolis Partnership. See "The Minneapolis
Transaction -- Certain Federal Income Tax Consequences."
Accounting Treatment. The Minneapolis Transaction will be accounted for by
Heartland under the "purchase method" of accounting in accordance with generally
accepted accounting principles. See "The Minneapolis Transaction -- Accounting
Treatment."
Dissenters Rights. The approval of Minneapolis Partners owning two-thirds
( 2/3) of the outstanding Minneapolis Units is required to approve the
Minneapolis Transaction. Under applicable California partnership law,
Minneapolis Partners that do not approve the Minneapolis Transaction will not be
entitled to exercise dissenters or appraisal rights. See "The Minneapolis
Transaction -- Absence of Dissenters or Appraisal Rights."
Conditions to Consummation of the Minneapolis Transaction. The consummation
of the Minneapolis Agreement is conditioned upon the fulfillment or waiver
(where permissible) of certain conditions set forth in the Minneapolis
Agreement. The Minneapolis Agreement is also subject to the closing of the AWS
Merger. For a detailed description of the conditions to the Minneapolis
Agreement, see "The Minneapolis Transaction -- Conditions."
Regulatory Approvals. The Minneapolis Transaction does not require any
regulatory approvals other than federal and state approvals required in
connection with the effectiveness of the Registration Statement of which this
Proxy Statement/Prospectus forms a part and FCC approval regarding the transfer
of control of commercial wireless cable television licenses held by Minneapolis
LLC. See "The Minneapolis Transaction -- Regulatory Approvals."
Consummation of the Minneapolis Agreement. If the Minneapolis Transaction
is approved by the requisite vote of the Minneapolis Partners and other
conditions to the consummation of the Minneapolis Agreement are satisfied or
waived (where permissible), the Minneapolis Agreement will be consummated upon
the transfer of the Minneapolis Interest, the assignment of the Minneapolis
Claims, and the delivery of the Minneapolis Shares to the Exchange Agent. It is
anticipated that such transactions will occur as soon as practicable after the
satisfaction or waiver (where permissible) of the conditions noted above. It is
anticipated that the Minneapolis Liquidation Plan will be consummated within one
year of the consummation of the Minneapolis Agreement.
Termination of the Minneapolis Agreement. In general, the Minneapolis
Agreement may be terminated (i) by mutual consent of Heartland and the
Minneapolis Partnership, (ii) by either Heartland or the Minneapolis Partnership
if the Minneapolis Agreement has not been consummated by March 15, 1996, and
(iii) under certain other circumstances. See "The Minneapolis
Transaction -- Termination."
21
<PAGE> 677
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the Minneapolis Units certain historical pro forma
and equivalent pro forma per unit financial information as of December 31, 1994
and the year then ended and as of September 30, 1995 and the nine months then
ended. All such information is presented on a per share basis. Neither Heartland
nor Minneapolis Partnership has paid any cash dividends or distributions. The
pro forma amounts included in the table below are based on the purchase method
of accounting and a preliminary allocation of the consideration paid by
Heartland. The following information should be read in conjunction with and is
qualified in its entirety by reference to the historical financial statements
and accompanying notes of Heartland and Minneapolis Partnership and "Pro Forma
Financial Information Relative to the Transactions" and other pro forma
financial information incorporated by reference or included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
MINNEAPOLIS
HEARTLAND PARTNERSHIP
--------- -----------
<S> <C> <C>
Book Value Per Share (Unit) as of
December 31, 1994........................................... $ 2.71 $2,316.99
September 30, 1995.......................................... $ 3.87 $1,627.60
Pro Forma Equivalent Book Value Per Share (Unit) as of
September 30, 1995(1)....................................... $ 12.66 $4,759.40
Net Loss Per Share (Unit)
for the year ended December 31, 1994........................ $ (.30) $ (940.46)
for the nine months ended September 30, 1995................ $ (.96) $ (689.39)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................ $ (.71) $ (266.92)
for the nine months ended September 30, 1995................ $ (.74) $ (278.20)
</TABLE>
- ---------------
(1) The pro forma information for Minneapolis Partnership reflects an
"equivalent" pro forma adjustment determined by multiplying the pro forma
information of Heartland by the exchange ratio, assuming that (i) 782,609
shares of Heartland Common Stock are issued upon consummation of the
Minneapolis Transaction, resulting in an exchange ratio of one Heartland
share for .00266 Units of the Minneapolis Partnership (ii) the closing
average and the closing price of Heartland Common Stock on the closing date
of the Minneapolis Transaction is $28, and (iii) all of the Transactions are
consummated.
Comparative Market Price Data. The Minneapolis Units are not traded on any
public exchange or automated quotation system, and, as a result no market price
is available for such interest as of September 11, 1995. On September 11, 1995,
the last full trading day preceding the public announcement of Heartland's
intent to purchase the Minneapolis Interest, the closing price per share of
Heartland was $21.50. As of January 22, 1996, the closing sale price per share
of Heartland Common Stock was $29.25. The Minneapolis Partners are urged to
obtain current market quotations for Heartland Common Stock.
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS
Contemporaneously with the transactions described in this Proxy
Statement/Prospectus, Heartland proposes to consummate the following
transactions (collectively, the "Other Transactions" and together with the AWS
Merger, FTW Transaction and Minneapolis Transaction, the "Transactions") (i) the
merger ("CMAX Merger") of Heartland Merger Sub 2, Inc. ("CMAX Merger Sub") into
CableMaxx, Inc. ("CMAX") pursuant to the terms of an Amended and Restated Merger
Agreement (the "CMAX Merger Agreement"), dated September 11, 1995 among
Heartland, CMAX and CMAX Merger Sub, and (ii) the acquisition of substantially
all of the assets formerly held by Technivision, Inc. ("Technivision"), a former
subsidiary of Three Sixty Corp. ("TSC") that has been merged into TSC, from TSC
pursuant to the terms of the Amended and Restated Asset Purchase Agreement ("TSC
Agreement") dated as of October 19, 1995 among Heartland, Technivision and TSC,
and other transactions related thereto (collectively, the "TSC Transaction").
This Proxy Statement/Prospectus is one of four proxy statements or prospectuses
that are contained in the Registration Statement of which this Proxy
Statement/Prospectus forms a part. To obtain, without charge, copies of any
other proxy statement or prospectus contained therein, see "Additional
Information." For a summary discussion of the Other Transactions that are the
subject of such other proxy
22
<PAGE> 678
statements or prospectuses, see "Certain Information Regarding Other
Transactions." There can be no assurance that any of the Other Transactions will
be consummated.
THE COMBINED COMPANY
Generally. Following the consummation of the Transactions and the
disposition of the Heartland Disposition Assets, if this should occur,
Heartland, together with the combined operations and businesses of one or more
of AWS, FTW Venture, Minneapolis LLC, CMAX and TSC (collectively, the "Combined
Company") will be in the business of developing, owning and operating wireless
cable television systems in primarily small and mid-sized markets within the
central United States. The Combined Company will continue to build out its
existing markets substantially in accordance with the business plan adopted by
the management of Heartland and described herein. Management of Heartland does
not currently anticipate material changes in the Combined Company's business
strategy or market focus, although the Combined Company expects to respond as
its management deems appropriate to changes in its markets or competitive
environment. The Combined Company will continue to aggregate wireless cable
channel rights and locate operations in geographic clusters of small to
mid-sized markets that have a substantial number of households not currently
passed by traditional hard-wire cable. The Combined Company will also continue
its strategy of launching most markets with only 12 channels of programming,
focusing on areas with limited access to local off-air VHF/UHF broadcast
channels. No assurance can be given that any of the Transactions will be
consummated and, if consummated, no assurance can be given that the businesses
combined thereby can be successfully integrated. See "The Combined
Company -- Business of the Combined Company After the Transactions."
Management of the Combined Company. The Combined Company will be managed
after consummation of the Transactions by Heartland's existing management, and
has entered into a noncompetition and consulting agreement with Steven G.
Johnson, the President of AWS. The Combined Company does not expect to retain
executive officers (other than Mr. Johnson under a consulting and noncompetition
agreement) or any significant numbers of management personnel from AWS or CMAX.
No management personnel will be hired from TSC, Minneapolis Partnership or FTW
Partnership. To the extent necessary to maintain customer service and system
launch schedules, the Combined Company may retain certain other employees of
AWS, CMAX or TSC. No member of the Board of Directors of AWS, CMAX or TSC will
continue to serve as a member of the Board of Directors of the Combined Company
following the consummation of the Transactions.
Principal Holders. The following table sets forth (a) the effect of the
Transactions (assuming the consummation of all of the Transactions and an
average closing price during the relevant periods of $28 per share (the
approximate closing average of the Heartland Common Stock over the ten- and
20-day trading periods preceding the date hereof) or $17 per share (the closing
average at which the maximum number of shares of Heartland Common Stock are
issuable pursuant to the Transactions) of Heartland Common Stock and certain
other assumptions as noted) on the amount and percentage of present holdings of
shares of Heartland Common Stock owned beneficially by each holder of five
percent (5%) or more of the shares of Heartland Common Stock and (b) persons
that will beneficially own five percent (5%) or more of the outstanding shares
of Heartland Common Stock outstanding immediately following the Transactions.
See "Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
</TABLE>
23
<PAGE> 679
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- --------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, and (iv) CMAX's net liabilities do not exceed specified
amounts. See "Information Concerning Heartland -- Calculation and Listing of
Shares to be Issued in Connection with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the owner of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in connection with the liquidation of TSC. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
Markets. The following table sets forth certain information with respect to
the markets to be acquired by Heartland in the Transactions.
<TABLE>
<CAPTION>
CURRENT
ESTIMATED CHANNELS NUMBER OF
ESTIMATED LINE-OF- (INCLUDING SUBSCRIBERS AT
TOTAL SIGHT OFF-AIR NOVEMBER 30,
TRANSACTION MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS) 1995
- -------------- -------------------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CMAX Salt Lake City, UT*....... 454,000 434,000 27(2) --
Amarillo, TX(1)(5)........ 90,000 80,000 9(3) --
Athens, TX(1)(5).......... 90,000 60,000 7(3) --
Austin, TX................ 360,000 250,000 31 12,299
Lubbock, TX(1)(5)......... 110,000 100,000 12(4) --
San Antonio, TX*.......... 550,000 440,000 37 11,805
Sherman/Denison, TX(5).... 100,000 90,000 31(6) --
Temple/Killeen, TX........ 110,000 80,000 35 6,312
Waco, TX.................. 100,000 80,000 35 3,860
--------- --------- ------
1,964,000 1,614,000 34,276
--------- --------- ------
AWS Los Angeles, CA*.......... 3,029,500 2,726,500 9(7) --
Minneapolis, MN(8)*....... 958,900 882,200 29 2,744
Fort Worth, TX(8)*........ 539,700 442,500 35(9) 1,554
Dallas, TX*............... 981,500 872,400 16(7) --
Memphis, TN*.............. 376,900 350,600 22(7) --
--------- --------- ------
5,886,500 5,274,200 4,298
--------- --------- ------
TSC Dayton, OH*............... 460,000 300,000 31 3,242
Corpus Christi, TX........ 135,000 108,000 31 15,468
El Paso, TX............... 200,000 180,000 27 --
--------- --------- ------
795,000 588,000 18,710
--------- --------- ------
8,645,500 7,476,200 57,284
========= ========= ======
</TABLE>
24
<PAGE> 680
- ---------------
* Constitutes part of the Heartland Disposition Assets.
(1) Heartland currently has an operating system in Lubbock, Texas and certain
wireless cable channel rights in the Amarillo and Corsicana/Athens, Texas
markets.
(2) Of these channels, 7 are the subject of pending applications.
(3) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(4) Of these channels, 4 are the subject of an appeal by an unsuccessful
applicant for the frequencies.
(5) Currently subleased by Heartland pursuant to a Sublease Agreement with CMAX.
(6) Of these channels, 8 are the subject of uncontested application proceedings.
(7) These systems are not in operation and do not include off-air channels.
(8) Includes acquisition of assets from the FTW Partnership and the Minneapolis
Partnership in the FTW Transaction and Minneapolis Transaction, as the case
may be.
(9) Includes 8 channels which must be co-located at AWS's headend transmission
facility before programming may be effected on these channels.
Planned Divestitures. The Board of Directors of Heartland has identified
the Maysville and Sweet Springs, Missouri, Grand Rapids/Moline Michigan, Bloom
Center/Napoleon, Indiana and Flippin, Tennessee markets currently owned by
Heartland, and the Los Angeles, California, Dallas, Fort Worth and San Antonio,
Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake City, Utah and Minneapolis,
Minnesota markets to be acquired in the Transactions (collectively, the
"Heartland Disposition Assets") as being markets for which Heartland should seek
one or more disposition opportunities for cash, promissory notes, retained
equity interests or a combination thereof. Notwithstanding its determination to
seek the sale, exchange or other disposition of the Heartland Disposition
Assets, Heartland believes that some or all of such markets, properly developed
and operated, offer attractive opportunities to participate in the wireless
cable television industry.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets. Heartland expects to sell the
Flippin market to TruVision for $1.5 million contemporaneously with the sale to
TruVision by AWS of the Memphis market for $3.9 million (collectively, the
"Memphis Transaction"). Heartland will not retain a direct or indirect interest
in these markets.
Effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or its contributing
subsidiaries) will receive (i) shares of Newco common stock (the "Newco Common
Stock") constituting approximately 39.76% of the outstanding shares of Newco
Common Stock at the closing, (ii) approximately $28.3 million in cash payable by
Newco at the closing, (iii) a promissory note in the principal sum of $25
million payable nine (9) months from the closing and secured by proceeds of a
contemplated issuance by Newco of $125 million of senior discount notes (the
"Newco Financing") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing, and prepayable from asset sales and certain other
events. Within six months of closing, CAI and Heartland will complete certain so
called post-closing net working capital calculations. Components
25
<PAGE> 681
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 Newco for each market,
increase or decrease in the number of subscribers in each contributed system
from the number of subscribers stated in the Participation Agreement and related
factors. Following the completion of these calculations, an increase or decrease
will occur in the principal amounts of the promissory notes received by
Heartland from Newco, and CAI will either contribute to or be entitled to a
distribution of cash from Newco, depending upon such calculations.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland); (ii) up to three members designated by Heartland
(provided that at least one of whom may not be an affiliate of either CAI or
Heartland); (iii) the Chief Executive Officer of Newco; and (iv) the Chief
Financial Officer of Newco. The Stockholders Agreement and Newco's Bylaws
further provide that certain major transactions will require the affirmative
approval of at least 70% (or 7 of 9) of the Directors of Newco.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "The Combined Company -- Business of the
Combined Company After the Transactions", "-- Planned Divestitures" and
"-- Reasons for the Transactions."
Summary Pro Forma Financial Information. The following table sets forth
summary pro forma financial data of Heartland. The summary unaudited pro forma
statement of operations data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
January 1, 1994, as if such events had occurred on January 1, 1994. The summary
unaudited balance sheet data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
September 30, 1995, as if such events had occurred on September 30, 1995. The
information contained in this table should be read in conjunction with "Pro
Forma Financial Information Relative to the Transactions" and the other pro
forma financial information appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Statement of Operations Data:
Total revenues................................................ $ 20,091,635 $ 20,757,529
Total operating expenses...................................... 34,716,226 33,264,971
Operating loss................................................ (14,624,591) (12,507,442)
Interest expense, net......................................... 5,303,165 8,789,219
Income tax benefit............................................ 7,282,895 7,839,079
Net loss...................................................... (13,649,455) (14,253,813)
Net loss per common share..................................... $ (.71) $ (.74)
Weighted average shares outstanding........................... 19,230,083 19,280,566
Other financial data:
EBITDA(1)..................................................... $ (3,449,980) $ (783,996)
</TABLE>
26
<PAGE> 682
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
1995
-------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted investments.................. $ 68,613,369
Restricted investments....................................................... 24,747,214
Total assets................................................................. 428,093,782
Long-term debt, including current portion.................................... 141,407,486
Total stockholders' equity................................................... 244,133,989
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
27
<PAGE> 683
RISK FACTORS
In addition to the other information in this Proxy Statement/Prospectus,
all of the risk factors listed below should be considered carefully by the
stockholders of AWS and the FTW Partners and the Minneapolis Partners. These
factors should be considered in conjunction with the other information included
or incorporated by reference in this Proxy Statement/Prospectus.
FACTORS RELEVANT TO ALL OF THE PARTIES
LIMITED OPERATING HISTORY; NET LOSSES SINCE INCEPTION
Although Heartland's business commenced in 1990, it did not generate any
revenues until April 1992. As of September 30, 1995, Heartland has recorded net
losses of approximately $14.8 million since inception, due primarily to interest
expense and charges for depreciation and amortization of capital expenditures to
develop its wireless cable systems. Until such time as the Combined Company
substantially increases its subscriber base, resulting in higher subscription
fee revenues, it will continue to experience losses. Because of the costs
associated with launching a wireless cable television system and expanding its
subscriber base, continued growth by the Combined Company will tend to reduce
net income, if any, or increase net losses. As a result, Heartland expects to
continue to experience net losses whether or not the Transactions are
consummated and for an indefinite period thereafter while it develops and
expands its wireless cable systems even if mature individual systems of the
Combined Company are profitable.
SUBSTANTIAL INDEBTEDNESS OF THE COMBINED COMPANY; INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Combined Company will have a high level of indebtedness. As of
September 30, 1995, on a pro forma basis after giving effect to the consummation
of the Transactions, the Combined Company would have had approximately $158.6
million of long-term debt and other liabilities ($8.8 million of which is
attributable to the Transactions) including the current portion of the long-term
debt of $2.0 million. For the years ended December 31, 1992, 1993 and 1994, and
for the nine months ended September 30, 1994 and 1995, Heartland's earnings were
insufficient to cover fixed charges by $50,822, $406,101, $4,638,284, $1,863,404
and $12,485,232, respectively. The ability of the Combined Company to make
payments of principal and interest on its indebtedness will be largely dependent
upon its future financial performance. Many factors, some of which will be
beyond the Combined Company's control (such as prevailing economic conditions),
will affect its financial performance. There can be no assurance that the
Combined Company will be able to generate sufficient cash flow to cover required
interest and principal payments. If the Combined Company is unable to meet
interest and principal payments in the future, it may, depending upon the
circumstances which then exist, seek additional equity or debt financing,
attempt to refinance its existing indebtedness or sell all or part of its
business or assets to raise funds to repay its indebtedness. There can be no
assurance that sufficient equity or debt financing will be available, or, if
available, that it will be on terms acceptable to the Combined Company, that the
Combined Company will be able to refinance its existing indebtedness or that
sufficient funds could be raised through asset sales. The Combined Company's
high level of indebtedness has several important consequences, including, but
not limited to: (i) significant interest expense and principal repayment
obligations resulting in substantial annual fixed charges; (ii) significant
limitations on the Combined Company's ability to obtain financing, make capital
expenditures and acquisitions and take advantage of other business opportunities
that may arise; and (iii) increased vulnerability to adverse general economic
and industry conditions. There can be no assurance that the Combined Company
will be profitable in the future.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
Heartland has experienced rapid growth in the number of its employees and
the scope of its operating and financial systems. This growth has resulted in an
increased level of responsibility for both existing and new management
personnel. The consummation of the Transactions will result in additional
significant growth of Heartland's operations, particularly if the planned
divestiture of assets by Heartland is not consummated. To manage its growth
effectively, Heartland will be required to implement and improve its operating
and financial
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systems and controls and to expand, train and manage its employee base. In
addition, Heartland may be required to integrate into its business one or more
of the businesses acquired from CMAX, AWS, FTW Venture, the Minneapolis LLC and
TSC, although Heartland anticipates disposing of all of the business acquired
through AWS, the FTW Venture and the Minneapolis LLC. Heartland currently has no
plans for the Combined Company to retain any of the executive officers of AWS,
CMAX or TSC, other than Steven G. Johnson, the President of AWS, with whom
Heartland has entered into a consulting and non-competition agreement. As a
result, the Combined Company will be dependent upon the existing management of
Heartland to assume and perform the management functions formerly performed by
management of each of the parties to the Transactions. To the extent that
Heartland's existing management is unable to assume or perform these combined
duties, the Combined Company could be adversely affected. There can be no
assurance that the management, systems and controls currently in place or any
steps taken to improve such management, systems and controls will be adequate in
the future, whether or not Heartland consummates one or more of the
Transactions.
In addition, promptly following the consummation of the Transactions,
management of the Combined Company will be required to make and implement a
number of strategic and operational decisions regarding the integration of the
entity's various operations and the exploitation of its assets and businesses.
The timing and manner of the implementation of decisions made with respect to
the ongoing business of the Combined Company following the consummation of the
Transactions will materially affect the operations of the Combined Company.
Given the range of potential outcomes arising from such decisions, and the
interrelationships among decisions to be made, it is difficult to quantify with
precision the composition of the Combined Company. There can also be no
assurance that any acquired businesses will be integrated successfully into
Heartland's business.
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of the Combined Company's business requires substantial
investment on a continuing basis to finance capital expenditures and expenses
related to subscriber growth and system development. Although Heartland believes
that its cash and cash equivalent assets will be sufficient to fund the Combined
Company's operations and expansion through at least the end of 1996, there is no
assurance that additional funds will not be necessary to complete the launch,
build-out and expansion of all of the Combined Company's wireless cable systems
and to bring such systems to a mature state or that any such required additional
funds would be available on satisfactory terms and conditions, if at all. In
addition, the Combined Company's capital needs will depend in part upon the
success of Heartland's and the Combined Company's efforts to sell or otherwise
dispose of the Heartland Disposition Assets and the nature of any consideration
received as a result of such dispositions. To the extent assets and markets
designated for disposition are not sold, or are not sold for cash, the Combined
Company's requirements for additional funds will be increased. There is also no
assurance that the Combined Company will not pursue, from time to time, other
opportunities to acquire additional wireless cable channel rights and businesses
that may utilize the capital currently expected to be available for its current
markets. The amount and timing of the Combined Company's future capital
requirements, if any, will depend upon a number of factors, including
programming costs, equipment costs, marketing expenses, staffing levels,
subscriber growth and competitive conditions, and any purchases or dispositions
of assets, many of which are not within the Combined Company's control. Failure
to obtain any required additional financing could materially adversely affect
the growth, cash flow or earnings of the Combined Company.
POTENTIAL SIGNIFICANT INDUSTRY TRANSACTIONS
Significant industry transactions such as acquisitions and dispositions of
channel rights, joint ventures and other business transactions between and among
participants in the wireless cable television industry have occurred with some
frequency in the past, and Heartland's management expects this trend to continue
in the foreseeable future. Although Heartland regularly engages in discussions
concerning such industry transactions with other industry participants,
Heartland is not currently subject to any material definitive agreements in such
regard except as disclosed herein or in those documents incorporated herein by
reference. Whether Heartland proceeds with any of these discussions and whether
the Combined Company ultimately negotiates
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and/or consummates any additional significant industry transactions will depend,
among other things, upon the business and prospects of the Combined Company,
industry conditions, investment and growth opportunities available to the
Combined Company, stock market conditions, availability and suitability of
financing for such transactions, regulatory and legal considerations, and other
plans and requirements of the Combined Company. No assurance can be given that,
if consummated, any such significant industry transactions could be successfully
integrated into the Combined Company's business.
INVESTMENT IN NEWCO
Pursuant to the Newco Transaction, Heartland shall contribute or sell the
Heartland Disposition Assets, other than the Memphis and Flippin, Tennessee
markets to be disposed of in the Memphis Transaction, and the Los Angeles
channel rights (which Heartland will seek to sell directly to a third party), to
Newco in exchange for cash, promissory notes and a retained equity interest. The
Stockholders Agreement provides that Heartland will have the right to appoint
less than a majority of the directors of Newco. Therefore, the Combined Company
will not control the management of Newco, and it will be dependent upon the
skill, expertise and managerial efforts of the management of Newco to achieve a
return on this proposed substantial investment. To the extent that Newco proves
unsuccessful in its business, the value of the Combined Company's investment
therein will be adversely affected. Further, consummation of the Newco
Transaction is subject to significant customary closing conditions. No assurance
can be given that such conditions will be satisfied. See "The Combined
Company -- Business of the Combined Company After the Transactions" and
"-- Planned Divestitures".
DEPENDENCE ON EXISTING MANAGEMENT; KEY EMPLOYEES
Heartland is dependent in large part on the experience and knowledge of
existing management. Heartland has not entered into any employment agreements
with, or obtained key-man life insurance for, any of its executive officers and
there can be no assurance that any of such persons will remain in Heartland's
employ in the future. The Combined Company's success is also dependent upon its
ability to attract and retain qualified employees to develop and operate its
wireless cable systems.
COMPETITION
The pay television industry is highly competitive. Wireless cable
television systems face or may face competition from several sources, such as
traditional hard-wire cable companies, satellite master antenna television
systems, direct broadcast satellites and other alternative methods of
distributing and receiving television transmissions. Further, premium movie
services offered by cable television systems have encountered significant
competition from the home video cassette industry. In areas where several local
off-air VHF/UHF broadcast signals can be received without the benefit of
subscription television, cable television systems also have experienced
competition from the availability of broadcast signals generally and have found
market penetration to be more difficult. In addition, within each market, the
Combined Company initially must compete with others to acquire, from the limited
number of channel licenses issued, rights to a minimum number of channels needed
to establish a viable system. Legislative, regulatory and technological
developments may result in additional and significant competition, including
competition from local telephone companies, from a proposed new wireless service
known as local multi-point distribution and from emerging trends and
technologies. Heartland has targeted its marketing in its Existing Systems (as
hereafter defined) to households that are unpassed by traditional hard-wire
cable and that have limited access to local off-air VHF/UHF broadcast channels.
Accordingly, to date Heartland has not encountered significant direct
competition from traditional hard-wire cable companies. It is likely, given the
markets involved in the Transactions, that the Combined Company will face
significant direct competition from traditional hard-wire cable companies in the
future, especially in the urban markets acquired in the Transactions if the
planned divestiture of such markets described herein is not consummated. The
basic programming package offered in each of Heartland's existing systems is
comparable to that offered by the local traditional hard-wire cable operators.
However, certain of such local traditional hard-wire cable operators currently
offer more premium, pay-per-view and public access channels than Heartland. In
addition, as the telecommunications industry
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continues to evolve, the Combined Company may face additional competition from
new providers of entertainment and data services. In particular, there are a
rapidly growing number of information and data service providers serving
consumers via informal communications networks, such as the Internet and World
Wide Web. Although the Combined Company is unaware of any such provider
delivering programming like that available over wireless cable television, there
can be no assurance that continuing advances in technology will not make such
delivery possible. Even if such direct competition does not exist in the future,
however, the Combined Company's services will compete, indirectly, with
entertainment services generally, including those provided by operators using
evolving technology. Many actual and potential competitors have greater
financial, marketing and other resources than Heartland. No assurance can be
given that the Combined Company will compete successfully in any or all of its
markets.
GOVERNMENT REGULATION
The right to transmit on wireless cable channels is regulated by the
Federal Communications Commission (the "FCC") and the copyright for the
retransmission of local off-air VHF/UHF broadcasts is regulated by the United
States Copyright Office pursuant to the Copyright Act of 1976, as amended (the
"Copyright Act").
Cable Act. Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992, as amended (the "Cable Act"), the FCC adopted rate
regulations exclusively for traditional hard-wire cable systems. Heartland
cannot predict precisely what effect these regulations or other governmental
regulations may have on traditional hard-wire cable operators as to price and
service. 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 an adverse effect on the
industry as a whole and on Heartland in particular.
Copyright Act. Secondary transmission of a broadcast signal is permissible
only if approved by the copyright holder or if subject to compulsory licensing
under the Copyright Act. The United States Congress recently adopted legislation
extending the compulsory copyright licensing system to include wireless cable
systems. As a result of this action, wireless cable operators may engage in
secondary transmissions of distant programming without the copyright holder's
approval, provided that such operators file certain reports and pay certain fees
set by the Copyright Royalty Tribunal. See "Risk Factors -- Factors Relevant to
All of the Parties -- Dependence on Program Material Agreements."
Regulation of Retransmission. 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 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. Heartland has obtained such
consents in each of its Existing Systems where Heartland is retransmitting on a
wireless cable channel. Such consents will be required in Heartland's other
markets. There can be no assurance that the Combined Company will be able to
obtain such consents on terms satisfactory to the Combined Company.
Other Regulations. Wireless cable operators are also subject to regulation
by the Federal Aviation Administration (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
Combined Company will not be required to incur additional costs in complying
with such regulations and restrictions. No assurance can be given that new
regulations will not be imposed or that existing regulations will not be
changed. Any such new or modified regulations could have a material adverse
effect on the wireless cable industry as a whole and on Heartland and the
Combined Company in particular.
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DEPENDENCE ON CHANNEL LEASES; LOSS OF LICENSES BY LESSORS
Heartland is dependent, and the Combined Company will be dependent, on
leases with unaffiliated third parties for most of its wireless cable channel
rights. Heartland 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. Heartland's channel
leases typically cover four instructional television fixed service ("ITFS")
and/or one to four multi-point distribution service ("MDS") wireless 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. See
"Wireless Cable Industry -- Regulatory Environment." Under the rules of the FCC,
the term of an ITFS channel lease cannot exceed ten years. There is no such
restriction for MDS channel leases. ITFS licenses generally are granted for a
term of ten 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 Heartland'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
Heartland's channel leases are approximately 5 to 10 years, although certain of
Heartland's channel leases have initial terms expiring during the next several
years. Most of Heartland's leases grant Heartland 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
Heartland being unable to deliver television programming on such channel(s).
Although Heartland does not believe that the termination of or failure to renew
a single channel lease or license would adversely affect the Combined Company,
several of such terminations or failures in one or more markets that Heartland
actively serves could have a material adverse effect on the Combined 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 Heartland'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.
UNCERTAINTY OF GRANT OF PENDING APPLICATIONS
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom Heartland has entered into leases have filed a series
of applications with the FCC for a number of wireless cable channels and
Heartland 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
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Heartland's lease agreements with applicants for channel licenses involve
channel licenses for which Competing Applications have been filed. In each
market, Heartland 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 Heartland has
acquired channel rights, based upon alleged substantive defects in the applicant
or in technical or other aspects of the application. Heartland anticipates that
the FCC will deny most of the current petitions to deny the applications in
which Heartland has acquired channel rights. However, no assurance can be given
as to the precise number of such petitions that will be denied. Although
Heartland 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 Heartland has acquired channel rights
would adversely affect Heartland, several of such awards or grants could have a
material adverse effect on Heartland.
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS
Wireless cable systems transmit programming over wireless cable channels
that are licensed by the FCC. Generally, Heartland believes that a minimum of
twelve wireless cable channels are necessary to offer a commercially viable
wireless cable system in most rural markets and that more channels are required
in more competitive markets, such as those well served by traditional cable
television systems. In some of its long-term launch markets, Heartland does not
currently have the right to operate twelve channels from the same transmitter
site. In those markets, Heartland is dependent upon (i) the grant of pending
applications for modification of existing licenses for unbuilt ITFS stations,
(ii) the grant of such license modification applications which have not been
filed and/or (iii) the grant of applications for new ITFS licenses, some of
which have not been filed. There can be no assurance that any or all of the
modification applications and new license applications actually made or
anticipated to be made by Heartland will be granted by the FCC. Although
Heartland does not believe that the denial of any single modification or new
license application will adversely affect it, the denial of several such
applications, particularly if concentrated in one or a few of Heartland's
markets, could have a material adverse effect on its growth. See "Wireless Cable
Industry -- Cable Industry Overview" and "-- Regulatory Environment."
INTERFERENCE ISSUES
Under current FCC regulations, a wireless cable operator may install
receive-site equipment and serve any point where its signal can be received,
subject to the interference protection rights of certain other wireless cable
systems. Interference from other wireless cable systems can limit the ability of
a wireless cable system to serve particular points, in the same manner that
interference from one television station limits the ability of a viewer to
receive another television station broadcasting on the same frequency. In
licensing ITFS and multi-point distribution service stations, a primary concern
of the FCC is avoiding situations where proposed stations are predicted to cause
interference to the reception of existing station signals. Pursuant to current
FCC regulations, a wireless cable license holder is generally protected from
interference within 35 miles of the transmission site. Heartland's business plan
involves moving the authorized transmitter site of various of its MDS and ITFS
licensed stations and obtaining the grant of licenses to new stations that
Heartland will use in its wireless cable systems. The FCC interference
protection standards may make one or more of those proposed relocations or new
grants unavailable. In any such event, it may be necessary to negotiate
interference agreements with the licensees of stations which would otherwise
block such relocations or new grants. There can be no assurance that the
Combined Company will be able to negotiate any required interference agreements
on terms acceptable to it. In the event that the Combined Company cannot obtain
interference agreements required to implement its plans for a given market, the
Combined Company may have to curtail or modify operations in that market. Any
substantial modification or curtailment of the Combined Company's operations in
its markets could have a material adverse effect on its growth or financial
performance. In addition, while the Combined Company's leases with MDS and ITFS
licensees require their
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cooperation, it is possible that one or more of the Combined Company's channel
lessors may hinder or delay the Combined Company's efforts to use the channels
in accordance with its plans for a particular market.
AUCTION OF BASIC TRADING AREAS
As a result of legislation authorizing the FCC to utilize competitive
bidding (auctions) for the award of initial licenses or construction permits for
certain commercial services when mutually exclusive applications have been
filed, on June 15, 1995 the FCC adopted new rules replacing lottery procedures
with auctions for the awarding of commercial licenses where two or more parties
have filed applications for the same frequencies. Auctions under the new rules
began November 13, 1995 for the award of initial commercial licenses for "Basic
Trading Areas" or "BTA's" (as defined by Rand McNally); however, the new auction
rules do not apply when a license is to be renewed. The new rules are effective
although pleadings have been filed which might result in changes in the rules,
and any auctions conducted pursuant thereto. License holders that obtain an MDS
license via an auction must provide interference protection to the 35-mile
protected service area of existing license holders. Under the statutory auction
authority enacted in 1993, ITFS licenses are exempt from the auction process and
applications for ITFS licenses are expected to continue to be awarded according
to the FCC's objective criteria.
DEPENDENCE ON PROGRAM MATERIAL AGREEMENTS
In connection with its distribution of television programming, Heartland is
dependent, and the Combined Company will be dependent, on fixed-term contracts
with various program suppliers. Generally, the terms of such contracts are for
periods of one to five years and began to expire in 1995. Although Heartland has
no reason to believe that any such contracts will be cancelled or will not be
renewed upon expiration, if such contracts are cancelled or not renewed, the
Combined Company will have to seek program material from other sources. There is
no assurance that other program material will be available to the Combined
Company on acceptable terms or at all or, if so available, that such material
will be acceptable to the Combined Company's subscribers. The likelihood that
program material will be unavailable to the Combined Company is significantly
mitigated by the Cable Act and various FCC regulations issued thereunder, which,
among other things, impose limits on exclusive programming contracts and
generally prohibit cable programmers in which a cable operator has an
attributable interest from discriminating against cable competitors with respect
to the price and terms and conditions of sale of programming. Only a few of the
major cable television programming services carried by Heartland are not
currently directly owned by a vertically integrated cable operator, and
Heartland historically has not had difficulty in arranging satisfactory
contracts for these services. The Cable Act is the subject of various legal
challenges and if it were found to be unconstitutional, program suppliers might
raise their prices or make their program material unavailable to the Combined
Company.
PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION
Wireless cable programming is transmitted via microwave frequencies from a
transmission facility to a small receiving antenna at each subscriber's
location, which generally requires a direct, unobstructed line-of-sight from the
transmission facility to the subscriber's receiving antenna. Therefore, in
communities with tall trees, hilly terrain, tall buildings or other obstructions
in the transmission path, wireless cable transmission can be difficult or
impossible to receive at certain locations without the use of signal boosters.
Consequently, the Combined Company may not be able to supply services to certain
potential subscribers. In addition, in limited circumstances, extremely adverse
weather can damage transmission and receiving antennas as well as transmit site
equipment.
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY
While wireless cable television is not a new technology, it is a relatively
new industry with a short operating history. Potential investors should be aware
of the difficulties and uncertainties that are normally associated with new
industries, such as lack of consumer acceptance, difficulty in obtaining
financing, increasing competition, advances in technology and changes in laws
and regulations. There can be no assurance that the wireless cable industry will
develop or continue as a viable or profitable industry.
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POSSIBLE ADDITIONAL CAPITAL EXPENDITURES FOR HEARTLAND DISPOSITION ASSETS
No assurance can be given that the planned disposition of the Heartland
Disposition Assets will be consummated. Consummation of such planned disposition
may require, among other items, consents of CAI's lenders to the Newco
Transaction, financing secured by Newco on terms acceptable to CAI and
Heartland, and consents of the licensees to the assignment of channel leases to
Newco, and of the Flippin and Memphis channel rights to TruVision. Accordingly,
Heartland may be required to expend a substantial amount of additional capital
to maintain certain assets and/or fund lease payments attributable to the
Heartland Disposition Assets. Further, no assurance can be given that the
disposition of the Heartland Disposition Assets will have the desired impact on
the Combined Company's business or financial affairs.
POSSIBLE ADVERSE TAX CONSEQUENCES ATTRIBUTABLE TO HEARTLAND DISPOSITION ASSETS
The cash and promissory note portion of the consideration received by
Heartland and/or its subsidiaries from consummation of the Memphis Transaction
and Newco Transaction may result in the recognition of gain for federal income
tax purposes. The amount of any tax liability attributable thereto will depend
upon numerous factors, including the tax basis of the assets conveyed, the net
operating losses available to Heartland and other factors. Certain of these
factors will depend upon the tax attributes of CMAX, AWS and TCS as of the
closing of the Transactions. There can be no assurance that sufficient tax bases
and net operating losses will exist to defray a material amount of any such
gain, thereby requiring Heartland to pay certain tax liabilities to federal
and/or state authorities. Any such payments would negatively impact the Combined
Company's cash flow.
ASSIGNABILITY OF HEARTLAND DISPOSITION ASSETS CHANNEL LEASES
Substantially all of the channel leases associated with the Heartland
Disposition Assets require the consents of the licensees prior to the assignment
thereof. No assurance can be given that such consents will be obtained to the
assignment of such channel leases to Newco in the Newco Transaction. The failure
to obtain any such consents may prevent the Newco Transaction from being
consummated, which could have a material adverse effect on the Combined
Company's business or financial affairs. See "Risk Factors -- Factors Relevant
to All of the Parties -- Possible Additional Capital Expenditures for Heartland
Disposition Assets." Further, the consent of the FCC is required prior to the
assignment of any MDS channels associated with the Heartland Disposition Assets.
Heartland will take appropriate action to obtain such consents with respect to
such MDS channels to be acquired by Heartland and thereafter conveyed to Newco
as part of any Newco Transaction. Such consents are generally received three to
five months after application is made with the FCC. Although Heartland expects
to lease any acquired MDS channels to Newco as part of any Newco Transaction
pending receipt of server approval, there can be no assurance that the FCC will
consent to the assignment of such licenses to Heartland or Newco.
CERTAIN SUBSIDIARIES NOT WHOLLY OWNED
Heartland generally conducts its business through subsidiaries. Heartland's
subsidiaries include non-operating subsidiaries that hold interests in channels,
subsidiaries that operate systems and subsidiaries that do both. Heartland also
has an operating subsidiary that installs wireless cable systems in various
markets served by Heartland and its subsidiaries. Certain of Heartland's
subsidiaries are not wholly owned and most subsidiaries are indirectly owned by
Heartland as a result of its majority ownership of other entities. Although
Heartland has a sufficient interest in its subsidiaries to be able to exercise
control over them, Heartland may owe a fiduciary duty to the holders of various
minority interests in its subsidiaries. Accordingly, Heartland may not exercise
unfettered control over such subsidiaries and may be required to deal with such
subsidiaries on terms no less favorable to such subsidiaries than could be
obtained from unaffiliated third parties. Heartland believes that all of its
dealings with its subsidiaries have been on such terms. In addition, dividends
or other distributions paid or made by such subsidiaries must be paid or made on
a pro rata basis to all stockholders.
Further, Heartland owns approximately 27% of the outstanding common stock
of Wireless One, Inc., a Delaware corporation ("Wireless One"). Although David
E. Webb and J. R. Holland, Jr., Directors of Heartland, serve as Directors of
Wireless One, Heartland cannot exercise unfettered control over this
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substantial investment. Similarly, upon consummation of the Newco Transaction,
Heartland will own approximately 39.76% (prior to dilution) of the outstanding
common stock of Newco. Although David E. Webb and J.R. Holland, Jr., Directors
of Heartland, are expected to serve as Directors of Newco, Heartland will not be
able to exercise unfettered control over this proposed substantial investment.
CONTROL BY PRINCIPAL STOCKHOLDERS; AGREEMENT TO VOTE FOR BOARD DESIGNEE OF
JUPITER; CO-SALE-RIGHT
David E. Webb, the President and Chief Executive Officer of Heartland, L.
Allen Wheeler, a member of the Board of Directors of Heartland and Hunt Capital
Group, L.L.C. ("Hunt Capital"), a principal stockholder of Heartland and
affiliate of J. R. Holland, Jr., the Chairman of the Board of Heartland,
collectively own approximately 62.68% of the outstanding Heartland Common Stock
and, if they act together, will be able to control the election of the members
of Heartland's Board of Directors and generally to exercise control over
Heartland's affairs. Assuming consummation of each of the Transactions and an
average closing price of Heartland's Common Stock of $28, such parties will own
approximately 40.81% (33.87% if the maximum number of shares are issued) of the
outstanding common stock of the Combined Company. Accordingly, following
consummation of the Transactions, such persons acting together will not be able
to totally control the election of the members of Heartland's Board of
Directors. Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement"), entered into in connection with the private
placement of $40.2 million of 9% Convertible Subordinated Discount Notes due
2004 (the "Convertible Notes"), each of Hunt Capital, David E. Webb and L. Allen
Wheeler, have agreed to vote their shares of Heartland Common Stock (i) in favor
of the election to Heartland's Board of Directors of one designee of the
purchaser of the Convertible Notes ("Jupiter") and (ii) in favor of Heartland's
Board of Directors consisting of at least three and not more than seven members
for so long as Jupiter retains a 25% interest in the Convertible Notes
originally purchased by it and/or the shares of Heartland Common Stock issued or
issuable upon conversion thereof (the "Conversion Shares") originally issuable
to it. The agreement of such stockholders to elect Jupiter's designee to the
Board of Directors may restrict the ability of such stockholders to elect their
preferred slate of directors to manage Heartland, which may result in a member
of the Board of Directors having interests that conflict with those of the other
stockholders of Heartland. In addition, under the terms of the Stockholders'
Agreement, each of Hunt Capital, David E. Webb and L. Allen Wheeler have agreed
that, for so long as Jupiter holds such 25% interest, in the event of any
proposed sale or series of sales of Heartland Common Stock by any such
stockholder to a non-affiliate for aggregate consideration greater than $15
million or representing in excess of 5% of the outstanding Heartland Common
Stock at such time, such stockholder shall not effect such sale unless Jupiter
is permitted to participate in such sale on a pro rata basis with such
stockholder. The co-sale right may reduce the likelihood of a change in control
of Heartland because any potential purchaser of stock held by the controlling
stockholders may also be required to purchase shares owned by Jupiter.
LIMITED TRADING VOLUME AND POSSIBLE VOLATILITY OF HEARTLAND COMMON STOCK
During 1994 and for the first nine months of 1995, the average trading
volume of shares of Heartland Common Stock on Nasdaq-NMS was approximately
22,800 and 34,200 shares per day, respectively. As of December 31, 1995,
approximately 12,611,132 shares of the Heartland Common Stock were issued and
outstanding, including 8,106,825 (including 190,600 shares subject to
exercisable options) shares held by executive officers, directors and their
affiliates. In connection with the Transactions, Heartland may issue up to an
additional 10,721,302 shares (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common Stock
are issuable -- see "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions"), or 6,763,949
shares (based upon a closing average of $28 per share, the approximate closing
average of the Heartland Common Stock over the preceding ten- and 20-day trading
periods) of Heartland Common Stock, some or all of which will be liquidated by
FTW Associates, the Minneapolis Partnership and TSC in connection with their
respective plans of liquidation. In addition, some recipients of Heartland
Common Stock in the Transactions can be expected to immediately dispose of such
shares to meet tax or other obligations. There can be no assurance, given the
relatively low volume of trading typically exhibited by the Heartland Common
Stock that all of those holders seeking to dispose of Heartland Common Stock
will be able to do so
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<PAGE> 692
or at what price such shares will be sold if dispositions are made. It is also
possible that there will be much greater volatility in the price of the
Heartland Common Stock during the period immediately preceding the Transactions
and for some time thereafter. Finally, the market price of the Heartland Common
Stock could fluctuate substantially in the future for a variety of reasons,
including performance of the Combined Company, investor expectations for the
Combined Company and the wireless cable television industry, general economic
conditions and fluctuations in the overall stock market. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
NO HEARTLAND COMMON STOCK DIVIDENDS
Heartland has not paid dividends on Heartland Common Stock since its
inception and does not anticipate paying any dividends in the foreseeable
future. In addition, provisions relating to Heartland's indebtedness prohibit
the payment or accrual of dividends or any other distribution with respect to
Heartland's Common Stock until such debt is paid in full. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
POSSIBLE FUTURE ACQUISITIONS
Heartland has in the past and is in the process of making a number of
acquisitions and may in the future make additional acquisitions. The Combined
Company can be expected to seek to acquire additional channel rights, both in
its existing markets and in other markets, both directly and indirectly by
acquiring other wireless cable television providers. Such acquisitions may be in
geographic areas or markets outside of Heartland's traditional focus of small to
mid sized markets in the central United States. In addition, it is possible that
the Combined Company might make one or more acquisitions outside of the business
of providing wireless cable television services. Any such acquisitions may be
made for cash, securities, including Heartland Common Stock, or combinations
thereof. Under applicable law and regulations, in many circumstances, approval
by the Combined Company's stockholders of any such acquisitions may not be
required. The Combined Company may pay for such acquisitions in cash or by
issuing equity or debt securities. The issuance of equity to effect or finance
such acquisitions would have the effect of reducing the percentage ownership of
the Combined Company held by each pre-acquisition stockholder and the incurrence
of indebtedness in connection with such acquisitions could adversely affect the
liquidity, results of operations and financial condition of the Combined
Company.
RESCISSION RIGHTS OF PARTNERS OF MINNEAPOLIS PARTNERSHIP AND FTW PARTNERSHIP
AWS, its predecessor and certain of its executive officers have been
investigated by the Commission and certain state regulatory authorities in
connection with the offer and sale of general partnership interests without
registration under applicable federal and state securities laws, including the
sale of general partnership interests in FTW Partnership and Minneapolis
Partnership. 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 interests 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 investment. AWS has
advised the Arizona Corporation Commission that it does not intend to make such
offer to purchase pending consummation of the transactions described herein. On
September 29, 1995, AWS and a general partnership (the "Pittsburgh Partnership")
jointly sold their respective interest in the joint venture operating the
wireless cable television system in Pittsburgh, Pennsylvania to CAI Wireless
Systems, Inc. ("CAI") (the "Pittsburgh Sale"). General partners holding
approximately 72% of the general partnership interests of the Pittsburgh
Partnership (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. There
can be no assurance that the Minneapolis Partners and the FTW Partners who do
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 Heartland, as the successor to AWS,
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<PAGE> 693
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 Heartland based on a number of
theories involving successor liability. The institution of legal action against
Heartland arising out of the offer and sale of general partnership interests by
AWS' predecessors could result in substantial defense costs to Heartland and the
diversion of efforts by Heartland's management, and the imposition of
liabilities against Heartland could have an adverse effect on Heartland. See
"Risk Factors -- Factors Specific to AWS Stockholders -- Regulatory Actions
Regarding Prior Offerings of General Partnership Interests."
FACTORS SPECIFIC TO AWS STOCKHOLDERS
HISTORICAL AND ANTICIPATED OPERATING LOSSES
AWS' efforts to date have been directed primarily toward the acquisition of
channel rights and launch of systems. AWS has limited sources of revenue, has
incurred losses since inception, and unless the AWS Merger is consummated,
expects to incur additional losses until it is able to develop systems to the
point at which subscriber revenue is sufficient to cover operating expenses and
overhead. For the nine-month period ended September 30, 1995 and the years ended
December 31, 1994 and 1993, AWS had net losses from operations of $1,524,231,
$4,075,129 and $2,758,934, respectively, and net losses of $984,570, $5,726,780
and $3,650,160, respectively.
NEED FOR AND LACK OF EXISTING SOURCES OF FINANCING
Without the AWS Merger, each of AWS' existing and proposed systems will
require substantial investment on a continuing basis to finance capital
expenditures and related expenses for system development and subscriber growth.
To the extent that AWS is unable to obtain substantial equity financing and
attract a substantial number of additional subscribers to its existing systems,
the ability to obtain debt financing with respect to such systems to fund the
costs of continued system expansion will be adversely affected. AWS will require
additional funding in the first quarter of 1996. AWS' future capital
requirements will depend on a number of factors, including consummation of the
AWS Merger, the proposed sale of the Memphis, Tennessee market, sale of other
assets, subscriber growth, marketing expenses and staffing levels as well as
other factors not within AWS' control, such as competitive conditions,
programming costs and capital costs. There can be no assurance that financing
necessary to complete the development and launch of each of AWS' proposed
systems or to meet the cost of installing additional subscribers to its existing
systems will be available on satisfactory terms and conditions, if at all.
In addition, the ability of AWS to fund its continuing operations through
the first quarter of 1996 and thereafter is dependent upon the consummation of
the AWS Transaction or obtaining other financing. There can be no assurance that
AWS will be able to obtain financing if the AWS Transaction is not consummated.
TAX CONSEQUENCES TO AWS STOCKHOLDERS
The AWS Merger will be a taxable transaction to AWS stockholders. Because
the AWS Merger Agreement provides for the issuance of Heartland Common Stock to
AWS stockholders, AWS stockholders may recognize a taxable gain in connection
with the consummation of the AWS Merger and will not receive cash to pay any
taxes due in connection with the receipt of the Heartland Common Stock. For a
discussion of the methodology for calculating gain or loss in connection with
the exchange, see "The AWS Merger -- Certain Federal Income Tax Consequences."
In addition, AWS stockholders who seek to sell shares of Heartland Common Stock
to satisfy any tax liability will be subject to certain risks related to the
limited trading volume of Heartland Common Stock. See "Risk Factors -- Factors
Relevant to All of the Parties -- Limited Trading Volume and Possible Volatility
of Heartland Common Stock."
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<PAGE> 694
LIMITED TRADING VOLUME FOR AWS COMMON STOCK
Because AWS Common Stock is traded on the Nasdaq Stock Market's OTC
Bulletin Board rather than on Nasdaq or a recognized stock exchange, AWS Common
Stock has had a limited trading volume and reported prices may not accurately
reflect the market value of such stock. If the AWS Merger is not approved, AWS
stockholders will likely continue to experience limited liquidity with respect
to the resale of their shares. Generally, the trading volume of the Heartland
Common Stock, which is traded on the Nasdaq-NMS, exceeds the trading volume of
the AWS Common Stock. Therefore, the consummation of the AWS Merger is expected
to increase the liquidity of the investment of the current AWS stockholders.
STATUS OF FTW VENTURE
AWS believes that unless the FTW Transaction is consummated, the Fort Worth
system will require additional funds before that system can achieve positive
cash flow from operations. To the extent that the FTW Venture is unsuccessful in
obtaining additional capital from AWS or other sources, the ability of the FTW
Venture to achieve positive cash flow will be adversely affected. In such case,
the value of AWS' interest in the FTW Venture will be diminished and the
potential for litigation of the FTW Claims will be increased.
STATUS OF AMERICAN WIRELESS SYSTEM OF MINNEAPOLIS L.L.C.
On April 14, 1994, AWS lent $2,000,000 to Minneapolis Partnership, the
proceeds of which were contributed to the Minneapolis LLC, the entity which owns
and operates the Minneapolis system, to cover operating expense and the cost of
installing additional subscribers to that system. In connection with the
Minneapolis Agreement, Heartland agreed to loan the Minneapolis LLC $1,575,000,
of which $575,000 was advanced on October 31, 1995 to repay certain indebtedness
and an additional $484,000 has been advanced through January 15, 1996 to fund
operating expenses and the cost of installing additional subscriber equipment.
Despite the capital contribution from the Minneapolis Partnership and the loan
from Heartland, AWS believes that unless the Minneapolis Transaction is
consummated, the Minneapolis system will require additional funds before that
system will achieve positive cash flow from operations. To the extent that the
Minneapolis LLC is unsuccessful in obtaining additional capital from AWS or
other sources, the ability of the Minneapolis LLC to achieve positive cash flow
will be adversely affected. In such case, the value of AWS' interest in the
Minneapolis LLC will be diminished and the potential for litigation of the
Minneapolis Claims will be increased.
REGULATORY ACTIONS REGARDING PRIOR OFFERINGS OF GENERAL PARTNERSHIP INTERESTS
Prior to the date hereof, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $29 million of general
partnership interests in three general partnerships, including FTW Partnership
and Minneapolis Partnership, without registration under any federal or state
securities laws. Following an investigation by the Securities and Exchange
Commission ("SEC" or 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 five percent of
AWS Common Stock, without admitting or denying any wrongdoing, consented to an
SEC order to cease and desist from committing or causing any violation and any
future violations of the securities registration provisions of the Securities
Act and the broker-dealer registration provisions of the Exchange Act. In
addition, securities administrators in 22 states also have 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 rescission to individuals who purchased general partnership interests and,
in certain cases, to pay administrative penalties. There can be no assurance
that other states will not investigate these activities or issue similar orders.
See "Information Concerning AWS -- Business of AWS -- Legal Proceedings."
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<PAGE> 695
There can be no assurance that current general partners or any governmental
agency will not institute proceedings for rescission against Wireless California
or AWS as the successor to Wireless California based on a failure to register
the general partnership interests in connection with a public offering or for
damages based on alleged omissions or misrepresentations of material information
in connection with the sale of such interests. In connection with the
acquisition of certain assets of Wireless California, AWS expressly disclaimed
any liabilities of Wireless California arising out of the offer and sale of the
general partnership interests described above. There is a possibility, however,
that a successful claim against Wireless California could be asserted against
AWS based on a number of theories involving successor liability. The institution
of legal action against AWS arising out of the offer and sale of general
partnership interests by Wireless California could result in substantial defense
costs to AWS and the diversion of efforts by AWS' management, and the imposition
of liabilities against AWS could have a material adverse effect on AWS. See
"Factors Specific to FTW Partners -- Release of AWS" and "Factors Specific to
Minneapolis Partners -- Release of AWS."
DILUTION OF NEW STOCKHOLDERS
At September 30, 1995, the net tangible book value per share of the
Heartland Common Stock was $(2.09). "Net tangible book value per share of
Heartland Common Stock" represents the amount of total tangible assets less
total liabilities (excluding deferred income taxes) divided by the number of
shares of Heartland Common Stock outstanding. The issuance of the shares of
Heartland Common Stock in connection with the Transactions will result in a pro
forma net tangible book value per share of Heartland Common Stock of $6.52 at
September 30, 1995 assuming 6,688,639 shares of Heartland Common Stock are
issued in the Transactions (based upon the number of shares assumed to be issued
for purposes of the Pro Forma Statements and a closing average of $28 per
share). Thus AWS stockholders will suffer dilution equal to approximately $21.48
per share of Heartland Common Stock if all of the Transactions are consummated.
FACTORS SPECIFIC TO FTW PARTNERS
LIMITED BUSINESS HISTORY; LACK OF OPERATIONS; GOING CONCERN OPINION
FTW Venture has a limited operating history in the wireless cable business.
FTW Partnership has no sources of revenue, has incurred losses since inception
and expects to incur additional losses until the FTW Venture is able to further
develop the wireless cable television system in Fort Worth, Texas (the "FTW
System") to the point at which subscriber revenue is sufficient to cover
operating expenses and overhead. The ability of FTW Partnership to meet
continuing operating expenses of the FTW Venture depends on obtaining financing.
There can be no assurance that FTW Partnership or the FTW Venture will be able
to develop, launch or expand the FTW System or that FTW Partnership or the FTW
Venture will achieve profitability in future years. For the nine month period
ended September 30, 1995 and the years ended December 31, 1994 and 1993, the FTW
Partnership had net losses from operations of $1,030,082, $1,382,763 and
$1,070,727, respectively, and net losses of $986,034, $1,320,482 and $1,013,038,
respectively. As a result, in their report on FTW Partnership's financial
statements as of December 31, 1994 and 1993, the FTW Partnership's independent
public accountants have included an explanatory paragraph that describes factors
raising substantial doubt about the FTW Partnership's ability to continue as a
going concern.
NEED FOR AND LACK OF EXISTING SOURCES OF FINANCING
The FTW Venture will require substantial investment on a continuing basis
to finance capital expenditures and related expenses for subscriber growth.
Future capital requirements will depend on a number of factors including
subscriber growth, marketing expenses and staffing levels, as well as other
factors not within FTW Partnership's or the FTW Venture's control, such as
competitive conditions, programming costs and capital costs. FTW Partnership
does not currently have any definitive agreements, arrangements or commitments
to secure financing. There can be no assurance that financing necessary to
complete the development of the FTW System will be available on satisfactory
terms and conditions, if at all.
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<PAGE> 696
RELEASE OF AWS
As a condition to the obligations of Heartland and FTW Partnership to close
the transactions contemplated by the FTW Agreement, FTW Partnership and the FTW
Partners are required to deliver to Heartland the FTW Claim Release or FTW Claim
Assignment, as applicable, executed on behalf of FTW Partnership and FTW
Partners holding at least two-thirds ( 2/3) of the FTW Units, whereby FTW
Partnership and the FTW Partners approving the FTW Transaction agree to either
release or assign to Heartland, as applicable, any and all claims and causes of
action of any kind or nature against AWS and certain related parties, including
but not limited to claims or causes of action based on alleged violations of
securities laws. The FTW Claim Release will be in the form of a joinder in the
mutual release by virtue of the consenting FTW Partner delivering its Written
Consent to the FTW Transaction. The FTW Partners should be aware that if FTW
Partners representing at least two-thirds ( 2/3) of the FTW Units approve the
FTW Transaction, FTW Partnership and the consenting FTW Partners will be giving
up the right to any potential claim they may have against AWS and certain
related parties for damages arising out of their actions or failure to act with
respect to the FTW System. There can be no assurance that the value of the
consideration to be received by such FTW Partners in the FTW Agreement equals or
exceeds the value of the FTW Claims released or assigned to Heartland.
RISKS RELATING TO FTW LIQUIDATION PLAN
Pursuant to the FTW Liquidation Plan, a portion of the Heartland Common
Stock to be received pursuant to the FTW Transaction will be sold on behalf of
the FTW Partnership to satisfy the known and contingent claims against FTW
Partnership (the "Liquidated Shares"); the remainder of the Heartland Common
Stock received pursuant to the FTW Transaction will be distributed to the FTW
Partners in accordance with the FTW Liquidation Plan. Although the FTW Committee
believes that it has identified and properly accounted for all material
liabilities of FTW Partnership, there can be no assurance that FTW Partnership
will be able to fulfill all of its liquidating obligations out of the proceeds
of the Liquidated Shares or that any shares of Heartland Common Stock will be
available for distribution thereafter.
GENERAL PARTNERSHIP LIABILITY
FTW Partnership is a general partnership organized under the laws of the
state of California. As a result, unless a creditor otherwise specifically
agrees, each FTW Partner is liable, jointly and severally, for each of the debts
or obligations of FTW Partnership, including those arising as a result of its
investment in the operation of the FTW Venture and its wireless cable television
business. Among other liabilities, individual FTW Partners may be liable
personally for certain of the fees and expenses incurred to date and to be
incurred in the future by FTW Partnership in connection with its ongoing
disputes with AWS. If the FTW Transaction is not consummated and FTW Partnership
is not otherwise able to satisfy its obligations, including its obligation to
repay the FTW Loan (as hereinafter defined) to Heartland, each of the FTW
Partners can be called upon by creditors of FTW Partnership, including
Heartland, to personally perform such obligations in their entirety.
DILUTION OF NEW STOCKHOLDERS
At September 30, 1995, the net tangible book value per share of the
Heartland Common Stock was $(2.09). "Net tangible book value per share of
Heartland Common Stock" represents the amount of total tangible assets less
total liabilities (excluding deferred income taxes) divided by the number of
shares of Heartland Common Stock outstanding. The issuance of the shares of
Heartland Common Stock in connection with the Transactions will result in a pro
forma net tangible book value per share of Heartland Common Stock of $6.52 at
September 30, 1995 assuming 6,688,639 shares of Heartland Common Stock are
issued in the Transactions (based upon the number of shares assumed to be issued
for purposes of the Pro Forma Statements and a closing average of $28 per
share). Thus, FTW Partners will suffer dilution equal to approximately $21.48
per share of Heartland Common Stock if all of the Transactions are consummated.
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<PAGE> 697
FACTORS SPECIFIC TO MINNEAPOLIS PARTNERS
LIMITED BUSINESS HISTORY; LACK OF OPERATIONS; GOING CONCERN OPINION
The Minneapolis LLC has a limited operating history in the wireless cable
business. Minneapolis Partnership has no sources of revenue, has incurred losses
since inception and expects to incur additional losses until the Minneapolis LLC
is able to further develop the wireless cable television system in Minneapolis,
Minnesota (the "Minneapolis System") to the point at which subscriber revenue is
sufficient to cover operating expenses and overhead. The ability of the
Minneapolis Partnership to meet continuing operating expenses of the Minneapolis
LLC depends on obtaining financing. For the nine month period ended September
30, 1995, the years ended December 31, 1994 and 1993, the Minneapolis
Partnership had net losses from operations of $1,523,876, $2,093,376 and
$1,672,196, respectively and net losses of $1,433,248, $1,955,221 and
$1,544,979, respectively. As a result, in their report on AWS' financial
statements as of December 31, 1993, the Minneapolis Partnership's independent
public accountants have included an explanatory paragraph that describes factors
raising substantial doubt about the Minneapolis Partnership's ability to
continue as a going concern.
WORKING CAPITAL REQUIREMENTS
The Minneapolis Committee believes that the Minneapolis LLC will require
significant additional working capital to fund continuing operating deficits and
to fund equipment purchases for additional customer installations. There are
currently no commitments to fund such working capital requirements other than
funds to be advanced by Heartland pursuant to the Minneapolis Agreement. There
can be no assurance, if the Minneapolis Transaction is not consummated, that
Minneapolis Partnership will be able to obtain sufficient working capital to
permit subscriber growth by the Minneapolis LLC. Without subscriber growth,
there can be no assurance that the Minneapolis LLC or the Minneapolis
Partnership will achieve profitability.
RELEASE OF AWS
As a condition to the obligations of Heartland and Minneapolis Partnership
to close the transactions contemplated by the Minneapolis Agreement, Minneapolis
Partnership is required to deliver to Heartland the Minneapolis Claim Assignment
executed on behalf of Minneapolis Partnership and Minneapolis Partners holding
at least two-thirds ( 2/3rds) of the Minneapolis Units, whereby Minneapolis
Partnership and the Minneapolis Partners approving the Minneapolis Transaction
agree to assign to Heartland any and all claims and causes of action of any kind
or nature against AWS and certain related parties, including but not limited to
claims or causes of action based on alleged violations of securities laws. The
Minneapolis Partners should be aware that if Minneapolis Partners representing
at least two-thirds of the Minneapolis Units approve the Minneapolis
Transaction, Minneapolis Partnership and such approving Minneapolis Partners
will be giving up the right to any potential claim they may have against AWS and
certain related parties for damages arising out of their actions or failure to
act with respect to the Minneapolis System. There can be no assurance that the
value of the consideration to be received by such Minneapolis Partners in the
Minneapolis Agreement equals or exceeds the value of the Minneapolis Claims to
be assigned to Heartland. See "The Minneapolis Transaction -- Description of the
Minneapolis Claims."
RISKS RELATING TO MINNEAPOLIS LIQUIDATION PLAN
Pursuant to the Minneapolis Liquidation Plan, the assets of Minneapolis
Partnership (including Heartland Common Stock to be received pursuant to the
Minneapolis Transaction) will be sold on behalf of Minneapolis Partnership's
Management Committee to satisfy the known and contingent claims against
Minneapolis Partnership, with any remaining proceeds to be distributed to the
Minneapolis Partners in accordance with the Minneapolis Liquidation Plan.
Although the Minneapolis Committee believes that it has identified and properly
accounted for all material liabilities of Minneapolis Partnership, there can be
no assurance that Minneapolis Partnership will be able to fulfill all of its
liquidating obligations out of the proceeds of the Heartland Common Stock
anticipated to be liquidated pursuant to the Minneapolis Liquidation Plan or
that any shares of Heartland Common Stock will be available for distribution
thereafter.
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GENERAL PARTNERSHIP LIABILITY
The Minneapolis Partnership is a general partnership organized under the
laws of the State of California. As a result, unless a creditor otherwise
specifically agrees, each Minneapolis Partner is liable, jointly and severally
for each of the debts or other obligations of Minneapolis Partnership. Among
other liabilities, individual Minneapolis Partners may be personally liable for
certain of the fees and expenses incurred to date and to be incurred in the
future by Minneapolis Partnership. If the Minneapolis Transaction is not
consummated and Minneapolis Partnership is not otherwise able to satisfy its
obligations, each of the Minneapolis Partners can be called upon by creditors of
Minneapolis Partnership who have not waived their right to do so to personally
perform such obligations in their entirety. Heartland has agreed to look only to
the assets of Minneapolis Partnership and not to the Minneapolis Partners
individually, with respect to any liabilities of Minneapolis Partnership to
Heartland.
DILUTION OF NEW STOCKHOLDERS
At September 30, 1995, the net tangible book value per share of the
Heartland Common Stock was $(2.09). "Net tangible book value per share of
Heartland Common Stock" represents the amount of total tangible assets less
total liabilities (excluding deferred income taxes) divided by the number of
shares of Heartland Common Stock outstanding. The issuance of the shares of
Heartland Common Stock in connection with the Transactions will result in a pro
forma net tangible book value per share of Heartland Common Stock of $6.52 at
September 30, 1995 assuming 6,688,639 shares of Heartland Common Stock are
issued in the Transactions (based upon the number of shares assumed to be issued
for purposes of the Pro Forma Statements and a closing average of $28 per
share). Thus Minneapolis Partners will suffer dilution equal to approximately
$21.48 per share of Heartland Common Stock if all of the Transactions are
consummated.
INFORMATION CONCERNING HEARTLAND
THE BUSINESS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems,
primarily in small to mid-size markets located in the central United States.
Heartland has wireless cable channel rights in 79 markets representing
approximately 8.2 million households, approximately 6.7 million of which
Heartland 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).
Heartland 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,
Heartland believes that its wireless cable television service is an attractive
alternative to existing choices for such households. Heartland estimates that
within its 79 wireless cable markets, approximately 2.4 million LOS households,
or 36% of Heartland'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.
Heartland's 79 markets include (i) 32 markets in which Heartland has
systems in operation (the "Heartland Existing Systems"), (ii) nine markets in
which Heartland's system is under construction, (iii) 23 near-term launch
markets in which Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and (iv) 15 long-term launch
markets, including 11 in which Heartland has aggregated sufficient wireless
cable channel rights to commence construction of a system and four in which
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. As of
November 30, 1995, Heartland was providing wireless
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cable service to an aggregate of approximately 80,600 subscribers through 32
operational systems located in seven states.
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 Heartland 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, Heartland 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 Heartland 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 Heartland
continues to acquire channel rights. See "Information Concerning
Heartland -- The Business -- Business Strategy."
Substantially all of Heartland's subscribers have set-top converters that
are fully "impulse addressable," which will allow its subscribers to receive
impulse pay-per-view programming. Only approximately 35% of traditional
hard-wire cable operators use addressability and approximately 5% use impulse
addressability.
BUSINESS STRATEGY
Heartland's primary business objective is to develop, own and operate
wireless cable television systems in markets in which Heartland 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. Heartland 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. Heartland 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. Heartland attempts to manage system launch
and subscriber growth in order to contain system launch costs and to achieve
positive cash flow rapidly. Typically, Heartland's operating systems achieve
positive monthly operating cash flow upon obtaining an average of approximately
1,500 subscribers. Within a system, Heartland initially directs its marketing at
unpassed households, which typically have limited access to local off-air
VHF/UHF broadcast channels. Accordingly, Heartland 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, Heartland will expand the channel offering and add
subscribers while increasing such system's positive operating cash flow. As of
November 30, 1995, 17 of Heartland'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
1,500 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, Heartland estimates that each additional wireless cable subscriber
currently requires an incremental capital expenditure by Heartland of
approximately $395 to $435,
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<PAGE> 700
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, Heartland 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, Heartland
can further contain costs by taking advantage of economies of scale in
management, sales and customer service.
Acquisition of ITFS Channel Rights. Because Heartland believes it can
launch service successfully in its markets with as few as 12 channels of
programming, Heartland focuses on development of the 20 available ITFS channels.
See "Wireless Cable Industry -- Regulatory Environment -- General." In most of
Heartland's markets, few, if any, licenses for ITFS channels had been granted by
the FCC to any non-profit educational organizations prior to Heartland's initial
development of such markets. Heartland cooperates with many non-profit
educational organizations in obtaining ITFS licenses from the FCC. Once
Heartland has secured rights to at least 12 ITFS channels in a market, Heartland
believes it can launch a commercially viable system in such market. Heartland
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.
PLANNED DIVESTITURES
Certain of the wireless cable assets currently held by Heartland and
certain of the assets sought to be acquired by Heartland in the Transactions are
not part of Heartland's current long-term business plan, either because they
were inconsistent with Heartland's focus on small to mid-sized markets with a
significant number of LOS households unpassed by traditional hard-wired cable or
because the Heartland Board felt that the consideration to be received in a
disposition thereof might be attractive when compared to developing and
operating a wireless cable system in the market. For example, Heartland will
seek to sell AWS's channel rights in Los Angeles to a third party. Also,
Heartland and AWS have agreed to sell the Flippin and Memphis, Tennessee markets
to TruVision for $1.5 million and $3.9 million, respectively. Further, Heartland
has entered into the Participation Agreement with CAI pursuant to which
Heartland shall convey and sell to Newco the Maysville and Sweet Springs,
Missouri, Grand Rapids/Moline, Michigan, Napoleon/Bloom Center, Indiana, Dallas,
Ft. Worth and San Antonio, Texas, Dayton, Ohio, Salt Lake City, Utah and
Minneapolis, Minnesota markets to Newco for approximately $28.3 million of cash,
$40 million of promissory notes and a retained equity interest of approximately
39.76 percent. Each of these proposed dispositions is subject to significant
customary closing conditions, and no assurance can be given that all or any of
such assets will be disposed of on such terms. In addition sales of assets to
Newco are dependent upon the consummation by Newco of certain financing
transactions. If the divestiture of any of such assets is not effected as
currently anticipated by the Heartland Board, the assets not disposed of will be
held by Heartland until other strategic uses can be found therefor. See "The
Combined Company -- Planned Divestitures."
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<PAGE> 701
HEARTLAND EXISTING SYSTEMS AND HEARTLAND'S MARKETS
The table below provides information regarding the 79 existing markets in
which Heartland currently has wireless cable channel rights, unless otherwise
noted, as of November 30, 1995.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED NUMBER OF
TOTAL LINE-OF-SIGHT CURRENT SUBSCRIBERS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) CHANNELS(2) NOVEMBER 30, 1995
- ------------------------------------- ---------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
EXISTING SYSTEMS
Ada, OK............................ 30,399 24,319 32 6,508
Wichita Falls, TX.................. 78,290 74,376 28 6,093
Midland, TX........................ 120,037 114,035 26 5,017
Abilene, TX........................ 86,676 82,344 23 4,020
Lawton, OK......................... 97,023 92,172 27 6,334
Laredo, TX......................... 313,406(3) 297,736(3) 27 5,420
Enid, OK........................... 76,602 72,772 21 3,694
Lindsay, OK........................ 51,041 40,833 32 3,267
Ardmore, OK........................ 60,192 51,163 20 3,233
Mt. Pleasant, TX................... 33,589 26,871 16 1,684
Lufkin, TX......................... 117,534 88,150 12 --(4)
Shaw, KS........................... 47,223 42,763 30 3,961
Texarkana, TX...................... 118,204 94,563 20 1,997
Stillwater, OK..................... 54,562 40,922 20 5,428
Lubbock, TX........................ 123,934 105,323 34(5) 5,934
McLeansboro, IL.................... 80,136 60,102 34 859
Vandalia, IL....................... 73,593 55,195 20 1,365
Olney, IL.......................... 67,812 50,859 20 1,195
Lykens, OH......................... 210,800 168,640 20 700
Paragould, AR...................... 77,523 58,500 21 2,157
Sikeston, MO....................... 69,837 52,378 24 2,163
Taylorville, IL.................... 159,596 119,697 20 1,336
Peoria, IL......................... 276,446 248,801 19 762
Manhattan, KS...................... 56,473 42,355 20 945
O'Donnell, TX...................... 68,940 65,493 27 1,053
Olton, TX.......................... 32,548 30,921 28 933
Monroe City/Lakenan, MO............ 46,376 34,782 27 978
Grand Rapids/Moline, MI(6)......... 458,455 343,841 22 216
Sweet Springs, MO(6)............... 64,113 48,085 28 588
Maysville, MO(6)................... 69,307 51,980 25 557
Paris, TX.......................... 55,445 41,584 20 79
Champaign, IL(7)................... 164,992 148,493 23 2,120
--------- --------- ------
Total -- Existing Systems.......... 3,441,104 2,870,048 80,596
========= ========= ======
</TABLE>
46
<PAGE> 702
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------------- ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION
Corsicana/Athens, TX(9)........................... 69,161 62,245 23(10)
Harper/Freeport, IL............................... 125,269 93,952 20
Hamilton, TX...................................... 28,551 21,413 20
Peaksville, MO.................................... 48,157 36,118 15
Marion, KS........................................ 53,881 40,411 19
Sherman/Denison, TX(12)........................... 100,000 90,000 31(13)
Sterling, KS...................................... 45,213 38,431 24
Strawn/Ranger, TX................................. 34,488 25,866 20
Walnut Grove, IL.................................. 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction....... 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(14)
Adairsville, GA(11)............................... 205,662 154,247 16
Amarillo, TX...................................... 106,670 101,337 26(15)
Anthony, KS....................................... 15,798 11,845 16
Bellflower, MO.................................... 63,384 57,046 20
Bloom Center/Napoleon, IN(6)...................... 140,749 112,599 20
Bluffs, IL........................................ 46,389 34,792 20
Columbia, MO...................................... 149,622 127,179 18
Forrest City, AR.................................. 55,642 41,732 21
Flippin, TN(16)................................... 104,980 83,984 24
Holdenville, OK................................... 50,637 45,573 16
Kossuth, TX....................................... 52,490 39,368 20
Lenapah, OK....................................... 51,921 38,941 12
Mayfield, KY...................................... 175,948 155,972 21
Muskogee, OK...................................... 66,510 53,208 18
Powers Crossroads, GA(11)......................... 135,037 101,278 20
Purdin, MO........................................ 25,001 18,751 20
Rutledge, GA(11).................................. 141,370 106,028 16
Shreveport, LA.................................... 214,315 182,168 24
Springfield, MO................................... 139,706 118,750 16
Tulsa, OK......................................... 321,922 273,634 16
Tyler, TX......................................... 233,416 186,734 14
Weatherford, OK................................... 31,445 29,873 16
Wick, OH.......................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets......... 2,864,712 2,343,917
--------- ---------
LONG-TERM LAUNCH MARKETS(17)
Altus, OK......................................... 30,653 29,120 16
Burnet, TX........................................ 24,917 18,688 16
Charlotte, TX..................................... 32,771 24,578 16
Crow, TX.......................................... 71,421 57,137 12
Des Moines, IA.................................... 267,279 240,551 16
El Dorado, AR..................................... 54,727 38,310 16
Elk City, OK...................................... 26,379 21,103 17
Fischer, TX....................................... 317,039 237,779 20
Henryetta, OK..................................... 31,968 25,574 16
Ingram, TX........................................ 26,235 19,676 20
McAlester, OK..................................... 36,475 25,533 16
Miami, OK......................................... 70,820 60,197 15
</TABLE>
47
<PAGE> 703
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Seminole, OK...................................... 42,204 35,873 19
Sabinal, TX....................................... 15,795 11,846 20
Topeka, KS........................................ 211,762 190,586 16
--------- ---------
Total -- Long Term Launch Markets......... 1,260,445 1,036,551
--------- ---------
TOTAL -- ALL COMPANY MARKETS........................ 8,155,207 6,722,122
========= =========
</TABLE>
- ---------------
(1) Estimated Line-of-Sight Households for each market represents Heartland's
estimate of the total number of households within the service area of the
primary transmitter in each market that can receive an unobstructed signal
based on topographical and engineering analysis and other relevant factors.
(2) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(3) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(4) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(5) Includes additional channels subleased pursuant to a Sublease Agreement
with CMAX. Channel capacity has been increased by 12 channels in the
Lubbock System, of which four are the subject of an appeal by an
unsuccessful applicant for the frequencies.
(6) These markets are included in the Heartland Disposition Assets. See "The
Combined Company -- Planned Divestitures."
(7) Heartland consummated the acquisition of the system in Champaign, Illinois
on January 16, 1996.
(8) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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 include channels with respect to which
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(9) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(10) Heartland currently subleases 7 of these channels from CMAX pursuant to a
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(11) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(12) Heartland currently subleases the wireless channel rights in the
Sherman/Denison System pursuant to a Sublease Agreement with CMAX.
(13) Of these channels, 8 are the subject of uncontested application
proceedings.
(14) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(15) Heartland currently subleases 9 of these channels from CMAX pursuant to a
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(16) Heartland is currently a party to an agreement relating to the disposition
of this market. See "The Combined Company -- Planned Divestitures."
(17) Such markets include six markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC within the
next 24 months. See "Risk Factors -- Factors Relevant to All of the
Parties -- Uncertainty of Grant of Pending Applications."
Existing Systems. Heartland currently has 32 Existing Systems. Heartland
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 Heartland'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,
Heartland'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
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<PAGE> 704
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 Heartland 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. Heartland currently has nine additional systems
under construction, which are located in Corsicana/Athens, Texas (certain
channels of which were subleased from CMAX pursuant to the Sublease Agreement),
Harper/Freeport, Illinois, Hamilton, Texas, Peaksville, Missouri, Marion,
Kansas, Sherman/Denison, Texas (which was subleased from CMAX pursuant to the
Sublease Agreement), Sterling, Kansas, Strawn/Ranger, Texas and Walnut Grove,
Illinois. In each of the systems under construction, Heartland has ordered
equipment to commence construction necessary to transmit on its channels in such
markets.
Generally, Heartland'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.
Near-term and Long-term Launch Markets. In these markets, Heartland has
aggregated or is aggregating additional wireless cable channel rights. In the
near-term launch markets, Heartland has aggregated sufficient wireless cable
channel rights to commence construction of a system. In six of the long-term
launch markets, Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and in four of such markets,
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. The vast
majority of Heartland's channel rights in the long-term 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
Heartland's lease agreements with applicants for channel licenses involve
channel licenses for which Competing Applications have been filed and Competing
Applications may be filed with respect to the applications to be refiled. In
each market, Heartland has carefully considered the FCC's selection criteria in
choosing the educational entities with which it has entered into lease
agreements. Heartland therefore anticipates that a substantial number of the
pending applications and applications to be refiled will be granted by the FCC
over the next 24 months. 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. See "Risk Factors -- Factors Relevant to All
of the Parties -- Dependence on Channel Leases" and "Risk Factors -- Factors
Relevant to All of the Parties -- Uncertainty of Grant of Pending Applications."
Heartland currently plans to finish construction of all systems currently
under construction during the first quarter of 1996. In addition, Heartland
currently expects to construct 20 to 25 additional systems through the end of
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 Heartland to launch wireless cable service
in such markets. Heartland 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.
49
<PAGE> 705
SYSTEM COSTS
Traditional hard-wire cable systems typically cost significantly more to
build than wireless cable systems. Heartland 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 Heartland 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. Heartland estimates
that each additional wireless cable subscriber currently requires an incremental
capital expenditure by Heartland 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. Heartland 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, Heartland
can further contain costs by taking advantage of economies of scale in
management, sales and customer service. Each of the Heartland'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
Heartland markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
pay-television alternatives: (1) picture quality and reliability, (2) customer
service, (3) programming features and (4) price.
Picture Quality and Reliability. Heartland's transmission facilities use
the latest available technology. Heartland 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 Heartland Existing
Systems. Wireless cable subscribers enjoy substantially outage-free, highly
reliable picture quality because there is no coaxial cable, amplifiers or
processing 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 Heartland Existing Systems, the picture quality of Heartland'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 Heartland's head-end and the
subscriber. See "Risk Factors -- Factors Relevant to All of the
Parties -- Physical Limitations of Wireless Cable Transmission."
Customer Service. Heartland has established the goal of maintaining high
levels of customer satisfaction. In furtherance of that goal, Heartland
emphasizes responsiveness and convenient installation scheduling. Heartland has
established customer retention and referral programs in an effort to obtain and
retain new subscribers. Heartland 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 as
high levels of customer service as Heartland provides. The regulations
authorized under the Cable Act will require traditional hard-wire cable
50
<PAGE> 706
companies to provide improved customer service which may decrease Heartland's
competitive advantage in this area.
Programming Features. In the Heartland Existing Systems (other than the
Lufkin, Texas System) and markets under construction, Heartland 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, Heartland has the capacity to offer pay-per-view
programming and impulse addressability not currently widely offered by
traditional hard-wire cable operators. Heartland'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 Heartland'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. Heartland offers its subscribers a programming package consisting of
basic service and premium programs. Heartland 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. Heartland 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, Heartland believes it will continue
to be price competitive with traditional hard-wire cable operators with respect
to comparable programming. Heartland'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, Heartland offers a combination package consisting of basic service,
rental of the receive-site equipment and two premium channels for $29.95 per
month.
LEGAL PROCEEDINGS
On June 21, 1995, TruVision Cable, Inc. ("TruVision") filed a lawsuit in
the Circuit Court of Rankin County, Mississippi naming Heartland 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
Heartland interfered with by entering into negotiations and an alleged agreement
with AWS. In its original pleadings, TruVision alleged that Heartland 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 Heartland and actions related thereto. TruVision is also seeking
$20,000,000 in punitive damages. On July 26, 1995, Heartland filed a Motion to
Dismiss this litigation for lack of personal jurisdiction. Heartland intends to
vigorously defend this lawsuit. On November 7, 1995, Heartland and TruVision
entered into an Asset Purchase Agreement providing for the sale by Heartland 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
Heartland shall have the right to raise all defenses and counterclaims
associated therewith.
Certain subsidiaries of Heartland are named as defendants in a lawsuit in
the United States District Court, Western Division of Louisiana, Monroe
Division, commenced on May 15, 1995 by TCG of Monroe, Inc. On May 18, 1995, a
subsidiary of Heartland acquired for $100,000 cash all of the outstanding
capital
51
<PAGE> 707
stock of Cotton Country Cable, Inc. ("Cotton Country") which held certain
wireless cable channel rights in the Monroe, Louisiana market. Cotton Country
owes its former shareholders $500,000, which sum is subject to offset for any
damages suffered by Cotton Country or Heartland as a result of this lawsuit.
These former shareholders are also named as defendants in the lawsuit. The
plaintiff has requested, among other items, declaratory relief and specific
performance to enforce an alleged prior contract of sale of these cable rights
to it from Cotton Country. Further, the plaintiff sought injunctive relief,
which was denied on August 8, 1995. Heartland believes all claims against its
subsidiaries are without merit and intends to vigorously defend the lawsuit. In
addition, Heartland believes that an adverse outcome, if any, would not have a
material adverse effect on Heartland. In connection with consummation of the
Wireless One Transaction (as hereinafter defined), Heartland conveyed its rights
in the Monroe, Louisiana wireless cable market to Wireless One, and agreed to
indemnify, defend and hold harmless Wireless One from and against this lawsuit.
Heartland is a party, from time to time, to routine litigation or
employment litigation incident to its business. No provision has been reflected
in the Heartland financial statements for any litigation. It is the opinion of
management that no pending litigation matter will have a material adverse effect
on Heartland's financial condition, results of operations or properties.
EMPLOYEES
As of December 31, 1995, Heartland had approximately 790 employees. None of
Heartland's employees is subject to a collective bargaining agreement. Heartland
has experienced no work stoppages and believes that it has good relations with
its employees. Heartland also presently utilizes the services of independent
contractors to build and install certain of its wireless cable systems and
market its services.
PROPERTIES
Heartland leases approximately 5,500 square feet of office space for its
executive offices in Richardson, Texas under a lease that expires September 30,
1998. Heartland pays approximately $35,000 per annum rent for such space.
Heartland 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. Heartland pays $18,000 per annum rent for such space
and the utilities are provided by the owner of the building. Heartland leases
approximately an additional 5,000 square feet of office space in Durant,
Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease that
expires March 1, 2000 subject to a 5-year renewal option. Heartland pays $29,004
per annum rent for such space. Heartland leases approximately an additional
1,126 square feet from an affiliate of Messrs. Webb and Wheeler under a lease
that expires on May 31, 2000. Heartland pays $8,448 per annum rent for such
space and the utilities are provided by the owner of the building. Heartland
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. Heartland pays $16,000 per annum rent for such
space. See "-- Certain Transactions." Heartland 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. Heartland leases
office space for the Heartland Existing Systems and will, in the future,
purchase or lease additional office space in other locations where it launches
other wireless cable systems. Heartland also owns transmission towers or leases
space on transmission towers located in its markets. The current capacity range
of Heartland's transmission facilities is from 10 to 50 watts, capable of
generating a signal over a 35 to 50 mile range. Heartland believes that office
space and space on transmission towers currently is readily available on
acceptable terms in the markets where Heartland intends to operate wireless
cable system.
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<PAGE> 708
RECENT TRANSACTIONS
CONSENT SOLICITATION
Between September 12, 1995 and September 29, 1995, Heartland 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 Heartland to consummate the Wireless One Transaction (as
hereinafter defined) and the Transactions and (ii) additionally amend certain
definitions and covenants in the Original Indenture, which imposed restrictions
on Heartland's ability to pursue certain additional acquisition, divestiture,
financing and other opportunities that Heartland believed were necessary to
enhance the value of Heartland. The amendments referred to in (i) and (ii) above
and sought by Heartland in the Consent Solicitation are referred to herein as
the "Proposed Amendments."
In the Original Indenture Heartland 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 Heartland to consummate the Transactions and to
facilitate Heartland's ability to pursue such additional opportunities, if and
when they arise, Heartland engaged in the Consent Solicitation.
The Proposed 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
Proposed 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
Proposed Amendments. Promptly after the effectiveness of the supplemental
indenture including the Proposed Amendments, Heartland 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. Heartland paid an aggregate of
$955,000 to the holders of the Senior Notes in this regard.
EXCHANGE OFFER OF SENIOR NOTES
In connection with the issuance and sale of the Senior Notes, Heartland
agreed (i) to file within 30 days after the date of issuance of the Senior Notes
(the "Issue Date"), and to cause to become effective within 120 days after the
Issue Date (August 24, 1995), a registration statement (the "Exchange Offer
Registration Statement") with respect to a registered offer (the "Exchange
Offer") to exchange the Senior Notes for exchange notes which will have terms
identical in all material respects to the Senior Notes (the "Exchange Notes"),
except that the Exchange Notes will not contain terms with respect to transfer
restrictions, and (ii) upon the Exchange Offer Registration Statement being
declared effective, to offer the Exchange Notes in exchange for surrender of the
Senior Notes. Heartland filed the Exchange Offer Registration Statement with the
Commission on May 5, 1995, but the Exchange Offer Registration Statement has not
yet been declared effective. Since Heartland has not complied with its
registration obligations in a timely manner, it will be 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. The amount of the additional interest will
increase by an additional 0.50% per annum for each subsequent 90-day period
until such obligations are complied with, up to a maximum amount of additional
interest of 2% per annum.
THE WIRELESS ONE TRANSACTION
Effective October 24, 1995, Heartland and certain affiliates of Wireless
One, Inc., a newly formed Delaware corporation ("Wireless One") consummated a
transaction (the "Wireless One Transaction") pursuant to which Heartland 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. Heartland contributed assets
relating to 28 markets, including 16 of which were either previously held for
sale or were markets in which Heartland had not yet aggregated sufficient
wireless cable channel rights to launch a commercially viable wireless cable
system. As a result of the Wireless One
53
<PAGE> 709
Transaction, and after giving effect to the initial public offering of its
common stock contemporaneously therewith, Heartland became the beneficial owner
of approximately 26% (after exercise of its over-allotment) of the outstanding
common stock of Wireless One.
In connection with the Wireless One Transaction, Heartland granted Wireless
One the option to purchase the wireless cable channel rights of Heartland and
its subsidiaries in certain additional markets located in Florida, for either
Wireless One Common Stock or cash, at Wireless One's option. Further, following
consummation of the Wireless One Transaction, Heartland and Wireless One entered
into a letter of intent providing Wireless One an option, exercisable prior to
February 29, 1996, to purchase the wireless cable channel rights of Heartland in
three markets in Georgia for aggregate consideration of approximately $7.2
million, payable in cash.
Heartland and certain of the Old 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 Heartland
(at least one of whom cannot be an affiliate of Wireless One or Heartland), up
to three of whom will be designated by the Old Wireless One Stockholders who are
parties to the Wireless One Stockholders 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, Heartland 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 Heartland and its affiliates cease to own at least
five percent (5%) of the outstanding Wireless One Common Stock, Heartland 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
Heartland 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 Heartland and its affiliates cease
to own at least five percent (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, Heartland 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").
Heartland agreed to such amendments in connection with Jupiter's agreement to
consent, pursuant to the terms of the Note Purchase Agreement, to the CMAX
Merger. Such amendments included the following:
(a) Heartland'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 Heartland previously
owned or leased 16 or more channels or a lease of channel rights in any
wireless cable market where Heartland 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 Heartland 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;
54
<PAGE> 710
(c) Heartland'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
Heartland serving as a member of the Compensation Committee of Heartland.
NEWCO TRANSACTION
Effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI") and CS Wireless Systems, Inc., a Delaware
corporation and wholly owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement, pursuant to which Heartland or its subsidiaries will
contribute or sell to Newco the wireless cable assets and all related
liabilities of certain specified Heartland Disposition Assets. Simultaneous with
Heartland's contribution and sale of these assets to Newco, CAI or its
subsidiaries will contribute to Newco all of the outstanding capital stock of
certain of its subsidiaries. See "The Combined Company -- Planned Divestitures."
DIVIDENDS ON AND MARKET PRICES OF HEARTLAND COMMON STOCK
Heartland Common Stock has been traded on the Nasdaq-NMS under the symbol
"HART" since April 28, 1994. On December 31, 1995, there were approximately 92
holders of record of Heartland Common Stock.
The following table sets forth the high and low closing sales prices per
share of Heartland Common Stock as reported on the Nasdaq-NMS for the periods
indicated.
<TABLE>
<CAPTION>
HEARTLAND
COMMON STOCK
PRICES
-----------------
HIGH LOW
------ ------
<S> <C> <C>
CALENDAR YEAR 1994:
2nd Quarter*..................................................... $11.50 $10.00
3rd Quarter...................................................... $15.50 $ 9.50
4th Quarter...................................................... $15.75 $11.00
CALENDAR YEAR 1995:
1st Quarter...................................................... $17.25 $11.75
2nd Quarter...................................................... $24.25 $15.50
3rd Quarter...................................................... $25.75 $19.50
4th Quarter...................................................... $31.50 $27.00
CALENDAR YEAR 1996:
1st Quarter (through January 22, 1996)........................... $29.75 $28.75
</TABLE>
- ---------------
* From April 28, 1994.
The market quotations in the chart above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. RECIPIENTS OF THIS PROXY STATEMENT/PROSPECTUS ARE
ENCOURAGED TO CHECK THE MOST RECENT MARKET PRICES OF THE HEARTLAND COMMON STOCK.
55
<PAGE> 711
No dividends have ever been paid or declared on the Heartland Common Stock.
Heartland does not expect to declare any dividends on Heartland Common Stock in
the foreseeable future. In addition, provisions relating to Heartland's
indebtedness prohibit the payment or accrual of dividends or any other
distribution with respect to Heartland's Common Stock until such debt is paid in
full.
On September 11, 1995, the last full trading day prior to the public
announcement of the Transactions, the closing price per share of Heartland
Common Stock as reported on the Nasdaq-NMS was $21.50. On January 22, 1996 the
closing price per share of Heartland Common Stock as reported on the Nasdaq-NMS
was $29.25.
CALCULATION AND LISTING OF SHARES
TO BE ISSUED IN CONNECTION WITH THE TRANSACTIONS
CALCULATION
Generally. The exact number of shares of Heartland Common Stock ultimately
issued in each of the five Transactions will not be determined until the
consummation thereof. In general, and subject to certain maximums and minimums,
the number of shares of Heartland Common Stock to be issued will be determined
by dividing, in the case of each Transaction, a particular dollar amount by the
average trading price of such stock during a period preceding consummation. See
"The AWS Merger -- Terms of the AWS Merger Agreement", "The FTW
Transaction -- Terms of the FTW Agreement", "The Minneapolis Transaction --
Terms of the Minneapolis Agreement" and "Certain Information Regarding Other
Transactions."
Assumptions for Purposes of Calculating Maximum Shares. In determining the
maximum aggregate number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 4,500 wireless cable television subscribers to the Minneapolis
system on the relevant date based upon the capital costs of adding each
additional subscriber and the limited capital resources available, (b) the TSC
Transaction, Heartland has assumed that (i) the aggregate exchange value will
include the maximum additional subscriber consideration attributable to the TSC
Transaction of $3.5 million, (ii) Heartland will not assume any liabilities of
TSC and (iii) the Dayton system will not be sold prior to closing, and (c) the
CMAX Merger, Heartland has assumed that the CMAX net liabilities will not exceed
specified amounts.
56
<PAGE> 712
The chart below sets forth the maximum number of shares of Heartland Common
Stock issuable in connection with the Transactions, subject to the foregoing
assumptions and assuming that Heartland elects to exercise its right to
terminate each transaction if the relevant closing average is less than the
respective specified amount. Because the number of shares of Heartland Common
Stock issuable in each Transaction either decreases or remains fixed as the
relevant closing average increases, the chart below shows the maximum number of
shares issuable at each price at which Heartland has such a termination right
($10 in the CMAX Merger, $16 in the TSC Transaction, and $17 in the Minneapolis
and FTW Transactions). At closing averages above $17 per share, the aggregate
number of shares issuable in connection with the Transactions begins to decrease
and therefore closing averages above $17 are not relevant to determining the
maximum number of shares of Heartland Common Stock issuable in connection with
the Transactions. As shown below, the maximum aggregate number of shares of
Heartland Common Stock issuable in connection with the Transactions is
10,721,302 shares, based upon a closing average of $17 per share for each
Transaction.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
-----------------------------------
$10 $16 $17
-------- -------- ---------
<S> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate.............................................. (B) 1,700,000 1,700,000
Per Share.............................................. (B) .2978 .2978
FTW Transaction(C)
Aggregate.............................................. (D) (D) 782,353
Per Unit............................................... (D) (D) 536.2255
Minneapolis Transaction(E)
Aggregate.............................................. (D) (D) 1,117,647
Per Unit............................................... (D) (D) 537.5887
CMAX Merger(F)
Aggregate.............................................. 8,081,214 5,050,759 4,753,655
Per Share.............................................. .85 .5313 .5
TSC Transaction(G)
Aggregate.............................................. (D) 2,515,625 2,367,647
Per Share.............................................. (D) 360.6114 339.3989
========= ========= ==========
Total.................................................... 8,081,214 9,266,384 10,721,302
Percent of Outstanding Shares(H)......................... 39.05 42.36 45.95
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on the fifth business day preceding the consummation of the TSC
Agreement or CMAX Merger, as applicable (which date is contemplated to be
February 15, 1996 based upon a contemplated closing date of February 23,
1996). The closing average for the AWS Merger, FTW Transaction and
Minneapolis Transaction is the closing price of the Heartland Common Stock
over the ten-trading day period ending on the fifth business day preceding
the consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement,
as applicable (which date is contemplated to be February 15, 1996 based upon
a contemplated closing date of February 23, 1996).
(B) Calculation is based upon a merger consideration of $34 million divided by
the exchange price for the AWS Merger (equal to $20 per share for closing
averages less than $20 per share, subject to the right of AWS to terminate
the AWS Merger if such closing average is less than $12 per share). AWS
intends to exercise its termination right, upon which such Transaction will
be abandoned. Accordingly, if the exchange price is less than $20 per share
but not less than $12 per share, the aggregate merger consideration to which
AWS stockholders will be entitled will be correspondingly less than
$34,000,000. Per share calculation based upon 5,709,187 shares of AWS Common
Stock outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 1,459 general
partnership units outstanding.
(D) Heartland intends to exercise its termination right, upon which such
Transaction will be abandoned.
(E) Based upon an acquisition consideration of $19 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 2,079 general
partnership units outstanding.
(F) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
57
<PAGE> 713
(G) Based upon an acquisition consideration of $40.25 million divided by the
exchange price (equal to the closing average). Per share calculation based
upon 6,976 shares of TSC Common Stock outstanding.
(H) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
Assumptions for Purposes of Calculating Anticipated Shares. In determining
the anticipated number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 3,500 wireless cable television subscribers to the Minneapolis
system on the relevant date, (b) the TSC Transaction, Heartland has assumed (i)
the aggregate exchange value will include the additional subscriber
consideration attributable to the TSC Transaction of $1.5 million, (ii)
Heartland will assume $5 million of liabilities of TSC and (iii) the Dayton
system will not be sold prior to closing, and (c) the CMAX Merger, Heartland has
assumed that CMAX net liabilities will not exceed specified amounts. Because
Heartland and the various parties to the Agreements anticipate that such
assumptions in the relevant Transactions will be true at the closing of each
Transaction, the calculation of the anticipated number of shares of Heartland
Common Stock issuable in connection with the Transactions reflects these
assumptions. Notwithstanding the stated assumptions for determining the
anticipated number of shares of Heartland Common Stock issuable in connection
with the Transactions, no assurance can be given that such assumptions will be
correct on the relevant closing dates. Set forth below is a chart indicating the
anticipated number of shares issuable in connection with each Transaction at
various closing averages, subject to the assumptions set forth above.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
---------------------------------------------------------------
$23 $26 $28 $30 $32 $34
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate..................... 1,478,281 1,307,692 1,307,692 1,307,692 1,307,692 1,307,692
Per Share..................... .2589 .2291 .2291 .2291 .2291 .2291
FTW Transaction(C)
Aggregate..................... 578,261 578,261 578,261 578,261 578,261 578,261
Per Unit...................... 396.3406 396.3406 396.3406 396.3406 396.3406 396.3406
Minneapolis Transaction(D)
Aggregate..................... 804,348 804,348 804,348 804,348 754,076 709,719
Per Unit...................... 386.892 386.892 386.892 386.892 362.711 341.375
CMAX Merger(E)
Aggregate..................... 3,513,571 3,108,159 2,886,148 2,693,738 2,525,379 2,376,828
Per Share..................... .3696 .3269 .3036 .2833 .2656 .25
TSC Transaction(F)
Aggregate..................... 1,445,652 1,278,846 1,187,500 1,108,333 1,039,063 977,941
Per Share..................... 207.2323 183.321 170.226 158.878 148.948 140.1865
========= ========= ========= ========= ========= =========
Total........................... 7,820,093 7,077,306 6,763,949 6,492,372 6,204,471 5,950,441
Percent of Outstanding
Shares(G)..................... 38.28 35.95 34.91 33.99 32.98 32.06
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on the fifth business day preceding the consummation of the TSC
Agreement or CMAX Merger, as applicable (which date is contemplated to be
February 15, 1996 based upon a contemplated closing date of February 23,
1996). The closing average for the AWS Merger, FTW Transaction and
Minneapolis Transaction is the closing price of the Heartland Common Stock
over the ten-trading day period ending on the fifth business day preceding
the consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement,
as applicable (which date is contemplated to be February 15, 1996 based upon
a contemplated closing date of February 23, 1996).
(B) Based upon a merger consideration of $34 million divided by the AWS exchange
price (equal to the lesser of the closing average or $26 if the closing
average is equal to or in excess of $20, subject to the right of Heartland
to terminate the AWS Merger if such closing is more than $32 per share).
Accordingly, if the exchange price is more than $26 per share but not more
than $32 per share, the aggregate merger consideration to which AWS
stockholders will be entitled will be correspondingly more than $34,000,000.
Per share calculation based upon 5,709,187 shares of AWS Common Stock
outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by the
exchange price (equal $23 if the closing average is in excess of $23). Per
unit calculation based upon 1,459 general partnership units outstanding.
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<PAGE> 714
(D) Based upon an acquisition consideration of $18.5 million divided by the
exchange price (equal to (i) $23 if the closing average is greater than $23
and less than or equal to $30, and (ii) the closing average times $23,
divided by $30 if the closing average is in excess of $30). Per unit
calculation based upon 2,079 general partnership units outstanding.
(E) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
(F) Based upon an acquisition consideration of $33.25 million (assumes $1.5
million of additional subscriber consideration and the assumption of $5.0
million of liabilities) divided by the exchange price (equal to the closing
average). Per share calculation based upon 6,976 shares of TSC Common Stock
outstanding.
(G) Based upon 12,611,132 shares outstanding as of December 31, 1995.
LISTING
The shares of Heartland Common Stock to be issued in connection with the
Transactions will be tradeable on the Nasdaq-NMS. Heartland intends to file the
appropriate Nasdaq National Market Notification Form for Listing of Additional
Shares and notification pursuant to SEC Rule 10b-17 immediately upon closing of
the Transactions and calculation of the exact number of shares of Heartland
Common Stock issuable in connection therewith.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Proxy Statement/Prospectus with respect to each person who is an executive
officer or director of Heartland:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
J.R. Holland, Jr.(1)............... 52 Chairman of the Board
David E. Webb...................... 49 President, Chief Executive Officer and
Director
John R. Bailey..................... 42 Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary
Randy R. Hendrix................... 35 Senior Vice President -- Marketing
Thomas W. Dixon.................... 48 Senior Vice President -- Operations
Robert R. Story.................... 40 Senior Vice President -- Installations
David D. Hagey..................... 35 Vice President, Controller and Assistant
Secretary
Alvin H. Lane, Jr.(2).............. 53 Director
Dennis M. O'Rourke(1).............. 53 Director
John A. Sprague.................... 43 Director
Wes W. Watkins(2).................. 57 Director
L. Allen Wheeler(1)(2)............. 63 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
J. R. Holland, Jr., began advising Heartland as a consultant in October
1992 and became Chairman of the Board of Directors in October 1993. Mr. Holland
has been employed as President of Unity Hunt Resources, Inc. since September
1991. Unity Hunt Resources is a large international, private holding company
with interests in entertainment, cable television, retail, investments, real
estate, natural resources and energy businesses. Mr. Holland is also the
President of Hunt Capital. See "Information Concerning Heartland -- Security
Ownership of Principal Stockholders and Management." From November 1988 to
September 1991, Mr. Holland was Chairman of the Board and Chief Executive
Officer of Nedinco, Inc., a large diversified, international holding company.
Prior to that, Mr. Holland was President and a director of KSA Industries, Inc.,
a private, diversified company involved in entertainment, retail, transportation
and energy businesses, and President and a director of Western Services
International, Inc., a company involved in
59
<PAGE> 715
energy services, equipment and chemicals. Mr. Holland began his career with
Booz-Allen & Hamilton, Inc., a major management consulting firm. In addition,
Mr. Holland is currently a director of Placid Refining Company, Optical
Securities Group, Inc. and Wireless One, Inc.
David E. Webb, co-founder of Heartland, has been President and Chief
Executive Officer and a director of Heartland since its formation in September
1990. During 1989 and 1990, Mr. Webb began acquiring rights to wireless cable
channels. From 1979 to January 1989, Mr. Webb was a shareholder, director and
manager of Durant Cablevision, Inc. and its predecessor, a traditional hard-wire
cable system company. Mr. Webb has been a shareholder and director of several
media/communications companies involved in network and independent television
stations, AM and FM radio stations, paging and telephony. Mr. Webb is also a
director of Wireless One, Inc.
John R. Bailey, began advising Heartland as a financial consultant in July
1992 and joined Heartland in September 1993 as Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary. Mr. Bailey was named Senior Vice
President -- Finance, Chief Financial Officer, Treasurer and Secretary in August
1994. From 1988 to September 1993, Mr. Bailey was the founder and Managing
Director of Berkshire Partners, Inc., a private investment bank focusing upon
private placements and mergers and acquisitions for communications clients. From
February 1991 to February 1992, Mr. Bailey was a Senior Vice President and Chief
Financial Officer of Comstock Resources, Inc., an energy company. From October
1989 to February 1991 and from 1980 to September 1985, Mr. Bailey was employed
by Eppler, Guerin & Turner, Inc., an investment bank, as Vice
President -- Corporate Finance. Prior to 1988, Mr. Bailey was employed by Bear,
Stearns & Co., Inc. as an Associate Director and Kidder, Peabody & Co.
Incorporated as a Vice President in Corporate Finance.
Randy R. Hendrix began advising Heartland as a marketing consultant in
January 1991 and joined Heartland as Vice President -- Marketing in September
1993. Mr. Hendrix was named Senior Vice President -- Marketing in August 1994.
From 1986 to January 1991, Mr. Hendrix was employed as a Registered
Representative for the Equitable Life Assurance Society. Prior to that, Mr.
Hendrix served as Marketing Director -- Franchise Development for Curtis Mathis
Corporation, a manufacturer and retailer of electronic appliances.
Thomas W. Dixon began advising Heartland as an operations consultant in
March 1992 and joined Heartland as Vice President -- Operations in September
1993. Mr. Dixon was named Senior Vice President -- Operations in August 1994.
From 1985 to March 1992, Mr. Dixon was employed as a Vice President of Long
Distance Savers, Inc., a long distance telephone company. Mr. Dixon's
responsibilities included opening, staffing and training new company offices, as
well as sales and marketing in the Louisiana-Texas-Oklahoma tri-state area.
Robert R. Story has been an adviser to Heartland since its formation on
construction, installations and related technical matters. Mr. Story also
assisted Heartland with numerous strategic acquisitions. Previously, Mr. Story
was President of United States Wireless Cable, Inc., an Austin, Texas based
wireless cable operator. In connection with Heartland's purchase of the Lubbock
operating system in May 1995, Mr. Story was named Senior Vice
President -- Installations. Mr. Story is responsible for the development of all
residential receive sites, special application installations and the training of
Heartland personnel for these installations. Mr. Story has been a shareholder
and officer of Clear-Vue TV, Inc., Durant Cablevision, Inc. and Green Country
Radio, Inc.
David D. Hagey joined Heartland in June 1994 as Vice President, Controller
and Assistant Secretary. Prior to joining Heartland, Mr. Hagey was employed by
KPMG Peat Marwick LLP for 11 years, most recently as Senior Manager.
Alvin H. Lane, Jr., became a director of Heartland in January 1994. In
1983, Mr. Lane founded, and since then has been the President of, Lane and
Associates, a management consulting firm. Since October 1993, Mr. Lane has been
the President of AHL Finance Company, L.L.C. From 1972 to 1983, Mr. Lane was the
Chief Financial Officer and Secretary of the Dr Pepper Company. Mr. Lane is also
Chairman of the Board of Love Bottling Company, a soft drink bottling franchise.
60
<PAGE> 716
Dennis M. O'Rourke became a director of Heartland in January 1994. In 1985,
Mr. O'Rourke founded, and since then has been the Chairman of the Board and
Chief Executive Officer of, O'Rourke Companies Inc., a human resources
consulting firm. Prior to that, Mr. O'Rourke was employed in various capacities
by Boise Cascade Corporation, American Hospital Supply Corporation and General
Motors Corporation.
John A. Sprague became a director of Heartland in January 1995. Since March
1994, Mr. Sprague has been the managing partner of Jupiter Partners L.P., an
investment firm. From January 1993 until February 1994, Mr. Sprague was an
independent investor. Prior to that, Mr. Sprague served as a General Partner of
Forstmann Little & Co., an investment firm. Mr. Sprague is also a director of
Insignia Financial Group, Inc.
Wes W. Watkins became a director of Heartland in January 1994. Since
January 1991, Mr. Watkins has been the President of World Export Services, Inc.,
a company that invests in telecommunications, real estate and oil production.
Mr. Watkins is also the Secretary and Representative for international trade for
the State of Oklahoma. From January 1991 until December 1993, Mr. Watkins was
the President of Global Communications, Inc., a wireless cable and satellite
telecommunications consulting corporation. Prior to that, Mr. Watkins served for
14 years as a member of the House of Representatives of the United States
Congress from the State of Oklahoma, serving on the Banking, Finance and Urban
Affairs Committee and the House Appropriations Committee.
L. Allen Wheeler, co-founder of Heartland, has served as a director of
Heartland since its formation in September 1990. Mr. Wheeler has owned and
managed diversified investments through Allen Wheeler Management, Inc., a
personal holding company, for over 20 years. Mr. Wheeler's investments have
emphasized the media/communications industries. Mr. Wheeler has been a
shareholder, director and officer of several media/communications companies
involved in network and independent television stations, AM and FM radio
stations, paging and telephony. Mr. Wheeler is currently Chairman and Chief
Executive Officer of Green Country Radio, Inc., which owns and operates one AM
and one FM radio station and a television station.
Executive officers serve at the discretion of the Board of Directors. All
directors serve on the Board of Directors of Heartland until the next annual
meeting of stockholders of Heartland and until their successors are elected and
qualified. Non-employee directors receive an annual fee of $5,000 and a meeting
fee of $500 per meeting attended, plus reimbursement of out-of-pocket expenses,
for their services as directors of Heartland. In addition, each non-employee
director of Heartland (other than Mr. Wheeler) is entitled to receive stock
options under Heartland's Stock Option Plan for Non-Employee Directors for his
services as a director. See "Information Concerning
Heartland -- Management -- Stock Option Plans." Directors who are also employees
do not receive any additional compensation for their services as directors.
The Board of Directors has established two committees. The Compensation
Committee is comprised of Messrs. Holland, O'Rourke, Wheeler and Sprague and
makes recommendations to the Board with respect to general compensation and
benefit levels, determines the compensation and benefits for Heartland's
executive officers and administers Heartland's Employee Stock Option Plan. The
Audit Committee is comprised of Messrs. Lane, Watkins and Wheeler and oversees
the activities of Heartland's independent auditors and internal accounting
controls.
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<PAGE> 717
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation of Heartland's
Chief Executive Officer and each other executive officer of Heartland who earned
in excess of $100,000 in annual salary and bonus during Heartland's fiscal year
ended December 31, 1994 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to Heartland during Heartland's fiscal years
ended December 31, 1994 and 1993, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
TERM
COMPEN-
SATION
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------ SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS/ OTHER
SALARY BONUS COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- --------------------------------------------- ---- -------- ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb................................ 1994 $120,000 $ -- $7,306 -- $ 13,228(2)
President and Chief Executive Officer 1993 60,750(3) -- -- -- 2,250(2)
John R. Bailey............................... 1994 90,000 45,000 4,200 100,000 --
Senior Vice President -- Finance, Chief 1993 94,850(3) -- -- -- --
Financial Officer, Treasurer and Secretary
Randy R. Hendrix............................. 1994 90,000 45,000 6,668 130,000 --
Senior Vice President -- Marketing 1993 59,782(3) -- -- -- --
Thomas W. Dixon.............................. 1994 81,000 45,000 4,200 50,000 --
Senior Vice President -- Operations........ 1993 30,000(3) -- -- -- --
</TABLE>
- ---------------
(1) Other annual compensation is comprised of car allowances.
(2) Rental income paid by Heartland for its operating offices. See "Information
Concerning Heartland -- The Business -- Properties" and "Information
Concerning Heartland -- Certain Transactions."
(3) Paid by Heartland in the form of consulting fees.
Since April 1994, Mr. Holland's annual base compensation for the fiscal
year ended December 31, 1994, was $120,000. Such compensation is paid to Mr.
Holland by Unity Hunt Resources, Inc., an affiliate of Hunt Capital, which
receives a management fee equal to such amount from Heartland for the provision
of Mr. Holland's services. Mr. Holland devotes approximately 20 hours per week
to Heartland. See "Information Concerning Heartland -- Certain Transactions."
The following table sets forth, for the fiscal year ended December 31,
1994, the number of individual grants of stock options made during such fiscal
year to each of the Named Executive Officers. All options granted during the
last fiscal year were granted pursuant to the 1994 Employee Stock Option Plan
(the "Employee Option Plan") at an exercise price equal to the fair market value
on the date of grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL PRICE APPRECIATION FOR
OPTIONS/ OPTIONS/SARS EXERCISE OPTION TERM(1)
SARS GRANTED TO OR BASE ----------------------
GRANTED(2) EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ----------------------- ---------- ------------ -------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb.......... 0 N/A N/A N/A N/A N/A
John R. Bailey......... 100,000 18.8% $10.50 April 21, 2001 $427,500 $ 996,200
Randy R. Hendrix....... 130,000 24.5% $10.50 April 21, 2001 $555,700 $1,295,000
Thomas W. Dixon........ 50,000 9.4% $10.50 April 21, 2001 $213,700 $ 498,100
</TABLE>
62
<PAGE> 718
- ---------------
(1) Potential realizable value is based on the assumption that the price of
Heartland Common Stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the seven-year option
term. The values are calculated in accordance with rules promulgated by the
Commission and do not reflect Heartland's estimate of future stock price
appreciation.
(2) All options granted are non-qualified options granted at an exercise price
equal to fair market value on the date of grant, are 40% vested and will
continue to vest at a rate of 20% per year, subject to acceleration upon
the death of the optionee or termination of the optionee following a Change
of Control (as defined in the option agreements), and have a term of seven
years.
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1994, by each of the
Named Executive Officers and the number of options held at fiscal year end and
the aggregate value of in-the-money options held at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTION/SARS AT OPTION/SARS AT
ON VALUE FISCAL-YEAR-END FISCAL-YEAR-END
EXERCISE REALIZED (#) ($)
(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David E. Webb.................. 0 N/A N/A N/A
John R. Bailey................. -- -- 40,000/60,000 $ 90,000/$135,000
Randy R. Hendrix............... -- -- 52,000/78,000 $117,000/$175,000
Thomas W. Dixon................ -- -- 20,000/30,000 $ 45,000/$ 67,500
</TABLE>
NONCOMPETITION AGREEMENTS
Heartland has entered into noncompetition agreements with Messrs. Holland,
Webb, Bailey, Hendrix, Dixon and Wheeler. The noncompetition agreements provide
that none of such persons will engage in competitive activities during the term
of their service with Heartland and for a period of one year thereafter. In
addition, Steven G. Johnson's consulting agreement with Heartland following the
AWS Merger also contains certain noncompetition agreements associated with the
markets acquired by Heartland through the AWS Merger.
STOCK OPTION PLANS
Employee Stock Option Plan. Heartland adopted, effective upon Heartland's
initial public offering on April 28, 1994 ("the Initial Public Offering"), the
Employee Option Plan which provides for the grant to officers and employees of
both "incentive stock options" within the meaning of Section 422 of the Code and
stock options that are non-qualified for Federal income tax purposes. The total
number of shares of Heartland Common Stock for which options may be granted
pursuant to the Employee Option Plan is 950,000. The Employee Option Plan will
terminate on the tenth anniversary of the consummation of the Initial Public
Offering, and is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines which of Heartland's officers
and employees receive options, the time when options are granted, whether the
options are incentive stock options or non-qualified stock options, the terms of
such options, the exercise date of any options and the number of shares subject
to options. Members of the Compensation Committee (including Mr. Holland) are
not eligible to receive options under the Employee Option Plan. Mr. Webb is not
eligible to receive options under the Employee Option Plan. Directors who are
also employees (other than Mr. Webb) are eligible to receive options under the
Employee Option Plan. Non-employee directors are not eligible to receive options
under the Employee Option Plan.
The exercise price of incentive stock options granted under the Employee
Option Plan may not be less than 100% of the fair market value of the Heartland
Common Stock at the time of grant and the term of any
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<PAGE> 719
option may not exceed 10 years. With respect to any employee who owns stock
representing more than 10% of the voting power of the outstanding capital stock
of Heartland, the exercise price of any incentive stock option may not be less
than 110% of the fair market value of such shares at the time of grant and the
term of such option may not exceed five years.
The exercise price of a non-qualified stock option is determined by the
Compensation Committee on the date the option is granted. However, the exercise
price of a non-qualified stock option may not be less than 100% of the fair
market value of the Heartland Common Stock at the time of grant.
Options granted under the Employee Option Plan are nontransferable and,
with certain exceptions in the event of the death or disability of an optionee,
may be exercised by the optionee only during employment. Options granted under
the Employee Option Plan typically vest over a five-year period, although
options granted to certain employees (including Messrs. Bailey, Dixon and
Hendrix) are 40% vested upon grant and vest an additional 20% per year over a
three-year period. Upon the death of an optionee or the termination of the
optionee following a Change of Control (as defined in the option agreements),
the vesting of an option accelerates. Options granted under the Employee Option
Plan expire after seven years, unless terminated earlier.
Heartland has granted options to purchase an aggregate of 772,000 shares of
Heartland Common Stock to eighteen employees, including 160,000, 154,000,
130,000, 65,000 and 20,000 shares, respectively, to each of Messrs. Bailey,
Hendrix, Dixon, Story and Hagey, at a weighted average exercise price per share
equal to $13.52 per share. Options to purchase 130,000 shares of Heartland
Common Stock have been cancelled.
Stock Option Plan for Non-Employee Directors. Heartland adopted, effective
upon consummation of the Initial Public Offering, the 1994 Stock Option Plan for
Non-Employee Directors (the "Non-Employee Directors Plan"). The purpose of the
Non-Employee Directors Plan is to attract and retain the services of experienced
and knowledgeable independent directors of Heartland for the benefit of
Heartland and its stockholders and to provide additional incentive for such
directors to continue to work for the best interests of Heartland and its
stockholders through continuing ownership of Heartland Common Stock. A total of
50,000 shares of Heartland Common Stock may be issued through the exercise of
options granted pursuant to the Non-Employee Directors Plan. No option may be
granted under the Non-Employee Directors Plan after 10 years following
consummation of the Initial Public Offering.
The Non-Employee Directors Plan is administered by the Board of Directors.
Subject to the terms of the Non-Employee Directors Plan, the Board of Directors
has the sole authority to determine questions arising under, and to adopt rules
for the administration of, the Non-Employee Directors Plan. The Non-Employee
Directors Plan may be terminated at any time by the Board of Directors, but such
action will not affect options previously granted pursuant thereto.
Directors of Heartland who are not, and who have not been during the
immediately preceding 12-month period, employees of Heartland or any subsidiary
of Heartland (each, a "Non-Employee Director") are automatically participants in
the Non-Employee Directors Plan. There are currently four directors, Messrs.
Lane, O'Rourke, Sprague and Watkins, who are eligible to receive options under
the Non-Employee Directors Plan. Mr. Wheeler is excluded from participating in
the Non-Employee Directors Plan. More than one option may be granted to any one
person and be outstanding at any time.
Each Non-Employee Director who was in office on the consummation of the
Initial Public Offering (Messrs. Lane, O'Rourke and Watkins) was, upon such
consummation, automatically granted an option to acquire 4,000 shares of
Heartland Common Stock at an exercise price per share equal to $10.50. Each Non-
Employee Director who is in office on November 15 of any year (commencing with
November 15, 1995) will, on the immediately succeeding January 1, automatically
be granted an option to acquire 2,000 shares of Heartland Common Stock. The
price of shares that may be purchased upon exercise of an option is the fair
market value of the Heartland Common Stock on the date of grant, as evidenced by
the average of the high and low sales prices of Heartland Common Stock on such
date as reported on the Nasdaq-NMS. The price of shares that may be purchased
upon exercise of an option granted upon the consummation of the Initial Public
Offering is the initial public offering price. Options granted pursuant to the
Non-Employee Directors Plan,
64
<PAGE> 720
except as discussed below, are exercisable in installments of 25% upon each
anniversary of the date of grant. The term of each option, except as discussed
below, is for a period not exceeding seven years from the date of grant. Options
may not be assigned or transferred except by will or by operation of the laws of
descent and distribution.
In the event of a Change in Control of Heartland (as defined below), an
option granted to a Non-Employee Director will become fully exercisable if,
within one year of such Change in Control, such Non-Employee Director ceases for
any reason to be a member of the Board of Directors. A Change in Control will be
deemed to have occurred if (a) there is consummated (i) any consolidation or
merger of Heartland in which Heartland is not the continuing or surviving
corporation or pursuant to which shares of Common Stock are converted into cash,
securities or other property, other than a merger of Heartland in which the
holders of Heartland Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of Heartland; (b) the shareholders approve any plan or proposal
for the liquidation or dissolution of Heartland; (c) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of the outstanding Heartland Common Stock; or (d) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by Heartland's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Any exercise of an option permitted in the event of a Change of Control
must be made within 180 days of the relevant Non-Employee Director's termination
as a director of Heartland.
65
<PAGE> 721
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth (a) certain information regarding the
ownership of the Heartland Common Stock as of December 31, 1995 with respect to
(i) each person known by Heartland to own beneficially more than 5% of the
outstanding shares of Heartland Common Stock, (ii) each of Heartland's
directors, (iii) the Named Executive Officers and (iv) all directors and
officers as a group, and (b) the effect of the Transactions (assuming the
consummation of all of the Transactions and an average closing price during the
relevant periods of $28 per share, the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof, or $17 per share, the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions,
of Heartland Common Stock, as noted) on the amount and percentage (5%) of
current holdings of shares of Heartland Common Stock owned beneficially by each
of such persons. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions." Except as
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned. Unless otherwise indicated,
the address for each stockholder is c/o Heartland Wireless Communications, Inc.,
903 North Bowser, Suite 140, Richardson, Texas 75081.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRO FORMA BENEFICIAL OWNERSHIP
BEFORE THE AFTER THE TRANSACTIONS
TRANSACTIONS(1) -----------------------------------------------
-------------------- PERCENT(2) PERCENT(3)
NO. PERCENT NO. ($17 PER SHARE) ($28 PER SHARE)
--------- ------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Hunt Capital Group, L.L.C.......... 4,000,000 31.72% 4,000,000 17.14% 20.65%
David E. Webb...................... 1,900,425 15.07 1,900,425 8.14 9.81
L. Allen Wheeler................... 2,004,800 15.90 2,004,800 8.59 10.35
Jupiter Partners, L.P.(4).......... 2,837,688 18.37 2,837,688 10.84 12.78
J. R. Holland, Jr.(5).............. -- --
Alvin H. Lane, Jr.(6).............. 5,000 * 5,000 * *
Dennis M. O'Rourke(7).............. 1,000 * 1,000 * *
John A. Sprague(8)................. -- --
Wes W. Watkins(9).................. 1,000 * 1,000 * *
John R. Bailey(10)................. 49,700 * 49,700 * *
Randy R. Hendrix(11)............... 87,600 * 87,600 * *
Thomas W. Dixon(12)................ 55,300 * 55,300 * *
All officers and directors as a
group
(11 persons)(5)(6)(7)(8)(9)
(10)(11)(12)(13)................. 4,106,825 32.08 4,106,825 17.46 20.99
</TABLE>
- ---------------
* Less than 1%.
(1) Based upon 12,611,132 shares of Heartland Common Stock outstanding on
December 31, 1995.
(2) Percentage based on 23,332,434 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common
Stock are issuable -- see "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions"),
assuming (i) that there will be 4,500 subscribers to the Minneapolis system
on the relevant date, (ii) additional subscriber consideration of $3.5
million will be paid in the TSC Transaction, (iii) assumption of no
liabilities in the TSC Transaction and (iv) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Percentage based on 19,375,081 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $28 per share, the
approximate closing average of the Heartland Common Stock over the
preceding ten- and 20-day trading periods), assuming (i) that there will be
3,500 subscribers to the Minneapolis system on the relevant date, (ii)
additional subscriber consideration of $1.5 million will be paid in the TSC
Transaction, (iii) assumption of $5 million of liabilities in the TSC
Transaction and (iv) CMAX's net liabilities do not exceed specified
amounts. See "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions."
(4) Address is 30 Rockefeller Plaza, Suite 4525, New York, N.Y. 10112. Jupiter
Partners, L.P. ("Jupiter") is the holder of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the
66
<PAGE> 722
principal amount of the Convertible Note (after taking into account
accretions in value) by (ii) the Conversion Price (as defined in the
Convertible Notes) then in effect. The current Conversion Price is $15.34
per share.
(5) Address is 1962 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
Mr. Holland is the sole director, Manager and President of Hunt Capital.
Hunt Capital is owned by trusts, of which Mr. Holland serves as a trustee.
Mr. Holland disclaims beneficial ownership of the shares of Heartland
Common Stock owned by Hunt Capital.
(6) Includes 1,000 options granted to Mr. Lane under the Non-Employee Directors
Plan, which are presently exercisable. Does not include 3,000 options
granted to Mr. Lane under the Non-Employee Directors Plan, which are not
presently exercisable.
(7) Includes 1,000 options granted to Mr. O'Rourke under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. O'Rourke under the Non-Employee Directors Plan,
which are not presently exercisable.
(8) Mr. Sprague is indirectly a controlling general partner of Jupiter.
Accordingly, Mr. Sprague may be deemed to be a beneficial owner of the
shares issuable to Jupiter on conversion of the Convertible Notes. Mr.
Sprague shares voting and investment power as to shares issuable to Jupiter
on conversion of the Convertible Notes with Terry J. Blumer. Mr. Sprague
disclaims beneficial ownership of such shares.
(9) Includes 1,000 options granted to Mr. Watkins under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. Watkins under the Non-Employee Directors Plan, which
are not presently exercisable.
(10) Includes 44,000 shares issuable upon the exercise of presently exercisable
options. Excludes 76,000 shares issuable upon the exercise of options that
are not presently exercisable.
(11) Includes 87,600 shares issuable upon the exercise of presently exercisable
options. Excludes 66,400 shares issuable upon the exercise of options that
are not presently exercisable.
(12) Includes 54,000 shares issuable upon the exercise of presently exercisable
options. Excludes 56,000 shares issuable upon the exercise of options that
are not presently exercisable.
(13) Includes 2,000 shares issuable upon the exercise of presently exercisable
options issued to David D. Hagey, for a total of 190,600 shares issuable
upon the exercise of presently exercisable options held by officers and
directors. Excludes 18,000 shares issuable upon the exercise of options
issued to Mr. Hagey that are not presently exercisable.
CERTAIN TRANSACTIONS
Heartland's founders, David E. Webb, the President and Chief Executive
Officer, and L. Allen Wheeler, a member 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 assets in exchange for capital stock of
WCI. In September 1993, WCI issued the Hunt Note to Unity Hunt, Inc. ("Unity
Hunt"), an affiliate of Hunt Capital, pursuant to a loan agreement that provided
for a one-year term loan in the principal amount of $988,000, to bear interest
at the rate of 10% per annum, which was secured by substantially all of the
assets of WCI. The proceeds of this loan were used primarily by WCI to acquire
wireless cable channel rights. In October 1993, Hunt Capital, a principal
stockholder of Heartland and affiliate of J. R. Holland, Jr., the Chairman of
the Board of Heartland, purchased the Hunt Note from Unity Hunt in connection
with an internal restructuring that included the dissolution of Unity Hunt. Hunt
Capital purchased the Hunt Note for $996,390 (representing the outstanding
principal balance plus accrued and unpaid interest through the date of
transfer).
Heartland 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 Heartland and Hunt Capital
contributed the Hunt Note, including accrued interest, and approximately
$2,000,000 in cash to Heartland. In exchange therefor, Messrs. Webb and Wheeler
were each issued 2,000,000 shares of Heartland Common Stock by Heartland and
Hunt Capital was issued 4,000,000 shares. In addition, Messrs. Webb and Wheeler
leased all other wireless cable channel license rights controlled, directly and
indirectly, by them to Heartland for a nominal amount and granted to Heartland
an option to purchase such license rights at a nominal price. Finally, the net
amount (approximately $68,740) of all advances made to Heartland's predecessors
by, and all advances made from Heartland's predecessors to, Messrs. Webb and
Wheeler and certain entities controlled by them engaged in the wireless cable
business was contributed to Heartland. Such advances, in the form of
non-interest-bearing cash transfers, generally arose as a result of borrowings
made or services rendered, and included various amounts loaned by a wholly-owned
subsidiary of Heartland to Reed's Rail Service, Inc., an affiliate of Messrs.
Webb
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and Wheeler, to fund such entity's railroad repair operations and the purchase
of equipment; the outstanding balance of such indebtedness at December 31, 1992
was $117,284. Also included in such advances are various amounts loaned by
Preferred Capital Corporation, an affiliate of Messrs. Webb and Wheeler, to a
wholly-owned subsidiary of Heartland for general corporate purposes; the
outstanding balance of such indebtedness at December 31, 1992 was $42,235.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $52,078, $116,315, $376,206 and $24,000, respectively, to various entities
controlled by Messrs. Webb and Wheeler for services performed in connection with
the development of wireless cable systems or the acquisition of wireless cable
channel rights. Such payments included $52,800 during the year ended December
31, 1992 and $258,555 during the year ended December 31, 1993 to Green Country
Radio, an affiliate of Mr. Wheeler, for engineering and consulting services.
Heartland has not retained the services of such entities since the Initial
Public Offering, and does not intend to do so in the future. During the year
ended December 31, 1993, Mr. Robert R. Story was a director, officer and
minority shareholder of Green Country. Mr. Story is currently the Senior Vice
President -- Installations of Heartland.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $2,034, $17,850, $38,776 and $50,559, respectively, to an accounting firm
controlled by Mr. Webb for services rendered to Heartland.
During the year ended December 31, 1993, Heartland paid $40,600 to World
Export Services, Inc., an entity controlled by Wes W. Watkins, a director of
Heartland, for consulting services provided in connection with the acquisition
of certain wireless cable channel rights. In June 1993, World Export Services,
Inc. purchased approximately 10% and 5% minority interests, respectively, in two
of Heartland's subsidiaries for an aggregate of $45,000. Pursuant to a public
exchange offer made by Heartland pursuant to a prospectus dated February 13,
1995 wherein Heartland offered to exchange up to an aggregate of 380,000 shares
of Heartland Common Stock for the minority interests in 23 of Heartland's
subsidiaries (the "Minority Interests Exchange Offer"), World Export Services,
Inc. was issued an aggregate of 4,526 shares of Heartland Common Stock in
exchange for such minority interests.
Heartland leases approximately 2,400 square feet for its operating offices
in Durant, Oklahoma from an affiliate of Messrs. Webb and Wheeler for which the
expense amounted to approximately $18,000 annually for the years ended December
31, 1991, 1992, 1993 and 1994. Heartland also leases an aggregate of
approximately an additional 6,126 square feet of office space in Durant,
Oklahoma from affiliates of Messrs. Webb and Wheeler for which the expense
amounted to approximately $4,000 for the year ended December 31, 1994. See
"Information Concerning Heartland -- The Business -- Properties."
Messrs. Webb and Wheeler pledged certain personal assets to secure, and
personally guaranteed, notes payable by Heartland to a bank totaling $970,000.
Such notes were due in March 1995 and bore interest at variable and fixed rates
ranging from 6% to 8% at December 31, 1994. Heartland repaid such notes from the
net proceeds of its Initial Public Offering.
Mr. Holland's annual base compensation for 1994 was $120,000, which was
paid to him by Unity Hunt Resources, Inc., an affiliate of Hunt Capital of which
Mr. Holland is President, which receives a management fee equal to such amount
from Heartland for the provision of Mr. Holland's services. Mr. Holland's base
compensation for 1995 will be $120,000.
In connection with a $1.0 million principal amount loan to United States
Wireless Cable, Inc. ("U.S. Wireless") by First National Bank of Durant ("First
National"), Heartland agreed to purchase such loan upon demand from First
National for the aggregate amount of principal and interest thereon plus any
other amounts owed to First National by U.S. Wireless. U.S. Wireless is a
stockholder of Heartland. The loan was paid in full upon the consummation by
Heartland's acquisition of the Lubbock market. In addition, on December 15,
1994, Heartland (i) loaned $2.0 million to U.S. Wireless, which loan was secured
by 300,000 shares of Heartland's Common Stock owned by U.S. Wireless and all of
the rights of U.S. Wireless in and to the Tulsa, Oklahoma wireless cable market,
(ii) acquired the rights of U.S. Wireless in the Amarillo, Texas market and
(iii) was granted an option to acquire the Tulsa, Oklahoma market. In May 1995,
Heartland exercised its option on the Tulsa market and closed the acquisition of
the Tulsa market. U.S. Wireless and a
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<PAGE> 724
subsidiary to U.S. Wireless ("USWS") repaid the $2.0 million loan in full upon
the consummation of the acquisition of the Tulsa market.
On May 3, 1995, Heartland acquired from Robert R. Story, a former affiliate
of USWS and U.S. Wireless and current officer of Heartland, all of the issued
and outstanding capital stock of Robert R. Story, Inc., which owns and operates
the Lubbock System, for $5.4 million in cash. Immediately prior to the
consummation of the acquisition of the Lubbock market, Robert R. Story, Inc.
acquired from USWS all of USWS's rights in the Lubbock system. Upon the
consummation of the Lubbock Acquisition, the $1,000,000 principal amount loan to
U.S. Wireless by First National was paid in full.
Pursuant to an interim loan arrangement, Hunt Capital and Mr. Wheeler
agreed to loan Heartland up to an aggregate of $4.0 million ($2.0 million each)
and Jupiter agreed to loan to Heartland, or to guarantee a bank loan to
Heartland in the amount of, $2.0 million. Borrowings under the loan agreement
could be used solely for working capital. Borrowings under the loan agreement
bore interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the loan agreement would have been due and
payable in full on June 30, 1995, subject to prepayment upon the receipt by
Heartland of cash proceeds from any financing, refinancing or sale of assets.
Amounts borrowed and repaid under the loan agreement could not be reborrowed.
Borrowings under the loan agreement were secured by the capital stock and assets
of Heartland's subsidiaries operating the Lindsay and Shaw systems. Heartland
borrowed $2.0 million under the loan agreement, funded $1.0 million each by Hunt
Capital and Mr. Wheeler. Heartland used a portion of the net proceeds of the
sale of the 100,000 Units (the "Units"), consisting of $100 million 13% Senior
Notes due 2003 and 600,000 warrants to purchase an equal number of shares of
Heartland Common Stock, to repay all amounts owed under the loan agreement on
April 26, 1995.
Pursuant to a Chemical Bank Loan arrangement (the "Chemical Bank Loan"),
Chemical Bank agreed to loan Heartland up to an aggregate of $2.0 million.
Borrowings under the Chemical Bank Loan bore interest at the prime rate plus 1%
per annum. All accrued interest on, and the principal amount of, all borrowings
under the Chemical Bank Loan would have been due and payable on demand, but in
any event not later than June 30, 1995. Heartland paid Chemical Bank a facility
fee of $5,000. Amounts borrowed and repaid under the Chemical Bank Loan could
not be reborrowed. Borrowings under the Chemical Bank Loan were guaranteed by
Jupiter and Mr. Sprague. Heartland borrowed $1.0 million under the Chemical Bank
Loan. Heartland used a portion of the net proceeds of the sale of the Units to
repay all amounts owed under the Chemical Bank Loan on April 26, 1995.
The terms of the transactions described above were determined by the
parties thereto, and Heartland believes that such transactions involving
affiliates were on terms no less favorable to Heartland than could have been
obtained from unaffiliated third parties. All future transactions between
Heartland and its officers, directors, principal stockholders and affiliates
will be on terms no less favorable to Heartland than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Board of Directors of Heartland.
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INFORMATION CONCERNING AWS
BUSINESS OF AWS
GENERAL
AWS was incorporated under Minnesota law in November 1988 to conduct an
unrelated business. In 1991, AWS discontinued this business. AWS remained
inactive until December 17, 1992, when AWS acquired various wireless cable
assets, including the interests in the wireless cable systems in Fort Worth and
Minneapolis described below, and certain wireless cable channel rights in Dallas
and Pittsburgh, from American Wireless Systems, Inc., a California corporation
("Wireless California"), which was the predecessor to AWS's wireless cable
business.
AWS maintains its principal executive offices at 7426 East Stetson Drive,
Suite 220, Scottsdale, Arizona 85251, and its telephone number is (602)
994-4301.
AWS currently owns a minority interest in and manages the operations of
wireless cable systems in Minneapolis and Fort Worth, and owns the rights to
certain wireless cable channels in Dallas, Los Angeles and Memphis. The
Minneapolis and Fort Worth markets combined have approximately 1,500,000
households, of which AWS estimates approximately 1,325,000 are serviceable by
LOS transmissions.
AWS owns a 25% beneficial interest in the Minneapolis LLC, which started
operations in March 1993. As of November 30, 1995 the Minneapolis system
provided 29 channels of service, including eight local television stations, to
approximately 2,740 subscribers. AWS owns an interest in and manages the
operations of the Minneapolis LLC pursuant to joint venture and management
agreements with the Minneapolis LLC and the Minneapolis Partnership, its joint
venture partner. In connection with these agreements, AWS has lent the
Minneapolis Partnership $2,000,000, which has been contributed to the
Minneapolis LLC to meet operating expenses and to fund the costs of subscriber
growth.
AWS owns a 20.01% beneficial interest in FTW Venture, which started
operations in November 1992. As of November 30, 1995 the FTW system provided 27
channels of service, including 13 local television stations, to approximately
1,550 subscribers. AWS also has acquired the rights to eight additional wireless
cable channels that AWS anticipates will be added to the Fort Worth system.
AWS directly owns the rights to 16 wireless cable channels in Dallas, nine
wireless cable channels in Los Angeles and 22 wireless cable channels in
Memphis. In Dallas, AWS is negotiating to acquire additional wireless cable
channel rights. AWS currently does not expect to acquire additional channel
capacity in Los Angeles. AWS believes single-family residential service could be
launched in Los Angeles with nine channels if digital compression technology
becomes available on economically favorable terms. Digital compression
technology permits the transmission of more than one channel in the bandwidth
currently used to transmit a single channel. On November 7, 1995, AWS entered
into a contract with TruVision Cable, Inc. ("TruVision") to sell all of AWS'
assets in Memphis for $3,900,000 in cash. AWS anticipates this transaction will
close before February 29, 1996. See "-- Legal Proceedings."
In April 1994, AWS filed a Registration Statement on Form SB-2 in
connection with a proposed public offering of common stock. For a variety of
reasons, including AWS' difficulties in securing the necessary clearances to
offer and sell its securities from various government authorities and obtaining
approval to list its securities for trading on Nasdaq, as well as the fact that
AWS' independent public accountants could not, at that time, express an opinion
on AWS' December 31, 1994 financial statements as required by the registration
provisions of the Securities Act of 1933, AWS was unable to complete its
offering as contemplated. Accordingly, AWS was not successful in obtaining
sufficient funds required to develop, launch and expand the existing and
proposed wireless cable systems in which it holds an interest. In addition, due
to its lack of revenues and inability to obtain financing, AWS did not believe
it had the ability to secure the necessary funds for continued development of
these systems. Accordingly, AWS pursued a number of options, including the sale
of one or more of its assets, merger with a third party or the sale of AWS as a
whole.
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MARKETS
AWS and the joint ventures in which it owns an interest currently own,
lease or are negotiating to acquire wireless cable channel rights in
Minneapolis, Fort Worth, Dallas, Los Angeles, and Memphis. AWS selected these
markets based on the size of the market, availability of wireless cable channels
on acceptable terms, demographics of subscribers in the market, the quality and
scope of existing traditional cable services, and the suitability of the market,
based on topography and foliage, to wireless cable signal transmission.
The following table sets forth certain information as of November 30, 1995
concerning each of AWS' markets. Information regarding potentially serviceable
households is subject to assumptions and estimates which AWS believes to be
reasonable. There can be no assurance that the actual numbers will not differ
materially from those set forth below.
<TABLE>
<CAPTION>
EXISTING SYSTEMS PROPOSED SYSTEMS
------------------------------ -------------------------------
MINNEAPOLIS(1) FORT WORTH(1) DALLAS LOS ANGELES MEMPHIS TOTAL
-------------- ------------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
MSA Ranking(2)................ 14 35 12 1 50
Estimated Number of TV
Households(3)............... 958,900 539,700 981,500 3,029,500 376,900 5,886,500
Potentially Serviceable
Households(4)............... 882,200 442,500 872,400 2,726,500 350,600 5,274,200
Number of Wireless Cable
Subscribers................. 2,740 1,550 -- -- -- 4,290
Wireless Cable Channels
Licensed or Leased by
Company..................... 21(5) 22(6) 16 9 22
Estimated Number of Cable
Subscribers................. 450,700 264,400 480,900 1,787,400 218,600 3,202,000
Estimated Number of Households
Passed by Cable............. 939,800 528,900 961,900 2,968,900 369,400 5,768,900
</TABLE>
- ---------------
(1) The existing systems in Minneapolis and Fort Worth are owned by joint
ventures in which AWS owns a minority interest of 25% and 20.01%,
respectively. Information shown is for each system as a whole and has not
been adjusted to reflect AWS' minority interest in such system.
(2) Metropolitan Statistical Area ranking in terms of population using 1990
census data.
(3) Estimates are derived from 1990 census data on households within the
projected service area (signal pattern).
(4) Represents AWS' estimate of households that are potentially serviceable by
AWS' existing or proposed systems, after adjustment for the anticipated
coverage loss due to obstruction of wireless cable signals by terrain
obstructions, but does not reflect adjustments due to the use of beambenders
(which would increase the number of potentially serviceable households) or
dense foliage (which would decrease the number of potentially serviceable
households).
(5) Does not include four channels for which an application is currently pending
before the FCC.
(6) Includes 8 channels which must be co-located at AWS' headend transmission
facility before programming may be effected on these channels.
Each of AWS's markets has up to 33 channels available for wireless cable
transmission. AWS believes that it needs sufficient channel capacity to offer a
minimum of 14 channels of commercial cable programming to successfully market
its wireless cable services to single-family residential consumers and to
compete with traditional hard-wire cable operators, although this number may
vary in a particular market. The ability of wireless cable systems to
accommodate local or "over-the-air" television programming, including ABC, CBS,
NBC, Fox and PBS, increases the number of channels available to the subscriber.
Subject to securing additional financing, management of AWS intends to pursue
upgrading each of its systems to 50 watts.
MINNEAPOLIS
The Minneapolis LLC is owned by a joint venture between AWS, which owns a
25% equity interest, and the Minneapolis Partnership, which owns a 75% equity
interest. The system commenced operations in March 1993 and, as of November 30,
1995, had approximately 2,740 subscribers.
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Channels and Programming. The Minneapolis system currently offers
subscribers 21 wireless cable channels and eight local television stations for a
total of 29 channels of programming. The Minneapolis LLC also has acquired the
rights to four additional wireless cable channels for which an application is on
file at the FCC and which must be approved before these channels can be added to
the Minneapolis System. The programming offered to subscribers by the
Minneapolis LLC is set forth below.
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING CHANNEL PROGRAMMING
- -------- ----------------------------------- -------- -----------------------------------
<S> <C> <C> <C>
2 KTCA (PBS) 17 KTCI (PBS)
3 CNN 18 MTV
4 WCCO (CBS) 19 USA NETWORK
5 KSTP (ABC) 20 THE DISCOVERY CHANNEL
6 ESPN 21 THE NASHVILLE NETWORK
7 TBS (Atlanta) 22 ARTS & ENTERTAINMENT
8 WGN (Chicago) 23 KLGT (Independent)
9 KMSP (Independent) 24 NICKELODEON
10 MIDWEST SPORTS CHANNEL 25 THE FAMILY CHANNEL
11 KARE (NBC) 26 LIFETIME TELEVISION
12 THE WEATHER CHANNEL 27 TURNER NETWORK TELEVISION
13 SHOWTIME* 28 MIND EXTENSION UNIVERSITY
14 THE DISNEY CHANNEL* 29 KITN (Fox)
15 THE MOVIE CHANNEL* 30 PAY-PER-VIEW
16 HBO*
</TABLE>
- ---------------
* Premium channels
Demographics. The Minneapolis-St. Paul Metropolitan Statistical Area
("MSA") is the 14th largest in the country in terms of population with a
population of 2,464,124. The Minneapolis-St. Paul Designated Market Area ("DMA")
is the 14th largest television market in the country. The Minneapolis LLC
transmits signals to subscribers in the Minneapolis-St. Paul market at 10 watts.
If upgraded to 50 watts, the Minneapolis LLC's signal pattern will encompass an
estimated 958,900 television households, approximately 8% of which are shadowed
by LOS terrain obstructions. Accordingly, AWS estimates that 882,200 television
households in the market are serviceable by LOS transmissions. This estimate of
potentially serviceable television households does not include households that
could be added through the use of beambenders or exclude households that cannot
be served due to signal blockage created by foliage or some other limitation
(e.g., rooftop antenna restrictions).
Terrain and Foliage. Minneapolis has relatively flat terrain. The
transmission facility for the Minneapolis LLC is located on top of the tallest
building in Minneapolis. Management of AWS believes that this location provides
an acceptable LOS angle to serve the market. AWS considers the foliage in the
Minneapolis market to be moderate.
Competition. AWS estimates that within its signal pattern there are
approximately 939,800 households passed by traditional cable (98% of television
households) with approximately 450,700 cable subscribers (48% of households
passed). The primary competitors are Paragon Cable, Continental Cablevision and
King Cable, which have approximately 23%, 19% and 11%, respectively, of the
cable subscribers in the Minneapolis market. Paragon Cable offers a basic
service of 52 channels with addressable converter and remote control plus
Showtime, The Movie Channel and The Disney Channel for $42.23 per month.
Continental Cablevision offers a 50 channel basic service package plus Showtime,
The Movie Channel and The Disney Channel for $53.04 per month. King Cable offers
a 46 channel basic service package plus Showtime, The Movie Channel and The
Disney Channel for $53.04 per month. The Minneapolis system offers a basic
service package of 25 channels with addressable converter and remote control
plus Showtime, The Movie Channel and The Disney Channel for $28.90 per month.
System Management. AWS and the Minneapolis Partnership have formalized
their joint venture arrangement by forming the Minneapolis LLC as a limited
liability company pursuant to the terms of a
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limited liability company agreement. The agreement provides for additional
capital contributions or loans to be made by either member subject to certain
conditions. Losses are to be allocated in accordance with contributed capital
and profits are to be allocated (i) in accordance with contributed capital to
the extent of previously allocated losses and then (ii) 25% to AWS and 75% to
the Minneapolis Partnership. The agreement also provides that AWS will manage
the system in accordance with the terms of a management agreement. The
management agreement provides that the Minneapolis LLC will pay AWS an annual
management fee equal to the greater of $100,000 or 5% of gross revenue received
by the system. AWS lent the Minneapolis Partnership $2,000,000, which has been
contributed to the Minneapolis LLC to pay operating expenses of the system and
to fund the cost of installing additional subscribers in Minneapolis. The
Minneapolis LLC has also entered into a loan agreement with Heartland pursuant
to which the Minneapolis LLC will borrow up to $1,575,000. Of this amount,
$575,000 was used to repay a short term loan in October 1995. The remaining
$1,000,000 available under the loan agreement will be disbursed in non-revolving
draws of up to $250,000 and used to add subscribers to and fund certain
operating expenses of the Minneapolis LLC. The full amount of the loan, together
with interest accrued on the outstanding principal amount, is due and payable on
February 28, 1997 unless the loan matures earlier in accordance with its terms.
FORT WORTH
The Fort Worth system is owned by the FTW Venture, a joint venture between
AWS, which owns a 20.01% equity interest, and the FTW Partnership, which owns a
79.99% equity interest. The Fort Worth system commenced operations in November
1992 and as of November 30, 1995 had approximately 1,550 subscribers.
Channels and Programming. The Fort Worth system currently offers
subscribers 14 wireless cable channels and 13 local television stations, for a
total of 27 channels of programming. AWS also has acquired the rights to eight
additional wireless cable channels which must be co-located at the head-end
transmission facility before these channels can be added to the Fort Worth
system. The programming offered to subscribers by the Fort Worth system is set
forth below.
<TABLE>
<CAPTION>
CHANNEL PROGRAMMING CHANNEL PROGRAMMING
- ------- -------------------- ------- ------------------------------------
<C> <S> <C> <C>
2 KDTN (PBS) 15 USA
3 CNN 16 THE DISCOVERY CHANNEL
4 KDFW (CBS) 17 HBO*
5 KXAS (NBC) 18 THE WEATHER CHANNEL
6 SHOWTIME* 19 NICKELODEON
7 THE DISNEY CHANNEL* 20 CMTV
8 WFAA (ABC) 21 KXTA (Independent)
9 KDFA (Fox) 22 WTBS (Atlanta)
10 ESPN 23 WOR (New York)
11 KTVT (Independent) 24 KDFI (Independent)
12 TNN 25 KXTX (Independent)
13 KERA (PBS) 26 KHSX (Home Shopping Network)
14 WGN (Chicago) 27 KFWD (Telemundo)
28 KDTX (Trinity Broadcasting Network)
</TABLE>
- ---------------
* Premium channels
Demographics. The Fort Worth-Arlington MSA is the 35th largest in the
country in terms of population with a population of 1,332,053. The Fort
Worth-Arlington MSA constitutes part of the larger Fort Worth-Dallas DMA, which
is the eighth largest television market in the country. The Fort Worth system
transmits signals to subscribers in the Fort Worth-Arlington market at 10 watts.
If upgraded to 50 watts, the Fort Worth system's signal pattern will encompass
an estimated 539,700 television households, approximately 18% of which are
shadowed by LOS terrain obstructions. Accordingly, AWS estimates that 442,500
television households in the market are serviceable by LOS transmissions. This
estimate of potentially serviceable television households does not include
households that could be added through the use of beambenders or
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<PAGE> 729
exclude households that cannot be served due to signal blockage created by
foliage or some other limitation (e.g., rooftop antenna restrictions).
Terrain and Foliage. Fort Worth is a relatively flat area with moderate
foliage. The transmission tower for the Fort Worth system is located on one of
the tallest buildings in Fort Worth, which allows clear transmission to the
farthest edges of the projected service area. The location of this tower in
relation to other large buildings in Fort Worth minimizes coverage loss in this
market. Accordingly, AWS believes that Fort Worth is an excellent market for the
transmission of wireless cable.
Competition. AWS estimates that within its signal pattern there are
approximately 528,900 households passed by traditional cable (98% of television
households) with approximately 264,400 cable subscribers (50% of households
passed). Marcus Cable, the dominant traditional cable operator with
approximately 35% of the cable subscribers in the Fort Worth market, offers a
basic service of 57 channels plus Showtime and The Disney Channel for $46.26 per
month. The Fort Worth system offers a basic service of 24 channels plus Showtime
and The Disney Channel for $24.45 per month.
System Development. Currently, neither the FTW Partnership nor the FTW
Venture has sufficient funds to install additional subscribers. In addition, AWS
and the FTW Venture have not entered into formal joint venture and management
agreements. AWS is currently advancing an average of $30,000 per month to the
joint venture to cover operating expenses of the Fort Worth system. As of
December 31, 1995, AWS has advanced over $400,000.
DALLAS
Channels. AWS currently holds the licenses or leases the rights to 16
wireless cable channels in Dallas. These channels have not been co-located. With
13 local television stations available, AWS anticipates that the system could
provide at least 29 channels of programming.
Demographics. The Dallas MSA is the 12th largest in the country in terms of
population with a population of 2,553,362. The Dallas MSA constitutes part of
the larger Fort Worth-Dallas DMA, which is the eighth largest television market
in the country. The channels are currently authorized to transmit at 10 watts.
If increased to 50 watts, the signal pattern would encompass an estimated
981,500 television households, about 12% of which are shadowed by LOS terrain
obstructions. Accordingly, AWS estimates that 872,400 television households in
the market are serviceable by LOS transmissions. This estimate of potentially
serviceable television households does not include households that could be
added through the use of beambenders or exclude households that could not be
served due to signal blockage created by foliage or some other limitation (e.g.,
rooftop antenna restrictions).
Terrain and Foliage. Dallas is a relatively flat area with moderate
foliage. Accordingly, Dallas is an ideal market for the transmission of wireless
cable.
Competition. AWS believes that the primary cable operators in Dallas are
TCI, Telecable and Paragon, which have approximately 32%, 9% and 6%,
respectively, of the cable subscribers in the Dallas market. AWS estimates that
within its signal pattern there are approximately 961,900 households passed by
traditional cable (98% of television households) with approximately 480,900
cable subscribers (50% of households passed).
LOS ANGELES
Channels. AWS currently holds the rights to utilize the excess capacity
provided by eight educational wireless cable channels in Los Angeles and one
additional commercial wireless cable channel. There is substantial competition
in Los Angeles among cable companies attempting to acquire a sufficient number
of wireless cable channels to develop a wireless cable system. AWS currently
does not have sufficient channel capacity to commence operations marketed to
residential subscribers. AWS believes that a single-family residential service
could be launched in Los Angeles with nine channels if digital compression
technology becomes available on economically favorable terms. With 17 local
television stations available, AWS anticipates that the Los Angeles system could
provide at least 26 channels of programming.
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Demographics. The Los Angeles-Long Beach MSA is the largest in the country
in terms of population with a population of 8,863,164. The Los Angeles DMA is
the second largest television market in the country. AWS estimates that a system
using a transmitter output power of 50 watts will encompass an estimated
3,029,500 television households, about 10% of which are shadowed by LOS terrain
obstructions. Accordingly, AWS estimates that 2,726,500 television households in
the market are serviceable by LOS transmissions. This estimate of potentially
serviceable television households does not include households that could be
added through the use of beambenders or exclude households that could not be
served due to signal blockage created by foliage or some other limitation (e.g.,
rooftop antenna restrictions).
Terrain and Foliage. The Los Angeles metropolitan area is a slightly hilly
coastal plain with limited foliage. The anticipated transmission sight in the
San Gabriel mountains east of Los Angeles is over 6,000 feet above sea level and
provides excellent LOS transmission to the Los Angeles metropolitan area.
Accordingly, AWS believes that Los Angeles is an excellent market for
transmission of wireless cable.
Competition. The primary cable operators in Los Angeles include Continental
Cablevision, Century Southwest Cable Television, Crown Media and TCI, which have
approximately 11%, 9%, 6% and 5%, respectively, of the cable subscribers in the
Los Angeles market. AWS estimates that within its signal pattern there are
approximately 2,968,900 households passed by traditional cable (98% of
television households) with approximately 1,787,400 traditional cable
subscribers (60% of households passed).
MEMPHIS
Channels and Programming. AWS currently leases the rights to 22 wireless
cable channels in Memphis. On November 7, 1995, AWS entered into a contract with
TruVision to sell all of its assets in Memphis to TruVision for $3,900,000 in
cash. AWS anticipates this transaction will close by February 29, 1996. The
purchase price will be reduced by $250,000 for each channel that cannot be
transferred to TruVision up to a maximum reduction of $500,000. See "-- Legal
Proceedings."
Demographics. The Memphis MSA is the 50th largest in the country in terms
of population with a population of 981,747. The Memphis DMA is the 42nd largest
television market in the country. With transmitter output power of 50 watts,
AWS' signal pattern will encompass an estimated 376,900 television households,
about 7% of which are shadowed by LOS terrain obstructions. Accordingly, AWS
estimates that 350,600 television households in the market are serviceable by
LOS transmissions. This estimate of potentially serviceable television
households does not include households that could be added through the use of
beambenders nor exclude households that could not be served due to signal
blockage created by foliage or some other limitation (e.g., rooftop antenna
restrictions).
Terrain and Foliage. Memphis is characterized by fairly flat terrain,
although there are numerous areas of dense foliage which may block AWS' signal,
which AWS expects will significantly reduce the number of households that can
receive AWS' wireless cable transmissions.
Competition. AWS estimates that within its signal pattern there are
approximately 369,400 households passed by traditional cable (98% of television
households) with approximately 218,600 cable subscribers (59% of households
passed). The primary competitor is Time Warner, which has approximately 71% of
the cable subscribers in the Memphis market.
PRICING
The following table sets forth a comparison of AWS' monthly charge for its
most popular service package, including basic service plus the indicated premium
channels, addressable converter and remote control, to the traditional hard-wire
cable subscriber's monthly charge for a comparable package of service in the
same market.
<TABLE>
<CAPTION>
TRADITIONAL CABLE PERCENTAGE
MARKET OPERATOR(1) AWS DIFFERENCE
-------------------------------------------------- ----------------- ------- ----------
<S> <C> <C> <C>
Fort Worth(2)..................................... $ 46.26 $24.45 47%
Minneapolis(3).................................... $ 42.23 $28.90 32%
</TABLE>
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<PAGE> 731
- ---------------
(1) Monthly charge shown is that of the dominant traditional cable operator in
the specified market.
(2) Service package consists of basic service plus Showtime and The Disney
Channel.
(3) Service package consists of basic service plus Showtime, The Movie Channel
and The Disney Channel.
In Fort Worth, the dominant hard-wire cable system offers a 57-channel
basic service that includes 19 satellite-delivered cable channels and 12 local
television stations. By comparison, AWS delivers a 24-channel basic service that
includes 11 satellite-delivered cable channels and 13 local television stations.
Of the 11 satellite-delivered basic cable networks carried by AWS, seven are in
the top 11 rated cable networks as rated by Neilsen. Two of the remaining four
channels, The Nashville Network and Country Music Television, are popular in the
Fort Worth metropolitan area.
In Minneapolis, the dominant hard-wire cable operator offers a 52-channel
basic service that includes 32 satellite-delivered cable channels and eight
local television stations. By comparison, AWS delivers a 24-channel basic
service that includes 16 satellite-delivered channels and eight local television
stations. Of these 16 satellite-delivered basic cable networks carried by AWS,
12 are in the top 15 rated cable networks as rated by Neilsen. One of the
remaining four channels, Midwest Sports Channel, is a popular regional sports
network.
AWS typically uses third-party contractors to install subscribers to its
systems and charges an installation fee of approximately $50 per installed
subscriber. This fee can be raised or lowered periodically to influence the
volume of new subscribers. In addition, AWS offers remote controls and
additional outlets at rates comparable to those charged by local traditional
cable operators.
On average, the installation of each additional wireless cable subscriber
requires an incremental capital expenditure of approximately $530, assuming 50%
of wireless cable subscribers request two outlets in the household. This amount
consists of $420 of material costs (including one converter per outlet) and $110
of installation labor costs. AWS does not incur these capital expenditures until
the time of the subscription. Generally, AWS can recover and reuse the material
component of the capital cost (approximately $345) if a subscriber disconnects
service. Although the incremental cost of installation for an additional
traditional cable subscriber is less than the incremental cost of installation
for an additional wireless cable subscriber, traditional hard-wire cable systems
typically cost significantly more to build or purchase than wireless cable
systems, resulting in debt burdens per subscriber generally higher than the debt
burden per subscriber of wireless cable operators such as AWS. Moreover, the
costs of maintaining wireless cable systems are lower than those of traditional
hard-wire cable systems.
MARKETING AND CUSTOMER SERVICE
AWS primarily offers two basic tiers of residential service. The basic
package includes all channels other than premium channels. The second tier of
service includes the basic package plus two or three premium channels and a
remote control. A significant majority of AWS' subscribers have selected the
second tier of service which consists of basic service plus Showtime and The
Disney Channel (and in Minneapolis, The Movie Channel). AWS typically offers
these premium channels in its family package in order to qualify for a
discounted rate offered by the premium programming provider to systems which
meet certain penetration levels relative to the number of subscribers to that
system. "Penetration level" means the number of subscribers who purchase premium
programming compared to the total number of subscribers to that system. Because
traditional hard-wire cable operators typically are unable to meet these
specified penetration levels, AWS has a competitive cost advantage compared to
such traditional cable operators regarding the provision of The Disney Channel,
Showtime and The Movie Channel.
AWS markets its residential service directly to potential subscribers,
combining door-to-door delivery of promotional materials with telemarketing and
personal solicitation. Because wireless cable technology requires LOS
transmission, AWS initially conducts a survey to identify a specific area within
a market that is well suited to the reception of wireless cable signals. To
conduct this survey, AWS uses a site data vehicle equipped with a telescopic
boom and global positioning satellite system that permits AWS to gather data
regarding
76
<PAGE> 732
signal reception for each household passed by the site data vehicle. This data
is entered into a central computer system for subsequent use by marketing,
dispatch and inventory personnel.
Once a specific area has been targeted, AWS typically delivers a package of
promotional materials to each household within the target market area. The
marketing package used generally includes a brochure and video describing
wireless cable and its advantages. Shortly thereafter a telemarketer contacts
each household within the target market area and attempts to sell service to the
prospective subscriber or schedule an appointment with an AWS salesperson. The
sales personnel emphasize comparable picture quality and better service at a
lower price than traditional hard-wire cable systems can provide.
In addition to price and comparable programming, AWS competes on a quality
of service basis. Within its signal range, the picture quality of AWS' service
is comparable to or better than that received by traditional hard-wire cable
subscribers because there is less opportunity for signal degradation between
AWS' headend facility and the subscriber. Wireless cable service also has proven
very reliable, primarily due to the absence of distribution system components
that can fail and thereby cause system-wide outages. AWS is positioning itself
as a reliable, cost-effective alternative to traditional hard-wire cable systems
by delivering a high quality signal throughout its signal area and more
personalized service to its subscribers than traditional cable operators.
PROPERTIES
AWS leases its executive office space in Scottsdale. The term of the lease
is through February 1998. AWS believes that the leased space is adequate for its
current and reasonably anticipated needs. The Minneapolis LLC leases
approximately 12,700 square feet of office and warehouse space in Minneapolis
pursuant to a lease which expires in December 1998. The FTW Venture leases
approximately 15,000 square feet of office and warehouse space in Fort Worth
pursuant to a lease that expires in April 1996. In addition to office space, AWS
leases space on the top of buildings or transmission towers located in the
markets where it operates wireless cable systems. AWS locates its wireless cable
transmitters on these buildings or towers. Currently, AWS believes that office
space and space on buildings or transmission towers currently is readily
available on acceptable terms in the markets where AWS operates or owns wireless
cable channel rights.
LEGAL PROCEEDINGS
Prior to the sale of certain assets by Wireless California to AWS,
approximately $29,000,000 was raised in connection with the offering of general
partnership interests in the Minneapolis Partnership, the FTW Partnership and
the Pittsburgh Partnership, each of which was formed for the purpose of
acquiring an interest in the rights to develop and operate a wireless cable
television system in Minneapolis, Fort Worth, and Pittsburgh, respectively.
Through an affiliate, Wireless California participated in the offer and sale of
the general partnership interests without registration under any federal or
state securities laws based on the belief that the general partnership interests
did not constitute securities under federal and applicable state laws. Certain
current and former officers and directors of AWS were formerly officers and
directors of Wireless California.
Following an investigation by the Commission involving the activities of
Wireless California in connection with the offer and sale of the general
partnership interests as described above, AWS and certain of its current and
former officers, without admitting or denying any wrongdoing, agreed to consent
to an order of the Commission to cease and desist from committing or causing any
violation and any future violations of the securities registration provisions of
the Securities Act and the broker-dealer registration provisions of the Exchange
Act.
Securities administrators in 22 states also have conducted or are presently
conducting investigations of the activities related to the unregistered sale of
the general partnership interests described above. The actions taken by the
various state securities administrators range from no action taken to the
issuance of 15 cease and desist orders and consent orders pursuant to which
Wireless California, the issuing general partnerships, and certain officers of
Wireless California were required to cease selling general partnership interests
without registration, to offer rescission to individuals who purchased general
partnership interests and, in certain cases, to pay administrative penalties. In
addition, AWS Liquidating, L.L.C., the entity into which Wireless
77
<PAGE> 733
California was liquidated ("AWS L.L.C."), has entered into a consent order with
the State of Illinois pursuant to which AWS L.L.C. agreed to cease and desist
from selling general partnership interests without registration, to pay an
administrative penalty, and to cause a rescission offer to be made to Illinois
residents. AWS L.L.C. did not comply with the order and the State of Illinois
filed a complaint on August 14, 1995. Following an investigation by the State of
Arizona, AWS L.L.C. and current and former officers of AWS consented to an order
of the Arizona Corporation Commission to cease and desist from selling
securities unless the sale is registered or exempt from registration and to the
imposition of an administrative penalty against AWS L.L.C. AWS also consented to
a separate order that requires AWS to make an offer of rescission to all general
partners who are Arizona residents or who were offered and sold their interests
from Arizona. To the knowledge of AWS, there are no other active federal or
state regulatory proceedings or investigations.
AWS is currently attempting to amend the Arizona order to provide for
alternatives to rescission, although there can be no assurance that AWS will be
successful in this regard. The Arizona order currently provides that if the
rescission offers are not made, AWS will be required to pay to the Arizona
Corporation Commission an amount equal to the amount of the investment made by
all general partners who are Arizona residents, or approximately $566,000, plus
interest from the time of investment. There can be no assurance that AWS will be
able to satisfy the Arizona rescission order.
Since October 31, 1992, Wireless California, the general partnerships and
the current and former officers of AWS have ceased all activities involving the
offer and sale of general partnership interests, although one of the general
partnerships continued to raise funds through capital calls to existing general
partners after such date. In addition to the rescission offers described above,
Wireless California and the general partnership issuers voluntarily elected to
offer to purchase the general partnership interests of certain general partners
in exchange for cash in an amount equal to the funds contributed by such general
partners. As of the date of this Proxy Statement/Prospectus, approximately 1,170
of the approximately 1,930 purchasers of general partnership interests had been
offered rescission or a return of their investment by Wireless California or the
general partnership issuers and approximately 80 had accepted the offer, all of
which have been paid. None of such offers, however, were necessarily conducted
in accordance with the statutory requirements of the various states. To the
extent such requirements were not met, potential securities liability arising
from the offer and sale of the general partnership interests will not be
statutorily eliminated until the statutes of limitation with respect to such
claims have expired or an offer is made in accordance with the statutory
rescission requirements of any state.
In September 1995, AWS and the Pittsburgh general partnership sold all of
their wireless cable assets in the Pittsburgh market to a publicly held wireless
cable company. As consideration for the sale of its assets in the Pittsburgh
market, the Pittsburgh general partnership received approximately $11,250,000 in
cash and short term notes, which amount exceeded the aggregate amount that would
have been required if all Pittsburgh general partners were offered and accepted
rescission. Additionally, holders of approximately 72% of the Pittsburgh general
partnership interests executed and delivered releases relieving AWS, Wireless
California and certain related parties from any claims including claims arising
from the offer and sale of the general partnership interests.
There can be no assurance that current general partners or any governmental
agency will not institute proceedings for rescission against Wireless California
or AWS as the successor to Wireless California based on a failure to register
the general partnership interests in connection with a public offering or for
damages based on alleged omissions or misrepresentations of material information
in connection with the sale of such interests. In connection with the
acquisition of certain assets of Wireless California, AWS expressly disclaimed
any liabilities of Wireless California arising out of the offer and sale of the
general partnership interests described above. There is a possibility, however,
that a successful claim against Wireless California could be asserted against
AWS based on a number of theories involving successor liability. The institution
of legal action against AWS arising out of the offer and sale of general
partnership interests by Wireless California could result in substantial defense
costs to AWS and the diversion of efforts by AWS' management, and the imposition
of liabilities against AWS could have a material adverse effect on AWS. Based on
its experience to date, however, taking into account the status of
investigations by various state securities
78
<PAGE> 734
administrators, the absence of any asserted claim for rescission having been
instituted by any of the general partners against any of the general
partnerships, Wireless California or AWS, AWS' assessment of the current value
of the general partnership interests, the relatively small number of general
partners who have accepted previous offers by Wireless California or its
shareholders to purchase general partnership interests, the existence of a
number of possible defenses to any claims asserted against it, the existence and
terms of the FTW Agreement and the Minneapolis Agreement, and other factors, AWS
does not believe the ultimate resolution of this matter will have a material
adverse impact on its financial condition.
AWS is currently named as a defendant in two separate lawsuits. On May 16,
1995, William R. Jenkins, the former Chief Executive Officer of AWS, filed a
lawsuit in Arizona state court alleging breach of his employment contract and
requesting as damages all amounts due under the employment contract, treble
damages under the Arizona statute, attorney's fees and costs. On June 2, 1995,
AWS filed a Petition to Compel Arbitration and an Answer including
counterclaims. As a result, the dispute was referred to an arbitration hearing
and the lawsuit was dismissed. AWS estimates that the amount due under Mr.
Jenkins' employment contract, if he were successful, would be approximately
$167,000, which amount could be trebled under the Arizona statute.
On June 21, 1995, TruVision, with whom AWS had entered into a letter of
intent relating to the sale of AWS' Memphis assets for $2,200,000, filed a
lawsuit, as amended on June 29, 1995, in the Circuit Court of Rankin County,
Mississippi alleging that AWS breached the letter of intent, that the parties
entered into a binding agreement which AWS breached, and that AWS committed
fraud and negligent misrepresentation. AWS disputes these claims based on the
position that it lawfully terminated the letter of intent. The Amended Complaint
requests damages in the amount of $28,196,642 and punitive damages in the amount
of $20,000,000, together with interest and all costs of court. On November 7,
1995, AWS entered into an agreement with TruVision pursuant to which AWS has
agreed to sell, with Heartland's consent, the Memphis assets to TruVision for
$3,900,000. The agreement provides for the settlement and release of all claims
by and among AWS, TruVision and Heartland relating to the Memphis assets,
subject to consummation of the AWS Merger Agreement. Further, each agreement
provides that, prior to closing, each party agrees that the lawsuit filed by
TruVision 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 Heartland shall have
the right to raise all defenses and counterclaims associated therewith.
AWS believes it has adequate grounds to successfully defend both lawsuits.
AWS does not expect that a judgment against AWS, if any, would have a material
adverse effect on its financial condition or results of operations.
AWS is also the subject of two threatened lawsuits. American Telecasting,
Inc. ("ATI") has sent letters to AWS claiming that 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.
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<PAGE> 735
DIVIDENDS ON AND MARKET VALUE OF AWS COMMON STOCK
AWS Common Stock has been traded since 1989 in the over-the-counter market
and currently is quoted on the OTC Bulletin Board. The following table sets
forth, for the periods indicated, the high and low bid quotations per share for
the Common Stock as adjusted to reflect (i) the recapitalization of the Common
Stock effected on April 27, 1993, pursuant to which each 2.5 outstanding shares
of Common Stock were converted into one share of Common Stock and (ii) a
one-for-three reverse stock split of the Common Stock effected on October 18,
1994, pursuant to which each three outstanding shares of Common Stock were
converted into one share of Common Stock. There can be no assurance that the
adjusted prices would accurately reflect the actual prices of the Common Stock
had the recapitalization occurred prior to the periods indicated. These
quotations reflect inter-dealer prices, without adjustments for retail mark-ups,
mark-downs or commissions, and do not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Calendar Year 1993:
1st Quarter.............................................. $15.00 $11.25
2nd Quarter.............................................. 13.89 4.68
3rd Quarter.............................................. 28.50 9.00
4th Quarter.............................................. 36.00 20.25
Calendar Year 1994:
1st Quarter.............................................. 24.75 18.00
2nd Quarter.............................................. 24.00 10.50
3rd Quarter.............................................. 13.50 7.89
4th Quarter.............................................. 8.63 3.75
Calendar Year 1995:
1st Quarter.............................................. 5.50 2.88
2nd Quarter.............................................. 4.75 4.00
3rd Quarter.............................................. 4.81 3.00
4th Quarter.............................................. 4.63 3.00
Calendar Year 1996:
1st Quarter (through January 22, 1996)................... 4.69 4.50
</TABLE>
AWS has not paid dividends on its Common Stock and does not anticipate that
it will do so in the future. AWS currently does not intend to declare or pay any
cash dividends, but intends to retain any future earnings for reinvestment in
its business. Payments of dividends in the future will depend upon AWS's growth,
profitability, financial condition and other factors which the Board of
Directors may deem relevant.
On September 11, 1995, the last trading day prior to the public
announcement of the AWS Merger, the last sale bid price of AWS Common Stock was
$4.375 per share, as reported on the OTC Bulletin Board. On January 22, 1996,
the last sale bid price of AWS Common Stock as reported on the OTC Bulletin
Board was $4.625. On January 17, 1996, there were approximately 358 holders of
record of AWS Common Stock.
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<PAGE> 736
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AWS
The following table sets forth as of December 31, 1995 certain information
regarding the outstanding shares of AWS Common Stock beneficially owned by each
person who is known by AWS to own beneficially or exercise voting or dispositive
control over more than 5% of AWS Common Stock, by each of AWS' directors, by
each of the named executive officers and by all directors and officers as a
group. Unless otherwise indicated below, to the knowledge of AWS, all persons
listed below have sole voting and investment power with respect to their shares
of AWS Common Stock, except to the extent that authority is shared by spouses
under applicable law.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED(1) CLASS(1)
-------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Steven G. Johnson(2).................................... 439,696 7.70%
Robert A. Mayer(2)...................................... 48,656 *
John R. Hardesty(2)..................................... 38,743 *
James N. Orth(2)........................................ 16,666 *
Daniel A. Cartwright(2)................................. 12,500(3) *
Todd J. Parriott(2)..................................... 12,500(3) *
All directors and executive officers as a group (six
persons).............................................. 568,761 9.81%
Jeffrey D. Howes(4)..................................... 500,606 8.77%
Dexter S. Cohen(5)...................................... 438,606 7.68%
Kevin C. King(5)........................................ 438,606 7.68%
</TABLE>
- ---------------
* Less than one percent
(1) Includes shares of AWS Common Stock issuable to the identified person
pursuant to convertible securities that may be exercised or converted
within 60 days after December 31, 1995. In calculating the percentage of
ownership, shares issuable to the identified person upon exercise of stock
options or contingent warrants are deemed to be outstanding for the purpose
of computing the percentage of shares of AWS Common Stock owned by such
person but are not deemed to be outstanding for the purpose of computing
the percentage of shares of AWS Common Stock owned by any other
stockholders.
(2) Each of such persons may be reached through the Company at 7426 East
Stetson Drive, Suite 220, Scottsdale, Arizona 85251.
(3) Includes options to acquire 12,500 shares of AWS Common Stock granted under
the Company's 1993 Stock Option Plan.
(4) Mr. Howes may be reached at 11300 West Olympic Boulevard, Suite 700, Los
Angeles, California 90064.
(5) Each of such individuals may be reached at CK Capital Corporation, 180
Newport Center Drive, Suite 180, Newport Beach, California 92660.
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<PAGE> 737
INFORMATION CONCERNING FTW PARTNERSHIP
BUSINESS OF FTW PARTNERSHIP
Fort Worth Wireless Cable T.V. Associates, a California general partnership
("FTW Partnership") was formed pursuant to the Agreement of General Partnership
of FTW Partnership (the "FTW Partnership Agreement") as of July 1, 1992 among
the partners thereof. The purposes for which FTW Partnership was organized
include the following: (i) to acquire the assets and assume the liabilities of
Wireless Cable T.V. Associates #34 (the "FTW Predecessor Partnership"), a
California general partnership which owned a 75% interest in a wireless cable
television system in the metropolitan area of Fort Worth, Texas (the "FTW
System"), and (ii) to acquire additional equipment and facilities necessary to
operate the wireless cable system acquired from the FTW Predecessor Partnership.
The FTW Predecessor Partnership had been formed in 1991 upon the
contribution of capital by the partners thereof which capital was to fund the
development and operation of a wireless cable television system in Fort Worth,
Texas. However, when the FTW Predecessor Partnership had insufficient funds to
"launch" its system, additional capital for the proposed system was raised
pursuant to the formation of FTW Partnership, which purchased all of the assets
of the FTW Predecessor Partnership. This additional capital consisted of
proceeds from the sale of units of FTW Partnership ("FTW Units") to partners of
the FTW Predecessor Partnership as well as new investors who became partners in
FTW Partnership ("FTW Partners"). In addition, the partners of the FTW
Predecessor Partnership who are FTW Partners exchanged their units in the FTW
Predecessor Partnership for FTW Units.
FTW Partnership's business consists of the ownership of a 79.99% equity
interest ("FTW Interest") in the joint venture that owns and operates the FTW
System (the "FTW Venture"). American Wireless Systems, Inc. ("AWS") beneficially
owns the remaining 20.01% interest in the FTW Venture, and manages the
operations of the Fort Worth System. For a description of the wireless cable
television industry and the wireless cable television service provided by FTW
Venture, see "Information Concerning AWS -- Business of AWS." Neither FTW
Partnership nor FTW Venture have ever operated profitably, nor have any
distributions on equity ever been paid by either entity.
As of December 31, 1995, the FTW Partnership has (and has previously had)
no full-time employees. During that time, FTW Partnership has not paid any
compensation to any of the nine members of the management committee of FTW
Committee ("FTW Committee") although such persons have effectively worked
part-time for FTW Partnership. Of the nine members of the FTW Committee, one
person devotes approximately 50% of his time to FTW Partnership's business;
other members of the FTW Committee devote 10% or less of their time to FTW
Partnership's business. FTW Partnership has reimbursed the expenses of the
members of the FTW Committee in connection with their attendance at meetings and
incidental expenses, as well as the expenses of certain FTW Partners
participating in FTW Committee meetings at the request of the FTW Committee.
FTW Partnership does not itself own or lease any real property. FTW
Partnership owns a 79.99% interest in FTW Venture, which leases various
facilities in Arlington and Fort Worth, Texas, including office and warehouse
space, transmission sites and tower sites.
FTW Partnership is not a party to, and none of FTW Partnership's property
is subject to, any pending legal proceedings. However, the failure of FTW
Partnership to resolve (through litigation, arbitration, settlement, or
otherwise) certain claims FTW Partnership may have against AWS could have a
materially adverse effect on FTW Partnership's business, results of operations,
and financial condition. (See "The FTW Transaction -- Description of FTW
Claims")
MARKET FOR AND DISTRIBUTIONS ON FTW UNITS
There is no market or market price for the FTW Units. To the contrary, no
FTW Partner may transfer such units, except in accordance with specific
provisions of the FTW Partnership Agreement.
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<PAGE> 738
As of December 31, 1995, there were approximately 602 FTW Partners or
assignees thereof. As of that date, each member of the FTW Committee owned less
than one percent (1%) of the outstanding FTW Units, although the members of the
FTW Committee as a group (nine persons) owned 1.58% of the outstanding FTW
Units. Upon consummating the transactions contemplated by the FTW Agreement,
proforma based on current ownership of FTW Units, each FTW Partner would own
less than 1% of the outstanding shares of Heartland Common Stock.
The FTW Partnership has never made any distributions to FTW Partners in
respect of the FTW Units.
FTW UNIT OWNERSHIP OF CERTAIN PERSONS AND MANAGEMENT
The following table sets forth, as of December 31, 1995, the FTW Units
beneficially owned by (i) each member of the FTW Committee, and (ii) the FTW
Committee as a group (nine persons). "Percent of Total FTW Units" is based on
1,459 FTW Units outstanding. The persons named below have sole voting and
investment power with respect to all FTW Units owned, unless otherwise noted. As
of December 31, 1995, no FTW Partner beneficially owned more than five percent
(5%) of the FTW Units.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENT OF TOTAL
OF BENEFICIAL OWNER FTW UNITS FTW UNITS
-------------------------------------------------------- --------- ----------------
<S> <C> <C>
Michael Leo............................................. 2(1) *
11718 Barrington Court
Suite 228
Los Angeles, CA 90049
Donald McGee............................................ 2(2) *
200 Balboa Court
Irving, Texas 75062
Daniel Stevens.......................................... 3 *
1080 St. Jean
Florissant, MO 63031
Peggy Sumner............................................ 2 *
211 Santa Barbara
Corpus Christi, TX 78411
George William Walker, Jr............................... 2 *
821 Miner Road
Crownsville, MD 21032
Edwin Watts............................................. 4 *
2014 Rockcreek Drive
Arlington, TX 76010
Terry Wertz............................................. 2 *
1215 Yellowbrick Road
Pendleton, IN 46064
Loran Whitehorn, Jr..................................... 4 *
15018 Zieglinde Dr.
Lake Elsinore, CA 92530
James Williamson........................................ 2 *
30 Thomas Oaks Dr.
Pottstown, PA 19464
FTW Committee as a group (9 persons).................... 23 1.58%
</TABLE>
- ---------------
* Less than 1%
(1) Represents FTW Units beneficially owned by XTALK Associates, a business
trust organization of which Mr. Leo is manager.
(2) Represents FTW Units beneficially owned by Mr. McGee through BD2 Inc., a
corporation which is owned 50% by Mr. McGee.
83
<PAGE> 739
INFORMATION CONCERNING MINNEAPOLIS PARTNERSHIP
BUSINESS OF MINNEAPOLIS PARTNERSHIP
Description of Minneapolis Partnership. Wireless Cable TV Associates #38, a
California general partnership (the "Minneapolis Partnership") was formed for
the purpose of acquiring a 75% interest in the assets compromising the wireless
cable television system in Minneapolis, Minnesota. The remaining 25% interest in
the assets was retained by AWS.
In January 1993, the Minneapolis Partnership contributed its 75% interest
in the assets used in the wireless cable television system in Minneapolis,
Minnesota to a limited liability company, American Wireless System of
Minneapolis LLC (the "Minneapolis LLC") in return for a 75% membership interest.
Simultaneously, AWS contributed its 25% interest in the asset in return for
a 25% interest in the Minneapolis, LLC. AWS was elected as Chief Manager. The
Minneapolis LLC entered into a Management Agreement with AWS for the management
of the wireless cable system.
By the summer of 1993, it became apparent to the Minneapolis Committee that
the Minneapolis Partnership, and the Minneapolis LLC, did not have sufficient
capital to meet the LLC's operating expenses and increase the Minneapolis LLC's
subscriber base. Moreover, without a significant increase in its subscriber
base, the Minneapolis Committee determined that near term profitability was
unlikely. See "The Minneapolis Transaction -- Background of Minneapolis
Transaction."
Since the formation of the Minneapolis LLC and the contribution of the
Minneapolis Partnership of its 75% interest in the assets to the Minneapolis
LLC, the Minneapolis Partnership has neither owned directly any of the assets
used in the operation of the wireless cable system, nor directly conducted the
business of the operation of the wireless cable system in Minneapolis,
Minnesota.
Description of the Minneapolis LLC. The Minneapolis LLC was formed under
the name American Wireless System of Minneapolis, LLC. The members are the
Minneapolis Partnership which currently holds a 75% membership interest and AWS
which holds a 25% membership interest. The LLC owns and operates the wireless
cable system in the Minneapolis/St. Paul Minnesota metropolitan area. (For a
description of the wireless cable television industry and the wireless cable
television service provided by the Minneapolis LLC, see "Information Concerning
AWS -- Business of AWS".)
Employees. As of January 12, 1996, the Minneapolis Partnership has (and has
previously had) no full-time employees. During that time, the Minneapolis
Partnership has not paid any compensation to any of the 9 members of the
Minneapolis Committee, although such persons have effectively worked part-time
for the Minneapolis Partnership. Of the 9 original members of the management
committee, two have resigned, leaving 7 remaining members. The members of the
Management Committee devote 10% or less of their time to the Minneapolis
Partnership's business. The Minneapolis Partnership has reimbursed the expenses
of the members of the Management Committee in connection with their attendance
at meetings and incidental expenses as well as the expenses of certain
Minneapolis Partnership partners participating in management committee meetings
at the request of the management committee.
Properties. The Minneapolis Partnership does not itself own or lease any
real property. However, as discussed herein (see "Information Concerning
AWS -- Business of AWS"), the Minneapolis Partnership owns a 75% interest in the
Minneapolis LLC. The Minneapolis LLC leases various facilities in Egan,
Minnesota, a suburb of Minneapolis, Minnesota, including office and warehouse
space, transmission sites and tower sites.
Legal Proceedings. The Minneapolis Partnership is not a party to, and none
of the Minneapolis Partnership's property is subject to any pending legal
proceedings. However, the failure of the Minneapolis Partnership to resolve
(through litigation, arbitration, settlement or otherwise), certain potential
claims that the Minneapolis Partnership may have against AWS could have a
materially adverse effect on the Minneapolis Partnership's business, result of
operations and financial condition. (See "The Minneapolis
Transaction -- Minneapolis Claims".)
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<PAGE> 740
MARKET FOR AND DISTRIBUTIONS ON MINNEAPOLIS PARTNERSHIP INTERESTS
There is no market or market price for the interests held by the
Minneapolis Partners in the Minneapolis Partnership. To the contrary, no
Minneapolis Partner may transfer his, her or its interest in the Minneapolis
Partnership, except in accordance with the specific provisions of the
Minneapolis Partnership Agreement.
As of December 31, 1995, there were approximately 742 Minneapolis Partners.
As of that date, each member of the Minneapolis Committee owned less than one
percent (1%) of the outstanding general partnership interests in the Minneapolis
Partnership, although the members of the Minneapolis Committee as a group (7
persons) beneficially own approximately one and one-half percent (1 1/2%) of the
outstanding general partnership interests in the Minneapolis Partnership. Upon
effectuating the Minneapolis Transaction pro forma based on current ownership of
general partnership interests in the Minneapolis Partnership, each Minneapolis
Partner would own less than one percent (1%) of the outstanding shares of
Heartland Common Stock.
The Minneapolis Partnership has never made any distributions to Minneapolis
Partners in respect of the general partnership interests in the Minneapolis
Partnership.
GENERAL PARTNERSHIP INTERESTS OF CERTAIN PERSONS AND MANAGEMENT
As of December 31, 1995, no member of the Minneapolis Committee owned more
than one (1%) of the general partnership interests in the Minneapolis
Partnership; however, the Minneapolis Committee as a group (7 persons) held
approximately one and one-half percent (1 1/2%) of the general partnership
interests therein. As of December 31, 1995, no Minneapolis Partner beneficially
owned more than one percent (1%) of the general partnership interests therein.
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS
In addition to the AWS Merger Agreement, FTW Agreement and Minneapolis
Agreement, Heartland has entered into various other agreements that may be
consummated contemporaneously with such agreements. These agreements, and the
transactions contemplated thereby ("Other Transactions"), are described below.
THE CMAX MERGER
Pursuant to the terms of the CMAX Merger Agreement, CMAX Merger Sub will be
merged with and into CMAX and CMAX will become a wholly owned subsidiary of
Heartland. If the CMAX Merger Agreement is approved and the CMAX Merger is
consummated, each outstanding share of common stock, par value $.01 per share,
of CMAX ("CMAX Common Stock") will be converted into the right to receive that
portion of a newly issued publicly tradeable share of Heartland Common Stock
having an exchange value of $8.50 per share of CMAX Common Stock for an
aggregate exchange value for all shares of CMAX Common Stock of approximately
$80.8 million, subject to reduction by the amount of certain excess liabilities.
The exchange value of the Heartland Common Stock to be issued in the CMAX Merger
will be equal to the average closing price of the Heartland Common Stock as
reported on the Nasdaq Stock Market's National Market over the 20-trading-day
period ending on the fifth business day preceding the consummation of the CMAX
Merger (or February 15, 1996 based upon a contemplated closing date of February
23, 1996).
THE TSC TRANSACTION
Pursuant to the terms of the TSC Agreement, (a) TSC will sell to Heartland
substantially all of the assets formerly held by Technivision, consisting of
wireless cable television assets in Dayton, Ohio, Corpus Christi, Texas and El
Paso, Texas, and (b) Heartland will issue to TSC that number of newly issued
publicly tradeable shares of Heartland Common Stock having an aggregate exchange
value of (i) $36.75 million plus (ii) $1,200 for each wireless cable television
subscriber as of the fifth business day preceding the consummation of the TSC
Agreement (or February 15, 1996 based upon a contemplated closing date of
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<PAGE> 741
February 23, 1996) in excess of amounts specified in the TSC Agreement
(currently estimated to be $1.5 million, provided that the aggregate of such
additional subscriber consideration will not exceed $3.5 million), minus (iii)
the amount of any obligations assumed by Heartland (not to exceed $5 million,
and currently estimated to be $5 million), minus (iv) if the wireless cable
television assets relative to the Dayton, Ohio market are sold prior to the
consummation of the TSC Agreement, certain proceeds thereof to be retained by
TSC. The exchange value of the Heartland Common Stock to be issued pursuant to
the TSC Agreement will be equal to the average closing price of the Heartland
Common Stock on the Nasdaq Stock Market's National Market over the
20-trading-day period ending on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996).
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<PAGE> 742
THE COMBINED COMPANY
BUSINESS OF THE COMBINED COMPANY AFTER THE TRANSACTIONS
Following the consummation of the Transactions, but prior to any
dispositions of Heartland Disposition Assets consummated in connection therewith
or thereafter, Heartland, directly or through one or more subsidiaries, will
acquire all the assets and liabilities and succeed to the businesses of AWS and
CMAX and acquire substantially all of the assets and certain of the liabilities
and succeed to all of the businesses of FTW Venture, Minneapolis LLC and TSC
formerly conducted through Technivision (as operated by Heartland following
consummation of the Transactions, such businesses, assets and liabilities,
together with the current business, assets and liabilities of Heartland, are
hereinafter referred to collectively as the "Combined Company"). To the extent
that any of the AWS Merger, the CMAX Merger, the FTW Transaction, the
Minneapolis Transaction or the TSC Transaction are not consummated, the assets
and liabilities of AWS, CMAX, FTW Partnership, Minneapolis Partnership or TSC,
respectively, will not constitute a part of the Combined Company. In addition,
to the extent that any of the Heartland Disposition Assets are not sold or
otherwise disposed of by Heartland, such assets will continue to be owned and
operated by the Combined Company, but held for disposition.
The Combined Company will be in the business of developing, owning and
operating wireless cable television systems in primarily small to mid-sized
markets within the central United States. The Combined Company expects to
continue targeting small to mid-sized markets with significant numbers of LOS
households that are unpassed by traditional hard-wire cable and to otherwise
pursue the business strategy employed by Heartland to date. Assuming the
consummation of each of the Transactions and the disposition of all of the
assets constituting Heartland Disposition Assets, the Combined Company will have
wireless cable channel rights in 79 markets, representing approximately 8.2
million households, approximately 6.8 million of which Heartland estimates will
be serviceable by LOS transmissions. Heartland further estimates that within
these markets, approximately 2.4 million LOS households, or approximately 36% of
the Combined Company's total LOS households, are currently unpassed by
traditional hard-wire cable systems. The Combined Company's 79 markets will
include (i) approximately 33 markets in which the Combined Company will have
wireless cable television systems in operation, (ii) nine markets in which the
Combined Company will have wireless cable television systems under construction,
(iii) 21 near-term launch markets in which the Combined Company will have
aggregated sufficient wireless cable channel rights to commence construction of
a system and (iv) 16 long-term launch markets, including 11 in which the
Combined Company will have aggregated sufficient wireless cable channel rights
to commence construction of a system and five in which the Combined Company will
have leases with or options from applicants for channel licenses that Heartland
expects to be granted by the FCC. Assuming consummation of the Transactions and
disposition of the Heartland Disposition Assets, as of November 30, 1995, the 33
systems which Heartland anticipates the Combined Company will operate were
providing wireless cable service to approximately 117,000 subscribers. Although
management of Heartland is currently performing an ongoing evaluation regarding
the nature and scope of the operations of the Combined Company following the
consummation of the Transactions, various short- and long-term strategic
considerations will need to be addressed following such consummation with regard
to the integration and consolidation of the various businesses comprising the
Combined Company. Many of the operational and strategic decisions with respect
to the business of the Combined Company have not been made and may not be made
prior to the consummation of the Transactions. Significant uncertainties and
risks relating to the businesses and operations of the Combined Company and the
integration of its various businesses and assets exist as of the date hereof and
can be expected to continue to exist following consummation of the Transactions.
The quality, timing and manner of decisions made by management of the Combined
Company with respect to the integration and operation of its various businesses
and assets following the consummation of the Transactions will materially affect
the operations of the Combined Company and its financial results. See "Risk
Factors -- Factors Relevant to All of the Parties" and "The Combined Company
Planned Divestitures."
In addition to developing, owning and operating wireless cable television
systems in small to mid-sized markets located in the central United States, the
Combined Company will have an equity investment in
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<PAGE> 743
Wireless One which it currently proposes to hold indefinitely. Assuming
consummation of a Newco Transaction, the Combined Company will also have an
equity interest in Newco which it currently intends to hold indefinitely. The
Wireless One and Newco investments will permit Heartland to participate,
indirectly as an equity owner, in the ownership, development and operation of
wireless cable television systems in markets outside of Heartland's traditional
demographic and geographic focus. No assurance can be given that the Combined
Company will experience an increase in value or return on its investment, if
any, in Newco. Heartland does not anticipate receiving any cash dividends from
its investment in Wireless One or Newco, if the Newco Transaction is
consummated, in the foreseeable future. Heartland is not obligated to fund the
future capital requirements of Wireless One, and will not be required to fund
the capital requirements of Newco. Because the Combined Company is expected to
hold its investment in Wireless One and its proposed investment in Newco
indefinitely, and because neither Wireless One nor Newco is expected to pay cash
dividends in the foreseeable future, neither investment should materially affect
the liquidity of the Combined Company. There can be no assurance that a market
for the Combined Company's investment in Wireless One or Newco will exist in the
future or to what extent such investments will affect the liquidity and capital
resources of the Combined Company. See "Information Concerning Heartland -- The
Business -- Recent Transaction."
The Combined Company will continue to be subject to all of the liabilities
of Heartland, AWS and CMAX and certain of the liabilities, as discussed herein,
of FTW Partnership, the Minneapolis Partnership and TSC. Included among these
liabilities will be litigation to which Heartland, AWS and CMAX are parties.
Pursuant to the terms of the TSC Agreement, the FTW Agreement and the
Minneapolis Agreement, Heartland will only assume known liabilities. Although
Heartland anticipates that the Combined Company will continue to operate AWS and
CMAX as wholly owned subsidiaries, litigation or other liabilities affecting
those entities may still materially affect the Combined Company. For a more
complete description of litigation and other liabilities affecting AWS, FTW
Partnership and the Minneapolis Partnership and their respective assets, see
"Information Concerning AWS -- Legal Proceedings", "Information Concerning FTW
Partnership -- Business of FTW Partnership", the FTW Disclosure Statement
attached as Appendix I, and "Information Concerning the Minneapolis
Partnership -- Legal Proceedings", respectively.
The summary pro forma financial information for the Combined Company
indicates pro forma annual revenues of approximately $20.1 million and operating
loss of approximately $14.6 million for the prior pro forma fiscal year. The pro
forma balance sheet for the Combined Company reflects cash of approximately
$68.6 million, working capital of approximately $99.5 million and a current
ratio of 6.18-to-one as of September 30, 1995. Management of Heartland believes
that, subject to consummation of each of the Transactions and disposition of all
of the Heartland Disposition Assets, the Combined Company will experience a
reduction in annual operating costs as a result of the elimination of
duplicative public company expenses such as investor relations, regulatory
filings and related legal and accounting costs, and as a result of the
elimination of duplicative executive officers and related staffing. See "Pro
Forma Financial Information Relative to the Transactions."
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<PAGE> 744
The table below provides information regarding the 79 markets (excluding
Heartland Disposition Assets) in which Heartland has or, upon consummation of
the Transactions, will have wireless cable channel rights that it currently
intends to retain and develop.
<TABLE>
<CAPTION>
NUMBER OF
ESTIMATED ESTIMATED SUBSCRIBERS AT
TOTAL LINE-OF-SIGHT CURRENT NOVEMBER 30,
MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS(1) 1995
- --------------------------------------------- ---------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Existing Systems
Ada, OK.................................... 30,399 24,319 32 6,508
Wichita Falls, TX.......................... 78,290 74,376 28 6,093
Midland, TX................................ 120,037 114,035 26 5,017
Abilene, TX................................ 86,676 82,344 23 4,020
Lawton, OK................................. 97,023 92,172 27 6,334
Laredo, TX................................. 313,406(2) 297,736(2) 27 5,420
Enid, OK................................... 76,602 72,772 21 3,694
Lindsay, OK................................ 51,041 40,833 32 3,267
Ardmore, OK................................ 60,192 51,163 20 3,233
Mt. Pleasant, TX........................... 33,589 26,871 16 1,684
Lufkin, TX................................. 117,534 88,150 12 --(3)
Shaw, KS................................... 47,223 42,763 30 3,961
Texarkana, TX.............................. 118,204 94,563 20 1,997
Stillwater, OK............................. 54,562 40,922 20 5,428
Lubbock, TX................................ 123,934 105,323 34(4) 5,934
McLeansboro, IL............................ 80,136 60,102 18 859
Vandalia, IL............................... 73,593 55,195 20 1,365
Olney, IL.................................. 67,812 50,859 20 1,195
Lykens, OH................................. 210,800 168,640 24 700
Paragould, AR.............................. 77,523 58,500 21 2,157
Sikeston, MO............................... 69,837 52,378 24 2,163
Taylorville, IL............................ 159,596 119,697 20 1,336
Peoria, IL................................. 276,446 248,801 22 762
Manhattan, KS.............................. 56,473 42,355 20 945
O'Donnell, TX.............................. 68,940 65,493 20 1,053
Olton, TX.................................. 32,548 30,921 20 933
Monroe City/Lakenan, MO.................... 46,376 34,782 27 978
Paris, TX.................................. 55,445 41,584 20 79
Champaign, IL(5)........................... 164,992 148,493 23 2,120
Austin, TX(6).............................. 360,000 250,000 31 12,299
Temple/Killeen, TX(6)...................... 110,000 80,000 35 6,312
Waco, TX(6)................................ 100,000 80,000 35 3,860
Corpus Christi, TX(6)...................... 135,000 108,000 31 15,468
--------- ---------- --------
Total -- Existing Systems.......... 3,554,229 2,944,142 117,174
========= ========== ========
</TABLE>
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<PAGE> 745
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION(8)
Corsicana/Athens, TX............................... 69,161 62,245 23(9)
Hamilton, TX....................................... 28,551 21,413 20
Harper/Freeport, IL................................ 125,269 93,952 20
Marion, KS......................................... 53,881 40,411 19
Peaksville, MO..................................... 48,157 36,118 15
Sherman/Denison, TX................................ 100,000 90,000 31(11)
Sterling, KS....................................... 45,213 38,431 24
Strawn/Ranger, TX.................................. 34,488 25,866 20
Walnut Grove, IL................................... 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction........ 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(12)
Adairsville, GA(10)................................ 205,662 154,247 16
Amarillo, TX....................................... 106,670 101,337 26(13)
Anthony, KS........................................ 15,798 11,845 16
Bellflower, MO..................................... 63,384 57,046 20
Bluffs, IL......................................... 46,389 34,792 20
Columbia, MO....................................... 149,622 127,179 18
Forrest City, AR................................... 55,642 41,732 21
Holdenville, OK.................................... 50,637 45,573 16
Kossuth, TX........................................ 52,490 39,368 20
Lenapah, OK........................................ 51,921 38,941 12
Mayfield, KY....................................... 175,948 155,972 21
Muskogee, OK....................................... 66,510 53,208 18
Powers Crossroads, GA(10).......................... 135,037 101,278 20
Purdin, MO......................................... 25,001 18,751 20
Rutledge, GA(10)................................... 141,370 106,028 16
Shreveport, LA..................................... 214,315 182,168 24
Springfield, MO.................................... 139,706 118,750 16
Tulsa, OK.......................................... 321,922 273,634 16
Tyler, TX.......................................... 233,416 186,734 14
Weatherford, OK.................................... 31,445 29,873 16
Wick, OH........................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets.......... 2,618,983 2,147,334
--------- ---------
</TABLE>
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<PAGE> 746
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
LONG-TERM LAUNCH MARKETS(14)
Altus, OK.......................................... 30,653 29,120 16
Burnet, TX......................................... 24,917 18,688 16
Charlotte, TX...................................... 32,771 24,578 16
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(6)..................................... 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
Ingram, TX......................................... 26,235 19,676 20
McAlester, OK...................................... 36,475 25,533 16
Miami, OK.......................................... 70,820 60,197 15
Sabinal, TX........................................ 15,795 11,846 20
Seminole, OK....................................... 42,204 35,873 19
Topeka, KS......................................... 211,762 190,586 16
--------- ---------
Total -- Long-Term Launch Markets.......... 1,460,445 1,216,551
--------- ---------
Total -- All Company Markets............... 8,222,603 6,779,633
========= =========
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
the Combined Company over wireless cable channels.
(2) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(3) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(4) Includes additional channels acquired pursuant to a Sublease Agreement with
CMAX. Channel capacity has been increased by 12 channels in the Lubbock
System, of these channels, 4 are the subject of an appeal by an
unsuccessful applicant for the frequencies.
(5) Heartland acquired the system in Champaign, Illinois on January 16, 1996.
(6) Heartland will acquire the Austin, Temple/Killeen, Waco, Corpus Christi and
El Paso, Texas markets upon the consummation of the Transactions.
(7) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(8) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(9) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 7 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(10) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(11) Channels acquired pursuant to a Sublease Agreement with CMAX. Of these
channels, eight are the subject of uncontested application proceedings.
(12) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(13) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 9 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(14) Such markets include seven markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC.
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<PAGE> 747
MANAGEMENT OF THE COMBINED COMPANY
Following the consummation of the Transactions, management of Heartland
will manage the Combined Company and the Board of Directors of the Combined
Company will consist entirely of the Board of Directors of Heartland. Although
Heartland has entered into a consulting and noncompetition agreement with Steven
G. Johnson, the President of AWS, management of Heartland does not otherwise
expect to retain executive officers or significant numbers of other management
personnel of AWS or CMAX or to enter into employment relationships with
executive officers or management personnel of TSC, the Minneapolis Partnership
or FTW Partnership. To the extent necessary to maintain customer service and
system launch schedules, the Combined Company may retain certain nonmanagerial
employees of AWS, CMAX or TSC. Mr. Johnson has entered into a consulting and
noncompetition agreement with Heartland pursuant to which Mr. Johnson, following
consummation of the AWS Merger, will provide consulting and transition services
to the Combined Company with regard to AWS and its assets and will refrain from
competing with the Combined Company or any of its transferees in any wireless
cable television market owned or operated by AWS as of October 31, 1995 for a
period of three years. In exchange for entering into the consulting and
noncompetition agreement, Mr. Johnson will receive a total of $700,000 payable
over a two-year period. No member of the Board of Directors of AWS or CMAX will
continue to serve as a member of the Board of Directors or as an executive
officer of the Combined Company or of AWS or CMAX, respectively. No member of
the Board of Directors of TSC or of the management committees of either the
Minneapolis Partnership or FTW Partnership will serve as a member of the Board
of Directors or as an executive officer of the Combined Company or any of its
subsidiaries following the consummation of the TSC Transaction, the FTW
Transaction or the Minneapolis Transaction. See "Information Concerning
Heartland -- Management."
PRINCIPAL HOLDERS
The following table sets forth (a) the effect of the Transactions (assuming
the consummation of all of the Transactions, an average closing price during the
relevant periods of $28 per share (the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof) or $17 per share (the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions)
of Heartland Common Stock and certain other assumptions, as noted) on the amount
and percentage of present holdings of shares of Heartland Common Stock owned
beneficially by each holder of five percent or more of the shares of Heartland
Common Stock; and (b) persons that will beneficially own five percent or more of
the outstanding shares of Heartland Common Stock outstanding immediately
following the Transactions. See "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, (iv) the Dayton System will not be sold prior to the
consummation of the Transactions and (v) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
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<PAGE> 748
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the current owner of $40.0 million gross proceeds
of Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
PLANNED DIVESTITURES
In connection with approving the Transactions, Heartland's Board determined
that certain of the markets currently held by Heartland and certain of those to
be acquired in the Transactions should be disposed of, either because their
demographics are inconsistent with Heartland's focus on small to mid-sized
markets with a significant number of LOS households unpassed by traditional
hard-wired cable or because the Heartland Board felt that the consideration to
be received in a disposition thereof might be attractive when compared to
developing and operating a wireless cable system in the market. In particular,
the Heartland Board identified the Maysville and Sweet Springs, Missouri, Grand
Rapids/Moline Michigan, Napoleon/Bloom Center, Indiana and Flippin, Tennessee
markets currently owned by Heartland, and the Los Angeles, California, Dallas,
Ft. Worth and San Antonio, Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake
City, Utah and Minneapolis, Minnesota markets to be acquired in the Transactions
as being markets for which Heartland's management should seek one or more
disposition opportunities for cash, promissory notes, retained equity interests
or a combination thereof. Notwithstanding its determination to seek the sale,
exchange or other disposition of the Heartland Disposition Assets, the Heartland
Board felt that some or all of such markets, properly developed and operated,
offered attractive opportunities to participate in the wireless cable television
industry. As a result, the Heartland Board further directed Heartland's
management to seek one or more opportunities to dispose of the Heartland
Disposition Markets which might offer Heartland the ability to retain an equity
interest, directly or indirectly, in the disposed of markets.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets, of which Flippin, Tennessee is
currently owned by Heartland. Heartland will sell the Flippin market to
TruVision for $1.5 million contemporaneously with the sale to TruVision by AWS
of the Memphis market for $3.9 million (collectively, the "Memphis
Transaction"). Heartland will not retain a direct or indirect interest in these
markets.
After substantial discussions and certain limited agreements regarding the
conduct of their respective businesses during the pending of such negotiations,
effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly-owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
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<PAGE> 749
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or one or more of its
subsidiaries) will receive (i) shares of Newco common stock, $.001 par value per
share (the "Newco Common Stock"), constituting approximately 39.76% of the
outstanding shares of Newco Common Stock at the closing, (ii) approximately
$28.3 million in cash payable by Newco at the closing, (iii) a promissory note
in the principal sum of $25 million payable nine (9) months from the closing
(the "First Note") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing (the "Second Note"). The First Note will (i) require
that all of the net proceeds received by Newco from the sale of assets
(including any proceeds received prior to consummation of the Newco Transaction
from the sale of any of the assets to be contributed to Newco) shall be applied
immediately to the repayment of a portion of the First Note; (ii) require that
30% (or such higher percentage as is deemed reasonable by the underwriter for
Newco's Common Stock) of the net proceeds of any initial public offering of the
Newco Common Stock shall be applied to the repayment of the First Note; (iii)
provide assurances, satisfactory to Heartland, that, to the extent not otherwise
repaid, the First Note will be payable from $25 million of the net proceeds of
$125 million of proceeds of senior discount notes contemplated to be issued by
Newco (the "Newco Financing"), which is a condition to consummation of the Newco
Transaction, which will be appropriately secured for such purpose; and (iv) bear
interest at the effective rate of interest received by Newco from the investment
of the $25 million of the net proceeds of the Newco Financing which are security
for repayment of the First Note. The Second Note will (i) bear interest at the
annual rate of 10%, subject to adjustment as described below; (ii) require that
all of the net proceeds received by Newco from the sale of assets (including any
proceeds received prior to consummation of the Newco Transaction from the sale
of any of the assets to be contributed to Newco) shall, to the extent available
after repayment of the First Note, be applied by Newco to the repayment of a
portion of the Second Note; (iii) require that 30% (or such higher percentage as
is deemed reasonable by the underwriter for the Newco Common Stock) of the net
proceeds of any initial public offering of the Newco Common Stock shall be
applied, to the extent available after the repayment of the First Note, to the
repayment of the Second Note; (iv) provide that, if the Second Note is not paid
in full within one year of the consummation of the Newco Transaction, the annual
interest rate on the Second Note shall increase to 15% from and after the first
anniversary of the closing; and (v) provide that all interest on the Second Note
shall be payable in kind (interest computed rather than payable currently) to
the first interest payment date after the Newco senior discount notes to be
issued as part of the contemplated Newco Financing have been paid in full. The
equity interests of Heartland and CAI in Newco will be subject to dilution for
the issuance of (i) Newco Common Stock or warrants to acquire Newco Common Stock
which may be issued as a part of the Newco Financing; (ii) options to acquire
Newco Common Stock which may be issued to Newco's management; and (iii) warrants
or options to acquire up to 10% of Newco's Common Stock (prior to the issuance
of any warrants as part of the Newco Financing or options to Newco's management)
to BANX, a partnership comprised of Bell Atlantic Corporation and NYNEX
Corporation, which is a substantial investor in CAI. Within six months of
closing, CAI and Heartland will complete certain post-closing net working
capital calculations. Components of such calculations will 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 Newco for each market, increase or decrease in the number of
subscribers in each contributed system from the number of subscribers stated in
the Participation Agreement and related factors. Following such calculations, an
increase or decrease will occur in the principal amount of the promissory notes
to be received by Heartland from Newco, and CAI will either contribute or be
entitled to a distribution of cash from Newco, depending upon such calculations.
Pursuant to an agreement dated October 10, 1995, each of CAI and Heartland
agreed to cooperate in the filing of applications for continuing participation
in the public auctions for available spectrums in the multipoint and/or
multichannel distribution service in 487 basic trading areas ("BTAs") and six
(6) additional BTA-like geographic areas. The auctions were commenced by the FCC
on or about November 13, 1995 with respect to certain markets, including markets
which are expected to be conveyed to Newco. In the
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<PAGE> 750
event of the award of any such licenses to either CAI or Heartland, Newco shall
reimburse such entity for the amounts paid by such party upon conveyance of the
applicable licenses to Newco.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland and that CAI has not disposed of more than one-half of
the Newco Common Stock it held on the effective date of such agreement); (ii) up
to three members designated by Heartland (provided that at least one of whom may
not be an affiliate of either CAI or Heartland and that Heartland has not
disposed of more than one-half of Newco Common Stock it held on the effective
date of such agreement); (iii) the Chief Executive Officer of Newco; and (iv)
the Chief Financial Officer of Newco. The Stockholders Agreement and Newco's
Bylaws further provide that certain transactions will require the affirmative
approval of at least 70% (7 of 9) of the Directors of Newco. Such transactions
include (i) the participation of Newco in a merger or consolidation, or the
sale, lease, exchange or other disposition of all or any substantial part of the
assets of Newco, or the liquidation of all or a substantial part of Newco; (ii)
the issuance or sale by Newco of any capital stock of Newco, including the type
and amount to be issued or sold, except for the options and warrants
contemplated as part of the transaction; (iii) the taking of any action by Newco
in its capacity as a stockholder of any subsidiary of Newco similar to the
foregoing; (iv) any increase or decrease in the total number of directorships of
Newco; (v) engaging in any business other than the designated business of Newco
(transmitting video, voice or data, inclusive of related activities and
services, including the use of wireless channels for any commercial purpose
permitted by the FCC); (vi) establishing any executive or other committee of the
Board of Newco; (vii) the creation, incurrence, assumption or guaranty of or in
any manner becoming liable by Newco or any of its subsidiaries upon any
obligation for money borrowed in excess of $10 million in the aggregate
principal amount at any time outstanding or the incurrence of any obligation in
excess of such amount in connection with the acquisition of property; (viii) the
making of or having outstanding any loans or advances to any of Newco's past or
present officers, directors or stockholders or to any member of their immediate
family; (ix) the entering into, directly or indirectly, of any arrangement,
contract or agreement not in the ordinary course of business with a monetary
value in excess of $10 million; (x) the sale or other disposal (including
contribution) of assets or capital stock (by merger or otherwise) of Newco or
any of its subsidiaries, the value of which exceeds $10 million in either
original cost or appraised value within any one-year period; (xi) the
acquisition of securities or assets by Newco or any of its subsidiaries, the
value of which exceeds $10 million in appraised value within any one year
period; (xii) any change in the business of Newco from its stated business; or
(xiii) replacement of the Chief Executive Officer or the Chief Financial Officer
of Newco.
Further, the Participation Agreement and Stockholders Agreement provide
that Newco may actively engage in discussions and activities with the goal of
(i) acquiring additional geographic markets and assets related to its business;
(ii) selling or otherwise disposing of some or all of its assets (including a
sale of all or a portion of the Newco Common Stock by merger or otherwise); and
(iii) creating one or more joint ventures or other joint operations which may
involve, among other matters, contributing all or a portion of Newco's assets to
such joint venture or operation in exchange for an equity interest therein,
cash, notes or other suitable consideration; provided, however, that (A) no such
activity shall be undertaken unless the Newco Board determines that each such
activity is in the best interest of Newco and (B) with respect to the activities
described in clauses (ii) and (iii) above, (i) such sales, contributions and
dispositions shall be limited to the markets contributed by Heartland and CAI to
Newco; (ii) if any such sales are agreed to or consummated prior to the
consummation of the Newco Transaction, the initial purchaser of the Newco
Financing shall give its written consent thereto prior to effecting the Newco
Financing; (iii) the proposed underwriter mutually selected by CAI and Heartland
for an initial public offering, if any, of the Newco Common Stock proposed to be
initiated during the first year after the closing shall state in writing that
any such proposed sale, disposition or joint venture would not have a negative
impact on said initial public offering; and (iv) Newco shall not sell,
contribute or otherwise dispose of any of its assets (or shares of Newco Common
Stock by merger or otherwise) having a value in excess of $10 million in either
original cost or appraised value unless the consideration received by Newco
shall approximate the greater of (I) the then fair market value of such asset;
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<PAGE> 751
or (II) an amount equal to the aggregate of (x) the valuation given to such
assets at the time of contribution to Newco by Heartland and CAI, as the case
may be, plus (y) the amount of any cash investments made by Newco with respect
to such assets (such as new subscriber or head-end equipment) plus (z) the full
effective after tax cost to Newco of that portion of the Newco Financing
(including without limitation the interest rate, initial purchaser's discount,
cost of complying with the requirements of the Newco Financing documents and, if
applicable, cost of warrants, prepayment penalties and/or change in control
premiums) equal to the net proceeds to be received from such sale, contribution
or disposition. So long as such transaction is reasonably likely to be
consummated within one year after the date of the Participation Agreement and if
each of the above requirements are met, CAI and Heartland have each agreed to
take any and all actions (on a timely basis) necessary to effect said
transaction, including without limitation voting (or causing the vote of) all of
the shares of Newco Common Stock held by Heartland and CAI in favor of such
transaction.
If (i) the Newco Transaction is terminated without the closing having
occurred, following satisfaction of all material conditions to the closing by
Heartland specified in the Participation Agreement; (ii) CAI has not undertaken
any action reasonably calculated to prevent the closing; and (iii) Heartland has
not at any time prior to the termination of the Participation Agreement, or
within one year after such termination, engaged in a transaction involving the
sale, transfer or other disposition of at least two of the three markets of
Dallas-Fort Worth, Texas (counted as one market), Salt Lake City, Utah and
Minneapolis, Minnesota, Heartland shall pay to CAI a break-up fee equal to $3
million, which shall be payable immediately upon the consummation of such
transaction as the sole and exclusive remedy to CAI and Newco for Heartland's
failure to close the Newco Transaction in breach of the Participation Agreement.
CAI is required to pay a break-up fee of $3 million to Heartland if it fails to
consummate the Newco Transaction following satisfaction of all material
conditions to closing by CAI and it engages in a transaction involving the sale,
transfer or other disposition of the Cleveland, Ohio market prior to or within
one year following termination of the Participation Agreement, which shall be
Heartland's sole and exclusive remedy for CAI's failure to close the Newco
Transaction.
Pursuant to the Participation Agreement, all representations and warranties
of CAI and Heartland survive closing of the Newco Transaction for a period of
four months. Each party indemnifies the other from and against all damages
resulting from a breach of such representations and warranties; provided,
however, that no indemnification payment is made for any portion of the initial
$500,000 of damages claimed. Either party may reimburse the other for such
damages through a combination of cash (or, in the case of Heartland, reduction
of the First Note and Second Note) or the assignment of Newco Common Stock not
to exceed 50% of the amount of said damages, with shares thereof valued at the
values agreed upon by Heartland and CAI as of the consummation of the Newco
Transaction.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "The Combined Company -- Business of the
Combined Company After the Transactions," and "-- Planned Divestitures" and
"-- Reasons for the Transactions."
REASONS FOR THE TRANSACTIONS
The AWS Merger. The Board of Directors of Heartland (the "Heartland Board")
has approved and adopted the AWS Merger Agreement. The Heartland Board believes
that the AWS Merger is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the AWS Merger would provide
Heartland with wireless cable television systems and channel rights targeted for
disposition on terms and conditions favorable to Heartland in comparison with
the cost of their acquisition. Further, if the planned
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<PAGE> 752
disposition of all of AWS's channel rights is not consummated, the Heartland
Board believes that the AWS Merger would increase Heartland's competitive
position in the industry by increasing the aggregate number and size of its
wireless cable television systems and channel rights at favorable acquisition
costs. Such systems would then be held for disposition or strategic exchange for
other systems and channel rights which the Heartland Board believes would
enhance Heartland's competitive position.
The FTW Transaction. The Heartland Board has approved and adopted the FTW
Agreement. The Heartland Board believes that the FTW Transaction is fair to and
in the best interest of Heartland and its stockholders. The Heartland Board
believes that the FTW Transaction will provide Heartland with a wireless cable
television system targeted for disposition on terms and conditions favorable to
Heartland in comparison with the cost of its acquisition. Further, if the
planned disposition of certain channel rights (including the FTW Interest) is
not consummated, the Heartland Board believes the FTW Transaction would increase
Heartland's competitive position in the Fort Worth, Texas and Dallas, Texas
markets (coupled with the consummation of the AWS Merger) by consolidating the
wireless cable television markets of Fort Worth, Texas and Dallas, Texas. Such
markets would substantially add to Heartland's geographic cluster of markets in
the northern regions of the State of Texas. Such systems would then be held for
disposition or strategic exchange for other systems and channel rights, which
the Heartland Board believes would enhance Heartland's competitive position.
The Minneapolis Transaction. The Heartland Board has approved and adopted
the Minneapolis Agreement. The Heartland Board believes that the Minneapolis
Transaction is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the Minneapolis Transaction will
provide Heartland with a wireless cable television system targeted for
disposition on terms and conditions favorable to Heartland in comparison with
the cost of its acquisition. Further, if the planned disposition of certain
channel rights (including the rights held by the Minneapolis Partnership in the
Minneapolis LLC) is not consummated, the Minneapolis system would then be held
for disposition or strategic exchange for other systems and channel rights which
the Heartland Board believes would enhance Heartland's competitive position.
The CMAX Merger. The Heartland Board has approved and adopted the CMAX
Merger and the CMAX Merger Agreement. The Heartland Board believes that the CMAX
Merger is fair to and in the best interest of Heartland and its stockholders.
The Heartland Board believes that the CMAX Merger will provide Heartland with
(i) additional wireless cable television systems and channel rights consistent
with Heartland's rural market focus (Amarillo, Athens, Austin, Lubbock,
Sherman/Denison, Temple/Killeen and Waco, Texas) strategically located with
Heartland's existing wireless cable television systems in the State of Texas and
(ii) wireless cable television systems and channel rights targeted for
disposition (Salt Lake City, Utah and San Antonio, Texas) on terms and
conditions favorable to Heartland in comparison with their cost of acquisition.
If the planned disposition is not consummated, the San Antonio and Salt Lake
City systems would then be held for disposition or strategic exchange for other
systems and channel rights which the Heartland Board believes would enhance
Heartland's competitive position.
The TSC Transaction. The Heartland Board has approved and adopted the TSC
Agreement. The Heartland Board believes that the TSC Transaction is fair to and
in the best interest of Heartland and its stockholders. The Heartland Board
believes that the TSC Transaction would provide Heartland with (i) additional
wireless cable television systems and channel rights consistent with Heartland's
rural market focus (El Paso and Corpus Christi, Texas) strategically located
with Heartland's existing wireless cable television systems in the State of
Texas and (ii) wireless cable television systems targeted for disposition
(Dayton, Ohio) on terms and conditions favorable to Heartland in comparison with
its cost of acquisition. If the planned disposition is not consummated, the
Dayton system would then be held for disposition or strategic exchange for other
systems and channel rights which the Heartland Board believes would enhance
Heartland's competitive position.
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PRO FORMA FINANCIAL INFORMATION
RELATIVE TO THE TRANSACTIONS
The following unaudited pro forma condensed consolidated financial
information presents pro forma financial information of Heartland in three sets
of pro forma financial statements. The pro forma financial information consists
of (1) an Unaudited Pro Forma Condensed Combined Balance Sheet for the
Transactions as of September 30, 1995 and the related Unaudited Pro Forma
Condensed Combined Statements of Operations for the Transactions for the year
ended December 31, 1994 and the nine months ended September 30, 1995,
(collectively, the "Combined Pro Forma Statements for the Transactions"), (2) an
Unaudited Pro Forma Condensed Balance Sheet for each of the Transactions as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for each of the Transactions for the year ended
December 31, 1994 and the nine months ended September 30, 1995 (collectively,
the "Individual Pro Forma Statements for the Transactions") and (3) an Unaudited
Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 (collectively, the "Pro Forma
Statements for Consummated Events") (all such pro forma financial information
together, the "Pro Forma Statements"). The Pro Forma Statements for the
Transactions and the Individual Pro Forma Statements for the Transactions follow
on pages 99 to 122 of this Proxy Statement/Prospectus. The Pro Forma Statements
for Consummated Events have been included on pages F-59 to F-64 of the Proxy
Statement/Prospectus.
The Pro Forma Statements for the Transactions adjust the Pro Forma
Statements for Consummated Events to give effect to the Transactions as if the
Transactions had occurred on September 30, 1995 for balance sheet information
and January 1, 1994 for statement of operations information. The Pro Forma
Statements for the Transactions assume that all the Transactions and the
proposed Heartland Disposition Assets will be consummated by Heartland. However,
because there can be no certainty regarding which of the Transactions, if any,
will be consummated and because, correspondingly, it is impossible to precisely
determine the ultimate plan of disposition (some assets from each of the
Transactions will potentially be disposed of by Heartland or its predecessors),
a large number of other potential pro forma outcomes are possible. As a result,
Heartland has presented the Individual Pro Forma Statements for the Transactions
which include pro forma adjustments related to each separate Transaction and
associated disposition. This method of presentation provides readers with all of
the information necessary to recalculate, should they so desire, Heartland's pro
forma financial information under any possible scenario that might arise from
the acquisition and disposition plans described in this Proxy
Statement/Prospectus.
The Transactions will be accounted for by the purchase method of
accounting. With respect to the Transactions, the purchase price has been
allocated on a preliminary basis to the assets and liabilities acquired based on
the estimated fair values of such assets and liabilities.
The Pro Forma Statements and accompanying notes should be read in
conjunction with Heartland's consolidated financial statements (including notes
thereto) appearing elsewhere in the Proxy Statement/Prospectus. The Pro Forma
Statements do not purport to represent what Heartland's results of operations or
financial position actually would have been had such transactions or events
occurred on the dates specified, or to project Heartland's results of operations
or financial position for any future period or date. The pro forma adjustments
are based upon available information and certain adjustments that Heartland's
management believes are reasonable. In the opinion of Heartland's management,
all adjustments have been made that are necessary to present fairly the Pro
Forma Statements.
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HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET FOR THE TRANSACTIONS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
FTW MINNEAPOLIS
HEARTLAND CMAX AWS PARTNERSHIP PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) PRO FORMA(E)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 47,155,064 $ 786,392 $ 5,082,653 $ -- $ --
Restricted investments............. 11,669,874 -- -- -- --
Net assets held for cash sale or
exchange......................... 2,200,000 -- 7,250,000 -- --
Note receivable.................... -- -- -- -- --
Other current assets............... 3,035,281 673,913 89,724 -- --
------------ ------------ ----------- ----------- -----------
Total current assets........ 64,060,219 1,460,305 12,422,377 -- --
Systems and equipment, net......... 43,368,952 17,035,351 218,404 -- --
Leased license investment, net..... 60,482,276 32,556,597 -- -- --
Investment in Wireless One......... 14,602,442 -- -- -- --
Investment in CS Wireless.......... -- -- -- -- --
Excess of cost over fair value of
net assets acquired.............. 4,470,286 8,549,540 9,015,248 -- --
Net assets held for exchange....... -- 43,610,341 27,498,434 16,191,304 21,913,052
Restricted investments............. 13,077,340 -- -- -- --
Note receivable.................... -- -- -- -- --
Other assets, net.................. 10,435,034 -- 77,179 -- --
------------ ------------ ----------- ----------- -----------
$210,496,549 $103,212,134 $49,231,642 $16,191,304 $21,913,052
============ ============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt............................. $ 616,610 $ 787,500 $ 99,442 $ -- $ --
Other current liabilities.......... 10,130,631 3,042,950 1,468,523 -- --
------------ ------------ ----------- ----------- -----------
Total current liabilities... 10,747,241 3,830,450 1,567,965 -- --
Long-term debt, less current
portion.......................... 139,428,429 10,020,000 1,800,000 -- --
Deferred income taxes.............. 1,189,080 8,549,540 9,015,248 -- --
Other liabilities.................. 279,695 -- 233,044 -- --
Stockholders' equity............... 58,852,104 80,812,144 36,615,385 16,191,304 21,913,052
------------ ------------ ----------- ----------- -----------
$210,496,549 $103,212,134 $49,231,642 $16,191,304 $21,913,052
============ ============ =========== =========== ===========
<CAPTION>
TECHNIVISION PRO FORMA
PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------- ------------
<S> <C> <C> <C>
Cash and cash equivalents.......... $ 56,297 $ (10,807,500)(G) $ 68,613,369
(2,000,000)(H)
28,340,463 (I)
Restricted investments............. -- 11,669,874
Net assets held for cash sale or
exchange......................... -- 9,450,000
Note receivable.................... -- 25,000,000 (I) 25,000,000
Other current assets............... 281,895 (74,316)(I) 4,006,497
----------- ------------- ------------
Total current assets........ 338,192 40,458,647 118,739,740
Systems and equipment, net......... 6,151,964 (2,038,608)(I) 64,736,063
Leased license investment, net..... 18,687,753 (2,482,706)(I) 109,243,920
Investment in Wireless One......... -- 14,602,442
Investment in CS Wireless.......... -- 55,875,666 (I) 55,875,666
Excess of cost over fair value of
net assets acquired.............. 6,066,024 28,101,098
Net assets held for exchange....... 10,720,791 (119,933,922)(I) --
Restricted investments............. -- 13,077,340
Note receivable.................... -- 15,000,000 (I) 15,000,000
Other assets, net.................. 5,300 (1,800,000)(G) 8,717,513
----------- ------------- ------------
$41,970,024 $ (14,920,923) $428,093,782
=========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt............................. $ 1,263,005 $ (787,500)(G) $ 1,979,057
Other current liabilities.......... 2,890,995 (313,423)(I) 17,219,676
----------- ------------- ------------
Total current liabilities... 4,154,000 (1,100,923) 19,198,733
Long-term debt, less current
portion.......................... -- (11,820,000)(G) 139,428,429
Deferred income taxes.............. 6,066,024 24,819,892
Other liabilities.................. -- 512,739
Stockholders' equity............... 31,750,000 (2,000,000)(H) 244,133,989
----------- ------------- ------------
$41,970,024 $ (14,920,923) $428,093,782
=========== ============= ============
</TABLE>
See accompanying notes to Pro Forma Statements
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<PAGE> 755
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FTW MINNEAPOLIS
HEARTLAND CMAX AWS PARTNERSHIP PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) PRO FORMA(E)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................. $ 7,590,823 $ 6,765,741 $ -- $ -- $ --
------------ ------------ ---------- -------- --------
Operating expenses:
Systems operations............ 4,188,612 3,270,598 -- -- --
Selling, general and
administrative.............. 6,377,969 5,229,087 -- -- --
Depreciation and
amortization................ 3,263,717 4,934,844 -- -- --
------------ ------------ ---------- -------- --------
Total operating
expenses................. 13,830,298 13,434,529 -- -- --
------------ ------------ ---------- -------- --------
Operating loss........... (6,239,475) (6,668,788) -- -- --
Interest expense................ (4,185,033) (459,536) -- -- --
Equity in losses of investment.. (1,004,594) -- -- -- --
Interest income and other....... 152,450 577,217 -- -- --
------------ ------------ ---------- -------- --------
Loss before income
taxes.................. (11,276,652) (6,551,107) -- -- --
Income tax benefit............. 2,458,812 2,265,743 -- -- --
------------ ------------ ---------- -------- --------
Net loss................. $ (8,817,840) $ (4,285,364) $ -- $ -- $ --
============= ============ ========== ======== ========
Net loss per share............. $ (0.70) $ -- $ -- $ -- $ --
============= ============ ========== ======== ========
Weighted average shares
outstanding.................. 12,541,444 2,886,148 1,307,692 578,261 782,609
============= ============ ========== ======== ========
<CAPTION>
TECHNIVISION PRO FORMA
PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Total revenues.................. $ 5,735,071 $ -- $ 20,091,635
------------ ---------- ------------
Operating expenses:
Systems operations............ 2,662,495 10,121,705
Selling, general and
administrative.............. 1,812,854 13,419,910
Depreciation and
amortization................ 2,976,050 11,174,611
------------ ---------- ------------
Total operating
expenses................. 7,451,399 -- 34,716,226
------------ ---------- ------------
Operating loss........... (1,716,328) (14,624,591)
Interest expense................ (1,388,263) (6,032,832)
Equity in losses of investment.. -- (1,004,594)
Interest income and other....... -- 729,667
------------ ---------- ------------
Loss before income
taxes.................. (3,104,591) -- (20,932,350)
Income tax benefit............. 1,148,699 1,409,641(J) 7,282,895
------------ ---------- ------------
Net loss................. $ (1,955,892) $1,409,641 $(13,649,455)
============ ========== ============
Net loss per share............. $ -- $ -- $ (0.71)
============ ========== ============
Weighted average shares
outstanding.................. 1,133,929 -- 19,230,083
============ ========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
100
<PAGE> 756
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues.......................... $ 9,944,209 $ 6,674,530 $ -- $ --
----------- ----------- ---------- --------
Operating expenses:
Systems operations.................... 3,371,531 2,973,011 -- --
Selling, general and administrative... 7,689,026 4,294,351 -- --
Depreciation and amortization......... 4,396,920 5,210,043 -- --
----------- ----------- ---------- --------
Total operating expenses............ 15,457,477 12,477,405 -- --
----------- ----------- ---------- --------
Operating loss...................... (5,513,268) (5,802,875) -- --
Interest expense........................ (8,908,459) (945,475) -- --
Equity in losses of investees........... (1,049,583) -- -- --
Interest income and other............... 1,568,946 121,497 -- --
----------- ----------- ---------- --------
Loss before income taxes............ (13,902,364) (6,626,853) -- --
Income tax benefit...................... -- 2,333,311 -- --
------------ ----------- ---------- --------
Net loss............................ $(13,902,364) $(4,293,542) $ -- $ --
============ =========== ========== ========
Net loss per share...................... $ (1.10) $ -- $ -- $ --
============ =========== ========== ========
Weighted average shares outstanding..... 12,591,927 2,886,148 1,307,692 578,261
============ =========== ========== ========
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenues.......................... $ -- $ 4,138,790 $ -- $ 20,757,529
-------- ----------- ---------- ------------
Operating expenses:
Systems operations.................... -- 2,056,387 8,400,929
Selling, general and administrative... -- 1,157,219 13,140,596
Depreciation and amortization......... -- 2,116,483 11,723,446
-------- ----------- ---------- ------------
Total operating expenses............ -- 5,330,089 -- 33,264,971
-------- ----------- ---------- ------------
Operating loss...................... -- (1,191,299) -- (12,507,442)
Interest expense........................ -- (625,728) (10,479,662)
Equity in losses of investees........... -- -- (1,049,583)
Interest income and other............... -- 253,352 1,943,795
-------- ----------- ---------- ------------
Loss before income taxes............ -- (1,563,675) -- (22,092,892)
Income tax benefit...................... -- 494,394 5,011,374(J) 7,839,079
-------- ----------- ---------- ------------
Net loss............................ $ -- $(1,069,281) $5,011,374 $(14,253,813)
======== =========== ========== ============
Net loss per share...................... $ -- $ -- $ -- $ (0.74)
======== =========== ========== ============
Weighted average shares outstanding..... 782,609 1,133,929 -- 19,280,566
======== =========== ========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
101
<PAGE> 757
NOTES TO COMBINED PRO FORMA STATEMENTS FOR THE TRANSACTIONS
(A) Reflects pro forma information for events previously consummated by
Heartland. See pages F-59 to F-64 for detailed pro forma adjustments
related to events previously consummated by Heartland.
(B) Reflects pro forma information for the CMAX Merger. See pages 103 to 106
for detailed pro forma adjustments relating to the CMAX Merger.
(C) Reflects pro forma information for the AWS Merger. See pages 107 to 110 for
detailed pro forma adjustments relating to the AWS Merger.
(D) Reflects pro forma information for the FTW Transaction. See pages 111 to 114
for detailed pro forma adjustments relating to the FTW Transaction.
(E) Reflects pro forma information for the Minneapolis Transaction. See pages
115 to 118 for detailed pro forma adjustments relating to the Minneapolis
Transaction.
(F) Reflects pro forma information for the TSC Transaction. See pages 119 to
122 for detailed pro forma adjustments relating to the TSC Transaction.
(G) Reflects the repayment of certain indebtedness of CMAX by Heartland upon
consummation of the CMAX Merger and the elimination of Heartland's $1.8
million note receivable from AWS. Any differences between historical
interest expense recognized by CMAX on the retired indebtedness and
interest expense which would be recognized by Heartland on a pro forma
basis is not material.
(H) Reflects estimated costs to be incurred in connection with the issuance of
Heartland's Common Stock upon consummation of the Transactions.
(I) Reflects Heartland's contribution to Newco of the Heartland Disposition
Assets and the receipt by Heartland of (i) 39.76% of the outstanding common
shares of Newco, (ii) approximately $28.3 million in cash payable by Newco
at the closing, (iii) a $25 million promissory note payable 9 months from
closing and (iv) a $15 million promissory note payable 10 years from the
closing of the Participation Agreement.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
102
<PAGE> 758
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 786,392 $ $ 786,392 $ $ 786,392
Other current assets.............. 938,437 938,437 (264,524)(D) 673,913
----------- ------------ ------------ ------------ ------------
Total current assets.... 1,724,829 -- 1,724,829 (264,524) 1,460,305
Systems and equipment, net........ 26,447,933 26,447,933 (9,412,582)(D) 17,035,351
Leased license investment, net.... 21,271,892 45,899,604(B) 67,171,496 (34,614,899)(D) 32,556,597
Excess of cost over fair value of
net assets acquired............. -- 8,549,540(C) 8,549,540 8,549,540
Net assets held for exchange...... -- -- 43,610,341(D) 43,610,341
----------- ------------ ------------ ------------ ------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
=========== ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt............................ $ 787,500 $ $ 787,500 $ $ 787,500
Other current liabilities......... 3,724,614 3,724,614 (681,664)(D) 3,042,950
----------- ------------ ------------ ------------ ------------
Total current
liabilities........... 4,512,114 -- 4,512,114 (681,664) 3,830,450
Long-term debt, less current
portion......................... 10,020,000 10,020,000 10,020,000
Deferred income taxes............. -- 8,549,540(C) 8,549,540 8,549,540
Stockholders' equity.............. 34,912,540 80,812,144(A) 80,812,144 80,812,144
(34,912,540)(A)
----------- ------------ ------------ ------------ ------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to Pro Forma Statements
103
<PAGE> 759
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues........................ $11,283,709 $ -- $11,283,709 $(4,517,968)(D) $ 6,765,741
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations.................. 5,310,478 5,310,478 (2,039,880)(D) 3,270,598
Selling, general and
administrative................... 9,027,094 (1,382,000)(E) 7,645,094 (2,416,007)(D) 5,229,087
Depreciation and amortization....... 6,106,007 1,385,643(F) 7,919,127 (2,984,283)(D) 4,934,844
427,477(G)
----------- ----------- ----------- ----------- -----------
Total operating expenses....... 20,443,579 431,120 20,874,699 (7,440,170) 13,434,529
----------- ----------- ----------- ----------- -----------
Operating loss.............. (9,159,870) (431,120) (9,590,990) 2,922,202 (6,668,788)
Interest expense...................... (459,536) (459,536) (459,536)
Interest income and other............. 577,217 577,217 577,217
----------- ----------- ----------- ----------- -----------
Loss before income taxes....... (9,042,189) (431,120) (9,473,309) 2,922,202 (6,551,107)
Income tax benefit.................... -- 3,346,958(H) 3,346,958 (1,081,215)(D) 2,265,743
----------- ----------- ----------- ----------- -----------
Net loss....................... $(9,042,189) $ 2,915,838 $(6,126,351) $ 1,840,987 $(4,285,364)
=========== =========== =========== =========== ===========
Net loss per share.................... $ (2.12) $ (1.48)
=========== ===========
Weighted average shares outstanding... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
104
<PAGE> 760
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues.................. $10,621,647 $ -- $10,621,647 $(3,947,117)(D) $ 6,674,530
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............ 4,937,148 4,937,148 (1,964,137)(D) 2,973,011
Selling, general and
administrative............. 6,829,999 (1,364,926)(E) 5,465,073 (1,170,722)(D) 4,294,351
Depreciation and
amortization............... 7,251,068 607,918(F) 8,179,594 (2,969,551)(D) 5,210,043
320,608(G)
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 19,018,215 (436,400) 18,581,815 (6,104,410) 12,477,405
----------- ----------- ----------- ----------- -----------
Operating loss........ (8,396,568) 436,400 (7,960,168) 2,157,293 (5,802,875)
Interest expense................ (945,475) (945,475) (945,475)
Interest income and other....... 121,497 121,497 121,497
----------- ----------- ----------- ----------- -----------
Loss before income
taxes................. (9,220,546) 436,400 (8,784,146) 2,157,293 (6,626,853)
Income tax benefit.............. -- 3,131,509(H) 3,131,509 (798,198) (D) 2,333,311
----------- ----------- ----------- ----------- -----------
Net loss................. $(9,220,546) $ 3,567,909 $(5,652,637) $ 1,359,095 $(4,293,542)
=========== =========== =========== =========== ===========
Net loss per share.............. $ (1.96) $ (1.49)
=========== ===========
Weighted average shares
outstanding................... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
105
<PAGE> 761
NOTES TO PRO FORMA STATEMENTS FOR THE CMAX MERGER
The CMAX historical statement of operations for the year ended December 31,
1994 has been derived utilizing CMAX's historical audited statement of
operations for the year ended June 30, 1994 and unaudited statements of
operations for the six months ended December 31, 1993 and 1994. The CMAX
historical statement of operations for the nine months ended September 30, 1995
has been derived utilizing CMAX's historical audited statement of operations for
the year ended June 30, 1995 and unaudited statements of operations for the six
months ended December 31, 1994 and three months ended September 30, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of CMAX's historical equity and the issuance of
2,886,148 shares of Heartland Common Stock at an estimated average closing
price of $28 per share in exchange for all outstanding shares of CMAX
Common Stock. In addition, subsequent to September 30, 1995, Heartland paid
CMAX a $2.4 million deposit with respect to the sublease of certain
wireless cable channel rights in various Texas markets and agreed to loan
CMAX up to $1,000,000. With respect to the $1,000,000 loan, $500,000 was
advanced on December 29, 1995 to be used for working capital purposes and
$500,000 may be used for subscriber growth.
(B) Reflects the fair value of approximately $67.2 million assigned to leased
license investment for the acquisition of CMAX, net of historical leased
license investment. Historical balances of working capital are assumed to
approximate their fair values. Heartland has evaluated the propriety of the
carrying amounts of leased license investment with respect to each market
based on management's estimate of the fair value of each market and
expected future operating cash flows from subscribers in an individual
market, and believes such amounts to be recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the CMAX
net assets acquired. The related increase in excess purchase price over the
fair value of net identifiable assets acquired will be amortized over an
estimated useful life of 20 years. Heartland has evaluated the propriety of
the carrying amount of excess cost over fair value of net assets acquired
based on management's estimate of the fair value of Heartland's markets and
expected future operating cash flows from subscribers, and believes such
amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the CMAX Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from the
pro forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of CMAX that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel and professional fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the CMAX Merger. Amortization of leased license
investment is calculated beginning with inception of service in each
respective market over an estimated useful life of 20 years. For purposes
of the Pro Forma Statements for the CMAX Merger, additional amortization of
leased license investment has been calculated from January 1, 1994 since
all current operating systems (except for Waco and Temple/Kileen, Texas
systems) began service prior to such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the CMAX Merger.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
106
<PAGE> 762
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
--------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $1,182,653 $ 3,900,000(B) $ 5,082,653 $ $ 5,082,653
Net assets held for cash sale or
exchange....................... -- -- 7,250,000(E) 7,250,000
Other current assets............. 89,724 89,724 89,724
---------- ----------- ----------- ----------- -----------
Total current assets... 1,272,377 3,900,000 5,172,377 7,250,000 12,422,377
Systems and equipment, net....... 218,404 218,404 218,404
Leased license investment, net... 2,987,940 23,478,317(B) 23,396,257 (23,396,257)(E) --
(3,900,000)(B)
830,000(D)
Investment in joint ventures..... 2,998,398 8,353,779(B) 11,352,177 (11,352,177)(E) --
Excess of cost over fair value of
net assets acquired............ -- 9,015,248(C) 9,015,248 9,015,248
Net assets held for exchange..... -- 27,498,434(E) 27,498,434
Other assets, net................ 77,179 77,179 77,179
---------- ----------- ----------- ----------- -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt........................... $ 99,442 $ $ 99,442 $ $ 99,442
Other current liabilities........ 638,523 830,000(D) 1,468,523 1,468,523
---------- ----------- ----------- ----------- -----------
Total current
liabilities.......... 737,965 830,000 1,567,965 -- 1,567,965
Long-term debt, less current
portion........................ 1,800,000 1,800,000 1,800,000
Deferred income taxes............ -- 9,015,248(C) 9,015,248 9,015,248
Other liabilities................ 233,044 233,044 233,044
Stockholders' equity............. 4,783,289 36,615,385(A) 36,615,385 36,615,385
(4,783,289)(A)
---------- ----------- ----------- ----------- -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
107
<PAGE> 763
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 83,333 $ -- $ 83,333 $ (83,333)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations.............. --
Selling, general and
administrative............... 3,521,413 (960,001)(F) 2,911,412 (2,911,412)(E) --
350,000(G)
Depreciation and amortization... 637,049 450,762(I) 1,087,811 (1,087,811)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 4,158,462 (159,239) 3,999,223 (3,999,223) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (4,075,129) 159,239 (3,915,890) 3,915,890 --
Interest expense.................. (976,867) (976,867) 976,867(E) --
Equity in losses of investees..... (200,436) (281,439)(H) (481,875) 481,875(E) --
Interest income and other......... (474,348) (474,348) 474,348(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (5,726,780) (122,200) (5,848,980) 5,848,980 --
Income tax benefit................ -- 1,997,341(J) 1,997,341 (1,997,341)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $(5,726,780) $ 1,875,141 $(3,851,639) $ 3,851,639 --
=========== =========== =========== =========== ==========
Net loss per share................ $ (2.95) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
108
<PAGE> 764
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 75,000 $ -- $ 75,000 $ (75,000)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations..............
Selling, general and
administrative............... 1,533,152 (315,035)(F) 1,480,617 (1,480,617)(E) --
262,500(G)
Depreciation and amortization... 66,079 338,072(I) 404,151 (404,151)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 1,599,231 285,537 1,884,768 (1,884,768) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (1,524,231) (285,537) (1,809,768) 1,809,768 --
Interest expense.................. (126,119) (126,119) 126,119(E) --
Equity in losses of investees..... (136,298) (196,338)(H) (332,636) 332,636(E) --
Interest income and other......... 802,078 802,078 (802,078)(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (984,570) (481,875) (1,466,445) 1,466,455 --
Income tax benefit................ -- 417,498(J) 417,498 (417,498)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $ (984,570) $ (64,377) $(1,048,947) $ 1,048,947 $ --
=========== =========== =========== =========== ==========
Net loss per share................ $ (0.80) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
109
<PAGE> 765
NOTES TO PRO FORMA STATEMENTS FOR THE AWS MERGER
(A) Reflects the elimination of AWS's historical equity and the issuance of
1,307,692 shares of Heartland Common Stock at an estimated market price of
$28 per share in exchange for all outstanding shares of AWS Common Stock.
Pursuant to the terms of the AWS Merger Agreement and AWS Exchange
Agreement, shares of Heartland Common Stock having an aggregate exchange
value of $3.25 million ($2.75 million if certain litigation pending against
AWS is resolved prior to the AWS Effective Time) will be placed in escrow
for approximately one year to satisfy certain indemnification obligations
of AWS to Heartland.
(B) Reflects the fair values of approximately $23.4 million and $11.4 million
assigned to leased license investment and investment in the Fort Worth and
Minneapolis joint ventures, respectively, net of historical balances. The
sale by AWS of the Memphis market for cash of $3.9 million has also been
reflected in the pro forma balance sheet. Historical balances of working
capital are assumed to approximate their fair values. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the AWS
net assets acquired. The related increase in excess purchase price over the
fair value of net identifiable assets acquired will be amortized over an
estimated useful life of 20 years. Heartland has evaluated the propriety of
the carrying amount of excess cost over fair value of net assets acquired
based on management's estimate of the fair value of Heartland's markets and
expected future operating cash flows from subscribers, and believes such
amount to be recoverable.
(D) Reflects the recognition of liabilities for severance payments to certain
executive officers of AWS.
(E) Reflects the reclassification of certain assets and liabilities acquired in
the AWS Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from the
pro forma statements of operations.
(F) Reflects the elimination of certain historical corporate general and
administrative expenses of AWS that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel, directors and officers insurance and professional
fees.
(G) Reflects the additional expense from the non-competition and consulting
agreement with an AWS executive officer.
(H) Reflects AWS's portion of the additional losses of the Fort Worth and
Minneapolis joint ventures.
(I) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the AWS Merger.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
110
<PAGE> 766
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 25,014 $ $ 25,014 $ (25,014)(C) $ --
Other current assets............ 62,456 62,456 (62,456)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 87,470 -- 87,470 (87,470) --
Systems and equipment, net...... 1,001,027 1,001,027 (1,001,027)(C) --
Leased license investment,
net........................... 2,178,002 17,542,631(B) 19,720,633 (19,720,633)(C) --
Net assets held for exchange.... -- 16,191,304(C) 16,191,304
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ -- $ $ -- $ $ --
Other current liabilities....... 1,207,311 (637,311)(B) 570,000 (570,000)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 1,207,311 (637,311) 570,000 (570,000) --
Minority interest............... 99,742 3,948,084(B) 4,047,826 (4,047,826)(C) --
Stockholders' equity............ 1,959,446 16,191,304(A) 16,191,304 16,191,304
(1,959,446)(A)
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
111
<PAGE> 767
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 667,260 $ -- $ 667,260 $ (667,260)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 567,461 567,461 (567,461)(C) --
Selling, general and
administrative................ 695,990 (100,000)(D) 595,990 (595,990)(C) --
Depreciation and amortization.... 786,572 535,809(E) 1,322,381 (1,322,381)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,050,023 435,809 2,485,832 (2,485,832) --
----------- --------- ----------- ----------- ---------
Operating loss........... (1,382,763) (435,809) (1,818,572) 1,818,572 --
Interest income and other.......... 62,281 87,161(F) 149,442 (149,442)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,320,482) (348,648) (1,669,130) 1,669,130 --
Income tax benefit................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss...................... $(1,320,482) $(348,648) $(1,669,130) $ 1,669,130 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (2.89) $ --
=========== =========
Weighted average shares
outstanding...................... 578,261(A) 578,261 578,261
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
112
<PAGE> 768
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues...................... $ 451,581 $ -- $ 451,581 $ (451,581)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations................ 396,302 396,302 (396,302)(C) --
Selling, general and
administrative................. 503,910 (75,000)(D) 428,910 (428,910)(C) --
Depreciation and amortization..... 581,451 408,612(E) 990,063 (990,063)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses..... 1,481,663 333,612 1,815,275 (1,815,275) --
----------- --------- ----------- ----------- ---------
Operating loss............ (1,030,082) (333,612) (1,363,694) 1,363,694 --
Interest income and other........... 44,048 66,722(F) 110,770 (110,770)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes..... (986,034) (266,890) (1,252,924) 1,252,924 --
Income tax benefit.................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss..................... $ (986,034) $(266,890) $(1,252,924) $ 1,252,924 $ --
=========== ========= =========== =========== =========
Net loss per share.................. $ (2.17) $ --
=========== =========
Weighted average shares
outstanding....................... 578,261(A) 578,261 578,261
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
113
<PAGE> 769
NOTES TO PRO FORMA STATEMENTS FOR THE FTW TRANSACTION
(A) Reflects the elimination of FTW Partnership's historical equity and the
issuance of 578,261 shares of Heartland Common Stock at an estimated market
price of $28 per share to FTW Partnership. In addition, subsequent to
September 30, 1995, Heartland had deposited in escrow $265,000 on behalf of
the FTW Partnership and agreed to make cash loans of $500,000 to the FTW
Partnership.
(B) Reflects the fair values of approximately $19.7 million and $4.0 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Under terms of the FTW Agreement, total liabilities to
be assumed by Heartland will not exceed $570,000 of certain types of
liabilities (including disputed liabilities). Heartland has evaluated the
propriety of the carrying amounts of leased license investment with respect
to each market based on management's estimate of the fair value of each
market and expected future operating cash flows from subscribers in an
individual market, and believes such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the FTW Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of FTW Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental depreciation and amortization of leased license
investment associated with the FTW Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the FTW Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Fort Worth systems began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
114
<PAGE> 770
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 177,941 $ $ 177,941 $ (177,941)(C) $ --
Other current assets............ 223,218 223,218 (223,218)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 401,159 -- 401,159 (401,159) --
Systems and equipment, net...... 1,480,218 1,480,218 (1,480,218)(C) --
Leased license investment,
net........................... 4,603,199 25,543,892(B) 30,147,091 (30,147,091)(C) --
Net assets held for exchange.... 21,913,052(C) 21,913,052
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 (10,115,416) $21,913,052
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 2,000,000 (B) 2,000,000 (2,000,000)(C) $ --
Other current liabilities....... 811,065 811,065 (811,065)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 2,811,065 -- 2,811,065 (2,811,065) --
Minority interest............... 289,737 7,014,614(B) 7,304,351 (7,304,351)(C) --
Stockholders' equity............ 3,383,774 21,913,052(A) 21,913,052 21,913,052
(3,383,774)(A)
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 $(10,115,416) $21,913,052
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
115
<PAGE> 771
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 535,046 $ -- $ 535,046 $ (535,046)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,187,795 1,187,795 (1,187,795)(C) --
Selling, general and
administrative................ 463,156 (83,333)(D) 379,823 (379,823)(C) --
Depreciation and amortization.... 977,471 860,445(E) 1,837,916 (1,837,916)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,628,422 777,112 3,405,534 (3,405,534) --
----------- --------- ----------- ----------- ---------
Operating loss........... (2,093,376) (777,112) (2,870,488) 2,870,488 --
Interest income and other.......... 138,155 194,278(F) 332,433 (332,433)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,955,221) (582,834) (2,538,055) 2,538,055 --
Income tax benefit................. -- -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,955,221) $(582,834) $(2,538,055) $ 2,538,055 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (3.24) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
116
<PAGE> 772
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 740,595 $ -- $ 740,595 $ (740,595)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,092,248 1,092,248 (1,092,248)(C) --
Selling, general and
administrative................ 373,069 (75,000)(D) 298,069 (298,069)(C) --
Depreciation and amortization.... 799,154 593,465(E) 1,392,619 (1,392,619)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,264,471 518,465 2,782,936 (2,782,936) --
----------- --------- ----------- ----------- ---------
Operating loss........... (1,523,876) (518,465) (2,042,341) 2,042,341 --
Interest income and other.......... 90,628 129,616(F) 220,244 (220,244)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,433,248) (388,849) (1,822,095) 1,822,095 --
Income tax benefit................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,433,248) $(388,849) $(1,822,095) $ 1,822,095 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (2.33) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
117
<PAGE> 773
NOTES TO PRO FORMA STATEMENTS FOR THE MINNEAPOLIS TRANSACTION
(A) Reflects the elimination of Minneapolis Partnership historical equity and
the issuance of 782,609 shares of Heartland Common Stock at an estimated
market price of $28 per share to Minneapolis Partnership. The Pro Forma
Statements for the Minneapolis Transaction do not assume the issuance of
any additional shares of Heartland Common Stock for additional subscribers
added by the Minneapolis Partnership. In addition, subsequent to September
30, 1995, Heartland made cash loans to the Minneapolis LLC in the amount of
$1,059,000.
(B) Reflects the fair values of approximately $30.1 million and $7.3 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Heartland has evaluated the propriety of the carrying
amounts of leased license investment with respect to each market based on
management's estimate of the fair value of each market and expected future
operating cash flows from subscribers in an individual market, and believes
such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the Minneapolis Transaction to net assets held for exchange based on
management's expectations with respect to such net assets. Accordingly,
historical operating results relating to such net assets are eliminated
from the pro forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of Minneapolis Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental amortization of leased license investment associated
with the Minneapolis Transaction. Amortization of leased license investment
is calculated beginning with inception of service in each respective market
over an estimated useful life of 20 years. For purposes of the Pro Forma
Statements for the Minneapolis Transaction, additional amortization of
leased license investment has been calculated from January 1, 1994 since
the Minneapolis System began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
118
<PAGE> 774
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 78,124 $ $ 78,124 $ (21,827)(D) $ 56,297
Other current assets............ 477,325 477,325 (195,430)(D) 281,895
------------ ------------ ----------- ----------- -----------
Total current
assets.............. 555,449 -- 555,449 (217,257) 338,192
Systems and equipment, net...... 9,001,797 9,001,797 (2,849,833)(D) 6,151,964
Leased license investment,
net........................... 3,552,846 23,634,608(B) 27,187,454 (8,499,701)(D) 18,687,753
Excess of cost over fair value
of net assets acquired........ -- 6,066,024(C) 6,066,024 6,066,024
Net assets held for exchange.... -- 10,720,791(D) 10,720,791
Other assets, net............... 1,441,093 (1,435,793)(B) 5,300 5,300
------------ ------------ ----------- ----------- -----------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 13,232,882 $(11,874,953)(B) 1,357,929 (94,924)(D) 1,263,005
Other current liabilities....... 3,642,071 3,642,071 (751,076)(D) 2,890,995
------------ ------------ ----------- ----------- -----------
Total current
liabilities......... 16,874,953 (11,874,953) 5,000,000 (846,000) 4,154,000
Long-term debt, less current
portion....................... 6,061,259 (6,061,259)(B) -- --
Deferred income taxes........... -- 6,066,024(C) 6,066,024 6,066,024
Stockholders' equity............ (8,385,027) 31,750,000(A) 31,750,000 31,750,000
8,385,027(A)
------------ ------------ ----------- ----------- -----------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
119
<PAGE> 775
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................... $ 6,587,547 $ -- $ 6,587,547 $ (852,476)(D) $ 5,735,071
------------ ----------- ----------- ----------- ------------
Operating expenses:
Systems operations............. 3,726,212 3,726,212 (1,063,717)(D) 2,662,495
Selling, general and
administrative.............. 2,977,792 (270,000)(E) 2,707,792 (894,938)(D) 1,812,854
Depreciation and
amortization................ 2,552,134 864,668(F) 3,718,634 (742,584)(D) 2,976,050
301,832(G)
------------ ----------- ----------- ----------- ------------
Total operating
expenses............... 9,256,138 896,500 10,152,638 (2,701,239) 7,451,399
------------ ----------- ----------- ----------- ------------
Operating loss......... (2,668,591) (896,500) (3,565,091) 1,848,763 (1,716,328)
Interest expense................. (1,491,725) (1,491,725) 103,462(D) (1,388,263)
------------ ----------- ----------- ----------- ------------
Loss before income
taxes.................. (4,160,316) (896,500) (5,056,816) 1,952,225 (3,104,591)
Income tax benefit............... -- 1,759,344(H) 1,759,344 (610,645)(D) 1,148,699
------------ ----------- ----------- ----------- ------------
Net loss.................. $ (4,160,316) $ 862,844 $(3,297,472) $ 1,341,580 $ (1,955,892)
============ =========== =========== =========== ============
Net loss per share............... $ (2.91) $ (1.72)
=========== ============
Weighted average shares
outstanding.................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
120
<PAGE> 776
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 5,029,037 $ -- $ 5,029,037 $ (890,247)(D) $ 4,138,790
Operating expenses:
Systems operations.............. 2,675,570 2,675,570 (619,183)(D) 2,056,387
Selling, general and
administrative............... 1,777,721 (202,500)(E) 1,575,221 (418,002)(D) 1,157,219
Depreciation and amortization... 2,311,943 576,755(F) 3,116,174 (999,691)(D) 2,116,483
227,476(G)
------------ ----------- ----------- ----------- ------------
Total operating expenses... 6,765,234 601,731 7,366,965 (2,036,876) 5,330,089
------------ ----------- ----------- ----------- ------------
Operating loss.......... (1,736,197) (601,731) (2,337,928) 1,146,629 (1,191,299)
Interest expense.................. (708,446) (708,446) 82,718(D) (625,728)
Interest income and other......... 253,352 253,352 253,352
------------ ----------- ----------- ----------- ------------
Income before income
taxes................... (2,191,291) (601,731) (2,793,022) 1,229,347 (1,563,675)
Income tax benefit................ -- 949,252(H) 949,252(H) (454,858) 494,394
------------ ----------- ----------- ----------- ------------
Net income................. $ (2,191,291) $ (601,731) $(1,843,770) $ 774,489 $ (1,069,281)
============ =========== =========== =========== ============
Net income per share.............. $ (1.63) $ (.94)
=========== ============
Weighted average shares
outstanding..................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
121
<PAGE> 777
NOTES TO PRO FORMA STATEMENTS FOR THE TSC TRANSACTION
The Technivision Unaudited Pro Forma Condensed Balance Sheet as of
September 30, 1995 and Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1994 and nine months ended September 30, 1995
have been determined utilizing the historical unaudited balance sheet of
Technivision as of November 30, 1995 and unaudited statements of operations for
the year ended November 30, 1994 and nine months ended November 30, 1995. The
Technivision historical statement of operations for the year ended November 30,
1994 has been derived utilizing Technivision's historical audited statement of
operations for the year ended May 31, 1995 and unaudited statements of
operations for the six months ended May 31, 1994 and 1995. The Technivision
historical statement of operations for the nine months ended November 30, 1995
has been derived utilizing Technivision's historical statement of operations for
the six months ended November 30, 1995 and three months ended May 31, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of Technivision historical equity and the issuance
of 1,133,929 shares of Heartland Common Stock at an estimated market price
of $28 per share to Technivision. The Pro Forma Statements for the TSC
Transaction do not assume the issuance of any additional shares of
Heartland Common Stock for additional subscribers added by Technivision.
Pursuant to the terms of the TSC Agreement and the TSC Exchange Agreement,
TSC Shares having an aggregate exchange value of $5 million will be placed
in escrow for approximately 18 months to satisfy certain indemnification
obligations of TSC to Heartland, and TSC Shares having an aggregate
exchange value of up to $3.6 million (currently estimated to be $1 million)
will be placed in escrow for up to six months (subject to extension) to
satisfy certain post-closing obligations of TSC to Heartland regarding
third party consents to the transfer of certain assets to Heartland.
(B) Reflects the fair value of approximately $27.2 million assigned to leased
license investment for the acquisition of Technivision, net of historical
leased license investment. Historical balances of working capital are
assumed to approximate their fair values. In addition, under terms of the
TSC Agreement, certain marketable securities of Technivision will not be
acquired by Heartland and total liabilities to be assumed by Heartland will
not exceed $5 million of liabilities of Technivision. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the
Technivision net assets acquired. The related increase in excess purchase
price over the fair value of net identifiable assets acquired will be
amortized over an estimated useful life of 20 years. Heartland has
evaluated the propriety of the carrying amount of excess cost over fair
value of net assets acquired based on management's estimate of the fair
value of Heartland's markets and expected future operating cash flows from
subscribers, and believes such amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the TSC Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of TechniVision that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the TSC Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the TSC Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Corpus Christi and Dayton systems began service prior to
such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the TSC Transaction.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
122
<PAGE> 778
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND
The selected consolidated statement of operations and balance sheet data
presented below as of December 31, 1993 and 1994 and for the years ended
December 31, 1992, 1993 and 1994 were derived from the consolidated financial
statements of Heartland, which were audited by KPMG Peat Marwick LLP,
independent certified public accountants, and which are included elsewhere in
this Proxy Statement/Prospectus. The selected consolidated statement of
operations and balance sheet data presented below as of December 31, 1990, 1991
and 1992, and for the period from September 1, 1990 (inception of Wireless
Communications, Inc., Heartland's predecessor in interest) to December 31, 1990
and the year ended December 31, 1991 were derived from the consolidated
financial statements of Heartland, which were audited by KPMG Peat Marwick LLP,
but which are not included in this Proxy Statement/Prospectus. The selected
consolidated statement of operations and balance sheet data presented below as
of September 30, 1995 and for the nine months ended September 30, 1994 and 1995
were derived from the unaudited consolidated financial statements of Heartland,
which are included elsewhere in this Proxy Statement/Prospectus and which, in
the opinion of management of Heartland, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of such unaudited interim periods. The statement of operations data for
interim periods are not necessarily indicative of results for subsequent periods
or for the full year. This selected consolidated financial data should be read
in conjunction with "Heartland -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) of Heartland contained elsewhere in
this Proxy Statement/Prospectus. See "Index to Consolidated Financial Statements
and Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1,
1990 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------------------------------- -------------------------
1990 1991 1992 1993 1994 1994 1995
-------------- -------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ 205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
---------- --------- ---------- --------- ----------- ----------- ------------
Operating expenses:
Systems operations.... -- -- 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.... -- -- -- 202,162 235,025 235,025 --
Selling, general and
administrative...... 21,026 64,158 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and
amortization........ 1,000 2,000 34,919 138,560 1,097,668 418,960 3,966,120
---------- --------- ---------- --------- ----------- ----------- ------------
Total operating
expenses........ 22,026 66,158 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss.......... (22,026) (66,158) (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income
(expense), net........ -- -- (207) (73,306) (210,113) 60,519 (6,864,367)
Equity in losses of
joint venture......... -- -- -- -- (386,985) (163,119) (128,663)
Other income
(expense)............. -- -- (37,109) (95,578) (227,204) (34,192) (475,146)
Income tax benefit...... -- -- -- -- 1,594,963 649,510 1,307,137
---------- --------- ---------- --------- ----------- ----------- ------------
Net loss.......... $ (22,026) $ (66,158) $ (50,822) $(406,101) $(3,043,321) $(1,213,894) $(11,178,095)
========== ========= ========== ========= =========== =========== ============
Net loss per common
share................... -- $ (.01) $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
========== ========= ========== ========= =========== =========== ============
Weighted average shares
outstanding............. 8,000,000 8,000,000 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
========== ========= ========== ========= =========== =========== ============
Other Financial Data:
EBITDA(1)............... $ (21,026) $ (64,158) $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $ (1,050,936)
Capital
expenditures(2)....... 42,065 306,484 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- -------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents,
excluding restricted
investments............. $ 8,399 $ 53,246 $ 164,971 $ 815,305 $11,985,953 $37,155,064
Restricted investments.... -- -- -- -- -- 24,747,214
Total assets.............. 49,514 426,771 2,267,500 8,665,066 77,921,528 200,150,474
Long-term debt, including
current portion......... -- -- -- 1,592,529 40,505,852 140,045,039
Total stockholders'
equity.................. 6,357 173,409 1,003,882 4,492,568 30,080,885 48,293,817
</TABLE>
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- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from September 1, 1990 (inception) to
December 31, 1990 were comprised of $10,000 for purchases of systems and
equipment and $32,065 for expenditures for leased licenses; for the year
ended December 31, 1991 were comprised of $25,000 for purchases of systems
and equipment and $281,484 for expenditures for leased licenses; for the
year ended December 31, 1992 were comprised of $604,082 for purchases of
systems and equipment and $797,655 of expenditures for leased licenses; for
the year ended December 31, 1993, $2,072,937 for purchases of systems and
equipment and $3,068,084 for expenditures for leased licenses; for the year
ended December 31, 1994, $12,414,501 for purchases of systems and equipment,
$3,354,471 for expenditures for leased licenses, $12,431,379 for the
investment in Rural Vision Joint Venture and $16,300,000 for the purchase of
certain assets from Rural Vision Joint Venture and the acquisition of the
Lindsay system; for the nine months ended September 30, 1994, $4,011,480 for
systems and equipment, $2,465,265 for leased licenses and $11,649,908 for
the investment in Rural Vision Joint Venture; and for the nine months ended
September 30, 1995, $25,575,252 for purchases of systems and equipment,
$1,592,024 of expenditures for leased licenses, $5,426,432 for the
investment in Rural Vision Joint Venture and $11,422,814 for the acquisition
of wireless cable television systems in Lubbock, Texas and Tulsa, Oklahoma
and the acquisition of certain additional assets from Rural Vision Joint
Venture.
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<PAGE> 780
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems.
Heartland has wireless cable channel rights in small to mid-size wireless cable
television markets, located principally in the central United States, with a
significant number of households not currently passed by traditional hard-wire
cable systems. Wireless Communications, Inc., a wholly owned subsidiary of
Heartland and its predecessor in interest ("WCI"), launched its first system,
located in Ada, Oklahoma, in April 1992. Subsequently, WCI or Heartland have
also launched service in Wichita Falls, Texas; Midland, Texas; Abilene, Texas;
Lawton, Oklahoma; Laredo, Texas; Enid, Oklahoma; Monroe, Louisiana; Ardmore,
Oklahoma; Mt. Pleasant, Texas; Lufkin, Texas; Texarkana, Texas; and Stillwater,
Oklahoma. On December 1, 1994, Heartland purchased the Milano System from
RuralVision Joint Venture. On December 29, 1994, Heartland acquired the Lindsay
System, for approximately $2.3 million. In addition, Heartland received the
distribution of the Shaw System from RuralVision Joint Venture on January 27,
1995. On May 3, 1995, Heartland acquired the Lubbock System for approximately
$5.4 million. The systems described in this paragraph are referred to in this
Management's Discussion as the "Heartland Existing Systems" or "Existing
Systems."
Heartland was incorporated in Delaware in October 1993 to succeed to the
wireless cable businesses previously conducted by WCI. David E. Webb, the
President and Chief Executive Officer and a principal stockholder of Heartland
and L. Allen Wheeler, a director and principal stockholder of Heartland were the
founders of WCI. Heartland's primary business strategy is to develop, own and
operate wireless cable television systems in markets in which Heartland believes
it can achieve positive cash flow and operating income in a particular market
rapidly after system launch and then expand such system while increasing such
system's operating income. Heartland executes this strategy by developing
wireless cable channel rights and locating operations in geographic clusters of
small to mid-size markets with a significant number of households not currently
passed by traditional hard-wire cable. Heartland's strategy allows it to contain
system launch costs because Heartland can launch its service with fewer channels
of programming and initially utilize lower power transmission equipment. In
addition, by developing wireless cable channel rights and locating its
operations in geographic clusters, Heartland can further contain costs by taking
advantage of economies of scale in management, sales and customer service.
Although Heartland has recorded net losses since inception, four operating
markets had positive cash flow in their first year of operations. None of the
other Systems had achieved positive cash flow or generated operating income,
primarily as a result of their early stages of development and number of
subscribers.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Management believes that period-to-period comparisons of Heartland's
consolidated financial results to date are not necessarily meaningful and should
not be relied upon as an indication of future performance due to Heartland's
historically high growth rate and system launches during the periods presented.
The table below sets forth for each of the Existing Systems the launch or
acquisition date, the current channel offering and the approximate number of
subscribers at December 31, 1994:
<TABLE>
<CAPTION>
APPROXIMATE
LAUNCH OR CURRENT SUBSCRIBERS AT
ACQUISITION CHANNEL DECEMBER 31,
MARKET DATE OFFERING(1) 1994
-------------------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Ada, Oklahoma............................... April 1992 32 5,020
Wichita Falls, Texas........................ October 1993 26 2,690
Midland, Texas.............................. December 1993 26 1,420
Abilene, Texas.............................. February 1994 23 2,020
Lawton, Oklahoma............................ August 1994 27 3,150
Other Existing Systems:
Laredo, Texas............................. September 1994 27 1,110
Enid, Oklahoma(2)......................... October 1994 21 970
</TABLE>
125
<PAGE> 781
<TABLE>
<CAPTION>
APPROXIMATE
LAUNCH OR CURRENT SUBSCRIBERS AT
ACQUISITION CHANNEL DECEMBER 31,
MARKET DATE OFFERING(1) 1994
-------------------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Monroe, Louisiana(3)........................ N/A 10 200
Lindsay, Oklahoma(4)........................ December 1994 32 1,410
Ardmore, Oklahoma........................... December 1994 20 170
Mt. Pleasant, Texas(5)...................... December 1994 16 --
Lufkin, Texas(6)............................ N/A 12 --
Milano, Texas(7)............................ December 1994 26 1,680
Shaw, Kansas(8)............................. January 1995 30 3,520
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(2) Construction of the Enid System was completed in February 1993. However,
Heartland did not begin actively marketing its service in the Enid System
until October 1994 when it achieved an increase in its channel offering.
(3) Construction of the Monroe System was completed in March 1993. Heartland is
not actively marketing its service in the Monroe System because it is
awaiting action by the FCC to grant licenses, which would increase the
number of wireless cable channels available to Heartland.
(4) Heartland acquired the Lindsay System on December 29, 1994.
(5) Heartland launched the Mt. Pleasant System in December 1994.
(6) Heartland completed construction of the Lufkin System in December 1994.
Heartland 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 channels available to Heartland.
(7) Heartland acquired the Milano System on December 1, 1994.
(8) Heartland acquired the Shaw System on January 27, 1995.
Revenues
Heartland's first system, the Ada System, was launched in April 1992 and
Heartland had no revenues prior to 1992. Heartland's revenues were generated
from the following sources for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- ----------
<S> <C> <C> <C>
Subscription revenues:
Ada System........................................ $170,457 $591,741 $ 893,126
Wichita Falls System.............................. -- 15,861 313,729
Midland System.................................... -- 3,516 164,816
Abilene System.................................... -- -- 171,830
Lawton System..................................... -- -- 154,424
Other Existing Systems............................ -- 14,343 155,929
Installation and service revenues................... 34,925 243,304 375,640
-------- -------- ----------
Total..................................... $205,382 $868,765 $2,229,494
======== ======== ==========
</TABLE>
The following table sets forth the number of subscribers in the Heartland
Existing Systems on the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1992 1992 1992 1993 1993 1993 1993 1994 1994 1994 1994
-------- --------- -------- ---------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ada
System... 475 760 1,075 1,460 1,540 1,970 2,110 2,235 2,275 3,440 5,020
Wichita
Falls
System... -- -- -- -- -- -- 315 475 710 1,530 2,690
Midland
System... -- -- -- -- -- -- 130 370 450 690 1,420
Abilene
System... -- -- -- -- -- -- -- 140 330 1,230 2,020
Lawton
System... -- -- -- -- -- -- -- -- -- 790 3,150
Other
Existing
Systems... -- -- -- -- 10 120 180 205 220 360 5,540
</TABLE>
Historically, Heartland's subscribers have been located predominantly in
single-family homes. In the fiscal year ended December 31, 1994, the number of
subscribers located in multiple-dwelling units in the Heartland Existing Systems
(including the Shaw System) increased as a percentage of total subscribers to
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<PAGE> 782
approximately 9.6%. Multiple-dwelling unit subscribers typically generate lower
per-subscriber revenue than single-family units due to discounted programs
offered to these subscribers.
Subscription Revenues from Ada System. Revenues from the Ada System consist
principally of television subscription revenues. The increase in television
subscription revenues from $170,457 for 1992 to $591,741 for 1993 (a 247%
increase) and to $893,126 for 1994 (a 51% increase) is principally attributable
to an increase in the number of subscribers. The Ada System was not yet
operational on December 31, 1991. The Ada System had approximately 1,075
subscribers on December 31, 1992, approximately 2,110 subscribers on December
31, 1993 and approximately 5,020 subscribers on December 31, 1994, of which
approximately 1,580 subscribers (or 46%) were added in the last quarter of 1994.
Television subscription revenues consist of monthly fees paid by
subscribers for the Ada System's basic programming package, for premium
programming services and for equipment rental. The average monthly television
subscription revenue per Ada System subscriber in 1992, 1993 and 1994 was
$27.90, $30.27 (a 9% increase) and $26.98 (a 10% decrease), respectively. The
increase in average monthly subscription revenue per subscriber in 1993 as
compared to 1992 was primarily due to the increase in the percentage (from 61%
to 80%, respectively) of customers that rented, rather than purchased, the
receive-site equipment. The decrease in average monthly subscription revenue per
subscriber in 1994 as compared to 1993 was primarily due to the number of
subscribers added during the fourth quarter of 1994 who live in
multiple-dwelling units, which typically generate lower per-subscriber revenue
than single-family units, and certain promotional offerings of premium channel
units. During 1994, the standard charge for the basic Ada System programming
package of 29 channels (including one local off-air VHF/UHF channel) was $17.95
per month, $9.95 per month for each premium programming service and $6.00 per
month for rental of the basic receive-site equipment package. The Ada System had
approximately 5,020 subscribers on December 31, 1994, in excess of 80% of whom
rented, rather than purchased, the receive-site equipment. Heartland initiated
pay-per-view programming in the Ada System on April 1, 1995.
Subscription Revenues from Wichita Falls System. The Wichita Falls System
was launched in October 1993 with 24 channels (including four local off-air
VHF/UHF channels). The Wichita Falls System had approximately 315 subscribers on
December 31, 1993 and approximately 2,690 subscribers on December 31, 1994. The
Wichita Falls System currently offers 26 channels (including two local off-air
VHF/UHF channels which are being retransmitted). The average monthly television
subscription revenue per Wichita Falls System subscriber for 1994 was $26.46,
which consisted of the standard charge of $17.95 per month for the basic Wichita
Falls System programming package, $9.95, $8.95 and $2.95 per month,
respectively, for certain premium programming services and $6.85 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Wichita Falls System.
Subscription Revenues from Midland System. The Midland System was launched
in December 1993 with 24 channels (including four local off-air VHF/UHF
channels). The Midland System had approximately 130 subscribers on December 31,
1993 and approximately 1,420 subscribers on December 31, 1994. The average
monthly television subscription revenue per Midland System subscriber for 1994
was $23.54, which consisted of the standard charge of $19.95 per month for the
basic Midland System programming package, $9.95 for premium programming services
and $9.85 per month for rental of the basic receive-site equipment package.
Substantially all subscribers rent the receive-site equipment in the Midland
System.
Subscription Revenues from Abilene System. The Abilene System was launched
in February 1994 with 23 channels (including three local off-air VHF/UHF
channels). The Abilene System had approximately 2,020 subscribers on December
31, 1994. The average monthly television subscription revenue per Abilene System
subscribers in 1994 was $23.20, which consisted of the standard charge of $18.95
per month for the basic Abilene System programming package, $10.95 and $2.95 per
month, respectively, for premium programming services and $8.90 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Abilene System.
Subscription Revenues from Lawton System. The Lawton System was launched in
August 1994 with 19 channels (including seven local off-air VHF/UHF channels).
The Lawton System had approximately 3,150 subscribers on December 31, 1994. The
average monthly television subscription revenue per Lawton System
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<PAGE> 783
subscribers was $26.65 in 1994, which consisted of the standard charge of $17.95
per month for the basic Lawton System programming package, $9.95 per month for a
premium programming service and $8.00 per month for rental of the basic
receive-site equipment package. Substantially all single-family unit subscribers
in the Lawton System rent the receive-site equipment. Multiple-dwelling unit
subscribers in the Lawton System (approximately one-third of the total number of
subscribers) do not pay a fee to rent the receive-site equipment.
Subscription Revenues from Other Existing Systems. Television subscription
revenues from Existing Systems other than the Ada System, the Wichita Falls
System, the Midland System, the Abilene System and the Lawton System were
$155,929 in 1994 compared to $14,343 in 1993. This increase is attributable to
the increase in subscriber base related to these systems, the number of systems
launched in 1994 and the acquisition in December 1994 of one of these systems.
The Laredo System was launched in September 1994 with 23 channels
(including three local off-air VHF/UHF channels). The Laredo System had
approximately 1,110 subscribers on December 31, 1994.
Heartland completed construction of the Enid System in February 1993 in
anticipation of action by the FCC to grant licenses which would increase the
number of wireless cable channel rights available to Heartland. Initially,
subscribers were obtained without active marketing efforts by Heartland. An
increase in the Enid System channel offering was achieved in September 1994 and
Heartland began actively marketing its service in the Enid System in October
1994. The Enid System currently offers 21 channels (including two local off-air
VHF/UHF channels). The Enid System had approximately 970 subscribers on December
31, 1994.
Heartland completed construction of the Monroe System, which currently
offers 10 channels (including five local off-air VHF/UHF channels), in March
1993. The Monroe System had approximately 160 subscribers on December 31, 1994.
The Monroe System was constructed in anticipation of action by the FCC to grant
licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Monroe market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
Heartland acquired the Lindsay System on December 29, 1994. The Lindsay
System currently offers 32 channels (including 10 local off-air VHF/UHF
channels). The Lindsay System had approximately 1,410 subscribers on December
31, 1994.
The Ardmore System was launched in December 1994 with 20 channels
(including four local off-air VHF/UHF channels). The Ardmore System had
approximately 170 subscribers on December 31, 1994.
The Mt. Pleasant System was launched in December 1994 with 14 channels
(including four local off-air VHF/UHF channels). The Mt. Pleasant System had no
subscribers on December 31, 1994.
Heartland completed construction of the Lufkin System, which currently
offers 12 channels (including four local off-air VHF/UHF channels), in December
1994. The Lufkin System was constructed in anticipation of action by the FCC to
grant licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Lufkin market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
The Milano System was acquired on December 1, 1994 from RuralVision Joint
Venture. The Milano System currently offers 26 channels (including six local
off-air VHF/UHF channels). The Milano System had approximately 1,680 subscribers
on December 31, 1994.
The Shaw System was acquired on January 27, 1995, in accordance with the
terms of the Venture Distribution Agreement. The Shaw System currently offers 30
channels (including four local off-air VHF/UHF channels). The Shaw System had
approximately 3,520 subscribers on December 31, 1994.
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<PAGE> 784
Installation and Service Revenues. Installation and service revenues
represent installation fees charged by Heartland to certain new subscribers,
sales of receive-site equipment to certain subscribers and service income.
Installation fees are recognized upon origination of service to a customer to
the extent of subscriber acquisition costs incurred to obtain subscribers.
Revenue from the sale of receive-site equipment to subscribers is recognized
upon delivery of such equipment to a subscriber. Installation revenues included
installation fees of $34,925 in 1992, $27,289 in 1993 and $107,803 in 1994.
Installation fees declined as a percentage of revenues in 1994 due to selected
promotional campaigns in several of Heartland's markets during the period from
August 1994 to December 1994 and a higher level of revenues. Sales of
receive-site equipment to subscribers were $213,005 for 1993 and $237,730 for
1994, respectively. Through September 1993, installations and sales of
receive-site equipment were performed by a formerly affiliated installation
company. Subsequent to this period, such installations and sales have been
conducted through two subsidiaries of Heartland that were merged together in
December 1994. Additionally, Heartland recorded service income of $30,107 in
1994, a 900% increase from $3,010 in 1993.
In order to conserve its capital, upon system launch, Heartland initially
required the purchase (rather than the rental) of its receive-site equipment by
subscribers. Upon system launch in 1992, a new Ada System subscriber was
required to purchase the receive-site equipment for approximately $325, but no
installation fee was charged. Since September 1992, Heartland has offered
potential subscribers in the Ada System the option of purchasing the
receive-site equipment or renting such equipment for a monthly charge of
approximately $6. In the Ada System, an installation fee of $25 and a deposit of
$25 (designed to encourage the return of receive-site equipment) is currently
charged to subscribers selecting the monthly rental option. Additional fees are
charged for various other installation services. Heartland believes that
charging an up-front installation fee better qualifies potential subscribers,
reducing subscriber turnover. Reduced subscriber turnover reduces installation
and marketing expenses incurred by Heartland. Heartland currently experiences a
low rate of subscriber turnover of approximately 1.5% per month, as compared to
the rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Currently, approximately 80% of the subscribers in
the Ada System rent the receive-site equipment. Through April 1994, the other
Existing Systems required a new subscriber to purchase the receive-site
equipment. In order to accelerate system expansion after Heartland's initial
public offering in April 1994 ("Initial Public Offering"), Heartland began
offering new subscribers the option to rent receive-site equipment. Typically,
an installation fee of $50 is currently charged to subscribers selecting the
monthly rental option in the Existing Systems other than the Ada System. From
time to time, Heartland offers no-fee installation on a promotional basis.
Systems Operations and Cost of Goods Sold. 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.
Prior to 1992, Heartland had no operations and therefore no systems operations
expense. Heartland incurred $36,042 of systems operations expense in 1992 (all
related to the Ada System). For 1993, Heartland incurred systems operations
expense of $118,649 (a 229% increase). The increase is attributable primarily to
the 96% increase in the number of subscribers during 1993 as compared to 1992.
Systems operations for 1994 increased 345% from 1993 to $527,476. The increase
was attributable primarily to the 240% increase in the average number of
subscribers for 1994 compared to 1993.
Cost of goods sold includes the cost of receive-site equipment sold to
subscribers. Such costs amounted to $202,162 in 1993 and $235,025 in 1994.
Through September 1993, receive-site equipment was sold to subscribers by a
formerly affiliated installation company. Subsequent to this period, such sales
have been conducted through two subsidiaries of Heartland that were merged
together in December 1994. Subsequent to the Initial Public Offering, sales of
receive-site equipment have been nominal.
Selling, General and Administrative Expenses. Heartland 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 sales
commissions relating to the increasing number of subscribers and additional
compensation expense. SG&A increased from $147,927 for 1992 to $646,611 for
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<PAGE> 785
1993 (a 337% increase). During 1992, the Ada System was launched and SG&A
increased significantly due to the expense incurred in launching such system and
additional accounting and support costs and sales commissions relating to the
increasing number of subscribers. These factors and the expense incurred in
launching two more systems and constructing two other systems caused the
increase in SG&A for 1993 as compared to 1992. SG&A increased 547% to $4,183,307
in 1994 compared to $646,611 in 1993, principally due to the commencement of the
direct payment of compensation to certain of Heartland's executive officers who
had previously served as consultants and the addition of personnel, and, to a
lesser extent, increased sales commissions relating to the increasing number of
subscribers, 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 channel
rights and the excess of cost over fair value of net assets acquired.
Depreciation and amortization relating to the Ada System equipment and channel
rights began in 1992 and totaled $34,920. Depreciation and amortization expense
for the year ended December 31, 1993 included depreciation on the equipment in
the Ada, Enid, Monroe and Midland Systems as well as amortization of channel
rights for such systems and totaled $138,560, a 297% increase over the same
period in 1992 during which only the Ada System was operational. Depreciation
and amortization expense for 1994 increased 692% to $1,097,668 compared to
$138,560 in 1993. The increase was due to additional systems and equipment in
connection with systems launched throughout 1994, and increased amortization
expense on leased license investment of systems in operation and excess of cost
over fair value of net assets acquired related to the acquisition of U.S.
Wireless and the acquisition of minority interests in certain other subsidiaries
of Heartland. Heartland anticipates that depreciation and amortization expense
will increase as a result of such acquisition of minority interests in March
1995 and as additional systems are launched and more subscribers continue to
rent, rather than purchase, the receive-site equipment.
Interest Expense. In 1993, Heartland incurred interest expense of $82,916
compared to $1,392 in 1992 due to an increase in borrowed funds. In 1994,
Heartland incurred interest expense of $589,767, which included non-cash
interest of $301,125 related to one month's interest on the Heartland's 9%
Convertible Subordinated Discount Notes due 2004 (the "Convertible Notes"). The
remaining interest expense is principally related to (i) the portion of the
bridge loan provided by Internationale Nederlanden (U.S.) Capital Corporation
("ING") in the original amount of approximately $10.0 million which closed in
July 1994 (the "ING Bridge Loan") that was used by RuralVision Joint Venture to
acquire certain RuralVision Assets that Heartland expects to retain and (ii)
interest expense on short-term borrowings that were repaid in connection with
Heartland's initial public offering in April 1994.
Interest Income. Interest income for the year ended December 31, 1994
relates to interest earned on Heartland's cash equivalents since the Initial
Public Offering.
Other Expenses. Other expenses are comprised primarily of other
non-operating expenses. In 1992, Heartland incurred $18,003 of other
non-operating expenses. For the year ended December 31, 1993, Heartland incurred
$60,467 of other non-operating expenses, which included a charge of $57,163
relating to a settlement with a formerly affiliated installation company (see
Note 9 of Notes to Consolidated Financial Statements appearing as pages F-17 to
F-18 elsewhere in this Proxy Statement/Prospectus). In 1994, Heartland incurred
a recapitalization charge of $205,575. This charge related to costs incurred in
connection with a rescinded offering of securities.
Minority Interests. In connection with the development of certain wireless
cable markets, Heartland has sold stock in certain of its subsidiaries
principally for cash. 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 such systems. Minority
ownership interests in such subsidiaries range from 5% to 49.9999% (other than
(i) Northern Oklahoma Wireless Cable, Inc., serving the Enid, Oklahoma area, in
which minority interest holders own 18% of the outstanding common stock and 100%
of the outstanding preferred stock; and (ii) Central Oklahoma Wireless Cable,
Inc., serving the Ada, Oklahoma area, in which minority interest holders own 50%
of the outstanding preferred stock). Minority interests in earnings of
subsidiaries of $19,106 and $35,111 for the years ended December 31, 1992 and
1993, respectively, relate to
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the minority interest owners' share of net earnings from the Ada System and net
losses from the Enid System subsidiaries and dividends on preferred stock of the
Ada and Enid System subsidiaries. The increase in the minority interests in
earnings of subsidiaries during these periods is related to increased earnings
in the Ada System, offset partially by losses during 1993 in the Enid System.
Minority interests in losses of subsidiaries of $20,108 for the year ended
December 31, 1994 relate to the minority interest owners' share of net earnings
from the Ada System subsidiary through April 1994, losses of the Enid System
subsidiary and dividends on preferred stock issued by the Ada System ($16,715)
and Enid System ($19,600) subsidiaries. On March 15, 1995, Heartland issued an
aggregate of 304,038 shares of common stock in exchange for minority interests
in 21 subsidiaries.
Income Tax Benefit. Income tax benefit of $1,594,963 for the year ended
December 31, 1994 represents the tax benefit related to Heartland's net
operating losses incurred during the period April 28, 1994 through December 31,
1994. Heartland has recognized such tax benefit to the extent of future
reversals of existing taxable temporary differences.
Net Loss. During 1991, Heartland had no revenues and incurred a loss of
$66,158, primarily due to SG&A. During 1992, Heartland's Ada System was launched
and generated operating income of $71,071 on total revenues of $205,382, which
substantially offset Heartland's expenses. Heartland incurred a net loss of
$50,822 for the year ended December 31, 1992, primarily due to the increase in
SG&A at the corporate level, the increase in other non-operating expenses and
accrued dividends on preferred stock of subsidiaries. For 1993, Heartland's Ada
System generated operating income of $256,856 on total revenues of $602,837.
Nonetheless, due to increased SG&A related to the development of Heartland's
other wireless cable markets and increased other expenses (including a
settlement charge of $57,163), Heartland incurred a net loss of $406,101. As a
result of the above factors, for the year ended December 31, 1994, Heartland
incurred a net loss of $3,043,321 as compared to a net loss of $406,101 for the
same period in 1993. Heartland expects to continue to incur net operating losses
at least through the end of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
1995 COMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1994
Revenues consist principally of subscription revenues, installation fees
(for 1994 periods) and sales of receive-site equipment to subscribers.
Subscription revenues principally consist of monthly fees paid by subscribers
for the basic programming package and for premium programming services.
Subscription revenues for the nine-month period ended September 30, 1995
increased to $9,292,837 from $984,299 for the same period in 1994, an increase
of 944%. Subscription revenues for the three-month period ended September 30,
1995 increased to $4,176,855 from $359,595 for the same period in 1994, an
increase of 1,062%. The increase in subscription revenues is principally
attributable to a 891% increase in the average number of subscribers for the
first nine months of 1995 compared to the same period in 1994. The increase in
subscribers is due to Heartland launching two systems in the third quarter of
1994 (Lawton, Oklahoma and Laredo, Texas) and two systems in the fourth quarter
of 1994 (Ardmore, Oklahoma and Mt. Pleasant, Texas); the acquisition of two
operating systems in the fourth quarter of 1994 (Lindsay, Oklahoma and Milano,
Texas); the acquisition of one system (Shaw, Kansas) in the first quarter of
1995; the launching of the system in Texarkana, Texas in the first quarter of
1995; the acquisition of one system (Lubbock, Texas) and the launching of five
systems in Illinois (McLeansboro, Vandalia, Olney and Taylorville) and
Stillwater, Oklahoma in the second quarter of 1995; the launching of the systems
in Peoria, Illinois, Manhattan, Kansas, Olton and O'Donnell, Texas, Grand
Rapids, Michigan, and Monroe City, Missouri in the third quarter of 1995; and
the acquisition of the operating systems in Bucyrus, Ohio, Paragould, Arkansas
and Sikeston, Missouri in the third quarter of 1995. The number of subscribers
in Heartland's wireless cable systems increased to 64,350 at September 30, 1995
compared to 43,500 at June 30, 1995.
On a "same system" basis (comparing systems that were operational for all
of each of the three-month periods ended September 30, 1994 and 1995),
subscription revenues increased $1,102,038 or 301%, to $1,468,157 as compared to
$380,648 for the three-month period ended September 30, 1994. Same systems
during this period consisted of Heartland's Ada, Wichita Falls, Midland, Abilene
and Enid systems. The
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average number of subscribers in these systems increased approximately 331%
during the three months ended September 30, 1995 as compared to the same period
in 1994.
For the three and nine months ended September 30, 1994, revenues included
installation fees of $54,530 and $100,159, respectively. Installation fees for
the three and nine months ended September 30, 1995 of $63,355 and $452,853,
respectively, were offset against direct costs of subscriber installations (See
note 2 to consolidated condensed financial statements regarding change in
accounting method). Sales of receive-site equipment to subscribers were $205,068
in 1994 (none in 1995). The increase in installation fees is due to the
increased number of installations during the three- and nine-month periods ended
September 30, 1995, partially offset by lower per subscriber installation
charges in certain systems, compared to the same period of 1994. Installation
fees vary widely by system based on local market conditions. Recently, Heartland
has waived installation charges as part of selected promotional campaigns. Since
Heartland's initial public offering in April 1994 (the "Initial Public
Offering"), predominately all new subscribers rent, rather than purchase,
receive-site equipment, resulting in decreased revenues from the sale of
receive-site equipment during the nine-month period ended September 30, 1995
compared to the nine-month period ended September 30, 1994.
Systems operations expenses include programming costs, channel lease
payments, transmitter site and tower rentals, cost of program guides and repairs
and maintenance expenditures. Programming costs, cost of program guides and
channel lease payments (with the exception of minimum payments) are variable
expenses which increase as the number of subscribers increases. Systems
operations expenses for the three- and six-month periods ended September 30,
1995 increased 775% to $1,326,358 from $151,499 and 804% to $2,894,074 from
$320,029 compared to the same periods in 1994. This increase is attributable
primarily to the 416% and 700% increases, respectively, in the average number of
subscribers for such periods in 1995 compared to such periods in 1994 and rental
expense under channel rights lease agreements of $977,241 related to
non-operational systems.
Costs of goods sold include the cost of receive-site equipment sold to
subscribers. The decrease in costs of goods sold of $65,808 and $235,025 for the
three- and nine-month periods ended September 30, 1995 from the same periods in
1994 is related to the corresponding decrease in sales of receive-site
equipment.
SG&A increased 139% to $2,796,889 from $1,169,598 and 265% to $7,449,699
from $2,042,124, respectively, for the three- and nine-month periods ended
September 30, 1995 and 1994, respectively. Heartland has experienced increasing
SG&A 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 sales
commissions relating to the increasing number of subscribers. Additionally, SG&A
increased during the first half of 1995 as compared to the corresponding period
in 1994 due to the implementation of a group health insurance plan in August
1994 and investor relations expenses.
Depreciation and amortization expense for the nine-month period ended
September 30, 1995 increased 847% to $3,966,120 from $418,960 for the
corresponding period in 1994. Additionally, depreciation and amortization
expense for the three-month period ended September 30, 1995 increased 764% to
$1,948,576 from $229,055 for the corresponding period in 1994. The increase is
due to additional systems and equipment related to systems launched and acquired
in 1994 and 1995 and additional amortization expense on leased license
investment of systems in operation and excess of costs over the fair value of
assets acquired due to acquisitions of minority interests. Heartland anticipates
that depreciation and amortization expense will increase as a result of the
minority interests exchange offer in March 1995 and as additional systems are
launched and more subscribers continue to rent, rather than purchase, the
receive-site equipment.
Interest expense increased to $8,908,459 for the nine-month period ended
September 30, 1995 from $128,789 for the corresponding period in the preceding
year. Interest expense increased to $4,516,446 for the three-month period ended
September 30, 1995 from $72,089 for the corresponding period in the preceding
year. The increase is principally due to the accretion on the Convertible Notes
that were issued in the fourth quarter of 1994 and the interest on Heartland's
13% Senior Notes due 2003 that were issued on April 26, 1995.
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Interest income increased to $1,034,441 from $91,130 and $2,044,092 from
$189,308, respectively, for the three and nine-month periods ended September 30,
1995 compared to the same periods in 1994, principally due to interest earned on
the increase in Heartland's cash equivalents since the initial public offering
in April 1994 and Heartland's debt offerings in November 1994 and April 1995.
Equity in losses of RuralVision Joint Venture for the nine-month period
ended September 30, 1995, relates to the Heartland's 50% share of losses related
to the joint venture for the period January 1, 1995 through January 27, 1995.
Income tax benefit increased to $1,307,137 from $649,510 for the nine-month
period ended September 30, 1995 compared to the same period in 1994. Income tax
benefit has been recognized to the extent deferred tax assets can be realized
through future reversals of existing taxable temporary differences.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Since inception, Heartland has expended funds to lease or otherwise acquire
channel rights in various markets and systems in operation, to construct or
acquire operating systems in more than 30 markets, to commence construction of
the systems under construction, to install equipment in new subscribers' homes
and to finance initial operating losses and other working capital requirements.
Heartland intends to expand the Existing Systems and launch additional wireless
cable systems and may require funds therefore in excess of the funds currently
available to it.
Heartland's capital expenditures during the years ended December 31, 1992,
1993 and 1994 were approximately $1.4 million, $5.1 million, and $44.5 million,
respectively. For the nine months ended September 30, 1994 and 1995, Heartland's
capital expenditures were approximately $18.1 million and $44.0 million,
respectively. Such expenditures were primarily for the construction and
expansion of Heartland's wireless cable systems installation of equipment in new
subscribers' homes and the acquisition of operating systems and channel rights
in other markets.
Heartland 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 $350,000 to $500,000 for wireless cable
system transmission equipment and tower construction and incremental
installation costs of approximately $395 to $435 per subscriber for equipment,
labor and overhead charges and direct commissions. 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 $400,000, but may vary depending upon the power of the
transmission equipment.
Heartland expects that under its current plans it will have capital
expenditures of approximately $13 million during the fourth quarter of 1995 and
$60.0 million in 1996 for system construction, development, launch and expansion
activities associated with its current operating systems, systems under
construction, near-term launch markets and certain long-term launch markets.
Heartland currently expects to launch an aggregate of approximately 20, and as
many as 25, systems during the period from November 1995 through the end of
1996. Heartland does not anticipate any other material capital requirements,
except as set forth below with regard to certain assets to be acquired in
connection with the Transactions by Heartland. Heartland expects to continue to
incur significant capital expenditures in 1997 and subsequent years in
connection with system construction, development, launch and expansion
activities.
Under Heartland's existing debt structure, no material principal or
interest payment obligations are required (other than accrued interest due under
the Senior Notes which has been escrowed through April 1997) until October 1997.
Commencing in October 1997 and every six months thereafter through April 2003,
semi-annual accrued interest of $6.5 million under the Senior Notes is due and
payable.
On April 26, 1995, Heartland sold 100,000 Units (the "Units") consisting of
$100 million 13% Senior Notes due 2003 and 600,000 warrants to purchase an equal
number of shares of Heartland Common Stock. Heartland placed approximately $24.1
million of the approximately $95.3 million net proceeds realized from
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the sale of the Units into an escrow account and used approximately $3.0 million
of such proceeds to repay indebtedness. Additionally, Heartland has used
approximately $9.5 million in connection with acquisitions for operating systems
in Lubbock, Texas and wireless cable channel rights in Tulsa, Oklahoma. During
the second and third quarter of 1995, Heartland has sold certain wireless cable
channel rights in 12 markets for approximately $3.3 million in cash and a
$562,500 note receivable, plus additional contingent consideration of up to
$280,000 in cash. Additionally, Heartland has contributed other wireless cable
markets for consideration consisting of approximately 35% of the outstanding
common stock of Wireless One and approximately $10 million in notes which was
paid upon consummation of an equity and debt offering by Wireless One and in
November 1995, Heartland entered into an agreement to sell its wireless cable
channel rights in Flippin, Tennessee for $1.5 million in cash. Heartland intends
to use the balance of the net proceeds of the sale of the Units, together with
cash on hand and cash generated from operations or sale of assets, for system
construction, development, launch and expansion activities, to provide working
capital and for other general corporate purposes. Subject to certain limitations
set forth in the indenture relating to the Notes (the "Indenture"), Heartland
may use a portion of such net proceeds to acquire additional wireless cable
channel rights, including the purchase of MDS and multichannel MDS ("MMDS")
wireless cable channel rights in the December 1995 BTA auction.
Upon consummation of the Transactions, Heartland, directly or through its
ownership of AWS and CMAX, will be required to pay between $15 million and $20
million of liabilities associated with the assets acquired in the Transactions.
Such liabilities include bank indebtedness, payables, severance obligations and
similar liabilities which will be due and owing upon, or shortly following,
consummation of the Transactions. As a result of consummating the Transactions,
Heartland expects that it will incur additional capital expenditures of
approximately $15.0 million in 1996 for system construction, development, launch
and expansion activities associated with the acquired operating systems and
other acquired markets that it expects to launch in 1996. All of the operating
markets to be acquired and retained are currently generating positive monthly
operating cash flow which will supplement Heartland's capital needs in 1996.
In connection with the Newco Transaction, Heartland expects to receive
$28.3 million in cash payable by Newco at the closing and a promissory note in
the principal sum of $25 million payable nine (9) months from the closing.
Heartland expects that the remaining proceeds from the sale of the Units and the
proceeds from the Newco Transaction, together with cash on hand and cash
generated from operations, will be sufficient to satisfy Heartland's capital
needs through at least the end of 1996. In order to accelerate its growth rate,
to respond to competitive pressures or regulatory changes and, subject to
certain limitations set forth in the Indenture, to finance the acquisition of
additional wireless cable channel rights and businesses, general corporate
activities and the launch or build-out of additional systems, Heartland may,
subject to the provisions of the note purchase agreement relating to the
Convertible Notes (the "Note Purchase Agreement") and the Indenture, supplement
its existing sources of funds with financing arrangements at the operating
system level, or through additional borrowings, the sale of debt or equity
securities, joint ventures or other arrangements. Heartland is presently in the
initial stages of locating and negotiating for a suitable revolving credit
facility consistent with the terms of the Indenture and Note Purchase Agreement
with one or more third parties. Assuming such financing can be secured on
acceptable terms, management of Heartland currently intends to draw down funds
under such facility upon consummation of the Transactions to repay certain of
the obligations incurred or assumed in the Transactions. No assurance can be
given that Heartland will locate such an acceptable credit facility. As a
further capital resource, subject to the terms of the Note Purchase Agreement
and the Indenture, Heartland may sell or lease certain wireless cable channel
rights as appropriate opportunities become available.
As an alternative source of financing, Heartland believes a primary factor
in obtaining debt financing at the operating system level is the generation of
positive operating cash flow. As of November 30, 1995, 17 of Heartland's
operating systems are generating positive monthly cash flow. Heartland expects
that the other Existing Systems and the wireless cable systems anticipated to be
launched will generate positive monthly operating cash flow, typically within
six months from commencement of operations and after attaining 1,500
subscribers, thereby making further bank debt financing available at the
operating system level. There can be
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no assurance, however, that such positive operating cash flow will be generated
or will be maintained or that debt financing will be available.
Although Heartland believes that its cash and cash equivalent assets will
be sufficient to fund the Combined Company's operations and expansion through at
least the end of 1996, there is no assurance that additional funds will not be
necessary to complete the launch, build-out and expansion of all of the Combined
Company's wireless cable systems and to bring such systems to a mature state or
that any such required additional funds would be available on satisfactory terms
and conditions, if at all. In addition, the Combined Company's capital needs
will depend in part upon the success of Heartland's and the Combined Company's
efforts to sell or otherwise dispose of the Heartland Disposition Assets and the
nature of any consideration received as a result of such dispositions. To the
extent assets and markets designated for disposition are not sold, or are not
sold for cash, the Combined Company's requirements for additional funds will be
increased. There is also no assurance that the Combined Company will not pursue,
from time to time, other opportunities to acquire additional wireless cable
channel rights and businesses that may utilize the capital currently expected to
be available for its current markets. The amount and timing of the Combined
Company's future capital requirements, if any, will depend upon a number of
factors, including programming costs, equipment costs, marketing expenses,
staffing levels, subscriber growth and competitive conditions, and any purchases
or dispositions of assets, many of which are not within the Combined Company's
control. Failure to obtain any required additional financing could materially
adversely affect the growth, cash flow or earnings of the Combined Company.
INCOME TAX MATTERS
Heartland and certain of its subsidiaries will file a consolidated Federal
tax return. Subsidiaries in which Heartland owns less than 80% of the voting
stock will file separate Federal tax returns. Heartland has had no material
state or Federal income tax expense since inception. As of December 31, 1994,
Heartland had approximately $2.9 million in net operating losses for tax
purposes, expiring in years 2005 through 2009. The Internal Revenue Code of
1986, as amended (the "Code"), limits the amount of loss carryforwards that a
company can use to offset future income upon the occurrence of certain changes
in ownership. As a result of the investment in Heartland by Hunt Capital and the
Initial Public Offering, Heartland has undergone more than a 50% change in
ownership and will therefore be limited in its utilization of its tax loss
carryforwards.
INFLATION
Heartland's management does not believe that inflation has had or is likely
to have any significant impact on Heartland's operations. Management believes
that Heartland will be able to increase subscriber rates, if necessary, to keep
pace with inflationary increases in costs.
OTHER
Heartland does not provide post-retirement or post-employment benefits
requiring charges under Statements of Financial Accounting Standards Nos. 106
and 112.
Heartland currently intends to adopt Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" in 1996 with respect
to its financial statement disclosure. Heartland does not intend to change its
accounting method with regard to this statement.
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AWS
SELECTED FINANCIAL INFORMATION
The selected statement of operations and balance sheet data presented below
as of December 31, 1993 and 1994 and for the ten months ended December 31, 1992
and the years ended December 31, 1993 and 1994 were derived from the financial
statements of AWS, which were audited by Arthur Andersen LLP, independent
certified public accountants, and which are included elsewhere in this Proxy
Statement/Prospectus. The selected statement of operations and balance sheet
data presented below as of February 29, 1992 and for the period from April 17,
1991 (inception) to February 29, 1992 were derived from the financial statements
of AWS, which were audited by Arthur Andersen LLP, but which are not included in
this Proxy Statement/Prospectus. The selected statement of operations and
balance sheet data presented below as of September 30, 1995 and for the nine
months ended September 30, 1994 and 1995 were derived from the unaudited
financial statements of AWS, which are included elsewhere in this Proxy
Statement/Prospectus and which, in the opinion of management of AWS, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such unaudited interim periods. The
statement of operations data for interim periods are not necessarily indicative
of results for subsequent periods or for the full year. This selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
(including the notes thereto) of AWS contained elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 17, 1991 TEN MONTHS NINE MONTHS ENDED
(INCEPTION) TO ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30,
FEBRUARY 29, DECEMBER 31, -------------------------- --------------------------
1992(1) 1992(1) 1993 1994 1994 1995
-------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues........................... $ -- $ -- $ -- $ 83,333 $ 58,333 $ 75,000
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............... -- -- -- -- -- --
Selling, general and
administrative................. 2,819,810 3,324,205 2,316,001 3,521,413 2,157,143 1,533,152
Depreciation and amortization.... 4,785 34,321 442,933 637,049 613,717 66,079
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,824,595 3,358,526 2,758,934 4,158,462 2,770,860 1,599,231
----------- ----------- ----------- ----------- ----------- -----------
Operating loss..................... (2,824,595) (3,358,526) (2,758,934) (4,075,129) (2,712,527) (1,524,231)
Interest income (expense), net..... 16,969 -- (775,525) (976,867) (978,695) (126,119)
Equity in losses of joint
venture.......................... -- (85,210) (184,906) (200,436) (157,794) (136,298)
Other income (expense)............. 1,100,000 -- 69,205 (474,348) (528,080) 802,078
----------- ----------- ----------- ----------- ----------- -----------
Net loss..................... $ (1,707,626) $(3,443,736) $(3,650,160) $(5,726,780) $(4,377,096) $ (984,570)
=========== =========== =========== =========== =========== ===========
Net loss per common share............ -- $ (1.33) $ (1.16) $ (1.26) $ (1.06) $ (.17)
=========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding........................ -- 2,595,689 3,159,397 4,540,362 4,135,431 5,709,187
=========== =========== =========== =========== =========== ===========
Other Financial Data:
EBITDA(2).......................... $ (2,819,810) $(3,324,205) $(2,316,001) $(3,438,080) $(2,098,810) $(1,458,152)
Capital expenditures(3)............ $ 2,237,170 $ 910,355 $ 832,326 $ 4,107,603 $ 3,788,011 $ 702,125
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY
29, DECEMBER 31,
----------- -------------------------------------- SEPTEMBER 30,
1992 1992 1993 1994 1995
----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................. $ 66,615 $ 579,844 $3,244,275 $ 376,621 $ 1,182,653
Total assets.......................................... 4,471,753 2,808,651 9,301,293 6,949,900 7,554,298
Long-term debt, including current portion............. 44,445 -- 7,707,000 -- 1,899,442
Total stockholders' equity (deficit).................. (1,703,640) 2,648,075 903,575 5,767,859 4,783,289
</TABLE>
- ---------------
(1) On December 17, 1992, AWS acquired the wireless cable operations of Wireless
California. For accounting purposes, this transaction was treated as an
issuance of stock for cash by Wireless California (a reverse acquisition).
All income and expense items are comparable with the exception of other
income (expense) for the period from April 17, 1991 to February 29, 1992
which is an income tax benefit item.
(2) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(3) Capital expenditures for the period from April 17, 1991 (inception) to
February 29, 1992 were comprised of $71,185 for purchase of systems and
equipment and $2,165,985 of expenditures for investment in wireless systems;
for the year ended December 31, 1992 were comprised of $160,960 for
purchases of systems and equipment and $749,395 for expenditures for
investment in wireless systems; For the year ended December 31, 1993 were
comprised of $77,055 for purchases of systems and equipment, $755,271 for
expenditures for investment in wireless systems; for the year ended December
31, 1994 were comprised of $287,291 for purchases of systems and equipment,
$3,820,312 for expenditures for investment in wireless systems; for the nine
months ended September 30, 1994 were comprised of $241,677 for purchase of
systems and equipment and $3,546,334 of expenditures for investment in
wireless systems; and for the nine months ended September 30, 1995 were
comprised of $40,035 for purchase of systems and equipment and $662,090 of
expenditures for investment in wireless systems.
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AWS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
American Wireless Systems, Inc. ("AWS") currently owns a minority interest
in and manages the operations of wireless cable systems in Minneapolis,
Minnesota and Fort Worth, Texas and owns the rights to certain wireless cable
television rights in Los Angeles, California, Dallas, Texas and Memphis,
Tennessee. Launched in March 1993 and November 1992, respectively, the
Minneapolis and Fort Worth systems served approximately 2,740 and 1,550
subscribers, respectively, as of November 30, 1995.
The wireless cable business is a capital intensive business. Initially,
significant capital is required to acquire the rights to wireless cable
channels, construct the headend facility, co-locate the channels and fund
negative cash flow until the system is able to install a sufficient number of
subscribers to fund its operating expenses. After operations have been launched,
AWS estimates that the incremental cost per subscriber is approximately $530
(assuming one-half of the subscribers order additional outlets which require
additional equipment and labor). AWS does not expect either of the Minneapolis
or Fort Worth systems to provide cash flow unless significant additional capital
can be obtained.
The Minneapolis and Fort Worth systems are operational. However, the
Minneapolis and Fort Worth systems are currently installing a minimal number of
subscribers each month. AWS' proposed wireless cable systems in Los Angeles,
Dallas and Memphis are currently in the development stage. None of the systems
has sufficient subscribers, or the financing necessary to add sufficient
subscribers, to generate positive cash flow from operations.
AWS will require additional financing in the first quarter of 1996 to fund
its operating expenses; however, AWS anticipates that the proposed AWS Merger
will be consummated prior to the close of the first quarter of 1996, thereby
eliminating AWS' need to fund future operating and development expenses. Under
the terms of the AWS Merger Agreement with Heartland, AWS stockholders will
receive approximately $34,000,000 in Heartland Common Stock, subject to
adjustments in certain events. If the AWS Merger is not consummated, AWS will
continue to pursue other financing options including the sale of some or all of
its assets or a merger with a third party.
In Minneapolis, AWS owns a 25% membership interest in the Minneapolis LLC,
which owns and operates the Minneapolis system. The limited liability company
agreement governing the Minneapolis LLC requires AWS' joint venture partner,
Minneapolis Partnership, to contribute all financing required by the Minneapolis
system. Pursuant to a management agreement, AWS currently serves as the manager
of the Minneapolis LLC. In April, 1994 AWS lent Minneapolis Partnership
$2,000,000, which has been contributed to Minneapolis LLC to fund the operation
of the system. In May 1995, the Minneapolis LLC obtained a loan of $550,000 from
Tsunami Capital Corp. ("Tsunami"). In October 1995, the Minneapolis LLC obtained
a loan commitment for $1,575,000 from Heartland, of which $575,000 was used to
repay the Tsunami loan, including interest, and $1,000,000 ($484,000 of which
has been advanced as of December 31, 1995) of which is available to add
subscribers and pay for certain corporate overhead. The Minneapolis LLC will
require additional funding beyond the $1,000,000 during the first quarter of
1996 to continue installing subscribers. If the AWS Merger is not consummated,
AWS will assist its joint venture partner in its efforts to obtain additional
funding for Minneapolis LLC.
AWS owns a 20.01% equity interest in the entity that owns and operates the
Fort Worth system (the "FTW Venture") and currently serves as the manager of the
FTW Venture pursuant to an informal management agreement, but to date has not
been compensated for its efforts. In addition, the joint venture agreement
between AWS and FTW Partnership, AWS' joint venture partner in the FTW Venture,
is informal. Over the past two and one-half years, AWS and FTW Partnership have
been negotiating the terms of a definitive joint venture arrangement and a
management agreement to formalize the relationship; however, to date, no
agreement has been reached. AWS is currently advancing approximately $30,000 per
month to the FTW Venture to fund negative cash flow. As of December 31, 1995,
AWS has advanced approximately $400,000 to the FTW Venture. If the AWS Merger is
not consummated, AWS will continue to negotiate with
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FTW Partnership with respect to formal joint venture and management agreements
and additional funding for the system.
In Dallas, AWS currently owns or leases the rights to 16 wireless cable
channels. From September 1994 to December 1994, AWS prepared for the launch of a
wireless cable system in Dallas which would offer a business-oriented
programming package to subscribers. AWS anticipated that funding for the launch
would be available from the proceeds of AWS' proposed public offering in 1994.
Because the proposed offering was not successful, a launch has been delayed
indefinitely.
In Los Angeles, AWS currently owns or leases the rights to nine wireless
cable channels. AWS intended to launch a wireless cable system in Los Angeles
which would offer a business oriented programming package to business
subscribers. Until additional financing is obtained, AWS does not plan to launch
a wireless cable system in Los Angeles.
In order to expand the Dallas and Los Angeles systems to include
residential subscribers, AWS believes additional channel capacity must be
acquired, either through the acquisition of additional channel rights or the use
of digital compression. AWS has encountered and expects to continue to encounter
substantial competition in acquiring additional channel capacity in Dallas and
Los Angeles.
In Memphis, AWS owns or leases the rights to 22 wireless cable channels. On
November 7, 1995 AWS entered into a contract to sell its assets in the Memphis
market to TruVision for $3,900,000 in cash. AWS anticipates that this
transaction will close before February 29, 1996. AWS is currently involved in
litigation with TruVision. According to the AWS Merger Agreement, at the closing
of such agreement, all litigation between AWS and TruVision will be withdrawn
and all claims will be waived.
On September 29, 1995, AWS sold its assets in the Pittsburgh market for
$1,250,000 in cash.
RESULTS OF OPERATIONS
Years Ended December 31, 1994 and December 31, 1993. As described above,
AWS has interests in, but does not have any wholly owned operating wireless
cable systems, and therefore had no operating revenue in either 1994 or 1993.
AWS received management fees from the Minneapolis system of $83,333 in 1994
only.
For the years ended December 31, 1994 and December 31, 1993, AWS had net
losses of $5,726,780 and $3,650,160, respectively. General and administrative
expenses increased by approximately $1,400,000 for the year ended December 31,
1994 as compared to the year ended December 31, 1993. The primary components of
general and administrative expenses include compensation, professional services,
including legal and accounting services, rental expense, depreciation and travel
and entertainment. Compensation expense increased approximately $418,000 for the
year ended December 31, 1994 as compared to the year ended December 31, 1993.
This increase was due primarily to authorization of a severance package for AWS'
former President and Chairman of the Board pursuant to which AWS recognized
approximately $566,000 in compensation expense. This was offset by the lack of
employee bonuses in 1994, which were approximately $105,000 in 1993. Outside
services expense increased approximately $635,000 for the year ended December
31, 1994 as compared to the year ended December 31, 1993, primarily due to the
expenses associated with AWS' proposed public offering. See "-- Liquidity and
Capital Resources." Other general and administrative expenses increased
approximately $346,000 for the year ended December 31, 1994 as compared to the
year ended December 31, 1993, primarily due to expenses associated with
maintaining the assets in the Dallas and Pittsburgh markets.
During 1994 and 1993, AWS raised an aggregate of approximately $13,664,000
through three private placements of Common Stock and convertible subordinated
notes (the "Notes"). Interest expense, including amortization of debt issuance
costs, on the Notes totalled $976,867 for the year ended December 31, 1994 and
$775,525 for the year ended December 31, 1993. The increase was due to
approximately two additional months of interest accrued in 1994 as compared to
1993.
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Other income decreased approximately $544,000 from $69,205 for the year
ended December 31, 1993 to other expense of $474,348 for the year ended December
31, 1994 primarily due to recognition of $425,000 of other expense associated
with repricing certain warrants.
Minneapolis LLC began adding subscribers in March 1993 and continued adding
subscribers to the system until August 1993, when the Minneapolis LLC's cash
resources were nearly depleted. In April 1994, AWS lent its joint venture
partner $2,000,000, which has been contributed to the Minneapolis LLC to fund
operating expenses and subscriber growth. This loan bears interest at a per
annum rate of 8% and is due in full on February 28, 1996. In the event this loan
is not repaid when due, AWS will receive an additional equity interest in the
Minneapolis LLC of approximately 10%. The system had approximately $520,000 in
revenue during 1994 and approximately $272,000 in revenue during 1993. The
increase in revenue was due to the addition of approximately 1900 subscribers in
1994. Operating expenses in 1994 were approximately $1,591,000 and approximately
$1,149,000 in 1993. The increase was due to the addition of approximately 900
more subscribers in 1994 as compared to 1993. Depreciation expense increased to
approximately $977,000 in 1994 from approximately $739,000 in 1993. The increase
was due to the addition of subscriber, headend and office equipment. The
Minneapolis LLC's net loss was approximately $2,048,000 in 1994 and
approximately $1,616,000 in 1993. The change was due to the re-launch of the
system in April 1994 and the addition of 900 more subscribers in 1994 as
compared to 1993. AWS' share of those losses was approximately $138,000 in 1994
and $127,000 in 1993. AWS' allocated losses are based on contributed capital
rather than its beneficial interest. Accordingly, AWS' allocated share of the
losses on a percentage basis is less than its beneficial interest.
The FTW Venture began adding subscribers in November 1992 and subscribers
continued to be added to the system until April 1993, when the FTW Venture's
cash resources were nearly depleted. The system had revenue of approximately
$667,000 during 1994 and approximately $792,000 during 1993. The decrease in
revenue was due to the loss of approximately 500 subscribers from its subscriber
base due to disconnections. Operating expenses were approximately $1,008,000 in
1994 and approximately $1,056,000 in 1993. The decrease was due to the lack of
installation activity throughout 1994. Depreciation expense increased to
approximately $787,000 in 1994 from approximately $754,000 in 1993. The increase
was due to the addition of subscriber equipment to complete a minimal number of
installations in order to offset the decline in the subscriber base due to
disconnections. The FTW Venture's net loss was approximately $1,128,000 in 1994
and approximately $1,018,000 in 1993. The net loss is comparable, which reflects
the effect of increased revenues and operating costs when the system was
actively installing subscribers in early 1993. AWS' share of these operating
losses was approximately $62,000 in 1994 and $58,000 in 1993. AWS' recorded
losses are based on the anticipated terms of the joint venture agreement, which
AWS currently is negotiating.
Year Ended December 31, 1993 and Ten Months Ended December 31, 1992. General
and administrative expenses declined by approximately $600,000 for the year
ended December 31, 1993 as compared to the ten-month period ended December 31,
1992. The primary components of general and administrative expenses include
compensation, professional services including legal and accounting services,
rental expense, depreciation and travel and entertainment. Compensation expense
declined $285,000 for the year ended December 31, 1993 as compared with the
ten-month period ended December 31, 1992, reflecting decreases in executive
compensation partially offset by an increase in the number of employees. Other
general and administrative expenses, including outside services, declined
$315,000 as the result of the imposition by management of tighter controls over
expenditures.
The losses from operations of the joint ventures increased from $85,210 in
1992 to $184,906 in 1993. The increase was due primarily to the beginning of
operations in Minneapolis and a full year of operations in Fort Worth.
The Minneapolis LLC began adding subscribers in March 1993 and continued
adding subscribers to the system until August 1993, when the Minneapolis LLC's
cash resources were nearly depleted. The Minneapolis LLC had approximately
$10,000 in revenue during 1992 and approximately $272,000 in revenue during
1993. The increase in revenue was due to the launch of the Minneapolis system
and the addition of approximately 950 subscribers in 1993. Operating expenses
were approximately $89,000 in 1992 and approximately
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$1,149,000 in 1993. The increase was also due to the launch of the system in
1993. Depreciation expense increased from approximately $6,000 in 1992 to
approximately $739,000 in 1993 due to the addition of subscriber, headend and
office equipment. The Minneapolis LLC's net loss was approximately $71,000 in
1992 and approximately $1,616,000 in 1993. The change was also due to the launch
of the system in 1993. AWS' share of these losses was $9,000 in 1992 and
$127,000 in 1993. AWS' allocated losses are based on contributed capital rather
than its beneficial interest. Accordingly, AWS' allocated share of losses on a
percentage basis is less than its beneficial interest.
The FTW Venture began adding subscribers in November 1992. Subscribers
continued to be added to the system until April 1993, when the joint venture's
cash resources were nearly depleted. The FTW Venture had revenue of
approximately $144,000 in 1992 and $792,000 in 1993. The increase in revenue was
due to the addition of approximately 1,630 subscribers in 1993 compared to 550
subscribers in 1992 and a full 12 months of operations in 1993. Operating
expenses in 1992 were approximately $638,000 and approximately $1,109,000 in
1993. The increase was due to a full 12 months of operations in 1993.
Depreciation expense increased from $250,000 in 1992 to $754,000 in 1993 due to
the addition of subscriber, headend and office equipment. The joint venture's
net loss was $744,000 in 1992 and $1,071,000 in 1993. The change was due to a
full 12 months of operations in 1993. AWS' share of these operating losses was
$76,000 in 1992 and $58,000 in 1993. AWS' recorded losses are based on the
anticipated terms of the joint venture agreement, which AWS currently is
negotiating.
Interest expense, including amortization of debt issuance costs, on the
Notes totalled $775,525 for 1993. There was no interest expense in 1992.
Nine Months Ended September 30, 1995 and September 30, 1994. As previously
noted, AWS has interests in, but does not have any wholly owned operating
wireless cable systems, and therefore had no operating revenue for the nine
months ended September 30, 1995 or September 30, 1994. AWS received management
fees from the Minneapolis system of $75,000 for the nine months ended September
30, 1995 and $58,333 for the nine months ended September 30, 1994 only.
For the nine months ended September 30, 1995 and September 30, 1994, AWS
had net losses of $984,570 and $4,377,096, respectively. General and
administrative expenses decreased by approximately $1,172,000 for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. A decrease in compensation of approximately $924,000 for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994 comprises the majority of the decrease in total general and
administrative expenses. Compensation decreased due to recognition of
approximately 566,000 in September 1994 of compensation expense related to
authorization of a severance package to a former officer as well as the
reduction in the number of employees including one executive officer and
approximately ten staff personnel in January and February 1995. The remaining
decrease in general and administrative expenses was the result of relocating the
corporate office to a more economical facility in February 1995. Interest
expense decreased approximately $853,000 because $7,707,000 of the Notes were
converted in September 1994 and, therefore, no interest was incurred on the
Notes for the nine months ended September 30, 1995. Other income for the nine
months ended September 30, 1995 is primarily comprised of approximately a
$787,000 gain from the sale of the Company's interest in the Pittsburgh market.
Other expense for the nine months ended September 30, 1994 is primarily
comprised of $425,000 in expense related to repricing certain of the Company's
outstanding warrants.
The $2,000,000 lent to the Minneapolis Partnership was subsequently
contributed to the Minneapolis LLC in April 1994. The Minneapolis LLC obtained a
loan of $550,000 in May 1995 from Tsunami, to fund the installation of
subscribers and operating overhead. This loan bore interest at a per annum rate
of 12% and was due in full on the earlier of December 31, 1995 or the date that
certain merger discussions between Tsunami and the Minneapolis LLC were halted.
In connection with the proposed Heartland transaction, Minneapolis LLC received
a loan of up to $1,575,000 in October 1995, of which $575,000 was used to repay
Tsunami.
The Minneapolis LLC had approximately $739,000 in revenue for the nine
months ended September 30, 1995 as compared to approximately $317,000 in revenue
for the nine months ended September 30, 1994. The
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increase of approximately $422,000 was due to the addition of approximately
1,260 subscribers. Operating expenses were approximately $1,446,000 for the nine
months ended September 30, 1995 and $1,089,000 for the nine months ended
September 30, 1994. The increase of approximately $357,000 is due to the
addition of approximately 960 more subscribers for the nine months ended
September 30, 1995 as compared to the nine months ended September 30, 1994.
Depreciation expense increased to approximately $799,000 for the nine months
ended September 30, 1995 as compared to approximately $719,000 for the nine
months ended September 30, 1994. The increase was due to the addition of
subscriber, headend and office equipment. The Minneapolis LLC's net loss was
approximately $1,506,000 for the nine months ended September 30, 1995 as
compared to $1,490,000 for the nine months ended September 30, 1994. The change
was due to increased operating expenses from the addition of approximately 960
more subscribers over the nine months ended September 30, 1995 as compared to
the nine months ended September 30, 1994. AWS' share of these losses was
approximately $91,000 for the nine months ended September 30, 1995 and $104,000
for the nine months ended September 30, 1994.
The FTW Venture did not have funding available to actively install
subscribers. Therefore, the FTW Venture's primary focus was to maintain the
subscriber base for both nine month periods ended September 30, 1994 and
September 30, 1995. The FTW Venture had revenue of approximately $452,000 for
the nine months ended September 30, 1995 and approximately $505,000 for the nine
months ended September 30, 1994. The decrease was due to the loss of subscribers
due to disconnections between the two periods. Operating expenses were
approximately $668,000 for the nine months ended September 30, 1995 and
approximately $768,000 for the nine months ended September 30, 1994. The
decrease of approximately $100,000 is due to reductions in operating and
overhead expenses. Depreciation expense was approximately $581,000 for the nine
months ended September 30, 1995 and approximately $609,000 for the nine months
ended September 30, 1994. The decrease of approximately $28,000 was due to the
write off of subscriber equipment. The FTW Venture's net loss was approximately
$798,000 for the nine months ended September 30, 1995 and approximately $869,000
for the nine months ended September 30, 1994. The net loss is similar because
operating activities during the two periods were comparable. AWS' share of these
losses was approximately $45,000 for the nine months ended September 30, 1995
and $54,000 for the nine months ended September 30, 1994.
INCOME TAXES
AWS follows the provisions of Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes." In connection with the reverse
acquisition of Wireless California on December 17, 1992, the basis in the assets
acquired and liabilities assumed by AWS were substantially the same for book and
tax purposes; therefore, no significant deferred tax assets or liabilities
existed. During the year ended December 31, 1993, AWS was able to utilize a
portion of its losses generated to recapture previous taxes paid by Wireless
California. Such recapture has been treated as a capital contribution to AWS by
Wireless California.
At December 31, 1994, AWS had no significant deferred tax assets or
liabilities. AWS has available net operating loss carry forwards of
approximately $6,482,000 that begin expiring in 2009. The net operating loss
carry forward for the nine months ended September 30, 1995 is approximately
$7,328,000. No benefit from these net operating loss carryforwards has been
realized in AWS' financial statements.
LIQUIDITY AND CAPITAL RESOURCES
All of AWS' wireless cable systems are either in the development stage or
early operating stage. AWS' efforts to date have been directed primarily toward
the acquisition of channel rights and launch of systems. As a result of
difficulties encountered in raising significant capital arising from the
problems associated with the prior offer and sale of general partnership
interests, AWS has been unable to obtain the financing required to sufficiently
develop its markets to be able to generate significant revenues. Accordingly,
AWS has incurred losses since inception, and expects to incur additional losses.
For the years ended December 31, 1993 and December 31, 1994, AWS had net losses
from operations of $2,758,934 and $4,075,129, respectively, and net losses of
$3,650,160 and $5,726,780, respectively. Since none of AWS' existing or proposed
systems have advanced beyond the early operating or development stage, AWS
anticipates that it will be dependent upon
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external financing and continue to incur losses. Due to AWS' financing
constraints, AWS was unable to produce audited financial statements for the
fiscal year ended December 31, 1994 until October 19, 1995.
The AWS Convertible Notes were due on July 15, 1994 and originally were
convertible into AWS common stock at $8.40 per share. In addition, the
noteholders of the Notes received contingent warrants to acquire up to 346,666
shares of AWS common stock at $12 per share. Through May 11, 1994, holders of
$1,491,000 in principal amount of the Notes had converted their Notes into AWS
common stock. The remaining $7,245,000 in Notes were called for prepayment by
AWS in May 1994. Due to an unanticipated decline in AWS' share price, among
other factors, holders of $4,232,000 in principal amount of the Notes elected to
accept repayment rather than convert their Notes into shares of AWS' common
stock. Because AWS did not anticipate the relatively high level of repayment,
AWS did not have adequate funds available to pay all of the noteholders who
elected repayment. As a result, the conversion price of the Notes was adjusted
from $8.40 per share to $3.75 per share in accordance with their terms.
Following the redemption date, AWS agreed to permit all of the noteholders,
including the noteholders that had elected repayment, to elect repayment or to
convert their Notes into shares of AWS' common stock at the adjusted conversion
price of $3.75 per share. Holders of all but $703,500 in principal amount of the
Notes agreed to convert their Notes into shares of AWS' common stock at $3.75
per share. The placement agent for the Notes arranged for the holders of the
remaining $703,500 in principal amount of the Notes to sell their Notes to
certain accredited investors who agreed to convert such Notes into shares of AWS
common stock at $3.75 per share by September 30, 1994. As a consequence, none of
the Notes remain outstanding and 2,047,920 additional shares of AWS common stock
were issued at an effective purchase price of $3.75 per share.
As consideration for services rendered in connection with conversion of the
Notes, AWS agreed to adjust the exercise price of existing warrants to acquire
169,333 shares of AWS common stock held by certain affiliates of the placement
agent of the Notes. As a result, AWS recognized expense of approximately
$425,000 in the third quarter of 1994.
Since January 1995, AWS has pursued various financing options which
culminated in signing the AWS Merger Agreement with Heartland on September 11,
1995. The AWS Merger Agreement calls for AWS stockholders to exchange their
stock in AWS for Heartland Common Stock. The conversion price per share of
Heartland Common Stock will be the average of the closing prices of Heartland
Common Stock during the 10 trading days ending on the fifth business day before
the closing of the AWS Merger. If Heartland's trading price is below $20 per
share, the exchange price will be $20 per share; if the trading price is above
$26 per share, the exchange price will be $26 per share.
In February and April 1995, AWS obtained loans totalling $1,000,000 from an
AWS stockholder. These loans bore interest at a per annum rate of 15%, were
secured by various assets of AWS and were repaid in full in September 1995.
On May 25, 1995, AWS and Heartland entered into a non-binding letter of
intent providing for the potential acquisition of AWS by Heartland. Pursuant to
this letter of intent, Heartland paid $200,000 to AWS for an exclusive "no shop"
agreement pursuant to which AWS agreed, subject to certain conditions, to
refrain from seeking transactions with third parties during the period from May
26, 1995 through June 26, 1995. The termination of AWS' no shop obligation was
subsequently extended until June 30, 1995. The $200,000 was deposited into an
escrow account by Heartland and released to AWS on June 23, 1995 pursuant to the
letter of intent. In addition, Heartland loaned to AWS $1,800,000 on May 26,
1995, which loan bears interest at a prime rate plus two percent and is secured
by a first lien security interest in and to the wireless cable channel rights of
AWS in the Dallas, Texas wireless cable market (the "AWS Loan"). The AWS Loan is
secured by AWS' interest in all of its assets related to the Dallas, Texas
market pursuant to the asset security agreement between AWS and Heartland. The
AWS Loan bears interest at the lesser of the maximum rate of interest allowed by
applicable law or two percent over the prime rate with interest payable every
three months beginning October 1, 1995. The AWS Loan is due on or before January
31, 1997. The AWS Merger Agreement provides that specified amounts ("Exclusivity
Fees") are to be periodically offset against the AWS Loan as additional
consideration for the non-solicitation covenant in the AWS Merger Agreement. If
AWS terminates or fails to consummate the AWS Merger as a result of certain
specified events, payment of
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the AWS Loan may be accelerated and previously offset Exclusivity Fees may be
added back to the AWS Loan. If Heartland terminates or fails to consummate the
AWS Merger after all conditions to its obligations have been satisfied or
waived, then the balance of the AWS Loan may be forfeited as liquidated damages.
"The AWS Merger -- Terms of the AWS Merger Agreement -- AWS Loan."
On September 29, 1995, AWS sold its assets in the Pittsburgh market for
$1,250,000 in cash.
On June 21, 1995, TruVision, with whom AWS has entered into a letter of
intent relating to the sale of AWS' Memphis assets, filed a lawsuit, as amended
on June 29, 1995, in the state of Mississippi alleging that AWS breached the
letter of intent, that the parties entered into a binding agreement which AWS
breached, and that AWS committed fraud and negligent misrepresentation. AWS
disputes these claims based on the proposition that it lawfully terminated the
letter of intent. The Amended Complaint requests damages in the amount of
$28,196,642 and punitive damages in the amount of $20,000,000, together with
interest and all costs of court. On November 7, 1995, AWS entered into an
agreement pursuant to which AWS has agreed to sell, with Heartland's consent,
the Memphis assets to TruVision for $3,900,000. The agreement provides for the
settlement and release of all claims by and among AWS, TruVision and Heartland
relating to the Memphis assets, subject to consummation of the AWS Merger
Agreement. Further, each agreement provides that, prior to closing, each party
agrees that the lawsuit filed by TruVision 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 will have the right to pursue the lawsuit,
and AWS and Heartland will have the right to raise all defenses and
counterclaims associated therewith.
The FTW Venture does not have sufficient funds to continue development of
the Fort Worth system. The FTW Partnership also does not have funds to
contribute to the FTW Venture and has expressed its belief that AWS is obligated
to provide additional funds to develop the system to a positive cash flow
position. AWS does not believe it has such an obligation. In order to protect
AWS' interest in the assets of the FTW Venture, AWS has advanced over $400,000
to the FTW Venture through December 31, 1995. The funds were used to fund
negative cash flow of the system and maintain the current subscriber base. If
the AWS Merger is not consummated, AWS will continue to negotiate the terms of
additional funding to continue development of the system in conjunction with
definitive joint venture and management agreements.
Given AWS' inability to acquire sufficient financing to launch and add a
significant number of subscribers to its wireless cable systems, AWS does not
believe that any of its systems will generate sufficient cash flow to meet
operating expenses in the near future. If additional financing is not obtained
to continue development of its systems or if the AWS Merger or alternative
financing is not obtained as outlined above, AWS' assets and current operating
activities could be materially and adversely affected.
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FTW PARTNERSHIP
SELECTED FINANCIAL INFORMATION
The selected consolidated statement of operations and balance data
presented below as of December 31, 1993 and 1994 and for the years ended
December 31, 1992, 1993 and 1994 were derived from the financial statements of
FTW Partnership, which were audited by Arthur Andersen LLP, independent
certified public accountants, and which are included elsewhere in this Proxy
Statement/Prospectus. The selected unaudited consolidated statement of
operations and balance sheet data presented below as of December 31, 1991 and
for the period from June 2, 1991 (inception) to December 31, 1991 were derived
from the unaudited consolidated financial statements of FTW Partnership which
are not included in this Proxy Statement/Prospectus. The selected unaudited
statement of operations and balance data presented below as of September 30,
1995 and for the nine months ended September 30, 1994 and 1995 were derived from
the unaudited financial statements of FTW Partnership, which are included
elsewhere in this Proxy Statement/Prospectus and which, in the opinion of
management of FTW Partnership, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
for such unaudited interim periods. The statement of operations data for interim
periods are not necessarily indicative of results for subsequent periods or for
the full year. This selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements (including
the notes thereto) of FTW Partnership contained elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 2,
1991 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER ---------------------------------------- --------------------------
31, 1991(3) 1992 1993 1994 1994 1995
------------ ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $ -- $ 144,381 $ 791,877 $ 667,260 $ 505,259 $ 451,581
---------- ---------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............... -- 232,148 594,747 567,461 420,763 396,302
Selling, general and
administrative................. -- 406,214 513,741 695,990 545,114 503,910
Depreciation and amortization.... -- 250,215 754,116 786,572 608,724 581,451
---------- ---------- ----------- ----------- ----------- -----------
Total operating expenses..... -- 888,577 1,862,604 2,050,023 1,574,601 1,481,663
---------- ---------- ----------- ----------- ----------- -----------
Operating loss..................... -- (744,196) (1,070,727) (1,382,763) (1,069,342) (1,030,082)
Minority interest in losses........ -- 76,446 57,689 62,281 47,974 44,048
---------- ---------- ----------- ----------- ----------- -----------
Net loss..................... $ -- $ (667,750) $(1,013,038) $(1,320,482) $(1,021,368) $ (986,034)
========== ========== =========== =========== =========== ===========
Other Financial data:
EBITDA(1).......................... $ -- $ (493,981) $ (316,611) $ (596,191) $ (460,618) $ (448,631)
Capital expenditures(2)............ $2,522,682 $1,933,269 $ 738,967 $ 86,365 $ 62,761 $ 22,984
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995
----------- ---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 106,682 $ 987,769 $ 94,898 $ 21,836 $ 25,014
Total assets.................................... 2,602,682 5,812,973 4,667,216 3,860,932 3,266,499
Long-term debt, including current portion....... -- -- -- -- --
Total partners' equity.......................... 2,576,000 5,291,500 4,265,962 2,945,480 1,959,446
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from June 2, 1991 (inception) to
December 31, 1991 were comprised of $-0- for purchase of systems and
equipment and $2,522,682 of expenditures for leased licenses; for the year
ended December 31, 1992 were comprised of $1,498,371 for purchase of systems
and equipment and $434,898 of expenditures for leased licenses; for the year
ended December 31, 1993 were comprised of $738,967 for purchase of systems
and equipment and $-0- for expenditures for leased licenses; for the year
ended December 31, 1994 were comprised of $73,865 for purchase of systems
and equipment and $12,500 for expenditures for leased licenses; for the nine
months ended September 30, 1994 were comprised of $62,761 for purchase of
systems and equipment and $-0- of expenditure for leased licenses; for the
nine months ended September 30, 1995 were comprised of $22,984 for purchase
of systems and equipment and $-0- of expenditures for leased licenses.
(3) FTW Partnership was capitalized during 1991, and began initial development
of the system, which consisted of capital expenditures only. There were no
operations during this period.
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FTW PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The wireless cable business is a capital intensive business and to date the
FTW System has been financed through capital contributed by the FTW Partners and
funds provided by AWS. Initially, significant capital is required to acquire the
rights to wireless cable channels, construct the headend facility, co-locate the
channels and fund negative cash flow until the system is able to install a
sufficient number of subscribers to fund its operating expenses. After
operations have been launched, the estimated incremental cost per subscriber is
approximately $530 (assuming one-half of the subscribers order additional
outlets which require additional equipment and labor). FTW Partnership does not
expect its system to provide positive cash flow unless significant additional
capital can be obtained.
FTW Partnership will require additional financing in the first quarter of
1996 to fund its administrative expenses and the FTW Venture requires funding of
operating and development expenditures on a continuing basis. However, FTW
Partnership anticipates that the proposed sale of its FTW Interest to Heartland
(if approved by FTW Partners representing two-thirds ( 2/3) of the FTW Units)
will be consummated prior to the close of the first quarter of 1996, thereby
eliminating FTW Partnership's need to fund future operating and development
expenses. Under the terms of the Amended and Restated Asset Purchase Agreement
between Heartland and FTW Partnership (the "FTW Agreement"), if the subject
transaction is consummated, FTW Partnership will receive Heartland Common Stock
with an aggregate exchange value of $13,300,000.
The FTW Venture operates through an informal joint venture arrangement. The
FTW Partnership and AWS have been unable to reach an agreement regarding their
respective rights and obligations relative to providing financing for the FTW
System. AWS serves as the manager of the FTW Venture through an informal
arrangement.
RESULTS OF OPERATIONS
Years Ended December 31, 1994 and December 31, 1993. FTW Partnership's
assets consist primarily of its 79.99% equity interest in the FTW Venture and
cash. The FTW Venture began adding subscribers in October 1992. The FTW Venture
continued adding subscribers to the system until April 1993, when the FTW
Venture's cash resources were nearly depleted. Since May 1993, AWS has been
funding the operations of the FTW Venture. FTW Partnership had approximately
$667,000 in revenue during 1994 and approximately $792,000 in revenue during
1993. The decrease in revenue was due to the loss of approximately 500
subscribers in 1994. Operating expenses (exclusive of depreciation and
amortization) in 1994 were approximately $1,263,000 and approximately $1,108,000
in 1993. The decrease was due to the lack of installation activity in 1994 as
compared to 1993. Depreciation expense increased to approximately $787,000 in
1994 from approximately $754,000 in 1993. The increase was due to the addition
of subscriber equipment to complete the minimum number of installations in order
to offset the decline in subscriber base due to disconnections. FTW
Partnership's net loss was approximately $1,320,000 in 1994 and approximately
$1,013,000 in 1993. The increase in the net loss reflects the effect of
decreased installation revenues and increased general and administrative
expenses. FTW Partnership's allocated losses from the FTW Venture are based on
contributed capital rather than its beneficial percentage interest. Accordingly,
FTW Partnership's allocated share of the losses on a percentage basis is more
than its beneficial interest. FTW Partnership's share of losses of the FTW
Venture was approximately $1,066,000 for the year ended December 31, 1994 and
$961,000 for the year ended December 31, 1993.
Years Ended December 31, 1993 and December 31, 1992. The system had revenue
of approximately $144,000 in 1992 and $792,000 in 1993. The increase in revenue
was due to the addition of approximately 1,630 subscribers in 1993 compared to
550 subscribers in 1992 and a full 12 months of operations in 1993. Operating
expenses (exclusive of depreciation and amortization) in 1992 were approximately
$638,000 and approximately $1,108,000 in 1993. Again, the increase was due to a
full 12 months of operations in 1993. Depreciation expense increased from
$250,000 in 1992 to $754,000 in 1993 due to the addition of subscriber, headend
and office equipment. FTW Partnership's net loss was approximately $667,750 and
$1,013,038 in 1992 and 1993, respectively. The change was due to a full 12
months of operations in 1993. The FTW
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<PAGE> 801
Partnership's allocated losses from the FTW Venture are based on contributed
capital rather than its beneficial interest. Accordingly, the FTW Partnership's
allocated share of losses on a percentage basis is more than its beneficial
interest.
Nine Months Ended September 30, 1995 and September 30, 1994. The FTW
Partnership did not have funding available to actively install subscribers,
therefore the FTW Partnership attempted to maintain the subscriber base for both
nine month periods ended September 30, 1994 and September 30, 1995. The FTW
Partnership had revenue of approximately $452,000 for the nine months ended
September 30, 1995 and approximately $505,000 for the nine months ended
September 30, 1994. The decrease is due to the loss of subscribers due to
disconnections between the two periods. Operating expenses (exclusive of
depreciation and amortization) were approximately $900,000 for the nine months
ended September 30, 1995 and approximately $966,000 for the nine months ended
September 30, 1994. The decrease of approximately $66,000 is due to decreases in
operating and overhead expenses. Depreciation expense was approximately $581,000
for the nine months ended September 30, 1995 and approximately $609,000 for the
nine months ended September 30, 1994. The decrease of approximately $28,000 is
due to the write off of subscriber equipment. The FTW Partnership's net loss was
approximately $986,000 for the nine months ended September 30, 1995 and
approximately $1,021,000 for the nine months ended September 30, 1994. The
decrease in the net loss was due to the decrease in operating expenses. FTW
Partnership's share of losses of the FTW Venture was approximately $754,000 for
the nine months ended September 30, 1995 and $821,000 for the nine months ended
September 30, 1994.
INCOME TAXES
FTW Partnership does not have income tax liability or benefit due to the
fact that all tax attributes of FTW Partnership are passed through to its
partners.
LIQUIDITY AND CAPITAL RESOURCES
The FTW System is in the early stages of operation. Its focus since October
1992, has been to add subscribers to the system to the extent funds were
available for that purpose. The FTW System is currently operating at a negative
cash flow level. FTW Partnership has limited financial resources, has incurred
losses since inception and expects to incur additional losses. For the years
ended December 31, 1993 and December 31, 1994, FTW Partnership had net losses of
$1,013,038 and $1,320,482, respectively. Since the FTW System is still in the
early operating stage, FTW Partnership anticipates that it will depend on
external financing to develop the FTW System and continue to incur losses. As a
result, in their independent public accountants reports for years ended December
31, 1993 and December 31, 1994, there was an explanatory paragraph that
described factors raising substantial doubt about FTW Partnership's ability to
continue as a going concern.
The current operations of the FTW Venture are being funded by AWS. The
current cash requirements of the FTW System are approximately $30,000 per month.
As of December 31, 1995, AWS has provided over $400,000 to fund operations.
If the FTW Agreement is consummated, FTW Partnership will transfer to
Heartland the FTW Interest for Heartland Common Stock with an aggregate exchange
value of $13.3 million and the assumption of up to $570,000 of potential
liabilities of the FTW Partnership to AWS. If the transactions contemplated by
the FTW Agreement are consummated, the FTW Partnership will distribute sales
proceeds (in the form of FTW Shares) with an aggregate value of approximately
$11,950,000 (or approximately $8,190 per FTW Unit) to the FTW Partners. The
remainder of the sales proceeds from the FTW Transaction (also in the form of
FTW Shares and with an estimated aggregate value of $1,350,000) will be sold on
behalf of the FTW Partnership, and the proceeds thereof will be utilized by the
FTW Partnership to wind down operations and pay or reserve for certain known and
contingent liabilities consisting primarily of legal and accounting fees,
reimbursable expenses incurred by the FTW Committee, repayment of the FTW Loan
and all expenses incurred by FTW Partnership to consummate the sale of the FTW
Interest to Heartland.
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Pursuant to the FTW Agreement Heartland has agreed to loan to FTW
Partnership up to $500,000. Proceeds of the loan will be available to fund
certain obligations of FTW Partnership. The $500,000 loan can be drawn down in
increments of not less than $25,000 and carries an interest rate of 10% per
annum. As of January 15, 1996, $350,000 of such loan has been advanced.
FTW Partnership does not currently have sufficient financing to develop the
FTW system to the point where it can generate positive cash flow. If additional
financing is not obtained to continue the development of the FTW System or if
the transactions contemplated by the FTW Agreement are not consummated as
detailed above, FTW Partnership's assets and current operating activities could
be materially and adversely affected.
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<PAGE> 803
MINNEAPOLIS PARTNERSHIP
SELECTED FINANCIAL INFORMATION
The selected consolidated statement of operations and balance sheet data
presented below as of December 31, 1993 and 1994 and for the ten months ended
December 31, 1992 and the years ended December 31, 1993 and 1994 were derived
from the consolidated financial statements of Minneapolis Partnership, which
were audited by Arthur Andersen LLP, independent certified public accountants,
and which are included elsewhere in this Proxy Statement/Prospectus. The
selected consolidated statement of operations and balance sheet data presented
below as of September 30, 1995 and for the nine months ended September 30, 1994
and 1995 were derived from the unaudited financial statements of Minneapolis
Partnership, which are included elsewhere in this Proxy Statement/Prospectus and
which, in the opinion of management of Minneapolis Partnership, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for such unaudited interim periods. The
statement of operations data for interim periods are not necessarily indicative
of results for subsequent periods or for the full year. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements (including the notes thereto) of
Minneapolis Partnership contained elsewhere in this Proxy Statement/Prospectus.
See "Index to Financial Statements."
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28,
1992
(INCEPTION) YEAR ENDED NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------- --------------------------
1992 1993 1994 1994 1995
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................................... $ 23,694 $ 272,152 $ 535,046 $ 329,757 $ 740,595
------------ ----------- ----------- ----------- -----------
Operating expenses:
Systems operations........................ 62,053 690,835 1,187,795 826,474 1,092,248
Selling, general and administrative....... 26,683 514,653 463,156 275,871 373,069
Depreciation and amortization............. 6,158 738,860 977,471 719,045 799,154
------------ ----------- ----------- ----------- -----------
Total operating expenses.............. 94,894 1,944,348 2,628,422 1,821,390 2,264,471
------------ ----------- ----------- ----------- -----------
Operating loss.............................. (71,200) (1,672,196) (2,093,376) (1,491,633) (1,523,876)
Interest expense, net....................... -- -- -- -- --
Minority interests in losses................ 8,764 127,217 138,155 102,488 90,628
------------ ----------- ----------- ----------- -----------
Net loss.............................. $ (62,436) $(1,544,979) $(1,955,221) $(1,389,145) $(1,433,248)
============ =========== =========== =========== ===========
Other Financial Data:
EBITDA(1)................................... $ (65,042) $ (933,336) $(1,115,905) $ (772,588) $ (724,722)
Capital expenditures(2)..................... $ 5,983,256 $ 1,214,519 $ 520,967 $ 334,408 $ 203,093
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------------------------- 30,
1992 1993 1994 1995
---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $1,400,263 $ 167,897 $ 620,058 $ 177,941
Total assets................................. 8,220,286 7,391,740 7,425,224 6,484,576
Long-term debt, including current portion.... -- 26,287 2,016,692 2,578,562
Total partners' equity....................... 7,396,646 6,772,243 4,817,022 3,383,774
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from February 28, 1992 (inception) to
December 31, 1992 were comprised of $428,269 for purchase of systems and
equipment and $5,554,987 of expenditures for leased licenses; for the year
ended December 31, 1993 were comprised of $35,938 for purchase of systems
and equipment and $1,178,581 for expenditures for leased licenses; for the
year ended December 31, 1994 were comprised of $520,967 for purchase of
systems and equipment and $-0- for expenditures for leased licenses; for the
nine months ended September 30, 1994 were comprised of $334,408 for purchase
of systems and equipment and $-0- of expenditures for leased licenses; for
the nine months ended September 30, 1995 were comprised of $203,093 for
purchase of systems and equipment and $-0- of expenditures for leased
licenses.
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MINNEAPOLIS PARTNERSHIP -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Minneapolis Partnership owns as its principal asset a 75% membership
interest in the Minneapolis LLC, which owns and operates a wireless cable system
in Minneapolis, Minnesota. The Minneapolis system was launched in March 1993
and, as of November 30, 1995, served approximately 2,740 subscribers.
The wireless cable business is a capital intensive business and to date
Minneapolis LLC has been financed through capital contributed by the partners of
Minneapolis Partnership and various loans. Initially, significant capital is
required to acquire the rights to wireless cable channels, construct the headend
facility, co-locate the channels and fund negative cash flow until the system is
able to install a sufficient number of subscribers to fund its operating
expenses. After operations have been launched, the estimated incremental cost
per subscriber is approximately $530 (assuming one-half of the subscribers order
additional outlets which require additional equipment and labor). Minneapolis
Partnership does not expect its system to provide positive cash flow unless
significant additional capital can be obtained.
Minneapolis Partnership will require additional financing in the first
quarter of 1996 to fund its operating expenses. However, Minneapolis Partnership
anticipates that the sale of its assets to Heartland Wireless Communications,
Inc. ("Heartland") will be consummated prior to the close of the first quarter
of 1996, thereby eliminating the Minneapolis Partnership's need to fund future
operating and development expenses. Under the terms of the Minneapolis
Agreement, it is anticipated that the Minneapolis Partnership will receive
shares of Heartland common stock having an aggregate exchange value of $18.5
million (assuming $500,000 of additional subscribers consideration), subject to
adjustments in certain events. If the Heartland transaction is not consummated,
the Minneapolis Partnership will pursue other financing options including the
sale of its interest in the Minneapolis LLC.
Pursuant to the Minneapolis LLC organizational agreement, the Minneapolis
Partnership is required to contribute all of the financing required by the
system. Pursuant to the management agreement the Minneapolis Partnership's joint
venture partner, American Wireless System, Inc. ("AWS") serves as the manager of
the Minneapolis LLC. Minneapolis Partnership borrowed $2,000,000 from AWS to
fund the Minneapolis LLC. These funds allowed the Minneapolis LLC to install
approximately 2,700 subscribers. In May 1995, the Minneapolis LLC obtained a
loan of $550,000 from Tsunami Capital Corp. ("Tsunami"). In October 1995,
Minneapolis obtained a loan commitment of up to $1,575,000 from Heartland, of
which $575,000 was used to repay the Tsunami loan. The system will require
additional funding in the first quarter of 1996 to continue adding subscribers.
If the Minneapolis transaction is not consummated, the Minneapolis Partnership
will be required to obtain additional financing.
RESULTS OF OPERATIONS
Years Ended December 31, 1994 and December 31, 1993. The Minneapolis
Partnership's assets consist of its 75% membership's interest in the Minneapolis
LLC and cash. The Minneapolis LLC began adding subscribers in March 1993.
Minneapolis LLC continued adding subscribers to the system until August 1993,
when the Minneapolis LLC's cash resources were nearly depleted. In April 1994,
the Minneapolis Partnership borrowed $2,000,000 from AWS. The Minneapolis
Partnership contributed these loan proceeds to the Minneapolis LLC to fund
operating expenses and subscriber growth. This loan carries an interest rate of
8% per annum and is due in full on February 26, 1996. In the event this loan is
not repaid when due, AWS will receive an additional equity interest in the
Minneapolis LLC of approximately 10%. The Partnership had approximately $535,000
in revenue during 1994 and approximately $272,000 in revenue during 1993. The
increase in revenue was due to the addition of approximately 1900 subscribers in
1994. Operating expenses in 1994 were approximately $1,651,000 and approximately
$1,205,000 in 1993. The increase was due to the addition of approximately 900
more subscribers in 1994 as compared to 1993. Depreciation expense increased to
approximately $977,000 in 1994 from approximately $739,000 in 1993. The increase
was due to the addition of subscriber, headend, and office equipment. The
Minneapolis Partnership's net loss was approximately $1,955,000 in 1994 and
approximately $1,545,000 in 1993. The change was due to the re-launch of the
system in April 1994 and the addition of 900 more subscribers in 1994 as
compared to 1993. The Minneapolis
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<PAGE> 805
Partnership's share of those losses was approximately $1,910,000 in 1994 and
$1,489,000 in 1993. The Minneapolis Partnership's allocated losses are based on
contributed capital rather than its beneficial interest. Accordingly, the
Minneapolis Partnership's allocated share of the losses on a percentage basis is
more than its beneficial interest.
Year Ended December 31, 1993 and December 31, 1992. The Minneapolis LLC
began adding subscribers in March 1993. The joint venture continued adding
subscribers to the system until August 1993, when the Minneapolis LLC's cash
resources were nearly depleted. The Minneapolis LLC had approximately $10,000 in
revenue during 1992 and approximately $272,000 in revenue during 1993. The
increase in revenue was due to the launch of the system and the addition of
approximately 950 subscribers in 1993. Operating expenses in 1992 were
approximately $89,000 and approximately $1,205,000 in 1993. The increase was due
to the launch of the system in 1993. Depreciation expense increased from
approximately $6,000 in 1992 to approximately $739,000 in 1993 due to the
addition of subscriber, headend and office equipment. The Minneapolis LLC's net
loss was approximately $71,000 in 1992 and approximately $1,672,000 in 1993. The
change was due to the launch of the system in 1993. The Minneapolis
Partnership's share of these losses was $62,436 and $1,544,979 in 1992 and 1993,
respectively. The Minneapolis Partnership's allocated losses are based on
contributed capital rather than its beneficial interest. Accordingly, the
Minneapolis Partnership's allocated share of losses on a percentage basis is
more than its beneficial interest.
Nine Months Ended September 30, 1995 and September 30, 1994. In April 1995,
the Minneapolis LLC's operating funds were nearly depleted. The Minneapolis LLC
obtained a loan of $550,000 in May 1995 from Tsunami to fund the installation of
subscribers and operating overhead. In connection with the proposed Heartland
transaction, the Minneapolis LLC received a loan commitment of up to $1,575,000
in October 1995, of which $575,000 was used to repay Tsunami and the remaining
$1,000,000 will be used to fund subscriber growth.
The Minneapolis Partnership had approximately $741,000 in revenue for the
nine months ended September 30, 1995 as compared to approximately $330,000 in
revenue for the nine months ended September 30, 1994. The increase of
approximately $411,000 is due to an increase of approximately 1,260 subscribers
to the subscriber base. Operating expenses were approximately $1,465,000 for the
nine months ended September 30, 1995 and $1,102,000 for the nine months ended
September 30, 1994. The increase of approximately $363,000 is due to the expense
attributed to the addition of approximately 960 more subscribers for the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. Depreciation expense increased to approximately $799,000 for the nine
months ended September 30, 1995 as compared to approximately $719,000 for the
nine months ended September 30, 1994. The increase was due to the addition of
subscriber, headend and office equipment. Minneapolis Partnership's net loss was
approximately $1,433,000 for the nine months ended September 30, 1995 as
compared to $1,389,000 for the nine months ended September 30, 1994. The change
was due to the addition of approximately 960 more subscribers over the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1994. The Minneapolis Partnership's share of these losses was approximately
$1,415,000 for the nine months ended September 30, 1995 and $1,388,000 for the
nine months ended September 30, 1994.
INCOME TAXES
The Minneapolis Partnership does not have income tax liability or benefit
due to the fact that all tax attributes of the Minneapolis Partnership are
passed through to its partners.
LIQUIDITY AND CAPITAL RESOURCES
The Minneapolis System is in the early stages of operation. Its focus since
March 1993 has been to add subscribers to the system. The Minneapolis LLC is
currently operating at a negative cash flow level. The Minneapolis Partnership
has limited financial resources, has incurred losses since inception and expects
to incur additional losses. For the years ended December 31, 1993 and December
31, 1994, the Minneapolis Partnership had net losses from operations of
$1,544,979 and $1,955,221, respectively. Because the Minneapolis System is still
in the early operating stage, the Minneapolis Partnership anticipates that it
will depend on
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<PAGE> 806
external financing to develop the Minneapolis LLC system and continue to incur
losses. As a result, in their independent public accountants reports for years
ended December 31, 1993 and December 31, 1994, there was an explanatory
paragraph that described factors raising substantial doubt about the Minneapolis
Partnership's ability to continue as a going concern.
In November 1992, the Minneapolis Partnership under the terms of its
partnership agreement raised $2,095,658 from its partners to begin operations of
the system. In April 1994, the Minneapolis Partnership borrowed $2,000,000 from
AWS its joint venture partner to fund additional development of the system. The
loan carries an interest rate of 8% per annum, is collateralized by 10% of the
Minneapolis LLC and is due February 28, 1996. The Minneapolis LLC borrowed
$550,000 from Tsunami to fund operations of the system. The loan was made by
Tsunami in anticipation of a merger, the loan carried an interest rate of 12%
and was due December 31, 1995. The note was repaid in October 1995 with the
proceeds of the loan from Heartland.
In October 1995, the Minneapolis Partnership signed a contract to sell its
interest in Minneapolis LLC to Heartland. The Minneapolis Agreement allows
Heartland to purchase all right, title and interest in and to the Minneapolis
LLC that the Minneapolis Partnership owns. In connection with this agreement
Heartland has agreed to assume certain liabilities associated with the wireless
assets.
If the Minneapolis Transaction is consummated, the Minneapolis Partnership
will retain shares with an estimated exchange value of $1.5 million (or $721.50
per Minneapolis Unit) to wind down operations and pay certain known and
contingent liabilities. The remainder of the sales proceeds from the Minneapolis
Transaction, with an estimated exchange value of $17 million (or $8,177 per
Minneapolis Unit) will be distributed to the Minneapolis Partners. The known and
contingent liabilities include the following: repayment of the Heartland Loan;
payment of certain Heartland Claims in amounts that may aggregate to no more
than $1,000,000; legal fees for the representation in the Minneapolis
Transaction and for completion of the Plan of Liquidation; accounting fees for
preparation of the Minneapolis Partnership federal and state income tax returns
for 1995 and 1996.
The Minneapolis Partnership does not currently have sufficient financing to
develop its wireless cable system to the point were it can generate positive
cash flow. If additional financing is not obtained to continue the development
of its wireless cable system or if the proposed Minneapolis asset purchase
transaction is not consummated as detailed above, the Minneapolis Partnership's
assets and current operating activities could be materially adversely affected.
THE AWS MEETING
TIME, PLACE AND DATE OF AWS MEETING
This Proxy Statement/Prospectus is being furnished to the holders of AWS
Common Stock in connection with the solicitation of proxies by and on behalf of
the AWS Board for use at the Special Meeting of Stockholders of AWS (together
with any adjournments or postponements thereof, the "AWS Meeting") to be held at
10:00 a.m. on February 22 at the Westin Hotel Galleria, 13340 Dallas Parkway,
Dallas, Texas 75240 (214) 934-9494.
PURPOSE OF THE AWS MEETING
At the AWS Meeting, holders of AWS Common Stock are being asked to consider
and vote upon a proposal to approve and adopt the AWS Merger Agreement attached
as Appendix A hereto, providing for the merger of AWS Merger Sub, a wholly owned
subsidiary of Heartland, with and into AWS and such other matters as may
properly be brought before the AWS Meeting. See "The AWS
Merger -- Recommendation of the AWS Board; Reasons for the AWS Merger."
THE AWS BOARD OF DIRECTORS HAS APPROVED THE AWS MERGER AND RECOMMENDS A VOTE FOR
APPROVAL AND ADOPTION OF THE AWS MERGER.
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<PAGE> 807
RECORD DATE; VOTING RIGHTS
Only the holders of shares of AWS Common Stock of record at the close of
business on January 17, 1996 (the "AWS Record Date") are entitled to notice of,
and to vote at, the AWS Meeting regarding the approval and adoption of the AWS
Merger and upon each other matter properly submitted at the AWS Meeting. On the
AWS Record Date there were outstanding and entitled to vote 5,709,187 shares of
AWS Common Stock, owned by approximately 358 holders of record. Each share of
AWS Common Stock is entitled to one vote upon the approval and adoption of the
AWS Merger and any other matter properly submitted at the AWS Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of stockholders holding a majority of
the outstanding shares of AWS Common Stock entitled to vote will constitute a
quorum at the AWS Meeting. Pursuant to Delaware General Corporation Law, the
affirmative vote of the holders of more than 50% of the outstanding shares of
AWS Common Stock entitled to vote is required for approval and adoption of the
AWS Merger. Pursuant to a voting trust agreement, holders of approximately 37%
of the outstanding shares of AWS Common Stock (representing 2,134,736 shares)
have placed their shares in a voting trust, pursuant to which such shares will
be voted in favor of the AWS Merger. See "The AWS Merger -- Appraisal Rights"
for a discussion of the rights available to AWS stockholders who vote against or
abstain from voting for the approval of the AWS Merger Agreement and AWS Merger.
As of December 31, 1995, the directors and executive officers of AWS and
their affiliates owned an aggregate of 596,761 shares (10.33%) of the then
outstanding shares of AWS Common Stock, assuming the exercise in full of options
to purchase AWS Common Stock (436,106 of which are already subject to the voting
trust). These persons have informed AWS of their intention to vote their shares
of AWS Common Stock in favor of the AWS Merger. See "Information Concerning
AWS -- Security Ownership of Principal Stockholders and Management."
Abstentions and broker non-votes (which occur when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power at that time and has not
received instructions from the beneficial owner) are counted for the purposes of
determining the presence or absence of a quorum at the AWS Meeting. However,
because the affirmative vote of the holders of a majority of the outstanding
shares of AWS Common Stock is required to approve the AWS Merger and the AWS
Merger Agreement, abstentions and broker non-votes will have the same affect as
negative votes.
SOLICITATION OF PROXIES AND EXPENSES
This Proxy Statement/Prospectus, the accompanying notice and proxy are
being mailed on or about January 26, 1996 to holders of AWS Common Stock
entitled to notice of, and to vote at, the AWS Meeting. The cost of preparing,
assembling, printing, filing and mailing the Proxy Statement/Prospectus will be
borne jointly by AWS and Heartland. Brokers, nominees and fiduciaries and other
custodians have been requested to forward soliciting materials to beneficial
owners of shares of AWS Common Stock held of record by them, and such custodians
will be reimbursed for their expenses. Certain officers, directors and employees
of AWS may solicit proxies by telephone or personal contact. Such officers,
directors and employees will not be additionally compensated for such
solicitation (other than their regular salaries), but will be reimbursed by AWS
for out-of-pocket expenses incurred by them in the course of such solicitation.
PROXIES
Holders of AWS Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope. Shares
of AWS Common Stock represented by properly executed proxies received by AWS and
not revoked will be voted at the AWS Meeting in accordance with the instructions
contained therein. If instructions are not contained therein, proxies will be
voted (i) FOR approval and adoption of the AWS Merger, and (ii) in the
discretion of the holders of the proxy with respect
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<PAGE> 808
to any other procedural matters incident to the conduct of the AWS Meeting that
may properly come before the AWS Meeting.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ-NMS OVER THE SEVEN TRADING DAY PERIOD ENDING ON
FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, AWS
STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL
MEETING TO ENABLE AWS STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. IN
THE EVENT OF THE OCCURRENCE OF ANY MATERIAL EVENT NOT DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS, AWS WILL PROMPTLY PROVIDE YOU WITH APPROPRIATE DISCLOSURE
RELATING THERETO.
Any proxy signed and returned by a holder of AWS Common Stock may be
revoked by such holder at any time before it is voted either by giving written
notice of such revocation to AWS, or by signing and delivering a proxy bearing a
later date, or by attending the AWS Meeting and voting in person. Attendance at
the AWS Meeting will not in and of itself constitute a revocation of a proxy.
Signed but unmarked proxies will be deemed to be a vote FOR approval and
adoption of the Agreements.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than those discussed in this
Proxy Statement/Prospectus will be brought before the AWS Meeting. If other
matters are presented, proxies for AWS Common Stock will be voted in accordance
with the best judgment of the proxy holders.
STOCKHOLDER PROPOSALS
AWS will hold an Annual Meeting of Stockholders only if the AWS Merger is
not consummated prior to the time thereof. In the event of such a meeting,
stockholder proposals must be received by AWS no later than March 31, 1996 to be
considered for inclusion in the Proxy Statement and form of proxy for the Annual
Meeting of Stockholders. AWS will provide timely advance notice to the AWS
Stockholders of any change in that date.
THE FTW CONSENT SOLICITATION
THE WRITTEN CONSENT PROCEDURE
The FTW Committee has determined that the requirements of the FTW
Partnership Agreement and the interests of the FTW Partners would be best served
by providing the FTW Partners the opportunity to vote on the FTW Transactions by
way of execution of a Written Consent furnished to the FTW Partners along with
this Proxy Statement/Prospectus and the FTW Disclosure Statement. As such, a
meeting of the FTW Partners to vote in person on the FTW Transaction is not
presently scheduled. Under the FTW Partnership Agreement, each FTW Unit is
entitled to one vote on the FTW Transaction for which consents are being
solicited. The Written Consent is the form by which the vote will be exercised
by a FTW Partner for FTW Units owned by such FTW Partner.
PURPOSE OF THE WRITTEN CONSENTS
Through the Written Consents, which are being solicited by the FTW
Committee, the FTW Partners are being asked to approve and adopt the FTW
Agreement attached as Appendix E hereto and the related FTW Transaction. See
"The FTW Transaction -- Recommendation of the FTW Committee; Reasons for the FTW
Transaction."
THE FTW PARTNERS ARE BEING ASKED TO APPROVE AND ADOPT THE FTW AGREEMENT,
FTW CLAIM RELEASE OR FTW CLAIM ASSIGNMENT, AS APPLICABLE, FTW LIQUIDATION PLAN
AND THE TRANSACTIONS RELATED THERETO AS A PART OF ONE APPROVAL. THE FTW PARTNERS
ARE NOT BEING REQUESTED, AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND
ADOPT THE FTW AGREEMENT, FTW CLAIM
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RELEASE OR FTW CLAIM ASSIGNMENT, AS APPLICABLE, FTW LIQUIDATION PLAN AND
TRANSACTIONS RELATED THERETO.
THE FTW COMMITTEE HAS UNANIMOUSLY APPROVED THE FTW TRANSACTION AND HAS
RECOMMENDED A VOTE FOR APPROVAL AND ADOPTION OF THE FTW TRANSACTION.
VOTING RIGHTS
Under the FTW Partnership Agreement, each FTW Unit is entitled to one vote.
The Written Consent is the form by which this vote will be exercised by the FTW
Partner. Only persons who are FTW Partners in accordance with the provisions of
the FTW Partnership Agreement are entitled to vote on the FTW Transaction
through execution of a Written Consent.
Any FTW Partner who has delivered a Written Consent may revoke it at any
time before the FTW Partnership has received Written Consents approving the FTW
Transaction from FTW Partners holding at least two-thirds ( 2/3) of the FTW
Units. Revocation of a Written Consent must be in writing and shall be effective
when received by the FTW Partnership at the following address: Attention Donald
McGee, c/o Robert E. Morrison, 300 Crescent Court, Suite 1400, Dallas, Texas
75201. Upon receipt by the FTW Partnership of Written Consents (approving the
FTW Transaction) from FTW Partners holding at least two-thirds ( 2/3) of the FTW
Units, a FTW Partner's right to revoke a Written Consent approving the FTW
Transaction will terminate.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN TRADING
DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE
INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN
$23, THE FTW PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO
ENABLE SUCH FTW PARTNERS WHO WISH TO DO SO TO CHANGE THEIR VOTE.
The printing and mailing costs of this Proxy Statement/Prospectus (and all
items enclosed herewith) are being paid by Heartland; certain other costs of
soliciting the Written Consents from FTW Partners are being borne by FTW
Partnership.
VOTE REQUIRED
Pursuant to the FTW Agreement, the affirmative vote of FTW Partners owning
two-thirds ( 2/3) of the FTW Units is required to approve the FTW Transaction.
At such time, if any, that the FTW Partnership receives Written Consents from
holders of two-thirds ( 2/3) or more of the FTW Units, FTW Partnership shall,
assuming satisfaction of the remaining closing conditions set forth in the FTW
Agreement, immediately proceed with consummation of the FTW Transaction
contemplated by the FTW Agreement. As of December 31, 1995, there were 1,459 FTW
Units outstanding. Consequently, FTW Partners representing at least 973 of the
FTW Units must vote in favor of the FTW Transaction in order for it to be
approved. The failure of a FTW Partner to return a properly executed Written
Consent form will have the same effect as a vote against the FTW Transaction.
As of December 31, 1995, the members of the FTW Committee beneficially
owned an aggregate of 23 FTW Units representing approximately 1.58% of the total
outstanding FTW Units in the FTW Partnership. See "Information Concerning FTW
Partnership -- FTW Unit Ownership of Certain Persons and Management." Applicable
California partnership law does not provide for any dissenters or appraisal
rights to FTW Partners abstaining from or voting against the FTW Transaction.
See "The FTW Transaction -- Absence of Dissenters and Appraisal Rights."
The FTW Disclosure Statement is attached as Appendix I hereto and is
incorporated herein by reference. Each recipient of the Proxy
Statement/Prospectus is encouraged to carefully read and consider the FTW
Disclosure Statement. Additionally, each recipient of the FTW Disclosure
Statement is encouraged to carefully read and consider this Proxy
Statement/Prospectus.
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THE MINNEAPOLIS PARTNERSHIP MEETING
TIME, PLACE AND DATE OF MINNEAPOLIS PARTNERSHIP MEETING
This Proxy Statement/Prospectus is being furnished to the Minneapolis
Partners in connection with the solicitation of consents by and on behalf of the
Minneapolis Committee for use at the Special Meeting of the Minneapolis Partners
(together with any adjournments or postponements thereof, the "Minneapolis
Partnership Meeting") to be held at 10:00 a.m. on February 22, 1996 at the
Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas 75240 (214) 934-9494.
PURPOSE OF MINNEAPOLIS PARTNERSHIP MEETING
At the Minneapolis Partnership Meeting, the Minneapolis Partners will
consider and vote upon a proposal to approve the Minneapolis Agreement attached
as Appendix J hereto and the related Minneapolis Transaction. See "The
Minneapolis Transaction -- Recommendation of the Minneapolis Committee; Reasons
for Minneapolis Transaction."
AT THE MINNEAPOLIS PARTNERSHIP MEETING, THE MINNEAPOLIS PARTNERS WILL BE
ASKED TO APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT, THE MINNEAPOLIS CLAIM
ASSIGNMENT, MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO AS A
PART OF ONE APPROVAL. THE MINNEAPOLIS PARTNERS ARE NOT BEING REQUESTED, AND WILL
NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT,
MINNEAPOLIS CLAIM ASSIGNMENT, MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS
RELATED THERETO.
VOTING RIGHTS
No record date will be set for the Minneapolis Partnership Meeting. All
Minneapolis Partners of the Minneapolis Partnership on the date of the
Minneapolis Partnership Meeting will be entitled to vote at such meeting to
consider the proposal to approve the Minneapolis Agreement and the other
Minneapolis Transactions. Under the partnership agreement of the Minneapolis
Partnership, each Minneapolis Partner of the Minneapolis Partnership is entitled
to one vote for each Minneapolis Unit in the Minneapolis Partnership held by him
or her for the approval and adoption of the Minneapolis Agreement and the
related Minneapolis Transaction and any other matter properly submitted at the
Minneapolis Partnership Meeting.
VOTE REQUIRED
The affirmative vote by Minneapolis Partners holding two-thirds ( 2/3) of
the Minneapolis Units in the Minneapolis Partnership is required to approve the
Minneapolis Agreement and the related Minneapolis Transaction. As of December
31, 1995, there were 2,079 Minneapolis Units outstanding. Consequently,
Minneapolis Partners representing at least 1,386 Minneapolis Units must vote in
favor of the Minneapolis Transaction for it to be approved. Applicable
California partnership law does not provide for any dissenters or appraisal
rights to Minneapolis Partners abstaining from or voting against the Minneapolis
Transaction. See "The Minneapolis Transaction -- Absence of Dissenters and
Appraisal Rights."
Any consent signed and returned by a Minneapolis Partner may be revoked by
such Minneapolis Partner at any time before it is voted either by giving due
written notice of such revocation to Minneapolis Partnership, or by signing and
delivering a consent bearing a later date, or by attending the Minneapolis
Partnership Meeting and voting in person. Attendance at the Minneapolis
Partnership Meeting will not in and of itself constitute a revocation of a
proxy. The failure of a Minneapolis Partner to return a properly executed
consent will have the same effect as a vote against the Minneapolis Transaction.
As of December 31, 1995, the members of the Minneapolis Committee
beneficially owned an aggregate of 27.8 Minneapolis Units representing
approximately 1.34% of the total outstanding Minneapolis Units in the
Minneapolis Partnership.
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EXPENSES
This Proxy Statement/Prospectus, the accompanying notice and written
consent are being mailed on or about January 22, 1996 to the Minneapolis
Partners. The cost of preparing, assembling, printing, filing and mailing the
Proxy Statement/Prospectus will be borne by Heartland.
Certain members of the Minneapolis Committee may encourage the return of
written consents or the attendance at the Partners Meeting by telephone or
personal contact. Such members of the Minneapolis Committee will not be
additionally compensated for such activity (other than their regular salaries),
but will be reimbursed by Minneapolis Partnership for out-of-pocket expenses
incurred, if any.
CONSENTS
Minneapolis Partners are requested to complete, date, sign and promptly
return the accompanying form of consent in the enclosed envelope. Properly
executed consents received by Minneapolis Partnership and not revoked will be
voted at the Minneapolis Partnership Meeting in accordance with the instructions
contained therein. Any consent not properly executed or not properly returned
will be treated as a negative vote at the Minneapolis Partnership Meeting.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ-NMS OVER THE SEVEN TRADING DAY PERIOD ENDING ON
FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, THE
MINNEAPOLIS PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO
ENABLE SUCH MINNEAPOLIS PARTNERS WHO WISH TO DO SO TO CHANGE THEIR VOTE.
Any consent signed and returned by a Minneapolis Partner may be revoked at
any time before it is voted either by giving due written notice of such
revocation to Minneapolis Partnership, or by signing and duly delivering a
consent bearing a later date, or by attending the Minneapolis Partnership
Meeting and voting in person. Attendance at the Minneapolis Partnership Meeting
will not in and of itself constitute revocation of a consent.
Nonconsenting/dissenting Minneapolis Partners will not be afforded rights
of appraisal or the right to receive cash payment for their Unit. See "The
Minneapolis Transaction -- Absence of Dissenters' and Appraisal Rights."
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any other matter other than those discussed in
this Proxy Statement/Prospectus will be brought before the Minneapolis
Partnership Meeting.
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THE AWS MERGER
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT
TO THE AWS MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
COMPLETE TEXT OF THE AWS MERGER AGREEMENT, ATTACHED HERETO AS APPENDIX A, WHICH
IS INCORPORATED HEREIN BY REFERENCE.
BACKGROUND OF THE AWS MERGER
AWS filed a registration statement in April 1994, which was amended on
September 19, 1994 and November 4, 1994, in connection with a proposed public
offering of its Common Stock. The proceeds of that offering were to be used
primarily to develop AWS' existing and proposed systems and to fund a proposed
offer to purchase the general partnership interests in the Minneapolis
Partnership, FTW Partnership and the Pittsburgh Partnership. For a variety of
reasons, including AWS' difficulties in securing the necessary clearances to
offer and sell its securities from various government authorities and obtaining
approval to list its securities for trading on Nasdaq, as well as the fact that
AWS' independent public accountants could not express an opinion on AWS'
December 31, 1994 financial statements as required by the registration
provisions of the Securities Act, AWS was unable to complete its offering as
contemplated. As a result, AWS was not successful in obtaining sufficient funds
required to develop, launch and expand the existing and proposed wireless cable
systems in which it holds an interest or to fund the proposed offer to purchase
described above. In addition, due to its lack of revenues and inability to
obtain financing, AWS did not believe it had the ability to secure the necessary
funds to continue development of these systems or to effectuate the proposed
offer to purchase. Accordingly, AWS pursued a number of options, including the
sale of one or more of its assets, merger with a third party, or the sale of AWS
as a whole.
On March 27, 1995, AWS engaged Daniels & Associates, L.P. as its financial
advisor in connection with the possible sale of AWS or its assets. AWS entered
into discussions with a number of parties regarding the acquisition of AWS or
one or more of its assets. In May 1995, Heartland approached AWS with an offer
to purchase AWS, at Heartland's option, for cash or Heartland Common Stock.
After reviewing these offers, the AWS Board approved the execution of a
non-binding letter of intent from Heartland on May 25, 1995. Pursuant to the
letter of intent, Heartland paid $200,000 to AWS for an exclusive "no shop"
agreement pursuant to which AWS agreed, subject to certain conditions, to
refrain from seeking transactions with third parties during the period from May
26, 1995 through June 26, 1995. The termination of AWS' no shop obligation was
subsequently extended until June 30, 1995. In addition, Heartland lent $1.8
million to AWS on May 26, 1995, which loan bears interest at the prime rate plus
two percent and is secured by a first lien security interest in and to the
wireless cable channel rights of AWS in the Dallas, Texas wireless cable market.
Negotiations regarding the possible transaction between Heartland and AWS
continued through June, July and August, 1995. AWS determined to reject an offer
to purchase assets of AWS for cash or Heartland Common Stock when the parties'
respective tax counsel advised that the transaction would be treated as a
taxable asset acquisition followed by a taxable liquidation of AWS, resulting in
two layers of tax on the consideration received by the AWS stockholders.
Further, Heartland advised AWS that it would not agree to proceed with the
purchase of the AWS Common Stock for cash following termination of the
discussions among Heartland, CAI and Bell Atlantic relating to the formation of
the Proposed Venture (which Heartland disclosed would have been the source of
financing the transaction). Accordingly, Heartland and AWS continued
negotiations with Heartland offering to acquire all of the AWS Common Stock for
Heartland Common Stock in a merger. In August 1995, AWS and Heartland entered
into an exclusive negotiating agreement expiring on September 15, 1995.
Heartland and AWS subsequently entered into the AWS Merger Agreement on
September 11, 1995. The AWS Merger Agreement provides that specified amounts
("Exclusivity Fees") are to be periodically offset against the AWS Loan as
additional consideration for a non-solicitation covenant contained in the AWS
Merger Agreement. At a meeting on July 25, 1995, the AWS Board approved the
execution of the AWS Merger Agreement, subject to customary closing conditions,
including the requisite stockholder approval of the AWS Merger by the AWS
stockholders, the accuracy in all material respects of the representations and
warranties of Heartland set forth in the AWS Merger Agreement, the delivery of
certain documents, certificates and legal opinions by Heartland, the absence of
any change in
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the business or affairs of Heartland requiring an amendment or supplement to
this Proxy Statement/Prospectus, and the average closing price of Heartland
Common Stock being not less than $12 per share. At that meeting, the AWS Board
extensively discussed the terms of the AWS Merger and other options available to
AWS. Based primarily on the factors set forth below, the AWS Board approved the
AWS Merger Agreement and the AWS Merger.
RECOMMENDATION OF THE AWS BOARD OF DIRECTORS; REASONS FOR THE AWS MERGER
THE BOARD OF DIRECTORS OF AWS (THE "AWS BOARD") HAS APPROVED AND ADOPTED
THE AWS MERGER AND THE AWS MERGER AGREEMENT AND RECOMMENDS THAT HOLDERS OF AWS
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE AWS MERGER AND THE AWS MERGER
AGREEMENT.
In reaching their determinations, the AWS Board considered the following
factors, among others, all of which supported their determination: (i) the AWS
Merger provides for the issuance of approximately $34 million of Heartland
Common Stock, a value of approximately $5.90 for each share of AWS Common Stock,
a price that represents a substantial premium over the market price of AWS
Common Stock on the date AWS and Heartland entered into the AWS Merger
Agreement; (ii) the Heartland Common Stock to be received by the holders of AWS
Common Stock (other than certain persons deemed to be affiliates of AWS) will be
freely tradeable immediately following the consummation of the AWS Merger,
providing each holder an opportunity either to liquidate or retain the
investment in Heartland Common Stock; (iii) Heartland Common Stock represents an
interest in a wireless cable company that is significantly larger than AWS, has
substantially greater financial resources than AWS, and is better situated than
AWS to fully develop its wireless cable systems; (iv) the Heartland Common Stock
to be received by the holders of AWS Common Stock will be listed on the
Nasdaq-NMS, which will provide such holders greater liquidity and improved
execution relative to trading in AWS Common Stock, and (v) assuming the approval
and consummation of the FTW Agreement and the Minneapolis Agreement, the
issuance of Heartland Common Stock to the FTW Partnership and Minneapolis
Partnership is likely to reduce the potential successor liability of AWS arising
from the prior sale of general partnership interests by a predecessor of AWS
without registration under federal or state securities laws.
The foregoing discussion of the information and factors considered by the
AWS Board is not intended to be exhaustive but is believed to include all
material factors used by the AWS Board in developing its recommendation. The AWS
Board did not quantify or attach any particular weight to the various factors
that it considered in reaching its determination that the AWS Merger is in the
best interests of its stockholders.
OPINION OF AWS ADVISOR
On March 27, 1995, AWS retained Daniels & Associates, L.P. ("Daniels") to
act as a representative of AWS in identifying and soliciting potential
purchasers of AWS's assets or equity interests. AWS selected Daniels as its
financial advisor because of its experience in analyzing and evaluating
companies in the wireless cable television industry. On July 20, 1995, the
engagement agreement between Daniels and AWS was amended to engage Daniels to
render an opinion to the AWS Board as to the fairness to the AWS stockholders,
from a financial point of view, of the AWS Merger, based on the consideration
negotiated by Heartland and AWS. No limitations have been imposed by the AWS
Board upon Daniels regarding the investigation to be made or the procedures to
be followed by Daniels in fulfilling its review of the AWS Merger.
THE FULL TEXT OF DANIELS' OPINION CONCERNING THE AWS MERGER IS ATTACHED AS
APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. DANIELS' OPINION SETS FORTH A DESCRIPTION OF THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. HOLDERS OF AWS COMMON
STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY, PARTICULARLY WITH REGARD TO
THE ASSUMPTIONS MADE AND MATTERS CONSIDERED BY DANIELS. DANIELS' OPINION DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY AWS STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD
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VOTE AT THE AWS MEETING. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In rendering its opinion, Daniels, among other things, (i) reviewed the
Registration Statement, including the Proxy Statement/Prospectus; (ii) reviewed
AWS's annual reports and related financial information for the four fiscal years
ended December 31, 1994, and the most recently available unaudited financial
information as well as certain budgets and projections, all as prepared by
management of AWS; and reviewed Heartland's annual report for the fiscal year
ended December 31, 1994, and the most recently available unaudited financial
information as prepared by management of Heartland; (iii) reviewed various other
filings with the SEC made by AWS in the past year; (iv) reviewed certain
information relating to the business, earnings, cash flow, assets, and prospects
of AWS and Heartland provided by AWS and Heartland; (v) conducted discussions
with members of senior management of AWS regarding the business and prospects of
AWS; (vi) reviewed minutes of meetings of the AWS Board which took place in the
past year, including all meetings at which the AWS Merger was discussed; (vii)
compared financial and license positions of AWS with those of certain other
companies in the wireless communications industry; (viii) compared the proposed
financial terms of the AWS Merger contemplated by the AWS Merger Agreement with
certain terms of other mergers and acquisitions which Daniels deems to be
relevant; (ix) reviewed a copy of the AWS Merger Agreement, as well as the
Escrow Agreement; and (x) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
Daniels deemed necessary for purposes of its opinion.
Daniels is a leading investment banking and brokerage firm specializing in
communications businesses. Daniels is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, private placements, and valuations
for corporate, estate and other purposes. On the basis of the expertise and
experience of Daniels in the communications industry, AWS selected Daniels to
analyze whether the consideration negotiated by Heartland and AWS in connection
with the AWS Merger is fair from a financial point of view to the AWS
stockholders.
Pursuant to an engagement letter dated March 27, 1995, between Daniels and
AWS, AWS agreed to pay Daniels a fee of 1.5% of the sales price of any assets
brokered by Daniels. AWS also agreed to reimburse Daniels for expenses
reasonably incurred by Daniels (including fees and expenses of legal counsel).
Such engagement agreement was amended to require AWS to pay Daniels 1.5% of the
merger consideration ($525,000) at the closing of the AWS Merger. As part of the
amended engagement letter, AWS and Daniels also entered into an indemnification
agreement providing for the indemnification of Daniels and its members,
employees, agents, affiliates and controlling persons against certain expenses
and liabilities in connection with its services.
AWS also retained Daniels in June 1992 to assist the FTW Venture in
securing debt financing to develop the Fort Worth System. This engagement was
terminated in December 1992. No debt financing was arranged and AWS paid no fees
or expenses in connection with such engagement.
TERMS OF AWS MERGER AGREEMENT
The AWS Merger. On September 11, 1995, Heartland, AWS Merger Sub and AWS
executed the AWS Merger Agreement. Subject to the terms of the AWS Merger
Agreement, at the AWS Effective Time (as hereinafter defined), (i) AWS Merger
Sub will merge with and into AWS, (ii) the separate existence of AWS Merger Sub
will cease, (iii) AWS will be the surviving corporation in the AWS Merger (the
"AWS Surviving Corporation"), and (iv) the internal corporate affairs of the AWS
Surviving Corporation will continue to be governed by the laws of the State of
Delaware.
Certificate of Incorporation and Bylaws. The AWS Merger Agreement provides
that the Certificate of Incorporation and Bylaws of the AWS Merger Sub as in
effect immediately prior to the AWS Effective Time will become the Certificate
of Incorporation and Bylaws of the AWS Surviving Corporation.
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Directors and Officers. The directors and officers of the AWS Merger Sub
(certain of the directors and executive officers of Heartland) at the AWS
Effective Time will become the directors and officers of the AWS Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal.
Conversion of AWS Common Stock in the AWS Merger. At the AWS Effective
Time, all of the issued and outstanding shares of AWS Common Stock will be
converted into the right to receive (a) upon the AWS Effective Time, a
proportionate number of newly issued publicly tradeable shares of Heartland
Common Stock having an aggregate exchange value of approximately $30.75 million
(subject to increase to $31.25 million upon the resolution of certain claims
prior to closing), rounded up to the nearest whole share (the "Initial AWS
Distribution"), and (b) upon the expiration of the AWS Escrow Period (as
hereinafter defined), shares of Heartland Common Stock having an aggregate
exchange value of up to $3.25 million (subject to reduction to $2.75 million
upon the resolution of certain claims against AWS prior to closing), as reduced
by the amount of the rounding of any fractional shares in connection with the
Initial AWS Distribution (the "Contingent AWS Distribution"). As a result of the
AWS Merger Agreement, each share of AWS Common Stock will be converted into the
right to receive (i) upon the Initial AWS Distribution, shares of Heartland
Common Stock having an exchange value of approximately $5.34 per share (subject
to reduction upon the exercise of any options or warrants prior to the AWS
Effective Time for cash, as opposed to "cashless" exercise of options or
warrants (see discussion below)), and (ii) upon the Contingent AWS Distribution
(subject to reduction in connection with claims for indemnification made by
Heartland against such shares), if any, shares of Heartland Common Stock having
an exchange value of up to approximately $0.56 per share. The exchange value of
the Heartland Common Stock to be issued in the AWS Merger will be equal to the
average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS over the ten-trading-day period ending on the fifth business day
preceding the consummation of the AWS Merger (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996); provided however that if such
average is less than $20 or more than $26 per share, then the number of shares
of Heartland Common Stock to be issued in the AWS Merger will be based upon an
exchange value of $20 or $26 per share, as applicable. IN THE EVENT THAT THE
AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE
NASDAQ-NMS OVER THE SEVEN TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996
(REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION
PERIOD) IS GREATER THAN $34 OR LESS THAN $23, AWS STOCKHOLDERS WILL BE PROVIDED
WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE AWS STOCKHOLDERS
WHO WISH TO DO SO TO CHANGE THEIR VOTE.
The number of shares of Heartland Common Stock into which each share of AWS
Common Stock will be converted at the AWS Effective Time is based upon the
number of shares of AWS Common Stock deemed to be outstanding at the AWS
Effective Time. Pursuant to the AWS Merger Agreement, a portion of the shares of
AWS Common Stock subject to warrants and options with exercise prices less than
the exchange value per share of AWS Common Stock (collectively, such options and
warrants are referred to as "Value Options") will be deemed to be outstanding if
such Value Options remain unexercised at the AWS Effective Time. Because the AWS
Merger consideration is based upon a fixed amount ($34 million), the exercise of
any warrants or options prior to the AWS Effective Time will reduce the merger
consideration (or exchange value) per share of AWS Common Stock to be received
by each AWS stockholder. The estimated amount of the per share distributions set
forth above assumes that the Value Options remain unexercised at the AWS
Effective Time. The number of shares of AWS Common Stock deemed outstanding at
the AWS Effective Time attributable to unexercised Value Options will be
determined based upon a formula which calculates the number of shares of AWS
Common Stock that would be issued in a "cashless" exercise, meaning that a
portion of the option or warrant value is used as consideration for the exercise
of the option or warrant, resulting in the issuance of a number of shares of AWS
Common Stock upon the exercise of a Value Option net of the share consideration
deemed to have been paid in connection with such exercise. Currently, Value
Options to acquire 138,658 shares of AWS Common Stock exercisable at $3.75 per
share are outstanding, resulting in an additional 51,416 shares of AWS Common
Stock being deemed outstanding for purposes of the AWS Merger Agreement. If all
outstanding Value Options are exercised in full for cash prior to the AWS
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Effective Time, then (a) an additional 138,658 shares of AWS Common Stock will
be outstanding at the AWS Effective Time; (b) AWS will receive approximately
$519,968 in cash proceeds upon the exercise of such Value Options, and (c) at
the AWS Effective Time each share of AWS Common Stock will be converted into the
right to receive (i) upon the Initial AWS Distribution, shares of Heartland
Common Stock having an exchange value of approximately $5.26 per share, and (ii)
upon the Contingent AWS Distribution (subject to reduction in connection with
claims for indemnification made by Heartland against such shares), shares of
Heartland Common Stock having an exchange value of up to $.56 per share. AWS is
negotiating to pay cash to holders of such Value Options in exchange for the
cancellation thereof. If AWS is successful and each such Value Option is
terminated, each share of AWS Common Stock will be converted at the AWS
Effective Time into the right to receive (i) upon the Initial AWS Distribution,
shares of Heartland Common Stock having an exchange value of approximately $5.39
per share and (ii) upon the Contingent AWS Distribution (subject to reduction in
connection with claims for indemnification made by Heartland against such
shares), shares of Heartland Common Stock having an exchange value of up to $.57
per share.
Fractional Shares. No fractional shares of Heartland Common Stock will be
issued in the AWS Merger. In the Initial AWS Distribution to the holders of the
AWS Common Stock, fractional shares of Heartland Common Stock will be rounded up
to the nearest whole share. In the Contingent AWS Distribution (following the
termination of the AWS Escrow Agreement (as hereinafter defined)) to the former
holders of AWS Common Stock, Heartland will repurchase from the escrow any
fractional shares to be distributed to the former AWS Stockholders based upon
the exchange value for the Heartland Common Stock, and the cash proceeds thereof
will be distributed with any whole shares of Heartland Common Stock to the AWS
stockholders upon the liquidation of such escrow in connection with the
Contingent AWS Distribution.
Indemnity Escrow; Contingent AWS Distribution. At the closing of the AWS
Merger, the shares of Heartland Common Stock representing the Contingent AWS
Distribution will be held in escrow by Harris Trust Company of New York
("Exchange Agent") pursuant to the terms of an escrow agreement ("AWS Escrow
Agreement") for a period of approximately one year ("AWS Escrow Period"). The
AWS Escrow Agreement is attached hereto as Appendix B and is incorporated herein
by reference, and is to be attached as an exhibit to and form a part of the AWS
Exchange Agreement described below. Pursuant to the terms of the AWS Escrow
Agreement, Heartland will have the right to submit claims for indemnification to
the Exchange Agent and, following a claims procedure, recover all or a portion
of the Contingent AWS Distribution or proceeds thereof for any claims for which
indemnity is proper pursuant to the terms of the AWS Merger Agreement. Pursuant
to the AWS Escrow Agreement, Heartland is entitled to indemnification from the
escrow fund (a) for all of the damages arising from certain claims (including
liabilities of AWS determined in accordance with generally accepted accounting
principles and certain other liabilities in excess of $3.15 million subject to
adjustment), and (b) for one-half of the damages arising from other claims. The
indemnification obligations of AWS to Heartland will be limited to and satisfied
solely from the Contingent AWS Distribution. Pursuant to the terms of the AWS
Merger Agreement, if certain litigation pending against AWS is dismissed prior
to the consummation of the AWS Merger, the exchange value of the shares of
Heartland Common Stock (a) to be distributed as a part of the Initial AWS
Distribution will be increased from $30.75 million to $31.25 million, and (b) to
be held in escrow and distributed as part of the Contingent AWS Distribution
will be reduced from $3.25 million to $2.75 million. Pursuant to the terms of
the AWS Escrow Agreement, certain fees and expenses of the escrow will be paid
from the proceeds of the shares held in escrow representing the Contingent AWS
Distribution. Generally, the resolution of claims for indemnity will be decided
in accordance with the alternative dispute resolution procedures set forth in
the AWS Escrow Agreement. Daniel A. Cartwright, the Chief Financial Officer of
AWS, will serve as the representative of the former AWS Stockholders for
purposes of administering claims under the AWS Escrow Agreement, and will be
compensated $10,000 quarterly for such services from the escrow fund.
AWS Loan. Heartland has previously loaned to AWS the principal sum of $1.8
million (the "AWS Loan"). The AWS Loan is secured by a first lien on the
wireless cable channel assets of AWS in the Dallas, Texas market. Upon
consummation of the AWS Merger, the AWS Loan will remain in place as an
intercompany obligation from AWS to Heartland. The AWS Merger Agreement provides
that specified amounts ("Exclusivity Fees") are to be periodically offset
against the AWS Loan as additional consideration
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for the non-solicitation covenant contained in the AWS Merger Agreement. The AWS
Merger Agreement and documents relating to the AWS Loan further provide that (a)
if the AWS Merger Agreement is terminated as a result of a competing proposal to
acquire AWS or its material assets, then the aggregate amount of all previously
offset Exclusivity Fees will be added back to the AWS Loan and the AWS Loan will
be immediately due and payable; (b) if the AWS Merger Agreement is terminated
arising from specified events (generally arising from the conduct or past
conduct of AWS or its predecessors), then the aggregate amount of all previously
offset Exclusivity Fees will be added back to the AWS Loan and the AWS Loan will
be repaid in accordance with its terms; (c) if Heartland fails to consummate the
AWS Merger after all of the conditions precedent to its obligations to
consummate the AWS Merger Agreement have been satisfied or waived, then the
remaining balance of the AWS Loan will be forfeited by Heartland as liquidated
damages; and (d) upon any other termination under the AWS Merger Agreement, the
AWS Loan (reduced by any previously offset Exclusivity Fees) will be repaid to
Heartland within one year following the date of termination of the AWS Merger
Agreement. Upon consummation of the AWS Merger, the AWS Loan (plus any
previously offset Exclusivity Fees) is to remain in place as an intercompany
obligation of Heartland.
STOCK OPTIONS; WARRANTS
At the AWS Effective Time, no options or warrant agreements allowing the
holder to exercise rights thereunder to receive shares of AWS Common Stock after
the closing of the AWS Merger Agreement may exist. These options and warrants
also entitle the holders to certain demand registration rights. As of December
31, 1995, options and warrants to purchase approximately 713,230 shares of AWS
Common Stock were outstanding that would convert by their terms into the right
to purchase shares of Heartland 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.
EFFECTIVE TIME
Promptly following receipt of all required governmental approvals and
satisfaction or waiver (where permissible) of the other conditions to the AWS
Merger, the AWS Merger will be consummated and will become effective at the time
at which the certificate of merger to be filed pursuant to the Delaware General
Corporation Law ("DGCL") is accepted for filing by the Secretary of State of the
State of Delaware or such later date and time as may be specified in the
certificate of merger (the "AWS Effective Time"). See "The AWS
Merger -- Conditions." It is currently anticipated that if all conditions under
the AWS Merger Agreement have been satisfied or waived, where permissible,
including the approval and adoption of the AWS Merger Agreement by the
stockholders of AWS and Heartland, the AWS Effective Time will occur on or after
the later of the AWS Special Meeting or the Heartland Special Meeting.
EXCHANGE OF CERTIFICATES
Harris Trust Company of New York has been selected to act as the Exchange
Agent (the "Exchange Agent") pursuant to the terms of the Exchange Agent
Agreement ("AWS Exchange Agreement") among Heartland and the Exchange Agent (to
be executed immediately prior to the AWS Effective Time), for the purpose of
effectuating the delivery of the shares of Heartland Common Stock (or proceeds
thereof) to be issued in the AWS Merger. Promptly after the AWS Effective Time,
Heartland will cause the Exchange Agent to send to each holder of AWS Common
Stock at the AWS Effective Time a letter of transmittal ("Letter of
Transmittal") advising such holders of the terms of the exchange of AWS Common
Stock certificates in exchange for the consideration provided for in the AWS
Merger Agreement. STOCKHOLDERS OF AWS ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND
INSTRUCTIONS FROM THE EXCHANGE AGENT. ELECTIONS BY AWS STOCKHOLDERS MADE IN THE
LETTER OF TRANSMITTAL WILL BE IRREVOCABLE.
At and after the AWS Effective Time and until surrendered as provided
above, each certificate for AWS Common Stock ("AWS Certificate") will be deemed
to represent the right to receive (i) certificates representing that number of
whole shares of Heartland Common Stock issuable in connection with the Initial
AWS Distribution into which the shares of AWS Common Stock formerly represented
by an AWS
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Certificate were converted in the AWS Merger, (ii) certificates representing
that number of whole shares of Heartland Common Stock issuable in connection
with the Contingent AWS Distribution into which the shares of AWS Common Stock
formerly represented by an AWS Certificate were converted in the AWS Merger, and
(iii) a cash payment in lieu of any fractional shares (based upon the exchange
value of the Heartland Common Stock). THE HOLDERS OF AWS CERTIFICATES WILL NOT
BE ENTITLED TO RECEIVE DIVIDENDS OR ANY OTHER DISTRIBUTIONS FROM HEARTLAND UNTIL
SUCH CERTIFICATES ARE SO SURRENDERED. Upon the surrender of an AWS Certificate,
the person in whose name such shares of Heartland Common Stock are issued will
be entitled to receive any dividends or other distributions which have a record
date after the AWS Effective Time and which become payable prior to surrender
with respect to such shares of Heartland Common Stock. After such surrender, the
person in whose name the shares of Heartland Common Stock are issued will be
entitled to receive any dividends or other distributions on such shares which
have a record date after the AWS Effective Time and prior to such surrender and
a payment date after such surrender, and such payment will be made on the
payment date. 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 check or any certificate representing shares of Heartland Common
Stock is to be issued to any person other than the registered holder of the
shares of AWS Common Stock represented by the certificate or certificates
surrendered in exchange therefor, it will be a condition to such issuance that
the certificate or certificates so surrendered be properly endorsed and
otherwise be in proper form for transfer and that the person requesting such
exchange pay any transfer or other taxes required by reason of such issuance, or
establish to the satisfaction of the Exchange Agent or Heartland that such taxes
have been paid or are not payable.
After the AWS Effective Time, there will be no further registration of
transfers of shares of AWS Common Stock. If, at the AWS Effective Time, an AWS
Certificate is presented for transfer, such certificate will be cancelled and
exchanged for certificates representing the number of whole shares of Heartland
Common Stock, to be issued in connection with the Initial AWS Distribution, and
the right to receive a pro rata portion of the Contingent AWS Distribution, if
any, pursuant to the terms of the AWS Merger Agreement.
Any certificates for shares of Heartland Common Stock deposited with the
Exchange Agent for distribution in connection with the Initial AWS Distribution
with respect to the formerly outstanding shares of AWS Common Stock that remain
unclaimed for three months after the AWS Effective Time will be delivered to
Heartland upon demand and those holders of AWS Certificates who have not
surrendered their AWS Certificates shall look only to Heartland or the AWS
Surviving Corporation for redemption and payment with respect thereto. After
such time, holders of AWS Certificates may submit such certificates to Heartland
at 903 N. Bowser, Suite 140, Richardson, Texas 75081, attention: Chief Financial
Officer.
REPRESENTATIONS AND WARRANTIES
The AWS Merger Agreement contains various representations and warranties of
the parties thereto. Generally, the representations and warranties of AWS relate
to (i) the corporate organization and standing of AWS and its subsidiaries, (ii)
the capitalization of and rights to acquire securities of or interests in AWS
and its subsidiaries, (iii) the authority and enforceability of the AWS Merger
Agreement and the non-contravention of the AWS Merger Agreement with any
agreement, law or charter document of AWS, (iv) the financial statements of AWS
and absence of undisclosed liabilities, (v) tax matters, (vi) the assets,
liabilities and operations of AWS and its subsidiaries, (vii) regulatory matters
and compliance with laws, (viii) agreements or contracts with third parties and
affiliates, (ix) consents or approvals required in connection with the AWS
Merger Agreement, (x) employee matters, (xi) disclosures regarding pending and
threatened litigation, and (xii) the accuracy of information provided by AWS for
inclusion in this Proxy Statement/Prospectus and the Registration Statement.
Generally, the representations and warranties of Heartland and AWS Merger
Sub relate to (i) their respective corporate organization and standing, (ii) the
authority and enforceability of the AWS Merger Agreement and the
non-contravention of the AWS Merger Agreement with any charter documents, (iii)
the
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absence of pending or threatened litigation, (iv) consents or approvals required
in connection with the AWS Merger Agreement, (v) capitalization, (vi) the
accuracy of Heartland's financial statements and securities filings, and (vii)
the accuracy of the information provided by Heartland or AWS Merger Sub for
inclusion in the Proxy Statement/Prospectus and the Registration Statement.
COVENANTS AND OBLIGATIONS
Covenants Pending the Earlier of the AWS Effective Time and the Abandonment
or Termination of the AWS Merger. The AWS Merger Agreement sets forth certain
obligations of AWS pending the earlier of the AWS Effective Time and the
abandonment or termination of the AWS Merger. See "The AWS Merger --
Termination." AWS has agreed that it will, and will cause its subsidiary to, do
the following, among other things: (i) give Heartland prior written notice
before engaging in any practice or taking any action other than in the ordinary
course of business, (ii) use reasonable efforts to keep its business,
properties, and business relationships substantially intact, (iii) pay and
perform all of its debts and liabilities except to the extent being contested in
good faith or as to which adequate liabilities have been accrued and recorded,
(iv) perform its material obligations under FCC authorizations and material
agreements, (v) comply in all material respects with governmental rules, (vi)
not take any action that would cause or constitute a material breach of the AWS
Merger Agreement, (vii) use reasonable efforts to preserve, protect and maintain
its rights and interests in its channel leases, FCC licenses, and material
agreements, (viii) not amend or terminate any channel lease, FCC license,
permit, application or material agreement without prior notice to Heartland,
(ix) not repurchase, declare or pay any dividends, or make any other
distributions, or issue or sell any shares of capital stock, or options or
warrants with respect thereto, (x) not sell, lease or transfer any assets except
as provided for in the AWS Merger Agreement or in the ordinary course of
business, (xi) not increase the base compensation of or enter into any new
compensation arrangements with any officers, directors or employees of AWS or
pay any salaries except in the ordinary course of business, other than as
provided for in the AWS Agreement, and (xii) not transfer any interest in any
subsidiary.
Other Agreements. Pursuant to the AWS Merger Agreement, each of AWS and
Heartland is obligated to call a special meeting of its stockholders to consider
and vote upon the adoption and approval of the AWS Merger Agreement and the AWS
Merger. In addition, AWS has agreed to (i) use reasonable efforts to obtain all
consents and governmental approvals required in connection with the AWS Merger,
(ii) assist Heartland in obtaining certain estoppel certificates and additional
consents prior to the AWS Effective Time, (iii) obtain estoppel certificates
from each creditor of AWS anticipated to be owed in excess of $50,000 at the AWS
Effective Time certifying the amount owed to such person, (iv) timely file or
cause to be filed all required reports with the FCC, and (v) use reasonable
efforts to cause the holders of its options and warrants to exercise, terminate
or cancel such options or warrants.
NO SOLICITATION
Pursuant to the AWS Merger Agreement, AWS has agreed that, prior to the
consummation of the AWS Merger Agreement, neither it nor any of its officers,
directors, employees, agents, or other representatives will solicit, initiate,
encourage or engage in any discussions or negotiations with any third party
concerning a tender or exchange offer, merger, consolidation or other business
combination involving AWS or any of its subsidiaries, or any proposal to acquire
either (i) a substantial equity interest in AWS or any subsidiary, or (ii) any
material assets of AWS or any subsidiary (an "AWS Acquisition Proposal");
provided, however, that AWS may (x) furnish information to or enter into
negotiations with persons making an unsolicited offer to acquire AWS or a
substantial portion of its assets pursuant to a merger, consolidation, share
exchange or other business combination if the Board of Directors of AWS
determines that such action is required to comply with its fiduciary duty to its
stockholders, (y) comply with Rule 14e-2 promulgated under the Exchange Act, and
(z) solicit and receive offers for the sale of the wireless cable television
system owned by AWS in the Memphis, Tennessee market in accordance with the
terms of the AWS Merger Agreement. AWS has agreed to notify Heartland
immediately of any inquiries or proposals with respect to any such transactions
that are received by, or any such negotiations or discussions that are sought to
be initiated with, AWS or any of its subsidiaries.
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CONDITIONS
The respective obligations of the parties to consummate the AWS Merger are
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) the effectiveness of the Registration Statement which includes
this Proxy Statement/Prospectus filed in connection with the AWS Merger and the
receipt of any required authorizations from state securities agencies, (ii) the
absence of any action or proceeding which is then in effect and has the effect
of prohibiting the AWS Merger or any of the transactions contemplated by the AWS
Merger Agreement or otherwise making the consummation of the AWS Merger or any
of the transactions contemplated thereby illegal, (iii) the sale of the wireless
cable system owned by AWS in the Pittsburgh, Pennsylvania market (which occurred
on September 29, 1995), and (iv) AWS's receipt of a fairness opinion from
Daniels & Associates, L.P., which fairness opinion shall not have been withdrawn
prior to the AWS Effective Time.
The obligation of Heartland to consummate the AWS Merger is also subject to
the satisfaction or waiver (where permissible) of the following conditions: (i)
the requisite approval of the AWS Merger, the FTW Transaction and the
Minneapolis Transaction by the stockholders of Heartland, (ii) the accuracy in
all material respects of the representations and warranties of AWS set forth in
the AWS Merger Agreement, (iii) the delivery of certain documents, certificates
and legal opinions by AWS, (iv) the absence of any material adverse change with
respect to AWS or any subsidiary of AWS, (v) the holders of no more than 10% of
the outstanding shares of AWS Common Stock immediately prior to the AWS
Effective Time shall have exercised appraisal rights, (vi) the voting trust
agreement, pursuant to which the holders of approximately 37% of the outstanding
shares of AWS Common Stock have agreed to vote in favor of the AWS Merger,
remaining in full force and effect, (vii) Heartland's prior or concurrent
acquisition of the FTW Partnership's interest in the FTW Venture and Minneapolis
Partnership's interest in the Minneapolis LLC, (viii) the receipt of a consent
letter from AWS's accountants, (ix) the performance in all material respects by
AWS of all obligations required to be performed by AWS prior to the closing of
the AWS Merger, (x) the exercise, termination or cancellation of any options or
warrants to purchase shares of AWS Common Stock that will not convert by their
terms into the right to receive shares of Heartland Common Stock, and (xi) the
average closing price per share not being greater than $32.00. See "The FTW
Transaction -- Conditions" and "The Minneapolis Transaction -- Conditions."
The obligation of AWS to consummate the AWS Merger Agreement is subject to
the satisfaction or, where permissible, waiver of the following conditions: (i)
the requisite stockholder approval of the AWS Merger by the stockholders of AWS,
(ii) the accuracy in all material respects of the representations and warranties
of Heartland and AWS Merger Sub set forth in the AWS Merger Agreement, (iii) the
delivery of certain documents, certificates and legal opinions by Heartland and
AWS Merger Sub, (iv) the absence of any change in the business or affairs of
Heartland requiring an amendment or supplement to this Proxy
Statement/Prospectus, and (v) the average closing price per share not being less
than $12.
REGULATORY APPROVALS
In addition to the federal and state filings and approvals required under
applicable securities laws in connection with the effectiveness of the
Registration Statement of which this Proxy Statement/Prospectus forms a part,
the AWS Merger requires regulatory filings with the FCC for the transfer of AWS'
commercial wireless cable television licenses to Heartland.
TERMINATION
The AWS Merger Agreement may be terminated at any time prior to the AWS
Effective Time, before or after the approval of the AWS Merger Agreement by the
stockholders of AWS and Heartland, and by the mutual consent of Heartland, AWS
Merger Sub and AWS. In addition, the AWS Merger Agreement may be terminated by
AWS in the event that the conditions to closing for AWS have not been satisfied
in full or, where permissible, waived on or before February 29, 1996. The AWS
Merger Agreement may be terminated and the AWS Merger may be abandoned by
Heartland or AWS Merger Sub if the closing conditions to their performance have
not been satisfied in full or, where permissible, waived on or before February
29, 1996;
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provided that Heartland shall have the right to terminate the AWS Merger
Agreement within fifteen (15) days of the disclosure by AWS to Heartland of
supplemental information representing a material adverse change from information
previously disclosed to Heartland regarding AWS.
If the AWS Merger Agreement is terminated as the result of an AWS
Acquisition Proposal, then AWS shall pay to Heartland within two (2) days after
such event a fee equal to the sum of $1.8 million and the outstanding principal
and accrued interest under the AWS Loan (together with any Exclusivity Fees
previously offset against the AWS Loan). If Heartland and/or AWS Merger Sub fail
to consummate the AWS Merger after the conditions to their performance have been
satisfied or, where permissible, waived, then AWS shall not be obligated to
repay the AWS Loan and the proceeds thereof shall be retained by AWS as
liquidated damages. If the AWS Merger Agreement is terminated (i) by Heartland
arising from a supplemental adverse disclosure, (ii) by AWS or Heartland as a
result of the failure to obtain any required authorization under federal or
state securities or blue sky laws primarily as a result of past or previous acts
or omissions by AWS or related parties, (iii) by Heartland for the failure of
AWS to provide certain estoppel certificates and consents, (iv) by AWS for the
failure to obtain AWS stockholder approval, (v) by Heartland for the failure of
the representations and warranties of AWS to be true and correct in all material
respects, or (vi) by Heartland as a result of a material adverse change in the
condition of AWS, then all Exclusivity Fees previously offset against the AWS
Loan shall be added back to the principal balance thereof and the AWS Loan shall
be repaid in accordance with its terms with the maturity date being extended
until one year from the date of such termination. If the AWS Merger Agreement is
terminated for any other reason, then the AWS Loan (as reduced by any
Exclusivity Fees previously offset against the AWS Loan) shall be repaid in
accordance with its terms.
RESALES; AFFILIATES
The shares of Heartland Common Stock to be issued to the AWS stockholders
in connection with the AWS Merger will be freely tradeable under the Securities
Act, except for shares of Heartland Common Stock issued to any person deemed to
be an affiliate of AWS for purposes of Rule 145 under the Securities Act at the
time of the AWS Meeting ("AWS Affiliates"). AWS Affiliates may not resell the
shares of Heartland Common Stock acquired in connection with the AWS Merger
except pursuant to an effective registration statement under the Securities Act
covering such shares, or compliance with Rule 144 or Rule 145 promulgated under
the Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Pursuant to the AWS Merger Agreement, AWS
has agreed, prior to the AWS Effective Time, to deliver to Heartland a letter
identifying all persons who at the time of the AWS Meeting may be deemed to be
AWS Affiliates.
ACCOUNTING TREATMENT
The AWS Merger will be accounted for by Heartland under the "purchase
method" of accounting in accordance with generally accepted accounting
principles. Accordingly, the aggregate consideration paid by Heartland in
connection with the AWS Merger will be allocated to AWS's assets based upon
their fair values, and the results of operations of AWS will be included in the
results of operations of Heartland only for periods subsequent to the AWS
Effective Time.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences of the AWS Merger, but does not purport to be a complete analysis
of all the potential tax effects of the AWS Merger. The discussion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change at any time by legislative,
judicial, or administrative action, and any such change may be applied
retroactively. No information is provided herein with respect to foreign, state
or local tax laws or estate and gift tax considerations.
The AWS Merger will not be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. Instead, it
will be treated as a fully taxable exchange in which shares
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of AWS Common Stock are exchanged for shares of Heartland Common Stock (the
"Exchange"). Each holder of AWS Common Stock will be treated as if that holder
sold such stock in exchange for Heartland Common Stock. As a result, each holder
of AWS Common Stock will recognize taxable gain or loss on the Exchange.
Moreover, any recognized gain from the Exchange may not be reported under the
installment method of accounting because the AWS Common Stock is publicly traded
on an established securities market, and the use of the installment method of
accounting is prohibited in connection with sales of stock or securities that
are traded on an established securities market.
In general, upon the sale of an asset, the seller will recognize gain or
loss in an amount equal to the difference between the seller's Amount Realized
and the seller's tax basis in the asset sold. The "Amount Realized" is cash plus
the fair market value of property other than cash received by the seller. The
consideration receivable in the Exchange by each holder of AWS Common Stock is
comprised of the Initial AWS Distribution and the Contingent AWS Distribution.
The fair market value of the Initial AWS Distribution will be the market price
of a share of the Heartland Common Stock at the AWS Effective Time multiplied by
the number of shares of Heartland Common Stock included in the Initial AWS
Distribution. Based upon the provisions of the AWS Escrow Agreement governing
the Contingent AWS Distribution, the IRS would more likely than not assert that
the fair market value of the Contingent AWS Distribution is also equal to the
market price of a share of Heartland Common Stock multiplied by the number of
shares of Heartland Common Stock included in the Contingent AWS Distribution
because the shares of Heartland Common Stock included in the Contingent AWS
Distribution would be considered constructively issued to the holders of the AWS
Common Stock at the AWS Effective Time. The AWS Escrow Agreement effectively
provides the holders of AWS Common Stock with the dividends and voting rights
associated with the Heartland Common Stock comprising the Contingent AWS
Distribution, which are considered significant attributes of stock ownership.
The holders of AWS Common Stock therefore would likely have beneficial ownership
of the Heartland Common Stock comprising the Contingent AWS Distribution.
Consequently, even though the Contingent AWS Distribution is not immediately
receivable, the IRS would more likely than not assert that the Contingent AWS
Distribution is constructively issued at the AWS Effective Time. Thus, an AWS
Common Stock holder would have to treat the entire amount of the Heartland
Common Stock potentially receivable in the Exchange, including the Contingent
AWS Distribution, as an Amount Realized at the AWS Effective Time. If the
Contingent AWS Distribution is reduced or not made, an AWS Common Stock holder
would have a loss in an amount equal to the Heartland Common Stock not received
multiplied by the fair market value of such Heartland Common Stock at the AWS
Effective Time.
Another possible characterization, however, is that the Contingent AWS
Distribution would not be considered constructively issued to a holder of AWS
Common Stock at the AWS Effective Time. In that instance, the Exchange could
either be treated as an "open" transaction, in which case no valuation of the
Contingent AWS Distribution would be required for holders on the cash method of
accounting, or it could be treated as a "closed" transaction and the value of
each holder's rights in the Contingent AWS Distribution would have to be valued.
"Open" transaction reporting, however, is appropriate only in rare and
extraordinary cases involving sales for a contingent payment obligation in which
the fair market value of the obligation cannot be reasonably ascertained. As
such, transactions reported as "open" often receive greater scrutiny from taxing
authorities. AWS stockholders should consult with their tax advisors before
reporting the Exchange as an "open" transaction.
If the transaction was treated as "open" because the Contingent AWS
Distribution was not considered constructively issued at the AWS Effective Time,
any AWS stockholders on the cash method of accounting would treat the value of
the Initial AWS Distribution as a recovery of the tax basis of their AWS Common
Stock. If the value of the Initial AWS Distribution is less than such basis, no
loss would be recognized at that time. If the value of the Initial AWS
Distribution is in excess of such tax basis, gain would be recognized in an
amount equal to such excess. To the extent that any of the Contingent AWS
Distribution was actually received, it would be treated as a further recovery of
basis. If the value of the Initial AWS Distribution and the value of the
Contingent AWS Distribution remains less than the tax basis of the AWS Common
Stock, a loss would be recognized on the termination date of the AWS Escrow
Agreement. If the value of the Initial AWS Distribution and the value of the
Contingent AWS Distribution exceeds the tax basis of the AWS Common
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Stock, gain would be recognized on the termination date of the AWS Escrow
Agreement in an amount equal to such excess less the gain previously reported at
the AWS Effective Time. The value of the Contingent AWS Distribution would be
calculated on the termination date of the AWS Escrow Agreement and not at the
AWS Effective Time.
If the Contingent AWS Distribution were not treated as constructively
issued at the AWS Effective Time and if the transaction were treated as
"closed," any AWS stockholder on the cash method of accounting would have to
calculate the fair market value of such holder's rights to the AWS Contingent
Distribution. Such value plus the fair market value of the Initial AWS
Distribution would be the "Amount Realized" at the AWS Effective Time for
purposes of calculating gain or loss as discussed above. Any additional value
received by a holder on the termination of the AWS Escrow Agreement would not be
treated as gain, however, because, if the transaction were treated as closed at
the AWS Effective Time, the Contingent AWS Distribution would not be received in
connection with the sale or exchange. Thus, the additional value would be
treated as ordinary income by such holder.
If the Contingent AWS Distribution was treated as not constructively
received at the AWS Effective Time, any AWS stockholder on the accrual method of
accounting would calculate gain or loss in a manner similar to the "closed"
transaction method discussed above.
The character of any gain or loss recognized by a holder of AWS Common
Stock upon the Exchange will depend on an AWS Common Stock holder's individual
circumstances. If the AWS Common Stock to be surrendered in the Exchange would
be a capital asset in the hands of the holder, any gain or loss would be treated
as capital gain or loss for that holder. The capital gain or loss would be short
term if the AWS Common Stock had been held for one year or less as of the AWS
Effective Time and long term if the AWS Common Stock had been held for more than
one year as of the AWS Effective Time. Each holder of AWS Common Stock should
consult with the holder's tax advisor regarding whether the holder's AWS Common
Stock is a capital asset and the differences in tax treatment between long term
and short term capital gains and losses. The holders of AWS Common Stock should
also be aware that they will not receive any cash in the Exchange. As a result,
if a holder of AWS Common Stock recognizes taxable gain on the Exchange, that
holder will have to pay the associated taxes out of the holder's own funds.
An issuance by Heartland of its own stock is not a taxable event.
Therefore, Heartland will not recognize any taxable gain or loss on the
Exchange. In addition, AWS and the existing holders of the Heartland Common
Stock will have no federal income tax consequences as a result of the Exchange.
APPRAISAL RIGHTS
Holders of shares of AWS Common Stock are entitled to appraisal rights in
connection with the AWS Merger under Section 262 of the General Corporation Law
of the State of Delaware (the "DGCL"). Under the DGCL, holders of shares of AWS
Common Stock who follow the procedures set forth in Section 262 will be entitled
to have their shares of AWS Common Stock appraised by the Delaware Court of
Chancery and to receive payment of the "fair value" of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the AWS
Merger, together with a fair rate of interest, as determined by such court. Any
stockholder who wishes to exercise appraisal rights, or to preserve his or her
rights to do so, should carefully review the following discussion and the text
of Section 262, which is attached to the Proxy Statement/Prospectus as Appendix
D. Failure to timely and properly comply with the procedures set forth in
Section 262 will result in the loss of appraisal rights under the DGCL.
Under Section 262, when a merger is to be submitted for approval at a
stockholder meeting, not less than 20 days prior to the meeting, a corporation
must notify its stockholders of the availability of appraisal rights and include
in such notice a copy of Section 262. This Proxy Statement/Prospectus
constitutes such notice.
EACH AWS STOCKHOLDER ELECTING TO DEMAND APPRAISAL OF HIS OR HER SHARES OF
AWS COMMON STOCK MUST DELIVER TO AWS A WRITTEN DEMAND FOR APPRAISAL OF SUCH
SHARES BEFORE TAKING OF A VOTE ON THE AWS MERGER. A proxy or vote against the
AWS Merger does not constitute such a demand. This written demand for appraisal
must be in addition to and separate from any proxy or vote concerning the AWS
Merger. In addition, a holder
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of shares of AWS Common Stock wishing to exercise his or her appraisal rights
must hold of record such shares of AWS Common Stock on the date the written
demand for appraisal is made and must continue to hold such shares until the AWS
Effective Time. Lastly, a stockholder wishing to exercise his or her appraisal
rights must not vote in favor of the AWS Merger Agreement. A failure to vote
will satisfy this requirement, but a vote in favor of the AWS Merger Agreement,
by proxy or in person, or the return of a signed proxy that does not specify a
vote against approval of the AWS Merger Agreement, will constitute a waiver of
such stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal. If any holder of shares of AWS Common Stock fails
to comply with any of these conditions and the AWS Merger becomes effective, the
holder of shares of AWS Common Stock will be entitled to receive the
consideration receivable with respect to such shares in accordance with the AWS
Merger Agreement.
Within ten days after the AWS Effective Time, AWS must notify each
stockholder of AWS who has complied with Section 262 and has not voted in favor
of or consented to the AWS Merger.
Only a holder of record of shares of AWS Common Stock is entitled to assert
appraisal rights for the shares of AWS Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as his or her name appears on his or her stock
certificates. The demand must state that the stockholder intends to demand
payment for his shares of AWS Common Stock if the AWS Merger is consummated. If
the AWS Merger Agreement is approved by AWS' stockholders, each stockholder who
has filed an objection complying with the requirements of Section 262 and who
did not vote in favor of the AWS Merger Agreement will be notified in writing of
such approval within ten days following the Effective Time of the AWS Merger. If
the shares of AWS Common Stock are owned of record in a fiduciary capacity, such
as by a trustee, guardian, or custodian, execution of the demand should be made
in that capacity. If the shares of AWS Common Stock are owned of record by more
than one person, as in a joint tenancy or tenants in common, the demand should
be executed by or on behalf of all joint owners. An authorized agent, including
one of joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds shares of
AWS Common Stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the shares of AWS Common Stock held for one or more
beneficial owners while not exercising such rights with respect to the shares of
AWS Common Stock held for other beneficial owners; in such case, the written
demand should set forth the number of shares of AWS Common Stock as to which
appraisal is sought and where no number of shares of AWS Common Stock is
expressly mentioned the demand will be presumed to cover all shares of AWS
Common Stock held in the name of the record owner. Stockholders who hold their
shares of AWS Common Stock in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee. All written demands for appraisal pursuant to Section 262 should
be sent or delivered to AWS at 7426 East Stetson Drive, Suite 220, Scottsdale,
Arizona 85251, Attention: Daniel A. Cartwright.
Within 120 days after the AWS Effective Time, AWS or any stockholder
entitled to appraisal rights under Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares of AWS Common Stock entitled to appraisal. AWS is under no obligation and
has no present intention to file a petition with respect to the appraisal of the
fair market value of the shares of AWS Common Stock. Accordingly, it is the
obligation of the stockholders of AWS to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262. At any
time within 60 days after the Effective Time of the AWS Merger, any holder of
shares of AWS Common Stock who has demanded appraisal has the right to withdraw
the demand and accept the consideration offered pursuant to the AWS Merger
Agreement. Any attempt by a holder of shares of AWS Common Stock to withdraw his
or her appraisal demand more than 60 days after the AWS Effective Time will
require the written approval of AWS.
Within 120 days after the AWS Effective Time, any stockholder of AWS who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from AWS a statement setting forth
the aggregate number of shares of AWS Common Stock not voted in favor of the AWS
Merger and with respect to which demands for appraisal have been received and
the aggregate number
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of holders of such shares. Such statements must be mailed within ten days after
a written request therefor has been received by AWS.
If a petition for an appraisal is timely filed by a holder of shares of AWS
Common Stock and a copy thereof is delivered to AWS, AWS will then be obligated
within 20 days to provide the Court of Chancery with a duly verified list
containing the names and addresses of all stockholders of AWS who have demanded
an appraisal of their shares. After notice to such stockholders, the Court of
Chancery is empowered to conduct a hearing on such petition to determine those
stockholders who have complied with Section 262 and who have become entitled to
appraisal rights under that section. The Court of Chancery may require the
holders of shares of AWS Common Stock who demanded the payment for their shares
to submit their stock certificates to the Register in Chancery for notation
thereon of the pendency of the appraisal proceeding. If any stockholder fails to
comply with such direction, the Court of Chancery may dismiss the proceedings as
to such stockholder.
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Court of Chancery will determine the stockholders entitled to
appraisal rights and will appraise the "fair value" of their shares of AWS
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the AWS Merger, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. Stockholders
considering seeking appraisal should be aware that the fair value of their
shares of AWS Common Stock as determined by Section 262 could be more than, the
same as, or less than the consideration they would receive pursuant to the AWS
Merger if they did not seek appraisal of their shares of AWS Common Stock and
that investment banking opinions as to fairness from a financial point of view
are not necessarily opinions as to the fair value under Section 262. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
are otherwise admissible in court" should be considered in the appraisal
proceedings. In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy. The Court also will determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of AWS Common Stock have been appraised. The cost of the action may be
determined by the Court and allocated to the parties as the Court deems
equitable. The Court also may order that all or a portion of the expenses
incurred by any stockholder in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in appraisal proceedings, be charged pro rata against the value of all
the shares of AWS Common Stock entitled to be appraised.
Any holder of shares of AWS Common Stock who has demanded an appraisal in
compliance with Section 262 will not, after the AWS Effective Time, be entitled
to vote the shares of AWS Common Stock subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those shares
of AWS Common Stock (except dividends or other distributions payable to
stockholders of record at a date prior to the AWS Effective Time).
If any stockholder who demands appraisal of his or her shares of AWS Common
Stock under Section 262 fails to perfect, or effectively withdraws or loses, his
or her rights to appraisal, as provided in the DGCL, the shares of AWS Common
Stock of such stockholder will be converted into the right to receive shares of
Heartland Common Stock pursuant to the AWS Merger Agreement. A stockholder will
fail to perfect, effectively lose or withdraw, his or her rights to appraisal if
no petition for appraisal is filed within 120 days after the Effective Time of
the AWS Merger.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in a loss of such rights (in which event
a stockholder will be entitled to receive shares of Heartland Common Stock in
accordance with the AWS Merger Agreement for each share of AWS Common Stock
owned by him or her).
Heartland may, at its option, decline to consummate the AWS Merger if
holders of an aggregate of more than 10% of the outstanding shares of AWS Common
Stock shall have exercised such appraisal rights, provided, however, that such
holders comply with the appropriate procedures for appraisal rights required by
Delaware law.
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INTERESTED PARTIES
If the AWS Merger is consummated, Heartland intends to terminate all AWS
employees immediately following the AWS Effective Time. Certain executive
officers of AWS, including Steven G. Johnson, Daniel A. Cartwright and Todd J.
Parriott, have employment agreements with AWS, each of which provides for
certain severance payments to be made following a termination. The total amount
of payments to be made by AWS following the termination is approximately
$830,000. Heartland has entered into a non-competition and consulting agreement
with Mr. Johnson, pursuant to which, in lieu of any amounts owed to him as a
result of the termination of his employment, Mr. Johnson will receive payment in
consideration of transactional and other assistance to be provided to Heartland
following the AWS Merger and Mr. Johnson's agreement not to compete with
Heartland or its affiliates for a period of three years following the AWS
Merger. In addition, the executive officers and directors of AWS hold options to
acquire 74,997 shares of AWS Common Stock. See "Terms of AWS the AWS
Merger -- Terms of AWS Merger Agreement -- Conversion of AWS Common Stock in the
AWS Merger." See "Information Concerning Heartland -- Certain Transactions."
VOTING AGREEMENTS
Concurrently with the execution of the AWS Merger Agreement, certain
stockholders of AWS holding approximately 37% of the outstanding shares of AWS
Common Stock placed their shares in a voting trust pursuant to the terms of a
voting trust agreement, pursuant to which such stockholders agreed to vote in
favor of the AWS Merger.
CERTAIN EXPENSES
Pursuant to the provisions of the AWS Merger Agreement, AWS is responsible
for its own expenses, including legal and accounting fees incurred in connection
with the negotiation, execution and delivery of the AWS Merger Agreement and
certain of the expenses to be incurred in connection with the consummation of
the transactions contemplated hereby.
THE FTW TRANSACTION
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT
TO THE FTW AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE FTW AGREEMENT, ATTACHED HERETO AS APPENDIX E, WHICH IS INCORPORATED
HEREIN BY REFERENCE.
BACKGROUND OF THE FTW TRANSACTION
Generally. FTW Partnership and AWS are joint venturers in the FTW Venture,
which owns the wireless cable television assets and provides wireless cable
television service in the metropolitan area of Fort Worth, Texas (the "FTW
System"). FTW Partnership owns a 79.99% equity interest (the "FTW Interest") in
the FTW Venture. The relationship between FTW Partnership and AWS has been
strained due to several factors. First, FTW Partnership and AWS have been unable
to reach a definitive agreement regarding their respective rights and
obligations with respect to the FTW Venture. In particular, FTW Partnership and
AWS have disputed the respective obligations of the parties relative to
obtaining or providing additional equity and debt financing for the FTW System.
Second, FTW Partnership has questioned whether the original offer and sale of
interests in FTW Partnership by American Wireless Systems, Inc., a California
corporation and predecessor to the assets of AWS ("Wireless California"),
constituted the offer and sale of unregistered securities in violation of
federal and state securities laws. In this regard, AWS, Wireless California and
certain of the principals thereof have been the subject of investigations by the
Commission and investigations and actions by various state securities
administrators regarding the prior offer and sale of the general partnership
units of FTW Partnership (the "FTW Units"). Third, FTW Partnership has
maintained that AWS has taken and has failed to take certain actions, which
actions and failures to act might be detrimental to the best interests of the
FTW Venture and FTW Partnership. As a result of these and other factors, the
future prospects of FTW Partnership and the FTW Venture and the ability of FTW
Partnership to obtain financing or the FTW
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Venture to generate positive cash flow so as to be able to provide FTW Partners
with a return on their initial investment have been uncertain.
FTW Partnership was formed as of July 1, 1992, and the first meeting of the
FTW Partners was held in early 1993, at which the initial management committee
of FTW Partnership was elected ("FTW Committee"). Upon their election, the FTW
Committee commenced a review of the facts regarding the formation of FTW
Partnership and FTW Partnership's relationship with AWS. At that time, FTW
Partnership had access to $80,000 of the funds contributed by the FTW Partners
with which to operate, and all of the remaining funds contributed by the FTW
Partners were held and utilized by Wireless California and/or AWS, directly or
on behalf of the FTW Venture.
At the conclusion of their review, the FTW Committee determined that, among
other issues facing the FTW Partnership, the following were and are significant
issues or problems that impact its business and operations, and significantly
affect the alternatives available to the FTW Partners and FTW Partnership:
a. FTW Partnership does not have any cash resources with which to
conduct its business and retain and pay for (on a current basis) the
services of wireless cable specialists, attorneys, accountants, or other
professionals necessary to advise the FTW Committee and FTW Partnership
regarding various matters.
b. AWS and FTW Partnership have never reached agreement regarding
management of the FTW Venture, management of the FTW System, or any aspect
of the parties' relative rights and responsibilities in connection with the
FTW Venture or the FTW System.
c. Third-party financing is not now and has not been available to fund
future growth of the FTW System under the existing facts and circumstances.
d. The channel licenses or the leases of those licenses "owned" by the
FTW Venture are in the name of AWS or an affiliate thereof rather than the
FTW Venture. Certain FCC rules and regulations preclude direct ownership of
the channel licenses by the FTW Partnership as it is constituted because
some of the FTW Units were sold to "foreign" persons or entities. The other
assets and agreements necessary for the FTW Venture to operate are also in
the name of AWS or an affiliate thereof rather than the FTW Venture.
e. The FTW Venture does not have sufficient funds to add additional
subscribers. A net loss of subscribers to the FTW System has occurred and
continues to occur, resulting in larger cash shortfalls. While AWS has
funded the operating shortfall, there is no agreement as to who should bear
the ultimate responsibility therefor nor any agreement or assurance from
AWS as to the amount or length of time it will continue (or be able to
continue) to pay the shortfall.
f. FTW Partnership may be subject to various securities laws and
regulations. Because of that, FTW Partnership may be required to comply
with the reporting and other requirements of those laws and regulations.
FTW Partnership does not have sufficient resources with which to comply
with such requirements.
g. The nature of the entity and certain provisions of the Agreement of
General Partnership of FTW Partnership ("FTW Partnership Agreement") make
it difficult to efficiently transact business and protect the FTW Partners.
The FTW Committee believes that it would be advantageous to reorganize into
an entity more appropriate for carrying on the business of the FTW
Partnership and one that would protect the FTW Partners; however, the FTW
Partnership Agreement indirectly precludes such a reorganization. In this
regard, the FTW Committee has been and remains concerned about the joint
and several liability of the FTW Partners for FTW Partnership and FTW
Venture liabilities and the ability of general partners to bind the FTW
Partnership. In addition, the current FTW Partnership Agreement and form of
doing business, coupled with various securities law issues, adversely
affect the ability of FTW Partnership to efficiently transmit information
to the FTW Partners and have meetings or obtain consents without undue
exposure or risk to FTW Partnership or FTW Committee members. FTW
Partnership cannot reorganize into corporate form without 100% approval of
the FTW Partners. Finally, the FTW Partnership Agreement, securities law
compliance, and management issues make it a practical impossibility, under
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the current facts and circumstances, to reorganize into a limited liability
form (other than a corporation -- i.e., a limited liability company or a
limited partnership) without taking some extraordinary action, such as
bankruptcy. In short, the FTW Committee was and is convinced that the
structure of the FTW Partnership as a general partnership coupled with the
provisions of the FTW Partnership Agreement create a myriad of problems
that are difficult and costly to deal with.
h. The members of the FTW Committee were not selected for their
knowledge of the wireless cable industry or their management experience or
expertise. When elected, the members of the FTW Committee did not represent
that they had, and in fact do not have, any material experience or
expertise in the wireless cable television industry except that which has
been gained as a result of dealing with the FTW Partnership and the issues
referred to herein.
Based on the foregoing, as well as other considerations, the FTW Committee
has sought and considered various alternatives that may be available to FTW
Partnership.
Alternatives Considered. The FTW Committee pursued and considered various
alternatives with a number of professionals, management concerns, and
participants in the wireless cable industry during the past two years. These
discussions resulted in several preliminary offers or proposals and substantive
negotiation of some of the offers. Most of the inquiries and offers were
accompanied by requirements of confidentiality. Because of those requirements,
only the general terms and concepts of the different types of proposals and/or
offers received and alternatives considered may be presented here, followed by a
listing of some of the persons and entities with whom the more material
discussions were held.
Settlement with AWS. FTW Partnership engaged in numerous conversations and
negotiating sessions with AWS in an effort to resolve the existing disputes.
These negotiations culminated in an outline of the general agreement of the
parties, and drafts of documents to implement those terms were prepared and
circulated. The ultimate results of the proposed settlement would have generally
included the infusion of cash in both the FTW Venture and FTW Partnership by
AWS, reorganization of FTW Partnership into a corporate form (through a
bankruptcy action), and definitive agreements with AWS regarding the FTW System
and the assets thereof. In early 1995, the negotiations terminated when AWS
informed FTW Partnership that the funding required by AWS to implement the
proposed settlement would not be available.
Litigation Alternative. The FTW Committee considered filing a lawsuit
against Wireless California, AWS, and certain of their current and former
officers, directors, and related parties. See "The FTW
Transaction -- Description of FTW Claims." This course of action was discussed
with counsel to the FTW Partnership in the context of a contingent fee
arrangement. The FTW Committee considered the risks of this course of action
including the time period involved in pursuing the litigation, the chances of
recovery, the results of a favorable outcome (with consideration that the law
firm would own a significant portion of the recovery), the solvency and/or
liquidity (or lack thereof) of the persons and entities that would be defendants
in the litigation, and the risk that AWS may cease funding the FTW Venture in
the event the litigation was instituted and continued for any period of time. In
light of these risks, and considering the other alternatives available to FTW
Partnership, the FTW Committee determined to postpone pursuit of litigation
against AWS and related parties.
Joint Venture Arrangement With Third Party. Discussions were held with
several entities in connection with a potential joint venture or partnership
arrangement the essential terms of each of which included FTW Partnership
contributing its interest in the FTW System and/or FTW Venture (along with any
and all claims it may have against AWS and related parties) to a new partnership
or joint venture with the new entity. The new entity would contribute cash and
commit to obtain additional financing upon the occurrence of certain events.
Each of these proposals involved the new entity managing the FTW System and
coupled the proposal with litigation and/or settlement with AWS and the
AWS-related parties. Generally, each of these proposals required FTW Partnership
to effectively transfer up to 50% of the FTW Interest to the new entity and/or
subordinate its interest to any new funds contributed, along with giving the new
entity a substantial interest in any increase in value in the assets conveyed by
FTW Partnership above an assumed value (which was, in each case, based on a
deeply discounted liquidation value of the FTW Interest rather than the market
value). Questions regarding ownership of assets (particularly channel licenses),
books and records, and similar issues
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were obvious problems to each potential venturer or partner, causing valuation
discounts because of the perceived risks. In each proposed joint venture
arrangement, the maximum cash infusion offered was $2,000,000. None of the funds
would have been directly available to FTW Partnership except in the form of a
loan. The FTW Committee ultimately concluded that the possible arrangements with
third parties were not economically fair to the FTW Partnership and FTW
Partners.
Sale of All of FTW Partnership's Assets. FTW Partnership engaged in
substantive negotiations for a proposed cash sale of all of its interest in the
FTW System and any and all causes of action it may have against AWS or any of
the parties related thereto. The purchase price was to be $13,500,000 and the
assumption of certain liabilities (subject to a stated maximum) alleged to be
owed by FTW Partnership to AWS or an affiliate. The general terms of the
proposed transaction were considered by the FTW Committee to be favorable to FTW
Partnership; however, various issues arose in connection with the negotiation of
a detailed letter of intent which caused concern to the FTW Committee.
Significantly, the proposed agreement required that 10% of the proposed purchase
price, or $1,350,000, be held in escrow for one (1) year as a fund against which
any alleged breaches of representations, warranties, or covenants could be
charged. The proposed agreement also required a relatively complex mix of
cross-indemnifications with regard to potential actions by and/or against AWS or
related parties, and the parties were not able to reach an acceptable agreement
regarding the concepts of such an indemnification arrangement. Based on the
inability to reach conceptual agreement on these issues and the judgement of the
FTW Committee that (i) the exposure and time period required to deal with both
the indemnification and the "holdback" of funds would increase the costs of the
proposed transaction by a material amount (with estimates of a minimum of
$250,000) and (ii) the risks of the FTW Partners and the FTW Partnership being
involved in litigation (without clear and effective indemnification rights on
the part of FTW Partnership and FTW Partners) were great if the transaction was
completed and the purchaser was not able to reach an agreement with AWS that the
purchaser deemed acceptable (which was not in the control of FTW Partnership),
the FTW Committee elected to forego the proposed sale in favor of the FTW
Transaction being recommended herein.
Raising Funds from FTW Partners or Third Parties. This alternative was
seriously considered by the FTW Committee as a means of giving FTW Partnership
the funds necessary to effectively deal with the various issues facing FTW
Partnership without giving up management and control of FTW Partnership and its
assets. Raising funds in this manner would have provided the FTW Partnership
with sufficient funds to pay its expenses, cover any negative cash flow from
operations of the FTW System, engage professional wireless cable management
familiar with those operations, deal with AWS from a stronger financial
position, and begin to add subscribers (or some combination of those) is an
appealing alternative in some respects; however, there were and are practical
limitations to this alternative. Those limitations include (i) the cost and
effort to comply with applicable securities laws and regulations, including
registration of any securities offered or assuring compliance with applicable
exemptions from such laws and regulations; (ii) the cost of engaging management
and system operations personnel; (iii) the risk involved to any new investor in
FTW Partnership (or the risks of the "new investment" of existing FTW Partners),
given the facts and circumstances existent with regard to the lack of
documentation of the FTW Venture and the potential claims and cross-claims as
among FTW Partnership and AWS and its related parties; (iv) the lack of
management personnel with experience in the wireless cable television industry;
(v) the risk of dealing with the FCC and AWS and/or the lessor of the licenses
in connection with FTW Partnership's control of the FTW Venture and operation of
the FTW System (particularly if the FTW Partnership and AWS were then in an
adversarial relationship); (vi) risks associated with establishing contracts
with programmers and billing systems (again, particularly if FTW Partnership and
AWS were in an adversarial relationship); and (vii) the requirement to modify
the FTW Partnership Agreement to provide reasonable procedures to implement such
a plan and/or modify the form of entity, both of which may require unanimous
approval of the FTW Partners.
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Entities or Persons Contacted by or Contacting FTW Partnership. The
following persons and/or entities either contacted FTW Partnership or were
contacted by it in connection with considering the various alternatives
described above and other matters, as noted:
<TABLE>
<CAPTION>
PERSON OR ENTITY ALTERNATIVE(S) DISCUSSED
- ----------------------------------- ------------------------------------------------
<S> <C>
Laidlaw Holdings, Inc. Brokerage of Assets
CAI Wireless Systems, Inc. Sale of Assets
American Telecasting, Inc. Management of the System; Joint Venture; Sale of
Assets
People's Choice TV Corp. Sale of Entire System; Informal Consultation on
Valuation
James Communication Partners Management of the FTW Venture and System
Hardin and Associates, Inc. Management of the FTW Venture and System
Columbia Capital Joint Venture; Management (with Hardin and
Associates, Inc.)
Liberty South Cable Management of the System
Digital & Wireless, L.L.C. Joint Venture; Management of the FTW and System
(Dee S. Osborne, principal)
Brown Nietert & Kaufman, Chartered Proposal to Act as Consultants/Brokerage for
Gerard Klauer Mattison & Co. Offers for Assets/Financing, Etc.
Spectrum Resources, Ltd.
(all three of foregoing combined
for this proposal)
Transworld Telecommunications, Inc. Sale of Entire System
Penn Group Incorporated Joint Venture Arrangement/Management
Whatley Financial Group, Inc. Proposed Capitalization/Sale of Securities
Eagleview Technologies, Inc. Joint Venture
Ted Holder Sale of Assets
CableMaxx, Inc. Sale of Assets/System
Le Groupe Videotron Itee Sale of Assets/System
Century Merchant Bankers Co., Ltd. Merger into a Public Corporation
OmniVision, Inc. Acquisition of Majority Interest in System;
Management and Capitalization of System
</TABLE>
In addition to the foregoing, other persons and entities were contacted by
or contacted FTW Partnership. None of those additional contacts resulted in any
additional discussions or specific proposals. Entities included in this group
are GTE Southwest and Southwestern Bell Telephone.
In early June of 1995, members of the FTW Committee and their
representatives held preliminary discussions with representatives of Heartland
and AWS regarding Heartland's interest in acquiring the FTW System. After
various meetings and negotiations, Heartland and the FTW Partnership executed a
letter of intent on August 16, 1995 that outlined the proposed terms of
Heartland's acquisition of the FTW Interest and prohibited the solicitation or
negotiation of offers from third parties to acquire the FTW Interest. Upon the
execution of the letter of intent, counsel for FTW Partnership and Heartland
commenced preparing a definitive agreement for the acquisition of the FTW
Interest and, effective October 4, 1995, the FTW Agreement was executed.
RECOMMENDATION OF THE FTW COMMITTEE; REASONS FOR THE FTW TRANSACTION
THE FTW COMMITTEE HAS UNANIMOUSLY RECOMMENDED THE APPROVAL OF THE FTW
TRANSACTIONS BY THE FTW PARTNERS AND THE CONSUMMATION THEREOF BY FTW
PARTNERSHIP.
In reaching its decision, the FTW Committee considered, without assigning
relative weights to each factor, the background and current circumstances of the
FTW Venture and FTW Partnership, future prospects for and indications of value
of the FTW Venture, and alternatives to the FTW Transaction described herein, as
well as the overall fairness of the FTW Transaction. As a result of the
proposals, negotiations, and consultations with the companies listed above, the
FTW Committee has developed a working knowledge of some of the more common
methods used by the companies in and around the wireless cable television
industry in valuing systems and businesses similar to the FTW System. Although
valuation techniques vary,
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some of the more commonly used techniques for markets that are not mature (e.g.,
not a significant penetration of the market in terms of subscribers and not
significant marketing efforts) involve an analysis of the number of
line-of-sight ("LOS") households (i.e., those capable of receiving a wireless
transmission signal) in the particular market and applying varying levels of
discounts/additions depending on the number of channels available, the potential
interference issues, the actual number of subscribers, operating expense
history, type of equipment available, and other similar issues and
considerations. This type of analysis typically results in application of a
value per LOS household to the LOS households in the market, as adjusted by the
factors noted above. By using the information and offers obtained through the
processes described above, the FTW Committee has, therefore, developed a range
of value for the FTW Interest and the FTW System and, with information and
analysis from counsel for FTW Partnership, has developed a belief as to the
value of the assets held by the FTW Partnership, including any claims it may
have against Wireless California, AWS, and certain related parties. The range of
value for the FTW Interest and the FTW System considered by the FTW Committee is
discussed below. See "Range of Value."
In addition to the foregoing, FTW Partnership has reviewed research
released by Alex. Brown & Sons, which is recognized as knowledgeable in the
wireless cable television industry. Finally, FTW Partnership has obtained
confirmation of certain other recent transactions including one which closed in
October 1995 (involving a partnership with a background similar to the FTW
Partnership which owned rights to certain licenses in the Pittsburgh,
Pennsylvania market), as well as the transactions which were announced by
Heartland at the time the proposed FTW Transaction was announced (which
transactions are described herein). The FTW Committee believes that this
information gives it a reasonable basis on which to determine whether or not the
amount paid or to be paid for FTW Partnership's assets in connection with the
proposed FTW Transaction is fair and reasonable under the circumstances.
General Concepts. There are certain facts regarding the FTW System that
have a material bearing on its value. For example, the number of channel
leases/available channels, population in the service area, LOS households in the
service area, number of subscribers, and revenue per subscriber are all used in
various ways and with varying degrees of importance in determining the value of
a system or market. Other issues that have an impact on the valuation are the
percentage of homes in the market that have access to cable television,
"shadowing" and other issues involving the availability of the wireless signal
to the LOS households, the perceived availability of other channels, estimated
costs of adding new subscribers (to the extent those costs may vary in the
particular market as opposed to other markets), interference issues with other
markets and signals, competition for subscribers in the market, and the type and
desirability of the equipment available in the market (such as the FTW System in
which the transmission equipment is in place).
In situations such as the FTW System, it appears that the actual operation
of the system is not as important as the potential in the marketplace, since the
system is not "mature" and the penetration of the market in terms of
subscribers, advertisement, and attempts to gain new subscribers is not
significant.
Specific Market Information. With regard to the FTW System, it appears that
the estimated number of TV households in the Fort Worth, Texas market is
approximately 539,700. Of those, approximately 442,500 are LOS households. The
number of subscribers for the FTW System on or about November 30, 1995 was
approximately 1,550, and the number of wireless cable channels owned by the FTW
System (out of 33 available) was 14 (however, AWS has acquired the rights to 8
additional channels which are not yet co-located with the existing channels).
Service provided to subscribers is 27 channels, including 13 "off-air" channels.
Range of Value. Generally, the wireless cable industry attributes
approximately $1,500 to each subscriber for a particular system, with any
additional value being attributed to the LOS households, adjusted for a factor
for the subscribers already counted (e.g., subtract from the LOS households ten
times the number of subscribers) and less a factor for the number of channels,
which are not available to the system. Using this general method of valuation,
and assuming that the stock to be received as consideration pursuant to the FTW
Agreement is worth $13,300,000 (and further, ascribing no value to the debt
assumed by Heartland as part of the FTW Transactions), it appears that the value
per LOS household being received by FTW Partnership is in the range of $33
(without discount for channel capacity) to $49 (assuming a channel discount
factor of 67%
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[22 of 33 channels available]). When the purchase price is adjusted to include
the assumption of approximately $540,000 in indebtedness (assuming closing
occurs in February, 1996), the value (without discount for channel capacity)
increases to approximately $35 per LOS household. This value compares favorably
with other similar transactions reviewed by the FTW Committee, including those
which are part of Heartland's acquisitions as described in this Proxy
Statement/Prospectus. In addition to reviewing the Heartland acquisitions
described in this Proxy Statement, the FTW Committee has reviewed a transaction
involving a partnership which owned assets/joint venture interest in the
Pittsburgh, Pennsylvania market, which partnership had a background similar to
that of FTW Partnership. A review of those transactions and the offers and
inquiries as noted above (see "Entities or Persons Contacted by or Contacting
FTW Partnership") previously made to the FTW Partnership, indicates that
purchase prices for the markets involved range from approximately $8 to $27 per
LOS household, without discount for channel capacity, and $14 to $43 per LOS
household with certain assumptions regarding a discount for channel capacity.
The foregoing values, when compared to the range of values for the FTW System,
support the FTW Committee's recommendation to approve the FTW Agreement.
Fairness of the FTW Transaction. Based on all of the foregoing, the FTW
Committee believes that the FTW Transaction is fair and reasonable to the FTW
Partnership and the FTW Partners. Because of the all of the contacts made by or
on behalf of the FTW Committee, the issues relating to FTW Partnership, and the
FTW Partners, and considering the costs of obtaining a fairness opinion from a
qualified person, the FTW Committee has determined that it is not necessary or
appropriate to expend those funds. Thus, no third-party fairness opinion will be
obtained in connection with the FTW Transaction.
TERMS OF THE FTW AGREEMENT
Acquisition; Consideration. Effective October 4, 1995, Heartland and FTW
Partnership executed the FTW Agreement. Upon the consummation of and pursuant to
the FTW Agreement, (i) FTW Partnership will assign to Heartland substantially
all of its assets, consisting of the FTW Interest, (ii) FTW Partnership and the
FTW Partners approving the FTW Transaction will either assign (the "FTW Claim
Assignment") to Heartland or release (the "FTW Claim Release") the FTW Claims
(as hereinafter defined), (iii) Heartland will assume up to $570,000 of certain
types of liabilities (including disputed liabilities) of FTW Partnership to AWS,
and (iv) Heartland will issue to FTW Partnership newly issued freely tradeable
shares of Heartland Common Stock ("FTW Shares") having an aggregate exchange
value of $13.3 million. The exchange value for the shares of Heartland Common
Stock to be issued in connection with the FTW Agreement will be equal to the
average closing price of the Heartland Common Stock as quoted on the Nasdaq-NMS
over the ten-trading-day period ending on the fifth business day preceding the
consummation of the FTW Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996); provided that if such average
closing price is in excess of $23 per share, the exchange value shall be $23 per
share. Further, either FTW Partnership or Heartland, at its option, may
terminate the FTW Agreement if such average closing price is below $17 per
share. Heartland currently intends to exercise such right, if applicable. As a
result, a maximum of 782,353 shares of Heartland Common Stock are issuable in
connection with the FTW Agreement. IN THE EVENT THAT THE AVERAGE CLOSING PRICE
OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ-NMS OVER THE SEVEN
TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN
DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34
OR LESS THAN $23, THE FTW PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN
CONSENT TO ENABLE SUCH FTW PARTNERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. The
FTW Agreement also grants to Heartland a right of first refusal with regard to
the FTW Interest.
Mutual Release or Assignment of FTW Claims. FTW Partnership and AWS have
ongoing disagreements as to the respective rights and obligations of AWS on one
hand and FTW Partnership and the FTW Partners on the other. FTW Partnership
believes that the factual background of the relationship between FTW Partnership
and AWS, and certain acts (or omissions) of AWS and its current and former
officers, directors, and related parties, potentially form the basis of certain
causes of action by the FTW Partners and FTW Partnership against AWS and its
current and former officers, directors, and related parties for which FTW
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Partnership could seek recovery of monetary damages. Such causes of action are
referred to herein as the FTW Claims and are further described herein. See "The
FTW Transaction -- Description of FTW Claims." On the other hand, AWS has
asserted that it is owed certain amounts, including management fees, by the FTW
Venture (for which the FTW Partners and FTW Partnership could be liable), which
assertion FTW Partnership disputes. The FTW Agreement provides two alternatives
with respect to the rights and obligations of FTW Partnership and Heartland in
regard to the FTW Claims. As one alternative, Heartland will obtain from AWS and
its current officers, directors, and certain related parties, Wireless
California, AWS Liquidating, L.L.C., Micom Products, Ltd., Jeffrey D. Howes,
Dexter S. Cohen, Kevin C. King and Steven G. Johnson (collectively, the "AWS
Parties") execution and delivery of a mutual release ("FTW Claim Release") in
the form attached hereto as Appendix F, which FTW Claim Release would also be
executed by FTW Partnership. FTW Partners consenting to the FTW Transaction
will, by their consent, become a party to the FTW Claim Release. The FTW Claim
Release will be a mutual release of any and all claims and causes of action that
each AWS Party and FTW Partnership and FTW Partners consenting to the FTW
Transaction may have as to any other party to the release, including, without
limitation, the FTW Claims.
In the event the FTW Claim Release is not executed by such parties, the FTW
Agreement provides that FTW Partnership and FTW Partners approving the FTW
Transaction would assign the FTW Claims (or certain of those claims) to
Heartland at the closing in the form of FTW Claim Assignment attached hereto as
Appendix G ("FTW Claim Assignment"). Through the FTW Claim Assignment, FTW
Partnership and FTW Partners approving the FTW Transaction would assign to
Heartland all of such parties' right, title, and interest in the FTW Claims,
provided however, FTW Partnership would retain an interest in the FTW Claims
from and after the closing which will allow FTW Partnership to assert the FTW
Claims in connection with or as a defense to any action brought by any AWS Party
against FTW Partnership or any FTW Partner. Additionally, through the FTW Claim
Assignment, Heartland would indemnify FTW Partnership and FTW Partners approving
the FTW Transaction from the FTW Claims as set forth in the FTW Claim
Assignment.
FTW Earnest Money; FTW Loan. In connection with the FTW Agreement,
Heartland (a) deposited in escrow $100,000 on October 12, 1995, $55,000 on
November 7, 1995, $55,000 on December 1, 1995, $55,000 on January 5, 1996 and
has agreed to deposit in escrow an additional $55,000 on the first day of each
month thereafter (collectively, "FTW Earnest Money"), and (b) has agreed to loan
to the FTW Partnership up to $500,000 (the "FTW Loan"), $350,000 of which has
been advanced through January 15, 1996. The FTW Loan is secured by a first lien
on the FTW Interest pursuant to a security agreement between Heartland and FTW
Partnership, and the proceeds thereof will be disbursed and utilized in
accordance with a loan agreement ("FTW Loan Agreement"), promissory note ("FTW
Note"), and security agreement each between FTW Partnership and Heartland
(collectively, the "FTW Loan Documents"). As set forth in the FTW Loan
Agreement, the proceeds of the FTW Loan have been or will be used by FTW
Partnership to pay certain outstanding expenses of FTW Partnership, including
legal and accounting fees, and expenses incurred or to be incurred to consummate
the FTW Transaction.
The outstanding principal balance of the FTW Note and all accrued but
unpaid interest thereon are due and payable in full on the first to occur of the
following dates: (i) if the FTW Transaction is consummated in accordance with
the FTW Agreement, then the date of closing thereunder from the proceeds of FTW
Shares to be liquidated pursuant to the FTW Liquidation Plan; (ii) if the FTW
Agreement is terminated by FTW Partnership because of the failure of any
representation or warranty made by the FTW Partnership to be true in all
material respects, or the failure of the FTW Partnership to materially perform
all of its obligations under the FTW Agreement, or if the FTW Agreement is
terminated by any party thereto arising from the failure of the FTW Transaction
to be approved by FTW Partners representing two-thirds ( 2/3) of the FTW Units,
then 90 days after the date of such termination; (iii) if the FTW Agreement is
terminated for reasons not otherwise provided for in the FTW Note, then six
months after the date of such termination; or (iv) if the FTW Agreement is
terminated as a result of a competing acquisition proposal and Heartland does
not exercise its right of first refusal regarding such acquisition proposal in
accordance with the FTW Agreement, then upon such termination.
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DISTRIBUTION OF FTW SHARES
As a part of the approval of the FTW Agreement, the FTW Partners are being
asked to approve and adopt the liquidation and dissolution of FTW Partnership
("FTW Liquidation") in accordance with the terms and conditions of the Agreement
and Plan of Liquidation attached as Appendix H (the "FTW Liquidation Plan"),
pursuant to which the FTW Shares will be distributed. To facilitate the
distribution of the FTW Shares, Harris Trust Company of New York has been
selected to act as an exchange agent (the "Exchange Agent") for the purpose of
effectuating the delivery of the FTW Shares. Pursuant to the terms of the FTW
Agreement and the Exchange Agent Agreement between FTW Partnership, Heartland
and the Exchange Agent ("FTW Exchange Agreement"), Heartland will deliver to the
Exchange Agent the FTW Shares for distribution on behalf of FTW Partnership in
accordance with the terms of the FTW Liquidation Plan. The FTW Committee
anticipates that upon the consummation of the FTW Transaction, FTW Shares having
an aggregate value of approximately $1,350,000 (or approximately $925 per FTW
Unit) ("FTW Liquidated Shares") will be sold by the Exchange Agent on behalf of
FTW Partnership in the open market or as otherwise directed by the FTW Committee
to satisfy the known and contingent claims against FTW Partnership, and FTW
Shares having an aggregate value of approximately $11,950,000 (or approximately
$8,190 per FTW Unit) ("FTW Distributable Shares") will be available for
distribution to the FTW Partners (assuming receipt of stock worth $13.3 million
at closing). The FTW Partnership will sell, as a selling securityholder, that
number of FTW Shares (up to 782,353 shares) necessary to effectuate the FTW
Liquidation Plan. Prior to this reoffer, the FTW Partnership will own a maximum
of 782,353 shares of Heartland Common Stock. Thereafter, and after distributing
the remaining FTW Shares to the FTW Partners, the FTW Partnership expects to own
no shares of Heartland Common Stock. None of the FTW Partnership, nor any member
of the FTW Committee, has any material relationship or affiliation with
Heartland, and none has had any such relationship in the prior three years. The
number of FTW Distributable Shares to be received by each FTW Partner will be
rounded down to the nearest whole share, and any fractional shares will be added
to the FTW Liquidated Shares, with the proceeds thereof to be distributed
pursuant to the FTW Liquidation Plan. Upon the completion of the FTW
Liquidation, any remaining FTW Shares (or proceeds thereof) will be distributed
among the FTW Partners.
REPRESENTATIONS AND WARRANTIES
Generally, the representations and warranties of FTW Partnership relate to
(i) the organization and operations of FTW Partnership, (ii) the absence of
undisclosed rights or liens with respect to the FTW Venture and FTW Interest,
(iii) the authority and enforceability of the FTW Agreement and the non-
contravention of the FTW Agreement with any agreement, law, or organizational
document of FTW Partnership, (iv) the financial statements of FTW Partnership
and absence of undisclosed liabilities, (v) the assets, liabilities and
operations of FTW Partnership and the FTW Venture, (vi) agreements or contracts
with third parties and affiliates, (vii) regulatory matters, and compliance with
laws, (viii) consents and approvals required in connection with the FTW
Agreement, (ix) tax and litigation matters, (x) the FTW Partners and the
required approval for the FTW Transaction and (xi) the accuracy of information
for inclusion in the Proxy Statement/Prospectus and Registration Statement.
Generally, representations and warranties of Heartland relate to (i) its
corporation organization and standing, (ii) the authorization and enforceability
of the FTW Agreement and non-contravention of the FTW Agreement with its charter
documents, (iii) the absence of pending or threatened litigation, (iv) consents
and approvals required in connection with the FTW Agreement, (v) capitalization,
(vi) the accuracy of Heartland's financial statements and securities filings,
and (vii) the accuracy of information to be included in the Proxy
Statement/Prospectus and the Registration Statement.
COVENANTS AND OBLIGATIONS
Covenants pending the consummation or termination of the FTW Agreement. FTW
Partnership has agreed that it will, and will use reasonable efforts to cause
the FTW Venture, to do the following, among other things: (i) not engage in any
practice or take any action other than in the ordinary course of business, (ii)
keep its business, properties and business relationships substantially intact,
(iii) pay and perform its debts and
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liabilities other than liabilities being contested in good faith or as to which
reserves have been established, (iv) not take any action that would constitute a
material breach of the FTW Agreement, (v) use reasonable efforts to preserve,
protect and maintain its rights under various licenses and agreements, (vi) not
amend or terminate any channel lease, FCC license or other agreements, (vii) not
make any distributions to FTW Partnership, AWS or any FTW Partners, or sell or
agree to sell any equity interest or options or rights with respect thereto,
(viii) not lease, transfer or otherwise dispose of any assets, (ix) not increase
the base compensation of, enter into any new compensation arrangement with, or
pay any salaries to any employees except in the ordinary course of business, (x)
not grant or transfer any rights to the FTW Interest or FTW Claims, or (xi) not
take any action that would cause the FTW Transactions to be subject to subpart
900 of Regulation S-K, promulgated under the Securities Act and Exchange Act
("Roll-up Rules").
Other Agreements. FTW Partnership has also agreed to assist Heartland in
obtaining all governmental approvals required in connection with the FTW
Transaction and to file, or use reasonable efforts to cause the FTW Venture to
file, all required reports with the FCC.
NO SOLICITATION
Under the FTW Agreement, FTW Partnership has agreed that neither it nor any
of its executive committee members, officers, managers, employees, agents or
other representatives will solicit, initiate or encourage any discussions or
negotiations with any third party concerning any tender or exchange offer,
merger, consolidation or other business combination involving FTW Partnership or
the FTW Venture or any proposal to acquire any substantial equity interest in,
or substantial portion of the assets of, FTW Partnership or the FTW Venture,
other than the transactions contemplated by the FTW Agreement (collectively "FTW
Acquisition Proposal"); provided, however, that FTW Partnership may furnish
information or enter into discussions with a third party that makes an
unsolicited bona fide offer to acquire FTW Partnership or a substantial portion
of its assets to the extent that the FTW Committee determines that such action
is required to comply with its fiduciary duties to the FTW Partners. FTW
Partnership has agreed to notify Heartland immediately of any inquiries or
proposals with respect to any such transaction that are received by, or any such
negotiations or discussions that are sought to be initiated with, FTW
Partnership. Further, the ability of FTW Partnership to accept a competing offer
or proposal is subject to Heartland's right of first refusal.
CONDITIONS
The respective obligations of the parties to consummate the FTW Agreement
are subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) the effectiveness of the Registration Statement which includes
this Proxy Statement/Prospectus, filed in connection with the FTW Transaction
and the receipt of any required authorizations from state securities agencies,
(ii) the absence of any action or proceeding which is then in effect that has
the effect of prohibiting the FTW Agreement or the FTW Transaction or otherwise
making the consummation of the FTW Transaction or any of the transactions
contemplated thereby illegal, (iii) the FTW Transaction shall have been approved
by FTW Partners holding two-thirds ( 2/3) of the FTW Units, (iv) Heartland shall
not be required to comply with the Roll-up Rules, and (v) the exchange value for
the shares of Heartland Common Stock to be issued in connection with the FTW
Transaction shall not be less than $17 per share.
The obligation of Heartland to consummate the FTW Transaction are also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) requisite stockholder approval of the FTW Transaction by the
stockholders of Heartland, (ii) the accuracy in all material respects of the
representations and warranties of FTW Partnership set forth in the FTW
Agreement, (iii) the delivery of certain documents, certificates and legal
opinions of FTW Partnership, (iv) the absence of any material adverse change
with regard to FTW Partnership and the FTW Venture, (v) the performance by FTW
Partnership in all material respects of its obligations under the FTW Agreement,
(vi) the receipt of a consent letter from FTW Partnership's accountants, and
(vii) the receipt of all necessary and appropriate governmental and third party
consents and approvals.
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The obligation of FTW Partnership to consummate the FTW Agreement are also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) the approval of the FTW Transaction by FTW Partners holding no
less than two-thirds ( 2/3) of the FTW Units, (ii) the accuracy in all material
respects of the representations and warranties of Heartland set forth in the FTW
Agreement, (iii) the delivery of certain documents, certificates and legal
opinions by Heartland, (iv) the performance by Heartland in all material
respects of their respective obligations under the FTW Agreement, and (v) the
absence of any change in the business or its Heartland requiring an amendment or
supplement to this Proxy Statement/Prospectus.
REGULATORY APPROVALS
The FTW Transaction does not require any regulatory approvals other than
federal and state filings and approvals required under applicable securities
laws in connection with the effectiveness of the Registration Statement of which
this Proxy Statement/Prospectus forms a part.
TERMINATION
The FTW Agreement may be terminated and abandoned at any time prior to
closing, before or after the approval by the FTW Partners and the stockholders
of Heartland, by the mutual consent of Heartland and FTW Partnership. The FTW
Agreement may be terminated and the FTW Transaction abandoned by FTW Partnership
(i) if the conditions to closing for FTW Partnership have not been satisfied in
full or, where permissible, waived on or before March 15, 1996, or earlier date
set forth therein, (ii) upon a default by Heartland in its obligations under the
FTW Loan, or (iii) upon the determination by FTW Partnership that the
requirements of any governmental or regulatory authority asserting jurisdiction
with respect to the FTW Transaction requires actions that the FTW Committee, in
its sole discretion, deems unreasonable. The FTW Agreement may be terminated and
the FTW Transaction may be abandoned by Heartland (i) if the closing conditions
for the performance by Heartland have not been satisfied or, where permissible,
waived on or before March 15, 1996, or earlier date set forth in the FTW
Agreement, or (ii) at any time prior to such date, at Heartland's election, upon
written notice to FTW Partnership from Heartland and the payment (or offset
against the FTW Loan) of the FTW Earnest Money.
In the event that the FTW Agreement is terminated as a result of an FTW
Acquisition Proposal, FTW Partnership shall, within two days of such
termination, deliver to Heartland the sum of $250,000 plus the outstanding
principal and accrued interest under the FTW Loan, and the FTW Earnest Money
shall be returned to Heartland. In general, if the FTW Agreement is terminated
by Heartland as a result of a breach of a representation, warranty or covenant
of FTW Partnership, then the FTW Earnest Money is to be returned to Heartland
and the FTW Loan is to be repaid in accordance with its terms. If the FTW
Agreement is terminated for any other reason, then the FTW Earnest Money will be
offset against the FTW Loan, and the remainder of the FTW Loan shall be repaid
in accordance with its terms.
INDEMNIFICATION
FTW Partnership has agreed to indemnify, defend and hold harmless Heartland
from and against any damages incurred by Heartland arising out of (i) the breach
of a representation or warranty under the FTW Agreement, (ii) any failure by FTW
Partnership to perform any of its obligations under the FTW Agreement, (iii) any
liabilities of FTW Partnership (including the FTW Loan), other than liabilities
assumed by Heartland; and (iv) the operations and activities of FTW Partnership
and its affiliates, including those related to the FTW Interest, prior to the
consummation of the FTW Agreement. Pursuant to the terms of the FTW Agreement,
the indemnification obligations of FTW Partnership generally continue for a
period of four years following the consummation of the FTW Agreement. Because
FTW Partnership is a general partnership, and notwithstanding the anticipated
liquidation and dissolution of FTW Partnership, the FTW Partners will remain
personally liable for the indemnification obligations of FTW Partnership under
the FTW Agreement. In connection with the FTW Liquidation Plan, the FTW
Committee anticipates liquidating FTW Shares having an aggregate value of
approximately $1,350,000 to satisfy the estimated known and contingent
liabilities of FTW Partnership. In the event that claims are asserted against
FTW Partnership in excess of the
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proceeds of the FTW Shares or after the completion of the liquidation and
dissolution of FTW Partnership, the FTW Partners may be jointly and severally
liable to Heartland or any other third parties asserting claims against FTW
Partnership.
Heartland has agreed to indemnify, defend and hold FTW Partnership harmless
from and against damages incurred by it by reason of or arising out of or in
connection with (i) any breach of any representation or warranty of Heartland
contained in the FTW Agreement, (ii) any failure by Heartland to perform any of
its obligations under the FTW Agreement, and (iii) liabilities of FTW
Partnership expressly assumed by Heartland pursuant to the FTW Agreement.
DESCRIPTION OF FTW CLAIMS
The nature of the legal relationship between FTW Partnership and AWS as an
informal joint venture is not disputed by FTW Partnership, and is described as
such by AWS and its auditors in various public filings with the SEC. However,
FTW Partnership and AWS have ongoing disagreements as to the specific
obligations (both past and present) of AWS to FTW Partnership and the FTW
Partners. In particular, FTW Partnership believes that the factual background of
the relationship between FTW Partnership and AWS, and certain acts (or
omissions) of AWS, Wireless California, and certain of their current and former
officers, directors, and certain other affiliated or related parties (the
"Potential Defendants"), may form the basis of certain causes of action by FTW
Partnership against the Potential Defendants for which FTW Partnership could
seek recovery of monetary damage. In general, FTW Partnership believes that it
has possible claims against the Potential Defendants for, but not limited to (i)
breach of fiduciary duties owed by the Potential Defendants to FTW Partnership
by reason of and in connection with the fiduciary relationship between the
parties, including usurpation of FTW Venture opportunities by AWS as regards the
wireless cable industry in the Dallas, Texas, Memphis, Tennessee, and Los
Angeles, California markets; self-dealing by the Potential Defendants; and use
of FTW Partnership and FTW Venture funds for unauthorized purposes by the
Potential Defendants; (ii) breach of the terms of a purported joint venture
arrangement by the Potential Defendants by their failure to cause the FTW
Venture to achieve positive cash flow, obtain debt financing, and assure the
assets of the system were both as represented to the FTW Partnership and owned
by an appropriate entity; and (iii) various securities law violations primarily
directed at affiliates of AWS (collectively, the "FTW Claims").
FTW Partnership has discussed with AWS its general position regarding the
FTW Claims, and AWS has disputed both the facts upon which such claims would be
based and the interpretation of laws that would control a resolution thereof.
Notwithstanding FTW Partnership's belief that causes of action may exist against
the Potential Defendants, FTW Partnership cannot predict the likelihood of a
favorable outcome to FTW Partnership in the event the FTW Claims are pursued.
As part of the FTW Transaction, FTW Partnership and the FTW Partners
approving the FTW Transaction will either release the AWS Parties from the FTW
Claims, or in the event the release by FTW Partnership and AWS is not executed,
FTW Partnership will assign to Heartland the FTW Claims (which assignment would
be subject to the retention by FTW Partnership of certain rights and which would
be accompanied by certain indemnifications of Heartland to FTW Partnership).
ACCOUNTING TREATMENT
The FTW Transaction will be accounted for by Heartland under the "purchase
method" of accounting in accordance with generally accepted accounting
principles. Accordingly, the aggregate consideration paid by Heartland in
connection with the FTW Transaction will be allocated to FTW Partnership's
assets based upon their fair values, and the results of operations of FTW
Partnership will be included in the results of operations of Heartland only for
periods subsequent to the consummation of the FTW Transaction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
If consummated, the FTW Transaction will be treated as a taxable
transaction of FTW Partnership. Each FTW Partner will report its share of any
taxable gain recognized by FTW Partnership upon the sale of the
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FTW Interest to Heartland because the FTW Partnership is a pass-through entity
for tax purposes. Under Section 1231 of the Code, as amended, a portion of any
gain recognized by the FTW Partnership will be treated as capital gain and
reported by the FTW Partners on their personal tax returns. The balance of any
gain (also reported by the FTW Partners on their personal tax returns) will be
ordinary income.
As liquidating distributions are received and the FTW Partnership is wound
up pursuant to the FTW Liquidation Plan, each FTW Partner will report income
based upon the excess of the cash or Heartland Common Stock distributed over
such FTW Partner's adjusted tax basis in his or her FTW Units. The adjusted tax
basis will be increased by the amount of any taxable gain and ordinary income
recognized by the FTW Partners upon the sale of the FTW Interest to Heartland.
The gain (or loss) recognized upon the disposition of the FTW Units (as a result
of the FTW Liquidation) will be long term capital gain (or loss) if the FTW
Units were held for more than 12 months for investment purposes.
On a per unit basis, it is anticipated by the FTW Committee that each FTW
Unit will have taxable income of approximately $6,900 from the sale of the FTW
Interest to Heartland. Most of that income will be treated as gain from the sale
of assets used in business and treated as capital gains under Code Section 1231.
If any FTW Partner has prior unrecaptured Section 1231 losses, a portion of that
capital gain may be recaptured and will have to be reported as ordinary income.
After payment of expenses and costs and establishment of a reserve pursuant to
the FTW Liquidation Plan, it is anticipated by the FTW Committee that each FTW
Unit will receive approximately $8,190 in cumulative value of stock of Heartland
(assuming the receipt of stock by FTW Partnership worth $13.3 million at
Closing, with $1,350,000 thereof being utilized for expenses and obligations of
FTW Partnership) and cash distributions from FTW Partnership as part of its
liquidation.
Under the terms of the FTW Agreement, it is possible that FTW Partnership
will receive Heartland stock at closing with an aggregate fair market value in
excess of $13.3 million. In such circumstances, the amount of taxable income
from the sale of the FTW Interest and the cumulative value of Heartland stock
and cash received pursuant to the FTW Liquidation Plan, on a per FTW Unit basis,
will be proportionately greater than that disclosed above.
ABSENCE OF DISSENTERS AND APPRAISAL RIGHTS
The rights of FTW Partnership are governed by California law. Neither
California law nor the FTW Partnership Agreement requires that FTW Partners who
object to the FTW Transaction and who vote against or abstain from voting in
favor of the FTW Transaction be afforded any appraisal rights or the right to
receive cash from FTW Partnership for their general partnership interests. FTW
Partnership does not intend to make available any such rights to the FTW
Partners.
INTERESTED PARTIES
In regard to the FTW Transaction, no substantial interests of any member of
the FTW Committee exists in or to the FTW Transaction, except with respect to
interests arising from the ownership of FTW Units (for which benefits relating
thereto are shared only on a pro rata basis with all other FTW Partners).
CERTAIN EXPENSES
Pursuant to the provisions of the FTW Agreement, FTW Partnership is
responsible for its own expenses, including legal and accounting fees incurred
in connection with the negotiation, execution and delivery of the FTW Agreement
and certain of the expenses to be incurred in connection with the consummation
of the transactions contemplated thereby. FTW Partnership will not be
responsible for, and Heartland will pay, the fees and expenses of the Exchange
Agent, printing costs associated with the registration of the FTW Shares and the
solicitation of the partners of FTW Partnership, filing fees with the Commission
and the FCC, fees payable to third parties for certain consents and expenses
incurred in connection with any audit of FTW Partnership's financial statements.
In addition, FTW Partnership has incurred substantial legal and accounting fees
and expenses related to the conduct of its business since its formation.
Finally, FTW Partnership will incur and be responsible for expenses relating to
its dissolution and the winding up of its affairs. These expenses will include
legal and accounting fees and expenses relating to the preparation and
distribution of
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FTW Partnership final tax return. The fees and expenses to be borne by FTW
Partnership will be paid from the proceeds received by FTW Partnership in
connection with the FTW Transaction. These fees and expenses will be deducted
from the gross proceeds received by FTW Partnership, or held by the Exchange
Agent on its behalf, prior to any distributions to FTW Partners. As a result,
distribution to each FTW Partner will be reduced by such partner's pro rata
share of the fees and expenses incurred by FTW Partnership prior to the FTW
Agreement and in connection with the negotiation, execution, delivery and
consummation of the transactions contemplated hereby. Through December 31, 1995,
FTW Partnership has incurred approximately $691,000 in fees and expenses to be
paid out of proceeds of the FTW Transaction and expects to incur approximately
$209,000 in additional fees and expenses to be paid therefrom after the date
hereof.
THE MINNEAPOLIS TRANSACTION
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT
TO THE MINNEAPOLIS AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
COMPLETE TEXT OF THE MINNEAPOLIS AGREEMENT ATTACHED HERETO AS APPENDIX J WHICH
IS INCORPORATED HEREIN BY REFERENCE.
BACKGROUND OF THE MINNEAPOLIS TRANSACTION
Minneapolis Partnership and AWS are the sole members of the Minneapolis LLC
with the Minneapolis Partnership and AWS owning a 75% and 25% membership
interest therein, respectively. The Minneapolis Partnership's 75% membership
interest in the Minneapolis LLC ("Minneapolis Interest") is its primary asset.
The Minneapolis LLC owns a wireless cable television system in the metropolitan
area of Minneapolis, Minnesota. For information regarding the organization of
the Minneapolis LLC, see "Information Concerning Minneapolis
Partnership -- Business of Minneapolis Partnership."
The Minneapolis Partnership was formed in 1992 to own and participate in
the operation of the wireless cable television system in the metropolitan area
of Minneapolis, Minnesota. In January, 1993, the Minneapolis Committee (as
hereinafter defined) reached agreement with AWS for the Minneapolis Partnership
and AWS to form an LLC to be known as American Wireless System of Minneapolis,
LLC. Pursuant to that agreement, the Minneapolis Partnership contributed certain
equipment and intangibles, including certain broadcast lease rights to the
entity in return for a 75% membership interest. Minneapolis Partnership
contributed certain equipment and intangibles, including certain broadcast lease
rights to the LLC in return for a 75% membership interest. AWS contributed
certain equipment and other assets in return for a 25% membership interest.
However, by the summer of 1993 it became apparent to the management
committee of Minneapolis Partnership ("Minneapolis Committee") that the
Minneapolis LLC did not have sufficient capital to meet its operating expenses
or increase the Minneapolis LLC's subscriber base. Moreover, without a
significant increase in its subscriber base, the Minneapolis Committee
determined that near term profitability was unlikely. As a result the
Minneapolis Committee examined a number of alternatives, including long and
short term debt financing, the raising of funds through the sale of equity
securities and the possible sale of the Minneapolis Partnership or its assets.
In connection with its evaluation of possible solutions to the capital
deficiencies, the Minneapolis Committee became aware that certain questions had
arisen as to whether the original offer and sale of interests in the Minneapolis
Partnership by a predecessor and its affiliates to AWS constituted an offer and
sale of unregistered securities in violation of federal and state securities
laws. Such uncertainties together with the relative unprofitability of the
Minneapolis LLC and legal structure of the Minneapolis Partnership (e.g., as a
general partnership) made the Minneapolis Partnership and Minneapolis LLC a
relatively unlikely candidates for conventional financing. Moreover, the
questions regarding the initial structure of the Minneapolis Partnership, and
the continuing investigations of parties which sold general partnership
interests in wireless cable ventures concerning such questions, made any attempt
to raise funds through the offering of securities problematic because of the
difficulties of quantifying the risks resulting therefrom.
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As a result of these factors, the Minneapolis Committee actively commenced
exploring the possibility of disposing of its membership interest in the
Minneapolis LLC, or, in the alternative, selling the assets of the Minneapolis
LLC and the ongoing business. In connection therewith, the Minneapolis Committee
retained Brown, Neitert & Kaufman, Chartered, a Washington, D.C. law firm
("BNK"), to provide assistance in the possible sale of the Minneapolis
Partnership or of its assets. The Minneapolis Partnership and BNK contacted
approximately eight entities which they believed might have an interest in
acquiring the Minneapolis Partnership or its membership interest in the
Minneapolis LLC during August-October, 1993. All of the initial responses to
this solicitation were deemed unsatisfactory to the Minneapolis Committee. In
November 1993, the Minneapolis Committee scheduled further meetings with several
of the potential bidders in an attempt to solicit more significant offers from
such potential acquirers.
In December of 1993, the Minneapolis Committee received revised conditional
offers from several of the bidders to sell the Minneapolis Partnership's
membership interest in the Minneapolis LLC. Of such offers, a conditional
proposal from AWS (the consideration for which primarily consisted of 3,000,000
shares of AWS common stock (with a then aggregate approximate value of
$24,750,000) and a loan of $2,000,000 which would only be required to be repaid
in the event the transaction did not close) and a conditional proposal from TTI,
Inc. ("TTI") (consisting of stock with an approximate value of $13,250,000 and
cash of $7,000,000) were deemed the most valuable of all the offers received by
the Minneapolis Committee and were submitted to the Minneapolis Partners.
Although the Minneapolis Committee did not recommend the adoption of one
proposal over the other, it did recommend that a proposal be approved (as
opposed to inaction). However, prior to the vote of the Minneapolis Partners,
the Minneapolis Committee learned that TTI intended to issue to Minneapolis
Partnership (for distribution to the Minneapolis Partners) shares of Common
Stock of TTI in a private offering (resulting in the Minneapolis Partners
receiving restricted securities) rather than in an offering registered under the
Securities Act (resulting in the Minneapolis Partners receiving freely tradeable
securities) resulting in a diminution of the value of such shares. During
January 1994, the Minneapolis Partners approved the AWS proposal.
The AWS proposal was in part conditioned upon AWS' ability to raise certain
funds in a public offering of its common stock. However, by the late fall and
early winter of 1994, it became apparent to the Minneapolis Committee that such
a public offering was unlikely to occur.
The Minneapolis Committee reviewed other alternatives and in February 1994
obtained short term financing for the Minneapolis LLC in the amount of $550,000
from Tsunami Capital Corp. ("Tsunami"). The Minneapolis Committee undertook
further negotiations with Tsunami towards a potential merger with Tsunami, which
is a public company, and independently reviewed the alternative of an initial
public offering. However, such alternatives still proved to be problematic
because of (i) dilutive effect on the ownership of the surviving entity under
the Tsunami proposal and (ii) the various concerns regarding potential
violations of federal and state securities laws in connection with the formation
of the Minneapolis Partnership made an initial public offering difficult.
In July and August of 1995 the Minneapolis Committee entered into
negotiations with USA Wireless, Inc. and Heartland for a possible acquisition of
the Minneapolis Partnership. By the end of August 1995, discussions with USA
Wireless, Inc. were suspended and the Minneapolis Committee entered into
detailed negotiations with Heartland. These negotiations resulted in the
execution of an agreement on September 1, 1995 by the Minneapolis Partnership
not to solicit other offers for a period of 15 days and the Minneapolis
Agreement on October 4, 1995. In connection with the Minneapolis Agreement,
Heartland agreed to loan the Minneapolis LLC $1,575,000 (the Minneapolis Loan")
of which $575,000 was advanced on October 31, 1995 to repay the Tsunami loan.
See "The Minneapolis Transaction -- Term of the Minneapolis Agreement -- The
Minneapolis Loan."
RECOMMENDATION OF THE MINNEAPOLIS COMMITTEE; REASONS FOR THE MINNEAPOLIS
TRANSACTION
THE MINNEAPOLIS COMMITTEE HAS APPROVED AND ADOPTED THE MINNEAPOLIS
AGREEMENT AND THE MINNEAPOLIS TRANSACTION AND RECOMMENDS THAT THE MINNEAPOLIS
PARTNERS VOTE FOR APPROVAL AND ADOPTION OF THE MINNEAPOLIS AGREEMENT AND THE
MINNEAPOLIS TRANSACTION.
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The Minneapolis Committee has approved and adopted its Minneapolis
Agreement and recommends that each of the Minneapolis Partners vote for approval
and adoption of the Minneapolis Agreement and the Minneapolis Transaction.
In reaching their determinations, the Minneapolis Committee relied upon the
following factors, all of which supported their determination:
(a) The structure of the Minneapolis Transaction provides each of the
Minneapolis Partners with the ability to receive a liquid security
(registered shares of Heartland Common Stock) in exchange for the
relatively illiquid partnership interest in the Minneapolis Partnership.
(b) The Minneapolis Agreement affords a method for the Minneapolis
Partners to resolve the concerns regarding the formation of the entity in a
cost effective and timely manner.
(c) Although the Minneapolis Committee has not obtained a fairness
opinion for the consideration to be received in the Minneapolis Agreement,
the Minneapolis Committee deems the price offered to be fair and in the
best interest of the Minneapolis Partners based upon the lengthy sale
process which began more than two years prior to the execution of the
Minneapolis Agreement and involved the evaluation of bids and further
negotiations with ten entities in the wireless cable television business.
(d) The shares of Heartland Common Stock to be issued in the
Minneapolis Agreement provide the Minneapolis Partners with a greater
potential for long-term value than a continued ownership of a partnership
interest in a partnership whose primary asset is a 75% membership interest
in the Minneapolis LLC.
(e) As a result of the questions concerning the potential violations
of federal and state securities law in connection with the formation of the
Minneapolis Partnership, and given the limited number of entities in the
wireless cable television business, the Minneapolis Committee deemed it
unlikely that a better alternative will be available to the Minneapolis
Partners within a reasonable time frame.
(f) The Minneapolis Loan provided to the Minneapolis LLC in connection
with the Minneapolis Agreement provided the Minneapolis LLC with access to
working capital which might not otherwise be available.
(g) The alternative to approval and adoption of the Minneapolis
Agreement and the Minneapolis Transaction is for the Minneapolis
Partnership to remain independent and the Minneapolis LLC to continue
operating the wireless cable television system in the metropolitan area of
Minneapolis, Minnesota. The Minneapolis Committee believes that the
Minneapolis LLC will require significant additional working capital to fund
continuing operating deficits and to fund equipment purchases for
additional customers installations. There are currently no commitments to
fund the working capital requirements. The Minneapolis Committee is unable
to represent that the funding of such working capital requirements would be
available without such financial commitments.
In reaching their determination, the Minneapolis Committee did not assign
any weight to the factors above. The Minneapolis Committee has elected not to
retain an independent financial advisor for the purpose of rendering financial
advisory services to Minneapolis Partnership in connection with the Minneapolis
Transaction.
TERMS OF MINNEAPOLIS AGREEMENT
Acquisition; Consideration. On October 4, 1995, Heartland and the
Minneapolis Partnership executed the Minneapolis Agreement. Upon the
consummation of and pursuant to the Minneapolis Agreement, (i) the Minneapolis
Partnership will assign to Heartland the Minneapolis Interest, (ii) the
Minneapolis Partnership and Minneapolis Partners will assign to Heartland the
Minneapolis Claims (iii) Heartland will assume up to $2.2 million of liabilities
of the Minneapolis Partnership to AWS, and (iv) Heartland will issue to the
Minneapolis Partnership that number of shares (the "Minneapolis Shares") of
Heartland Common Stock having an aggregate exchange value equal to the sum of
(A) $18 million plus (B) $500 for each wireless cable television subscriber in
excess of 2,500 ("Additional Subscribers") on the fifth business day preceding
the consummation of the Minneapolis Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996) (currently estimated to be 1,000
Additional Subscribers, and not anticipated to exceed
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2,000 Additional Subscribers, based upon the costs of adding additional
subscribers and the capital revenues currently available to the Minneapolis LLC
and Minneapolis Partnership). Assuming there are 1,000 Additional Subscribers on
the relevant date, Minneapolis Partnership will receive Minneapolis Shares
having an aggregate exchange value of $18.5 million. The exchange value of the
Heartland Common Stock to be issued in the Minneapolis Transaction will be equal
to the average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS over the ten trading day period ending on the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 15, 1996
based upon a contemplated closing date of February 23, 1996); provided, however,
that if such average is (a) greater than or equal to $23 per share but less than
$30 per share, then the exchange value will be $23 per share, and (b) greater
than or equal to $30 per share, then the exchange value will be (i) the product
of the closing average multiplied by $23, divided by (ii) $30 per share, and the
number of Minneapolis Shares will be adjusted accordingly. Further, either
Minneapolis Partnership or Heartland, at its option, may terminate Minneapolis
Agreement is such closing average is below $17 per share. Heartland currently
intends to exercise such right. As a result, a maximum of 1,117,647 shares of
Heartland Common Stock are issuable in connection with the Minneapolis Agreement
(assuming that there will be no more than 4,500 subscribers to the Minneapolis
System on the fifth business day preceding the consummation of the FTW Agreement
(or February 15, 1996 based upon a contemplated closing date of February 23,
1996)). IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON
STOCK AS REPORTED ON THE NASDAQ-NMS OVER THE SEVEN TRADING DAY PERIOD ENDING ON
FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, THE
MINNEAPOLIS PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO
ENABLE SUCH MINNEAPOLIS PARTNERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. The
Minneapolis Agreement also grants to Heartland a right of first refusal with
regard to the Minneapolis Interest.
Assignment of Minneapolis Claims. Upon the consummation of the Minneapolis
Agreement, Minneapolis Partnership and the Minneapolis Partners approving the
Minneapolis Transaction will assign to Heartland all of such parties' right,
title and interest in the Minneapolis Claims. See "The Minneapolis
Transaction -- Description of Minneapolis Claims."
Resolutions of Disputes. Under the terms of the Minneapolis Agreement,
certain claims may be resolved by mutual agreement of the parties prior to
closing, with any agreed damages relating thereto ("Stipulated Damages") to be
paid from the liquidation of Minneapolis Shares in connection with the
dissolution of Minneapolis Partnership pursuant to the Minneapolis Liquidation
Plan (as hereinafter defined); provided that the aggregate amount of such
Stipulated Damages may not exceed $1 million. Pursuant to the terms of the
Minneapolis Agreement, claims by Heartland against Minneapolis Partnership for
breaches of the Minneapolis Agreement (other than Stipulated Damages) may only
be made during the six month period following the consummation of the
Minneapolis Transaction ("Claims Period"), and Heartland shall not have any
recourse to the Minneapolis Partners other than to the extent that the
Minneapolis Committee is in possession of the proceeds of Minneapolis Shares
liquidated for the payment of contingent claims (which Minneapolis Shares shall
have an aggregate exchange value of at least $500,000). Any claims asserted
against the Minneapolis Partnership by Heartland after the closing of the
Minneapolis Transaction shall be subject to the alternative dispute resolution
procedures set forth in the Minneapolis Agreement.
Minneapolis Loan. In connection with the Minneapolis Agreement, Heartland
agreed to make the Minneapolis Loan. The Minneapolis Loan is secured by a first
lien on the wireless cable channel assets in the Minneapolis, Minnesota market,
and upon the consummation of the Minneapolis Agreement, the Minneapolis
Partnership will be responsible for the repayment of a portion of the
Minneapolis Loan (approximately $215,000 plus interest) from the proceeds of the
Minneapolis Shares to be liquidated in connection with the dissolution of the
Minneapolis Partnership. Approximately $575,000 of proceeds from the Minneapolis
Loan have been used to repay certain indebtedness of the Minneapolis LLC, and up
to $1 million ($484,000 of which has been advanced) of the Minneapolis Loan are
available for use for the purpose of either funding operating deficits (not to
exceed $100,000) of Minneapolis LLC or paying costs associated with adding
subscribers to the Minneapolis wireless cable television system.
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DISTRIBUTION OF MINNEAPOLIS SHARES
As a part of the approval of the Minneapolis Agreement, the Minneapolis
Partners are being asked to approve the liquidation and dissolution of the
Minneapolis Partnership ("Minneapolis Liquidation") in accordance with the terms
and conditions of the Agreement and Plan of Liquidation attached as Appendix L
to this Proxy Statement/Prospectus (the "Minneapolis Liquidation Plan"),
pursuant to which the Minneapolis Shares will be distributed. To facilitate the
distribution of the Minneapolis Shares, Harris Trust Company of New York has
been selected to act as an exchange agent (the "Exchange Agent") for the purpose
of effectuating the delivery of the Minneapolis Shares. Pursuant to the terms of
the Minneapolis Agreement and the Exchange Agent Agreement between the
Minneapolis Partnership, Heartland and the Exchange Agent ("Minneapolis Exchange
Agreement"), Heartland will deliver to the Exchange Agent the Minneapolis Shares
for distribution in accordance with the terms of the Minneapolis Liquidation
Plan. The Minneapolis Committee anticipates that upon the consummation of the
Minneapolis Transaction, Minneapolis Shares having an aggregate exchange value
of approximately $1.5 million (or approximately $722 per Minneapolis Unit)
("Minneapolis Liquidated Shares") will be sold by the Exchange Agent on behalf
of the Minneapolis Partnership in the open market or as otherwise directed by
the Minneapolis Committee to satisfy the known and contingent claims of the
Minneapolis Partnership together with amounts necessary to pay for the winddown
of the Minneapolis Partnership's operation, and Minneapolis Shares having an
aggregate exchange value equal to approximately $17 million (or approximately
$8,177 per Minneapolis Unit) ("Minneapolis Distributable Shares") will be
available for distribution to the Minneapolis Partners. The Minneapolis
Partnership will sell, as a selling security holder, that number of Minneapolis
Liquidated Shares (estimated to be 53,571 shares assuming a market value of $28
per share) necessary to provide the cash to be utilized in the Minneapolis
Liquidation Plan. Thereafter, and after distributing the remaining Minneapolis
Shares, the Minneapolis Partnership expects to own no shares of Heartland Common
Stock. None of the Minneapolis Partnership, nor any member of the Minneapolis
Committee, has any material relationship or affiliation with Heartland, and none
has had any such relationship in the prior three years. The number of
Minneapolis Distributable Shares to be received by each Minneapolis Partner will
be rounded down to the nearest whole share and any fractional shares will be
added to the Minneapolis Liquidated Shares with the proceeds thereof to be
distributed pursuant to Minneapolis Liquidation Plan. Upon the completion of the
Minneapolis Liquidation, any remaining Minneapolis Shares (or proceeds thereof)
will be distributed among the Minneapolis Partners.
REPRESENTATIONS AND WARRANTIES
Generally, the representations and warranties of Minneapolis Partnership
relate to (i) the organization and operations of Minneapolis Partnership, (ii)
the absence of undisclosed rights or liens with respect to the Minneapolis LLC
or Minneapolis Interest, (iii) the authority and enforceability of the
Minneapolis Agreement and the non-contravention of the Minneapolis Agreement
with any agreement, law, or organizational document of the Minneapolis
Partnership, (iv) the financial statements of Minneapolis Partnership and
absence of undisclosed liabilities, (v) the assets, liabilities and operations
of Minneapolis Partnership and the Minneapolis LLC, (vi) agreements or contracts
with third parties and affiliates, (vii) regulatory matters, and compliance with
laws, (viii) consents and approvals required in connection with the Minneapolis
Agreement, (ix) tax and litigation matters, (x) the Minneapolis Partners and the
required approval for the Minneapolis Transaction, and (xi) the accuracy of
information for inclusion in the Proxy Statement/Prospectus and in the
Registration Statement. Generally, representations and warranties of Heartland
relate to (i) its corporation organization and standing, (ii) the authorization
and enforceability of the Minneapolis Agreement and non-contravention of the
Minneapolis Agreement with its charter documents, (iii) the absence of pending
or threatened litigation, (iv) consents and approvals required in connection
with the Minneapolis Agreement, (v) capitalization, (vi) the accuracy of
Heartland's financial statements and securities filings, and (vii) the accuracy
of information to be included in the Proxy Statement/Prospectus and the
Registration Statement.
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COVENANTS AND OBLIGATIONS
Covenants Pending the Consummation or Termination of the Minneapolis
Agreement. The Minneapolis Partnership has agreed, among other things, that
prior to the consummation of the Minneapolis Agreement or earlier termination
thereof, except as contemplated by the Minneapolis Agreement, the Minneapolis
Partnership will, and will use reasonable efforts to cause the Minneapolis LLC,
to do the following: (i) not engage in any practice or take any action other
than in the ordinary course of business, (ii) use its best efforts to keep its
business, properties and business relationships substantially intact, (iii) pay
all of its debts and liabilities except to the extent being contested in good
faith and as to which reserves have been established, (iv) not take any action
that would cause or constitute a material breach of the Minneapolis Agreement,
(v) preserve, protect and maintain its rights and channel leases, FCC licenses
and other contracts, (vi) not enter into, amend or terminate any channel lease,
FCC license, FCC permit, FCC application or other agreement, (vii) not make any
distributions to Minneapolis Partnership, AWS or the Minneapolis Partners, or
issue or sell any equity interests or options or rights with respect thereto,
(viii) not lease, transfer or otherwise dispose of any assets, (ix) not increase
in any manner the base compensation of, enter into any new compensation
arrangement with, or pay any salaries to any employees except in the ordinary
course of business, (x) not grant or transfer any rights to the Minneapolis
Interest or Minneapolis Claims, or (xi) not take any actions that would cause
the transactions contemplated hereby to be subject to subpart 900 of Regulation
S-K, promulgated under the Securities Act and the Exchange Act (the "Roll-up
Rules").
Other Agreements. Minneapolis Partnership has also agreed to file, and to
use its best efforts to cause the Minneapolis LLC to file, all required reports
with the FCC. In addition, Minneapolis Partnership has agreed to obtain certain
consents and approvals required in connection with the Minneapolis Transaction
prior to the consummation thereof.
NO SOLICITATION
Under the Minneapolis Agreement, Minneapolis Partnership has agreed that
neither it nor any of its executive committee members, officers, managers,
employees, agents or other representatives will solicit, initiate or encourage
any discussions or negotiations with any third party concerning any tender or
exchange offer, merger, consolidation or other business combination involving
Minneapolis Partnership or the Minneapolis LLC or any proposal to acquire any
substantial equity interest in, or substantial portion of the assets of,
Minneapolis Partnership or the Minneapolis LLC (collectively "Minneapolis
Acquisition Proposal"), other than the transactions contemplated by the
Minneapolis Agreement; provided, however, that the Minneapolis Partnership may
furnish information or enter into discussions with a third party that makes an
unsolicited bona fide offer to acquire Minneapolis Partnership or the
Minneapolis LLC or a substantial portion of its assets to the extent that the
Minneapolis Committee determines that such action is required to comply with its
fiduciary duties to the Minneapolis Partners. Minneapolis Partnership has agreed
to notify Heartland immediately of any inquiries or proposals with respect to
any such transaction that are received by, or any such negotiations or
discussions that are sought to be initiated with, Minneapolis Partnership.
CONDITIONS
The respective obligations of the parties to consummate the Minneapolis
Agreement are subject to the satisfaction or, where permissible, waiver of the
following conditions: (i) the effectiveness of the Registration Statement, which
includes this Proxy Statement/Prospectus, filed in connection with the
Minneapolis Transaction and the receipt of any required authorizations from
state securities agencies, (ii) the absence of any action or proceeding which is
then in effect that has the effect of prohibiting the Minneapolis Agreement or
the Minneapolis Transaction or otherwise making the consummation of the
Minneapolis Transactions or any of the transactions contemplated thereby
illegal, (iii) the approval of Minneapolis Partners holding two-thirds ( 2/3) of
the Minneapolis Units, (iv) Heartland not being required to comply with the
provisions of the Roll-up Rules, and (v) the exchange value for the shares of
Heartland Common Stock to be issued in connection with the Minneapolis
Transaction not being less than $17 per share.
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The obligation of Heartland to consummate the Minneapolis Agreement is also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) stockholder approval of the Minneapolis Agreement and related
issuance of shares of Heartland Common Stock by the stockholders of Heartland,
(ii) the accuracy in all material respects of the representations and warranties
of the Minneapolis Partnership set forth in the Minneapolis Agreement, (iii) the
delivery of certain documents, certificates, legal opinions and all necessary
and appropriate governmental and third party consents and approvals by the
Minneapolis Partnership, (iv) the absence of any material adverse change with
regard to the Minneapolis Partnership or Minneapolis LLC, (v) the performance by
the Minneapolis Partnership in all material respects of its obligations under
the Minneapolis Agreement, and (vi) consummation of the AWS Merger.
The obligation of the Minneapolis Partnership to consummate the Minneapolis
Agreement is also subject to the satisfaction or, where permissible, waiver of
the following conditions: (i) the approval of Minneapolis Partners holding no
less than two-thirds of the Minneapolis Units, (ii) the accuracy in all material
respects of the representatives and warranties of Heartland, (iii) the delivery
of certain documents, certificates and legal opinions by Heartland, (iv) the
performance by Heartland in all material respects of its obligations under the
Minneapolis Agreement, and (v) the absence of any change in the business or
affairs of Heartland requiring an amendment or supplement to this Proxy
Statement/Prospectus.
REGULATORY APPROVALS
The Minneapolis Transaction will not require any regulatory approvals other
than federal and state filings and approvals required under applicable
securities laws in connection with the effectiveness of the Registration
Statement of which this Proxy Statement/Prospectus forms a part and FCC approval
regarding the transfer of control of commercial wireless cable television
licenses held by Minneapolis LLC.
TERMINATION
The Minneapolis Agreement may be terminated and abandoned at any time prior
to closing, before or after the approval by the Minneapolis Partners and the
stockholders of Heartland, by the mutual consent of Heartland and Minneapolis
Partnership. The Minneapolis Agreement may be terminated and the Minneapolis
Transaction abandoned by Minneapolis Partnership, if the conditions to closing
for the Minneapolis Partnership have not been satisfied in full or, where
permissible, waived on or before March 15, 1996. The Minneapolis Agreement may
be terminated and the Minneapolis Transaction may be abandoned by Heartland (i)
if the closing conditions for the performance by Heartland shall not have been
satisfied or, where permissible, waived on or before March 15, 1996, or (ii) at
any time prior to such date, at Heartland's election, upon written notice from
Heartland and the payment (or offset against the Minneapolis Loan) of $500,000
("Termination Fee").
In the event that the Minneapolis Agreement is terminated as a result of a
Minneapolis Acquisition Proposal, Minneapolis Partnership shall, within two days
of such termination, deliver to Heartland the sum of $750,000 plus the
outstanding principal and accrued interest under the Minneapolis Loan. In
general, if the Minneapolis Agreement is terminated by Heartland as a result of
a breach of a representation, warranty or covenant of Minneapolis Partnership,
then the Minneapolis Loan is to be repaid in accordance with its terms and the
parties will have no further liabilities or objections to each other. Generally,
if the Minneapolis Agreement is terminated for any other reason, then Heartland
will pay to Minneapolis Partnership (or offset against the Minneapolis Loan) the
Termination Fee, and the remainder of the Minneapolis Loan shall be repaid in
accordance with its terms.
INDEMNIFICATION
Pursuant to the terms of the Minneapolis Agreement, Heartland and the
Minneapolis Partnership may mutually resolve certain claims prior to the
consummation of the Minneapolis Agreement, with the amount of such claims (not
to exceed $1.0 million) to be paid to Heartland from the proceeds of Minneapolis
Shares to be liquidated in connection with the Minneapolis Liquidation Plan. The
Minneapolis Agreement provides that the representations, warranties and
covenants of the Minneapolis Partnership will survive for the six month
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Claims Period during which the Minneapolis Partnership will engage in the
winding-up and liquidation of its affairs in accordance with the Minneapolis
Liquidation Plan, ("Minneapolis Liquidation Period"). During the Minneapolis
Liquidation Period, Heartland may pursue any remedies available at law or in
equity against the Minneapolis Partnership for breaches of the covenants,
representations or warranties under the Minneapolis Agreement. In addition,
pursuant to the Minneapolis Agreement, the Minneapolis Committee has agreed to
liquidate Minneapolis Shares having an aggregate exchange value of no less than
$500,000 for potential claims of Heartland and third parties, and Heartland have
agreed that the proceeds of such shares will be the sole recourse to Heartland
for the breach of any representations, warranties or covenants under the
Minneapolis Agreement. Therefore, the Minneapolis Partners will not have
personal liability for any claims by Heartland under the Minneapolis Agreement
following the consummation of the Minneapolis Liquidation Plan. The resolution
of disputes between Heartland and the Minneapolis Partnership during the
Minneapolis Liquidation Period will be resolved in accordance with alternative
dispute resolution procedures set forth in the Dispute Resolution Agreement
attached as Exhibit 9.2 to the Minneapolis Agreement.
DESCRIPTION OF MINNEAPOLIS CLAIMS
Prior to the date hereof, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $11 million of general
partnership interest in the Minneapolis Partnership without registration under
any federal or states securities laws. Following an investigation by the
Commission, AWS, Stephen G. Johnson, a director and officer of AWS and Jeffery
D. Howes, formerly a director and officer of AWS, without admitting or denying
any wrongdoing, agreed to consent to a proposed Order of the Commission to cease
and desist from committing or causing any violation and any future violations of
the securities registrations provisions of the Securities Act and the
broker-dealer registration provisions of the Exchange Act. In addition,
securities administrators in 22 states also have investigated or are presently
investigating the activities related to the unregistered sale of the general
partnership interest of the Minneapolis Partnership as well as two other general
partnerships.
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. There can be no assurances that other states will not investigate
these activities or issue similar orders.
Further research or investigation by counsel for Minneapolis Partnership
indicated that the partners might be entitled to request recision and to seek
monetary damages in addition to recision and refund of all amounts paid,
although it is possible that certain of these claims may be barred by one or
more relevant state or federal statutes of limitations.
If the claims were pursued successfully, it is possible that Minneapolis
Partnership or the individual Minneapolis partners could receive an award of
damages. However, the Minneapolis Partnership can not predict the likelihood of
unfavorable outcome if the Minneapolis Claims were pursued and whether the
defendants would have adequate resources to pay any judgment.
ACCOUNTING TREATMENT
The Minneapolis Transaction will be accounted for by Heartland under the
"purchase method" of accounting in accordance with generally accepted accounting
principles. Accordingly, the aggregate consideration paid by Heartland in
connection with the Minneapolis Transaction will be allocated to the Minneapolis
Partnership's asset based upon their fair values, and the results of operations
of the Minneapolis Partnership will be included in the results of operations of
Heartland only for periods subsequent to the consummation of the Minneapolis
Transaction.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
If consummated, the Minneapolis Transaction will be treated as a taxable
transaction of Minneapolis Partnership. Each Minneapolis Partner will report its
share of that income because the Minneapolis Partnership is a pass-through
entity for tax purposes. Under Section 1221 of the Code, a portion of any gain
recognized by the Minneapolis Partnership will be treated as capital gain and
reported by the Minneapolis Partners on their personal tax returns. The balance
of any gain (also reported by the Minneapolis Partners on their personal tax
returns) may be ordinary income.
As liquidating distributions are received and the Minneapolis Partnership
is wound up pursuant to the Minneapolis Liquidation Plan, each Minneapolis
Partner will report income based upon the excess of the cash or Heartland Common
Stock distributed over the Minneapolis Partner's adjusted tax basis in their
Minneapolis Units. The adjusted tax basis will be increased by the amount of any
taxable gain and ordinary income recognized by the Minneapolis Partners upon the
sale of the Minneapolis Interest to Heartland. The gain or loss recognized upon
the disposition of the Minneapolis Units (as a result of the Minneapolis
Liquidation) will be long term capital gain (or loss) if the Minneapolis Units
were held for more than 12 months for investment purposes.
On a per unit basis, it is anticipated by the Minneapolis Committee that
each Minneapolis Unit will have taxable income of approximately $2,000 from the
sale of the Minneapolis Interest to Heartland, assuming the 1993 through 1995
passive losses from the Partnership were not deducted due to the passive
activity loss rules. Most of that income will be treated as capital gains under
Code Section 1221. After payment of expenses and costs and establishment of a
reserve pursuant to the Minneapolis Liquidation Plan, it is anticipated by the
Minneapolis Committee that each Minneapolis Unit will receive approximately
$8,200 in cumulative value of stock of Heartland (assuming the receipt of stock
by Minneapolis Partnership worth $18.5 million at Closing, with $1.5 million
thereof being utilized for expenses and obligations of Minneapolis Partnership)
and cash, if any, distributions from Minneapolis Partnership as part of its
liquidation.
Under the terms of the Minneapolis Agreement, it is possible that
Minneapolis Partnership will receive Heartland stock at Closing with an
aggregate fair market value in excess of $18.5 million. In such circumstances
the amount of taxable income from the sale of the Minneapolis Interest and the
cumulative value of Heartland stock and cash received at liquidation, on a per
Minneapolis Unit basis, will be proportionately greater than that disclosed
above.
ABSENCE OF DISSENTERS AND APPRAISAL RIGHTS
The rights of the Minneapolis Partnership are governed by California law.
Neither California law nor the Partnership Agreement for the Minneapolis
Partnership requires that Minneapolis Partners who object to the Minneapolis
Transaction and who vote against or abstain from voting in favor of the
Minneapolis Transaction be afforded any appraisal rights or the right to receive
cash from the Minneapolis Partnership for their general partnership interest.
The Minneapolis Partnership does not intend to make available any such right to
the Minneapolis Partners.
INTERESTED PARTIES
In regard to the Minneapolis Transaction, no substantial interests of any
member of Minneapolis Committee exists in or to the Minneapolis Transaction,
except with respect to interest arising from the ownership of the Minneapolis
Units (for which benefits relating thereto are only shared on a pro rata basis
with the other Minneapolis Partners).
CERTAIN EXPENSES
Pursuant to the provisions of the Minneapolis Agreement, the Minneapolis
Partnership is responsible for its own expenses incurred in connection with the
negotiation, execution and delivery of the Minneapolis Agreement and the
consummation of the transactions contemplated thereby. Minneapolis Partnership
will not be responsible for, and Heartland will pay, the fees and expenses of
the Exchange Agent, printing costs
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associated with the registration of its Minneapolis Shares and solicitation of
the partners of Minneapolis Partnership and filing fees with the Commission and
FCC. Among these expenses will be legal and accounting fees incurred and
expenses relating to the conduct of the Minneapolis Meeting. Following the
Minneapolis Meeting and consummation of the Minneapolis Transaction, if that
occurs, the Minneapolis Partnership will incur and be responsible for expenses
relating to its dissolution and the winding up of its affairs. These expenses
will include legal and accounting fees and expenses relating to the preparation
and distribution of the Minneapolis Partnership's final tax return. The fees and
expenses to be borne by the Minneapolis Partnership will be paid from the
proceeds received in connection with the Minneapolis Transaction. These fees
will be deducted from the gross proceeds received by the Minneapolis Partnership
prior to any distributions to partners. As a result, distributions to each
Minneapolis Partner will be reduced by such partner's pro rata share of the fees
and expenses incurred by the Minneapolis Partnership in connection with the
negotiation, execution, delivery and consummation of the Minneapolis Agreement
and the transactions contemplated thereby.
WIRELESS CABLE INDUSTRY
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 Federal
Communications Commission (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 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. Heartland 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
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a reliable signal resulting in fewer transmission disruptions at a significantly
lower system capital cost per installed subscriber than traditional hard-wire
cable systems.
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 Heartland'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 Heartland, 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 Heartland'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
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cable operators leasing such channels, including Heartland, 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. Heartland 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 "Wireless Cable
Industry -- Competition -- Local Multi-Point Distribution Service."
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 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. Subsequent to the September 15, 1995 deadline, the FCC
announced that it would accept new ITFS station applications, and major ITFS
modification applications not filed on or before September 15, 1995, from
October 16 through October 20, 1995. Competing applications filed in the same
window would be processed under existing comparative criteria.
Recently the FCC adopted a competitive bidding (auction) mechanism for the
award of initial licenses for MDS channels to replace the lottery procedure.
Auctions to award initial MDS licenses began on November 13, 1995. Successful
bidders will receive a blanket authorization to serve entire "Basic Trading
Areas" or "BTAs" (as defined by Rand McNally) on all MDS channels. The blanket
authorization will be subject to the submission of applications for MDS channels
demonstrating interference protection to the 35-mile-radius protected service
areas of MDS and ITFS stations licensed, or for which there is an application
for a license pending as of September 15, 1995. A BTA license holder must show
coverage of at least two-thirds of the BTA within five years of receiving the
BTA authorization. Auctions for each of the 493 BTAs commenced on November 13,
1995 for qualified bidders that had filed initial "short-form" applications and
submitted appropriate upfront payments by specified deadlines. Under the
statutory auction authority enacted in 1993, ITFS licenses are exempt from the
auction process and applications for ITFS licenses are expected to continue to
be awarded according to the FCC's existing comparative criteria.
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. Heartland's lease agreements with license holders
typically require the license holders, at Heartland's expense, to use their best
efforts, in cooperation
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with Heartland, to make various required filings with the FCC in connection with
the maintenance and renewal of licenses. Heartland believes this reduces the
likelihood that a license will be revoked, cancelled 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.
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 Heartland's
unlaunched markets, Heartland has filed or will be required to file applications
with the FCC to modify licenses for unbuilt stations. In applying for these
modifications, Heartland 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.
If such changes would cause Heartland's signal to cause interference in the
FCC-protected area of another wireless cable channel license holder, Heartland
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 Heartland's ability to serve the
affected market.
When the FCC implements competitive bidding in the awarding of initial MMDS
licenses, Heartland cannot predict whether any increase in costs of renewing its
leases will result from increased license costs to the initial licensee.
However, Heartland does not believe that any such increased costs would
materially affect Heartland'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.
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 hardwire 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. These and other
aspects of the FCC's rate regulation of traditional hard-wire cable subscriber
fees have and will continue to be met by challenges both in the courts and at
the FCC. The FCC has also adopted regulations implementing the Cable Act that
require traditional hard-wire cable operators to establish standardized levels
of customer service. Heartland is currently unable to predict what effect these
regulations may have on Heartland's price and service competitiveness.
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 Heartland 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 Heartland's operating costs, make some
programming unavailable to
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Heartland and otherwise have a material adverse effect on the wireless cable
industry as a whole or Heartland 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. Heartland's costs to
acquire satellite cable and broadcast programming may be affected by the outcome
of those challenges. See "Wireless Cable Industry -- Availability of
Programming." Other aspects of the Cable Act that have been challenged, the
outcome of which could adversely affect Heartland and the wireless cable
industry in general, are the Cable 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.
Legislation currently pending before Congress could materially impact
wireless cable ownership rules and the competitive environment in which
Heartland operates. The House and the Senate have passed bills, H.R. 1555 and
S.652, that, if enacted into law, would remove certain barriers to investment by
telephone companies in hard-wire cable companies. The proposed legislation would
lift the current statutory cross-ownership ban contained in the Communications
Act of 1934, as amended (the "Communications Act"), that prevents a telephone
company from using hard-wire facilities to provide cable television service to
the same community where it provides telephone service. The constitutionality of
this statutory cross-ownership ban is currently being considered by the U.S.
Supreme Court. This statutory ban has never been applied to a telephone
company's investment in wireless cable. If the pending legislation is enacted in
its current form or the U.S. Supreme Court determines that the cross-ownership
ban is unconstitutional, telephone companies operating in the markets serviced
by Heartland would be legally permitted to build, lease or purchase hard-wire
cable systems and become competitors of Heartland.
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 Heartland 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
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to operators with larger subscriber bases. The likelihood that program material
will be unavailable to Heartland 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 Heartland are not currently directly owned by vertically integrated
multiple cable system operators and Heartland historically has not had
difficulty in arranging satisfactory contracts for these services. The basic
programming package offered in each of the Heartland 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 Heartland.
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 Heartland Existing Systems retransmit only a limited number
of broadcast channels, Heartland does not believe that the termination of the
compulsory copyright license would have a material adverse effect on Heartland.
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. Heartland
has obtained such consents in each of its Existing Systems where Heartland is
retransmitting on a wireless cable channel. Such consents will be required in
Heartland's other markets. There can be no assurance that Heartland will be able
to obtain such consents on terms satisfactory to Heartland, if at all.
PAY TELEVISION INDUSTRY TRENDS
Heartland's business will be affected by pay television industry trends
and, in order to maintain and increase its subscriber base in the years ahead,
Heartland 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, Heartland 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 Heartland 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 3-to-1 to 10-to-1. Within 12 months, Heartland believes
compression technology, allowing six to 10 channels within one 6-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
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upgraded set-top converters. Heartland 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 Heartland, 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. Heartland
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. Heartland 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, Heartland believes that commercial
viability of interactivity in Heartland's markets is at least several years
away.
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 Heartland will to some degree
compete with these systems in marketing its services.
DIRECT BROADCAST SATELLITE
DBS involves the transmission of an encoded signal direct from a satellite
to the home user. 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. In 1994,
Hughes Communications, Inc. began offering DBS services capable of delivering
approximately 150 channels of
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programming. DBS receiver equipment for a single television set costs
approximately $700 per customer, plus installation fees. Each additional,
independent outlet requires a separate descrambling device at additional cost to
the subscriber. Primestar is offering DBS service for a monthly fee covering
programming services and equipment financing and is capable of providing
approximately 70 channels of programming. DBS subscribers pay monthly
subscription fees.
SATELLITE MASTER ANTENNA TELEVISION
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") formerly
were 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 United States Senate and the United States
House of Representatives have each passed a bill which, if enacted into law,
could lift carriers 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.
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. Heartland has obtained such consents in the Existing Systems where
Heartland is retransmitting on a wireless cable channel. See "Risk
Factors -- Factors Relevant to All of the Parties -- Government Regulation." The
FCC also has recently permitted broadcasters to acquire, subject to certain
restrictions, ownership interests in traditional hard-wire cable systems.
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
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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.
COMPARISON OF RIGHTS OF SECURITY HOLDERS OF HEARTLAND AND AWS
The rights of the stockholders of AWS are governed by the Delaware General
Corporation Law (the "DGCL") and the Certificate of Incorporation and Bylaws of
AWS. Upon the consummation of the AWS Merger Agreement, the former AWS
stockholders will become stockholders ("Minority Holders") of Heartland, a
Delaware corporation. As stockholders of Heartland, such Minority Holders'
rights will differ in certain respects from those rights presently held since
their rights will be governed by the Heartland Certificate of Incorporation (the
"Heartland Certificate") and Bylaws (the "Heartland Bylaws") rather than the
Certificate of Incorporation and Bylaws of AWS.
Certain differences and similarities between the rights of AWS'
stockholders and those of Heartland's stockholders are set forth below. This
summary is not intended to be relied upon as an exhaustive list of differences
or a detailed description and analysis of the provisions discussed and is
qualified in its entirety by the DGCL, the Heartland Certificate, Heartland
Bylaws and the Certificate of Incorporation and Bylaws of AWS.
GENERALLY
The Certificate of Incorporation of AWS (the "AWS Certificate") authorizes
an aggregate of 40,000,000 shares of common stock, par value $.01 per share (the
"AWS Common Stock") and an aggregate of 5,000,000 shares of serial preferred
stock, par value $.01 per share (the "AWS Preferred Stock"). As of December 31,
1995, 5,709,187 shares of AWS Common Stock were issued by AWS and no shares of
AWS Preferred Stock were issued.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of common stock, par value $.001
per share ("Heartland Common Stock"), and 10,000,000 shares of preferred stock,
par value $.01 per share ("Heartland Preferred Stock"). As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Heartland Preferred Stock have been issued.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. (the
"NASD"). Even if the shares of any class or series of stock meet the
requirements of clause (i) or (ii) above, appraisal rights are available for
such class or series if the holders thereof receive in the merger or
consolidation anything except: (a) shares of stock of the corporation surviving
or resulting from such merger or consolidation; (b) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
either listed on a national securities exchange or held of record by more than
2,000 stockholders or, only under the DGCL, designated as a national market
system security on an inter-dealer quotation system by the NASD; (c) cash in
lieu of fractional shares of the corporations described in clause (a) or (b) of
this sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c).
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The stockholders of Heartland will not receive dissenters or appraisal
rights. The stockholders of AWS will receive dissenters and appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
Pursuant to the AWS Certificate, AWS has elected not to be governed by
Section 203 of the DGCL until such time, if ever, as both of the following
conditions exist: (i) Section 203 by its terms would, but for the provision in
the AWS Certificate, apply to AWS and (ii) no stockholder owns more than 25% of
the outstanding voting stock of AWS. Once AWS shall become governed by Section
203 pursuant to the preceding conditions, AWS shall be governed by Section 203
for as long as the terms shall apply, regardless of whether any one stockholder
shall thereafter hold more than 25% of the outstanding voting stock of AWS.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
The Heartland Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
Pursuant to the AWS Certificate, an amendment to the provisions in the AWS
Certificate regarding (i) removal of directors; (ii) alteration of the Bylaws by
stockholders; and (iii) special meetings of the stockholders requires, in
addition to the requirements imposed by law, the affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the combined voting power of all
shares of stock entitled to vote. In addition, no provision imposing cumulative
voting in the election of directors may be added to the AWS
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Certificate unless such action is approved by an affirmative vote of at least
sixty-six and two-thirds percent (66 2/3%) of the combined voting power of all
shares of stock entitled to vote.
AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws is
vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests it in the board of directors. The Heartland
Certificate and the AWS Certificate (subject to the restriction described above)
each vest in their respective Boards of Directors the power to adopt, alter,
amend, or repeal Bylaws.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation.
Neither the Heartland Certificate nor the AWS Certificate provide for preemptive
rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide any additional requirements
regarding the distribution of dividends. The AWS Certificate does not provide
any additional requirements regarding the distribution of dividends.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. The Heartland Bylaws do not
alter the effective period of a proxy. The AWS Bylaws do not alter the effective
period of a proxy.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate does not provide additional requirements
regarding stockholder action by written consent.
Pursuant to the AWS Certificate, no action that is required or permitted to
be taken by the AWS stockholders at any annual or special meeting of the
stockholders may be effected by written consent in lieu of a meeting of the
stockholders unless the action to be effected by written consent of stockholders
and the taking of such action by such written consent have been expressly
approved in advance by the Board of Directors of AWS.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of the stockholders may be called
by the Board of Directors or by such person or persons as may be authorized by
the Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit
the Board of Directors, the Chairman of the Board, the President or the record
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holders of at least a majority of the issued and outstanding shares of Heartland
Common Stock, to call a special meeting of stockholders for any purpose or
purposes.
The AWS Certificate permits only the Board of Directors or a committee of
the Board of Directors (whose powers and authority includes the power to call
such meetings) to call a special meeting of the stockholders for any purpose or
purposes. No other such person or persons may call a special meeting of the
stockholders of AWS.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. Neither the
Heartland Certificate nor the AWS Certificate provide for cumulative voting for
the election of directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. The Heartland Certificate does not fix the number
of directors.
Pursuant to the AWS Certificate, the number of board members shall be not
fewer than three (3) but shall not be greater than fifteen (15), the exact
number to be determined by a resolution adopted by the Board of Directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Neither Heartland nor AWS have established a classified
Board of Directors.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by the written consent of the stockholders.
Pursuant to the AWS Certificate, any director may be removed from office
only by the affirmative vote of the holders of record of at least sixty-six and
two-thirds percent (66 2/3%) of the combined voting power of the outstanding
shares of all classes and series of AWS stock entitled to vote thereon, voting
together as a single class. Notwithstanding the foregoing, and as otherwise
provided by law, whenever the holders of AWS Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors, the
foregoing provision will not apply with respect to the director or directors
elected by holders of AWS Preferred Stock.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining
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director so elected. In the case of a classified board, directors elected to
fill vacancies or newly created directorships shall hold office until the next
election of the class for which such directors have been chosen, and until their
successors have been duly elected and qualified. In addition, if, at the time of
the filing of any such vacancy or newly created directorship, the directors in
office constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of the
total number of outstanding shares entitled to vote for such directors,
summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
Neither the Heartland Certificate nor the Heartland Bylaws provide
additional requirements regarding vacancies on its Board of Directors. Neither
the AWS Certificate nor the AWS Bylaws provide additional requirements regarding
vacancies on its Board of Directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL. The AWS Certificate
provides that such persons shall be indemnified to the full extent authorized by
the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys's fees. The DGCL
states that any indemnification, unless ordered by a court, shall be made only
upon a determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland and AWS to advance reasonable expenses to a
director or officer after such person provides an undertaking to repay the
corporation if it is determined that the required standard of conduct has not
been met. This indemnification and advancement of expenses is not exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS.
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for
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(i) any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) violation of
certain provisions of the DGCL; (iv) any transaction from which the director
derived an improper personal benefit; or (v) any act or omission prior to the
adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate provides a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL. The AWS Certificate provides a provision eliminating the
personal liability for monetary damages of its directors to the fullest extent
permitted under the DGCL.
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COMPARISON OF RIGHTS OF EQUITY HOLDERS
OF HEARTLAND AND FTW PARTNERSHIP
The rights of the FTW Partners in FTW Partnership are governed by the
California Uniform Partnership Act (the "UPA"). Upon the tender and acceptance
of their shares of Heartland Common Stock and the consummation of the FTW
Agreement, the former FTW Partners will become stockholders ("Minority Holders")
of Heartland, a Delaware corporation. As stockholders of a Delaware corporation,
their rights will differ in certain respects from those of a holder of a
partnership interest in a California general partnership. Their rights will also
be governed by the Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of the FTW Partners
and those of Heartland's stockholders are set forth below. This summary is not
intended to be relied upon as an exhaustive list of differences or a detailed
description and analysis of the provisions discussed and is qualified in its
entirety by the DGCL, the UPA and by the Heartland Certificate and Heartland
Bylaws and the Agreement of General Partnership of FTW Partnership (the "FTW
Partnership Agreement").
GENERALLY
Unless a creditor otherwise agrees, each FTW Partner is liable, jointly and
severally, for each of the debts and obligations of the FTW Partnership,
including those arising as a result of the operation of the FTW Venture and its
wireless cable television business. FTW Partnership is not an incorporated
entity, but a general partnership organized pursuant to the UPA. The FTW
Partnership Agreement does not state a period of duration for the partnership,
but instead provides that dissolution of FTW Partnership shall occur upon the
earliest of (i) the failure of the partnership to maintain its licenses or other
channel rights as contemplated in the FTW Partnership Agreement; (ii) the
termination of the license or other lease rights relating to alternative
channels; (iii) the election, by a majority vote of the partners, to terminate
the partnership; or (iv) the date that the partnership does not hold any
interest, whether as owner, secured creditor or otherwise, in the license. FTW
Partnership is structured whereby proprietary interests in the FTW Partnership
are acquired in units, (a "FTW Unit"). As of December 31, 1995, 1,459 FTW Units
were outstanding and no FTW Partner owned more than 5% of the outstanding FTW
Units.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Heartland Preferred Stock have been issued. Stockholders of
Heartland are generally not liable for its debts and obligations.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
Pursuant to the UPA, a California general partnership may be merged into
(i) another general partnership; (ii) a limited partnership; or (iii) a limited
liability company, provided that the merger is specifically permitted by the
general partnership agreement and was approved by at least a majority in
interest in profits from current operations of all general partners. The FTW
Partnership Agreement provides that no partner shall sell, convey, assign, or
encumber all or a portion of its FTW Units, unless the partner first offers the
FTW Units to the FTW Partnership. Furthermore, no assignee shall have the right
to become an FTW partner in place of the assignor unless (i) a duly executed and
acknowledged written instrument of assignment has been filed with the
partnership; (ii) the assignee has executed assignment documents acceptable to
the other partners; and (iii) the transfer complies with all federal and state
securities and FCC laws as evidenced by a legal opinion acceptable to the other
partners.
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DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or, designated as a national market system security on an inter-dealer
quotation system by the NASD. Even if the shares of any class or series of stock
meet the requirements of clause (i) or (ii) above, appraisal rights are
available for such class or series if the holders thereof receive in the merger
or consolidation anything except: (a) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (b) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or held of record by
more than 2,000 stockholders or, only under the DGCL, designated as a national
market system security on an inter-dealer quotation system by the NASD; (c) cash
in lieu of fractional shares of the corporations described in clause (a) or (b)
of this sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c).
The stockholders of Heartland will not receive dissenters or appraisal
rights in connection with the Transactions. Neither the UPA nor the FTW
Partnership Agreement have any provisions which give the FTW Partners dissenters
or appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED PARTIES
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
Neither the UPA nor the FTW Partnership Agreement have any provisions
similar to that of Section 203 of the DGCL.
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AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
The Heartland Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
A California general partnership is not required to file any organizational
document with the Secretary of State's office. As a result, no provision exists
under either the UPA or the FTW Partnership Agreement to amend such a document.
AMENDMENTS TO BYLAWS OR PARTNERSHIP AGREEMENT
Under the DGCL, the power to adopt, alter and repeal the Bylaws is vested
exclusively in the stockholders, except to the extent that the Certificate of
Incorporation vests it in the Board of Directors. The Heartland Certificate
vests in its Board of Directors the power to adopt, amend or repeal Bylaws.
The UPA does not provide any provisions relating to amendments of a
partnership agreement. Pursuant to the FTW Partnership Agreement, an amendment
to the FTW Partnership Agreement requires the consent of a majority of the FTW
Units. In addition, the FTW Partnership Agreement may not be amended without the
consent of the partner(s) to be adversely affected by the amendment to (i) alter
the interest of a partner in income, gain, losses, deductions, credits and
distributions; (ii) increase, add or alter any obligation of any partner; (iii)
affect the status of the partnership as a partnership for federal income tax
purposes; or (iv) alter any provisions in the FTW Partnership Agreement
regarding allocation of profits and losses, distributions to partners and power,
duties and restrictions of the partners.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
Heartland Certificate does not provide for preemptive rights.
Neither the UPA nor the FTW Partnership Agreement have any provisions
relating to preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide any additional requirements
regarding the distribution of dividends.
Pursuant to the FTW Partnership Agreement, distributions of distributable
cash (any excess of total cash received by the partnership after reasonable
working capital requirements are met) shall be made quarterly no later than
thirty (30) days after the end of the fiscal quarter. Distributions are to be
distributed to the partners in the following order and priority: (i) first, to
the partners in proportion to and the extent of their adjusted capital
contribution; and (ii) thereafter, the balance, if any, to the partners in
proportion to the number of Units owned by each.
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DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. The Heartland Bylaws do not
alter the effective period of a proxy. Neither the UPA nor the FTW Partnership
Agreement have any provisions relating to the execution or use of proxies by the
partners of a California general partnership.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate does not provide additional requirements
regarding stockholder action by written consent.
The UPA provides that all partners have equal rights in the management and
conduct of the partnership business. Pursuant to the FTW Partnership Agreement,
each FTW Partner has the absolute right to participate in the management and
control of the FTW Partnership and the partnership business in proportion to the
number of FTW Units owned by such partner. Each FTW Partner shall have one (1)
vote for each FTW Unit owned and all voting shall require a majority vote of a
quorum (meaning a majority of Units). FTW Partners vote on election of FTW
Partners to serve on a management committee, which committee shall devote such
time to the FTW Partnership business as shall be necessary to efficiently and
prudently manage the business of the FTW Partnership. The management committee
may not, without prior written consent of a majority of the FTW Partners (i)
sell, transfer or otherwise dispose of the partnership's license; (ii) dissolve
the partnership, except as specifically provided in the FTW Partnership
Agreement; (iii) change the nature of the partnership business; (iv) continue
the partnership after expiration of its term; (v) do any act which would make it
impossible to carry on the ordinary business of the partnership; (vi) confess a
judgment against the partnership; (vii) do any act in contravention of the FTW
Partnership Agreement; or (viii) execute or deliver any assignment for the
benefit of the creditors of the partnership.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the Board of Directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of the
Heartland Common Stock, to call a special meeting of stockholders for any
purpose or purposes.
Neither the UPA nor the FTW Partnership Agreement make any provisions
regarding special meetings.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The Heartland
Certificate does not provide for cumulative voting for the election of
directors.
Neither the UPA nor the FTW Partnership Agreement make any provisions for
cumulative voting.
NUMBER AND ELECTION OF DIRECTORS/MANAGERS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. The Heartland Certificate does not fix the number
of directors.
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The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Heartland has not established a classified board of
directors.
The UPA makes no provision for the number or election of managers. Pursuant
to the FTW Partnership Agreement, the FTW Partners have elected a management
committee to manage the business affairs of the FTW Partnership.
REMOVAL OF DIRECTORS/MANAGERS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by written consent of the stockholders.
The UPA makes no provision for the removal of managers. The FTW Partnership
Agreement provides that the other partners shall have the right to replace any
or all members of the management committee and to assume the duties of the
management committee upon the written vote of the majority of the FTW Units.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filing of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements
regarding vacancies on its Board of Directors.
Neither the UPA nor the FTW Partnership Agreement make any provisions
regarding vacancies.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests
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of the corporation, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless the court in which such action or suit was
brought or, the Delaware Court of Chancery determines that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper. The Heartland Bylaws
provide that such persons shall be indemnified to the full extent authorized by
the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Under the UPA, a partnership must indemnify every partner with respect to
payments made and personal liabilities reasonably incurred by a partner in the
ordinary and proper conduct of the partnership business, or for the preservation
of the partnership business or property. Pursuant to the FTW Partnership
Agreement, the partnership shall indemnify each partner, any employee or agent
of each partner, and any partnership, employee or agent, against any loss or
threat of loss as a result of any claim or legal proceeding related to the
performance or nonperformance of any act concerning the activities of the
partnership so long as any party against whom the claim is made is not guilty of
fraud, gross negligence or bad faith in such performance or nonperformance. The
indemnification provided shall include payment of reasonable attorneys' fees or
other expenses incurred in settling any claim or threatened action or incurred
in any finally adjudicated legal proceeding, and the removal of any liens
affecting any property of the indemnitee shall be made from the assets of the
partnership. All judgments against the partnership and a partner, wherein a
partner (including any employee, partner, officer and/or director of a partner
or its partners) is entitled to indemnification, must first be satisfied from
partnership assets before the partner is responsible for these obligations.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate contains a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL.
Under the UPA, all partners are jointly and severally liable for everything
chargeable to the partnership regarding (i) a partner's wrongful act or omission
when acting in the ordinary course of the business of the
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partnership or with the authority of the co-partners; and (ii) a partner's
breach of trust to a third party. All partners are jointly liable for all other
debts and obligations of the partnership. Pursuant to the FTW Partnership
Agreement, no partner shall be liable to the other partners for any act or
omission provided the partner is not guilty of fraud, gross negligence or bad
faith in such performance or failure.
COMPARISON OF RIGHTS OF EQUITY HOLDERS OF
HEARTLAND AND MINNEAPOLIS PARTNERSHIP
The rights of the Minneapolis Partners in the Minneapolis Partnership are
governed by the UPA. Upon the tender and acceptance of their shares of Heartland
Common Stock and the consummation of the Minneapolis Agreement, the former
Minneapolis Partners will become stockholders ("Minority Holders") of Heartland,
a Delaware corporation. As stockholders of a Delaware corporation, their rights
will differ in certain respects from those of a holder of a partnership interest
in a California general partnership. Their rights will also be governed by the
Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of the Minneapolis
Partners and those of Heartland's stockholders are set forth below. This summary
is not intended to be relied upon as an exhaustive list of differences or a
detailed description and analysis of the provisions discussed and is qualified
in its entirety by the DGCL, the UPA, the Heartland Certificate, the Heartland
Bylaws and the Agreement of General Partnership of the Minneapolis Partnership
(the "Minneapolis Partnership Agreement").
GENERALLY
The Minneapolis Partnership is not an incorporated entity, but a general
partnership organized pursuant to the UPA. Unless a creditor otherwise agrees,
each Minneapolis Partner is liable, jointly and severally, for the debts and
obligations of the Minneapolis Partnership. The Minneapolis Partnership
Agreement does not state a period of duration for the partnership, but instead
provides that dissolution of the Minneapolis Partnership shall occur upon the
earliest of (i) the failure of the partnership to maintain its licenses or other
channel rights as contemplated in the Minneapolis Partnership Agreement; (ii)
the termination of the license or other lease rights relating to alternative
channels; (iii) the election, by a majority vote of the partners, to terminate
the partnership; or (iv) the partnership does not hold any interest, whether as
owner, secured creditor or otherwise, in the license. The Minneapolis
Partnership is structured whereby proprietary interests in the partnership are
acquired in units, (a "Minneapolis Unit"). As of December 31, 1995, 2,079
Minneapolis Units were outstanding and each Minneapolis Partner owned less than
1% of the outstanding Minneapolis Units.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Preferred Stock have been issued. Stockholders of Heartland are
generally not responsible for its debts and obligations.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets to be consummated.
Pursuant to the UPA, a California general partnership may be merged into
(i) another general partnership; (ii) a limited partnership; or (iii) a limited
liability company, provided that the merger is specifically permitted by the
general partnership agreement and was approved by at least a majority in
interest in profits from current operations of all general partners. The
Minneapolis Partnership Agreement provides that no partner shall sell, convey,
assign, or encumber all or a portion of its Minneapolis Units, unless the
partner first offers the Minneapolis Units to the partnership. Furthermore, no
assignee shall have the right to become a partner in place of the assignor
unless (i) a duly executed and acknowledged written instrument of
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assignment has been filed with the partnership; (ii) the assignee has executed a
written acceptance and adoption of the provisions of the Minneapolis Partnership
Agreement; and (iii) the transfer complies with all federal and state securities
and FCC laws.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the NASD. Even if the shares of any class or series of stock
meet the requirements of clause (i) or (ii) above, appraisal rights are
available for such class or series if the holders thereof receive in the merger
or consolidation anything except: (a) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (b) shares of stock of
any other corporation which at the effective date of the merger or consolidation
will be either listed on a national securities exchange or held of record by
more than 2,000 stockholders or, only under the DGCL, designated as a national
market system security on an inter-dealer quotation system by the NASD; (c) cash
in lieu of fractional shares of the corporations described in clause (a) or (b)
of this sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c).
The stockholders of Heartland will not receive dissenters or appraisal
rights in connection with the Transactions. Neither the UPA nor the Minneapolis
Partnership Agreement have any provisions which give the Minneapolis Partners
dissenters or appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
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Neither the UPA nor the Minneapolis Partnership Agreement have any
provisions similar to that of Section 203 of the DGCL.
AMENDMENTS TO CERTIFICATE OF INCORPORATION OR PARTNERSHIP AGREEMENT
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
The Heartland Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
A California general partnership is not required to file any organizational
documents with the Secretary of State's office. As a result, no provision exists
under either the UPA or the Minneapolis Agreement to amend such a document.
AMENDMENTS TO BYLAWS OR PARTNERSHIP AGREEMENT
Under the DGCL, the power to adopt, alter and repeal the Bylaws is vested
exclusively in the stockholders, except to the extent that the Certificate of
Incorporation vests it in the Board of Directors. The Heartland Certificate
vests in its Board of Directors the power to adopt, amend or repeal Bylaws.
The UPA does not provide any provisions relating to amendments to a
partnership agreement. Pursuant to the Minneapolis Partnership Agreement, an
amendment to the Minneapolis Partnership Agreement requires the consent of a
majority of the Units. In addition, the Minneapolis Partnership Agreement may
not be amended without the consent of the partner(s) to be adversely affected by
the amendment to (i) alter the interest of a partner in income, gain, losses,
deductions, credits and distributions; (ii) increase, add or alter any
obligation of any partner; (iii) affect the status of the partnership as a
partnership for federal income tax purposes; or (iv) alter any provisions in the
Minneapolis Partnership Agreement regarding allocation of profits and losses,
distributions to partners and power, duties and restrictions of the partners.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
Heartland Certificate does not provide for preemptive rights.
Neither the UPA nor the Minneapolis Partnership Agreement have any
provisions relating to the preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide additional requirements
regarding the distribution of dividends.
Pursuant to the Minneapolis Partnership Agreement, distributions of
distributable cash (any excess of total cash received by the partnership after
reasonable working capital requirements are met) shall be made quarterly no
later than thirty (30) days after the end of the fiscal quarter. Distributions
are to be distributed to the partners in the following order and priority: (i)
first, to the partners in proportion to and the extent of their
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adjusted capital contribution; and (ii) thereafter, the balance, if any, to the
partners in proportion to the number of Minneapolis Units owned by each.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. The Heartland Bylaws do not
alter the effective period of a proxy. Neither the UPA nor the Minneapolis
Partnership Agreement make any provisions for the execution or use of proxies by
the partners of a California general partnership.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate does not provide additional requirements
regarding stockholder action by written consent.
The UPA provides that all partners have equal rights in the management and
conduct of the partnership business. Pursuant to the Minneapolis Partnership
Agreement, each Minneapolis Partner has the absolute right to participate in the
management and control of the Minneapolis Partnership and the partnership
business in proportion to the number of Minneapolis Units owned by such partner.
Each Minneapolis Partner shall have one (1) vote for each Minneapolis Unit owned
and all voting shall require a majority vote of a quorum (meaning a majority of
Minneapolis Units). Minneapolis Partners vote on election of Minneapolis
Partners to serve on the management committee, which committee shall devote such
time to the Minneapolis Partnership business as shall be necessary to
efficiently and prudently manage the business of the Minneapolis Partnership.
The management committee may not, without prior written consent of a majority of
the partners (i) sell, transfer or otherwise dispose of the partnership's
license; (ii) dissolve the partnership, except as specifically provided in the
Minneapolis Partnership Agreement; (iii) change the nature of the partnership
business; (iv) continue the partnership after expiration of its term; (v) do any
act which would make it impossible to carry on the ordinary business of the
partnership; (vi) confess a judgment against the partnership; (vii) do any act
in contravention of the Minneapolis Partnership Agreement; or (viii) execute or
deliver any assignment for the benefit of the creditors of the partnership.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the Board of Directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of the
Heartland Common Stock, to call a special meeting of stockholders for any
purpose or purposes.
Neither the UPA nor the Minneapolis Partnership Agreement make any
provisions regarding special meetings.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The Heartland
Certificate does not provide for cumulative voting for the election of
directors.
Neither the UPA nor the Minneapolis Partnership Agreement make any
provisions for cumulative voting.
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NUMBER AND ELECTION OF DIRECTORS/MANAGERS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. The Heartland Certificate does not fix the number
of directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Heartland has not established a classified board of
directors.
The UPA makes no provision for the number or election of managers. Pursuant
to the Minneapolis Partnership Agreement, the Minneapolis Partners have elected
a management committee to manage the business affairs of the Minneapolis
Partnership.
REMOVAL OF DIRECTORS/MANAGERS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed with or without cause, at any time by vote at an
election of directors or by written consent of the stockholders.
The UPA makes no provision for the removal of directors. The Minneapolis
Partnership Agreement provides that the other partners shall have the right to
replace any or all members of the management committee and to assume the duties
of the management committee upon the written vote of the majority of the Units.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filing of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements
regarding vacancies on its Board of Directors.
Neither the UPA nor the Minneapolis Partnership Agreement make any
provisions regarding vacancies.
217
<PAGE> 873
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Under the UPA, a partnership must indemnify every partner with respect to
payments made and personal liabilities reasonably incurred by a partner in the
ordinary and proper conduct of the partnership business, or for the preservation
of the partnership business or property. Pursuant to the Minneapolis Partnership
Agreement, the partnership shall indemnify each partner, any employee or agent
of each partner, and any partnership, employee or agent, against any loss or
threat of loss as a result of any claim or legal proceeding related to the
performance or nonperformance of any act concerning the activities of the
partnership so long as any party against whom the claim is made is not guilty of
fraud, gross negligence or bad faith in such performance or nonperformance. The
indemnification provided shall include payment of reasonable attorneys' fees or
other expenses incurred in settling any claim or threatened action or incurred
in any finally adjudicated legal proceeding, and the removal of any liens
affecting any property of the indemnitee shall be made from the assets of the
partnership. All judgments against the partnership and a partner, wherein a
partner (including any employee, partner, officer and/or director of a partner
or its partners) is entitled to indemnification, must first be satisfied from
partnership assets before the partner is responsible for these obligations.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for
218
<PAGE> 874
(i) any breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) violation of
certain provisions of the DGCL; (iv) any transaction from which the director
derived an improper personal benefit; or (v) any act or omission prior to the
adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate contains a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL.
Under the UPA, all partners are jointly and severally liable for everything
chargeable to the partnership regarding (i) a partner's wrongful act or omission
when acting in the ordinary course of the business of the partnership or with
the authority of the co-partners; and (ii) a partner's breach of trust to a
third party. All partners are jointly liable for all other debts and obligations
of the partnership. Pursuant to the Minneapolis Partnership Agreement, no
partner shall be liable to the other partners for any act or omission provided
the partner is not guilty of fraud, gross negligence or bad faith in such
performance or failure.
EXPERTS
The consolidated financial statements and schedule of Heartland Wireless
Communications, Inc. as of December 31, 1994 and 1993, and for each of the years
in the three-year period ended December 31, 1994, have been included herein and
in the registration statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of American Wireless Systems, Inc. included in
this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
The consolidated financial statements of Fort Worth Wireless Cable T.V.
Associates included in this Proxy Statement/Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report. Reference is made to said report which includes an explanatory paragraph
that describes factors raising substantial doubt about the Company's ability to
continue as a going concern.
The consolidated financial statements of Wireless Cable T.V. Associates #38
included in this Proxy Statement/Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report. Reference is made to
said report which includes an explanatory paragraph that describes factors
raising substantial doubt about the Company's ability to continue as a going
concern.
LEGAL MATTERS
The validity of the shares of Heartland Common Stock being offered hereby
is being passed upon for Heartland by Arter & Hadden, 1717 Main Street, Suite
4100, Dallas, Texas 75201.
219
<PAGE> 875
GLOSSARY
As used in this Proxy Statement/Prospectus, the following terms shall have
the meaning set forth below:
"AWS" means American Wireless Systems, Inc., a Delaware corporation.
"AWS Merger" means the merger of AWS Merger Sub into AWS pursuant to the
terms of the AWS Merger Agreement.
"AWS Merger Agreement" means the Amended and Restated Agreement and Plan of
Merger dated as of September 11, 1995 among AWS, AWS Merger Sub and Heartland.
"AWS Merger Sub" means Heartland Merger Sub, Inc., a Delaware corporation
and wholly owned subsidiary of Heartland.
"CMAX" means CableMaxx, Inc., a Delaware corporation.
"CMAX Merger" means the merger of CMAX Merger Sub into CMAX pursuant to the
terms of the CMAX Merger Agreement.
"CMAX Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger dated as of September 11, 1995 among CMAX, CMAX Merger Sub and
Heartland.
"CMAX Merger Sub" means Heartland Merger Sub 2, Inc., a Delaware
corporation and wholly owned subsidiary of Heartland.
"Combined Company" means the businesses and operations of Heartland
following the consummation, to the extent consummated, of the Transactions.
"FTW Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 4, 1995 between FTW Partnership and Heartland.
"FTW Partnership" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
"FTW Transaction" means the transactions contemplated by the FTW Agreement.
"FTW Venture" means the informal joint venture between FTW Partnership and
AWS that owns and operates a wireless cable television system in Fort Worth,
Texas.
"Heartland" means Heartland Wireless Communications, Inc., a Delaware
corporation.
"Heartland Disposition Assets" means those assets of Heartland, AWS, CMAX,
the FTW Venture, the Minneapolis LLC and TSC that Heartland has determined to
dispose of prior to, following or contemporaneously with the consummation of the
Transactions.
"Minneapolis Agreement" means the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 between Heartland and Minneapolis
Partnership.
"Minneapolis LLC" means American Wireless System of Minneapolis, L.L.C., a
Delaware limited liability company that owns and operates a wireless cable
television system in Minneapolis, Minnesota, of which Minneapolis Partnership
owns a 75% equity interest and AWS owns a 25% membership interest.
"Minneapolis Partnership" means Wireless Cable TV Associates # 38, a
California general partnership.
"Minneapolis Transaction" means the transactions contemplated by the
Minneapolis Agreement.
"Technivision" means Technivision, Inc., a former subsidiary of TSC that
has been merged with TSC.
"Transactions" means the AWS Merger, the CMAX Merger, the FTW Transaction,
the Minneapolis Transaction and the TSC Transaction.
"TSC" means Three Sixty Corp., a New Jersey corporation.
"TSC Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 19, 1995 among Heartland, Technivision and TSC.
"TSC Transaction" means the transactions contemplated by the TSC Agreement.
220
<PAGE> 876
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Heartland Wireless Communications, Inc.:
Independent Auditors' Report........................................................ F-3
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1992, 1993 and 1994 and for the nine months ended September 30, 1995
(unaudited)...................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-7
Notes to Consolidated Financial Statements.......................................... F-8
American Wireless Systems, Inc.:
Report of Independent Public Accountants............................................ F-22
Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-23
Statements of Operations for the ten months ended December 31, 1992, the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1994 and
1995 (unaudited)................................................................. F-24
Statements of Stockholders' Equity for the ten months ended December 31, 1992, the
years ended December 31, 1993 and 1994 and for the nine months ended September
30, 1995
(unaudited)...................................................................... F-25
Statements of Cash Flows for the ten months ended December 31, 1992, the years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1994 and
1995 (unaudited)................................................................. F-26
Notes to Financial Statements....................................................... F-27
Fort Worth Wireless Cable T.V. Associates:
Report of Independent Public Accountants............................................ F-39
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-40
Consolidated Statements of Operations for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-41
Consolidated Statements of Partners' Equity for the years ended December 31, 1992,
1993 and 1994 and for the nine months ended September 30, 1995 (unaudited)....... F-42
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-43
Notes to Consolidated Financial Statements.......................................... F-44
Wireless Cable T.V. Associates #38:
Report of Independent Public Accountants............................................ F-49
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-50
Consolidated Statements of Operations for the ten months ended December 31, 1992,
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1994 and 1995 (unaudited).................................................... F-51
Consolidated Statements of Partners' Equity for the ten months ended December 31,
1992, the years ended December 31, 1993 and 1994 and the nine months ended
September 30, 1995 (unaudited)................................................... F-52
</TABLE>
F-1
<PAGE> 877
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Consolidated Statements of Cash Flows for the ten months ended December 31, 1992,
the years ended December 31, 1993 and 1994 and the nine months ended September
30, 1994 and 1995 (unaudited).................................................... F-53
Notes to Consolidated Financial Statements.......................................... F-54
Unaudited Pro Forma Financial Information:
Heartland Wireless Communications, Inc.:
Introduction to Unaudited Pro Forma Condensed Financial Statements for Consummated
Events........................................................................... F-59
Unaudited Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as
of September 30, 1995............................................................ F-60
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the year ended December 31, 1994...................................... F-61
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the nine months ended September 30, 1995.............................. F-62
Notes to Pro Forma Statements for Consummated Events................................ F-63
</TABLE>
F-2
<PAGE> 878
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, 1993 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,
1994. 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, 1993 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, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 3, 1995, except as to note 11
which is as of March 27, 1995
F-3
<PAGE> 879
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER
------------------------- 30,
1993 1994 1995
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 815,305 $11,985,953 $ 37,155,064
Restricted assets -- investments in debt
securities....................................... -- -- 11,669,874
Subscriber receivables, net of allowance for
doubtful accounts of $25,082 in 1993, $122,901 in
1994 and $551,866 in 1995........................ 74,560 219,287 1,407,830
Prepaid expenses and other.......................... 300,967 829,790 1,981,640
Note receivable (note 9)............................ -- 2,000,000 --
Assets held for sale (note 8)....................... -- 12,500,000 9,200,000
---------- ----------- ------------
Total current assets........................ 1,190,832 27,535,030 61,414,408
---------- ----------- ------------
Investment in joint venture (note 8).................. -- 12,044,392 --
Systems and equipment, net (notes 2 and 3)............ 3,036,226 16,765,179 46,027,017
Leased license investment, net of accumulated
amortization of $14,167 in 1993, $179,593 in 1994
and $785,362 in 1995 (note 8)....................... 4,286,867 16,740,139 64,726,389
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $80,815 in 1994
and $223,819 in 1995 (note 4)....................... -- 2,565,178 4,470,286
Restricted assets -- investment in debt securities.... -- -- 13,077,340
Other assets, net..................................... 151,141 2,271,610 10,435,034
---------- ----------- ------------
$8,665,066 $77,921,528 $200,150,474
========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 522,240 $ 3,840,744 $ 3,745,724
Accrued expenses and other liabilities.............. 329,783 1,062,253 6,498,639
Current portion of long-term debt (note 3).......... 338,851 19,918 616,610
---------- ----------- ------------
Total current liabilities................... 1,190,874 4,922,915 10,860,973
---------- ----------- ------------
Long-term debt, less current portion (note 3)......... 1,253,678 40,485,934 139,428,429
Deferred income taxes (note 6)........................ -- 1,045,959 1,287,560
Other long-term liabilities........................... 13,520 -- --
Minority interests in subsidiaries (note 4)........... 1,714,426 1,385,835 279,695
Stockholders' equity (note 5):
Common stock, $.001 par value; authorized 50,000,000
shares, issued 8,000,000 shares in 1993,
11,109,280 shares in 1994 and 12,476,393 shares
in 1995.......................................... 8,000 11,109 12,476
Additional paid-in capital.......................... 5,029,675 33,658,204 63,047,864
Accumulated deficit................................. (545,107) (3,588,428) (14,766,523)
---------- ----------- ------------
Total stockholders' equity.................. 4,492,568 30,080,885 48,293,817
---------- ----------- ------------
Commitments and contingencies (notes 7, 8 and 10) $8,665,066 $77,921,528 $200,150,474
========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 880
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 NINE MONTHS ENDED SEPTEMBER 30
------------------------------------- ------------------------------
1992 1993 1994 1994 1995
-------- ---------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
-------- ---------- ----------- ----------- -------------
Operating expenses:
Systems operations.................... 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.................... -- 202,162 235,025 235,025 --
Selling, general and administrative... 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and amortization......... 34,919 138,560 1,097,668 418,960 3,966,120
-------- ---------- ----------- ----------- -------------
Total operating expenses...... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
-------- ---------- ----------- ----------- -------------
Operating loss................ (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Other income (expense):
Interest income....................... 1,185 9,610 379,654 189,308 2,044,092
Interest expense...................... (1,392) (82,916) (589,767) (128,789) (8,908,459)
Equity in losses of joint venture
(note 8)........................... -- -- (386,985) (163,119) (128,663)
Other expense (notes 3, 4 and 9)...... (37,109) (95,578) (227,204) (34,192) (475,146)
-------- ---------- ----------- ----------- -------------
Total other income
(expense)................... (37,316) (168,884) (824,302) (136,792) (7,468,176)
-------- ---------- ----------- ----------- -------------
Loss before income taxes...... (50,822) (406,101) (4,638,284) (1,863,404) (12,485,232)
Income tax benefit (note 6)............. -- -- 1,594,963 649,510 1,307,137
-------- ---------- ----------- ----------- -------------
Net loss...................... $(50,822) $ (406,101) $(3,043,321) $(1,213,894) $ (11,178,095)
======== ========== =========== =========== =============
Net loss per common share............... $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
======== ========== =========== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 881
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991.................. 8,000,000 $ 8,000 $ 253,593 $ (88,184) $ 173,409
Equity transactions of subsidiaries (note
4)........................................ -- -- 881,235 -- 881,235
Net loss.................................... -- -- -- (50,822) (50,822)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1992........ 8,000,000 8,000 1,134,828 (139,006) 1,003,822
Formation of Heartland Wireless
Communications, Inc. (note 1)............. -- -- 3,000,000 -- 3,000,000
Equity transactions of subsidiaries (note
4)........................................ -- -- 807,472 -- 807,472
Other (note 9).............................. -- -- 87,375 -- 87,375
Net loss.................................... -- -- -- (406,101) (406,101)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1993........ 8,000,000 8,000 5,029,675 (545,107) 4,492,568
Issuance of common stock pursuant to initial
public offering (note 5).................. 2,415,000 2,415 22,349,798 -- 22,352,213
Issuance of common stock for acquisitions
(note 4).................................. 694,280 694 6,278,731 -- 6,279,425
Net loss.................................... -- -- -- (3,043,321) (3,043,321)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1994........ 11,109,280 11,109 33,658,204 (3,588,428) 30,080,885
Issuance of common stock, primarily for
minority interests and other acquisitions
(unaudited)............................... 1,367,113 1,367 29,389,660 -- 29,391,027
Net loss (unaudited)........................ -- -- -- (11,178,095) (11,178,095)
---------- ------- ----------- ------------ -----------
Balance, September 30, 1995
(unaudited)..................... 12,476,393 $12,476 $63,047,864 $(14,766,523) $48,293,817
========== ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 882
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------------- --------------------------
1992 1993 1994 1994 1995
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (50,822) $ (406,101) $ (3,043,321) $(1,213,894) $(11,178,095)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 34,919 138,560 1,097,668 418,960 3,966,120
Deferred income tax benefit................... -- -- (1,594,963) (649,510) (1,307,137)
Accretion on convertible discount
notes....................................... -- -- 301,125 -- 3,156,858
Equity in losses of joint venture............. -- -- 386,985 163,119 128,663
Other......................................... 5,100 65,668 (16,205) 7,890 12,216
Changes in assets and liabilities:
Subscriber receivables...................... (6,123) (68,437) (57,362) (21,942) (1,160,242)
Inventories................................. -- (251,172) -- -- --
Prepaid expenses and other.................. (6,496) (395,300) (656,061) (308,385) (765,834)
Accounts payable, accrued expenses and other
liabilities.............................. 51,442 809,962 4,292,617 567,250 4,789,383
----------- ----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities............................. 28,020 (106,820) 710,483 (1,036,512) (2,358,068)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Investment in joint venture..................... -- -- (12,431,379) (11,649,908) (5,426,432)
Proceeds from assets held for sale.............. -- -- -- -- 3,323,250
Purchases of systems and equipment.............. (604,082) (2,072,937) (12,414,501) (4,011,480) (25,575,252)
Expenditures for leased licenses................ (797,655) (3,068,084) (3,354,471) (2,465,265) (1,592,024)
Restricted assets -- investment in debt
securities.................................... -- -- -- (7,283,777) (24,747,214)
Acquisitions.................................... -- -- (16,300,000) -- (11,422,814)
Issuance of note receivable..................... -- -- (2,000,000) -- --
Other........................................... -- -- -- -- (2,250,000)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities............................. (1,401,737) (5,141,021) (46,500,351) (25,410,430) (67,690,486)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......... -- 2,000,000 22,352,213 22,283,365 --
Proceeds from Units Offering.................... -- -- -- -- 100,000,000
Proceeds from minority interest owners.......... 1,430,900 1,553,355 -- -- --
Purchase of minority interests.................. -- -- (1,608,895) (1,408,858) --
Proceeds from short-term borrowings and notes
payable....................................... -- 2,992,364 10,408,542 10,408,542 3,070,070
Proceeds from convertible discount notes........ -- -- 40,150,000
Payments on short-term borrowings and notes
payable....................................... -- (399,835) (11,946,344) (2,001,071) (3,105,977)
Payments to stockholders and affiliates......... (523,493) (727,189) -- -- --
Proceeds from stockholders and affiliates....... 578,035 479,480 -- -- --
Debt issuance costs............................. -- -- (2,395,000) (495,000) (4,783,975)
Other........................................... -- -- -- -- 37,547
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities............................. 1,485,442 5,898,175 56,960,516 28,786,978 95,217,665
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 111,725 650,334 11,170,648 2,340,036 25,169,111
Cash and cash equivalents at beginning of
period.......................................... 53,246 164,971 815,305 815,305 11,985,953
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end of period........ $ 164,971 $ 815,305 $ 11,985,953 $ 3,155,341 $ 37,155,064
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 883
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1994
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1994 AND 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and History
Heartland Wireless Communications, Inc. (the "Company") develops, owns and
operates wireless cable television systems. The Company has wireless cable
channel rights in various wireless cable television markets located primarily in
the central United States. The Company's first operational system, located in
Ada, Oklahoma, commenced operations in April 1992. Currently, the Company
provides service in fifteen markets located in Texas, Oklahoma, Kansas and
Louisiana. 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) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and costs associated with subscriber installations are
capitalized. Upon subscriber disconnect, the Company continues to depreciate the
full capitalized installation cost subsequent to the disconnection. Depreciation
and amortization are recorded on a straight-line basis for financial reporting
purposes over useful lives ranging from 6 to 10 years. Repair and maintenance
costs are charged to expense when incurred; renewals and betterments are
capitalized.
Equipment awaiting installation consists primarily of accessories, parts
and supplies for subscriber installations and is stated at the lower of average
cost or market.
(d) Leased License Investment
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Costs incurred to acquire 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, 1994, approximately $12,040,000 of the
leased license investment was not yet subject to amortization. The Company
continually reevaluates the propriety of the carrying amounts of the leased
license investment with respect to each market as well as the amortization
period based on
F-8
<PAGE> 884
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management's estimate of the fair value of each market to determine whether
current events and circumstances warrant adjustments to the carrying amounts or
a revised estimate of the useful life.
(e) 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 ($237,730 in 1994 and $213,005 in 1993).
Installation fees are recognized upon origination of service to a subscriber to
the extent of costs incurred to obtain subscribers. Installation revenues in
excess of such costs will be deferred and amortized over six years.
(f) Systems Operations
Systems operations expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
(g) 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.
(h) Sales of Subsidiary Stock
Gains and losses from the sales of stock by the Company's majority-owned
subsidiaries are accounted for as equity transactions in consolidation.
(i) 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 8,000,000 for the years
ended December 31, 1992 and 1993, 10,041,000 for the year ended December 31,
1994 and 9,693,000 and 11,624,000 for the nine-month periods ended September 30,
1994 and 1995, respectively. The weighted average number of common shares
outstanding in each period gives retroactive effect to an 8,000-for-one split of
the Company's common stock (see note 5).
Shares issuable upon exercise of stock options and warrants 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.
(j) 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, 1992 and 1993, the Company had noncash
investing and financing activities. During 1992, an affiliate contributed
systems and equipment in the amount of $133,403 for preferred stock in a
subsidiary of the Company. During 1993, the Company acquired certain systems and
equipment by assuming notes payable in the amount of $388,017, 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 $114,511.
Cash paid during 1993 and 1994 for interest was $67,124 and $296,596,
respectively (none in 1992).
F-9
<PAGE> 885
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial information of the Company contains all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of September 30, 1995, and the
results of operations and cash flows for the nine months ended September 30,
1994 and 1995. These results are not necessarily indicative of the results to be
expected for the full fiscal year.
(2) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Equipment awaiting installation............................. $ 336,920 $ 3,034,453
Subscriber premises equipment and installation costs........ 676,347 6,581,632
Transmission equipment and system construction costs........ 1,969,039 7,350,607
Office furniture and equipment.............................. 139,946 406,936
Buildings and leasehold improvements........................ 70,286 145,550
---------- -----------
3,192,538 17,519,178
Accumulated depreciation and amortization................... (156,312) (753,999)
---------- -----------
$3,036,226 $16,765,179
========== ===========
</TABLE>
As of December 31, 1994, equipment awaiting installation and approximately
$914,000 of transmission equipment and system construction costs were not yet
subject to depreciation.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Convertible subordinated discount notes..................... $ -- $40,451,125
Notes payable............................................... 1,592,529 54,727
---------- -----------
1,592,529 40,505,852
Less current portion........................................ 338,851 19,918
---------- -----------
$1,253,678 $40,485,934
========== ===========
</TABLE>
On November 30, 1994, the Company consummated the private placement of
$40,150,000 in gross proceeds of 9% Convertible Subordinated Discount Notes
("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. The Note Purchase Agreement contains 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.
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
F-10
<PAGE> 886
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As the Convertible Notes have been outstanding
for only a short period of time, the carrying amounts of borrowings outstanding
at December 31, 1994 approximate estimated fair value.
On March 31, 1994, the Company entered into an agreement with a bank for a
$15,000,000 Revolving Credit Facility (the "Facility"). Outstanding borrowings
under the Facility will bear interest at the bank's corporate base rate plus
1.5% per annum or LIBOR plus 4.0% per annum, at the Company's option. The
Facility will be on a revolving basis for three years with all outstanding
borrowings at the end of the third year converting to a term loan payable in
equal quarterly installments over three years. The Company must pay an annual
commitment fee of 3/8% per annum on the unused portion of the Facility. The
total amount of borrowings under the Facility will be subject to certain
limitations. Borrowings under the Facility will be secured by substantially all
the Company's assets and the capital stock of the Company's subsidiaries. The
Facility contains certain restrictive covenants that, among other things,
require the Company to satisfy certain financial ratios, and limit the ability
of the Company and its subsidiaries to pay dividends, repurchase Company stock
and incur additional indebtedness. No amounts were outstanding under the
Facility at December 31, 1994. Prior to borrowing any funds under the Facility,
the Company would need to obtain a waiver from the bank of certain conditions
and covenants relating to the sale of the Convertible Notes. The Company does
not currently intend to borrow any funds under the Facility. The Company is
actively pursuing alternative bank financing on terms, including an increased
amount of a facility, which the Company believes are more favorable than those
under the Facility.
In 1994, the Company incurred a recapitalization charge of $205,575 that is
included in other expense in the accompanying statement of operations. This
charge related to costs incurred in connection with a rescinded offering of debt
securities.
Aggregate maturities of long-term debt as of December 31, 1994 for the five
years ending December 31, 1999 are as follows: 1995 -- $19,918; 1996 -- $21,054
and 1997 -- $13,755.
(4) MINORITY INTERESTS
In connection with the development of certain wireless cable television
markets, the Company has sold stock in certain of its subsidiary companies
principally for cash. Total consideration received from the sales of subsidiary
stock amounted to $1,430,900 in 1992 and $1,553,355 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. Minority ownership interests in
the outstanding common stock of such subsidiary companies range from 5% to
49.9999%.
As a result of the sales of subsidiary stock, the Company's investment in
majority-owned subsidiaries increased by $881,235 in 1992 and $807,472 in 1993.
Such increases have 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 increases since the Company
ultimately expects to recover its investments in the subsidiaries in a tax-free
manner.
Certain of the Company's subsidiaries have issued preferred stock, a
portion of which is held by outside third parties. Preferred stock owned by
outside third parties in the amounts of $453,935 at December 31, 1993 and 1994
has been reflected as minority interests in the accompanying consolidated
balance sheets. Dividends on the preferred stock accrue at 8% of the stated
value per share per year and are cumulative. Preferred stock dividends of the
subsidiaries with respect to the third party ownership were $14,006 in 1992,
$26,606 in 1993 and $36,315 in 1994 and are included in other expense in the
accompanying statements of operations.
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
F-11
<PAGE> 887
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,609,000 in cash and 44,280 restricted shares of common stock.
The acquisitions of the minority ownership interests were accounted for as
purchases. For financial reporting purposes, the total purchase price was
approximately $7,882,000 and assumes a value per share of $8.93 to $10.75 for
the restricted shares. The excess (approximately $2,646,000) of the purchase
price over the fair value of the net identifiable assets acquired will be
amortized on a straight-line basis over 20 years. Pro forma disclosures that
include the effects of the acquisitions of the minority interests would not be
materially different from historical information and have not been presented.
In February 1995, the Company offered to exchange approximately 380,000
shares of its common stock for the minority interests in certain of its
subsidiaries (the "Minority Interest Exchange Offer"). The exchange ratio with
respect to each minority interest was determined by management of the Company
based upon the estimated fair market value of each respective subsidiary. The
Minority Interest Exchange Offer expired on March 15, 1995. On March 15, 1995,
Heartland issued an aggregate of 304,038 shares of common stock in exchange for
minority interests in 21 subsidiaries.
(5) STOCKHOLDERS' EQUITY
(a) Change in Capital Structure
On January 18, 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-one 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
On April 28, 1994, the Company completed an initial public offering of
2,100,000 shares of its common stock. On June 9, 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 $22.3 million. The net proceeds have been used to repay
indebtedness, construct operating systems, finance operating losses in certain
markets and corporate overhead, acquire certain minority interests in
subsidiaries, acquire or secure the Company's existing channel rights and fund a
portion of the acquisition of certain RuralVision Joint Venture assets.
(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 key 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 are 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
F-12
<PAGE> 888
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1994 activity in stock options under
these plans:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE RANGE
--------- ----------------
<S> <C> <C>
Granted.................................................. 543,000 $10.50 - $11.125
Cancelled................................................ (130,000) $10.50
--------
Outstanding at December 31, 1994....................... 413,000 $10.50 - 11.125
========
Exercisable at December 31, 1994....................... 148,000 $10.50
========
</TABLE>
As of December 31, 1994, 587,000 shares were available for grant under the
stock option plans.
(6) INCOME TAXES
Income tax benefit of $1,594,963 for the year ended December 31, 1994
consists of a deferred tax benefit.
Income tax benefit for the years ended December 31, 1992, 1993 and 1994
differed from the amount computed by applying the U.S. federal income tax rate
of 34% to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- ----------
<S> <C> <C> <C>
Computed "expected" tax benefit................... $(17,299) $(138,074) $(1,577,017)
Amortization of goodwill.......................... -- -- 27,540
State tax benefit, net............................ -- -- (103,500)
Loss for which no tax benefit was recognized...... 17,299 138,074 58,014
-------- --------- -----------
$ -- $ -- $(1,594,963)
======== ========= ===========
</TABLE>
F-13
<PAGE> 889
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts..................................... $ 8,528 $ 45,473
Basis differences between assigned values and tax bases
of stock of subsidiaries.............................. -- 791,453
Investment in joint venture.............................. -- 609,668
Accretion on Convertible Notes........................... -- 115,486
Leased license investment, principally due to start-up
costs not yet deductible for tax purposes............. 120,538 120,538
Net operating loss carryforwards......................... 136,359 1,082,567
--------- ----------
Total gross deferred tax assets.................. 265,425 2,765,185
Less valuation allowance................................. (183,295) (791,553)
--------- ----------
Net deferred tax assets.......................... 82,130 1,973,632
--------- ----------
Deferred tax liabilities:
Systems and equipment, principally due to differences in
depreciation.......................................... (82,130) (81,575)
Leased license investment................................ -- (2,938,016)
--------- ----------
Total gross deferred tax liabilities............. (82,130) (3,019,591)
--------- ----------
Net deferred tax liability....................... $ -- $1,045,959
========= ==========
</TABLE>
The net changes in the total valuation allowance for the years ended
December 31, 1994 and 1993 were increases of $183,295 and $791,553,
respectively. 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, 1994, the Company has approximately $2,926,000 of
federal income tax loss carryforwards which expire in years 2005 through 2009.
(7) LEASES
The Company leases from third parties channel rights licensed by the FCC.
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 the Company's channel leases range
from 5 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
provide for either a right of first refusal or automatic renewal of their terms
upon FCC renewal of the underlying license, grant the Company a right of first
refusal to purchase the channels after the expiration of the lease and/or
require the parties to negotiate renewal 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.
F-14
<PAGE> 890
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payments under the channel rights lease agreements 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. Channel
rights lease expense was $1,000, $25,260 and $94,865 for the years ended
December 31, 1992, 1993 and 1994, respectively.
In connection with the purchase of certain assets on December 1, 1994 for
RuralVision Joint Venture as discussed in note 8, the Company is obligated under
channel rights lease agreements which require royalty payments upon grant of the
channel rights. Channel rights lease expense was $72,132 for year ended December
31, 1994.
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 $24,375, $41,761 and $205,210 for the years ended December
31, 1992, 1993 and 1994, respectively.
Future minimum lease payments due under channel rights leases for
operational systems and other noncancellable operating leases in effect at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
DECEMBER 31, LEASES LEASES
- ------------ --------- ---------
<S> <C> <C>
1995........................................... $1,481,275 $25,941
1996........................................... 1,599,500 26,139
1997........................................... 1,650,000 25,573
1998........................................... 1,649,450 16,461
1999........................................... 1,629,100 1,212
</TABLE>
(8) RURALVISION ACQUISITION
On August 19, 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") have a 50% interest, purchased
certain assets (the "Rural Vision 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 $50.0 million for the RuralVision
Assets was comprised of a $46.0 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 have guaranteed the payment of the RuralVision Note.
As of December 31, 1994, the remaining balance outstanding under the RuralVision
Note was $8.0 million. The Company's investment in RuralVision Joint Venture has
been accounted for under the equity method of accounting.
On January 27, 1995, the Company, Cross Country and RuralVision entered
into 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 balance of the RuralVision Note, (ii) paid
$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 (iii) 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 with a carrying amount of approximately
$16.0 million. As part of this transaction, the Company granted to Cross Country
the right to "put" or sell certain remaining RuralVision Joint Venture assets to
the Company for $3.25 million (reduced dollar for dollar by the proceeds of any
prior partial sales of such assets) on May 17, 1995. Although the Company
remains a 50% partner in RuralVision Joint Venture, the Company, pursuant to the
Venture Distribution Agreement, has no economic interest in any remaining
RuralVision Joint Venture assets or liabilities other than certain immaterial
amounts
F-15
<PAGE> 891
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of office furniture and equipment. As a result, subsequent to January 27, 1995,
the carrying amount of the Company's investment in RuralVision Joint Venture is
zero.
Summarized condensed financial information of RuralVision Joint Venture
follows:
BALANCE SHEET AS OF
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
Current assets, including assets to be sold of $20,000,000............ $20,969,043
Systems and equipment................................................. 6,118,015
Leased license investment............................................. 4,626,244
-----------
$31,713,302
===========
LIABILITIES AND VENTURERS' EQUITY
Current liabilities, including notes payable of $9,000,000............ $10,537,272
Venturers' equity..................................................... 21,176,030
-----------
$31,713,302
===========
</TABLE>
STATEMENT OF OPERATIONS FOR THE
PERIOD FROM AUGUST 19, 1994 (INCEPTION) TO
DECEMBER 31, 1994
<TABLE>
<S> <C>
Subscription revenues................................................. $ 1,269,184
Operating expenses.................................................... 2,043,154
-----------
Net loss.................................................... $ (773,970)
===========
</TABLE>
On December 1, 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 $14.0 million in cash. The Company
has allocated the purchase price on a preliminary basis to the assets acquired
and liabilities assumed based on the estimated fair values of such assets and
liabilities.
In connection with the Company's allocation of the purchase price of the
acquisition on December 1, 1994, the Company has identified wireless cable
channel rights in certain markets which management expects to sell and has
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. The assets held for sale as of December 31, 1994 represent
wireless cable channel rights in 26 markets.
Management's determination of the carrying amount of the assets held for
sale is based on a number of factors including the markets' stage of
development; the value of any channel rights lease agreements held by a market;
the potential number of households in the relevant market; the number of
channels available in the relevant market; the number of channel rights granted
or pending in the relevant market; the capital necessary to commence operations
in the relevant market; competitive factors; and the estimated rental payments
under channel rights lease agreements and certain other costs that will be
capitalized during the estimated holding period. The Company expects to sell
certain markets within one year from the date of acquisition from RuralVision
Joint Venture. Rental expense under channel rights lease agreements and other
costs associated with the assets held for sale amounting to approximately
$30,000 have been capitalized and included in assets held for sale. Since the
assets held for sale are nonoperating markets, no other operating profit or loss
has been
F-16
<PAGE> 892
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excluded from the Company's 1994 consolidated statement of operations.
Additionally, any difference between the carrying amounts and the sale prices on
the ultimate disposition of the assets held for sale will be treated as an
adjustment of the original purchase price allocation.
Although the Company expects to sell the assets held for sale for $12.5
million ($21.5 million subsequent to the Venture Distribution Agreement) within
one year from the date of their acquisition from RuralVision Joint Venture,
there can be no assurance that any sales will be consummated. The Company has
entered into definitive agreements and letters of intent to sell certain of the
assets held for sale for $4.19 million comprised of $3.515 million of cash and a
$675,000 note receivable. In the event the Company is unable to dispose of the
assets held for sale within such time frame, the Company would fund
approximately $500,000 to $750,000 of rental payments and other costs related to
the assets held for sale through August 1995 from the Company's existing
available cash, proceeds from the sale of assets held for sale, or other sources
of financing, if secured. In addition, if the Company is unable to dispose of
certain of the assets held for sale the Company may be required, due to the
expiration of construction permits, to construct operating systems for certain
assets held for sale. The amount of such funding would approximate $3,000,000
for the period from the estimated date of disposition through December 31, 1995.
Should construction of operating systems of certain assets held for sale be
required, the Company believes that the value of the constructed systems would
be significantly enhanced. However, based on the estimated dates of disposition,
the Company currently does not anticipate that such construction will be
required during 1995. The amount and timing of the Company's obligations to fund
rental payments and other costs attributable to the assets held for sale will
depend upon a number of factors, many of which are not within the control of the
Company, including the timing of the disposition of the assets held for sale,
programming costs and equipment costs.
Unaudited consolidated condensed pro forma results of operations for 1993
and 1994, as if the December 1, 1994 acquisition of assets from RuralVision
Joint Venture discussed above had occurred at the beginning of the respective
periods, follow:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Subscription revenues...................................... $1,709,433 $ 3,087,379
========== ===========
Net loss................................................... $ (565,005) $(3,870,410)
========== ===========
Loss per common share...................................... $ (.07) $ (.35)
========== ===========
</TABLE>
(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 $68,743 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.
The Company paid $134,165 in 1992, $414,982 in 1993 and $74,559 in 1994 to
various affiliates for services performed in connection with the development of
wireless cable television systems, acquisition of wireless cable channel rights
and certain administrative services.
During 1993, an entity owned by a director of the Company was paid $40,660
for consulting services provided in connection with the acquisition of certain
wireless cable channel rights. Such amount has been included as part of the
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.
F-17
<PAGE> 893
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$114,969 in exchange for forgiveness of advances of $172,132 to a formerly
affiliated installation company. The Company has reflected the settlement of
$57,163 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
$18,000 in 1992 and 1993 and $22,224 in 1994.
On December 15, 1994, the Company entered into an agreement with a
stockholder and its affiliate pursuant to which the Company loaned $2.0 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 bears interest at 12% per annum with
all accrued interest and the outstanding principal balance due on June 15, 1995.
In addition, on December 15, 1994, the affiliate granted to the Company an
option for the Company to acquire the Tulsa, Oklahoma wireless cable market. The
option is exercisable at any time after January 20, 1995 and continuing through
June 15, 1995. The purchase price to be paid upon any exercise of the option is
up to a maximum of $5.2 million, subject to adjustment based on the number of
granted channels. In addition, the affiliate has the right to obtain a release
of this option at any time prior to June 15, 1995, by payment of a $300,000
release price and payment in full of the loan.
(10) COMMITMENTS AND CONTINGENCIES
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1994
through 1998. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain minimums.
In connection with a $1,000,000 loan from a bank to a stockholder of the
Company, the Company has agreed to purchase such loan upon demand from the bank
for the aggregate amount of principal and interest thereon plus any other
amounts owed to the bank by the stockholder. The loan is secured by all of the
wireless cable assets of the stockholder relating to the Lubbock, Texas market,
including wireless cable channel rights, equipment and accounts receivable.
The Company is a party to a legal proceeding incidental to its business
which, in the opinion of management, is not expected to have a material adverse
effect on the Company's consolidated financial position or operating results.
(11) SUBSEQUENT EVENT
Pursuant to a loan agreement dated March 27, 1995 (the "Loan Agreement"),
two stockholders of the Company have agreed to loan the Company up to an
aggregate of $4.0 million ($2.0 million each) and a holder of the Convertible
Notes has agreed to loan to the Company, or to guarantee a bank loan to the
Company in the amount of, $2.0 million. Borrowings under the Loan Agreement may
be used solely for working capital. Borrowings under the Loan Agreement will
bear interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the Loan Agreement will be due and payable in
full on June 30, 1995, subject to prepayment upon the receipt by the Company of
cash proceeds from any financing, refinancing or sale of assets. Amounts
borrowed and repaid under the Loan Agreement may not be reborrowed. Borrowings
under the Loan Agreement will be secured by the capital stock and assets of two
of the Company's operating subsidiaries. As of March 27, 1995, the Company had
borrowed $2.0 million under the Loan Agreement, funded $1.0 million each by the
two stockholders.
F-18
<PAGE> 894
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) OTHER SUBSEQUENT INFORMATION (UNAUDITED)
(a) Accounting Change
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 and to conform its accounting practices with those of other
companies in the wireless cable industry. 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 estimated average subscription term
(presently six years). 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. The Company periodically evaluates the estimated amortization
period and the recoverability of these costs to determine whether circumstances
warrant adjustments to the carrying amounts or revised estimates of the useful
life. An impairment loss would be recognized if the expected future operating
cash flows from subscribers in an individual market are less than the carrying
amount of subscriber installation costs in such market.
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 nine-month
period ended September 30, 1995 was to decrease net loss by approximately
$210,000 ($.02 per common share).
(b) Units Offering
On April 26, 1995, the Company consummated a private placement of 100,000
units (the "Units") consisting of $100.0 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 realized from the sale of the Units
into an escrow account and used approximately $3.0 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. As
of September 30, 1995, the Company had not caused such registration statement to
become effective within the 120-day period. 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 will increase by an
additional 0.50% per annum for each subsequent 90-day period until such
obligations are complied with, up to a maximum amount of additional interest of
2.00% per annum.
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 and the Transactions (as hereinafter defined) and
additionally amend certain definitions and covenants. The proposed amendments to
the indenture received
F-19
<PAGE> 895
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approval of approximately 95.5% in aggregate principle 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.
The amounts placed in the escrow account have been invested in U.S.
Treasury Notes. As of September 30, 1995, $100.0 million aggregate principal
amount of the Senior Notes remain outstanding.
(c) Acquisitions of Minority Interests in Subsidiaries
On March 15, 1995, the Company consummated the Minority Interest Exchange
offer and 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). The
Company has used the purchase method to account for the acquisitions of these
minority interests. For financial statement 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 purchase price
over the fair value of net identifiable assets acquired and will be amortized
over a 20-year period.
Pro forma disclosures that include the effects of the acquisitions of the
minority interests are not materially different from historical information and
are not presented.
(d) Rural Vision Joint Venture
On May 17, 1995, Cross Country exercised its right to sell certain
remaining RuralVision Joint Venture assets to the Company and, as a consequence,
the Company acquired such 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.
In connection with the RuralVision Distribution and the Company's
acquisition of other wireless cable channel rights from RuralVision Joint
Venture in December 1994, the Company identified wireless cable channel rights
in certain markets which will be either sold, exchanged or conveyed. The
remaining balance at September 30, 1995 of $9.2 million of assets held for sale
represents assets that were sold or conveyed for cash subsequent to September
30, 1995.
(e) Other Acquisitions and Divestitures
In May 1995, the Company purchased an operating wireless cable system in
the Lubbock, Texas market and wireless cable channel rights in the Tulsa,
Oklahoma market for approximately $5.4 million (plus approximately $0.2 million
of acquisition-related costs) and $3.8 million (plus approximately $0.1 million
of acquisition-related costs) in cash, respectively (the "Lubbock and Tulsa
Acquisitions").
In May 1995, the Company sold certain wireless cable channel rights in five
markets to an unaffiliated entity for $2.7 million in cash. These assets
comprised a portion of the assets held for sale.
On July 18, 1995, the Company privately placed 1,029,707 shares of its
common stock to RuralVision Joint Venture in exchange for $20,000,000 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 $20,000,000 in cash (the
"Cross Country Acquisition").
Summarized below is the unaudited pro forma information for the nine months
ended September 30, 1994 and 1995 as if the Cross Country Acquisition and the
Lubbock and Tulsa Acquisitions had been consummated as of the beginning of 1994
and 1995. The pro forma information does not purport to represent
F-20
<PAGE> 896
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1994 1995
----------- ------------
<S> <C> <C>
Revenues........................................ $ 3,075,000 $ 10,872,000
=========== ============
Net loss........................................ $(1,655,000) $(11,794,000)
=========== ============
Net loss per common share....................... $ (.54) $ (.93)
=========== ============
</TABLE>
(f) Wireless One
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 $10.0 million of notes. A portion of these assets comprise the
assets held for sale presented in the accompanying balance sheet. Wireless One
is a newly-formed corporation into which Wireless One Operating Company, a
privately-held wireless cable company, was merged. On October 18, 1995, Wireless
One completed an initial public offering of 3,000,000 shares of its common stock
and, concurrently therewith, consummated the sale of $150,000,000 in gross
proceeds of 13% Senior Notes due 2003. As a result and pursuant to the merger
agreement, Wireless One repaid the $10.0 million of notes from the proceeds of
the offerings.
In October 1995, the Company executed an agreement to sell wireless cable
channel rights in Flippen, Tennessee for $1.5 million in cash. The transaction
is subject to customary closing conditions, including each party's Board of
Directors and lender approvals, due diligence review and other conditions.
(g) Pending Acquisitions
In September 1995, the Company executed an agreement to acquire Cablemaxx,
Inc. ("Cablemaxx") for approximately $80.8 million in common stock of the
Company. The agreement provides for the conversion of the common stock of
Cablemaxx at a rate of $8.50 per share, subject to adjustment, into common stock
of the Company, with the exchange rate determined by the average price of the
Company's common stock preceding the closing date of the transaction.
In September 1995, the Company entered into agreements to acquire American
Wireless Cable Systems, Inc. ("AWS") and the assets of Wireless Cable TV
Associates #38 (the "Minneapolis Partnership") and Fort Worth Wireless Cable TV
Associates (the "Fort Worth Partnership") for an aggregate of approximately
$65.3 million of common stock of the Company.
In October 1995, the Company entered into a definitive agreement with
Technivision, Inc. ("Technivision") whereby the Company will acquire
substantially all of the assets of Technivision for approximately $36.75 million
of the Company's common stock, less an amount of assumed obligations which shall
not exceed $5.0 million.
These transactions (collectively, the "Transactions") are subject to
certain conditions, including, without limitation, approval by the shareholders
of each company.
The Company is also currently pursuing opportunities to dispose of certain
wireless cable channel rights, presently held by or sought to be acquired by the
Company pursuant to the Transactions, and expects to sell, contribute or
exchange such assets in one or more transactions.
F-21
<PAGE> 897
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
American Wireless Systems, Inc.:
We have audited the accompanying balance sheets of American Wireless
Systems, Inc. (a Delaware corporation) as of December 31, 1993 and 1994, and the
related statements of operations, stockholders' equity and cash flows for the
ten months ended December 31, 1992, and the years ended December 31, 1993 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Wireless Systems,
Inc. as of December 31, 1993 and 1994, and the results of its operations and its
cash flows for the ten months ended December 31, 1992, and the years ended
December 31, 1993 and 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 19, 1995.
F-22
<PAGE> 898
AMERICAN WIRELESS SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
AND SEPTEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents (note 2).................. $3,244,275 $ 376,621 $ 1,182,653
Marketable securities (note 2)...................... 2,318,252 -- --
Income tax receivable (note 10)..................... 401,316 -- --
Debt issuance costs (note 2)........................ 591,957 -- --
Prepaid expenses and other current assets........... 227,180 186,242 89,724
---------- ----------- -----------
Total current assets...................... 6,782,980 562,863 1,272,377
Property and equipment, at cost, net (note 2)....... 228,782 431,790 218,404
Investments in and advances to joint ventures (note
4)................................................ 1,208,709 3,436,048 2,998,398
Investments in wireless cable systems (notes 1 and
4)................................................ 957,813 2,430,866 2,987,940
License deposits and other assets (note 2).......... 123,009 88,333 77,179
---------- ----------- -----------
$9,301,293 $ 6,949,900 $ 7,554,298
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 300,939 $ 482,342 $ 419,186
Accrued liabilities............................... 389,779 345,063 219,337
Convertible subordinated notes payable (note 7)... 7,707,000 -- --
Notes payable -- current portion.................. -- -- 99,442
---------- ----------- -----------
Total current liabilities................. 8,397,718 827,405 737,965
---------- ----------- -----------
Deferred compensation (note 6)...................... -- 354,636 233,044
---------- ----------- -----------
Notes payable (note 1).............................. -- -- 1,800,000
---------- ----------- -----------
Commitments and contingencies (note 9)
Stockholders' equity (notes 1, 3, 7, 8, 9 and 10):
Common stock, $.01 par value, 40,000,000 shares
authorized, 3,346,841 shares outstanding in
1993 and 5,709,187 shares outstanding in 1994
and 1995 (unaudited)........................... 33,468 57,092 57,092
Additional paid-in capital........................ 9,671,629 20,239,069 20,239,069
Accumulated deficit............................... (8,801,522) (14,528,302) (15,512,872)
---------- ----------- -----------
Total stockholders' equity................ 903,575 5,767,859 4,783,289
---------- ----------- -----------
$9,301,293 $ 6,949,900 $ 7,554,298
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-23
<PAGE> 899
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992,
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Management fees........................ $ -- $ -- $ 83,333 $ 58,333 $ 75,000
----------- ----------- ----------- ----------- ----------
General and administrative expenses:
Compensation........................... 1,786,719 1,502,006 1,920,002 1,554,057 630,070
Outside services....................... 552,018 476,008 1,111,104 409,267 335,807
Other.................................. 1,019,789 780,920 1,127,356 807,536 633,354
----------- ----------- ----------- ----------- ----------
Total expenses................. 3,358,526 2,758,934 4,158,462 2,770,860 1,599,231
----------- ----------- ----------- ----------- ----------
Loss from operations..................... (3,358,526) (2,758,934) (4,075,129) (2,712,527) (1,524,231)
----------- ----------- ----------- ----------- ----------
Loss from operations of joint ventures... (85,210) (184,906) (200,436) (157,794) (136,298)
----------- ----------- ----------- ----------- ----------
Other income (expense), net
Interest expense....................... -- (775,525) (976,867) (978,695) (126,119)
Other (note 7)......................... -- 69,205 (474,348) (528,080) 802,078
----------- ----------- ----------- ----------- ----------
-- (706,320) (1,451,215) (1,506,775) 675,959
----------- ----------- ----------- ----------- ----------
Net loss................................. $(3,443,736) $(3,650,160) $(5,726,780) $(4,377,096) $ (984,570)
=========== =========== =========== =========== ==========
Net loss per share (note 2).............. $ (1.33) $ (1.16) $ (1.26) $ (1.06) $ (.17)
=========== =========== =========== =========== ==========
Weighted average shares outstanding...... 2,595,689 3,159,397 4,540,362 4,135,431 5,709,187
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE> 900
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992,
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1992.................... 2,469,120 $ 1,333 $ 2,667 $ (1,707,626) $(1,703,626)
Sale of common stock to officer........... 102,880 56 111 -- 167
Assumption of net liabilities by
shareholders (note 3)................... -- 24,331 7,202,219 -- 7,226,550
Issuance of common stock in connection
with Short Takes, Inc. merger, net of
offering costs of $102,060 (note 1)..... 546,666 5,467 561,473 -- 566,940
Net loss.................................. -- -- -- (3,443,736) (3,443,736)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1992................ 3,118,666 31,187 7,766,470 (5,151,362) 2,646,295
Private placements of common stock, net of
offering costs of $361,123 (note 1)..... 346,666 3,466 2,547,411 -- 2,550,877
Redemption of common stock owned by
Wireless California (note 3)............ (258,333) (2,583) (2,167,417) -- (2,170,000)
Contribution of income tax receivable
(note 10)............................... -- -- 401,316 -- 401,316
Conversion of notes....................... 126,509 1,265 973,982 -- 975,247
Common stock issued....................... 13,333 133 149,867 -- 150,000
Net loss.................................. -- -- -- (3,650,160) (3,650,160)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1993................ 3,346,841 33,468 9,671,629 (8,801,522) 903,575
Private placements of common stock, net of
offering costs of $48,990 (note 1)...... 240,000 2,400 1,964,610 -- 1,967,010
Conversion of notes....................... 2,105,679 21,057 8,542,356 -- 8,563,413
Exercise of common stock warrants at
$3.75................................... 667 7 2,493 -- 2,500
Exercise of common stock warrants at
$3.00................................... 13,333 133 39,867 -- 40,000
Common stock to be issued................. 2,667 27 29,973 -- 30,000
Contribution of income tax receivable
(note 10)............................... -- -- (11,859) -- (11,859)
Net loss.................................. -- -- -- (5,726,780) (5,726,780)
--------- -------- ----------- ------------ -----------
Balance, December 31, 1994................ 5,709,187 57,092 20,239,069 (14,528,302) 5,767,859
Net loss (unaudited)...................... -- -- -- (984,570) (984,570)
--------- -------- ----------- ------------ -----------
Balance, September 30, 1995 (unaudited)... 5,709,187 $ 57,092 $20,239,069 $(15,512,872) $ 4,783,289
========= ======== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE> 901
AMERICAN WIRELESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992,
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(3,443,736) $(3,650,160) $(5,726,780) $(4,377,096) $ (984,570)
Adjustments to reconcile net loss to cash used
for operating activities:
Depreciation and amortization............... 34,321 442,933 637,049 613,717 66,079
Loss on disposal of assets.................. -- 16,136 55,043 49,090 200,357
Gain on sale of assets...................... -- -- -- -- (786,646)
Loss from operations of joint ventures...... 85,210 184,906 200,436 157,794 136,298
Repricing of common stock warrants (note
7)........................................ -- -- 425,000 425,000 --
Deferred compensation (note 6).............. -- -- 529,462 566,381 --
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses
and other assets....................... 46,292 (198,332) 438,793 (128,280) 96,518
Decrease (increase) in accounts payable
and accrued liabilities................ (291,485) 530,142 232,831 (2,276) (199,321)
----------- ----------- ----------- ----------- ----------
Net cash used for operating
activities........................... (3,569,398) (2,674,375) (3,208,166) (2,695,670) (1,471,285)
----------- ----------- ----------- ----------- ----------
Cash flows from investing activities:
Acquisition of property and equipment......... (160,960) (77,055) (287,291) (241,677) (40,035)
Investment in and advances to wireless cable
systems..................................... (749,395) (755,271) (3,820,312) (3,546,334) (662,090)
Purchases of marketable securities............ -- (2,318,252) -- -- --
Proceeds from sales of marketable
securities.................................. -- -- 2,438,604 1,325,950 --
Proceeds from sale of wireless cable
television system........................... -- -- -- -- 1,250,000
Deposits made on license acquisitions......... -- (69,122) -- -- 1,154
----------- ----------- ----------- ----------- ----------
Net cash used for investing
activities........................... (910,355) (3,219,700) (1,668,999) (2,462,061) 549,029
----------- ----------- ----------- ----------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes
payable..................................... -- -- -- -- 2,800,000
Proceeds from issuance of convertible notes
payable..................................... -- 8,736,000 -- -- --
Payment of notes payable...................... -- -- -- -- (1,071,712)
Net proceeds from sale of common
stock....................................... 567,107 2,550,877 2,009,511 2,009,511 --
Redemption of common stock.................... -- (2,170,000) -- -- --
Deferred debt issuance costs.................. -- (1,083,371) -- -- --
Cash received from affiliates................. 4,425,875 525,000 -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by financing
activities........................... 4,992,982 8,558,506 2,009,511 2,009,511 1,728,288
----------- ----------- ----------- ----------- ----------
Net (decrease) increase in cash and cash
equivalents................................... 513,229 2,664,431 (2,867,654) (3,148,220) 806,032
Cash and cash equivalents, beginning of
year/period................................... 66,615 579,844 3,244,275 3,244,275 376,621
----------- ----------- ----------- ----------- ----------
Cash and cash equivalents, end of year/period... $ 579,844 $ 3,244,275 $ 376,621 $ 96,055 $1,182,653
=========== =========== =========== =========== ==========
Supplemental disclosure of cash flow
information -- cash paid during the
year/period for interest...................... $ -- $ -- $ 351,510 $ 351,510 $ 134,566
=========== =========== =========== =========== ==========
Supplemental disclosure of noncash activities --
During 1993 and 1994, respectively, 126,509
and 2,105,679 shares of the Company's common
stock were issued pursuant to the conversion
of $975,247 and $8,563,413 in principal amount
of convertible notes payable plus accrued
interest......................................
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE> 902
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993 AND SEPTEMBER 30, 1995 (UNAUDITED)
(1) BACKGROUND, ORGANIZATION AND OPERATIONS
(a) Background and Organization
American Wireless Systems, Inc. (the Company) was originally incorporated
in Minnesota in 1988 as Short Takes, Inc. The Company ceased its prior business
activities in April 1991, at which time the Company began searching for a
suitable business for acquisition or merger. Its sole asset was cash of $669,000
on December 17, 1992, when it acquired certain operating assets and liabilities
of AWS, Inc. (formerly American Wireless Systems, Inc.), a California
corporation (Wireless California) in exchange for 2,572,000 shares of common
stock which represented 82.5% of the outstanding common stock of the Company.
For accounting purposes, this transaction has been treated as an issuance of
common stock for cash by Wireless California (the reverse acquisition). See Note
3 for additional discussion of this transaction.
In April 1993, the stockholders approved changing the Company's name from
Short Takes, Inc. to American Wireless Systems, Inc. In addition, the Company
was reincorporated in the state of Delaware and declared a reverse stock split
of 1-for-2.5. On October 18, 1994, the stockholders of the Company approved a
reverse stock split of 1-for-3. The accompanying financial statements have been
retroactively restated to reflect these reverse stock splits.
(b) Operations
The Company currently owns an interest in and manages the operations of
wireless cable television systems in Minneapolis and Fort Worth, and holds an
interest in or owns the rights to certain wireless cable television channels in
Los Angeles, Dallas, Memphis and formerly Pittsburgh. Wireless cable is an
emerging business that provides television programming to subscribers by
transmitting a signal via microwave frequencies licensed by the Federal
Communications Commission (FCC) to antennae located at the subscriber's
premises.
The Company's wireless cable systems are all in either the initial
development stage or in the early operating stage; therefore, significant
additional investment will be required to develop those systems to a level which
will provide positive cash flow.
During 1993 and 1994, the Company raised an aggregate of approximately
$13,664,000, including $8,736,000 of convertible subordinated notes (the
"Notes") through three private placements of common stock and notes. The Notes
matured July 15, 1994, and have been converted into shares of the Company's
common stock (see Note 7).
In April 1994, the Company filed a Registration Statement on Form SB-2 in
connection with a proposed public offering, which was amended to include the
offer and sale of 2,500,000 units, each unit consisting of two shares of common
stock and one warrant to purchase one share of common stock. For a variety of
reasons, the Company elected not to proceed with the proposed offering.
Since January 1995, the Company has been pursuing various financing options
which culminated in signing of an Agreement Of Merger with Heartland Wireless
Communications, Inc. (Heartland) on September 11, 1995 (the "Merger Agreement").
The Merger Agreement provides for the Company's stockholders to exchange their
stock in the Company for stock in Heartland. The Merger with Heartland will give
the Company's stockholders $34,000,000 in Heartland common stock, of which
$30,750,000 will be distributed immediately and $3,250,000 will be held in
escrow for one year to indemnify Heartland for potential liabilities (Note 9).
The conversion ratio into Heartland common stock will be the trading price of
Heartland stock based on the average closing price for the 10 trading days
ending on the fifth day before consummation of the Merger, provided Heartland's
trading price is at least $20 per share and not greater than
F-27
<PAGE> 903
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$26 per share. If Heartland's trading price is below $20 per share, the exchange
price will be $20 per share; if the trading price is above $26 per share, the
exchange price will be $26 per share.
In February and April 1995, the Company obtained loans totalling $1,000,000
from a shareholder of the Company. These loans carried an interest rate of 15%
per annum, were secured by various assets of the Company and were paid off in
September 1995.
In connection with the Merger Agreement, the Company received a $200,000
nonrefundable deposit and a loan for $1,800,000. The promissory note, dated May
26, 1995 and amended August 17, 1995, is due 12 months after the Heartland
Merger Agreement is consummated or abandoned, carries an interest rate of 2%
above the prime rate with interest payable quarterly, and is secured by a
security interest in the Company's wireless channel rights in the Dallas market.
On September 29, 1995, the Company sold its assets in the Pittsburgh market
for $1,250,000 in cash.
The Company is currently negotiating to sell its assets in the Memphis
market for $3,900,000. The Company is currently involved in litigation with the
same company that has offered to purchase this market. According to the proposed
agreement, at the time of closing of this transaction, all litigation between
the two parties will be withdrawn and all claims will be waived (note 9).
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of the
following accounting policies: (a) Cash Equivalents
The Company considers all highly liquid investments and time deposits with
an initial maturity of three months or less to be cash equivalents.
(b) Marketable Securities
Marketable securities are carried at the lower of cost or market. The
Company primarily invests in treasury securities.
(c) Debt Issuance Costs
The costs associated with the issuance of debt are deferred and amortized
over the life of the debt using the effective interest rate method. Amortization
of debt issuance costs for the years ended December 31, 1994 and 1993, was
approximately $592,000 and $405,000, respectively.
(d) Property and Equipment
Property and equipment represent corporate furniture and equipment
unrelated to the wireless cable television systems. Property and equipment are
recorded at cost and are depreciated using the straight-line method over the
estimated useful lives of the related assets.
F-28
<PAGE> 904
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31, SEPTEMBER 30,
LIFE --------------------- 1995
(YEARS) 1993 1994 -------------
----------- -------- -------- (UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment................... 5 $ 86,074 $112,083 $ 103,756
Furniture and fixtures............... 7 60,645 58,093 26,369
Office and other equipment........... 5-7 135,461 384,782 213,508
Autos................................ 5 4,700 -- --
-------- -------- ---------
286,880 554,958 343,633
Less accumulated depreciation........ (58,098) (123,168) (125,229)
-------- -------- ---------
$228,782 $431,790 $ 218,404
======== ======== =========
</TABLE>
(e) Investment in Joint Ventures
The Company accounts for its investments in joint ventures under the equity
method of accounting.
(f) Investment in Wireless Cable Systems
Investment in wireless cable systems consists principally of payments for
channel rights which are amortized over their estimated useful life of ten years
once placed in service.
(g) License Deposits
License deposits represent deposits made under agreements to acquire FCC
frequency rights.
(h) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, Accounting for Income Taxes (SFAS No.
109). Under SFAS No. 109, deferred taxes are provided based on the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities, using enacted tax rates in the years in which
the differences are expected to reverse. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Net Loss Per Share
The calculation of net loss per share is based on the weighted average
number of shares outstanding. Common stock equivalents are not considered as
their effect would be anti-dilutive.
(j) Unaudited Financial Information
The financial statements as of September 30, 1995, and for the nine months
ended September 30, 1994 and 1995, have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished herein reflects, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
such periods.
(3) THE REVERSE ACQUISITION
Wireless California, the predecessor to certain of the Company's wireless
cable operations, was incorporated in April 1991 to acquire and subsequently
sell or develop wireless cable systems in various
F-29
<PAGE> 905
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
markets in the United States. In accordance with the terms of the asset purchase
agreement between Wireless California and the Company, only the assets and
liabilities related solely to the Wireless California wireless cable systems
development and operations were acquired by the Company. The transaction
specifically excluded any assets or liabilities related to Wireless California's
activities in selling its interests in the wireless cable systems (see Note 9).
Subsequent to the reverse acquisition, Wireless California began to wind
down its affairs until, on August 30, 1993, its remaining net assets (consisting
primarily of common stock of the Company) were distributed to its shareholders
who then contributed such assets, except for the common stock of the Company, to
a limited liability corporation, AWS Liquidating, L.L.C. (AWS LLC).
In connection with its private placements in 1993, the Company redeemed
138,333 shares of common stock owned by Wireless California and 120,000 shares
of common stock of the Company owned by the shareholders of Wireless California.
The redemption price of $8.40 per share was equal to the offering price in the
private placements. A substantial amount of the proceeds were used to discharge
the remaining obligations of Wireless California.
(4) INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND WIRELESS CABLE SYSTEMS
Investments in and advances to joint ventures and wireless cable systems
represent the historical costs incurred to develop the wireless cable systems,
including the acquisition of the FCC frequency rights and the head-end
transmission equipment and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
MARKET 1993 1994 1995
------------------------------------------------ ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Jointly Owned Systems:
Minneapolis/St. Paul, Minnesota............... $ 545,655 $ 436,446 $ 345,819
Advances to Minneapolis/St. Paul, Minnesota... -- 2,050,882 2,079,386
Ft. Worth, Texas.............................. 261,720 243,054 205,389
Advances to Ft. Worth, Texas.................. -- 253,177 367,804
Pittsburgh, Pennsylvania...................... 401,334 452,489 --
---------- ---------- -----------
$1,208,709 $3,436,048 $ 2,998,398
========== ========== ===========
Wholly Owned Systems:
Los Angeles, California....................... $ -- $ 972,653 $ 1,469,444
Memphis, Tennessee............................ 571,462 733,153 799,960
Dallas, Texas................................. 386,351 725,060 718,536
---------- ---------- -----------
$ 957,813 $2,430,866 $ 2,987,940
========== ========== ===========
</TABLE>
(a) Jointly Owned Systems
The Company currently owns an equity interest in operating wireless cable
systems in Minneapolis, Minnesota (AWS-Minneapolis) (25% interest) and Ft.
Worth, Texas (AWS-Ft. Worth) (20% interest) and formerly owned an equity
interest in a wireless cable system under development in Pittsburgh,
Pennsylvania (25% interest).
The Minneapolis system has been in operation since March 1993. The
Company's joint venture partner is a general partnership which was formed to
acquire an interest in and jointly develop and operate the Minneapolis wireless
cable system. In accordance with the terms of the joint venture agreement,
losses are to be allocated in accordance with contributed capital and profits
are to be allocated (i) in accordance with
F-30
<PAGE> 906
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
contributed capital to the extent of previously allocated losses and then (ii)
25% to the Company and 75% to the general partnership.
In April 1994, the Company loaned the Minneapolis general partnership
$2,000,000 to fund additional development of the system. The loan bears interest
at 8% per annum and was originally payable in full in 18 months. Prior to the
due date, the Company agreed to extend the maturity of the loan until the
earlier of (i) February 28, 1996 or (ii) the abandonment of the Heartland Merger
Agreement. In the event that the loan is not repaid by the due date, the Company
will receive an additional equity interest in the Minneapolis joint venture of
approximately 10%.
AWS-Minneapolis received additional funding in May 1995 of $550,000 from
Tsunami Capital Corporation (Tsunami). The loan was made by Tsunami in
anticipation of a reverse merger between AWS-Minneapolis and Tsunami. The loan
is due December 31, 1995, and carries an interest rate of 12% per annum.
On October 4, 1995, the Company's joint venture partner signed a contract
to sell its 75% interest in AWS-Minneapolis to Heartland. As part of this
agreement Heartland agreed to loan AWS-Minneapolis up to $1,575,000, of which
$575,000 will be used to repay Tsunami and the remainder to fund subscriber
growth.
The Ft. Worth system has been in operation since November 1992. The
Company's joint venture partner is a general partnership which was formed to
acquire an interest in and jointly develop and operate the Ft. Worth wireless
cable system. The Ft. Worth system has been operated through an informal joint
venture agreement. The accompanying financial statements include an estimate of
the Company's pro rata losses in this system.
AWS-Ft. Worth does not have sufficient funds to continue development of the
system. The Company's joint venture partner also does not have funds to
contribute to the joint venture and has expressed its belief that either
Wireless California or the Company is obligated to provide additional funds to
develop the system to a positive cash flow position. Neither Wireless California
nor the Company believes it has such an obligation; however, the Company is
negotiating the terms of additional funding to continue development of the
system in conjunction with definitive joint venture and management agreements.
In order to protect the Company's interest in the assets of AWS-Ft. Worth, the
Company has advanced $253,177 through December 31, 1994 and an additional
$114,627 during 1995 to fund negative cash flow of the system and maintain the
current subscriber base.
On October 4, 1995, the Company's joint venture partner in AWS-Ft. Worth
signed a contract with Heartland to sell its 80% interest in AWS-Ft. Worth.
Pursuant to the agreement, Heartland has agreed to assume up to $570,000 of
amounts due to the Company. Additionally, Heartland has agreed to loan the Ft.
Worth partnership $500,000 secured by its interest in AWS-Ft. Worth.
The Pittsburgh system is still in its initial development stage. On
September 29, 1995, the Company sold all of its interest in the assets of the
Pittsburgh market for $1,250,000 in cash.
Selected combined balance sheet data related to the Company's jointly owned
operating systems is as follows (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1993 1994 1995
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $ 461 $ 402 $ 450
Total assets....................................... 12,001 10,846 9,713
Total liabilities.................................. 296 790 1,577
Members equity..................................... 11,705 10,056 8,136
AWS' interest...................................... 725 525 389
</TABLE>
F-31
<PAGE> 907
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Selected combined operating data related to the Company's jointly owned
operating systems is as follows (in 000's):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- --------------------------
1992 1993 1994 1994 1995
----- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 146 $ 1,064 $ 1,187 $ 822 $ 1,191
Operating expenses................ (947) (3,814) (4,363) (3,181) (3,494)
----- ------- ------- --------- ---------
Net loss.......................... $(801) $(2,750) $(3,176) $ (2,359) $ (2,303)
===== ======= ======= ========= =========
AWS' interest..................... $ (85) $ (185) $ (200) $ (158) $ (136)
===== ======= ======= ========= =========
</TABLE>
(b) Wholly Owned Systems
The Company's investment in wholly owned systems consists primarily of the
costs to acquire the rights to FCC licenses in Dallas (16), Los Angeles (9) and
Memphis (22). The lease agreements provide for the Company to pay for the excess
airtime use, new transmission equipment and all other operating expenses of the
channels including co-location costs.
The Company is currently negotiating a contract to sell its assets in the
Memphis market for $3,900,000 to TruVision Cable, Inc. (TruVision) (Note 9).
(5) RELATED PARTIES
(a) Wireless California
Since the reverse acquisition on December 17, 1992, the Company has entered
into certain transactions with Wireless California, including the redemption of
258,333 shares of common stock owned by Wireless California and the shareholders
of Wireless California (see Note 3), certain transactions related to income
taxes (see Note 10), the purchase of additional FCC licenses not covered by the
original acquisition agreement for $80,000 and the payment of certain lease
expenses related to the Pittsburgh wireless cable system. In 1994, the Company
advanced $35,000 to pay administrative penalties assessed Wireless California by
the State of Arizona (see Note 9). The members of AWS L.L.C. have agreed to
reimburse the Company upon sale of the previously escrowed shares (see Note 8).
All transactions with Wireless California subsequent to August 1993 have been
approved by a majority of the independent directors of the Company.
(b) AWS-Ft. Worth and AWS-Minneapolis
The Company serves as the manager and operator of the Minneapolis joint
venture. The terms of the Management Agreement, which was signed in April 1994,
provide for annual management service fees equal to the greater of 5% of
collected gross revenues or $100,000.
The Company also serves as the manager to the Ft. Worth joint venture
although no formal management agreement exists. No management service fees have
been accrued relative to the Ft. Worth system.
In its capacity as manager, the Company contracted for subscriber
installation services and subscriber equipment on behalf of AWS-Ft. Worth and
AWS-Minneapolis to Wireless Technologies, Inc. (WTI), a Texas corporation
engaged in the business of providing subscriber installation services and
distributing subscriber equipment with respect to traditional and wireless cable
systems. WTI is a wholly owned subsidiary of North American Cable Corporation
(NACC), a Texas corporation engaged in the engineering, construction and
maintenance of cable television systems, local area networks, fiber optic
networks and wireless cable television systems, with operations and business
experience in the United States, England and several other countries around the
world. A former officer and director of the Company beneficially owns 50% of the
stock of North American Cable Corporation.
F-32
<PAGE> 908
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WTI purchased certain of the subscriber equipment that it sold to AWS-Ft.
Worth and AWS-Minneapolis from Micom Products, Ltd., a Delaware limited
liability company engaged in the distribution of subscriber equipment for
wireless cable systems. Micom is owned by the beneficial owners of approximately
36% of the Company's common stock.
In 1992, 1993 and 1994, payments were made by the Company, Wireless
California and the joint ventures to WTI of $421,650, $924,054 and $74,449,
respectively, for installation services and related subscriber equipment. In
1992, 1993 and 1994, payments were made by WTI to Micom of $22,018, $114,644 and
$2,766, respectively, for subscriber equipment.
(c) American Wireless Systems, Inc.
In connection with the acquisition of the rights to utilize the FCC
licenses in Los Angeles (Note 4), the Company agreed to pay a finder's fee of
$75,000 to the president of NACC as consideration for the introduction of the
Company to the license holder of the eight channels.
In February and April 1995, the Company obtained loans totalling $1,000,000
from a shareholder of the Company who is a principal in the firm which served as
the placement agent for the Company's private offerings in 1993 and 1994 (Note
1). In addition, this individual and certain other related entities are
shareholders of the Company's common stock.
(6) SEVERANCE AGREEMENT
Effective August 1994, an individual who held the position of Chairman of
the Board, President and Chief Financial Officer resigned. In connection with
such resignation, this individual entered into a severance agreement with the
Company, whereby the Company agreed to pay this individual his annual base
salary, as provided by the terms of his employment agreement, a bonus, if any,
consistent with the bonuses awarded to certain other officers and certain other
expenses for a period of three years. As a result, the Company recognized
approximately $566,000 of expense in the third quarter of 1994, of which
approximately $355,000 is a long-term liability. Upon the consummation of the
merger with Heartland (Note 1), the unpaid portion becomes due and payable in
full.
In September 1994, this individual resigned as a director of the Company.
In connection with such resignation, the Company granted this individual a
warrant to acquire 33,333 shares of common stock at $8.40 per share. This
warrant was granted on October 1, 1994, has a ten-year term and became fully
exercisable on April 1, 1994.
(7) CONVERTIBLE SUBORDINATED NOTES PAYABLE
At December 31, 1993, the Company had $7,707,000 in convertible
subordinated notes ("Notes") outstanding. Through May 1994, $462,000 in
principal amount of the Notes had been converted into shares of the Company's
common stock. The remaining $7,245,000 in Notes were called for prepayment by
the Company in May 1994. Holders of $4,232,000 in principal amount of the Notes
elected to receive cash payment for their investment as opposed to converting
their Notes into shares of the Company's common stock. Because the Company did
not anticipate the relatively high level of repayment, the Company did not have
adequate funds available to pay all of the Noteholders who elected repayment. In
accordance with the terms of the Notes, the conversion price of the Notes was
adjusted from $8.40 per share to $3.75 per share. Following the redemption date,
the Company agreed to permit all of the Noteholders, including the Noteholders
that had elected repayment, to elect repayment or to convert their Notes into
shares of the Company's common stock at the adjusted conversion price of $3.75
per share. Holders of all but $703,500 in principal amount of the Notes agreed
to convert their Notes into shares of the Company's common stock at $3.75 per
share. The placement agent for the Notes arranged for the holders of the
remaining $703,500 in
F-33
<PAGE> 909
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal amount of the Notes to sell their Notes to certain accredited
investors who converted such Notes into shares of common stock at $3.75 per
share by September 30, 1994.
As consideration for services rendered in connection with the conversion of
the Notes, the Company agreed to adjust the exercise price of existing warrants
held by the placement agent to acquire 165,732 shares of common stock held by
certain affiliates of the placement agent. As a result, the Company recognized
other expense of approximately $425,000 in the third quarter of 1994.
In connection with the issuance of the Notes in 1993, the Company also
granted contingent warrants (see Note 8).
(8) STOCKHOLDERS' EQUITY
(a) Outstanding Warrants and Options
As of December 31, 1994, the Company had outstanding warrants and options
as follows:
<TABLE>
<S> <C>
Warrants to acquire common stock assumed in the reverse acquisition;
exercisable at $10.08 through November 1996............................. $ 27,066
Warrants to acquire common stock assumed in the reverse acquisition;
exercisable at $3.75 through April 1995................................. 19,333
Warrants to acquire common stock issued to the placement agent in
connection with the 1993 private placements; exercisable at $3.75
through August and November 1998........................................ 138,666
Contingent warrants to acquire common stock issued to the Noteholders in
connection with the 1993 private placements; exercisable at $12.00
through July 1995....................................................... 15,833
Contingent warrants to acquire common stock issued to the Noteholders in
connection with the 1993 private placements; exercisable at $12.00
through July 1996....................................................... 330,833
Warrants to acquire common stock issued to a third party for services
provided to the Company; exercisable at $6.75 through August 2004....... 8,333
Warrants to acquire common stock issued to a private investor; exercisable
at $12.00 through July 1996............................................. 60,000
Warrants to acquire common stock issued to a former officer and director
of the Company in connection with a severance agreement; exercisable at
$8.40 through September 2004............................................ 33,333
</TABLE>
(b) Escrowed Shares
Approximately 1.88 million shares of the Company's outstanding common
stock, which were owned by the former owners of Wireless California, were
released from escrow in February 1995. The shares were pledged by the former
shareholders to secure the indemnification of the Company by Wireless California
for potential losses incurred from claims arising out of the prior offerings of
general partnership interests by Wireless California (see Note 9). In December
1994, the Company made a $35,000 claim on the escrowed shares for an advance to
Wireless California (see Note 5). All but 50,000 shares were released from
escrow and distributed to the members of AWS L.L.C. in February 1995. The
remaining 50,000 shares have been retained to potentially fund a claim made by
the Company which is currently being disputed by AWS L.L.C. The shares will
remain in escrow until the dispute is resolved. No other claims were made on the
escrowed shares.
(c) Stock Option Plan
In April 1993, the Company adopted the 1993 Stock Option Plan (the Plan)
which reserved 416,666 shares of common stock to be issued to officers,
directors, key employees and independent consultants who
F-34
<PAGE> 910
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
provide valuable services to the Company. The terms of the options are to be
established by the Board of Directors on the date of grant.
Activity in the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- ------------
<S> <C> <C>
Options outstanding at December 31, 1992...................... -- --
Granted....................................................... 151,666 $6.75-$15.75
Canceled...................................................... -- --
Exercised..................................................... -- --
-------
Options outstanding at December 31, 1993...................... 151,666 $6.75-$15.75
Granted....................................................... 25,000 $15.75
Canceled...................................................... (13,333) $6.75-$15.75
Exercised..................................................... -- --
-------
Options outstanding at December 31, 1994...................... 163,333 $6.75-$15.75
Granted....................................................... -- --
Canceled (unaudited).......................................... (48,333) $6.75-$ 8.40
Exercised..................................................... -- --
-------
Options outstanding at September 30, 1995 (unaudited)......... 115,000 $6.75-$15.75
=======
Options available for grant (unaudited)....................... 301,666
=======
Exercisable at end of period (unaudited)...................... 74,582 $6.75-$15.75
=======
</TABLE>
Prior to the completion of the merger with Heartland, the Company intends
to terminate the Plan.
(9) COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company leases office space, equipment and licenses under various
operating leases. Future obligations under these leases are as follows for years
ending December 31:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
1995............................................. $ 568,000
1996............................................. 265,000
1997............................................. 255,000
1998............................................. 170,000
1999............................................. 48,000
Thereafter....................................... 72,000
----------
$1,378,000
==========
</TABLE>
(b) Prior Offerings of General Partnership Interests by Wireless California
Prior to the sale of certain assets by Wireless California to the Company,
approximately $29,000,000 was raised in connection with the offering of general
partnership interests in three general partnerships, each of which was formed
for the purpose of acquiring an interest in the rights to develop and operate a
wireless cable television system in Ft. Worth, Minneapolis and Pittsburgh.
Through an affiliate, Wireless California participated in the offer and sale of
the general partnership interests without registration under any federal or
state securities laws based on the belief that the general partnership interests
did not constitute securities
F-35
<PAGE> 911
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under federal and applicable state laws. Certain current and former officers and
directors of the Company were formerly officers and directors of Wireless
California.
Following an investigation by the Securities and Exchange Commission (the
Commission) involving the activities of Wireless California in connection with
the offer and sale of the general partnership interests as described above, the
Company and certain of its current and former officers, without admitting or
denying any wrongdoing, agreed to consent to an order of the Commission to cease
and desist from committing or causing any violation and any future violations of
the securities registration provisions of the 1993 Act and the broker-dealer
registration provisions of the Exchange Act.
Securities administrators in 22 states also have conducted or are presently
conducting investigations of the activities related to the unregistered sale of
the general partnership interests described above. The actions taken by the
various state securities administrators range from no action taken to the
issuance of 15 cease and desist orders and consent orders pursuant to which
Wireless California, the issuing general partnerships, and certain officers of
Wireless California were required to cease selling general partnership interests
without registration, to offer rescission to individuals who purchased general
partnership interests and, in certain cases, to pay administrative penalties. In
addition, AWS L.L.C. has entered into a consent order with the State of Illinois
pursuant to which AWS L.L.C. agreed to cease and desist from selling general
partnership interests without registration, to pay an administrative penalty,
and to cause a rescission offer to be made to Illinois residents. Following an
investigation by the State of Arizona, AWS L.L.C. and current and former
officers of the Company consented to an order of the Arizona Corporation
Commission to cease and desist from selling securities unless the sale is
registered or exempt from registration and to the imposition of an
administrative penalty against AWS L.L.C. The Company also consented to a
separate order that requires the Company to make an offer of rescission to all
general partners who are Arizona residents or who were offered and sold their
interests from Arizona. To the knowledge of the Company, there are no other
active federal or state regulatory proceedings or investigations.
Following the completion of the Company's proposed public offering, the
Company intended to effect a rescission offer to purchase the interests of the
general partners in the three general partnerships that own an interest in joint
ventures with the Company. Due to the Company's inability to complete the
offering and its current lack of funds, the Company is currently unable to offer
to purchase the general partnership interests, and will not have the ability to
complete the orders of rescission imposed by the State of Arizona unless
alternative financing is obtained or alternatives to rescission are arranged.
Accordingly, the Company will seek to amend the order to provide for
alternatives to rescission, although there can be no assurance that the Company
will be successful in this regard. The Arizona order provides that if the offers
to purchase are not made, the Company will be required to pay to the Arizona
Corporation Commission an amount equal to the amount of the investment made by
all general partners who are Arizona residents, or approximately $566,000, plus
interest from the time of investment. There can be no assurance that the Company
will be able to satisfy the Arizona rescission orders.
Since October 31, 1992, Wireless California, the general partnerships and
the current and former officers of the Company have ceased all activities
involving the offer and sale of general partnership interests, although one of
the general partnerships continued to raise funds through capital calls to
existing general partners after such date. In addition to the rescission offer
described above, Wireless California and the general partnership issuers
voluntarily elected to offer to purchase the general partnership interests of
certain general partners in exchange for cash in an amount equal to the funds
contributed by such general partners. As of October 19, 1995, approximately
1,170 of the approximately 1,930 purchasers of general partnership interests had
been offered rescission or a return of their investment by Wireless California
or the general partnership issuers and approximately 80 had accepted the offer,
all of which have been paid. None of such offers, however, were necessarily
conducted in accordance with the statutory requirements of the various states.
To the extent such requirements were not met, potential securities liability
arising from the offer and sale of the general
F-36
<PAGE> 912
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
partnership interests will not be statutorily eliminated until the statutes of
limitation with respect to such claims have expired or an offer is made in
accordance with the statutory rescission requirements of any state.
In September 1995, AWS and the Pittsburgh general partnership sold all of
their wireless cable assets in the Pittsburgh market to a publicly held wireless
cable company. As consideration for the sale of its assets in the Pittsburgh
market, the Pittsburgh general partnership received approximately $11,250,000 in
cash and short-term notes, which amount exceeded the aggregate amount that would
have been required if all Pittsburgh general partners were offered and accepted
rescission.
There can be no assurance that current general partners or any governmental
agency will not institute proceedings against Wireless California or the Company
as the successor to Wireless California based on a failure to register the
general partnership interests in connection with a public offering or for
damages based on alleged omissions or misrepresentations of material information
in connection with the sale of such interests. In connection with the
acquisition of certain assets of Wireless California, the Company expressly
disclaimed any liabilities of Wireless California arising out of the offer and
sale of the general partnership interests described above. There is a
possibility, however, that a successful claim against Wireless California could
be asserted against the Company based on a number of theories involving
successor liability. The institution of legal action against the Company arising
out of the offer and sale of general partnership interests by Wireless
California could result in substantial defense costs to the Company and the
diversion of efforts by the Company's management, and the imposition of
liabilities which could have a material adverse effect on the Company. Based on
its experience to date, however, taking into account the status of
investigations by various state securities administrators, the absence of any
asserted claim for rescission having been instituted by any of the general
partners against any of the general partnerships, Wireless California or the
Company, the Company's assessment of the current value of the general
partnership interests, the relatively small number of general partners who have
accepted previous offers by Wireless California or its shareholders to purchase
general partnership interests, the existence of a number of possible defenses to
any claims asserted against it, the existence and terms of the agreements
between the Fort Worth and Minneapolis general partnerships and Heartland (Note
4) and other factors, the Company does not believe the ultimate resolution of
this matter will have a material impact on its financial condition or its
results of operations.
(c) Other Contingencies
The Company is currently named as a defendant in two separate lawsuits. On
May 16, 1995, William R. Jenkins, the former Chief Executive Officer of the
Company, filed a lawsuit in Arizona state court alleging breach of his
employment contract and requesting as damages all amounts due under the
employment contract, treble damages under the Arizona statute, attorney's fees
and costs. On June 2, 1995, the Company filed a Petition to Compel Arbitration
and an Answer including counterclaims. The Company estimates that the amount due
under Mr. Jenkins' employment contract, if he were successful, is approximately
$167,000. The Company maintains that no amounts are due to Mr. Jenkins as he was
terminated for cause and breached his employment contract. The Company believes
it has adequate grounds to successfully defend this lawsuit.
On June 21, 1995, TruVision, with whom the Company had entered into a
letter of intent relating to the sale of the Company's Memphis assets, filed a
lawsuit, as amended on June 29, 1995, in the state of Mississippi alleging that
the Company breached the letter of intent, that the parties entered into a
binding agreement which was breached, and that the Company committed fraud and
negligent misrepresentation. The Company disputes these claims based on the
position that it lawfully terminated the letter of intent. The Amended Complaint
requests damages in the amount of $28,196,642 and punitive damages in the amount
of $20,000,000, together with interest and all costs of court. The Company
believes it has adequate grounds to successfully defend this lawsuit. The
Company is currently negotiating with TruVision to sell its assets in the
Memphis market under a new contract. According to the terms of the contract, at
the time of closing, each party will sign a release of all claims against the
other.
F-37
<PAGE> 913
AMERICAN WIRELESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is also the subject of two threatened lawsuits. American
Telecasting, Inc. ("ATI") has sent letters to the Company claiming that the
Company breached a term sheet and has requested payment of $1,800,000 as the
alleged termination fee owed to ATI under the term sheet, plus expenses. The
Company has responded to ATI and disputes all of ATI's claims. The Company
believes that ATI's claims are without merit and would vigorously defend any
lawsuit filed.
By letter dated January 31, 1995, Laidlaw Holdings, Inc. ("Laidlaw"), the
underwriter of the Company's proposed public offering, claims that the Company
owes Laidlaw $182,165 as accountable expenses under a Letter Agreement between
the parties dated November 20, 1994. A follow-up letter was sent to the Company
on July 13, 1995. By letter dated February 3, 1995, from the Company to Laidlaw,
the Company asserted that Laidlaw terminated the Letter Agreement and believes
that if a claim is filed by Laidlaw, the Company has adequate grounds to
successfully defend the claim.
(10) INCOME TAXES
In connection with the reverse acquisition, the basis in the assets
acquired and liabilities assumed by the Company were substantially the same for
book and tax purposes.
For income tax reporting purposes, the Company was included in the
consolidated tax returns of Wireless California through August 13, 1993, the
date that Wireless California's ownership interest in the Company dropped below
80%. As a result, the net operating losses generated by the Company from
December 18, 1992 (the date subsequent to the reverse acquisition) through
August 13, 1993, of approximately $1,000,000 were utilized by Wireless
California to reduce its tax obligations and to recapture approximately $300,000
of previously paid taxes. In exchange, Wireless California agreed to contribute
this refund to the capital of the Company.
Since December 18, 1992, the Company has generated $8,199,000 in net
operating losses of which $890,000 was utilized by Wireless California through
August 13, 1993, and an additional $310,000 has been recognized for financial
reporting purposes to recapture taxes previously paid by Wireless California as
described above. Approximately $517,000 in net operating losses were utilized to
offset taxable income in prior year consolidated tax returns filed with Wireless
California. As of December 31, 1994, therefore, the Company has approximately
$6,482,000 in net operating loss carryforwards available for financial reporting
and income tax purposes which expire in 2009.
In 1994 and 1995, there were no material temporary differences between
financial reporting and income tax reporting. As a result, at December 31, 1994
and September 30, 1995 (unaudited), the Company has a net deferred tax asset of
approximately $2,593,000 and $2,931,000, respectively, which relates primarily
to its available net operating loss carryforwards. As the realizability of this
tax asset is solely dependent on the Company's ability to generate future
taxable income, this asset has been fully reserved.
F-38
<PAGE> 914
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee and Partners of
Fort Worth Wireless Cable T.V. Associates:
We have audited the accompanying consolidated balance sheets of FORT WORTH
WIRELESS CABLE T.V. ASSOCIATES (WCTVA or the Partnership) (a general
partnership) as of December 31, 1993 and 1994, and the related consolidated
statements of operations, partners' equity and cash flows for the years ended
December 31, 1992, 1993 and 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WCTVA as of December 31,
1993 and 1994, and the results of their operations and their cash flows for the
years ended December 31, 1992, 1993 and 1994, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As discussed in
Note 1 to the financial statements, the Partnership has incurred losses since
inception and expects to incur additional losses until it is able to generate
sufficient income to cover operating expenses. The Partnership currently does
not have sufficient cash reserves to cover such anticipated losses. These
factors raise substantial doubt about the Partnership's ability to continue as a
going concern. The Partnership's current plans are also discussed in Note 1. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 19, 1995.
F-39
<PAGE> 915
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1995
1993 1994 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 1).................. $ 94,898 $ 21,836 $ 25,014
Accounts receivable................................. 90,458 51,750 45,931
Prepaid expenses and other current assets........... 18,230 23,923 16,525
---------- ---------- -----------
Total current assets........................ 203,586 97,509 87,470
Investment in wireless systems and equipment, at cost,
net (notes 1 and 4)................................. 4,463,630 3,763,423 3,179,029
---------- ---------- -----------
$4,667,216 $3,860,932 $ 3,266,499
========== ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............ $ 85,451 $ 300,047 $ 547,286
Advances from affiliates (note 1)................... 109,730 471,613 660,025
---------- ---------- -----------
Total current liabilities................... 195,181 771,660 1,207,311
---------- ---------- -----------
Minority interest (note 1)............................ 206,073 143,792 99,742
---------- ---------- -----------
Commitments and contingencies (note 6)
Partners' equity (note 2):
General partners' equity............................ 7,384,979 6,064,497 5,078,463
Less syndication costs........................... (3,119,017) (3,119,017) (3,119,017)
---------- ---------- -----------
Total partners' equity...................... 4,265,962 2,945,480 1,959,446
---------- ---------- -----------
$4,667,216 $3,860,932 $ 3,266,499
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-40
<PAGE> 916
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------
1992 1993 1994 1994 1995
--------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber.................. $ 55,119 $ 646,745 $ 650,214 $ 493,034 $ 443,564
Installation................ 76,121 84,554 7,517 6,112 5,054
Other....................... 13,141 60,578 9,529 6,113 2,963
--------- ----------- ----------- ----------- ----------
Total revenues...... 144,381 791,877 667,260 505,259 451,581
--------- ----------- ----------- ----------- ----------
Operating expenses:
Operating and
installation............. 232,148 594,747 567,461 420,763 396,302
Selling and marketing....... 106,422 101,089 3,206 3,393 3,144
General and
administrative........... 299,792 412,652 692,784 541,721 500,766
Depreciation and
amortization............. 250,215 754,116 786,572 608,724 581,451
--------- ----------- ----------- ----------- ----------
Total operating
expenses.......... 888,577 1,862,604 2,050,023 1,574,601 1,481,663
--------- ----------- ----------- ----------- ----------
Loss from operations.......... (744,196) (1,070,727) (1,382,763) (1,069,342) (1,030,082)
Minority interest in losses... 76,446 57,689 62,281 47,974 44,048
--------- ----------- ----------- ----------- ----------
Net loss...................... $(667,750) $(1,013,038) $(1,320,482) $(1,021,368) $ (986,034)
========= =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-41
<PAGE> 917
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL TOTAL
PARTNERS' SYNDICATION PARTNERS'
EQUITY COSTS EQUITY
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1991............................ $ 4,959,517 $(2,424,000) $ 2,535,517
Capital contributions................................. 4,668,750 (695,017) 3,973,733
Return of capital..................................... (550,000) -- (550,000)
Net loss.............................................. (667,750) -- (667,750)
----------- ----------- -----------
Balance, December 31, 1992............................ 8,410,517 (3,119,017) 5,291,500
Return of capital..................................... (12,500) -- (12,500)
Net loss.............................................. (1,013,038) -- (1,013,038)
----------- ----------- -----------
Balance, December 31, 1993............................ 7,384,979 (3,119,017) 4,265,962
Net loss.............................................. (1,320,482) -- (1,320,482)
----------- ----------- -----------
Balance, December 31, 1994............................ 6,064,497 (3,119,017) 2,945,480
Net loss (unaudited).................................. (986,034) -- (986,034)
----------- ----------- -----------
Balance, September 30, 1995 (unaudited)............... $ 5,078,463 $(3,119,017) $ 1,959,446
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-42
<PAGE> 918
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $ (667,750) $(1,013,038) $(1,320,482) $(1,021,368) $(986,034)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization........ 250,215 754,116 786,572 608,724 581,451
Gain on sale of equipment............ -- -- -- -- (9,048)
Loss on disposal of assets........... -- -- -- -- 4,570
Minority interest in losses.......... (76,446) (57,689) (62,281) (47,974) (44,048)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable...................... (48,335) (42,123) 38,708 37,282 5,819
(Increase) decrease in prepaid
expenses and other current
assets.......................... (24,170) 5,940 (5,693) (1,569) 7,398
Increase (decrease) in accounts
payable and accrued
liabilities..................... 241,045 (155,594) 214,596 132,914 247,239
---------- ---------- ---------- ----------- ---------
Net cash used for operating
activities.................... (325,441) (508,388) (348,580) (291,991) (192,653)
---------- ---------- ---------- ----------- ---------
Cash flows from investing activities:
Investment in wireless systems and
equipment............................ (1,933,269) (738,967) (86,365) (62,761) (22,984)
Proceeds from sale of equipment......... -- -- -- -- 30,403
---------- ---------- ---------- ----------- ---------
Net cash (used for) provided by
investing activities.......... (1,933,269) (738,967) (86,365) (62,761) 7,419
---------- ---------- ---------- ----------- ---------
Cash flows from financing activities:
Cash contributed by (returned to)
partners, net........................ 4,118,750 (12,500) -- -- --
Syndication costs paid.................. (695,017) -- -- -- --
Net advances (to) from affiliates....... (257,254) 366,984 361,883 285,780 188,412
---------- ---------- ---------- ----------- ---------
Net cash provided by (used for)
financing activities.......... 3,166,479 354,484 361,883 285,780 188,412
---------- ---------- ---------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents............................. 907,769 (892,871) (73,062) (68,972) 3,178
Cash and cash equivalents, beginning of
period.................................. 80,000 987,769 94,898 94,898 21,836
---------- ---------- ---------- ----------- ---------
Cash and cash equivalents, end of
period.................................. $ 987,769 $ 94,898 $ 21,836 $ 25,926 $ 25,014
========== ========== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-43
<PAGE> 919
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
(1) ORGANIZATION
(a) Background, Nature of Organization and Significant Accounting Policies
Fort Worth Wireless Cable T.V. Associates (the Partnership), a California
general partnership, was formed as of July 1, 1992. The Partnership is comprised
of certain partners of Wireless Cable T.V. Associates #34 (WCTVA), a California
general partnership, which was formed in 1991, who exchanged their interest in
WCTVA for an interest in the Partnership, and some new partners who were
admitted to the Partnership upon contributing cash thereto. Upon its formation,
the Partnership acquired the assets and assumed the operations of WCTVA.
Concurrent with its formation, WCTVA entered into a Services and
Acquisition Agreement (the Agreement) with American Wireless Systems, Inc., a
California corporation (Wireless California). Under the terms of the Agreement,
Wireless California was obligated to provide various services including
assistance with Federal Communications Commission (FCC) filings, market
projections, and engineering services involving equipment assurances and new
market evaluation assistance. In addition, Wireless California was to coordinate
construction of broadcast facilities (commonly referred to as head-end
equipment) and assign to WCTVA a 75% interest in certain FCC licenses.
Wireless Cable television is an emerging business that provides television
programming to subscribers by transmitting a signal via microwave frequencies
licensed by the FCC to antennae located at the subscriber's premises.
The development and operations of the system have been conducted through an
informal joint venture relationship between the Partnership and American
Wireless Systems, Inc., a Delaware corporation (AWS-Delaware), which acquired
its interest in the informal joint venture from Wireless California in December
1992. American Wireless Systems of Ft. Worth (AWS-Ft. Worth), a general
partnership, has been established through which the operations of the informal
joint venture have been conducted. AWS-Ft. Worth was initially capitalized
through the contribution by WCTVA and Wireless California of their respective
interests in the FCC licenses and head-end equipment. Subsequent to the
formation of AWS-Ft. Worth, the Partnership acquired an additional 4.99%
interest in AWS-Ft. Worth such that the ownership is now 79.99% for the
Partnership and 20.01% for AWS-Delaware.
(b) Operations
The system had approximately 1,900 and 1,750 subscribers at December 31,
1993 and 1994, respectively, which is not sufficient to provide positive cash
flow. Additionally, neither the joint venture nor the Partnership has sufficient
funds to support the installation of additional subscribers sufficient to enable
the joint venture to reach a positive cash flow. The Partnership's joint venture
partner, AWS-Delaware, has indicated that it is not required to provide any
funding to support system growth, however, AWS-Delaware has advanced $253,177
from May 1, 1993 to December 31, 1994, and an additional $114,627 during 1995
(unaudited) to fund negative cash flow. Such advances are included in advances
from affiliates in the accompanying consolidated financial statements.
On September 11, 1995, AWS-Delaware and Heartland Wireless Communications,
Inc. ("Heartland") executed an Agreement and Plan of Merger, pursuant to which a
wholly-owned subsidiary of Heartland would be merged into AWS and AWS would
become a wholly-owned subsidiary of Heartland. On October 4, 1995, the
Partnership and Heartland executed an Asset Purchase Agreement (the "Fort Worth
Agreement") pursuant to which Heartland would purchase the Partnership's 79.99%
interest in AWS-Ft. Worth. Pursuant to the Fort Worth Agreement, Heartland has
agreed to assume up to $570,000 of liabilities associated with its joint venture
interest. The consideration to be paid to the Partnership under the Fort Worth
Agreement is
F-44
<PAGE> 920
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$13.3 million payable in Heartland Common Stock, based upon an exchange value
equal to the average trading price of Heartland Common Stock over the 10-day
period ending five business days prior to closing; provided that if such closing
average is in excess of $23.00 per share, then the exchange value will be $23.00
per share. Subject to approval of two-thirds of the partners, the Partnership
has agreed to effectuate the Agreement and Plan of Liquidation and, in
connection therewith, liquidate shares of Heartland Common Stock having an
aggregate exchange value in an amount necessary to satisfy certain known and
contingent liabilities of the Partnership.
In connection with the Fort Worth Agreement, Heartland has funded an Escrow
Agreement with a third-party escrow agent in the amount of $100,000, and is
obligated to fund an additional $55,000 per month starting November 1, 1995,
until the transaction closes. In addition, Heartland has agreed to loan the
Partnership $500,000 secured by the Partnership's interest in AWS-Ft. Worth. The
loan carries an interest rate of 10% per annum prior to maturity and is due in
accordance with the terms of the documents evidencing and securing the loan.
(c) Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and AWS-Ft. Worth. All significant intercompany accounts have
been eliminated in consolidation.
(d) Cash Equivalents
The Partnership considers all highly liquid instruments and time deposits
with an initial maturity of three months or less to be cash equivalents.
(e) Property and Equipment
Property and equipment is stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets.
(f) Frequency Rights
Included in investment in wireless systems and equipment is $3,218,864,
$3,231,364 and $3,231,364 of frequency rights as of December 31, 1993 and 1994,
and September 30, 1995 (unaudited), respectively, which are being amortized over
a ten-year period.
(g) Revenue Recognition
Subscription revenues are recognized in the period of service. Installation
fees are recognized as revenues upon subscriber hook-up.
(h) Income Taxes
No income tax liability or benefit is presented in the accompanying
consolidated financial statements as it will accrue to the partners.
(i) Unaudited Financial Information
The unaudited financial statements as of September 30, 1995, and for the
nine months ended September 30, 1994 and 1995, have been prepared by the
Partnership without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The information included herein, reflects,
in the
F-45
<PAGE> 921
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and results of
operations for such periods.
(2) PARTNERS' EQUITY
In 1991 WCTVA, sold approximately 800 general partnership units at $6,250
each, which provided capital of $5,000,000. Subsequent to their initial
contribution, certain partners requested a return of their capital; therefore,
$40,483 of the gross proceeds were returned. The initial offer and sale of WCTVA
interests were made by Wireless California (Note 6). Approximately $2,424,000
was paid for costs incurred in connection with the offering. Such costs are
reflected as an offset to equity in the accompanying consolidated financial
statements.
As discussed in note 1, the Partnership was formed in July 1992. The
partners of WCTVA were given the option to either exchange their interest in
WCTVA for an interest in the Partnership or to receive a return of their initial
contribution. The owners of 88 WCTVA partnership units elected to receive a
return of their contribution. An additional 747 units of the Partnership were
sold which provided additional capital of $4,668,750. The offer and sale of the
Partnership units were also made by Wireless California. Approximately $695,000
was paid for costs incurred in connection with this offering. Such costs are
reflected as an offset to equity in the accompanying consolidated financial
statements.
(3) JOINT VENTURE
As indicated in note 1, AWS-Ft. Worth has been operated through an informal
joint venture agreement (the "Agreement"). Key aspects of the Agreement utilized
in the development of the accompanying consolidated financial statements are as
follows:
(a) Initial Capital Contributions
Each member contributed to AWS-Ft. Worth their respective interests in the
wireless cable system assets to the joint venture in exchange for their
ownership interests of 79.99% (the Partnership) and 20.01% (AWS-Delaware.) The
accompanying consolidated financial statements reflect such contributed assets
at their respective owners' historical cost which does not directly correlate to
the ownership interests.
(b) Allocations of Profits and Losses
Profits and losses have been allocated in accordance with the respective
ownership percentages (the initial ownership percentages as adjusted for
additional cash contributions).
(c) Management
Wireless California, and it's successor, AWS-Delaware, have provided
management services to the joint venture since its inception. These services
have been provided through an informal management agreement. Management services
expense of $16,666, $100,000, $100,000, $75,000 and $75,000 has been provided in
the accompanying consolidated financial statements for the years ended December
31, 1992, 1993 and 1994, and the nine months ended September 30, 1994 and 1995
(unaudited), respectively.
F-46
<PAGE> 922
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVESTMENT IN WIRELESS SYSTEMS AND EQUIPMENT
Investment in wireless systems and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ------------------------ SEPTEMBER 30,
IN YEARS 1993 1994 1995
----------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Frequency rights................... 10 $3,218,864 $3,231,364 $ 3,231,364
Broadcast equipment and
inventory........................ 3-7 2,094,317 2,166,958 2,157,402
Vehicles........................... 5 48,593 48,689 48,173
Office equipment................... 5-7 100,653 101,582 93,053
Leasehold improvements............. 7 5,534 5,534 8,770
---------- ---------- ------------
5,467,961 5,554,127 5,538,762
Less: Accumulated depreciation and
amortization..................... (1,004,331) (1,790,704) (2,359,733)
---------- ---------- ------------
$4,463,630 $3,763,423 $ 3,179,029
========== ========== ============
</TABLE>
(5) RELATED PARTY TRANSACTIONS
The Partnership had several transactions with Wireless California including
the original sale of general partnership interests, the transactions
contemplated under the services and acquisition agreement and the informal joint
venture and management agreements. In addition to the Partnership and AWS-Ft.
Worth, AWS-Delaware is the minority owner of a wireless cable system joint
venture with another partnership in Minneapolis/St. Paul, Minnesota.
AWS-Ft. Worth had contracted subscriber installation services to Wireless
Technologies, Inc. (WTI), a Texas corporation engaged in the business of
providing subscriber installation services and distributing subscriber equipment
with respect to traditional and wireless cable systems. WTI is a wholly owned
subsidiary of North American Cable Corporation, a Texas corporation engaged in
the engineering, construction and maintenance of cable television systems, local
area networks, fiber optic networks and wireless cable television systems, with
operations in the United States, England and several other countries around the
world. A former Chief Executive Officer and Director of AWS-Delaware
beneficially owns 50% of the stock of North American Cable Corporation.
WTI purchased certain of the subscriber equipment that it sold to AWS-Ft.
Worth from Micom Products, Ltd. (Micom), a Delaware limited liability company
engaged in the distribution of subscriber equipment for traditional and wireless
cable systems. Micom is owned by the beneficial owners of approximately 36% of
AWS-Delaware.
In 1992 and 1993, payments of $196,860 and $542,521, respectively, were
made to WTI for installation services and related subscriber equipment. In 1992,
payments of $22,018 were made by WTI to Micom. Effective July 1993, AWS-Ft.
Worth ceased utilizing the services of WTI.
F-47
<PAGE> 923
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES
(a) Commitments
AWS-Ft. Worth leases office space under an operating lease. Future
obligations under this lease are as follows for years ending December 31:
<TABLE>
<S> <C>
1995.............................................. $ 57,968
1996.............................................. 60,570
1997.............................................. 61,200
1998.............................................. 15,300
--------
$195,038
========
</TABLE>
Lease expense of $34,224, $62,347, $55,830, $41,873 and $43,060 has been
recorded for the years ended December 31, 1992, 1993 and 1994, and the nine
months ended September 30, 1994 and 1995 (unaudited), respectively.
AWS-Ft. Worth holds frequency rights to 14 wireless cable channels in the
Ft. Worth market under several leases. Thirteen local broadcast channels are
also transmitted for a total programming package of 27 channels. The channel
leases have original lease periods from five to ten years with options to renew.
Future minimum lease payments for the FCC licenses are as follows for years
ending December 31:
<TABLE>
<S> <C>
1995.............................................. $108,300
1996.............................................. 108,300
1997.............................................. 60,500
1998.............................................. 1,200
1999.............................................. 1,200
Thereafter........................................ 2,900
--------
$282,400
========
</TABLE>
Lease expense of $62,918, $93,013, $90,460, $63,235 and $81,225 has been
recorded for the years ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1994 and 1995 (unaudited), respectively.
(b) Contingencies
The original formation of WCTVA and the subsequent formation of the
Partnership involved the sale of general partnership interests without
registration under any federal or state securities laws based on the belief that
the general partnership interests did not constitute securities under federal
and applicable state laws. As of December 31, 1994, securities administrators in
20 states as well as the Securities and Exchange Commission (SEC) have conducted
or are currently conducting investigations of the activities related to the
unregistered sale of the general partnership interests.
To date, the investigations have focused on Wireless California and its
successor AWS-Delaware, the Partnership's joint venture partner in AWS-Ft.
Worth, however, there is a possibility that future actions could be taken
against the Partnership. Such actions could involve fines, administrative
penalties and the requirement for the Partnership to file information with the
SEC pursuant to the Securities Exchange Act of 1934, as amended. Management
believes that any such penalties or fines should be the responsibility of
Wireless California and does not believe that any such actions will have a
material impact on its financial condition or its operations.
F-48
<PAGE> 924
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management Committee and Partners of
Wireless Cable T.V. Associates #38:
We have audited the accompanying consolidated balance sheets of Wireless
Cable T.V. Associates #38 (WCTVA or the Partnership) (a general partnership) as
of December 31, 1993 and 1994, and the related consolidated statements of
operations, partners' equity and cash flows for the ten months ended December
31, 1992 and the years ended December 31, 1993 and 1994. These consolidated
financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly,
in all material respects, the financial position of WCTVA as of December 31,
1993 and 1994, and the results of their operations and their cash flows for the
ten months ended December 31, 1992 and the years ended December 31, 1993 and
1994, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As discussed in
Note 1 to the financial statements, the Partnership has incurred losses since
inception and expects to incur additional losses until it is able to generate
sufficient income to cover operating expenses. The Partnership currently does
not have sufficient cash reserves to cover such anticipated losses. These
factors raise substantial doubt about the Partnership's ability to continue as a
going concern. The Partnership's current plans are also discussed in Note 1. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
October 19, 1995.
F-49
<PAGE> 925
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1995
1993 1994 -----------
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 1)................ $ 167,897 $ 620,058 $ 177,941
Accounts receivable............................... 17,862 111,848 197,300
Prepaid expenses and other current assets......... 69,999 13,840 25,918
---------- ---------- -----------
Total current assets...................... 255,758 745,746 401,159
Investment in wireless systems and equipment, at
cost, net (notes 1 and 5)......................... 7,135,982 6,679,478 6,083,417
---------- ---------- -----------
$7,391,740 $7,425,224 $ 6,484,576
========== ========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.......... $ 74,690 $ 162,033 $ 177,199
Advances from affiliates.......................... -- 49,112 55,304
Notes payable and obligations under capital lease
(notes 1 and 4)................................ 26,287 2,016,692 2,578,562
---------- ---------- -----------
Total current liabilities................. 100,977 2,227,837 2,811,065
---------- ---------- -----------
Minority interest (note 1).......................... 518,520 380,365 289,737
---------- ---------- -----------
Commitments and contingencies (note 7)
Partners' equity (note 2):
General partners' equity.......................... 11,388,243 9,433,022 7,999,774
Less syndication costs......................... (4,616,000) (4,616,000) (4,616,000)
---------- ---------- -----------
Total partners' equity.................... 6,772,243 4,817,022 3,383,774
---------- ---------- -----------
$7,391,740 $7,425,224 $ 6,484,576
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-50
<PAGE> 926
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------------
1992 1993 1994 1994 1995
-------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber.................. $ 9,261 $ 220,537 $ 459,215 $ 285,484 $ 643,381
Installation................ -- 31,584 11,360 8,629 10,896
Other....................... 14,433 20,031 64,471 35,644 86,318
-------- ----------- ----------- ----------- -----------
Total revenues...... 23,694 272,152 535,046 329,757 740,595
-------- ----------- ----------- ----------- -----------
Operating expenses:
Operating and
installation............. 62,053 690,835 1,187,795 826,474 1,092,248
Selling and marketing....... 237 70,881 71,317 39,539 11,137
General and
administrative........... 26,446 443,772 391,839 236,332 361,932
Depreciation and
amortization............. 6,158 738,860 977,471 719,045 799,154
-------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 94,894 1,944,348 2,628,422 1,821,390 2,264,471
-------- ----------- ----------- ----------- -----------
Loss from operations.......... (71,200) (1,672,196) (2,093,376) (1,491,633) (1,523,876)
Minority interest in losses... 8,764 127,217 138,155 102,488 90,628
-------- ----------- ----------- ----------- -----------
Net loss...................... $(62,436) $(1,544,979) $(1,955,221) $(1,389,145) $(1,433,248)
======== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-51
<PAGE> 927
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL TOTAL
PARTNERS' SYNDICATION PARTNERS'
EQUITY COSTS EQUITY
---------- ---------- ----------
<S> <C> <C> <C>
Balance, February 28, 1992 (inception).............. $ -- $ -- $ --
Capital contributions............................... 12,075,082 (4,616,000) 7,459,082
Net loss............................................ (62,436) -- (62,436)
---------- ----------- ----------
Balance, December 31, 1992.......................... 12,012,646 (4,616,000) 7,396,646
Capital contributions............................... 920,576 -- 920,576
Net loss............................................ (1,544,979) -- (1,544,979)
---------- ----------- ----------
Balance, December 31, 1993.......................... 11,388,243 (4,616,000) 6,772,243
Net loss............................................ (1,955,221) -- (1,955,221)
---------- ----------- ----------
Balance, December 31, 1994.......................... 9,433,022 (4,616,000) 4,817,022
Net loss (unaudited)................................ (1,433,248) -- (1,433,248)
---------- ----------- ----------
Balance, September 30, 1995 (unaudited)............. $7,999,774 $(4,616,000) $3,383,774
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-52
<PAGE> 928
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1992 AND
THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $ (62,436) $(1,544,979) $(1,955,221) $(1,389,145) $(1,433,248)
Adjustments to reconcile net loss
to net cash provided by (used
for) operating activities:
Depreciation and amortization... 6,158 738,860 977,471 719,045 799,154
Minority interest in losses..... (8,764) (127,217) (138,155) (102,488) (90,628)
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable........ (3,631) (14,222) (93,986) 15,524 (85,452)
(Increase) decrease in prepaid
expenses and other current
assets..................... (5,901) (64,098) 56,159 (497) (29,078)
Increase (decrease) in
accounts payable and
accrued liabilities........ 177,855 (103,166) 87,343 152,593 51,231
---------- ----------- ----------- ---------- ----------
Net cash provided by (used
for) operating
activities............... 103,281 (1,114,822) (1,066,389) (604,968) (788,021)
---------- ----------- ----------- ---------- ----------
Cash flows from investing activities:
Investment in wireless systems and
equipment....................... (5,983,256) (1,214,519) (520,967) (334,408) (203,093)
---------- ----------- ----------- ---------- ----------
Net cash used for investing
activities............... (5,983,256) (1,214,519) (520,967) (334,408) (203,093)
---------- ----------- ----------- ---------- ----------
Cash flows from financing activities:
Cash contributed by partners,
net............................. 12,075,082 920,576 -- -- --
Proceeds from issuance of notes
payable......................... -- -- 2,000,000 2,000,000 550,000
Net advances (to) from
affiliates...................... (178,844) 178,844 49,112 (104,336) 6,192
Syndication costs paid............. (4,616,000) -- -- -- --
Payments on capital lease.......... -- (2,445) (9,595) (4,797) (7,195)
---------- ----------- ----------- ---------- ----------
Net cash provided by
financing activities..... 7,280,238 1,096,975 2,039,517 1,890,867 548,997
---------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents................... 1,400,263 (1,232,366) 452,161 951,491 (442,117)
Cash and cash equivalents, beginning
of period.......................... -- 1,400,263 167,897 167,897 620,058
---------- ----------- ----------- ---------- ----------
Cash and cash equivalents, end of
period............................. $1,400,263 $ 167,897 $ 620,058 $1,119,388 $ 177,941
========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-53
<PAGE> 929
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994 AND SEPTEMBER 30, 1995 (UNAUDITED)
(1) ORGANIZATION:
(a) Background, Nature of Organization and Significant Accounting Policies
Wireless Cable T.V. Associates #38 (WCTVA or the Partnership) was formed in
February 1992 to develop and operate a wireless cable television system in
Minneapolis, Minnesota as a joint venture partner with American Wireless
Systems, Inc., a California corporation (Wireless California).
Wireless cable television is an emerging business that provides television
programming to subscribers by transmitting a signal via microwave frequencies
licensed by the Federal Communications Commission (FCC) to antennae located at
the subscriber's premises.
Concurrent with its formation, WCTVA entered into a Services and
Acquisition Agreement (the "Agreement") with Wireless California. Under the
terms of the Agreement, Wireless California provided various services including
assistance with Federal Communications Commission (FCC) filings, market
projections, and engineering services involving equipment assurances and new
market evaluation assistance. In addition, Wireless California coordinated
construction of broadcast facilities (commonly referred to as head-end
equipment) and assigned to WCTVA a 75% interest in certain FCC licenses
previously held by Wireless California.
Subsequent to the construction of the head-end equipment in March 1993, the
development and operations of the system have been conducted through a joint
venture relationship between WCTVA and Wireless California (see Note 3).
American Wireless Systems of Minneapolis L.L.C. ("AWS-Minneapolis"), a limited
liability company, was established through which the operations of the joint
venture have been conducted. AWS-Minneapolis was initially capitalized through
the contribution by WCTVA and Wireless California of their respective interests
in the FCC licenses and head-end equipment.
In December 1992, the Partnership's joint venture partner, Wireless
California, sold substantially all of its assets, including its remaining 25%
interest in AWS Minneapolis, to a publicly traded company which also
subsequently assumed the name of American Wireless Systems, Inc.
("AWS-Delaware"). The former shareholders of Wireless California, beneficially
own approximately 36% of AWS-Delaware.
(b) Operations
The system, which was launched in March 1993, had approximately 800 and
2,200 subscribers at December 31, 1993 and 1994, respectively, which is not
sufficient to provide positive cash flow. Additionally, neither the joint
venture nor the Partnership has sufficient funds to support the installation of
additional subscribers to enable the joint venture to reach positive cash flow.
As a result of these factors, in April 1994, the Partnership borrowed $2,000,000
from AWS-Delaware to fund additional development of the system. AWS-Minneapolis
received additional funding in May 1995, of $550,000 from Tsunami Capital Corp.
("Tsunami"). The loan was made by Tsunami in anticipation of a reverse merger
between AWS-Minneapolis and Tsunami.
On September 11, 1995, AWS-Delaware and Heartland Wireless Communications,
Inc. ("Heartland") executed an Agreement and Plan of Merger pursuant to which a
wholly-owned subsidiary of Heartland would be merged into AWS-Delaware and
AWS-Delaware would become a wholly-owned subsidiary of Heartland. On October 4,
1995, the Partnership and Heartland executed an Asset Purchase Agreement
pursuant to which the Partnership agreed to sell to Heartland its membership
interest in AWS-Minneapolis ("Minneapolis Agreement"). In addition, pursuant to
the Minneapolis Agreement, Heartland has agreed to assume the obligation to
repay the $2,000,000 note owned by the Partnership to AWS-Delaware. The
consideration to be paid to the Partnership under the Minneapolis Agreement is
$18 million (plus the assumption of liabilities)
F-54
<PAGE> 930
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus $500 per subscriber added from October 4, 1995 to the closing date, payable
in Heartland Common Stock, based upon an exchange value equal to either (a) the
lesser of $23 per share and the average closing price of Heartland Common Stock
as reported on the Nasdaq Stock Market's National Market over the ten-
trading-day period ending on the fifth business day preceding the date of the
closing of the Minneapolis Agreement or (b) if such closing average is equal to
or in excess of $30 per share, then (i) the product of the closing average
multiplied by $23, divided by (ii) $30. Subject to the approval of two-thirds of
the partners, the Partnership has agreed to effectuate the Agreement and Plan of
Liquidation and, in connection therewith, liquidate shares of Heartland Common
Stock having an aggregate exchange value in an amount necessary to satisfy
certain contingent liabilities of the Partnership.
In connection with the Heartland transaction, AWS-Minneapolis received a
$1,575,000 loan from Heartland of which $575,000 was utilized to pay the Tsunami
note plus interest and the remaining $1,000,000 can be utilized to fund
subscriber growth. The $1,000,000 loan can be drawn down in increments of not
less than $25,000 and not more than $250,000, and carries an interest rate of
prime plus 2%, as defined, and is due on the earlier of (i) the closing of the
Heartland transaction, (ii) the termination of the Heartland transaction, as
defined, or (iii) February 28, 1997.
(c) Consolidation
The accompanying consolidated financial statements include the accounts of
the Partnership and AWS-Minneapolis. All significant intercompany accounts have
been eliminated in consolidation.
(d) Cash Equivalents
The Partnership considers all highly liquid instruments and time deposits
with an initial maturity of three months or less to be cash equivalents. At
December 31, 1993 and 1994 and September 30, 1995 (unaudited), cash equivalents
include a $105,000 restricted deposit collateralizing the AWS-Minneapolis office
lease.
(e) Property and Equipment
Property and equipment is stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets.
(f) Frequency Rights
Included in investment in wireless systems and equipment is $6,204,332 of
frequency rights as of December 31, 1993 and 1994 and September 30, 1995
(unaudited), which are being amortized over a ten-year period.
(g) Revenue Recognition
Subscription revenues are recognized in the period of service. Installation
fees are recognized as revenues upon subscriber hook-up.
(h) Income Taxes
No income tax liability or benefit is presented in the accompanying
consolidated financial statements as it will accrue to the partners.
(i) Unaudited Consolidated Financial Information
The unaudited consolidated financial statements as of September 30, 1995,
and for the nine months ended September 30, 1994 and 1995, have been prepared by
the Partnership without audit, pursuant to the
F-55
<PAGE> 931
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rules and regulations of the Securities and Exchange Commission. The information
furnished herein, reflects, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for such periods.
(2) PARTNERS' EQUITY
In 1992, WCTVA sold approximately 1,744 general partnership units at $6,250
each, which provided capital of $10,900,000. Additional funds of $1,175,082 (188
units) and $920,576 (147 units) were contributed by existing partners during
1992 and 1993, respectively. The initial offer and sale of WCTVA units were made
by Wireless California. WCTVA reimbursed Wireless California approximately
$4,616,000 for costs incurred in connection with the offering. Such costs are
reflected as an offset to equity in the accompanying consolidated financial
statements.
(3) JOINT VENTURE
As indicated in Note 1, the Minneapolis wireless cable system has been
operated through a joint venture agreement (the "Agreement"). A summary of the
provisions of this agreement are as follows:
(a) Initial Capital Contributions
Each member contributed to AWS-Minneapolis their respective interests in
the wireless cable system assets to the joint venture in exchange for their
initial ownership interests of 75% (the Partnership) and 25% (AWS-Delaware.) The
accompanying consolidated financial statements reflect such contributed assets
at their respective owners' historical cost which does not directly correlate to
the ownership interests.
(b) Additional Capital Contributions
The Partnership is to make additional cash contributions to develop and
operate the system as it deems necessary. AWS-Delaware is only permitted to make
additional contributions with the consent of the Partnership.
(c) Allocations of Profits and Losses
Profits and losses are to be allocated in accordance with the respective
ownership percentages (the initial ownership percentages as adjusted for
additional cash contributions).
(d) Cash Distributions
Distributions of available operating cash flows are to be made in
accordance with the member's existing capital contribution percentages.
(e) Management
AWS-Delaware has provided management services to the joint venture since
its inception under the terms of a management agreement which provides for an
annual fee to AWS-Delaware equal to the greater of 5% of collected gross
revenues or $100,000 annually. The Partnership has the right to terminate the
management agreement upon 30 days' prior notice. Management services expense of
$-0-, $-0-, $83,333, $58,334 and $75,000 has been provided for the ten months
ended December 31, 1992 and the years ended December 31, 1993 and 1994 and the
nine months ended September 30, 1994 and 1995 (unaudited), respectively.
F-56
<PAGE> 932
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASE
Notes payable, including accrued interest, and obligations under capital
lease consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1993 1994 1995
------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to AWS-Delaware, interest at 8%, due
February 28, 1995; secured by a 10% interest in
the joint venture, as defined................... $ -- $2,000,000 $2,000,000
Note payable to Tsunami, interest at 12%, due
December 31, 1995, subject to alternate payment
arrangements, as defined........................ -- -- 569,067
Obligations under capital lease, aggregate monthly
payments of $810 through September 1996......... 26,287 16,692 9,495
------- ---------- ----------
$26,287 $2,016,692 $2,578,562
======= ========== ==========
</TABLE>
(5) INVESTMENT IN WIRELESS SYSTEMS AND EQUIPMENT
Investment in wireless systems and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE ---------------------- 1995
IN YEARS 1993 1994 -------------
----------- --------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C>
Frequency rights....................... 10 $6,204,332 $6,204,332 $ 6,204,332
Broadcast equipment and inventory...... 3-7 1,513,430 2,010,842 2,240,796
Vehicles............................... 5 77,271 77,271 77,271
Office equipment....................... 5-7 83,279 106,834 78,747
Leasehold improvements................. 7 1,450 1,450 1,450
---------- ---------- ------------
7,879,762 8,400,729 8,602,596
Less: Accumulated depreciation and
amortization......................... (743,780) (1,721,251) (2,519,179)
---------- ---------- ------------
$7,135,982 $6,679,478 $ 6,083,417
========== ========== ============
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The Partnership had several transactions with Wireless California including
the original sale of general partnership interests and the transactions
contemplated under the services and acquisition agreement. In addition to the
Partnership and AWS-Minneapolis, AWS-Delaware is the minority owner of a
wireless cable system joint venture with another general partnership in Ft.
Worth, Texas.
In its capacity as manager of AWS-Minneapolis, AWS-Delaware contracted
subscriber installation services to Wireless Technologies, Inc. (WTI), a Texas
corporation engaged in the business of providing subscriber installation
services and distributing subscriber equipment with respect to traditional and
wireless cable systems. WTI is a wholly owned subsidiary of North American Cable
Corporation, a Texas corporation engaged in the engineering, construction and
maintenance of cable television systems, local area networks, fiber optic
networks and wireless cable television systems, with operations in the United
States, England and several other countries around the world. A former Chief
Executive Officer and Director of AWS-Delaware beneficially owns 50% of the
stock of North American Cable Corporation.
WTI purchased certain of the subscriber equipment that it sold to
AWS-Minneapolis from Micom Products, Ltd. (Micom), a Delaware limited liability
company engaged in the distribution of subscriber equipment for traditional and
wireless cable systems. Micom is owned by the beneficial owners of approximately
36% of AWS-Delaware.
F-57
<PAGE> 933
WIRELESS CABLE T.V. ASSOCIATES #38
(A GENERAL PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, payments of $381,534 were made to WTI for installation services
and related subscriber equipment. In 1993 and 1994, payments of $114,644 and
$2,766, respectively, were made by WTI to Micom. Effective August 1993,
AWS-Minneapolis ceased utilizing the services of WTI.
(7) COMMITMENTS AND CONTINGENCIES
(a) Commitments
Beginning January 1, 1993, AWS-Minneapolis began leasing office space under
an operating lease. Future obligations under this lease are as follows for years
ending December 31:
<TABLE>
<S> <C>
1995.............................................. $ 89,496
1996.............................................. 98,280
1997.............................................. 98,280
1998.............................................. 98,280
--------
$384,336
========
</TABLE>
Lease expense of $62,378, $57,269, $43,541 and $66,971 has been recorded
for the years ended December 31, 1993 and 1994, and for the nine months ended
September 30, 1994 and 1995 (unaudited).
AWS-Minneapolis holds frequency rights to 21 wireless cable channels in the
Minneapolis market under several leases. Eight local broadcast channels are also
transmitted for a total programming package of 29 channels. The channel leases
have original lease periods from five to ten years with options to renew. Future
minimum lease payments for the FCC licenses are as follows for years ending
December 31:
<TABLE>
<S> <C>
1995............................................. $ 368,488
1996............................................. 371,488
1997............................................. 324,988
1998............................................. 303,988
1999............................................. 303,988
Thereafter....................................... 467,912
----------
$2,140,852
==========
</TABLE>
Lease expense of $21,292, $248,350, $317,180, $235,610 and $263,560 has been
recorded for the ten months ended December 31, 1992 and the years ended December
31, 1993 and 1994, and for the nine months ended September 30, 1994 and 1995
(unaudited), respectively.
Contingencies
The original formation of WCTVA involved the sale of general partnership
interests without registration under any federal or state securities laws based
on the belief that the general partnership interests did not constitute
securities under federal and applicable state laws. Securities administrators in
22 states as well as the Securities and Exchange Commission (SEC) have conducted
or are currently conducting investigations of the activities related to the
unregistered sale of the general partnership interests.
To date, the investigations have focused on Wireless California and its
successor, AWS-Delaware, the Partnership's joint venture partner in
AWS-Minneapolis, however, there is a possibility that future actions could be
taken against the Partnership. Such actions could involve fines, administrative
penalties and the requirement for the Partnership to file required 1934 Act
information with the SEC. Management believes that any such penalties or fines
should be the responsibility of Wireless California and does not believe that
any such actions will have a material impact on its financial condition or its
operations.
F-58
<PAGE> 934
HEARTLAND WIRELESS COMMUNICATIONS, INC.
PRO FORMA FINANCIAL INFORMATION FOR CONSUMMATED EVENTS
The following Pro Forma Statements for Consummated Events present pro forma
financial information of the Company with respect to various events (other than
the Transactions). The Pro Forma Statements for Consummated Events are further
adjusted for the effects of the Transactions as set forth on pages 99 to 102 of
the Registration Statement.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet for
Consummated Events as of September 30, 1995 gives effect to (i) the October 18,
1995 contribution of wireless cable systems located in Milano, Texas and Monroe,
Louisiana and wireless cable channel rights in other markets located in Texas,
Louisiana, Alabama, Georgia and Florida to Wireless One (the "Wireless One
Transaction"), (ii) the issuance of approximately 91,000 shares of Heartland
Common Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One, (iii) the issuance by Wireless One of the $10.0 million of
Wireless One notes as part of the Wireless One Transaction and the subsequent
repayment of such notes, and (iv) the increase in the Company's equity interest
in Wireless One as part of the Wireless One Transaction as if such events had
occurred on September 30, 1995. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 give effect to (i) the
issuance of 2,415,000 shares of Heartland Common Stock in the Company's initial
public offering in April 1994, (ii) the sale in November 1994 of the Convertible
Notes, (iii) the 1994 acquisitions of wireless cable systems in Milano, Texas
and Lindsay, Oklahoma, (iv) the 1995 acquisitions of wireless cable systems in
Shaw, Kansas, Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas and Sikeston,
Missouri and wireless cable channel rights in certain non-operating markets, (v)
the 1994 and 1995 purchases by and distribution to the Company of certain
non-operating markets previously owned by RuralVision Joint Venture, (vi) the
issuance of 998,318 shares of Heartland Common Stock in 1994 and 1995 in
exchange for minority interests in certain of the Company's subsidiaries, (vii)
the issuance in July 1995 of 1,029,707 shares of Heartland Common Stock to
RuralVision Joint Venture in exchange for $20,000,000 cash, (viii) the
elimination of historical revenues and expenses associated with the wireless
cable systems located in Milano, Texas and Monroe, Louisiana which were
contributed to Wireless One in connection with the Wireless One Transaction and
(ix) the Company's equity in pro forma losses of Wireless One, as if such events
had occurred on January 1, 1994.
The pro forma statements of operations financial information does not give
effect to the sale of the Notes by the Company in April 1995. Assuming the Notes
had been issued on January 1, 1994, interest expense, amortization of related
debt issuance costs and amortization of debt discount would have increased by
approximately $14 million and $4.6 million for the year ended December 31, 1994
and the nine months ended September 30, 1995, respectively.
The Pro Forma Statements for Consummated Events and accompanying notes
should be read in conjunction with the Company's consolidated financial
statements (including notes thereto) appearing elsewhere in the Prospectus. The
Pro Forma Statements for Consummated Events do not purport to represent what the
Company's results of operations or financial position actually would have been
had such events occurred on the dates specified, or to project the Company's
results of operations or financial position for any future period or date. The
pro forma adjustments are based upon available information and certain
adjustments that management believes are reasonable. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the Pro Forma Statements for Consummated Events.
F-59
<PAGE> 935
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET FOR CONSUMMATED EVENTS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
WIRELESS
HISTORICAL ONE HEARTLAND
HEARTLAND TRANSACTION PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 37,155,064 $10,000,000(B) $ 47,155,064
Restricted investments....................... 11,669,874 -- 11,669,874
Net assets held for cash sale or exchange.... 9,200,000 (7,000,000)(B) 2,200,000
Other current assets......................... 3,389,470 (354,189)(A) 3,035,281
------------ ----------- ------------
Total current assets............... 61,414,408 2,645,811 64,060,219
Systems and equipment, net................... 46,027,017 (2,658,065)(A) 43,368,952
Leased license investment, net............... 64,726,389 (4,244,113)(A) 60,482,276
Investment in Wireless One................... -- 14,044,155(A) 14,602,442
(10,000,000)(B)
2,000,000(C)
8,558,287(D)
Notes receivable............................. -- --
Excess of cost over fair value of net assets
acquired................................... 4,470,286 4,470,286
Restricted investments....................... 13,077,340 13,077,340
Net assets held for exchange................. -- --
Other assets , net........................... 10,435,034 10,435,034
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt............ $ 616,610 $ $ 616,610
Other current liabilities.................... 10,244,363 (113,732)(A) 10,130,631
------------ ----------- ------------
Total current
liabilities...................... 10,860,973 (113,732) 10,747,241
Long-term debt, less current portion......... 139,428,429 139,428,429
Deferred income taxes........................ 1,287,560 (98,480)(A) 1,189,080
Other liabilities............................ 279,695 279,695
Stockholders' equity......................... 48,293,817 2,000,000(C) 58,852,104
8,558,287(D)
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-60
<PAGE> 936
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Total revenues.................................................... $ 2,229,494 $ 5,472,554(E) $ (111,225)(M) $ 7,590,823
----------- ----------- ---------- -----------
Operating expenses:
Systems operations.............................................. 762,501 2,362,388(E) (55,590)(M) 4,188,612
1,119,313(F)
Selling, general and administrative............................. 4,183,307 2,300,261(E) (105,599)(M) 6,377,969
Depreciation and amortization................................... 1,097,668 1,322,786(E) (44,931)(M) 3,263,717
68,778(G)
819,416(H)
----------- ----------- ---------- -----------
Total operating expenses.................................. 6,043,476 7,992,942 (206,120) 13,830,298
----------- ----------- ---------- -----------
Operating loss............................................ (3,813,982) (2,520,388) 94,895 (6,239,475)
Interest expense.................................................. (589,767) (3,595,266)(I) (4,185,033)
Equity in losses of investees..................................... (386,985) 386,985(J) (1,004,594)(N) (1,004,594)
Interest income and other......................................... 152,450 -- 152,450
----------- ----------- ---------- -----------
Loss before income taxes.................................. (4,638,284) (5,728,669) (909,699) (11,276,652)
Income tax benefit................................................ 1,594,963 863,849(K) 2,458,812
----------- ----------- ---------- -----------
Net loss.................................................. $(3,043,321) $(4,864,820) $ (909,699) $(8,817,840)
=========== =========== ========== ===========
Net loss per share................................................ $ (0.30) $ (0.70)
=========== ===========
Weighted average shares outstanding............................... 10,041,000 2,407,412(L) 93,032 (C) 12,541,444
=========== =========== ========== ===========
</TABLE>
See accompanying notes to pro forma statements.
F-61
<PAGE> 937
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Total revenues................................................. $ 9,292,837 $ 1,283,545(O) $ (632,173) (M) $ 9,944,209
------------ ----------- ----------- ------------
Operating expenses:
Systems operations........................................... 2,894,074 627,144(O) (399,687) (M) 3,371,531
250,000(P)
Selling, general and administrative.......................... 7,449,699 587,774(O) (348,447) (M) 7,689,026
Depreciation and amortization................................ 3,966,120 350,966(O) (193,962) (M) 4,396,920
256,602(Q)
17,194(G)
------------ ----------- ----------- ------------
Total operating expenses............................... 14,309,893 2,089,680 (942,096) 15,457,477
------------ ----------- ----------- ------------
Operating loss......................................... (5,017,056) (806,135) 309,923 (5,513,268)
Interest expense............................................... (8,908,459) (8,908,459)
Equity in losses of investees.................................. (128,663) 128,663(J) (1,049,583) (N) (1,049,583)
Interest income and other...................................... 1,568,946 1,568,946
------------ ----------- ----------- ------------
Loss before income taxes............................... (12,485,232) (677,472) (739,660) (13,902,364)
Income tax benefit............................................. 1,307,137 (1,307,137)(K) --
------------ ----------- ----------- ------------
Net loss............................................... $(11,178,095) $(1,984,609) (739,660) $(13,902,364)
============ =========== =========== ============
Net loss per share............................................. $ (0.96) $ (1.10)
======= =======
Weighted average shares outstanding............................ 11,624,000 874,895(L) 93,032 (C) 12,591,927
============ =========== =========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-62
<PAGE> 938
HEARTLAND WIRELESS COMMUNICATIONS, INC.
NOTES TO PRO FORMA STATEMENTS FOR CONSUMMATED EVENTS
(A) Reflects the contribution of wireless cable systems located in Milano,
Texas and Monroe, Louisiana and wireless cable channel rights in other
markets located in Texas, Louisiana, Alabama, Georgia and Florida to
Wireless One.
(B) Reflects the issuance by Wireless One of the $10.0 million of Wireless One
notes as part of the Wireless One Transaction and subsequent repayment of
such notes.
(C) Reflects the issuance of approximately 93,000 shares of Heartland Common
Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights
to Wireless One.
(D) Reflects the increase in Heartland's equity interest in Wireless One as
part of the Wireless One Transaction as if such event had occurred on
September 30, 1995. Subsequent to the Wireless One Transaction,
Heartland's equity interest in Wireless One was approximately 26.6%.
(E) Reflects the historical revenues and expenses associated with the
acquisitions of wireless cable systems in Milano, Texas in December 1994,
Lindsay, Oklahoma in December 1994, Shaw, Kansas in January 1995, Lubbock,
Texas in May 1995, Lykens, Ohio in July 1995, Paragould, Arkansas in July
1995, and Sikeston, Missouri in July 1995, until the respective
acquisition dates of such systems.
(F) Reflects the incremental lease rental payments associated with the 1994
and 1995 purchases by and distribution to Heartland of certain
non-operating markets previously owned by RuralVision Joint Venture.
(G) Reflects incremental amortization of the excess purchase price over the
fair value of net identifiable assets acquired associated with the
acquisitions of certain minority interests. Amortization of the excess
purchase price over the fair value of net identifiable assets acquired is
based on an estimated useful life of 20 years.
(H) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Milano,
Texas, Lindsay, Oklahoma, Shaw, Kansas, Lubbock, Texas, Lykens, Ohio,
Paragould, Arkansas, and Sikeston, Missouri. The acquisition dates of each
respective system are set forth in note (E). Amortization of leased
license investment is calculated beginning with inception of service in
each respective market.
(I) Reflects incremental interest expense on $40 million of Convertible Notes
issued by Heartland in November 1994 at a rate of 9.0% and incremental
amortization of related debt issuance costs by the interest method over
the life of such notes.
(J) Reflects the reversal of equity in losses in RuralVision Joint
Venture due to the termination of such venture in January 1995 and
acquisition of such venture's markets by Heartland.
(K) Reflects the adjustment to income tax benefit related to pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable differences.
(L) Reflects the incremental increase in weighted average shares of Heartland
Common Stock outstanding related to the issuance of 2,415,000 shares in
Heartland's initial public offering in April 1994, the exchange of 694,280
and 304,038 shares for minority interests in certain of the Company's
subsidiaries in 1994 and 1995, respectively, and the issuance of 1,029,707
shares in July 1995 to RuralVision Joint Venture in exchange for
$20,000,000 cash.
(M) Reflects the elimination of historical revenues and expenses associated
with the wireless cable systems located in Milano, Texas and Monroe,
Louisiana which were contributed to Wireless One.
F-63
<PAGE> 939
(N) Reflects Heartland's equity in pro forma losses of Wireless One as if the
Wireless One Transaction had occurred on January 1, 1994.
(O) Reflects the historical revenues and expenses associated with the wireless
cable systems in Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas, and
Sikeston, Missouri until their respective acquisition dates. The
acquisition dates of each respective system are set forth in note (E).
(P) Reflects the incremental lease rental payments associated with the 1995
purchases by and distribution to the Company of certain non-operating
markets previously owned by RuralVision Joint Venture.
(Q) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Lubbock,
Texas, Lykens, Ohio, Paragould, Arkansas, and Sikeston, Missouri. The
acquisition dates of each respective system are set forth in note (E).
Amortization of leased license investment is calculated beginning with
inception of service in each respective market.
F-64
<PAGE> 940
A
APPENDIX A
AMENDED AND RESTATED AWS
MERGER AGREEMENT
<PAGE> 941
A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 11, 1995
BETWEEN
AMERICAN WIRELESS SYSTEMS, INC.
(A DELAWARE CORPORATION)
AND
HEARTLAND MERGER SUB, INC.
(A DELAWARE CORPORATION)
<PAGE> 942
A
AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
is made and entered into as of the 11th day of September, 1995, by and among
AMERICAN WIRELESS SYSTEMS, INC., a Delaware corporation ("AWS"), HEARTLAND
MERGER SUB, INC., a Delaware corporation ("MergerSub") and HEARTLAND WIRELESS
COMMUNICATIONS, INC., a Delaware corporation ("Heartland").
WITNESSETH:
WHEREAS, the respective Boards of Directors of AWS, MergerSub and Heartland
have approved the merger of MergerSub with and into AWS pursuant and subject to
the terms and conditions of this Agreement, whereby each issued and outstanding
share of common stock, par value $.01 per share, of AWS ("AWS Common Share")
will be converted into the right to receive the Conversion Amount as hereinafter
defined; and
WHEREAS, AWS, Heartland and MergerSub (also known as Heartland MergerSub,
Inc.) have previously entered into an Agreement and Plan of Merger, dated as of
the date hereof ("Original Agreement"), and have agreed to amend and restate the
Original Agreement as provided herein; and
WHEREAS, AWS, MergerSub and Heartland desire to make certain
representations, warranties and agreements in connection with the Merger and
also to set forth the various conditions to the Merger; and
WHEREAS, the Board of Directors of AWS, MergerSub and Heartland have
adopted resolutions approving this Agreement; and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 12 hereof.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. THE MERGER
1.1 THE MERGER. At the Effective Time, MergerSub will merge with and into
AWS (the "Merger") in accordance with the terms and conditions of this
Agreement. AWS shall be the corporation surviving the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Delaware. The Merger shall have the effects specified under the Delaware General
Corporation Law ("DGCL").
1.2 EFFECT OF THE MERGER. (A) EFFECTIVE TIME. At the Effective Time,
subject in all instances to each of the terms, conditions, provisions and
limitations contained in this Agreement, (i) MergerSub will merge with and into
AWS by the filing with the Secretary of the State of Delaware of a Certificate
of Merger; (ii) each AWS Common Share outstanding at the Effective Time, by said
occurrence and with no further action on the part of the holder thereof, shall
be transformed and converted into the right to receive, upon surrender of the
certificate for such AWS Common Share, the Conversion Amount, without interest
or any similar payment thereon or with respect thereto; (iii) each share of
common stock of MergerSub outstanding prior to the Merger will, by said
occurrence and with no further action on the part of the holder thereof, be
transformed and converted into one share of common stock of the Surviving
Corporation, so that thereafter Heartland will be the sole and exclusive owner
of equity securities of the Surviving Corporation; (iv) each warrant or AWS
Stock Option to acquire AWS Common Stock outstanding at the Effective Time and
not exercised or terminated, which are convertible by their respective terms
into the right to receive Heartland Common Shares upon the consummation of the
Merger, shall be so converted; and (v) the Surviving Corporation shall be the
owner of all of the business, assets, rights and other attributes thereto of, or
held by, either AWS or MergerSub.
A-1
<PAGE> 943
(B) CONVERSION AMOUNT. On the Closing Date, each outstanding AWS Common
Share shall be converted into the right to receive the number of Heartland
Common Shares (the "Conversion Amount") equal to the sum of (i) the Initial
Amount and (ii) upon the expiration of the Escrow Period and after any
adjustments in accordance with Article 11, the Contingent Amount. As used
herein, the "Initial Amount" shall mean the number of Heartland Common Shares
equal to the product of (i) the Initial Consideration divided by the Merger
Consideration, multiplied by (ii) the Conversion Ratio, and the "Contingent
Amount" shall mean the number of Heartland Common Shares equal to the product of
(i) the Contingent Consideration divided by the Merger Consideration, multiplied
by (ii) the Conversion Ratio, subject to adjustment as provided in Article 11,
as such amounts may be adjusted for the rounding of fractional shares as
provided in Section 2.1(i). As used herein, the "Conversion Ratio" means the
number of Heartland Common Shares to be exchanged for each AWS Common Share,
which number of Heartland Common Shares is equal to (i) the Merger Consideration
divided by (ii) the product of (A) the total number of Outstanding AWS Shares at
the Effective Time multiplied by (B) the Exchange Price.
(C) OUTSTANDING AWS SHARES. As used herein, the "Outstanding AWS Shares"
means (i) the total number of AWS Common Shares outstanding at the Effective
Time plus (ii) the aggregate number of AWS Common Shares, determined for each
AWS Stock Option or warrant to acquire AWS Common Shares outstanding at the
Effective Time, equal to the quotient of (A) the AWS Share Value minus the
exercise price of such option or warrant, divided by (B) the AWS Share Value. As
used herein, the "AWS Share Value" means the Merger Consideration divided by the
aggregate number of AWS Common Shares outstanding at the Effective Time.
(D) EXCHANGE PRICE. As used herein, "Exchange Price" means (i) if the
Closing Share Price is greater than or equal to the Minimum Collar Price and
less than or equal to the Maximum Collar Price, then the Closing Share Price,
(ii) if the Closing Share Price is less than the Minimum Collar Price, then the
Minimum Collar Price, or (iii) if the Closing Share Price is greater than the
Maximum Collar Price, then the Maximum Collar Price; subject to each party's
respective right to terminate this Agreement as set forth in Section 10.2 or
10.3, as applicable, for the failure of the applicable condition precedent to
the Merger set forth in Section 8.15 or 9.6, as applicable, if the Closing Share
Price is either greater than the Maximum Termination Price or less than the
Minimum Termination Price.
(E) CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
certificate of incorporation of the Surviving Corporation shall be the
certificate of incorporation of MergerSub immediately prior to the Effective
Time.
(F) BYLAWS OF THE SURVIVING CORPORATION. The bylaws of the Surviving
Corporation shall be the bylaws of MergerSub immediately prior to the Effective
Time.
(G) BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The board
of directors and officers of MergerSub immediately prior to the Effective Time
shall be the board of directors and the officers of the Surviving Corporation,
respectively, immediately upon the Effective Time, and such persons shall serve
in such positions for the respective terms provided by law or in the bylaws of
the Surviving Corporation and until their respective successors are elected and
qualified.
(H) HEARTLAND TO ESTABLISH ESCROW. Harris Trust Company of New York
("Harris") shall act as exchange agent hereunder (the "Exchange Agent"). In the
event Harris is unable or unwilling to act as the Exchange Agent, AWS and
Heartland shall, upon mutual agreement, seek to select a comparable party to act
as Exchange Agent. Heartland Common Shares shall be held by the Exchange Agent
pursuant to the terms of an Escrow Agreement (the "Escrow Agreement") in the
form attached hereto as Exhibit 1.2(h) hereto. Immediately prior to the
Effective Time, Heartland shall deposit, or cause to be deposited, with the
Exchange Agent, in trust for the holders of AWS Common Shares the aggregate
Conversion Amount issuable pursuant to Section 1.2(i) in exchange for
outstanding AWS Common Shares (the "Exchange Fund").
(I) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of AWS Common Shares a
letter of transmittal, which shall specify that delivery shall be effected, and
risk of loss and title to the certificates representing AWS Common Shares (the
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"Certificates") shall pass, only upon actual delivery of the Certificates to the
Exchange Agent and shall contain instructions for use in effecting the surrender
of the Certificates in exchange for the Conversion Amount. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall receive in
exchange therefor (subject to the rounding of any fractional shares as provided
in this Section 1.2(i)) the Initial Amount and shall be entitled to receive,
upon the expiration of the Escrow Period, the Contingent Amount (as adjusted in
accordance with Article 11) for the AWS Common Shares represented by such
Certificate, and the Certificate so surrendered shall forthwith be cancelled.
Until surrendered as contemplated by this Section 1.2(i), each Certificate
shall, at and after the Effective Time, be deemed to represent only the right to
receive, upon surrender of such Certificate, the Conversion Amount with respect
to each AWS Common Share represented thereby in accordance with the terms of
this Agreement, as follows:
(i) Upon the Closing Date, each holder of a Certificate shall receive
the Initial Amount (rounded up to the nearest whole Heartland Common Share)
for the AWS Common Shares represented by a Certificate; and
(ii) Upon the expiration of the Escrow Period and upon the
satisfaction of the conditions set forth in Article 11 (subject to the
adjustments provided for therein), each holder of a Certificate shall be
entitled to receive the Contingent Amount, minus any fractional shares not
distributed pursuant to Subsection (i) above ("Holdback Amount") for the
AWS Common Shares represented by a Certificate, subject to adjustment as
provided in Article 11.
(J) DIVIDENDS; TRANSFER TAXES. No dividends or other distributions that are
declared on or after the Effective Time on Heartland Common Shares or are
payable to the holders of record of Heartland Common Shares on or after the
Effective Time will be paid to persons entitled by reason of the Merger to
receive Heartland Common Shares until such persons surrender their Certificates,
as provided in this Article 1. Subject to the effect of applicable law, there
shall be paid to the record holder of Heartland Common Shares (i) at the time of
such surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions theretofore paid with respect to whole
Heartland Common Shares and having a record date on or after the Effective Time
and a payment date prior to such surrender and (ii) at the appropriate payment
date or as promptly as practicable thereafter, the amount of dividends or other
distributions payable with respect to Heartland Common Shares and having a
record date on or after the Effective Time but prior to surrender and a payment
date subsequent to surrender. In no event shall the person entitled to receive
such dividends or other distributions be entitled to receive interest on such
dividends or other distributions. If any dividends, cash in lieu of fractional
shares or Heartland Common Shares are 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 Exchange Agent any
transfer or other taxes required by reason of the issuance of Heartland Common
Shares in a name other than that of the registered holder of the Certificate
surrendered or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
(K) NO FRACTIONAL SHARES. No certificates or scrip representing fractional
Heartland Common Shares shall be issued upon the surrender for exchange of
Certificates pursuant to this Article 1, and, except as provided in this Section
1.2(k), no dividend or other distribution, stock split or interest shall relate
to any such fractional security, and such fractional interests shall not entitle
the owner thereof to vote or to any rights of a security holder of Heartland. In
lieu of any fractional security, each holder of AWS Common Shares who would
otherwise have been entitled to a fraction of a Heartland Common Share upon
surrender of Certificates for exchange pursuant to this Article 1 will be paid
an amount in cash (without interest) equal to the value of the fractional share
based upon the Closing Share Price. No fractional interests shall be issued in
connection with the disbursement of the Initial Amount, as further provided in
Section 1.2(i). Upon the expiration of the Escrow Period, in connection with the
distribution of Heartland Common Shares remaining in the Exchange Fund,
Heartland shall repurchase any fractional shares from the Exchange Fund at the
Exchange Price, and
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the proceeds thereof shall be disbursed to the former holders of AWS Common
Shares as a part of the Contingent Amount, in accordance with the Escrow
Agreement.
(L) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Common Shares which remain
undistributed to the former holders of AWS Common Shares for three (3) months
after the expiration of the Escrow Period shall be delivered to Heartland, upon
demand of Heartland, and any former holders of AWS Common Shares who have not
theretofore complied with this Article 1 shall thereafter look only to the
Surviving Corporation and Heartland for payment of their claim for the
Conversion Amount into which such AWS Common Shares are convertible, any cash in
lieu of fractional Heartland Common Shares, and any dividends or distributions
with respect to Heartland Common Shares.
(M) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All Heartland Common
Shares issued, and all cash paid pursuant to this Section 1.2, upon the
surrender for exchange of Certificates in accordance with the terms hereof,
shall be deemed to have been issued or paid, as the case may be, in full
satisfaction of all rights pertaining to the AWS Common Shares.
(N) CLOSING OF AWS TRANSFER BOOKS. At the Effective Time, the stock
transfer books of AWS shall be closed and no transfer of AWS Common Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be cancelled and exchanged as provided in
this Article 1.
(O) FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of AWS, or (ii)
otherwise to carry out the purposes of this Agreement, the Surviving Corporation
and its proper officers and directors or their designees shall be authorized to
execute and deliver, in the name and on behalf of each such corporation, all
such deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of each of such corporations, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of such corporations and otherwise to carry out the purposes of this
Agreement.
(P) DISSENTERS' RIGHTS. To the extent that holders of AWS Common Shares
exercise dissenters' rights pursuant to applicable provisions of the DGCL, the
AWS Common Shares of such holders shall not be converted to a right to receive
the Conversion Amount, but Heartland Common Shares representing the Conversion
Amount attributable to such shares shall be held by Escrow Agent subject to the
provisions of such law. If any such holder fails to perfect or withdraws or
loses its dissenter's rights, such AWS Common Shares shall then be treated as if
they had been converted as of the Effective Time into a right to receive the
Conversion Amount (in accordance with Section 1.2(i)).
1.3 CLOSING. The Closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date (the "Closing Date") to be specified by the parties, which
shall be no later than the fifth (5th) business day after the satisfaction or
waiver of the conditions set forth in Articles 7, 8 and 9 hereof, unless another
date or place is agreed to in writing by the parties hereto, at the offices of
Arter, Hadden, Johnson & Bromberg, Dallas, Texas, or some other mutually
agreeable location in Dallas, Texas.
1.4 ESCROW NOTE. Upon the Closing of the Merger, the aggregate amount of
all Exclusivity Fees (as defined in Section 6.17) previously offset against the
Escrow Note (as defined in Section 6.17) shall be added back to the principal
amount outstanding under the Escrow Note and shall be repaid in accordance with
the terms thereof.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF AWS.
AWS hereby represents and warrants to Heartland and MergerSub, that as of
the date hereof, and subject to the provisions of Article 3 and Article 11:
2.1 ORGANIZATION; GOOD STANDING. AWS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
AWS is qualified as a foreign corporation in all jurisdictions in which it is
required to qualify as a result of the conduct of its business or ownership of
its properties and where the failure to be so qualified would have a Material
Adverse Effect, which jurisdictions are set forth in Schedule 2.1.
2.2 SUBSIDIARIES. AWS Holdings, Inc., a Delaware corporation ("AWS
Holdings"), the Texas joint venture formed to own and operate a wireless cable
television system in Fort Worth, Texas ("AWS Fort Worth") and American Wireless
System of Minneapolis, L.L.C., a Delaware limited liability company that owns
and operates a wireless cable television system in Minneapolis, Minnesota ("AWS
Minneapolis"), are the only Subsidiaries of AWS. Except as set forth on Schedule
2.2, (a) AWS owns directly, free and clear of liens, all outstanding shares or
equity interests of AWS Holdings, and all such shares are validly issued, fully
paid, non-assessable and not subject to preemptive rights, (b) AWS owns
directly, free and clear of liens, a 20.01% joint venture interest in AWS Fort
Worth and (c) AWS owns directly, free and clear of liens, a 25% membership
interest in AWS Minneapolis. Except as set forth on Schedule 2.2, there are no
outstanding subscriptions, options, warrants, calls, conversion or exchange
rights, commitments or agreements of any character obligating AWS Minneapolis,
AWS Holdings, or to the Knowledge of AWS, AWS Fort Worth, to issue, deliver or
sell additional shares of its capital stock or equity interests of any class or
any securities convertible into or exchangeable for any such capital stock or
equity interests, and there are no rights of first refusal, transfer
restrictions or similar rights or obligations with respect to the ownership
interests of AWS in any Subsidiary. Except as set forth on Schedule 2.2, AWS
does not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, Joint Venture, association or other Person. Schedule 2.2 sets
forth the record and, to the Knowledge of AWS, the beneficial owners of AWS Fort
Worth, AWS Minneapolis, and the equity owners of any partnership or similar
organization (other than AWS) formed to own an equity interest in AWS Fort Worth
or AWS Minneapolis.
2.3 CAPITALIZATION. The authorized capital stock of AWS as of the date of
this Agreement consists of 40,000,000 shares of common stock, $.01 par value per
share, of which 5,709,187 are issued and outstanding. Schedule 2.3 sets forth as
of the date of this Agreement, a true and correct list of all outstanding
options, warrants, calls, puts, commitments and other rights to purchase, or
securities or other rights convertible or exchangeable into, capital stock of
AWS indicating the record and, to the Knowledge of AWS, the beneficial owner
thereof, the exercise, conversion or exchange price and period thereof, the term
and any vesting or other conditions thereof. All securities issued or issuable
by AWS have been paid for and delivered in accordance with the terms of
applicable agreements or instruments, duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders; none of such securities were issued in violation of the
preemptive rights of any holder of any security of AWS or any similar rights
granted by AWS or applicable laws.
2.4 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. AWS has the corporate
power and authority to conduct the business and activities conducted by it and
to own or lease the assets owned or leased by it. AWS has the corporate power
and authority (subject to shareholder approval as set forth in Section 9.1 and
obtaining all required Consents as set forth in Sections 5.2 and 8.3) to execute
and deliver this Agreement and all other documents required to be executed and
delivered by AWS hereunder, to consummate the transactions hereby contemplated,
and to take all other actions required to be taken by AWS pursuant to the
provisions hereof. This Agreement and all other documents required to be
executed and delivered by AWS hereunder have been duly authorized by all
corporate action necessary on the part of AWS (subject to shareholder approval
as set forth in Section 9.1 and obtaining all required Consents as set forth in
Sections 5.2 and 8.3) and have been duly or will when executed and delivered be
duly executed and delivered by AWS and
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constitute the legal, valid and binding obligations of AWS, enforceable against
AWS in accordance with their terms. Except as disclosed in Schedule 2.4, neither
the execution nor the delivery of this Agreement and all other documents
required to be executed and delivered by AWS hereunder or the consummation of
the transactions hereby contemplated by AWS (i) conflicts with or constitutes
any violation or breach of the Certificate of Incorporation or the Bylaws of
AWS; (ii) to the Knowledge of AWS, constitutes any violation or breach of, or
gives any other Person any rights (including any right of acceleration,
termination or cancellation) under, any Material Contract, License, Channel
Lease, Governmental Permit, or other document or agreement to which AWS is a
party; (iii) to the Knowledge of AWS, constitutes a violation of any Order or
Legal Requirement; or (iv) to the Knowledge of AWS, will result in the creation
of any Lien on any of the assets or properties of AWS.
2.5 FINANCIAL STATEMENTS. (A) Schedule 2.5 lists the audited financial
statements of AWS as of, and for the period(s) ending, December 31, 1992 and
1993 including the balance sheets and related statements of income and expense,
and unaudited consolidated financial statements of AWS and each Subsidiary as of
and for the year ending December 31, 1994 and the three (3) month periods ending
March 31, 1995 and June 30, 1995 (collectively, the "Financial Statements"). The
Financial Statements and all notes thereto are complete and correct in all
material respects, in accordance with the books and records of AWS and each
Subsidiary, fairly present the financial position and results of operations of
AWS and each Subsidiary as of the date thereof and for the periods referenced
therein, all in accordance with GAAP, and have been delivered to Heartland.
(B) Since June 30, 1995, except as set forth on Schedule 2.5, (i) AWS, AWS
Holdings, AWS Minneapolis and, to the Knowledge of AWS, AWS Fort Worth have
conducted its or their businesses in the ordinary, regular course thereof; (ii)
there has been no change in the financial condition of AWS, AWS Holdings, AWS
Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth which has had a
Material Adverse Effect, or any damage, destruction or loss, not covered by
insurance, which has had a Material Adverse Effect, or any change in the nature,
or in the condition, of the businesses of AWS, AWS Holdings, AWS Minneapolis or,
to the Knowledge of AWS, AWS Fort Worth which has had a Material Adverse Effect;
or any event, condition or state of facts or any character whatsoever, the
occurrence of which has had a Material Adverse Effect; and (iii) except in the
ordinary and regular course of its or their businesses, neither AWS, AWS
Holdings, AWS Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth has made
any dispositions of any of its or their assets; disposed of any records relating
to its or their assets or properties; borrowed any funds; incurred, assumed or
become subject to any obligation or liability, indebtedness for borrowed money,
absolute or contingent; paid, discharged, or satisfied any claim, liability or
obligation, absolute, accrued, contingent or otherwise; cancelled any debts owed
to it or them; waived any claims or rights of value; granted or extended any
power of attorney; or acted as any guarantor.
(C) Neither AWS, AWS Holdings, AWS Minneapolis nor, to the Knowledge of
AWS, AWS Fort Worth has any Liabilities (including, without limitation, any
Liabilities arising from the Pittsburgh Sale Agreements), except as described or
provided for in the Financial Statements or otherwise set forth on Schedule 2.5
which individually or in the aggregate would constitute a Material Adverse
Effect. There has been no capital stock of AWS repurchased, any dividend
declared or paid or any distribution made by AWS with respect to such capital
stock, since June 30, 1995.
2.6 TAXES.
(A) All federal, state, county, local and foreign taxes, including without
limitation, income, excise, payroll, sales, use, unemployment, social security,
occupation, franchise, property, and other taxes, duties or charges
(collectively, "Taxes") levied, assessed, or imposed upon AWS or any Subsidiary
or its or their businesses, assets or properties as of such date have been duly
and fully paid or have been adequately provided for on the Balance Sheet of AWS
or any Subsidiary as of June 30, 1995. In addition, all filings, returns, and
reports with respect to Taxes required by any foreign or domestic law or
regulation to be filed by AWS or any Subsidiary on or prior to the date hereof
have been duly and timely filed. There are no agreements, waivers or other
arrangements (oral or written) providing for extensions of time with respect to
the assessment or collection of unpaid Taxes, nor are there any actions, suits,
proceedings, inquiries, investigations or claims of
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any nature or kind whatsoever now pending or, to the Knowledge of AWS,
threatened, against AWS or any Subsidiary with respect to any such returns or
reports, or any such Taxes, or any matters under discussion with any federal,
state, county, local or other authority relating to Taxes.
(B) Except as otherwise disclosed on Schedule 2.6, (i) AWS and each
Subsidiary has made all payments of estimated Taxes required to be made under
Section 6655 of the Code and any comparable provisions of state, local, federal
or other law; (ii) all amounts of any Taxes, including payroll and federal
excise taxes, that are required to be collected or withheld by AWS or any
Subsidiary have been duly collected or withheld, and have been duly remitted or
deposited in accordance with law; (iii) no power of attorney has been granted by
AWS or any Subsidiary that is currently in force with respect to any matter
relating to Taxes; (iv) none of AWS nor any Subsidiary has any deferred gain or
loss (A) arising from deferred inter-company transactions, within the meaning of
Treas. Regs. Section 1.1502-13 or any successor regulations, or (B) with respect
to the stock or obligations of any member of the affiliated group of which AWS
is the common parent, as described in Treas. Regs. Section 1.1502-14; (v) no
taxes relating to periods ending before December 31, 1994 were paid by or
charged to any Subsidiary on or after such date; (vi) neither AWS nor any
Subsidiary is required to include in income any adjustment pursuant to Section
481(a) of the Code (or any similar provision of law or regulations) by reason of
a change in accounting method, nor is the IRS or any other taxing authority
considering any such change in accounting method; (vii) neither AWS nor any
Subsidiary has disposed of any property which has been accounted for Tax
purposes under the installment method; (viii) other than AWS Fort Worth, AWS
Minneapolis, and the Joint Venture owning the wireless cable television system
in Pittsburgh, Pennsylvania, neither AWS nor any Subsidiary owns any interest in
any entity which is characterized as a partnership for federal income tax
purposes; (ix) neither AWS nor any Subsidiary would be liable for any increase
in Tax under Section 47 of the Code, were such entity to dispose of all of its
assets on the Closing Date; (x) neither AWS nor any Subsidiary will have any
"non-recaptured net Section 1231 losses," within the meaning of Section 1231(c)
of the Code on the Closing Date; (xi) no election under Section 1504(d) of the
Code has been made with respect to any Subsidiary; (xii) no claim or assertion
has been made against AWS or any Subsidiary by any tax authority in any
jurisdiction in which no tax return has been filed by AWS or said Subsidiary
that it may be subject to Tax in that jurisdiction or otherwise is required to
file a tax return.
(C) AWS has a regular tax operating loss carryforward from its last filed
federal corporate income tax return for the year ending February 28, 1994, in
the amount of $2,447,845. The March 1, 1994 through December 31, 1994, tax
return has not yet been prepared, but AWS has estimated a net operating loss for
that year of 4.8 million dollars leaving a total net operating loss through
December 31, 1994, of approximately $7,250,000. AWS represents that it has not
undergone a Section 382 ownership change which would limit the ability to
utilize these losses.
2.7 PROPERTY.
(A) Schedule 2.7(a) lists and describes, as of the date thereof, all of the
Equipment, except small hand tools, office equipment and supplies, and similar
equipment which are generally described by category and number.
(B) Schedule 2.7(b) lists all Facilities, designating whether such Facility
is owned or leased, including whether there is any construction-in-progress of
any towers, fixtures, vaults or pedestals attributable to any Site.
(C) AWS and each Subsidiary own and hold good title, free and clear of any
Liens, to all of the Equipment and Facilities, except as set forth on Schedule
2.7(c) or 2.9, and all of such Equipment and Facilities necessary to the conduct
of the business of AWS and each Subsidiary at their present levels of operation
is in serviceable condition; conforms to or complies with all applicable Orders
and Legal Requirements, the violation of which has not had or would not have a
Material Adverse Effect; and constitutes all of the Equipment and Facilities
that are used, usable, held for use in or in conjunction with or otherwise
associated with, required or necessary to the business operations of AWS and
each Subsidiary.
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2.8 RECEIVABLES. All accounts receivable of AWS and each Subsidiary
reflected in the Balance Sheet of AWS or each Subsidiary, as applicable, as of
June 30, 1995, represent valid obligations arising from sales made in the
ordinary and regular course of the Business. The accounts receivable reflected
in the Balance Sheet of AWS or each Subsidiary, as applicable, as of June 30,
1995, are net of reserves therefor, valid receivables that have arisen in the
ordinary course of the operations of AWS and each Subsidiary and, to the
Knowledge of AWS, are net of reserves therefor, collectible and not subject to
setoff or counterclaim, nor to any agreement to reduce or discount.
2.9 CONTRACTS.
(A) Except as set forth elsewhere on Schedules 2.10, 2.11, 2.26 or 2.31,
Schedule 2.9 sets forth a complete and correct list of the following types of
contracts to which AWS or any Subsidiary is a party and which as of the date
hereof are executory in nature or under which AWS or any Subsidiary has any
obligation to pay, or right to receive, money; provided that the contracts to be
disclosed pursuant to subsections (xiii) or (xiv) below shall include all of
such contracts to which AWS or any Subsidiary is or has ever been a party
(collectively, the "Material Contracts"):
(i) all contracts of a character required to be described in AWS's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994 or
Quarterly Report Form 10-Q for the fiscal quarter ended June 30, 1995;
(ii) all Channel Leases;
(iii) all contracts or agreements of any kind with any director,
executive officer or other officer of AWS or any Subsidiary;
(iv) any loan agreements, lease agreements, notes, mortgages,
indentures, guarantees, security agreements, letters of credit, financing
documents or other agreements for the borrowing or lending of money by AWS
or any Subsidiary in excess of $25,000;
(v) all agreements relating to the acquisition of any Subsidiary;
(vi) all Joint Venture agreements;
(vii) all agreements involving an aggregate amount in excess of
$50,000 to provide goods or perform services or for the payment for goods
or services;
(viii) any commitment or agreement for any capital expenditure or
leasehold improvement in excess of $25,000;
(ix) any agreement, contract or commitment limiting or restraining AWS
or any Subsidiary from engaging or competing in any manner or in any
business;
(x) all programming agreements;
(xi) all agreements with respect to resolution of interference issues;
(xii) all collective bargaining agreements, employment agreements,
consulting agreements and severance agreements;
(xiii) all agreements for the offer or sale of securities whether
outstanding on the date hereof or to which AWS or any Subsidiary has been a
party in the past;
(xiv) all agreements with investment bankers or brokers whether
outstanding on the date hereof or to which AWS or any Subsidiary has been a
party in the past;
(xv) all agreements under which either AWS or any Subsidiary is
entitled to indemnification and under which the potential claims subject to
indemnification could reasonably be expected to exceed $25,000;
(xvi) all agreements to which either AWS or any Subsidiary is a party
and involving an aggregate amount in excess of $10,000 under which either
AWS or any Subsidiary or the other party to the
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agreement has, or has been alleged to have, breached, failed to perform
under or otherwise failed to comply with the terms of, such agreement;
(xvii) any agreement with any Governmental Authority;
(xviii) any material agreement, contract or commitment not made in the
ordinary course of business; and
(xix) any agreement or other arrangement with any Affiliate of AWS, or
any Subsidiary or, to the Knowledge of AWS, any former officer or director
of AWS (such agreements or arrangements shall be separately identified or
described in such other Schedules or in Schedule 2.9 as "Affiliate
Agreements").
(B) True and correct copies of all the Material Contracts have been
delivered to Heartland by or on behalf of AWS. To the Knowledge of AWS, each of
the Material Contracts is valid and enforceable in accordance with its terms. To
the Knowledge of AWS, neither AWS nor any Subsidiary is in default in the
performance, observance or fulfillment of any material obligation, covenant or
condition contained therein, and no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute such a default
thereunder.
2.10 FCC MATTERS.
(A) Schedule 2.10(a) is a true and correct list of all Channel Leases.
Except as set forth on Schedule 2.10(a), (i) AWS and each Subsidiary have
performed in all material respects all obligations required to be performed by
it under each of the Channel Leases; (ii) all of the Channel Leases are legal,
valid and binding obligations enforceable against them in accordance with their
respective terms and in full force and effect, and there are no defaults (or to
the Knowledge of AWS events which, with notice or lapse of time or both, would
constitute a default) by AWS or any other party to any such Channel Leases;
(iii) Channel Leases set forth in the name of Persons other than AWS or a
Subsidiary, as lessee, are identified on Schedule 2.10(a) and have been duly and
validly assigned with all requisite consents and approvals of all parties
thereto to AWS or a Subsidiary, and remain in full force and effect as if AWS or
a Subsidiary were the initial "lessee" thereunder; (iv) to the Knowledge of AWS,
no default or termination has been threatened in writing under any of the
Channel Leases by any party thereto; and (v) the Channel Leases comply in all
respects with the Act and the FCC Rules, and each of the Channel Leases, and all
amendments thereto, have been filed with and approved by the FCC.
(B) Listed in Schedule 2.10(b) are all of the Licenses and FCC Permits held
or leased by AWS or any Subsidiary. All Licenses and FCC Permits are in the name
of the Person set forth in Schedule 2.10(b). All reports or other documents
required to be filed by AWS or any Subsidiary and to the Knowledge of AWS, any
third party, with respect to any such Licenses have been filed. The Licenses and
the FCC Permits listed on Schedule 2.10(b), constitute all of the Authorizations
held or leased by AWS and are all of the Authorizations used, useable, held for
use in or in conjunction with or otherwise associated with, required or
necessary for AWS and Subsidiary to lawfully conduct its and their business
operations. To the Knowledge of AWS, each of the Licenses and the FCC Permits,
except as otherwise expressly noted on Schedule 2.10(b), (i) is currently and
validly held by the Person identified as the holder thereof on Schedule 2.10(b);
(ii) authorizes said holder to construct and operate a facility transmitting
video and audio programming on the Channels; (iii) was validly issued; (iv) is
validly existing and in full force and effect; and (v) is not subject to any
conditions other than such conditions as are generally applicable to licenses
and permits issued by the FCC with respect to ITFS, MDS or MMDS Channels. To the
Knowledge of AWS, there are no existing or threatened investigations, inquiries
or proceedings by or before the FCC or other Governmental Entity which, if
adversely determined, would result in the revocation, cancellation, suspension,
forfeiture or material adverse modification of any Application or Material
Authorization.
(C) Schedule 2.10(c) indicates all Applications and all amendments or other
filings thereto. To the Knowledge of AWS, the information contained in each
Application is true and correct in all material respects, and each Person which
is a signatory to an Application is authorized under FCC rules to file such
Application.
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(D) Except as otherwise expressly noted on Schedule 2.10(d), AWS and each
Subsidiary and, to the Knowledge of AWS, the FCC Licensees and the FCC
Permittees have each submitted to the FCC, the FAA and all other Governmental
Authorities all notices, reports and other documents which have been or are
required by the Act, the FCC Rules, the FAA Rules and other Legal Requirements,
the Licenses and the FCC Permits except where the failure to do so would not (i)
have a Material Adverse Effect; or (ii) hinder the ability of AWS and Subsidiary
to fully perform its and their material obligations under this Agreement. Except
as otherwise expressly noted on Schedule 2.10(d), to the Knowledge of AWS, no
petitions to deny or informal objections have been filed against any of the
amendments listed on Schedule 2.10(c). True and accurate copies of all
amendments, notices, reports and other documents filed by AWS and, to the
Knowledge of AWS, the FCC Licensees and the FCC Permittees with respect to the
Licenses and the FCC Permits, with the FCC, the FAA, the copyright office and
other governmental authorities have been either delivered to Heartland by AWS or
otherwise identified by AWS and made available for Heartland's review.
2.11 INSURANCE. Schedule 2.11 is a certificate of insurance which lists
all insurance policies held by AWS and which are in full force and effect.
2.12 LITIGATION. Except as set forth on Schedule 2.12, there is no
Proceeding, in each case domestic or foreign, pending or, to the Knowledge of
AWS, threatened against, or involving the properties or business of AWS or any
Subsidiary which (a) questions the validity of the issuance of the capital stock
or equity interests of AWS or any Subsidiary, this Agreement or any action taken
or to be taken by AWS pursuant to or in connection with this Agreement; (b) is
required to be, and has not been so, disclosed in the filings with the SEC by
AWS (and such proceedings are as summarized in such SEC Filings accurately
summarized in all material respects); (c) materially adversely affects the
Channel Leases or FCC Licenses or the operation of the Channels and transmission
facilities relating thereto and the Wireless Cable Business; or (d) would
otherwise have a Material Adverse Effect.
2.13 REGISTRATION RIGHTS. Except as set forth on Schedule 2.13, no Person
has rights to the registration of any securities of AWS, AWS Holdings, AWS
Minneapolis or, to the Knowledge of AWS, AWS Fort Worth.
2.14 KEY-PERSON INSURANCE. Neither AWS nor any Subsidiary has any
key-person insurance on the life of any officer, director or employee of AWS,
AWS Holdings, AWS Minneapolis or, to the Knowledge of AWS, AWS Fort Worth.
2.15 CERTAIN ACTIVITIES AND SERVICES. Except as set forth on Schedule
2.15, neither AWS, AWS Holdings, AWS Minneapolis nor, to the Knowledge of AWS,
AWS Fort Worth engages in any business other than the Wireless Cable Business.
2.16 GOVERNMENTAL PERMITS. AWS and each Subsidiary own, hold or possess
all Governmental Permits which are necessary to entitle it to own or lease,
operate and use its assets and to carry on and conduct their business as
currently conducted, except with respect to Applications for which Licenses have
not been granted, if any.
2.17 COMPLIANCE WITH LAWS. To the Knowledge of AWS, except for violations
that would not have a Material Adverse Effect, AWS and each Subsidiary have
complied in all respects with all applicable Legal Requirements and Orders of
any Governmental Authority having jurisdiction over it or them or its or their
operations, including, but not limited to, all FCC Rules and any laws (including
Environmental Laws), rules or regulations regulating, if applicable, zoning,
fair and equal employment practices, the safety of the workplace, the discharge
of materials into the Environment or otherwise relating to the protection of the
Environment, antitrust, anti-monopoly or anti-competitive activities, wages,
hours, collective bargaining and the payment of withholding and social security
taxes. Except as set forth on Schedule 2.17, there are no Orders outstanding and
in effect against AWS or any Subsidiary, its or their assets, the transactions
contemplated by this Agreement, or, to the Knowledge of AWS, any of the parties
to Channel Leases, other than Orders issued with respect to the wireless cable
industry generally and in the normal course of regulation, which would,
individually or in the aggregate: (i) have a Material Adverse Effect, or (ii)
hinder in any material respect the ability of AWS or any Subsidiary to fully
perform its or their material obligations under this Agreement.
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Except as set forth in Schedule 2.17, AWS has not received any notice (written
or otherwise) from any Person to the effect that, or otherwise been advised
that, AWS or any Subsidiary is not in compliance with any applicable law,
ordinance, regulation, building or zoning law, and AWS and each Subsidiary have
no Knowledge that any presently existing circumstances would result in a
violation of any such law, statute, ordinance or regulation, the non-compliance
with which would have a Material Adverse Effect.
2.18 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 2.18, to the
Knowledge of AWS:
(A) Neither AWS nor any Subsidiary, nor any predecessor thereof or
anyone else, has Managed or Released any Hazardous Substances at, on, in,
to or from any property or business now or previously owned, operated,
leased, controlled, used, occupied or conducted by AWS or any Subsidiary,
or any predecessor thereof in quantities or concentrations which violate
any applicable Environmental Law such as to have a Material Adverse Effect.
(B) Neither AWS nor any Subsidiary has received any request for
information, notice of claims, demand or notification that it is or may be
a potentially responsible party with respect to any investigation or
clean-up of any threatened or actual release of any Hazardous Substance,
and no environmental inspections, audits, tests, reviews or other analysis
are being conducted in relation to any property now or previously owned,
operated, leased, controlled, used, occupied or conducted by AWS or any
Subsidiary.
(C) No written notification of a Release or threat of Release of a
Hazardous Substance has been filed by or on behalf of AWS or any Subsidiary
in relation to any property or business now or previously owned, operated,
leased, controlled, used, occupied or conducted by AWS or any Subsidiary.
(D) There are no facts or circumstances related to environmental
matters concerning its properties or business now or previously owned,
operated, leased, controlled, used, occupied, or conducted by AWS or any
Subsidiary, or any predecessor thereof, that would reasonably be expected
to lead to any material future environmental claims, liabilities or
responsibilities against Heartland or against AWS or any Subsidiary, or any
predecessor thereof.
2.19 INTELLECTUAL PROPERTY. To the Knowledge of AWS, Schedule 2.19 is a
true and correct list of all Intellectual Property owned or used by AWS or any
Subsidiary. To the Knowledge of AWS, no person has any right to receive any
royalty or similar payment arising from the Intellectual Property. Except as set
forth on Schedule 2.19, AWS owns each of said properties; has not granted to any
other Person any interest in any of said properties, as licensee or otherwise;
and has filed all certificates, affidavits and other documents, and taken all
other actions, necessary to retain its title to said properties and to keep the
same in effect. To the Knowledge of AWS, none of said properties is invalid and
none infringes upon the personal or property rights of any third party.
2.20 LIENS. Except as set forth on Schedule 2.20, AWS and each Subsidiary
have good title to all of its and their assets, free and clear of all Liens,
except for the lien, if any, of current Taxes not yet due and payable and except
for those assets disposed of in the ordinary course of business.
2.21 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, to the Knowledge of AWS, AWS, each Subsidiary, the
Licensees and the FCC Permittees, are in material compliance with, and not in
default under or in violation of, the Act, the FCC Rules, the FAA Rules, the
Copyright Act, the Copyright Rules, and other Legal Requirements applicable to
the Licenses or FCC Permits. Except as otherwise expressly noted on the
Schedules attached hereto, to the Knowledge of AWS, neither AWS nor any
Subsidiary has received any notice of noncompliance with, default under or
violation of the Act, the FCC Rules, the FAA Rules, the Copyright Act, the
Copyright Rules, other Legal Requirements and the applicable Licenses or FCC
Permits. Except as set forth in Schedule 2.21, to the Knowledge of AWS, no
condition exists or event has occurred with respect to AWS or any Subsidiary,
the Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which,
in itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a violation of the Act, any FCC Rule, any FAA Rule, the
Copyright Act or the Copyright Rules; (ii) constitute a default in the due
performance and observation of any term, covenant or condition of any of the
Licenses or FCC Permits, (iii) result in a forfeiture, the denial, dismissal
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or rejection of any of the Schedule 2.10(c) or 2.10(d) amendments, or the
suspension, termination, revocation, material impairment, material adverse
modification or non-renewal of any License or FCC Permit, or (iv) adversely
affect any of the material rights of AWS or any Subsidiary, any FCC Licensee or
FCC Permittee under any of the Licenses or FCC Permits.
2.22 INTERFERENCE. To the Knowledge of AWS, except as set forth in
Schedule 2.22, neither AWS or any Subsidiary, nor any other party to a Channel
Lease Agreement, has accepted the electrical interference to the channels from
any source, has consented to the grant of any application involved with the FCC
that demonstrates any electrical interference to the Channels, or has failed to
timely petition to deny any application that proposes facilities which
demonstrate that they would cause objectionable electrical interference to the
Channels. To the Knowledge of AWS, except as otherwise expressly noted on
Schedule 2.22, neither AWS, any Subsidiary, any FCC Licensee, any FCC Permittee,
nor any other party to a Channel Lease Agreement, will experience interference
which will materially and adversely impact operation of the Facilities it has
constructed and/or operated, or is constructing once such Facilities are
constructed and operated, or will create interference which will materially and
adversely impact the operation of other facilities licensed by the FCC to other
Persons; for purposes of this Section 2.22, interference shall be deemed to
exist if within an FCC Licensee's protected service area, the ratio of the
desired signal to the undesired signal, at the antenna input terminals of the
affected receiver, is less than 45 dB.
2.23 EMPLOYEE PLANS. To the Knowledge of AWS:
(A) Schedule 2.23 sets forth a true and complete list of each
"employee benefit plan," as such term is defined in section 3(3) of the
ERISA, whether or not subject to ERISA, and each bonus, incentive or
deferred compensation, severance, termination, retention, change of
control, stock option, stock appreciation, stock purchase, phantom stock or
other equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former employee of
AWS or any Subsidiary or the beneficiaries or dependents of any such
employee or former employee (such employees, former employees,
beneficiaries and dependents collectively, the "Employees") or under which
any Employee is or may become eligible to participate or derive a benefit
and that is or has been maintained or established by AWS or to which AWS or
any Subsidiary contributes or is or has been obligated or required to
contribute or with respect to which AWS or any Subsidiary may have any
liability or obligation (collectively, the "Plans"). AWS has not
communicated to any Employee any intention or commitment to modify any Plan
or to establish or implement any other employee or retiree benefit or
compensation arrangement.
(B) All Plans conform (and at all times within the five years
preceding the date hereof have conformed) in all material respects to, and
are being administered and operated (and have at all times within the five
years preceding the date hereof been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable laws. All returns, reports and disclosure statements required to
be made under ERISA and the Code with respect to all Plans have been timely
filed or delivered. There have not been any "prohibited transactions," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Plans, that could subject AWS or any Subsidiary to any
penalty or tax imposed under the Code or ERISA. Neither AWS nor any
Subsidiary maintains or has maintained any Plan qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code.
Neither AWS nor any Subsidiary has any announced plan or legally binding
commitment to create any Plans or to materially amend or modify any
existing Plan.
(C) There are no pending or threatened claims asserted or instituted
against (i) any Plans or its assets, (ii) any fiduciary with respect to any
such Plan or (iii) AWS or any Subsidiary or any of its officers, directors
or employees under ERISA or any other applicable laws and rules and
regulations promulgated thereunder, or claiming benefit payments other than
those made in the ordinary operation of such plans, nor is there any basis
for such claim. To the Knowledge of AWS, the Plans are not the subject of
any investigation, audit or action by any governmental agency, including,
but not limited to, the IRS,
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the Department of Labor, the Equal Employment Opportunity Commission or the
Pension Benefit Guaranty Corporation ("PBGC").
2.24 FINDER'S FEES. Except as set forth on Schedule 2.24, neither AWS, AWS
Holdings, AWS Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth has taken
any action which would impose upon Heartland any obligation or liability to any
person for finder's fees, agent's commissions or like payments in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
2.25 COPYRIGHT ACT. Except as set forth in Schedule 2.25, AWS and each
Subsidiary have submitted all requisite notices (if any are required) under the
Copyright Act of 1976, as amended (together with all rules and regulations
thereunder, the "Copyright Act"), for the carriage of all broadcast stations as
currently carried over any of the Wireless Cable Television Systems. Except as
set forth in Schedule 2.25, AWS and each Subsidiary have filed with the
Copyright Office all required documents, instruments and statements of account
and has remitted payments of all required royalty fees with respect to the
compulsory licenses provided for in Section 111 of the Copyright Act for the
carriage of broadcast signals in connection with the Wireless Cable Television
Systems. Except as set forth in Schedule 2.25, neither AWS nor any Subsidiary is
liable to any Person for copyright infringement under the Copyright Act as a
result of its business operations. Except as set forth in Schedule 2.25, there
have been no inquiries received from the Copyright Office, or, any other party,
which questioned such statements of account or any copyright royalty payments
made by AWS or any Subsidiary with respect to the Wireless Cable Television
Systems, and no claim, action or demand for copyright infringement or for
non-payment of royalties is pending or, to the Knowledge of AWS, threatened
against AWS or any Subsidiary with respect to the Wireless Cable Television
Systems.
2.26 PROGRAMMING AGREEMENTS. Schedule 2.26 sets forth a true and correct
list of all agreements for programming and for each programming agreement (i)
the name of the programmer; (ii) the programming service; (iii) the rate, and
all factors that affect rate changes through the end of the term of such
agreement; (iv) the term and any rights for early termination or extensions of
the term of any party thereof; (v) any renegotiation rights; (vi) the relevant
channels and geographic market; and (vii) any provisions relating to
advertising. Neither AWS, AWS Holdings, AWS Minneapolis nor, to the Knowledge of
AWS, AWS Fort Worth is a party to any agreements providing for the
retransmission of any broadcast signals.
2.27 SEC FILINGS. AWS has previously delivered to Heartland the AWS SEC
Filings. Except as set froth in Schedule 2.27, each AWS SEC Filing was timely
filed with the SEC and does not contain a misstatement of a material fact or an
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading as of the time such document was filed.
Except as set forth in Schedule 2.27, no other document or report has been
required to be filed by AWS with the SEC which has not been filed, and no event
or transaction has occurred prior to the date hereof, which will hereafter be
required to be disclosed by AWS in a Form 10-Q, Form 8-K or similar filing.
2.28 DIRECTORS, OFFICERS AND EMPLOYEES. Schedule 2.28 sets forth a list of
all directors and officers of AWS and AWS Holdings and managers of AWS Fort
Worth and AWS Minneapolis. Except as set forth on Schedule 2.28, neither AWS,
AWS Holdings, AWS Minneapolis nor, to the Knowledge of AWS, AWS Fort Worth has
any outstanding loans or extension of credit to, or any contracts, agreements or
understandings with, any executive officer or director or member of their
immediate family or any person with which any such person has a material
relationship. Schedule 2.28 sets forth a list of (a) the names and positions of
each employee of AWS, AWS Holdings, AWS Minneapolis and, to the Knowledge of
AWS, AWS Fort Worth who was paid an aggregate compensation for the fiscal year
ended December 31, 1994 in excess of $50,000, together with the amount thereof;
and (b) any agreement or arrangement with any current or former employees,
officers or directors of such parties that would entitle such person to receive
any compensation or other payment upon or arising from (i) the termination of
such person's services as an employee, officer or director, or (ii) the
consummation of the Merger, together with the amount thereof (such aggregate
amount, other than the amount payable to Steven G. Johnson, is referred to
herein as "Severance Obligations"). AWS has made available to Heartland a true
and correct copy of the current payroll which lists all employees of
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AWS, AWS Holdings, AWS Minneapolis and, to the Knowledge of AWS, AWS Fort Worth
by category of employment and salary.
2.29 BANK ACCOUNTS, ETC. Schedule 2.29 sets forth a list of all (i) bank
accounts of AWS, AWS Holdings, AWS Minneapolis and, to the Knowledge of AWS, AWS
Fort Worth and the persons authorized to draw thereon and the balances thereof
as of the date of this Agreement; (ii) safe deposit boxes of AWS, AWS Holdings,
AWS Minneapolis and, to the Knowledge of AWS, AWS Fort Worth and the persons who
have access thereto; and (iii) powers of attorney for tax purposes or otherwise
and a summary of the terms thereof.
2.30 CERTAIN CLAIMS. With respect to the Potential Claims (as defined in
Section 6.13), AWS has previously delivered to Heartland a claim inventory for
each Potential Claim that contains copies of all written correspondence between
AWS and the potential claimant, and summaries of all material oral
correspondence between such parties. Each such claim inventory is true and
correct in all material respects.
2.31 SITE LEASES AND SITE OPTIONS. Schedule 2.31 sets forth a true and
correct list of each Site Lease and Site Option which AWS or any Subsidiary is a
party or is otherwise bound. Each Site Lease and Site Option allows for the use
and operation on the leased property of transmitters, antenna structures,
antennas and other associated facilities, and permits the transmissions from the
property of signals containing video and audio programming.
2.32 SUBSCRIBERS. Schedule 2.32 sets forth a true and correct list of the
number of subscribers for each Wireless Cable Television System.
2.33 FURTHER REPRESENTATION. No representation or warranty of AWS
contained in this Agreement contains any untrue statement of, or omits to state,
a material fact necessary in order to make the statements made herein, in light
of the circumstances under which they are made, not misleading. To the Knowledge
of AWS, all books, statements, documents, schedules and records furnished or
given by it to Heartland or Heartland's agents during the negotiation of or
preparatory to the execution of this Agreement or the consummation of the
transactions contemplated hereby, are true, complete and genuine (and contain no
misstatements or omissions of material facts).
ARTICLE 3. SCOPE OF AWS REPRESENTATIONS AND WARRANTIES.
3.1 MINNEAPOLIS AND FORT WORTH MARKETS. AWS owns a 25% membership interest
in AWS Minneapolis and a 20.01% venture interest in AWS Fort Worth, which
entities were formed to own and operate wireless cable television systems in
Minneapolis, Minnesota ("Minneapolis System") and Fort Worth, Texas ("Fort Worth
System"), and each of which are a Subsidiary of AWS for purposes of this
Agreement. AWS is presently acting as the manager of the Fort Worth System and
AWS Minneapolis but has no right to remain in the position of manager of either
the Fort Worth System and AWS Minneapolis should AWS's Joint Venture partners
terminate AWS as manager. AWS shall use reasonable efforts to assist Heartland
in acquiring the interest of third parties in AWS Minneapolis and AWS Fort
Worth. All representations, warranties and covenants regarding AWS and its
Subsidiaries contained herein shall, to the extent provided in such
representation, warranty or covenant, include, without limitation, AWS
Minneapolis and AWS Fort Worth; provided that Heartland's right to
indemnification as provided in Article 11 and in the Escrow Agreement for
breaches of representations, warranties and covenants by AWS with respect to the
Fort Worth System or Minneapolis System shall be reduced to reflect the
percentage ownership interest of AWS in AWS Fort Worth or AWS Minneapolis,
meaning that the liability of AWS for any Damages arising therefrom shall be
proportionately reduced; provided further that all representations and
warranties regarding the Fort Worth System shall be limited to the Knowledge of
AWS. In the event AWS is terminated as the manager of either AWS Fort Worth or
AWS Minneapolis after the date hereof but prior to the Closing Date, then the
representations and warranties contained herein with respect to such
Subsidiaries shall be true and correct as of the date hereof and the date of
such termination, AWS shall be in compliance with all covenants contained in
Article 5 and to the extent applicable Article 6 regarding such Subsidiaries as
of such termination date, and AWS shall have no liabilities hereunder for
breaches of either (a) the representations and warranties made by AWS with
respect to such Subsidiary arising from changes in conditions or circumstances
occurring after the date of termination, or (b) the failure to perform any
covenants regarding such Subsidiaries after any such
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termination; provided, however, that AWS shall use its good faith efforts to
remain as the manager of each such Subsidiary through the Closing Date and shall
not voluntarily withdraw or resign as the manager of either such Subsidiary.
3.2 PITTSBURGH MARKET. AWS has agreed to sell its interest in the Joint
Venture ("Pittsburgh Venture") which operates the wireless cable television
system in the Pittsburgh, Pennsylvania area ("Pittsburgh System") and has
entered into that certain agreement ("Pittsburgh Sale Agreement") in connection
therewith. The Pittsburgh Sale Agreement is a Material Contract and is listed on
Schedule 2.9. As set forth in Section 7.4 hereof, the consummation of the sale
of the Pittsburgh Market in accordance with the terms of the Pittsburgh Sale
Agreement is a condition precedent to the closing of the Merger. None of the
representations, warranties or schedules contained in this Agreement are being
made with respect to or contain the assets being transferred to or liabilities
being assumed by the purchaser of the Pittsburgh System under the Pittsburgh
Sale Agreement; provided that nothing contained herein shall limit the
indemnification obligations of AWS hereunder for liabilities arising under or
from the Pittsburgh Sale Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF MERGERSUB AND HEARTLAND.
Heartland and MergerSub each hereby represent and warrant to AWS and to the
shareholders of AWS, the following:
4.1 ORGANIZATION AND GOOD STANDING. Heartland is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MergerSub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
4.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has
corporate power and authority (subject to shareholder approval as set forth in
Section 8.1) to execute and deliver this Agreement and all other documents
required to be executed by Heartland hereunder, to consummate the transactions
hereby contemplated, and to take all other actions required to be taken by
Heartland pursuant to the provisions hereof. This Agreement and all other
documents required to be executed and delivered by Heartland hereunder have been
duly authorized by all corporate action necessary on the part of Heartland
(subject to shareholder approval as set forth in Section 8.1) and have been duly
or will when executed and delivered be duly executed and delivered by Heartland,
and constitute the legal, valid and binding obligations of Heartland enforceable
against Heartland in accordance with their terms. Neither the execution nor the
delivery of this Agreement and all the documents required to be executed and
delivered by Heartland hereunder or the consummation of the transactions hereby
contemplated by Heartland conflict with or constitute any violation or breach of
the Certificate of Incorporation or the Bylaws of Heartland. MergerSub has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. MergerSub has
corporate power and authority (subject to shareholder approval as set forth in
Section 8.1) to execute and deliver this Agreement and all other documents
required to be executed by MergerSub, to consummate the transactions hereby
contemplated, and to take all other actions required to be taken by MergerSub
pursuant to the provisions hereof. This Agreement and all other documents
required to be executed and delivered by MergerSub hereunder have been duly
authorized by all corporate action necessary on the part of MergerSub (subject
to shareholder approval as set forth in Section 8.1) and have been duly or will
when executed and delivered be duly executed and delivered by MergerSub, and
constitute the legal, valid and binding obligations of MergerSub enforceable
against MergerSub in accordance with their terms. Neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by MergerSub hereunder or the consummation of the transactions hereby
contemplated by MergerSub conflict with or constitute a violation or breach of
the Certificate of Incorporation or the Bylaws of MergerSub.
4.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby. There is no Proceeding pending or, to MergerSub's
Knowledge, threatened against or affecting MergerSub
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that could reasonably be expected to result in issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated hereby.
4.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents or the filing of the Registration Statement, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority is required on behalf of Heartland or MergerSub in
connection with the execution, delivery or performance of this Agreement and all
documents contemplated hereby or the transactions contemplated hereby.
4.5 CAPITALIZATION. The authorized capital stock of Heartland as of the
date hereof consists of 50,000,000 shares of common stock, par value $.001 per
share, and 10,000,000 of preferred stock, par value $.01 per share, of which
12,476,393 shares of Heartland common stock are issued and outstanding and no
shares of preferred stock have been issued. Heartland Common Shares to be issued
pursuant to this Agreement will be, upon issuance, validly issued, fully paid
and non-assessable.
4.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the date thereof and for
the periods referenced therein, all in accordance with GAAP.
4.7 SEC FILINGS. Heartland has previously delivered to AWS copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three (3) month periods ended March 31, 1995 and June 30, 1995, (iii)
its Registration Statement on Form S-3 (File No. 33-94838) declared effective by
the SEC on August 4, 1995, and (iv) all Form 8-Ks filed with the SEC after June
30, 1995 and prior to the date of this Agreement ("Heartland SEC Filings"). Each
such filing was timely filed with the SEC, and did not contain any misstatement
of material fact or an omission of a material fact required to be stated therein
necessary to make the statements therein not misleading as of the time such
document was filed. Heartland has filed all documents required to be filed with
the SEC. As of their respective dates, such reports complied in all material
respects with the applicable requirements of the Securities Exchange Act of
1934, as amended.
4.8 FINDER'S FEES. Heartland has not taken any action which would impose
upon AWS any obligation or liability to any person for finder's fees, agent's
commissions or like payments in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
4.9 FURTHER REPRESENTATION. No representation or warranty of MergerSub or
Heartland contained in this Agreement contains or will contain any untrue
statement of, or omit to state, a material fact necessary in order to make the
statements made herein, in light of the circumstances under which they are made,
not misleading. To the Knowledge of Heartland and MergerSub, all books,
statements, documents, schedules and records furnished or given by it or them to
AWS or AWS's agents during the negotiation of or preparatory to the execution of
this Agreement or the consummation of the transactions contemplated hereby, are
true, complete and genuine (and contain no misstatement or omissions of material
facts).
ARTICLE 5. COVENANTS OF AWS.
AWS hereby agrees to perform as follows:
5.1 OPERATION PRIOR TO THE CLOSING DATE. Subject to the provisions of
Section 5.4, from the date hereof through the Closing Date:
(A) AWS shall give Heartland prior written notice before AWS, AWS
Holdings, AWS Minneapolis or, to the Knowledge of AWS, AWS Fort Worth,
shall engage in any practice, take any action or enter into any transaction
other than in the customary and ordinary course of business.
(B) AWS will, and will cause each Subsidiary to, use reasonable
efforts to keep its business, properties and business relationships
substantially intact.
(C) AWS will (i) pay and perform all of its debts, liabilities and
obligations as and when due, except to the extent either (A) being
contested in good faith or (B) as to which adequate liabilities have been
accrued and recorded (determined in accordance with GAAP), (ii) perform its
material obligations
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under all Authorizations and Material Contracts, and (iii) comply in all
material respects with all Governmental Rules.
(D) AWS agrees that (i) AWS will not take any action, and will
endeavor in good faith not to permit any event to occur, which would cause
or constitute a material breach; (ii) AWS will, in the event of, and
promptly after the occurrence of, or promptly after becoming aware of the
occurrence of or the impending or threatened occurrence of, any event which
would cause or constitute a material breach or would, if it had occurred
immediately prior to the date hereof, have caused or constituted a material
breach of any of the representations and warranties set forth in said
Article 2, give notice thereof to Heartland; (iii) use reasonable efforts
not to allow the aggregate Net Permitted Liabilities (excluding the
indebtedness evidenced by the Escrow Note) of AWS on the Closing Date to
exceed the Net Permitted Liability Basket; and (iv) AWS shall use
reasonable efforts to prevent or promptly to remedy such breach.
(E) AWS will, and will cause each of its Subsidiaries to, use
reasonable efforts to preserve, protect and maintain its and their rights
and interests in the Channel Leases, FCC Licenses, and Material Contracts,
including, but not limited to, filing or having licensees or permittees
file with the FCC any and all reports, applications or other documents
necessary to preserve the FCC Licenses in full force and effect.
(F) AWS will not, and will not cause any of its Subsidiaries to, enter
into, amend or terminate, or agree to enter into, amend, except to comply
with this Agreement, or terminate any Channel Lease, License, Permit,
Application or Material Contract without giving prior written notice to
Heartland.
(G) AWS shall not repurchase, declare or pay any dividends, or make
any other distributions consisting of cash or marketable securities or any
contribution thereof, nor shall AWS or any of its Subsidiaries issue, sell
or agree to sell any shares of its capital stock, or any securities
convertible into, or options with respect to, or warrants to purchase or
rights to subscribe for, any shares of its capital stock.
(H) AWS will not, and will not cause any of its Subsidiaries to, sell,
lease, transfer or otherwise dispose of any of its assets, except as
provided for by, or contemplated in, this Agreement, or in the ordinary
course of business.
(I) AWS will not, and will not cause any of its Subsidiaries to,
increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of its directors,
officers or employees, pay bonuses to any such director, officer of
employee, to the extent the aggregate of the foregoing exceeds $250
(provided that none of such $250,000 shall be paid to any directors of
AWS), or pay any salaries except in the ordinary course of business, except
as required under any existing written employment agreement with any
officer, director or employee of AWS or any Subsidiary.
(J) AWS shall not transfer any interest in any Subsidiary.
5.2 ESTOPPEL CERTIFICATES AND CONSENTS. Except as otherwise provided
herein, AWS shall use reasonable efforts to obtain or cause to be made, all
consents, governmental authorizations, approvals and filings necessary by virtue
of the Merger contemplated by this Agreement on or before the Closing Date, so
as to endeavor to ensure that the Surviving Corporation will as of the Effective
Time enjoy all of the rights and privileges currently enjoyed by AWS and each
Subsidiary under each of the Channel Leases, Licenses and Material Contracts.
Upon request of Heartland, AWS shall assist Heartland to obtain from each of the
other respective parties to each of such Channel Leases and Material Contracts
(a) estoppel certificates in the form of Exhibit 5.2 ("Estoppel Certificates"),
certifying (i) that AWS or a Subsidiary, as applicable, is not in breach or
violation of or in default under any of such Channel Leases or Material
Contracts and that it will not be by virtue of the transaction contemplated
hereby, and (ii) other matters specified therein, and (b) consents ("Affiliate
Transfer Consents") to future assignments of the rights thereunder to an
affiliate of Heartland as further described therein. AWS shall seek any
appropriate amendments, modifications or changes to each of such Channel Leases
and Material Contracts so as to ensure that after the Effective Time, the
licensees,
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permittees or other parties thereto notify Heartland directly in the event of a
breach or violation of or default under any such Channel Lease or Material
Contract. In addition to the other Estoppel Certificates to be delivered
pursuant to this Section 5.2, AWS shall obtain Estoppel Certificates, dated no
more than 15 days prior to the Closing Date, from each Person that would be
owed, or is anticipated to be owed, in excess of $50,000 on the Closing Date,
certifying the amount then owed to such Person and amount anticipated to be
owing to such Person by AWS as of the Closing Date ("Account Estoppels").
5.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. AWS shall, and shall cause
each Subsidiary to:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to either AWS or any
Subsidiary remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
modification result from changes in the FCC's rules or policies of general
applicability. After the applications are filed for FCC consent to the
transfer of control of the FCC Licenses for said Channels to Heartland or
an affiliate of Heartland, AWS shall file, or cause to be filed, at the
request of and as an accommodation to Heartland, such reasonable
applications for modification of their outstanding construction permits or
licenses to implement the Merger. AWS shall utilize reasonable efforts to
prosecute in good faith all applications, reports and submissions submitted
in accordance with this Section 5.3.
(B) use reasonable efforts to assure that the licensees or permittees
under the Channel Leases timely file all applications, reports, and other
submissions in such form and with such information as may be required by
the FCC, including, but not limited to, renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that such FCC Licenses remain in full force and effect without
material adverse alteration or modification, except to the extent that such
alteration or modification result from changes in the FCC's rules or
policies of general applicability. AWS shall use its reasonable efforts to
assure that the licensees or permittees under the Channel Leases diligently
prosecute in good faith all such applications, reports and submissions. AWS
shall promptly disclose to Heartland any information it receives regarding
any conditions or circumstances that would cause, or might cause, the FCC
to decline to issue such authorizations as may be necessary or desirable to
keep the Licenses in full force and effect.
5.4 NO SOLICITATION. Subject to the provisions of Section 6.18 (regarding
the sale of the Memphis Market), from and after the date hereof, AWS will not,
and will not authorize any of its officers, directors, employees, agents and
other representatives or those of any Subsidiary (collectively, "AWS
Representatives") to, solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, an Acquisition Proposal
(as defined herein) from any Person or engage in any discussion or negotiations
relating thereto, or accept any Acquisition Proposal. AWS shall immediately
cease and cause to be terminated any existing solicitation, discussion or
negotiation with any parties conducted heretofore by AWS or any AWS
Representatives with respect to any of the foregoing. To the extent permitted by
applicable law, AWS will promptly notify Heartland of any such discussion or
negotiations, requests for such information or the receipt of any Acquisition
Proposal, including the identity of the person or group engaging in such
discussions or negotiations requesting such information or making such
Acquisition Proposal, and the material terms and conditions of any Acquisition
Proposal. As used in this Agreement, "Acquisition Proposal" shall mean any
proposal or offer considered by the Board of Directors of AWS to be bona fide,
other than a proposal or offer by Heartland or any of its affiliates, for a
tender or exchange offer, a merger, consolidation or other business combination
involving AWS or any Subsidiary or any proposal to acquire in any manner (a) a
substantial equity interest in AWS or any Subsidiary, (b) any rights of AWS or
any Subsidiary to any Channels or (c) any Wireless Cable Television System.
Notwithstanding the foregoing, nothing in this Section 5.4 shall prohibit the
Board of Directors of AWS from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
bona fide proposal to acquire AWS or any Subsidiary pursuant to a merger,
consolidation, share exchange, purchase of a substantial portion of the assets,
business combination or some other transaction, if, and only to the extent that
(A) the Board of Directors determines in good faith that such
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action is required for the Board of Directors to comply with its fiduciary duty
to its stockholders, (B) prior to furnishing such information to, or entering
into discussions with or negotiations with, such person or entity, to the extent
permitted by applicable law, AWS provides notice to Heartland to the effect that
it is furnishing information to, or entering into discussions or negotiations
with, such person or entity, and (C) to the extent permitted by applicable law,
AWS keeps Heartland informed, on a current basis, of the status of any such
discussions or negotiations; (ii) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal; and (iii) soliciting or
receiving offers for negotiating the sale of, or selling, the Memphis Market in
accordance with Section 6.18. AWS will use reasonable efforts to cause a person
provided proprietary information in accordance with the foregoing to enter into
a confidentiality agreement.
5.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, AWS will have audits conducted and completed so that AWS can provide
audited financial statements of AWS as of, and for the period ending, December
31, 1994, including the balance sheets and related statements of income and
expense, and such financial statements shall conform in all material respects
with the unaudited financial statements previously delivered by AWS to
Heartland.
5.6 DELIVERY OF SCHEDULES OR OTHER ITEMS. Notwithstanding any other
statements contained herein to the contrary, AWS shall deliver to Heartland all
schedules and documents stated to have been delivered herein on or before
December 13, 1995.
5.7 RESIGNATION OF DIRECTORS OF AWS. AWS shall deliver to Heartland on the
Closing Date, except as otherwise requested by Heartland, the written
resignation of all directors of AWS and AWS Holdings.
ARTICLE 6. ADDITIONAL AGREEMENTS.
6.1 SHAREHOLDERS MEETING. AWS and Heartland shall each take all action
necessary in accordance with applicable law and in accordance with their
respective certificates of incorporation and bylaws to convene a meeting of
their respective stockholders as promptly as practicable after the Registration
Statement is declared effective by the SEC, to consider and vote upon the
approval of this Agreement. AWS and Heartland each, through its board of
directors, shall recommend to its stockholders (and, if applicable, its lenders)
approval of this Agreement and shall use reasonable efforts to obtain approval
and adoption of this Agreement by such stockholders and lenders.
6.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as
practicable a Registration Statement on Form S-4 ("Registration Statement")
with respect to the Heartland Common Shares issuable in the Merger and in
the acquisition of the Fort Worth Interest and Minneapolis Interest, a
portion of which shall also serve as the joint proxy statement/prospectus
with respect to the meetings of the stockholders of Heartland and AWS to
approve the Merger, and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as soon as
practicable. Heartland shall also take any action required to be taken
under blue sky or securities laws in connection with Heartland Common
Shares prior to the Closing. AWS shall furnish Heartland all information
concerning AWS and its Subsidiaries and the holders of its common stock
required for use in the Registration Statement, and AWS shall take such
other actions as Heartland may reasonably request in connection with the
preparation of such Registration Statement and the actions to be taken by
AWS pursuant to this Section 6.2. None of the information furnished by or
on behalf of AWS for use in the Registration Statement shall contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
(B) AWS shall prepare and file with the SEC as soon as practicable a
proxy statement that will be the same proxy statement/prospectus contained
in the Registration Statement and a form of proxy, in connection with the
vote of AWS's stockholders with respect to the consummation of the
transactions set forth in this Agreement (such proxy statement/prospectus,
together with any amendments thereof or supplements thereto, in any case in
the form or forms mailed to AWS's stockholders, is herein called the "Proxy
Statement"). Heartland shall furnish AWS all information concerning
Heartland and MergerSub
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required for use in the Proxy Statement, and Heartland shall take such
other action as AWS may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by or
on behalf of Heartland for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact
necessary to make the statements contained therein not misleading.
6.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours be permitted reasonable access to the Facilities and
AWS's corporate offices; will be permitted to make copies of or abstracts from
all of the books and records, financial and operating data and other information
of AWS and each Subsidiary; and will be permitted to discuss the affairs and
accounts of AWS and each Subsidiary with the directors, officers, employees,
counsel, and accountants of AWS and each Subsidiary. Such investigation shall
not, however, affect the representations and warranties of AWS set forth in
Article 2 hereof. In the event the transactions contemplated hereby should not
close for any reason, Heartland agrees that it will promptly return to AWS all
such documents (including copies thereof) furnished by or on behalf of AWS
and/or each Subsidiary to Heartland and its representatives and Heartland shall
hold in confidence and shall not use or disclose to any third party any
information concerning AWS and/or each Subsidiary obtained from such documents
or otherwise in connection with the transactions contemplated by this Agreement
unless (a) such information was at the time of its use or disclosure to any
third party by Heartland in the public domain other than as a result of any
breach of this provision by Heartland or (b) such disclosure is required by law.
6.4 COMPLIANCE WITH SECURITIES ACT. AWS has caused to be prepared and
delivered to Heartland and MergerSub a list identifying all persons who, to the
Knowledge of AWS, as of the date hereof, may be deemed to be "Affiliates" of AWS
and its Subsidiaries as that term is defined under Paragraphs (c) and (d) of
Rule 145 of the Securities Act ("Rule 145 Affiliates"), and prior to the Closing
Date, AWS shall cause to be prepared and delivered to Heartland and MergerSub an
updated list (reasonably satisfactory to counsel for Heartland) identifying all
persons who at the time of AWS's shareholder meeting may be deemed to be a Rule
145 Affiliate.
6.5 STOCK OPTIONS.
(A) All options and stock appreciation rights previously granted, if
any, under any AWS stock option plan for its directors or employees or the
directors or employees of any Subsidiary (the "AWS Stock Option Plans")
that are unexercised, whether or not then exercisable (the "AWS Stock
Options"), shall be, on or prior to the Effective Time, immediately
exercisable. AWS will permit all of the AWS Stock Options to be exercised
by the tender to AWS of any of (i) cash in the amount of the exercise
price, (ii) shares of Common Stock of AWS with a fair market value (as such
term is defined in the AWS Stock Option Plans) equal to the exercise price,
or (iii) the withholding by AWS of whole shares of Common Stock of AWS
having a fair market value equal to the exercise price from the shares
issued upon the exercise of the AWS Stock Options. Holders of the AWS Stock
Options who so exercise such Stock Options prior to the Effective Time
shall be entitled to exchange the shares of AWS Common Stock subject to
such Stock Options for the Conversion Amount on the same basis as the other
shareholders of AWS Common Stock. Any AWS Stock Options remaining
unexercised at the Effective Time shall be either terminated or, if such
AWS Stock Option is convertible by its terms into the right to receive
Heartland Common Shares upon the consummation of the Merger, so converted.
All AWS Stock Option Plans shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of
AWS or any Subsidiary, shall be deleted as of the Effective Time, and AWS
shall take all action necessary to ensure that following the Effective Time
no participant in any AWS Stock Option Plan or other plans, programs or
arrangements shall have any right thereunder to acquire equity securities
of AWS, the Surviving Corporation or any subsidiary thereof, and to
terminate all such rights.
(B) AWS shall cause each holder of Non-Plan Options (whether or not
exercisable) to consent to the cancellation of the Non-Plan Options to take
effect on or prior to the Effective Time in consideration
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for the payment to such holders of the Conversion Amount for each share of
AWS Common Stock subject to the Non-Plan Options, upon the payment by each
holder of the applicable option exercise price. AWS will permit holders of
Non-Plan Options to tender the applicable option exercise price by the
tender to AWS of any of (i) cash in the amount of the exercise price, (ii)
shares of Common Stock of AWS with a fair market value equal to the
exercise price, or (iii) the withholding by AWS of whole shares of Common
Stock of AWS having a fair market value equal to the exercise price from
the shares issued upon the exercise of the Non-Plan Options. Cancellation
of the Non-Plan Options in exchange for the consideration set forth in this
Section 6.5 shall be deemed a release of any and all rights each holder had
or may have had in the Non-Plan Options or the AWS Common Stock in respect
of such options. The agreement or resolutions referenced in clauses (i) and
(ii) of this subsection (b) shall be terminated and be of no further force
and effect following the Effective Time. "Non-Plan Options" shall mean the
options to acquire AWS common stock that are unexercised and were
previously granted to Jeffrey D. Howes and Ernie Huls.
(C) No employee of AWS or any Subsidiary who held options for AWS
Common Stock prior to the Effective Time shall have any right to
participate in Heartland's stock option plan with respect to all or any
portion of any calendar year unless expressly so provided in any agreement
between Heartland and such employee.
6.6 WARRANTS. AWS will use reasonable efforts to cause each holder of
warrants to acquire AWS Common Stock (whether or not then exercisable) to
consent to the cancellation of such warrants to take effect on or prior to the
Effective Time in consideration of the payment to such holder of the Conversion
Amount for each share of AWS Common Stock subject to such warrant, upon the
payment by such holder of the applicable warrant exercise price. Cancellation of
such warrants in exchange for the consideration set forth in this Section 6.6
shall be deemed a release of any and all rights the holder had or may have had
in the warrant or the AWS Common Stock in respect of such warrant.
6.7 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity; (b) the obtaining of all necessary
consents, approvals or waivers from third parties; (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed; and (d) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement.
6.8 PUBLIC ANNOUNCEMENTS. Heartland and MergerSub, on the one hand, and
AWS, on the other hand, will consult with each other before issuing any press
release with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release prior to such consultation, unless
otherwise required under applicable law.
6.9 NOTIFICATION OF CERTAIN MATTERS. AWS shall give to Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement and prior to the Effective
Time under any note, license, agreement or other instrument or obligation other
than in respect of defaults which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect; and (ii) any
Material Adverse Effect or the occurrence of any event which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect. Heartland shall give AWS (a) from and
after the date of this Agreement, prompt notice of the occurrence of any event
that would require
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Heartland to file a current report on Form 8-K or issue a press release under
applicable securities laws, and (b) from and after the date of the mailing of
the Proxy Statement, prompt notice of the occurrence of any event that would
require the information regarding Heartland contained in the Proxy Statement to
be amended or supplemented under applicable securities laws. Each party shall
give the other prompt notice of any written notice or other written
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement.
6.10 LETTERS OF AWS'S ACCOUNTANTS. AWS shall use reasonable efforts to
cause to be delivered to Heartland a letter of Arthur Andersen, LLP, AWS's
independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to
Heartland, in form and substance reasonably satisfactory to Heartland and
customary in scope and substance for consent letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement ("Accountant's Consent Letter").
6.11 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act, and will use their
respective best efforts to obtain an early termination of the applicable waiting
period, and will make any further filings pursuant thereto that may be
necessary, proper, or advisable.
6.12 D&O INSURANCE; RELEASE. Until the first anniversary of the Effective
Time, Heartland shall cause the Surviving Corporation to maintain in effect with
respect to matters occurring prior to the Effective Time, to the extent
available, the policies of directors' and officers' liability insurance
currently maintained by AWS; provided that the Surviving Corporation may
substitute therefor policies containing coverage, terms and conditions which are
no less advantageous. On the Closing Date, Heartland shall, and shall cause the
Surviving Corporation to, execute a written release of the parties listed on
Schedule 6.12 in the form attached hereto as Exhibit 6.12 ("Release").
6.13 CERTAIN CLAIMS. Prior to the Effective Time, AWS shall use reasonable
efforts to respond to and defend any claims asserted (a) by TruVision Cable,
Inc. ("TruVision") relative to the wireless cable rights and assets of AWS in
Memphis, Tennessee ("Memphis Market"), (b) by American Telecasting, Inc. ("ATI")
relative to the acquisition of AWS, (c) by Laidlaw regarding certain broker
fees, and (d) by William Jenkins arising from the termination of his employment
with AWS (collectively the "Potential Claims"). AWS shall give Heartland prior
written notice of any settlement of a Potential Claim.
6.14 SEC FILINGS. AWS shall cause to be filed and deliver to Heartland its
Form 10-KSB for the fiscal year ended December 31, 1994 and its Form 10-QSB for
the period ended March 31, 1995, and June 30, 1995, and all periodic and current
reports required to be filed with the SEC for all periods after the execution of
this Agreement through the Closing Date. Heartland shall cause to be filed and
deliver to AWS all periodic and current reports required to be filed with SEC
for all periods after the execution of this Agreement through the Closing Date.
6.15 ACQUISITION OF CERTAIN INTERESTS. Heartland shall use reasonable good
faith efforts to enter into a binding contract to acquire (a) the 79.99% joint
venture interest held by Fort Worth Wireless Cable TV Associates, a California
general partnership, in AWS Fort Worth ("Fort Worth Interest") and (b) the 75%
membership interest held by WCTVA38, a California general partnership, in AWS
Minneapolis ("Minneapolis Interest"), and to have such agreement (or a letter of
intent for such agreement) executed within forty-five (45) days from the date of
this Agreement. As a part of Heartland's good faith effort to acquire such
interests, Heartland shall initially offer to acquire the Minneapolis Interest
for $15,000,000 and the Fort Worth Interest for $10,000,000, in each case with
customary closing conditions and representations, warranties, indemnifications
and releases reasonably acceptable to Heartland.
6.16 SUPPLEMENTAL SCHEDULES. AWS may supplement any Schedule to this
Agreement (a) at any time through the date of the Due Diligence Notice without
the consent or approval of Heartland, and (b) after the date of the Due
Diligence Notice but prior to the Closing Date without the prior consent or
approval of Heartland; provided that, if the disclosure in such supplemental
Schedule represents a material change from
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any disclosure to Heartland on or prior to the date of the Due Diligence Notice,
adverse to Heartland, Heartland shall be entitled to terminate this Agreement
within fifteen (15) days of its receipt of such supplemental Schedule, as
further provided in Article 10.
6.17 EXCLUSIVITY FEE. As consideration for the covenant of AWS contained
in Section 5.4, Heartland shall pay to AWS, until the Closing hereunder or
earlier termination hereof in accordance with Article 10, a fee ("Exclusivity
Fee") of $350,000 upon the date of the execution of this Agreement and $150,000
on the first date of each calendar month thereafter. The Exclusivity Fee shall
be paid solely from the offset of such amounts against the accrued interest and
outstanding principal amount under the Promissory Note from AWS to Heartland
dated May 26, 1995 in the original principal amount of $1,800,000 ("Escrow
Note") (all of which remains outstanding as of the date hereof), which offset
shall occur automatically and without further notice from Heartland on each such
date until the Closing under or earlier termination of this Agreement.
6.18 SALE OF MEMPHIS MARKET. Notwithstanding any provisions contained
herein to the contrary, AWS shall have the right to solicit bids for and
negotiate the sale of the Wireless Cable Television System and related assets
servicing the Memphis Market; provided that (i) AWS shall keep Heartland fully
informed regarding the status of any negotiations regarding the sale of the
Memphis Market or offers therefor, including without limitation, the identity of
the proposed purchaser and the consideration offered or requested, (ii)
Heartland shall have the right to approve, in its reasonable discretion, the
terms of any disposition of the Memphis Market for an aggregate consideration of
less than $3,900,000 and AWS shall not execute a definitive agreement to dispose
of the Memphis Market for an aggregate consideration of less than $3,900,000
without Heartland's written approval, which shall not be unreasonably withheld,
and (iii) the gross proceeds of any such disposition received by AWS ("Memphis
Proceeds") shall reduce, dollar for dollar, the amount of the Net Permitted
Liability Basket, and the excess Memphis Proceeds (meaning the amount of Memphis
Proceeds in excess of $3,150,000, subject to adjustment as provided in Section
6.21 below) shall either be placed into an escrow account and shall remain in
such account through the Closing Date or shall reduce, dollar for dollar, the
Merger Consideration.
6.19 TERMINATION OF CERTAIN AGREEMENTS. On the Closing Date and at the
request of Heartland, AWS shall terminate any Affiliate Agreements and
employment or other management agreements designated by Heartland.
6.20 EXHIBITS. Heartland and AWS agree that any Exhibits not attached
hereto on the date hereof shall be prepared and attached on or before December
29, 1995, and agree to cooperate and negotiate in good faith in the preparation
of such exhibits.
6.21 BTA AMOUNT. Heartland and AWS intend to enter into an agreement ("BTA
Agreement") with regard to the proposed FCC auction ("BTA Auction") of MDS
frequencies in certain "Basic Trading Areas" and similar geographic regions
throughout the United States (collectively "BTAs"), and agree that any amounts
paid to acquire MDS frequencies in the BTA Auction (including any nonrefunded
deposits associated therewith) ("BTA Amounts") will increase dollar for dollar
the Net Permitted Liability Basket.
ARTICLE 7. CONDITIONS PRECEDENT TO MERGER.
The obligation of the parties hereto to consummate the Merger is subject to
fulfillment, or written waiver signed by all parties hereto, of each of the
following conditions precedent on or prior to the Closing Date or the date
specified therein.
7.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
7.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting
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the Merger or any of the transactions contemplated hereby or otherwise making
the consummation of the Merger or any of the transactions contemplated hereby
illegal.
7.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, any Governmental Authority in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby by AWS, Heartland and MergerSub, shall have been made or
obtained (as the case may be) without restrictions.
7.4 SALE OF PITTSBURGH SYSTEM. The sale of the Pittsburgh System shall be
consummated in accordance with the terms of the Pittsburgh Sale Agreement.
7.5 DUE DILIGENCE NOTICE. Heartland shall have delivered to AWS written
notice ("Due Diligence Notice") that Heartland is satisfied, in its sole
discretion, with the results of the due diligence investigations of AWS
conducted through the date of the Due Diligence Notice, which date shall be not
later than December 13, 1995. Heartland's failure to deliver such notice within
the time period specified herein shall constitute a waiver of such condition by
Heartland and a waiver of its right to terminate this Agreement for matters set
forth in the Disclosure Schedules delivered to Heartland on or before December
6, 1995.
7.6 Intentionally Omitted.
7.7 OTHER ACQUISITIONS. Heartland shall have delivered to AWS written
notice ("Notice of Agreement") that it has entered into binding agreements to
acquire the Fort Worth Interest and Minneapolis Interest. Such notice shall be
delivered within forty-five (45) days of the execution of this Agreement, and
shall be accompanied by a copy of the agreement to acquire the Fort Worth
Interest or Minneapolis Interest, as applicable.
7.8 FAIRNESS OPINIONS. AWS shall have delivered to Heartland and Merger
Sub (i) on or before the 20th day following the date of this Agreement, an
opinion of the AWS Advisor as to the fairness of the Merger to the stockholders
of AWS from a financial point of view and (ii) on or before the date the joint
proxy statement/prospectus constituting a part of the Registration Statement
referred to in Section 6.2(a) shall be first mailed to stockholders of AWS, a
letter from the AWS Advisor, dated as of the date of such joint proxy
statement/prospectus, confirming its opinion (collectively, the "Fairness
Opinion"). The Fairness Opinion shall be satisfactory in form and substance to
AWS on the date of initial delivery thereof and on the date of any confirmation
thereof contemplated in the preceding sentence, and on the Closing Date shall
not have been withdrawn.
7.9 EXHIBITS. On or before December 29, 1995, Heartland and AWS shall have
agreed upon the form of each exhibit to this Agreement and each such Exhibit
shall be attached hereto.
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY HEARTLAND AND MERGERSUB.
The obligations of Heartland and MergerSub to consummate the Merger are
subject to fulfillment, or written waiver signed by Heartland and MergerSub, of
each of the following conditions precedent on or prior to the Closing Date.
8.1 STOCKHOLDER APPROVAL. The Merger and the acquisition of the Fort Worth
Interest and Minneapolis Interest shall have been approved by the requisite vote
of the holders of Heartland Common Shares in accordance with applicable law and
its Certificate of Incorporation and Bylaws.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by AWS shall be true and correct in all material respects when
made and shall be true and correct in all material respects as if originally
made on and as of the Closing Date.
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8.3 AWS DOCUMENTS. AWS shall have delivered the following to Heartland in
form and substance satisfactory to Heartland and its counsel:
(A) A certificate signed by the chief executive officer of AWS, on
behalf of and in his capacity as an officer of AWS, confirming, on and as
of the Closing Date, that each representation and warranty set forth in
Section 2 hereof was true and correct in all material respects on the date
made and is true and correct in all material respects on and as of the
Closing Date and that AWS is in compliance with the applicable covenants
set forth in Articles 5, 6 and 7.
(B) Evidence that Channel Leases are in place for the Channels and
that such agreements are in full force and effect.
(C) An opinion of special counsel to AWS and an opinion of FCC counsel
to AWS and each Subsidiary in the forms attached hereto as Exhibit 8-3(c).1
and Exhibit 8-3(c).2, respectively.
(D) The minute books, bylaws, certificate of incorporation and other
organizational documents of AWS and each Subsidiary and the stock books and
stock ledgers of AWS Holdings.
(E) All Account Estoppels and Estoppel Certificates and other
necessary and appropriate governmental and third party Consents, approvals
and clearances for consummation of the transactions contemplated herein,
including, but not limited to, receipt of a "final" order by the FCC
approving, without any materially adverse or onerous conditions, of the
transfer of control of AWS as licensee of the owned Licenses. For purposes
of this Section, the term "final" shall mean an order of the FCC which has
not been stayed and, by lapse of time or otherwise, is no longer subject to
administrative or judicial reconsideration, review, appeal or stay.
8.4 NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect
to AWS or any Subsidiary, or their respective assets from the date hereof
through the Closing Date which would have a Material Adverse Effect.
8.5 DISSENTERS' RIGHTS. The shareholders of AWS Common Stock requesting an
appraisal of their shares of AWS Common Stock or exercising the dissenter rights
referred to in Section 1.2(p) hereof shall not hold more than an aggregate of
10% of all outstanding AWS Common Shares.
8.6 VOTING TRUST AGREEMENT. Each of the AWS shareholders identified on
Schedule 8.6 shall have executed the Voting Trust Agreement in the form attached
hereto as Exhibit 8.6 and such agreement shall be in effect on the Closing Date.
8.7 ACQUISITIONS OF OTHER INTERESTS. Heartland shall have acquired, or
shall simultaneously acquire, the Fort Worth Interest and Minneapolis Interest.
8.8 ACCOUNTANT'S CONSENT LETTER. Heartland shall have received from AWS
the Accountant's Consent Letter.
8.9 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF AWS. Each of the
conditions precedent to the obligations of AWS set forth in Article 7 or 9 shall
have been satisfied or waived by AWS, except for the provisions of Section 9.1,
which shall be satisfied and may not be waived by AWS.
8.10 AWS OBLIGATIONS PERFORMED. All obligations of AWS to be performed
hereunder through and including the Closing Date shall have been performed in
all material respects.
8.11 WARRANTS. Each warrant to purchase AWS Common Shares that would give
the holder thereof the right to purchase any shares of capital stock of AWS
(meaning warrants that do not by their terms convert into the right to purchase
Heartland Common Shares) after the Closing Date shall have been exercised,
cancelled or otherwise terminated.
8.12 CLOSING SHARE PRICE. The Closing Share Price shall not be greater
than the Maximum Termination Price.
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ARTICLE 9. CONDITIONS PRECEDENT TO CLOSING BY AWS.
The obligation of AWS to consummate the Merger is subject to fulfillment,
or written waiver signed by AWS, of each of the following conditions precedent
on or prior to the Closing Date.
9.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of the AWS Common Shares in accordance with
applicable law and its Certificate of Incorporation and Bylaws.
9.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland and/or MergerSub shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as if originally made on and as of the Closing Date.
9.3 HEARTLAND AND/OR MERGERSUB DOCUMENTS. Heartland and/or MergerSub, as
the applicable case may be, shall have executed and delivered to AWS in form and
substance satisfactory to AWS and to counsel:
(A) A certificate of the chief executive officer of Heartland and
MergerSub, on behalf of and in his respective capacity as an officer of
Heartland or MergerSub, confirming, on and as of the Closing Date, that
each of the representations and warranties set forth in Section 4 hereof
was true and correct in all material respects on the date made and are true
and correct in all material respects on and as of the Closing Date.
(B) An opinion of counsel to Heartland and/or MergerSub in the form
attached hereto as Exhibit 9.3.
(C) The Escrow Agreement, executed by Heartland and the Exchange
Agent.
9.4 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF HEARTLAND AND
MERGERSUB. Each of the conditions precedent to the obligations of Heartland and
MergerSub set forth in Article 8 shall have been satisfied or otherwise waived
by Heartland and MergerSub.
9.5 HEARTLAND AND MERGERSUB OBLIGATIONS PERFORMED. All obligations of
Heartland and MergerSub to be performed hereunder through and including the
Closing Date shall have been performed in all material respects.
9.6 CLOSING SHARE PRICE. The Closing Share Price shall not be less than
the Minimum Termination Price.
9.7 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the Proxy Statement to be
amended or supplemented under applicable securities laws.
ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the shareholders of AWS and Heartland, by the
mutual consent of Heartland, MergerSub and AWS.
10.2 TERMINATION BY AWS. This Agreement may be terminated and the Merger
may be abandoned by AWS if the Closing conditions set forth in Articles 7 and 9
shall not have been satisfied in full or waived on or before February 29, 1996.
10.3 TERMINATION BY HEARTLAND OR MERGERSUB. This Agreement may be
terminated and the Merger may be abandoned by Heartland or MergerSub if the
Closing conditions set forth in Articles 7 and 8 shall not have been satisfied
in full or waived on or before February 29, 1996; provided that Heartland shall
have the absolute right to terminate this Agreement (a) at any time prior to the
date of the Due Diligence Notice or (b) within fifteen (15) days after the
occurrence of an event described in Section 6.16.
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
(A) In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article 10, no party hereto (or any directors or
officers) shall have any liability or further obligation to the other parties to
this Agreement, except as provided in Article 10, and the remedies set forth
below shall be
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each party's sole and exclusive remedy for any claims arising from this
Agreement or the termination thereof. The payments specified below to be made
hereunder are each party's reasonable estimate of the Damages arising from the
other party's conduct leading to the termination hereof, and shall constitute
liquidated damages for any claims based thereon.
(B) In the event that any Person shall have made an Acquisition Proposal
and the Board of Directors of AWS approves the execution of an agreement
relating thereto or recommends to the AWS stockholders the acceptance of any
Acquisition Proposal, then AWS shall promptly, but in no event later than two
(2) days after the date of such event, pay Heartland a fee equal to the sum of
(i) One Million Eight Hundred Thousand Dollars ($1,800,000) and (ii) the
outstanding principal and accrued interest under the Escrow Note, and (iii) the
aggregate amount of all Exclusivity Fees previously offset against the Escrow
Note pursuant to Section 6.17, which amount shall be paid by wire transfer of
same day funds. AWS acknowledges that the agreements contained in this Section
10.4(b) are integral parts of the transactions contemplated in this Agreement,
and that, without these agreements, Heartland and MergerSub would not enter into
this Agreement; accordingly, if AWS fails to promptly pay the amount due and
pursuant to Section 10.4(b), and, in order to obtain such payment, Heartland or
MergerSub commences a suit which results in a judgment against AWS for the fee
set forth in this subparagraph (b), the non-prevailing party shall pay the
prevailing party its cost and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the fee at the interest
rate specified in the Escrow Note in effect on the date such payment was
required to be made.
(C) In the event that Heartland and/or MergerSub fail to consummate the
Merger after all conditions set forth in Articles 7 and 8 have been satisfied or
waived, then the indebtedness evidenced by the Escrow Note and the lien of the
Asset Security Agreement ("Security Agreement") dated of even date therewith
shall immediately, and without further acts or actions by Heartland or
MergerSub, be released and discharged, AWS shall have no obligation to repay the
amounts outstanding under the Escrow Note, Heartland shall release the security
interest created by the Security Agreement, Heartland shall execute written
releases of all UCC-1 financing statements executed to perfect the lien of the
Security Agreement, the parties shall have no further obligations hereunder or
under the Escrow Note or Security Agreement, and this Agreement shall terminate.
(D) In the event that this Agreement is terminated (i) by Heartland in
accordance with Section 6.16, (ii) by either party for the failure of the
condition precedent set forth in Section 7.1 primarily as a result of past or
present acts or omissions of AWS, predecessors or Affiliates of AWS, or their
respective officers, directors or agents, (iii) by Heartland for the failure of
the condition precedent set forth in Section 8.3(e) arising solely from the
failure to obtain an FCC Consent, (iv) by AWS for the failure of the condition
precedent set forth in Section 9.1, or (v) by Heartland for the failure of the
condition precedent set forth in Section 8.2 or Section 8.4, then all
Exclusivity Fees previously offset against the Escrow Note shall be added back
to the principal balance of the Escrow Note and the Escrow Note shall thereafter
be repaid to Heartland in accordance with the terms thereof; provided that, upon
any such termination, the Escrow Note shall be modified to enter the maturity
date thereof until the date which is one (1) year from the date of such
termination.
(E) In the event that this Agreement is terminated for any reason other
than as set forth in subsections (b), (c) or (d) above, then the Escrow Note
(less any Exclusivity Fees offset against the Escrow Note in accordance with
Section 6.17, prorated through the date of termination) shall be repaid in
accordance with its terms, and the parties shall have no further liabilities to
each other (other than the obligation of AWS under the Escrow Note and Security
Agreement); provided that, upon any such termination, the Escrow Note shall be
modified to enter the maturity date thereof until the date which is one (1) year
from the date of such termination.
ARTICLE 11. CONDITIONS FOR RELEASE OF HOLDBACK AMOUNT
11.1 PROVISIONS REGARDING REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATIONS. The statements, certifications, representations and warranties
made by AWS in this Agreement, in any Schedule, or in any Exhibit,
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certificate or other instrument delivered by or on behalf of AWS or any
Subsidiary pursuant to this Agreement shall survive the Merger for a period of
one year from the Closing Date. Subject to the limitations contained in Section
3.1 regarding the Fort Worth System and Minneapolis System, AWS shall indemnify
and hold Heartland and MergerSub, their respective officers and directors
("Heartland Indemnitees") harmless from any and all Damages relating to or
arising from the following ("Primary Claims"):
(A) the existence of any Net Permitted Liabilities (excluding the
indebtedness evidenced by the Escrow Note) on the Closing Date in excess of
$3,150,000 ("Net Permitted Liability Basket"), as adjusted pursuant to
Sections 6.18 and 6.21;
(B) any material breach of the representations and warranties
contained in Section 2.30, which breach may be established by (i) the
discovery of undisclosed correspondence, documents or other materials
originated by or established to have been received by AWS relating to a
Potential Claim, or (ii) the admission, statement or testimony of any
executive officer or director of AWS (including, without limitation,
statements or disclosures in interrogatory responses, deposition testimony,
settlement negotiations or other Proceedings), which conflicts with or
contradicts any disclosure which is the subject of the representations and
warranties contained in Section 2.30;
(C) any Potential Claims of Laidlaw and Jenkins; and
(D) any Claims arising from the willful malfeasance or any fraudulent
acts of AWS or its officers or directors;
and AWS shall indemnify and hold the Heartland Indemnitees harmless from
fifty percent (50%) of any Damages relating to or arising out of the
following ("Secondary Claims"), to the extent such Damages are not the
subject of a Primary Claim:
(X) any breach or nonperformance (partial or total) of or in any
representation or warranty or covenant of AWS contained in this
Agreement;
(Y) any Partnership Claims; and
(Z) the Potential Claims of ATI and TruVision; provided that AWS
shall not have any liability to the Heartland Indemnitees hereunder for
any Damages arising from the Potential Claim of TruVision in excess of
$1,800,000 (meaning the maximum liability of AWS to the Heartland
Indemnitees hereunder for such claim shall be $900,000);
provided that, with respect to Secondary Claims, Heartland shall not make
any claim for a Secondary Claim less than $10,000 ("Minimum Claim Amount"),
and Heartland shall not assert any claims hereunder, until the aggregate
amount of all Secondary Claims exceeds $250,000 ("Secondary Claim Floor"),
and then Heartland shall only have the right to make claims hereunder for
Secondary Claims to the extent that the aggregate amount of the Secondary
Claims exceeds the Secondary Claim Floor. AWS, Heartland and MergerSub
acknowledge and agree that, for purposes of determining the Secondary Claim
Floor, one hundred percent (100%) of all Secondary Claims equal to or
greater than the Minimum Claim Amount shall be included, and that the
indemnification obligations of AWS for Secondary Claims in excess of the
Secondary Claim Floor shall be limited to fifty percent (50%) of such
excess.
11.2 ESCROW HOLDBACK. The Holdback Amount shall be held by the Exchange
Agent pursuant to the terms of the Escrow Agreement (attached as Exhibit
1.2(h)), which shall remain in effect until the expiration of the Escrow Period.
The indemnification obligations of AWS shall be limited to and satisfied solely
from the Holdback Amount in accordance with the terms of the Escrow Agreement.
Upon the expiration of the Escrow Period, the Contingent Amount to be received
by each former holder of AWS Common Shares shall be proportionately reduced by
the aggregate of the Primary Claims and Secondary Claims properly charged
against the Holdback Amount, to the extent such Holdback Amount is reduced by
such claim as provided in the Escrow Agreement and herein. It is acknowledged
and agreed that there shall be no remedy or other recourse by Heartland or
MergerSub, or its successors or assigns, against AWS or its shareholders, or
their successors and assigns (but only in their capacity as shareholders) of any
nature whatsoever, including, but not limited to, breaches of the
representations, warranties or covenants of this Agreement, other than to the
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Holdback Amount, and that the Holdback Amount shall be the sole remedy and
recourse by Heartland or MergerSub against AWS or its shareholders (but only in
their capacity as shareholders).
11.3 ADJUSTMENT TO CONTINGENT CONSIDERATION AND INITIAL CONSIDERATION. In
the event that the Potential Claim of TruVision is resolved and AWS and
Heartland receive a full release from TruVision regarding its Potential Claim
prior to the Closing Date, then (i) the Contingent Consideration shall be
reduced by $500,000 and (ii) the Initial Consideration shall be increased by
$500,000.
ARTICLE 12. DEFINITIONS.
12.1 The terms used in this Agreement have the respective meanings
specified or referred to in this Article 12:
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
5.4.
"ACT" means The Communication Act of 1934, as amended.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person.
"AFFILIATE TRANSFER CONSENTS" shall have the meaning set forth in
Section 5.2
"ANNUAL FCC REPORT" means the reports which a licensee in the MMDS
service is required to file annually with the FCC pursuant to Section
21.911 of the FCC Rules.
"APPLICATION" means a pending application by AWS or Institution or
other Parties to the FCC for a License.
"ATI" shall have the meaning set forth in Section 6.13.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to AWS by a
Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with the provision of wireless
cable services, including the licenses, permits, authorizations,
franchises, grants, registrations, certificates, consents and waivers
listed on Schedules 2.10(b) and 2.10(d).
"AWS ADVISOR" shall mean Daniels & Associates.
"AWS COMMON SHARES" shall mean all of the issued and outstanding
capital stock of AWS immediately before the Merger.
"AWS SEC FILINGS" means AWS's Form 10-KSB filed for the fiscal years
ended December 31, 1993 and 1994, Form SB-2 (File No. 33-78354) filed with
the SEC on April 29, 1994, Form SB-2 (File No. 33-75190) filed with the SEC
on February 14, 1993, and all intervening Form 10-QSBs, 8-Ks and proxy
statements filed with the SEC.
"AWS FORT WORTH" shall have the meaning set forth in Section 2.2.
"AWS HOLDINGS" shall have the meaning set forth in Section 2.2.
"AWS MINNEAPOLIS" shall have the meaning set forth in Section 2.2.
"AWS REPRESENTATIVES" shall have the meaning set forth in Section 5.4.
"AWS SHARE VALUE" shall have the meaning set forth in Section 1.2(c).
"AWS STOCK OPTION PLANS" shall have the meaning set forth in Section
6.5(a).
"AWS STOCK OPTIONS" shall have the meaning set forth in Section
6.5(a).
"CERTIFICATES" shall have the meaning set forth in Section 1.2(i).
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"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the AWS or Subsidiary.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.3.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.3.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Common
Shares the average of the closing prices of such stock as reported on the
NASDAQ NMS for the ten (10) trading days ending on the fifth (5th) business
day prior to the Closing Date. In the event that the Heartland Common
Shares do not trade on any date within such ten-day period, the closing
price for such date shall be deemed to be the closing price for the day
preceding such date of purposes of determining the Closing Share Price.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENTS" means the consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Material Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for Heartland to conduct the
operations currently conducted by AWS after the Closing, but does not
include Affiliate Transfer Consents.
"CONTINGENT AMOUNT" shall have the meaning set forth in Section
1.2(b).
"CONTINGENT CONSIDERATION" means $3,250,000, as adjusted pursuant to
Section 11.3.
"CONVERSION AMOUNT" shall be the amount of consideration per share for
the acquisition of AWS as provided for in Section 1.2(b).
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DGCL" means the Delaware General Corporation Law.
"DUE DILIGENCE NOTICE" shall have the meaning set forth in Section
7.5.
"EFFECTIVE TIME" shall mean the date and time of the filing of the
applicable certificate of merger in the State of Delaware.
"EMPLOYEE" shall have the meaning set forth in Section 2.23(a).
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants,
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contaminants or hazardous or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, and including electro-magnetic fields
or discharges into the Environment, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, liquid or gaseous in
nature, which are now or may hereafter be applicable to AWS.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGREEMENT" shall have the meaning set forth in Section 1.2(h).
"ESCROW NOTE" shall have the meaning set forth in Section 6.17.
"ESCROW PERIOD" means the period commencing on the Closing Date and
continuing for a period of one year, as extended pending the resolution of
any Claims made within one year of the Closing Date and pending the
administration of such Claims, as further provided in the Escrow Agreement.
"ESTOPPEL CERTIFICATE" shall have the meaning set forth in Section
5.2.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.2(h).
"EXCHANGE FUND" shall have the meaning set forth in Section 1.2(h).
"EXCHANGE PRICE" shall have the meaning set forth in Section 1.2(d).
"EXCLUSIVITY FEE" shall have the meaning set forth in Section 6.17.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means all of the plants, offices, broadcast towers,
antenna towers, head-ends, studios, control centers and other real property
interests and related facilities which are either owned by AWS or leased by
or the use of which are leased by the AWS.
"FAIRNESS OPINION" shall have the meaning set forth in Section 7.8.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5.
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"FORT WORTH INTEREST" shall have the meaning set forth in Section
6.15.
"FORT WORTH SYSTEM" shall have the meaning set forth in Section 3.1
"GAAP" means generally accepted accounting principles in effect as of
the applicable time or the date of any financial statements in the United
States of America. The term "generally accepted accounting principles"
shall mean accounting principles which are (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors as generally accepted accounting principles, and
(b) such that a certified public accountant would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an
unqualified opinion as to financial statements in which such principles
have been properly applied.
"GAAP LIABILITIES" means liabilities on the Closing Date which would
be properly reportable on a balance sheet for AWS as of the Closing Date
prepared in accordance with GAAP.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government or any federal, state or local regulatory
authority.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority to AWS or Subsidiary.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND COMMON SHARES" means shares of common stock, $.001 par
value per share, Heartland Wireless Communications, Inc.
"HEARTLAND INDEMNITEES" shall have the meaning set forth in Section
11.1.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
4.7.
"HOLDBACK AMOUNT" shall have the meaning set forth in Section 1.2(i).
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"INITIAL AMOUNT" shall have the meaning set forth in Section 1.2(b).
"INITIAL CONSIDERATION" means $30,750,000, as adjusted pursuant to
Section 11.3.
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with AWS or
any Subsidiary.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of AWS or
any Affiliate of AWS which are used or available for use in connection with
the Business.
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"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"JOINT VENTURE" means a joint venture, partnership, limited liability
company or other similar arrangement, whether in corporate, partnership or
other legal form; provided that in no event shall any corporate Subsidiary
of any Person be considered a Joint Venture to which such Person is a
party.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is actually aware or has
reason to know, after due inquiry, of such fact or other matter; and (b)
with respect to a Person (other than an individual) "knowledge" of a
particular fact or other matter if any individual who is serving as a
director or officer of such Person has "knowledge" of such fact or other
matter.
"LAIDLAW" means Laidlaw Holdings, Inc.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline applicable to or against
AWS or Subsidiary.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals which are required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance against any assets or properties
of AWS or its Subsidiaries.
"MANAGE OR MANAGEMENT" means the use, possession, processing,
generation, treatment, storage, disposal, recycling, transportation or
arranging for the transportation of any Hazardous Substance.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in or is reasonably likely to result in a material adverse change
in (i) the financial condition, business, operations or properties of AWS
or any Subsidiary, taken as a whole other than general economic change over
which neither AWS nor any Subsidiary has any control; (ii) the ability of
AWS or any Subsidiary prior to the Effective Time to perform its
obligations under this Agreement, or (iii) the validity or enforceability
of this Agreement.
"MATERIAL CONTRACTS" shall have the meaning set forth in Section 2.9.
"MAXIMUM COLLAR PRICE" means $26.00.
"MAXIMUM TERMINATION PRICE" means $32.00.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MEMPHIS MARKET" shall have the meaning set forth in Section 6.12.
"MEMPHIS PROCEEDS" shall have the meaning set forth in Section 6.18.
"MERGER" means the merger described in Section 1.1.
"MERGER CONSIDERATION" means $34,000,000.00.
"MINIMUM CLAIM AMOUNT" shall have the meaning set forth in Section
11.1.
"MINIMUM COLLAR PRICE" means $20.00.
"MINIMUM TERMINATION PRICE" means $12.00.
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"MINNEAPOLIS INTEREST" shall have the meaning set forth in Section
6.15.
"MINNEAPOLIS SYSTEM" shall have the meaning set forth in Section 3.1.
"MMDS" means the Multichannel Multipoint Distribution Service.
"NET PERMITTED LIABILITIES" means (i) Permitted Liabilities minus (ii)
cash held in deposit accounts to be retained and available for use by the
Surviving Corporation following the Merger.
"NET PERMITTED LIABILITY BASKET" shall have the meaning set forth in
Section 11.1(a).
"NON-PLAN OPTIONS" shall have the meaning set forth in Section 6.5(a).
"NOTICE OF AGREEMENT" shall have the meaning set forth in Section 7.7.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator as to which AWS or Subsidiary
is a party.
"OUTSTANDING AWS SHARES" shall have the meaning set forth in Section
1.2(c).
"PARTNERSHIP CLAIMS" shall mean the aggregate claims for Damages
arising from the organization of Wireless Cable T.V. Associates No. 34,
Wireless Cable T.V. Associates No. 37, Wireless Cable T.V. Associates No.
38, or Fort Worth Wireless Cable T.V. Associates, each a California general
partnership.
"PBGC" shall have the meaning set forth in Section 2.23(c).
"PERMITTED LIABILITIES" shall mean the sum of (i) GAAP Liabilities,
(ii) Severance Obligations (excluding Severance Obligations which are
included in the calculation of GAAP Liabilities), and (iii) twenty-five
percent (25%) of the indebtedness of AWS Minneapolis to Heartland
outstanding under that certain promissory note in the original principal
amount of $560,000 for the purpose of repaying the loan to Tsunami Capital
Corporation.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"PITTSBURGH SALE AGREEMENT" shall have the meaning set forth in
Section 3.2.
"PITTSBURGH SYSTEM" shall have the meaning set forth in Section 3.2.
"PLANS" shall have the meaning set forth in Section 2.23(a).
"POTENTIAL CLAIMS" shall have the meaning set forth in Section 6.13.
"PRIMARY CLAIMS" shall have the meaning set forth in Section 11.1.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 6.2(b).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
6.2(a).
"RELEASE" means the releasing, spilling, leaking, discharging,
pumping, pouring, emitting, emptying, ejecting, leaching, dumping,
disposing or allowing to escape any Hazardous Substance.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 6.4.
"SEC" means the United States Securities and Exchange Commission.
"SECONDARY CLAIMS" shall have the meaning set forth in Section 11.1.
"SECONDARY CLAIM FLOOR" shall have the meaning set forth in Section
11.1.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SECURITY AGREEMENT" shall have the meaning set forth in Section
10.4(c).
"SEVERANCE OBLIGATIONS" shall have the meaning set forth in Section
2.28.
"SITE" means a wireless cable television site with respect to which
AWS is operating a Wireless Cable Business and transmitting programming to
subscribers in connection therewith.
"SITE LEASE" shall mean an agreement for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"SUBSIDIARY" means AWS Holdings, AWS Forth Worth and AWS Minneapolis,
or any other entity in which AWS has the ability to direct the management
or affairs, excluding the Pittsburgh Venture.
"SUPPLEMENTAL DISCLOSURE" shall have the meaning set forth in Section
12.11.
"SURVIVING CORPORATION" shall have the meaning set forth in Section
1.1.
"TAX" or "TAXES" shall have the meaning set forth in Section 2.6.
"TRUVISION" shall have the meaning set forth in Section 6.13.
"US TRUST" means U.S. Trust Company of Texas, N.A.
"VOTING TRUST AGREEMENT" shall have the meaning set forth in Section
8.6.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
"WIRELESS CABLE TELEVISION SYSTEMS" means the Dallas, Fort Worth, Los
Angeles, Memphis and Minneapolis wireless cable television systems, whether
or not operational, and all assets relating thereto.
12.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 13. MISCELLANEOUS.
13.1 EXPENSES OF THE TRANSACTION. Each of AWS, Heartland and MergerSub
agrees to pay its own fees and expenses in connection with this Agreement and
the transactions hereby contemplated.
13.2 FURTHER ASSURANCES. Each of AWS, Heartland and MergerSub agrees that
it will, at any time and from time to time after the Closing Date, upon the
request of the other party, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required from time to time in order to effectuate the provisions and
purposes of this Agreement.
13.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to Heartland, to:
Heartland Wireless Communications, Inc.
902 N. Bowser, Suite 140
Richardson, Texas 75081
Attn: John R. Bailey
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With copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75202
Attn: Victor B. Zanetti
If to AWS, to:
American Wireless Systems, Inc.
7426 E. Stetson Drive
Suite 220
Scottsdale, AZ 85251
Attn: Steven G. Johnson
With copy to:
O'Connor Cavanagh
One East Camelback Road
Suite 1100
Phoenix, AZ 85012
Attn: Richard Stagg
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
13.4 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
13.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits hereto, sets forth the entire agreement and understanding among the
parties as to the subject matter hereof.
13.6 SEVERABILITY. If any provision of this Agreement or the application
of any provision hereof to any person or in any circumstances is held invalid,
the remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
13.7 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any party hereto except with the
prior written consent of the other parties. Any purported assignment contrary to
the terms of this Agreement shall be void.
13.8 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Date, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland and AWS; provided,
Heartland and AWS shall be entitled to disclose the transactions contemplated
hereby without the prior approval of the other, but with prior notice to the
other, to the extent reasonably necessary for Heartland or AWS to comply with
applicable securities laws.
13.9 CHOICE OF LAW. This Agreement shall be deemed to have been made in,
and shall be construed in accordance with the laws of the State of Delaware, and
its validity, construction, interpretation and legal effect shall be governed by
the laws of the State of Delaware applicable to contracts entered into and
performed entirely therein.
13.10 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
13.11 SCHEDULES. The Schedules referred to herein and delivered to
Heartland and/or MergerSub upon execution hereof are hereby made a part of this
Agreement. All Schedules delivered to Heartland and/or
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MergerSub shall be subject to modification prior to the Closing Date, provided
that such modifications are designated as a "Supplemental Disclosure" and
delivered pursuant to notice given in accordance with Section 13.3.
13.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
IN WITNESS WHEREOF each of the parties hereto has executed this Agreement
as of the day and year first above written.
AWS:
AMERICAN WIRELESS SYSTEMS, INC.
By: /s/ STEVEN G. JOHNSON
Name: Steven G. Johnson
Title: President/CEO
HEARTLAND:
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: CFO
MERGERSUB:
HEARTLAND MERGERSUB, INC.
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: CFO
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B
APPENDIX B
AWS ESCROW AGREEMENT
<PAGE> 980
B
EXHIBIT 1.2(H)
ESCROW AGREEMENT
[NOTE: THIS AGREEMENT IS INTENDED TO ADDRESS THE $3.25 MM
HOLDBACK. DISTRIBUTION OF THE $30.75 MM AMOUNT WILL
BE HANDLED IN AN EXCHANGE AGENT AGREEMENT]
THIS ESCROW AGREEMENT(the "Agreement") is made as of , 1996
by and among AMERICAN WIRELESS SYSTEMS, INC., a Delaware corporation ("AWS"),
HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware corporation ("Heartland"),
HARRIS TRUST COMPANY OF NEW YORK (the "Escrow Agent") and Daniel A. Cartwright
(the "Stockholder Representative"). Capitalized terms used but not defined
herein shall have the meanings given to them in that certain Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of
September 11, 1995, among AWS, Heartland and Heartland Merger Sub, Inc. ("Merger
Sub").
RECITALS:
WHEREAS, AWS, Heartland and Merger Sub have entered into the Merger
Agreement to provide for the merger of Merger Sub with and into AWS (the
"Merger"); and
WHEREAS, the Closing of the transactions contemplated by the Merger
Agreement is taking place as of the date hereof and, in connection with the
distribution of the shares of Heartland Common Stock to be issued to the AWS
Stockholders in the Merger, Heartland and the Escrow Agent have also entered
into the Exchange Agent Agreement (herein so called); and
WHEREAS, Heartland has relied upon the representations, warranties and
covenants of AWS provided in the Merger Agreement and in schedules, certificates
and other documents delivered pursuant to the Merger Agreement; and
WHEREAS, pursuant to Article 11 of the Merger Agreement, AWS has agreed, as
the sole remedy and recourse of Heartland against AWS and its shareholders (but
only in their capacity as shareholders of stock subject to this Agreement), to
indemnify and hold the Heartland Indemnitees harmless from Primary Claims and
the Secondary Claims (collectively, the "Claims") as further provided therein.
NOW, THEREFORE, to induce Heartland to proceed with the Closing and the
Merger, and in consideration of such Closing and Merger, and in further
consideration of the mutual covenants and agreements contained herein and in the
Merger Agreement, and intending to be legally bound, the parties hereto do
hereby agree as follows:
1. APPOINTMENT OF STOCKHOLDER REPRESENTATIVE.
AWS hereby appoints the Stockholder Representative, and the Stockholder
Representative agrees to act, as the representative of the persons entitled to
receive (subject to the terms hereof and the Merger Agreement) the Holdback
Amount, in accordance with this Escrow Agreement. No bond shall be required of
the Stockholder Representative. The Stockholder Representative shall receive
$10,000 quarterly as compensation for services hereunder. The Escrow Agent,
Heartland and AWS are hereby relieved from any liability for any acts done by
them, or any of them, in accordance with any such resolution, action, decision,
consent or instruction of the Stockholder Representative.
2. APPOINTMENT OF ESCROW AGENT; ESCROW FUND.
(A) Heartland, AWS and the Stockholder Representative hereby appoint the
Escrow Agent, and the Escrow Agent hereby agrees to act, as the agent of such
parties in performing the duties of the Escrow Agent provided herein. As
compensation for Escrow Agent's services hereunder, Escrow Agent shall receive a
compensation of $2,500 ($1,500 of which shall be payable upon the execution
hereof and $1,000 of which
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shall be payable upon the termination of this Agreement) and the reimbursement
of all other Administrative Costs (as such term is defined in Section 6(d)).
(B) On the date hereof, Heartland shall cause to be deposited with the
Escrow Agent Heartland Common Shares (the "Escrow Shares") representing the
Contingent Amount (subject to adjustment for the rounding of fractional shares
as provided in Section 1.2(i) of the Merger Agreement) to be received by the
holders of AWS Common Shares ("AWS Stockholders") pursuant to the Merger
Agreement, such deposit, together with any dividends or other distributions paid
thereon, to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth herein. Upon compliance with the terms hereof, Heartland shall
be entitled to receive payment from the Escrow Fund for all Claims for which
Heartland or the Surviving Corporation is entitled to indemnification under
Article 11 of the Merger Agreement. The indemnification obligations of AWS to
Heartland or the Surviving Corporation under Article 11 of the Merger Agreement
shall be limited to the Escrow Fund.
(C) The Escrow Agent shall hold, safeguard and dispose of the Escrow Fund
in accordance with the terms hereof.
(D) For purposes of this Agreement, each Escrow Share shall have a value
equal to $ (the "Exchange Value") and such valuation shall apply
throughout the duration of the Escrow Period.
3. ESCROW PERIOD. The escrow created hereby shall remain in existence until the
date all of the Escrow Shares and other assets in the Escrow Fund have been
distributed in accordance herewith (such period being referred to herein as the
"Escrow Period").
4. CLAIM SUBMISSION PERIOD. With respect to each Claim, Heartland shall deliver
(in accordance with Section 13 below) to the Escrow Agent within one (1) year
from the date hereof (the "Claim Submission Period"), a certificate signed by an
executive officer of Heartland ("Officer's Certificate"):
(I) stating that Heartland or the Surviving Corporation has paid,
suffered or properly accrued, or Heartland or the Surviving Corporation in
good faith reasonably anticipates that Heartland or the Surviving
Corporation will have to pay, suffer or accrue, Damages in an aggregate
stated amount (including, without limitation, any anticipated professional
and other fees and costs associated therewith) and, with respect to a
Qualifying Offer, that the Qualifying Offer (a copy of which is to be
attached to the Officer's Certificate) has been made and not accepted
within the time period specified therein and the amount of additional
Damages (meaning attorneys' fees and other expenses) associated therewith);
and further stating that Heartland or the Surviving Corporation is entitled
to indemnification out of the Escrow Fund pursuant to this Agreement and
the Merger Agreement; and
(II) specifying in reasonable detail (A) the individual items of
Damages included in the amount so stated (or the amount of the Qualifying
Offer and additional Damages, such as attorneys' fees and other expenses,
associated therewith), (B) the date each such item was paid or properly
accrued or the basis for such anticipated liability, (C) the nature of the
liability, misrepresentation, breach of warranty or covenant or other
matter to which such items are related, (D) whether the Claim constitutes a
Primary Claim or a Secondary Claim, and (E) if the Claim is a Secondary
Claim, the aggregate of all Secondary Claims agreed to or determined to be
proper hereunder.
Upon the Escrow Agent's receipt of the Officer's Certificate, such Claim shall
be administered by the Escrow Agent pursuant to Section 6 below.
5. THIRD PARTY CLAIMS; QUALIFYING OFFERS; QUARTERLY REPORTS.
(A) Within 15 days after receipt by Heartland of notice of any Claim by a
third party relating to transactions, matters or events occurring or existing on
or prior to the Effective Time as to which indemnification may be sought under
Article 11 of the Merger Agreement (a "Third Party Claim," which includes,
without limitation, the Potential Claims and Partnership Claims), Heartland
shall deliver to the Stockholder Representative written notice thereof; provided
that the omission to so notify the Stockholder Representative will not affect
Heartland's right of recourse to the Escrow Fund hereunder and that Heartland
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shall not be required to deliver notice of the Potential Claims disclosed in, or
other Claims disclosed in any schedule to, the Merger Agreement. The Stockholder
Representative shall have the right to participate in any such proceeding and
Heartland shall have the right (but not the duty) to control the defense
thereof. Whether or not the Stockholder Representative chooses to participate in
the defense of any proceeding involving a Third Party Claim, each party hereto
and their respective successors and assigns agree to cooperate in the defense
and to take all actions in connection with such defense as may be reasonably
requested.
(B) At any time during the first eleven (11) months of the Claim Submission
Period, Heartland shall have the right to make a written offer to the adverse
party in any Third Party Claim to settle such Claim for an amount specified in
such offer (a "Qualifying Offer"), and Heartland shall give such third party no
less than twenty (20) days to accept such Qualifying Offer. If a Qualifying
Offer is accepted and the Claim is settled, Heartland may seek indemnification
for such Claim within the Claim Submission Period in accordance with Section 4.
If such Qualifying Offer is rejected or not accepted within such twenty (20) day
period, then Heartland shall be entitled to seek indemnification within ten (10)
days from the earlier of Heartland's receipt of a written rejection of a
Qualifying Offer or the expiration of such twenty (20) day period for the amount
of such Qualifying Offer (together with all expenses and costs relating thereto,
including without limitation attorneys' fees) from the Escrow Fund in accordance
with Section 4.
(C) Heartland shall use reasonable efforts to provide to the Stockholder
Representative a report on each date which is three, six and nine months from
the date hereof identifying with reasonable detail any potential Claim or
circumstances which may lead to a Claim that have not previously been the
subject of a Claim Notice; provided, that the failure of Heartland to deliver
such report or identify any Claim shall not constitute a waiver of or otherwise
affect any rights of Heartland hereunder or under the Merger Agreement with
regard to such Claim.
6. ADMINISTRATION OF CLAIMS.
(A) ACCEPTED CLAIMS. At the time of delivery of an Officer's Certificate to
the Escrow Agent pursuant to Section 4, a duplicate copy of such Officer's
Certificate shall be delivered by Heartland to the Stockholder Representative
("Claim Notice"). The Stockholder Representative shall have a period of ten (10)
business days from its receipt of a Claim Notice ("Rejection Period") to review
the Officer's Certificate and deliver to Heartland and Escrow Agent written
notice of its rejection of all or a portion of the Claim referenced therein
("Rejection Notice"). If no Rejection Notice is received by Heartland and Escrow
Agent within the Rejection Period, then such Claim shall become an "Accepted
Claim."
(B) REJECTED CLAIMS. For any Claim which is the subject of a Rejection
Notice (a "Rejected Claim"), the Stockholder Representative and Heartland shall
attempt in good faith to agree upon the rights of the respective parties with
respect to such Claim. If the Stockholder Representative and Heartland so agree,
a memorandum setting forth such agreement shall be prepared and signed by
Heartland and the Stockholder Representative and shall be furnished to the
Escrow Agent and such Rejected Claim shall become an "Accepted Claim."
(C) RESOLUTION OF DISPUTE. If no such agreement between the Stockholder
Representative and Heartland can be reached with respect to a Rejected Claim
after good faith negotiation within thirty (30) days of Heartland's receipt of a
Rejection Notice, Heartland and the Stockholder Representative shall mutually
select an independent third party (the "Designated Party") whose determination
of the Rejected Claim and the amount of Damage (if any) associated therewith
shall be final, nonappealable and binding; provided that, with respect to Claims
which are the subject of a Qualifying Offer, the Designated Party shall only be
entitled to determine whether such Claim is subject to the indemnification
obligations of AWS under the Merger Agreement (and if so, whether a Primary or
Secondary Claim); and the Designated Party shall have no authority to reduce or
increase the amount of such Claim from the amount of the Qualifying Offer and
Damages associated therewith. The Designated Party shall be a person
knowledgeable regarding the wireless cable television business and the value of
related assets, and shall be generally knowledgeable with regard to business and
financial matters. In the event Heartland and the Stockholder Representative
fail to agree upon the Designated Party within forty (40) days after Heartland's
receipt of a Rejection Notice, the Designated
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Party shall be the managing partner of the Denver, Colorado offices of an
independent "Big Six" accounting firm other than KPMG Peat Marwick, L.L.P. and
Arthur Andersen, LLP, as selected jointly by the managing partner of the Denver,
Colorado office of said firms or their respective designees, and in the absence
of said joint election, as selected by the managing partner of the Denver,
Colorado office of KPMG Peat Marwick, L.L.P. or his designee. Upon the
determination of the Designated Party in accordance herewith with respect to a
Rejected Claim, the determination of the value of such Claim, if any, by the
Designated Party shall become an "Accepted Claim." All determinations by a
Designated Party hereunder shall be made in accordance with the expedited
commercial rules of the American Arbitration Association.
(d) ADMINISTRATIVE COSTS AND STOCKHOLDERS EXPENSES.
(I) All costs and expenses of administering this Agreement (including,
without limitation, fees and expenses of the Escrow Agent and any
Designated Party) ("Administrative Costs") shall be borne equally by
Heartland and the Escrow Fund. Administrative Costs shall be paid by
Heartland within fifteen (15) business days after Heartland's receipt of an
invoice from the Escrow Agent therefor. Within five (5) business days of
either the payment of such costs to the Escrow Agent or Heartland's
delivery to the Escrow Agent of evidence that such Administrative Cost has
been paid, Heartland shall be entitled to receive Escrow Shares having an
aggregate Exchange Value equal to fifty percent (50%) of the amount of such
payment. Heartland shall be under no obligation to bear any expenses
pursuant to this Section 6(d) at any time that the Escrow Fund shall be
exhausted or following the termination of this Agreement.
(II) The Escrow Agent shall be indemnified and saved harmless by
Heartland from and against any and all liability, including all expenses
reasonably incurred in its defense, to which the Escrow Agent shall be
subjected by reason of any action taken or omitted or any investment or
disbursement of any part of the Escrow Fund made by the Escrow Agent
pursuant to this Agreement, unless caused by the gross negligence or
willful misconduct of the Escrow Agent. The costs and expenses of enforcing
this right of indemnification shall also be paid by Heartland, and this
right of indemnification shall survive the termination of this Agreement,
and/or the resignation or removal of the Escrow Agent. The indemnification
and other obligations of Heartland to the Escrow Agent set forth in this
Subsection 6(d)(ii) shall be borne by Escrow Fund, and the Escrow Agent
shall release to Heartland Escrow Shares having an aggregate Exchange Value
equal to the amount of any such payment by Heartland within five (5)
business days of the Escrow Agent's receipt of a written request by
Heartland therefor; provided that if the Escrow Agent is entitled to
indemnification in excess of the aggregate Exchange Value of the Escrow
Shares and any other amounts in the Escrow Fund, then such indemnification
obligation shall be borne directly by Heartland.
(III) The Stockholder Representative shall be entitled to
indemnification from the Escrow Fund (or Heartland, subject to the
limitations set forth below) for any liabilities, costs or expenses,
arising from actions or decisions made in good faith in managing and
discharging his or her duties and responsibilities in accordance with the
terms hereof ("Indemnified Amounts"). All Indemnified Amounts, costs and
expenses of, and compensation payable to, the Stockholder Representative
(including, without limitation, those payable to attorneys and other third
parties hired by the Stockholder Representative) ("Stockholder Expenses")
shall be advanced by Heartland upon the submission by the Stockholder
Representative of a certificate ("Representative's Certificate") certifying
(A) the nature of the expenses incurred, (B) the amount of the expenses
incurred, and (C) that the expenses were properly incurred in connection
with the performance of the duties of the Stockholder Representative
hereunder and, with respect to Indemnified Amounts, that such
indemnification or reimbursement is proper hereunder. Heartland shall have
ten (10) business days to review the Representative's Certificate and
deliver its written objection to any expenses contained therein to the
Stockholder Representative and Escrow Agent. In the event that Heartland
does not object to any expenses in the Representative Certificate within
such ten (10) day period, Heartland shall, within five (5) business days
thereafter, pay to the Stockholder Representative or its designee the
Stockholder Expenses identified in the Representative's Certificate. If
Heartland and the Stockholder Representative cannot agree on the propriety
of a Stockholder Expense identified in a Representative's Certificate, then
such matter shall be referred to the Designated Party and
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decided in accordance with Section 6(c) hereof. At any time after the
payment of a Stockholder Expense, Heartland shall be entitled to submit the
Representative's Certificate along with a certificate signed by an
executive officer of Heartland that the Stockholder Expenses referred to in
the Representative's Certificate have been paid, and within five (5) days
from the receipt of such items by the Escrow Agent, the Escrow Agent shall
release to Heartland Escrow Shares having an aggregate Exchange Value equal
to one hundred percent (100%) of such Stockholder Expenses. Notwithstanding
the foregoing, Heartland shall have no obligation to pay or reimburse any
Stockholder Expenses (other than Indemnified Amounts) at any time in which
the aggregate amount of outstanding Claims submitted to the Escrow Agent
that are to be paid from the Escrow Fund exceed the value of the Escrow
Shares remaining in the Escrow Fund. In the event that there are
insufficient Escrow Shares in the Escrow Fund to satisfy an Indemnified
Amount, then Heartland shall pay such Indemnified Amount to the Stockholder
Representative; provided that such obligation of Heartland shall be limited
to the aggregate Exchange Value of Escrow Shares released to Heartland
hereunder, other than Escrow Shares released to Heartland in connection
with the payment of an Indemnified Amount.
(E) PAYMENT OF CLAIMS AND EXPENSES. The Administrative Costs and
Stockholder Expenses shall be paid in accordance with Section 6(d) above.
Once a Claim has become an Accepted Claim in accordance with the terms of
this Agreement, the Escrow Agent shall, within five (5) business days of
the written request of Heartland, deliver to Heartland Escrow Shares having
an aggregate Exchange Value equal to the amount of the Claim for which
Heartland is entitled to indemnification, rounded to the nearest whole
share (with fractional shares equal to or less than .50 being rounded
down).
7. EXPIRATION OF ESCROW PERIOD.
(A) Upon expiration of the Escrow Period, any Escrow Shares and any other
assets (including dividends) remaining in the Escrow Fund shall be delivered to
the AWS Stockholders on a prorata basis based upon the number of shares of
Heartland Common Stock received by each such AWS Stockholder upon the
distribution of the Initial Amount in the Merger in accordance with the Exchange
Agent Agreement. Such shares and any other amounts shall be distributed in
accordance with the Exchange Agent Agreement to which this Escrow Agreement is
attached. Any fractional shares remaining in the Escrow Fund shall be
repurchased by Heartland for the aggregate Exchange Value for such Escrow Shares
and the proceeds thereof shall be distributed among the AWS Stockholders. The
wire transfer instructions for the transfer of such funds are as follows:
Chemical Bank, ABA #021000128, for the account of Harris Trust Company of New
York, as Escrow Agent for Heartland Wireless Communications, Inc., Account No.
617999988. The Escrow Agent shall be authorized to draw funds from such account
and to prepare checks in the amount appropriate for inclusion with the mailing
of the certificates evidencing Heartland Common Stock upon the termination of
this Escrow Agreement. All checks, other than checks delivered at the Escrow
Agent's window or to the Book-Entry Transfer Facilities, shall be forwarded by
first class mail.
(B) Following the expiration of the Escrow Period and distribution in
accordance herewith of the Escrow Fund, the Escrow created hereby and this
Agreement, other than the provisions of Section 11 and the indemnification
obligations contained in Sections 6(d)(ii) and 6(d)(iii) hereof and under the
Exchange Agent Agreement, shall terminate.
8. DISTRIBUTIONS; VOTING; TRANSFER RESTRICTIONS.
(A) Any cash dividends, dividends payable in securities or other
distributions of any kind (including, without limitation, any shares received
upon a stock split) made in respect of any securities in the Escrow Fund shall
be added to the Escrow Fund and become a part thereof. The Escrow Agent shall
invest any cash held in the Escrow Fund in an interest-bearing account or money
market instruments in accordance with written instructions from Heartland. Any
interest payable on the funds shall be added to the Escrow Fund and become a
part thereof. The parties acknowledge that the Escrow Agent shall not be liable
for any diminution in the Escrow Fund due to losses resulting from investments
made pursuant to this Agreement.
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(B) The Escrow Shares shall be issued and held in the name of the Escrow
Agent. Upon receipt of written notice from Heartland of a proposed meeting of
Heartland stockholders, the Escrow Agent will arrange for the mailing of a
request for instructions to vote ("Request for Instructions") to each former AWS
Stockholder with regard to that number of whole Escrow Shares such person would
be entitled to receive if the Escrow Fund were disbursed as of the record date
for the meeting at which such Escrow Shares are entitled to vote. The Escrow
Agent hereby grants to the Stockholder Representative an irrevocable proxy to
vote the Escrow Shares and shall deliver to the Stockholder Representative the
results of the responses to Requests for Instructions. The Stockholder
Representative shall have voting rights with respect to the Escrow Shares (and
on any voting securities added to the Escrow Fund) so long as such Escrow Shares
or other voting securities are held in the Escrow Fund; provided that the
Stockholder Representative shall vote Escrow Shares for which Requests for
Instructions are returned in accordance therewith. The Escrow Agent shall
execute and deliver to the Stockholder Representative, upon request, all such
proxies, forms for election or other instruments which it receives as may be
required with respect to the Escrow Shares in order to give effect to the
foregoing.
(C) Former AWS Stockholders shall not transfer, and the Escrow Agent shall
not be required to register the transfer of, any interest in the Escrow Shares
until the expiration of the Escrow Period and distribution of the Escrow Shares,
if any, to the AWS Stockholders. Any purported transfer in violation of this
Section 8(c) shall be void.
9. STOCKHOLDER REPRESENTATIVE'S RIGHTS AND RESPONSIBILITIES.
(A) The Stockholder Representative is vested with the authority, duty and
responsibility to represent the interests of the AWS Stockholders in the Escrow
Fund as set forth herein, and the Stockholder Representative agrees to manage
and discharge his or her duties and responsibilities as agent in accordance with
the terms hereof. The resolution, action, decision, consent or instruction of
the Stockholder Representative shall be final, conclusive and absolutely binding
upon each of the AWS Stockholders, and Heartland may rely upon any such
resolution, action, decision, consent or instruction of the Stockholder
Representative as being the resolution, action, decision, consent or instruction
of each and all of the AWS Stockholders. Notwithstanding anything to the
contrary contained herein, express or implied, the Stockholder Representative
shall not be personally liable for actions or decisions taken or made in good
faith in managing and discharging his or her duties and responsibilities in
accordance with the terms hereof.
(B) In discharging his or her duties and responsibilities hereunder, the
Stockholder Representative shall have all rights and powers necessary and
incident to the proper discharge thereof, including, without limitation, the
right and power to engage and pay for professional and other services. Without
limitation upon the foregoing, the Stockholder Representative shall have the
duty and authority on behalf of the AWS Stockholders to do any thing required of
the Stockholder Representative under this Agreement, including without
limitation:
(I) to interpret and construe the provisions of this Agreement;
(II) to determine and resolve any disputes that may arise under this
Agreement, using his or her best efforts to dispose of all such disputes by
agreed settlement;
(III) to retain counsel and third parties with regard to Claims or the
defense thereof and to incur fees and expenses on behalf of the Escrow Fund
in connection therewith;
(IV) to give any and all written instructions to the Escrow Agent for
disbursement of the Escrow Fund, or any part thereof; and
(V) to perform all other acts as deemed appropriate by the Stockholder
Representative on behalf of AWS to fully effectuate and carry out the
provisions of this Agreement.
(C) To the extent that any funds or property representing proceeds received
in respect of or relating to any Claim are held or come to be held by the
Stockholder Representative after all of his duties hereunder are discharged,
such funds shall be delivered to the Escrow Agent and held in, and constitute a
part of, the Escrow Fund.
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(D) In the event of the death, disability or resignation of Daniel A.
Cartwright as Stockholder Representative, the members of the AWS Board of
Directors immediately preceding the AWS Merger shall designate a successor
member to fill each vacancy so created. Such appointment and designation shall
be immediately effective and shall be binding on all AWS Stockholders.
10. ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES.
To induce the Escrow Agent to act hereunder, it is further agreed that:
(A) The Escrow Agent shall not be under any duty to give the property
held hereunder any greater degree of care than it gives its own similar
property. The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Agreement, and the Escrow Agent shall not be
liable except for the performance of such duties as are specifically set
forth in this Agreement, and no implied covenants or obligations shall be
read into this Agreement against the Escrow Agent.
(B) The Escrow Agent may act upon advice of counsel in reference to
any matter connected herewith and shall not be liable for any acts or
omissions while acting in good faith and exercising reasonable judgment.
(C) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(D) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(E) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(F) The Escrow Agent is authorized to rely on the written instructions
of the Stockholder Representative as being the act of all of the AWS
Stockholders and the written instructions of the President or any executive
officer of Heartland as being the act of Heartland.
(G) This Agreement sets forth the exclusive duties of the Escrow Agent
with respect to any and all matters pertinent hereto and no implied duties
or obligations of the Escrow Agent shall be read into this Agreement.
(H) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
(I) The Escrow Agent shall be deemed to have fully complied with its
obligations hereunder to transfer the Escrow Shares by delivery to the
transfer agent of Heartland (the "Transfer Agent") of the Escrow Shares,
all in form satisfactory to such Transfer Agent, of certificates properly
endorsed for transfer with instructions to the Transfer Agent to issue in
the name of and deliver to the person to whom such transfer is to be made a
certificate or certificates for the required number of shares. Transfer
taxes, if any, applicable to such transfer shall be payable by the person
to whom the Escrow Shares are being transferred.
(J) The Escrow Agent shall be fully protected in acting in accordance
with any written instructions given to it hereunder and believed by it to
have been executed by the proper parties. The Escrow Agent's duties shall
be determined only with reference to this Agreement and applicable laws and
is not charged with any duties or responsibilities in connection with any
other document or agreement.
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11. RECORDS; FINAL ACCOUNTING.
The Escrow Agent shall maintain a record of all Claims against the Escrow
Fund filed with it pursuant to Sections 4 and 5, a record of all such Claims
which shall become payable claims as provided in Section 5 and a record of all
payments or distributions from the Escrow Fund. Upon the termination or
resignation of the Escrow Agent or termination or expiration of this Agreement,
the Escrow Agent shall within ten (10) business days deliver to Heartland and
the Stockholder Representative a full and final accounting with regard to the
Escrow Fund.
12. RESIGNATION OF ESCROW AGENT.
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder by
giving written notice thereof to Heartland and the Stockholder Representative.
Such resignation shall become effective following such written notice upon the
earlier of the appointment by Heartland and the Stockholder Representative of a
successor Escrow Agent that accepts the appointment and agrees to be bound by
the provisions of this Agreement or the expiration of 60 days thereafter. Upon
the effectiveness of such resignation, all duties of the Escrow Agent so
resigning shall cease, other than the duty to account in accordance with Section
11. Heartland and the Stockholder Representative shall have the right to
terminate the appointment of the Escrow Agent hereunder by giving written notice
thereof to the Escrow Agent, specifying the date upon which such termination
shall take effect. A condition precedent to such termination shall be the
designation of a successor Escrow Agent that has accepted the appointment and
agreed to be bound by the provisions of this Agreement. In the event of such
termination, the Escrow Agent shall turn over and deliver to such successor
Escrow Agent the Escrow Fund, and any other sums and the records and instruments
held by it under this Agreement and render the accounting required by Section
11.
13. NOTICES.
All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized, overnight courier, or mailed by registered or certified mail (return
receipt requested), postage prepaid, or sent by facsimile (followed by a copy
sent by courier or registered or certified mail) to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
hereunder):
To Heartland:
903 N. Bowser, Ste. 140
Richardson, TX 75081
Telefax: 214/479-1023
Attn: Chief Financial Officer
with a copy to:
Victor B. Zanetti, Esq.
Arter, Hadden, Johnson & Bromberg
1717 Main, Ste. 4100
Dallas, TX 75201
Telefax: 214/741-7139
To the Stockholder Representative:
Daniel A. Cartwright
-------------------------------
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with a copy to:
--------------------------------------
--------------------------------------
--------------------------------------
To the Escrow Agent:
Harris Trust Company of New York
--------------------------------------
--------------------------------------
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of delivery by nationally recognized, overnight courier, on the
business day following dispatch, (c) in the case of mailing, on the 5th business
day following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
14. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto.
15. GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely in Delaware.
16. PREVAILING PARTY.
In the event of any dispute which results in a suit or other legal
proceeding to construe or enforce any provision of this Agreement or because of
an alleged breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the parties agree that the prevailing party or
parties (in addition to all other amounts and relief to which such party or
parties may be entitled to recover) may recover from the non-prevailing party or
parties reasonable attorneys' fees and other costs incurred in any action or
proceeding.
17. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall constitute an original hereof, but all of which together
shall constitute one agreement.
IN WITNESS WHEREOF the undersigned have executed this Agreement as of the
day and year first above written.
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By:
----------------------------
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Title:
-----------------------------
AMERICAN WIRELESS SYSTEMS, INC.
By:
--------------------------------
Title:
-----------------------------
HARRIS TRUST COMPANY OF NEW YORK
By:
--------------------------------
Title:
-----------------------------
STOCKHOLDER REPRESENTATIVE
-----------------------------------
-----------------------------------
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APPENDIX C
AWS FAIRNESS OPINION
<PAGE> 991
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December 18, 1995
Board of Directors
American Wireless Systems, Inc.
7426 E. Stetson Drive, Suite 220
Scottsdale, Arizona 85251
Gentlemen:
American Wireless Systems, Inc. ("AWS"), Heartland Mergersub, Inc.
("Mergersub"), and Heartland Wireless Communications, Inc. ("Heartland") propose
to merge Mergersub with and into AWS (the "Merger Transaction"), pursuant to and
subject to the terms and conditions of an Agreement and Plan of Merger, as of
September 11, 1995 (the "Merger Agreement"). Upon the effective date of the
Merger Transaction, AWS will become a wholly-owned subsidiary of Heartland and
each outstanding share of AWS common stock will be converted into the right to
receive the "Conversion Amount" (as that term is defined in the Merger
Agreement) consisting of Heartland common stock and certain cash payments
representing the value of any resulting fractional shares.
As you know, Daniels & Associates, L.P. was engaged by AWS on March 23,
1995 to assist AWS in finding a buyer of AWS through an asset sale or a stock
transaction. On July 25, 1995, our engagement agreement was amended to include
services for the provision of a fairness opinion from us to you relating to the
proposed Merger Transaction involving Heartland and Mergersub. At the closing of
the Merger Transaction, Daniels will receive a fee in the aggregate amount of
1.5% of the Merger Consideration (as defined in the Merger Agreement) for its
services under the original and amended engagement agreements.
In arriving at the opinion set forth below, we have, among other things,
done the following:
(1) Reviewed the Form S-4 Registration Statement, including the
Prospectus and the Proxy Statement of AWS and Heartland;
(2) Reviewed AWS's annual reports and related financial information
for the four fiscal years ended December 31, 1994, and AWS's unaudited
quarterly reports and financial statements through September 30, 1995, as
well as certain budgets and projections prepared by management of AWS;
reviewed Heartland's annual report for the fiscal year ended December 31,
1994, and the most recently available unaudited financial information as
prepared by management of Heartland;
(3) Reviewed various other filings with the SEC made by AWS in the
past year;
(4) Reviewed certain information, including interest from other
prospective buyers, channel control, maturity of operations (cash flow and
penetration), and foliage, among other factors, relating to the business,
earnings, cash flow, assets, and prospects of AWS and Heartland, furnished
to us by AWS and Heartland;
(5) Conducted discussions with members of senior management of AWS
regarding the business and prospects of AWS;
(6) Reviewed minutes of meetings of the Board of Directors of AWS
which took place in the past year, including all meetings at which the
proposed Merger Transaction was discussed;
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Board of Directors
American Wireless Systems, Inc.
December 18, 1995
(7) Reviewed a copy of the Merger Agreement and the Escrow Agreement;
(8) Compared the proposed financial terms of the Merger Transaction
contemplated by the Merger Agreement with certain terms of other mergers
and acquisitions which we deemed to be relevant. In particular, we
calculated the relevant market multiples which, for the wireless cable
industry, are based on a combination of dollars per line of sight home and
dollars per subscriber. We also analyzed the Merger Transaction utilizing
the following parameters: proposed price vs. estimated value; ability to
obtain financing; liquidity; public market value of Heartland's assets
versus AWS's assets; and tax considerations;
(9) Compared financial and license positions of AWS with those of
certain other companies in the wireless communications industry;
(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary for purposes of our opinion.
In preparing our opinion, we have relied on the accuracy and completeness
of all financial and other information supplied or otherwise made available to
us by AWS and/or Heartland, and we have not independently verified such
information and/or made or obtained any independent evaluation or appraisal of
the assets of AWS or Heartland. This opinion does not constitute a
recommendation to any of the shareholders of AWS as to how such shareholders
should vote on the Merger Transaction. This opinion does not address the
relative merits of the Merger Transaction as compared with any other
transactions or proposed transactions submitted to AWS or discussed by the Board
of Directors of AWS as alternatives to the Merger Transaction or the decision of
the Board of Directors of AWS to proceed with the Merger Transaction. This
opinion is based on market, economic, financial and other conditions as they
existed and could be evaluated as of the date of this letter.
In rendering this opinion, we have not been engaged to act as an agent or
fiduciary of AWS. This opinion is rendered solely to AWS and does not create any
rights in or duties to the shareholders of AWS or any third parties.
On the basis of and subject to the foregoing, we are of the opinion that,
as of December 18, 1995, the aggregate consideration received and to be received
via the proposed Merger Transaction is fair, from a financial point of view, to
AWS's shareholders.
We hereby consent to the mention of our name in the Registration Statement
on Form S-4 of Heartland and the inclusion of this opinion in the Prospectus and
Proxy Statement of Heartland and AWS constituting a part thereof.
Very truly yours,
/s/ DANIELS & ASSOCIATES, L.P.
DANIELS & ASSOCIATES, L.P.
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D
APPENDIX D
NOTICE OF APPRAISAL RIGHTS
APPLICABLE TO AWS STOCKHOLDERS
<PAGE> 994
D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the world "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
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provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) and (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown
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D
on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendancy of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
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(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
79, L. '95, eff. 7-1-95.)
D-4
<PAGE> 998
E
APPENDIX E
AMENDED AND RESTATED FTW
ASSET PURCHASE AGREEMENT
<PAGE> 999
E
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
DATED AS OF OCTOBER 4, 1995
BETWEEN
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
AS SELLER,
AND
HEARTLAND WIRELESS COMMUNICATION, INC.
AS BUYER
<PAGE> 1000
E
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1. CLOSING; EXCHANGE.......................................................... E-1
1.1 Closing, Closing Time, Date and Place.................................... E-1
1.2 Transfer of Venture Interest; Assignment of AWS Claims................... E-1
1.3 Consideration............................................................ E-2
1.4 Liquidation of Seller; Distribution of Distributable Shares.............. E-2
1.5 Distribution Procedures.................................................. E-2
1.6 Registration of Acquisition Shares....................................... E-3
1.7 Dividends; Transfer Taxes................................................ E-3
1.8 Return of Exchange Fund.................................................. E-3
1.9 Further Assurances....................................................... E-3
1.10 Earnest Money............................................................ E-3
1.11 Extension of Closing Date................................................ E-4
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER................................... E-4
2.1 Organization; Doing Business............................................. E-4
2.2 Outstanding Rights....................................................... E-4
2.3 Authority; Enforceability; Non-Contravention............................. E-4
2.4 Financial Statements..................................................... E-4
2.5 Property................................................................. E-5
2.6 Receivables.............................................................. E-5
2.7 Contracts................................................................ E-5
2.8 FCC Matters.............................................................. E-6
2.9 Insurance................................................................ E-7
2.10 Litigation............................................................... E-7
2.11 Governmental Permits..................................................... E-7
2.12 Compliance With Laws..................................................... E-7
2.13 Environmental Matters.................................................... E-7
2.14 Intellectual Property.................................................... E-8
2.15 Liens.................................................................... E-8
2.16 Regulatory Compliance.................................................... E-8
2.17 Interference............................................................. E-8
2.18 Employees; Benefit Plans................................................. E-8
2.19 Finder's Fees............................................................ E-9
2.20 Programming Agreements................................................... E-9
2.21 Further Representation................................................... E-9
2.22 Certain Activities....................................................... E-9
2.23 Partnership Books and Records............................................ E-9
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND................................ E-9
3.1 Organization and Good Standing........................................... E-9
3.2 Authority; Enforceability; Non-Contravention............................. E-9
3.3 Litigation............................................................... E-10
3.4 Consents and Approvals................................................... E-10
3.5 Capitalization........................................................... E-10
3.6 Financial Statements..................................................... E-10
3.7 SEC Filings.............................................................. E-10
</TABLE>
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<PAGE> 1001
<TABLE>
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ARTICLE 4. COVENANTS OF SELLER........................................................ E-10
4.1 Operation Prior to the Closing Date...................................... E-10
4.2 Consents................................................................. E-11
4.3 Renewal or Extension of FCC Authorizations............................... E-11
4.4 No Solicitation.......................................................... E-12
4.5 Audit of Financial Statements............................................ E-12
ARTICLE 5. ADDITIONAL AGREEMENTS...................................................... E-13
5.1 Shareholders and Partners Meeting........................................ E-13
5.2 Registration Statement and Proxy Statement............................... E-13
5.3 Access................................................................... E-14
5.4 Compliance with the Securities Act....................................... E-14
5.5 Reasonable Efforts....................................................... E-14
5.6 Public Announcements..................................................... E-15
5.7 Notification of Certain Matters.......................................... E-15
5.8 Letters of Seller's Accountants.......................................... E-15
5.9 Hart-Scott-Rodino Act Filing............................................. E-15
5.10 Heartland Loan........................................................... E-15
5.11 Right of First Refusal................................................... E-15
5.12 Employees................................................................ E-16
5.13 Exhibits................................................................. E-16
5.14 Delivery of Schedules and Other Items.................................... E-16
5.15 Certain Limitations...................................................... E-16
5.16 AWS Claims............................................................... E-16
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION........................................ E-17
6.1 Registration Statement................................................... E-17
6.2 No Order................................................................. E-17
6.3 Other Approvals.......................................................... E-17
6.4 Exhibits................................................................. E-17
6.5 Partner Approval......................................................... E-17
6.6 Applicability of the Roll-up Rules....................................... E-17
6.7 Closing Share Price...................................................... E-17
6.8 Lenders' Consents........................................................ E-17
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.......................................... E-17
7.1 Stockholder and Other Approval........................................... E-17
7.2 Representations and Warranties........................................... E-18
7.3 Seller's Documents....................................................... E-18
7.4 Registration Statement Effective......................................... E-18
7.5 No Material Adverse Change............................................... E-18
7.6 Audited Financial Statements............................................. E-18
7.7 Accountant's Consent Letter.............................................. E-18
7.8 Seller's Obligations Performed........................................... E-18
7.9 Consents and Approvals................................................... E-18
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING............................................. E-18
8.1 Partner Approval......................................................... E-19
8.2 Representations and Warranties........................................... E-19
8.3 Heartland Documents...................................................... E-19
8.4 Heartland Obligations Performed.......................................... E-19
8.5 No Material Changes...................................................... E-19
</TABLE>
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<TABLE>
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ARTICLE 9. INDEMNIFICATION............................................................ E-19
9.1 Provisions Regarding Representations and Warranties...................... E-19
9.2 Indemnification by Seller................................................ E-19
9.3 Limitation on Claims of Heartland........................................ E-19
9.4 Indemnification by Heartland............................................. E-20
9.5 Limitation on Claims of Seller........................................... E-20
9.6 Notice of Claims......................................................... E-20
9.7 Third Party Claims....................................................... E-20
ARTICLE 10. TERMINATION............................................................... E-21
10.1 Termination by Mutual Consent............................................ E-21
10.2 Termination by Seller.................................................... E-21
10.3 Termination by Heartland................................................. E-21
10.4 Effect of Termination and Abandonment.................................... E-21
ARTICLE 11. DEFINITIONS............................................................... E-22
11.1 Definitions.............................................................. E-22
11.2 Defined Terms............................................................ E-28
ARTICLE 12. POST-CLOSING COVENANTS.................................................... E-28
12.1 Cooperation and Exchange of Information.................................. E-28
ARTICLE 13. MISCELLANEOUS............................................................. E-28
13.1 Expenses of the Transaction.............................................. E-28
13.2 Notices.................................................................. E-28
13.3 No Modification Except in Writing........................................ E-29
13.4 Entire Agreement......................................................... E-29
13.5 Severability............................................................. E-29
13.6 Assignment............................................................... E-29
13.7 Publicity; Announcements................................................. E-29
13.8 Consent to Jurisdiction.................................................. E-30
13.9 Captions; Construction................................................... E-30
13.10 Schedules................................................................ E-30
13.11 Counterparts............................................................. E-30
EXHIBITS:
1.3 Exchange Agreement
1.4 Agreement and Plan of Liquidation
1.10 Escrow Agreement
5.4 Lock-Up
5.10(a) Heartland Loan Agreement
5.10(b) Heartland Note
5.10(c) Heartland Security Agreement
7.3(b) Legal Opinion of Seller's Counsel
7.3(d)-1 Assignment of Venture Interest
7.3(d)-2 Assignment of AWS Claims
8.3(b) Legal Opinion of Heartland's Counsel
8.3(d) Release or Indemnification Agreement
SCHEDULES:
1.2 Excluded Assets
2.2 Outstanding Rights
2.3 Adverse Disclosures Regarding Authority, Enforceability and
Non-Competition
2.4 Financial Statements
</TABLE>
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<PAGE> 1003
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2.5(a) Equipment
2.5(b) Facilities
2.5(c) Exceptions to Title
2.6 Receivables
2.7 Contracts
2.8(a) Channel Leases
2.8(b) Licenses and FCC Permits
2.8(c) Applications
2.8(d) Adverse Channel Disclosures
2.9 Insurance
2.10 Litigation
2.11 Adverse Disclosures Regarding Governmental Permits
2.12 Adverse Disclosures Regarding Compliance with Laws
2.14 Intellectual Property
2.15 Liens
2.17 Interference
2.18 Employees
2.20 Programming Agreements
2.23 Partners
</TABLE>
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<PAGE> 1004
E
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (the "Agreement"), is
made and entered into as of the 4th day of October, 1995, by and between FORT
WORTH WIRELESS CABLE T.V. ASSOCIATES, a California general partnership
("Seller") and HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware Corporation
("Heartland").
W I T N E S S E T H:
WHEREAS, Seller and American Wireless Systems, Inc., a Delaware corporation
("AWS") are the sole joint venturers in the joint venture ("Venture") owning
100% of the wireless cable television assets that provide wireless cable
television service in the metropolitan area of Fort Worth, Texas (the "Market");
and
WHEREAS, Seller owns an 79.99% equity interest in the Venture ("Venture
Interest"), and desires to sell, and Heartland desires to purchase, the Venture
Interest; and
WHEREAS, AWS and Heartland have entered into that certain Agreement and
Plan of Merger dated September 11, 1995 ("Merger Agreement"), pursuant to which
a wholly owned subsidiary of Heartland ("Merger Sub") will be merged with and
into AWS and the Merger Sub will succeed to AWS's interest in the Venture; and
WHEREAS, in connection with the proposed acquisition of the Venture
Interest by Heartland as set forth herein ("Acquisition"), Heartland and Seller
desire to make certain representations and warranties regarding their respective
operations and, with respect to Seller, matters relating to the Venture and the
Market; and
WHEREAS, Seller, Heartland and a wholly owned subsidiary of Heartland
("Hartacq") have previously executed an Asset Purchase Agreement ("Original
Agreement") dated as of the date hereof, pursuant to which the Venture Interest
would be acquired by Hartacq; and
WHEREAS, Seller and Heartland have agreed that the Venture Interest will be
acquired by Heartland directly, and have agreed to amend and restate the
Original Agreement to so provide and to extend certain dates contained therein;
and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. CLOSING; EXCHANGE.
1.1 CLOSING, CLOSING TIME, DATE AND PLACE. The closing (the "Closing") of
the transactions set forth herein shall take place at 10:00 A.M., Dallas, Texas
time, following satisfaction of the closing conditions set forth in Articles 6,
7 and 8 at the offices of Arter, Hadden, Johnson & Bromberg, 1717 Main, Ste.
4100, Dallas, Texas 75201, or at such other time or at such other place as
Heartland and Seller may agree, but no later than January 31, 1996, subject to
extension as provided in Section 1.11. (Hereinafter, such date, as extended, is
referred to as the "Closing Date", such time on the Closing Date is referred to
as the "Closing Time", and such offices are referred to as the "Closing Place".)
1.2 TRANSFER OF VENTURE INTEREST; ASSIGNMENT OF AWS CLAIMS. Seller agrees
that, at the Closing Time and at the Closing Place, it shall transfer to
Heartland all right, title, and interest in and to the Venture Interest and
assign to Heartland, subject to the terms of Section 5.16, the AWS Claims. To
the Knowledge of Seller, any and all assets, real, personal and mixed, tangible
and intangible, used in the conduct of the Wireless Cable Business and
operations of Joint Venture (the "Business") (including but not limited to all
Contracts, Governmental Permits, Licenses, Equipment, Documents, Facilities,
Prepaid Subscriber Fees, Causes of Action, Intellectual Property, accounts,
accounts receivable, credits, prepaid expenses, advance payments, security
deposits, prepaid items, goodwill and other intangible assets of the Business,
and any other real,
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<PAGE> 1005
personal, tangible or intangible property or rights of Seller used or useful in
the conduct of the Business) (collectively, the "Assets"), whether held in the
name of Seller, any of its equity owners or otherwise, are owned by the Venture,
and, except as set forth on Schedule 1.2 (such assets being referred to as the
"Excluded Assets"), Seller does not own or have any material rights to any
assets other than the Venture Interest and AWS Claims.
1.3 CONSIDERATION. As consideration for the sale of the Venture Interest
and assignment of the AWS Claims by Seller, upon the Closing Date Heartland
shall (a) assume the Assumed Liabilities and (b) deliver to the Exchange Agent
the number of shares of common stock, $.001 par value per share, of Heartland
("Heartland Shares") equal to (i) Thirteen Million Three Hundred Thousand and
no/100 Dollars ($13,300,000) ("Purchase Price") divided by (ii) the Exchange
Price (such Heartland Shares being referred to as the "Acquisition Shares"),
which Acquisition Shares shall be held by the Exchange Agent pending their
distribution to, or liquidation on behalf of, the Partners pursuant to the terms
of an Exchange Agreement in the form attached as Exhibit 1.3 (such Acquisition
Shares, any dividends thereon or proceeds thereof being referred to herein as
the "Exchange Fund"). As used herein, the term "Exchange Price" shall mean (i)
if the Closing Share Price is greater than or equal to $23.00 per share, then
$23.00 or (ii) if the Closing Share Price is less than $23.00 per share, then
the Closing Share Price; subject to each party's right to terminate this
Agreement as set forth in Section 6.7 if the Closing Share Price is less than
$17.00 per share.
1.4 LIQUIDATION OF SELLER; DISTRIBUTION OF DISTRIBUTABLE SHARES. Subject to
the provisions of the Exchange Agreement and to the requirements of the
California Revised Uniform Partnership Act, the Exchange Agent (on behalf of and
at the direction of Seller) shall (a) deliver to Seller's equity owners
("Partners") on the Closing Date Acquisition Shares having an aggregate Exchange
Price equal to the Purchase Price minus the sum of (i) the Liquidated
Liabilities and (ii) an amount determined by the Executive Committee as
necessary and appropriate to satisfy Seller's contingent liabilities (which
amount shall not be less than $500,000) (such Heartland Shares being referred to
as the "Distributable Shares") and (b) in connection with resales to be made by
Seller, pursuant to the Registration Statement, deliver the remaining
Acquisition Shares (the "Liquidated Shares"), each in completing the winding-up
and liquidation of Seller pursuant to the terms of the Agreement and Plan of
Liquidation attached as Exhibit 1.4. Such liquidation shall be made as specified
in the Seller's organizational and governing documents with due regard and as
required by the California Revised Uniform Partnership Act. Fractional Heartland
Shares will not be issued in connection with the delivery of the Distributable
Shares, but shall be added to the Liquidated Shares and the remaining proceeds
thereof shall be distributed among the Partners in accordance with the Agreement
and Plan of Liquidation. Seller's executive committee ("Executive Committee")
shall establish a record date for the purposes of determining the Partners of
Seller entitled to receive the Distributable Shares or proceeds of the
Liquidated Shares ("Distribution Record Date"). In the discretion of Seller's
Executive Committee, such record date may, but shall not be required to be, the
Closing Date but in no event shall the Distribution Record Date be later than
the Closing Date. Seller shall (i) certify to Heartland a list of Partners, as
shown on Seller's books and records, on each of the date hereof, the date of the
mailing of Seller's Disclosure Statement, and the Closing Date, and (ii) shall
indemnify and hold Heartland harmless from any inaccuracies in such lists. Any
purported transfer of an interest in Seller shall be immediately reported by
Seller to Heartland.
1.5 DISTRIBUTION PROCEDURES. At the time of the mailing of the Seller's
Disclosure Statement, the Exchange Agent shall mail to each Partner a letter of
transmittal in a form mutually acceptable to Heartland and Seller which shall
contain instructions regarding each Partner's receipt of their respective
portions of the Distributable Shares. Upon the return of the duly executed
letter of transmittal (the execution of which shall also constitute such
Partner's consent and approval of (i) the sale of the Venture Interest pursuant
to the terms of this Agreement, (ii) the adoption of the Agreement and Plan of
Liquidation, and (iii) the release or assignment of the AWS Claims), each
Partner shall be entitled to receive the number of Distributable Shares equal to
such Partner's percentage ownership interest of Seller multiplied by the number
of Distributable Shares, and upon the completion of the dissolution and winding
up of Seller, such Partner's pro rata interest in the remaining proceeds, if
any, of the Liquidated Shares. Until the letter of transmittal is executed and
returned to the Exchange Agent by a Partner and surrendered as contemplated by
this Section 1.5 or as otherwise provided in the Exchange Agreement, each
Partner's interest in the Seller shall, at and after the
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<PAGE> 1006
E
Closing Date, be deemed to represent only the right to receive such Partner's
pro rata interest in the Distributable Shares and the remaining proceeds, if
any, of the Liquidated Shares.
1.6 REGISTRATION OF ACQUISITION SHARES. As soon as practicable after the
execution of this Agreement, Heartland shall file a registration statement on
Form S-4 (the "Registration Statement") with the SEC for the purpose of
registering the Acquisition Shares for either (i) distribution to Seller's
equity owners (with respect to the Distributable Shares) or (ii) distribution to
the Partnership and concurrent offering for sale to the public (with respect to
the Liquidated Shares), each pursuant to the Agreement and Plan of Liquidation.
Heartland shall pay all costs of registration, excluding attorneys' fees and
accounting fees of Seller's counsel and its independent accountants (other than
audit expenses), and costs and expenses associated with the solicitation of
proxies or consents relative to the Acquisition from Seller's partners.
Heartland will use reasonable efforts to cause the Registration Statement to
become effective as soon as practicable. Subject to Sections 5.2(b) and 5.15,
Seller shall cooperate and use reasonable efforts to supply Heartland with all
requisite information necessary to complete the Registration Statement,
including, but not limited to, information relative to solicitations of the
Partners for approval of the transactions contemplated herein.
1.7 DIVIDENDS; TRANSFER TAXES. Any dividends or other distributions that
are declared on or after the Closing Date on Heartland Shares or are payable to
the holders of record of Heartland Shares on or after the Effective Time will be
paid to the person(s) entitled to receive such Heartland Shares. In no event
shall the person entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. If any
dividends, cash in lieu of fractional shares or Heartland Shares are to be paid
to or issued in a name other than that of a Partner as indicated on Seller's
books and records, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of Heartland Shares in a name other
than that of the registered Partner or shall establish to the satisfaction of
the Escrow Agent that such tax has been paid or is not applicable.
1.8 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Shares which remain
undistributed to the former Partners of Seller for six (6) months after the
Closing Date shall be delivered to Seller and administered pursuant to the
Agreement and Plan of Liquidation, and any former Partners of Seller who have
not theretofore complied with this Article 1 shall thereafter look only to the
Seller for payment of any liquidating distributions, Distributable Shares and
any dividends or distributions with respect to Heartland Shares; provided that
the Exchange Agent shall, upon its receipt of written request from Seller,
periodically disburse cash proceeds from the Exchange Fund for purpose
consistent with the Agreement and Plan of Liquidation, as further specified in
the Exchange Agreement.
1.9 FURTHER ASSURANCES. If at any time after the Closing Date Heartland on
the one hand, or Seller on the other, shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in Heartland, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of Seller, or (b)
otherwise to carry out the purposes of this Agreement, Heartland or Seller, as
the case may be, and its proper officers and directors or their designees shall
be authorized to execute and deliver, in the name and on behalf of Seller or
Heartland, as the case may be, all such deeds, bills of sale, assignments and
assurances and do, in the name and on behalf of each of such entities, all such
other acts and things necessary, desirable or proper to vest, perfect or confirm
its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of such entities and otherwise to carry
out the purposes of this Agreement.
1.10 EARNEST MONEY. Heartland shall deposit in escrow with Escrow Agent (a)
on the date hereof One Hundred Thousand and No/100 Dollars ($100,000.00)
(together with any interest thereon, the "Initial Earnest Money") and (b)
commencing on November 1, 1995 and on the first day of each month thereafter
until the earlier of the Closing hereunder or termination of this Agreement,
Fifty Five Thousand and No/100 Dollars ($55,000.00) (each payment, together with
any interest thereon, being the "Additional Earnest Money" and together with the
Initial Earnest Money referred to as the "Earnest Money"), which Earnest
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<PAGE> 1007
Money shall be held and disbursed pursuant to the terms of this Agreement and
the Escrow Agreement attached as Exhibit 1.10. Any interest accruing on the
Earnest Money shall be for the benefit of the party receiving such Earnest
Money, and any income tax thereon shall be paid by such party; provided that if
the Earnest Money has not been disbursed on or prior to December 31, 1995, any
taxes thereon shall by payable by Heartland.
1.11 EXTENSION OF CLOSING DATE. In the event that the Registration
Statement has been declared effective on or before January 31, 1996 but the
Closing hereunder has not occurred, Heartland shall have the right to extend the
Closing Date until March 15, 1996 upon written notice to Seller; provided,
however, that if the Registration Statement has been declared effective on or
before December 31, 1995, and Seller has obtained the required consent from its
Partners pursuant to Section 6.5 on or before January 31, 1996, Seller's consent
to any such extension shall be required, which consent may be withheld at
Seller's sole discretion.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
To induce Heartland to enter into this Agreement, Seller hereby represents
and warrants to Heartland that:
2.1 ORGANIZATION; DOING BUSINESS. Seller is, and at the Closing Time shall
be, a partnership organized under the laws of the State of California. Except
for business conducted by or on behalf of the Venture, Seller has conducted no
business and owns no material assets outside of the State of Texas.
2.2 OUTSTANDING RIGHTS. Except as set forth on Schedule 2.2, (a) Seller
owns, free and clear of any liens, the Venture Interest; (b) there are no rights
of first refusal, transfer restrictions (other than restrictions generally
imposed under applicable securities laws) or similar rights or obligations with
respect to the Venture Interest; (c) the Venture Interest represents a 79.99%
interest in the Venture; and (d) to the Knowledge of Seller, there are no
outstanding subscriptions, options, conversion or exchange rights, commitments
or agreements of any character relating to the Venture or the Venture Interest.
2.3 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Except as set forth on
Schedule 2.3, Seller and, to the Knowledge of Seller, the Venture have full
power and authority to conduct all of the business and activities conducted by
it (including without limitation the Business) and to own or lease all of the
Assets owned or leased by them. Seller has full power and authority (subject to
the approval of Seller's Partners as set forth in Section 6.5) to execute and
deliver this Agreement and all other documents required to be executed and
delivered by Seller hereunder, to consummate the transactions hereby
contemplated, and to take all other actions required to be taken by Seller
pursuant to the provisions hereof. This Agreement and all other documents
required to be executed and delivered by Seller hereunder have been duly
authorized by all action necessary on the part of Seller (subject to the
approval of Seller's Partners as set forth in Section 6.5) and have been duly or
will be duly executed and delivered by Seller and constitute the legal, valid
and binding obligations of Seller, enforceable against Seller in accordance with
their terms. Except as set forth on Schedule 2.3, neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by Seller hereunder or the consummation of the transactions hereby
contemplated by Seller will (i) conflict with or constitute any violation or
breach of the Partnership Agreement of Seller, (ii) subject to the consent of
AWS to the transfer of the Venture Interest ("AWS Consent"), constitute any
violation or breach of, or give any other Person any rights (including any right
of acceleration, termination or cancellation) under, any Contract, License,
Governmental Permit, or similar document to which Seller is a party or is bound,
either which constitute a portion of the Assets or by which the Assets may be
affected, or (iii) constitute a violation of any Order or Legal Requirement, or
(iv) result in the creation of any Lien on any of the Assets.
2.4 FINANCIAL STATEMENTS. (A) Schedule 2.4 lists the financial statements
of Seller for the periods set forth therein (collectively, the "Financial
Statements"). The Financial Statements are in accordance with the books and
records of Seller; are complete and correct; fairly present the financial
position and results of operations of Seller and, to the Knowledge of Seller,
with respect to the Market and the Business, as of the dates thereof and for the
periods referenced therein; are in accordance with GAAP; and have been delivered
to Heartland.
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(B) Since the date of the Financial Statements, except as set forth on
Schedule 2.4, (i) Seller has conducted its business in the ordinary, regular
course thereof; (ii) there has been no change in the business of Seller or, to
the Knowledge of Seller, the Venture, or in the condition, financial or
otherwise, of Seller or, to the Knowledge of Seller, the Venture, or assets or
liabilities reflected in the Financial Statements which have had a Material
Adverse Effect upon the Venture Interest or Assets; or any damage, destruction
or loss, whether or not covered by insurance, which has had a Material Adverse
Effect on the Venture Interest, the Business or the Assets or which is
substantial in amount, or any change in the nature; or in the condition, of the
business of Seller which has had a Material Adverse Effect upon the Venture
Interest or the Assets; or any event, condition or state of facts or any
character whatsoever, the occurrence of which has had a Material Adverse Effect
upon the Venture Interest or the Assets; (iii) except in the ordinary and
regular course of its business, Seller and, to the Knowledge of Seller, the
Venture, have not made any dispositions of any of the Venture Interest, AWS
Claims, or Assets; disposed of any records relating to the Venture Interest, AWS
Claims, or Assets; borrowed any funds; incurred, assumed or become subject to
any obligation or liability, indebtedness for borrowed money, absolute or
contingent paid; discharged, or satisfied any claim, liability or obligation,
absolute, accrued, contingent or otherwise; cancelled any debts owed to it or
waived any claims or rights of value; granted or extended any power of attorney;
or acted as any guarantor, all with respect to or as relate to the Venture
Interest or Assets; and (iv) Seller and, to the Knowledge of Seller, the
Venture, have not done any act or permitted to be done any act or admitted any
act which has or will cause the breach of any representation or warranty of
Seller set forth in this Agreement.
(C) Seller and, to the Knowledge of Seller, the Venture have no
Liabilities, absolute, contingent or otherwise, direct or indirect, material or
immaterial, asserted or unasserted, attributable to Seller, the Venture, the
Business or the Assets, except as set forth on Schedule 2.4 attached hereto. To
the Knowledge of Seller, there has been no change in the business financial
condition, operations or prospects of the Venture since the date of the most
recent Financial Statement which could have Material Adverse Effect.
2.5 PROPERTY. To the Knowledge of Seller:
(A) Schedule 2.5(a) lists and describes in detail as of the date
thereof all of the Equipment, except small hand tools and similar equipment
which are generally described by category and number.
(B) Schedule 2.5(b) lists all Facilities, designating whether such
Facility is owned or leased, including whether there is no
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site.
(C) The Venture owns and holds good and marketable title to all of the
Equipment and Facilities, except as set forth on Schedules 2.5(c) or 2.7,
and all of such Equipment and Facilities is in good and serviceable
condition; conforms to or complies with all applicable Orders and Legal
Requirements; and constitutes all of the Equipment and Facilities that are
used, usable, held for use in or in conjunction with or otherwise
associated with, required or necessary to the ownership and operation of
the Business.
2.6 RECEIVABLES. To the Knowledge of Seller, all accounts receivable of the
Business are reflected in Schedule 2.6 and represent, and at the Closing Time
will represent, valid obligations arising from sales made in the ordinary and
regular course of the Business. To the Knowledge of Seller, the accounts
receivable are valid receivables that have arisen in the ordinary course of the
operation of the Venture's Business in the Market and are collectible and not
subject to setoff or counterclaim, nor to any agreement to reduce or discount.
2.7 CONTRACTS.
(A) Schedule 2.7 is a complete and correct list of all Contracts to
which Seller or, to the Knowledge of Seller, the Venture, is a party or is
otherwise bound other than (i) policies of insurance which are listed in
Schedule 2.9 and (ii) Channel Leases which are listed in Schedule 2.8(a).
(B) To the Knowledge of Seller, except as set forth on Schedule 2.7,
(i) Seller and the Venture, as applicable, have performed in all respects
all obligations required to be performed by it under each of the Contracts;
(ii) all of the Contracts are legal, valid and binding obligations
enforceable in accordance with
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their respective terms and in full force and effect and there are no
defaults (or events which, with notice or lapse of time or both, would
constitute a default) by the Seller or the Venture, as applicable, or any
other party to any such Contract; and (iii) no default under any of the
Contracts will be caused by the consummation of the transactions
contemplated hereby; and (iv) Seller and the Venture (as applicable) shall
have performed and discharged all obligations due or accrued under each
Contract relating to periods prior to and including the Closing Date. There
exists no management or related agreements between Seller and any of its
Affiliates with respect to the Assets or Venture Interest which would
require Heartland to make any payment whatsoever in the form of management
fees or related payments to Seller or its Affiliates with respect to the
Venture Interest, Assets or Business following the Closing.
(C) To the Knowledge of Seller, each Site Lease and Site Option allows
for the use and operation on the leased property of transmitters, antenna
structures, antennas and other associated facilities and permits the
transmission from the property of signals containing video and audio
programming.
(D) To the Knowledge of Seller, true, complete and accurate copies of
all Contracts have been delivered to Heartland by Seller.
2.8 FCC MATTERS.
(A) To the Knowledge of Seller, Schedule 2.8(a) is a complete and
correct list of all Channel Leases and, except as set forth on Schedule
2.8(a), (i) the Venture has performed in all respects all obligations
required to be performed by it under each of the Channel Leases; (ii) all
of the Channel Leases are legal, valid and binding obligations enforceable
in accordance with their respective terms and in full force and effect and
there are no defaults (or events which, with notice or lapse of time or
both, would constitute a default) by the Venture, or any other party to any
such Channel Leases; (iii) no default under any of the Channel Leases will
be caused by the consummation of the transactions contemplated hereby; (iv)
Channel Leases set forth in the name of Persons other than the Venture, as
lessee, have been duly and validly assigned with all requisite consents and
approvals of all parties thereto to the Venture, and remain in full force
and effect as if the Venture were the initial "lessee" thereunder; (v) no
default or termination has been threatened in writing under any of the
Channel Leases by any party thereto; and (vi) the Channel Leases comply in
all respects with the Act and the FCC Rules and, each of the Channel
Leases, and all amendments thereto, have been filed with and approved by
the FCC.
(B) To the Knowledge of Seller, listed in Schedule 2.8(b) are all of
the Licenses and FCC Permits held or leased by the Venture; all Licenses
and FCC Permits are in the name of the Person set forth in Schedule 2.8(b);
all reports or other documents required to be filed with respect to any
such License have been timely filed; and the Licenses and the FCC Permits
listed on Schedule 2.8(b) attached hereto constitute all of the
Authorizations held or leased by the Venture and are all of the
Authorizations used, useable, held for use in or in conjunction with or
otherwise associated with, required or necessary for the Venture to
lawfully conduct its business operations. Except as otherwise expressly
noted on Schedule 2.8(b), to the Knowledge of Seller, each of the Licenses
and the FCC Permits (i) is currently and validly held by the Person
identified as the holder thereof on Schedule 2.8(b), (ii) authorizes said
holder to construct and operate a facility transmitting video and audio
programming on the Channels, (iii) was validly issued, (iv) is validly
existing and in full force and effect, and (v) is not subject to any
conditions other than such conditions as are generally applicable to
licenses and permits issued by the FCC with respect to ITFS, MDS or MMDS
Channels. To Seller's Knowledge, there are no existing or threatened
investigations, inquiries or proceedings by or before the FCC or other
Governmental Entity which could result in the revocation, cancellation,
suspension, forfeiture or material adverse modification of any
Authorization or Application.
(C) To Seller's Knowledge, Schedule 2.8(c) indicates all Applications
and all amendments or other filings thereto. To Seller's Knowledge, the
information contained in each Application is materially true and correct,
and each Person which is a signatory to an Application is authorized under
FCC rules to file such Application.
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(D) Except as otherwise expressly noted on Schedule 2.8(d), Seller
and, to Seller's Knowledge, the Venture, AWS, the FCC Licensees and the FCC
Permittees have each timely submitted to the FCC, the FAA and all other
Governmental Authorities all notices, reports and other documents which
have been or are required by the Act, the FCC Rules, the FAA Rules and
other Legal Requirements, the Licenses and the FCC Permits except where the
failure to do so would not (i) have a Material Adverse Effect, (ii) hinder
the Venture's ability to fully perform its material obligations under this
Agreement. Except as otherwise expressly noted on Schedule 2.8(d), to the
Knowledge of Seller, no petitions to deny or informal objections have been
filed against any of the amendments listed on Schedule 2.8(c). True,
complete and accurate copies of all amendments, notices, reports and other
documents filed, to Seller's Knowledge, by the Venture, AWS, the FCC
Licensees and the FCC Permittees with respect to the Licenses and the FCC
Permits with the FCC, the FAA, the Copyright Office and other Governmental
Authorities have been delivered to Heartland.
2.9 INSURANCE. Schedule 2.9 is a complete and correct list and brief
description of all insurance policies held by the Seller or to Seller's
Knowledge, the Venture, related to the Venture Interest or the Assets, each of
which are in full force and effect.
2.10 LITIGATION. Except as set forth in Schedule 2.10, there is no
Proceeding pending, or to Seller's Knowledge threatened, against Seller or the
Venture relating to the Venture Interest or the Assets or the propriety or
validity of the transactions contemplated hereby. Except as set forth in said
Schedule 2.10, neither Seller nor, to the Knowledge of Seller, the Venture, is
subject to or in default under or with respect to any Order. There are no
judgments of any court which in any way may currently constitute the lien or at
some future time may be perfected into a lien upon or against the Venture
Interest or any portion of the Assets, and, there is no Proceeding pending or
threatened against, relating to or affecting the Venture Interest or any portion
of the Assets.
2.11 GOVERNMENTAL PERMITS. Except as set forth in Schedule 2.11, Seller,
or, to the Knowledge of Seller, the Venture, owns, holds or possesses all
Governmental Permits which are necessary to entitle it to own or lease, operate
and use its Assets and to carry on and conduct its business as currently
conducted except with respect to Applications for which Licenses have not been
granted, if any.
2.12 COMPLIANCE WITH LAWS. Except as set forth in Schedule 2.12, Seller
and, to the Knowledge of Seller, the Venture, have complied in all respects with
all applicable Legal Requirements and Orders of any Governmental Authority
having jurisdiction over it or its operations, including, but not limited to,
all FCC Rules and any laws (including Environmental Laws), rules or regulations
regulating, if applicable, zoning, fair and equal employment practices, the
safety of the workplace, the discharge of materials into the Environment or
otherwise relating to the protection of the Environment, antitrust, antimonopoly
or anticompetitive activities, wages, hours, collective bargaining and the
payment of withholding and social security taxes. There are no Orders
outstanding or in effect against or relating to Seller, or, to the Knowledge of
Seller, the Venture, the Assets, the transactions contemplated by this
Agreement, or to any of the Channel Leases, other than Orders issued with
respect to the wireless cable industry generally and in the normal course of
regulation, which could, individually or in the aggregate, (i) have a Material
Adverse Effect, (ii) hinder Seller's ability to fully perform its material
obligations under this Agreement, or (iii) eliminate or materially diminish the
benefits of this Agreement for Heartland. Except as set forth in Schedule 2.12,
Seller has not received any notice (written or otherwise) from any Person to the
effect that, or otherwise been advised that, Seller or the Venture is not in
compliance with any applicable law, ordinance, regulation, building or zoning
law relating to the Assets or the Business and Seller has no reason to
anticipate that any presently existing circumstances are likely to result in a
violation of any such law, statute, ordinance or regulation.
2.13 ENVIRONMENTAL MATTERS. (A) Neither Seller nor, to the Knowledge of
Seller, the Venture, has used, generated, manufactured, refined, transported,
treated, stored, leaked, poured, emitted, emptied, released, discharged,
disposed, spilled or handled Hazardous Substances in material violation of any
Environmental Law with respect to the property under Seller's or the Venture's
control at any Facility.
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(B) Seller has no Knowledge of any prior owner, occupant, tenant or user of
any Facility that has ever used, generated, manufactured, refined, transported,
treated, stored, leached, leaked, poured, emitted, emptied, released,
discharged, disposed, spilled or handled Hazardous Substances in material
violation of any Environmental Law, at, on or from the property under Seller's
or the Venture's control at any Facility.
(C) Seller has not received notice of any pending or threatened Proceeding,
Order or citizen suit instituted by any private party, employee or Governmental
Authority arising out of the conduct or the operations of its business, in
connection with Environmental Laws, or as a result of any Environmental
Condition relating to the property under Seller's or the Venture's control at
any Facility.
2.14 INTELLECTUAL PROPERTY. Neither Seller nor, to the Knowledge of Seller,
the Venture owns or uses any Intellectual Property in the Business.
2.15 LIENS. Except as set forth on Schedule 2.15, the Seller has good,
marketable and valid title to the Venture Interest, and, to the Knowledge of
Seller, Venture has good, valid and marketable title to all of its Assets, each
free and clear of all Liens, except for the lien, if any, of current Taxes not
yet due and payable.
2.16 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, Seller and, to Seller's Knowledge, the Venture, the
FCC Licensees and the FCC Permittees are in material compliance with, and not in
default under or in violation of, the Act, the FCC Rules, the FAA Rules, the
Copyright Act, the Copyright Rules and other Legal Requirements applicable to
the Licenses or FCC Permits. Except as otherwise expressly noted on the
Schedules attached hereto, Seller has no Knowledge and has received no notice of
noncompliance with, default under or violation of the Act, the FCC Rules, the
FAA Rules, the Copyright Act, the Copyright Rules, other Legal Requirements and
the applicable Licenses or FCC Permits. No condition exists or event has
occurred with respect to Seller and, to Seller's Knowledge, the Venture, the
Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which, in
itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a violation of the Act, any FCC Rule, any FAA Rule, the
Copyright Act or the Copyright Rules, (ii) constitute a default in the due
performance and observation of any term, covenant or condition of any of the
Licenses or FCC Permits, (iii) result in a forfeiture, the denial, dismissal or
rejection of any of the Schedule 2.8(c) or 2.8(d) amendments, or the suspension,
termination, revocation, material impairment, material adverse modification or
nonrenewal of any License or FCC Permit, or (iv) adversely affect any of the
material rights of Seller, the Venture, any FCC Licensee or FCC Permittee under
any of the Licenses or FCC Permits.
2.17 INTERFERENCE. Neither Seller, nor, to Seller's Knowledge, the Venture
or any party to a Channel Lease, has accepted the electrical interference to the
Channels from any source, has consented to the grant of any application involved
with the FCC that is likely to result in any electrical interference to the
Channels, or has failed to timely petition to deny any application that proposes
facilities that could reasonably be anticipated to cause objectionable
electrical interference to the Channels. Except as otherwise expressly noted on
Schedule 2.17 attached hereto, neither Seller, nor, to Seller's Knowledge, the
Venture, any FCC Licensee or FCC Permittee or any other party to a Channel
Lease, is likely to experience interference which will adversely impact
operation of the Facilities it has constructed and/or operated, or is
constructing once such Facilities are constructed and operated, or is likely to
create interference which will adversely impact the operation of other
facilities licensed by the FCC to other Persons; for purposes of this Section
2.17, interference shall be deemed to exist if within an FCC Licensee's
protected service area, the ratio of the desired signal to the undesired signal,
at the antenna input terminals of the affected receiver, is less than 45 dB.
2.18 EMPLOYEES; BENEFIT PLANS. To Seller's Knowledge, the employees listed
on Schedule 2.18 are the Venture's or Seller's only employees associated with
the Market. To Seller's Knowledge, except as set forth on Schedule 2.18 hereof,
neither Seller nor the Venture has or has had any bonus, deferred compensation,
incentive compensation, severance or termination pay, hospitalization or other
medical, stock purchase, stock option, pension, life or other insurance, profit
sharing or retirement plan, agreement or arrangement, or other employee benefit
plan or arrangement, whether formal or informal, and whether legally binding or
not, maintained or contributed to by Seller ("Benefit Plan"). To Seller's
Knowledge, neither Seller nor the Venture has been a party to a "multiemployer
plan" as that term is defined in Section 3(37) of the Employee
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Retirement Income Security Act of 1974, as amended. To Seller's Knowledge, with
respect to the Benefit Plans listed on Schedule 2.18 hereof, (i) all payments
due from Seller or the Venture to date for the employees with respect to such
Plans have been made and all amounts properly accrued to date as Liabilities of
Seller or the Venture are set forth on Schedule 2.18 hereof; and (ii) all
reports and information relating to such Plan required to be filed with any
governmental entity have been filed. Seller has not (i) experienced any material
labor disputes or work stoppages, or (ii) received any notice that there is any
unfair labor practice, charge or complaint pending or threatened, except as is
already set out herein.
2.19 FINDER'S FEES. Neither Seller nor, to the Knowledge of Seller, the
Venture has taken any action which would impose upon Heartland any obligation or
liability to any person for finder's fees, agent's commissions or like payments
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.20 PROGRAMMING AGREEMENTS. To Seller's Knowledge, Schedule 2.20 sets
forth a true and complete list of all agreements for programming and for each
programming agreement (i) the name of the programmer, (ii) the programming
service, (iii) the rate, and all factors that affect rate changes through the
end of the term of such agreement, (iv) the term and any rights for early
termination or extensions of the term of any party thereof, (v) any
renegotiation rights, (vi) the relevant channels, and (vii) any provisions
relating to advertising.
2.21 FURTHER REPRESENTATION. No representation or warranty of Seller
contained in this Agreement contains or will contain any untrue statement of, or
will omit to state, a material fact necessary in order to make the statements
made herein, in light of the circumstances under which they are made, not
misleading. All books, statements, documents, schedules and records furnished or
given by it to Heartland or their agents during the negotiation of or
preparatory to the execution of this Agreement or the consummation of the
transactions contemplated hereby, are true, complete and genuine and contain no
material misrepresentations or omissions of material facts.
2.22 CERTAIN ACTIVITIES. Neither Seller nor, to the Knowledge of Seller,
the Venture engages in any business other than the Wireless Cable Business in
the Market. The Venture Interest, the AWS Claims and the Excluded Assets are the
only material assets of Seller.
2.23 PARTNERSHIP BOOKS AND RECORDS. Schedule 2.23 contains a true and
correct list of each Partner of Seller, indicating the percentage interest owned
by each such person. Under the applicable provisions of Seller's Partnership
Agreement and applicable law, the approval of a majority of the general
partnership interest in Seller is required to approve and adopt the Agreement
and the transactions contemplated hereby.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND.
Heartland hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION AND GOOD STANDING. Heartland is a Delaware corporation
duly organized, validly existing and in good standing under the laws of
Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has the
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.8 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 6.8 and 7.1) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement or any of the documents required to
be executed and delivered by Heartland
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hereunder or the consummation of the transactions hereby contemplated by
Heartland conflict with or constitute any violation or breach of the Certificate
of Incorporation or the Bylaws of Heartland.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby.
3.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents (if any), or the filing of the Registration Statement, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Authority is required on behalf of Heartland in
connection with the execution, delivery or performance of this Agreement and all
documents contemplated hereby or the transactions contemplated hereby.
3.5 CAPITALIZATION. Heartland is authorized to issue 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 of preferred stock, par
value $.01 per share. As of the date hereof, 12,476,393 shares of Heartland
common stock are issued and outstanding and no shares of preferred stock have
been issued. The Acquisition Shares to be issued pursuant to this Agreement will
be, upon issuance, validly issued, fully paid and non-assessable.
3.6 FINANCIAL STATEMENTS. The financial statements contained in Heartland
SEC Filings are correct and complete and fairly present the financial position
and results of operations of Heartland as of the date thereof and for the
periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to Seller copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three (3) month periods ended March 31, 1995 and June 30, 1995, (iii)
its Form S-3 Registration Statement (33-94838) declared effective by the SEC on
August 4, 1995 and (iv) all Form 8-Ks filed with the SEC after June 30, 1995 and
prior to the date of this Agreement ("Heartland SEC Filings"). Each such filing
was timely filed with the SEC, and did not contain any misstatement of material
fact or an omission of a material fact required to be stated therein necessary
to make the statements therein not misleading as of the time such document was
filed. Heartland has filed all documents required to be filed with the SEC. As
of their respective dates, such reports complied in all material respects with
the applicable requirements of the Securities Exchange Act of 1934, as amended,
and Securities Act of 1933, as amended.
ARTICLE 4. COVENANTS OF SELLER.
Seller hereby agrees to perform as follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. From the date hereof through the
Closing Date:
(A) Seller shall not, and shall not cause the Venture to, engage in
any practice, take any action or enter into any transaction other than in
the customary and ordinary course of business without the consent of
Heartland.
(B) Seller will use reasonable efforts to keep the business,
properties and business relationships substantially intact.
(C) Seller will pay and perform all of its debts, liabilities and
obligations as and when due, except (i) to the extent being contested in
good faith or (ii) as to which adequate reserves (determined in accordance
with GAAP) have been established (which Heartland acknowledges may be paid
at Closing).
(D) Seller agrees that (i) Seller will not take any action, and will
endeavor in good faith not to permit any event to occur, which would cause
or constitute a material breach of this Agreement; (ii) Seller will, in the
event of, and promptly after the occurrence of, or promptly after becoming
aware of the occurrence of or the impending or threatened occurrence of,
any event which would cause or constitute a material breach or would, if it
had occurred immediately prior to the date hereof, have caused or
constituted a material breach of any of the representations and warranties
set forth in said Article 2,
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give notice thereof to Heartland; and (iii) Seller shall use reasonable
efforts to prevent or promptly to remedy such breach.
(E) Seller will use reasonable efforts to, and to cause the Venture
to, preserve, protect and maintain their rights and interests in the
Channel Leases, FCC Licenses, and Contracts, including, but not limited to,
filing or having licensees or permittees file with the FCC any and all
reports, applications or other documents necessary to preserve the FCC
Licenses in full force and effect.
(F) Seller shall not, and shall not cause the Venture to, enter into,
amend or terminate, or agree to enter into, amend, except to comply with
this Agreement, or terminate any Channel Lease, License, Permit,
Application or Contract.
(G) Seller shall not, and shall not cause the Venture to, make any
distributions to Seller, AWS or any Partners, as applicable, nor shall
Seller issue or cause the Venture to issue, sell or agree to sell any
equity interests or options or rights with respect thereto.
(H) Seller shall not, and shall not cause the Venture to, sell, lease,
transfer or otherwise dispose of any assets of Seller or the Venture, as
applicable, except as provided for by, or contemplated in, this Agreement.
(I) Seller shall not, and shall not cause the Venture to, increase in
any manner the base compensation of, or enter into any new bonus or
incentive agreement or arrangement with, any of its managers, officers or
employees, pay bonuses to any such manager, officer or employee, nor shall
Seller pay any salaries except in the ordinary course of business.
(J) Seller shall not grant or transfer any rights to the Venture
Interest or AWS Claims.
(K) Seller shall not take any actions which would cause the
transactions contemplated hereby to be subject to Subpart 900 of Regulation
S-K, promulgated under the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Roll-up Rules").
4.2 CONSENTS. Except as otherwise provided herein, Seller shall, upon the
request and with the assistance of Heartland, obtain or cause to be made, all
consents, governmental authorizations, approvals and filings as may be necessary
by virtue of the transaction contemplated by this Agreement on or before the
Closing Date, so as to ensure that the Venture will continue to enjoy all of the
rights and privileges currently under each of the Channel Leases, Licenses and
Contracts. Upon request of Heartland, Seller shall assist Heartland to obtain
from each of the other respective parties to each of such Channel Leases and
Material Contracts estoppel certificates certifying that neither Seller nor the
Venture is in breach or violation of or in default under any of such Channel
Leases or Contracts and that it would not be by virtue of the transactions
contemplated hereby. Seller shall, upon the request and with the assistance of
Heartland, seek any appropriate amendments, modifications or changes to each of
such Channel Leases and Contracts so as to ensure that the licensees, permittees
or other parties thereto notify Heartland directly in the event of a breach or
violation of or default under any such Channel Lease or Contract. In addition to
the foregoing, Seller shall obtain a written consent from AWS consenting to the
transfer of the Venture Interest to Heartland, admitting Heartland as a joint
venturer in the Venture, and acknowledging that such transfer will not cause a
dissolution of the Venture.
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. Seller shall, and shall use
reasonable efforts to cause the Venture to:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to the Venture remain in
full force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's Rules or policies of general applicability. After the
applications are filed for FCC consent to the transfer of control of the
FCC Licenses for said Channels to Heartland or an affiliate of Heartland,
Seller shall join in filing (subject to the consent of AWS), at the request
of and as an accommodation to
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Heartland, such applications for modification of their outstanding
construction permits or licenses to implement the purposes contemplated
hereunder. Seller shall utilize reasonable efforts to diligently and
properly prosecute in good faith all applications, reports and submissions
submitted in accordance with this Section 4.3.
(B) assure that the licensees or permittees under the Channel Leases
timely file all applications reports, and other submissions in such form
and with such information as may be required by the FCC, including, but not
limited to, renewal applications, applications for extensions of time to
complete construction and Annual FCC Reports, to assure that such FCC
Licenses remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
modification result from changes in the FCC's rules or policies of general
applicability. Seller shall, and shall use reasonable efforts to cause the
Venture to, use reasonable efforts to assure that the licensees or
permittees under the Channel Leases diligently prosecute in good faith all
such applications, reports and submissions. Seller shall promptly disclose
to Heartland any information it receives regarding any condition or
circumstance that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. From and after the date hereof, Seller will not, and
will not authorize or permit any of its Executive Committee members, officers,
managers, employees, agents and other representatives (collectively, "Seller
Representatives") to solicit, initiate or encourage any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to, an
Acquisition Proposal (as defined herein) from any person, or engage in any
discussion or negotiations relating thereto or accept any Acquisition Proposal.
Seller shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by Seller or any Seller Representatives
with respect to any of the foregoing. Seller will promptly notify Heartland of
any such discussion or negotiations, requests for such information or the
receipt of any Acquisition Proposal, including the identity of the person or
group engaging in such discussions or negotiations, requesting such information
or making such Acquisition Proposal and the material terms and conditions of any
Acquisition Proposal. As used in this Agreement "Acquisition Proposal" shall
mean any proposal or offer, other than a proposal or offer by Heartland or any
of its Affiliates, for a tender or exchange offer, a merger, consolidation or
other business combination involving Seller or the Venture or any proposal to
acquire in any manner a substantial equity interest in, a substantial portion of
the assets of, or any rights to any Channels or Licenses of, Seller or the
Venture. Notwithstanding the foregoing and subject to Heartland's rights set
forth in Section 5.11, nothing in this Section 4.4 shall prohibit the Executive
Committee of Seller from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
bona fide proposal to acquire Seller pursuant to a merger, consolidation,
exchange, purchase of a substantial portion of the assets, business combination
or some other transaction, if, and only to the extent that (A) the Executive
Committee determines in good faith that such action is required for the
Executive Committee to comply with its fiduciary duty to its Partners, (B) prior
to furnishing such information to, or entering into discussions with or
negotiations with, such person or entity, Seller provides written notice to
Heartland to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) Seller keeps
buyer informed, on a current basis, of the status of any such discussions or
negotiations; and (ii) in complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. Seller will use reasonable
efforts to cause a person provided proprietary information in accordance with
the foregoing to enter into a confidentiality agreement.
4.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, Seller will have audits conducted and completed, at the expense of
Heartland or AWS, so that Seller can provide audited financial statements of
Seller as of, and for the period ending, December 31, 1994, including the
balance sheets and related statements of income and expense and for any other
period for which audited financial statements are required in the Registration
Statement.
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ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS AND PARTNERS MEETING. Heartland shall take all action
necessary in accordance with applicable law and in accordance with its
certificate of incorporation and bylaws to convene a meeting of its stockholders
promptly after the Registration Statement is declared effective by the SEC to
consider and vote upon the approval of this Agreement. Seller shall take all
action necessary in accordance with applicable law and its partnership agreement
to obtain the approval of the transactions described in this Agreement by its
Partners promptly after the Registration Statement is declared effective by the
SEC to consider and vote upon the approval of this Agreement. Seller and
Heartland each, through its Executive Committee or board of directors, as
applicable, shall recommend to its partners or stockholders (and, if applicable,
its lenders) approval of this Agreement and shall use reasonable efforts to
obtain approval and adoption of this Agreement by such partners, stockholders
and lenders. Seller acknowledges that the consummation of the transactions
contemplated by this Agreement by Heartland requires (and therefore is subject
to) the approval of certain lenders of Heartland, and Heartland agrees to seek
to obtain the written approval of such lenders on or before December 1, 1995.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as
practicable the Registration Statement containing a proxy
statement/prospectus in connection with the registration under the
Securities Act of Heartland Shares issuable pursuant to the terms of this
Agreement, a portion of which shall also serve as the proxy statement with
respect to the meetings of the stockholders of Heartland to approve the
Acquisition and a portion of which shall constitute the prospectus to be
delivered to the Partners of Seller with regard to Heartland Shares
issuable pursuant to this Agreement, and shall use all reasonable efforts
to have the Registration Statement declared effective by the SEC as soon as
practicable. Heartland shall also take any action required to be taken
under blue sky or securities laws in connection with Heartland Shares prior
to the Closing. Subject to Sections 5.2(b) and 5.15, Seller shall furnish
Heartland all information concerning Seller and the holders of its equity
interests required for use in the Registration Statement, and take such
other actions as Heartland may reasonably request in connection with the
preparation of such Registration Statement and the actions to be taken by
Seller pursuant to this Section 5.2. None of the information furnished by
or on behalf of Seller for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
(B) Seller shall prepare as soon as practicable a disclosure statement
(together with any amendments thereof or supplements thereto in the form or
forms distributed to Seller's Partners, the "Seller Disclosure Statement")
for distribution to Seller's Partners in connection with the solicitation
of proxies or consents to the consummation of the transactions set forth in
this Agreement. Seller contemplates preparing the Seller Disclosure
Statement as a separate document designed to inform Seller's Partners with
respect to all material aspects of the Acquisition and further anticipates
transmitting the proxy statement/prospectus constituting a part of the
Registration Statement to Seller's Partners. Seller's Disclosure Statement
shall be in form and substance satisfactory to Heartland and shall comply
with applicable law relating thereto and to the use thereof contemplated in
this Agreement. Seller's Disclosure Statement shall be delivered to
Heartland for filing by Heartland with the SEC as a part of or in
connection with the Registration Statement. Subject to Section 10.2, Seller
shall make such modifications in Seller's Disclosure Statement as Heartland
shall request at any time prior to the distribution thereof to Seller's
Partners. When distributed to Seller's Partners, the Seller's Disclosure
Statement shall be accompanied by such additional materials as Heartland
shall require. Subject to Section 10.2, following distribution of the
Seller Disclosure Statement to Seller's Partners, Seller shall distribute
such amendments or supplements thereto as Heartland shall require.
Heartland shall furnish Seller all information concerning Heartland
required for use in the Seller's Disclosure Statement, and Heartland shall
take such other action as Seller may reasonably request in connection with
the preparation of the Seller Disclosure Statement. None of the information
furnished by or on behalf of Heartland for use in the Registration
Statement shall contain any material misstatement of fact or omit to state
a material fact
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or any fact necessary to make the statements contained therein not
misleading. The Seller's Disclosure Statement shall not contain any
material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading.
5.3 ACCESS. Subject to the consent of AWS (with respect to the operations
and properties of the Venture), Heartland and its officers, employees and
representatives (including independent public accountants, investment bankers,
environmental consultants and counsel), as applicable, will at all reasonable
times during regular business hours be permitted reasonable access to the
Facilities and Seller's principal offices, will be permitted to make copies of
or abstracts from all of the books and records, financial and operating data and
other information of Seller and will be permitted to discuss the affairs, and
accounts of Seller with the Executive Committee, AWS, manager, officers,
employees, counsel, and accountants of Seller. Such investigation shall not,
however, affect the representations and warranties of Seller set forth in
Article 2 hereof; provided that in the event that Heartland acquires actual
knowledge of any fact or circumstance prior to the mailing of Seller's
Disclosure Statement that represents a breach of any representation, warranty or
covenant of Seller to the extent, and only to the extent, such representation,
warranty or covenant relates to the Venture (including, without limitation, the
Assets or the Business) Heartland shall deliver to Seller written notice of the
same; provided further, that to the extent that the Registration Statement
contains any information that conflicts with the representations, warranties or
covenants of Seller under this Agreement, to the extent, and only to the extent
that such representations, warranties or covenants relate to the Venture
(including, without limitation, the Assets or the Business), then Heartland
shall be deemed to have waived such breach. In the event the transactions
contemplated hereby should not close for any reason, Heartland agrees that it
will promptly return to Seller all such documents (including copies thereof)
furnished by Seller to Heartland and its representatives and Heartland shall
hold in confidence and shall not use or disclose to any third party any
information concerning Seller obtained from such documents or otherwise in
connection with the transactions contemplated by this Agreement unless (a) such
information (i) previously disclosed to Heartland by AWS prior to the date
hereof, (ii) subsequently disclosed to Heartland by AWS in connection with the
preparation of the Merger Agreement, or (iii) was at the time of its use or
disclosure to any third party by Heartland in the public domain other than as a
result of any breach of this provision by Heartland or (b) such disclosure is
required by law; provided that notwithstanding the termination of this
Agreement, Heartland shall have the right to use or disclose any information
delivered by Seller to Heartland hereunder in connection with the Merger
Agreement and any registration statement relating thereto. Nothing contained
herein shall be deemed to require Seller to deliver or make available to
Heartland any information which Seller reasonably believes is subject to an
attorney-client or other privilege and which, if disclosed, would no longer be
subject to such privilege.
5.4 COMPLIANCE WITH THE SECURITIES ACT. Seller has caused to be prepared
and delivered to Heartland a list identifying all persons who, as of the date
hereof, may be deemed to be "Affiliates" of Seller as that term is defined under
Paragraphs (c) and (d) of Rule 145 of the Securities Act ("Rule 145
Affiliates"), and prior to the Closing Date, Seller shall cause to be prepared
and delivered to Heartland an updated list (reasonably satisfactory to counsel
for Heartland) identifying all persons who at the time of Seller's partner
meeting may be deemed to be a Rule 145 Affiliate. Seller shall use all
reasonable efforts to cause each person who is identified as a Rule 145
Affiliate in such list to delivered to Heartland on or prior to the Closing Date
a written agreement, in the form attached hereto as Exhibit 5.4, that such Rule
145 Affiliate will not sell, pledge, transfer or otherwise dispose of any
Distributable Shares issued to such Rule 145 Affiliate pursuant to this
Agreement, except pursuant to an effective Registration Statement or in
compliance with Rule 145 or an exemption from the registration requirements of
the Securities Act.
5.5 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Acquisition and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
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may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity, (b) the obtaining of all necessary
consents, approvals or waivers from third parties, (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed, (d) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement and (e) not to take, commit, or
agree in writing or otherwise to take, any action which would make any
representation or warranty of such party contained in this Agreement untrue or
incorrect in any material respect as of the date when made or as of a future
date.
5.6 PUBLIC ANNOUNCEMENTS. Heartland and Seller will consult with each other
before issuing any press release with respect to the transactions contemplated
by this Agreement, and shall not issue any such press release prior to such
consultation, unless otherwise required under applicable law.
5.7 NOTIFICATION OF CERTAIN MATTERS. Seller shall give Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement and prior to the Effective
Time under any note, license, agreement or other instrument or obligation, which
notice or other communication is received by any member of the Executive
Committee or Ed Pankey (ii) any Material Adverse Effect or the occurrence of any
event which, so far as reasonably can be foreseen at the time of its occurrence,
is reasonably likely to result in a Material Adverse Effect on such party, or
(iii) any written notice or other written communication from any third party
received by any member of the Executive Committee or Ed Pankey alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
5.8 LETTERS OF SELLER'S ACCOUNTANTS. Seller shall cooperate with Heartland
in connection with Heartland's obtaining a letter ("Accountant's Consent
Letter") from the auditors engaged pursuant to Section 4.5, dated a date within
two business days before the date on which the Registration Statement shall
become effective and addressed to Heartland, in form and substance reasonably
satisfactory to Heartland and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
5.9 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and will use their respective best efforts
to obtain an early termination of the applicable waiting period, and will make
any further filings pursuant thereto that may be necessary, proper, or
advisable.
5.10 HEARTLAND LOAN. Concurrently with the execution of this Agreement,
Heartland has agreed to loan ("Heartland Loan") to Seller up to Five Hundred
Thousand and No/100 Dollars, which funds are to be disbursed and used for the
purposes set forth in the loan agreement in the form attached as Exhibit 5.10(a)
("Heartland Loan Agreement") and the promissory note and security agreement
executed in connection therewith. The Heartland Loan shall be evidenced by a
promissory note ("Heartland Note") in the form attached hereto as Exhibit
5.10(b), and secured by a first and superior lien granted by Seller in and to
the Venture Interest created pursuant to the terms of a Security Agreement
("Heartland Security Agreement") in the form attached as Exhibit 5.10(c).
5.11 RIGHT OF FIRST REFUSAL. Notwithstanding any other provisions of this
Agreement to the contrary (including, without limitation, Section 4.4), Seller
hereby grants to Heartland a right of first refusal to purchase or otherwise
acquire any assets or interests that are the subject of an Acquisition Proposal,
determined by the Executive Committee to be bona fide and that the Executive
Committee intends to accept, upon the terms set forth for this Section 4.4. Upon
the Executive Committee's receipt an Acquisition Proposal that it determines is
bona fide and that it determines to accept, the terms of such proposal shall be
delivered to Heartland in a written notice ("Offer Notice") which shall contain
a copy of any written Acquisition Proposal or a summary of the material terms of
any oral Acquisition Proposal. Heartland shall have a period of
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ten (10) business days from its receipt of an Offer Notice to exercise its right
of first refusal to consummate the transaction which is the subject of the
Acquisition Proposal by written notice to Seller of such election ("Election
Notice"). If Heartland so elects to exercise such right, Heartland shall then
proceed to consummate the Acquisition Proposal in accordance with the terms
described in the Offer Notice; provided that (a) in the event the consent of
Heartland's shareholders or lenders is required, Heartland shall have a period
of thirty (30) days to obtain such consents, (b) in the event that consent of
any other third party (such as the FCC or a License holder) is required, Seller
shall be responsible for, and Heartland shall cooperate in, obtaining such
consent, and (c) any proposed closing of a transaction described in an
Acquisition Proposal shall occur no earlier than (i) ten (10) days after
Heartland's delivery of the Election Notice or (ii) ten (10) days from the date
of Heartland's receipt of any consent referred to in clause (a) or (b) above,
whichever is later. In the event that Heartland fails to deliver to Seller an
Election Notice within the time period specified herein, Seller may consummate
the Acquisition Proposal upon the terms and conditions described to Heartland in
the Offer Notice, and upon the consummation of the transaction described in the
Offer Notice, Heartland's rights hereunder shall terminate; provided that
Heartland's rights hereunder shall not terminate upon the consummation of any
Acquisition Proposal with an Affiliate of Seller. In the event any terms and
conditions of the Acquisition Proposal deviate or are subsequently modified in
any material aspect from the terms described to Heartland in the Offer Notice,
then Seller shall resubmit the Offer Notice to Heartland as if a new Acquisition
Proposal had been received. Heartland's right of first refusal granted in this
Section 5.11 shall terminate upon termination of this Agreement.
5.12 EMPLOYEES. From and after the date hereof through the Closing Date or
earlier termination of this Agreement, Heartland shall have the right to contact
any employees of Seller and/or, subject to the consent of AWS, the Venture
regarding the potential employment of such persons following the Closing Date.
Any such employees hired by Heartland shall be considered "newly hired," and
Heartland shall not be responsible for any benefit or compensation of such
persons arising prior to the Closing Date.
5.13 EXHIBITS. Heartland and Seller agree that any Exhibits not attached
hereto on the date hereof shall be prepared and attached on or before November
30, 1995, and agree to cooperate and negotiate in good faith in the preparation
of such Exhibits.
5.14 DELIVERY OF SCHEDULES AND OTHER ITEMS. Notwithstanding any other
statements contained herein to the contrary, Seller shall deliver to Heartland
all Schedules and documents stated to have been delivered herein on or before
October 20, 1995.
5.15 CERTAIN LIMITATIONS. Heartland acknowledges that the Venture has been
managed by AWS and that Seller has little or no independent information
regarding the Venture's operations, properties, assets or liabilities
(including, without limitation, the Assets and the Business), other than
information provided to Seller by AWS, and that the representations and
warranties of Seller regarding the Venture are limited to the Knowledge of
Seller principally derived from inquiry of and/or information provided by AWS.
Heartland and Seller further acknowledge and agree that (i) notwithstanding any
language to the contrary contained herein, express or implied (including without
limitation the use of the words "shall" or "will" with respect to certain
covenants and obligations of Seller), that Seller's obligations with respect to
either (A) obtaining, preparing and/or delivering information regarding the
Venture, the Assets, the Business or information regarding Seller or Seller's
Partners that is not in Seller's possession, or (B) preparing (or responding to
request from the Heartland, the SEC or any state regulatory authority regarding)
the Registration Statement or Seller's Disclosure Statement, shall be limited to
Seller's reasonable efforts, without the expenditure of any significant amounts
or the commencement of litigation, and Seller shall not be in breach of this
agreement so long as Seller has taken reasonable efforts to perform or cause the
performance of such covenants or obligations; and (ii) the parties' respective
obligations for fees and expenses associated with the performance of the
covenants and transactions contemplated hereby shall be subject to the
provisions of Section 13.1.
5.16 AWS CLAIMS. If, at Closing, Seller on one hand, and the AWS Parties on
the other, do not execute a mutual release of any and all claims and causes of
action that each such party may have as to the other party, in a form reasonably
acceptable to the parties thereto (the "Mutual Releases"), then Seller shall
retain an interest in the AWS Claims from and after Closing which will allow
Seller to assert the AWS Claims, in
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whole or in part, in connection with or as a defense to any action brought by
AWS or an AWS Party against Seller or any Partner of Seller. The form of the
agreement implementing this provision shall be attached hereto as Exhibit 5.16.
In the event that upon the Closing Heartland consummates the Merger Agreement
with AWS and AWS delivers the release contemplated by Section 8.3(d), then
Seller shall indemnify Heartland for any costs or expenses to Heartland
attributable to any indemnification obligations of AWS existing immediately
prior to September 11, 1995 (to which Heartland would succeed by operation of
law pursuant to the Merger Agreement) to the AWS Parties, in the stated
capacity, if any, arising from any actions or proceedings between the AWS
Parties, on the one hand, and Seller or any Partner on the other.
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION.
The obligation of the parties hereto to consummate the Acquisition is
subject to the fulfillment, or written waiver signed by all parties hereto, of
each of the following conditions precedent on or prior to the Closing Date or
the date specified therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
6.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the acquisition or the transactions contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Closing Date with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing Date from any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Seller and Heartland shall have been made or obtained (as the case may
be) without restrictions.
6.4 EXHIBITS. On or before November 30, 1995, Heartland and Seller shall
have agreed upon the form of each Exhibit to this Agreement and each such
Exhibit shall be attached hereto.
6.5 PARTNER APPROVAL. The sale of the Venture Interest, the Partner's
release or assignment of the AWS Claims, the Agreement and Plan of Liquidation
and all other transactions contemplated hereunder shall have been approved by
the Partners holding two-thirds ( 2/3) of the outstanding equity and voting
interest of Seller.
6.6 APPLICABILITY OF THE ROLL-UP RULES. Heartland and Seller shall not be
required to comply with the Roll-up Rules in consummating the Acquisition in
accordance with the terms of this Agreement.
6.7 CLOSING SHARE PRICE. The Closing Share Price shall not be less than
$17.00 per Heartland Share.
6.8 LENDERS' CONSENTS. Heartland shall have delivered to Seller written
notice ("Approval Notice") that the Acquisition has been approved or consented
to by Jupiter Partners, L.P. and the holders of $100,000,000 of 13% Senior Notes
due 2003 of Heartland relative to the transactions contemplated by this
Agreement on or before December 1, 1995.
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.
The obligations of Heartland to consummate the Acquisition are subject to
the fulfillment, or written waiver signed by Heartland, of each of the following
conditions precedent on or prior to the Closing Date.
7.1 STOCKHOLDER AND OTHER APPROVAL. The Acquisition shall have been
approved by the requisite votes of the holders of Heartland Shares in accordance
with applicable law and its Certificate of Incorporation and Bylaws.
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7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Seller shall be true and correct in all material respects when
made and shall be true and correct in all material respects as if initially made
on and as of the Closing Date.
7.3 SELLER'S DOCUMENTS. Seller shall have delivered the following to
Heartland in form and substance satisfactory to Heartland and its counsel:
(A) A certificate signed by an authorized member of Seller's Executive
Committee confirming, on and as of the Closing Date, that each
representation and warranty set forth in Section 2 hereof was true and
correct in all material respects on the date made and is true and correct
in all material respects on and as of the Closing Date and that Seller is
in compliance with the applicable covenants set forth in Articles 4, 5 and
6 hereof.
(B) An opinion of special counsel to Seller in the form attached
hereto as Exhibit 7.3(b).
(C) Copies of the partnership records, list of Partners, minute books,
operating agreements and organization documents of Seller.
(D) An Assignment of Venture Interest in the form attached hereto as
Exhibit 7.3(d)-1 and either (i) an Assignment of AWS Claims in the form of
Exhibit 7.3(d)-2 or (ii) the Mutual Release in the form of Exhibit 5.16.
7.4 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
been declared effective by the SEC in accordance with the Securities Act and the
rules and regulations promulgated thereunder.
7.5 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred with respect to Seller, the Venture, the Venture Interest or Assets, or
prospects of any thereof from the date hereof through the Closing Date, and as
of the Closing Date, the Liabilities of Seller (a) to AWS associated with the
Venture or the Business shall not exceed (i) if the Closing Date is on or before
January 31, 1996, $510,000; (ii) if the Closing Date is between February 1 and
February 29, 1996, $540,000; and (iii) if the Closing Date is between March 1
and March 31, 1996, $570,000; and (b) to any other third parties (directly or
indirectly through the Venture) other than Liquidated Liabilities shall not
exceed $100,000 in the aggregate.
7.6 AUDITED FINANCIAL STATEMENTS. Heartland shall have obtained audited
financial statements of Seller as of, and for the period ending, December 31,
1994, and for any other periods for which audited financial statements of Seller
are required for the Regulation Statement, including balance sheets and related
statements of income and expense, and such financial statements shall conform in
all material respects to the unaudited financial statements previously delivered
by Seller to Heartland.
7.7 ACCOUNTANT'S CONSENT LETTER. Heartland shall have received the
Accountant's Consent Letter.
7.8 SELLER'S OBLIGATIONS PERFORMED. All obligations of Seller to be
performed to the Closing Date shall have been performed in all material
respects.
7.9 CONSENTS AND APPROVALS. All necessary and appropriate governmental and
third party consents, approvals and clearances for consummation of the
transactions contemplated herein, including, but not limited to, receipt of the
AWS Consent and a "final" order by the FCC approving, without any materially
adverse or onerous conditions, Heartland (or a commonly owned entity) as
licensee of the owned FCC Licenses. For purposes of this Section, the term
"final" shall mean an order of the FCC which has not been stayed and, by lapse
of time or otherwise, is no longer subject to administrative or judicial
reconsideration, review, appeal or stay.
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to consummate the Acquisition is subject to
fulfillment, or written waiver signed by Seller, of each of the following
conditions precedent on or prior to the Closing Date.
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8.1 PARTNER APPROVAL. The Acquisition shall have been approved by the
requisite votes (but in no event less than a two-thirds ( 2/3) vote) of Seller's
Partners in accordance with applicable law and its partnership agreement and/or
other organizational documents.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
8.3 HEARTLAND DOCUMENTS. Heartland shall have executed and delivered to
Seller in form and substance satisfactory to Seller and its counsel:
(A) A certificate of an executive officer of Heartland confirming, on
and as of the Closing Date, that each of the representations and warranties
set forth in Section 3 hereof was true and correct in all material respects
on the date made and is true and correct in all material respects on and as
of the Closing Date.
(B) An opinion of counsel to Heartland addressed to Seller in the form
attached hereto as Exhibit 8.3(b).
(C) The Exchange Agreement, executed by Heartland and the Exchange
Agent.
(D) Either the Mutual Release in the form of Exhibit 5.16, if
reasonably obtainable, or an assumption and indemnification from such
claims in the form attached hereto as Exhibit 8.3(d); provided that if
Heartland consummates the Merger Agreement with AWS on or before the
Closing Date, then Heartland shall deliver or cause AWS to deliver to
Seller the Mutual Release.
8.4 HEARTLAND OBLIGATIONS PERFORMED. All obligations of Heartland to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.5 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the proxy statement to be
amended or supplemented under applicable securities laws.
ARTICLE 9. INDEMNIFICATION.
9.1 PROVISIONS REGARDING REPRESENTATIONS AND WARRANTIES. All statements,
certifications, representations and warranties made by the parties hereto in
this Agreement, in any Schedule, or in any Exhibit, certificate or other
instrument delivered pursuant to this Agreement shall survive the Closing for a
period of two years. All covenants, agreements and indemnifications made by the
parties hereto in this Agreement, in any Schedule or in any Exhibit, certificate
or other instrument delivered pursuant to this Agreement shall survive the
Closing for a period of four (4) years.
9.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend and hold
harmless Heartland from and against, and shall reimburse Heartland with respect
to, any and all Damages incurred by Heartland by reason of or arising out of or
in connection with:
(A) any breach of any representation or warranty of Seller contained
or referred to herein, in any Schedule hereto, or in any certificate or
other instrument executed by Seller in connection with this Agreement;
(B) any failure by Seller to perform any of its agreements, covenants
or other obligations herein or in any other document executed by it in
connection with this Agreement;
(C) the Excluded Liabilities; or
(D) the operations and activities of Seller and its Affiliates,
including those related to the Venture Interest and the Assets, prior to
and including the Closing Date.
9.3 LIMITATION ON CLAIMS OF HEARTLAND. Notwithstanding anything in Section
9.2 hereof to the contrary, Heartland shall not have any claim against Seller
pursuant to Section 9.2 hereof to the extent that Heartland
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receives payment with regard to such claim from any third party provided that
Heartland need not pursue or exhaust remedies, if any, against such third party.
If, at any time after Seller has made an indemnifying payment to Heartland with
respect to a claim hereunder, Heartland receives (or has a right to receive)
payment with respect to such claim from a third party, Heartland will promptly
refund Seller the aggregate amount of such third party payments or will assign
to Seller the rights of Heartland to receive such third party payment (provided,
however, that Seller shall not be entitled to receive from Heartland, whether by
way of payment from Heartland or by way of collection pursuant to rights
assigned by Heartland, or any combination thereof, an aggregate amount greater
than the aggregate amount of the indemnifying payments made by Seller to
Heartland with respect to such claim).
9.4 INDEMNIFICATION BY HEARTLAND. Heartland shall indemnify, defend and
hold harmless Seller from and against, and shall reimburse Seller for, any and
all Damages incurred by it by reason of or arising out of or in connection with:
(A) any breach of any representation or warranty of Heartland
contained or referred to herein, or in any certificate, or other instrument
executed by it in connection with this Agreement;
(B) any Assumed Liabilities; or
(C) any failure by Heartland to perform any of its agreements,
covenants or other obligations herein or in any other document executed by
it in connection with this Agreement.
9.5 LIMITATION ON CLAIMS OF SELLER. Notwithstanding anything in Section 9.4
hereof to the contrary, Seller shall not have any claim against Heartland
pursuant to Section 9.4 hereof to the extent that Seller receives payment with
regard to such claim from any third party provided that Seller need not pursue
or exhaust remedies, if any, against such third party. If, at any time after
Heartland has made an indemnifying payment to Seller with respect to a claim
hereunder, Seller receives (or has a right to receive) payment with respect to
such claim from a third party, Seller will promptly refund Heartland the
aggregate amount of such third party payments or will assign to Heartland the
rights of Seller to receive such third party payment (provided, however, that
Heartland shall not be entitled to receive from Seller, whether by way of
payment from Seller or by way of collection pursuant to rights assigned by
Seller, or any combination thereof, an aggregate amount greater than the
aggregate amount of the indemnifying payments made by Heartland to Seller with
respect to such claim).
9.6 NOTICE OF CLAIMS. Any party seeking indemnification hereunder (an
"Indemnitee") shall give to each party obligated to provide indemnification to
such Indemnitee (an "Indemnitor") a notice (a "Claim Notice") describing in
reasonable detail the facts giving rise to any claim for indemnification
hereunder and shall include in such Claim Notice (if then known) the amount or
the method of computation of the amount of such claim, and a reference to the
provision of this Agreement or any other agreement, document or instrument
executed hereunder or in connection herewith upon which such claim is based.
9.7 THIRD PARTY CLAIMS. In the event of any third party claim, deficiency
or demand asserted or any action commenced or notice given of any audit,
administrative or other proceeding against an Indemnitee (a "Claim"), as to
which indemnification may be sought from an Indemnitor, the Indemnitee shall
promptly deliver a Claim Notice to the Indemnitor; provided, however, that the
failure by the Indemnitee to give such prompt notice shall not release the
Indemnitor of its indemnification obligations hereunder, except to the extent
such failure prejudices the Indemnitor. The Indemnitor shall be entitled to
assume the defense of any Claim, with counsel reasonably satisfactory to the
Indemnitee, if the Indemnitor shall agree in writing within fifteen (15) days
after receipt of such Claim Notice that it is required, pursuant to this Article
9, to indemnify the Indemnitee for the full amount of such Claim (the "Claim
Acknowledgement Procedure"). If the Indemnitor assumes the defense of any Claim,
the Indemnitee shall cooperate with the Indemnitor in connection therewith, and
the Indemnitee shall be kept informed with respect to, and shall have the right
to participate in, the contest, defense, settlement or compromise of any such
Claim. If the Indemnitor does not assume the defense of any such Claim, does not
comply with the Claim Acknowledgement Procedure, fails in the reasonable
judgment of the Indemnitee to conduct such defense in a satisfactory manner, or
fails to engage counsel reasonably satisfactory to the Indemnitee, the
Indemnitee shall be entitled to conduct the defense of
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such Claim at the Indemnitor's expense. In any case, the Indemnitor may not
settle or compromise any such Claim without the prior written consent of each
Indemnitee, which in the case of a settlement solely involving monetary damages
shall not be unreasonably withheld.
ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the Partners of Seller and shareholders of
Heartland, by the mutual consent of Heartland and Seller.
10.2 TERMINATION BY SELLER. This Agreement may be terminated and the
Acquisition may be abandoned by Seller either (a) if the Closing conditions set
forth in Articles 6 and 8 shall not have been satisfied in full or waived on or
before January 31, 1996, unless such date is extended pursuant to the terms of
Section 1.11, or earlier date set forth therein, (b) at any time prior to such
date upon a default by Heartland in its obligations under the Heartland Loan
Agreement or documents executed in connection therewith or (c) in the event that
Heartland or any governmental or regulatory authority asserting jurisdiction
with respect to the transactions contemplated in this Agreement shall require a
modification to the form or substance of Seller's Disclosure Statement or the
taking of any action in connection with the solicitation of Seller's Partners
with respect to the transactions contemplated herein which Seller deems, in its
sole discretion, unreasonable, inappropriate or burdensome, in the circumstances
in which Seller shall find itself at the time.
10.3 TERMINATION BY HEARTLAND. This Agreement may be terminated and the
Acquisition may be abandoned by Heartland either (a) if the Closing conditions
set forth in Articles 6 and 7 shall not have been satisfied in full or waived on
or before January 31, 1996, unless such date is extended pursuant to the terms
of Section 1.11, or earlier date set forth therein, or (b) at any time prior to
such date, at Heartland's election, upon written notice from Heartland, upon the
payment (or offset against the Heartland Note) of the Earnest Money, as set
forth in Section 10.4(d) below; provided, however, that the right of Heartland
to terminate this Agreement pursuant to this Section 10.3 shall be subordinate
to the right of Seller to terminate this Agreement pursuant to Section 10.2(c).
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
(A) In the event of termination of this Agreement and the abandonment
of the Acquisition pursuant to this Article 10, no party hereto (or any
directors, managers or officers) shall have any liability or further
obligation to the other parties to this Agreement, except as provided in
Article 10, and the remedies set forth below shall be each party's sole and
exclusive remedy for such claims. The payments to be made hereunder are
each party's reasonable estimate of the Damages arising from the other
party's conduct leading to the termination hereof, and shall constitute
liquidated damages for any claims based thereon.
(B) In the event that any Person shall have made an Acquisition
Proposal and the Executive Committee of Seller approves the execution of an
agreement relating thereto or recommends to the Partners the acceptance of
any Acquisition Proposal and Heartland does not exercise its right of first
refusal set forth in Section 5.11, then Seller shall promptly, but in no
event later than two (2) days after the date of the expiration of the
period in which Heartland may deliver the Election Notice (or earlier date
if Heartland delivers to Seller a written waiver of its right of first
refusal), pay Heartland a fee equal to the sum of (i) Two Hundred Fifty
Thousand Dollars ($250,000) and (ii) the outstanding principal and accrued
interest under the Heartland Note, and all Earnest Money shall be released
to Heartland. Seller acknowledges that the agreements contained in this
Section 10.4(b) are integral parts of the transactions contemplated in this
Agreement, and that, without these agreements, Heartland would not enter
into this Agreement; accordingly, if Seller fails to promptly pay the
amount due and pursuant to Section 10.4(b), and, in order to obtain such
payment, Heartland commences a suit which results in a judgment against
Seller for the fee set forth in this subparagraph (b) or forecloses under
the Heartland Security Agreement, the non-prevailing party shall pay the
prevailing party its cost and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the fee
at
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the interest rate specified in the Heartland Note in effect on the date
such payment was required to be made.
(C) In the event that this Agreement is terminated (i) by Heartland
pursuant to Section 10.3 because of the failure of a condition precedent
set forth in Section 7.2 or 7.8, or (ii) by either party pursuant to
Section 10.2 or 10.3, as applicable, arising from the failure of the
condition precedent set forth in Section 6.5 (and to the extent arising
from the failure of such condition, the condition set forth in Section
6.6), then the Escrow Agent shall disburse the Earnest Money to Heartland,
and Seller shall repay the Heartland Note in accordance with the terms
thereof.
(D) In the event that this Agreement is terminated for any reason
other than as set forth in subsections (b) or (c) above or in connection
with Heartland's exercise of its right of first refusal (as set forth in
Section 5.11, upon the consummation of which this Agreement shall terminate
without the payment of any additional consideration, other than as
specified in the Offer Notice), then Escrow Agent shall disburse the
Earnest Money deposited by Heartland through such date to Heartland to the
extent (but only to the extent) the amount of the Heartland Loan exceeds
the amount of the Earnest Money to be disbursed, the amount of the Earnest
Money so disbursed shall be offset against the amount of the Heartland
Note, and Seller shall thereafter repay the Heartland Note (as reduced) in
accordance with the terms thereof.
ARTICLE 11. DEFINITIONS.
11.1 DEFINITIONS. The terms used in this Agreement have the respective
meanings specified or referred to in this Article 9:
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in
Section 5.8.
"ACQUISITION" shall have the meaning set forth in the Recitals.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACQUISITION SHARES" shall have the meaning set forth in Section 1.3.
"ACT" means The Communication Act of 1934, as amended.
"ADDITIONAL EARNEST MONEY" shall have the meaning set forth in Section
1.10.
"APPLICATION" means a pending application by Seller or Institution or
other Parties to the FCC for a License.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person. For purposes of this Agreement, the term "Affiliate" of any party
hereto shall not include AWS or its predecessors.
"ASSETS" shall have the meaning set forth in Section 1.2
"ASSUMED LIABILITIES" means the (i) Liabilities of Seller (directly or
indirectly through the Venture) for indebtedness owed to AWS as of the
Closing Date associated with the operations of the Venture and the
Business, to the extent and only to the extent such indebtedness (including
any accrued interest thereon) does not exceed on or before January 31,
1996, $510,000; on or before February 29, 1996, $540,000; and on or before
March 31, 1996, $570,000; (ii) any contingent Liabilities of Seller to AWS
arising from matters disclosed in Schedule 2.4 and (iii) any Liabilities
associated with the Venture Interest arising after the Closing Date.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to Seller by a
Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with any Market and the provision
thereon of wireless
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cable services in and around any Market, including the licenses, permits,
authorizations, franchises, grants, registrations, certificates, consents
and waivers listed on Schedule 2.8(a), (b) and (c).
"AWS CLAIMS" means all causes of action, lawsuits, litigation files,
demands, judgments and claims of any nature available to or being pursued
by Seller or any Partner, as applicable, against AWS or any AWS Party.
"AWS CONSENT" shall have the meaning set forth in Section 2.3.
"AWS PARTIES" means (i) AWS or its current officers, directors, or
existing Affiliates in their capacity as such; (ii) Micom Products, Ltd., a
Delaware limited liability company; and (iii) Steven G. Johnson (both in
his individual capacity and in his capacity as a party listed in clause (i)
above).
"BENEFIT PLAN" shall have the meaning set forth in Section 2.18.
"BUSINESS" shall have the meaning set forth in Section 1.2.
"CAUSES OF ACTION" means all causes of action, lawsuits, litigation
files, demands, judgments, and claims of any nature available to or being
pursued by Seller with respect or relating to the Business or the
ownership, use, function, or value of any Asset, whether arising by way of
counterclaim or otherwise, other than AWS Claims.
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the Seller.
"CLAIM" shall have the meaning set forth in Section 9.7.
"CLAIM ACKNOWLEDGEMENT PROCEDURE" shall have the meaning set forth in
Section 9.7.
"CLAIM NOTICE" shall have the meaning set forth in Section 9.6.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.1.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.1.
"CLOSING PLACE" means the offices where the Closing shall take place
on the Closing Date as provided for in Section 1.1.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the ten (10) trading days ending on the fifth (5th) business day prior
to the Closing Date. In the event that the Heartland Shares do not trade on
any day within such ten-day period, the closing price for any such day
shall be deemed to be the closing price for the date preceding such date
for purposes of determining the Closing Share Price.
"CLOSING TIME" means the time on the Closing Date that the Closing
shall take place as provided for in Section 1.1.
"CONSENT" means any and consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for the Business to be
conducted or the Assets to be used or available for use in the conduct of
the Business after the Closing Date substantially in the manner as before
the Closing Date.
"CONTRACTS" means all Channel Leases, Site Leases, Site Options,
programming agreements, equipment leases, management agreements, joint
venture agreements, notes, guaranties, covenants not to
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compete, employment agreements, consulting agreements, permits,
participation agreements, policies, purchase and sale orders, quotations
and other executed or executory commitments understandings and instruments
to which Seller or the Venture is a party, or of which Seller or the
Venture is to receive the benefit or by which any of the Assets of Seller
or the Venture is bound relating to the Market or Business, whether written
or oral and whether originally entered into by Seller or the Venture or
another party.
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DISTRIBUTABLE SHARES" shall have the meaning set forth in Section
1.4.
"DISTRIBUTION RECORD DATE" shall have the meaning set forth in Section
1.4.
"DOCUMENTS" means, with respect to the Venture Interest, Business or
the Assets, all applications, engineering or market or other studies,
reports, and analysis or memoranda, or records and other documents or data
related to the Venture Interest or the Business which are in the possession
or under the control of Seller whether or not any such document is
reproduced or maintained on paper or stored or retained in or on audio or
video tapes or computer hardware disks or by other electronic, magnetic or
other means or methods.
"EARNEST MONEY" shall have the meaning set forth in Section 1.10.
"ELECTION NOTICE" shall have the meaning set forth in Section 5.11.
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on or off the Site, whether yet discovered, which could or does
result in Damages, including any condition resulting from the operations of
the Venture or Seller.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, and
including electro-magnetic fields or discharges into the Environment, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, which are now or may
hereafter be applicable to Seller, the Venture, the Venture Interest, or
any Assets.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property used or available for
use in the Business or located at any of the Facilities and related to the
Business.
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"ESCROW AGENT" means US Trust Company.
"EXCHANGE AGENT" shall mean Norwest Bank Minneapolis, National
Association.
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section 1.3.
"EXCHANGE PRICE" shall have the meaning set forth in Section 1.3.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.2.
"EXCLUDED LIABILITIES" shall mean any Liabilities of Seller (direct or
indirect through the Venture) other than Assumed Liabilities, including,
without limitation, the Heartland Loan.
"EXECUTIVE COMMITTEE" shall have the meaning set forth in Section 1.4.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means, with respect to the Business or the Assets, all of
the plants, offices, broadcast towers, antenna towers, head-ends, studios,
control centers and other real property interests and related facilities
which are either owned by the Venture or Seller or leased by or the use of
which are leased by the Venture or Seller.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.4.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are
consistent with the principles promulgated and adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Govern-
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mental Authority; (d) without limitation, which contains gasoline, diesel
fuel or other petroleum hydrocarbons or volatile organic compounds; (e)
without limitation, which contains polychlorinated byphenyls (PCBs) or
asbestos or urea formaldehyde foam insulation; or (f) without limitation,
which contains or emits radioactive particles, waves or materials,
including radon gas and electro-magnetic fields.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND LOAN" shall have the meaning set forth in Section 5.10.
"HEARTLAND LOAN AGREEMENT" shall have the meaning set forth in Section
5.10.
"HEARTLAND NOTE" shall have the meaning set forth in Section 5.10.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HEARTLAND SECURITY AGREEMENT" shall have the meaning set forth in
Section 5.10.
"HEARTLAND SHARES" shall have the meaning set forth in Section 1.3.
"HSR ACT" shall have the meaning set forth in Section 5.9.
"INDEMNITEE" shall have the meaning set forth in Section 9.6.
"INDEMNITOR" shall have the meaning set forth in Section 9.6.
"INITIAL EARNEST MONEY" shall have the meaning set forth in Section
1.10.
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with Seller,
the Venture or their respective Affiliates.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of Seller
or any Affiliate of Seller which are used or available for use in
connection with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if: (i) such individual is actually aware
of such fact or other matter; or (ii) an individual should have known of
such fact or other matter in the course of conducting a reasonable
investigation concerning the truth or existence of such fact or other
matter; (b) with respect to a Person (other than an individual) "knowledge"
of a particular fact or other matter if any individual who is serving as a
manager, director or officer of such Person has "knowledge" of such fact or
other matter; and (c) with respect to warranties made by Seller, that
Seller, based upon a reasonable investigation, believes the warranty is
true. A "reasonable investigation" by Seller with respect to the Venture,
the Business or the Assets shall be deemed to have been made in the event
Seller requests that AWS confirm the representations and warranties are
true and correct, and if AWS refuses to confirm the accuracy of such
representations and warranties, the reason for such refusal.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
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"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals necessary or required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance.
"LIQUIDATED LIABILITIES" shall mean all Excluded Liabilities, other
than Liabilities of Seller arising through the Venture, the Business or the
Assets, whether to AWS or any other third parties, except to the extent
Seller elects to pay such Liabilities with the proceeds of the Liquidated
Shares as a part of its Agreement and Plan of Liquidation.
"LIQUIDATED SHARES" shall have the meaning set forth in Section 1.4.
"MARKET" means the Fort Worth, Texas Standard Metropolitan Area.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in, or is reasonably likely to result in, a material adverse change
in the business, operations, properties, prospects relating to the Venture
Interest taken as a whole other than general economic change over which
Seller has no control.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MMDS" means the Multichannel Multipoint Distribution Service.
"OFFER NOTICE" shall have the meaning set forth in Section 5.11.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator.
"PARTIES" shall mean all parties to Contracts other than Seller from
which Consents are required.
"PERMITTED ENCUMBRANCES" means deposits under Workmen's Compensation,
Unemployment Insurance or Social Security laws, or to secure statutory
obligations or surety or other similar bonds; mechanics, suppliers,
carriers, warehousemen's or other similar liens; liens securing Taxes,
government charges or other governmental levies which are not yet due and
payable, or being contested in good faith by appropriate proceedings with
adequate reserves in conformity with generally accepted accounting
principles; and the interest or title of any lessor in property pursuant to
a lease of that property.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"PREPAID SUBSCRIBER FEES" means all amounts received by Seller or the
Venture from customers or subscribers in the Market (whether held as cash,
cash equivalents or otherwise) for periods of service from and after the
Closing Date.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PURCHASE PRICE" shall have the meaning set forth in Section 1.3.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
1.6.
"ROLL-UP RULES" shall have the meaning set forth in Section 4.1.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 5.4.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in the Recitals.
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<PAGE> 1031
"SELLER'S DISCLOSURE STATEMENT" shall have the meaning set forth in
Section 5.2(b).
"SELLER'S REPRESENTATIVE" shall have the meaning set forth in Section
4.4.
"SITE" means a wireless cable television site with respect to which
Seller is operating a Wireless Cable Business and transmitting programming
to subscribers in connection therewith.
"SITE LEASE" shall mean a Contract for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"VENTURE" shall have the meaning set forth in the Recitals.
"VENTURE INTEREST" shall have the meaning set forth in the Recitals.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
11.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 12. POST-CLOSING COVENANTS.
12.1 COOPERATION AND EXCHANGE OF INFORMATION. Following the Closing,
Heartland and Seller shall provide to each other, upon reasonable prior notice
and during normal business hours, access to the books and records in the
possession of the other which relate to the Venture Interest or the Assets to
the extent such access may be required (i) to facilitate the investigation,
litigation and final disposition of any claims which have been made or may be
made against (A) Seller that relate to the Venture Interest for periods of time
prior to the Closing, or (B) Heartland that relate to the Venture Interest for
periods of time from and after the Closing; and (ii) for any other reasonable
business purpose, but in either case only to the extent that such access does
not unreasonably interfere with the business and operations of such party or
violate any law, order, contract or license applicable to such party.
ARTICLE 13. MISCELLANEOUS.
13.1 EXPENSES OF THE TRANSACTION. Each of Seller and Heartland agrees to
pay its own fees and expenses in connection with this Agreement and the
transactions hereby contemplated; provided that (a) the following fees and
expenses shall be the responsibility of Heartland: (i) the fees of the Exchange
Agent, (ii) the printing costs for the Registration Statement, Seller's
Disclosure Statement and any other solicitation materials, (iii) costs of
mailing the Seller's Disclosure Statement and any other solicitation materials
mailed therewith, (iv) SEC filing fees for the filing of the Registration
Statement, (v) FCC filing or Consent fees arising from the transactions
contemplated hereby, (vi) fees payable to third parties for obtaining any other
Consents necessary to consummate the transactions contemplated hereby, and (vii)
expenses for the audit of Seller's financial statements; (b) Seller shall be
solely responsible for any brokerage fees or commissions payable with regard to
the sale of the Liquidated Shares; and (c) the fees and expenses of the Escrow
Agent shall be paid by the party receiving the Earnest Money. The parties
acknowledge and agree that Seller shall be entitled to use a portion of the
proceeds of the Heartland Loan for the payment of its costs incurred in
connection with this Agreement, as further set forth in the Heartland Loan
Agreement.
13.2 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
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E
If to Heartland, to:
Heartland Wireless Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Fax: (214) 479-1023
Attn: Mr. John R. Bailey
With copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75201
Fax: (214) 741-7139
Attn: Victor B. Zanetti, Esq.
If to Seller, to:
Fort Worth Wireless Cable TV Associates
200 Balboa Court
Irving, TX 75062
Fax: (214) 541-7761
Attn: Mr. Don McGee
With copy to:
Brown McCarroll & Oaks Hartline
300 Crescent Court, Suite 1400
Dallas, TX 75201
Fax: (214) 999-6170
Attn: Robert E. Morrison, Esq.
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided. Any notice personally
delivered or transmitted via facsimile after 5:30 p.m. in Dallas, Texas shall be
deemed to have been received on the following day.
13.3 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
13.4 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits (if any) hereto, sets forth the entire agreement and understanding
among the parties as to the subject matter hereof.
13.5 SEVERABILITY. If any provision of this Agreement or the application of
any provision hereof to any person or in any circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
13.6 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by Seller except with the prior written consent of Heartland. Any
purported assignment by Seller contrary to the terms of this Agreement shall be
void. Notwithstanding the foregoing, Heartland may assign this Agreement and all
of its rights and obligations hereunder, to any party. Promptly following said
assignment, Heartland shall notify Seller of the name of said assignee.
13.7 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Time, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland
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<PAGE> 1033
and Seller; provided, Heartland shall be entitled to disclose the transactions
contemplated hereby without the prior approval of Seller to the extent
reasonably necessary for Heartland to comply with applicable securities laws.
13.8 CONSENT TO JURISDICTION. This Agreement shall be deemed to have been
made in, and shall be construed in accordance with the laws of the State of
Texas, and its validity, construction, interpretation and legal effect shall be
governed by the laws of the State of Texas applicable to contracts entered into
and performed entirely therein. Heartland and Seller hereby irrevocably submit
to the jurisdiction of the state courts of the State of Texas and to the
jurisdiction of the United States District Court for the Northern District of
Texas, for the purpose of any suit, action or other proceeding arising out of or
based upon this Agreement or the subject matter hereof or thereof brought by
either party or its successors or assigns. Each party hereby waives, and agrees
not to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court. Each party hereby consents to service of process by
registered mail at the address to which notices are to be given. Each party
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other party. Final judgment
against either party in any such action, suit or proceeding shall be conclusive,
and may be enforced in other jurisdictions (x) by suit, action or proceeding on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability therein described or
(y) in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that the party may at its option bring suit, or
institute other judicial proceedings against the other party or any of its
Assets in any state or Federal court of the United States or of any country or
place where that party or such Assets may be found.
13.9 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
13.10 SCHEDULES. The Schedules referred to herein and delivered to
Heartland upon execution hereof are hereby made a part of this Agreement, and
may not be changed, substituted or altered without Heartland's prior written
consent.
13.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
SELLER:
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES,
a California general partnership
By: /s/ DONALD MCGEE
Name: Donald McGee
Title: Co-Chairman
Management Committee
HEARTLAND WIRELESS
COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: Chief Financial Officer
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<PAGE> 1035
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 N. Bowser, Suite 140
Richardson, Texas 75081
December 13, 1995
Fort Worth Wireless Cable T.V. Associates
200 Balboa Court
Irving, Texas 75062
Re: Extension of Certain Dates under the
Amended and Restated Asset Purchase Agreement
Gentlemen:
Reference is hereby made to that certain Amended and Restated Asset
Purchase Agreement dated as of October 4, 1995 between Fort Worth Wireless Cable
T.V. Associates ("FTW") and Heartland Wireless Communications, Inc.
("Heartland"), as amended by the letter agreement dated November 30, 1995 (as
amended, the "Agreement"). Capitalized terms not defined herein shall have the
meaning ascribed thereto in the Agreement.
By their signatures hereto, FTW and Heartland each agree to extend the
Exhibit Delivery Date from December 13, 1995 until December 29, 1995.
Except as set forth herein, the remaining terms of the Agreement shall be
unaltered and remain in full force and effect. This letter may be executed in
one or more counterparts and by facsimile signature.
Yours very truly,
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
By: /s/ DONALD MCGEE
Title: Co-Chairman
Management Committee
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<PAGE> 1036
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 N. Bowser, Suite 140
Richardson, Texas 75081
November 30, 1995
Fort Worth Wireless Cable T.V. Associates
200 Balboa Court
Irving, Texas 75062
Re: Extension of Certain Dates under the
Amended and Restated Asset Purchase Agreement
Gentlemen:
Reference is hereby made to that certain Amended and Restated Asset
Purchase Agreement dated as of October 4, 1995 ("Signing Date") between Fort
Worth Wireless Cable T.V. Associates ("FTW") and Heartland Wireless
Communications, Inc. ("Heartland") (the "Agreement"). Capitalized terms not
defined herein shall have the meaning ascribed thereto in the Agreement.
Pursuant to Section 5.13 of the Agreement, FTW and Heartland have agreed
that any Exhibit not attached thereto on the Signing Date may be prepared and
attached on or before November 30, 1995 (the "Exhibit Delivery Date"), and to
cooperate and negotiate in good faith in the preparation of such Exhibits.
Pursuant to Section 6.4 of the Agreement, the Agreement of FTW and Heartland on
the form of each Exhibit and the attachment thereof to the Agreement on or
before the Exhibit Delivery Date is a condition precedent to the obligations of
FTW and Heartland to close under the Agreement. By their signatures hereto, FTW
and Heartland each agree to extend the Exhibit Delivery Date until December 13,
1995.
By their signatures hereto, the parties hereto agree that Section 6.8 and
all references thereto and to the Approval Notice in this Agreement shall be
deleted in their entirety.
Except as set forth herein, the remaining terms of the Agreement shall be
unaltered and remain in full force and effect. This letter may be executed in
one or more counterparts and by facsimile signature.
Yours very truly,
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
By: /s/ DONALD MCGEE
Title: Co-Chairman
Management Committee
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F
APPENDIX F
FTW CLAIM RELEASE
<PAGE> 1038
MUTUAL RELEASE
This Mutual Release ("Release") is executed to be effective the day of
February, 1996, by the AWS Parties (as hereafter defined) and the FWW Parties
(as hereafter defined) for the mutual benefit of the FWW Parties and the AWS
Parties.
RECITALS:
Capitalized terms in these Recitals have the definitions set forth in
paragraph 1. Heretofore, FWW and Heartland entered into the Purchase Agreement.
A part of the consideration for the execution of the Purchase Agreement is the
delivery by AWS and FWW of this mutual Release.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
RELEASE
1. DEFINITIONS. Capitalized terms have the definitions set forth in the
provisions of this Release. The following terms shall have the indicated
definitions or the meanings set forth in the indicated part of this Release:
(a) "Additional AWS Parties" means Dexter A. Cohen, Jeffrey D. Howes
and Kevin C. King, if and only if such person or persons execute this
Release as an "AWS Party."
(b) "Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or is a member of the immediate family of any
of the foregoing Persons, whether or not living under the same roof with
such Person. For purposes of this Release, the term "Affiliate" does not
include AWS or its predecessors.
(c) "Approving Partners" means the general partners of FWW voting (by
consent, proxy or otherwise) for the approval of the transactions
contemplated by the Purchase Agreement (including, without limitation, the
dissolution and liquidation of FWW and the execution of this Release), as
further described in the Proxy Statement.
(d) "AWS" means American Wireless Systems, Inc., a Delaware
corporation.
(e) "AWS Parties" means (i) AWS, or its current officers, directors,
or existing Affiliates in their capacity as such; (ii) Micom Products,
Ltd., a Delaware limited liability company; (iii) Steven G. Johnson (both
in his individual capacity and in his capacity as a party listed in (i)
above and (iv) any Additional AWS Parties.
(f) "Consent" means the written form of approval of the Approving
Partners of the transactions contemplated by the Purchase Agreement
(including, without limitation, the dissolution and liquidation of FWW and
the execution of this Release).
(g) "FWW" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
(h) "FWW Parties" means FWW, the Approving Partners, present and
former management committee members, agents, servants, employees, assigns,
predecessors (including, without limitation, Wireless Cable T.V. Associates
No. 34, a California general partnership, and the partners thereof),
successors and legal representatives.
(i) "Heartland" means Heartland Wireless Communications, Inc., a
Delaware corporation.
(j) "Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity.
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<PAGE> 1039
(k) "Proxy Statement" means the Proxy Statement/Prospectus and
Disclosure Statement dated January , 1996 relative to the proposed
distribution of shares of common stock, $.001 par value per share of
Heartland.
(l) "Purchase Agreement" means that certain Amended and Restated Asset
Purchase Agreement between FWW and Heartland dated effective October 4,
1995.
2. AWS RELEASE. The AWS Parties release and forever discharge the FWW
Parties from any and all causes of action, demands, rights and claims of any
nature, now or hereafter available to or owned by the AWS Parties or any AWS
Party, as applicable, against FWW or any FWW Party. It is intended that the
claims and causes of action (collectively the "AWS Claims") released pursuant to
this paragraph shall include those known, unknown, fixed or contingent.
Provided, however, this Release is not intended to nor does it release any
claims arising subsequent to the date hereof.
3. FWW RELEASE. FWW and the Approving Partners release and forever
discharge the AWS Parties from any and all causes of action, demands, rights and
claims of any nature, now or hereafter available to or owned by FWW and the
Approving Partners against AWS or any AWS Party. It is intended that the claims
and causes of action (collectively the "FWW Claims") released pursuant to this
paragraph shall include those known, unknown, fixed or contingent, and shall
include, without limitation, the claims described in the Proxy Statement.
Provided, however, this Release is not intended to nor does it release any
claims arising subsequent to the date hereof.
4. AWS REPRESENTATIONS. The AWS Parties each jointly and severally
represent and warrant to the FWW Parties the following:
(a) the execution and delivery of this Release has been duly
authorized and approved by all appropriate parties and authorities and this
Release is binding on and enforceable against the AWS Parties;
(b) The AWS Parties have not transferred, assigned, encumbered or
otherwise burdened any of the AWS Claims; and
(c) The AWS Parties are the sole owners of the AWS Claims free and
clear of all liens, security interests, rights or powers.
5. FWW REPRESENTATIONS. FWW and the Approving Partners represent and
warrant to the AWS Parties the following:
(a) the execution and delivery of this Release has been duly
authorized and approved by all appropriate parties and authorities and this
Release is binding on and enforceable against FWW and the Approving
Partners;
(b) FWW and the Approving Partners have not transferred, assigned,
encumbered or otherwise burdened any of the FWW Claims;
(c) FWW and the Approving Partners, as applicable, are the sole owners
of the FWW Claims free and clear of all liens, security interests, rights
or powers; and
(d) FWW and each Approving Partner has read and had the opportunity to
discuss with legal counsel the effect of this Release and has received and
read the Proxy Statement, including without limitation, the portions
thereof describing certain claims that may be asserted by the FWW Parties
which are included in this Release.
6. LIMITATIONS; SURVIVAL. The remedy for the breach of any representation
contained herein shall be limited strictly to a remedy against the party
actually breaching the representation (meaning that, without limitation, FWW and
each Approving Partner shall in no event be liable for the breach of any
representation by any other party hereto). The representations contained herein
shall survive for the period specified for statements, certifications,
representations and warranties pursuant to Section 9.1 of the Purchase
Agreement.
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<PAGE> 1040
7. APPLICABLE LAW. Except to the extent the laws of the United States are
applicable, this Release shall be construed in accordance with the laws of the
State of Texas. Any litigation involving the terms of this Release shall be
brought in the appropriate state or United States Court in the State of Texas.
8. COUNTERPARTS. This Release may be executed in one or more counterparts,
each of which shall be deemed an original. Each FWW Party acknowledges that the
approval of the transactions contemplated by the Purchase Agreement shall
constitute each Approving Partner's agreement to be bound by and receive the
benefits of this Release, and that the execution of any written document
approving such transaction shall constitute the execution and approval of this
Release. This Release may also be executed by facsimile signature.
9. WAIVER. Each party hereto knowingly and voluntarily waives any and all
provisions of any applicable law (including, without limitation, any statutes,
common law, regulation or other legal requirement or concept) relating to this
Release or limiting the scope or effect hereof, including, without limitation,
the provisions of Section 1542 of the California Civil Code, which provides that
"A general release does not extend to claims which a creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the
debtor. . . . " Each party hereto acknowledges that this waiver is an essential
and material term of this Release.
Executed to be effective the day of February, 1996.
AWS PARTIES:
AMERICAN WIRELESS SYSTEMS, INC.,
a Delaware corporation
By:
--------------------------------
Steven G. Johnson,
President and Chief Executive
Officer
MICOM PRODUCTS, LTD., a Delaware
limited liability company
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
-----------------------------------
Steven G. Johnson
Additional AWS Parties:
-----------------------------------
Dexter A. Cohen
-----------------------------------
Jeffrey D. Howes
-----------------------------------
Kevin C. King
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G
APPENDIX G
FTW CLAIM ASSIGNMENT
<PAGE> 1042
ASSIGNMENT OF CLAIMS
This Assignment of Claims ("Assignment") is executed to be effective the
day of February, 1996, by FWW (as hereafter defined) and Heartland (as
hereafter defined).
RECITALS:
Capitalized terms in these Recitals have the definitions set forth in
paragraph 1. Heretofore, FWW and Heartland entered into the Purchase Agreement.
A part of the consideration for the execution of the Purchase Agreement is the
execution and delivery of this Assignment.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ASSIGNMENT
1. DEFINITIONS. Capitalized terms have the definitions set forth in the
provisions of this Assignment. The following terms shall have the indicated
definitions or the meanings set forth in the indicated part of this Assignment:
(a) "Additional AWS Party" means any of Dexter A. Cohen, Jeffrey D.
Howes and/or Kevin C. King, if and only if such person(s) elects to execute
the release contemplated in Paragraph 3.
(b) "Affiliate" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or is a member of the immediate family of any
of the foregoing Persons, whether or not living under the same roof with
such Person. For purposes of this Assignment, the term "Affiliate" of any
party hereto shall not include AWS or its predecessors.
(c) "Approving Partners" means the general partners of FWW voting (by
consent, proxy or otherwise) for the approval of the transactions
contemplated by the Purchase Agreement (including, without limitation, the
dissolution and liquidation of FWW and the execution of this Assignment),
as further described in the Proxy Statement.
(d) "Assumed Liabilities" has the meaning given in the Purchase
Agreement.
(e) "AWS" means American Wireless Systems, Inc., a Delaware
corporation.
(f) "AWS Parties" means (i) AWS, or its current officers, directors,
or existing Affiliates in their capacity as such; (ii) Micom Products,
Ltd., a Delaware limited liability company; (iii) Steven G. Johnson (both
in his individual capacity and in his capacity as a party listed in (i)
above and (iv) any Addtional AWS Parties.
(g) "Consent" means the written form of approval of the Approving
Partners of the transactions contemplated by the Purchase Agreement
(including, without limitation, the dissolution and liquidation of FWW and
the execution of this Assignment).
(h) "FWW" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
(i) "FWW Parties" means FWW, its general partners, present and former
management committee members, agents, servants, employees, assigns,
predecessors (including, without limitation, Wireless Cable T.V. Associates
No. 34, a California general partnership, and the partners thereof),
successors and legal representatives.
(j) "Heartland" means Heartland Wireless Communications, Inc., a
Delaware corporation.
(k) "Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity.
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<PAGE> 1043
(l) "Proxy Statement" means the Proxy Statement/Prospectus and
Disclosure Statement dated January , 1996 relative to the proposed
distribution of shares of common stock, $.001 par value per share of
Heartland.
(m) "Purchase Agreement" means that certain Amended and Restated Asset
Purchase Agreement between FWW and Heartland dated effective October 4,
1995.
2. ASSIGNMENT. Subject to the provisions and reservations contained in
paragraph 3., FWW and the Approving Partners hereby assign, sell, transfer and
deliver to Heartland all causes of action, demands, rights and claims of any
nature, now or hereafter available to or owned by FWW and the Approving Partners
against AWS or any AWS Party. It is intended that the claims and causes of
action (collectively the "FWW Claims") assigned pursuant to this paragraph shall
include those known, unknown, fixed or contingent, and shall include, without
limitation, the claims described in the Proxy Statement. Provided, however, FWW
and the Approving Partners are not assigning any claims arising subsequent to
the date hereof.
3. RESERVATIONS. The assignment in paragraph 2. is conditioned upon the
receipt by FWW of a release from each of the AWS Parties releasing the FWW
Parties from any and all causes of action, demands, rights and claims of any
nature whatsoever, whether known or unknown, fixed or contingent, now or
hereafter available to or owned by the AWS Parties against the FWW Parties. If
any AWS Party fails to deliver such a release to FWW prior to or
contemporaneously with the execution of this Assignment (a "Non-Releasing AWS
Party"), FWW expressly reserves the right to assert the AWS Claims against any
such Non-Releasing AWS Party, and FWW shall retain the AWS Claims as they relate
to any Non-Releasing AWS Party. In addition, FWW reserves the right to assert
the AWS Claims in any action or proceeding brought by any Person against any FWW
Party and retains its interest in the AWS Claims to the extent necessary to
assert the AWS Claims in any such action or proceeding.
4. INDEMNIFICATION. Heartland agrees to indemnify, protect, defend and hold
harmless FWW and each Approving Partner from and against any and all causes of
action, damages, demands, lawsuits, judgments and expenses, including attorneys'
fees, rights and claims of any nature, known or unknown, fixed or contingent,
now or hereafter available to or owned by the AWS Parties or any AWS Party, as
applicable, including but not limited to the Assumed Liabilities (collectively,
the "AWS Claims"), against FWW or any Approving Partner. Provided, however, this
indemnification is not intended nor does it cover any claims arising subsequent
to the date hereof. In the event of the assertion of any AWS Claim against FWW
or any Approving Partner, Heartland shall assume on behalf of FWW or such
Approving Partner and conduct with due diligence and in good faith the defense
thereof with counsel reasonably satisfactory to FWW or such Approving Partner;
provided, however, that FWW and the Approving Partner shall have the right, at
their option, to be represented therein by advisory counsel of their own
selection and at their own expense. In the event of failure by Heartland to
fully perform in accordance with this indemnification provision, FWW or the
applicable Approving Partner may, at their option, and without relieving
Heartland of its obligations hereunder, may so perform, but all costs and
expenses so incurred by FWW or the Approving Partner in that event shall be
reimbursed by Heartland to FWW or the Approving Partner, together with interest
on the same from the date any such expense was paid by FWW or the Approving
Partner until reimbursed by Heartland, at the rate of interest provided to be
paid on judgments under the laws of the State of Texas. The indemnification
provided in this Paragraph 4 does not cover, and specifically excludes, any
claims brought by a Non-Releasing AWS Party in the event that FWW has reserved
its right to assert the FWW claims against such Non-Releasing AWS Party pursuant
to Paragraph 3 hereof, and has not assigned the FWW claims to Heartland with
regard to such Non-Releasing AWS Party.
5. REPRESENTATIONS.
(a) FWW and the Approving Partners represent and warrant to Heartland the
following:
(i) the execution and delivery of this Assignment has been duly
authorized and approved by all appropriate parties and authorities and this
Assignment is binding on and enforceable against FWW and the Approving
Partners;
G-2
<PAGE> 1044
(ii) FWW and the Approving Partners, as applicable, have not otherwise
transferred, assigned, encumbered or otherwise burdened any of the FWW
Claims; and
(iii) FWW and the Approving Partners, as applicable, are the sole
owners of the FWW Claims free and clear of all liens, security interests,
rights or powers.
(iv) FWW and each Approving Partner has read and had the opportunity
to discuss with legal counsel the effect of this Assignment and has
received and read the Proxy Statement, including without limitation, the
portions thereof describing certain claims that may be asserted by FWW
which are included in this Assignment.
(b) The remedy for the breach of any representation contained herein shall
be limited strictly to a remedy against the party actually breaching the
representation, such that FWW and each Approving Partner shall in no event be
liable for the breach of any representation by any other party hereto.
(c) The representations contained herein shall survive for the period
specified for statements, certifications, representations and warranties
pursuant to Section 9.1 of the Purchase Agreement.
6. APPLICABLE LAW. Except to the extent the laws of the United States are
applicable, this Release shall be construed in accordance with the laws of the
State of Texas. Any litigation involving the terms of this Release shall be
brought in the appropriate state or United States Court in the State of Texas.
7. WAIVER. Each party hereto knowingly and voluntarily waives any and all
provisions of any applicable law (including, without limitation, any statutes,
common law, regulation or other legal requirement or concept) relating to this
Assignment or limiting the scope or effect hereof. Each party hereto
acknowledges that this waiver is an essential and material term of this
Assignment.
Executed to be effective the day of February, 1996.
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES, a California general
partnership
By:
----------------------------------
Don McGee, Member of the Executive
Committee of the Management
Committee
HEARTLAND WIRELESS
COMMUNICATIONS, INC., a Delaware
corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Approving Partners:
-------------------------------------
[signature on form of Consent
shall constitute the execution
hereof by such parties]
G-3
<PAGE> 1045
H
APPENDIX H
FTW LIQUIDATION PLAN
<PAGE> 1046
H
AGREEMENT AND PLAN OF LIQUIDATION
OF
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
This Agreement and Plan of Liquidation of Fort Worth Wireless Cable T.V.
Associates ("Plan") is made by Fort Worth Wireless Cable T.V. Associates, a
California general partnership (the "Partnership") and provides for the complete
winding up, liquidation, and dissolution of the Partnership by providing for the
distribution to its partners (the "Partners") of the net proceeds of the
Partnership (after paying or providing for all liabilities and expenses of the
Partnership) to be realized from the sale of the Partnership's assets.
RECITALS:
A. The Partnership is a California general partnership formed as of July 1,
1992 pursuant to the Partnership Agreement of Fort Worth Wireless Cable T.V.
Associates (the "Partnership Agreement"). The Partnership and American Wireless
Systems, Inc. ("AWS") have heretofore been co-venturer's in the informal joint
venture (the "Joint Venture") owning 100% of the wireless cable television
assets that provide wireless cable television service in the metropolitan area
of Fort Worth, Texas (the "Fort Worth System"). The Partnership has heretofore
owned a 79.99% interest in the Joint Venture (the "Venture Interest").
B. The Partnership has entered into the Amended and Restated Asset Purchase
Agreement between the Partnership and Heartland Wireless Communications, Inc.
("Heartland") dated as of October 4, 1994 (the "Agreement") pursuant to which
the Partnership agreed to sell and assign to Heartland substantially all of the
assets ("Partnership Assets") of the Partnership (including its Venture Interest
and certain claims the Partnership and Partners may have against AWS and AWS
related parties) in exchange for the assumption by Heartland of up to $570,000
of certain known potential liabilities and certain contingent liabilities of the
Partnership to AWS, and the issuance, for ultimate distribution to the Partners,
and in part, for liquidation and satisfaction of obligations of the Partnership,
of a number of shares of common stock of Heartland having an aggregate exchange
value of Thirteen Million Three Hundred Thousand and No/100 Dollars
($13,300,000) (the "Purchase Price"). The Agreement also contemplates the
liquidation and dissolution of the Partnership. The Agreement and this Plan are
subject to approval of Partners representing at least two-thirds (66 2/3%) of
the outstanding ownership units of the Partnership ("Partnership Units").
C. Upon the sale and assignment of the Partnership Assets to Heartland, the
Partnership shall not have any ongoing business activities, and the management
committee of the Partnership (the "Management Committee") has determined that
the best interests of the Partnership and the Partners would be served by the
liquidation and dissolution of the Partnership and the winding up of its affairs
pursuant to this Plan. By approval of the Agreement, the Partners approve,
authorize, and consent to the voluntary liquidation and dissolution of the
Partnership, and hereby direct that such liquidation and dissolution be effected
as promptly as possible in accordance with this Plan (the "Liquidation").
TERMS OF PLAN
1. SALE OF PARTNERSHIP ASSETS AND TERMINATION OF BUSINESS. The Partnership
shall consummate the sale of Partnership Assets as contemplated by the
Agreement, and upon the closing of the sale, the Partnership shall not perform
business activities except as required for winding up its affairs (including
post-closing obligations of the Partnership under the Agreement), preserving the
value of its assets, and distributing its assets in accordance with this Plan.
2. RECEIPT OF THE ACQUISITION SHARES. Pursuant to the Agreement, Heartland
shall deliver to Harris Trust Company of New York (the "Exchange Agent") the
number of shares of common stock, $.001 par value per share, of Heartland (the
"Acquisition Shares") equal to the Purchase Price divided by the an exchange
price ("Exchange Price") calculated as the average closing price of the
Heartland common stock as quoted on the NASDAQ National Market System over the
ten day period ending on the fifth business day preceding the closing of the
Agreement (provided that if such average closing price is in excess of $23.00
per share, the
H-1
<PAGE> 1047
Exchange Price shall be $23.00). The Exchange Agent is hereby authorized by the
Partnership to receive delivery of the Acquisition Shares (for distribution in
whole shares, but not fractional shares, to the Partners in accordance with this
Plan) (the "Distributable Shares") having an aggregate Exchange Price equal to
the Purchase Price minus a number of such shares sold to yield proceeds to the
Partnership in an amount equal to the sum of (i) Total Liquidated Liabilities,
and (ii) the Contingency Reserve. The amount of the "Total Liquidated
Liabilities" shall be the amount of the known liquidated liabilities of the
Partnership (other than those assumed by the Buyer), including without
limitation reimbursement by the Partnership to Management Committee members for
expenses incurred by such members on behalf of the Partnership, accounting fees,
legal fees, and all expenses incurred by the Partnership to consummate the sale
of Partnership Assets to the Buyer. The Contingency Reserve shall be the amount
of $350,000.00, which amount has been determined by the Management Committee as
the sum that, as of the closing of the Agreement, should reasonably be retained
by the Partnership to satisfy contingent or other future liabilities of the
Partnership; provided, however, that in the event the Mutual Release (as such
term is defined in the Agreement) is not obtained at Closing, the Contingency
Reserve shall be $450,000.00. The Exchange Agent is also hereby authorized by
the Partnership to receive delivery from Heartland of all remaining Acquisition
Shares (for resale by the Partnership), the sale of which shares shall result in
proceeds to the Partnership equal to the Total Liquidated Liabilities, the
Contingency Reserve, and the value of Acquisition Shares excluded from
Distributable Shares by virtue of being fractional shares not distributable to
the Partners by the terms of the Agreement (collectively, the "Liquidated
Shares").
3. DISTRIBUTION OF DISTRIBUTABLE SHARES. The Partnership hereby instructs
the Exchange Agent, on behalf of the Partnership, to distribute the
Distributable Shares to the Partners based on the pro rata ownership of each
Partner in the outstanding Partnership Units, as reflected on Exhibit A attached
hereto. Provided, however, no fractional shares shall be issued in connection
with the delivery of the Distributable Shares; instead, any fractional shares
shall be added to other Liquidated Shares and proceeds thereof shall be
distributed to the Partners along with any distributions (by or on behalf of the
Partnership) of the proceeds of the Liquidated Shares.
4. RESALE OF THE LIQUIDATED SHARES. The Partnership hereby instructs the
Exchange Agent, on behalf of the Partnership, to resell the Liquidated Shares in
the open market or in private transactions as instructed by the Liquidating
Partner (defined below), and to pay from the proceeds thereof such amounts and
to such persons or entities as instructed by the Liquidating Partner.
5. UTILIZATION OF PROCEEDS OF LIQUIDATED SHARES. The Liquidating Partner
shall, on behalf of the Partnership, pay and/or distribute (or cause the
Exchange Agent to pay and/or distribute) Distributable Funds (defined below), if
any, in the following order:
(a) Payment of the Total Liquidated Liabilities (it being understood
that the Exchange Agent and the Liquidating Partner shall cooperate so as to
provide, to the extent possible, for funds available for payment of the Total
Liquidated Liabilities upon the closing of sale of Partnership Assets under the
Agreement).
(b) Payment of any debts, liabilities, or obligations of the Partnership
not satisfied by payment of the Total Liquidated Liabilities or provided for by
establishment of the Contingency Reserve.
(c) Distribution to each Partner of that portion of the proceeds of the
sale of Liquidated Shares representing proceeds of fractional shares that would
have been delivered to such Partner in the event fractional shares had been
distributed by the Exchange Agent.
(d) Distribution to the Partners in accordance with the Partnership
Agreement (which requires that such amounts be first distributed to the Partners
in proportion to, and to the extent of, their capital account; and next to the
Partners in proportion to the number of Partnership Units owned by each).
For purposes of this Plan, the term "Distributable Funds" shall refer to
the net cash assets or cash equivalents of the Partnership reduced by the amount
which, in the sole reasonable discretion of the Liquidating Partner, is
necessary to provide a reasonable reserve for any future claims, expenses, or
contingencies that may be incurred during the remainder of the Liquidation. To
the extent all funds cannot be
H-2
<PAGE> 1048
H
distributed because of contingent liabilities of the Partnership, subsequent
distributions of the Distributable Funds, if any, shall be made no less often
than quarterly.
6. TRANSFER OF UNDISTRIBUTED ASSETS TO LIQUIDATING PARTNER. The
Distributable Shares shall be distributed by the Exchange Agent in accordance
with the procedures set forth in the Exchange Agent Agreement between the
Partnership, Heartland, and the Exchange Agent (the "Exchange Agreement"). On
the date six (6) months following the closing of the Agreement, the Exchange
Agent shall deliver to the Liquidating Partner all assets or other rights held
by the Exchange Agent for the benefit of the Partnership or its Partners,
including without limitation: (i) Distributable Shares held by the Exchange
Agent as a result of any Partner's failure to comply with established procedures
for receipt of his or her respective Distributable Shares or the inability to
locate a Partner, (ii) undistributed dividends or other distributions paid to
the Exchange Agent on the Acquisition Shares, (iii) remaining proceeds of the
sale of Liquidated Shares, and (iv) Liquidated Shares, if any, not sold by the
Exchange Agent (collectively, the "Undistributed Assets").
At the sole option of the Liquidating Partner, the Liquidating Partner may
(but is not required to) take reasonable steps during the Liquidation to attempt
to locate Partners who have failed to provide an accurate mailing address to the
Partnership; provided, however, any expenses directly incurred in attempting to
locate a Partner shall offset any distributions otherwise payable to such
Partner.
7. COMPLETION OF LIQUIDATION BY THE LIQUIDATING PARTNER. After receipt of
the Undistributed Assets but in no event later than completion of all other
aspects of the Liquidation, the Liquidating Partner is authorized to and shall
sell the Distributable Shares of each Partner that has not been located by the
Partnership ("Unlocated Partner"). The proceeds of such sale(s), along with all
other funds distributable to an Unlocated Partner shall be transferred by the
Liquidating Partner on behalf of the Partnership to a state official, trustee,
or other person authorized by law to receive distributions for the benefit of
each Unlocated Partner as may be determined by the Liquidating Partner. Such
proceeds shall thereafter be held solely for the benefit of and ultimate
distribution to each respective Unlocated Partner entitled to receive same. In
no event shall any of such proceeds revert to or become the property of the
Partnership.
In addition, in the event the Liquidating Partner receives as Undistributed
Assets any Liquidated Shares from the Exchange Agent (as the result of the
Exchange Agent being previously unable to sell such shares for the benefit of
the Partnership on acceptable terms), the Liquidating Partner shall sell such
shares on behalf of the Partnership. After receipt of the Undistributed Assets
and sale of any remaining Liquidated Shares, the Liquidating Partner shall take
any and all other actions as may be reasonably necessary to promptly resolve any
matters with respect to which any portion of the Contingency Reserve is being
held. Upon resolution of all such matters, the Liquidation shall be deemed
complete.
8. ALLOCATION OF INCOME AND/OR LOSS. Net Income and net loss of the
Partnership as a result of the sale of the Partnership's Assets, and following
the date of adoption of this Plan, shall be determined and allocated to the
Partners' capital accounts in accordance with the terms of the Partnership
Agreement.
9. PROVISIONS FOR LIQUIDATING PARTNER. The terms and provisions of this
Plan shall be carried out by the Partnership by and through a liquidating
partner (the "Liquidating Partner"). Until a successor is duly selected by the
Management Committee, BD2, Inc., a Texas corporation, shall serve as Liquidating
Partner. The Liquidating Partner and the Partnership agree to the following:
(a) The Liquidating Partner shall receive compensation for its services
hereunder as may be provided for in the Partnership Agreement, if any, and shall
serve without bond.
(b) The Liquidating Partner shall not be personally liable (and shall be
fully indemnified by the Partnership) for any assessments, charges, or damages,
or for any obligations in carrying out or effectuating the purposes of this
Plan; provided, however, that nothing shall relieve the Liquidating Partner from
liabilities arising out of his own willful misconduct, bad faith, or gross
negligence.
(c) The Liquidating Partner shall not be responsible in any manner
whatsoever for the validity or sufficiency of this Plan.
H-3
<PAGE> 1049
(d) The Liquidating Partner is entitled to act upon any paper or
document believed by him to be genuine.
(e) The Liquidating Partner may retain and consult with legal counsel,
accountants, and other appropriate professionals, and any act or failure to act
done or omitted in good faith in accordance with the opinion of any such person
shall create no liability on the part of the Liquidating Partner. The
Liquidating Partner may pay reasonable compensation to such persons for services
rendered.
(f) The Liquidating Partner shall not be liable for any acts or
omissions of any agents or attorneys elected or appointed by or acting for him
or the Partnership.
(g) The Liquidating Partner shall keep, or cause to be kept, (at the
Partnership's expense) just, true, and, correct books of account, which shall
reflect all of the receipts and disbursements of the accounts of the Partnership
in connection with the Liquidation.
10. POWERS OF LIQUIDATING PARTNER. The Liquidating Partner shall have the
following powers:
(a) To act on behalf of the Partnership after the closing of the sale of
the Partnership Assets under the Agreement as regards any decision,
authorization, or action required or contemplated under the Agreement or
Exchange Agreement, which includes without limitation, authority to ask for and
receive Undistributed Assets from the Exchange Agent.
(b) To invest amounts received by the Partnership pending distribution,
but such investment powers shall be limited to powers to invest in fully insured
demand and time deposits in banks and savings institutions, or the highest grade
of temporary investments such as short-term certificates of deposit or treasury
bills.
(c) To pay proper expenses of the Partnership, including without
limitation the reasonable and necessary expenses incurred in completing the
Liquidation.
(d) Sell, and hold the proceeds of the sale of, in accordance with the
terms of this Plan, any Distributable Shares not properly claimed by a Partner.
(e) Maintain financial and other records, at the Partnership's expense,
of the Liquidation.
(f) Cause to be prepared and filed, and execute on behalf of the
Partnership, all appropriate tax returns, reports, or filings required of the
Partnership.
(f) Generally, to do everything necessary or advisable in order to carry
out the purposes of this Plan.
11. RESIGNATION OR REMOVAL OF THE LIQUIDATING PARTNER. The Liquidating
Partner may resign at any time by delivering to the other members of the
Management Committee a written resignation, in which event the resignation shall
take effect immediately. The Liquidating Partner may be removed upon a finding
by the other members of the Management Committee that the Liquidating Partner
has failed to carry out the responsibilities of his position as set forth
herein. Upon the death, dissolution, bankruptcy, resignation, removal, or
inability to act as Liquidating Partner, the remaining members of the Management
Committee shall promptly select a replacement to fill the vacancy of the
Liquidating Partner.
H-4
<PAGE> 1050
H
12. TERMINATION OF POSITION. The position of Liquidating Partner shall
continue only so long as reasonably necessary to complete the Liquidation under
this Plan. Upon completion of the Liquidation, the Liquidating Partner shall
thereupon be fully released and discharged and his duties shall cease.
Dated , 1996
FORT WORTH WIRELESS CABLE T.V.
ASSOCIATES,
a California general partnership
By:
--------------------------------
Donald McGee, Co-Chairman,
Management Committee
Accepted and Agreed to as Liquidating Partner
BD2, Inc., a Texas corporation
By:
-----------------------------
Donald McGee, President
H-5
<PAGE> 1051
I
APPENDIX I
FTW DISCLOSURE STATEMENT
<PAGE> 1052
I
APPENDIX I
DISCLOSURE STATEMENT
OF
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
RELATING TO THE SOLICITATION OF WRITTEN CONSENTS
FOR APPROVAL OF THE SALE OF PARTNERSHIP ASSETS
This Disclosure Statement is being furnished to the general partners (the
"FTW Partners") of Fort Worth Wireless Cable T.V. Associates, a California
general partnership (the "FTW Partnership"), in connection with the solicitation
by the members of the management committee of the FTW Partnership (the
"Management Committee") of written consents ("Written Consents") approving the
sale and assignment (the "Sale") of substantially all of the assets of the FTW
Partnership (the "FTW Partnership Assets"), consisting primarily of the FTW
Partnership's equity interest in a joint venture owning the wireless cable
television assets that provide wireless cable television service in the
metropolitan area of Fort Worth, Texas, to Heartland Wireless Communications,
Inc. ("Heartland") in exchange for shares of common stock of Heartland, with an
aggregate exchange value of $13.3 million.
Due to the financial condition and other circumstances of the FTW
Partnership, beginning in 1993, the Management Committee began to pursue
alternatives to the FTW Partnership's relationship with American Wireless
Systems, Inc. ("AWS"). Toward that end, as of October 4, 1995, the FTW
Partnership executed a definitive asset purchase agreement with Heartland
providing for the Sale to Heartland of the FTW Partnership Assets in exchange
for shares of common stock of Heartland. Consummation of the Sale is subject to
various conditions, including approval by FTW Partners holding two-thirds ( 2/3)
of the outstanding equity and voting interest of the FTW Partnership.
Through this Disclosure Statement (which incorporates by reference the
Proxy Statement/Prospectus of Heartland (the "Heartland Prospectus")
accompanying this Disclosure Statement) and the Written Consents, the FTW
Partners will consider and vote upon the following proposal (the "Proposal"):
APPROVAL AND AUTHORIZATION OF (I) THE EXECUTION AND DELIVERY OF THE
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (THE "FTW AGREEMENT"),
DATED AS OF OCTOBER 4, 1995, BY AND BETWEEN THE FTW PARTNERSHIP AND
HEARTLAND, IN THE FORM ATTACHED TO THE HEARTLAND PROSPECTUS AS
APPENDIX E, AND THE PERFORMANCE BY THE FTW PARTNERSHIP OF ALL OF THE
TRANSACTIONS CONTEMPLATED BY THE FTW AGREEMENT, INCLUDING WITHOUT
LIMITATION, THE SALE OF THE FTW PARTNERSHIP ASSETS IN EXCHANGE FOR
SHARES OF COMMON STOCK OF HEARTLAND, WITH AN AGGREGATE EXCHANGE VALUE
OF $13.3 MILLION AND THE ASSUMPTION OF UP TO $570,000 OF CERTAIN
POTENTIAL LIABILITIES OF THE FTW PARTNERSHIP; (II) THE MUTUAL RELEASE
OF AWS AND CERTAIN RELATED AND OTHER PARTIES SPECIFIED IN THE FTW
AGREEMENT PURSUANT TO THE FORM OF THE "FTW CLAIM RELEASE" ATTACHED TO
THE HEARTLAND PROSPECTUS AS APPENDIX F (OR, IN THE ABSENCE OF SUCH
MUTUAL RELEASE, AN ASSIGNMENT TO HEARTLAND OF CERTAIN CLAIMS AGAINST
AWS AND CERTAIN RELATED AND OTHER PARTIES SPECIFIED IN THE FTW
AGREEMENT PURSUANT TO THE FORM OF THE "FTW CLAIM ASSIGNMENT" ATTACHED
TO THE HEARTLAND PROSPECTUS AS APPENDIX G); AND (III) APPROVAL OF THE
LIQUIDATION AND DISSOLUTION OF THE FTW PARTNERSHIP AND THE WINDING UP
OF ITS AFFAIRS ("FTW LIQUIDATION") PURSUANT TO THE AGREEMENT AND PLAN
OF LIQUIDATION (THE "FTW LIQUIDATION PLAN") IN THE FORM ATTACHED TO
THE HEARTLAND PROSPECTUS AS APPENDIX H. THE MATTERS ENCOMPASSED BY THE
PROPOSAL ARE COLLECTIVELY REFERRED TO HEREIN AS THE "FTW
TRANSACTIONS".
The Written Consents hereby solicited may be revoked, subject to the
procedures described herein, until such time that the FTW Partnership has
received Written Consents approving the Proposal from FTW Partners representing
at least two-thirds ( 2/3) of the FTW Partnership Units.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 OF THIS DISCLOSURE STATEMENT AND
PAGE 28 OF THE HEARTLAND PROSPECTUS FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY EACH FTW PARTNER IN DECIDING WHETHER TO APPROVE THE FTW
TRANSACTIONS.
This Disclosure Statement and the accompanying form of Written Consent are
first being mailed to the FTW Partners on or about January 26, 1996. THIS
DISCLOSURE STATEMENT MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY THE HEARTLAND
PROSPECTUS.
The date of this Disclosure Statement is January 26, 1996.
<PAGE> 1053
I
INDEX
TO
DISCLOSURE STATEMENT
OF
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
<TABLE>
<S> <C>
SALE OF THE FTW PARTNERSHIP ASSETS.................................................. I-1
Background and Reasons for the FTW Transactions................................... I-1
Summary of the FTW Agreement and Related Agreements............................... I-2
Number of Shares to be Issued under FTW Agreement and Market Value................ I-8
Background, Alternatives, Value of FTW Partnership's Assets, and Recommendation of
the Management Committee....................................................... I-9
FTW LIQUIDATION PLAN................................................................ I-15
RISK FACTORS........................................................................ I-16
Risks Associated with Continuation of FTW Venture................................. I-16
Risks Associated with the Sale of the FTW Partnership Assets to Heartland......... I-18
Risks Associated with the FTW Loan................................................ I-18
POTENTIAL CAUSES OF ACTION HELD BY THE FTW PARTNERSHIP.............................. I-18
VOTING THROUGH THE WRITTEN CONSENTS................................................. I-19
The Written Consents.............................................................. I-19
Vote Required..................................................................... I-20
ABSENCE OF DISSENTERS' RIGHTS....................................................... I-20
DESCRIPTION OF THE BUSINESS......................................................... I-20
Description of the FTW Partnership................................................ I-20
Offer and Sale of the FTW Partnership Units....................................... I-21
Description of the FTW Venture.................................................... I-21
Employees......................................................................... I-21
Properties........................................................................ I-22
Legal Proceedings................................................................. I-22
Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... I-22
FTW Partnership Unit Ownership of Certain Persons and Management.................. I-22
MEMBERS OF MANAGEMENT COMMITTEE OF THE FTW PARTNERSHIP.............................. I-23
FINANCIAL MATTERS................................................................... I-24
Accounting Treatment.............................................................. I-24
Federal Income Tax Consequences................................................... I-24
Financial Statements.............................................................. I-25
ENCLOSURES
Written Consent of Partner of Fort Worth Wireless Cable T.V. Associates
Proxy Statement/Prospectus of Heartland Wireless Communications, Inc.
</TABLE>
I-i
<PAGE> 1054
I
SALE OF THE FTW PARTNERSHIP ASSETS
The detailed terms of the Sale of the FTW Partnership Assets are contained
in the FTW Agreement attached in its entirety as APPENDIX E to the Heartland
Prospectus. The following discussion describes the more important aspects of the
Sale of the FTW Partnership Assets and the terms of the FTW Agreement, the FTW
Claim Release, and FTW Claim Assignment. This description is not complete and is
qualified in its entirety by the terms of the documents that are referred to and
which the FTW Partners are urged to read carefully.
BACKGROUND AND REASONS FOR THE FTW TRANSACTIONS
The FTW Partnership and AWS (a Delaware corporation) are the venturers in a
joint venture (the "FTW Venture") that owns the wireless cable television assets
that provide wireless cable television service in the metropolitan area of Fort
Worth, Texas (the "Fort Worth System"). The FTW Partnership owns a 79.99% equity
interest (the "FTW Interest") in the FTW Venture. The relationship between the
FTW Partnership and AWS has been strained due to several factors. First, the FTW
Partnership and AWS have been unable to reach a definitive agreement regarding
their respective rights and obligations with respect to the FTW Venture. In
particular, the FTW Partnership and AWS have disputed the respective obligations
of the parties relative to obtaining or providing additional equity and debt
financing for the Fort Worth System. Second, the FTW Partnership has questioned
whether the original offer and sale of interests in the FTW Partnership by
American Wireless System, Inc., a California corporation ("Wireless California")
constituted the offer and sale of unregistered securities in violation of
federal and state securities laws. In this regard, AWS, Wireless California, and
certain of the principals thereof have been the subject of investigations by the
Securities and Exchange Commission (the "SEC") and investigations and actions by
various state securities administrators regarding the prior offer and sale of
the general partnership units of the FTW Partnership (the "FTW Partnership
Units"). In addition, the FTW Partnership has maintained that AWS has taken and
has failed to take certain actions, which actions and failures to act might be
detrimental to the best interests of the FTW Venture and the FTW Partnership. As
a result of these and other factors, the future prospects of the FTW Partnership
and the FTW Venture and the ability of the FTW Partnership to obtain financing
or the FTW Venture to generate positive cash flow so as to be able to provide
FTW Partners with a return on their initial investment have been uncertain.
Due to this strained relationship, the FTW Partnership and AWS have not
entered into formal joint venture or management agreements. The FTW Venture has
financial requirements for existing obligations as well as the continued
development, growth, and operation of the Fort Worth System. Under the
circumstances, the FTW Venture has extremely limited, if any, prospects for
obtaining financing for such purposes.
Heartland desires to acquire the FTW Interest from the FTW Partnership. In
connection therewith, AWS, Heartland and Heartland Merger Sub, Inc. ("AWS Merger
Sub") have entered into an Agreement and Plan of Merger dated September 11, 1995
(the "AWS Merger Agreement") pursuant to which AWS Merger Sub will be merged
(the "AWS Merger") with and into AWS and AWS Merger Sub, a wholly owned
subsidiary of Heartland, will succeed to AWS's interest in the FTW Venture,
subject to various conditions contained in the AWS Merger Agreement.
Consummation of the FTW Transactions, however, is not conditioned upon
completion of the AWS Merger.
The proposed Sale by the FTW Partnership of its FTW Interest, together with
the proposed AWS Merger, would allow Heartland, directly and through AWS Merger
Sub, to acquire 100% of the Fort Worth System and would resolve any continuing
uncertainty regarding the FTW Venture. Consummation of the proposed Sale of the
FTW Partnership Assets and the subsequent liquidation of the FTW Partnership is
intended to resolve the outstanding differences between the FTW Partnership and
AWS and provide for the return of the FTW Partners' investment in the FTW
Partnership. Because of the financial, legal, and business uncertainty and
difficulties surrounding the continuation of the FTW Venture, the Management
Committee believes that the FTW Transactions present a fair and reasonable
course of action at the present time and unanimously recommends approval of the
Proposal. See "SALE OF THE FTW PARTNERSHIP AS-
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SETS -- Background, Alternatives, Value of FTW Partnership's Assets, and
Recommendation of the Management Committee."
SUMMARY OF THE FTW AGREEMENT AND RELATED AGREEMENTS
The following paragraphs summarize the material terms of the FTW Agreement,
the FTW Claim Release, and the FTW Claim Assignment, which are included in their
entirety as Appendix E, Appendix F, and Appendix G, respectively, to the
Heartland Prospectus and are incorporated by reference herein. The FTW Partners
are urged to read these documents in their entirety for a more complete
description of the transactions contemplated thereby.
The FTW Agreement
Sale and Assignment of the FTW Partnership Assets. The FTW Partnership has
agreed to transfer to Heartland, at the Closing (defined below), all right,
title, and interest in and to the FTW Interest, and to assign to Heartland,
subject to applicable conditions or alternatives, certain claims against AWS and
certain current and former affiliates of AWS (the "FTW Claims"). The FTW
Interest and FTW Claims are sometimes referred to herein as the FTW Partnership
Assets. The FTW Partnership Assets constitute all of the material assets of the
FTW Partnership.
The FTW Agreement provides that, to the knowledge of the FTW Partnership,
the assets used in the conduct of the Fort Worth System and operations of the
FTW Venture, whether held in the name of the FTW Partnership, the FTW Partners,
or otherwise, are owned by the FTW Venture. These assets include contracts,
governmental permits, licenses, equipment, documents, facilities, prepaid
subscriber fees, intellectual property, accounts, accounts receivable, credits,
prepaid expenses, advance payments, security deposits, prepaid items, goodwill,
and other intangible assets of the Fort Worth System and any other real,
personal, tangible or intangible, property or rights of the FTW Partnership used
in the conduct of the Fort Worth System. By the transfer of the FTW Interest,
the FTW Partnership will transfer all of its direct or indirect rights in the
foregoing items to Heartland.
The FTW Partnership has also agreed to execute a mutual release with
respect to the FTW Claims. For a discussion of the release of the FTW Claims,
and conditions thereto (including, in the alternative, an assignment of such
claims), see hereunder "FTW Claim Release or FTW Claim Assignment."
Purchase Price. As consideration for the Sale of the FTW Partnership
Assets, Heartland has agreed to (a) assume up to $570,000 of certain potential
liabilities of the FTW Partnership, and (b) deliver to an exchange agent common
stock of Heartland ("Heartland Shares") equal to (i) Thirteen Million Three
Hundred Thousand and No/100 Dollars ($13,300,000) (the "Purchase Price"),
divided by a specified Exchange Price (such Heartland Shares are referred to as
the "FTW Shares"). The Exchange Price is $23 per share if the Closing Share
Price (defined below) is $23 or more per share. However, if the Closing Share
Price is less than $23 per share, then the Exchange Price shall be that Closing
Share Price; however, each party to the FTW Agreement has a right to terminate
the FTW Agreement if the Closing Share Price is less than $17 per share. The
"Closing Share Price" means the average closing price of the Heartland Shares as
reported on the NASDAQ Stock Market National Market System for the ten (10)
trading days ending on the fifth (5th) business day prior to the date of the
Closing. It is presently anticipated that consummation of the FTW Transactions
will occur February 23, 1996; in which case, the Closing Share Price would be
the average closing price of the Heartland Shares for the ten trading days
ending February 16, 1996. See "SALE OF THE FTW PARTNERSHIP ASSETS -- Number of
Shares to be Issued under FTW Agreement and Market Value" herein and
"INFORMATION CONCERNING HEARTLAND -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions" in the accompanying Heartland
Prospectus for a discussion of the maximum and anticipated number of shares of
Heartland stock issuable in connection with the FTW Transactions under certain
assumed circumstances.
The FTW Shares will be distributed to the FTW Partners, subject to a
portion of such shares being utilized to satisfy outstanding obligations of the
FTW Partnership. More particularly, at Closing, the FTW Shares will be delivered
to Harris Trust Company of New York, as exchange agent for the benefit of the
FTW
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I
Partnership (the "Exchange Agent"), and shall be held by the Exchange Agent
pending their distribution to, or liquidation on behalf of, the FTW Partners
pursuant to the terms of an exchange agent agreement (the "Exchange Agreement").
Subject to the terms of the Exchange Agreement, the Exchange Agent (on behalf of
and at the direction of the FTW Partnership) will take the following actions
with respect to the FTW Shares: (a) deliver a number of FTW Shares (the "FTW
Liquidated Shares") to the FTW Partnership for concurrent offering for resale to
the public, and (b) deliver to the FTW Partners the FTW Shares less the FTW
Liquidated Shares (such balance being referred to as the "FTW Distributable
Shares"). (See below "Resale of FTW Liquidated Shares," "Distribution of FTW
Distributable Shares to FTW Partners," and "Registration of the FTW Shares.")
The potential liabilities to be assumed by Heartland under the FTW
Agreement are (i) potential liabilities of the FTW Partnership for indebtedness
owed (or alleged by AWS to be owed) to AWS as of the date of Closing associated
with operations of the FTW Venture and the Fort Worth System, to the extent such
indebtedness does not exceed on or before January 31, 1996, $510,000; on or
before February 29, 1996, $540,000; and on or before March 31, 1996, $570,000;
(ii) any contingent liabilities of the FTW Partnership to AWS arising from
certain matters disclosed by the FTW Partnership to Heartland; and (iii) any
liabilities associated with the FTW Interest arising after the date of Closing.
Resale of the FTW Liquidated Shares. When the FTW Liquidated Shares are
delivered by the Exchange Agent to the FTW Partnership, the FTW Liquidated
Shares will be offered for resale on behalf of the FTW Partnership pursuant to
Heartland's Registration Statement (defined below) in the open market, in
privately negotiated sales, or as otherwise directed by the FTW Committee. The
proceeds of the resale of the FTW Liquidated Shares will be utilized by the FTW
Partnership to satisfy liquidated liabilities of the FTW Partnership not assumed
by Heartland and to provide a reserve for contingent liabilities. The Management
Committee estimates that the amount necessary to satisfy the FTW Partnership's
liquidated liabilities will be approximately $900,000, and that the estimated
reserve for contingent liabilities will be approximately $450,000. As such, the
Management Committee estimates that the number of FTW Liquidated Shares will be
the number of FTW Shares having an aggregate value at Closing equal to a total
of approximately $1,350,000.
Distribution of FTW Distributable Shares to FTW Partners. If the FTW
Transactions are approved by the FTW Partners, the Exchange Agent will deliver
to each FTW Partner a letter of transmittal containing instructions regarding
each FTW Partner's receipt of their respective portions of the FTW Distributable
Shares. Upon the return of a duly executed letter of transmittal, each FTW
Partner will be entitled to receive the number of FTW Distributable Shares equal
to such FTW Partners's percentage ownership interest of the FTW Partnership
multiplied by the total number of FTW Distributable Shares. Upon completion of
the dissolution and winding up of the FTW Partnership, each FTW Partner will
also receive the FTW Partner's pro rata interest in the remaining proceeds, if
any, from the resale of the FTW Liquidated Shares. The Management Committee
anticipates that upon consummation of the FTW Transactions, FTW Shares having an
aggregate value of approximately $11,950,000 (or approximately $8,190 per FTW
Partnership Unit, rounded down to the nearest whole share) would be available
for distribution to the FTW Partners (assuming receipt of stock worth $13.3
million at closing). The number of FTW Distributable Shares to be received by
each FTW Partner will be rounded down to the nearest whole share, and any
fractional shares will be added to the FTW Liquidated Shares, with the proceeds
thereof to be distributed pursuant to the FTW Liquidation Plan. Upon completion
of the FTW Liquidation, any remaining FTW Shares (or the proceeds thereof) will
be distributed among the FTW Partners.
Registration of the FTW Shares. Pursuant to the FTW Agreement, Heartland
has prepared and filed with the SEC a registration statement on Form S-4 (the
"Registration Statement") for the purpose of registering the FTW Shares for
distribution to the FTW Partners (as regards the FTW Distributable Shares) and
distribution to the FTW Partnership and concurrent offering for resale to the
public (as regards the FTW Liquidated Shares). The Registration Statement
contains the Heartland Prospectus, which accompanies this Disclosure Statement,
and is delivered to the FTW Partners with respect to the Heartland Shares
issuable pursuant to the FTW Agreement. As set forth in the Heartland
Prospectus, upon issuance to the FTW
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Partners of the FTW Distributable Shares, such shares will be available for
public trading by the FTW Partners on the NASDAQ Stock Market National Market
System under the trading symbol "HART".
Consummation of the FTW Transactions contemplated by the FTW Agreement
would result in each FTW Partner receiving a number of Heartland Shares. As
such, each FTW Partner is urged to read the Heartland Prospectus carefully
before making a decision to vote FOR or AGAINST the Proposal.
Closing of the FTW Agreement. Assuming satisfaction of all conditions to
closing set forth in the FTW Agreement, the closing of the transactions
contemplated by the FTW Agreement (the "Closing") is expected to occur no later
than February 29, 1996. The FTW Partnership and Heartland have the right, acting
unilaterally, to terminate the FTW Agreement if the Closing has not occurred by
March 15, 1996. See "SALE OF THE FTW PARTNERSHIP ASSETS -- Conditions Precedent
to Closing" and "-- Termination of the FTW Agreement."
FTW Claim Release or FTW Claim Assignment. The FTW Partnership and AWS have
ongoing disagreements as to the respective rights and obligations of AWS on one
hand and the FTW Partnership and the FTW Partners on the other. The FTW
Partnership believes that the factual background of the relationship between the
FTW Partnership and AWS, and certain acts (or omissions) of AWS and its current
and former officers, directors, and related parties, potentially form the basis
of certain causes of action by the FTW Partnership against AWS and its current
and former officers, directors, and related parties for which the FTW
Partnership could seek recovery of monetary damage. Such causes of action are
referred to herein as the FTW Claims and are further described herein, see
"POTENTIAL CAUSES OF ACTION HELD BY THE FTW PARTNERSHIP." On the other hand, AWS
has asserted that it is owed certain amounts, including management fees, by the
FTW Venture (for which the FTW Partners and the FTW Partnership could be
liable), which assertion the FTW Partnership disputes. The FTW Agreement
provides two alternatives with respect to the rights and obligations of the FTW
Partnership and Heartland in regard to the FTW Claims. As one alternative,
Heartland will obtain from AWS and its current officers, directors, and existing
affiliates, Wireless California, AWS Liquidating, L.L.C., Micom Products, Ltd.,
Jeffrey D. Howes, Dexter S. Cohen, Kevin C. King and Steven G. Johnson
(collectively, the "AWS Parties") execution and delivery of a mutual release
(the "FTW Claim Release") in the form attached to the Heartland Prospectus as
Appendix F, which FTW Claim Release would also be executed by the FTW
Partnership. FTW Partners consenting to the FTW Transactions will, by their
consent, become a party to the FTW Claim Release. The FTW Claim Release would be
a mutual release of any and all claims and causes of action that each AWS Party
and the FTW Partnership and FTW Partners consenting to the FTW Transactions may
have as to any other party to the release, including without limitation the FTW
Claims.
In the event the FTW Claim Release is not executed by such parties, the FTW
Agreement provides that the FTW Partnership and FTW Partners consenting to the
FTW Transaction would assign the FTW Claims (or certain of those claims) to
Heartland at the Closing in the form of assignment (the "FTW Claim Assignment")
attached to the Heartland Prospectus as Appendix G. Through the FTW Claim
Assignment, the FTW Partnership would assign to Heartland all of the FTW
Partnership's right, title, and interest in the FTW Claims, provided however,
the FTW Partnership would retain an interest in the FTW Claims from and after
the Closing which will allow the FTW Partnership to assert the FTW Claims in
connection with or as a defense to any action brought by any AWS Party against
the FTW Partnership or any FTW Partner consenting to the FTW Transaction.
Additionally, through the FTW Claim Assignment, Heartland would indemnify the
FTW Partnership and FTW Partners consenting to the FTW Transaction from the FTW
Claims as set forth in the FTW Claim Assignment.
FTW Earnest Money; FTW's Loan to the FTW Partnership. In connection with
the FTW Agreement, Heartland on October 12, 1995, deposited in escrow $100,000
and has agreed to deposit an additional $55,000 on the first day of each month
thereafter commencing November 1, 1995 until the Closing (collectively, the "FTW
Earnest Money"). Concurrently with the execution of the FTW Agreement, Heartland
agreed to loan (the "FTW Loan") to the FTW Partnership up to $500,000 which
funds will be disbursed and utilized in accordance with a loan agreement ("FTW
Loan Agreement"), promissory note ("FTW Note"), and security agreement each
between the FTW Partnership and Heartland (collectively, the "FTW Loan
Documents").
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I
As set forth in the FTW Loan Agreement, the proceeds of the FTW Loan have been
or will be used by the FTW Partnership to pay certain outstanding expenses of
the FTW Partnership, including legal and accounting fees, and expenses incurred
or to be incurred to consummate the FTW Transactions. The FTW Loan is secured by
a first lien granted by the FTW Partnership in and to the FTW Interest.
The outstanding principal balance of the FTW Note and all accrued but
unpaid interest thereon are due and payable in full on the first to occur of the
following dates: (i) if the FTW Transactions are consummated in accordance with
the FTW Agreement, then the date of Closing; (ii) if the FTW Agreement is
terminated by Heartland because of the failure of any representation or warranty
made by the FTW Partnership to be true in all material respects, or the failure
of the FTW Partnership to materially perform all of its obligations under the
FTW Agreement, or if the FTW Agreement is terminated by any party thereto
arising from the failure of the Proposal to be approved by FTW Partners
representing two-thirds ( 2/3) of the FTW Partnership Units, then 90 days after
the date of such termination; (iii) if the FTW Agreement is terminated for
reasons not otherwise provided for in the FTW Note, then 6 months after the date
of such termination; or (iv) if the FTW Agreement is terminated as a result of a
competing acquisition proposal and Heartland does not exercise its right of
first refusal regarding such acquisition proposal in accordance with the FTW
Agreement, then upon such termination.
Representations and Warranties. In the FTW Agreement (and through schedules
attached thereto), the FTW Partnership makes significant representations and
warranties to Heartland regarding the FTW Partnership and the FTW Venture.
Although the FTW Agreement sets forth such representations and warranties in
full, the nature of representations and warranties include: organization of the
FTW Partnership, outstanding rights as to the FTW Interest, authority of the FTW
Partnership to consummate the FTW Transactions, financial statements, property,
accounts receivable, contracts, FCC matters, insurance, litigation, governmental
permits, compliance with laws, environmental matters, intellectual property,
liens, regulatory compliance, interference, employees, finder's fees,
programming agreements, activities, and books and records of the FTW Partnership
and/or the FTW Interest. Notwithstanding such representations and warranties,
Heartland acknowledges in the FTW Agreement that the FTW Venture has been
managed by AWS and the FTW Partnership has had little or no independent
information regarding the FTW Venture's operations, properties, assets, or
liabilities, other than information provided to the FTW Partnership by AWS, and
that the representations and warranties of the FTW Partnership regarding the FTW
Venture are limited to the knowledge of the FTW Partnership derived from inquiry
of and/or information provided by AWS.
In the FTW Agreement, Heartland makes representations and warranties to the
FTW Partnership regarding its organization and authority to consummate the FTW
Transactions, litigation, consents and approvals, capitalization, financial
statements, and SEC filings.
Business of the FTW Partnership Pending the Closing. The FTW Partnership
has agreed that until the Closing, and except as expressly permitted in the FTW
Agreement, the FTW Partnership (i) will not, and will not cause the FTW Venture
to, engage in any practice, take any action or enter into any transaction other
than in the customary and ordinary course of business without the consent of
Heartland; (ii) will use reasonable efforts to keep its business, properties,
and business relationships substantially intact; (iii) will pay and perform all
of its debts, liabilities, and obligations, except to the extent being
contested, or as to which adequate reserves have been established; (iv) will not
take action which would cause or constitute a material breach of the FTW
Agreement, but if such a breach occurs or is threatened, the FTW Partnership
shall give notice to Heartland and use reasonable efforts to remedy such breach;
(v) will use reasonable efforts to cause the FTW Venture to preserve, protect,
and maintain its rights and interests in channel leases, FCC licenses, and
contracts including but not limited to filing or having the licensees or
permittees file with the FCC any and all reports, applications, or other
documents necessary to preserve the underlying licenses in full force and
effect; (vi) will not, and will not cause the FTW Venture to, enter into, amend,
or terminate, or agree to enter into, amend, or terminate, any channel lease,
license, permit, application, or contract; (vii) will not, and will not cause
the FTW Venture to, make any distributions to the FTW Partnership, AWS, or the
FTW Partners, nor will the FTW Partnership cause the FTW Venture to issue or
sell any equity interests or rights thereto; (viii) will not, and will not cause
the FTW Venture to, sell, lease, transfer, or otherwise dispose of any assets of
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the FTW Partnership or the FTW Venture; (ix) will not, and will not cause the
FTW Venture to, increase in any manner the compensation of, or pay bonuses to,
any of either of its managers, officers or employees, nor shall the FTW
Partnership pay any salaries except in the ordinary course of business; (x) will
not grant or transfer any rights to the FTW Interest or FTW Claims; and (xi)
will not take any actions which would cause the transactions contemplated under
the FTW Agreement to be subject to Subpart 900 of Regulation S-K promulgated
under the Securities Act of 1933 (the "Roll-up Rules").
No Solicitation. Under the FTW Agreement, the FTW Partnership has agreed
that neither it nor any of its Management Committee members, agents, or other
representatives will solicit, initiate, or encourage any discussions or
negotiations with any third party concerning any tender or exchange offer,
merger, consolidation, or other business combination involving the FTW
Partnership or the FTW Venture or any proposal to acquire any substantial equity
interest in, or substantial portion of the assets of, the FTW Partnership or the
FTW Venture, other than the transactions contemplated by the FTW Agreement;
provided, however, that the FTW Partnership may furnish information or enter
into discussions with a third party that makes an unsolicited bona fide offer to
acquire the FTW Partnership or a substantial portion of its assets to the extent
that the Management Committee determines that such action is required to comply
with its fiduciary duties to the FTW Partners. The FTW Partnership has agreed to
notify Heartland immediately of any inquiries or proposals with respect to any
such transaction that are received by, or any such negotiations or discussions
that are sought to be initiated with, the FTW Partnership. Further, the ability
of the FTW Partnership to accept a competing offer or proposal is subject to
Heartland's right of first refusal. In the event the FTW Agreement is terminated
as a result of a competing acquisition proposal, the FTW Partnership shall,
within two days of such termination, deliver to Heartland the sum of $250,000
plus the outstanding principal and accrued interest under the FTW Loan, and the
FTW Earnest Money shall be returned to Heartland.
Conditions Precedent to Closing. The obligations of the FTW Partnership and
Heartland to close the transactions contemplated by the FTW Agreement are
subject to a number of conditions. In particular, the obligations of the parties
to the FTW Agreement are subject to the following conditions: (i) the
effectiveness of the Registration Statement and receipt of any required
authorizations from state securities agencies; (ii) no governmental authority or
court shall have taken action which makes the transactions under the FTW
Agreement illegal; (iii) requisite filings with and consents from governmental
entities shall have been made or obtained, (iv) FTW Partners representing
two-thirds ( 2/3) or more of the FTW Partnership Units have approved the FTW
Transactions; (v) the parties to the FTW Transactions shall not be required to
comply with the Roll-up Rules; and (vi) the Closing Share Price shall not be
less than $17 per Heartland Share.
The obligations of Heartland to close the transactions contemplated by the
FTW Agreement are conditioned upon the occurrence of the following: (i) the
transactions under the FTW Agreement shall have been approved by the requisite
votes of the holders of Heartland Shares; (ii) representations and warranties
made by the FTW Partnership shall be true and correct in all material respects;
(iii) the FTW Partnership shall have executed and delivered all closing
documents to Heartland as set forth in the FTW Agreement; (iv) the Registration
Statement shall have been declared effective by the SEC; (v) no material adverse
change shall have occurred with respect to the FTW Partnership, the FTW Venture,
the FTW Interest, or prospects of any thereof from the date of the FTW Agreement
through the date of the Closing, and as of the date of the Closing, specified
liabilities of the FTW Partnership do not exceed certain limitations specified
in the FTW Agreement; (vi) Heartland shall have obtained audited financial
statements of the FTW Partnership and an accountant's letter of consent to use
same; (vii) all obligations of the FTW Partnership for Closing shall have been
performed in all material respects; and (viii) all necessary approvals or
consents contemplated under the FTW Agreement have been obtained.
FTW Partnership's obligation to close the transactions contemplated under
the FTW Agreement is conditioned upon the occurrence of the following: (i) the
FTW Transactions shall have been approved by FTW Partners representing at least
two-thirds ( 2/3) of the FTW Partnership Units; (ii) representations and
warranties made by Heartland shall be true and correct in all material respects;
(iii) Heartland shall have executed and delivered to the FTW Partnership all
closing documents contemplated under the FTW Agreement; (iv) all obligations of
Heartland for Closing shall have been performed in all material respects;
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I
and (v) no event shall have occurred that would require the information
regarding Heartland contained in the Registration Statement to be amended or
supplemented under applicable securities laws.
It is anticipated that the foregoing conditions will be satisfied, but the
FTW Partnership and Heartland may waive any condition to their respective
obligations to close the transactions under the FTW Agreement, except that the
requisite consent of the FTW Partners and the necessary and appropriate
governmental consents, approvals and clearances for consummation of the
transactions may not be waived. The Management Committee will not, however,
waive any condition which, in the opinion of the Management Committee, will have
any material adverse effect on the FTW Partners.
Indemnification. The FTW Partnership has agreed to indemnify, defend, and
hold harmless Heartland from and against, and shall reimburse Heartland with
respect to, any and all losses, obligations, liabilities, settlement payments,
awards, judgments, fines, penalties, damages, deficiencies, court costs, costs
of arbitration or administrative proceedings, attorneys' fees and other
reasonable expenses and costs ("Damages") incurred by Heartland by reason of or
arising out of or in connections with (A) any breach of any representation or
warranty of the FTW Partnership contained or referred to in the FTW Agreement,
in any schedule hereto, or in any certificate or other instrument executed by
the FTW Partnership in connection with the FTW Agreement; (B) any failure by the
FTW Partnership to perform any of its agreements, covenants, or other
obligations under the FTW Agreement or in any other document executed by it in
connection with the FTW Agreement; (C) liabilities of the FTW Partnership not
assumed by Heartland (including the FTW Loan); and (D) the operations and
activities of the FTW Partnership and its affiliates, including those related to
the FTW Interest and the FTW Partnership Assets, prior to the Closing. Pursuant
to the terms of the FTW Agreement, the indemnification obligations of the FTW
Partnership generally continue for a period of four years following the
consummation of the FTW Agreement. Because the FTW Partnership is a general
partnership, and notwithstanding the anticipated liquidation and dissolution of
the FTW Partnership, the FTW Partners will remain personally liable for the
indemnification obligations of the FTW Partnership under the FTW Agreement to
the extent the FTW Partnership is unable to satisfy such obligations. In
connection with the FTW Liquidation Plan, the Management Committee anticipates
liquidating FTW Shares having a value of approximately $1,350,000 to pay the
estimated known liabilities and to reserve for certain contingent liabilities of
the FTW Partnership.
Heartland has agreed to indemnify, defend, and hold harmless the FTW
Partnership from and against, and shall reimburse the FTW Partnership for, any
and all Damages incurred by it by reason of or arising out of or in connection
with (A) any breach of any representation or warranty of Heartland contained or
referred to in the FTW Agreement, or in any certificate or other instrument
executed by Heartland in connection with the FTW Agreement; (B) any failure by
the Heartland to perform any of its agreements, covenants, or other obligations
under the FTW Agreement or in any other document executed by it in connection
with the FTW Agreement; and (C) liabilities of the FTW Partnership assumed by
Heartland pursuant to the FTW Agreement.
Termination of the FTW Agreement. The FTW Agreement may be terminated and
abandoned prior to the Closing: (i) by the mutual consent of the FTW Partnership
and Heartland; (ii) by the FTW Partnership in the event the Closing conditions
are not satisfied in full or waived on or before January 31, 1996 unless such
date is extended pursuant to the terms of the FTW Agreement, or upon a default
by Heartland in its obligations under the FTW Loan Documents, or in the event
Heartland or any governmental authority requires a modification to this
Disclosure Statement or the taking of action in connection with the solicitation
of the FTW Partners that the FTW Partnership deems unreasonable, inappropriate,
or burdensome; or (iii) by Heartland in the event the Closing conditions are not
satisfied in full or waived on or before January 31, 1996 unless such date is
extended pursuant to the terms of the FTW Agreement, or by written notice from
Heartland, upon the payment (or offset against the FTW Loan) of FTW Earnest
Money. Upon termination of the FTW Agreement as described above, each party to
the FTW Agreement may have certain rights and remedies against each other, which
rights or remedies are set forth in the FTW Agreement and depend on the specific
circumstances of the termination. However, in general, if the FTW Agreement is
terminated by Heartland as a result of a breach of a representation, warranty,
or covenant of the FTW Partnership, then the
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FTW Earnest Money is to be returned to Heartland and the FTW Loan is to be
repaid in accordance with its terms. If the FTW Agreement is terminated for any
other reason, then the FTW Earnest Money shall be offset against the FTW Loan,
and the remainder of the FTW Loan shall be repaid in accordance with its terms.
NUMBER OF SHARES TO BE ISSUED UNDER FTW AGREEMENT AND MARKET VALUE
Generally. The exact number of shares of Heartland Common Stock ultimately
issued under the FTW Agreement will not be determined until consummation of the
transactions thereunder. However, such number will be calculated as the Purchase
Price of $13,300,000 divided by the Exchange Price (which will be the average
closing price of Heartland Common Stock as quoted on the NASDAQ Stock Market
over the ten-day-trading period ending on the fifth business day preceding
consummation of the FTW Agreement); provided that if such average closing price
is in excess of $23 per share, the Exchange Price shall be $23 per share.
Further, if such average closing price is below $17 per share, either the FTW
Partnership or Heartland may terminate the FTW Agreement (and Heartland has
advised the FTW Partnership that it currently intends to exercise such right, if
applicable). If the Exchange Price is $17 per share, 782,353 Heartland Shares
would be issued; and if the Exchange Price is $23 per share (i.e., if the
average closing price is at or over $23 per share), 578,261 Heartland Shares
would be issued to the FTW Partnership.
Number of Shares to be Issued and Related Assumptions. Although the exact
Exchange Price at Closing (and therefore the exact number of Heartland Shares
issuable under the FTW Agreement) cannot be determined at this time, the
following chart indicates, under various pricing scenarios, an example of (i)
the aggregate number of Heartland Shares issuable to the FTW Partnership, (ii)
the number of shares to be liquidated by the FTW Partnership to satisfy or
provide for liabilities and contingencies, (iii) the number of shares
distributable to FTW Partners in the aggregate and on a per FTW Partnership Unit
basis, and (iv) value (at assumed market values of $23 and $28 per share of
Heartland stock) of shares distributed to FTW Partners on a per FTW Partnership
Unit basis. Notwithstanding the stated assumptions for determining the following
number of shares and values, no assurance can be given that such assumptions
will be correct on the relevant dates.
<TABLE>
<S> <C> <C> <C> <C>
(a) Exchange Price per share at the Closing................ $ 17 $ 23 $ 28
(b) Aggregate Number of Heartland Shares Issuable under the
FTW Agreement.......................................... 782,353 578,261 578,261
(c) Number of Shares Liquidated by the FTW Partnership if
such shares are liquidated for aggregate net proceeds
of $1,350,000*......................................... 90,000 64,286 54,000
(d) Number of Heartland Shares Distributable to FTW
Partners [(b) minus (c)]............................... 692,353 513,975 524,261
(e) Number of Heartland Shares Distributable per FTW
Partnership Unit [(d) divided by 1,459 units
outstanding]........................................... 474 352 359
(f) Market Value of Heartland Shares Distributable per FTW
Partnership Unit if market value of Heartland Common
Stock is $23 per share................................. ** $ 8,096 $ 8,257
(g) Market Value of Heartland Shares Distributable per FTW
Partnership Unit if market value of Heartland Common
Stock is $28 per share................................. ** $ 9,856 $ 10,052
</TABLE>
- ---------------
* Assumes shares are liquidated with net proceeds to the FTW Partnership of $15
per share if the assumed Exchange Price is $17 per share; net proceeds of $21
per share if the assumed Exchange Price is $23 per share; and net proceeds of
$25 per share if the assumed Exchange Price is $28 per share.
** No example given because this scenario is unlikely; however, the amount would
be greater than the amounts in each column following.
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I
BACKGROUND, ALTERNATIVES, VALUE OF THE FTW PARTNERSHIP'S ASSETS, AND
RECOMMENDATION OF THE MANAGEMENT COMMITTEE
Background
Background and Current Condition. According to the Agreement of General
Partnership of the FTW Partnership (the "Partnership Agreement"), the FTW
Partnership was formed as of July 1, 1992. The first meeting of the FTW Partners
was held in early 1993, and at that meeting the initial Management Committee of
the FTW Partnership was elected. When formed, the Management Committee reviewed
the facts regarding the formation of the FTW Partnership and the FTW
Partnership's relationship with AWS. At that time, the FTW Partnership had
access to $80,000 of the funds contributed by the FTW Partners with which to
operate, and all of the remaining funds contributed by the FTW Partners were
held and utilized by Wireless California and/or AWS, directly or on behalf of
the FTW Venture.
"Oversell" of FTW Partnership Units. Initially, the Management Committee
found that more than the authorized number of FTW Partnership Units had been
sold by Wireless California or its affiliates or agents, resulting in
contributions to FTW Partnership attributable to unauthorized FTW Units of
$568,750. Ultimately, the Management Committee received an opinion of counsel
for Wireless California that this problem could be solved by amending the
Partnership Agreement to authorize the additional FTW Partnership Units and the
FTW Partnership's purchase of an additional 4.99% interest in the FTW Venture
from Wireless California or its successor. Wireless California and/or AWS
solicited the approval of the FTW Partners and accomplished this sale and
purchase by causing the $568,750 attributable to the "oversold" units to be paid
to Wireless California or AWS. AWS represented to the FTW Partnership that the
proposed amendment was approved by more than the required majority of the FTW
Partners. The result of the foregoing was to allow 91 additional FTW Partnership
Units (at $6,250 per unit) to be sold for $568,750, which was paid to Wireless
California or AWS for an additional 4.99% interest in FTW Venture, resulting in
the FTW Partnership owning a 79.99% interest therein.
The FTW Partnership's Issues versus FTW Partners' Issues. After resolving
the FTW Partnership Units issue, the Management Committee reviewed the overall
relationship between the FTW Partnership and AWS and began to explore various
alternatives to that relationship. In this connection, the Management Committee
was advised by legal counsel to the FTW Partnership that it should focus on the
issues involving the FTW Partnership and its relationship with AWS and certain
affiliates or predecessors, rather than the issues which may involve individual
FTW Partners. For example, individual FTW Partners may have been affected by and
perhaps hold certain causes of action against Wireless California, AWS, or
affiliates thereof for, among other things, potential violations of applicable
federal or state securities laws; however, the FTW Partnership is concerned
about those issues only as they may impact the entity. Additionally, the
question of whether or not a violation of securities laws gives rise to a
rescission right on the part of an individual FTW Partner affects the FTW
Partnership only if that remedy requires the FTW Partnership (rather than
Wireless California, for example) to repurchase the interest. Moreover, there
are various practical limitations that compliance with securities laws and
regulations place on the activities of the FTW Partnership and its ability to
effectively and efficiently respond to its needs for funds, approvals of its
partners, management structure, change in form of ownership, etc., as further
described herein.
Assessment of Issues Facing the FTW Partnership. At the conclusion of their
review, the Management Committee determined that, among other issues facing the
FTW Partnership, the following were and are significant issues or problems that
impact its business and operations, and significantly affect the alternatives
available to the FTW Partners and FTW Partnership:
a. The FTW Partnership does not have any cash resources with which to
conduct its business and retain and pay for (on a current basis) the
services of wireless cable specialists, attorneys, accountants, or other
professionals necessary to advise the Management Committee and FTW
Partnership regarding various matters.
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<PAGE> 1063
b. There is not and has been no agreement with AWS regarding
management of the FTW Venture, management of the Fort Worth System, or any
aspect of the parties' relative rights and responsibilities in connection
with the FTW Venture or the Fort Worth System.
c. Third-party financing is not now and has not been available to fund
future growth of the Fort Worth System under the existing facts and
circumstances.
d. The channel licenses or the leases of those licenses "owned" by the
FTW Venture are in the name of AWS or an affiliate thereof rather than the
FTW Venture. Certain Federal Communication Commission ("FCC") rules and
regulations preclude direct ownership of the channel licenses by the FTW
Partnership as it is constituted because some of the FTW Partnership Units
were sold by Wireless California or AWS to "foreign" persons or entities.
The other assets and agreements necessary for the FTW Venture to operate
are also in the name of AWS or an affiliate thereof rather than the FTW
Venture.
e. The FTW Venture had reached what was nominally described by AWS as
"break-even"; however, cash shortfalls continue to occur. AWS has informed
the FTW Partnership that there are no funds remaining to generate more
subscribers. A net loss of subscribers to the Fort Worth System has
occurred and continues to occur, resulting in larger cash shortfalls. While
AWS has funded the operating shortfall, there is no agreement as to who
should bear the ultimate responsibility therefor nor any agreement or
assurance from AWS as to the amount or length of time it will continue (or
be able to continue) to pay the shortfall.
f. The FTW Partnership may be subject to various securities laws and
regulations. Because of that, the FTW Partnership may be required to comply
with the reporting and other requirements of those laws and regulations.
The FTW Partnership does not have sufficient liquid resources with which to
comply with such requirements.
g. The nature of the entity and certain provisions of the Partnership
Agreement make it difficult to efficiently transact business and protect
the FTW Partners. The Management Committee believes that it would be
advantageous to reorganize into an entity more appropriate for carrying on
the business of the FTW Partnership and one that would protect the FTW
Partners; however, the Partnership Agreement indirectly precludes such a
reorganization. In this regard, the Management Committee has been and
remains concerned about the joint and several liability of the FTW Partners
for FTW Partnership and FTW Venture liabilities and the ability of general
partners to bind the FTW Partnership. In addition, the current Partnership
Agreement and form of doing business, coupled with various securities law
issues, adversely affect the ability of the FTW Partnership to efficiently
transmit information to the FTW Partners and have meetings or obtain
consents without undue exposure or risk to the FTW Partnership or
Management Committee members. The FTW Partnership cannot reorganize into
corporate form without 100% approval of the FTW Partners. Finally, the
Partnership Agreement, securities law compliance, and management issues
make it a practical impossibility, under the current facts and
circumstances, to reorganize into a limited liability form (other than a
corporation -- i.e., a limited liability company or a limited partnership)
without taking some extraordinary action, such as bankruptcy. In short, the
Management Committee was and is convinced that the structure of the FTW
Partnership as a general partnership coupled with the provisions of the
Partnership Agreement create a myriad of problems that are difficult and
costly to deal with.
h. The FTW Partners were not selected for their knowledge of the
wireless cable industry or their management experience or expertise. When
elected, the members of the Management Committee did not represent that
they had, and in fact do not have, any material experience or expertise in
the wireless cable television industry except that which has been gained as
a result of dealing with the FTW Partnership and the issues referred to
herein.
Based on the foregoing, as well as other considerations, the Management
Committee has sought and considered various alternatives that may be available
to the FTW Partnership.
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I
Alternatives
Alternatives Considered. The Management Committee pursued and considered,
without assigning relative weights to each factor, various alternatives with a
number of professionals, management concerns, and participants in the wireless
cable industry during the past two years. These discussions resulted in several
preliminary offers or proposals and substantive negotiation of some of the
offers. Most of the inquiries and offers were accompanied by requirements of
confidentiality. Because of those requirements, only the general terms and
concepts of the different types of proposals and/or offers received and
alternatives considered may be presented here, followed by a listing of some of
the persons and entities with whom the more material discussions were held.
Settlement with AWS. The FTW Partnership engaged in numerous conversations
and negotiating sessions with AWS in an effort to resolve the existing disputes.
These negotiations culminated in an outline of the general agreement of the
parties, and drafts of documents to implement those terms were prepared and
circulated. The ultimate results of the proposed settlement would have generally
included the infusion of cash in both the FTW Venture and FTW Partnership by
AWS, reorganization of the FTW Partnership into a corporate form (through a
bankruptcy action), and definitive agreements with AWS regarding the Fort Worth
System and the assets thereof. In early 1995, the negotiations terminated when
AWS informed the FTW Partnership that the funding required by AWS to implement
the proposed settlement would not be available.
Litigation Alternative. The Management Committee considered filing a
lawsuit against Wireless California, AWS, and certain of their current and
former officers, directors, and related parties. See "POTENTIAL CAUSES OF ACTION
HELD BY THE FTW PARTNERSHIP." This course of action was discussed with counsel
to the FTW Partnership in the context of a contingent fee arrangement. The
Management Committee considered the risks of this course of action including the
time period involved in pursuing the litigation, the chances of recovery, the
results of a favorable outcome (with consideration that the law firm would own a
significant portion of the recovery), the solvency and/or liquidity (or lack
thereof) of the persons and entities that would be defendants in the litigation,
and the risk that AWS may cease funding the FTW Venture in the event the
litigation was instituted and continued for any period of time. In light of
these risks, and considering the other alternatives available to the FTW
Partnership, the Management Committee determined to postpone pursuit of
litigation against AWS and related parties.
Joint Venture Arrangement With Third Party. Discussions were held with
several entities in connection with a potential joint venture or partnership
arrangement the essential terms of each of which included the FTW Partnership
contributing its interest in the Fort Worth System and/or FTW Venture (along
with any and all claims it may have against AWS and related parties) to a new
partnership or joint venture with the new entity. The new entity would
contribute cash and commit to obtain additional financing upon the occurrence of
certain events. Each of these proposals involved the new entity managing the
Fort Worth System and coupled the proposal with litigation and/or settlement
with AWS and the AWS-related parties. Generally, each of these proposals
required the FTW Partnership to effectively transfer up to 50% of the FTW
Interest to the new entity and/or subordinate its interest to any new funds
contributed, along with giving the new entity a substantial interest in any
increase in value in the assets conveyed by the FTW Partnership above an assumed
value (which was, in each case, based on a deeply discounted liquidation value
of the FTW Interest rather than the market value). Questions regarding ownership
of assets (particularly licenses), books and records, and similar issues were
obvious problems to each potential venturer or partner, causing valuation
discounts because of the perceived risks. In each proposed joint venture
arrangement, the maximum cash infusion offered was $2,000,000 which would have
been available only for operation of the Fort Worth System or pursuit of claims
against AWS or its related parties. None of the funds would have been directly
available to the FTW Partnership except in the form of a loan. The Management
Committee ultimately concluded that the possible arrangements with third parties
were not economically fair to the FTW Partnership and FTW Partners.
Sale of All of FTW Partnership's Assets. The FTW Partnership engaged in
substantive negotiations for a proposed cash sale of all of its interest in the
Fort Worth System and any and all causes of action it may have against AWS or
any of the parties related thereto. The purchase price was to be $13,500,000 and
the
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<PAGE> 1065
assumption of certain potential liabilities (subject to a stated maximum)
alleged to be owed by the FTW Partnership to AWS or an affiliate. The general
terms of the proposed transaction were considered by the Management Committee to
be favorable to the FTW Partnership; however, various issues arose in connection
with the negotiation of a detailed letter of intent which caused concern to the
Management Committee. Significantly, the proposed agreement required that 10% of
the proposed purchase price, or $1,350,000, be held in escrow for one (1) year
as a fund against which any alleged breaches of representations, warranties, or
covenants could be charged. The proposed agreement also required a relatively
complex mix of cross-indemnifications with regard to potential actions by and/or
against AWS or related parties, and the parties were not able to reach an
acceptable agreement regarding the concepts of such an indemnification
arrangement. Based on the inability to reach conceptual agreement on these
issues and the judgement of the Management Committee that (i) the exposure and
time period required to deal with both the indemnification and the "holdback" of
funds would increase the costs of the proposed transaction by a material amount
(with estimates of a minimum of $250,000) and (ii) the risks of the FTW Partners
and the FTW Partnership being involved in litigation (without clear and
effective indemnification rights on the part of the FTW Partnership and FTW
Partners) were great if the transaction was completed and the purchaser was not
able to reach an agreement with AWS that the purchaser deemed acceptable (which
was not in the control of the FTW Partnership), the Management Committee elected
to forego the proposed sale in favor of the FTW Transactions which are being
recommended herein.
Raising Funds from FTW Partners or Third Parties. This alternative was
seriously considered by the Management Committee as a means of giving the FTW
Partnership the funds necessary to effectively deal with the various issues
facing the FTW Partnership without giving up management and control of the FTW
Partnership and its assets. Having sufficient funds to pay its expenses, cover
any negative cash flow from operations of the Fort Worth System, engage
professional wireless cable management familiar with those operations, deal with
AWS from a stronger financial position, and begin to add subscribers (or some
combination of those) is an appealing alternative in some respects; however,
there were and are practical limitations to this alternative. Those limitations
include (i) the cost and effort to comply with applicable securities laws and
regulations, including registration of any securities offered or assuring
compliance with applicable exemptions from such laws and regulations; (ii) the
cost of engaging management and system operations personnel; (iii) the risk
involved to any new investor in the FTW Partnership (or the risks of the "new
investment" or existing FTW Partners), given the facts and circumstances
existent with regard to the lack of documentation of the FTW Venture and the
potential claims and cross-claims as among the FTW Partnership and AWS and its
related parties; (iv) the lack of management personnel with experience in the
wireless cable television industry; (v) the risk of dealing with the FCC and AWS
and/or the lessor of the licenses in connection with the FTW Partnership's
control of the FTW Venture and operation of the Fort Worth System (particularly
if the FTW Partnership and AWS were then in an adversarial relationship); (vi)
risks associated with establishing contracts with programmers and billing
systems (again, particularly if the FTW Partnership and AWS were in an
adversarial relationship); and (vii) the requirement to modify the FTW
Partnership Agreement to provide reasonable procedures to implement such a plan
and/or modify the form of entity, both of which may require unanimous approval
of the FTW Partners.
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<PAGE> 1066
I
Entities or Persons Contacted by or Contacting FTW Partnership. The
following persons and/or entities either contacted the FTW Partnership or were
contacted by it in connection with considering the various alternatives
described above and other matters, as noted:
<TABLE>
<CAPTION>
PERSON OR ENTITY ALTERNATIVE(S) DISCUSSED
----------------------------------------- -----------------------------------------
<S> <C>
Laidlaw Holdings, Inc. Brokerage of Assets
CAI Wireless Systems, Inc. Sale of Assets
American Telecasting, Inc. Management of the System; Joint Venture;
Sale of Assets
People's Choice TV Corp. Sale of Entire System; Informal
Consultation on Valuation
James Communication Partners Management of the FTW Venture and System
Hardin and Associates, Inc. Management of the FTW Venture and System
Columbia Capital Joint Venture; Management (with Hardin
and Associates, Inc.)
Liberty South Cable Management of the System
Digital & Wireless, L.L.C. Joint Venture; Management of the FTW Ven-
(Dee S. Osborne, principal) ture and System
Brown Nietert & Kaufman, Chartered Proposal to Act as Consultants/Brokerage
Gerard Klauer Mattison & Co. for Offers for Assets/Financing, Etc.
Spectrum Resources, Ltd.
(all three of foregoing combined for
this proposal)
Transworld Telecommunications, Inc. Sale of Entire System
Penn Group Incorporated Joint Venture Arrangement/Management
Whatley Financial Group, Inc. Proposed Capitalization/Sale of
Securities
Eagelview Technologies, Inc. Joint Venture
Ted Holder Sale of Assets
CableMaxx, Inc. Sale of Assets/System
Le Groupe Videotron Itee Sale of Assets/System
Century Merchant Bankers Co., Ltd. Merger into a Public Corporation
OmniVision, Inc. Acquisition of Majority Interest in
System; Management and Capitalization
of System
</TABLE>
In addition to the foregoing, other persons and entities were contacted or
contacted the FTW Partnership. None of those additional contacts resulted in any
additional discussions or specific proposals. Entities included in this group
are GTE Southwest and Southwestern Bell Telephone.
Value of FTW Partnership Assets; Fairness of Transactions
Indications of Value. As a result of the proposals, negotiations, and
consultations with the companies listed above, the Management Committee has
developed a working knowledge of some of the more common methods used by the
companies in and around the wireless cable television industry in valuing
systems and businesses similar to the Fort Worth System. Although valuation
techniques vary, some of the more commonly used techniques for markets that are
not mature (e.g., not a significant penetration of the market in terms of
subscribers and not significant marketing efforts) involve an analysis of the
number of line-of-sight ("LOS") households (i.e., those capable of receiving a
wireless transmission signal) in the particular market and applying varying
levels of discounts/additions depending on the number of channels available, the
potential interference issues, the actual number of subscribers, operating
expense history, type of equipment available, and other similar issues and
considerations. This type of analysis typically results in application of a
value per LOS household to the LOS households in the market, as adjusted by the
factors noted above. By using the information and offers obtained through the
processes described above, the Management Committee has developed a range of
value for the Fort Worth System and the FTW Interest and, with information and
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<PAGE> 1067
analysis from counsel for the FTW Partnership, has developed a belief as to the
value of the assets held by the FTW Partnership, including any claims it may
have against Wireless California, AWS, and certain related parties. The range of
value for the FTW Interest and the Fort Worth System considered by the
Management Committee is discussed below. See "Range of Value."
In addition to the foregoing, the FTW Partnership has reviewed research
released by Alex. Brown & Sons, which is recognized as knowledgeable in the
wireless cable television industry. Finally, the FTW Partnership has obtained
confirmation of certain other recent transactions including one which closed in
October 1995 (involving a partnership with a background similar to the FTW
Partnership which owned rights to certain licenses in the Pittsburgh,
Pennsylvania market), as well as the transactions which were announced by
Heartland at the time the proposed FTW Transaction was announced (and which
transactions are described in the Heartland Prospectus). The Management
Committee believes that this information gives it a reasonable basis on which to
determine whether or not the amount paid or to be paid for the FTW Partnership's
Assets in connection with the proposed FTW Transactions is fair and reasonable
under the circumstances.
General Concepts. There are certain facts regarding the Fort Worth System
that have a material bearing on its value. For example, the number of channel
leases/available channels, population in the service area, line of sight (LOS)
households in the service area, number of subscribers, and revenue per
subscriber are all used in various ways and with varying degrees of importance
in determining the value of a system or market. Other issues that have an impact
on the valuation are the percentage of homes in the market that have access to
cable television, "shadowing" and other issues involving the availability of the
wireless signal to the LOS households, the perceived availability of other
channels, estimated costs of adding new subscribers (to the extent those costs
may vary in the particular market as opposed to other markets), interference
issues with other markets and signals, competition for subscribers in the
market, and the type and desirability of the equipment being purchased for the
market (such as with the Fort Worth System in which the transmission equipment
is in place).
In situations such as the Fort Worth System, it appears that the actual
operation of the system is not as important as the potential in the marketplace,
since the system is not "mature" and the penetration of the market in terms of
subscribers, advertisement, and attempts to gain new subscribers is not
significant.
Specific Market Information. With regard to the Fort Worth System, based on
information published by AWS and contained in the Heartland Prospectus, it
appears that the estimated number of TV households in the Fort Worth, Texas
market is approximately 539,700. Of those, approximately 442,500 are believed to
be LOS households. The number of subscribers for the Fort Worth System on or
about November 30, 1995 was approximately 1,550, and the number of wireless
cable channels owned by the Fort Worth System (out of 33 available) was 14
(however, AWS has acquired the rights to 8 additional channels which are not yet
co-located with the existing channels). Service provided to subscribers is 27
channels, including 13 "off-air." See "Information Concerning AWS -- Business of
AWS" contained in the Heartland Prospectus accompanying this Disclosure
Statement for additional description of the Fort Worth System.
Range of Value. Generally, the wireless cable industry attributes
approximately $1,500 to each subscriber for a particular system, with any
additional value being attributed to the LOS households, adjusted for a factor
for the subscribers already counted (e.g., subtract from the LOS households ten
times the number of subscribers) and less a factor for the number of channels
which are not available to the system. Using this general method of valuation,
and assuming that the stock to be received as consideration pursuant to the FTW
Agreement is worth $13,300,000 (and further, ascribing no value to the debt
assumed by Heartland as part of the FTW Transactions), it appears that the value
per LOS household being received by the FTW Partnership is in the range of $33
(without discount for channel capacity) to $49 (assuming a channel discount
factor of 67% [22 of 33 channels available]). When the purchase price is
adjusted to include the assumption of approximately $540,000 in indebtedness
(assuming closing occurs in February, 1996), the value (without discount for
channel capacity) increases to approximately $35 per LOS household. This value
compares favorably with other similar transactions reviewed by the Management
Committee, including those which are part of Heartland's acquisitions as
described in the accompanying Heartland Prospectus. In addition to
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<PAGE> 1068
I
reviewing the Heartland acquisitions described in Heartland Prospectus, the
Management Committee has reviewed a transaction involving a partnership which
owned assets/joint venture interest in the Pittsburgh, Pennsylvania market,
which partnership had a background similar to that of FTW Partnership. A review
of those transactions and the offers and inquiries made as noted above (see
"Entities or Persons Contacted by or Contacting FTW Partnership") previously
made to the FTW Partnership, indicates that purchase prices for the markets
involved range from approximately $8 to $27 per LOS household, without discount
for channel capacity, and $14 to $43 per LOS household with certain assumptions
regarding a discount for channel capacity. The foregoing values, when compared
to the range of values for the Fort Worth System, support the Management
Committee's recommendation to approve the FTW Agreement.
Fairness of Transactions. Based on all of the foregoing, the Management
Committee believes that the FTW Transactions are fair and reasonable to the FTW
Partnership and the FTW Partners. Because of the all of the contacts made by or
on behalf of the Management Committee, the issues relating to the FTW
Partnership, and the FTW Partners, and considering the costs of obtaining a
fairness opinion from a qualified person, the Management Committee has
determined that it is not necessary or appropriate to expend those funds. Thus,
no third-party fairness opinion will be obtained in connection with the FTW
Transactions.
Recommendation
Based on all of the foregoing, the Management Committee has unanimously
recommended approval of the FTW Transactions by the FTW Partners, and
consummation thereof by the FTW Partnership.
If you have any questions regarding the FTW Transactions, you may contact
Don McGee at (214) 717-3962, Mike Leo at (213) 964-1700, or Bill Walker at (410)
987-0963.
FTW LIQUIDATION PLAN
Through the Written Consents, the FTW Partners are asked to vote upon the
Proposal which includes the adoption of the FTW Liquidation Plan to dissolve the
FTW Partnership. The FTW Liquidation Plan (which is attached to the Heartland
Prospectus as Appendix H and which the FTW Partners are urged to read carefully)
provides that, following consummation of the Sale (if approved by the FTW
Partners), the FTW Partnership will not perform any business activities except
as required for the winding up of its affairs, the preservation of any assets of
the FTW Partnership, the liquidation of such assets and the distribution of
proceeds to the FTW Partners in accordance with the FTW Liquidation Plan. The
FTW Liquidation Plan further provides that net income and net loss of the FTW
Partnership following the date of adoption of the FTW Liquidation Plan will be
determined and allocated to the FTW Partners' capital accounts in accordance
with the provisions of the FTW Partnership Agreement. After giving effect to
such allocations of net income and net loss, the proceeds from the liquidation
of the FTW Partnership's assets and collection of any accounts receivable of the
FTW Partnership are to be distributed in the following order of priority: (i)
first, to the payment and discharge of all of the FTW Partnership's debts and
liabilities; (ii) second, to the creation of any reserves which the Management
Committee deems necessary; (iii) third, to the FTW Partners in proportion to and
to the extent of their capital accounts; and (iv) the balance, if any, to the
FTW Partners in proportion to the number of the FTW Partnership Units owned by
each of them.
The FTW Liquidation Plan further provides that the Management Committee
will be authorized and directed to take all actions necessary or advisable for
the complete liquidation and dissolution of the FTW Partnership.
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<PAGE> 1069
RISK FACTORS
In considering whether to approve the FTW Transactions, the following risk
factors, including those mentioned elsewhere, should be considered carefully by
the FTW Partners.
IN ADDITION, FTW PARTNERS SHOULD CAREFULLY REVIEW THE DISCUSSIONS UNDER THE
HEADINGS "RISK FACTORS -- FACTORS RELEVANT TO ALL OF THE PARTIES" AND
"-- FACTORS SPECIFIC TO FTW PARTNERS" IN THE HEARTLAND PROSPECTUS.
RISKS ASSOCIATED WITH CONTINUATION OF FTW VENTURE
In the event that FTW Partners representing at least two-thirds ( 2/3) of
the FTW Partnership Units do not approve the FTW Transactions, the FTW
Partnership and AWS will continue the FTW Venture, which presents risks to the
FTW Partners and the FTW Partnership, including the following:
Limited Operating History and Lack of Profitable Operations
The FTW Venture commenced operations of the Fort Worth System by serving
subscribers in November, 1992. Because the FTW Venture's business has only been
in existence for a short time, and during that time AWS has controlled such
operations, there is limited historical financial information about the FTW
Venture or the FTW Partnership upon which to base an evaluation of either
entity's performance. The FTW Partnership and its predecessor partnership have
never operated profitably. The FTW Partnership and the FTW Venture have recorded
significant net losses since inception. Such losses are primarily attributable
to start-up costs, channel lease costs, interest expense, and charges for
depreciation and amortization of capital expenditures to develop the Fort Worth
System. The FTW Venture has also experienced a negative net cash flow from
operations since its formation. There can be no assurance that future operations
would result in profitability or positive cash flow for the FTW Partnership or
FTW Venture, even in the event of an increase in the number of subscribers for
the Fort Worth System. (See "DESCRIPTION OF THE BUSINESS -- Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"FINANCIAL MATTERS -- Financial Statements.")
Need for and Lack of Existing Sources of Financing
The FTW Venture's operations will require substantial financing on a
continuing basis to finance capital expenditures and related expenses for
maintenance and expansion of the FTW Venture's subscriber base and system
development. It is anticipated that future cash flow, if any, from the FTW
Venture's operations will be an inadequate source of needed financing. Due to
the financial condition of the FTW Partnership and securities laws and
regulations, the methods by which the FTW Venture's and the FTW Partnership's
activities may be financed are severely limited. The financial condition of the
FTW Partnership, coupled with the uncertainty of its relationship with AWS,
effectively prohibits the FTW Partnership from obtaining additional debt
financing. To the extent that the FTW Partnership is unable to obtain
substantial equity financing, the continuing existence of the FTW Partnership
will be adversely affected. The specific amount of the FTW Partnership's future
capital requirements will depend on a number of factors, including subscriber
growth, resolution of pending issues with AWS, legal and administrative costs,
as well as other factors not within the FTW Partnership's control, such as
competitive conditions, programming costs, and capital costs incurred by the FTW
Venture. In the event the Sale is not consummated, there can be no assurance
that financing necessary for the Fort Worth System will be available on
satisfactory terms and conditions, if at all.
Currently, the FTW Venture has insufficient revenue to fully cover
operating expenses and no funds to cover the costs of installing additional
subscribers. Accordingly, additional subscribers cannot be added to the Fort
Worth System without additional financing. The negative cash flow of the FTW
Venture has heretofore been financed by AWS; however, AWS has no written
obligation to continue such funding and the Management Committee believes that
it is unlikely that AWS would continue such financing absent a satisfactory
resolution with the FTW Partnership of pending issues (see "POTENTIAL CAUSES OF
ACTION HELD BY THE FTW PARTNERSHIP"). The inability of the FTW Partnership to
obtain an
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I
immediate and significant source of financing in the event the Sale is not
consummated would likely have a material adverse effect on the value of the FTW
Interest.
Lack of Formal Joint Venture and Management Agreements
The FTW Partnership's activities through the FTW Venture are managed by
AWS; however, the FTW Partnership has not entered into a formal joint venture or
management agreement with AWS. In the absence of formal written agreements, the
FTW Partnership and AWS have encountered significant difficulties and have
material differences in position with respect to the relative rights and
responsibilities of each party to the FTW Venture. Accordingly, the FTW
Partnership and AWS have attempted to negotiate terms of a definitive joint
venture agreement and management agreement to formalize their relationship and
define such rights and responsibilities, although such negotiations have to date
been unsuccessful. There can be no assurance when or if any of such negotiations
will be resumed, or that, in the event they are resumed, the FTW Partnership can
successfully negotiate terms that are acceptable to it. Until the FTW
Partnership and AWS agree upon joint venture and management agreements or the
FTW Venture is able to obtain additional capital from other sources, the FTW
Venture will be unable to add additional subscribers to the Fort Worth System.
In addition, so long as a definitive management agreement is not in place, the
FTW Partnership has no means by which to assure that the operations of the FTW
Venture will be adequately managed.
Restrictions on Transfers of the FTW Partnership Units
Except as permitted in the FTW Partnership Agreement, no FTW Partner may
transfer FTW Partnership Units. Pursuant to specified procedures under the FTW
Partnership Agreement, an FTW Partner may transfer FTW Partnership Units if such
units are first offered to, and rejected by, all other FTW Partners under the
same terms and conditions as those of the proposed transfer. However, an FTW
Partner may, without FTW Partner consent, transfer FTW Partnership Units, by
succession or testamentary disposition at death, to certain family trusts, and
to an immediate family member. Notwithstanding the permitted methods of transfer
of FTW Partnership Units, no assignee shall become a substituted FTW Partner
unless, among other things, the assignor and assignee execute other instruments
as the other FTW Partners may deem necessary or desirable to effect such
substitution, and the transfer is effected in compliance with all applicable
state and federal securities and FCC laws as evidenced by an opinion of counsel
satisfactory to the other FTW Partners. As a result of the foregoing, among
other things, there is no public market for FTW Partnership Units, and it is
unlikely that a trading market will develop for the FTW Partnership Units in
their present form. As such, it is difficult for an FTW Partner to liquidate an
investment in the FTW Partnership, and the consideration received for such
liquidation could be adversely affected by the restriction on transfer of FTW
Partnership Units and their lack of marketability.
Risks of Wireless Cable Industry
There are various risks involved in the wireless cable industry as a whole.
The FTW Partners are directed to the "RISK FACTORS" contained in the Heartland
Prospectus accompanying this Disclosure Statement for a discussion of such
risks.
General Partnership Liability
The FTW Partnership is a general partnership under the laws of the State of
California. As a result, unless a creditor otherwise specifically agrees, each
FTW Partner is individually liable for each of the debts and obligations of the
FTW Partnership, including those arising as a result of the operation of the FTW
Venture and the Fort Worth System. If the FTW Transactions are not consummated,
each FTW Partner could be called upon by creditors of the FTW Partnership to
satisfy liabilities of the FTW Partnership, including without limitation
liabilities incurred in connection with the proposed FTW Transactions.
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<PAGE> 1071
RISKS ASSOCIATED WITH THE SALE OF THE FTW PARTNERSHIP ASSETS TO HEARTLAND
In the event the FTW Partners representing at least two-thirds ( 2/3) of
the FTW Partnership Units approve the FTW Transactions, the FTW Partners will
receive Heartland Shares. Acquisition of Heartland Shares presents risks to the
FTW Partners. For a description of such risks, see "Risk Factors" contained in
the Heartland Prospectus accompanying this Disclosure Statement.
RISKS ASSOCIATED WITH THE FTW LOAN
In the event the FTW Transactions are not approved by the requisite number
of the FTW Partnership Units, the FTW Agreement will terminate and the FTW
Partnership will have 90 days from the date of the termination within which to
repay the FTW Loan, which may then be as much as $500,000 plus interest. The FTW
Partnership does not have the funds with which to repay the FTW Loan and it is
not anticipated that such funds will be forthcoming from any source prior to the
time the FTW Agreement would be terminated. While the Management Committee
believes that alternatives to the FTW Transaction may ultimately be available,
the risks associated with a default on the FTW Loan are significant because of
the limited period within which the FTW Partnership must repay the loan.
POTENTIAL CAUSES OF ACTION HELD BY THE FTW PARTNERSHIP
The nature of the legal relationship between the FTW Partnership and AWS as
an informal joint venture is not disputed by the FTW Partnership, and is
described as such by AWS and its auditors in various public filings with the
SEC. However, the FTW Partnership and AWS have ongoing disagreements as to the
specific obligations (both past and present) of AWS to the FTW Partnership and
the FTW Partners. In particular, the FTW Partnership believes that the factual
background of the relationship between the FTW Partnership and AWS, and certain
acts (or omissions) of AWS and its current and former officers, directors, and
related parties (the "Potential Defendants"), may form the basis of certain
causes of action by the FTW Partnership against the Potential Defendants for
which the FTW Partnership could seek recovery of monetary damage. In general,
the FTW Partnership believes that the FTW Partnership has possible claims
against the Potential Defendants for, but not limited to (i) breach of fiduciary
duties owed by the Potential Defendants to the FTW Partnership by reason of and
in connection with the fiduciary relationship between the parties, including
usurpation of FTW Venture opportunities by AWS as regards the wireless cable
industry in the Dallas, Texas, Memphis, Tennessee, and Los Angeles, California
markets; self-dealing by the Potential Defendants; and use of the FTW
Partnership and FTW Venture funds for unauthorized purposes by the Potential
Defendants; (ii) breach of the terms of the joint venture agreement by the
Potential Defendants by their failure to cause the FTW Venture to achieve
positive cash flow, obtain debt financing, and assure the assets of the system
were both as represented to the partnership and owned by an appropriate entity;
and (iii) various securities law violations primarily directed at affiliates of
AWS (collectively, the "FTW Claims").
The FTW Partnership has discussed with AWS its general position regarding
the FTW Claims, and AWS has disputed both the facts upon which such claims would
be based and the interpretation of laws that would control a resolution thereof.
Notwithstanding the FTW Partnership's belief that causes of action may exist
against the Potential Defendants, the FTW Partnership cannot predict the
likelihood of a favorable outcome to the FTW Partnership in the event the FTW
Claims are pursued.
As part of the FTW Transactions, the FTW Partnership (and FTW Partners
consenting to the FTW Transactions) will either release the AWS Parties from the
FTW Claims, or in the event the FTW Claim Release is not executed, the FTW
Partnership (and FTW Partners consenting to the FTW Transaction) will assign to
Heartland the FTW Claims (which assignment would be subject to the retention by
the FTW Partnership of certain rights and which would be accompanied by certain
indemnifications of Heartland and Heartland to the FTW Partnership and the FTW
Partners consenting to the FTW Transactions). See "SALE OF THE FTW PARTNERSHIP
ASSETS -- Summary of the FTW Agreement and Related Agreements."
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I
VOTING THROUGH THE WRITTEN CONSENTS
THE WRITTEN CONSENTS
Each copy of this Disclosure Statement mailed to the FTW Partners is
accompanied by a written consent form furnished in connection with the
solicitation of the Written Consents by the Management Committee for use in
voting FOR or AGAINST approval of the FTW Transactions set forth in the
Proposal. Under the FTW Partnership Agreement, each FTW Partnership Unit is
entitled to one vote. The Written Consent is the form by which this vote is to
be exercised by an FTW Partner for the FTW Partnership Units owned by such FTW
Partner. An FTW Partner owning, as of the date of this Disclosure Statement, any
FTW Partnership Unit in accordance with the provisions of the FTW Partnership
Agreement will be entitled to vote on the Proposal through execution of a
Written Consent. Through execution of the form of Written Consent, the FTW
Partners will consider and vote upon the Proposal, which encompasses approval
and authorization of all of the following matters:
- Execution and delivery of the FTW Agreement and the performance by the
FTW Partnership of all of the transactions contemplated by the FTW
Agreement in the form attached to the Heartland Prospectus as Appendix E,
including without limitation the Sale of the FTW Partnership Assets in
exchange for Heartland Shares with an aggregate exchange value of
$13,300,000 and assumption of up to $570,000 of certain potential
liabilities of the FTW Partnership;
- Mutual release of the FTW Partners consenting to the FTW Transactions and
the FTW Partnership on one hand and the AWS Parties on the other in the
form of the FTW Claim Release attached to the Heartland Prospectus as
Appendix F; or, in the event such FTW Claim Release is not provided by
the AWS Parties, an assignment to Heartland by such parties of the FTW
Claims in the form of FTW Claim Assignment attached to the Heartland
Prospectus as Appendix G (which assignment includes a retention of
certain rights by the FTW Partnership and certain indemnifications by
Heartland); and
- Liquidation and dissolution of the FTW Partnership and the winding up of
its affairs pursuant to the FTW Liquidation Plan in the form attached to
the Heartland Prospectus as Appendix H.
The foregoing matters, all of which are encompassed by the Proposal are
collectively referred to herein as the "FTW Transactions".
FTW Partners should be aware that, in order for the Proposal to be adopted,
all FTW Transactions included in the Proposal must be approved; an FTW Partner
is not entitled to vote FOR a portion of the Proposal and AGAINST another
portion. That is, the Proposal in its entirety, in the form presented herein,
must be approved by FTW Partners holding at least two-thirds ( 2/3) of the FTW
Partnership Units.
FTW PARTNERS ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE ACCOMPANYING
WRITTEN CONSENT FORM AND RETURN IT PROMPTLY TO THE FTW PARTNERSHIP IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED
WRITTEN CONSENT FORM WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE FTW
TRANSACTIONS.
Any FTW Partner who has delivered a Written Consent may revoke it at any
time before the FTW Partnership has received Written Consents approving the
Proposal from FTW Partners holding at least two-thirds ( 2/3) of the FTW
Partnership Units. Revocation of a Written Consent must be in writing and shall
be effective when received by the FTW Partnership at the following address:
Attention Donald McGee, c/o Robert E. Morrison, 300 Crescent Court, Suite 1400,
Dallas, Texas 75201. Upon receipt by the FTW Partnership of Written Consents
(approving the Proposal) from FTW Partners holding at least two-thirds ( 2/3) of
the FTW Partnership Units, an FTW Partner's right to revoke a Written Consent
approving the Proposal shall terminate.
The printing and mailing costs of this Disclosure Statement (and all items
enclosed herewith) were paid by Heartland; other costs of soliciting Written
Consents from FTW Partners are being borne by the FTW Partnership. Such
solicitation will be made by mail but also may be made by telephone or in person
by the
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members of the Management Committee of the FTW Partnership (who will receive no
additional compensation for doing so).
VOTE REQUIRED
Pursuant to the FTW Agreement, the affirmative vote of FTW Partners owning
two-thirds ( 2/3) of the FTW Partnership Units is required to approve the
Proposal, which approval is a condition precedent to completion of the Sale. At
such time, if any, that the FTW Partnership receives Written Consents from
holders of two-thirds ( 2/3) or more of the FTW Partnership Units, the FTW
Partnership shall immediately proceed with consummation of the transactions
contemplated by the FTW Agreement.
As of the date of this Disclosure Statement, there were 1,459 the FTW
Partnership Units outstanding. Consequently, FTW Partners representing at least
973 of the FTW Partnership Units must vote in favor of the Proposal in order for
it to be approved.
For the reasons described herein, the Management Committee believes that
the FTW Transactions, including the consummation of the FTW Agreement (and all
matters contemplated therein) and the subsequent dissolution and winding up of
the FTW Partnership are in the best interests of the FTW Partnership and the FTW
Partners. Accordingly, the Management Committee recommends that the FTW Partners
vote FOR approval of the Proposal. See "SALE OF THE FTW PARTNERSHIP ASSETS --
Background and Reasons For the Sale of the FTW Partnership Assets" and
"-- Background, Alternatives, Value of FTW Partnership's Assets, and
Recommendation of the Management Committee."
ABSENCE OF DISSENTERS' RIGHTS
The rights of the FTW Partnership are governed by California law. Neither
California law nor the FTW Partnership Agreement requires that FTW Partners who
object to the Sale of the FTW Partnership Assets or the dissolution of the FTW
Partnership and who vote against or abstain from voting in favor of the FTW
Agreement or the FTW Liquidation Plan be afforded any appraisal rights or the
right to receive cash from the FTW Partnership for their FTW Partnership Units.
The FTW Partnership does not intend to make available any such rights to the FTW
Partners.
DESCRIPTION OF THE BUSINESS
As a result of the circumstances under which the FTW Partnership Units were
issued, the FTW Partners may not have a full understanding of the business of
the FTW Partnership and its activities through the FTW Venture. The discussion
in this section of the Disclosure Statement is intended to provide such
information to the FTW Partners.
DESCRIPTION OF THE FTW PARTNERSHIP
The FTW Partnership was formed pursuant to the FTW Partnership Agreement as
of July 1, 1992. The purposes for which the FTW Partnership was organized
include the following: (i) to acquire the assets and assume the liabilities of
Wireless Cable T.V. Associates #34 (the "FTW Predecessor Partnership"), a
California general partnership which owned a 75% interest in a wireless cable
television system in Fort Worth, Texas, and (ii) to acquire additional equipment
and facilities necessary to operate the wireless cable system acquired from the
FTW Predecessor Partnership.
The FTW Predecessor Partnership had been formed in 1991 upon the
contribution of capital by the partners thereof which capital was to fund the
development and operation of a wireless cable television system in Fort Worth,
Texas. However, when the FTW Predecessor Partnership had insufficient funds to
"launch" its system, additional capital for the proposed system was raised
pursuant to the formation of the FTW Partnership, which purchased all of the
assets of the FTW Predecessor Partnership. This additional capital consisted of
proceeds from the sale of the FTW Partnership Units of the FTW Partnership to
partners of the FTW Predecessor Partnership as well as new investors who would
also become FTW Partners. In addition, the
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I
partners of the FTW Predecessor Partnership who are FTW Partners exchanged their
units in the FTW Predecessor Partnership for FTW Partnership Units.
The assets of the Fort Worth System have never been owned directly by the
FTW Partnership. Likewise, all of the activities of the FTW Partnership have
been conducted indirectly through the FTW Venture which holds record or
beneficial title to the assets comprising the Fort Worth System. Neither the FTW
Partnership nor the FTW Venture have ever operated profitably, nor have any
distributions on equity ever been paid by either entity.
OFFER AND SALE OF THE FTW PARTNERSHIP UNITS
The offer and sale of partnership interests in the FTW Predecessor
Partnership and of the FTW Partnership Units was undertaken by Wireless
California. Through an affiliate, Wireless California participated in the offer
and sale of such the FTW Partnership interests without registration under any
federal or state securities laws based on a belief by Wireless California and
its affiliates that the subject partnership interests did not constitute
securities under applicable federal or state securities laws. The SEC has
conducted an investigation involving the activities of Wireless California and
certain of its officers, including certain persons who are also officers of AWS,
in connection with the offer and sale of interests in the Predecessor the FTW
Partnership and the FTW Partnership, as well as partnership interests in two
other general partnerships. As a result of the SEC's investigation, the SEC
issued, in 1994, cease and desist orders against Wireless California, AWS and
certain of their respective current and former officers pursuant to which such
persons and entities have been ordered to cease and desist from committing or
causing any violation and any future violations of certain securities
registration, and broker-dealer registration, laws and regulations. In addition,
the securities administrators of at least 22 states have investigated or are
currently investigating the activities relating to the unregistered offer and
sale of the FTW Partnership Units and the partnership interests in two other
general partnerships. Certain of these states have issued cease and desist
orders and/or consent orders pursuant to which Wireless California, certain of
its general partnerships and certain officers of Wireless California were
required, among other things, to cease selling general partnership interests
without registration, to offer rescission to individuals who purchased general
partnership interests in the three partnerships and to pay administrative
penalties.
DESCRIPTION OF THE FTW VENTURE
The FTW Partnership business consists of a 79.99% interest in the FTW
Venture. The FTW Venture owns and operates the Fort Worth System, the wireless
cable television assets that provide wireless cable television service in the
metropolitan area of Fort Worth, Texas.
For a description of the wireless cable television industry and the
wireless cable television service provided by the FTW Venture, see "WIRELESS
CABLE INDUSTRY" and "INFORMATION CONCERNING AWS -- Business of AWS" in the
Heartland Prospectus accompanying this Disclosure Statement.
EMPLOYEES
As of the date of this Disclosure Statement, the FTW Partnership has (and
has previously had) no full-time employees. During that time, the FTW
Partnership has not paid any compensation to any of the 9 members of Management
Committee although such persons have effectively worked part-time for the FTW
Partnership. Of the 9 members of Management, 1 person devotes approximately 50%
of his time to the FTW Partnership's business; other members of Management
Committee devote 10% or less of their time to the FTW Partnership's business.
The FTW Partnership has reimbursed the expenses of the members of the Management
Committee in connection with their attendance at meetings and incidental
expenses, as well as the expenses of certain FTW Partners participating in
Management Committee meetings at the request of the Management Committee.
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PROPERTIES
The FTW Partnership does not itself own or lease any real property.
However, as discussed herein (see "DESCRIPTION OF THE BUSINESS -- Description of
the FTW Venture"), the FTW Partnership owns a 79.99% interest in the FTW
Venture. The FTW Venture leases various facilities in Arlington and Fort Worth,
Texas, including office and warehouse space, transmission sites and tower sites.
LEGAL PROCEEDINGS
The FTW Partnership is not a party to, and none of the FTW Partnership's
property is subject to, any pending legal proceedings. However, the failure of
the FTW Partnership to resolve (through litigation, arbitration, settlement, or
otherwise), certain claims the FTW Partnership may have against AWS could have a
materially adverse effect on the FTW Partnership's business, results of
operations, and financial condition. (See "POTENTIAL CAUSES OF ACTION HELD BY
THE FTW PARTNERSHIP")
To the FTW Partnership's knowledge, the FTW Venture is not a party to, and
none of the FTW Venture's property is subject to, any pending legal proceedings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
See the Heartland Prospectus accompanying this Disclosure Statement for
management's discussion and analysis of financial condition and results of
operations of the FTW Partnership.
FTW PARTNERSHIP UNIT OWNERSHIP OF CERTAIN PERSONS AND MANAGEMENT
The following table sets forth, as of December 31, 1995, the FTW
Partnership Units beneficially owned by (i) each member of the Management
Committee, and (ii) the Management Committee as a group (9 persons). "Percent of
Total FTW Partnership Units" is based on 1,459 FTW Partnership Units
outstanding. The persons named below have sole voting and investment power with
respect to all FTW Partnership Units owned, unless otherwise noted. As of
December 31, 1995, no FTW Partner beneficially owned more than five percent (5%)
of the FTW Partnership Units.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF FTW PERCENT OF TOTAL
OF BENEFICIAL OWNER PARTNERSHIP UNITS FTW PARTNERSHIP UNITS
----------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Michael Leo 2(1) *
11718 Barrington Court
Suite 228
Los Angeles, CA 90049
Donald McGee 2(2) *
200 Balboa Court
Irving, Texas 75062
Daniel Stevens 3 *
1080 St. Jean
Florissant, MO 63031
Peggy Sumner 2 *
211 Santa Barbara
Corpus Christi, TX 78411
George William Walker, Jr. 2 *
821 Miner Road
Crownsville, MD 21032
Edwin Watts 4 *
2014 Rockcreek Drive
Arlington, TX 76010
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF FTW PERCENT OF TOTAL
OF BENEFICIAL OWNER PARTNERSHIP UNITS FTW PARTNERSHIP UNITS
----------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Terry Wertz 2 *
1215 Yellowbrick Road
Pendleton, IN 46064
Loran Whitehorn, Jr. 4 *
15018 Zieglinde Dr.
Lake Elsinore, CA 92530
James Williamson 2 *
30 Thomas Oaks Dr.
Pottstown, PA 19464
Management Committee as a group (9 persons) 23 1.58%
</TABLE>
- ---------------
* Less than 1%
(1) Represents FTW Partnership Units beneficially owned by XTALK Associates, a
business trust organization of which Mr. Leo is manager.
(2) Represents FTW Partnership Units beneficially owned by Mr. McGee through
BD2 Inc., a corporation which is owned 50% by Mr. McGee.
MEMBERS OF MANAGEMENT COMMITTEE OF THE FTW PARTNERSHIP
Set forth below is certain biographical information regarding persons
presently serving as members of the Management Committee. Except as set forth
below, such persons have no particular experience in the wireless cable
industry, and were selected to serve as a member of the Management Committee
primarily as a result of their desire to maintain the value of the assets of the
FTW Partnership.
Michael Leo, 60, tax consultant; business and trust manager.
Donald McGee, 65, owner of a corporation selling electrical equipment.
Daniel Stevens, 41, president of DBS Construction Services, Inc., a
remodeling and specialized carpentry company, and president of Steveco
Properties, a property management company.
Peggy Sumner, 39, self-employed in real estate and computer consulting;
managerial experience with IBM and through national government network support
contracts.
George William Walker, Jr., 50, executive director of Forum for Rural
Maryland, a rural development council.
Edwin Watts, 69, engineer.
Terry Wertz, 44, involved in sales on behalf of Terminal Supply Co. of
Troy, Michigan.
Loran Whitehorn, Jr., 38, senior electrical engineer and project manager
for Beckman Instruments, Inc.
James Williamson, 54, sales manager for Akcros Chemicals of New Brunswick,
New Jersey.
The foregoing members of the Management Committee were elected for
staggered terms by the FTW Partners at FTW Partnership meetings held in 1993 and
1994, but will serve as a member of the Management Committee until a successor
is duly elected and qualified.
The FTW Partnership is not a party to any written employment agreements.
However, members of the Management Committee provide managerial and
organizational services for the benefit of the FTW Partnership. The FTW
Partnership has not heretofore paid any compensation (cash or otherwise) to
members of the Management Committee for services performed by such persons for
the benefit of the FTW Partnership. However, the FTW Partnership reimburses
members of the Management Committee for out-of-pocket expenses incurred by them
in the performance of services for the benefit of the FTW Partnership.
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FINANCIAL MATTERS
ACCOUNTING TREATMENT
The sale of the FTW Partnership Assets will be accounted for by the FTW
Partnership as a sale of investment assets in accordance with generally accepted
accounting principles. Likewise, the acquisition of such assets will be
accounted for by Heartland under the "purchase method" of accounting in
accordance with generally accepted accounting principles. As such, the aggregate
consideration paid by Heartland in connection with the FTW Transactions will be
allocated to FTW Partnership Assets based upon their fair values, and the
results of operations of the FTW Partnership will be included in the results of
operations of Heartland only for periods subsequent to the consummation of the
Sale of the Partnership Assets.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations promulgated thereunder, judicial authority, and current
administrative rulings and practices as in effect on the date of this Disclosure
Statement. The federal income tax consequences to any particular FTW Partner may
be affected by matters not discussed below. Moreover, this Disclosure Statement
does not discuss any state or local tax matters, which will vary with each FTW
Partner.
THE DISCUSSION SET FORTH BELOW IS A DISCUSSION OF THE BASIC FEDERAL INCOME
TAX CONSEQUENCES OF THE PROPOSED FTW TRANSACTIONS. EACH FTW PARTNER IS URGED TO
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE MATTERS DISCUSSED HEREIN AND ANY
ADDITIONAL FEDERAL AND ALL STATE, LOCAL, OR FOREIGN TAX CONSEQUENCES THAT COULD
RESULT FROM THE SUBJECT FTW TRANSACTIONS BASED UPON THE FTW PARTNER'S PERSONAL
TAX SITUATION.
If the Proposal is adopted and the Closing contemplated by the FTW
Agreement is consummated, the Sale of the FTW Partnership Assets to Heartland
will be treated as a taxable transaction. Each FTW Partner will report its share
of any taxable gain recognized by FTW Partnership upon the Sale of the
Partnership Assets because the FTW Partnership is a pass-through entity for tax
purposes. Under Section 1231 of the Code, a portion of any gain recognized by
the FTW Partnership will be treated as capital gain and reported by the FTW
Partners on their personal tax returns. The balance of any gain (also reported
by the FTW Partners on their personal tax returns) will be ordinary income.
As liquidating distributions are received and the FTW Partnership is wound
up pursuant to the FTW Liquidation Plan, each FTW Partner will report income
based upon the excess of the cash or Heartland Common Stock distributed over the
FTW Partner's adjusted tax basis in his or her FTW Partnership Units. The
adjusted tax basis will be increased by the amount of any taxable gain and
ordinary income recognized by the FTW Partners upon the Sale of the FTW
Partnership Assets to Heartland. The gain (or loss) recognized upon the
disposition of the FTW Partnership Units (as a result of the FTW Liquidation)
will be long term capital gain (or loss) if the FTW Partnership Units were held
for more than 12 months for investment purposes.
On a per unit basis, it is anticipated by the Management Committee that
each FTW Partnership Unit will have taxable income of approximately $6,900 from
the Sale of the FTW Partnership Assets to Heartland. Most of that income will be
treated as gain from the sale of assets used in business and treated as capital
gains under Code Section 1231. If any FTW Partner has prior unrecaptured Section
1231 losses, a portion of that capital gain may be recaptured and will have to
be reported as ordinary income. After payment of expenses and costs and
establishment of a reserve pursuant to the FTW Liquidation Plan, it is
anticipated by the Management Committee that each FTW Partnership Unit will
receive approximately $8,190 in cumulative value of stock of Heartland (assuming
the receipt of stock by the FTW Partnership worth $13,300,000 at Closing, with
$1,350,000 thereof being utilized for expenses and obligations of the FTW
Partnership) and cash distributions from the FTW Partnership as part of its
liquidation.
Under the terms of the FTW Agreement, it is possible that the FTW
Partnership will receive Heartland stock at Closing with an aggregate fair
market value in excess of $13,300,000. In such circumstances, the
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I
amount of taxable income from the Sale of the FTW Partnership Assets and the
cumulative value of Heartland stock and cash received pursuant to the FTW
Liquidation Plan, on a per unit basis will be proportionately greater than
disclosed above.
FINANCIAL STATEMENTS
See the Heartland Prospectus accompanying this Disclosure Statement for the
following financial disclosures of the FTW Partnership:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September
30, 1995 (unaudited)
Consolidated Statements of Operations for the years ended December 31,
1992, 1993 and 1994 and for the nine months ended September 30, 1994 and
1995 (unaudited)
Consolidated Statements of Partners' Equity for the years ended December
31, 1992, 1993 and 1994 and for the nine months ended September 30, 1995
(unaudited)
Consolidated Statements of Cash Flows for the years ended December 31,
1992, 1993 and 1994 and for the nine months ended September 30, 1994 and
1995 (unaudited)
Notes to Consolidated Financial Statements
See the Heartland Prospectus accompanying this Disclosure Statement for the
following unaudited pro forma financial disclosures of Heartland:
Pro Forma Financial Information Relative to the Transactions
Unaudited Pro Forma Condensed Combined Balance Sheet for the Transactions
as of September 30, 1995
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Transactions for the year ended December 31, 1994
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Transactions for the nine months ended September 30, 1995
Notes to Combined Pro Forma Statements for the Transactions
FTW Partnership Unaudited Pro Forma Condensed Balance Sheet as of September
30, 1995
FTW Partnership Unaudited Pro Forma Condensed Statement of Operations for
the year ended December 31, 1994
FTW Partnership Unaudited Pro Forma Condensed Statement of Operations for
the nine months ended September 30, 1995
Notes to Pro Forma Statements for the FTW Transaction
Introduction to Unaudited Pro Forma Condensed Financial Statements for
Consummated Events
Unaudited Pro Forma Condensed Balance Sheet for Consummated Events as of
September 30, 1995
Unaudited Pro Forma Condensed Statement of Operations for Consummated
Events for the year ended December 31, 1994
Unaudited Pro Forma Condensed Statement of Operations for Consummated
Events for the nine months ended September 30, 1995
Notes to Pro Forma Statements for Consummated Events
ENCLOSURES
Written Consent of Partners of Fort Worth Wireless Cable T.V. Associates
Proxy Statement/Prospectus of Heartland Wireless Communications, Inc.
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APPENDIX J
AMENDED AND RESTATED MINNEAPOLIS
ASSET PURCHASE AGREEMENT
<PAGE> 1080
J
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
DATED AS OF OCTOBER 4, 1995
BETWEEN
WIRELESS CABLE TV ASSOCIATES NO. 38
AS SELLER
AND
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AS BUYER
<PAGE> 1081
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TABLE OF CONTENTS
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ARTICLE 1. CLOSING; EXCHANGE.......................................................... J-1
1.1 Closing, Closing Time, Date and Place.................................... J-1
1.2 Transfer of LLC Interest; Assignment of AWS Claims....................... J-1
1.3 Consideration............................................................ J-2
1.4 Liquidation of Seller; Distribution of Distributable Shares.............. J-2
1.5 Distribution Procedures.................................................. J-2
1.6 Registration of Acquisition Shares....................................... J-3
1.7 Dividends; Transfer Taxes................................................ J-3
1.8 Return of Exchange Fund.................................................. J-3
1.9 Further Assurances....................................................... J-3
1.10 Extension of Closing Date................................................ J-3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER................................... J-4
2.1 Organization; Doing Business............................................. J-4
2.2 Outstanding Rights....................................................... J-4
2.3 Authority; Enforceability; Non-Contravention............................. J-4
2.4 Financial Statements..................................................... J-4
2.5 Property................................................................. J-5
2.6 Receivables.............................................................. J-5
2.7 Contracts................................................................ J-5
2.8 FCC Matters.............................................................. J-6
2.9 Insurance................................................................ J-7
2.10 Litigation............................................................... J-7
2.11 Governmental Permits..................................................... J-7
2.12 Compliance With Laws..................................................... J-7
2.13 Environmental Matters.................................................... J-7
2.14 Intellectual Property.................................................... J-7
2.15 Taxes and Fees........................................................... J-8
2.16 Liens.................................................................... J-8
2.17 Regulatory Compliance.................................................... J-8
2.18 Interference............................................................. J-8
2.19 Employees; Benefit Plans................................................. J-8
2.20 Finder's Fees............................................................ J-9
2.21 Programming Agreements................................................... J-9
2.22 Further Representation................................................... J-9
2.23 Certain Activities....................................................... J-9
2.24 Partnership Books and Records............................................ J-9
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND................................ J-9
3.1 Organization and Good Standing........................................... J-9
3.2 Authority; Enforceability; Non-Contravention............................. J-9
3.3 Litigation............................................................... J-9
3.4 Consents and Approvals................................................... J-9
3.5 Capitalization........................................................... J-10
3.6 Financial Statements..................................................... J-11
3.7 SEC Filings.............................................................. J-11
ARTICLE 4. COVENANTS OF SELLER........................................................ J-11
4.1 Operation Prior to the Closing Date...................................... J-11
4.2 Consents................................................................. J-11
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4.3 Renewal or Extension of FCC Authorizations............................... J-11
4.4 No Solicitation.......................................................... J-12
4.5 Audit of Financial Statements............................................ J-12
ARTICLE 5. ADDITIONAL AGREEMENTS...................................................... J-12
5.1 Shareholders and Partners Meeting........................................ J-12
5.2 Registration Statement and Proxy Statement............................... J-13
5.3 Access................................................................... J-13
5.4 Compliance with the Securities Act....................................... J-13
5.5 Reasonable Efforts....................................................... J-14
5.6 Public Announcements..................................................... J-14
5.7 Notification of Certain Matters.......................................... J-14
5.8 Letters of Seller's Accountants.......................................... J-14
5.9 Hart-Scott-Rodino Act Filing............................................. J-14
5.10 Employees................................................................ J-14
5.11 Right of First Refusal................................................... J-15
5.12 Exhibits................................................................. J-15
5.13 Heartland Loan........................................................... J-15
5.14 Delivery of Schedules and Other Items.................................... J-16
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION........................................ J-16
6.1 Registration Statement................................................... J-16
6.2 No Order................................................................. J-16
6.3 Other Approvals.......................................................... J-16
6.4 Fairness Opinions........................................................ J-16
6.5 Partner Approval......................................................... J-16
6.6 Applicability of the Roll-up Rules....................................... J-16
6.7 Closing Share Price...................................................... J-16
6.8 Intentionally Omitted.................................................... J-16
6.9 Exhibits................................................................. J-16
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.......................................... J-16
7.1 Stockholder and Other Approval........................................... J-16
7.2 Representations and Warranties........................................... J-16
7.3 Seller's Documents....................................................... J-16
7.4 Registration Statement Effective......................................... J-17
7.5 No Material Adverse Change............................................... J-17
7.6 Satisfaction or Waiver of Conditions Precedent of Seller................. J-17
7.7 Seller's Obligations Performed........................................... J-17
7.8 Consummation of Merger Agreement......................................... J-17
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING............................................. J-17
8.1 Partner Approval......................................................... J-17
8.2 Representations and Warranties........................................... J-17
8.3 Heartland Documents...................................................... J-17
8.4 Satisfaction or Waiver of Conditions Precedent of Heartland.............. J-18
8.5 Heartland Obligations Performed.......................................... J-18
8.6 No Material Changes...................................................... J-18
ARTICLE 9. CERTAIN CLAIMS............................................................. J-18
9.1 Pre-Closing Claims....................................................... J-18
9.2 Post-Closing Claims...................................................... J-18
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ARTICLE 10. TERMINATION............................................................... J-19
10.1 Termination by Mutual Consent............................................ J-19
10.2 Termination by Seller.................................................... J-19
10.3 Termination by Heartland................................................. J-19
10.4 Effect of Termination and Abandonment.................................... J-19
ARTICLE 11. DEFINITIONS............................................................... J-20
11.1 Definitions.............................................................. J-20
11.2 Defined Terms............................................................ J-25
ARTICLE 12. POST-CLOSING COVENANTS.................................................... J-25
12.1 Cooperation and Exchange of Information.................................. J-25
ARTICLE 13. MISCELLANEOUS............................................................. J-26
13.1 Expenses of the Transaction.............................................. J-26
13.2 Further Assurances....................................................... J-26
13.3 Notices.................................................................. J-26
13.4 No Modification Except in Writing........................................ J-26
13.5 Entire Agreement......................................................... J-27
13.6 Severability............................................................. J-27
13.7 Assignment............................................................... J-27
13.8 Publicity; Announcements................................................. J-27
13.9 Consent to Jurisdiction.................................................. J-27
13.10 Captions; Construction................................................... J-27
13.11 Schedules................................................................ J-27
13.12 Counterparts............................................................. J-28
EXHIBITS:
1.3 Exchange Agreement
1.4 Agreement and Plan of Liquidation
5.4 Lock-Up
7.3(c) Legal Opinion of Seller's Counsel
7.3(f)-1 Assignment of LLC Interest
7.3(f)-2 Assignment of AWS Claims
8.3 Legal Opinion of Heartland's Counsel
9.2 Dispute Resolution Agreement
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SCHEDULES:
1.2 Excluded Assets
2.2 Outstanding Rights
2.4 Financial Statements
2.5(a) Equipment
2.5(b) Facilities
2.5(c) Exceptions to Title
2.6 Receivables
2.7 Contracts
2.8(a) Channel Leases
2.8(b) Licenses and FCC Permits
2.8(c) Applications
2.8(d) Adverse Channel Disclosures
2.9 Insurance
2.10 Litigation
2.14 Intellectual Property
2.16 Liens
2.18 Interference
2.19 Employees; Benefit Plans
2.21 Programming Agreements
2.24 Partners
</TABLE>
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AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (the "Agreement"), is
made and entered into as of the 4th day of October, 1995, by and between
WIRELESS CABLE TV ASSOCIATES NO. 38, a California general partnership
("Seller"), and HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware Corporation
("Heartland").
W I T N E S S E T H:
WHEREAS, Seller and American Wireless Systems, Inc., a Delaware corporation
("AWS") are the sole members in American Wireless System of Minneapolis, L.L.C.,
a Delaware limited liability company ("LLC") owning 100% of the wireless cable
television assets necessary and appropriate to provide wireless cable television
service in the metropolitan area of Minneapolis, Minnesota (the "Market");
WHEREAS, Seller owns a 75% equity interest in the LLC ("LLC Interest"), and
desires to sell, and Heartland desires to purchase, the LLC Interest; and
WHEREAS, AWS and Heartland have entered into that certain Agreement and
Plan of Merger dated September 11, 1995 ("Merger Agreement"), pursuant to which
a wholly owned subsidiary of Heartland ("Merger Sub") will be merged with and
into AWS and the Merger Sub will succeed to AWS's interest in the LLC; and
WHEREAS, in connection with the proposed acquisition of the LLC Interest by
Heartland as set forth herein ("Acquisition"), Heartland and Seller desire to
make certain representations and warranties regarding their respective
operations and, with respect to Seller, matters relating to the LLC and the
Market; and
WHEREAS, Seller, Heartland and a wholly owned subsidiary of Heartland
("Hartacq") have previously executed an Asset Purchase Agreement, dated as of
the date hereof ("Original Agreement"), pursuant to which the LLC Interest and
AWS Claims (as defined herein) would be acquired by Heartland; and
WHEREAS, Seller and Heartland have agreed to amend and restate the Original
Agreement as amended to extend certain dates and clarify other matters contained
therein; and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. CLOSING; EXCHANGE.
1.1 CLOSING, CLOSING TIME, DATE AND PLACE. The closing (the "Closing") of
the transactions set forth herein shall take place at 10:00 A.M., Dallas, Texas
time, following satisfaction of the closing conditions set forth in Articles 6,
7 and 8 at the offices of Arter, Hadden, Johnson & Bromberg, 1717 Main, Ste.
4100, Dallas, Texas 75201, or at such other time or at such other place as
Heartland and Seller may agree, but no later than January 31, 1996, subject to
extension as provided in Section 1.11. (Hereinafter, such date, as extended, is
referred to as the "Closing Date", such time on the Closing Date is referred to
as the "Closing Time", and such offices are referred to as the "Closing Place".)
1.2 TRANSFER OF LLC INTEREST; ASSIGNMENT OF AWS CLAIMS. Seller agrees that,
at the Closing Time and at the Closing Place, it shall transfer to Heartland all
right, title, and interest in and to the LLC Interest and assign to Heartland
the AWS Claims. Any and all assets, real, personal and mixed, tangible and
intangible, used in the conduct of the Wireless Cable Business and operations of
the LLC (the "Business") (including but not limited to all Contracts,
Governmental Permits, Licenses, Equipment, Documents, Facilities, Prepaid
Subscriber Fees, Causes of Action, Intellectual Property, accounts, accounts
receivable, credits, prepaid expenses, advance payments, security deposits,
prepaid items, goodwill and other intangible assets of the Business, and any
other real, personal, tangible or intangible property or rights of Seller used
or useful in the conduct of the Business) (collectively, the "Assets"), whether
held in the name of Seller, any of its equity owners or otherwise, are owned by
the LLC. Except as set forth on Schedule 1.2 (such assets being referred to as
the "Excluded Assets"), Seller does not own or have any rights to any assets
other than the LLC Interest and AWS Claims.
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1.3 CONSIDERATION. As consideration for the sale of the LLC Interest and
assignment of the AWS Claims by Seller, upon the Closing Date Heartland shall
(a) assume the Assumed Liabilities and (b) deliver to the Exchange Agent the
number of shares of common stock, $.001 par value per share, of Heartland
("Heartland Shares") equal to (i) the sum of (A) Eighteen Million and no/100
Dollars ($18,000,000) plus (B) $500 multiplied by each Additional Subscriber
(collectively, the "Purchase Price") divided by (ii) the Exchange Price (such
Heartland Shares being referred to as the "Acquisition Shares"), which
Acquisition Shares shall be held by the Exchange Agent pending their
distribution to, or liquidation on behalf of, the Partners pursuant to the terms
of an Exchange Agreement in the form attached as Exhibit 1.3 (such Acquisition
Shares, any dividends thereon or proceeds thereof being referred to herein as
the "Exchange Fund"). As used herein, the term "Exchange Price" shall mean (i)
if the Closing Share Price is greater than or equal to $23.00 per share but less
than $30.00 per share, then $23.00; (ii) if the Closing Share Price is greater
than or equal to $30.00 per share, then (A) the product of the Closing Share
Price multiplied by $23, divided by (B) $30; or (iii) if the Closing Share Price
is less than $23.00 per share, then the Closing Share Price; subject to each
party's right to terminate this Agreement as set forth in Section 6.7 if the
Closing Share Price is less than $17.00 per share.
1.4 LIQUIDATION OF SELLER; DISTRIBUTION OF DISTRIBUTABLE SHARES. Subject to
the provisions of the Exchange Agreement and to the requirements of the
California Revised Uniform Partnership Act, the Exchange Agent (on behalf of and
at the direction of Seller) (a) shall deliver to Seller's equity owners
("Partners") on the Closing Date Acquisition Shares having an aggregate Exchange
Price equal to the Purchase Price minus the sum of (i) the Excluded Liabilities
and (ii) an amount determined by the Executive Committee as necessary and
appropriate to satisfy Seller's contingent liabilities (which amount shall not
be less than $500,000) (such Heartland Shares being referred to as the
"Distributable Shares") and (b) in connection with resales to be made by Seller
pursuant to the Registration Statement, deliver the remaining Acquisition Shares
(the "Liquidated Shares") for the benefit of Seller, each in completing the
winding-up and liquidation of Seller pursuant to the terms of the Agreement and
Plan of Liquidation attached as Exhibit 1.4 in accordance with the Exchange
Agent Agreement. Such liquidation shall be made as specified in the Seller's
organizational and governing documents with due regard and as required by the
California Revised Uniform Partnership Act. Fractional Heartland Shares will not
be issued in connection with the delivery of the Distributable Shares, but shall
be added to the Liquidated Shares and the remaining proceeds thereof shall be
distributed among the Partners in accordance with the Agreement and Plan of
Liquidation. The Agreement and Plan of Liquidation shall provide for the
disposition of the Seller's assets, satisfaction of Seller's liabilities and
termination of the existence of Seller for purposes other than the winding-up
and liquidation of Seller. After Seller's receipt of the requisite Partner
approval of the Agreement and Plan of Liquidation, Seller will not engage in any
business activity except as appropriate to wind up and liquidate its business
and affairs. Seller's executive committee ("Executive Committee") shall
establish a record date for the purposes of determining the Partners of Seller
entitled to receive the Distributable Shares or proceeds of the Liquidated
Shares ("Distribution Record Date"). In the discretion of Seller's Executive
Committee, such record date may, but shall not be required to be, the Closing
Date but in no event shall the Distribution Record Date be later than the
Closing Date. Seller's Executive Committee shall also prohibit any transfer of
an interest in Seller from and after the date of this Agreement, and any such
transfer shall be null and void. Any purported transfer of an interest in Seller
shall be immediately reported by Seller to Heartland. Seller shall (i) certify
to Heartland a list of Partners, as shown on Seller's books and records, on each
of the date hereof, the date of the mailing of the Proxy Statement, and the
Closing Date and (ii) shall indemnify and hold Heartland harmless from any
inaccuracies in such lists, subject to the limitations set forth in Article 9
below. Seller's Executive Committee, in its discretion, may also require each
Partner to surrender any evidences of the partnership interests of Seller prior
to receiving any distribution of Acquisition Shares (or the proceeds thereof),
and may establish such procedures for the distribution of the Acquisition Shares
(or proceeds thereof) as it deems necessary and appropriate.
1.5 DISTRIBUTION PROCEDURES. At the time of the mailing of the Proxy
Statement, the Exchange Agent shall mail to each Partner a letter of transmittal
which shall contain instructions regarding each Partner's receipt of their
respective portions of the Distributable Shares. Upon the return of the duly
executed letter of transmittal (the execution of which shall also constitute
such Partner's consent and approval of (i) the sale of
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the LLC Interest pursuant to the terms of this Agreement, (ii) the adoption of
the Agreement and Plan of Liquidation, and (iii) the assignment of the AWS
Claims), each Partner shall be entitled to receive the number of Distributable
Shares equal to such Partner's percentage ownership interest of Seller
multiplied by the number of Distributable Shares, and upon the completion of the
dissolution and winding up of Seller, such Partner's pro rata interest and the
remaining proceeds, if any, of the Liquidated Shares. Until the letter of
transmittal is executed and returned to the Escrow Agent by a Partner and
surrendered as contemplated by this Section 1.5, each Partner's interest in the
Seller shall, at and after the Closing Date, be deemed to represent only the
right to receive such Partner's pro rata interest in the Distributable Shares
and the remaining proceeds, if any, of the Liquidated Shares.
1.6 REGISTRATION OF ACQUISITION SHARES. As soon as practicable after the
execution of this Agreement, Heartland shall file a registration statement on
Form S-4 (the "Registration Statement") with the SEC for the purpose of
registering the Acquisition Shares for either (i) distribution to Seller's
equity owners (with respect to the Distributable Shares) or (ii) distribution to
the Partnership and concurrent reoffering for sale to the public (with respect
to the Liquidated Shares), each pursuant to the Agreement and Plan of
Liquidation. Heartland shall pay all costs of registration and the cost of
obtaining approval from all state and federal regulatory authorities, excluding
attorneys' fees and accounting fees of Seller's counsel and its independent
accountants, and costs and expenses associated with the solicitation of proxies
from Seller's shareholders. Heartland will use reasonable efforts to cause the
Registration Statement to become effective as soon as practicable. Seller shall
cooperate and use its best efforts to supply Heartland with all requisite
information necessary to complete the Registration Statement, including, but not
limited to, information relative to proxy solicitations of the Partners for
approval of the transactions contemplated herein.
1.7 DIVIDENDS; TRANSFER TAXES. Any dividends or other distributions that
are either declared on or after the Closing Date on Heartland Shares or payable
to the holders of record of Heartland Shares on or after the Effective Time will
be paid to the persons entitled to receive such Heartland Shares. In no event
shall the person entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions. If any
dividends, cash in lieu of fractional shares or Heartland Shares are to be paid
to or issued in a name other than that of a Partner as indicated on Seller's
books and records, it shall be a condition of such exchange that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of Heartland Shares in a name other
than that of the registered Partner or shall establish to the satisfaction of
the Escrow Agent that such tax has been paid or is not applicable.
1.8 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Shares which remain
undistributed to the former Partners of Seller for one year after the Closing
Date shall be delivered to Seller and administered pursuant to the Agreement and
Plan of Liquidation, and any former Partners of Seller who have not theretofore
complied with this Article 1 shall thereafter look only to the Seller for
payment of any liquidating distributions, Distributable Shares and any dividends
or distributions with respect to Heartland Shares.
1.9 FURTHER ASSURANCES. If at any time after the Closing Date Heartland
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in Heartland, its right, title
or interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of Seller, or (b) otherwise to carry out the purposes of
this Agreement, Heartland and its proper officers and directors or their
designees shall be authorized to execute and deliver, in the name and on behalf
of Seller, all such deeds, bills of sale, assignments and assurances and do, in
the name and on behalf of each of such corporations, all such other acts and
things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of such corporations and otherwise to carry out
the purposes of this Agreement.
1.10 EXTENSION OF CLOSING DATE. In the event that the Registration
Statement has been declared effective on or before January 31, 1996 but the
Closing hereunder has not occurred, Heartland shall have the right to extend the
Closing Date until March 15, 1996 upon written notice to Seller.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
To induce Heartland to enter into this Agreement, Seller hereby represents
and warrants to Heartland that:
2.1 ORGANIZATION; DOING BUSINESS. Seller is, and at the Closing Time shall
be, a partnership organized under the laws of the State of California. Seller
has conducted no business and owns no assets outside of the State of Minnesota.
2.2 OUTSTANDING RIGHTS. Except as set forth on Schedule 2.2, (a) Seller
owns, free and clear of any liens, the LLC Interest; (b) there are no rights of
first refusal, transfer restrictions (other than restrictions generally imposed
under applicable securities laws) or similar rights or obligations with respect
to the LLC Interest; (c) the LLC Interest represents a 75% interest in the LLC;
and (d) to the Knowledge of Seller, there are no outstanding subscriptions,
options, conversion or exchange rights, commitments or agreements of any
character relating to the LLC or the LLC Interest.
2.3 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Seller and, to the
Knowledge of Seller, the LLC have full power and authority to conduct all of the
business and activities conducted by it (including without limitation the
Business) and to own or lease all of the Assets owned or leased by them. Seller
has full power and authority (subject to the approval of Seller's Partners as
set forth in Section 6.5) to execute and deliver this Agreement and all other
documents required to be executed and delivered by Seller hereunder, to
consummate the transactions hereby contemplated, and to take all other actions
required to be taken by Seller pursuant to the provisions hereof. This Agreement
and all other documents required to be executed and delivered by Seller
hereunder have been duly authorized by all action necessary on the part of
Seller (subject to the approval of Seller's Partners as set forth in Section
6.5) and have been duly or will be duly executed and delivered by Seller and
constitute the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their terms. Neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by Seller hereunder or the consummation of the transactions hereby
contemplated by Seller will (i) conflict with or constitute any violation or
breach of the Partnership Agreement of Seller, (ii) subject to the consent of
AWS to the transfer of the LLC Interest ("AWS Consent"), constitute any
violation or breach of, or give any other Person any rights (including any right
of acceleration, termination or cancellation) under, any Contract, License,
Governmental Permit, or similar document to which Seller is a party or is bound,
either which constitute a portion of the Assets or by which the Assets may be
affected, or (iii) constitute a violation of any Order or Legal Requirement, or
(iv) result in the creation of any Lien on any of the Assets.
2.4 FINANCIAL STATEMENTS. (A) Schedule 2.4 lists the audited financial
statements of Seller as of, and for the period(s) ending December 31, 1994, an
unaudited financial statements of Seller for the period ended June 30, 1995
including the balance sheets and related statements of income and expense
(collectively, the "Financial Statements"). The Financial Statements are in
accordance with the books and records of Seller; are complete and correct;
fairly present the financial position and results of operations of Seller and,
to the Knowledge of Seller, with respect to the Market and the Business, as of
the dates thereof and for the periods referenced therein; are in accordance with
GAAP; and have been delivered to Heartland.
(B) Since the date of the Financial Statements, except as set forth on
Schedule 2.4, (i) Seller has conducted its business (including without
limitation the Business) in the ordinary, regular course thereof; (ii) there has
been no change in the business of Seller or, to the Knowledge of Seller, the
LLC, or in the condition, financial or otherwise, of Seller or, to the Knowledge
of Seller, the LLC, or assets or liabilities reflected in the Financial
Statements which have had a Material Adverse Effect upon the LLC Interest or
Assets; or any damage, destruction or loss, whether or not covered by insurance,
which has had a Material Adverse Effect on the LLC Interest, the Business or the
Assets or which is substantial in amount, or any change in the nature; or in the
condition, of the business of Seller which has had a Material Adverse Effect
upon the LLC Interest or the Assets; or any event, condition or state of facts
or any character whatsoever, the occurrence of which has had a Material Adverse
Effect upon the LLC Interest or the Assets; (iii) except in the ordinary and
regular course of its business, Seller and, to the Knowledge of Seller, the LLC,
have not made any dispositions of any of the LLC Interest, AWS Claims, or
Assets; disposed of any records relating to
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the LLC Interest, AWS Claims, or Assets; borrowed any funds; incurred, assumed
or become subject to any obligation or liability, indebtedness for borrowed
money, absolute or contingent paid; discharged, or satisfied any claim,
liability or obligation, absolute, accrued, contingent or otherwise; cancelled
any debts owed to it or waived any claims or rights of value; granted or
extended any power of attorney; or acted as any guarantor, all with respect to
or as relate to the LLC Interest or Assets; and (iv) Seller and, to the
Knowledge of Seller, the LLC, have not done any act or permitted to be done any
act or admitted any act which has or will cause the breach of any representation
or warranty of Seller set forth in this Agreement.
(C) Seller and, to the Knowledge of Seller, the LLC have no Liabilities,
absolute, contingent or otherwise, direct or indirect, material or immaterial,
asserted or unasserted, attributable to Seller, the LLC, the Business or the
Assets, except as set forth on Schedule 2.4 attached hereto. To the Knowledge of
Seller, there has been no change in the business financial condition, operations
or prospects of the LLC since the date of the most recent Financial Statement
which could have Material Adverse Effect.
2.5 PROPERTY. To the Knowledge of Seller:
(A) Schedule 2.5(a) lists and describes in detail as of the date
thereof all of the Equipment, except small hand tools and similar equipment
which are generally described by category and number.
(B) Schedule 2.5(b) lists all Facilities, designating whether such
Facility is owned or leased, including whether there is no
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site.
(C) The LLC owns and holds good and marketable title to all of the
Equipment and Facilities, except as set forth on Schedules 2.5(c) or 2.7,
and all of such Equipment and Facilities is in good and serviceable
condition; conforms to or complies with all applicable Orders and Legal
Requirements; and constitutes all of the Equipment and Facilities that are
used, usable, held for use in or in conjunction with or otherwise
associated with, required or necessary to the ownership and operation of
the Business.
2.6 RECEIVABLES. To the Knowledge of Seller, all accounts receivable of the
Business are reflected in Schedule 2.6 and represent, and at the Closing Time
will represent, valid obligations arising from sales made in the ordinary and
regular course of the Business. To the Knowledge of Seller, the accounts
receivable are valid receivables that have arisen in the ordinary course of the
operation of the LLC's Business in the Market and are collectible and not
subject to setoff or counterclaim, nor to any agreement to reduce or discount.
2.7 CONTRACTS. (A) Schedule 2.7 is a complete and correct list of all
Contracts to which Seller or, to the Knowledge of Seller, the LLC, is a party or
is otherwise bound other than (i) policies of insurance which are listed in
Schedule 2.9 and (ii) Channel Leases which are listed in Schedule 2.8(a).
(B) Except as set forth on Schedule 2.7, the Seller and, to the Knowledge
of Seller, the LLC, as applicable, have performed in all respects all
obligations required to be performed by it under each of the Contracts. Except
as set forth on Schedule 2.7, to the Knowledge of Seller, all of the Contracts
are legal, valid and binding obligations enforceable in accordance with their
respective terms and in full force and effect and there are no defaults (or
events which, with notice or lapse of time or both, would constitute a default)
by the Seller or, to the Knowledge of Seller, the LLC, as applicable, or any
other party to any such Contract. Except as otherwise set forth in Schedule 2.7,
to the Knowledge of Seller, no default under any of the Contracts will be caused
by the consummation of the transactions contemplated hereby, and Seller and, to
the Knowledge of Seller, the LLC (as applicable), shall have performed and
discharged all obligations due or accrued under each Contract relating to
periods prior to and including the Closing Date. There exists no management or
related agreements between Seller and any of its Affiliates with respect to the
Assets or LLC Interest which would require Heartland to make any payment
whatsoever in the form of management fees or related payments to Seller or its
Affiliates with respect to the LLC Interest, Assets or Business following the
Closing.
(C) To the Knowledge of Seller, each Site Lease and Site Option allows for
the use and operation on the leased property of transmitters, antenna
structures, antennas and other associated facilities and permits the
transmission from the property of signals containing video and audio
programming.
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(D) To the Knowledge of Seller, true, complete and accurate copies of all
Contracts have been delivered to Heartland by Seller.
2.8 FCC MATTERS.
(A) To the Knowledge of Seller, Schedule 2.8(a) is a complete and
correct list of all Channel Leases and, except as set forth on Schedule
2.8(a), (i) the LLC has performed in all respects all obligations required
to be performed by it under each of the Channel Leases; (ii) all of the
Channel Leases are legal, valid and binding obligations enforceable in
accordance with their respective terms and in full force and effect and
there are no defaults (or events which, with notice or lapse of time or
both, would constitute a default) by the LLC, or any other party to any
such Channel Leases; (iii) no default under any of the Channel Leases will
be caused by the consummation of the transactions contemplated hereby; (iv)
Channel Leases set forth in the name of Persons other than the LLC, as
lessee, have been duly and validly assigned with all requisite consents and
approvals of all parties thereto to the LLC, and remain in full force and
effect as if the LLC were the initial "lessee" thereunder; (v) no default
or termination has been threatened in writing under any of the Channel
Leases by any party thereto; and (vi) the Channel Leases comply in all
respects with the Act and the FCC Rules and, each of the Channel Leases,
and all amendments thereto, have been filed with and approved by the FCC.
(B) To the Knowledge of Seller, listed in Schedule 2.8(b) are all of
the Licenses and FCC Permits held or leased by the LLC; all Licenses and
FCC Permits are in the name of the Person set forth in Schedule 2.8(b); all
reports or other documents required to be filed with respect to any such
License have been timely filed; and the Licenses and the FCC Permits listed
on Schedule 2.8(b) attached hereto constitute all of the Authorizations
held or leased by the LLC and are all of the Authorizations used, useable,
held for use in or in conjunction with or otherwise associated with,
required or necessary for the LLC to lawfully conduct its business
operations. Except as otherwise expressly noted on Schedule 2.8(b), to the
Knowledge of Seller, each of the Licenses and the FCC Permits (i) is
currently and validly held by the Person identified as the holder thereof
on Schedule 2.8(b), (ii) authorizes said holder to construct and operate a
facility transmitting video and audio programming on the Channels, (iii)
was validly issued, (iv) is validly existing and in full force and effect,
and (v) is not subject to any conditions other than such conditions as are
generally applicable to licenses and permits issued by the FCC with respect
to ITFS, MDS or MMDS Channels. To Seller's Knowledge, there are no existing
or threatened investigations, inquiries or proceedings by or before the FCC
or other Governmental Entity which could result in the revocation,
cancellation, suspension, forfeiture or material adverse modification of
any Authorization or Application.
(C) To Seller's Knowledge, Schedule 2.8(c) indicates all Applications
and all amendments or other filings thereto. To Seller's Knowledge, the
information contained in each Application is materially true and correct,
and each Person which is a signatory to an Application is authorized under
FCC rules to file such Application.
(D) Except as otherwise expressly noted on Schedule 2.8(d), Seller
and, to Seller's Knowledge, the LLC, AWS, the FCC Licensees and the FCC
Permittees have each timely submitted to the FCC, the FAA and all other
Governmental Authorities all notices, reports and other documents which
have been or are required by the Act, the FCC Rules, the FAA Rules and
other Legal Requirements, the Licenses and the FCC Permits except where the
failure to do so would not (i) have a Material Adverse Effect, (ii) hinder
the LLC's ability to fully perform its material obligations under this
Agreement. Except as otherwise expressly noted on Schedule 2.8(d), to the
Knowledge of Seller, no petitions to deny or informal objections have been
filed against any of the amendments listed on Schedule 2.8(c). True,
complete and accurate copies of all amendments, notices, reports and other
documents filed, to Seller's Knowledge, by the LLC, AWS, the FCC Licensees
and the FCC Permittees with respect to the Licenses and the FCC Permits
with the FCC, the FAA, the Copyright Office and other Governmental
Authorities have been delivered to Heartland.
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2.9 INSURANCE. Schedule 2.9 is a complete and correct list and brief
description of all insurance policies held by the Seller or to Seller's
Knowledge, the LLC, related to the LLC Interest or the Assets, each of which are
in full force and effect.
2.10 LITIGATION. Except as set forth in Schedule 2.10, there is no
Proceeding pending, or to Seller's Knowledge threatened, against Seller or the
LLC relating to the LLC Interest or the Assets or the propriety or validity of
the transactions contemplated hereby. Except as set forth in said Schedule 2.10,
neither Seller nor, to the Knowledge of Seller, the LLC, is subject to or in
default under or with respect to any Order. There are no judgments of any court
which in any way may currently constitute the lien or at some future time may be
perfected into a lien upon or against the LLC Interest or any portion of the
Assets, and, there is no Proceeding pending or threatened against, relating to
or affecting the LLC Interest or any portion of the Assets.
2.11 GOVERNMENTAL PERMITS. Seller, or, to the Knowledge of Seller, the LLC,
owns, holds or possesses all Governmental Permits which are necessary to entitle
it to own or lease, operate and use its Assets and to carry on and conduct its
business as currently conducted except with respect to Applications for which
Licenses have not been granted, if any.
2.12 COMPLIANCE WITH LAWS. Seller and, to the Knowledge of Seller, the LLC,
have complied in all respects with all applicable Legal Requirements and Orders
of any Governmental Authority having jurisdiction over it or its operations,
including, but not limited to, all FCC Rules and any laws (including
Environmental Laws), rules or regulations regulating, if applicable, zoning,
fair and equal employment practices, the safety of the workplace, the discharge
of materials into the Environment or otherwise relating to the protection of the
Environment, antitrust, antimonopoly or anticompetitive activities, wages,
hours, collective bargaining and the payment of withholding and social security
taxes. There are no Orders outstanding or in effect against or relating to
Seller, the LLC, the Assets, the transactions contemplated by this Agreement, or
to any of the Channel Leases, other than Orders issued with respect to the
wireless cable industry generally and in the normal course of regulation, which
could, individually or in the aggregate, (i) have a Material Adverse Effect,
(ii) hinder Seller's ability to fully perform its material obligations under
this Agreement, or (iii) eliminate or materially diminish the benefits of this
Agreement for Heartland. Seller has not received any notice (written or
otherwise) from any Person to the effect that, or otherwise been advised that,
Seller or the LLC is not in compliance with any applicable law, ordinance,
regulation, building or zoning law relating to the Assets or the Business and
Seller has no reason to anticipate that any presently existing circumstances are
likely to result in a violation of any such law, statute, ordinance or
regulation.
2.13 ENVIRONMENTAL MATTERS. (A) Neither Seller nor, to the Knowledge of
Seller, the LLC, has used, generated, manufactured, refined, transported,
treated, stored, leaked, poured, emitted, emptied, released, discharged,
disposed, spilled or handled Hazardous Substances in material violation of any
Environmental Law with respect to the property under Seller's or the LLC's
control at any Facility.
(B) Seller has no Knowledge of any prior owner, occupant, tenant or user of
any Facility that has ever used, generated, manufactured, refined, transported,
treated, stored, leached, leaked, poured, emitted, emptied, released,
discharged, disposed, spilled or handled Hazardous Substances in material
violation of any Environmental Law, at, on or from the property under Seller's
or the LLC's control at any Facility.
(C) Seller has not received notice of any pending or threatened Proceeding,
Order or citizen suit instituted by any private party, employee or Governmental
Authority arising out of the conduct or the operations of its business, in
connection with Environmental Laws, or as a result of any Environmental
Condition relating to the property under Seller's or the LLC's control at any
Facility.
2.14 INTELLECTUAL PROPERTY. Schedule 2.14 is a complete and correct list of
all Intellectual Property owned or used by the LLC in the Business. To the
Knowledge of Seller, no person has any right to receive any royalty or similar
payment arising from the Intellectual Property. Except as set forth on said
Schedule 2.14, to the Knowledge of Seller, the LLC owns each of said properties;
has not granted to any other Person any interest in any of said properties, as
licensee or otherwise; and has filed all certificates, affidavits and other
documents, and taken all other actions, necessary to retain its title to said
properties and to keep the same in effect. None of said properties is invalid
and none infringes upon the personal or property rights of any third party.
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2.15 TAXES AND FEES. Seller and, to the Knowledge of Seller, the LLC have
each timely filed all Federal, state and local Tax returns required to be filed
by Seller or the LLC. Seller and, to the Knowledge of Seller, the LLC have each
paid and shall pay all Taxes due and payable for all periods ending prior to the
Closing Date.
2.16 LIENS. Except as set forth on Schedule 2.16, the Seller has good,
marketable and valid title to the LLC Interest, and, to the Knowledge of Seller,
LLC has good, valid and marketable title to all of its Assets, each free and
clear of all Liens, except for the lien, if any, of current Taxes not yet due
and payable.
2.17 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, Seller and, to Seller's Knowledge, the LLC, the FCC
Licensees and the FCC Permittees are in material compliance with, and not in
default under or in violation of, the Act, the FCC Rules, the FAA Rules, the
Copyright Act, the Copyright Rules and other Legal Requirements applicable to
the Licenses or FCC Permits. Except as otherwise expressly noted on the
Schedules attached hereto, Seller has no Knowledge and has received no notice of
noncompliance with, default under or violation of the Act, the FCC Rules, the
FAA Rules, the Copyright Act, the Copyright Rules, other Legal Requirements and
the applicable Licenses or FCC Permits. No condition exists or event has
occurred with respect to Seller and, to Seller's Knowledge, the LLC, the
Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which, in
itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a violation of the Act, any FCC Rule, any FAA Rule, the
Copyright Act or the Copyright Rules, (ii) constitute a default in the due
performance and observation of any term, covenant or condition of any of the
Licenses or FCC Permits, (iii) result in a forfeiture, the denial, dismissal or
rejection of any of the Schedule 2.8(c) or 2.8(d) amendments, or the suspension,
termination, revocation, material impairment, material adverse modification or
nonrenewal of any License or FCC Permit, or (iv) adversely affect any of the
material rights of Seller, the LLC, any FCC Licensee or FCC Permittee under any
of the Licenses or FCC Permits.
2.18 INTERFERENCE. Neither Seller, nor, to Seller's Knowledge, the LLC or
any party to a Channel Lease, has accepted the electrical interference to the
Channels from any source, has consented to the grant of any application involved
with the FCC that is likely to result in any electrical interference to the
Channels, or has failed to timely petition to deny any application that proposes
facilities that could reasonably be anticipated to cause objectionable
electrical interference to the Channels. Except as otherwise expressly noted on
Schedule 2.18 attached hereto, neither Seller, nor, to Seller's Knowledge, the
LLC, any FCC Licensee or FCC Permittee or any other party to a Channel Lease, is
likely to experience interference which will adversely impact operation of the
Facilities it has constructed and/or operated, or is constructing once such
Facilities are constructed and operated, or is likely to create interference
which will adversely impact the operation of other facilities licensed by the
FCC to other Persons; for purposes of this Section 2.18, interference shall be
deemed to exist if within an FCC Licensee's protected service area, the ratio of
the desired signal to the undesired signal, at the antenna input terminals of
the affected receiver, is less than 45 dB.
2.19 EMPLOYEES; BENEFIT PLANS. The employees listed on Schedule 2.19 are
the LLC's or Seller's only employees associated with the Market. Except as set
forth on Schedule 2.19 hereof, neither Seller nor, to the Knowledge of Seller,
the LLC has or has had any bonus, deferred compensation, incentive compensation,
severance or termination pay, hospitalization or other medical, stock purchase,
stock option, pension, life or other insurance, profit sharing or retirement
plan, agreement or arrangement, or other employee benefit plan or arrangement,
whether formal or informal, and whether legally binding or not, maintained or
contributed to by Seller ("Benefit Plan"). Neither Seller nor the LLC has been a
party to a "multiemployer plan" as that term is defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended. With respect to the
Benefit Plans listed on Schedule 2.19 hereof, (i) all payments due from Seller
or the LLC to date for the employees with respect to such Plans have been made
and all amounts properly accrued to date as Liabilities of Seller or the LLC are
set forth on Schedule 2.19 hereof; and (ii) all reports and information relating
to such Plan required to be filed with any governmental entity have been filed.
Seller has not (i) experienced any material labor disputes or work stoppages, or
(ii) received any notice that there is any unfair labor practice, charge or
complaint pending or threatened, except as is already set out herein.
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2.20 FINDER'S FEES. Neither Seller nor, to the Knowledge of Seller, the LLC
has taken any action which would impose upon Heartland any obligation or
liability to any person for finder's fees, agent's commissions or like payments
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.21 PROGRAMMING AGREEMENTS. Schedule 2.21 sets forth a true and complete
list of all agreements for programming and for each programming agreement (i)
the name of the programmer, (ii) the programming service, (iii) the rate, and
all factors that affect rate changes through the end of the term of such
agreement, (iv) the term and any rights for early termination or extensions of
the term of any party thereof, (v) any renegotiation rights, (vi) the relevant
channels, and (vii) any provisions relating to advertising.
2.22 FURTHER REPRESENTATION. No representation or warranty of Seller
contained in this Agreement contains or will contain any untrue statement or
will admit to or state a material fact necessary in order to make the statements
made herein, in light of the circumstances under which they are made, not
misleading. All books, statements, documents, schedules and records furnished or
given by it to Heartland or its agents during the negotiation of or preparatory
to the execution of this Agreement or the consummation of the transactions
contemplated hereby, are true, complete and genuine and contain no material
misrepresentations or omissions of material facts.
2.23 CERTAIN ACTIVITIES. Neither Seller nor, to the Knowledge of Seller,
the LLC engages in any business other than the Wireless Cable Business in the
Market. The LLC Interest, the AWS Claims and the Excluded Assets are the only
assets of Seller.
2.24 PARTNERSHIP BOOKS AND RECORDS. Schedule 2.24 contains a true and
correct list of each Partner of Seller, indicating the percentage interest owned
by each such person. Under the applicable provisions of Seller's Partnership
Agreement and applicable law, the vote of a majority of the general partnership
interest in Seller is required to approve and adopt the Agreement and the
transactions contemplated hereby.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND.
Heartland hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION AND GOOD STANDING. Heartland is a Delaware corporation
duly organized, validly existing and in good standing under the laws of
Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has the
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.8 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 6.8 and 7.1) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement or any of the documents required to
be executed and delivered by Heartland hereunder or the consummation of the
transactions hereby contemplated by Heartland conflict with or constitute any
violation or breach of the Certificate of Incorporation or the Bylaws of
Heartland.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby.
3.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents (if any), or the filing of the Registration Statement, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Authority is required on behalf of Heartland in
connection with the
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execution, delivery or performance of this Agreement and all documents
contemplated hereby or the transactions contemplated hereby.
3.5 CAPITALIZATION. Heartland is authorized to issue 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 of preferred stock, par
value $.01 per share. As of the date hereof, 12,476,393 shares of Heartland
common stock are issued and outstanding and no shares of preferred stock have
been issued. The Acquisition Shares to be issued pursuant to this Agreement will
be, upon issuance, validly issued, fully paid and non-assessable.
3.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the date thereof and for
the periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to Seller copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three (3) month periods ended March 31, 1995 and June 30, 1995, (iii)
its Form S-3 Registration Statement (33-94838) declared effective by the SEC on
August 4, 1995 and (iv) all Form 8-Ks filed with the SEC after June 30, 1995 and
prior to the date of this Agreement ("Heartland SEC Filings"). Each such filing
was timely filed with the SEC, and did not contain any misstatement of material
fact or an omission of a material fact required to be stated therein necessary
to make the statements therein not misleading as of the time such document was
filed. Heartland has filed all documents required to be filed with the SEC. As
of their respective dates, such reports complied in all material respects with
the applicable requirements of the Securities Exchange Act of 1934, as amended.
ARTICLE 4. COVENANTS OF SELLER.
Seller hereby agrees to perform as follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. From the date hereof through the
Closing Date:
(A) Seller shall not, and shall not cause the LLC to, engage in any
practice, take any action or enter into any transaction other than in the
customary and ordinary course of business without the consent of Heartland.
(B) Seller will use its best efforts to keep the business, properties
and business relationships substantially intact.
(C) Seller will, and will use its best efforts to cause the LLC to,
(a) pay and perform all of its debts, liabilities and obligations as and
when due, except to the extent being contested in good faith and as to
which adequate reserves (determined in accordance with GAAP) have been
established, (b) perform its material obligations under all Authorizations
and Contracts, and (c) comply in all material respects with all
Governmental Rules.
(D) Seller agrees that (i) Seller will not take any action, and will
endeavor in good faith not to permit any event to occur, which would cause
or constitute a material breach of this Agreement; (ii) Seller will, in the
event of, and promptly after the occurrence of, or promptly after becoming
aware of the occurrence of or the impending or threatened occurrence of,
any event which would cause or constitute a material breach or would, if it
had occurred immediately prior to the date hereof, have caused or
constituted a material breach of any of the representations and warranties
set forth in said Article 2, give notice thereof to Heartland; and (iii)
Seller shall use its best efforts to prevent or promptly to remedy such
breach.
(E) Seller will use its best efforts to, and to cause the LLC to,
preserve, protect and maintain their rights and interests in the Channel
Leases, FCC Licenses, and Contracts, including, but not limited to, filing
or having licensees or permittees file with the FCC any and all reports,
applications or other documents necessary to preserve the FCC Licenses in
full force and effect.
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(F) Seller shall not, and shall not cause the LLC to, enter into,
amend or terminate, or agree to enter into, amend, except to comply with
this Agreement, or terminate any Channel Lease, License, Permit,
Application or Contract.
(G) Seller shall not, and shall not cause the LLC to, make any
distributions to Seller, AWS or any Partners, as applicable, nor shall
Seller issue or cause the LLC to issue, sell or agree to sell any equity
interests or options or rights with respect thereto.
(H) Seller shall not, and shall not cause the LLC to, sell, lease,
transfer or otherwise dispose of any assets of Seller or the LLC, as
applicable, except as provided for by, or contemplated in, this Agreement.
(I) Seller shall not, and shall not cause the LLC to, increase in any
manner the base compensation of, or enter into any new bonus or incentive
agreement or arrangement with, any of its managers, officers or employees,
pay bonuses to any such manager, officer or employee, nor shall Seller pay
any salaries except in the ordinary course of business.
(J) Seller shall not grant or transfer any rights to the LLC Interest
or AWS Claims.
(K) Seller shall not take any actions which would cause the
transactions contemplated hereby to be subject to Subpart 900 of Regulation
S-K, promulgated under the Securities Act and the Securities Exchange Act
of 1934, as amended (the "Roll-up Rules").
4.2 CONSENTS. Except as otherwise provided herein, Seller shall obtain or
cause to be made, all consents, governmental authorizations, approvals and
filings as may be necessary by virtue of the transaction contemplated by this
Agreement on or before the Closing Date, so as to ensure that the LLC will
continue to enjoy all of the rights and privileges currently under each of the
Channel Leases, Licenses and Contracts. Upon request of Heartland, Seller shall
assist Heartland to obtain from each of the other respective parties to each of
such Channel Leases and Material Contracts estoppel certificates certifying that
neither Seller nor the LLC is in breach or violation of or in default under any
of such Channel Leases or Contracts and that it would not be by virtue of the
transactions contemplated hereby. Seller shall seek any appropriate amendments,
modifications or changes to each of such Channel Leases and Contracts held in
the name of Seller or under which Seller is to receive notices of default so as
to ensure that the licensees, permittees or other parties thereto notify
Heartland directly in the event of a breach or violation of or default under any
such Channel Lease or Contract. In addition to the foregoing, Seller shall
obtain a written consent from AWS consenting to the transfer of the LLC Interest
to Heartland, admitting Heartland as a member in the LLC, and acknowledging that
such transfer will not cause a dissolution of the LLC.
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. Seller shall, and shall use
its best efforts to cause the LLC to:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to the LLC remain in full
force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's Rules or policies of general applicability. After the
applications are filed for FCC consent to the transfer of control of the
FCC Licenses for said Channels to Heartland or an affiliate of Heartland,
Seller shall file, at the request of and as an accommodation to Heartland,
such applications for modification of their outstanding construction
permits or licenses to implement the purposes contemplated hereunder.
Seller shall utilize its best efforts to diligently and properly prosecute
in good faith all applications, reports and submissions submitted in
accordance with this Section 4.3.
(B) assure that the licensees or permittees under the Channel Leases
timely file all applications reports, and other submissions in such form
and with such information as may be required by the FCC, including, but not
limited to, renewal applications, applications for extensions of time to
complete construction and Annual FCC Reports, to assure that such FCC
Licenses remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
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modification result from changes in the FCC's rules or policies of general
applicability. Seller shall, and shall use its best efforts to cause the
LLC to, use its best efforts to assure that the licensees or permittees
under the Channel Leases diligently prosecute in good faith all such
applications, reports and submissions. Seller shall promptly disclose to
Heartland any information it receives regarding any condition or
circumstance that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. From and after the date hereof, Seller will not, and
will not authorize or permit any of its Executive Committee members, officers,
managers, employees, agents and other representatives (collectively, "Seller
Representatives") to solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to, an Acquisition Proposal
(as defined herein) from any person, or engage in any discussion or negotiations
relating thereto or accept any Acquisition Proposal. Seller shall immediately
cease and cause to be terminated any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any parties conducted
heretofore by Seller or any Seller Representatives with respect to any of the
foregoing. Seller will promptly notify Heartland of any such discussion or
negotiations, requests for such information or the receipt of any Acquisition
Proposal, including the identity of the person or group engaging in such
discussions or negotiations, requesting such information or making such
Acquisition Proposal and the material terms and conditions of any Acquisition
Proposal. As used in this Agreement "Acquisition Proposal" shall mean any
proposal or offer, other than a proposal or offer by Heartland or any of its
Affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving Seller or the LLC or any proposal to acquire in
any manner a substantial equity interest in, a substantial portion of the assets
of, or any rights to any Channels or Licenses of, Seller or the LLC.
Notwithstanding the foregoing and subject to Heartland's rights set forth in
Section 5.11, nothing in this Section 4.4 shall prohibit the Executive Committee
of Seller from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal to acquire Seller pursuant to a merger, consolidation, exchange,
purchase of a substantial portion of the assets, business combination or some
other transaction, if, and only to the extent that (A) the Executive Committee
determines in good faith that such action is required for the Executive
Committee to comply with its fiduciary duty to its Partners, (B) prior to
furnishing such information to, or entering into discussions with or
negotiations with, such person or entity, Seller provides written notice to
Heartland to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) Seller keeps
buyer informed, on a current basis, of the status of any such discussions or
negotiations; and (ii) in complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. Seller will use reasonable
efforts to cause a person provided proprietary information in accordance with
the foregoing to enter into a confidentiality agreement.
4.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, Seller will have audits conducted and completed so that Seller can
provide audited financial statements of Seller as of, and for the period ending,
December 31, 1994, including the balance sheets and related statements of income
and expense and any subsequent proceeds required by Regulation S-K promulgated
under the Securities Act.
ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS AND PARTNERS MEETING. Heartland shall take all action
necessary in accordance with applicable law and in accordance with its
certificate of incorporation and bylaws to convene a meeting of its stockholders
promptly after the Registration Statement is declared effective by the SEC to
consider and vote upon the approval of this Agreement. Seller shall take all
action necessary in accordance with applicable law and its partnership agreement
to convene a meeting of its Partners promptly after the Registration Statement
is declared effective by the SEC to consider and vote upon the approval of this
Agreement. Seller and Heartland each, through its Executive Committee or board
of directors, as applicable, shall recommend to its partners or stockholders
(and, if applicable, its lenders) approval of this Agreement and shall use
reasonable efforts to obtain approval and adoption of this Agreement by such
partners, stockholders and lenders. Seller acknowledges that the consummation of
the transactions contemplated by this Agreement by Heartland
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requires (and therefore is subject to) the approval of certain lenders of
Heartland, and Heartland agrees to seek to obtain the written approval of such
lenders on or before December 1, 1995.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as
practicable the Registration Statement containing a proxy
statement/prospectus in connection with the registration under the
Securities Act of the Heartland Shares issuable pursuant to the terms of
this Agreement, a portion of which shall also serve as the joint proxy
statement/prospectus with respect to the meetings of the stockholders of
Heartland and partners of Seller to approve the Acquisition, and shall use
all reasonable efforts to have the Registration Statement declared
effective by the SEC as soon as practicable. Heartland shall also take any
action required to be taken under blue sky or securities laws in connection
with the Heartland Shares prior to the Closing. Seller shall furnish
Heartland all information concerning Seller and the holders of its equity
interests required for use in the Registration Statement, and Seller shall
take such other actions as Heartland may reasonably request in connection
with the preparation of such Registration Statement and the actions to be
taken by Seller pursuant to this Section 5.2. None of the information
furnished by or on behalf of Seller for use in the Registration Statement
shall contain any material misstatement of fact or omit to state a material
fact or any fact necessary to make the statements contained therein not
misleading.
(B) Seller shall prepare and file with the SEC as soon as practicable
a proxy statement that will be the same proxy statement/prospectus
contained in the Registration Statement and a form of proxy, in connection
with the vote of Seller's partners with respect to the consummation of the
transactions set forth in this Agreement (such proxy statement/prospectus,
together with any amendments thereof or supplements thereto, in any case in
the form or forms mailed to Seller's partners, is herein called the "Proxy
Statement"). Heartland shall furnish Seller all information concerning
Heartland required for use in the Proxy Statement, and Heartland shall take
such other action as Seller may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by or
on behalf of Heartland for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
5.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours be permitted reasonable access to the Facilities and
Seller's principal offices, will be permitted to make copies of or abstracts
from all of the books and records, financial and operating data and other
information of Seller and will be permitted to discuss the affairs, and accounts
of Seller with the Executive Committee, AWS, manager, officers, employees,
counsel, and accountants of Seller. Such investigation shall not, however,
affect the representations and warranties of Seller set forth in Article 2
hereof. In the event the transactions contemplated hereby should not close for
any reason, Heartland agrees that it will promptly return to Seller all such
documents (including copies thereof) furnished by Seller to Heartland and its
representatives and Heartland shall hold in confidence and shall not use or
disclose to any third party any information concerning Seller obtained from such
documents or otherwise in connection with the transactions contemplated by this
Agreement unless (a) such information (i) previously disclosed to Heartland by
AWS prior to the date hereof, (ii) subsequently disclosed to Heartland by AWS in
connection with the preparation of the Merger Agreement, or (iii) was at the
time of its use or disclosure to any third party by Heartland in the public
domain other than as a result of any breach of this provision by Heartland or
(b) such disclosure is required by law; provided that notwithstanding the
termination of this Agreement, Heartland shall have the right to use or disclose
any information delivered by Seller to Heartland hereunder in connection with
the Merger Agreement and any registration statement relating thereto.
5.4 COMPLIANCE WITH THE SECURITIES ACT. Seller has caused to be prepared
and delivered to Heartland a list identifying all persons who, as of the date
hereof, may be deemed to be "Affiliates" of Seller as that term is defined under
Paragraphs (c) and (d) of Rule 145 of the Securities Act ("Rule 145
Affiliates"), and prior to the Closing Date, Seller shall cause to be prepared
and delivered to Heartland an updated list (reasonably
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satisfactory to counsel for Heartland) identifying all persons who at the time
of Seller's partner meeting may be deemed to be a Rule 145 Affiliate. Seller
shall use all reasonable efforts to cause each person who is identified as a
Rule 145 Affiliate in such list to delivered to Heartland on or prior to the
Closing Date a written agreement, in the form attached hereto as Exhibit 5.4,
that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise
dispose of any Distributable Shares issued to such Rule 145 Affiliate pursuant
to this Agreement, except pursuant to an effective Registration Statement or in
compliance with Rule 145 or an exemption from the registration requirements of
the Securities Act.
5.5 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Acquisition and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any Governmental Entity, (b) the obtaining of all necessary
consents, approvals or waivers from third parties, (c) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby including seeking to have any stay or temporary restraining order entered
by any court or other Governmental Entity vacated or reversed, (d) the execution
and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement and (e) not to take, commit, or
agree in writing or otherwise to take, any action which would make any
representation or warranty of such party contained in this Agreement untrue or
incorrect in any material respect as of the date when made or as of a future
date.
5.6 PUBLIC ANNOUNCEMENTS. Heartland and Seller will consult with each other
before issuing any press release with respect to the transactions contemplated
by this Agreement, and shall not issue any such press release prior to such
consultation, unless otherwise required under applicable law.
5.7 NOTIFICATION OF CERTAIN MATTERS. Seller shall give Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement and prior to the Effective
Time under any note, license, agreement or other instrument or obligation, (ii)
any Material Adverse Effect or the occurrence of any event which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect on such party, or (iii) Seller's receipt
of any written notice or other written communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
5.8 LETTERS OF SELLER'S ACCOUNTANTS. Seller shall cause to be delivered to
Heartland a letter ("Accountant's Consent Letter") from the accountants engaged
pursuant to Section 4.5, dated a date within two business days before the date
on which the Registration Statement shall become effective and addressed to
Heartland, in form and substance reasonably satisfactory to Heartland and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
5.9 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and will use their respective best efforts
to obtain an early termination of the applicable waiting period, and will make
any further filings pursuant thereto that may be necessary, proper, or
advisable.
5.10 EMPLOYEES. From and after the date hereof through the Closing Date or
earlier termination of this Agreement, Heartland shall have the right to contact
any employees of Seller and/or the LLC regarding the potential employment of
such persons following the Closing Date. Any such employees hired by Heartland
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shall be considered newly hired and Heartland shall not be responsible for any
benefits to such employees arising prior to the Closing Date.
5.11 RIGHT OF FIRST REFUSAL. Notwithstanding any other provisions of this
Agreement to the contrary (including, without limitation, Section 4.4), Seller
hereby grants to Heartland a right of first refusal ("Right of First Refusal")
to purchase or otherwise acquire the LLC Interest upon the receipt of an offer
therefor, determined by the Executive Committee to be bona fide and that the
Executive Committee intends to accept ("Qualifying Offer"), upon the terms set
forth for this Section 5.11. Upon the Executive Committee's receipt of a
Qualifying Offer, the terms of such Qualifying Offer shall be delivered to
Heartland in a written notice ("Offer Notice") which shall contain a copy of any
written Qualifying Offer or a summary of the material terms of any oral
Qualifying Offer. Heartland shall have a period of ten (10) business days from
its receipt of an Offer Notice to exercise its Right of First Refusal by written
notice to Seller of such election ("Election Notice"). If Heartland so elects to
exercise the Right of First Refusal, Heartland shall then proceed to consummate
the Qualifying Offer in accordance with the terms described in the Offer Notice;
provided that (a) in the event the consent of Heartland's shareholders or
lenders is required, Heartland shall have a period of thirty (30) days to obtain
such consents, (b) in the event that consent of any other third party (such as
the FCC or a License holder) is required, Seller shall be responsible for, and
Heartland shall cooperate in, obtaining such consent, and (c) any proposed
closing of a transaction described in a Qualifying Offer shall occur no earlier
than (i) twenty (20) days after Heartland's delivery of the Election Notice or
(ii) twenty (20) days from the date of Heartland's receipt of any consent
referred to in clause (b) or (c) above, whichever is later. In the event that
Heartland fails to deliver to Seller an Election Notice within the time period
specified herein or (ii) fails to obtain any consent referred to in clause (a)
of the preceding sentence within the time period specified therein, then Seller
may consummate the transaction described in the Offer Notice upon the terms and
conditions described to Heartland in the Offer Notice, and upon the consummation
of the transaction described in the Offer Notice, Heartland's rights hereunder
shall terminate; provided that Heartland's rights hereunder shall not terminate
upon the consummation of any transaction described in the Offer Notice with an
Affiliate of Seller. In the event any terms and conditions of the Transaction
described in the Offer Notice deviate or are subsequently modified in any
material aspect from the terms described to Heartland in the Offer Notice, then
Seller shall resubmit the Offer Notice to Heartland as if a new Qualifying Offer
had been receive. In the event Heartland elects to exercise its Right of First
Refusal and consummates the transaction described in the Offer Notice, then this
Agreement shall terminate and the parties shall have no further rights or
obligations hereunder. Heartland's right of first refusal granted in this
Section 5.11 shall continue so long as Seller (or any Affiliate of Seller) owns
the LLC Interest.
5.12 EXHIBITS. Heartland and Seller agree that any Exhibits not attached
hereto on the date hereof shall be prepared and attached on or before December
1, 1995, and agree to cooperate and negotiate in good faith in the preparation
of such Exhibits.
5.13 HEARTLAND LOAN. Concurrently with the execution hereof, Heartland and
the LLC have executed that certain Loan Agreement, pursuant to which Heartland
will loan (i) to the LLC approximately $575,000, which indebtedness shall be
evidenced by a promissory note ("Primary Note"), the proceeds of which shall be
used to repay certain indebtedness of the LLC to Tsunami Capital Corporation,
and (ii) to the LLC up to $1,000,000.00, which indebtedness shall be evidenced
by a promissory note ("Subscriber Note"), the proceeds of which ("Restricted
Proceeds") shall be used solely for the following purposes: (A) up to $100,000
of the Restricted Proceeds may be used to fund operating deficits of the LLC
attributable to periods from and after the date hereof, and (B) the remainder of
such Restricted Proceeds shall be used to purchase broadcast transmission
equipment or receive-site equipment or pay labor costs associated with the
installation thereof. Upon the written request of Heartland, Seller shall, or
shall cause the LLC to, furnish written evidence reasonably satisfactory to
Heartland that such Restricted Proceeds were used in accordance with the
provisions of this Section 5.13, which evidence shall include copies of third
party receipts and invoices and evidence of the payment thereof.
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5.14 DELIVERY OF SCHEDULES AND OTHER ITEMS. Notwithstanding any statements
contained herein to the contrary, Seller shall deliver to Heartland all
schedules and documents stated to have been delivered herein on or before
November 7, 1995.
ARTICLE 6. CONDITIONS PRECEDENT TO ACQUISITION.
The obligation of the parties hereto to consummate the Acquisition is
subject to the fulfillment, or written waiver signed by all parties hereto, of
each of the following conditions precedent on or prior to the Closing Date or
the date specified therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
6.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making the acquisition or the transactions contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Closing Date with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Closing Date from any Governmental Entity in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby by Seller and Heartland shall have been made or obtained (as the case may
be) without restrictions.
6.4 FAIRNESS OPINIONS. Intentionally omitted.
6.5 PARTNER APPROVAL. The sale of the LLC Interest, the Partner's release
or assignment of the AWS Claims, the Agreement and Plan of Liquidation and all
other transactions contemplated hereunder shall have been approved by the
Partners holding two-thirds ( 2/3) of the outstanding equity and voting interest
of Seller.
6.6 APPLICABILITY OF THE ROLL-UP RULES. Heartland and Seller shall not be
required to comply with the Roll-up Rules in consummating the Acquisition in
accordance with the terms of this Agreement.
6.7 CLOSING SHARE PRICE. The Closing Share Price shall not be less than
$17.00 per Heartland Share.
6.8 INTENTIONALLY OMITTED.
6.9 EXHIBITS. On or before December 29, 1995, Heartland and Seller shall
have agreed upon the form of each Exhibit to this Agreement and each such
Exhibit shall be attached hereto.
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.
The obligations of Heartland to consummate the Acquisition are subject to
the fulfillment, or written waiver signed by Heartland, of each of the following
conditions precedent on or prior to the Closing Date.
7.1 STOCKHOLDER AND OTHER APPROVAL. The Acquisition shall have been
approved by the requisite votes of the holders of Heartland Shares in accordance
with applicable law and its Certificate of Incorporation and Bylaws.
7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Seller shall be true and correct in all material respects when
made and shall be true and correct in all material respects as if initially made
on and as of the Closing Date.
7.3 SELLER'S DOCUMENTS. Seller shall have delivered the following to
Heartland in form and substance satisfactory to Heartland and its counsel:
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(A) A certificate signed by an authorized member of Seller's Executive
Committee confirming, on and as of the Closing Date, that each
representation and warranty set forth in Section 2 hereof was true and
correct in all material respects on the date made and is true and correct
in all material respects on and as of the Closing Date and that Seller is
in compliance with the applicable covenants set forth in Articles 4 and 5
hereof.
(B) Evidence that Channel Leases are in place for the Channels and
that such agreements shall be effective and fully enforceable.
(C) An opinion of special counsel to Seller in the form attached
hereto as Exhibit 7.3(c).
(D) The partnership records, list of Partners, minute books, operating
agreements and organization documents of Seller.
(E) All necessary and appropriate governmental and third party
consents, approvals and clearances for consummation of the transactions
contemplated herein, including, but not limited to, receipt of the AWS
Consent and a "final" order by the FCC approving, without any materially
adverse or onerous conditions, Heartland (or a commonly owned entity) as
licensee of the owned FCC Licenses. For purposes of this Section, the term
"final" shall mean an order of the FCC which has not been stayed and, by
lapse of time or otherwise, is no longer subject to administrative or
judicial reconsideration, review, appeal or stay.
(F) An Assignment of LLC Interest in the form attached hereto as
Exhibit 7.3(f)-1 and an Assignment of AWS Claims in the form of Exhibit
7.3(f)-2.
(G) The Dispute Resolution Agreement.
7.4 REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall have
been declared effective by the SEC in accordance with the Securities Act and the
rules and regulations promulgated thereunder.
7.5 NO MATERIAL ADVERSE CHANGE. No material adverse change shall have
occurred with respect to Seller, the LLC, the LLC Interest or Assets, or
prospects of any thereof from the date hereof through the Closing Date.
7.6 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF SELLER. Each of the
conditions precedent to the obligations of Seller set forth in Article 6 or 8
shall have been satisfied or waived by Seller.
7.7 SELLER'S OBLIGATIONS PERFORMED. All obligations of Seller to be
performed to the Closing Date shall have been performed in all material
respects.
7.8 CONSUMMATION OF MERGER AGREEMENT. The Merger Agreement between Merger
Sub, Heartland and AWS shall have been consummated.
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to consummate the Acquisition is subject to
fulfillment, or written waiver signed by Seller, of each of the following
conditions precedent on or prior to the Closing Date.
8.1 PARTNER APPROVAL. The Acquisition shall have been approved by the
requisite votes (but in no event less than a two-thirds ( 2/3) vote) of Seller's
Partners in accordance with applicable law and its partnership agreement and/or
other organizational documents.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
8.3 HEARTLAND DOCUMENTS. Heartland shall have executed and delivered to
Seller in form and substance satisfactory to Seller and its counsel:
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(A) A certificate of an executive officer of Heartland confirming, on
and as of the Closing Date, that each of the representations and warranties
set forth in Section 3 hereof was true and correct in all material respects
on the date made and is true and correct in all material respects on and as
of the Closing Date.
(B) An opinion of counsel to Heartland addressed to Seller in the form
attached hereto as Exhibit 8.3.
(C) The Exchange Agreement, executed by Heartland and the Exchange
Agent.
(D) The Dispute Resolution Agreement.
8.4 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF HEARTLAND. The
conditions precedent to the obligations of Heartland set forth in Article 7
shall have been satisfied or otherwise waived by Heartland.
8.5 HEARTLAND OBLIGATIONS PERFORMED. All obligations of Heartland to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.6 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the proxy statement to be
amended or supplemented under applicable securities laws.
ARTICLE 9. CERTAIN CLAIMS.
9.1 PRE-CLOSING CLAIMS. In the event that Heartland reasonably believes, at
any time on or prior to the Closing Date, that (i) any representation or
warranty of Seller hereunder is not true as of the date hereof, or (ii) any
representation or warranty of Seller will not be true, or any covenant or
obligation of Seller hereunder will not be performed, on or prior to the Closing
Date, then Heartland shall deliver to Seller written notice of such matter(s)
("Claim Notice") describing in detail the nature of the alleged or anticipated
breach or default under this Agreement and the amount of the damages reasonably
anticipated to be suffered by Heartland as the result of such breach or default.
Upon Seller's receipt of a Claim Notice, Seller may, at any time prior to the
Closing Date, either (a) acknowledge in writing the breach or default by Seller
hereunder and agree to the amount of damages specified in the Claim Notice, (b)
negotiate with Heartland to resolve the matters set forth in the Claim Notice,
the resolution of which, if any, shall be set forth in writing, or (c) deny or
dispute the matters set forth in the Claim Notice and elect not to resolve such
matter (in which case, Heartland would be entitled to exercise any rights
provided in this Agreement in the event that any representation or warranty of
Seller hereunder is not true and correct as of the applicable date or Seller
fails to perform any covenant or obligation hereunder). If Seller agrees to the
damages set forth in the Claim Notice or Seller and Heartland resolve such
matters in writing, the agreed damages, if any, arising from such claim
("Stipulated Damages") shall constitute a portion of the Excluded Liabilities
and shall be paid to Heartland upon the liquidation of the Liquidated Shares.
Notwithstanding anything else contained herein to the contrary, in no event may
the aggregate amount of the Stipulated Damages exceed $1,000,000.00.
9.2 POST-CLOSING CLAIMS. The representations, warranties and covenants of
Seller hereunder shall survive for the six-month period following the Closing
Date ("Claim Period"). During the Claim Period, Heartland shall be entitled to
pursue any claims arising from the breach of the representations, warranties or
covenants of Seller hereunder in accordance with applicable law, to the extent
and only to the extent that Seller is in possession of proceeds of the
Liquidated Shares which have been allocated to contingent claims (which amount
shall not be less than $500,000.00), and then only to the extent that such
proceeds have not previously been disbursed by or on behalf of Seller to satisfy
contingent claims of Seller. Heartland shall not have any recourse to Seller or
its Partners other than to such proceeds of the Liquidated Shares. Any claims by
Heartland during the Claim Period shall be subject to the alternate dispute
resolution procedures set forth in Exhibit 9.2 attached hereto ("Dispute
Resolution Agreement") and each party agrees to be bound thereby.
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ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Acquisition may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the Partners of Seller and
shareholders of Heartland, by the mutual consent of Heartland and Seller.
10.2 TERMINATION BY SELLER. This Agreement may be terminated and the
Acquisition may be abandoned by Seller if the Closing conditions set forth in
Articles 6 and 8 shall not have been satisfied in full or waived on or before
January 31, 1996, unless such date is extended pursuant to the terms of Section
1.10.
10.3 TERMINATION BY HEARTLAND. This Agreement may be terminated and the
Acquisition may be abandoned by Heartland either (a) if the Closing conditions
set forth in Articles 6 and 7 shall not have been satisfied in full or waived on
or before January 31, 1996, unless such date is extended pursuant to the terms
of Section 1.10 or (b) at any time prior to such date, at Heartland's election
upon written notice from Heartland and the payment of the amount specified in
Section 10.4(d) or (e) below, as applicable.
10.4 EFFECT OF TERMINATION AND ABANDONMENT.
(A) In the event of termination of this Agreement and the abandonment
of the Acquisition pursuant to this Article 10, no party hereto (or any
directors, managers or officers) shall have any liability or further
obligation to the other parties to this Agreement, except as provided in
Article 10, and the remedies set forth below shall be each party's sole and
exclusive remedy for any claims arising from this Agreement or the
termination thereof. The payments to be made hereunder are each party's
reasonable estimate of the Damages arising from the other party's conduct
leading to the termination hereof, and shall constitute liquidated damages
for any claims based thereon.
(B) In the event that any Person shall have made an Acquisition
Proposal and the Executive Committee of Seller approves the execution of an
agreement relating thereto or recommends to the Partners the acceptance of
any Acquisition Proposal and Heartland does not exercise its right of first
refusal set forth in Section 5.11, then Seller shall promptly, but in no
event later than two (2) days after the date of the expiration of the
period in which Heartland may deliver the Election Notice (or earlier date
if Heartland delivers to Seller a written waiver of its right of first
refusal), (i) pay Heartland a fee of Seven Hundred Fifty Thousand Dollars
($750,000), and (ii) pay to Heartland the aggregate principal balance, plus
any accrued interest, outstanding on such date under the Primary Note and
Subscriber Note (upon the payment of which such notes shall be discharged
and Heartland shall release any liens securing the same). Seller
acknowledges that the agreements contained in this Section 10.4(b) are
integral parts of the transactions contemplated in this Agreement, and
that, without these agreements, Heartland would not enter into this
Agreement; accordingly, if Seller fails to promptly pay the amount due and
pursuant to Section 10.4(b), and, in order to obtain such payment,
Heartland commences a suit which results in a judgment against Seller for
the fee set forth in this subparagraph (b) the non-prevailing party shall
pay the prevailing party its cost and expenses (including attorneys' fees)
in connection with such suit, together with interest on the amount of the
fee at the interest rate specified in the Subscriber Note in effect on the
date such payment was required to be made.
(C) In the event that this Agreement is terminated (i) by Heartland
pursuant to Section 10.2 arising from the failure of a condition precedent
set forth in Section 7.2 or 7.7, or (ii) by either party pursuant to
Sections 10.2 or 10.3, as applicable, arising from the failure of the
condition precedent set forth in Section 6.5 or 6.6, then this Agreement
shall terminate and the parties shall have no further obligation or
liability to each other.
(D) This Agreement may be terminated by Heartland in its sole
discretion at any time prior to (i) November 1, 1995, upon the payment to
Seller of a fee equal to One Hundred Thousand Dollars ($100,000), or (ii)
December 1, 1995, upon the payment to Seller of a fee equal to One Hundred
Sixty Five Dollars ($165,000).
(E) In the event that this Agreement is terminated for any reason
other than as set forth in subsections (b), (c) or (d) above or in
connection with Heartland's exercise of its Right of First Refusal
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(as set forth in Section 5.11, upon the consummation of which this
Agreement shall terminate without the payment of any additional
consideration, other than as specified in the Offer Notice), then Heartland
shall pay to Seller Five Hundred Thousand Dollars ($500,000).
(F) The parties acknowledge and agree (i) that nothing contained
herein shall affect the obligation of the LLC to repay the Subscriber Note
and Primary Note in accordance with the terms thereof, and (ii) that
Heartland, at its election, may in lieu of paying the termination fees
specified in subsections (d) and (e) above, offset such amounts against
amounts owing under the Primary Note and Subscriber Note.
ARTICLE 11. DEFINITIONS.
11.1 DEFINITIONS. The terms used in this Agreement have the respective
meanings specified or referred to in this Article 9:
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in
Section 5.8.
"ACQUISITION" shall have the meaning set forth in the Recitals.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACQUISITION SHARES" shall have the meaning set forth in Section 1.3.
"ACT" means The Communication Act of 1934, as amended.
"ADDITIONAL SUBSCRIBERS" means the number of subscribers receiving and
paying for wireless cable television transmissions from the LLC in the
Market equal to (i) the number of such subscribers on the date which is
five (5) business days prior to the Closing Date minus (ii) the number of
such subscribers on the date hereof of (meaning 2,500 subscribers).
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person. For purposes of this Agreement, the term "Affiliate" of any party
shall not include AWS or its predecessors.
"APPLICATION" means a pending application by Seller or Institution or
other Parties to the FCC for a License.
"ASSETS" shall have the meaning set forth in Section 1.2.
"ASSUMED LIABILITIES" means the Liabilities of Seller for indebtedness
owed to AWS as of the Closing Date, to the extent and only to the extent
such indebtedness (including any accrued interest thereon) does not exceed
Two Million Two Hundred Thousand Dollars ($2,200,000.00), and any
liabilities associated with the LLC Interest arising after the Closing
Date.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to Seller by a
Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with any Market and the provision
thereon of wireless cable services in and around any Market, including the
licenses, permits, authorizations, franchises, grants, registrations,
certificates, consents and waivers listed on Schedule 2.8(b).
"AWS CLAIMS" means all causes of action, lawsuits, litigation files,
demands, judgments and claims of any nature available to or being pursued
by Seller or any Partner, as applicable, against AWS or its predecessor,
current or former officers or directors, or Affiliates.
"AWS CONSENT" shall have the meaning set forth in Section 2.3.
"BENEFIT PLAN" shall have the meaning set forth in Section 2.19.
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"BUSINESS" shall have the meaning set forth in Section 1.2.
"CAUSES OF ACTION" means all causes of action, lawsuits, litigation
files, demands, judgments, and claims of any nature available to or being
pursued by Seller with respect or relating to the Business or the
ownership, use, function, or value of any Asset, whether arising by way of
counterclaim or otherwise, other than AWS Claims.
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the Seller.
"CLAIM NOTICE" shall have the meaning set forth in Section 9.1.
"CLAIM PERIOD" shall have the meaning set forth in Section 9.2.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.1.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.1.
"CLOSING PLACE" means the offices where the Closing shall take place
on the Closing Date as provided for in Section 1.1.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the ten (10) trading days ending on the fifth (5th) business day prior
to the Closing Date. In the event that the Heartland Shares do not trade on
any date within such ten-day period, the closing price for such date shall
be deemed to be the closing price for the day preceding such date for
purposes of determining the Closing Share Price.
"CLOSING TIME" means the time on the Closing Date that the Closing
shall take place as provided for in Section 1.1.
"CONSENT" means any and consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for the Business to be
conducted or the Assets to be used or available for use in the conduct of
the Business after the Closing Date substantially in the manner as before
the Closing Date.
"CONTRACTS" means all Channel Leases, Site Leases, Site Options,
programming agreements, equipment leases, management agreements, joint
venture agreements, notes, guaranties, covenants not to compete, employment
agreements, consulting agreements, permits, participation agreements,
policies, purchase and sale orders, quotations and other executed or
executory commitments understandings and instruments to which Seller or the
LLC is a party, or of which Seller or the LLC is to receive the benefit or
by which any of the Assets of Seller or the LLC is bound relating to the
Market or Business, whether written or oral and whether originally entered
into by Seller or the LLC or another party.
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
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"DISPUTE RESOLUTION AGREEMENT" shall have the meaning set forth in
Section 9.2.
"DISTRIBUTABLE SHARES" shall have the meaning set forth in Section
1.4.
"DISTRIBUTION RECORD DATE" shall have the meaning set forth in Section
1.4.
"DOCUMENTS" means, with respect to the LLC Interest, Business or the
Assets, all applications, engineering or market or other studies, reports,
and analysis or memoranda, or records and other documents or data related
to the LLC Interest or the Business which are in the possession or under
the control of Seller whether or not any such document is reproduced or
maintained on paper or stored or retained in or on audio or video tapes or
computer hardware disks or by other electronic, magnetic or other means or
methods.
"ELECTION NOTICE" shall have the meaning set forth in Section 5.11.
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on or off the Site, whether yet discovered, which could or does
result in Damages, including any condition resulting from the operations of
the LLC or Seller.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, and
including electro-magnetic fields or discharges into the Environment, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, which are now or may
hereafter be applicable to Seller, the LLC, the LLC Interest, or any
Assets.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property used or available for
use in the Business or located at any of the Facilities and related to the
Business.
"EXCHANGE AGENT" shall mean Harris Trust Company of New York.
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section 1.3.
"EXCHANGE PRICE" shall have the meaning set forth in Section 1.3.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.2.
"EXCLUDED LIABILITIES" shall mean (i) any Liabilities of Seller other
than Assumed Liabilities and (ii) 37.5% of the indebtedness outstanding
under the Primary Note.
"EXECUTIVE COMMITTEE" shall have the meaning set forth in Section 1.4.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
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"FACILITIES" means, with respect to the Business or the Assets, all of
the plants, offices, broadcast towers, antenna towers, head-ends, studios,
control centers and other real property interests and related facilities
which are either owned by the LLC or Seller or leased by or the use of
which are leased by the LLC or Seller.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.4.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are (a)
consistent with the principles promulgated and adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles, and (b) such that a certified public accountant
would, insofar as the use of accounting principles is pertinent, be in a
position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated byphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HEARTLAND SHARES" shall have the meaning set forth in Section 1.3.
"HSR ACT" shall have the meaning set forth in Section 5.9.
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which
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is a qualified applicant for and has entered into a Channel Lease with
Seller, the LLC or their respective Affiliates.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of Seller
or any Affiliate of Seller which are used or available for use in
connection with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if: (i) such individual is actually aware
of such fact or other matter; or (ii) an individual should have known of
such fact or other matter in the course of conducting a reasonable
investigation concerning the truth or existence of such fact or other
matter; (b) with respect to a Person (other than an individual) "knowledge"
of a particular fact or other matter if any individual who is serving as a
manager, director or officer of such Person has "knowledge" of such fact or
other matter; and (c) with respect to warranties made by Seller, that
Seller, based upon a reasonable investigation, believes the warranty is
true.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals necessary or required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance.
"LIQUIDATED SHARES" shall have the meaning set forth in Section 1.4.
"LLC" shall have the meaning set forth in the Recitals.
"LLC INTEREST" shall have the meaning set forth in the Recitals.
"MARKET" means the Minneapolis, Minnesota Standard Metropolitan Area.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in, or is reasonably likely to result in, a material adverse change
in the business, operations, properties, prospects relating to the LLC
Interest taken as a whole other than general economic change over which
Seller has no control.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MMDS" means the Multichannel Multipoint Distribution Service.
"OFFER NOTICE" shall have the meaning set forth in Section 5.11.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator.
"PARTIES" shall mean all parties to Contracts other than Seller from
which Consents are required.
"PERMITTED ENCUMBRANCES" means deposits under Workmen's Compensation,
Unemployment Insurance or Social Security laws, or to secure statutory
obligations or surety or other similar bonds; mechanics, suppliers,
carriers, warehousemen's or other similar liens; liens securing Taxes,
government charges or other governmental levies which are not yet due and
payable, or being contested in good faith
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by appropriate proceedings with adequate reserves in conformity with
generally accepted accounting principles; and the interest or title of any
lessor in property pursuant to a lease of that property.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"PREPAID SUBSCRIBER FEES" means all amounts received by Seller or the
LLC from customers or subscribers in the Market (whether held as cash, cash
equivalents or otherwise) for periods of service from and after the Closing
Date.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 5.2(b).
"PURCHASE PRICE" shall have the meaning set forth in Section 1.3.
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
1.6.
"ROLL-UP RULES" shall have the meaning set forth in Section 4.1.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 5.4.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in the Recitals.
"SELLER'S REPRESENTATIVE" shall have the meaning set forth in Section
4.4.
"SITE" means a wireless cable television site with respect to which
Seller is operating a Wireless Cable Business and transmitting programming
to subscribers in connection therewith.
"SITE LEASE" shall mean a Contract for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"STIPULATED DAMAGES" shall have the meaning set forth in Section 9.1.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
11.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 12. POST-CLOSING COVENANTS.
12.1 COOPERATION AND EXCHANGE OF INFORMATION. Following the Closing,
Heartland and Seller shall provide to each other, upon reasonable prior notice
and during normal business hours, access to the books and records in the
possession of the other which relate to the LLC Interest or the Assets to the
extent such access may be required (i) to facilitate the investigation,
litigation and final disposition of any claims which have been made or may be
made against (A) Seller that relate to the LLC Interest for periods of time
prior to the Closing, or (B) Heartland that relate to the LLC Interest for
periods of time from and after the Closing; and (ii) for any other reasonable
business purpose, but in either case only to the extent that such access does
not unreasonably interfere with the business and operations of such party or
violate any law, order, contract or license applicable to such party.
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ARTICLE 13. MISCELLANEOUS.
13.1 EXPENSES OF THE TRANSACTION. Each of Seller and Heartland agrees to
pay its own fees and expenses in connection with this Agreement and the
transactions hereby contemplated; provided that (a) the following fees and
expenses shall be the responsibility of Heartland: (i) the fees of the Exchange
Agent, (ii) the printing costs for the Registration Statement and any other
solicitation materials, (iii) the cost of mailing the Proxy Statement/Prospectus
and any other solicitation materials mailed therewith, (iv) SEC filing fees for
the filing of the Registration Statement, and (v) FCC filing or Consent Fees
arising from or necessary to consummate the transactions contemplated hereby;
and (b) Seller shall be solely responsible for any brokerage fees or commissions
payable with regard to the sale of the Liquidated Shares.
13.2 FURTHER ASSURANCES. Each of Seller and Heartland agrees that it will,
at any time and from time to time after the Closing Date, upon the request of
the other party, do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered, all such further acts, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required from time to time in order to effectuate the provisions and purposes of
this Agreement.
13.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to Heartland, to:
Heartland Wireless Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Fax: (214) 479-1023
Attn: John R. Bailey
With copy to:
Victor B. Zanetti
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75201
If to Seller, to:
Wireless Cable TV Associates No. 38
c/o Mansfield & Tanick, P.A.
1560 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3383
Attn: Earl H. Cohen
With copy to:
Earl Cohen
Mansfield & Tanick, P.A.
1560 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402-3383
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
13.4 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by
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performance in accordance with its terms or by a writing signed by the party to
which performance is to be rendered.
13.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits (if any) hereto, sets forth the entire agreement and understanding
among the parties as to the subject matter hereof.
13.6 SEVERABILITY. If any provision of this Agreement or the application of
any provision hereof to any person or in any circumstances is held invalid, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
13.7 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. This Agreement may not be
assigned by Seller except with the prior written consent of Heartland. Any
purported assignment by Seller contrary to the terms of this Agreement shall be
void. Notwithstanding the foregoing, Heartland may assign this Agreement and all
of its rights and obligations hereunder, to any party. Promptly following said
assignment, Heartland shall notify Seller of the name of said assignee.
13.8 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Time, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland and Seller;
provided, Heartland shall be entitled to disclose the transactions contemplated
hereby without the prior approval of Seller to the extent reasonably necessary
for Heartland to comply with applicable securities laws.
13.9 CONSENT TO JURISDICTION. This Agreement shall be deemed to have been
made in, and shall be construed in accordance with the laws of the State of
Texas, and its validity, construction, interpretation and legal effect shall be
governed by the laws of the State of Texas applicable to contracts entered into
and performed entirely therein. Heartland and Seller hereby irrevocably submit
to the jurisdiction of the state courts of the State of Texas and to the
jurisdiction of the United States District Court for the Northern District of
Texas, for the purpose of any suit, action or other proceeding arising out of or
based upon this Agreement or the subject matter hereof or thereof brought by
either party or its successors or assigns. Each party hereby waives, and agrees
not to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court. Each party hereby consents to service of process by
registered mail at the address to which notices are to be given. Each party
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the other party. Final judgment
against either party in any such action, suit or proceeding shall be conclusive,
and may be enforced in other jurisdictions (x) by suit, action or proceeding on
the judgment, a certified or true copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness or liability therein described or
(y) in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that the party may at its option bring suit, or
institute other judicial proceedings against the other party or any of its
Assets in any state or Federal court of the United States or of any country or
place where that party or such Assets may be found.
13.10 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
13.11 SCHEDULES. The Schedules referred to herein and delivered to
Heartland upon execution hereof as delivered in accordance with Section 5.14 are
hereby made a part of this Agreement, and may not be changed, substituted or
altered without Heartland's prior written consent.
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13.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year first above written.
SELLER:
WIRELESS CABLE TV ASSOCIATES No.
38,
a California general partnership
By:/s/ CARL TURNER
Carl Turner, M.D.
Chairman of Management
Committee
By:/s/ DAMON OSTIS
Damon Ostis
Deputy Chairman of Management
Committee
BUYER:
HEARTLAND WIRELESS
COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title: Chief Financial Officer
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EXHIBIT 9.2
DISPUTE RESOLUTION AGREEMENT
THIS DISPUTE RESOLUTION AGREEMENT (the "Agreement") dated February , 1996
between WIRELESS CABLE TV ASSOCIATES NO. 38 ("Seller"), a California general
partnership, and HEARTLAND WIRELESS COMMUNICATIONS, INC. ("Heartland"), a
Delaware corporation. Capitalized terms used but not defined herein shall have
the meanings given to them in that certain Amended and Restated Asset Purchase
Agreement (the "Purchase Agreement") dated as of October 5, 1995 between Seller
and Heartland.
RECITALS:
WHEREAS, Seller and Heartland have entered into the Purchase Agreement in
order to provide for the sale by Seller to Heartland of the LLC Interest, as set
forth in the Purchase Agreement (the "Purchase"); and
WHEREAS, Heartland has relied upon the representations, warranties and
covenants of Seller set forth in the Purchase Agreement and in schedules,
certificates and other documents delivered pursuant to the Purchase Agreement;
and
WHEREAS, pursuant to Section 9.2 of the Purchase Agreement, Heartland is
entitled, during the Claim Period, to pursue claims arising from the breach of
such representations, warranties and covenants and, in connection therewith, the
parties to the Purchase Agreement have agreed to enter into this Agreement in
order to establish a mechanism for resolving promptly any disputes which may
arise regarding any such claims;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Purchase Agreement, and intending to be legally
bound, the parties hereto do hereby agree as follows:
ARTICLE 1. CLAIMS.
1.1 CLAIM SUBMISSION. With respect to each claim ("Claim") made by
Heartland during the Claim Period pursuant to Section 9.2 of the Purchase
Agreement, Heartland shall deliver to Seller a certificate signed by an
executive officer of Heartland (an "Officer's Certificate"):
(a) stating that Heartland has paid, suffered or properly accrued, or
Heartland in good faith reasonably anticipates that Heartland will have to
pay, suffer or accrue, Damages in an aggregate stated amount (including,
without limitation, any anticipated professional and other fees and costs
associated therewith) and, with respect to a Qualifying Offer (as
hereinafter defined), that the Qualifying Offer (a copy of which is to be
attached to the Officer's Certificate) has been made and not accepted
within the time period specified therein and the amount of additional
Damages (meaning attorneys' fees and other expenses associated therewith);
and further stating that Heartland is entitled to payment by Seller of the
amount of such Claim pursuant to this Agreement and Section 9.2 of the
Purchase Agreement; and
(b) specifying in reasonable detail (i) the individual items of
Damages included in the amount so stated (or the amount of the Qualifying
Offer and additional Damages, such as attorneys' fees and other expenses,
associated therewith), (ii) the date each such item was paid or properly
accrued or the basis for such anticipated liability, and (iii) the nature
of the liability, misrepresentation, breach of warranty or covenant or
other matter to which such items is related.
J-30
<PAGE> 1115
J
Upon Seller's receipt of the Officer's Certificate, such Claim shall be treated
as set forth in Section 1.3 below.
1.2 THIRD PARTY CLAIMS; QUALIFYING OFFERS.
(a) Within 15 days after receipt by Heartland of notice of any Claim by a
third party (a "Third Party Claim") for which Heartland intends to seek payment
from Seller pursuant to Section 9.2 of the Purchase Agreement, Heartland shall
deliver to Seller written notice thereof; provided that the omission to so
notify Seller will not affect Heartland's right of recourse hereunder and that
Heartland shall not be required to deliver notice of other Claims disclosed in
the Purchase Agreement or in any schedule thereto. Seller shall have the right
to participate in any such proceeding and Heartland shall have the right (but
not the duty) to control the defense thereof. Whether or not Seller chooses to
participate in the defense of any proceeding involving a Third Party Claim, each
party hereto and their respective successors and assigns agree to cooperate in
the defense and to take all actions in connection with such defense as may be
reasonably requested.
(b) At any time during the first five (5) months of the Claim Period,
Heartland shall have the right to make a written offer to the adverse party in
any Third Party Claim to settle such Claim for an amount specified in such offer
(a "Qualifying Offer"), and Heartland shall give such third party no less than
twenty (20) days to accept such Qualifying Offer. If a Qualifying Offer is
accepted and the Claim is settled, Heartland may seek payment from Seller for
such Claim within the Claim Period in accordance with Section 1.1. If such
Qualifying Offer is rejected or not accepted within such twenty (20) day period,
then Heartland shall be entitled to seek payment from Seller within ten (10)
days from the earlier of Heartland's receipt of a written rejection of a
Qualifying Offer or the expiration of such twenty (20) day period for the amount
of such Qualifying Offer (together with all expenses and costs relating thereto,
including without limitation attorneys' fees) from Seller in accordance with
Section 1.1.
1.3 TREATMENT OF CLAIMS.
(a) Accepted and Rejected Claims. Seller shall have a period of ten (10)
business days from its receipt of an Officer's Certificate delivered to it
pursuant to Section 1.1 ("Rejection Period") to review the Officer's Certificate
and deliver to Heartland written notice of its rejection of all or a portion of
the Claim referenced therein ("Rejection Notice"). If no Rejection Notice is
received by Heartland within the Rejection Period, then such Claim shall become
an "Accepted Claim."
(b) Administration of Rejected Claims. For any Claim which is the subject
of a Rejection Notice (a "Rejected Claim"), Seller and Heartland shall attempt
in good faith to agree upon the rights of the respective parties with respect to
such Claim. If Seller and Heartland so agree, a memorandum setting forth such
agreement shall be prepared and signed by Heartland and Seller and such Rejected
Claim shall become an "Accepted Claim."
(c) Resolution of Dispute. If no such agreement between Seller and
Heartland can be reached with respect to a Rejected Claim after good faith
negotiation within thirty (30) days of Heartland's receipt of a Rejection
Notice, Heartland and Seller shall each select an independent third party (the
"Designated Party") whose determination of the Rejected Claim and the amount of
Damage (if any) associated therewith shall be final, nonappealable and binding;
provided that, with respect to Claims which are the subject of a Qualifying
Offer, the Designated Party shall only be entitled to determine whether such
Claim is subject to payment by Seller to Heartland under Section 9.2 of the
Purchase Agreement; and the Designated Party shall have no authority to reduce
or increase the amount of such Claim from the amount of the Qualifying Offer and
Damages associated therewith. The Designated Party shall be a person
knowledgeable regarding the wireless cable television business and the value of
related assets, and shall be generally knowledgeable with regard to business and
financial matters. In the event Heartland and Seller fail to agree upon the
Designated Party within forty (40) days after Heartland's receipt of a Rejection
Notice, the Designated Party shall be the managing partner of the Dallas, Texas
office of an independent "Big Six" accounting firm other than KPMG Peat Marwick,
L.L.P. and Arthur Andersen & Co., as selected jointly by the managing partner of
the Dallas, Texas offices of said firms or their respective designees, and in
the absence of said joint election, as selected by the managing partner of the
Dallas, Texas office of or his designee. Upon the
determination of the Designated Party in accordance herewith with respect to a
Rejected Claim, the determination of the value of such Claim, if any, by the
Designated Party shall become an "Accepted Claim."
J-31
<PAGE> 1116
All determinations by a Designated Party hereunder shall be made in accordance
with the expedited commercial rules of the American Arbitration Association.
(d) Payment of Claims. Subject to the provisions of Section 9.2 of the
Purchase Agreement (including, without limitation, the limitation of the
recourse of Heartland to the proceeds of the Liquidated Shares), once a Claim
has become an Accepted Claim in accordance with the terms of this Agreement,
Seller shall, within five (5) business days of such date, pay to Heartland the
amount of such Claim.
1.4 COSTS AND EXPENSES. All costs and expenses of the Designated Party
shall be borne equally by Seller and Heartland. All other costs and expenses
shall be borne by the party incurring such costs and expenses.
ARTICLE 2. MISCELLANEOUS
2.1 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be given in accordance with Section 13.3
of the Purchase Agreement to the parties at the addresses for such parties set
forth in such Section 13.3.
2.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties hereto.
2.3 GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
2.4 PREVAILING PARTY. In the event of any dispute which results in a suit
or other legal proceeding to construe or enforce any provision of this Agreement
or because of an alleged breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the parties agree that the prevailing
party or parties (in addition to all other amounts and relief to which such
party or parties may be entitled to recover) may recover from the nonprevailing
party or parties reasonable attorneys' fees and other costs incurred in any
action or proceeding.
2.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original
hereof, but all of which together shall constitute one agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By:
----------------------------------------
Title:
-------------------------------------
WIRELESS CABLE TV ASSOCIATES NO. 38
a California general partnership
By:
----------------------------------------
Carl Turner, M.D.
Chairman of Management Committee
By:
----------------------------------------
Damon Ostis
Deputy Chairman of Management Committee
J-32
<PAGE> 1117
K
APPENDIX K
MINNEAPOLIS CLAIM ASSIGNMENT
<PAGE> 1118
K
EXHIBIT 7.3 (F-2)
ASSIGNMENT OF AWS CLAIMS
THIS ASSIGNMENT OF AWS CLAIMS ("Assignment") is made and entered into on
this day of , 1996 ("Effective Date") by and between
Wireless Cable TV Associates #38, a California general partnership ("Seller"),
and each general partner of Seller approving the transactions ("Approving
Partners") contemplated by the Purchase Agreement (as defined below)
(collectively, Seller and each Approving Partner are referred to as "Assignor")
and Heartland Wireless Communications, Inc., a Delaware corporation
("Assignee").
WITNESSETH:
WHEREAS, Seller and Assignee have executed that certain Amended and
Restated Asset Purchase Agreement ("Purchase Agreement") dated as of October 4,
1995, pursuant to which Seller is to convey to Assignee a 75% equity interest
("Membership Interest") in American Wireless System of Minneapolis, LLC, a
Delaware limited liability company ("LLC") that owns 100% of the wireless cable
television assets that provide wireless cable television service in the
metropolitan area of Minneapolis, Minnesota the ("Market").
WHEREAS, pursuant to the Purchase Agreement and the consents solicited
thereby, Assignor has agreed to assign to Assignee the AWS Claims held by
Assignor against the AWS Parties (defined below);
WHEREAS, Assignor and Assignee desire to evidence the assignment of the AWS
Claims to Assignee;
NOW, THEREFORE, for and in consideration of the above-stated premises, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Assignor and Assignee do hereby agree as follows:
1. Definitions. The terms used in this Assignment shall have the respective
meanings set forth below:
"Affiliate" means with respect to any Person, or any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or is a member of the immediate family of any
of the foregoing Persons, whether or not living under the same roof with
such Person.
"AWS" means American Wireless Systems, Inc., a Delaware corporation.
"AWS Claims" means any and all causes of action, demands, rights and
claims of any nature, now or hereafter available to or owned by Assignor
against any AWS Party, whether known, unknown, fixed or contingent.
"AWS Parties" means AWS, its predecessors, current or former directors
or officers of AWS or its predecessors, or any Affiliate of AWS.
"Consent" shall mean the written approval of the Approving Partners of
the transactions contemplated by the Purchase Agreement (including, without
limitation, the dissolution and liquidation of Seller and the execution of
this Assignment).
"Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or governmental
authority.
"Proxy Statement" means the Proxy Statement/Prospectus dated January
1996 relative to the proposed distribution of shares of common stock, $.001
par value per share, of Heartland.
2. Assignment. Each Assignor does hereby SELL, ASSIGN, TRANSFER AND DELIVER
to Assignee the AWS Claims, to have and to hold the above AWS Claims unto
Assignee and its successors and assigns, forever.
K-1
<PAGE> 1119
3. Representations of Assignor. Each Assignor represents and warrants unto
Assignee the following:
(a) The execution and delivery of this Assignment has been duly
authorized and approved by all appropriate parties and authorities and this
Assignment is binding on and enforceable against each Assignor;
(b) Assignor has not transferred, assigned, encumbered or otherwise
burdened any of the AWS Claims;
(c) Each Assignor owns the AWS Claims purported to be transferred
hereby free and clear of all liens, security interests, rights or powers;
and
(d) Each Assignor has read and had the opportunity to discuss with
legal counsel the effect of this Assignment and has received and read the
Proxy Statement, including without limitation the portions thereof
describing certain claims that may be enacted by Assignor which are
included in that Assignment.
Notwithstanding the foregoing representations and warranties, Assignor makes no
representations or warranties regarding the passage or tolling of any applicable
statutes or limitations with regard to the AWS Claims, the validity of the AWS
Claims, the value (if any) of the AWS Claims, or the collectability of the AWS
Claims.
4. Applicable Law. Except to the extent the laws of the United States are
applicable, this Assignment shall be construed in accordance with the laws of
the State of Texas, and any litigation involving the terms of this Assignment
shall be brought in the appropriate state or United States court in the State of
Texas.
5. Certain Waivers. Each party hereto knowingly and voluntarily waives any
and all provisions of applicable law (including, without limitation, any
statutes, common law, regulation or other legal requirement or concept) relating
to this Assignment or limiting the scope or effect hereof. To the extent
applicable to this Assignment, each Assignee hereby waives all rights provided
by the following statutory language of section 1542 of the California Civil Code
(and any securities provisions provided under the laws of any other state):
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially effected his settlement
with the debtor."
6. Counterparts. This Assignment may be executed in one or more
counterparts, each of which shall be deemed an original. Each Assignor and
Assignee acknowledge that the approval of the transactions contemplated by the
Purchase Agreement shall constitute each Approving Partner's agreement to be
bound by the terms of this Assignment and that the execution of any written
document approving such transaction shall constitute the execution and approval
of the terms of this Assignment. This Assignment may also be executed by
facsimile signature.
K-2
<PAGE> 1120
K
IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of
the day and year first above written.
<TABLE>
<S> <C>
Seller: Wireless Cable Television Associates #38,
a California General Partnership
By:
-------------------------------------
Printed Name:
---------------------------
Its:
------------------------------------
Approving
Partner: ----------------------------------------
(Entity) By:
------------------------------------
Printed Name:
---------------------------
Its:
------------------------------------
Approving
Partner:
(Individual) ----------------------------------------
Printed Name:
---------------------------
Assignee: Heartland Wireless Communications, Inc.,
a Delaware corporation
By:
-------------------------------------
Printed Name:
---------------------------
Its:
------------------------------------
</TABLE>
K-3
<PAGE> 1121
L
APPENDIX L
MINNEAPOLIS LIQUIDATION PLAN
<PAGE> 1122
L
PLAN OF LIQUIDATION
OF
WIRELESS CABLE TV ASSOCIATES #38
1. The General Partners ("General Partners") of Wireless Cable TV
Associates #38, a California general partnership ("the Partnership"), hereby
approve, authorize and consent to the voluntary dissolution of the Partnership,
and hereby direct that such dissolution be affected as promptly as possible in
accordance with the Plan of Liquidation set forth herein.
2. Effective October 4, 1995, the Partnership entered into the Amended and
Restated Asset Purchase Agreement by and between Heartland Wireless
Communications, Inc. ("Heartland") and the Partnership pursuant to which
Heartland proposes to purchase the Partnership's 75% membership interest in and
to American Wireless System of Minneapolis, LLC, a Delaware limited liability
company that owns and operates the wireless cable television system in
Minneapolis, Minnesota and issue to the Partnership in exchange therefore shares
of common stock, $.001 par value per share, of Heartland ("Acquisition Shares").
Upon the closing of the transaction contemplated by the Amended and Restated
Asset Purchase Agreement which is anticipated to occur no later than February
28, 1996, the Partnership shall not perform business activities thereafter
except as required for the winding up of its affairs, preserving the value of
its assets and distributing its assets in accordance with this plan.
3. Net income and net loss of the Partnership following the date of
adoption of this plan shall be determined and allocated to the General Partners'
capital accounts in accordance with the terms of the General Partnership
Agreement of the Partnership. After giving effect to such allocations, (a) the
Acquisition Shares or liquidation proceeds thereof and (b) the proceeds from the
liquidation of the Partnership's remaining assets and collection of any accounts
receivable of the Partnership are to be distributed in the following order of
priority: (i) first, to the payment and discharge of all of the Partnership's
debts and liabilities; (ii) second, to the creation of any reserves which the
Management Committee of the Partnership deems necessary and in accordance with
the Asset Purchase Agreement; (iii) to the General Partners in proportion and to
the extent to their capital accounts; and (iv) the balance, if any, to the
General Partners in proportion to the general partnership owned by each of them.
4. The members of the Management Committee of the Partnership, or any one
of them, shall execute and file all tax returns, certificates, documents and
information required to be filed by reason of the complete liquidation and
dissolution of the Partnership.
5. The members of the Management Committee of the Partnership shall
consummate this Plan of Liquidation as set forth herein and shall have full
power and authority to adopt all resolutions, execute all documents, file all
papers and take all actions they deem necessary or advisable for the complete
liquidation and dissolution of the Partnership.
L-1
<PAGE> 1123
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JANUARY 25, 1996
PROXY STATEMENT
FOR
CABLEMAXX, INC.
6850 AUSTIN CENTER BOULEVARD
SUITE 320
AUSTIN, TEXAS 78731
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 22, 1996
PROSPECTUS
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UP TO 8,081,214 SHARES OF COMMON STOCK
---------------------
This Proxy Statement/Prospectus and the accompanying appendices and other
materials are being furnished in connection with the solicitation of proxies by
the Board of Directors of CableMaxx, Inc., a Delaware corporation ("CMAX"), to
be used at a Special Meeting of Stockholders of CMAX to be held on February 22,
1996 (the "CMAX Meeting") to approve the Amended and Restated Agreement and Plan
of Merger, dated as of September 11, 1995 (the "CMAX Merger Agreement"), by and
among CMAX, Heartland Merger Sub 2, Inc. ("CMAX Merger Sub") and Heartland
Wireless Communications, Inc. ("Heartland").
The proxies solicited hereby for the CMAX Meeting may be revoked, subject
to the procedures described herein, at any time up to and including the date of
the CMAX Meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN
IMPORTANT FACTORS THAT SHOULD BE CONSIDERED IN ADDITION TO THE OTHER INFORMATION
HEREIN, BEFORE VOTING UPON THE TRANSACTIONS TO BE CONSIDERED AT THE CMAX
MEETING.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/ PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
All undefined capitalized terms shall have the meanings set forth in the
Glossary beginning on page 160 of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus and the accompanying appendices and Proxy
Card are first being mailed to the stockholders of CMAX on or about January 26,
1996.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY 26, 1996.
<PAGE> 1124
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 2
SUMMARY................................................................................ 3
The Industry......................................................................... 3
The Parties.......................................................................... 3
The CMAX Meeting..................................................................... 6
The CMAX Merger...................................................................... 7
Certain Information Regarding Other Transactions..................................... 12
The Combined Company................................................................. 12
RISK FACTORS........................................................................... 17
INFORMATION CONCERNING HEARTLAND....................................................... 28
The Business......................................................................... 28
Recent Transactions.................................................................. 38
Dividends on and Market Prices of Heartland Common Stock............................. 40
Calculation and Listing of Shares to be Issued in Connection with the Transactions... 41
Management........................................................................... 44
Security Ownership of Principal Stockholders and Management.......................... 51
Certain Transactions................................................................. 52
INFORMATION CONCERNING CMAX............................................................ 55
The Business......................................................................... 55
Dividends on and Market Prices of CMAX Common Stock.................................. 65
Security Ownership of Principal Stockholders and Management.......................... 66
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS....................................... 68
THE COMBINED COMPANY................................................................... 69
Business of the Combined Company After the Transactions.............................. 69
Management of the Combined Company................................................... 75
Principal Holders.................................................................... 75
Planned Divestitures................................................................. 76
Heartland's Reasons for the Transactions............................................. 79
PRO FORMA FINANCIAL INFORMATION RELATIVE TO THE TRANSACTIONS........................... 81
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND............................... 106
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 108
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CMAX.................................... 119
PRO FORMA INFORMATION OF 1992 ACQUISITION.............................................. 120
CMAX -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 121
THE CMAX MEETING....................................................................... 129
Time, Place and Date of CMAX Meeting................................................. 129
Purpose of CMAX Meeting.............................................................. 129
Record Date; Voting Rights........................................................... 129
Vote Required........................................................................ 129
Solicitation of Proxies and Expenses................................................. 130
Proxies.............................................................................. 130
Other Matters to be Considered....................................................... 131
Stockholder Proposals................................................................ 131
Accountants.......................................................................... 131
THE CMAX MERGER........................................................................ 132
Background of the CMAX Merger........................................................ 132
Recommendation of the CMAX Board; Reasons for the CMAX Merger........................ 133
Opinion of CMAX Advisor.............................................................. 134
Terms of the CMAX Merger Agreement................................................... 137
</TABLE>
i
<PAGE> 1125
<TABLE>
<S> <C>
Effective Time....................................................................... 138
Exchange of Certificates............................................................. 139
Representations and Warranties....................................................... 140
Covenants and Obligations............................................................ 140
No Solicitation...................................................................... 141
Conditions........................................................................... 141
Regulatory Approvals................................................................. 142
Termination.......................................................................... 142
Voting Agreements.................................................................... 143
Indemnification...................................................................... 143
Resales; Affiliates; Registration Rights............................................. 143
Accounting Treatment................................................................. 143
Certain Federal Income Tax Consequences.............................................. 143
Dissenters and Appraisal Rights...................................................... 145
Interested Parties................................................................... 145
Material Contacts.................................................................... 146
Certain Expenses..................................................................... 146
WIRELESS CABLE INDUSTRY................................................................ 146
Cable Industry Overview.............................................................. 146
Wireless Cable Technology............................................................ 146
Traditional Hard-Wire Cable Technology............................................... 147
Regulatory Environment............................................................... 147
Availability of Programming.......................................................... 150
Pay Television Industry Trends....................................................... 151
Competition.......................................................................... 152
COMPARISON OF RIGHTS OF HOLDERS OF HEARTLAND AND CMAX.................................. 154
EXPERTS................................................................................ 159
LEGAL MATTERS.......................................................................... 159
GLOSSARY............................................................................... 160
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION.......................................................................... F-1
</TABLE>
APPENDICES
<TABLE>
<S> <C>
Appendix A -- Amended and Restated CMAX Merger Agreement
Appendix B -- CMAX Fairness Opinion
</TABLE>
ii
<PAGE> 1126
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY HEARTLAND, CMAX OR ANY OTHER PERSON OR
ENTITY. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF HEARTLAND OR CMAX SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Heartland and CMAX are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC" or
"Commission"). The reports, proxy statements and other information filed by
Heartland and CMAX with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission at Seven World Trade Center, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. The common stock of each of Heartland and CMAX is listed on the
Nasdaq Stock Market's National Market ("Nasdaq-NMS"). Reports, proxy statements
and other information concerning Heartland and CMAX can also be inspected at the
offices of The National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
Heartland has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued pursuant to the transactions
described herein and certain other transactions to be consummated
contemporaneously with the transactions described herein. As permitted by the
rules and regulations of the Commission, this Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement. In
particular, certain information relating to the Other Transactions is omitted
from this Proxy Statement/Prospectus. Copies of the Registration Statement
containing such omitted information are available from the Commission upon
payment of certain fees prescribed by the Commission or without charge from
Heartland as described below. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete. In each instance, reference is
hereby made to the copy of such contract or other document filed as an appendix
and/or exhibit to the Registration Statement or such other document and each
such statement is qualified in all respects by such reference.
TO OBTAIN, WITHOUT CHARGE, COPIES OF THOSE PORTIONS OF THE REGISTRATION
STATEMENT OMITTED FROM THIS PROXY STATEMENT/PROSPECTUS, PLEASE CONTACT HEARTLAND
AT 903 N. BOWSER, SUITE 140, RICHARDSON, TEXAS 75081, TELEPHONE NUMBER (214)
479-9244.
The term "Heartland" when used herein shall mean Heartland Wireless
Communications, Inc. and its subsidiaries and affiliates through which it
conducts business, unless the context indicates otherwise. The term "CMAX" when
used herein shall mean CableMaxx, Inc. and its subsidiaries through which it
conducts business, unless the context indicates otherwise.
2
<PAGE> 1127
SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement/Prospectus. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement/Prospectus, the Appendices hereto and the material incorporated
by reference, all of which should be carefully reviewed. The information
contained herein with respect to Heartland and CMAX has been supplied by each
such respective entity. Additionally, the information contained herein with
respect to the CMAX Merger is qualified by reference to the CMAX Merger
Agreement attached hereto as Appendix A and incorporated herein by reference.
Unless otherwise indicated, year-end financial and other information referencing
a particular year with respect to Heartland is as of or for the fiscal year
ended December 31 and with respect to CMAX is as of or for the fiscal year ended
June 30. Cross-references in this Summary refer to indicated captions or
portions of this Proxy Statement/Prospectus. This Proxy Statement/Prospectus is
one of four proxy statements or prospectuses that contain information provided
in the Registration Statement. Certain information relating to the Other
Transactions is omitted from this Proxy Statement/Prospectus. To obtain, without
charge, copies of any other proxy statement or prospectus contained in the
Registration Statement, see "Available Information." For a summary discussion of
the Other Transactions that are the subject of such other proxy statement or
prospectus, see "Certain Information Regarding Other Transactions."
THE CMAX MERGER (AS HEREINAFTER DEFINED) INVOLVES SUBSTANTIAL RISK. SEE "RISK
FACTORS."
THE INDUSTRY
Wireless cable is an alternative to traditional hard-wire cable television
systems that offers various types of programming including local off-air VHF/UHF
channels (such as ABC, CBS, NBC and Fox) and premium channels (such as HBO,
Showtime, Disney, MTV, etc.). Like traditional hard-wire cable, 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. Generally, this requires that
subscribers 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). See "Wireless
Cable Industry."
THE PARTIES
HEARTLAND WIRELESS COMMUNICATIONS, INC.
General. Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), develops, owns and operates wireless cable television systems
primarily in small to mid-size markets located in the central United States. As
of November 30, 1995, Heartland had wireless cable channel rights in 79 existing
markets representing approximately 8.2 million households, approximately 6.7
million of which Heartland estimates are serviceable by LOS transmissions.
Heartland currently operates wireless cable television systems in 32 markets,
representing approximately 3.4 million households, approximately 2.9 million of
which Heartland estimates are serviceable by LOS transmissions. On November 30,
1995, Heartland's existing wireless cable television systems provided service to
approximately 80,600 subscribers.
Certain of the wireless cable assets presently held by or sought to be
acquired by Heartland pursuant to the Transactions are not included in the
discussion of Heartland's business because such assets are not part of
Heartland's current long-term business plan (the excluded assets being
collectively referred to as the "Heartland Disposition Assets"). Heartland is
currently pursuing opportunities to dispose of the Heartland Disposition Assets
and expects to sell, contribute or exchange such assets in one or more
transactions. See "Summary -- The Combined Company -- Planned Divestitures".
Although no assurance can be given that any or all of the Heartland Disposition
Assets will be disposed of on terms acceptable to Heartland or when such
transactions might be consummated, if such dispositions are consummated,
Heartland will have acquired
3
<PAGE> 1128
pursuant to the Transactions wireless cable channel rights in nine markets
representing an aggregate of approximately 1.3 million households, approximately
1.0 million of which can be served by LOS transmissions, and four operating
systems serving an aggregate of approximately 37,940 subscribers as of November
30, 1995. Assuming the Transactions are consummated and the Heartland
Disposition Assets are sold, contributed or exchanged, Heartland would hold
wireless cable channel rights in 79 markets (33 operating markets serving
approximately 117,000 subscribers) representing approximately 8.2 million
households, approximately 6.8 million of which Heartland estimates are
serviceable by LOS transmission. See "The Combined Company -- Business of the
Combined Company After the Transactions."
Heartland estimates that, within the 79 wireless cable markets following
the consummation of the Transactions and the proposed divestitures,
approximately 2.4 million LOS households, or approximately 36% of Heartland'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 executive offices of Heartland are located at 903 N. Bowser, Suite 140,
Richardson, Texas 75081, and its telephone number is (214) 479-9244. See
"Information Concerning Heartland."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Heartland. The data was
derived from the more detailed information and the consolidated financial
statements of Heartland appearing elsewhere in this Proxy Statement/Prospectus.
The data should be read in conjunction with "Selected Consolidated Financial
Information of Heartland," "Heartland -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) of Heartland contained elsewhere in
this Proxy Statement/Prospectus. See "Index to Consolidated Financial Statements
and Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ---------------------------
1992 1993 1994 1994 1995
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................... $ 205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
Total operating expenses......................... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss................................... (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income (expense), net................... (207) (73,306) (210,113) 60,519 (6,864,367)
Income tax benefit............................... -- -- 1,594,963 649,510 1,307,137
Net loss......................................... (50,822) (406,101) (3,043,321) (1,213,894) (11,178,095)
Net loss per common share........................ $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
Weighted average shares outstanding................ 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
Operating and Other Financial Data:
EBITDA(1)........................................ $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $ (1,050,936)
Capital expenditures(2).......................... 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
Number of systems in operation (at end of
period).......................................... 1 5 13 8 30
Estimated LOS households in systems in operation
(at end of period)............................... 24,319 371,652 1,108,230 843,904 2,723,365
Subscribers (at end of period)..................... 1,076 2,731 19,838 8,040 64,357
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted
investments..................................... $ 815,305 $11,985,953 $ 37,155,064
Restricted investments............................ -- -- 24,747,214
Total assets...................................... 8,665,066 77,921,528 200,150,474
Long-term debt, including current portion......... 1,592,529 40,505,852 140,045,039
Total stockholders' equity........................ 4,492,568 30,080,885 48,293,817
</TABLE>
4
<PAGE> 1129
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the year ended December 31, 1992 were comprised of
$604,082 for purchases of systems and equipment and $797,655 of expenditures
for leased licenses; for the year ended December 31, 1993, $2,072,937 for
purchases of systems and equipment and $3,068,084 for expenditures for
leased licenses; for the year ended December 31, 1994, $12,414,501 for
purchases of systems and equipment, $3,354,471 for expenditures of leased
licenses, $12,431,379 for the investment in Rural Vision Joint Venture and
$16,300,000 for the purchase of certain assets from Rural Vision Joint
Venture and the acquisition of the Lindsay, Oklahoma system; for the nine
months ended September 30, 1994, $4,011,480 for systems and equipment and
$2,465,265 for leased licenses and $11,649,908 for the investment in
RuralVision Joint Venture; and for the nine months ended September 30, 1995,
$25,575,252 for purchases of system and equipment, $1,592,024 for
expenditures for leased licenses, $5,426,432 for the investment in Rural
Vision Joint Venture and $11,422,814 for the acquisition of wireless cable
television systems in Lubbock, Texas and Tulsa, Oklahoma and the acquisition
of certain additional assets from Rural Vision Joint Venture.
CABLEMAXX, INC.
General. CableMaxx, Inc., a Delaware corporation ("CMAX"), owns, develops
and operates wireless cable television systems and currently provides
subscription television services to approximately 34,300 subscribers (as of
November 30, 1995) in a cluster of wireless cable television systems located in
Texas (the "Texas Cluster"). The Texas Cluster provides service to customers in
a 250 mile long and 70 mile wide area encompassing the cities of San Antonio,
Austin, Temple/Killeen and Waco through the utilization of four separate
head-end/transmission facilities. CMAX also presently holds wireless cable
channel rights in Sherman/Denison, Lubbock, Athens and Amarillo, Texas (the
"Additional Texas Systems") and Salt Lake City, Utah (the "Salt Lake City
System"). In connection with the CMAX Merger Agreement, CMAX entered into a
Sublease and Purchase Agreement with Heartland (the "Sublease Agreement")
pursuant to which CMAX subleased to Heartland all of its wireless cable channel
rights in the Additional Texas Systems. CMAX estimates that the Texas Cluster,
the Additional Texas Systems and the Salt Lake City System collectively
represent approximately 1,614,000 households which can be served by LOS
transmissions. CMAX also estimates that approximately 233,000 households in
these markets are not passed by traditional hard-wire cable systems.
The executive offices of CMAX are located at 6850 Austin Center Boulevard,
Suite 320, Austin, Texas 78731, and its telephone number is (512) 345-1001. See
"Information Concerning CMAX."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for CMAX. The data was derived
from the more detailed information and the consolidated financial statements of
CMAX appearing elsewhere in this Proxy Statement/Prospectus. The data should be
read in conjunction with "Selected Consolidated Financial Information of CMAX,"
"CMAX -- Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements (including the notes
thereto) of CMAX and the predecessor of CMAX's business (the "CMAX Predecessor")
contained elsewhere in this Proxy Statement/Prospectus. See "Index to
Consolidated Financial Statements and Unaudited Pro Forma Financial
Information."
5
<PAGE> 1130
<TABLE>
<CAPTION>
CMAX CMAX
PREDECESSOR(1) -----------------------------------------------------------------
-------------- PRO FORMA
PERIOD FROM PERIOD FROM FISCAL THREE MONTHS
JULY 1, DECEMBER 18, YEAR FISCAL YEAR ENDED
1992 TO 1992 TO ENDED ENDED JUNE 30, SEPTEMBER 30,
DECEMBER 17, JUNE 30, JUNE 30, ------------------ -----------------
1992 1993 1993(2) 1994 1995 1994 1995
-------------- ------------ --------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues........................ $ 1,835 $ 2,277 $ 4,112 $ 7,709 $ 13,463 $ 3,144 $ 3,633
Total operating expenses.............. 3,033 3,766 6,701 15,123 23,626 5,362 6,135
Operating loss........................ (1,198) (1,489) (2,589) (7,414) (10,163) (2,218) (2,502)
Interest expense...................... (343) (288) (525) (506) (875) (101) (311)
Net loss.............................. (1,036) (1,775) (3,107) (7,499) (10,783) (2,237) (2,796)
Net loss per common share............... -- $(0.35) $(0.61) $(1.05) $(1.21) $ (0.26) $ (0.29)
Weighted average shares outstanding..... -- 5,100 5,100 7,142 8,902 8,600 9,507
Other Financial Data:
EBITDA(3)............................. $ (49) $ (151) $ (272) $(3,175) $ (1,889) $ (486) $ 12
Capital expenditures(4)............... 655 21,768 22,423 17,299 9,798 3,939 1,122
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1994 1995 1995
------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, and short-term investments......................... $14,558 $ 2,206 $ 786
Total assets.................................................................. 53,203 51,954 49,445
Long-term debt................................................................ 3,200 10,808 10,808
Total stockholders' equity.................................................... 44,086 37,709 34,913
</TABLE>
- ---------------
(1) Includes consolidated operations of Austin and San Antonio systems, the
assets of which were acquired by CMAX on December 18, 1992 (the "1992
Acquisition") from the CMAX Predecessor.
(2) Presented on a pro forma basis as if the 1992 Acquisition had occurred on
July 1, 1992.
(3) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(4) Capital expenditures for the period from December 18, 1992 to June 30, 1993
were comprised of $3,645 for purchases of systems and equipment and $18,123
for the purchase of certain wireless cable systems. Capital expenditures for
all other periods presented consist solely of purchases of systems and
equipment.
HEARTLAND MERGER SUB 2, INC.
Heartland Merger Sub 2, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("CMAX Merger Sub"), was formed by Heartland for the
purpose of effecting the transactions described herein with CMAX. CMAX Merger
Sub does not maintain executive offices. CMAX Merger Sub's mailing address is
c/o Heartland Wireless Communications, Inc., 903 N. Bowser, Suite 140,
Richardson, Texas 75081 and the telephone number is (214) 479-9244.
THE CMAX MEETING
Time, Place and Date. A Special Meeting of Stockholders of CMAX (the "CMAX
Meeting") is scheduled to be held on February 22, 1996 at the Westin Hotel
Galleria, 13340 Dallas Parkway, Dallas, Texas 75240, (214) 934-9494, commencing
at 10:00 a.m. local time.
Record Date; Shares Entitled to Vote. Holders of record of CMAX common
stock, par value $.01 per share ("CMAX Common Stock"), at the close of business
on January 11, 1996 (the "CMAX Record Date") will be entitled to notice of, and
to vote at, the CMAX Meeting or any adjournment thereof. At the close of
business on the CMAX Record Date, 9,507,311 shares of CMAX Common Stock were
issued and outstanding. Each outstanding share of CMAX Common Stock is entitled
to one vote with respect to each matter to be voted on at the CMAX Meeting.
6
<PAGE> 1131
Purpose. At the CMAX Meeting, the stockholders of CMAX will consider and
vote upon a proposal to approve the Amended and Restated Agreement and Plan of
Merger, dated as of September 11, 1995 (the "CMAX Merger Agreement"), by and
among CMAX, CMAX Merger Sub and Heartland, pursuant to which CMAX Merger Sub
will be merged with and into CMAX (the "CMAX Merger") and CMAX will become a
wholly owned subsidiary of Heartland. If the CMAX Merger Agreement is approved
and the CMAX Merger is consummated, each outstanding share of CMAX Common Stock
will be converted into the right to receive that portion of a newly issued
publicly tradeable share of Heartland common stock, par value $.001 per share
("Heartland Common Stock"), having an exchange value of $8.50 per share of CMAX
Common Stock, for an aggregate exchange value for all shares of CMAX Common
Stock of approximately $80.8 million, subject to reduction by the amount that
CMAX's Net Liabilities exceed its Permitted Net Liabilities (each as defined in
the CMAX Merger Agreement). The exchange value of the Heartland Common Stock to
be issued in the CMAX Merger will be equal to the average closing price of the
Heartland Common Stock as reported on the Nasdaq-NMS over the 20-trading-day
period ending on the fifth business day preceding the consummation of the CMAX
Merger (or February 15, 1996 based upon a contemplated closing date of February
23, 1996). IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON
STOCK AS REPORTED ON THE NASDAQ-NMS OVER THE 17 TRADING DAY PERIOD ENDING ON
FEBRUARY 12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, CMAX
STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL
MEETING TO ENABLE CMAX STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. See
"The CMAX Meeting -- Proxies" for information regarding the revocability of CMAX
proxies. Pursuant to the terms of the CMAX Merger Agreement, CMAX stockholders
will receive cash in lieu of fractional shares of Heartland Common Stock. CMAX,
at its option, may terminate the CMAX Merger Agreement if the average closing
price of Heartland Common Stock is above $34 per share. In addition, at the CMAX
Meeting, CMAX's stockholders may consider and vote upon such other business as
may properly come before the CMAX Meeting or any adjournment or postponement
thereof.
Vote Required. The approval of a majority of outstanding shares of CMAX
Common Stock is required for the approval of the CMAX Merger Agreement. Because
the affirmative vote of a majority of the outstanding shares of CMAX Common
Stock is required to approve the CMAX Merger Agreement, abstentions or broker
non-votes will have the effect of negative votes. The percentage of currently
outstanding shares of CMAX Common Stock entitled to vote held by CMAX directors,
executive officers and their affiliates, is 1.3%, or 124,600 shares of CMAX
Common Stock inclusive of exercisable stock options, although the exercise price
of such options exceeds the per share consideration to be received pursuant to
the CMAX Merger Agreement. Under the General Corporation Law of the State of
Delaware, holders of CMAX Common Stock are not entitled to any appraisal rights
with respect to the CMAX Merger Agreement or the CMAX Merger.
CHARTER WIRELESS CABLE HOLDINGS, L.L.C. ("CHARTER WIRELESS"), THE HOLDER OF
APPROXIMATELY 52.7% OF THE OUTSTANDING SHARES OF CMAX COMMON STOCK (OR 5,010,900
SHARES OF CMAX COMMON STOCK) HAS AGREED TO VOTE ALL SHARES HELD BY IT IN FAVOR
OF THE CMAX MERGER AGREEMENT. ACCORDINGLY, STOCKHOLDER APPROVAL OF THE CMAX
MERGER AGREEMENT IS ASSURED.
THE CMAX MERGER
MERGER OF HEARTLAND AFFILIATE WITH AND INTO CMAX
CMAX Merger; Consideration. Upon consummation of the CMAX Merger, CMAX
Merger Sub will be merged with and into CMAX and CMAX will become a wholly owned
subsidiary of Heartland. Under the CMAX Merger Agreement, each share of CMAX
Common Stock issued and outstanding immediately prior to the CMAX Merger
(excluding the shares of CMAX Common Stock held by CMAX as treasury stock, all
of which will be cancelled) will be converted into the right to receive that
portion of a newly issued publicly tradeable share of Heartland Common Stock
having an exchange value of $8.50 per share of CMAX Common Stock, for an
aggregate exchange value of approximately $80.8 million for all shares of CMAX
7
<PAGE> 1132
Common Stock, subject to adjustment (the "CMAX Merger Consideration"). The
exchange value of the Heartland Common Stock to be issued pursuant to the CMAX
Merger will be equal to the average closing price of Heartland Common Stock as
reported on the Nasdaq-NMS for the 20-trading-day period ending on the fifth
business day preceding the consummation of the CMAX Merger (or February 15, 1996
based upon a contemplated closing date of February 23, 1996). IN THE EVENT THAT
THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE
NASDAQ-NMS OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996
(REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION
PERIOD) IS GREATER THAN $34 OR LESS THAN $23, CMAX STOCKHOLDERS WILL BE PROVIDED
WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE CMAX
STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. See "The CMAX
Meeting -- Proxies" for information regarding the revocability of CMAX proxies.
If CMAX's Net Liabilities exceed its Permitted Net Liabilities (each as defined
in the CMAX Merger Agreement) as of the closing of the CMAX Merger Agreement
(such excess being referred to as "CMAX Excess Liabilities"), then the CMAX
Merger Consideration will be reduced by the amount of the CMAX Excess
Liabilities. Heartland, at its option, may terminate the CMAX Merger Agreement
if such average closing price is below $10 per share. Heartland currently
intends to exercise such right, if applicable. As a result, a maximum of
8,081,214 shares of Heartland Common Stock are issuable in connection with the
CMAX Merger. CMAX, at its option, may terminate the CMAX Merger Agreement if the
average closing price of Heartland Common Stock is above $34 per share. See "The
CMAX Merger -- Terms of the CMAX Merger Agreement." Please see "Information
Concerning Heartland -- Calculation and Listing of Shares to be Issued in
Connection with the Transactions" for the calculation of the maximum and
anticipated number of shares of Heartland Common Stock issuable at various
closing averages in connection with the Transactions.
In connection with the execution of the CMAX Merger Agreement, CMAX entered
into a Sublease and Purchase Agreement (the "Sublease Agreement") with
Heartland. Pursuant to the terms of the Sublease Agreement, CMAX subleased to
Heartland all of its wireless cable television rights in the Additional Texas
Systems and Heartland paid CMAX a $2.4 million non-refundable deposit for such
rights. If the CMAX Merger Agreement is terminated as a result of a breach
thereof by CMAX or as a result of the acceptance by the Board of Directors of
CMAX of a competing acquisition proposal, Heartland will acquire such wireless
cable television rights for nominal additional consideration. If the CMAX Merger
Agreement is terminated for any other reason, Heartland will acquire such
wireless cable television rights for an amount equal to the difference between
the appraised value of such rights and the $2.4 million previously paid by
Heartland. See "The CMAX Merger -- Terms of the CMAX Merger Agreement -- CMAX
Sublease Agreement."
In connection with the CMAX Merger Agreement, Heartland agreed to loan to
CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced on
December 29, 1995 to be used for working capital purposes, and (b) $500,000 may
be used for subscriber growth. The CMAX Loan will not increase the amount of
CMAX Excess Liabilities. Upon consummation of the CMAX Merger Agreement, it is
anticipated that the CMAX Loan will remain as an inter-company obligation from
CMAX to Heartland. In the event that the CMAX Merger Agreement is not
consummated, the CMAX Loan is payable August 29, 1996; provided, that if the
CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
In connection with the CMAX Merger, Heartland will grant registration
rights to Charter Wireless, the majority stockholder of CMAX, with respect to
shares to be issued to such stockholder in connection with the CMAX Merger
Agreement that are subject to the restrictions on transfer contained in Rules
144 and 145 promulgated by the Securities and Exchange Commission ("SEC" or the
"Commission") under the Securities Act.
For a period of three years from and after the date of the consummation of
the CMAX Merger, Charterhouse Equity Partners, L.P., an affiliate of Charter
Wireless, and Tommy L. Gleason, the President and Chief Executive Officer of
CMAX, have agreed not to own or operate a wireless cable television business
within a fifty-mile radius of any wireless television cable market acquired by
Heartland from CMAX.
8
<PAGE> 1133
Exchange of Shares of CMAX Common Stock. Harris Trust Company of New York
has been selected to act as the exchange agent (the "Exchange Agent") pursuant
to the terms of the Exchange Agreement ("CMAX Exchange Agreement") between
Heartland and the Exchange Agent (to be executed immediately prior to the CMAX
Effective Time (as hereinafter defined)), for the purpose of effectuating the
delivery of the shares of Heartland Common Stock (or proceeds thereof) to be
issued in the CMAX Merger. Pursuant to the terms of the CMAX Merger Agreement
and CMAX Exchange Agreement, shares of Heartland Common Stock having an
aggregate exchange value of approximately $80.8 million, subject to reduction by
the amount of CMAX Excess Liabilities, will be distributed to the former CMAX
stockholders. Promptly after the CMAX Effective Time, Heartland will cause the
Exchange Agent to send to each holder of CMAX Common Stock at the CMAX Effective
Time a Letter of Transmittal advising such holder of the terms of the exchange
of CMAX Common Stock and the procedures for surrendering CMAX stock certificates
in exchange for the consideration provided for in the CMAX Merger Agreement. In
lieu of any fractional shares, each holder of CMAX Common Stock, upon surrender
of certificates which represent shares of CMAX Common Stock for exchange, will
be paid an amount in cash (without interest) equal to the exchange value of the
fractional share. Any such payment of cash in lieu of fractional shares of
Heartland Common Stock will be delivered to each former holder of CMAX Common
Stock by check concurrent with the delivery of such holder's portion of the CMAX
Merger Consideration represented by Heartland Common Stock. ELECTIONS BY CMAX
STOCKHOLDERS MADE IN THE LETTER OF TRANSMITTAL ARE IRREVOCABLE. CMAX
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE
AGENT. See "The CMAX Merger -- Exchange of Certificates."
Stock Options; Warrants. Pursuant to the terms of the CMAX Merger
Agreement, all stock options and warrants to acquire shares of CMAX Common Stock
will be exercised or terminated prior to the CMAX Effective Time. See "The CMAX
Merger -- Terms of the CMAX Merger Agreement -- Options and Warrants."
Recommendation of the Board of Directors of CMAX; Reasons for the CMAX
Merger. The Board of Directors of CMAX (the "CMAX Board") has determined that
the CMAX Merger and the CMAX Merger Agreement are advisable and in the best
interests of CMAX and its stockholders and has unanimously approved the CMAX
Merger and the CMAX Merger Agreement. Accordingly, the CMAX Board unanimously
recommends that stockholders vote FOR the approval and adoption of the CMAX
Merger Agreement. See "The CMAX Merger -- Recommendation of the CMAX Board;
Reasons for the CMAX Merger."
Opinion of CMAX Advisor. Bear, Stearns & Co. Inc. ("Bear Stearns")
delivered its oral opinion to the Board of Directors of CMAX on September 7,
1995 to the effect that, as of such date and based upon the assumptions made,
matters considered and limits of review as set forth in such opinion, the
transaction contemplated by the CMAX Merger Agreement is fair to the
stockholders of CMAX from a financial point of view. The full text of the
written opinion of Bear Stearns, dated November 13, 1995, which sets forth the
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Appendix B and incorporated
herein by reference. The written opinion of Bear Stearns dated November 13, 1995
is substantially identical to the September 7, 1995 oral opinion. Holders of
CMAX Common Stock are urged to, and should, read such opinion carefully and in
its entirety. See "The CMAX Merger -- Opinion of CMAX Advisor."
Risk Factors. The proposed CMAX Merger involves substantial risk. The
following risk factors, together with all the other information appearing in
this Proxy Statement/Prospectus, should be carefully considered by shareholders,
in light of their particular investment objectives and financial circumstances,
prior to determining how to vote: (i) there are significant uncertainties and
risks relating to the integration of the companies' operations; (ii) the
consideration to be received in connection with the CMAX Merger is subject to
adjustment downward, depending upon the liabilities of CMAX as of the closing of
the CMAX Merger Agreement; (iii) substantial risks are associated with the
potential volatility in the market price of the Heartland Common Stock upon
consummation of the Transactions and subsequent liquidation of shares of
9
<PAGE> 1134
Heartland Common Stock to satisfy certain obligations of the parties to the
Transactions; (iv) Heartland may in the future make additional acquisitions or
may be unsuccessful in consummating planned divestitures, each of which could
adversely affect the liquidity, results of operations and financial condition of
Heartland; and (v) simultaneously with the CMAX Merger, Heartland proposes to
enter into several other transactions the result of which, if consummated, will
be to substantially increase the number of shares of Heartland Common Stock
outstanding. See "Risk Factors."
Certain Federal Income Tax Consequences. CMAX has received an opinion of
its counsel to the effect that the CMAX Merger should constitute a tax-free
"reorganization" for federal income tax purposes for holders of CMAX Common
Stock, although the matter is not free from doubt. See "The CMAX Merger --
Certain Federal Income Tax Consequences."
Accounting Treatment. The CMAX Merger will be accounted for by Heartland
under the "purchase method" of accounting in accordance with generally accepted
accounting principles. See "The CMAX Merger -- Accounting Treatment."
Dissenters Rights. A CMAX stockholder who votes against the CMAX Merger
Agreement does not have a statutory right to demand payment of the fair value of
his, her or its shares of CMAX Common Stock. See "The CMAX Merger -- Dissenters
and Appraisal Rights."
Conditions to Consummation of the CMAX Merger. The consummation of the CMAX
Merger is conditioned upon the fulfillment or waiver (where permissible) of
certain conditions set forth in the CMAX Merger Agreement. For a detailed
description of the conditions to the CMAX Merger, see "The CMAX
Merger -- Conditions."
Regulatory Approvals. In addition to the federal and state approvals
required in connection with the effectiveness of the Registration Statement of
which this Proxy Statement/Prospectus forms a part, the CMAX Merger requires the
early termination of or lapse of waiting periods pursuant to the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), which
early termination was received by Heartland and CMAX effective as of October 26,
1995. See "The CMAX Merger -- Regulatory Approvals."
Effective Time of the CMAX Merger. If the CMAX Merger is approved by the
requisite vote of the stockholders of CMAX and the other conditions of the
consummation of the CMAX Merger are satisfied or, where permissible, waived, the
CMAX Merger will become effective immediately upon the filing of a Certificate
of Merger with the Secretary of State of Delaware (the "CMAX Effective Time").
See "The CMAX Merger -- Effective Time." The Certificate of Merger for the CMAX
Merger will be filed only upon satisfaction or waiver (where permissible) of the
conditions contained in the CMAX Merger Agreement and only if no party has
exercised any right of termination provided in the CMAX Merger Agreement. See
"The CMAX Merger -- Conditions" and "-- Termination."
Termination of the CMAX Merger Agreement. In general, the CMAX Merger
Agreement may be terminated (i) by mutual consent of Heartland and CMAX, (ii) by
either Heartland or CMAX if the CMAX Merger has not been consummated by February
29, 1996, and (iii) under certain other circumstances. See "The CMAX
Merger -- Termination."
10
<PAGE> 1135
Comparative Per Share Data. The following table sets forth for Heartland
Common Stock and CMAX Common Stock certain historical pro forma and equivalent
pro forma per share financial information as of December 31, 1994 and the year
then ended and as of September 30, 1995 and the nine months then ended. All such
information is presented on a per share basis. Neither Heartland nor CMAX has
paid any cash dividends. The pro forma amounts included in the table below are
based on the purchase method of accounting and a preliminary allocation of the
purchase price. The following information should be read in conjunction with and
is qualified in its entirety by reference to the historical consolidated
financial statements and accompanying notes of Heartland and CMAX and "Pro Forma
Financial Information Relative to the Transactions" and other pro forma
financial information included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
HEARTLAND CMAX
--------- ------
<S> <C> <C>
Book Value Per Share as of
December 31, 1994.............................................. $ 2.71 $ 4.62
September 30, 1995............................................. $ 3.87 $ 3.67
Pro Forma Equivalent Book Value Per Share as of September 30,
1995(1)........................................................ $ 12.66 $ 3.84
Net Loss Per Share
for the year ended December 31, 1994........................... $ (.30) $(1.05)
for the nine months ended September 30, 1995................... $ (.96) $ (.99)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................... $ (.71) $ (.22)
for the nine months ended September 30, 1995................... $ (.74) $ (.22)
</TABLE>
- ---------------
(1) The pro forma information for CMAX reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Heartland
by the exchange ratio, assuming that (i) 2,886,148 shares of Heartland
Common Stock are issued upon consummation of the CMAX Merger, resulting in
an exchange ratio of one Heartland share for 3.294 CMAX shares, (ii) the
closing average and the closing price of Heartland Common Stock on the
closing date of the CMAX Merger is $28, and (iii) all of the Transactions
are consummated.
Comparative Market Price Data. The Heartland Common Stock and the CMAX
Common Stock are listed on the Nasdaq-NMS under the symbols "HART" and "CMAX,"
respectively.
On September 11, 1995, the last full trading day preceding the public
announcement of the execution of the CMAX Merger Agreement, the closing sale
price per share of Heartland Common Stock was $21.50 and the closing sale price
per share of the CMAX Common Stock was $6.87. As of January 22, 1996, the
closing sale price per share of Heartland Common Stock was $29.25 and the
closing sale price per share of CMAX Common Stock was $7.68. Stockholders of
Heartland and CMAX are urged to obtain current market quotations for Heartland
Common Stock and CMAX Common Stock.
The following table sets forth the closing sale price per share of CMAX
Common Stock and Heartland Common Stock as reported on the Nasdaq-NMS, and the
"equivalent per share" price of CMAX Common Stock on September 11, 1995, the
business date preceding public announcement of the CMAX Merger, and on January
22, 1996.
<TABLE>
<CAPTION>
EQUIVALENT
CMAX HEARTLAND PER SHARE
COMMON STOCK COMMON STOCK PRICE
------------ ------------ ----------
<S> <C> <C> <C>
September 11, 1995........................... $ 6.87 $21.50 $ 8.50
January 22, 1996............................. $ 7.68 $29.25 $ 8.50
</TABLE>
11
<PAGE> 1136
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS
Contemporaneously with the transactions described in this Proxy
Statement/Prospectus, Heartland proposes to consummate the following
transactions (collectively, the "Other Transactions" and together with the CMAX
Merger, the "Transactions") (i) the merger ("AWS Merger") of AWS Merger Sub into
AWS pursuant to the terms of the AWS Merger Agreement; (ii) the acquisition of a
79.99% venture interest in the FTW Venture that owns and operates a wireless
cable television system in Fort Worth, Texas, pursuant to the FTW Agreement, and
other transactions contemplated thereby (collectively, the "FTW Transaction");
(iii) the acquisition of a 75% interest in Minneapolis LLC which owns and
operates a wireless cable television system in Minneapolis, Minnesota pursuant
to the Minneapolis Agreement and other transactions contemplated thereby
(collectively, the "Minneapolis Transaction"); and (iv) the acquisition of
substantially all of the assets formerly held by Technivision pursuant to the
TSC Agreement. This Proxy Statement/Prospectus is one of four proxy statements
or prospectuses that contain information provided in the Registration Statement.
To obtain, without charge, copies of any other proxy statement or prospectus
contained therein, see "Available Information." For a summary discussion of the
Other Transactions that are the subject of such other proxy statements or
prospectuses, see "Certain Information Regarding Other Transactions." There can
be no assurance that any or all of the Other Transactions will be consummated.
THE COMBINED COMPANY
Generally. Following the consummation of the Transactions and the
disposition of the Heartland Disposition Assets, if this should occur,
Heartland, together with the combined operations and businesses of one or more
of AWS, CMAX, FTW Venture, Minneapolis LLC and TSC (collectively, the "Combined
Company") will be in the business of developing, owning and operating wireless
cable television systems in primarily small and mid-sized markets within the
central United States. The Combined Company will continue to build out its
existing markets substantially in accordance with the business plan adopted by
the management of Heartland and described herein. Management of Heartland does
not currently anticipate material changes in the Combined Company's business
strategy or market focus, although the Combined Company expects to respond as
its management deems appropriate to changes in its markets or competitive
environment. The Combined Company will continue to aggregate wireless cable
channel rights and locate operations in geographic clusters of small to
mid-sized markets that have a substantial number of households not currently
passed by traditional hard-wire cable. The Combined Company will also continue
its strategy of launching most markets with only 12 channels of programming,
focusing on areas with limited access to local off-air VHF/UHF broadcast
channels. No assurance can be given that any of the Transactions will be
consummated and, if consummated, no assurance can be given that the businesses
combined thereby can be successfully integrated. See "The Combined
Company -- Business of the Combined Company After the Transactions."
Management of the Combined Company. The Combined Company will be managed
after consummation of the Transactions by Heartland's existing management, and
has entered into a noncompetition and consulting agreement with Steven G.
Johnson, the President of AWS. The Combined Company does not expect to retain
executive officers (other than Mr. Johnson under a consulting and noncompetition
agreement) or any significant numbers of management personnel from AWS or CMAX.
No management personnel will be hired from TSC, Minneapolis Partnership or FTW
Partnership. To the extent necessary to maintain customer service and system
launch schedules, the Combined Company may retain certain other employees of
AWS, CMAX or TSC. No member of the Board of Directors of AWS, CMAX or TSC will
continue to serve as a member of the Board of Directors of the Combined Company
following the consummation of the Transactions.
12
<PAGE> 1137
Principal Holders. The following table sets forth (a) the effect of the
Transactions (assuming the consummation of all of the Transactions and an
average closing price during the relevant periods of $28 per share (the
approximate closing average of the Heartland Common Stock over the ten- and
20-day trading periods preceding the date hereof) or $17 per share (the closing
average at which the maximum number of shares of Heartland Common Stock are
issuable pursuant to the Transactions) of Heartland Common Stock and certain
other assumptions as noted) on the amount and percentage of present holdings of
shares of Heartland Common Stock owned beneficially by each holder of five
percent (5%) or more of the shares of Heartland Common Stock and (b) persons
that will beneficially own five percent (5%) or more of the outstanding shares
of Heartland Common Stock outstanding immediately following the Transactions.
See "Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, and (iv) CMAX's Net Liabilities do not exceed its Permitted
Net Liabilities. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the owner of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
13
<PAGE> 1138
Markets. The following table sets forth certain information with respect to
the markets to be acquired by Heartland in the Transactions.
<TABLE>
<CAPTION>
CURRENT
ESTIMATED CHANNELS NUMBER OF
ESTIMATED LINE-OF- (INCLUDING SUBSCRIBERS AT
TOTAL SIGHT OFF-AIR NOVEMBER 30,
TRANSACTION MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS) 1995
- -------------- -------------------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CMAX Salt Lake City, UT*....... 454,000 434,000 27(2) --
Amarillo, TX(1)(5)........ 90,000 80,000 9(3) --
Athens, TX(1)(5).......... 90,000 60,000 7(3) --
Austin, TX................ 360,000 250,000 31 12,299
Lubbock, TX(1)(5)......... 110,000 100,000 12(4) --
San Antonio, TX*.......... 550,000 440,000 37 11,805
Sherman/Denison, TX(5).... 100,000 90,000 31(6) --
Temple/Killeen, TX........ 110,000 80,000 35 6,312
Waco, TX.................. 100,000 80,000 35 3,860
--------- --------- ------
1,964,000 1,614,000 34,276
--------- --------- ------
AWS Los Angeles, CA*.......... 3,029,500 2,726,500 9(7) --
Minneapolis, MN(8)*....... 958,900 882,200 29 2,744
Fort Worth, TX(8)*........ 539,700 442,500 35(9) 1,554
Dallas, TX*............... 981,500 872,400 16(7) --
Memphis, TN*.............. 376,900 350,600 22(7) --
--------- --------- ------
5,886,500 5,274,200 4,298
--------- --------- ------
TSC Dayton, OH*............... 460,000 300,000 31 3,242
Corpus Christi, TX........ 135,000 108,000 31 15,468
El Paso, TX............... 200,000 180,000 27 --
--------- --------- ------
795,000 588,000 18,710
--------- --------- ------
8,645,500 7,476,200 57,284
========= ========= ======
</TABLE>
- ---------------
* Constitutes part of the Heartland Disposition Assets.
(1) Heartland currently has an operating system in Lubbock, Texas and certain
wireless cable channel rights in the Amarillo and Corsicana/Athens, Texas
markets.
(2) Of these channels, 7 are the subject of pending applications.
(3) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(4) Of these channels, 4 are the subject of an appeal by an unsuccessful
applicant for the frequencies.
(5) Currently subleased by Heartland pursuant to the Sublease Agreement with
CMAX.
(6) Of these channels, 8 are the subject of uncontested application proceedings.
(7) These systems are not in operation and do not include off-air channels.
(8) Includes acquisition of assets from the FTW Partnership and the Minneapolis
Partnership in the FTW Transaction and Minneapolis Transaction, as the case
may be.
(9) Includes 8 channels which must be co-located at AWS's headend transmission
facility before programming may be effected on these channels.
Planned Divestitures. The Board of Directors of Heartland has identified
the Maysville and Sweet Springs, Missouri, Grand Rapids/Moline Michigan, Bloom
Center/Napoleon, Indiana and Flippin, Tennessee markets currently owned by
Heartland, and the Los Angeles, California, Dallas, Fort Worth and San Antonio,
Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake City, Utah and Minneapolis,
Minnesota markets to be acquired in the Transactions (collectively, the
"Heartland Disposition Assets") as being markets for which Heartland should seek
one or more disposition opportunities for cash, promissory notes, retained
equity interests or a combination thereof. Notwithstanding its determination to
seek the sale, exchange or other disposition of the Heartland Disposition
Assets, Heartland believes that some or all of such markets, properly developed
and operated, offer attractive opportunities to participate in the wireless
cable television industry.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets. Heartland expects to sell the
Flippin market to TruVision for $1.5 million contemporane-
14
<PAGE> 1139
ously with the sale to TruVision by AWS of the Memphis market for $3.9 million
(collectively, the "Memphis Transaction"). Heartland will not retain a direct or
indirect interest in these markets.
Effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or its contributing
subsidiaries) will receive (i) shares of Newco common stock (the "Newco Common
Stock") constituting approximately 39.76% of the outstanding shares of Newco
Common Stock at the closing, (ii) approximately $28.3 million in cash payable by
Newco at the closing, (iii) a promissory note in the principal sum of $25
million payable nine (9) months from the closing and secured by proceeds of a
contemplated issuance by Newco of $125 million of senior discount notes (the
"Newco Financing") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing, and prepayable from asset sales and certain other
events. Within six months of closing, CAI and Heartland will complete certain so
called 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 Newco for each market, increase
or decrease in the number of subscribers in each contributed system from the
number of subscribers stated in the Participation Agreement and related factors.
Following the completion of these calculations, an increase or decrease will
occur in the principal amounts of the promissory notes received by Heartland
from Newco, and CAI will either contribute to or be entitled to a distribution
of cash from Newco, depending upon such calculations.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland); (ii) up to three members designated by Heartland
(provided that at least one of whom may not be an affiliate of either CAI or
Heartland); (iii) the Chief Executive Officer of Newco; and (iv) the Chief
Financial Officer of Newco. The Stockholders Agreement and Newco's Bylaws
further provide that certain major transactions will require the affirmative
approval of at least 70% (or 7 of 9) of the Directors of Newco.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can
15
<PAGE> 1140
be given that such conditions will be satisfied. If such closing conditions are
not satisfied, Heartland will actively seek one or more disposition
opportunities for this portion of the Heartland Disposition Assets for cash,
promissory notes, retained equity interests or a combination thereof. See "The
Combined Company -- Business of the Combined Company After the Transactions",
"-- Planned Divestitures" and "-- Heartland's Reasons for the Transactions."
Summary Pro Forma Financial Information. The following table sets forth
summary pro forma financial data of Heartland. The summary unaudited pro forma
statement of operations data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
January 1, 1994, as if such events had occurred on January 1, 1994. The summary
unaudited balance sheet data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
September 30, 1995, as if such events had occurred on September 30, 1995. The
information contained in this table should be read in conjunction with "Pro
Forma Financial Information Relative to the Transactions" and other pro forma
financial information appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Statement of Operations Data:
Total revenues................................................ $ 20,091,635 $ 20,757,529
Total operating expenses...................................... 34,716,226 33,264,971
Operating loss................................................ (14,624,591) (12,507,442)
Interest expense, net......................................... 5,303,165 8,789,219
Income tax benefit............................................ 7,282,895 7,839,079
Net loss...................................................... (13,649,455) (14,253,813)
Net loss per common share..................................... $ (.71) $ (.74)
Weighted average shares outstanding........................... 19,230,083 19,280,566
Other financial data:
EBITDA(1)..................................................... $ (3,449,980) $ (783,996)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
1995
-------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted investments.................. $ 68,613,369
Restricted investments....................................................... 24,747,214
Total assets................................................................. 428,093,782
Long-term debt, including current portion.................................... 141,407,486
Total stockholders' equity................................................... 244,133,989
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
16
<PAGE> 1141
RISK FACTORS
In addition to the other information in this Proxy Statement/Prospectus,
all of the risk factors listed below should be considered carefully by the
stockholders of CMAX. These factors should be considered in conjunction with the
other information included or incorporated by reference in this Proxy
Statement/Prospectus.
LIMITED OPERATING HISTORY; NET LOSSES SINCE INCEPTION
Although Heartland's business commenced in 1990, it did not generate any
revenues until April 1992. As of September 30, 1995, Heartland has recorded net
losses of approximately $14.8 million since inception, due primarily to interest
expense and charges for depreciation and amortization of capital expenditures to
develop its wireless cable systems. Until such time as the Combined Company
substantially increases its subscriber base, resulting in higher subscription
fee revenues, it will continue to experience losses. Because of the costs
associated with launching a wireless cable television system and expanding its
subscriber base, continued growth by the Combined Company will tend to reduce
net income, if any, or increase net losses. As a result, Heartland expects to
continue to experience net losses whether or not the Transactions are
consummated and for an indefinite period thereafter while it develops and
expands its wireless cable systems even if mature individual systems of the
Combined Company are profitable.
SUBSTANTIAL INDEBTEDNESS OF THE COMBINED COMPANY; INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Combined Company will have a high level of indebtedness. As of
September 30, 1995, on a pro forma basis after giving effect to the consummation
of the Transactions, the Combined Company would have had approximately $158.6
million of long-term debt and other liabilities ($8.8 million of which is
attributable to the Transactions) including the current portion of the long-term
debt of $2.0 million. For the years ended December 31, 1992, 1993 and 1994, and
for the nine months ended September 30, 1994 and 1995, Heartland's earnings were
insufficient to cover fixed charges by $50,822, $406,101, $4,638,284, $1,863,404
and $12,485,232, respectively. The ability of the Combined Company to make
payments of principal and interest on its indebtedness will be largely dependent
upon its future financial performance. Many factors, some of which will be
beyond the Combined Company's control (such as prevailing economic conditions),
will affect its financial performance. There can be no assurance that the
Combined Company will be able to generate sufficient cash flow to cover required
interest and principal payments. If the Combined Company is unable to meet
interest and principal payments in the future, it may, depending upon the
circumstances which then exist, seek additional equity or debt financing,
attempt to refinance its existing indebtedness or sell all or part of its
business or assets to raise funds to repay its indebtedness. There can be no
assurance that sufficient equity or debt financing will be available, or, if
available, that it will be on terms acceptable to the Combined Company, that the
Combined Company will be able to refinance its existing indebtedness or that
sufficient funds could be raised through asset sales. The Combined Company's
high level of indebtedness has several important consequences, including, but
not limited to: (i) significant interest expense and principal repayment
obligations resulting in substantial annual fixed charges; (ii) significant
limitations on the Combined Company's ability to obtain financing, make capital
expenditures and acquisitions and take advantage of other business opportunities
that may arise; and (iii) increased vulnerability to adverse general economic
and industry conditions. There can be no assurance that the Combined Company
will be profitable in the future.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
Heartland has experienced rapid growth in the number of its employees and
the scope of its operating and financial systems. This growth has resulted in an
increased level of responsibility for both existing and new management
personnel. The consummation of the Transactions will result in additional
significant growth of Heartland's operations, particularly if the planned
divestiture of assets by Heartland is not consummated. To manage its growth
effectively, Heartland will be required to implement and improve its operating
and financial systems and controls and to expand, train and manage its employee
base. In addition, Heartland may be required to integrate into its business one
or more of the businesses acquired from CMAX, AWS, FTW Venture, the Minneapolis
LLC and TSC, although Heartland anticipates disposing of all of the business
17
<PAGE> 1142
acquired through AWS, the FTW Venture and the Minneapolis LLC. Heartland
currently has no plans for the Combined Company to retain any of the executive
officers of AWS, CMAX or TSC, other than Steven G. Johnson, the President of
AWS, with whom Heartland has entered into a consulting and non-competition
agreement. As a result, the Combined Company will be dependent upon the existing
management of Heartland to assume and perform the management functions formerly
performed by management of each of the parties to the Transactions. To the
extent that Heartland's existing management is unable to assume or perform these
combined duties, the Combined Company could be adversely affected. There can be
no assurance that the management, systems and controls currently in place or any
steps taken to improve such management, systems and controls will be adequate in
the future, whether or not Heartland consummates one or more of the
Transactions.
In addition, promptly following the consummation of the Transactions,
management of the Combined Company will be required to make and implement a
number of strategic and operational decisions regarding the integration of the
entity's various operations and the exploitation of its assets and businesses.
The timing and manner of the implementation of decisions made with respect to
the ongoing business of the Combined Company following the consummation of the
Transactions will materially affect the operations of the Combined Company.
Given the range of potential outcomes arising from such decisions, and the
interrelationships among decisions to be made, it is difficult to quantify with
precision the composition of the Combined Company. There can also be no
assurance that any acquired businesses will be integrated successfully into
Heartland's business.
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of the Combined Company's business requires substantial
investment on a continuing basis to finance capital expenditures and expenses
related to subscriber growth and system development. Although Heartland believes
that its cash and cash equivalent assets will be sufficient to fund the Combined
Company's operations and expansion through at least the end of 1996, there is no
assurance that additional funds will not be necessary to complete the launch,
build-out and expansion of all of the Combined Company's wireless cable systems
and to bring such systems to a mature state or that any such required additional
funds would be available on satisfactory terms and conditions, if at all. In
addition, the Combined Company's capital needs will depend in part upon the
success of Heartland's and the Combined Company's efforts to sell or otherwise
dispose of the Heartland Disposition Assets and the nature of any consideration
received as a result of such dispositions. To the extent assets and markets
designated for disposition are not sold, or are not sold for cash, the Combined
Company's requirements for additional funds will be increased. There is also no
assurance that the Combined Company will not pursue, from time to time, other
opportunities to acquire additional wireless cable channel rights and businesses
that may utilize the capital currently expected to be available for its current
markets. The amount and timing of the Combined Company's future capital
requirements, if any, will depend upon a number of factors, including
programming costs, equipment costs, marketing expenses, staffing levels,
subscriber growth and competitive conditions, and any purchases or dispositions
of assets, many of which are not within the Combined Company's control. Failure
to obtain any required additional financing could materially adversely affect
the growth, cash flow or earnings of the Combined Company.
POTENTIAL SIGNIFICANT INDUSTRY TRANSACTIONS
Significant industry transactions such as acquisitions and dispositions of
channel rights, joint ventures and other business transactions between and among
participants in the wireless cable television industry have occurred with some
frequency in the past, and Heartland's management expects this trend to continue
in the foreseeable future. Although Heartland regularly engages in discussions
concerning such industry transactions with other industry participants,
Heartland is not currently subject to any material definitive agreements in such
regard except as disclosed herein or in those documents incorporated herein by
reference. Whether Heartland proceeds with any of these discussions and whether
the Combined Company ultimately negotiates and/or consummates any additional
significant industry transactions will depend, among other things, upon the
business and prospects of the Combined Company, industry conditions, investment
and growth opportunities available to the Combined Company, stock market
conditions, availability and suitability of financing for
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<PAGE> 1143
such transactions, regulatory and legal considerations, and other plans and
requirements of the Combined Company. No assurance can be given that, if
consummated, any such significant industry transactions could be successfully
integrated into the Combined Company's business.
INVESTMENT IN NEWCO
Pursuant to the Newco Transaction, Heartland shall contribute or sell the
Heartland Disposition Assets, other than the Memphis and Flippin, Tennessee
markets to be disposed of in the Memphis Transaction, and the Los Angeles
channel rights (which Heartland will seek to sell directly to a third party), to
Newco in exchange for cash, promissory notes and a retained equity interest. The
Stockholders Agreement provides that Heartland will have the right to appoint
less than a majority of the directors of Newco. Therefore, the Combined Company
will not control the management of Newco, and it will be dependent upon the
skill, expertise and managerial efforts of the management of Newco to achieve a
return on this proposed substantial investment. To the extent that Newco proves
unsuccessful in its business, the value of the Combined Company's investment
therein will be adversely affected. Further, consummation of the Newco
Transaction is subject to significant customary closing conditions. No assurance
can be given that such conditions will be satisfied. See "The Combined
Company -- Business of the Combined Company After the Transactions" and
"-- Planned Divestitures."
DEPENDENCE ON EXISTING MANAGEMENT; KEY EMPLOYEES
Heartland is dependent in large part on the experience and knowledge of
existing management. Heartland has not entered into any employment agreements
with, or obtained key-man life insurance for, any of its executive officers and
there can be no assurance that any of such persons will remain in Heartland's
employ in the future. The Combined Company's success is also dependent upon its
ability to attract and retain qualified employees to develop and operate its
wireless cable systems.
COMPETITION
The pay television industry is highly competitive. Wireless cable
television systems face or may face competition from several sources, such as
traditional hard-wire cable companies, satellite master antenna television
systems, direct broadcast satellites and other alternative methods of
distributing and receiving television transmissions. Further, premium movie
services offered by cable television systems have encountered significant
competition from the home video cassette industry. In areas where several local
off-air VHF/UHF broadcast signals can be received without the benefit of
subscription television, cable television systems also have experienced
competition from the availability of broadcast signals generally and have found
market penetration to be more difficult. In addition, within each market, the
Combined Company initially must compete with others to acquire, from the limited
number of channel licenses issued, rights to a minimum number of channels needed
to establish a viable system. Legislative, regulatory and technological
developments may result in additional and significant competition, including
competition from local telephone companies, from a proposed new wireless service
known as local multi-point distribution and from emerging trends and
technologies. Heartland has targeted its marketing in its Existing Systems (as
hereafter defined) to households that are unpassed by traditional hard-wire
cable and that have limited access to local off-air VHF/UHF broadcast channels.
Accordingly, to date Heartland has not encountered significant direct
competition from traditional hard-wire cable companies. It is likely, given the
markets involved in the Transactions, that the Combined Company will face
significant direct competition from traditional hard-wire cable companies in the
future, especially in the urban markets acquired in the Transactions if the
planned divestiture of such markets described herein is not consummated. The
basic programming package offered in each of Heartland's existing systems is
comparable to that offered by the local traditional hard-wire cable operators.
However, certain of such local traditional hard-wire cable operators currently
offer more premium, pay-per-view and public access channels than Heartland. In
addition, as the telecommunications industry continues to evolve, the Combined
Company may face additional competition from new providers of entertainment and
data services. In particular, there are a rapidly growing number of information
and data service providers serving consumers via informal communications
networks, such as the Internet and World
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Wide Web. Although the Combined Company is unaware of any such provider
delivering programming like that available over wireless cable television, there
can be no assurance that continuing advances in technology will not make such
delivery possible. Even if such direct competition does not exist in the future,
however, the Combined Company's services will compete, indirectly, with
entertainment services generally, including those provided by operators using
evolving technology. Many actual and potential competitors have greater
financial, marketing and other resources than Heartland. No assurance can be
given that the Combined Company will compete successfully in any or all of its
markets.
GOVERNMENT REGULATION
The right to transmit on wireless cable channels is regulated by the
Federal Communications Commission (the "FCC") and the copyright for the
retransmission of local off-air VHF/UHF broadcasts is regulated by the United
States Copyright Office pursuant to the Copyright Act of 1976, as amended (the
"Copyright Act").
Cable Act. Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992, as amended (the "Cable Act"), the FCC adopted rate
regulations exclusively for traditional hard-wire cable systems. Heartland
cannot predict precisely what effect these regulations or other governmental
regulations may have on traditional hard-wire cable operators as to price and
service. 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 an adverse effect on the
industry as a whole and on Heartland in particular.
Copyright Act. Secondary transmission of a broadcast signal is permissible
only if approved by the copyright holder or if subject to compulsory licensing
under the Copyright Act. The United States Congress recently adopted legislation
extending the compulsory copyright licensing system to include wireless cable
systems. As a result of this action, wireless cable operators may engage in
secondary transmissions of distant programming without the copyright holder's
approval, provided that such operators file certain reports and pay certain fees
set by the Copyright Royalty Tribunal. See "Risk Factors -- Dependence on
Program Material Agreements."
Regulation of Retransmission. 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 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. Heartland has obtained such
consents in each of its Existing Systems where Heartland is retransmitting on a
wireless cable channel. Such consents will be required in Heartland's other
markets. There can be no assurance that the Combined Company will be able to
obtain such consents on terms satisfactory to the Combined Company.
Other Regulations. Wireless cable operators are also subject to regulation
by the Federal Aviation Administration (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
Combined Company will not be required to incur additional costs in complying
with such regulations and restrictions. No assurance can be given that new
regulations will not be imposed or that existing regulations will not be
changed. Any such new or modified regulations could have a material adverse
effect on the wireless cable industry as a whole and on Heartland and the
Combined Company in particular.
DEPENDENCE ON CHANNEL LEASES; LOSS OF LICENSES BY LESSORS
Heartland is dependent, and the Combined Company will be dependent, on
leases with unaffiliated third parties for most of its wireless cable channel
rights. Heartland 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.
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<PAGE> 1145
Heartland's channel leases typically cover four instructional television fixed
service ("ITFS") and/or one to four multi-point distribution service ("MDS")
wireless 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.
See "Wireless Cable Industry -- Regulatory Environment." Under the rules of the
FCC, the term of an ITFS channel lease cannot exceed ten years. There is no such
restriction for MDS channel leases. ITFS licenses generally are granted for a
term of ten 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 Heartland'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
Heartland's channel leases are approximately 5 to 10 years, although certain of
Heartland's channel leases have initial terms expiring during the next several
years. Most of Heartland's leases grant Heartland 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
Heartland being unable to deliver television programming on such channel(s).
Although Heartland does not believe that the termination of or failure to renew
a single channel lease or license would adversely affect the Combined Company,
several of such terminations or failures in one or more markets that Heartland
actively serves could have a material adverse effect on the Combined 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 Heartland'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.
UNCERTAINTY OF GRANT OF PENDING APPLICATIONS
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom Heartland has entered into leases have filed a series
of applications with the FCC for a number of wireless cable channels and
Heartland 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 Heartland's lease agreements with applicants for channel licenses
involve channel licenses for which Competing Applications have been filed. In
each market, Heartland 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
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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
Heartland has acquired channel rights, based upon alleged substantive defects in
the applicant or in technical or other aspects of the application. Heartland
anticipates that the FCC will deny most of the current petitions to deny the
applications in which Heartland has acquired channel rights. However, no
assurance can be given as to the precise number of such petitions that will be
denied. Although Heartland 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 Heartland has acquired
channel rights would adversely affect Heartland, several of such awards or
grants could have a material adverse effect on Heartland.
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS
Wireless cable systems transmit programming over wireless cable channels
that are licensed by the FCC. Generally, Heartland believes that a minimum of
twelve wireless cable channels are necessary to offer a commercially viable
wireless cable system in most rural markets and that more channels are required
in more competitive markets, such as those well served by traditional cable
television systems. In some of its long-term launch markets, Heartland does not
currently have the right to operate twelve channels from the same transmitter
site. In those markets, Heartland is dependent upon (i) the grant of pending
applications for modification of existing licenses for unbuilt ITFS stations,
(ii) the grant of such license modification applications which have not been
filed and/or (iii) the grant of applications for new ITFS licenses, some of
which have not been filed. There can be no assurance that any or all of the
modification applications and new license applications actually made or
anticipated to be made by Heartland will be granted by the FCC. Although
Heartland does not believe that the denial of any single modification or new
license application will adversely affect it, the denial of several such
applications, particularly if concentrated in one or a few of Heartland's
markets, could have a material adverse effect on its growth. See "Wireless Cable
Industry -- Cable Industry Overview" and "-- Regulatory Environment."
INTERFERENCE ISSUES
Under current FCC regulations, a wireless cable operator may install
receive-site equipment and serve any point where its signal can be received,
subject to the interference protection rights of certain other wireless cable
systems. Interference from other wireless cable systems can limit the ability of
a wireless cable system to serve particular points, in the same manner that
interference from one television station limits the ability of a viewer to
receive another television station broadcasting on the same frequency. In
licensing ITFS and multi-point distribution service stations, a primary concern
of the FCC is avoiding situations where proposed stations are predicted to cause
interference to the reception of existing station signals. Pursuant to current
FCC regulations, a wireless cable license holder is generally protected from
interference within 35 miles of the transmission site. Heartland's business plan
involves moving the authorized transmitter site of various of its MDS and ITFS
licensed stations and obtaining the grant of licenses to new stations that
Heartland will use in its wireless cable systems. The FCC interference
protection standards may make one or more of those proposed relocations or new
grants unavailable. In any such event, it may be necessary to negotiate
interference agreements with the licensees of stations which would otherwise
block such relocations or new grants. There can be no assurance that the
Combined Company will be able to negotiate any required interference agreements
on terms acceptable to it. In the event that the Combined Company cannot obtain
interference agreements required to implement its plans for a given market, the
Combined Company may have to curtail or modify operations in that market. Any
substantial modification or curtailment of the Combined Company's operations in
its markets could have a material adverse effect on its growth or financial
performance. In addition, while the Combined Company's leases with MDS and ITFS
licensees require their cooperation, it is possible that one or more of the
Combined Company's channel lessors may hinder or delay the Combined Company's
efforts to use the channels in accordance with its plans for a particular
market.
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AUCTION OF BASIC TRADING AREAS
As a result of legislation authorizing the FCC to utilize competitive
bidding (auctions) for the award of initial licenses or construction permits for
certain commercial services when mutually exclusive applications have been
filed, on June 15, 1995 the FCC adopted new rules replacing lottery procedures
with auctions for the awarding of commercial licenses where two or more parties
have filed applications for the same frequencies. Auctions under the new rules
began November 13, 1995 for the award of initial commercial licenses for "Basic
Trading Areas" or "BTAs" (as defined by Rand McNally); however, the new auction
rules do not apply when a license is to be renewed. The new rules are effective
although pleadings have been filed which might result in changes in the rules,
and any auctions conducted pursuant thereto. License holders that obtain an MDS
license via an auction must provide interference protection to the 35-mile
protected service area of existing license holders. Under the statutory auction
authority enacted in 1993, ITFS licenses are exempt from the auction process and
applications for ITFS licenses are expected to continue to be awarded according
to the FCC's objective criteria.
DEPENDENCE ON PROGRAM MATERIAL AGREEMENTS
In connection with its distribution of television programming, Heartland is
dependent, and the Combined Company will be dependent, on fixed-term contracts
with various program suppliers. Generally, the terms of such contracts are for
periods of one to five years and began to expire in 1995. Although Heartland has
no reason to believe that any such contracts will be cancelled or will not be
renewed upon expiration, if such contracts are cancelled or not renewed, the
Combined Company will have to seek program material from other sources. There is
no assurance that other program material will be available to the Combined
Company on acceptable terms or at all or, if so available, that such material
will be acceptable to the Combined Company's subscribers. The likelihood that
program material will be unavailable to the Combined Company is significantly
mitigated by the Cable Act and various FCC regulations issued thereunder, which,
among other things, impose limits on exclusive programming contracts and
generally prohibit cable programmers in which a cable operator has an
attributable interest from discriminating against cable competitors with respect
to the price and terms and conditions of sale of programming. Only a few of the
major cable television programming services carried by Heartland are not
currently directly owned by a vertically integrated cable operator, and
Heartland historically has not had difficulty in arranging satisfactory
contracts for these services. The Cable Act is the subject of various legal
challenges and if it were found to be unconstitutional, program suppliers might
raise their prices or make their program material unavailable to the Combined
Company.
PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION
Wireless cable programming is transmitted via microwave frequencies from a
transmission facility to a small receiving antenna at each subscriber's
location, which generally requires a direct, unobstructed line-of-sight from the
transmission facility to the subscriber's receiving antenna. Therefore, in
communities with tall trees, hilly terrain, tall buildings or other obstructions
in the transmission path, wireless cable transmission can be difficult or
impossible to receive at certain locations without the use of signal boosters.
Consequently, the Combined Company may not be able to supply services to certain
potential subscribers. In addition, in limited circumstances, extremely adverse
weather can damage transmission and receiving antennas as well as transmit site
equipment.
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY
While wireless cable television is not a new technology, it is a relatively
new industry with a short operating history. Potential investors should be aware
of the difficulties and uncertainties that are normally associated with new
industries, such as lack of consumer acceptance, difficulty in obtaining
financing, increasing competition, advances in technology and changes in laws
and regulations. There can be no assurance that the wireless cable industry will
develop or continue as a viable or profitable industry.
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POSSIBLE ADDITIONAL CAPITAL EXPENDITURES FOR HEARTLAND DISPOSITION ASSETS
No assurance can be given that the planned disposition of the Heartland
Disposition Assets will be consummated. Consummation of such planned disposition
may require, among other items, consents of CAI's lenders to the Newco
Transaction, financing secured by Newco on terms acceptable to CAI and
Heartland, and consents of the licensees to the assignment of channel leases to
Newco, and of the Flippin and Memphis channel rights to TruVision. Accordingly,
Heartland may be required to expend a substantial amount of additional capital
to maintain certain assets and/or fund lease payments attributable to the
Heartland Disposition Assets. Further, no assurance can be given that the
disposition of the Heartland Disposition Assets will have the desired impact on
the Combined Company's business or financial affairs.
POSSIBLE ADVERSE TAX CONSEQUENCES ATTRIBUTABLE TO HEARTLAND DISPOSITION ASSETS
The cash and promissory note portion of the consideration received by
Heartland and/or its subsidiaries from consummation of the Memphis Transaction
and Newco Transaction may result in the recognition of gain for federal income
tax purposes. The amount of any tax liability attributable thereto will depend
upon numerous factors, including the tax basis of the assets conveyed, the net
operating losses available to Heartland and other factors. Certain of these
factors will depend upon the tax attributes of CMAX, AWS and TCS as of the
closing of the Transactions. There can be no assurance that sufficient tax bases
and net operating losses will exist to defray a material amount of any such
gain, thereby requiring Heartland to pay certain tax liabilities to federal
and/or state authorities. Any such payments would negatively impact the Combined
Company's cash flow.
ASSIGNABILITY OF HEARTLAND DISPOSITION ASSETS CHANNEL LEASES
Substantially all of the channel leases associated with the Heartland
Disposition Assets require the consents of the licensees prior to the assignment
thereof. No assurance can be given that such consents will be obtained to the
assignment of such channel leases to Newco in the Newco Transaction. The failure
to obtain any such consents may prevent the Newco Transaction from being
consummated, which could have a material adverse effect on the Combined
Company's business or financial affairs. See "Risk Factors -- Possible
Additional Capital Expenditures for Heartland Disposition Assets." Further, the
consent of the FCC is required prior to the assignment of any MDS channels
associated with the Heartland Disposition Assets. Heartland will take
appropriate action to obtain such consents with respect to such MDS channels to
be acquired by Heartland and thereafter conveyed to Newco as part of any Newco
Transaction. Such consents are generally received three to five months after
application is made with the FCC. Although Heartland expects to lease any
acquired MDS channels to Newco as part of any Newco Transaction pending receipt
of server approval, there can be no assurance that the FCC will consent to the
assignment of such licenses to Heartland or Newco.
CERTAIN SUBSIDIARIES NOT WHOLLY OWNED
Heartland generally conducts its business through subsidiaries. Heartland's
subsidiaries include non-operating subsidiaries that hold interests in channels,
subsidiaries that operate systems and subsidiaries that do both. Heartland also
has an operating subsidiary that installs wireless cable systems in various
markets served by Heartland and its subsidiaries. Certain of Heartland's
subsidiaries are not wholly owned and most subsidiaries are indirectly owned by
Heartland as a result of its majority ownership of other entities. Although
Heartland has a sufficient interest in its subsidiaries to be able to exercise
control over them, Heartland may owe a fiduciary duty to the holders of various
minority interests in its subsidiaries. Accordingly, Heartland may not exercise
unfettered control over such subsidiaries and may be required to deal with such
subsidiaries on terms no less favorable to such subsidiaries than could be
obtained from unaffiliated third parties. Heartland believes that all of its
dealings with its subsidiaries have been on such terms. In addition, dividends
or other distributions paid or made by such subsidiaries must be paid or made on
a pro rata basis to all stockholders.
Further, Heartland owns approximately 27% of the outstanding common stock
of Wireless One, Inc., a Delaware corporation ("Wireless One"). Although David
E. Webb and J. R. Holland, Jr., Directors of Heartland, serve as Directors of
Wireless One, Heartland cannot exercise unfettered control over this
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substantial investment. Similarly, upon consummation of the Newco Transaction,
Heartland will own approximately 39.76% (prior to dilution) of the outstanding
common stock of Newco. Although David E. Webb and J.R. Holland, Jr., Directors
of Heartland, are expected to serve as Directors of Newco, Heartland will not be
able to exercise unfettered control over this proposed substantial investment.
CONTROL BY PRINCIPAL STOCKHOLDERS; AGREEMENT TO VOTE FOR BOARD DESIGNEE OF
JUPITER; CO-SALE-RIGHT
David E. Webb, the President and Chief Executive Officer of Heartland, L.
Allen Wheeler, a member of the Board of Directors of Heartland and Hunt Capital
Group, L.L.C. ("Hunt Capital"), a principal stockholder of Heartland and
affiliate of J. R. Holland, Jr., the Chairman of the Board of Heartland,
collectively own approximately 62.68% of the outstanding Heartland Common Stock
and, if they act together, will be able to control the election of the members
of Heartland's Board of Directors and generally to exercise control over
Heartland's affairs. Assuming consummation of each of the Transactions and an
average closing price of Heartland's Common Stock of $28, such parties will own
approximately 40.81% (33.87% if the maximum number of shares are issued) of the
outstanding common stock of the Combined Company. Accordingly, following
consummation of the Transactions, such persons acting together will not be able
to totally control the election of the members of Heartland's Board of
Directors. Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement"), entered into in connection with the private
placement of $40.2 million of 9% Convertible Subordinated Discount Notes due
2004 (the "Convertible Notes"), each of Hunt Capital, David E. Webb and L. Allen
Wheeler, have agreed to vote their shares of Heartland Common Stock (i) in favor
of the election to Heartland's Board of Directors of one designee of the
purchaser of the Convertible Notes ("Jupiter") and (ii) in favor of Heartland's
Board of Directors consisting of at least three and not more than seven members
for so long as Jupiter retains a 25% interest in the Convertible Notes
originally purchased by it and/or the shares of Heartland Common Stock issued or
issuable upon conversion thereof (the "Conversion Shares") originally issuable
to it. The agreement of such stockholders to elect Jupiter's designee to the
Board of Directors may restrict the ability of such stockholders to elect their
preferred slate of directors to manage Heartland, which may result in a member
of the Board of Directors having interests that conflict with those of the other
stockholders of Heartland. In addition, under the terms of the Stockholders'
Agreement, each of Hunt Capital, David E. Webb and L. Allen Wheeler have agreed
that, for so long as Jupiter holds such 25% interest, in the event of any
proposed sale or series of sales of Heartland Common Stock by any such
stockholder to a non-affiliate for aggregate consideration greater than $15
million or representing in excess of 5% of the outstanding Heartland Common
Stock at such time, such stockholder shall not effect such sale unless Jupiter
is permitted to participate in such sale on a pro rata basis with such
stockholder. The co-sale right may reduce the likelihood of a change in control
of Heartland because any potential purchaser of stock held by the controlling
stockholders may also be required to purchase shares owned by Jupiter.
LIMITED TRADING VOLUME AND POSSIBLE VOLATILITY OF HEARTLAND COMMON STOCK
During 1994 and for the first nine months of 1995, the average trading
volume of shares of Heartland Common Stock on Nasdaq-NMS was approximately
22,800 and 34,200 shares per day, respectively. As of December 31, 1995,
approximately 12,611,132 shares of the Heartland Common Stock were issued and
outstanding, including 8,106,825 (including 190,600 shares subject to
exercisable options) shares held by executive officers, directors and their
affiliates. In connection with the Transactions, Heartland may issue up to an
additional 10,721,302 shares (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common Stock
are issuable -- see "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions"), or 6,763,949
shares (based upon a closing average of $28 per share, the approximate closing
average of the Heartland Common Stock over the preceding ten- and 20-day trading
periods) of Heartland Common Stock, some or all of which will be liquidated by
FTW Associates, the Minneapolis Partnership and TSC in connection with their
respective plans of liquidation. In addition, some recipients of Heartland
Common Stock in the Transactions can be expected to immediately dispose of such
shares to meet tax or other obligations. There can be no assurance, given the
relatively low volume of trading typically exhibited by the Heartland Common
Stock that all of those holders seeking to dispose of Heartland Common Stock
will be able to do so
25
<PAGE> 1150
or at what price such shares will be sold if dispositions are made. It is also
possible that there will be much greater volatility in the price of the
Heartland Common Stock during the period immediately preceding the Transactions
and for some time thereafter. Finally, the market price of the Heartland Common
Stock could fluctuate substantially in the future for a variety of reasons,
including performance of the Combined Company, investor expectations for the
Combined Company and the wireless cable television industry, general economic
conditions and fluctuations in the overall stock market. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
NO HEARTLAND COMMON STOCK DIVIDENDS
Heartland has not paid dividends on Heartland Common Stock since its
inception and does not anticipate paying any dividends in the foreseeable
future. In addition, provisions relating to Heartland's indebtedness prohibit
the payment or accrual of dividends or any other distribution with respect to
Heartland's Common Stock until such debt is paid in full. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
POSSIBLE FUTURE ACQUISITIONS
Heartland has in the past and is in the process of making a number of
acquisitions and may in the future make additional acquisitions. The Combined
Company can be expected to seek to acquire additional channel rights, both in
its existing markets and in other markets, both directly and indirectly by
acquiring other wireless cable television providers. Such acquisitions may be in
geographic areas or markets outside of Heartland's traditional focus of small to
mid sized markets in the central United States. In addition, it is possible that
the Combined Company might make one or more acquisitions outside of the business
of providing wireless cable television services. Any such acquisitions may be
made for cash, securities, including Heartland Common Stock, or combinations
thereof. Under applicable law and regulations, in many circumstances, approval
by the Combined Company's stockholders of any such acquisitions may not be
required. The Combined Company may pay for such acquisitions in cash or by
issuing equity or debt securities. The issuance of equity to effect or finance
such acquisitions would have the effect of reducing the percentage ownership of
the Combined Company held by each pre-acquisition stockholder and the incurrence
of indebtedness in connection with such acquisitions could adversely affect the
liquidity, results of operations and financial condition of the Combined
Company.
RESCISSION RIGHTS OF PARTNERS OF MINNEAPOLIS PARTNERSHIP AND FTW PARTNERSHIP
Prior to the date hereof, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $29 million of general
partnership interests in three general partnerships, including FTW Partnership
and Minneapolis Partnership, without registration under any federal or state
securities laws. Following an 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 five percent of AWS common stock, without admitting or denying any
wrongdoing, consented to an SEC order to cease and desist from committing or
causing any violation and any future violations of the securities registration
provisions of the Securities Act and the broker-dealer registration provisions
of the Exchange Act. In addition, securities administrators in 22 states also
have 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 rescission 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 interests 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 investment. AWS has
advised the Arizona
26
<PAGE> 1151
Corporation Commission that it does not intend to make such offer to purchase
pending consummation of the transactions described herein.
On September 29, 1995, AWS and the third general partnership in which
interests were sold (the "Pittsburgh Partnership") jointly sold (the "Pittsburgh
Sale") their respective interest in the joint venture operating the wireless
cable television system in Pittsburgh, Pennsylvania to CAI Wireless Systems,
Inc. ("CAI"). General partners holding approximately 72% of the general
partnership interests of the Pittsburgh Partnership (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. There can be no assurance that the
Minneapolis Partners and the FTW Partners who do 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 Heartland, 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 Heartland based on a number of
theories involving successor liability. The institution of legal action against
Heartland arising out of the offer and sale of general partnership interests by
AWS' predecessors could result in substantial defense costs to Heartland and the
diversion of efforts by Heartland's management, and the imposition of
liabilities against Heartland could have an adverse effect on Heartland.
CMAX MERGER CONSIDERATION; EFFECT ON THE CONSIDERATION TO BE RECEIVED BY THE
HOLDERS OF CMAX COMMON STOCK IN THE CMAX MERGER
The relative stock prices of the Heartland Common Stock and the CMAX Common
Stock may vary significantly from the prices as of the date of the CMAX Merger
Agreement, the date hereof or the date on which the special meetings are held.
These variances may be due to changes in the business, operation and prospects
of Heartland and CMAX, market assessments of the likelihood that the CMAX Merger
will be consummated and the timing thereof, the effect of any conditions or
restrictions imposed or proposed with respect to the combined companies in
connection with or following consummation of the CMAX Merger, general market and
economic conditions and other factors. While CMAX may terminate the CMAX Merger
Agreement if the Closing Share Price (as defined in the CMAX Merger Agreement)
exceeds $34 per share, and Heartland may terminate the CMAX Merger Agreement if
the Closing Share Price is less than $10 per share, the dollar value of the
Heartland Common Stock to be received by holders of CMAX Common Stock will not
be determined until shortly before the CMAX Effective Time, and may be
substantially more or less than the value of the Heartland Common Stock as of
the date of the CMAX Merger Agreement, the date hereof or the date on which the
special meetings are held. Additionally, the consideration to be received by the
CMAX shareholders is subject to adjustment downward, depending upon the
liabilities of CMAX as of the closing of the CMAX Merger Agreement.
DILUTION OF NEW STOCKHOLDERS
At September 30, 1995, the net tangible book value per share of the
Heartland Common Stock was $(2.09). "Net tangible book value per share of
Heartland Common Stock" represents the amount of total tangible assets less
total liabilities (excluding deferred income taxes) divided by the number of
shares of Heartland Common Stock outstanding. The issuance of the shares of
Heartland Common Stock in connection with the Transactions will result in a pro
forma net tangible book value per share of Heartland Common Stock of $6.52 at
September 30, 1995 assuming 6,688,639 shares of Heartland Common Stock are
issued in the Transactions (based upon the number of shares assumed to be issued
for purposes of the Pro Forma Statements and a closing price of $28 per share).
Thus CMAX stockholders will suffer dilution equal to approximately $21.48 per
share of Heartland Common Stock if all of the Transactions are consummated.
27
<PAGE> 1152
INFORMATION CONCERNING HEARTLAND
THE BUSINESS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems,
primarily in small to mid-size markets located in the central United States.
Heartland has wireless cable channel rights in 79 markets representing
approximately 8.2 million households, approximately 6.7 million of which
Heartland 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).
Heartland 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,
Heartland believes that its wireless cable television service is an attractive
alternative to existing choices for such households. Heartland estimates that
within its 79 wireless cable markets, approximately 2.4 million LOS households,
or 36% of Heartland'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.
Heartland's 79 markets include (i) 32 markets in which Heartland has
systems in operation (the "Heartland Existing Systems"), (ii) nine markets in
which Heartland's system is under construction, (iii) 23 near-term launch
markets in which Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and (iv) 15 long-term launch
markets, including 11 in which Heartland has aggregated sufficient wireless
cable channel rights to commence construction of a system and four in which
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. As of
November 30, 1995, Heartland was providing wireless cable service to an
aggregate of approximately 80,600 subscribers through 32 operational systems
located in seven states.
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 Heartland 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, Heartland 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 Heartland 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 Heartland
continues to acquire channel rights. See "Information Concerning
Heartland -- The Business -- Business Strategy."
Substantially all of Heartland's subscribers have set-top converters that
are fully "impulse addressable," which will allow its subscribers to receive
impulse pay-per-view programming. Only approximately 35% of traditional
hard-wire cable operators use addressability and approximately 5% use impulse
addressability.
28
<PAGE> 1153
BUSINESS STRATEGY
Heartland's primary business objective is to develop, own and operate
wireless cable television systems in markets in which Heartland 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. Heartland 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. Heartland 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. Heartland attempts to manage system launch
and subscriber growth in order to contain system launch costs and to achieve
positive cash flow rapidly. Typically, Heartland's operating systems achieve
positive monthly operating cash flow upon obtaining an average of approximately
1,500 subscribers. Within a system, Heartland initially directs its marketing at
unpassed households, which typically have limited access to local off-air
VHF/UHF broadcast channels. Accordingly, Heartland 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, Heartland will expand the channel offering and add
subscribers while increasing such system's positive operating cash flow. As of
November 30, 1995, 17 of Heartland'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
1,500 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, Heartland estimates that each additional wireless cable subscriber
currently requires an incremental capital expenditure by Heartland 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, Heartland 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, Heartland can further contain
costs by taking advantage of economies of scale in management, sales and
customer service.
Acquisition of ITFS Channel Rights. Because Heartland believes it can
launch service successfully in its markets with as few as 12 channels of
programming, Heartland focuses on development of the 20 available ITFS channels.
See "Wireless Cable Industry -- Regulatory Environment -- General." In most of
Heartland's markets, few, if any, licenses for ITFS channels had been granted by
the FCC to any non-profit educational organizations prior to Heartland's initial
development of such markets. Heartland cooperates with many non-profit
educational organizations in obtaining ITFS licenses from the FCC. Once
Heartland has secured rights to at least 12 ITFS channels in a market, Heartland
believes it can launch a commercially viable system in such market. Heartland
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.
29
<PAGE> 1154
PLANNED DIVESTITURES
Certain of the wireless cable assets currently held by Heartland and
certain of the assets sought to be acquired by Heartland in the Transactions are
not part of Heartland's current long-term business plan, either because they
were inconsistent with Heartland's focus on small to mid-sized markets with a
significant number of LOS households unpassed by traditional hard-wired cable or
because the Heartland Board of Directors (the "Heartland Board") felt that the
consideration to be received in a disposition thereof might be attractive when
compared to developing and operating a wireless cable system in the market. For
example, Heartland will seek to sell AWS's channel rights in Los Angeles to a
third party. Also, Heartland and AWS have agreed to sell the Flippin and
Memphis, Tennessee markets to TruVision for $1.5 million and $3.9 million,
respectively. Further, Heartland has entered into the Participation Agreement
with CAI pursuant to which Heartland shall convey and sell to Newco the
Maysville and Sweet Springs, Missouri, Grand Rapids/Moline, Michigan,
Napoleon/Bloom Center, Indiana, Dallas, Ft. Worth and San Antonio, Texas,
Dayton, Ohio, Salt Lake City, Utah and Minneapolis, Minnesota markets to Newco
for approximately $28.3 million of cash, $40 million of promissory notes and a
retained equity interest of approximately 39.76 percent. Each of these proposed
dispositions is subject to significant customary closing conditions, and no
assurance can be given that all or any of such assets will be disposed of on
such terms. In addition, sales of assets to Newco are dependent upon the
consummation by Newco of certain financing transactions. If the divestiture of
any of such assets is not effected as currently anticipated by the Heartland
Board, the assets not disposed of will be held by Heartland until other
strategic uses can be found therefor. See "The Combined Company -- Planned
Divestitures."
30
<PAGE> 1155
HEARTLAND EXISTING SYSTEMS AND HEARTLAND'S MARKETS
The table below provides information regarding the 79 existing markets in
which Heartland currently has wireless cable channel rights, unless otherwise
noted, as of November 30, 1995.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED NUMBER OF
TOTAL LINE-OF-SIGHT CURRENT SUBSCRIBERS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) CHANNELS(2) NOVEMBER 30, 1995
- ------------------------------------- ---------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
EXISTING SYSTEMS
Ada, OK............................ 30,399 24,319 32 6,508
Wichita Falls, TX.................. 78,290 74,376 28 6,093
Midland, TX........................ 120,037 114,035 26 5,017
Abilene, TX........................ 86,676 82,344 23 4,020
Lawton, OK......................... 97,023 92,172 27 6,334
Laredo, TX......................... 313,406(3) 297,736(3) 27 5,420
Enid, OK........................... 76,602 72,772 21 3,694
Lindsay, OK........................ 51,041 40,833 32 3,267
Ardmore, OK........................ 60,192 51,163 20 3,233
Mt. Pleasant, TX................... 33,589 26,871 16 1,684
Lufkin, TX......................... 117,534 88,150 12 --(4)
Shaw, KS........................... 47,223 42,763 30 3,961
Texarkana, TX...................... 118,204 94,563 20 1,997
Stillwater, OK..................... 54,562 40,922 20 5,428
Lubbock, TX........................ 123,934 105,323 34(5) 5,934
McLeansboro, IL.................... 80,136 60,102 34 859
Vandalia, IL....................... 73,593 55,195 20 1,365
Olney, IL.......................... 67,812 50,859 20 1,195
Lykens, OH......................... 210,800 168,640 20 700
Paragould, AR...................... 77,523 58,500 21 2,157
Sikeston, MO....................... 69,837 52,378 24 2,163
Taylorville, IL.................... 159,596 119,697 20 1,336
Peoria, IL......................... 276,446 248,801 19 762
Manhattan, KS...................... 56,473 42,355 20 945
O'Donnell, TX...................... 68,940 65,493 27 1,053
Olton, TX.......................... 32,548 30,921 28 933
Monroe City/Lakenan, MO............ 46,376 34,782 27 978
Grand Rapids/Moline, MI(6)......... 458,455 343,841 22 216
Sweet Springs, MO(6)............... 64,113 48,085 28 588
Maysville, MO(6)................... 69,307 51,980 25 557
Paris, TX.......................... 55,445 41,584 20 79
Champaign, IL(7)................... 164,992 148,493 23 2,120
--------- --------- ------
Total -- Existing Systems.......... 3,441,104 2,870,048 80,596
========= ========= ======
</TABLE>
31
<PAGE> 1156
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------------- ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION
Corsicana/Athens, TX(9)........................... 69,161 62,245 23(10)
Harper/Freeport, IL............................... 125,269 93,952 20
Hamilton, TX...................................... 28,551 21,413 20
Peaksville, MO.................................... 48,157 36,118 15
Marion, KS........................................ 53,881 40,411 19
Sherman/Denison, TX(12)........................... 100,000 90,000 31(13)
Sterling, KS...................................... 45,213 38,431 24
Strawn/Ranger, TX................................. 34,488 25,866 20
Walnut Grove, IL.................................. 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction....... 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(14)
Adairsville, GA(11)............................... 205,662 154,247 16
Amarillo, TX...................................... 106,670 101,337 26(15)
Anthony, KS....................................... 15,798 11,845 16
Bellflower, MO.................................... 63,384 57,046 20
Bloom Center/Napoleon, IN(6)...................... 140,749 112,599 20
Bluffs, IL........................................ 46,389 34,792 20
Columbia, MO...................................... 149,622 127,179 18
Forrest City, AR.................................. 55,642 41,732 21
Flippin, TN(16)................................... 104,980 83,984 24
Holdenville, OK................................... 50,637 45,573 16
Kossuth, TX....................................... 52,490 39,368 20
Lenapah, OK....................................... 51,921 38,941 12
Mayfield, KY...................................... 175,948 155,972 21
Muskogee, OK...................................... 66,510 53,208 18
Powers Crossroads, GA(11)......................... 135,037 101,278 20
Purdin, MO........................................ 25,001 18,751 20
Rutledge, GA(11).................................. 141,370 106,028 16
Shreveport, LA.................................... 214,315 182,168 24
Springfield, MO................................... 139,706 118,750 16
Tulsa, OK......................................... 321,922 273,634 16
Tyler, TX......................................... 233,416 186,734 14
Weatherford, OK................................... 31,445 29,873 16
Wick, OH.......................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets......... 2,864,712 2,343,917
--------- ---------
LONG-TERM LAUNCH MARKETS(17)
Altus, OK......................................... 30,653 29,120 16
Burnet, TX........................................ 24,917 18,688 16
Charlotte, TX..................................... 32,771 24,578 16
Crow, TX.......................................... 71,421 57,137 12
Des Moines, IA.................................... 267,279 240,551 16
El Dorado, AR..................................... 54,727 38,310 16
Elk City, OK...................................... 26,379 21,103 17
Fischer, TX....................................... 317,039 237,779 20
Henryetta, OK..................................... 31,968 25,574 16
Ingram, TX........................................ 26,235 19,676 20
McAlester, OK..................................... 36,475 25,533 16
Miami, OK......................................... 70,820 60,197 15
</TABLE>
32
<PAGE> 1157
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Seminole, OK...................................... 42,204 35,873 19
Sabinal, TX....................................... 15,795 11,846 20
Topeka, KS........................................ 211,762 190,586 16
--------- ---------
Total -- Long Term Launch Markets......... 1,260,445 1,036,551
--------- ---------
TOTAL -- ALL COMPANY MARKETS........................ 8,155,207 6,722,122
========= =========
</TABLE>
- ---------------
(1) Estimated Line-of-Sight Households for each market represents Heartland's
estimate of the total number of households within the service area of the
primary transmitter in each market that can receive an unobstructed signal
based on topographical and engineering analysis and other relevant factors.
(2) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(3) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(4) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(5) Includes additional channels subleased pursuant to the Sublease Agreement
with CMAX. See "The CMAX Merger -- Terms of the CMAX Merger
Agreement -- CMAX Sublease Agreement." Channel capacity has been increased
by 12 channels in the Lubbock System, of which four are the subject of an
appeal by an unsuccessful applicant for the frequencies.
(6) These markets are included in the Heartland Disposition Assets. See "The
Combined Company -- Planned Divestitures."
(7) Heartland consummated the acquisition of the system in Champaign, Illinois
on January 16, 1996.
(8) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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 include channels with respect to which
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(9) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(10) Heartland currently subleases 7 of these channels from CMAX pursuant to the
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(11) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(12) Heartland currently subleases the wireless channel rights in the
Sherman/Denison System pursuant to the Sublease Agreement with CMAX.
(13) Of these channels, 8 are the subject of uncontested application
proceedings.
(14) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(15) Heartland currently subleases 9 of these channels from CMAX pursuant to the
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(16) Heartland is currently a party to an agreement relating to the disposition
of this market. See "The Combined Company -- Planned Divestitures."
(17) Such markets include six markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC within the
next 24 months. See "Risk Factors -- Uncertainty of Grant of Pending
Applications."
Existing Systems. Heartland currently has 32 Existing Systems. Heartland
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 Heartland'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 Heartland Existing Systems lease all of their
33
<PAGE> 1158
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 Heartland 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. Heartland currently has nine additional systems
under construction, which are located in Corsicana/Athens, Texas (certain
channels of which were subleased from CMAX pursuant to the Sublease Agreement),
Harper/Freeport, Illinois, Hamilton, Texas, Peaksville, Missouri, Marion,
Kansas, Sherman/Denison, Texas (which was subleased from CMAX pursuant to the
Sublease Agreement), Sterling, Kansas, Strawn/Ranger, Texas and Walnut Grove,
Illinois. In each of the systems under construction, Heartland has ordered
equipment to commence construction necessary to transmit on its channels in such
markets.
Generally, Heartland'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.
Near-term and Long-term Launch Markets. In these markets, Heartland has
aggregated or is aggregating additional wireless cable channel rights. In the
near-term launch markets, Heartland has aggregated sufficient wireless cable
channel rights to commence construction of a system. In six of the long-term
launch markets, Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and in four of such markets,
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. The vast
majority of Heartland's channel rights in the long-term 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
Heartland's lease agreements with applicants for channel licenses involve
channel licenses for which Competing Applications have been filed and Competing
Applications may be filed with respect to the applications to be refiled. In
each market, Heartland has carefully considered the FCC's selection criteria in
choosing the educational entities with which it has entered into lease
agreements. Heartland therefore anticipates that a substantial number of the
pending applications and applications to be refiled will be granted by the FCC
over the next 24 months. 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. See "Risk Factors -- Dependence on Channel
Leases" and "Risk Factors -- Uncertainty of Grant of Pending Applications."
Heartland currently plans to finish construction of all systems currently
under construction during the first quarter of 1996. In addition, Heartland
currently expects to construct 20 to 25 additional systems through the end of
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 Heartland to launch wireless cable service
in such markets. Heartland 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.
34
<PAGE> 1159
SYSTEM COSTS
Traditional hard-wire cable systems typically cost significantly more to
build than wireless cable systems. Heartland 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 Heartland 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. Heartland estimates
that each additional wireless cable subscriber currently requires an incremental
capital expenditure by Heartland 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. Heartland 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, Heartland
can further contain costs by taking advantage of economies of scale in
management, sales and customer service. Each of the Heartland'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
Heartland markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
pay-television alternatives: (1) picture quality and reliability, (2) customer
service, (3) programming features and (4) price.
Picture Quality and Reliability. Heartland's transmission facilities use
the latest available technology. Heartland 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 Heartland Existing
Systems. Wireless cable subscribers enjoy substantially outage-free, highly
reliable picture quality because there is no coaxial cable, amplifiers or
processing 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 Heartland Existing Systems, the picture quality of Heartland'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 Heartland's head-end and the
subscriber. See "Risk Factors -- Physical Limitations of Wireless Cable
Transmission."
Customer Service. Heartland has established the goal of maintaining high
levels of customer satisfaction. In furtherance of that goal, Heartland
emphasizes responsiveness and convenient installation scheduling. Heartland has
established customer retention and referral programs in an effort to obtain and
retain new subscribers. Heartland 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 as
high levels of customer service as Heartland provides. The regulations
authorized under the Cable Act will require traditional hard-wire cable
35
<PAGE> 1160
companies to provide improved customer service which may decrease Heartland's
competitive advantage in this area.
Programming Features. In the Heartland Existing Systems (other than the
Lufkin, Texas System) and markets under construction, Heartland 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, Heartland has the capacity to offer pay-per-view
programming and impulse addressability not currently widely offered by
traditional hard-wire cable operators. Heartland'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 Heartland'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. Heartland offers its subscribers a programming package consisting of
basic service and premium programs. Heartland 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. Heartland 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, Heartland believes it will continue
to be price competitive with traditional hard-wire cable operators with respect
to comparable programming. Heartland'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, Heartland offers a combination package consisting of basic service,
rental of the receive-site equipment and two premium channels for $29.95 per
month.
LEGAL PROCEEDINGS
On June 21, 1995, TruVision Cable, Inc. ("TruVision") filed a lawsuit in
the Circuit Court of Rankin County, Mississippi naming Heartland 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
Heartland interfered with by entering into negotiations and an alleged agreement
with AWS. In its original pleadings, TruVision alleged that Heartland 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 Heartland and actions related thereto. TruVision is also seeking
$20,000,000 in punitive damages. On July 26, 1995, Heartland filed a Motion to
Dismiss this litigation for lack of personal jurisdiction. Heartland intends to
vigorously defend this lawsuit. On November 7, 1995, Heartland and TruVision
entered into an Asset Purchase Agreement providing for the sale by Heartland 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
Heartland shall have the right to raise all defenses and counterclaims
associated therewith.
Certain subsidiaries of Heartland are named as defendants in a lawsuit in
the United States District Court, Western Division of Louisiana, Monroe
Division, commenced on May 15, 1995 by TCG of Monroe, Inc. On May 18, 1995, a
subsidiary of Heartland acquired for $100,000 cash all of the outstanding
capital
36
<PAGE> 1161
stock of Cotton Country Cable, Inc. ("Cotton Country") which held certain
wireless cable channel rights in the Monroe, Louisiana market. Cotton Country
owes its former shareholders $500,000, which sum is subject to offset for any
damages suffered by Cotton Country or Heartland as a result of this lawsuit.
These former shareholders are also named as defendants in the lawsuit. The
plaintiff has requested, among other items, declaratory relief and specific
performance to enforce an alleged prior contract of sale of these cable rights
to it from Cotton Country. Further, the plaintiff sought injunctive relief,
which was denied on August 8, 1995. Heartland believes all claims against its
subsidiaries are without merit and intends to vigorously defend the lawsuit. In
addition, Heartland believes that an adverse outcome, if any, would not have a
material adverse effect on Heartland. In connection with consummation of the
Wireless One Transaction (as hereinafter defined), Heartland conveyed its rights
in the Monroe, Louisiana wireless cable market to Wireless One, and agreed to
indemnify, defend and hold harmless Wireless One from and against this lawsuit.
Heartland is a party, from time to time, to routine litigation or
employment litigation incident to its business. No provision has been reflected
in the Heartland financial statements for any litigation. It is the opinion of
management that no pending litigation matter will have a material adverse effect
on Heartland's financial condition, results of operations or properties.
EMPLOYEES
As of December 31, 1995, Heartland had approximately 790 employees. None of
Heartland's employees is subject to a collective bargaining agreement. Heartland
has experienced no work stoppages and believes that it has good relations with
its employees. Heartland also presently utilizes the services of independent
contractors to build and install certain of its wireless cable systems and
market its services.
PROPERTIES
Heartland leases approximately 5,500 square feet of office space for its
executive offices in Richardson, Texas under a lease that expires September 30,
1998. Heartland pays approximately $35,000 per annum rent for such space.
Heartland 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. Heartland pays $18,000 per annum rent for such space
and the utilities are provided by the owner of the building. Heartland leases
approximately an additional 5,000 square feet of office space in Durant,
Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease that
expires March 1, 2000 subject to a 5-year renewal option. Heartland pays $29,004
per annum rent for such space. Heartland leases approximately an additional
1,126 square feet from an affiliate of Messrs. Webb and Wheeler under a lease
that expires on May 31, 2000. Heartland pays $8,448 per annum rent for such
space and the utilities are provided by the owner of the building. Heartland
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. Heartland pays $16,000 per annum rent for such
space. See "-- Certain Transactions." Heartland 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. Heartland leases
office space for the Heartland Existing Systems and will, in the future,
purchase or lease additional office space in other locations where it launches
other wireless cable systems. Heartland also owns transmission towers or leases
space on transmission towers located in its markets. The current capacity range
of Heartland's transmission facilities is from 10 to 50 watts, capable of
generating a signal over a 35 to 50 mile range. Heartland believes that office
space and space on transmission towers currently is readily available on
acceptable terms in the markets where Heartland intends to operate wireless
cable system.
37
<PAGE> 1162
RECENT TRANSACTIONS
CONSENT SOLICITATION
Between September 12, 1995 and September 29, 1995, Heartland 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 Heartland to consummate the Wireless One Transaction (as
hereinafter defined) and the Transactions and (ii) additionally amend certain
definitions and covenants in the Original Indenture, which imposed restrictions
on Heartland's ability to pursue certain additional acquisition, divestiture,
financing and other opportunities that Heartland believed were necessary to
enhance the value of Heartland. The amendments referred to in (i) and (ii) above
and sought by Heartland in the Consent Solicitation are referred to herein as
the "Proposed Amendments."
In the Original Indenture Heartland 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 Heartland to consummate the Transactions and to
facilitate Heartland's ability to pursue such additional opportunities, if and
when they arise, Heartland engaged in the Consent Solicitation.
The Proposed 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
Proposed 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
Proposed Amendments. Promptly after the effectiveness of the supplemental
indenture including the Proposed Amendments, Heartland 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. Heartland paid an aggregate of
$955,000 to the holders of the Senior Notes in this regard.
EXCHANGE OFFER OF SENIOR NOTES
In connection with the issuance and sale of the Senior Notes, Heartland
agreed (i) to file within 30 days after the date of issuance of the Senior Notes
(the "Issue Date"), and to cause to become effective within 120 days after the
Issue Date (August 24, 1995), a registration statement (the "Exchange Offer
Registration Statement") with respect to a registered offer (the "Exchange
Offer") to exchange the Senior Notes for exchange notes which will have terms
identical in all material respects to the Senior Notes (the "Exchange Notes"),
except that the Exchange Notes will not contain terms with respect to transfer
restrictions, and (ii) upon the Exchange Offer Registration Statement being
declared effective, to offer the Exchange Notes in exchange for surrender of the
Senior Notes. Heartland filed the Exchange Offer Registration Statement with the
Commission on May 5, 1995, but the Exchange Offer Registration Statement has not
yet been declared effective. Since Heartland has not complied with its
registration obligations in a timely manner, it will be 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. The amount of the additional interest will
increase by an additional 0.50% per annum for each subsequent 90-day period
until such obligations are complied with, up to a maximum amount of additional
interest of 2% per annum.
THE WIRELESS ONE TRANSACTION
Effective October 24, 1995, Heartland and certain affiliates of Wireless
One consummated a transaction (the "Wireless One Transaction") pursuant to which
Heartland 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. Heartland contributed
assets relating to 28 markets, including 16 of which were either previously held
for sale or were markets in which Heartland 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
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<PAGE> 1163
common stock contemporaneously therewith, Heartland became the beneficial owner
of approximately 26% (after exercise of its over-allotment) of the outstanding
common stock of Wireless One.
In connection with the Wireless One Transaction, Heartland granted Wireless
One the option to purchase the wireless cable channel rights of Heartland and
its subsidiaries in certain additional markets located in Florida, for either
Wireless One Common Stock or cash, at Wireless One's option. Further, following
consummation of the Wireless One Transaction, Heartland and Wireless One entered
into a letter of intent providing Wireless One an option, exercisable prior to
February 29, 1996, to purchase the wireless cable channel rights of Heartland in
three markets in Georgia for aggregate consideration of approximately $7.2
million, payable in cash.
Heartland and certain of the Old 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 Heartland
(at least one of whom cannot be an affiliate of Wireless One or Heartland), up
to three of whom will be designated by the Old Wireless One Stockholders who are
parties to the Wireless One Stockholders 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, Heartland 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 Heartland and its affiliates cease to own at least
five percent (5%) of the outstanding Wireless One Common Stock, Heartland 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
Heartland 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 Heartland and its affiliates cease
to own at least five percent (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, Heartland 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").
Heartland agreed to such amendments in connection with Jupiter's agreement to
consent, pursuant to the terms of the Note Purchase Agreement, to the CMAX
Merger. Such amendments included the following:
(a) Heartland'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 Heartland previously
owned or leased 16 or more channels or a lease of channel rights in any
wireless cable market where Heartland 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 Heartland 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;
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<PAGE> 1164
(c) Heartland'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
Heartland serving as a member of the Compensation Committee of Heartland.
NEWCO TRANSACTION
Effective December 12, 1995, Heartland, CAI and CS Wireless Systems, Inc.,
a Delaware corporation and wholly owned subsidiary of CAI ("Newco"), entered
into a Participation Agreement, pursuant to which Heartland or its subsidiaries
will contribute or sell to Newco the wireless cable assets and all related
liabilities of certain specified Heartland Disposition Assets. Simultaneous with
Heartland's contribution and sale of these assets to Newco, CAI or its
subsidiaries will contribute to Newco all of the outstanding capital stock of
certain of its subsidiaries. See "The Combined Company -- Planned Divestitures."
DIVIDENDS ON AND MARKET PRICES OF HEARTLAND COMMON STOCK
Heartland Common Stock has been traded on the Nasdaq-NMS under the symbol
"HART" since April 28, 1994. On December 31, 1995, there were approximately 92
holders of record of Heartland Common Stock.
The following table sets forth the high and low closing sales prices per
share of Heartland Common Stock as reported on the Nasdaq-NMS for the periods
indicated.
<TABLE>
<CAPTION>
HEARTLAND
COMMON STOCK PRICES
---------------------
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR YEAR 1994:
2nd Quarter*................................................. $ 11.50 $ 10.00
3rd Quarter.................................................. $ 15.50 $ 9.50
4th Quarter.................................................. $ 15.75 $ 11.00
CALENDAR YEAR 1995:
1st Quarter.................................................. $ 17.25 $ 11.75
2nd Quarter.................................................. $ 24.25 $ 15.50
3rd Quarter.................................................. $ 25.75 $ 19.50
4th Quarter.................................................. $ 31.50 $ 27.00
CALENDAR YEAR 1996:
1st Quarter (through January 22, 1996)....................... $ 29.75 $ 28.75
</TABLE>
- ---------------
* From April 28, 1994.
The market quotations in the chart above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. RECIPIENTS OF THIS PROXY STATEMENT/PROSPECTUS ARE
ENCOURAGED TO CHECK THE MOST RECENT MARKET PRICES OF THE HEARTLAND COMMON STOCK.
40
<PAGE> 1165
No dividends have ever been paid or declared on the Heartland Common Stock.
Heartland does not expect to declare any dividends on Heartland Common Stock in
the foreseeable future. In addition, provisions relating to Heartland's
indebtedness prohibit the payment or accrual of dividends or any other
distribution with respect to Heartland's Common Stock until such debt is paid in
full.
On September 11, 1995, the last full trading day prior to the public
announcement of the Transactions, the closing price per share of Heartland
Common Stock as reported on the Nasdaq-NMS was $21.50. On January 22, 1996 the
closing price per share of Heartland Common Stock as reported on the Nasdaq-NMS
was $29.25.
CALCULATION AND LISTING OF SHARES
TO BE ISSUED IN CONNECTION WITH THE TRANSACTIONS
CALCULATION
Generally. The exact number of shares of Heartland Common Stock ultimately
issued in each of the five Transactions will not be determined until the
consummation thereof. In general, and subject to certain maximums and minimums,
the number of shares of Heartland Common Stock to be issued will be determined
by dividing, in the case of each Transaction, a particular dollar amount by the
average trading price of such stock during a period preceding consummation. See
"Certain Information Regarding Other Transactions."
Assumptions for Purposes of Calculating Maximum Shares. In determining the
maximum aggregate number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 4,500 wireless cable television subscribers to the Minneapolis
system on the relevant date based upon the capital costs of adding each
additional subscriber and the limited capital resources available, (b) the TSC
Transaction, Heartland has assumed that (i) the aggregate exchange value will
include the maximum additional subscriber consideration attributable to the TSC
Transaction of $3.5 million, (ii) Heartland will not assume any liabilities of
TSC and (iii) the Dayton system will not be sold prior to closing, and (c) the
CMAX Merger, Heartland has assumed that the CMAX Net Liabilities will not exceed
its Permitted Net Liabilities.
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<PAGE> 1166
The chart below sets forth the maximum number of shares of Heartland Common
Stock issuable in connection with the Transactions, subject to the foregoing
assumptions and assuming that Heartland elects to exercise its right to
terminate each transaction if the relevant closing average is less than the
respective specified amount. Because the number of shares of Heartland Common
Stock issuable in each Transaction either decreases or remains fixed as the
relevant closing average increases, the chart below shows the maximum number of
shares issuable at each price at which Heartland has such a termination right
($10 in the CMAX Merger, $16 in the TSC Transaction, and $17 in the Minneapolis
and FTW Transactions). At closing averages above $17 per share, the aggregate
number of shares issuable in connection with the Transactions begins to decrease
and therefore closing averages above $17 are not relevant to determining the
maximum number of shares of Heartland Common Stock issuable in connection with
the Transactions. As shown below, the maximum aggregate number of shares of
Heartland Common Stock issuable in connection with the Transactions is
10,721,302 shares, based upon a closing average of $17 per share for each
Transaction.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
-----------------------------------
$10 $16 $17
-------- -------- ---------
<S> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate.............................................. (B) 1,700,000 1,700,000
Per Share.............................................. (B) .2978 .2978
FTW Transaction(C)
Aggregate.............................................. (D) (D) 782,353
Per Unit............................................... (D) (D) 536.2255
Minneapolis Transaction(E)
Aggregate.............................................. (D) (D) 1,117,647
Per Unit............................................... (D) (D) 537.5887
CMAX Merger(F)
Aggregate.............................................. 8,081,214 5,050,759 4,753,655
Per Share.............................................. .85 .5313 .5
TSC Transaction(G)
Aggregate.............................................. (D) 2,515,625 2,367,647
Per Share.............................................. (D) 360.6114 339.3989
========= ========= ==========
Total.................................................... 8,081,214 9,266,384 10,721,302
Percent of Outstanding Shares(H)......................... 39.05 42.36 45.95
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on the fifth business day preceding the consummation of the TSC
Agreement, or CMAX Merger, as applicable (which date is contemplated to be
February 15, 1996 based upon a contemplated closing date of February 23,
1996). The closing average for the AWS Merger, FTW Transaction and
Minneapolis Transaction is the closing price of the Heartland Common Stock
over the ten-trading day period ending on the fifth business day preceding
the consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement,
as applicable (which date is contemplated to be February 15, 1996 based upon
a contemplated closing date of February 23, 1996).
(B) Calculation is based upon a merger consideration of $34 million divided by
the exchange price for the AWS Merger (equal to $20 per share for closing
averages less than $20 per share, subject to the right of AWS to terminate
the AWS Merger if such closing average is less than $12 per share). AWS
intends to exercise its termination right, upon which such Transaction will
be abandoned. Accordingly, if the exchange price is less than $20 per share
but not less than $12 per share, the aggregate merger consideration to which
AWS stockholders will be entitled will be correspondingly less than
$34,000,000. Per share calculation based upon 5,709,187 shares of AWS Common
Stock outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 1,459 general
partnership units outstanding.
(D) Heartland intends to exercise its termination right, upon which such
Transaction will be abandoned.
(E) Based upon an acquisition consideration of $19 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 2,079 general
partnership units outstanding.
(F) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
42
<PAGE> 1167
(G) Based upon an acquisition consideration of $40.25 million divided by the
exchange price (equal to the closing average). Per share calculation based
upon 6,976 shares of TSC Common Stock outstanding.
(H) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
Assumptions for Purposes of Calculating Anticipated Shares. In determining
the anticipated number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 3,500 wireless cable television subscribers to the Minneapolis
system on the relevant date, (b) the TSC Transaction, Heartland has assumed (i)
the aggregate exchange value will include the additional subscriber
consideration attributable to the TSC Transaction of $1.5 million, (ii)
Heartland will assume $5 million of liabilities of TSC and (iii) the Dayton
system will not be sold prior to closing, and (c) the CMAX Merger, Heartland has
assumed that CMAX Net Liabilities will not exceed its Permitted Net Liabilities.
Because Heartland and the various parties to the Agreements anticipate that such
assumptions in the relevant Transactions will be true at the closing of each
Transaction, the calculation of the anticipated number of shares of Heartland
Common Stock issuable in connection with the Transactions reflects these
assumptions. Notwithstanding the stated assumptions for determining the
anticipated number of shares of Heartland Common Stock issuable in connection
with the Transactions, no assurance can be given that such assumptions will be
correct on the relevant closing dates. Set forth below is a chart indicating the
anticipated number of shares issuable in connection with each Transaction at
various closing averages, subject to the assumptions set forth above.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
-------------------------------------------------------------------------
$23 $26 $28 $30 $32 $34
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate........... 1,478,281 1,307,692 1,307,692 1,307,692 1,307,692 1,307,692
Per Share........... .2589 .2291 .2291 .2291 .2291 .2291
FTW Transaction(C)
Aggregate........... 578,261 578,261 578,261 578,261 578,261 578,261
Per Unit............ 396.3406 396.3406 396.3406 396.3406 396.3406 396.3406
Minneapolis
Transaction(D)
Aggregate........... 804,348 804,348 804,348 804,348 754,076 709,719
Per Unit............ 386.892 386.892 386.892 386.892 362.711 341.375
CMAX Merger(E)
Aggregate........... 3,513,571 3,108,159 2,886,148 2,693,738 2,525,379 2,376,828
Per Share........... .3696 .3269 .3036 .2833 .2656 .25
TSC Transaction(F)
Aggregate........... 1,445,652 1,278,846 1,187,500 1,108,333 1,039,063 977,941
Per Share........... 207.2323 183.321 170.226 158.878 148.948 140.1865
========= ========= ========= ========= ========= =========
Total................. 7,820,093 7,077,306 6,763,949 6,492,372 6,204,471 5,950,441
Percent of Outstanding
Shares(G)........... 38.78 35.95 34.91 33.99 32.98 32.06
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on the fifth business day preceding the consummation of the TSC
Agreement or CMAX Merger, as applicable (which date is contemplated to be
February 15, 1996 based upon a contemplated closing date of February 23,
1996). The closing average for the AWS Merger, FTW Transaction and
Minneapolis Transaction is the closing price of the Heartland Common Stock
over the ten-trading day period ending on the fifth business day preceding
the consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement,
as applicable (which date is contemplated to be February 15, 1996 based upon
a contemplated closing date of February 23, 1996).
(B) Based upon a merger consideration of $34 million divided by the AWS exchange
price (equal to the lesser of the closing average or $26 if the closing
average is equal to or in excess of $20, subject to the right of Heartland
to terminate the AWS Merger if such closing is more than $32 per share).
Accordingly, if the exchange price is more than $26 per share but not more
than $32 per share, the aggregate merger consideration to which AWS
stockholders will be entitled will be correspondingly more than $34,000,000.
Per share calculation based upon 5,709,187 shares of AWS Common Stock
outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by the
exchange price (equal $23 if the closing average is in excess of $23). Per
unit calculation based upon 1,459 general partnership units outstanding.
43
<PAGE> 1168
(D) Based upon an acquisition consideration of $18.5 million divided by the
exchange price (equal to (i) $23 if the closing average is greater than $23
and less than or equal to $30, and (ii) the closing average times $23,
divided by $30 if the closing average is in excess of $30). Per unit
calculation based upon 2,079 general partnership units outstanding.
(E) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
(F) Based upon an acquisition consideration of $33.25 million (assumes $1.5
million of additional subscriber consideration and the assumption of $5.0
million of liabilities) divided by the exchange price (equal to the closing
average). Per share calculation based upon 6,976 shares of TSC Common Stock
outstanding.
(G) Based upon 12,611,132 shares outstanding as of December 31, 1995.
LISTING
The shares of Heartland Common Stock to be issued in connection with the
Transactions will be tradeable on the Nasdaq-NMS. Heartland intends to file the
appropriate Nasdaq National Market Notification Form for Listing of Additional
Shares and notification pursuant to SEC Rule 10b-17 immediately upon closing of
the Transactions and calculation of the exact number of shares of Heartland
Common Stock issuable in connection therewith.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Proxy Statement/Prospectus with respect to each person who is an executive
officer or director of Heartland:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
J.R. Holland, Jr.(1)............... 52 Chairman of the Board
David E. Webb...................... 49 President, Chief Executive Officer and
Director
John R. Bailey..................... 42 Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary
Randy R. Hendrix................... 35 Senior Vice President -- Marketing
Thomas W. Dixon.................... 48 Senior Vice President -- Operations
Robert R. Story.................... 40 Senior Vice President -- Installations
David D. Hagey..................... 35 Vice President, Controller and Assistant
Secretary
Alvin H. Lane, Jr.(2).............. 53 Director
Dennis M. O'Rourke(1).............. 53 Director
John A. Sprague.................... 43 Director
Wes W. Watkins(2).................. 57 Director
L. Allen Wheeler(1)(2)............. 63 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
J. R. Holland, Jr., began advising Heartland as a consultant in October
1992 and became Chairman of the Board of Directors in October 1993. Mr. Holland
has been employed as President of Unity Hunt Resources, Inc. since September
1991. Unity Hunt Resources is a large international, private holding company
with interests in entertainment, cable television, retail, investments, real
estate, natural resources and energy businesses. Mr. Holland is also the
President of Hunt Capital. See "Information Concerning Heartland -- Security
Ownership of Principal Stockholders and Management." From November 1988 to
September 1991, Mr. Holland was Chairman of the Board and Chief Executive
Officer of Nedinco, Inc., a large diversified, international holding company.
Prior to that, Mr. Holland was President and a director of KSA Industries, Inc.,
a private, diversified company involved in entertainment, retail, transportation
and energy businesses, and President and a director of Western Services
International, Inc., a company involved in
44
<PAGE> 1169
energy services, equipment and chemicals. Mr. Holland began his career with
Booz-Allen & Hamilton, Inc., a major management consulting firm. In addition,
Mr. Holland is currently a director of Placid Refining Company, Optical
Securities Group, Inc. and Wireless One, Inc.
David E. Webb, co-founder of Heartland, has been President and Chief
Executive Officer and a director of Heartland since its formation in September
1990. During 1989 and 1990, Mr. Webb began acquiring rights to wireless cable
channels. From 1979 to January 1989, Mr. Webb was a shareholder, director and
manager of Durant Cablevision, Inc. and its predecessor, a traditional hard-wire
cable system company. Mr. Webb has been a shareholder and director of several
media/communications companies involved in network and independent television
stations, AM and FM radio stations, paging and telephony. Mr. Webb is also a
director of Wireless One, Inc.
John R. Bailey, began advising Heartland as a financial consultant in July
1992 and joined Heartland in September 1993 as Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary. Mr. Bailey was named Senior Vice
President -- Finance, Chief Financial Officer, Treasurer and Secretary in August
1994. From 1988 to September 1993, Mr. Bailey was the founder and Managing
Director of Berkshire Partners, Inc., a private investment bank focusing upon
private placements and mergers and acquisitions for communications clients. From
February 1991 to February 1992, Mr. Bailey was a Senior Vice President and Chief
Financial Officer of Comstock Resources, Inc., an energy company. From October
1989 to February 1991 and from 1980 to September 1985, Mr. Bailey was employed
by Eppler, Guerin & Turner, Inc., an investment bank, as Vice
President -- Corporate Finance. Prior to 1988, Mr. Bailey was employed by Bear,
Stearns & Co., Inc. as an Associate Director and Kidder, Peabody & Co.
Incorporated as a Vice President in Corporate Finance.
Randy R. Hendrix began advising Heartland as a marketing consultant in
January 1991 and joined Heartland as Vice President -- Marketing in September
1993. Mr. Hendrix was named Senior Vice President -- Marketing in August 1994.
From 1986 to January 1991, Mr. Hendrix was employed as a Registered
Representative for the Equitable Life Assurance Society. Prior to that, Mr.
Hendrix served as Marketing Director -- Franchise Development for Curtis Mathis
Corporation, a manufacturer and retailer of electronic appliances.
Thomas W. Dixon began advising Heartland as an operations consultant in
March 1992 and joined Heartland as Vice President -- Operations in September
1993. Mr. Dixon was named Senior Vice President -- Operations in August 1994.
From 1985 to March 1992, Mr. Dixon was employed as a Vice President of Long
Distance Savers, Inc., a long distance telephone company. Mr. Dixon's
responsibilities included opening, staffing and training new company offices, as
well as sales and marketing in the Louisiana-Texas-Oklahoma tri-state area.
Robert R. Story has been an adviser to Heartland since its formation on
construction, installations and related technical matters. Mr. Story also
assisted Heartland with numerous strategic acquisitions. Previously, Mr. Story
was President of United States Wireless Cable, Inc., an Austin, Texas based
wireless cable operator. In connection with Heartland's purchase of the Lubbock
operating system in May 1995, Mr. Story was named Senior Vice
President -- Installations. Mr. Story is responsible for the development of all
residential receive sites, special application installations and the training of
Heartland personnel for these installations. Mr. Story has been a shareholder
and officer of Clear-Vue TV, Inc., Durant Cablevision, Inc. and Green Country
Radio, Inc.
David D. Hagey joined Heartland in June 1994 as Vice President, Controller
and Assistant Secretary. Prior to joining Heartland, Mr. Hagey was employed by
KPMG Peat Marwick LLP for 11 years, most recently as Senior Manager.
Alvin H. Lane, Jr., became a director of Heartland in January 1994. In
1983, Mr. Lane founded, and since then has been the President of, Lane and
Associates, a management consulting firm. Since October 1993, Mr. Lane has been
the President of AHL Finance Company, L.L.C. From 1972 to 1983, Mr. Lane was the
Chief Financial Officer and Secretary of the Dr Pepper Company. Mr. Lane is also
Chairman of the Board of Love Bottling Company, a soft drink bottling franchise.
45
<PAGE> 1170
Dennis M. O'Rourke became a director of Heartland in January 1994. In 1985,
Mr. O'Rourke founded, and since then has been the Chairman of the Board and
Chief Executive Officer of, O'Rourke Companies Inc., a human resources
consulting firm. Prior to that, Mr. O'Rourke was employed in various capacities
by Boise Cascade Corporation, American Hospital Supply Corporation and General
Motors Corporation.
John A. Sprague became a director of Heartland in January 1995. Since March
1994, Mr. Sprague has been the managing partner of Jupiter Partners L.P., an
investment firm. From January 1993 until February 1994, Mr. Sprague was an
independent investor. Prior to that, Mr. Sprague served as a General Partner of
Forstmann Little & Co., an investment firm. Mr. Sprague is also a director of
Insignia Financial Group, Inc.
Wes W. Watkins became a director of Heartland in January 1994. Since
January 1991, Mr. Watkins has been the President of World Export Services, Inc.,
a company that invests in telecommunications, real estate and oil production.
Mr. Watkins is also the Secretary and Representative for international trade for
the State of Oklahoma. From January 1991 until December 1993, Mr. Watkins was
the President of Global Communications, Inc., a wireless cable and satellite
telecommunications consulting corporation. Prior to that, Mr. Watkins served for
14 years as a member of the House of Representatives of the United States
Congress from the State of Oklahoma, serving on the Banking, Finance and Urban
Affairs Committee and the House Appropriations Committee.
L. Allen Wheeler, co-founder of Heartland, has served as a director of
Heartland since its formation in September 1990. Mr. Wheeler has owned and
managed diversified investments through Allen Wheeler Management, Inc., a
personal holding company, for over 20 years. Mr. Wheeler's investments have
emphasized the media/communications industries. Mr. Wheeler has been a
shareholder, director and officer of several media/communications companies
involved in network and independent television stations, AM and FM radio
stations, paging and telephony. Mr. Wheeler is currently Chairman and Chief
Executive Officer of Green Country Radio, Inc., which owns and operates one AM
and one FM radio station and a television station.
Executive officers serve at the discretion of the Board of Directors. All
directors serve on the Board of Directors of Heartland until the next annual
meeting of stockholders of Heartland and until their successors are elected and
qualified. Non-employee directors receive an annual fee of $5,000 and a meeting
fee of $500 per meeting attended, plus reimbursement of out-of-pocket expenses,
for their services as directors of Heartland. In addition, each non-employee
director of Heartland (other than Mr. Wheeler) is entitled to receive stock
options under Heartland's Stock Option Plan for Non-Employee Directors for his
services as a director. See "Information Concerning
Heartland -- Management -- Stock Option Plans." Directors who are also employees
do not receive any additional compensation for their services as directors.
The Board of Directors has established two committees. The Compensation
Committee is comprised of Messrs. Holland, O'Rourke, Wheeler and Sprague and
makes recommendations to the Board with respect to general compensation and
benefit levels, determines the compensation and benefits for Heartland's
executive officers and administers Heartland's Employee Stock Option Plan. The
Audit Committee is comprised of Messrs. Lane, Watkins and Wheeler and oversees
the activities of Heartland's independent auditors and internal accounting
controls.
46
<PAGE> 1171
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation of Heartland's
Chief Executive Officer and each other executive officer of Heartland who earned
in excess of $100,000 in annual salary and bonus during Heartland's fiscal year
ended December 31, 1994 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to Heartland during Heartland's fiscal years
ended December 31, 1994 and 1993, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
TERM
COMPEN-
SATION
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------ SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS/ OTHER
SALARY BONUS COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- --------------------------------------------- ---- -------- ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb................................ 1994 $120,000 $ -- $7,306 -- $ 13,228(2)
President and Chief Executive Officer 1993 60,750(3) -- -- -- 2,250(2)
John R. Bailey............................... 1994 90,000 45,000 4,200 100,000 --
Senior Vice President -- Finance, Chief 1993 94,850(3) -- -- -- --
Financial Officer, Treasurer and Secretary
Randy R. Hendrix............................. 1994 90,000 45,000 6,668 130,000 --
Senior Vice President -- Marketing 1993 59,782(3) -- -- -- --
Thomas W. Dixon.............................. 1994 81,000 45,000 4,200 50,000 --
Senior Vice President -- Operations........ 1993 30,000(3) -- -- -- --
</TABLE>
- ---------------
(1) Other annual compensation is comprised of car allowances.
(2) Rental income paid by Heartland for its operating offices. See "Information
Concerning Heartland -- The Business -- Properties" and "Information
Concerning Heartland -- Certain Transactions."
(3) Paid by Heartland in the form of consulting fees.
Since April 1994, Mr. Holland's annual base compensation for the fiscal
year ended December 31, 1994, was $120,000. Such compensation is paid to Mr.
Holland by Unity Hunt Resources, Inc., an affiliate of Hunt Capital, which
receives a management fee equal to such amount from Heartland for the provision
of Mr. Holland's services. Mr. Holland devotes approximately 20 hours per week
to Heartland. See "Information Concerning Heartland -- Certain Transactions."
The following table sets forth, for the fiscal year ended December 31,
1994, the number of individual grants of stock options made during such fiscal
year to each of the Named Executive Officers. All options granted during the
last fiscal year were granted pursuant to the 1994 Employee Stock Option Plan
(the "Employee Option Plan") at an exercise price equal to the fair market value
on the date of grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL PRICE APPRECIATION FOR
OPTIONS/ OPTIONS/SARS EXERCISE OPTION TERM(1)
SARS GRANTED TO OR BASE ----------------------
GRANTED(2) EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ----------------------- ---------- ------------ -------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb.......... 0 N/A N/A N/A N/A N/A
John R. Bailey......... 100,000 18.8% $10.50 April 21, 2001 $427,500 $ 996,200
Randy R. Hendrix....... 130,000 24.5% $10.50 April 21, 2001 $555,700 $1,295,000
Thomas W. Dixon........ 50,000 9.4% $10.50 April 21, 2001 $213,700 $ 498,100
</TABLE>
47
<PAGE> 1172
- ---------------
(1) Potential realizable value is based on the assumption that the price of
Heartland Common Stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the seven-year option
term. The values are calculated in accordance with rules promulgated by the
Commission and do not reflect Heartland's estimate of future stock price
appreciation.
(2) All options granted are non-qualified options granted at an exercise price
equal to fair market value on the date of grant, are 40% vested and will
continue to vest at a rate of 20% per year, subject to acceleration upon
the death of the optionee or termination of the optionee following a Change
of Control (as defined in the option agreements), and have a term of seven
years.
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1994, by each of the
Named Executive Officers and the number of options held at fiscal year end and
the aggregate value of in-the-money options held at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTION/SARS AT OPTION/SARS AT
ON VALUE FISCAL-YEAR-END FISCAL-YEAR-END
EXERCISE REALIZED (#) ($)
(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David E. Webb.................. 0 N/A N/A N/A
John R. Bailey................. -- -- 40,000/60,000 $ 90,000/$135,000
Randy R. Hendrix............... -- -- 52,000/78,000 $117,000/$175,000
Thomas W. Dixon................ -- -- 20,000/30,000 $ 45,000/$ 67,500
</TABLE>
NONCOMPETITION AGREEMENTS
Heartland has entered into noncompetition agreements with Messrs. Holland,
Webb, Bailey, Hendrix, Dixon and Wheeler. The noncompetition agreements provide
that none of such persons will engage in competitive activities during the term
of their service with Heartland and for a period of one year thereafter. In
addition, Steven G. Johnson's consulting agreement with Heartland following the
AWS Merger also contains certain noncompetition agreements associated with the
markets acquired by Heartland through the AWS Merger.
STOCK OPTION PLANS
Employee Stock Option Plan. Heartland adopted, effective upon Heartland's
initial public offering on April 28, 1994 ("the Initial Public Offering"), the
Employee Option Plan which provides for the grant to officers and employees of
both "incentive stock options" within the meaning of Section 422 of the Code and
stock options that are non-qualified for Federal income tax purposes. The total
number of shares of Heartland Common Stock for which options may be granted
pursuant to the Employee Option Plan is 950,000. The Employee Option Plan will
terminate on the tenth anniversary of the consummation of the Initial Public
Offering, and is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines which of Heartland's officers
and employees receive options, the time when options are granted, whether the
options are incentive stock options or non-qualified stock options, the terms of
such options, the exercise date of any options and the number of shares subject
to options. Members of the Compensation Committee (including Mr. Holland) are
not eligible to receive options under the Employee Option Plan. Mr. Webb is not
eligible to receive options under the Employee Option Plan. Directors who are
also employees (other than Mr. Webb) are eligible to receive options under the
Employee Option Plan. Non-employee directors are not eligible to receive options
under the Employee Option Plan.
The exercise price of incentive stock options granted under the Employee
Option Plan may not be less than 100% of the fair market value of the Heartland
Common Stock at the time of grant and the term of any
48
<PAGE> 1173
option may not exceed 10 years. With respect to any employee who owns stock
representing more than 10% of the voting power of the outstanding capital stock
of Heartland, the exercise price of any incentive stock option may not be less
than 110% of the fair market value of such shares at the time of grant and the
term of such option may not exceed five years.
The exercise price of a non-qualified stock option is determined by the
Compensation Committee on the date the option is granted. However, the exercise
price of a non-qualified stock option may not be less than 100% of the fair
market value of the Heartland Common Stock at the time of grant.
Options granted under the Employee Option Plan are nontransferable and,
with certain exceptions in the event of the death or disability of an optionee,
may be exercised by the optionee only during employment. Options granted under
the Employee Option Plan typically vest over a five-year period, although
options granted to certain employees (including Messrs. Bailey, Dixon and
Hendrix) are 40% vested upon grant and vest an additional 20% per year over a
three-year period. Upon the death of an optionee or the termination of the
optionee following a Change of Control (as defined in the option agreements),
the vesting of an option accelerates. Options granted under the Employee Option
Plan expire after seven years, unless terminated earlier.
Heartland has granted options to purchase an aggregate of 772,000 shares of
Heartland Common Stock to eighteen employees, including 160,000, 154,000,
130,000, 65,000 and 20,000 shares, respectively, to each of Messrs. Bailey,
Hendrix, Dixon, Story and Hagey, at a weighted average exercise price per share
equal to $13.52 per share. Options to purchase 130,000 shares of Heartland
Common Stock have been cancelled.
Stock Option Plan for Non-Employee Directors. Heartland adopted, effective
upon consummation of the Initial Public Offering, the 1994 Stock Option Plan for
Non-Employee Directors (the "Non-Employee Directors Plan"). The purpose of the
Non-Employee Directors Plan is to attract and retain the services of experienced
and knowledgeable independent directors of Heartland for the benefit of
Heartland and its stockholders and to provide additional incentive for such
directors to continue to work for the best interests of Heartland and its
stockholders through continuing ownership of Heartland Common Stock. A total of
50,000 shares of Heartland Common Stock may be issued through the exercise of
options granted pursuant to the Non-Employee Directors Plan. No option may be
granted under the Non-Employee Directors Plan after 10 years following
consummation of the Initial Public Offering.
The Non-Employee Directors Plan is administered by the Board of Directors.
Subject to the terms of the Non-Employee Directors Plan, the Board of Directors
has the sole authority to determine questions arising under, and to adopt rules
for the administration of, the Non-Employee Directors Plan. The Non-Employee
Directors Plan may be terminated at any time by the Board of Directors, but such
action will not affect options previously granted pursuant thereto.
Directors of Heartland who are not, and who have not been during the
immediately preceding 12-month period, employees of Heartland or any subsidiary
of Heartland (each, a "Non-Employee Director") are automatically participants in
the Non-Employee Directors Plan. There are currently four directors, Messrs.
Lane, O'Rourke, Sprague and Watkins, who are eligible to receive options under
the Non-Employee Directors Plan. Mr. Wheeler is excluded from participating in
the Non-Employee Directors Plan. More than one option may be granted to any one
person and be outstanding at any time.
Each Non-Employee Director who was in office on the consummation of the
Initial Public Offering (Messrs. Lane, O'Rourke and Watkins) was, upon such
consummation, automatically granted an option to acquire 4,000 shares of
Heartland Common Stock at an exercise price per share equal to $10.50. Each Non-
Employee Director who is in office on November 15 of any year (commencing with
November 15, 1995) will, on the immediately succeeding January 1, automatically
be granted an option to acquire 2,000 shares of Heartland Common Stock. The
price of shares that may be purchased upon exercise of an option is the fair
market value of the Heartland Common Stock on the date of grant, as evidenced by
the average of the high and low sales prices of Heartland Common Stock on such
date as reported on the Nasdaq-NMS. The price of shares that may be purchased
upon exercise of an option granted upon the consummation of the Initial Public
Offering is the initial public offering price. Options granted pursuant to the
Non-Employee Directors Plan,
49
<PAGE> 1174
except as discussed below, are exercisable in installments of 25% upon each
anniversary of the date of grant. The term of each option, except as discussed
below, is for a period not exceeding seven years from the date of grant. Options
may not be assigned or transferred except by will or by operation of the laws of
descent and distribution.
In the event of a Change in Control of Heartland (as defined below), an
option granted to a Non-Employee Director will become fully exercisable if,
within one year of such Change in Control, such Non-Employee Director ceases for
any reason to be a member of the Board of Directors. A Change in Control will be
deemed to have occurred if (a) there is consummated (i) any consolidation or
merger of Heartland in which Heartland is not the continuing or surviving
corporation or pursuant to which shares of Common Stock are converted into cash,
securities or other property, other than a merger of Heartland in which the
holders of Heartland Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of Heartland; (b) the shareholders approve any plan or proposal
for the liquidation or dissolution of Heartland; (c) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of the outstanding Heartland Common Stock; or (d) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by Heartland's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Any exercise of an option permitted in the event of a Change of Control
must be made within 180 days of the relevant Non-Employee Director's termination
as a director of Heartland.
50
<PAGE> 1175
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth (a) certain information regarding the
ownership of the Heartland Common Stock as of December 31, 1995 with respect to
(i) each person known by Heartland to own beneficially more than 5% of the
outstanding shares of Heartland Common Stock, (ii) each of Heartland's
directors, (iii) the Named Executive Officers and (iv) all directors and
officers as a group, and (b) the effect of the Transactions (assuming the
consummation of all of the Transactions and an average closing price during the
relevant periods of $28 per share, the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof, or $17 per share, the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions,
of Heartland Common Stock, as noted) on the amount and percentage (5%) of
current holdings of shares of Heartland Common Stock owned beneficially by each
of such persons. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions." Except as
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned. Unless otherwise indicated,
the address for each stockholder is c/o Heartland Wireless Communications, Inc.,
903 North Bowser, Suite 140, Richardson, Texas 75081.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRO FORMA BENEFICIAL OWNERSHIP
BEFORE THE AFTER THE TRANSACTIONS
TRANSACTIONS(1) -----------------------------------------------
-------------------- PERCENT(2) PERCENT(3)
NO. PERCENT NO. ($17 PER SHARE) ($28 PER SHARE)
--------- ------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Hunt Capital Group, L.L.C.......... 4,000,000 31.72% 4,000,000 17.14% 20.65%
David E. Webb...................... 1,900,425 15.07 1,900,425 8.14 9.81
L. Allen Wheeler................... 2,004,800 15.90 2,004,800 8.59 10.35
Jupiter Partners, L.P.(4).......... 2,837,688 18.37 2,837,688 10.84 12.78
J. R. Holland, Jr.(5).............. -- --
Alvin H. Lane, Jr.(6).............. 5,000 * 5,000 * *
Dennis M. O'Rourke(7).............. 1,000 * 1,000 * *
John A. Sprague(8)................. -- --
Wes W. Watkins(9).................. 1,000 * 1,000 * *
John R. Bailey(10)................. 49,700 * 49,700 * *
Randy R. Hendrix(11)............... 87,600 * 87,600 * *
Thomas W. Dixon(12)................ 55,300 * 55,300 * *
All officers and directors as a
group
(11 persons)(5)(6)(7)(8)(9)
(10)(11)(12)(13)................. 4,106,825 32.08 4,106,825 17.46 20.99
</TABLE>
- ---------------
* Less than 1%.
(1) Based upon 12,611,132 shares of Heartland Common Stock outstanding on
December 31, 1995.
(2) Percentage based on 23,332,434 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common
Stock are issuable -- see "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions"),
assuming (i) that there will be 4,500 subscribers to the Minneapolis system
on the relevant date, (ii) additional subscriber consideration of $3.5
million will be paid in the TSC Transaction, (iii) assumption of no
liabilities in the TSC Transaction and (iv) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Percentage based on 19,375,081 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $28 per share, the
approximate closing average of the Heartland Common Stock over the
preceding ten- and 20-day trading periods), assuming (i) that there will be
3,500 subscribers to the Minneapolis system on the relevant date, (ii)
additional subscriber consideration of $1.5 million will be paid in the TSC
Transaction, (iii) assumption of $5 million of liabilities in the TSC
Transaction and (iv) CMAX's Net Liabilities do not exceed its Permitted Net
Liabilities. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions."
(4) Address is 30 Rockefeller Plaza, Suite 4525, New York, N.Y. 10112. Jupiter
Partners, L.P. ("Jupiter") is the holder of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the
51
<PAGE> 1176
principal amount of the Convertible Note (after taking into account
accretions in value) by (ii) the Conversion Price (as defined in the
Convertible Notes) then in effect. The current Conversion Price is $15.34
per share.
(5) Address is 1962 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
Mr. Holland is the sole director, Manager and President of Hunt Capital.
Hunt Capital is owned by trusts, of which Mr. Holland serves as a trustee.
Mr. Holland disclaims beneficial ownership of the shares of Heartland
Common Stock owned by Hunt Capital.
(6) Includes 1,000 options granted to Mr. Lane under the Non-Employee Directors
Plan, which are presently exercisable. Does not include 3,000 options
granted to Mr. Lane under the Non-Employee Directors Plan, which are not
presently exercisable.
(7) Includes 1,000 options granted to Mr. O'Rourke under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. O'Rourke under the Non-Employee Directors Plan,
which are not presently exercisable.
(8) Mr. Sprague is indirectly a controlling general partner of Jupiter.
Accordingly, Mr. Sprague may be deemed to be a beneficial owner of the
shares issuable to Jupiter on conversion of the Convertible Notes. Mr.
Sprague shares voting and investment power as to shares issuable to Jupiter
on conversion of the Convertible Notes with Terry J. Blumer. Mr. Sprague
disclaims beneficial ownership of such shares.
(9) Includes 1,000 options granted to Mr. Watkins under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. Watkins under the Non-Employee Directors Plan, which
are not presently exercisable.
(10) Includes 44,000 shares issuable upon the exercise of presently exercisable
options. Excludes 76,000 shares issuable upon the exercise of options that
are not presently exercisable.
(11) Includes 87,600 shares issuable upon the exercise of presently exercisable
options. Excludes 66,400 shares issuable upon the exercise of options that
are not presently exercisable.
(12) Includes 54,000 shares issuable upon the exercise of presently exercisable
options. Excludes 56,000 shares issuable upon the exercise of options that
are not presently exercisable.
(13) Includes 2,000 shares issuable upon the exercise of presently exercisable
options issued to David D. Hagey, for a total of 190,600 shares issuable
upon the exercise of presently exercisable options held by officers and
directors. Excludes 18,000 shares issuable upon the exercise of options
issued to Mr. Hagey that are not presently exercisable.
CERTAIN TRANSACTIONS
Heartland's founders, David E. Webb, the President and Chief Executive
Officer, and L. Allen Wheeler, a member 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 assets in exchange for capital stock of
WCI. In September 1993, WCI issued the Hunt Note to Unity Hunt, Inc. ("Unity
Hunt"), an affiliate of Hunt Capital, pursuant to a loan agreement that provided
for a one-year term loan in the principal amount of $988,000, to bear interest
at the rate of 10% per annum, which was secured by substantially all of the
assets of WCI. The proceeds of this loan were used primarily by WCI to acquire
wireless cable channel rights. In October 1993, Hunt Capital, a principal
stockholder of Heartland and affiliate of J. R. Holland, Jr., the Chairman of
the Board of Heartland, purchased the Hunt Note from Unity Hunt in connection
with an internal restructuring that included the dissolution of Unity Hunt. Hunt
Capital purchased the Hunt Note for $996,390 (representing the outstanding
principal balance plus accrued and unpaid interest through the date of
transfer).
Heartland 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 Heartland and Hunt Capital
contributed the Hunt Note, including accrued interest, and approximately
$2,000,000 in cash to Heartland. In exchange therefor, Messrs. Webb and Wheeler
were each issued 2,000,000 shares of Heartland Common Stock by Heartland and
Hunt Capital was issued 4,000,000 shares. In addition, Messrs. Webb and Wheeler
leased all other wireless cable channel license rights controlled, directly and
indirectly, by them to Heartland for a nominal amount and granted to Heartland
an option to purchase such license rights at a nominal price. Finally, the net
amount (approximately $68,740) of all advances made to Heartland's predecessors
by, and all advances made from Heartland's predecessors to, Messrs. Webb and
Wheeler and certain entities controlled by them engaged in the wireless cable
business was contributed to Heartland. Such advances, in the form of
non-interest-bearing cash transfers, generally arose as a result of borrowings
made or services rendered, and included various amounts loaned by a wholly-owned
subsidiary of Heartland to Reed's Rail Service, Inc., an affiliate of Messrs.
Webb
52
<PAGE> 1177
and Wheeler, to fund such entity's railroad repair operations and the purchase
of equipment; the outstanding balance of such indebtedness at December 31, 1992
was $117,284. Also included in such advances are various amounts loaned by
Preferred Capital Corporation, an affiliate of Messrs. Webb and Wheeler, to a
wholly-owned subsidiary of Heartland for general corporate purposes; the
outstanding balance of such indebtedness at December 31, 1992 was $42,235.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $52,078, $116,315, $376,206 and $24,000, respectively, to various entities
controlled by Messrs. Webb and Wheeler for services performed in connection with
the development of wireless cable systems or the acquisition of wireless cable
channel rights. Such payments included $52,800 during the year ended December
31, 1992 and $258,555 during the year ended December 31, 1993 to Green Country
Radio, an affiliate of Mr. Wheeler, for engineering and consulting services.
Heartland has not retained the services of such entities since the Initial
Public Offering, and does not intend to do so in the future. During the year
ended December 31, 1993, Mr. Robert R. Story was a director, officer and
minority shareholder of Green Country. Mr. Story is currently the Senior Vice
President -- Installations of Heartland.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $2,034, $17,850, $38,776 and $50,559, respectively, to an accounting firm
controlled by Mr. Webb for services rendered to Heartland.
During the year ended December 31, 1993, Heartland paid $40,600 to World
Export Services, Inc., an entity controlled by Wes W. Watkins, a director of
Heartland, for consulting services provided in connection with the acquisition
of certain wireless cable channel rights. In June 1993, World Export Services,
Inc. purchased approximately 10% and 5% minority interests, respectively, in two
of Heartland's subsidiaries for an aggregate of $45,000. Pursuant to a public
exchange offer made by Heartland pursuant to a prospectus dated February 13,
1995 wherein Heartland offered to exchange up to an aggregate of 380,000 shares
of Heartland Common Stock for the minority interests in 23 of Heartland's
subsidiaries (the "Minority Interests Exchange Offer"), World Export Services,
Inc. was issued an aggregate of 4,526 shares of Heartland Common Stock in
exchange for such minority interests.
Heartland leases approximately 2,400 square feet for its operating offices
in Durant, Oklahoma from an affiliate of Messrs. Webb and Wheeler for which the
expense amounted to approximately $18,000 annually for the years ended December
31, 1991, 1992, 1993 and 1994. Heartland also leases an aggregate of
approximately an additional 6,126 square feet of office space in Durant,
Oklahoma from affiliates of Messrs. Webb and Wheeler for which the expense
amounted to approximately $4,000 for the year ended December 31, 1994. See
"Information Concerning Heartland -- The Business -- Properties."
Messrs. Webb and Wheeler pledged certain personal assets to secure, and
personally guaranteed, notes payable by Heartland to a bank totaling $970,000.
Such notes were due in March 1995 and bore interest at variable and fixed rates
ranging from 6% to 8% at December 31, 1994. Heartland repaid such notes from the
net proceeds of its Initial Public Offering.
Mr. Holland's annual base compensation for 1994 was $120,000, which was
paid to him by Unity Hunt Resources, Inc., an affiliate of Hunt Capital of which
Mr. Holland is President, which receives a management fee equal to such amount
from Heartland for the provision of Mr. Holland's services. Mr. Holland's base
compensation for 1995 will be $120,000.
In connection with a $1.0 million principal amount loan to United States
Wireless Cable, Inc. ("U.S. Wireless") by First National Bank of Durant ("First
National"), Heartland agreed to purchase such loan upon demand from First
National for the aggregate amount of principal and interest thereon plus any
other amounts owed to First National by U.S. Wireless. U.S. Wireless is a
stockholder of Heartland. The loan was paid in full upon the consummation by
Heartland's acquisition of the Lubbock market. In addition, on December 15,
1994, Heartland (i) loaned $2.0 million to U.S. Wireless, which loan was secured
by 300,000 shares of Heartland's Common Stock owned by U.S. Wireless and all of
the rights of U.S. Wireless in and to the Tulsa, Oklahoma wireless cable market,
(ii) acquired the rights of U.S. Wireless in the Amarillo, Texas market and
(iii) was granted an option to acquire the Tulsa, Oklahoma market. In May 1995,
Heartland exercised its option on the Tulsa market and closed the acquisition of
the Tulsa market. U.S. Wireless and a
53
<PAGE> 1178
subsidiary to U.S. Wireless ("USWS") repaid the $2.0 million loan in full upon
the consummation of the acquisition of the Tulsa market.
On May 3, 1995, Heartland acquired from Robert R. Story, a former affiliate
of USWS and U.S. Wireless and current officer of Heartland, all of the issued
and outstanding capital stock of Robert R. Story, Inc., which owns and operates
the Lubbock System, for $5.4 million in cash. Immediately prior to the
consummation of the acquisition of the Lubbock market, Robert R. Story, Inc.
acquired from USWS all of USWS's rights in the Lubbock system. Upon the
consummation of the Lubbock Acquisition, the $1,000,000 principal amount loan to
U.S. Wireless by First National was paid in full.
Pursuant to an interim loan arrangement, Hunt Capital and Mr. Wheeler
agreed to loan Heartland up to an aggregate of $4.0 million ($2.0 million each)
and Jupiter agreed to loan to Heartland, or to guarantee a bank loan to
Heartland in the amount of, $2.0 million. Borrowings under the loan agreement
could be used solely for working capital. Borrowings under the loan agreement
bore interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the loan agreement would have been due and
payable in full on June 30, 1995, subject to prepayment upon the receipt by
Heartland of cash proceeds from any financing, refinancing or sale of assets.
Amounts borrowed and repaid under the loan agreement could not be reborrowed.
Borrowings under the loan agreement were secured by the capital stock and assets
of Heartland's subsidiaries operating the Lindsay and Shaw systems. Heartland
borrowed $2.0 million under the loan agreement, funded $1.0 million each by Hunt
Capital and Mr. Wheeler. Heartland used a portion of the net proceeds of the
sale of the 100,000 Units (the "Units"), consisting of $100 million 13% Senior
Notes due 2003 and 600,000 warrants to purchase an equal number of shares of
Heartland Common Stock, to repay all amounts owed under the loan agreement on
April 26, 1995.
Pursuant to a Chemical Bank Loan arrangement (the "Chemical Bank Loan"),
Chemical Bank agreed to loan Heartland up to an aggregate of $2.0 million.
Borrowings under the Chemical Bank Loan bore interest at the prime rate plus 1%
per annum. All accrued interest on, and the principal amount of, all borrowings
under the Chemical Bank Loan would have been due and payable on demand, but in
any event not later than June 30, 1995. Heartland paid Chemical Bank a facility
fee of $5,000. Amounts borrowed and repaid under the Chemical Bank Loan could
not be reborrowed. Borrowings under the Chemical Bank Loan were guaranteed by
Jupiter and Mr. Sprague. Heartland borrowed $1.0 million under the Chemical Bank
Loan. Heartland used a portion of the net proceeds of the sale of the Units to
repay all amounts owed under the Chemical Bank Loan on April 26, 1995.
The terms of the transactions described above were determined by the
parties thereto, and Heartland believes that such transactions involving
affiliates were on terms no less favorable to Heartland than could have been
obtained from unaffiliated third parties. All future transactions between
Heartland and its officers, directors, principal stockholders and affiliates
will be on terms no less favorable to Heartland than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Board of Directors of Heartland.
54
<PAGE> 1179
INFORMATION CONCERNING CMAX
THE BUSINESS
OVERVIEW
CMAX owns, develops and operates wireless cable television systems and
currently provides subscription television services to approximately 34,300
subscribers (as of November 30, 1995) in a cluster of wireless cable television
systems located in Texas (the "Texas Cluster"). The Texas Cluster provides
service to customers in a 250 mile long and 70 mile wide area encompassing the
cities of San Antonio, Austin, Temple/Killeen and Waco through the utilization
of four separate head-end/transmission facilities. CMAX also presently holds
wireless cable channel rights in Sherman/Denison, Lubbock, Athens and Amarillo,
Texas (the "Additional Texas Systems") and Salt Lake City, Utah (the "Salt Lake
City System"). CMAX estimates that the Texas Cluster, the Additional Texas
Systems and the Salt Lake City System collectively represent approximately
1,614,000 households which can be served by LOS transmissions. CMAX also
estimates that approximately 233,000 households in these markets are not passed
by traditional hard-wire cable systems. Unless the context requires otherwise,
the term "CMAX" shall refer to CableMaxx, Inc. and its subsidiaries through
which it conducts business.
On September 11, 1995, CMAX signed the Agreement and Plan of Merger ("CMAX
Merger Agreement") among CMAX, Heartland and CMAX Merger Sub. Pursuant to the
CMAX Merger Agreement, at the closing, CMAX Merger Sub will be merged with and
into CMAX, and the stockholders of CMAX will receive newly issued publicly
tradeable shares of Heartland Common Stock valued at $8.50 per share of CMAX
common stock, subject to adjustment. Effective upon the closing of the CMAX
Merger, CMAX will become a wholly owned subsidiary of Heartland. The total
consideration under the CMAX Merger Agreement is valued at approximately $80.8
million, subject to adjustment. The consummation of the CMAX Merger Agreement is
subject to customary closing conditions, including the approval of the
stockholders of CMAX. There can be no assurance that all such conditions will be
met.
In connection with the execution of the CMAX Merger Agreement, the
principal stockholders of CMAX and Heartland, respectively, executed voting
agreements agreeing to vote all shares of CMAX or Heartland Common Stock held by
them, as the case may be, in favor of the CMAX Merger Agreement in connection
with any meetings of the stockholders of CMAX or Heartland, as the case may be.
Such agreements will remain in effect until the termination or consummation of
the CMAX Merger Agreement by its terms.
Also in connection with the execution of the CMAX Merger Agreement, CMAX
entered into the Sublease Agreement with Heartland. Pursuant to the terms of the
Sublease Agreement, CMAX subleased to Heartland all of its wireless cable
television rights in the Additional Texas Systems and paid CMAX a $2.4 million
non-refundable deposit for such rights. If the CMAX Merger Agreement is
terminated as a result of a breach thereof by CMAX or as a result of a competing
acquisition proposal, Heartland will acquire such wireless cable television
rights for nominal additional consideration. If the CMAX Merger Agreement is
terminated for any other reason, Heartland shall acquire such wireless cable
television rights for an amount equal to the difference between the appraised
value of such rights and the $2.4 million previously paid by Heartland.
Also, in connection with the CMAX Merger Agreement, Heartland agreed to
loan to CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced
on December 29, 1995 to be used for working capital purposes, and (b) $500,000
may be used for subscriber growth. The CMAX Loan will not increase the amount of
CMAX Excess Liabilities. Upon consummation of the CMAX Merger Agreement, it is
anticipated that the CMAX Loan will remain as an inter-company obligation from
CMAX to Heartland. In the event that the CMAX Merger Agreement is not
consummated, the CMAX Loan is payable August 29, 1996; provided, that if the
CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
Wireless cable television programming is transmitted through the air via
microwave frequencies in a direct line-of-sight from the transmission facility
to an antenna located at the subscriber's location by utilizing
55
<PAGE> 1180
up to 200 MHz of radio spectrum allocated by the FCC for wireless cable
operations. Wireless cable technology eliminates the extensive networks of cable
and amplifiers utilized by traditional hard-wire cable operators which
substantially reduces the cost to build, operate and maintain a television
distribution system. Unlike a traditional hard-wire cable system, a significant
portion of the capital costs of a wireless cable system are not incurred until
shortly before a subscriber has been added and is about to generate revenue for
CMAX. Management believes that CMAX provides customers with (i) an equivalent or
higher quality picture, (ii) a more reliable signal resulting in fewer
transmission disruptions and (iii) lower average monthly rates, compared to
those generally provided by traditional hard-wire cable operators. Despite these
lower rates, CMAX's average monthly service revenue per subscriber has increased
from $30.22 in fiscal 1993 to $30.75 in fiscal 1994 to $32.76 in fiscal 1995.
The estimated 1994 national average monthly service revenue per subscriber for
comparable services for traditional hard-wire cable operators was $28.24
according to Paul Kagan Associates, Inc., a national media research firm. CMAX
believes that its average monthly service revenue per subscriber is comparable
to that of traditional hard-wire cable operators primarily as a result of the
relatively high number of CMAX customers who pay for premium service and
multiple television outlets. Like traditional hard-wire cable operators, CMAX
offers a full range of basic and premium programming including local off-air
channels, A&E, CNN, The Disney Channel, HBO, MTV, USA Network and WTBS. All of
CMAX's set-top converters are addressable, allowing its subscribers to receive
pay-per-view programming.
In December 1992, a newly organized affiliate of Charterhouse Group
International, Inc. ("Charterhouse"), together with Galaxy Cablevision, L.P.
("Galaxy Cablevision") and Galaxy Management, Inc. ("Galaxy") acquired CMAX's
business (the "1992 Acquisition") from certain sellers (collectively, the "CMAX
Predecessor"). In connection with the 1992 Acquisition, CMAX entered into a
$14.5 million revolving credit and term loan facility from Fleet National Bank
(the "CMAX Credit Facility"). In November 1993, CMAX effected an initial public
offering of 3,500,000 shares of its Common Stock (the "CMAX IPO") from which it
raised gross proceeds of $42.0 million. In February 1995 CMAX acquired the Salt
Lake City System for a price of approximately $11.0 million.
BUSINESS STRATEGY
CMAX's strategy is to own, develop and operate wireless cable channel
systems with full channel line-ups in geographic clusters which focus on
mid-sized cities and their surrounding areas. This clustering enables CMAX to
take advantage of economies of scale in management, customer service, training
and marketing. CMAX believes these economies help to reduce the number of
subscribers required for a system to reach a break-even operating cash flow.
CMAX also intends to focus on cities that have growing populations and stable
economic bases, particularly in cities in which it believes it is less likely to
face competition from alternative forms of entertainment. CMAX has implemented
several strategies, including requiring up-front payments for the cost of
installation and the first month's service, in order to attract subscribers that
are less likely to disconnect voluntarily or to be disconnected as a result of
delinquent payment.
CMAX's marketing strategy is to attract potential subscribers in the
following priority: (i) households in geographical areas not passed by
traditional hard-wire cable systems; (ii) commercial establishments which are
currently not passed by traditional hard-wire cable systems; (iii) households
which are passed by, but currently do not subscribe to, traditional hard-wire
cable systems; and (iv) households subscribing to traditional hard-wire cable
systems.
To differentiate its product offering from other subscription television
providers, CMAX uses marketing themes of dependability, price, popular
programming, picture quality and customer service.
- Dependability. CMAX's subscribers enjoy a substantially higher level of
signal reliability compared to traditional hard-wire cable subscribers. This
higher level of dependability is the result of the elimination of the extensive
network of coaxial cables, amplifiers and processing equipment between the
head-end/transmission facility and the subscriber's location. In addition, CMAX
has installed back-up power systems and redundant components in all of its
head-end/transmission facilities which virtually eliminate the potential for
system outages due to power or component failures. Traditional hard-wire cable
systems on the other hand are subject
56
<PAGE> 1181
to failure due to multiple components in their networks of coaxial cable and
amplifiers. If a failure does occur in CMAX's system, it is generally easier to
diagnose and repair due to the smaller number of system components.
- Price. CMAX offers its customers attractively priced program packages
which it believes are generally lower than those for comparable programming
offered by its traditional hard-wire cable competitors. A key component of
CMAX's product offering is the inclusion of The Disney Channel as part of its
basic plus subscription package. All of CMAX's competitors currently charge an
additional fee for this channel. CMAX believes including The Disney Channel as
part of CMAX's basic plus service makes its service more attractive to families.
- Popular Programming. CMAX offers a full range of basic and premium
programming featuring the most popular channels. CMAX also offers instructional
programming in conjunction with educational institution partners. In addition,
all of CMAX's set-top converters are fully addressable, allowing subscribers to
receive pay-per-view programming which provides subscribers with access to
movies, special sporting events and concerts.
- Picture Quality. CMAX emphasizes that wireless picture transmission
generally offers an equivalent or higher quality picture than traditional
hard-wire cable because there is less opportunity for signal degradation between
CMAX's head-end and the subscriber's location. In contrast, in a traditional
hard-wire cable system, each time a television signal passes through an
amplifier, some measure of signal noise is added which can result in a grainier
picture.
- Customer Service. CMAX has established the goal of maintaining high
levels of customer satisfaction. To this end, CMAX seeks to provide superior
customer service through extended daily customer service hours (7am to 7pm),
flexible installation scheduling, responsiveness to customer inquiries and
well-trained uniformed field personnel. CMAX also has a policy of calling new
subscribers three times over a 45-day period after installation to ensure that
the subscriber is satisfied with the installation and understands all the
features of CMAX's equipment.
CMAX'S MARKETS
The following table outlines the markets in which CMAX is operating or in
which CMAX holds or has the right to acquire wireless cable channel rights as of
November 30, 1995:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
MHZ OF RADIO LINE-OF- HOUSEHOLDS
DMA NUMBER OF SPECTRUM NUMBER OF SIGHT UNPASSED
MARKET RANK(1) CHANNELS(4) AVAILABLE LAUNCH DATE SUBSCRIBERS HOUSEHOLDS BY CABLE
- -------------------- ------- --------- ------------ -------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Austin.............. 65 31 186 November 1989 12,299 250,000 50,000
San Antonio......... 39 37 186 March 1993 11,805 440,000 45,000
Temple/Killeen...... 98(2) 35 186 April 1994 6,312 80,000 25,000
Waco................ 98(2) 35 186 July 1994 3,860 80,000 25,000
Salt Lake City...... 37 27(5) 162 (10) -- 434,000 20,000
Sherman/Denison*.... 159 31(6) 186 (10) -- 90,000 30,000
Amarillo*........... 130 9(7) 54 (10) -- 80,000 8,000
Lubbock*............ 152 12(8) 72 (10) -- 100,000 30,000
Athens, Texas*...... 8(3) 7(9) 42 (10) -- 60,000 NA
------ --------- -------
Total........... -- -- -- -- 34,276 1,614,000 233,000
====== ========= =======
</TABLE>
- ---------------
* CMAX's wireless cable channel rights in this market are covered by the
Sublease Agreement which gives Heartland the right to acquire such wireless
cable channel rights.
(1) DMA rank is the Designated Market Areas ranking of television homes among
United States markets as determined by the Nielsen Media Research Company
for the 1994/1995 television season.
(2) Temple/Killeen and Waco share the same DMA household market.
(3) Athens shares the same DMA household market with Dallas, Texas.
(4) Includes 6, 4 and 4 off-air channels in San Antonio, Temple/Killeen and
Waco, respectively. CMAX's primary traditional hard-wire competitors in
each of the markets included within the Texas Cluster offer between 39 and
58 channels to their subscribers.
(5) Of these channels, 7 are the subject of pending applications.
57
<PAGE> 1182
(6) Of these channels, 8 are the subject of uncontested application
proceedings.
(7) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(8) Of these channels, 4 are the subject of an appeal by an unsuccessful
applicant for the frequencies.
(9) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(10) CMAX has not yet set a launch date for these systems. There can be no
assurance that the systems in these markets will be launched.
CMAX, as a whole, has experienced negative cash flow from operations in
each year since its formation due to its system development, expansion and
acquisition activities. Until sufficient cash flow is generated from operations
CMAX will have to utilize external sources of funding to satisfy its working
capital needs. Accordingly, in order to conserve cash pending the availability
of external funding, CMAX has, since June 30, 1994, reduced the rate of growth
of new subscribers. CMAX believes that it needs between 3,000 and 5,000
subscribers to generate operating cash flow in any of its markets. Operating
cash flow is revenue less costs of sales other than depreciation and other
non-cash charges. All four of the systems in the Texas Cluster are presently
generating positive operating cash flow, while CMAX has experienced negative
cash flow.
The Texas Cluster
Austin. The city of Austin is the state capital of Texas and is the home of
numerous state agencies which employ approximately 119,000 people within the
five county area in and surrounding Austin. Additionally, Austin is the home of
the main campus of the University of Texas which has an enrollment of
approximately 50,000 students. CMAX presently provides service to nearly 3,000
dormitory rooms at the University of Texas at Austin. According to the 1990
census, the Austin metropolitan area had a total population of 781,572 which
grew 45.6% from 1980 to 1990. Austin has experienced job growth of approximately
5.1% over the past five years, and its metropolitan-wide unemployment rate for
July 1995 was 3.4%, significantly below the national average of 5.7% for the
same period. Austin is the fourth largest metropolitan area in Texas and its DMA
ranking as reported by the Nielsen Media Research Company for 1994/1995 is
sixty-fifth nationally in the number of television households.
The following table sets forth a description of the programming currently
offered by the Austin system:
AUSTIN CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- -------- ------------------------------ -------- --------------------------------
<S> <C> <C> <C>
2 KBVO (FOX) 21 Access*
3 KVUE (ABC) 22 Trinity Broadcast Network
4 KXAN (NBC) 23 The Weather Channel
5 KEYE (CBS) 24 The Nashville Network
6 ESPN 25 Country Music Television*
7 CNN 26 Concordia College*
8 Home Sports Entertainment* 27 The Learning Channel*
9 KLRU (PBS) 28 ACCI
10 The Family Channel 29 ACCII*
11 TBS Superstation 30 Black Entertainment Television*
12 Turner Network Television 31 HBO
13 KVCTV 32 Showtime
14 Nickelodeon 33 The Movie Channel
15 The Disney Channel 34 QVC Shopping*
16 American Movie Classics 35 Home Shopping*
17 USA Network 36 Pay Per View
18 Headline News 37 MTV
19 The Discovery Channel 39 Univision
20 Arts & Entertainment
</TABLE>
- ---------------
* These channels are only available during certain parts of the day.
58
<PAGE> 1183
San Antonio. According to the 1990 census, the San Antonio metropolitan
area had a total population of 1,302,099 which grew 21.5% from 1980 to 1990. San
Antonio has experienced job growth of approximately 2.8% over the past five
years, and its metropolitan-wide unemployment rate for July 1995 was 5.0%, below
the national average of 5.7% for the same period. San Antonio is the third
largest metropolitan area in Texas and its DMA ranking as reported by the
Nielsen Media Research Company for 1994/1995 is thirty-ninth nationally in the
number of television households.
The following table sets forth a description of the programming currently
offered by the San Antonio system: San Antonio Channel Offerings
SAN ANTONIO CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
2 Preview Guide 22 USA Network
3 CNN 23 The Weather Channel
4 KMOL (NBC) San Antonio+ 24 The Nashville Network
5 KENS (CBS) San Antonio+ 25 Country Music Television
6 ESPN 26 MTV
7 KRRT (UPN) 27 American Movie Classics
8 Home Sports Entertainment 28 C-Span House of Representatives
9 KLRN (PBS) San Antonio+ 29 KABB (FOX) San Antonio+
10 The Family Channel 30 Arts & Entertainment
11 Black Entertainment Television 31 HBO
12 KSAT (ABC) San Antonio+ 32 Showtime
13 WTBS (IND) Atlanta 33 The Movie Channel
14 Nickelodeon 34 FLIX
15 The Disney Channel 35 QVC Shopping/Pay-Per-View
16 The Learning Channel 36 Cable Video Store
17 Mind Extension University* 37 Pay-Per-View I
18 Headline News* 38 Pay-Per-View II
19 The Discovery Channel 39 WGN
20 Turner Network Television 41 Univision
21 EWTN Catholic Network 60 Telemundo+
</TABLE>
- ---------------
+ These channels are received off-air through an additional antenna at the
subscriber's location.
* These channels are only available during certain parts of the day.
Temple/Killeen. The cities of Temple and Killeen, Texas are located 55
miles northeast of Austin and are the home of Fort Hood, one of the U.S. Army's
largest bases worldwide. According to the 1990 census, the Temple/Killeen
metropolitan area had a total population of 255,301 which grew 19% from 1980 to
1990. The Temple/Killeen metropolitan area has experienced job growth of 4.0%
over the past five years and its metropolitan-wide unemployment rate for July
1995 was 5.2%, below the national average of 5.7% for the same period. The DMA
ranking of Temple/Killeen as reported by the Nielsen Media Research Company for
1994/1995 is ninety-eighth nationally in the number of television households.
59
<PAGE> 1184
The following table sets forth a description of the programming currently
offered by the Temple/Killeen system:
TEMPLE/KILLEEN CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
1 Preview Channel 19 Turner Classic Movies
2 KWTX (CBS) Waco+ 20 Home Sports Entertainment
3 KCEN (NBC) Temple+ 21 MTV
4 KNCT Killeen 22 The Nashville Network
5 KXXV (ABC) Waco+ 23 Country Music Television
6 ESPN 24 Black Entertainment Television
7 KWKT (FOX) Waco+ 25 The Weather Channel
8 USA Network 26 Headline News
9 The Disney Channel 27 C-SPAN*
10 CNN 28 EWTN Catholic Network
11 Discovery Channel 30 HBO
12 Arts & Entertainment 31 Showtime
13 Nickelodeon 32 The Movie Channel
14 The Family Channel 33 QVC*
15 Univision 34 Mind Extension University*
16 American Movie Classics 35 Turner Network Television
17 The Learning Channel 36 Trinity Broadcasting Network*
18 TBS 38 Request*
</TABLE>
- ---------------
+ These channels are received off-air through an additional antenna at the
subscriber's location.
* These channels are only available during certain parts of the day.
Waco. Waco is located 90 miles northeast of Austin and is the home of
Baylor University, which has an enrollment of approximately 12,500 students.
According to the 1990 census, the Waco metropolitan area had a total population
of 189,123 which grew 10.8% from 1980 to 1990. Waco has experienced job growth
of approximately 2.2% over the past five years, and its metropolitan-wide
unemployment rate for July 1995 was 5.4%, below the national average of 5.7% for
the same period. The DMA ranking of Waco as reported by the Nielsen Media
Research Company for 1994/1995 is ninety-eighth nationally in the number of
television households.
60
<PAGE> 1185
The following table sets forth a description of the programming currently
offered by the Waco system: Waco Channel Offerings
WACO CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
1 Preview Channel 19 Turner Classic Movies
2 KWTX (CBS) Waco+ 20 Home Sports Entertainment
3 KCEN (NBC) Temple+ 21 MTV
4 KNCT Killeen 22 The Nashville Network
5 KXXV (ABC) Waco+ 23 Country Music Television
6 ESPN 24 Black Entertainment Television
7 KWKT (FOX) Waco+ 25 The Weather Channel
8 USA Network 26 Headline News
9 The Disney Channel 27 C-SPAN*
10 CNN 28 EWTN Catholic Network
11 Discovery Channel 30 HBO
12 Arts & Entertainment 31 Showtime
13 Nickelodeon 32 The Movie Channel
14 The Family Channel 33 QVC*
15 Univision 34 Mind Extension University
16 American Movie Classics 35 Turner Network Television
17 The Learning Channel 36 Trinity Broadcasting Network*
18 TBS 38 Request*
</TABLE>
- ---------------
+ These channels are received off-air through an additional antenna at the
subscriber's location.
* These channels are only available during certain parts of the day.
CMAX transmits the signal for the Austin system at 100 watts and the San
Antonio, Temple/Killeen and Waco systems at 50 watts. CMAX estimates each
system's coverage radius to be approximately 35 miles.
Salt Lake City. The city of Salt Lake City is the state capital of Utah and
is the home of the world headquarters of the Church of Jesus Christ of
Latter-day Saints and the University of Utah, which has an enrollment of
approximately 24,100 students. According to the 1990 census, the Salt Lake City
metropolitan area had a total population of 1,072,227 which grew 17.8% from 1980
to 1990. Salt Lake City has experienced job growth of approximately 4.48% over
the past five years, and its metropolitan-wide unemployment rate for June 1995
was 3.2%, one of the lowest rates in the United States for the same period. Salt
Lake City is the largest metropolitan area in Utah and its DMA ranking as
reported by the Nielsen Media Research Company for 1994/1995 is thirty-seventh
nationally in the number of television households.
The Additional Texas Systems are subject to the Sublease Agreement which
gives Heartland the right to acquire such systems. In the markets for some of
the Additional Texas Systems, CMAX believes that additional channels have been
assembled by third parties, which could make it uneconomic for CMAX to develop
such systems. No assurances can be given that, in the event the transactions
contemplated by the Sublease Agreement are not consummated, CMAX will be
successful in obtaining sufficient additional channel leases to enable CMAX to
operate wireless cable systems in each such market.
MARKETING
CMAX has established marketing and sales operations in the Texas Cluster
and plans to establish similar marketing and sales operations as additional
systems are launched. CMAX's direct sales efforts are primarily door-to-door by
its sales force which, as of December 31, 1995, was comprised of 3 individuals
in Austin, 9 individuals in San Antonio, 6 individuals in Temple/Killeen and 6
individuals in Waco. Members of the sales force are responsible for assigned
geographic areas and are compensated on a commission basis. CMAX
61
<PAGE> 1186
also utilizes telemarketing to potential subscribers responding to CMAX's
promotional activities. In addition, CMAX utilizes television, direct mail,
radio and print advertising and special events to further its marketing efforts.
INSTALLATION
Subscriber installation in the Texas Cluster is provided for various fixed
fees by independent contractors who assume the inventory risk of all
installation material, including antennae, masts and down converters, but not
set-top converters, which are provided by, and remain the property of, CMAX.
This arrangement eliminates CMAX's need to maintain an installation workforce
and reduces the amount of inventory it must carry.
COMPETITION
Wireless cable television operators face competition from a number of other
sources, including potential competition from emerging trends and technologies
in the cable television industry, some of which are described below. Many of
CMAX's competitors have far greater financial resources than CMAX.
Traditional Hard-Wire Cable. CMAX believes that its primary competition is
from traditional hard-wire cable operators. CMAX's primary traditional hard-wire
competitors in the Texas Cluster during fiscal 1995 included Time Warner Cable
in Austin, Paragon Houston Industries, Inc. in San Antonio and Metrovision in
Temple/Killeen and Waco, all of which are significantly larger and have
substantially greater financial resources than CMAX. Time Warner Cable has
recently announced the proposed acquisition of Paragon Houston Industries, Inc.
in San Antonio and Metrovision in Temple/Killeen and Waco. Currently, these
primary traditional hard-wire cable competitors in the Texas Cluster offer
between 39 and 58 channels to their subscribers compared to between 31 and 37
channels offered by CMAX. The technology used by such operators is a coaxial
cable system which transmits signals from a head-end, delivering local and
satellite-delivered programming via a distribution network consisting of
amplifiers, cable and other components to subscribers.
Direct Broadcast Satellite ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the home user. 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 receiver equipment for a single television set
costs approximately $700 per customer, plus installation fees. Each additional,
independent outlet requires a separate descrambling device at additional cost to
the subscriber.
Due to the cost of receiving equipment as well as the broader availability
of local programming offered by wireless cable systems, CMAX believes that
wireless cable systems currently enjoy a comparative cost and local programming
advantage over DBS systems.
Telephone Companies. Under the Communications Act of 1934, as amended (the
"Communications Act"), local exchange carriers ("LECs") are currently prohibited
from providing video programming directly to subscribers in their respective
telephone service areas. Certain Federal courts have recently ruled, however,
that this "teleco-cable cross-ownership ban" abridges the First Amendment rights
of LECs under the U.S. Constitution. These rulings are currently under appeal or
are expected to be appealed. Proposals to lift the teleco-cable cross-ownership
ban are also currently under review by the U.S. Congress. In light of these
court decisions, the FCC has indicated that it will look favorably on waivers of
the teleco-cable cross-ownership ban under certain circumstances. The FCC
already permits LECs to provide "video dialtone" 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. The FCC has ruled that the
teleco-cable cross-ownership ban does not apply to wireless cable.
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, only it operates without a franchise from a local
authority. SMATV operates under an agreement with a private landowner to service
one or more
62
<PAGE> 1187
multiple dwelling units. 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 ("GHz") band.
Local Multi-Point Distribution Service. In 1993, the FCC proposed to
redesignate the 28 GHz band to create a new video programming delivery service
referred to as local multipoint distribution service ("LMDS"). As proposed by
the FCC, LMDS would provide two licensees up to 49 channels each for the
distribution of video programming in prescribed geographic areas. Numerous
satellite system operators, including, among others, the National Aeronautics
and Space Administration, Motorola Satellite Communications, Inc., Hughes Space
and Communications Co., Ameritech, and Loral Quilcomm Satellite Services, Inc.,
opposed in whole or in part, the redesignation of the 28 GHz band for video
distribution. The FCC recently proposed that the 28 GHz band be shared by
terrestrial and satellite services, that competitive bidding be used to award
LMDS and satellite authorizations, and that LMDS authorizations be based on 493
geographic areas known as basic trading areas ("BTAs").
Satellite Receive Dishes. Satellite receive dishes are generally seven to
twelve foot dishes mounted in the yards of homes to receive television signals
from orbiting satellites. Until the implementation of scrambling, 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
CMAX competes with these systems to some degree in marketing its services.
Off-Air Local Broadcasts. Off-air local broadcasts (e.g., ABC, NBC, CBS,
Fox and PBS) provide a free programming alternative to the public. CMAX
currently retransmits certain off-air local broadcasts to its wireless cable
subscribers, but its ability to do so is generally dependent upon receipt of
retransmission consent.
Video Stores. Retail stores rent video tapes and are a major participant in
the television program delivery industry. According to the Cable Television's
Fact Book, in 1994 there were approximately 76,312,700 households with video
cassette recorders in the United States.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to utilize specified
frequencies, the operator must then obtain the right to use the programming to
be transmitted over those frequencies.
General. Currently, with the exception of the retransmission of off-air
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 CMAX has been
significantly mitigated by the Cable Act and various FCC regulations promulgated
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 and terms and conditions of sale of programming. Of the major cable
television programming services carried by CMAX, only ESPN, USA Network and A&E
are not currently directly owned by vertically integrated multiple cable system
operators, and CMAX historically has not had difficulty in arranging
satisfactory contracts for these services.
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, as amended, certain cable systems and
wireless 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 with and the payment of certain fees to the U.S. Copyright Office.
Certain FCC rules require wireless and traditional hard-wire cable
operators to secure the consent of certain local commercial television broadcast
stations in order to retransmit their signals. However, wireless cable systems,
unlike traditional hard-wire cable systems, are not required under the FCC's
"must carry" rules
63
<PAGE> 1188
to retransmit a specified number of local commercial television or qualified low
power television signals. Although there can be no assurances that CMAX will be
able to obtain requisite broadcaster consents, CMAX believes in most cases it
will be able to do so for little or no additional cost.
EMPLOYEES
As of December 31, 1995, CMAX had a total of 153 employees, 42 of whom were
located in Austin, 49 of whom were located in San Antonio, 37 of whom were
located in Temple/Killeen and 25 of whom were located in Waco. Of such
employees, 39 provide technical services, 81 are office personnel and customer
service representatives (of which 22 are part-time), 24 are marketing and sales
staff and 9 are executive and administrative personnel. New subscriber
installations are performed by an independent contractor, thus reducing the
number of persons employed by CMAX. None of CMAX's employees is subject to a
collective bargaining agreement. CMAX has experienced no work stoppages and
believes that its relations with its employees are good.
PROPERTY OF CMAX
CMAX leases approximately 17,000 square feet in Austin, approximately
29,000 square feet in San Antonio and approximately 10,000 square feet in Waco
for its customer service and warehouse needs. Such leases run through April
2010, mid-April 2004 and May 1999, respectively. CMAX also leases approximately
6,800 square feet in Austin for its executive offices pursuant to a lease
expiring in December 1999. CMAX owns an approximately 10,000 square foot
customer service and warehouse facility in the Temple/Killeen area. CMAX
believes that space meeting its physical and cost requirements is readily
available in Austin, San Antonio and Waco and intends to lease new facilities
upon the expiration of its current leases. In addition to office space, CMAX
leases land on which it has constructed its head-ends and transmission towers
for the Texas Cluster. CMAX's beambenders are located on private lots with the
landlord receiving free wireless cable service or nominal rent. CMAX believes
that office space and space for head-ends and transmission towers are readily
available on acceptable terms in the markets where CMAX intends to operate
wireless cable systems.
LEGAL PROCEEDINGS
CMAX is not a party to any litigation that would have a material adverse
effect on its business.
64
<PAGE> 1189
DIVIDENDS ON AND MARKET PRICES OF CMAX COMMON STOCK
The common stock, $.01 par value, of CMAX (the "CMAX Common Stock"), began
trading on the Nasdaq-NMS under the symbol "CMAX" on November 19, 1993. The
following table sets forth, on a per share basis for the periods shown, the high
and low closing bid prices of the CMAX Common Stock as reported by the
Nasdaq-NMS. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The price of the CMAX Common Stock in its initial public offering was $12.00 per
share.
<TABLE>
<CAPTION>
CLOSING SALE
PRICE
-----------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended June 30, 1994:
Second Quarter (from November 19, 1993).......................... $12.25 $10.00
Third Quarter.................................................... $13.12 $10.25
Fourth Quarter................................................... $11.25 $ 6.31
Fiscal Year Ended June 30, 1995:
First Quarter.................................................... $ 8.00 $ 6.25
Second Quarter................................................... $ 8.00 $ 3.00
Third Quarter.................................................... $ 6.25 $ 3.88
Fourth Quarter................................................... $ 7.75 $ 5.25
Fiscal Year Ended June 30, 1996:
First Quarter.................................................... $ 8.00 $ 6.00
Second Quarter................................................... $ 7.75 $ 6.59
Third Quarter (through January 22, 1996)......................... $ 7.88 $ 7.25
</TABLE>
On January 22, 1996, the reported last sale price for the CMAX Common Stock
as reported on the Nasdaq NMS was $7.68 per share and there were approximately
100 holders of record and approximately 1,400 beneficial owners of the CMAX
Common Stock.
CMAX has never declared or paid any cash dividends and does not expect to
declare any such dividends for the foreseeable future. Payment of any future
dividends will depend upon earnings and capital requirements of CMAX, CMAX's
credit facilities and other factors CMAX's Board of Directors considers
appropriate. CMAX currently intends to retain earnings, if any, to support
continuing growth and expansion.
The terms of the CMAX Credit Facility prohibit CMAX from paying cash
dividends.
65
<PAGE> 1190
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
DIRECTORS AND OFFICER OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership as of December 31, 1995 as to each (i) director, (ii) the four most
highly compensated executive officers of CMAX, including CMAX's Chief Executive
Officer, and (iii) all directors and executive officers of CMAX as a group:
<TABLE>
<CAPTION>
SHARES OF
CMAX PERCENT OF
NAME OF COMMON STOCK CMAX
BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
-------------------------------------------------------------------------- ------------
<S> <C> <C>
David J. Aldrich........................................ -- --
Barry L. Babcock........................................ 4,000 *
James E. Bray (1)....................................... 27,000 *
Thomas C. Dircks (2).................................... 1,000 *
A. Lawrence Fagan (2)................................... -- --
Tommy L. Gleason (1) (3)................................ 47,500 *
Jerald L. Kent.......................................... 2,000 *
Ralph G. Kelly (1)...................................... 26,000 *
Douglas E. Montandon (1)................................ 16,100 *
George H. More III...................................... 1,000 *
Ronald L. Voss (3)...................................... -- --
All directors and executive directors as a group
(11 persons) (1)(2)(3)................................ 124,600 1.3%
</TABLE>
- ---------------
* Less than 1%.
(1) The beneficial ownership of shares shown includes stock options exercisable
within 60 days of the filing, which were granted to various individuals in
this table, or included in this group, pursuant to the 1993 CableMaxx, Inc.
Stock Option Plan (the "CMAX Option Plan"). The exercise price per share
for such options is $12.00 per share, which is greater than the
consideration of $8.50 per share to be received by CMAX stockholders in the
CMAX Merger. Pursuant to the CMAX Option Plan and the CMAX Merger
Agreement, stock options held by such individuals and other option holders
are exercisable in full, without regard to any limitations on
exercisability contained in such individual's stock option agreement,
during the period prior to the consummation of the CMAX Merger, including
40,000 shares for Tommy L. Gleason, Jr., 25,000 shares for James E. Bray,
25,000 shares for Ralph G. Kelly and 15,000 shares for Douglas E.
Montandon.
(2) A. Lawrence Fagan is an executive officer, director and stockholder of
Charterhouse and Thomas C. Dircks is an executive officer of Charterhouse.
Each of Messrs. Fagan and Dircks disclaims beneficial ownership of the
shares of CMAX Common Stock beneficially owned by Charter Wireless. See
"Security Ownership and Principal Stockholders -- Other Ownership of CMAX's
Common Stock."
(3) Tommy L. Gleason, Jr. is the individual general partner of Galaxy
Cablevision and an affiliate of Mr. Gleason is the corporate General
Partner of Galaxy Cablevision. In addition, Mr. Gleason is the principal
stockholder of Galaxy. Ronald L. Voss is the Vice President of Corporate
Development and the corporate general partner of Galaxy Cablevision and
certain of its affiliates. Each of Messrs. Gleason and Voss disclaims
beneficial ownership of the shares of CMAX Common Stock beneficially owned
by Charter Wireless. See "Security Ownership and Principal
Stockholders -- Other Ownership of CMAX's Common Stock."
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<PAGE> 1191
OTHER OWNERSHIP OF CMAX'S COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership as of December 31, 1995 as to each person known to CMAX to be the
beneficial owners of more than 5% of the outstanding shares of CMAX Common
Stock:
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
NAME OF CMAX COMMON STOCK CMAX COMMON
BENEFICIAL OWNER BENEFICIALLY OWNED STOCK
-------------------------------------------------------------------------- ------------
<S> <C> <C>
Charter Wireless Cable Holdings, L.L.C.(1).............. 5,010,900 52.7%
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, New York 10022
Weiss, Peck & Greer, L.L.C.(2).......................... 699,494 7.4%
One New York Plaza
New York, New York 10004
</TABLE>
- ---------------
(1) Each of CEP, Galaxy, Galaxy Cablevision and the Predecessor are members of
Charter Wireless. Their respective ownership interests in Charter Wireless
are as follows: CEP: 74%; Galaxy Cablevision: 15%; Galaxy: 6%; and the CMAX
Predecessor: 5%. The general partner of CEP is an affiliate of
Charterhouse. Accordingly, Charterhouse may be deemed to control Charter
Wireless. As a result of the foregoing, all of the shares of CMAX Common
Stock held by Charter Wireless would, for purposes of Section 13(d) of the
Exchange Act, be considered to be beneficially owned by Charterhouse.
(2) Weiss, Peck & Greer, L.L.C. is a limited liability company organized under
Delaware law ("Weiss Peck") which is registered under Section 15 of the
Exchange Act and is registered under Section 203 of the Investment Advisers
Act of 1940, as amended. As of December 31, 1995, Weiss Peck held 699,494
shares of CMAX Common Stock for the discretionary accounts of certain
clients. For purposes of Section 13(d) of the Exchange Act, such shares
would be considered to be beneficially owned by Weiss Peck. Weiss Peck
disclaims beneficial ownership of such shares. The principals of Weiss Peck
also disclaim beneficial ownership of such shares other than those shares
of CMAX Common Stock owned of record by such principals.
As of December 31, 1995, CMAX's management knows of no other beneficial
owner of CMAX of greater than 5% of the outstanding shares of CMAX Common Stock.
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<PAGE> 1192
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS
In addition to the CMAX Merger Agreement, Heartland has entered into
various other agreements that may be consummated contemporaneously with the CMAX
Merger Agreement. These agreements, and the transactions contemplated thereby
("Other Transactions"), are described below. There can be no assurance that any
or all of the Other Transactions will be consummated.
THE AWS MERGER
Pursuant to the terms of the AWS Merger Agreement, AWS Merger Sub will
merge with and into AWS, AWS will become a wholly owned subsidiary of Heartland,
and Heartland will issue to the holders of AWS common stock, $.01 par value per
share ("AWS Common Stock"), that number of newly issued publicly tradeable
shares of Heartland Common Stock having an aggregate exchange value of $34
million (subject to certain reductions and the escrow requirements discussed
below). If the AWS Merger Agreement is consummated, each share of AWS Common
Stock issued and outstanding immediately prior to the AWS Merger, subject to
certain adjustments provided therein, will be converted into shares of Heartland
Common Stock having an exchange value of approximately $5.90, of which
approximately $0.56 will be held in the escrow described below. The exchange
value of the Heartland Common Stock to be issued in the AWS Merger will be equal
to the average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS over the ten-trading-day period ending on the fifth business day
preceding the consummation of the AWS Merger (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996), provided, however, that if such
average is less than $20 or more than $26 per share, then the number of shares
of Heartland Common Stock to be issued in connection with the AWS Merger will be
based upon an exchange value of $20 or $26 per share, as applicable. Pursuant to
the AWS Merger Agreement, shares of Heartland Common Stock having an aggregate
exchange value of up to $3.25 million (subject to reduction upon the resolution
of certain claims against AWS) will be held in escrow for a period of
approximately twelve (12) months to satisfy certain indemnification obligations
of AWS to Heartland.
THE FTW TRANSACTION
Pursuant to the terms of the FTW Agreement, (i) FTW Partnership will assign
to Heartland substantially all of its assets, consisting of the 79.99% interest
in the FTW Venture, (ii) FTW Partnership and the FTW Partners approving the FTW
Transaction will either assign to Heartland or release the certain claims
against AWS and certain related parties, (iii) Heartland will assume up to
$570,000 of certain types of liabilities (including disputed liabilities) of FTW
Partnership to AWS, and (iv) Heartland will issue to FTW Partnership newly
issued freely tradeable shares of Heartland Common Stock having an aggregate
exchange value of $13.3 million. The exchange value for the shares of Heartland
Common Stock to be issued in connection with the FTW Agreement will be equal to
the average closing price of the Heartland Common Stock as quoted on the
Nasdaq-NMS over the ten-trading-day period ending on the fifth business day
preceding the consummation of the FTW Agreement (or February 15, 1996 based upon
a contemplated closing date of February 23, 1996); provided that if such average
closing price is in excess of $23 per share, the exchange value shall be $23 per
share.
THE MINNEAPOLIS TRANSACTION
Pursuant to the terms of the Minneapolis Agreement, (i) Minneapolis
Partnership will sell to Heartland substantially all of its assets, consisting
of a 75% membership interest in and to the Minneapolis LLC, which owns and
operates a wireless cable television system in Minneapolis, Minnesota, (ii)
Heartland will issue to Minneapolis Partnership that number of newly issued
publicly tradeable shares (the "Minneapolis Shares") of Heartland Common Stock
having an aggregate exchange value equal to the sum of (A) $18.0 million plus
(B) $500 for each wireless cable television subscriber in excess of 2,500
("Additional Subscribers") as of February 15, 1996 (currently estimated to be
1,000 Additional Subscribers, and not anticipated to exceed 2,000 Additional
Subscribers), (iii) Heartland will assume up to $2.2 million of liabilities of
Minneapolis Partnership to AWS, and (iv) Minneapolis Partnership and the
Minneapolis Partners approving the Minneapolis Agreement will assign to
Heartland certain claims against AWS, its predecessors and their
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<PAGE> 1193
respective affiliates. The exchange value of the Minneapolis Shares will be
equal to either (a) the lesser of $23 per share and the average closing price of
Heartland Common Stock as reported on the Nasdaq-NMS over the ten-trading-day
period ending on the fifth business day preceding the consummation of the
Minneapolis Agreement (or February 15, 1996 based upon a contemplated closing
date of February 23, 1996) or (b) if such closing average is equal to or in
excess of $30 per share, then (i) the product of the closing average multiplied
by $23, divided by (ii) $30.
THE TSC TRANSACTION
Pursuant to the terms of the TSC Agreement (a) TSC will sell to Heartland
substantially all of the assets formerly held by Technivision, consisting of
wireless cable television assets in Dayton, Ohio, Corpus Christi, Texas and El
Paso, Texas, and (b) Heartland will issue to TSC that number of newly issued
publicly tradeable shares ("TSC Shares") of Heartland Common Stock having an
aggregate exchange value of (i) $36.75 million plus (ii) $1,200 for each
wireless cable television subscriber on the fifth day preceding the consummation
of the TSC Agreement in excess of amounts specified in the TSC Agreement
(currently estimated to be $1.5 million, provided that the aggregate of such
additional subscriber consideration will not exceed $3.5 million), minus (iii)
the amount of any obligations assumed by Heartland (not to exceed $5 million,
and currently estimated to be $5 million), minus (iv) if the wireless cable
television assets relative to the Dayton, Ohio market are sold prior to the
consummation of the TSC Agreement, certain proceeds thereof to be retained by
TSC. The exchange value of the Heartland Common Stock to be issued pursuant to
the TSC Agreement will be equal to the average closing price of the Heartland
Common Stock on the Nasdaq-NMS over the 20-trading-day period ending on the
fifth business day preceding the consummation of the TSC Agreement (or February
15, 1996 based upon a contemplated closing date of February 23, 1996).
THE COMBINED COMPANY
BUSINESS OF THE COMBINED COMPANY AFTER THE TRANSACTIONS
Following the consummation of the Transactions, but prior to any
dispositions of Heartland Disposition Assets consummated in connection therewith
or thereafter, Heartland, directly or through one or more subsidiaries, will
acquire all the assets and liabilities and succeed to the businesses of AWS and
CMAX and acquire substantially all of the assets and certain of the liabilities
and succeed to all of the businesses of FTW Venture, Minneapolis LLC and TSC
formerly conducted through Technivision (as operated by Heartland following
consummation of the Transactions, such businesses, assets and liabilities,
together with the current business, assets and liabilities of Heartland, are
hereinafter referred to collectively as the "Combined Company"). To the extent
that any of the AWS Merger, the CMAX Merger, the FTW Transaction, the
Minneapolis Transaction or the TSC Transaction are not consummated, the assets
and liabilities of AWS, CMAX, FTW Partnership, Minneapolis Partnership or TSC,
respectively, will not constitute a part of the Combined Company. In addition,
to the extent that any of the Heartland Disposition Assets are not sold or
otherwise disposed of by Heartland, such assets will continue to be owned and
operated by the Combined Company, but held for disposition.
The Combined Company will be in the business of developing, owning and
operating wireless cable television systems in primarily small to mid-sized
markets within the central United States. The Combined Company expects to
continue targeting small to mid-sized markets with significant numbers of LOS
households that are unpassed by traditional hard-wire cable and to otherwise
pursue the business strategy employed by Heartland to date. Assuming the
consummation of each of the Transactions and the disposition of all of the
assets constituting Heartland Disposition Assets, the Combined Company will have
wireless cable channel rights in 79 markets, representing approximately 8.2
million households, approximately 6.8 million of which Heartland estimates will
be serviceable by LOS transmissions. Heartland further estimates that within
these markets, approximately 2.4 million LOS households, or approximately 36% of
the Combined Company's total LOS households, are currently unpassed by
traditional hard-wire cable systems. The Combined Company's 79 markets will
include (i) approximately 33 markets in which the Combined Company will have
wireless cable television systems in operation, (ii) nine markets in which the
Combined Company will have wireless cable television systems under construction,
(iii) 21 near-term launch markets in which the
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<PAGE> 1194
Combined Company will have aggregated sufficient wireless cable channel rights
to commence construction of a system and (iv) 16 long-term launch markets,
including 11 in which the Combined Company will have aggregated sufficient
wireless cable channel rights to commence construction of a system and five in
which the Combined Company will have leases with or options from applicants for
channel licenses that Heartland expects to be granted by the FCC. Assuming
consummation of the Transactions and disposition of the Heartland Disposition
Assets, as of November 30, 1995, the 33 systems which Heartland anticipates the
Combined Company will operate were providing wireless cable service to
approximately 117,000 subscribers. Although management of Heartland is currently
performing an ongoing evaluation regarding the nature and scope of the
operations of the Combined Company following the consummation of the
Transactions, various short- and long-term strategic considerations will need to
be addressed following such consummation with regard to the integration and
consolidation of the various businesses comprising the Combined Company. Many of
the operational and strategic decisions with respect to the business of the
Combined Company have not been made and may not be made prior to the
consummation of the Transactions. Significant uncertainties and risks relating
to the businesses and operations of the Combined Company and the integration of
its various businesses and assets exist as of the date hereof and can be
expected to continue to exist following consummation of the Transactions. The
quality, timing and manner of decisions made by management of the Combined
Company with respect to the integration and operation of its various businesses
and assets following the consummation of the Transactions will materially affect
the operations of the Combined Company and its financial results. See "Risk
Factors" and "The Combined Company -- Planned Divestitures."
In addition to developing, owning and operating wireless cable television
systems in small to mid-sized markets located in the central United States, the
Combined Company will have an equity investment in Wireless One which it
currently proposes to hold indefinitely. Assuming consummation of a Newco
Transaction, the Combined Company will also have an equity interest in Newco
which it currently intends to hold indefinitely. The Wireless One and Newco
investments will permit Heartland to participate, indirectly as an equity owner,
in the ownership, development and operation of wireless cable television systems
in markets outside of Heartland's traditional demographic and geographic focus.
No assurance can be given that the Combined Company will experience an increase
in value or return on its investment, if any, in Newco. Heartland does not
anticipate receiving any cash dividends from its investment in Wireless One or
Newco, if the Newco Transaction is consummated, in the foreseeable future.
Heartland is not obligated to fund the future capital requirements of Wireless
One, and will not be required to fund the capital requirements of Newco. Because
the Combined Company is expected to hold its investment in Wireless One and its
proposed investment in Newco indefinitely, and because neither Wireless One nor
Newco is expected to pay cash dividends in the foreseeable future, neither
investment should materially affect the liquidity of the Combined Company. There
can be no assurance that a market for the Combined Company's investment in
Wireless One or Newco will exist in the future or to what extent such
investments will affect the liquidity and capital resources of the Combined
Company. See "Information Concerning Heartland -- Recent Transactions."
The Combined Company will continue to be subject to all of the liabilities
of Heartland, AWS and CMAX and certain of the liabilities, as discussed herein,
of FTW Partnership, the Minneapolis Partnership and TSC. Included among these
liabilities will be litigation to which Heartland, AWS and CMAX are parties.
Pursuant to the terms of the TSC Agreement, the FTW Agreement and the
Minneapolis Agreement, Heartland will only assume known liabilities. Although
Heartland anticipates that the Combined Company will continue to operate AWS and
CMAX as wholly owned subsidiaries, litigation or other liabilities affecting
those entities may still materially affect the Combined Company. For a more
complete description of litigation and other liabilities affecting CMAX and its
respective assets, see "Information Concerning CMAX -- The Business." For a
discussion of certain liabilities of AWS under federal and state securities laws
and certain litigation to which AWS is a party, see "Risk Factors -- Rescission
Rights of Partners of Minneapolis Partnership and FTW Partnership" and
"Information Concerning Heartland -- The Business."
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<PAGE> 1195
The summary pro forma financial information for the Combined Company
indicates pro forma annual revenues of approximately $20.1 million and operating
loss of approximately $14.6 million for the prior pro forma fiscal year. The pro
forma balance sheet for the Combined Company reflects cash of approximately
$68.6 million, working capital of approximately $99.5 million and a current
ratio of 6.18-to-one as of September 30, 1995. Management of Heartland believes
that, subject to consummation of each of the Transactions and disposition of all
of the Heartland Disposition Assets, the Combined Company will experience a
reduction in annual operating costs as a result of the elimination of
duplicative public company expenses such as investor relations, regulatory
filings and related legal and accounting costs, and as a result of the
elimination of duplicative executive officers and related staffing. See "Pro
Forma Financial Information Relative to the Transactions."
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<PAGE> 1196
The table below provides information regarding the 79 markets (excluding
Heartland Disposition Assets) in which Heartland has or, upon consummation of
the Transactions, will have wireless cable channel rights that it currently
intends to retain and develop.
<TABLE>
<CAPTION>
NUMBER OF
ESTIMATED ESTIMATED SUBSCRIBERS AT
TOTAL LINE-OF-SIGHT CURRENT NOVEMBER 30,
MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS(1) 1995
- --------------------------------------------- ---------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Existing Systems
Ada, OK.................................... 30,399 24,319 32 6,508
Wichita Falls, TX.......................... 78,290 74,376 28 6,093
Midland, TX................................ 120,037 114,035 26 5,017
Abilene, TX................................ 86,676 82,344 23 4,020
Lawton, OK................................. 97,023 92,172 27 6,334
Laredo, TX................................. 313,406(2) 297,736(2) 27 5,420
Enid, OK................................... 76,602 72,772 21 3,694
Lindsay, OK................................ 51,041 40,833 32 3,267
Ardmore, OK................................ 60,192 51,163 20 3,233
Mt. Pleasant, TX........................... 33,589 26,871 16 1,684
Lufkin, TX................................. 117,534 88,150 12 --(3)
Shaw, KS................................... 47,223 42,763 30 3,961
Texarkana, TX.............................. 118,204 94,563 20 1,997
Stillwater, OK............................. 54,562 40,922 20 5,428
Lubbock, TX................................ 123,934 105,323 34(4) 5,934
McLeansboro, IL............................ 80,136 60,102 18 859
Vandalia, IL............................... 73,593 55,195 20 1,365
Olney, IL.................................. 67,812 50,859 20 1,195
Lykens, OH................................. 210,800 168,640 24 700
Paragould, AR.............................. 77,523 58,500 21 2,157
Sikeston, MO............................... 69,837 52,378 24 2,163
Taylorville, IL............................ 159,596 119,697 20 1,336
Peoria, IL................................. 276,446 248,801 22 762
Manhattan, KS.............................. 56,473 42,355 20 945
O'Donnell, TX.............................. 68,940 65,493 20 1,053
Olton, TX.................................. 32,548 30,921 20 933
Monroe City/Lakenan, MO.................... 46,376 34,782 27 978
Paris, TX.................................. 55,445 41,584 20 79
Champaign, IL(5)........................... 164,992 148,493 23 2,120
Austin, TX(6).............................. 360,000 250,000 31 12,299
Temple/Killeen, TX(6)...................... 110,000 80,000 35 6,312
Waco, TX(6)................................ 100,000 80,000 35 3,860
Corpus Christi, TX(6)...................... 135,000 108,000 31 15,468
--------- --------- -------
Total -- Existing Systems.......... 3,554,229 2,944,142 117,174
========= ========= =======
</TABLE>
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<PAGE> 1197
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION(8)
Corsicana/Athens, TX............................... 69,161 62,245 23(9)
Hamilton, TX....................................... 28,551 21,413 20
Harper/Freeport, IL................................ 125,269 93,952 20
Marion, KS......................................... 53,881 40,411 19
Peaksville, MO..................................... 48,157 36,118 15
Sherman/Denison, TX................................ 100,000 90,000 31(11)
Sterling, KS....................................... 45,213 38,431 24
Strawn/Ranger, TX.................................. 34,488 25,866 20
Walnut Grove, IL................................... 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction........ 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(12)
Adairsville, GA(10)................................ 205,662 154,247 16
Amarillo, TX....................................... 106,670 101,337 26(13)
Anthony, KS........................................ 15,798 11,845 16
Bellflower, MO..................................... 63,384 57,046 20
Bluffs, IL......................................... 46,389 34,792 20
Columbia, MO....................................... 149,622 127,179 18
Forrest City, AR................................... 55,642 41,732 21
Holdenville, OK.................................... 50,637 45,573 16
Kossuth, TX........................................ 52,490 39,368 20
Lenapah, OK........................................ 51,921 38,941 12
Mayfield, KY....................................... 175,948 155,972 21
Muskogee, OK....................................... 66,510 53,208 18
Powers Crossroads, GA(10).......................... 135,037 101,278 20
Purdin, MO......................................... 25,001 18,751 20
Rutledge, GA(10)................................... 141,370 106,028 16
Shreveport, LA..................................... 214,315 182,168 24
Springfield, MO.................................... 139,706 118,750 16
Tulsa, OK.......................................... 321,922 273,634 16
Tyler, TX.......................................... 233,416 186,734 14
Weatherford, OK.................................... 31,445 29,873 16
Wick, OH........................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets.......... 2,618,983 2,147,334
--------- ---------
</TABLE>
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<PAGE> 1198
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
LONG-TERM LAUNCH MARKETS(14)
Altus, OK.......................................... 30,653 29,120 16
Burnet, TX......................................... 24,917 18,688 16
Charlotte, TX...................................... 32,771 24,578 16
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(6)..................................... 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
Ingram, TX......................................... 26,235 19,676 20
McAlester, OK...................................... 36,475 25,533 16
Miami, OK.......................................... 70,820 60,197 15
Sabinal, TX........................................ 15,795 11,846 20
Seminole, OK....................................... 42,204 35,873 19
Topeka, KS......................................... 211,762 190,586 16
--------- ---------
Total -- Long-Term Launch Markets.......... 1,460,445 1,216,551
--------- ---------
Total -- All Company Markets............... 8,222,603 6,779,633
========= =========
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
the Combined Company over wireless cable channels.
(2) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(3) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(4) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 12 channels in the
Lubbock System, of these channels, 4 are the subject of an appeal by an
unsuccessful applicant for the frequencies.
(5) Heartland acquired the system in Champaign, Illinois on January 16, 1996.
(6) Heartland will acquire the Austin, Temple/Killeen, Waco, Corpus Christi and
El Paso, Texas markets upon the consummation of the Transactions.
(7) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(8) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(9) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 7 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(10) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(11) Channels acquired pursuant to the Sublease Agreement with CMAX. Of these
channels, eight are the subject of uncontested application proceedings.
(12) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(13) Includes additional channels acquired pursuant to the Sublease Agreement
with CMAX. Channel capacity has been increased by 9 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(14) Such markets include seven markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC.
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<PAGE> 1199
MANAGEMENT OF THE COMBINED COMPANY
Following the consummation of the Transactions, management of Heartland
will manage the Combined Company and the Board of Directors of the Combined
Company will consist entirely of the Board of Directors of Heartland. Although
Heartland has entered into a consulting and noncompetition agreement with Steven
G. Johnson, the President of AWS, management of Heartland does not otherwise
expect to retain executive officers or significant numbers of other management
personnel of AWS or CMAX or to enter into employment relationships with
executive officers or management personnel of TSC, the Minneapolis Partnership
or FTW Partnership. To the extent necessary to maintain customer service and
system launch schedules, the Combined Company may retain certain nonmanagerial
employees of AWS, CMAX or TSC. Mr. Johnson has entered into a consulting and
noncompetition agreement with Heartland pursuant to which Mr. Johnson, following
consummation of the AWS Merger, will provide consulting and transition services
to the Combined Company with regard to AWS and its assets and will refrain from
competing with the Combined Company or any of its transferees in any wireless
cable television market owned or operated by AWS as of October 31, 1995 for a
period of three years. In exchange for entering into the consulting and
noncompetition agreement, Mr. Johnson will receive a total of $700,000 payable
over a two-year period. No member of the Board of Directors of AWS or CMAX will
continue to serve as a member of the Board of Directors or as an executive
officer of the Combined Company or of AWS or CMAX, respectively. No member of
the Board of Directors of TSC or of the management committees of either the
Minneapolis Partnership or FTW Partnership will serve as a member of the Board
of Directors or as an executive officer of the Combined Company or any of its
subsidiaries following the consummation of the TSC Transaction, the FTW
Transaction or the Minneapolis Transaction. See "Information Concerning
Heartland -- Management."
PRINCIPAL HOLDERS
The following table sets forth (a) the effect of the Transactions (assuming
the consummation of all of the Transactions, an average closing price during the
relevant periods of $28 per share (the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof) or $17 per share (the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions)
of Heartland Common Stock and certain other assumptions, as noted) on the amount
and percentage of present holdings of shares of Heartland Common Stock owned
beneficially by each holder of five percent or more of the shares of Heartland
Common Stock; and (b) persons that will beneficially own five percent or more of
the outstanding shares of Heartland Common Stock outstanding immediately
following the Transactions. See "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, (iv) the Dayton System will not be sold prior to the
consummation of the Transactions and (v) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
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<PAGE> 1200
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's Net Liabilities do not
exceed its Permitted Net Liabilities. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the current owner of $40.0 million gross proceeds
of Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
PLANNED DIVESTITURES
In connection with approving the Transactions, Heartland's Board determined
that certain of the markets currently held by Heartland and certain of those to
be acquired in the Transactions should be disposed of, either because their
demographics are inconsistent with Heartland's focus on small to mid-sized
markets with a significant number of LOS households unpassed by traditional
hard-wired cable or because the Heartland Board felt that the consideration to
be received in a disposition thereof might be attractive when compared to
developing and operating a wireless cable system in the market. In particular,
the Heartland Board identified the Maysville and Sweet Springs, Missouri, Grand
Rapids/Moline Michigan, Napoleon/Bloom Center, Indiana and Flippin, Tennessee
markets currently owned by Heartland, and the Los Angeles, California, Dallas,
Ft. Worth and San Antonio, Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake
City, Utah and Minneapolis, Minnesota markets to be acquired in the Transactions
as being markets for which Heartland's management should seek one or more
disposition opportunities for cash, promissory notes, retained equity interests
or a combination thereof. Notwithstanding its determination to seek the sale,
exchange or other disposition of the Heartland Disposition Assets, the Heartland
Board felt that some or all of such markets, properly developed and operated,
offered attractive opportunities to participate in the wireless cable television
industry. As a result, the Heartland Board further directed Heartland's
management to seek one or more opportunities to dispose of the Heartland
Disposition Markets which might offer Heartland the ability to retain an equity
interest, directly or indirectly, in the disposed of markets.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets, of which Flippin, Tennessee is
currently owned by Heartland. Heartland will sell the Flippin market to
TruVision for $1.5 million contemporaneously with the sale to TruVision by AWS
of the Memphis market for $3.9 million (collectively, the "Memphis
Transaction"). Heartland will not retain a direct or indirect interest in these
markets.
After substantial discussions and certain limited agreements regarding the
conduct of their respective businesses during the pending of such negotiations,
effective December 12, 1995, Heartland, CAI, and CS Wireless Systems, Inc., a
Delaware corporation and a wholly-owned subsidiary of CAI ("Newco"), entered
into a Participation Agreement (the "Participation Agreement"), pursuant to
which Heartland or its subsidiaries will contribute or sell to Newco the
wireless cable assets and all related liabilities of the Heartland Disposition
Assets, other than the assets to be sold to TruVision as part of the Memphis
Transaction and the Los Angeles, California channel rights of AWS (which
Heartland will seek to sell directly to a third party). Simultaneous with
Heartland's contribution and sale of these assets to Newco, CAI or its
subsidiaries will contribute to Newco all of the outstanding capital stock of
certain subsidiaries of CAI, which will retain all of their assets and
liabilities related to the wireless cable markets of Bakersfield, California,
Charlotte, North Carolina, Cleveland, Ohio and Stockton/Modesto, California.
Subject to certain conditions, Heartland or CAI
76
<PAGE> 1201
may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or one or more of its
subsidiaries) will receive (i) shares of Newco common stock, $.001 par value per
share (the "Newco Common Stock"), constituting approximately 39.76% of the
outstanding shares of Newco Common Stock at the closing, (ii) approximately
$28.3 million in cash payable by Newco at the closing, (iii) a promissory note
in the principal sum of $25 million payable nine (9) months from the closing
(the "First Note") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing (the "Second Note"). The First Note will (i) require
that all of the net proceeds received by Newco from the sale of assets
(including any proceeds received prior to consummation of the Newco Transaction
from the sale of any of the assets to be contributed to Newco) shall be applied
immediately to the repayment of a portion of the First Note; (ii) require that
30% (or such higher percentage as is deemed reasonable by the underwriter for
Newco's Common Stock) of the net proceeds of any initial public offering of the
Newco Common Stock shall be applied to the repayment of the First Note; (iii)
provide assurances, satisfactory to Heartland, that, to the extent not otherwise
repaid, the First Note will be payable from $25 million of the net proceeds of
$125 million of proceeds of senior discount notes contemplated to be issued by
Newco (the "Newco Financing"), which is a condition to consummation of the Newco
Transaction, which will be appropriately secured for such purpose; and (iv) bear
interest at the effective rate of interest received by Newco from the investment
of the $25 million of the net proceeds of the Newco Financing which are security
for repayment of the First Note. The Second Note will (i) bear interest at the
annual rate of 10%, subject to adjustment as described below; (ii) require that
all of the net proceeds received by Newco from the sale of assets (including any
proceeds received prior to consummation of the Newco Transaction from the sale
of any of the assets to be contributed to Newco) shall, to the extent available
after repayment of the First Note, be applied by Newco to the repayment of a
portion of the Second Note; (iii) require that 30% (or such higher percentage as
is deemed reasonable by the underwriter for the Newco Common Stock) of the net
proceeds of any initial public offering of the Newco Common Stock shall be
applied, to the extent available after the repayment of the First Note, to the
repayment of the Second Note; (iv) provide that, if the Second Note is not paid
in full within one year of the consummation of the Newco Transaction, the annual
interest rate on the Second Note shall increase to 15% from and after the first
anniversary of the closing; and (v) provide that all interest on the Second Note
shall be payable in kind (interest computed rather than payable currently) to
the first interest payment date after the Newco senior discount notes to be
issued as part of the contemplated Newco Financing have been paid in full. The
equity interests of Heartland and CAI in Newco will be subject to dilution for
the issuance of (i) Newco Common Stock or warrants to acquire Newco Common Stock
which may be issued as a part of the Newco Financing; (ii) options to acquire
Newco Common Stock which may be issued to Newco's management; and (iii) warrants
or options to acquire up to 10% of Newco's Common Stock (prior to the issuance
of any warrants as part of the Newco Financing or options to Newco's management)
to BANX, a partnership comprised of Bell Atlantic Corporation and NYNEX
Corporation, which is a substantial investor in CAI. Within six months of
closing, CAI and Heartland will complete certain post-closing net working
capital calculations. Components of such calculations will 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 Newco for each market, increase or decrease in the number of
subscribers in each contributed system from the number of subscribers stated in
the Participation Agreement and related factors. Following such calculations, an
increase or decrease will occur in the principal amount of the promissory notes
to be received by Heartland from Newco, and CAI will either contribute or be
entitled to a distribution of cash from Newco, depending upon such calculations.
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<PAGE> 1202
Pursuant to an agreement dated October 10, 1995, each of CAI and Heartland
agreed to cooperate in the filing of applications for continuing participation
in the public auctions for available spectrums in the multipoint and/or
multichannel distribution service in 487 basic trading areas ("BTAs") and six
(6) additional BTA-like geographic areas. The auctions were commenced by the FCC
on or about November 13, 1995 with respect to certain markets, including markets
which are expected to be conveyed to Newco. In the event of the award of any
such licenses to either CAI or Heartland, Newco shall reimburse such entity for
the amounts paid by such party upon conveyance of the applicable licenses to
Newco.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland and that CAI has not disposed of more than one-half of
the Newco Common Stock it held on the effective date of such agreement); (ii) up
to three members designated by Heartland (provided that at least one of whom may
not be an affiliate of either CAI or Heartland and that Heartland has not
disposed of more than one-half of Newco Common Stock it held on the effective
date of such agreement); (iii) the Chief Executive Officer of Newco; and (iv)
the Chief Financial Officer of Newco. The Stockholders Agreement and Newco's
Bylaws further provide that certain transactions will require the affirmative
approval of at least 70% (7 of 9) of the Directors of Newco. Such transactions
include (i) the participation of Newco in a merger or consolidation, or the
sale, lease, exchange or other disposition of all or any substantial part of the
assets of Newco, or the liquidation of all or a substantial part of Newco; (ii)
the issuance or sale by Newco of any capital stock of Newco, including the type
and amount to be issued or sold, except for the options and warrants
contemplated as part of the transaction; (iii) the taking of any action by Newco
in its capacity as a stockholder of any subsidiary of Newco similar to the
foregoing; (iv) any increase or decrease in the total number of directorships of
Newco; (v) engaging in any business other than the designated business of Newco
(transmitting video, voice or data, inclusive of related activities and
services, including the use of wireless channels for any commercial purpose
permitted by the FCC); (vi) establishing any executive or other committee of the
Board of Newco; (vii) the creation, incurrence, assumption or guaranty of or in
any manner becoming liable by Newco or any of its subsidiaries upon any
obligation for money borrowed in excess of $10 million in the aggregate
principal amount at any time outstanding or the incurrence of any obligation in
excess of such amount in connection with the acquisition of property; (viii) the
making of or having outstanding any loans or advances to any of Newco's past or
present officers, directors or stockholders or to any member of their immediate
family; (ix) the entering into, directly or indirectly, of any arrangement,
contract or agreement not in the ordinary course of business with a monetary
value in excess of $10 million; (x) the sale or other disposal (including
contribution) of assets or capital stock (by merger or otherwise) of Newco or
any of its subsidiaries, the value of which exceeds $10 million in either
original cost or appraised value within any one-year period; (xi) the
acquisition of securities or assets by Newco or any of its subsidiaries, the
value of which exceeds $10 million in appraised value within any one year
period; (xii) any change in the business of Newco from its stated business; or
(xiii) replacement of the Chief Executive Officer or the Chief Financial Officer
of Newco.
Further, the Participation Agreement and Stockholders Agreement provide
that Newco may actively engage in discussions and activities with the goal of
(i) acquiring additional geographic markets and assets related to its business;
(ii) selling or otherwise disposing of some or all of its assets (including a
sale of all or a portion of the Newco Common Stock by merger or otherwise); and
(iii) creating one or more joint ventures or other joint operations which may
involve, among other matters, contributing all or a portion of Newco's assets to
such joint venture or operation in exchange for an equity interest therein,
cash, notes or other suitable consideration; provided, however, that (A) no such
activity shall be undertaken unless the Newco Board determines that each such
activity is in the best interest of Newco and (B) with respect to the activities
described in clauses (ii) and (iii) above, (i) such sales, contributions and
dispositions shall be limited to the markets contributed by Heartland and CAI to
Newco; (ii) if any such sales are agreed to or consummated prior to the
consummation of the Newco Transaction, the initial purchaser of the Newco
Financing shall give its written consent thereto prior to effecting the Newco
Financing; (iii) the proposed underwriter mutually selected by CAI and Heartland
for an initial public offering, if any, of the Newco Common Stock proposed to
78
<PAGE> 1203
be initiated during the first year after the closing shall state in writing that
any such proposed sale, disposition or joint venture would not have a negative
impact on said initial public offering; and (iv) Newco shall not sell,
contribute or otherwise dispose of any of its assets (or shares of Newco Common
Stock by merger or otherwise) having a value in excess of $10 million in either
original cost or appraised value unless the consideration received by Newco
shall approximate the greater of (I) the then fair market value of such asset;
or (II) an amount equal to the aggregate of (x) the valuation given to such
assets at the time of contribution to Newco by Heartland and CAI, as the case
may be, plus (y) the amount of any cash investments made by Newco with respect
to such assets (such as new subscriber or head-end equipment) plus (z) the full
effective after tax cost to Newco of that portion of the Newco Financing
(including without limitation the interest rate, initial purchaser's discount,
cost of complying with the requirements of the Newco Financing documents and, if
applicable, cost of warrants, prepayment penalties and/or change in control
premiums) equal to the net proceeds to be received from such sale, contribution
or disposition. So long as such transaction is reasonably likely to be
consummated within one year after the date of the Participation Agreement and if
each of the above requirements are met, CAI and Heartland have each agreed to
take any and all actions (on a timely basis) necessary to effect said
transaction, including without limitation voting (or causing the vote of) all of
the shares of Newco Common Stock held by Heartland and CAI in favor of such
transaction.
If (i) the Newco Transaction is terminated without the closing having
occurred, following satisfaction of all material conditions to the closing by
Heartland specified in the Participation Agreement; (ii) CAI has not undertaken
any action reasonably calculated to prevent the closing; and (iii) Heartland has
not at any time prior to the termination of the Participation Agreement, or
within one year after such termination, engaged in a transaction involving the
sale, transfer or other disposition of at least two of the three markets of
Dallas-Fort Worth, Texas (counted as one market), Salt Lake City, Utah and
Minneapolis, Minnesota, Heartland shall pay to CAI a break-up fee equal to $3
million, which shall be payable immediately upon the consummation of such
transaction as the sole and exclusive remedy to CAI and Newco for Heartland's
failure to close the Newco Transaction in breach of the Participation Agreement.
CAI is required to pay a break-up fee of $3 million to Heartland if it fails to
consummate the Newco Transaction following satisfaction of all material
conditions to closing by CAI and it engages in a transaction involving the sale,
transfer or other disposition of the Cleveland, Ohio market prior to or within
one year following termination of the Participation Agreement, which shall be
Heartland's sole and exclusive remedy for CAI's failure to close the Newco
Transaction.
Pursuant to the Participation Agreement, all representations and warranties
of CAI and Heartland survive closing of the Newco Transaction for a period of
four months. Each party indemnifies the other from and against all damages
resulting from a breach of such representations and warranties; provided,
however, that no indemnification payment is made for any portion of the initial
$500,000 of damages claimed. Either party may reimburse the other for such
damages through a combination of cash (or, in the case of Heartland, reduction
of the First Note and Second Note) or the assignment of Newco Common Stock not
to exceed 50% of the amount of said damages, with shares thereof valued at the
values agreed upon by Heartland and CAI as of the consummation of the Newco
Transaction.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "The Combined Company -- Business of the
Combined Company After the Transactions" and "-- Planned Divestitures."
HEARTLAND'S REASONS FOR THE TRANSACTIONS
The AWS Merger. The Board of Directors of Heartland (the "Heartland Board")
has approved and adopted the AWS Merger Agreement. The Heartland Board believes
that the AWS Merger is fair to and in
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<PAGE> 1204
the best interest of Heartland and its stockholders. The Heartland Board
believes that the AWS Merger would provide Heartland with wireless cable
television systems and channel rights targeted for disposition on terms and
conditions favorable to Heartland in comparison with the cost of their
acquisition. Further, if the planned disposition of all of AWS's channel rights
is not consummated, the Heartland Board believes that the AWS Merger would
increase Heartland's competitive position in the industry by increasing the
aggregate number and size of its wireless cable television systems and channel
rights at favorable acquisition costs. Such systems would then be held for
disposition or strategic exchange for other systems and channel rights which the
Heartland Board believes would enhance Heartland's competitive position.
The FTW Transaction. The Heartland Board has approved and adopted the FTW
Agreement. The Heartland Board believes that the FTW Transaction is fair to and
in the best interest of Heartland and its stockholders. The Heartland Board
believes that the FTW Transaction will provide Heartland with a wireless cable
television system targeted for disposition on terms and conditions favorable to
Heartland in comparison with the cost of its acquisition. Further, if the
planned disposition of certain channel rights (including the FTW Interest) is
not consummated, the Heartland Board believes the FTW Transaction would increase
Heartland's competitive position in the Fort Worth, Texas and Dallas, Texas
markets (coupled with the consummation of the AWS Merger) by consolidating the
wireless cable television markets of Fort Worth, Texas and Dallas, Texas. Such
markets would substantially add to Heartland's geographic cluster of markets in
the northern regions of the State of Texas. Such systems would then be held for
disposition or strategic exchange for other systems and channel rights, which
the Heartland Board believes would enhance Heartland's competitive position.
The Minneapolis Transaction. The Heartland Board has approved and adopted
the Minneapolis Agreement. The Heartland Board believes that the Minneapolis
Transaction is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the Minneapolis Transaction will
provide Heartland with a wireless cable television system targeted for
disposition on terms and conditions favorable to Heartland in comparison with
the cost of its acquisition. Further, if the planned disposition of certain
channel rights (including the rights held by the Minneapolis Partnership in the
Minneapolis LLC) is not consummated, the Minneapolis system would then be held
for disposition or strategic exchange for other systems and channel rights which
the Heartland Board believes would enhance Heartland's competitive position.
The CMAX Merger. The Heartland Board has approved and adopted the CMAX
Merger and the CMAX Merger Agreement. The Heartland Board believes that the CMAX
Merger is fair to and in the best interest of Heartland and its stockholders.
The Heartland Board believes that the CMAX Merger will provide Heartland with
(i) additional wireless cable television systems and channel rights consistent
with Heartland's rural market focus (Amarillo, Athens, Austin, Lubbock,
Sherman/Denison, Temple/Killeen and Waco, Texas) strategically located with
Heartland's existing wireless cable television systems in the State of Texas and
(ii) wireless cable television systems and channel rights targeted for
disposition (Salt Lake City, Utah and San Antonio, Texas) on terms and
conditions favorable to Heartland in comparison with their cost of acquisition.
If the planned disposition is not consummated, the San Antonio and Salt Lake
City systems would then be held for disposition or strategic exchange for other
systems and channel rights which the Heartland Board believes would enhance
Heartland's competitive position.
The TSC Transaction. The Heartland Board has approved and adopted the TSC
Agreement. The Heartland Board believes that the TSC Transaction is fair to and
in the best interest of Heartland and its stockholders. The Heartland Board
believes that the TSC Transaction would provide Heartland with (i) additional
wireless cable television systems and channel rights consistent with Heartland's
rural market focus (El Paso and Corpus Christi, Texas) strategically located
with Heartland's existing wireless cable television systems in the State of
Texas and (ii) wireless cable television systems targeted for disposition
(Dayton, Ohio) on terms and conditions favorable to Heartland in comparison with
its cost of acquisition. If the planned disposition is not consummated, the
Dayton system would then be held for disposition or strategic exchange for other
systems and channel rights which the Heartland Board believes would enhance
Heartland's competitive position.
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<PAGE> 1205
PRO FORMA FINANCIAL INFORMATION
RELATIVE TO THE TRANSACTIONS
The following unaudited pro forma condensed consolidated financial
information presents pro forma financial information of Heartland in three sets
of pro forma financial statements. The pro forma financial information consists
of (1) an Unaudited Pro Forma Condensed Combined Balance Sheet for the
Transactions as of September 30, 1995 and the related Unaudited Pro Forma
Condensed Combined Statements of Operations for the Transactions for the year
ended December 31, 1994 and the nine months ended September 30, 1995,
(collectively, the "Combined Pro Forma Statements for the Transactions"), (2) an
Unaudited Pro Forma Condensed Balance Sheet for each of the Transactions as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for each of the Transactions for the year ended
December 31, 1994 and the nine months ended September 30, 1995 (collectively,
the "Individual Pro Forma Statements for the Transactions") and (3) an Unaudited
Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 (collectively, the "Pro Forma
Statements for Consummated Events") (all such pro forma financial information
together, the "Pro Forma Statements"). The Pro Forma Statements for the
Transactions and the Individual Pro Forma Statements for the Transactions follow
on pages 82 to 105 of this Proxy Statement/Prospectus. The Pro Forma Statements
for Consummated Events have been included on pages F-36 to F-41 of the Proxy
Statement/Prospectus.
The Pro Forma Statements for the Transactions adjust the Pro Forma
Statements for Consummated Events to give effect to the Transactions as if the
Transactions had occurred on September 30, 1995 for balance sheet information
and January 1, 1994 for statement of operations information. The Pro Forma
Statements for the Transactions assume that all the Transactions and the
proposed Heartland Disposition Assets will be consummated by Heartland. However,
because there can be no certainty regarding which of the Transactions, if any,
will be consummated and because, correspondingly, it is impossible to precisely
determine the ultimate plan of disposition (some assets from each of the
Transactions will potentially be disposed of by Heartland or its predecessors),
a large number of other potential pro forma outcomes are possible. As a result,
Heartland has presented the Individual Pro Forma Statements for the Transactions
which include pro forma adjustments related to each separate Transaction and
associated disposition. This method of presentation provides readers with all of
the information necessary to recalculate, should they so desire, Heartland's pro
forma financial information under any possible scenario that might arise from
the acquisition and disposition plans described in this Proxy
Statement/Prospectus.
The Transactions will be accounted for by the purchase method of
accounting. With respect to the Transactions, the purchase price has been
allocated on a preliminary basis to the assets and liabilities acquired based on
the estimated fair values of such assets and liabilities.
The Pro Forma Statements and accompanying notes should be read in
conjunction with Heartland's consolidated financial statements (including notes
thereto) appearing elsewhere in the Proxy Statement/Prospectus. The Pro Forma
Statements do not purport to represent what Heartland's results of operations or
financial position actually would have been had such transactions or events
occurred on the dates specified, or to project Heartland's results of operations
or financial position for any future period or date. The pro forma adjustments
are based upon available information and certain adjustments that Heartland's
management believes are reasonable. In the opinion of Heartland's management,
all adjustments have been made that are necessary to present fairly the Pro
Forma Statements.
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<PAGE> 1206
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET FOR THE TRANSACTIONS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 47,155,064 $ 786,392 $ 5,082,653 $ --
Restricted investments........... 11,669,874 -- -- --
Net assets held for cash
sale or exchange............... 2,200,000 -- 7,250,000 --
Note receivable.................. -- -- -- --
Other current assets............. 3,035,281 673,913 89,724 --
------------ ------------ ------------ ------------
Total current assets....... 64,060,219 1,460,305 12,422,377 --
Systems and equipment, net....... 43,368,952 17,035,351 218,404 --
Leased license investment, net... 60,482,276 32,556,597 -- --
Investment in Wireless One....... 14,602,442 -- -- --
Investment in CS Wireless........ -- -- -- --
Excess of cost over fair
value of net assets
acquired....................... 4,470,286 8,549,540 9,015,248 --
Net assets held for exchange..... -- 43,610,341 27,498,434 16,191,304
Restricted investments........... 13,077,340 -- -- --
Note receivable.................. -- -- -- --
Other assets, net................ 10,435,034 -- 77,179 --
------------ ------------ ----------- -----------
$210,496,549 $103,212,134 $49,231,642 $16,191,304
============ ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of
long-term debt................. $ 616,610 $ 787,500 $ 99,442 $ --
Other current liabilities........ 10,130,631 3,042,950 1,468,523 --
------------ ------------ ----------- -----------
Total current liabilities.. 10,747,241 3,830,450 1,567,965 --
Long-term debt, less
current portion................ 139,428,429 10,020,000 1,800,000 --
Deferred income taxes............ 1,189,080 8,549,540 9,015,248 --
Other liabilities................ 279,695 -- 233,044 --
Stockholders' equity............. 58,852,104 80,812,144 36,615,385 16,191,304
------------ ------------ ----------- -----------
$210,496,549 $103,212,134 $49,231,642 $16,191,304
============ ============ =========== ===========
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ -- $ 56,297 $ (10,807,500)(G) $ 68,613,369
(2,000,000)(H)
28,340,463(I)
Restricted investments........... -- -- 11,669,874
Net assets held for cash
sale or exchange............... -- -- 9,450,000
Note receivable.................. -- -- 25,000,000(I) 25,000,000
Other current assets............. -- 281,895 (74,316)(I) 4,006,497
----------- ----------- ------------- ------------
Total current assets....... -- 338,192 40,458,647 118,739,740
Systems and equipment, net....... -- 6,151,964 (2,038,608)(I) 64,736,063
Leased license investment, net... -- 18,687,753 (2,482,706)(I) 109,243,920
Investment in Wireless One....... -- -- 14,602,442
Investment in CS Wireless........ -- -- 55,875,666(I) 55,875,666
Excess of cost over fair
value of net assets
acquired....................... -- 6,066,024 28,101,098
Net assets held for exchange..... 21,913,052 10,720,791 (119,933,922)(I) --
Restricted investments........... -- -- 13,077,340
Note receivable.................. -- -- 15,000,000(I) 15,000,000
Other assets, net................ -- 5,300 (1,800,000)(G) 8,717,513
----------- ----------- ------------- ------------
$21,913,052 $41,970,024 $ (14,920,923) $428,093,782
=========== =========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of
long-term debt................. $ -- $ 1,263,005 $ (787,500)(G) $ 1,979,057
Other current liabilities........ -- 2,890,995 (313,423)(I) 17,219,676
----------- ----------- ------------- ------------
Total current liabilities.. -- 4,154,000 (1,100,923) 19,198,733
Long-term debt, less
current portion................ -- -- (11,820,000)(G) 139,428,429
Deferred income taxes............ -- 6,066,024 24,819,892
Other liabilities................ -- -- 512,739
Stockholders' equity............. 21,913,052 31,750,000 (2,000,000)(H) 244,133,989
----------- ----------- ------------- ------------
$21,913,052 $41,970,024 $ (14,920,923) $428,093,782
=========== =========== ============= ============
</TABLE>
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<PAGE> 1207
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues................................. $ 7,590,823 $ 6,765,741 $ -- $ --
------------ ------------ ----------- ------------
Operating expenses:
Systems operations........................... 4,188,612 3,270,598 -- --
Selling, general and administrative.......... 6,377,969 5,229,087 -- --
Depreciation and amortization................ 3,263,717 4,934,844 -- --
------------ ------------ ----------- ------------
Total operating expenses................. 13,830,298 13,434,529 -- --
------------ ------------ ----------- ------------
Operating loss........................ (6,239,475) (6,668,788) -- --
Interest expense............................... (4,185,033) (459,536) -- --
Equity in losses of investment................. (1,004,594) -- -- --
Interest income and other...................... 152,450 577,217 -- --
------------ ------------ ----------- ------------
Loss before income taxes................. (11,276,652) (6,551,107) -- --
Income tax benefit............................. 2,458,812 2,265,743 -- --
------------ ------------ ----------- ------------
Net loss................................. $ (8,817,840) $ (4,285,364) $ -- $ --
============= ============ =========== ============
Net loss per share............................. $ (0.70) $ -- $ -- $ --
============= ============ =========== ============
Weighted average shares outstanding............ 12,541,444 2,886,148 1,307,692 578,261
============= ============ =========== ============
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenues................................. $ -- $ 5,735,071 $ -- $ 20,091,635
----------- ------------ ---------- ------------
Operating expenses:
Systems operations........................... -- 2,662,495 10,121,705
Selling, general and administrative.......... -- 1,812,854 13,419,910
Depreciation and amortization................ -- 2,976,050 11,174,611
----------- ------------ ---------- ------------
Total operating expenses................. -- 7,451,399 -- 34,716,226
----------- ------------ ---------- ------------
Operating loss........................ -- (1,716,328) (14,624,591)
Interest expense............................... -- (1,388,263) (6,032,832)
Equity in losses of investment................. -- -- (1,004,594)
Interest income and other...................... -- -- 729,667
----------- ------------ ---------- ------------
Loss before income taxes................. -- (3,104,591) -- (20,932,350)
Income tax benefit............................. -- 1,148,699 1,409,641(J) 7,282,895
----------- ------------ ---------- ------------
Net loss................................. $ -- $ (1,955,892) $1,409,641 $(13,649,455)
=========== ============ ========== ============
Net loss per share............................. $ -- $ -- $ -- $ (0.71)
=========== ============ ========== ============
Weighted average shares outstanding............ 782,609 1,133,929 -- 19,230,083
=========== ============ ========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
83
<PAGE> 1208
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues.................... $ 9,944,209 $ 6,674,530 $ -- $ --
------------ ------------ ---------- --------
Operating expenses:
Systems operations.............. 3,371,531 2,973,011 -- --
Selling, general and
administrative................ 7,689,026 4,294,351 -- --
Depreciation and amortization... 4,396,920 5,210,043 -- --
------------ ------------ ---------- --------
Total operating expenses..... 15,457,477 12,477,405 -- --
------------ ------------ ---------- --------
Operating loss............ (5,513,268) (5,802,875) -- --
Interest expense.................. (8,908,459) (945,475) -- --
Equity in losses of investees..... (1,049,583) -- -- --
Interest income and other......... 1,568,946 121,497 -- --
------------ ------------ ---------- --------
Loss before income taxes.... (13,902,364) (6,626,853) -- --
Income tax benefit................ -- 2,333,311 -- --
------------ ------------ ---------- --------
Net loss.................... $(13,902,364) $ (4,293,542) $ -- $ --
============ ============ ========== ========
Net loss per share................ $ (1.10) $ -- $ -- $ --
============ ============ ========== ========
Weighted average shares
outstanding..................... 12,591,927 2,886,148 1,307,692 578,261
============ ============ ========== ========
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenues.................... $ -- $ 4,138,790 $ -- $ 20,757,529
-------- ----------- ----------- ------------
Operating expenses:
Systems operations.............. -- 2,056,387 8,400,929
Selling, general and
administrative................ -- 1,157,219 13,140,596
Depreciation and amortization... -- 2,116,483 11,723,446
-------- ----------- ----------- ------------
Total operating expenses..... -- 5,330,089 -- 33,264,971
-------- ----------- ----------- ------------
Operating loss............ -- (1,191,299) -- (12,507,442)
Interest expense.................. -- (625,728) (10,479,662)
Equity in losses of investees..... -- -- (1,049,583)
Interest income and other......... -- 253,352 1,943,795
-------- ----------- ----------- ------------
Loss before income taxes.... -- (1,563,675) -- (22,092,892)
Income tax benefit................ -- 494,394 5,011,374(J) 7,839,079
-------- ----------- ----------- ------------
Net loss.................... $ -- $(1,069,281) $ 5,011,374 $(14,253,813)
======== =========== =========== ============
Net loss per share................ $ -- $ -- $ -- $ (0.74)
======== =========== =========== ============
Weighted average shares
outstanding..................... 782,609 1,133,929 -- 19,280,566
======== =========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
84
<PAGE> 1209
NOTES TO COMBINED PRO FORMA STATEMENTS FOR THE TRANSACTIONS
(A) Reflects pro forma information for events previously consummated by
Heartland. See pages F-36 to F-41 for detailed pro forma adjustments
related to events previously consummated by Heartland.
(B) Reflects pro forma information for the CMAX Merger. See pages 86 to 89 for
detailed pro forma adjustments relating to the CMAX Merger.
(C) Reflects pro forma information for the AWS Merger. See pages 90 to 93 for
detailed pro forma adjustments relating to the AWS Merger.
(D) Reflects pro forma information for the FTW Transaction. See pages 94 to 97
for detailed pro forma adjustments relating to the FTW Transaction.
(E) Reflects pro forma information for the Minneapolis Transaction. See pages
98 to 101 for detailed pro forma adjustments relating to the Minneapolis
Transaction.
(F) Reflects pro forma information for the TSC Transaction. See pages 102 to
105 for detailed pro forma adjustments relating to the TSC Transaction.
(G) Reflects the repayment of certain indebtedness of CMAX by Heartland upon
consummation of the CMAX Merger and the elimination of Heartland's $1.8
million note receivable from AWS. Any differences between historical
interest expense recognized by CMAX on the retired indebtedness and
interest expense which would be recognized by Heartland on a pro forma
basis is not material.
(H) Reflects estimated costs to be incurred in connection with the issuance of
Heartland's Common Stock upon consummation of the Transactions.
(I) Reflects Heartland's contribution to Newco of the Heartland Disposition
Assets and the receipt by Heartland of (i) 39.76% of the outstanding common
shares of Newco, (ii) approximately $28.3 million in cash payable by Newco
at the closing, (iii) a $25 million promissory note payable 9 months from
closing and (iv) a $15 million promissory note payable 10 years from the
closing of the Participation Agreement.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
85
<PAGE> 1210
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 786,392 $ $ 786,392 $ $ 786,392
Other current assets.............. 938,437 938,437 (264,524)(D) 673,913
------------ ------------ ------------- ------------- -------------
Total current assets.... 1,724,829 -- 1,724,829 (264,524) 1,460,305
Systems and equipment, net........ 26,447,933 26,447,933 (9,412,582)(D) 17,035,351
Leased license investment, net.... 21,271,892 45,899,604(B) 67,171,496 (34,614,899)(D) 32,556,597
Excess of cost over fair value of
net assets acquired............. -- 8,549,540(C) 8,549,540 8,549,540
Net assets held for exchange...... -- -- 43,610,341(D) 43,610,341
------------ ------------ ------------- ------------- -------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
============ ============ ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt............................ $ 787,500 $ $ 787,500 $ $ 787,500
Other current liabilities......... 3,724,614 3,724,614 (681,664)(D) 3,042,950
------------ ------------ ------------- ------------- -------------
Total current
liabilities........... 4,512,114 -- 4,512,114 (681,664) 3,830,450
Long-term debt, less current
portion......................... 10,020,000 10,020,000 10,020,000
Deferred income taxes............. -- 8,549,540(C) 8,549,540 8,549,540
Stockholders' equity.............. 34,912,540 80,812,144(A) 80,812,144 80,812,144
(34,912,540)(A)
------------ ------------ ------------- ------------- -------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
============ ============ ============= ============= =============
</TABLE>
See accompanying notes to Pro Forma Statements
86
<PAGE> 1211
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues........................ $11,283,709 $ -- $11,283,709 $(4,517,968)(D) $ 6,765,741
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations.................. 5,310,478 5,310,478 (2,039,880)(D) 3,270,598
Selling, general and
administrative................... 9,027,094 (1,382,000)(E) 7,645,094 (2,416,007)(D) 5,229,087
Depreciation and amortization....... 6,106,007 1,385,643(F) 7,919,127 (2,984,283)(D) 4,934,844
427,477(G)
----------- ----------- ----------- ----------- -----------
Total operating expenses....... 20,443,579 431,120 20,874,699 (7,440,170) 13,434,529
----------- ----------- ----------- ----------- -----------
Operating loss.............. (9,159,870) (431,120) (9,590,990) 2,922,202 (6,668,788)
Interest expense...................... (459,536) (459,536) (459,536)
Interest income and other............. 577,217 577,217 577,217
----------- ----------- ----------- ----------- -----------
Loss before income taxes....... (9,042,189) (431,120) (9,473,309) 2,922,202 (6,551,107)
Income tax benefit.................... -- 3,346,958(H) 3,346,958 (1,081,215)(D) 2,265,743
----------- ----------- ----------- ----------- -----------
Net loss....................... $(9,042,189) $ 2,915,838 $(6,126,351) $ 1,840,987 $(4,285,364)
=========== =========== =========== =========== ===========
Net loss per share.................... $ (2.12) $ (1.48)
=========== ===========
Weighted average shares outstanding... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
87
<PAGE> 1212
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues.................. $10,621,647 $ -- $10,621,647 $(3,947,117)(D) $ 6,674,530
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............ 4,937,148 4,937,148 (1,964,137)(D) 2,973,011
Selling, general and
administrative............. 6,829,999 (1,364,926)(E) 5,465,073 (1,170,722)(D) 4,294,351
Depreciation and
amortization............... 7,251,068 607,918(F) 8,179,594 (2,969,551)(D) 5,210,043
320,608(G)
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 19,018,215 (436,400) 18,581,815 (6,104,410) 12,477,405
----------- ----------- ----------- ----------- -----------
Operating loss........ (8,396,568) 436,400 (7,960,168) 2,157,293 (5,802,875)
Interest expense................ (945,475) (945,475) (945,475)
Interest income and other....... 121,497 121,497 121,497
----------- ----------- ----------- ----------- -----------
Loss before income
taxes................. (9,220,546) 436,400 (8,784,146) 2,157,293 (6,626,853)
Income tax benefit.............. -- 3,131,509(H) 3,131,509 (798,198) (D) 2,333,311
----------- ----------- ----------- ----------- -----------
Net loss................. $(9,220,546) $ 3,567,909 $(5,652,637) $ 1,359,095 $(4,293,542)
=========== =========== =========== =========== ===========
Net loss per share.............. $ (1.96) $ (1.49)
=========== ===========
Weighted average shares
outstanding................... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
88
<PAGE> 1213
NOTES TO PRO FORMA STATEMENTS FOR THE CMAX MERGER
The CMAX historical statement of operations for the year ended December 31,
1994 has been derived utilizing CMAX's historical audited statement of
operations for the year ended June 30, 1994 and unaudited statements of
operations for the six months ended December 31, 1993 and 1994. The CMAX
historical statement of operations for the nine months ended September 30, 1995
has been derived utilizing CMAX's historical audited statement of operations for
the year ended June 30, 1995 and unaudited statements of operations for the six
months ended December 31, 1994 and three months ended September 30, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of CMAX's historical equity and the issuance of
2,886,148 shares of Heartland Common Stock at an estimated average closing
price of $28 per share in exchange for all outstanding shares of CMAX
Common Stock. In addition, subsequent to September 30, 1995, Heartland paid
CMAX a $2.4 million deposit with respect to the sublease of certain
wireless cable channel rights in various Texas markets and agreed to loan
CMAX up to $1,000,000. With respect to the $1,000,000 loan, $500,000 was
advanced on December 29, 1995 to be used for working capital purposes and
$500,000 may be used for subscriber growth.
(B) Reflects the fair value of approximately $67.2 million assigned to leased
license investment for the acquisition of CMAX, net of historical leased
license investment. Historical balances of working capital are assumed to
approximate their fair values. Heartland has evaluated the propriety of the
carrying amounts of leased license investment with respect to each market
based on management's estimate of the fair value of each market and
expected future operating cash flows from subscribers in an individual
market, and believes such amounts to be recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the CMAX
net assets acquired. The related increase in excess purchase price over the
fair value of net identifiable assets acquired will be amortized over an
estimated useful life of 20 years. Heartland has evaluated the propriety of
the carrying amount of excess cost over fair value of net assets acquired
based on management's estimate of the fair value of Heartland's markets and
expected future operating cash flows from subscribers, and believes such
amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the CMAX Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from the
pro forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of CMAX that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel and professional fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the CMAX Merger. Amortization of leased license
investment is calculated beginning with inception of service in each
respective market over an estimated useful life of 20 years. For purposes
of the Pro Forma Statements for the CMAX Merger, additional amortization of
leased license investment has been calculated from January 1, 1994 since
all current operating systems (except for Waco and Temple/Kileen, Texas
systems) began service prior to such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the CMAX Merger.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
89
<PAGE> 1214
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
--------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $1,182,653 $ 3,900,000(B) $5,082,653 $ $5,082,653
Net assets held for cash sale or
exchange....................... -- -- 7,250,000(E) 7,250,000
Other current assets............. 89,724 89,724 89,724
---------- ----------- ----------- ------------ -----------
Total current assets... 1,272,377 3,900,000 5,172,377 7,250,000 12,422,377
Systems and equipment, net....... 218,404 218,404 218,404
Leased license investment, net... 2,987,940 23,478,317(B) 23,396,257 (23,396,257)(E) --
(3,900,000)(B)
830,000(D)
Investment in joint ventures..... 2,998,398 8,353,779(B) 11,352,177 (11,352,177)(E) --
Excess of cost over fair value of
net assets acquired............ -- 9,015,248(C) 9,015,248 9,015,248
Net assets held for exchange..... -- 27,498,434(E) 27,498,434
Other assets, net................ 77,179 77,179 77,179
---------- ----------- ----------- ------------ -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt........................... $ 99,442 $ $ 99,442 $ $ 99,442
Other current liabilities........ 638,523 830,000(D) 1,468,523 1,468,523
---------- ----------- ----------- ------------ -----------
Total current
liabilities.......... 737,965 830,000 1,567,965 -- 1,567,965
Long-term debt, less current
portion........................ 1,800,000 1,800,000 1,800,000
Deferred income taxes............ -- 9,015,248(C) 9,015,248 9,015,248
Other liabilities................ 233,044 233,044 233,044
Stockholders' equity............. 4,783,289 36,615,385(A) 36,615,385 36,615,385
(4,783,289)(A)
---------- ----------- ----------- ------------ -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
90
<PAGE> 1215
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 83,333 $ -- $ 83,333 $ (83,333)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations.............. --
Selling, general and
administrative............... 3,521,413 (960,001)(F) 2,911,412 (2,911,412)(E) --
350,000(G)
Depreciation and amortization... 637,049 450,762(I) 1,087,811 (1,087,811)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 4,158,462 (159,239) 3,999,223 (3,999,223) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (4,075,129) 159,239 (3,915,890) 3,915,890 --
Interest expense.................. (976,867) (976,867) 976,867(E) --
Equity in losses of investees..... (200,436) (281,439)(H) (481,875) 481,875(E) --
Interest income and other......... (474,348) (474,348) 474,348(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (5,726,780) (122,200) (5,848,980) 5,848,980 --
Income tax benefit................ -- 1,997,341(J) 1,997,341 (1,997,341)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $(5,726,780) $ 1,875,141 $(3,851,639) $ 3,851,639 --
=========== =========== =========== =========== ==========
Net loss per share................ $ (2.95) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
91
<PAGE> 1216
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 75,000 $ -- $ 75,000 $ (75,000)(E) $ --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations..............
Selling, general and
administrative............... 1,533,152 (315,035)(F) 1,480,617 (1,480,617)(E) --
262,500(G)
Depreciation and amortization... 66,079 338,072(I) 404,151 (404,151)(E) --
----------- ----------- ----------- ----------- -----------
Total operating expenses... 1,599,231 285,537 1,884,768 (1,884,768) --
----------- ----------- ----------- ----------- -----------
Operating loss.......... (1,524,231) (285,537) (1,809,768) 1,809,768 --
Interest expense.................. (126,119) (126,119) 126,119(E) --
Equity in losses of investees..... (136,298) (196,338)(H) (332,636) 332,636(E) --
Interest income and other......... 802,078 802,078 (802,078)(E) --
----------- ----------- ----------- ----------- -----------
Loss before income taxes... (984,570) (481,875) (1,466,445) 1,466,455 --
Income tax benefit................ -- 417,498(J) 417,498 (417,498)(E) --
----------- ----------- ----------- ----------- -----------
Net loss................... $ (984,570) $ (64,377) $(1,048,947) $ 1,048,947 $ --
=========== =========== =========== =========== ===========
Net loss per share................ $ (0.80) $ --
=========== ===========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
92
<PAGE> 1217
NOTES TO PRO FORMA STATEMENTS FOR THE AWS MERGER
(A) Reflects the elimination of AWS's historical equity and the issuance of
1,307,692 shares of Heartland Common Stock at an estimated market price of
$28 per share in exchange for all outstanding shares of AWS Common Stock.
Pursuant to the terms of the AWS Merger Agreement and AWS Exchange
Agreement, shares of Heartland Common Stock having an aggregate exchange
value of $3.25 million ($2.75 million if certain litigation pending against
AWS is resolved prior to the AWS Effective Time) will be placed in escrow
for approximately one year to satisfy certain indemnification obligations
of AWS to Heartland.
(B) Reflects the fair values of approximately $23.4 million and $11.4 million
assigned to leased license investment and investment in the Fort Worth and
Minneapolis joint ventures, respectively, net of historical balances. The
sale by AWS of the Memphis market for cash of $3.9 million has also been
reflected in the pro forma balance sheet. Historical balances of working
capital are assumed to approximate their fair values. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the AWS
net assets acquired. The related increase in excess purchase price over the
fair value of net identifiable assets acquired will be amortized over an
estimated useful life of 20 years. Heartland has evaluated the propriety of
the carrying amount of excess cost over fair value of net assets acquired
based on management's estimate of the fair value of Heartland's markets and
expected future operating cash flows from subscribers, and believes such
amount to be recoverable.
(D) Reflects the recognition of liabilities for severance payments to certain
executive officers of AWS.
(E) Reflects the reclassification of certain assets and liabilities acquired in
the AWS Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from the
pro forma statements of operations.
(F) Reflects the elimination of certain historical corporate general and
administrative expenses of AWS that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel, directors and officers insurance and professional
fees.
(G) Reflects the additional expense from the non-competition and consulting
agreement with an AWS executive officer.
(H) Reflects AWS's portion of the additional losses of the Fort Worth and
Minneapolis joint ventures.
(I) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the AWS Merger.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
93
<PAGE> 1218
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 25,014 $ $ 25,014 $ (25,014)(C) $ --
Other current assets............ 62,456 62,456 (62,456)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 87,470 -- 87,470 (87,470) --
Systems and equipment, net...... 1,001,027 1,001,027 (1,001,027)(C) --
Leased license investment,
net........................... 2,178,002 17,542,631(B) 19,720,633 (19,720,633)(C) --
Net assets held for exchange.... -- 16,191,304(C) 16,191,304
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ -- $ $ -- $ $ --
Other current liabilities....... 1,207,311 (637,311)(B) 570,000 (570,000)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 1,207,311 (637,311) 570,000 (570,000) --
Minority interest............... 99,742 3,948,084(B) 4,047,826 (4,047,826)(C) --
Stockholders' equity............ 1,959,446 16,191,304(A) 16,191,304 16,191,304
(1,959,446)(A)
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
94
<PAGE> 1219
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 667,260 $ -- $ 667,260 $ (667,260)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 567,461 567,461 (567,461)(C) --
Selling, general and
administrative................ 695,990 (100,000)(D) 595,990 (595,990)(C) --
Depreciation and amortization.... 786,572 535,809(E) 1,322,381 (1,322,381)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,050,023 435,809 2,485,832 (2,485,832) --
----------- --------- ----------- ----------- ---------
Operating loss........... (1,382,763) (435,809) (1,818,572) 1,818,572 --
Interest income and other.......... 62,281 87,161(F) 149,442 (149,442)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,320,482) (348,648) (1,669,130) 1,669,130 --
Income tax benefit................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss...................... $(1,320,482) $(348,648) $(1,669,130) $ 1,669,130 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (2.89) $ --
=========== =========
Weighted average shares
outstanding...................... 578,261(A) 578,261 578,261
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
95
<PAGE> 1220
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues...................... $ 451,581 $ -- $ 451,581 $ (451,581)(C) $ --
----------- --------- ------------ ------------ ---------
Operating expenses:
Systems operations................ 396,302 396,302 (396,302)(C) --
Selling, general and
administrative................. 503,910 (75,000)(D) 428,910 (428,910)(C) --
Depreciation and amortization..... 581,451 408,612(E) 990,063 (990,063)(C) --
----------- --------- ------------ ------------ ---------
Total operating expenses..... 1,481,663 333,612 1,815,275 (1,815,275) --
----------- --------- ------------ ------------ ---------
Operating loss............ (1,030,082) (333,612) (1,363,694) 1,363,694 --
Interest income and other........... 44,048 66,722(F) 110,770 (110,770)(C) --
----------- --------- ------------ ------------ ---------
Loss before income taxes..... (986,034) (266,890) (1,252,924) 1,252,924 --
Income tax benefit.................. -- -- --
----------- --------- ------------ ------------ ---------
Net loss..................... $ (986,034) $(266,890) $(1,252,924) $ 1,252,924 $ --
=========== ========= ============ ============ =========
Net loss per share.................. $ (2.17) $ --
============ =========
Weighted average shares
outstanding....................... 578,261(A) 578,261 578,261
========= ============ =========
</TABLE>
See accompanying notes to Pro Forma Statements
96
<PAGE> 1221
NOTES TO PRO FORMA STATEMENTS FOR THE FTW TRANSACTION
(A) Reflects the elimination of FTW Partnership's historical equity and the
issuance of 578,261 shares of Heartland Common Stock at an estimated market
price of $28 per share to FTW Partnership. In addition, subsequent to
September 30, 1995, Heartland had deposited in escrow $265,000 on behalf of
the FTW Partnership and agreed to make cash loans of $500,000 to the FTW
Partnership.
(B) Reflects the fair values of approximately $19.7 million and $4.0 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Under terms of the FTW Agreement, total liabilities to
be assumed by Heartland will not exceed $570,000 of certain types of
liabilities (including disputed liabilities). Heartland has evaluated the
propriety of the carrying amounts of leased license investment with respect
to each market based on management's estimate of the fair value of each
market and expected future operating cash flows from subscribers in an
individual market, and believes such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the FTW Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of FTW Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental depreciation and amortization of leased license
investment associated with the FTW Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the FTW Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Fort Worth systems began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
97
<PAGE> 1222
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 177,941 $ $ 177,941 $ (177,941)(C) $ --
Other current assets............ 223,218 223,218 (223,218)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 401,159 -- 401,159 (401,159) --
Systems and equipment, net...... 1,480,218 1,480,218 (1,480,218)(C) --
Leased license investment,
net........................... 4,603,199 25,543,892(B) 30,147,091 (30,147,091)(C) --
Net assets held for exchange.... 21,913,052(C) 21,913,052
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 (10,115,416) $21,913,052
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 2,000,000 (B) 2,000,000 (2,000,000)(C) $ --
Other current liabilities....... 811,065 811,065 (811,065)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 2,811,065 -- 2,811,065 (2,811,065) --
Minority interest............... 289,737 7,014,614(B) 7,304,351 (7,304,351)(C) --
Stockholders' equity............ 3,383,774 21,913,052(A) 21,913,052 21,913,052
(3,383,774)(A)
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 $(10,115,416) $21,913,052
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
98
<PAGE> 1223
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 535,046 $ -- $ 535,046 $ (535,046)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,187,795 1,187,795 (1,187,795)(C) --
Selling, general and
administrative................ 463,156 (83,333)(D) 379,823 (379,823)(C) --
Depreciation and amortization.... 977,471 860,445(E) 1,837,916 (1,837,916)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,628,422 777,112 3,405,534 (3,405,534) --
----------- --------- ----------- ----------- ---------
Operating loss........... (2,093,376) (777,112) (2,870,488) 2,870,488 --
Interest income and other.......... 138,155 194,278(F) 332,433 (332,433)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,955,221) (582,834) (2,538,055) 2,538,055 --
Income tax benefit................. -- -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,955,221) $(582,834) $(2,538,055) $ 2,538,055 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (3.24) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
99
<PAGE> 1224
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 740,595 $ -- $ 740,595 $ (740,595)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,092,248 1,092,248 (1,092,248)(C) --
Selling, general and
administrative................ 373,069 (75,000)(D) 298,069 (298,069)(C) --
Depreciation and amortization.... 799,154 593,465(E) 1,392,619 (1,392,619)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,264,471 518,465 2,782,936 (2,782,936) --
----------- --------- ----------- ----------- ---------
Operating loss........... (1,523,876) (518,465) (2,042,341) 2,042,341 --
Interest income and other.......... 90,628 129,616(F) 220,244 (220,244)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,433,248) (388,849) (1,822,095) 1,822,095 --
Income tax benefit................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,433,248) $(388,849) $(1,822,095) $ 1,822,095 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (2.33) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
100
<PAGE> 1225
NOTES TO PRO FORMA STATEMENTS FOR THE MINNEAPOLIS TRANSACTION
(A) Reflects the elimination of Minneapolis Partnership historical equity and
the issuance of 782,609 shares of Heartland Common Stock at an estimated
market price of $28 per share to Minneapolis Partnership. The Pro Forma
Statements for the Minneapolis Transaction do not assume the issuance of
any additional shares of Heartland Common Stock for additional subscribers
added by the Minneapolis Partnership. In addition, subsequent to September
30, 1995, Heartland made cash loans to the Minneapolis LLC in the amount of
$1,059,000.
(B) Reflects the fair values of approximately $30.1 million and $7.3 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Heartland has evaluated the propriety of the carrying
amounts of leased license investment with respect to each market based on
management's estimate of the fair value of each market and expected future
operating cash flows from subscribers in an individual market, and believes
such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the Minneapolis Transaction to net assets held for exchange based on
management's expectations with respect to such net assets. Accordingly,
historical operating results relating to such net assets are eliminated
from the pro forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of Minneapolis Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental amortization of leased license investment associated
with the Minneapolis Transaction. Amortization of leased license investment
is calculated beginning with inception of service in each respective market
over an estimated useful life of 20 years. For purposes of the Pro Forma
Statements for the Minneapolis Transaction, additional amortization of
leased license investment has been calculated from January 1, 1994 since
the Minneapolis System began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
101
<PAGE> 1226
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 78,124 $ $ 78,124 $ (21,827)(D) $ 56,297
Other current assets............ 477,325 477,325 (195,430)(D) 281,895
------------ ------------ ----------- ----------- ------------
Total current
assets.............. 555,449 -- 555,449 (217,257) 338,192
Systems and equipment, net...... 9,001,797 9,001,797 (2,849,833)(D) 6,151,964
Leased license investment,
net........................... 3,552,846 23,634,608(B) 27,187,454 (8,499,701)(D) 18,687,753
Excess of cost over fair value
of net assets acquired........ -- 6,066,024(C) 6,066,024 6,066,024
Net assets held for exchange.... -- 10,720,791(D) 10,720,791
Other assets, net............... 1,441,093 (1,435,793)(B) 5,300 5,300
------------ ------------ ----------- ----------- ------------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 13,232,882 $(11,874,953)(B) 1,357,929 (94,924)(D) 1,263,005
Other current liabilities....... 3,642,071 3,642,071 (751,076)(D) 2,890,995
------------ ------------ ----------- ----------- ------------
Total current
liabilities......... 16,874,953 (11,874,953) 5,000,000 (846,000) 4,154,000
Long-term debt, less current
portion....................... 6,061,259 (6,061,259)(B) -- --
Deferred income taxes........... -- 6,066,024(C) 6,066,024 6,066,024
Stockholders' equity............ (8,385,027) 31,750,000(A) 31,750,000 31,750,000
8,385,027(A)
------------ ------------ ----------- ----------- ------------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
102
<PAGE> 1227
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................... $ 6,587,547 $ -- $ 6,587,547 $ (852,476)(D) $ 5,735,071
------------ ----------- ----------- ----------- ------------
Operating expenses:
Systems operations............. 3,726,212 3,726,212 (1,063,717)(D) 2,662,495
Selling, general and
administrative.............. 2,977,792 (270,000)(E) 2,707,792 (894,938)(D) 1,812,854
Depreciation and
amortization................ 2,552,134 864,668(F) 3,718,634 (742,584)(D) 2,976,050
301,832(G)
------------ ----------- ----------- ----------- ------------
Total operating
expenses............... 9,256,138 896,500 10,152,638 (2,701,239) 7,451,399
------------ ----------- ----------- ----------- ------------
Operating loss......... (2,668,591) (896,500) (3,565,091) 1,848,763 (1,716,328)
Interest expense................. (1,491,725) (1,491,725) 103,462(D) (1,388,263)
------------ ----------- ----------- ----------- ------------
Loss before income
taxes.................. (4,160,316) (896,500) (5,056,816) 1,952,225 (3,104,591)
Income tax benefit............... -- 1,759,344(H) 1,759,344 (610,645)(D) 1,148,699
------------ ----------- ----------- ----------- ------------
Net loss.................. $ (4,160,316) $ 862,844 $(3,297,472) $ 1,341,580 $ (1,955,892)
============ =========== =========== =========== ============
Net loss per share............... $ (2.91) $ (1.72)
=========== ============
Weighted average shares
outstanding.................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
103
<PAGE> 1228
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 5,029,037 $ -- $ 5,029,037 $ (890,247)(D) $ 4,138,790
Operating expenses:
Systems operations.............. 2,675,570 2,675,570 (619,183)(D) 2,056,387
Selling, general and
administrative............... 1,777,721 (202,500)(E) 1,575,221 (418,002)(D) 1,157,219
Depreciation and amortization... 2,311,943 576,755(F) 3,116,174 (999,691)(D) 2,116,483
227,476(G)
------------ ----------- ----------- ----------- ------------
Total operating expenses... 6,765,234 601,731 7,366,965 (2,036,876) 5,330,089
------------ ----------- ----------- ----------- ------------
Operating loss.......... (1,736,197) (601,731) (2,337,928) 1,146,629 (1,191,299)
Interest expense.................. (708,446) (708,446) 82,718(D) (625,728)
Interest income and other......... 253,352 253,352 253,352
------------ ----------- ----------- ----------- ------------
Income before income
taxes................... (2,191,291) (601,731) (2,793,022) 1,229,347 (1,563,675)
Income tax benefit................ -- 949,252(H) 949,252(H) (454,858) 494,394
------------ ----------- ----------- ----------- ------------
Net income................. $ (2,191,291) $ (601,731) $(1,843,770) $ 774,489 $ (1,069,281)
============ =========== =========== =========== ============
Net income per share.............. $ (1.63) $ (.94)
=========== ============
Weighted average shares
outstanding..................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
104
<PAGE> 1229
NOTES TO PRO FORMA STATEMENTS FOR THE TSC TRANSACTION
The Technivision Unaudited Pro Forma Condensed Balance Sheet as of
September 30, 1995 and Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1994 and nine months ended September 30, 1995
have been determined utilizing the historical unaudited balance sheet of
Technivision as of November 30, 1995 and unaudited statements of operations for
the year ended November 30, 1994 and nine months ended November 30, 1995. The
Technivision historical statement of operations for the year ended November 30,
1994 has been derived utilizing Technivision's historical audited statement of
operations for the year ended May 31, 1995 and unaudited statements of
operations for the six months ended May 31, 1994 and 1995. The Technivision
historical statement of operations for the nine months ended November 30, 1995
has been derived utilizing Technivision's historical statement of operations for
the six months ended November 30, 1995 and three months ended May 31, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of Technivision historical equity and the issuance
of 1,133,929 shares of Heartland Common Stock at an estimated market price
of $28 per share to Technivision. The Pro Forma Statements for the TSC
Transaction do not assume the issuance of any additional shares of
Heartland Common Stock for additional subscribers added by Technivision.
Pursuant to the terms of the TSC Agreement and the TSC Exchange Agreement,
TSC Shares having an aggregate exchange value of $5 million will be placed
in escrow for approximately 18 months to satisfy certain indemnification
obligations of TSC to Heartland, and TSC Shares having an aggregate
exchange value of up to $3.6 million (currently estimated to be $1 million)
will be placed in escrow for up to six months (subject to extension) to
satisfy certain post-closing obligations of TSC to Heartland regarding
third party consents to the transfer of certain assets to Heartland.
(B) Reflects the fair value of approximately $27.2 million assigned to leased
license investment for the acquisition of Technivision, net of historical
leased license investment. Historical balances of working capital are
assumed to approximate their fair values. In addition, under terms of the
TSC Agreement, certain marketable securities of Technivision will not be
acquired by Heartland and total liabilities to be assumed by Heartland will
not exceed $5 million of liabilities of Technivision. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the
Technivision net assets acquired. The related increase in excess purchase
price over the fair value of net identifiable assets acquired will be
amortized over an estimated useful life of 20 years. Heartland has
evaluated the propriety of the carrying amount of excess cost over fair
value of net assets acquired based on management's estimate of the fair
value of Heartland's markets and expected future operating cash flows from
subscribers, and believes such amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the TSC Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of TechniVision that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the TSC Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the TSC Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Corpus Christi and Dayton systems began service prior to
such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the TSC Transaction.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
105
<PAGE> 1230
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND
The selected consolidated statement of operations and balance sheet data
presented below as of December 31, 1993 and 1994 and for the years ended
December 31, 1992, 1993 and 1994 were derived from the consolidated financial
statements of Heartland, which were audited by KPMG Peat Marwick LLP,
independent certified public accountants, and which are included elsewhere in
this Proxy Statement/Prospectus. The selected consolidated statement of
operations and balance sheet data presented below as of December 31, 1990, 1991
and 1992, and for the period from September 1, 1990 (inception of Wireless
Communications, Inc., Heartland's predecessor in interest) to December 31, 1990
and the year ended December 31, 1991 were derived from the consolidated
financial statements of Heartland, which were audited by KPMG Peat Marwick LLP,
but which are not included in this Proxy Statement/Prospectus. The selected
consolidated statement of operations and balance sheet data presented below as
of September 30, 1995 and for the nine months ended September 30, 1994 and 1995
were derived from the unaudited consolidated financial statements of Heartland,
which are included elsewhere in this Proxy Statement/Prospectus and which, in
the opinion of management of Heartland, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of such unaudited interim periods. The statement of operations data for
interim periods are not necessarily indicative of results for subsequent periods
or for the full year. This selected consolidated financial data should be read
in conjunction with "Heartland -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) of Heartland contained elsewhere in
this Proxy Statement/Prospectus. See "Index to Consolidated Financial Statements
and Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1,
1990 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------------------------------- -------------------------
1990 1991 1992 1993 1994 1994 1995
-------------- -------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ 205,382 $ 868,765 $2,229,494 $1,289,526 $ 9,292,837
--------- --------- ---------- ---------- ----------- ----------- ------------
Operating expenses:
Systems operations.... -- -- 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.... -- -- -- 202,162 235,025 235,025 --
Selling, general and
administrative...... 21,026 64,158 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and
amortization........ 1,000 2,000 34,919 138,560 1,097,668 418,960 3,966,120
--------- --------- ---------- ---------- ----------- ----------- ------------
Total operating
expenses........ 22,026 66,158 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss.......... (22,026) (66,158) (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income
(expense), net........ -- -- (207) (73,306) (210,113) 60,519 (6,864,367)
Equity in losses of
joint venture......... -- -- -- -- (386,985) (163,119) (128,663)
Other income
(expense)............. -- -- (37,109) (95,578) (227,204) (34,192) (475,146)
Income tax benefit...... -- -- -- -- 1,594,963 649,510 1,307,137
--------- --------- ---------- ---------- ----------- ----------- ------------
Net loss.......... $(22,026) $(66,158) $ (50,822) $(406,101) $(3,043,321) $(1,213,894) $(11,178,095)
========= ========= ========== ========== =========== =========== ============
Net loss per common
share................... -- $ (.01) $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
========= ========= ========== ========== =========== =========== ============
Weighted average shares
outstanding............. 8,000,000 8,000,000 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
========= ========= ========== ========== =========== =========== ============
Other Financial Data:
EBITDA(1)............... $(21,026) $(64,158) $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $(1,050,936)
Capital
expenditures(2)....... 42,065 306,484 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- -------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents,
excluding restricted
investments............. $ 8,399 $ 53,246 $ 164,971 $ 815,305 $11,985,953 $37,155,064
Restricted investments.... -- -- -- -- -- 24,747,214
Total assets.............. 49,514 426,771 2,267,500 8,665,066 77,921,528 200,150,474
Long-term debt, including
current portion......... -- -- -- 1,592,529 40,505,852 140,045,039
Total stockholders'
equity.................. 6,357 173,409 1,003,882 4,492,568 30,080,885 48,293,817
</TABLE>
106
<PAGE> 1231
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from September 1, 1990 (inception) to
December 31, 1990 were comprised of $10,000 for purchases of systems and
equipment and $32,065 for expenditures for leased licenses; for the year
ended December 31, 1991 were comprised of $25,000 for purchases of systems
and equipment and $281,484 for expenditures for leased licenses; for the
year ended December 31, 1992 were comprised of $604,082 for purchases of
systems and equipment and $797,655 of expenditures for leased licenses; for
the year ended December 31, 1993, $2,072,937 for purchases of systems and
equipment and $3,068,084 for expenditures for leased licenses; for the year
ended December 31, 1994, $12,414,501 for purchases of systems and equipment,
$3,354,471 for expenditures for leased licenses, $12,431,379 for the
investment in Rural Vision Joint Venture and $16,300,000 for the purchase of
certain assets from Rural Vision Joint Venture and the acquisition of the
Lindsay system; for the nine months ended September 30, 1994, $4,011,480 for
systems and equipment, $2,465,265 for leased licenses and $11,649,908 for
the investment in Rural Vision Joint Venture; and for the nine months ended
September 30, 1995, $25,575,252 for purchases of systems and equipment,
$1,592,024 of expenditures for leased licenses, $5,426,432 for the
investment in Rural Vision Joint Venture and $11,422,814 for the acquisition
of wireless cable television systems in Lubbock, Texas and Tulsa, Oklahoma
and the acquisition of certain additional assets from Rural Vision Joint
Venture.
107
<PAGE> 1232
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems.
Heartland has wireless cable channel rights in small to mid-size wireless cable
television markets, located principally in the central United States, with a
significant number of households not currently passed by traditional hard-wire
cable systems. Wireless Communications, Inc., a wholly owned subsidiary of
Heartland and its predecessor in interest ("WCI"), launched its first system,
located in Ada, Oklahoma, in April 1992. Subsequently, WCI or Heartland have
also launched service in Wichita Falls, Texas; Midland, Texas; Abilene, Texas;
Lawton, Oklahoma; Laredo, Texas; Enid, Oklahoma; Monroe, Louisiana; Ardmore,
Oklahoma; Mt. Pleasant, Texas; Lufkin, Texas; Texarkana, Texas; and Stillwater,
Oklahoma. On December 1, 1994, Heartland purchased the Milano System from
RuralVision Joint Venture. On December 29, 1994, Heartland acquired the Lindsay
System, for approximately $2.3 million. In addition, Heartland received the
distribution of the Shaw System from RuralVision Joint Venture on January 27,
1995. On May 3, 1995, Heartland acquired the Lubbock System for approximately
$5.4 million. The systems described in this paragraph are referred to in this
Management's Discussion as the "Heartland Existing Systems" or "Existing
Systems."
Heartland was incorporated in Delaware in October 1993 to succeed to the
wireless cable businesses previously conducted by WCI. David E. Webb, the
President and Chief Executive Officer and a principal stockholder of Heartland
and L. Allen Wheeler, a director and principal stockholder of Heartland were the
founders of WCI. Heartland's primary business strategy is to develop, own and
operate wireless cable television systems in markets in which Heartland believes
it can achieve positive cash flow and operating income in a particular market
rapidly after system launch and then expand such system while increasing such
system's operating income. Heartland executes this strategy by developing
wireless cable channel rights and locating operations in geographic clusters of
small to mid-size markets with a significant number of households not currently
passed by traditional hard-wire cable. Heartland's strategy allows it to contain
system launch costs because Heartland can launch its service with fewer channels
of programming and initially utilize lower power transmission equipment. In
addition, by developing wireless cable channel rights and locating its
operations in geographic clusters, Heartland can further contain costs by taking
advantage of economies of scale in management, sales and customer service.
Although Heartland has recorded net losses since inception, four operating
markets had positive cash flow in their first year of operations. None of the
other Systems had achieved positive cash flow or generated operating income,
primarily as a result of their early stages of development and number of
subscribers.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Management believes that period-to-period comparisons of Heartland's
consolidated financial results to date are not necessarily meaningful and should
not be relied upon as an indication of future performance due to Heartland's
historically high growth rate and system launches during the periods presented.
108
<PAGE> 1233
The table below sets forth for each of the Existing Systems the launch or
acquisition date, the current channel offering and the approximate number of
subscribers at December 31, 1994:
<TABLE>
<CAPTION>
APPROXIMATE
LAUNCH OR CURRENT SUBSCRIBERS AT
ACQUISITION CHANNEL DECEMBER 31,
MARKET DATE OFFERING(1) 1994
-------------------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Ada, Oklahoma............................... April 1992 32 5,020
Wichita Falls, Texas........................ October 1993 26 2,690
Midland, Texas.............................. December 1993 26 1,420
Abilene, Texas.............................. February 1994 23 2,020
Lawton, Oklahoma............................ August 1994 27 3,150
Other Existing Systems:
Laredo, Texas............................. September 1994 27 1,110
Enid, Oklahoma(2)......................... October 1994 21 970
Monroe, Louisiana(3)...................... N/A 10 200
Lindsay, Oklahoma(4)...................... December 1994 32 1,410
Ardmore, Oklahoma......................... December 1994 20 170
Mt. Pleasant, Texas(5).................... December 1994 16 --
Lufkin, Texas(6).......................... N/A 12 --
Milano, Texas(7).......................... December 1994 26 1,680
Shaw, Kansas(8)........................... January 1995 30 3,520
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(2) Construction of the Enid System was completed in February 1993. However,
Heartland did not begin actively marketing its service in the Enid System
until October 1994 when it achieved an increase in its channel offering.
(3) Construction of the Monroe System was completed in March 1993. Heartland is
not actively marketing its service in the Monroe System because it is
awaiting action by the FCC to grant licenses, which would increase the
number of wireless cable channels available to Heartland.
(4) Heartland acquired the Lindsay System on December 29, 1994.
(5) Heartland launched the Mt. Pleasant System in December 1994.
(6) Heartland completed construction of the Lufkin System in December 1994.
Heartland 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 channels available to Heartland.
(7) Heartland acquired the Milano System on December 1, 1994.
(8) Heartland acquired the Shaw System on January 27, 1995.
Revenues
Heartland's first system, the Ada System, was launched in April 1992 and
Heartland had no revenues prior to 1992. Heartland's revenues were generated
from the following sources for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- ----------
<S> <C> <C> <C>
Subscription revenues:
Ada System........................................ $170,457 $591,741 $ 893,126
Wichita Falls System.............................. -- 15,861 313,729
Midland System.................................... -- 3,516 164,816
Abilene System.................................... -- -- 171,830
Lawton System..................................... -- -- 154,424
Other Existing Systems............................ -- 14,343 155,929
Installation and service revenues................... 34,925 243,304 375,640
-------- -------- ----------
Total..................................... $205,382 $868,765 $2,229,494
======== ======== =========
</TABLE>
109
<PAGE> 1234
The following table sets forth the number of subscribers in the Heartland
Existing Systems on the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1992 1992 1992 1993 1993 1993 1993 1994 1994 1994 1994
-------- --------- -------- ---------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ada
System... 475 760 1,075 1,460 1,540 1,970 2,110 2,235 2,275 3,440 5,020
Wichita
Falls
System... -- -- -- -- -- -- 315 475 710 1,530 2,690
Midland
System... -- -- -- -- -- -- 130 370 450 690 1,420
Abilene
System... -- -- -- -- -- -- -- 140 330 1,230 2,020
Lawton
System... -- -- -- -- -- -- -- -- -- 790 3,150
Other
Existing
Systems... -- -- -- -- 10 120 180 205 220 360 5,540
</TABLE>
Historically, Heartland's subscribers have been located predominantly in
single-family homes. In the fiscal year ended December 31, 1994, the number of
subscribers located in multiple-dwelling units in the Heartland Existing Systems
(including the Shaw System) increased as a percentage of total subscribers to
approximately 9.6%. Multiple-dwelling unit subscribers typically generate lower
per-subscriber revenue than single-family units due to discounted programs
offered to these subscribers.
Subscription Revenues from Ada System. Revenues from the Ada System consist
principally of television subscription revenues. The increase in television
subscription revenues from $170,457 for 1992 to $591,741 for 1993 (a 247%
increase) and to $893,126 for 1994 (a 51% increase) is principally attributable
to an increase in the number of subscribers. The Ada System was not yet
operational on December 31, 1991. The Ada System had approximately 1,075
subscribers on December 31, 1992, approximately 2,110 subscribers on December
31, 1993 and approximately 5,020 subscribers on December 31, 1994, of which
approximately 1,580 subscribers (or 46%) were added in the last quarter of 1994.
Television subscription revenues consist of monthly fees paid by
subscribers for the Ada System's basic programming package, for premium
programming services and for equipment rental. The average monthly television
subscription revenue per Ada System subscriber in 1992, 1993 and 1994 was
$27.90, $30.27 (a 9% increase) and $26.98 (a 10% decrease), respectively. The
increase in average monthly subscription revenue per subscriber in 1993 as
compared to 1992 was primarily due to the increase in the percentage (from 61%
to 80%, respectively) of customers that rented, rather than purchased, the
receive-site equipment. The decrease in average monthly subscription revenue per
subscriber in 1994 as compared to 1993 was primarily due to the number of
subscribers added during the fourth quarter of 1994 who live in
multiple-dwelling units, which typically generate lower per-subscriber revenue
than single-family units, and certain promotional offerings of premium channel
units. During 1994, the standard charge for the basic Ada System programming
package of 29 channels (including one local off-air VHF/UHF channel) was $17.95
per month, $9.95 per month for each premium programming service and $6.00 per
month for rental of the basic receive-site equipment package. The Ada System had
approximately 5,020 subscribers on December 31, 1994, in excess of 80% of whom
rented, rather than purchased, the receive-site equipment. Heartland initiated
pay-per-view programming in the Ada System on April 1, 1995.
Subscription Revenues from Wichita Falls System. The Wichita Falls System
was launched in October 1993 with 24 channels (including four local off-air
VHF/UHF channels). The Wichita Falls System had approximately 315 subscribers on
December 31, 1993 and approximately 2,690 subscribers on December 31, 1994. The
Wichita Falls System currently offers 26 channels (including two local off-air
VHF/UHF channels which are being retransmitted). The average monthly television
subscription revenue per Wichita Falls System subscriber for 1994 was $26.46,
which consisted of the standard charge of $17.95 per month for the basic Wichita
Falls System programming package, $9.95, $8.95 and $2.95 per month,
respectively, for certain premium programming services and $6.85 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Wichita Falls System.
Subscription Revenues from Midland System. The Midland System was launched
in December 1993 with 24 channels (including four local off-air VHF/UHF
channels). The Midland System had approximately 130 subscribers on December 31,
1993 and approximately 1,420 subscribers on December 31, 1994. The average
monthly television subscription revenue per Midland System subscriber for 1994
was $23.54, which
110
<PAGE> 1235
consisted of the standard charge of $19.95 per month for the basic Midland
System programming package, $9.95 for premium programming services and $9.85 per
month for rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Midland System.
Subscription Revenues from Abilene System. The Abilene System was launched
in February 1994 with 23 channels (including three local off-air VHF/UHF
channels). The Abilene System had approximately 2,020 subscribers on December
31, 1994. The average monthly television subscription revenue per Abilene System
subscribers in 1994 was $23.20, which consisted of the standard charge of $18.95
per month for the basic Abilene System programming package, $10.95 and $2.95 per
month, respectively, for premium programming services and $8.90 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Abilene System.
Subscription Revenues from Lawton System. The Lawton System was launched in
August 1994 with 19 channels (including seven local off-air VHF/UHF channels).
The Lawton System had approximately 3,150 subscribers on December 31, 1994. The
average monthly television subscription revenue per Lawton System subscribers
was $26.65 in 1994, which consisted of the standard charge of $17.95 per month
for the basic Lawton System programming package, $9.95 per month for a premium
programming service and $8.00 per month for rental of the basic receive-site
equipment package. Substantially all single-family unit subscribers in the
Lawton System rent the receive-site equipment. Multiple-dwelling unit
subscribers in the Lawton System (approximately one-third of the total number of
subscribers) do not pay a fee to rent the receive-site equipment.
Subscription Revenues from Other Existing Systems. Television subscription
revenues from Existing Systems other than the Ada System, the Wichita Falls
System, the Midland System, the Abilene System and the Lawton System were
$155,929 in 1994 compared to $14,343 in 1993. This increase is attributable to
the increase in subscriber base related to these systems, the number of systems
launched in 1994 and the acquisition in December 1994 of one of these systems.
The Laredo System was launched in September 1994 with 23 channels
(including three local off-air VHF/UHF channels). The Laredo System had
approximately 1,110 subscribers on December 31, 1994.
Heartland completed construction of the Enid System in February 1993 in
anticipation of action by the FCC to grant licenses which would increase the
number of wireless cable channel rights available to Heartland. Initially,
subscribers were obtained without active marketing efforts by Heartland. An
increase in the Enid System channel offering was achieved in September 1994 and
Heartland began actively marketing its service in the Enid System in October
1994. The Enid System currently offers 21 channels (including two local off-air
VHF/UHF channels). The Enid System had approximately 970 subscribers on December
31, 1994.
Heartland completed construction of the Monroe System, which currently
offers 10 channels (including five local off-air VHF/UHF channels), in March
1993. The Monroe System had approximately 160 subscribers on December 31, 1994.
The Monroe System was constructed in anticipation of action by the FCC to grant
licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Monroe market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
Heartland acquired the Lindsay System on December 29, 1994. The Lindsay
System currently offers 32 channels (including 10 local off-air VHF/UHF
channels). The Lindsay System had approximately 1,410 subscribers on December
31, 1994.
The Ardmore System was launched in December 1994 with 20 channels
(including four local off-air VHF/UHF channels). The Ardmore System had
approximately 170 subscribers on December 31, 1994.
The Mt. Pleasant System was launched in December 1994 with 14 channels
(including four local off-air VHF/UHF channels). The Mt. Pleasant System had no
subscribers on December 31, 1994.
111
<PAGE> 1236
Heartland completed construction of the Lufkin System, which currently
offers 12 channels (including four local off-air VHF/UHF channels), in December
1994. The Lufkin System was constructed in anticipation of action by the FCC to
grant licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Lufkin market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
The Milano System was acquired on December 1, 1994 from RuralVision Joint
Venture. The Milano System currently offers 26 channels (including six local
off-air VHF/UHF channels). The Milano System had approximately 1,680 subscribers
on December 31, 1994.
The Shaw System was acquired on January 27, 1995, in accordance with the
terms of the Venture Distribution Agreement. The Shaw System currently offers 30
channels (including four local off-air VHF/UHF channels). The Shaw System had
approximately 3,520 subscribers on December 31, 1994.
Installation and Service Revenues. Installation and service revenues
represent installation fees charged by Heartland to certain new subscribers,
sales of receive-site equipment to certain subscribers and service income.
Installation fees are recognized upon origination of service to a customer to
the extent of subscriber acquisition costs incurred to obtain subscribers.
Revenue from the sale of receive-site equipment to subscribers is recognized
upon delivery of such equipment to a subscriber. Installation revenues included
installation fees of $34,925 in 1992, $27,289 in 1993 and $107,803 in 1994.
Installation fees declined as a percentage of revenues in 1994 due to selected
promotional campaigns in several of Heartland's markets during the period from
August 1994 to December 1994 and a higher level of revenues. Sales of
receive-site equipment to subscribers were $213,005 for 1993 and $237,730 for
1994, respectively. Through September 1993, installations and sales of
receive-site equipment were performed by a formerly affiliated installation
company. Subsequent to this period, such installations and sales have been
conducted through two subsidiaries of Heartland that were merged together in
December 1994. Additionally, Heartland recorded service income of $30,107 in
1994, a 900% increase from $3,010 in 1993.
In order to conserve its capital, upon system launch, Heartland initially
required the purchase (rather than the rental) of its receive-site equipment by
subscribers. Upon system launch in 1992, a new Ada System subscriber was
required to purchase the receive-site equipment for approximately $325, but no
installation fee was charged. Since September 1992, Heartland has offered
potential subscribers in the Ada System the option of purchasing the
receive-site equipment or renting such equipment for a monthly charge of
approximately $6. In the Ada System, an installation fee of $25 and a deposit of
$25 (designed to encourage the return of receive-site equipment) is currently
charged to subscribers selecting the monthly rental option. Additional fees are
charged for various other installation services. Heartland believes that
charging an up-front installation fee better qualifies potential subscribers,
reducing subscriber turnover. Reduced subscriber turnover reduces installation
and marketing expenses incurred by Heartland. Heartland currently experiences a
low rate of subscriber turnover of approximately 1.5% per month, as compared to
the rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Currently, approximately 80% of the subscribers in
the Ada System rent the receive-site equipment. Through April 1994, the other
Existing Systems required a new subscriber to purchase the receive-site
equipment. In order to accelerate system expansion after Heartland's initial
public offering in April 1994 ("Initial Public Offering"), Heartland began
offering new subscribers the option to rent receive-site equipment. Typically,
an installation fee of $50 is currently charged to subscribers selecting the
monthly rental option in the Existing Systems other than the Ada System. From
time to time, Heartland offers no-fee installation on a promotional basis.
Systems Operations and Cost of Goods Sold. 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.
Prior to 1992, Heartland had no operations and therefore no systems operations
expense. Heartland incurred $36,042 of systems operations expense in 1992 (all
related to the Ada
112
<PAGE> 1237
System). For 1993, Heartland incurred systems operations expense of $118,649 (a
229% increase). The increase is attributable primarily to the 96% increase in
the number of subscribers during 1993 as compared to 1992. Systems operations
for 1994 increased 345% from 1993 to $527,476. The increase was attributable
primarily to the 240% increase in the average number of subscribers for 1994
compared to 1993.
Cost of goods sold includes the cost of receive-site equipment sold to
subscribers. Such costs amounted to $202,162 in 1993 and $235,025 in 1994.
Through September 1993, receive-site equipment was sold to subscribers by a
formerly affiliated installation company. Subsequent to this period, such sales
have been conducted through two subsidiaries of Heartland that were merged
together in December 1994. Subsequent to the Initial Public Offering, sales of
receive-site equipment have been nominal.
Selling, General and Administrative Expenses. Heartland 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 sales
commissions relating to the increasing number of subscribers and additional
compensation expense. SG&A increased from $147,927 for 1992 to $646,611 for 1993
(a 337% increase). During 1992, the Ada System was launched and SG&A increased
significantly due to the expense incurred in launching such system and
additional accounting and support costs and sales commissions relating to the
increasing number of subscribers. These factors and the expense incurred in
launching two more systems and constructing two other systems caused the
increase in SG&A for 1993 as compared to 1992. SG&A increased 547% to $4,183,307
in 1994 compared to $646,611 in 1993, principally due to the commencement of the
direct payment of compensation to certain of Heartland's executive officers who
had previously served as consultants and the addition of personnel, and, to a
lesser extent, increased sales commissions relating to the increasing number of
subscribers, 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 channel
rights and the excess of cost over fair value of net assets acquired.
Depreciation and amortization relating to the Ada System equipment and channel
rights began in 1992 and totaled $34,920. Depreciation and amortization expense
for the year ended December 31, 1993 included depreciation on the equipment in
the Ada, Enid, Monroe and Midland Systems as well as amortization of channel
rights for such systems and totaled $138,560, a 297% increase over the same
period in 1992 during which only the Ada System was operational. Depreciation
and amortization expense for 1994 increased 692% to $1,097,668 compared to
$138,560 in 1993. The increase was due to additional systems and equipment in
connection with systems launched throughout 1994, and increased amortization
expense on leased license investment of systems in operation and excess of cost
over fair value of net assets acquired related to the acquisition of U.S.
Wireless and the acquisition of minority interests in certain other subsidiaries
of Heartland. Heartland anticipates that depreciation and amortization expense
will increase as a result of such acquisition of minority interests in March
1995 and as additional systems are launched and more subscribers continue to
rent, rather than purchase, the receive-site equipment.
Interest Expense. In 1993, Heartland incurred interest expense of $82,916
compared to $1,392 in 1992 due to an increase in borrowed funds. In 1994,
Heartland incurred interest expense of $589,767, which included non-cash
interest of $301,125 related to one month's interest on the Heartland's 9%
Convertible Subordinated Discount Notes due 2004 (the "Convertible Notes"). The
remaining interest expense is principally related to (i) the portion of that
bridge loan provided by Internationale Nederlanden (U.S.) Capital Corporation
("ING") in the original amount of approximately $10.0 million which closed
during July 1994 (the "ING Bridge Loan") that was used by RuralVision Joint
Venture to acquire certain RuralVision Assets that Heartland expects to retain
and (ii) interest expense on short-term borrowings that were repaid in
connection with Heartland's initial public offering in April 1994.
Interest Income. Interest income for the year ended December 31, 1994
relates to interest earned on Heartland's cash equivalents since the Initial
Public Offering.
Other Expenses. Other expenses are comprised primarily of other
non-operating expenses. In 1992, Heartland incurred $18,003 of other
non-operating expenses. For the year ended December 31, 1993, Heartland incurred
$60,467 of other non-operating expenses, which included a charge of $57,163
relating to a
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<PAGE> 1238
settlement with a formerly affiliated installation company (see Note 9 of Notes
to Consolidated Financial Statements appearing as pages F-16 to F-17 elsewhere
in this Proxy Statement/Prospectus). In 1994, Heartland incurred a
recapitalization charge of $205,575. This charge related to costs incurred in
connection with a rescinded offering of securities.
Minority Interests. In connection with the development of certain wireless
cable markets, Heartland has sold stock in certain of its subsidiaries
principally for cash. 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 such systems. Minority
ownership interests in such subsidiaries range from 5% to 49.9999% (other than
(i) Northern Oklahoma Wireless Cable, Inc., serving the Enid, Oklahoma area, in
which minority interest holders own 18% of the outstanding common stock and 100%
of the outstanding preferred stock; and (ii) Central Oklahoma Wireless Cable,
Inc., serving the Ada, Oklahoma area, in which minority interest holders own 50%
of the outstanding preferred stock). Minority interests in earnings of
subsidiaries of $19,106 and $35,111 for the years ended December 31, 1992 and
1993, respectively, relate to the minority interest owners' share of net
earnings from the Ada System and net losses from the Enid System subsidiaries
and dividends on preferred stock of the Ada and Enid System subsidiaries. The
increase in the minority interests in earnings of subsidiaries during these
periods is related to increased earnings in the Ada System, offset partially by
losses during 1993 in the Enid System. Minority interests in losses of
subsidiaries of $20,108 for the year ended December 31, 1994 relate to the
minority interest owners' share of net earnings from the Ada System subsidiary
through April 1994, losses of the Enid System subsidiary and dividends on
preferred stock issued by the Ada System ($16,715) and Enid System ($19,600)
subsidiaries. On March 15, 1995, Heartland issued an aggregate of 304,038 shares
of common stock in exchange for minority interests in 21 subsidiaries.
Income Tax Benefit. Income tax benefit of $1,594,963 for the year ended
December 31, 1994 represents the tax benefit related to Heartland's net
operating losses incurred during the period April 28, 1994 through December 31,
1994. Heartland has recognized such tax benefit to the extent of future
reversals of existing taxable temporary differences.
Net Loss. During 1991, Heartland had no revenues and incurred a loss of
$66,158, primarily due to SG&A. During 1992, Heartland's Ada System was launched
and generated operating income of $71,071 on total revenues of $205,382, which
substantially offset Heartland's expenses. Heartland incurred a net loss of
$50,822 for the year ended December 31, 1992, primarily due to the increase in
SG&A at the corporate level, the increase in other non-operating expenses and
accrued dividends on preferred stock of subsidiaries. For 1993, Heartland's Ada
System generated operating income of $256,856 on total revenues of $602,837.
Nonetheless, due to increased SG&A related to the development of Heartland's
other wireless cable markets and increased other expenses (including a
settlement charge of $57,163), Heartland incurred a net loss of $406,101. As a
result of the above factors, for the year ended December 31, 1994, Heartland
incurred a net loss of $3,043,321 as compared to a net loss of $406,101 for the
same period in 1993. Heartland expects to continue to incur net operating losses
at least through the end of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
1995 COMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1994
Revenues consist principally of subscription revenues, installation fees
(for 1994 periods) and sales of receive-site equipment to subscribers.
Subscription revenues principally consist of monthly fees paid by subscribers
for the basic programming package and for premium programming services.
Subscription revenues for the nine-month period ended September 30, 1995
increased to $9,292,837 from $984,299 for the same period in 1994, an increase
of 944%. Subscription revenues for the three-month period ended September 30,
1995 increased to $4,176,855 from $359,595 for the same period in 1994, an
increase of 1,062%. The increase in subscription revenues is principally
attributable to a 891% increase in the average number of subscribers for the
first nine months of 1995 compared to the same period in 1994. The increase in
subscribers is due to Heartland launching two systems in the third quarter of
1994 (Lawton, Oklahoma and Laredo, Texas) and two systems in the fourth quarter
of 1994 (Ardmore, Oklahoma and Mt. Pleasant, Texas); the acquisition of two
operating systems in the fourth quarter of 1994 (Lindsay, Oklahoma and Milano,
Texas); the acquisition
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<PAGE> 1239
of one system (Shaw, Kansas) in the first quarter of 1995; the launching of the
system in Texarkana, Texas in the first quarter of 1995; the acquisition of one
system (Lubbock, Texas) and the launching of five systems in Illinois
(McLeansboro, Vandalia, Olney and Taylorville) and Stillwater, Oklahoma in the
second quarter of 1995; the launching of the systems in Peoria, Illinois,
Manhattan, Kansas, Olton and O'Donnell, Texas, Grand Rapids, Michigan, and
Monroe City, Missouri in the third quarter of 1995; and the acquisition of the
operating systems in Bucyrus, Ohio, Paragould, Arkansas and Sikeston, Missouri
in the third quarter of 1995. The number of subscribers in Heartland's wireless
cable systems increased to 64,350 at September 30, 1995 compared to 43,500 at
June 30, 1995.
On a "same system" basis (comparing systems that were operational for all
of each of the three-month periods ended September 30, 1994 and 1995),
subscription revenues increased $1,102,038 or 301%, to $1,468,157 as compared to
$380,648 for the three-month period ended September 30, 1994. Same systems
during this period consisted of Heartland's Ada, Wichita Falls, Midland, Abilene
and Enid systems. The average number of subscribers in these systems increased
approximately 331% during the three months ended September 30, 1995 as compared
to the same period in 1994.
For the three and nine months ended September 30, 1994, revenues included
installation fees of $54,530 and $100,159, respectively. Installation fees for
the three and nine months ended September 30, 1995 of $63,355 and $452,853,
respectively, were offset against direct costs of subscriber installations (See
note 2 to consolidated condensed financial statements regarding change in
accounting method). Sales of receive-site equipment to subscribers were $205,068
in 1994 (none in 1995). The increase in installation fees is due to the
increased number of installations during the three- and nine-month periods ended
September 30, 1995, partially offset by lower per subscriber installation
charges in certain systems, compared to the same period of 1994. Installation
fees vary widely by system based on local market conditions. Recently, Heartland
has waived installation charges as part of selected promotional campaigns. Since
Heartland's initial public offering in April 1994 (the "Initial Public
Offering"), predominately all new subscribers rent, rather than purchase,
receive-site equipment, resulting in decreased revenues from the sale of
receive-site equipment during the nine-month period ended September 30, 1995
compared to the nine-month period ended September 30, 1994.
Systems operations expenses include programming costs, channel lease
payments, transmitter site and tower rentals, cost of program guides and repairs
and maintenance expenditures. Programming costs, cost of program guides and
channel lease payments (with the exception of minimum payments) are variable
expenses which increase as the number of subscribers increases. Systems
operations expenses for the three- and six-month periods ended September 30,
1995 increased 775% to $1,326,358 from $151,499 and 804% to $2,894,074 from
$320,029 compared to the same periods in 1994. This increase is attributable
primarily to the 416% and 700% increases, respectively, in the average number of
subscribers for such periods in 1995 compared to such periods in 1994 and rental
expense under channel rights lease agreements of $977,241 related to
non-operational systems.
Costs of goods sold include the cost of receive-site equipment sold to
subscribers. The decrease in costs of goods sold of $65,808 and $235,025 for the
three- and nine-month periods ended September 30, 1995 from the same periods in
1994 is related to the corresponding decrease in sales of receive-site
equipment.
SG&A increased 139% to $2,796,889 from $1,169,598 and 265% to $7,449,699
from $2,042,124, respectively, for the three- and nine-month periods ended
September 30, 1995 and 1994, respectively. Heartland has experienced increasing
SG&A 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 sales
commissions relating to the increasing number of subscribers. Additionally, SG&A
increased during the first half of 1995 as compared to the corresponding period
in 1994 due to the implementation of a group health insurance plan in August
1994 and investor relations expenses.
Depreciation and amortization expense for the nine-month period ended
September 30, 1995 increased 847% to $3,966,120 from $418,960 for the
corresponding period in 1994. Additionally, depreciation and amortization
expense for the three-month period ended September 30, 1995 increased 764% to
$1,948,576 from $229,055 for the corresponding period in 1994. The increase is
due to additional systems and equipment
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<PAGE> 1240
related to systems launched and acquired in 1994 and 1995 and additional
amortization expense on leased license investment of systems in operation and
excess of costs over the fair value of assets acquired due to acquisitions of
minority interests. Heartland anticipates that depreciation and amortization
expense will increase as a result of the minority interests exchange offer in
March 1995 and as additional systems are launched and more subscribers continue
to rent, rather than purchase, the receive-site equipment.
Interest expense increased to $8,908,459 for the nine-month period ended
September 30, 1995 from $128,789 for the corresponding period in the preceding
year. Interest expense increased to $4,516,446 for the three-month period ended
September 30, 1995 from $72,089 for the corresponding period in the preceding
year. The increase is principally due to the accretion on the Convertible Notes
that were issued in the fourth quarter of 1994 and the interest on Heartland's
13% Senior Notes due 2003 that were issued on April 26, 1995.
Interest income increased to $1,034,441 from $91,130 and $2,044,092 from
$189,308, respectively, for the three and nine-month periods ended September 30,
1995 compared to the same periods in 1994, principally due to interest earned on
the increase in Heartland's cash equivalents since the initial public offering
in April 1994 and Heartland's debt offerings in November 1994 and April 1995.
Equity in losses of RuralVision Joint Venture for the nine-month period
ended September 30, 1995, relates to the Heartland's 50% share of losses related
to the joint venture for the period January 1, 1995 through January 27, 1995.
Income tax benefit increased to $1,307,137 from $649,510 for the nine-month
period ended September 30, 1995 compared to the same period in 1994. Income tax
benefit has been recognized to the extent deferred tax assets can be realized
through future reversals of existing taxable temporary differences.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Since inception, Heartland has expended funds to lease or otherwise acquire
channel rights in various markets and systems in operation, to construct or
acquire operating systems in more than 30 markets, to commence construction of
the systems under construction, to install equipment in new subscribers' homes
and to finance initial operating losses and other working capital requirements.
Heartland intends to expand the Existing Systems and launch additional wireless
cable systems and may require funds therefore in excess of the funds currently
available to it.
Heartland's capital expenditures during the years ended December 31, 1992,
1993 and 1994 were approximately $1.4 million, $5.1 million, and $44.5 million,
respectively. For the nine months ended September 30, 1994 and 1995, Heartland's
capital expenditures were approximately $18.1 million and $44.0 million,
respectively. Such expenditures were primarily for the construction and
expansion of Heartland's wireless cable systems installation of equipment in new
subscribers' homes and the acquisition of operating systems and channel rights
in other markets.
Heartland 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 $350,000 to $500,000 for wireless cable
system transmission equipment and tower construction and incremental
installation costs of approximately $395 to $435 per subscriber for equipment,
labor and overhead charges and direct commissions. 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 $400,000, but may vary depending upon the power of the
transmission equipment.
Heartland expects that under its current plans it will have capital
expenditures of approximately $13 million during the fourth quarter of 1995 and
$60.0 million in 1996 for system construction, development, launch and expansion
activities associated with its current operating systems, systems under
construction, near-term launch markets and certain long-term launch markets.
Heartland currently expects to launch an aggregate of approximately 20, and as
many as 25, systems during the period from November 1995 through the end of
1996. Heartland does not anticipate any other material capital requirements,
except as set forth
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<PAGE> 1241
below with regard to certain assets to be acquired in connection with the
Transactions by Heartland. Heartland expects to continue to incur significant
capital expenditures in 1997 and subsequent years in connection with system
construction, development, launch and expansion activities.
Under Heartland's existing debt structure, no material principal or
interest payment obligations are required (other than accrued interest due under
the Senior Notes which has been escrowed through April 1997) until October 1997.
Commencing in October 1997 and every six months thereafter through April 2003,
semi-annual accrued interest of $6.5 million under the Senior Notes is due and
payable.
On April 26, 1995, Heartland sold 100,000 Units (the "Units") consisting of
$100 million 13% Senior Notes due 2003 and 600,000 warrants to purchase an equal
number of shares of Heartland Common Stock. Heartland placed approximately $24.1
million of the approximately $95.3 million net proceeds realized from the sale
of the Units into an escrow account and used approximately $3.0 million of such
proceeds to repay indebtedness. Additionally, Heartland has used approximately
$9.5 million in connection with acquisitions for operating systems in Lubbock,
Texas and wireless cable channel rights in Tulsa, Oklahoma. During the second
and third quarter of 1995, Heartland has sold certain wireless cable channel
rights in 12 markets for approximately $3.3 million in cash and a $562,500 note
receivable, plus additional contingent consideration of up to $280,000 in cash.
Additionally, Heartland has contributed other wireless cable markets for
consideration consisting of approximately 35% of the outstanding common stock of
Wireless One and approximately $10 million in notes which was paid upon
consummation of an equity and debt offering by Wireless One and in November
1995, Heartland entered into an agreement to sell its wireless cable channel
rights in Flippin, Tennessee for $1.5 million in cash. Heartland intends to use
the balance of the net proceeds of the sale of the Units, together with cash on
hand and cash generated from operations or sale of assets, for system
construction, development, launch and expansion activities, to provide working
capital and for other general corporate purposes. Subject to certain limitations
set forth in the indenture relating to the Notes (the "Indenture"), Heartland
may use a portion of such net proceeds to acquire additional wireless cable
channel rights, including the purchase of MDS and multichannel MDS ("MMDS")
wireless cable channel rights in the December 1995 BTA auction.
Upon consummation of the Transactions, Heartland, directly or through its
ownership of AWS and CMAX, will be required to pay between $15 million and $20
million of liabilities associated with the assets acquired in the Transactions.
Such liabilities include bank indebtedness, payables, severance obligations and
similar liabilities which will be due and owing upon, or shortly following,
consummation of the Transactions. As a result of consummating the Transactions,
Heartland expects that it will incur additional capital expenditures of
approximately $15.0 million in 1996 for system construction, development, launch
and expansion activities associated with the acquired operating systems and
other acquired markets that it expects to launch in 1996. All of the operating
markets to be acquired and retained are currently generating positive monthly
operating cash flow which will supplement Heartland's capital needs in 1996.
In connection with the Newco Transaction, Heartland expects to receive
$28.3 million in cash payable by Newco at the closing and a promissory note in
the principal sum of $25 million payable nine (9) months from the closing.
Heartland expects that the remaining proceeds from the sale of the Units and the
proceeds from the Newco Transaction, together with cash on hand and cash
generated from operations, will be sufficient to satisfy Heartland's capital
needs through at least the end of 1996. In order to accelerate its growth rate,
to respond to competitive pressures or regulatory changes and, subject to
certain limitations set forth in the Indenture, to finance the acquisition of
additional wireless cable channel rights and businesses, general corporate
activities and the launch or build-out of additional systems, Heartland may,
subject to the provisions of the note purchase agreement relating to the
Convertible Notes (the "Note Purchase Agreement") and the Indenture, supplement
its existing sources of funds with financing arrangements at the operating
system level, or through additional borrowings, the sale of debt or equity
securities, joint ventures or other arrangements. Heartland is presently in the
initial stages of locating and negotiating for a suitable revolving credit
facility consistent with the terms of the Indenture and Note Purchase Agreement
with one or more third parties. Assuming such financing can be secured on
acceptable terms, management of Heartland currently intends to draw down funds
under such facility upon consummation of the Transactions to repay certain of
the obligations incurred or assumed in the Transactions. No assurance can be
given that Heartland will locate
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such an acceptable credit facility. As a further capital resource, subject to
the terms of the Note Purchase Agreement and the Indenture, Heartland may sell
or lease certain wireless cable channel rights as appropriate opportunities
become available.
As an alternative source of financing, Heartland believes a primary factor
in obtaining debt financing at the operating system level is the generation of
positive operating cash flow. As of November 30, 1995, 17 of Heartland's
operating systems are generating positive monthly cash flow. Heartland expects
that the other Existing Systems and the wireless cable systems anticipated to be
launched will generate positive monthly operating cash flow, typically within
six months from commencement of operations and after attaining 1,500
subscribers, thereby making further bank debt financing available at the
operating system level. There can be no assurance, however, that such positive
operating cash flow will be generated or will be maintained or that debt
financing will be available.
Although Heartland believes that its cash and cash equivalent assets will
be sufficient to fund the Combined Company's operations and expansion through at
least the end of 1996, there is no assurance that additional funds will not be
necessary to complete the launch, build-out and expansion of all of the Combined
Company's wireless cable systems and to bring such systems to a mature state or
that any such required additional funds would be available on satisfactory terms
and conditions, if at all. In addition, the Combined Company's capital needs
will depend in part upon the success of Heartland's and the Combined Company's
efforts to sell or otherwise dispose of the Heartland Disposition Assets and the
nature of any consideration received as a result of such dispositions. To the
extent assets and markets designated for disposition are not sold, or are not
sold for cash, the Combined Company's requirements for additional funds will be
increased. There is also no assurance that the Combined Company will not pursue,
from time to time, other opportunities to acquire additional wireless cable
channel rights and businesses that may utilize the capital currently expected to
be available for its current markets. The amount and timing of the Combined
Company's future capital requirements, if any, will depend upon a number of
factors, including programming costs, equipment costs, marketing expenses,
staffing levels, subscriber growth and competitive conditions, and any purchases
or dispositions of assets, many of which are not within the Combined Company's
control. Failure to obtain any required additional financing could materially
adversely affect the growth, cash flow or earnings of the Combined Company.
INCOME TAX MATTERS
Heartland and certain of its subsidiaries will file a consolidated Federal
tax return. Subsidiaries in which Heartland owns less than 80% of the voting
stock will file separate Federal tax returns. Heartland has had no material
state or Federal income tax expense since inception. As of December 31, 1994,
Heartland had approximately $2.9 million in net operating losses for tax
purposes, expiring in years 2005 through 2009. The Internal Revenue Code of
1986, as amended (the "Code"), limits the amount of loss carryforwards that a
company can use to offset future income upon the occurrence of certain changes
in ownership. As a result of the investment in Heartland by Hunt Capital and the
Initial Public Offering, Heartland has undergone more than a 50% change in
ownership and will therefore be limited in its utilization of its tax loss
carryforwards.
INFLATION
Heartland's management does not believe that inflation has had or is likely
to have any significant impact on Heartland's operations. Management believes
that Heartland will be able to increase subscriber rates, if necessary, to keep
pace with inflationary increases in costs.
OTHER
Heartland does not provide post-retirement or post-employment benefits
requiring charges under Statements of Financial Accounting Standards Nos. 106
and 112.
Heartland currently intends to adopt Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" in 1996 with respect
to its financial statement disclosure. Heartland does not intend to change its
accounting method with regard to this statement.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CMAX
The selected consolidated statement of operations and balance sheet data
presented below for the periods ended December 17, 1992 and June 30, 1993 and
the fiscal years ended June 30, 1994 and 1995 and as of June 30, 1994 and 1995,
were derived from the consolidated financial statements of CMAX and the
predecessor of CMAX's business (the "CMAX Predecessor"), which are included
elsewhere in this Proxy Statement/Prospectus. The selected consolidated
statement of operations data presented below for the fiscal years ended June 30,
1991 and 1992 were derived from the financial statements of CMAX Predecessor,
but which are not included in this Proxy Statement/Prospectus. The pro forma
statement of operations data give effect to the acquisition of the Austin and
San Antonio Systems in December 1992 (the "1992 Acquisition") as if it had
occurred July 1, 1992. See "Pro Forma Information for 1992 Acquisition." The
statement of operations data for the three months ended September 30, 1994 and
1995 and the balance sheet data as of September 30, 1995 have been derived from
the unaudited financial statements of CMAX included elsewhere in this
Proxy/Prospectus, but, in the opinion of CMAX, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. The results for the three months ended September 30, 1994
and 1995 are not necessarily indicative of results to be expected for a full
fiscal year. The selected consolidated financial data should be read in
conjunction with "CMAX -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
(including the notes thereto) of CMAX and CMAX Predecessor contained elsewhere
in this Proxy Statement/Prospectus. See "Index to Consolidated Financial
Statements and Unaudited Pro Forma Information."
<TABLE>
<CAPTION>
CMAX PREDECESSOR(1) CMAX
----------------------------------- ----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
FISCAL
FISCAL YEAR ENDED PERIOD FROM PERIOD FROM YEAR FISCAL YEAR ENDED
JUNE 30, JULY 1, 1992 DECEMBER 18, ENDED JUNE 30,
------------------ TO DECEMBER 1992 TO JUNE JUNE 30, -------------------
1991 1992 17, 1992 30, 1993 1993(2) 1994 1995
------- ------- -------------- ------------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues............ $ 1,182 $ 2,675 $ 1,835 $ 2,277 $ 4,112 $ 7,709 $ 13,463
Operating expenses:
Systems operations...... 658 1,282 856 1,092 1,948 3,759 6,301
Selling, general and
administrative........ 1,467 1,855 1,028 1,336 2,436 7,125 9,051
Depreciation and
amortization.......... 781 1,661 1,149 1,338 2,317 4,239 8,274
------- ------- -------- -------- ------- ------- --------
Total operating
expenses.......... 2,906 4,798 3,033 3,766 6,701 15,123 23,626
------- ------- -------- -------- ------- ------- --------
Operating loss............ (1,724) (2,123) (1,198) (1,489) (2,589) (7,414) (10,163)
Interest expense.......... (193) (713) (343) (288) (525) (506) (875)
Other income.............. 3 5 505 2 7 421 255
------- ------- -------- -------- ------- ------- --------
Loss before minority
interest.......... (1,914) (2,831) (1,036) (1,775) (3,107) (7,499) (10,783)
Minority interest in
consolidated net loss... 245 176 -- -- -- -- --
------- ------- -------- -------- ------- ------- --------
Net loss............ $(1,669) $(2,655) $ (1,036) $ (1,775) $(3,107) $(7,499) $(10,783)
======= ======= ======== ======== ======= ======= ========
Net loss per common share... -- -- -- $ (0.35) $ (0.61) $ (1.05) $ (1.21)
======= ======= ======= ======== ======= ======= ========
Weighted average shares
outstanding............... -- -- -- 5,100 5,100 7,142 8,902
======= ======= ======= ======== ======= ======= ========
Other Financial Data:
EBITDA(3)................. -- -- $ (49) $ (151) $ (272) $(3,175) $ (1,889)
Capital expenditures(4)... -- -- 655 21,768 22,423 17,299 9,798
<CAPTION>
CMAX
------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1994 1995
------- -------
(UNAUDITED)
<S> <C> <C>
Statement of Operations Data:
Total revenues............ $ 3,144 $ 3,633
Operating expenses:
Systems operations...... 1,442 1,540
Selling, general and
administrative........ 2,188 2,081
Depreciation and
amortization.......... 1,732 2,514
------- -------
Total operating
expenses.......... 5,362 6,135
------- -------
Operating loss............ (2,218) (2,502)
Interest expense.......... (101) (311)
Other income.............. 82 17
------- -------
Loss before minority
interest.......... (2,237) (2,796)
Minority interest in
consolidated net loss... -- --
------- -------
Net loss............ $(2,237) $(2,796)
======= =======
Net loss per common share... $ (0.26) $ (0.29)
======= =======
Weighted average shares
outstanding............... 8,600 9,507
======= =======
Other Financial Data:
EBITDA(3)................. $ (486) $ 12
Capital expenditures(4)... 3,939 1,122
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------ SEPTEMBER 30,
1994 1995 1995
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term investments..................................... $14,558 $ 2,206 $ 786
Total assets............................................................................. 53,203 51,954 49,445
Long-term debt........................................................................... 3,200 10,808 10,808
Total stockholders' equity............................................................... 44,086 37,709 34,913
</TABLE>
- ---------------
(1) Includes consolidated operations of CMAX Predecessor's Austin and San
Antonio systems, the assets of which were acquired by CMAX on December 18,
1992.
(2) Presented on a pro forma basis as if the 1992 Acquisition had occurred on
July 1, 1992.
(3) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(4) Capital expenditures for the period from December 18, 1992 to June 30, 1993
were comprised of $3,645 for purchases of systems and equipment and $18,123
for the purchase of certain wireless cable systems. Capital expenditures for
all other periods presented consist solely of purchases of systems and
equipment.
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PRO FORMA INFORMATION OF 1992 ACQUISITION
CMAX acquired the assets of the CMAX Predecessor's Austin and San Antonio
wireless cable television systems in the 1992 Acquisition on December 18, 1992.
The Pro Forma Statement of Operations for the year ended June 30, 1993 has been
derived from the CMAX Predecessor's audited statement of operations for the
period from July 1, 1992 to December 17, 1992 and CMAX's audited statement of
operations for the period from December 18, 1992 to June 30, 1993. The Pro Forma
Information gives effect to the 1992 Acquisition as if it had occurred July 1,
1992.
The 1992 Acquisition was accounted for as a purchase. In accordance with
Accounting Principles Board Opinion No. 16, the purchase price was allocated to
the assets acquired and liabilities assumed based on the fair value of such
assets and liabilities. The Pro Forma Information has been prepared by CMAX and
all adjustments have been made by CMAX based on assumptions deemed appropriate
by CMAX. The Pro Forma Information is presented for information purposes only
and does not purport to be indicative of the results of operations which
actually would have occurred had the 1992 Acquisition occurred on July 1, 1992
or which may be expected to occur in the future. The Pro Forma Information
should be read in conjunction with the Consolidated Financial Statements and
Notes included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CMAX
PREDECESSOR CMAX
--------------- --------------------------------------------
PERIOD FROM PERIOD FROM PRO FORMA
JULY 1, 1992 TO DECEMBER 18, FISCAL YEAR
DECEMBER 17, 1992 TO JUNE ENDED JUNE
1992 30, 1993 ADJUSTMENTS 30, 1993
--------------- ------------ ------------ ------------
(AS REPORTED) (AS REPORTED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues..................... $ 1,835 $ 2,277 $ 4,112
Operating expenses:
Systems operations............... 856 1,092 1,948
Selling, general and
administrative................ 1,028 1,336 $ 72(1) 2,436
Depreciation and amortization.... 1,149 1,338 (170)(2) 2,317
------- ------- ----- -------
Total operating
expenses............... 3,033 3,766 (98) 6,701
------- ------- ----- -------
Operating loss..................... (1,198) (1,489) 98 (2,589)
Interest expense................... (343) (288) 106(3) (525)
Other income....................... 505 2 (500)(4) 7
------- ------- ----- -------
Net loss................. $(1,036) $(1,775) $(296) $(3,107)
======= ======= ===== =======
</TABLE>
- ---------------
(1) Represents executive compensation and related charges as reported by the
CMAX Predecessor totalling $192,000 for the fiscal year ended June 30,
1993, which have been reversed and replaced by a pro forma charge for
management and consulting fees to CMAX affiliates totalling 3.5% of total
revenue and $400,000 annually, respectively.
(2) Represents an increase in depreciation and amortization resulting from
step-up in system and equipment assets and intangibles as a result of
CMAX's acquisition of certain CMAX Predecessor assets including channel
rights amortization related to the certain options of approximately
$308,000 for the fiscal year ended June 30, 1993, offset by a reduction in
depreciation expense resulting from CMAX's utilization of composite
depreciable lives for installation assets in the amount of $478,000 for the
fiscal year ended June 30, 1993. See Note 2 to the Notes to Consolidated
Financial Statements of CMAX.
(3) Represents interest expense as reported on CMAX Predecessor borrowings
principally from stockholders and related parties totalling $343,000 for
the fiscal year ended June 30, 1993, which has been reversed and replaced,
for the fiscal year ended June 30, 1993, by interest on CMAX's $3,000,000
subordinated seller note and the CMAX Credit Facility as if the maximum
amount borrowed during the fiscal year ended June 30, 1993 was outstanding
during the entire period.
(4) Represents a forfeited nonrefundable purchase option extension payment not
considered a component of the acquired operations.
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<PAGE> 1245
CMAX -- MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, and other financial information appearing
elsewhere in this Proxy Statement/Prospectus. For purposes of this Section,
references to CMAX include the CMAX Predecessor.
OVERVIEW
CMAX is a wireless cable operator with current operations in Austin, San
Antonio, Temple/Killeen and Waco. CMAX's four operating systems currently
provide wireless cable service to approximately 34,300 subscribers (as of
November 30, 1995) in the Texas Cluster. In addition to its existing operating
systems, CMAX has significant channel positions in Salt Lake City, Utah, and
holds wireless cable channel rights in the Additional Texas Systems. In managing
its portfolio of wireless channel rights, CMAX may, at its option, exchange
existing rights in unlaunched markets for existing channel rights of others in
markets which have a greater strategic value to CMAX or sell, or lease such
channel rights.
In December 1992, CMAX's business was acquired from the CMAX Predecessor by
a newly-organized affiliate of Charterhouse together with Galaxy Cablevision for
$15.7 million. CMAX's recent financial performance reflects CMAX's brief
operating history, the significant costs incurred to launch new systems and the
expansion of CMAX's infrastructure in order to manage the expected growth in its
subscriber base. See "-- Results of Operations."
CMAX's strategy is to own, develop and operate wireless cable channel
systems with full channel line-ups in geographic clusters which focus on
mid-sized cities and their surrounding areas. This clustering enables CMAX to
take advantage of economies of scale in management, customer service, training
and marketing. CMAX believes these economies help to reduce the number of
subscribers required for a system to reach a break-even operating cash flow.
The growth of CMAX's subscriber base requires a substantial ongoing capital
investment. A significant portion of the cost of a wireless cable system is
incurred incrementally as subscribers are added to the system. The capital cost
of adding a new subscriber is approximately $360 per installation plus convertor
boxes, of which approximately $100 of materials plus converter boxes are
recoverable upon disconnect. See "-- Liquidity and Capital Resources."
On September 11, 1995, CMAX signed the CMAX Merger Agreement, with
Heartland and its wholly-owned subsidiary, CMAX MergerSub. Pursuant to the CMAX
Merger Agreement, at the closing, CMAX MergerSub will be merged with and into
CMAX, and the stockholders of CMAX will receive newly issued publicly tradeable
shares of Heartland Common Stock valued at $8.50 per share of CMAX Common Stock,
subject to adjustment. Effective upon the closing, CMAX will become a wholly
owned subsidiary of Heartland. The total consideration under the CMAX Merger
Agreement is valued at approximately $80.8 million, subject to adjustment. The
consummation of the CMAX Merger Agreement is subject to customary closing
conditions, including the approval of the stockholders of CMAX. There can be no
assurance that all such conditions will be met.
Also in connection with the execution of the CMAX Merger Agreement, CMAX
entered into the Sublease Agreement with Heartland. Pursuant to the terms of the
Sublease Agreement, CMAX subleased to Heartland all of its wireless cable
television rights in the Additional Texas Systems and paid CMAX a $2.4 million
non-refundable deposit for such rights. If the CMAX Merger Agreement is
terminated as a result of a breach thereof by CMAX or as a result of a competing
acquisition proposal, Heartland will acquire such wireless cable television
rights for nominal additional consideration. If the CMAX Merger Agreement is
terminated for any other reason, Heartland shall acquire such wireless cable
television rights for an amount equal to the difference between the appraised
value of such rights and the $2.4 million previously paid by Heartland.
Also, in connection with the CMAX Merger Agreement, Heartland agreed to
loan to CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced
on or about December 29, 1995 to be used for
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<PAGE> 1246
working capital purposes, and (b) $500,000 may be used for subscriber growth.
The CMAX Loan will not increase the amount of CMAX Excess Liabilities. Upon
consummation of the CMAX Merger Agreement, it is anticipated that the CMAX Loan
will remain as an inter-company obligation from CMAX to Heartland. In the event
that the CMAX Merger Agreement is not consummated, the CMAX Loan is payable
August 29, 1996; provided, that if the CMAX Merger Agreement is terminated as a
result of a competing acquisition proposal, then the CMAX Loan will be
immediately due and payable.
RESULTS OF OPERATIONS
Fiscal Years Ended June 30, 1993, 1994 and 1995
The following table presents, for the periods indicated, the amounts and
percentages of CMAX's revenues represented by certain expense items. All
statement of operations information in the table and the discussion and analysis
that follows with respect to the fiscal year ended June 30, 1993 is derived from
the pro forma financial information which gives effect to the 1992 Acquisition
as if it had occurred on July 1, 1992.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------
PRO FORMA 1993 1994 1995
------------------ ------------------ -------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------- -------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenues.......................... $ 4,112 100.0% $ 7,709 100.0% $ 13,463 100.0%
Operating expenses:
Systems operations.................... 1,948 47.4% 3,759 48.8% 6,301 46.8%
Selling, general and administrative... 2,436 59.2% 7,125 92.4% 9,051 67.2%
Depreciation and amortization......... 2,317 56.4% 4,239 55.0% 8,274 61.5%
------- ------- --------
Total operating expenses........... 6,701 163.0% 15,123 196.2% 23,626 175.5%
------- ------- --------
Operating loss.......................... (2,589) (7,414) (10,163)
Interest expense........................ (525) 12.8% (506) 6.6% (875) 6.5%
Other income............................ 7 0.2% 421 5.5% 255 1.9%
------- ------- --------
Net loss................................ $(3,107) $(7,499) $(10,783)
======= ======= ========
Subscriber data:
Number of subscribers at period end... 11,475 28,024 33,123
Average monthly service revenue per
subscriber......................... $ 30.22 $ 30.75 $ 32.76
</TABLE>
122
<PAGE> 1247
CMAX and the CMAX Predecessor have experienced increasing net losses during
each period of their operations. These net losses are attributable to the
start-up costs, marketing and advertising costs, interest expense and
depreciation and amortization of capital expenditures resulting from the
development of the Texas Cluster. These costs are higher during periods when a
new system is being launched and during periods when many subscribers are being
added to CMAX's systems. CMAX expects to continue experiencing net losses for at
least the next several years as a result of expansion of the Texas Cluster. This
period of losses could continue longer, especially if CMAX is unable to obtain
additional sources of financing.
The following table presents, as of the dates indicated, the number of
subscribers in each market in the Texas Cluster.
<TABLE>
<CAPTION>
SYSTEM JUNE 30, JUNE 30, JUNE 30,
LAUNCH DATE 1993 1994 1995
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of subscribers at period end in:
Austin.................................. November 1989 9,959 14,249 12,443
San Antonio............................. March 1993 1,516 11,520 11,846
Temple/Killeen.......................... April 1994 -- 2,255 5,738
Waco.................................... July 1994 -- -- 3,096
------ ------ ------
Total........................... 11,475 28,024 33,123
====== ====== ======
</TABLE>
FISCAL YEARS ENDED JUNE 30, 1993, 1994 AND 1995
Revenue Analysis
Total revenues for CMAX increased 87.5% or $3,597,000 from fiscal 1993 to
fiscal 1994 and 74.6% or $5,754,000 from fiscal 1994 to fiscal 1995. The
increase in total revenue was primarily due to the increase in the average
number of subscribers and an increase in the number of premium subscription
units sold to subscribers during such periods. The following table sets forth
the various components of revenue for the fiscal years ended June 30, 1993, 1994
and 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------------
PRO FORMA 1993 1994 1995
------------------ ------------------ -------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Basic revenue......................... $2,540 61.8% $4,675 60.6% $ 8,068 59.9%
Premium and pay-per-view revenue...... 1,045 25.4% 1,665 21.6% 3,031 22.5%
Other revenue......................... 527 12.8% 1,369 17.8% 2,364 17.6%
------ ------ ------ ------ ------- ------
Total revenues.............. $4,112 100.0% $7,709 100.0% $13,463 100.0%
====== ====== ====== ====== ======= ======
</TABLE>
Basic Revenue. Basic revenue increased 84.1% or $2,135,000 from fiscal 1993
to fiscal 1994, and increased 72.6% or $3,393,000 from fiscal 1994 to fiscal
1995. The increase from fiscal 1993 to fiscal 1994 was primarily the result of
an increase in the average number of subscribers in the Austin and San Antonio
Systems, plus the addition of subscribers in the Temple/Killeen System which
commenced operations in April 1994. The increase from fiscal 1994 to fiscal 1995
was primarily the result of an increase in the average number of subscribers,
due chiefly to the subscriber gains in Temple/Killeen and Waco.
Premium and Pay-Per-View Revenue. Premium and pay-per-view revenue
increased 59.3% or $620,000 from fiscal 1993 to fiscal 1994, and increased 82.0%
or $1,366,000 from fiscal 1994 to fiscal 1995. The increase in premium and
pay-per-view revenue was primarily due to the increase in subscribers discussed
above. CMAX's ratio of premium units to basic subscribers at June 30, 1994 and
1995 was 142% and 138%, respectively. This favorable ratio is the result of
CMAX's retail policy of packaging and discounting premium services. Following
the 1992 Acquisition, CMAX offered The Disney Channel, previously a premium
channel, as part of its basic plus service package at all systems.
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<PAGE> 1248
Other Revenue. Other revenue is comprised primarily of service and
installation revenue, fees for additional outlets and late fees. Other revenue
was 12.8% of total revenues in fiscal 1993, 17.8% of total revenues in fiscal
1994 and 17.6% in fiscal 1995. At the end of fiscal 1993 CMAX began charging
installation fees and late fees. The increase from fiscal 1993 to fiscal 1994
was due to a full year of recognizing installation revenue, an increase in the
number and percentage of additional outlets sold and the effect of a full year
of charging late fees to customers. The decrease during fiscal 1995 to 17.6% of
revenue was due to the reduced revenue from installation fees as a result of
less installation activity. CMAX believes that charging an up-front installation
fee better qualifies potential subscribers. Reduced subscriber turnover improves
the overall profitability and cash flow of CMAX's business.
Operating Expense Analysis
Total operating expenses increased 125.7% or $8,422,000 from fiscal 1993 to
fiscal 1994 and 56.2% or $8,503,000 from fiscal 1994 to fiscal 1995. The
increase in operating expenses was primarily due to the significant development
of CMAX's corporate infrastructure and the expansion of CMAX's Texas Cluster
into Temple/Killeen and Waco. The expansion of CMAX's infrastructure was
designed to enable it to serve a larger subscriber base in the future. Further
increases in operating expenses were due to an increase in the average number of
subscribers during such periods. Operating expenses are comprised of the
following: systems operations; selling, general and administrative; and
depreciation and amortization. The following table sets forth information
regarding CMAX's operating expenses for the fiscal years ended June 30, 1993,
1994 and 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------
PRO FORMA 1993 1994 1995
----------------- ------------------ ------------------
% OF % OF % OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
System operations................. $1,948 47.4% $ 3,759 48.8% $ 6,301 46.8%
Selling, general and
administrative.................. 2,436 59.2% 7,125 92.4% 9,051 67.2%
Depreciation and amortization..... 2,317 56.4% 4,239 55.0% 8,274 61.5%
------ ------- -------
Total operating
expenses.............. $6,701 $15,123 $23,626
====== ======= =======
</TABLE>
Systems Operations. Systems operations expenses increased 93.0% or
$1,811,000 from fiscal 1993 to fiscal 1994 and 67.6% or $2,542,000 from fiscal
1994 to fiscal 1995. Systems operations expenses are comprised primarily of
programming (which is the largest component); channel leases; and technical and
maintenance costs. Programming expenses increased from fiscal 1993 to fiscal
1994 and from fiscal 1994 to fiscal 1995 primarily as a result of increases in
the number of subscribers, contractual rate increases and increases in the
average number of channels available for programming. Channel leasing costs are
a function of the number of subscribers and total revenues, and such costs have
increased as the number of systems, subscribers and corresponding revenue have
increased.
Selling, General and Administrative. Selling, general and administrative
expenses increased 192.5% or $4,689,000 from fiscal 1993 to fiscal 1994 and
increased 27.0% or $1,926,000 from fiscal 1994 to fiscal 1995. Selling, general
and administrative expenses are comprised primarily of the following expenses:
administrative salaries and management fees; advertising and marketing; sales
commissions; bad debt expense; insurance; copyright; and facilities expense.
Increases in selling, general and administrative expenses from fiscal 1993 to
fiscal 1994 and from fiscal 1994 to fiscal 1995 are primarily the result of the
significant development of CMAX's corporate infrastructure, costs resulting from
CMAX's status as a public company, and the launching of the San Antonio,
Temple/Killeen and Waco Systems. Administrative salaries increased as a result
of additional employees required to manage and operate CMAX's systems, which
increased during fiscal 1994 from two to three such systems and increased from
three to four such systems during fiscal 1995.
Advertising and marketing expenses increased from fiscal 1993 to fiscal
1994 as a result of an increased number of subscribers from 11,475 to 28,024
during fiscal 1994 and the initiation of and preparation for
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<PAGE> 1249
operations in Temple/Killeen and Waco. As a result of slower subscriber growth,
advertising and marketing and sales commissions expenses decreased from fiscal
1994 to fiscal 1995.
Depreciation and Amortization. Depreciation and amortization increased
83.0% or $1,922,000 from fiscal 1993 to fiscal 1994, and 95.2% or $4,035,000
from fiscal 1994 to fiscal 1995. The increase from fiscal 1993 to fiscal 1994
and from fiscal 1994 to fiscal 1995 is due to increased amortization of
intangibles as a result of the 1992 Acquisition and increased depreciation
associated with the increased base of property and equipment installed to serve
CMAX's larger subscriber base.
Interest Expense Analysis
Interest expense decreased 3.6% or $19,000 from fiscal 1993 to fiscal 1994
due to a reduction of debt levels following the CMAX IPO. Interest expense
increased by 73.0% or $369,000 from fiscal 1994 to fiscal 1995 due to increased
borrowings under the CMAX Credit Facility.
Other Income Analysis
Other income consists primarily of interest income. Interest income
increased during fiscal 1994 primarily as a result of interest earned on the
proceeds held by CMAX following the CMAX IPO. Interest income decreased during
fiscal 1995 as the balance of cash and cash equivalents decreased.
RESULTS OF OPERATIONS
Fiscal Quarters Ended September 30, 1994 and 1995
The following table sets forth the percentage relationship of selected
statement of operations items versus revenues for the periods indicated. Dollar
amounts in the table below are in thousands.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
1994 1995
------------------- -------------------
% OF % OF
AMOUNT REVENUE AMOUNT REVENUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues............................... $ 3,144 100.0% $ 3,633 100.0%
Operating expenses:
System operations.......................... 1,442 45.9% 1,540 42.4%
Selling, general and administrative........ 2,188 69.6% 2,081 57.3%
Depreciation and amortization.............. 1,732 55.1% 2,514 69.2%
------- ----- ------- -----
Total operating expenses........... 5,362 170.5% 6,135 168.9%
------- ----- ------- -----
Operating loss............................... (2,218) (70.5)% (2,502) (68.9)%
Interest expense............................. (101) (3.2)% (311) (8.6)%
Other income................................. 82 2.6% 17 0.5%
------- ----- ------- -----
Net loss........................... $(2,237) (71.2)% $(2,796) (77.0)%
======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1994 1995
------ ------
<S> <C> <C>
Number of subscribers at period end................................ 30,432 33,357
Average number of subscribers...................................... 29,448 33,143
</TABLE>
CMAX separately accounts for general and administrative costs incurred by
the four operating systems and by the corporate administrative staff. Costs
incurred by the corporate administrative staff for the three months ended
September 30, 1995, were approximately $620,000, and were included in Selling,
General and Administrative expenses on the Statements of Operations. Excluding
these corporate administrative costs and excluding operating costs related to
the unbuilt markets, each of the four operating systems generated operating
income before depreciation and amortization and the total operating income
before depreciation and
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<PAGE> 1250
amortization for the four markets combined was approximately $674,000 for the
three months ended September 30, 1995.
CMAX has experienced increasing net losses during each period of its
operation. These losses are attributable to start-up costs, marketing costs and
depreciation and amortization of capital expenditures related to the development
of the existing systems. These costs are higher during the periods when new
systems are being launched and during periods when many subscribers are being
added to the systems. CMAX expects to continue experiencing net losses through
the date of the merger with Heartland as a result of the continued expansion in
the existing systems.
REVENUE ANALYSIS
Total revenues for the three months ended September 30, 1995, for CMAX
increased 15.6% when compared to the similar quarter of the prior year. These
increases were primarily due to the increase in the number of subscribers
between years. Average monthly service revenue per subscriber for the quarter
ended September 30, 1995 was $33.69, excluding installation revenue and late
charges. Average monthly service revenue per subscriber for the quarter ended
September 30, 1995, was $32.15, excluding installation revenue and late charges.
The following tables set forth the various components of revenue for the
three months ended September 30, 1995 and 1994. Dollar amounts below are in
thousands.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1994 1995
------------------ ------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Basic............................................ $1,879 59.8% $2,063 56.8%
Premiums & PPV................................... 705 22.4% 884 24.3%
Other Revenue.................................... 560 17.8% 686 18.9%
------ ----- ------ -----
Total Revenue.......................... $3,144 100.0% $3,633 100.0%
------ ----- ------ -----
</TABLE>
Basic Revenue. Basic revenue increased $184,000 or 9.8%, for the quarter
ended September 30, 1995 when compared to the similar quarter in the prior year.
This increase was due to the increase in the average number of subscribers,
primarily as a result of the growth of the operating systems in Temple and Waco.
Premium and Pay-Per-View Revenue. Premium and pay-per-view revenue
increased $179,000 or 25.4% for the quarter ended September 30, 1995 when
compared to the similar quarter in the prior year. This increase is primarily
the result of the increase in the number of premium services subscribed to by
customers and, second, the result of an increase in Pay-Per-View revenue from
$76,000 to $164,000 between periods. CMAX's ratio of premium units per basic
subscriber decreased slightly to approximately 138% during the three months
ended September 30, 1995, from approximately 140% during the quarter ended
September 30, 1994.
Other Revenue. Other revenue increased $126,000 or 22.5% for the quarter
ended September 30, 1995 when compared to the similar quarter of the prior year.
Other revenue consists primarily of installation revenue, fees for additional
outlets and late charges. The increase in other revenue for the three months
ended September 30, 1995 was primarily due to the increase in subscribers.
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<PAGE> 1251
OPERATING EXPENSE ANALYSIS
Total operating expenses increased 14.4% or $773,000 when comparing the
quarter ended September 30, 1995 to September 30, 1994. The increase was
primarily due to the increase in the number of subscribers served and the
significant level of start-up costs associated with launching wireless service
into new markets. The following table sets forth information regarding CMAX's
operating expenses for the three months ended September 30, 1995 and 1994.
Dollar amounts are in the thousands.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1994 1995
------------------ ------------------
% OF % OF
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------ --------
<S> <C> <C> <C> <C>
Systems operations................................ $1,442 45.9% $1,540 42.4%
Selling, general and administrative............... 2,188 69.6% 2,081 57.3%
Depreciation and amortization..................... 1,732 55.1% 2,514 69.2%
------ ------ ------ ------
Total operating expenses................ $5,362 170.5% $6,135 168.9%
====== ====== ====== ======
</TABLE>
Systems Operations. Systems operations costs increased by $98,000 or 6.8%
during the quarter ended September 30, 1995 when compared to the similar quarter
during 1994. As a percent of revenue, system operations costs have decreased
slightly during the current quarter as certain fixed operating costs are being
supported by a larger subscriber base. However, the majority of operating costs
are variable and have increased consistent with the increases in subscribers
served. These variable costs include programming costs and channel lease costs.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by 4.9% or $107,000 for the quarter ended September 30, 1995
versus the quarter ended September 30, 1994. Selling, general and administrative
expenses are composed primarily of marketing and advertising, administrative and
customer service salaries and facilities expense. Administrative and customer
service salaries rose as a result of additional employees required to manage and
operate CMAX's systems, which increased from three to four such systems between
the comparable periods. However, selling expenses decreased by approximately
$215,000 between comparable quarters, primarily due to a lower volume of
customer sales during the current quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased by $782,000 or 45.2% during the quarter ended September 30, 1995,
versus the similar quarter of 1994. This increase is due to depreciation related
to the increased base of systems and equipment and, second, due to additional
amortization related to the increased base of intangible assets following the
purchase of channel rights in Salt Lake City.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Cash flow generated from CMAX's operations has not been sufficient to fund the
cost of operations, and servicing existing indebtedness, and CMAX expects this
trend to continue. In fiscal years 1993, 1994 and 1995 and for the three months
ended September 30, 1994 and 1995, net cash used in (provided by) operations and
investing activities approximated $14.7 million, $34.6 million, $6.2 million,
($7.1) million and $1.4 million, respectively. Included in those amounts are
capital expenditures and acquisitions of approximately $16.2 million, $17.7
million, $14.9 million, $3.9 million and $1.1 million, respectively.
On September 11, 1995, CMAX signed the CMAX Merger Agreement, with
Heartland and its wholly owned subsidiary, CMAX Merger Sub. Pursuant to the CMAX
Merger Agreement, at the closing, CMAX Merger Sub will be merged with and into
CMAX, and the stockholders of CMAX will receive newly issued publicly tradeable
shares of Heartland Common Stock valued at $8.50 per share of CMAX Common Stock,
subject to adjustment. Effective upon the closing, CMAX will become a wholly
owned subsidiary of Heartland. The total consideration under the CMAX Merger
Agreement is valued at approximately
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<PAGE> 1252
$80.8 million, subject to adjustment. The consummation of the CMAX Merger
Agreement is subject to customary closing conditions, including the approval of
the stockholders of CMAX. There can be no assurance that all such conditions
will be met.
During December 1992, CMAX's business was acquired from the CMAX
Predecessor for a purchase price of $15.7 million, comprised of a $3.0 million
subordinated note due December 1998 bearing interest at 10% per annum,
application of a $2.0 million deposit, $9.9 million in cash, and an interest in
Charter Wireless Cable Holdings, L.L.C. As part of the 1992 Acquisition, the
CMAX Predecessor granted options to CMAX to purchase wireless channel rights in
Temple/Killeen and Waco systems and the Additional Texas Systems.
During the period after the 1992 Acquisition through June 30, 1993, CMAX
financed its subscriber additions in its Austin System and the launch of the San
Antonio System primarily from proceeds from borrowings under its existing $14.5
million CMAX Credit Facility. On November 29, 1993, CMAX consummated an initial
public offering of 3,500,000 shares of CMAX Common Stock at an initial public
offering price of $12.00 per share. CMAX raised gross proceeds of $42.0 million,
resulting in net proceeds to CMAX of approximately $38.1 million. Proceeds of
the CMAX IPO were utilized to reduce outstanding indebtedness under the CMAX
Credit Facility, for working capital needs, to construct transmission facilities
and establish offices in the Temple/Killeen and Waco Systems, and to finance the
capital expenditures associated with subscriber additions in the Texas Cluster
Systems. In addition, CMAX utilized approximately $3.2 million of the proceeds
of the CMAX IPO to exercise the option from the CMAX Predecessor to acquire the
wireless channel rights in the Temple/Killeen and Waco systems and the
Additional Texas Systems.
In February 1995, CMAX completed the acquisition of wireless cable channel
rights to the Salt Lake City System from Technivision, Inc., Omnivision, Inc.
and Interactive Communications Network, Inc. for a purchase price of
approximately $11.0 million, which included $6.6 million in cash and the
issuance of a total of 907,311 restricted shares of CMAX Common Stock to such
sellers and their designees, valued at approximately $4.4 million.
CMAX believes that continuing expansion of the Texas Cluster will require
significant ongoing capital investment. The initial capital costs required to
construct a head-end/transmission facility and establish an operations facility
are estimated at approximately $1.3 million per market. The incremental capital
costs associated with adding a new subscriber are estimated to be approximately
$360 per installation plus the cost of converters, depending on the type of
set-top converter utilized. Utilizing refurbished subscriber equipment removed
from former customers, however, significantly reduces the cost of adding an
additional subscriber. Approximately $100 of materials plus the converter boxes
are recoverable upon disconnect.
As of June 30, 1994 and 1995 and September 30, 1995, outstanding borrowings
under the CMAX Credit Facility were $50,000, $7,500,000 and $7,500,000,
respectively. Such outstanding amount of $7,500,000 represents the present
availability under such bank financing.
In order to fund the cost of operations through the closing date of the
CMAX Merger Agreement, CMAX has entered into the Sublease Agreement with
Heartland. Pursuant to the terms of the Sublease Agreement, CMAX subleased to
Heartland all of its wireless cable television rights in the Additional Texas
Systems and, Heartland paid CMAX a $2.4 million non-refundable deposit for such
rights. If the CMAX Merger Agreement is terminated as a result of a breach
thereof by CMAX or as a result of the acceptance by the Board of Directors of
CMAX of a competing acquisition proposal, Heartland will acquire such wireless
cable television rights for nominal additional consideration. If the CMAX Merger
Agreement is terminated for any other reason, Heartland shall acquire such
wireless cable television rights for an amount equal to the difference between
the appraised value of such rights and the $2.4 million previously paid by
Heartland.
In connection with the CMAX Merger Agreement, Heartland agreed to loan to
CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was advanced December
29, 1996 to be used for working capital purposes, and (b) $500,000 may be used
for subscriber growth. The CMAX Loan will not increase the amount of CMAX Excess
Liabilities. Upon consummation of the CMAX Merger Agreement, it is anticipated
that the CMAX Loan will remain as an inter-company obligation from CMAX to
Heartland. In the event that the CMAX Merger Agreement is not consummated, the
CMAX Loan is payable August 29, 1996; provided,
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that if the CMAX Merger Agreement is terminated as a result of a competing
acquisition proposal, then the CMAX Loan will be immediately due and payable.
If the transactions contemplated by the CMAX Merger Agreement are not
consummated, CMAX will have to find additional funding for ongoing operations.
Management will continue to negotiate and seek to amend the current CMAX Credit
Facility and also pursue other areas of financing.
If the merger with Heartland is not consummated, CMAX will have to find
additional financing for ongoing operations. Management will then attempt to
negotiate to amend the existing credit facility and also pursue other areas of
financing.
The operation of CMAX's business requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
operations. Management believes that CMAX's existing cash and cash equivalents
and the CMAX Credit Facility will not be sufficient to fund presently
foreseeable operations. In addition, there is no assurance that alternative
sources of funding will be available on satisfactory terms and conditions, if at
all. Accordingly, if the proposed merger agreement with Heartland is not
consummated, CMAX may be unable to continue as a going concern.
THE CMAX MEETING
TIME, PLACE AND DATE OF CMAX MEETING
This Proxy Statement/Prospectus is being furnished to the holders of CMAX
Common Stock in connection with the solicitation of proxies by and on behalf of
the CMAX Board for use at the Special Meeting of Stockholders of CMAX (together
with any adjournments or postponements thereof, the "CMAX Meeting") to be held
at 10:00 a.m. on February 22, 1996 at the Westin Hotel Galleria, 13340 Dallas
Parkway, Dallas, Texas 75240, (214) 934-9494.
PURPOSE OF CMAX MEETING
At the CMAX Meeting, holders of CMAX Common Stock are being asked to
approve and adopt the CMAX Merger Agreement attached as Appendix A hereto,
providing for the merger of CMAX Merger Sub, a wholly owned subsidiary of
Heartland, with and into CMAX and such other matters as may properly be brought
before the CMAX Meeting. See "The CMAX Merger -- Recommendation of the CMAX
Board; Reasons for the CMAX Merger."
THE CMAX BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CMAX AGREEMENT AND THE
CMAX MERGER AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE CMAX MERGER
AGREEMENT.
RECORD DATE; VOTING RIGHTS
Only holders of shares of CMAX Common Stock of record at the close of
business on January 11, 1996 (the "CMAX Record Date") are entitled to notice of,
and to vote at, the CMAX Meeting regarding the approval and adoption of the CMAX
Merger Agreement and upon each other matter properly submitted at the CMAX
Meeting. On the CMAX Record Date, there were outstanding and entitled to vote
9,507,311 shares of CMAX Common Stock, owned by approximately 100 holders of
record. Each share of CMAX Common Stock is entitled to one vote upon the
approval and adoption of the CMAX Merger Agreement and each other matter
properly submitted at the CMAX Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of stockholders holding a majority of
the outstanding shares of CMAX Common Stock entitled to vote will constitute a
quorum at the CMAX Meeting. Pursuant to the Delaware General Corporation Law and
the Bylaws of CMAX, the affirmative vote of the holders of more than 50% of the
outstanding shares of CMAX Common Stock entitled to vote is required for
approval and adoption of the CMAX Merger Agreement. Heartland and CMAX Merger
Sub do not presently hold or have
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any right to acquire, any shares of CMAX Common Stock. Under the General
Corporation Law of the State of Delaware, holders of CMAX Common Stock are not
entitled to any appraisal rights with respect to the CMAX Merger Agreement or
CMAX Merger. See "The CMAX Merger -- Dissenters and Appraisal Rights."
Abstentions and broker non-votes (which occur when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that time and
has not received instructions from the beneficial owner) are counted for
purposes of determining the presence or absence of a quorum at the CMAX Meeting.
However, because the affirmative votes of the holders of a majority of the
outstanding shares of CMAX Common Stock is required to approve the CMAX Merger
Agreement, abstentions and broker non-votes will have the same effect as
negative votes.
Pursuant to a voting agreement with Heartland, the shares of CMAX Common
Stock held by Charter Wireless, representing an aggregate of 5,010,900 shares of
CMAX Common Stock (approximately 52.7% of the outstanding shares of CMAX Common
Stock) will be voted at the CMAX Meeting for the approval and adoption of the
CMAX Merger Agreement. Accordingly, stockholder approval of the CMAX Merger
Agreement is assured.
As of December 31, 1995, the directors and executive officers of CMAX and
their affiliates owned an aggregate of 124,600 shares (approximately 1.3%) of
CMAX Common Stock (inclusive of exercisable stock options, although the exercise
price of such options exceeds the per share consideration to be received
pursuant to the CMAX Merger Agreement). Such persons have informed CMAX of their
intention to vote their shares of CMAX Common Stock in favor of the CMAX Merger
Agreement. See "Information Concerning CMAX -- Security Ownership of Principal
Stockholders and Management."
SOLICITATION OF PROXIES AND EXPENSES
This Proxy Statement/Prospectus, the accompanying notice and proxy are
being mailed on or about January 26, 1996 to holders of CMAX Common Stock
entitled to notice of, and to vote at, the CMAX Meeting. The cost of preparing,
assembling, printing, filing and mailing the Proxy Statement/Prospectus will be
borne jointly by CMAX and Heartland. Brokers, nominees and fiduciaries and other
custodians have been requested to forward soliciting material to beneficial
owners of shares of CMAX Common Stock held of record by them, and such
custodians will be reimbursed for their expenses.
Certain officers, directors and employees of CMAX may solicit proxies by
telephone or personal contact. Such officers, directors and employees will not
be additionally compensated for such solicitation (other than their regular
salaries), but will be reimbursed by CMAX for out-of-pocket expenses incurred by
them in the course of such solicitation.
PROXIES
Holders of CMAX Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope. Shares
of CMAX Common Stock represented by properly executed proxies received by CMAX
and not revoked will be voted at the CMAX Meeting in accordance with the
instructions contained therein. If instructions are not contained therein,
proxies will be voted (i) FOR approval and adoption of the CMAX Merger
Agreement, and (ii) in the discretion of the holders of the proxy with respect
to any other procedural matters incident to the conduct of the CMAX Meeting that
may properly come before the CMAX Meeting.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ-NMS OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY
12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED
CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, CMAX STOCKHOLDERS WILL
BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE CMAX
STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. IN THE EVENT OF THE
OCCURRENCE OF ANY MATERIAL EVENT NOT DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS, CMAX WILL PROMPTLY PROVIDE YOU WITH APPROPRIATE DISCLOSURE
RELATING THERETO.
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ANY PROXY SIGNED AND RETURNED BY A HOLDER OF CMAX COMMON STOCK MAY BE
REVOKED BY SUCH HOLDER AT ANY TIME BEFORE IT IS VOTED EITHER BY GIVING DUE
WRITTEN NOTICE OF SUCH REVOCATION TO CMAX, OR BY SIGNING AND DULY DELIVERING A
PROXY BEARING A LATER DATE, OR BY ATTENDING THE CMAX MEETING AND VOTING IN
PERSON. ATTENDANCE AT THE CMAX MEETING WILL NOT IN AND OF ITSELF CONSTITUTE
REVOCATION OF A PROXY.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than those discussed in this
Proxy Statement/Prospectus will be brought before the CMAX Meeting. If other
matters are presented, proxies for CMAX Common Stock will be voted in accordance
with the best judgment of the proxy holders.
STOCKHOLDER PROPOSALS
CMAX will hold a 1996 Annual Meeting only if the CMAX Merger is not
consummated prior thereto. In the event of such a meeting, any stockholder
proposals intended to be presented thereat must be received by CMAX at its
principal executive offices at 6850 Austin Center Boulevard, Suite 320, Austin,
Texas 78731, Attention: Vice President -- Chief Financial Officer, no later than
March 31, 1996.
ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the CMAX Meeting and available to respond to appropriate questions, and will
also have the opportunity to make a statement at such time if they desire to do
so.
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THE CMAX MERGER
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT
TO THE CMAX MERGER IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE CMAX MERGER AGREEMENT ATTACHED HERETO AS APPENDIX A, WHICH IS
INCORPORATED HEREIN BY REFERENCE.
BACKGROUND OF THE CMAX MERGER
CMAX has had a strategy of trying to increase its subscriber base through
the acquisition of wireless cable channel systems and the build-out of existing
wireless cable systems, all of which are capital-intensive activities. In August
1994, the CMAX Board determined that CMAX required additional sources of capital
in order to continue subscriber growth. As a result, CMAX attempted to effect an
offering of high-yield debt seeking gross proceeds of approximately $60.0
million, but this offering was withdrawn in the fall of 1994 due to unfavorable
market conditions. Because CMAX required additional capital in order to fund
subscriber growth, CMAX pursued investors through an attempted private placement
of approximately $35.0 million of convertible preferred stock during the last
quarter of 1994 and the first quarter of 1995. CMAX did not consummate the
proposed private placement due in part to lack of investor interest and the low
valuation of CMAX's business by potential investors. Throughout these efforts to
raise capital, CMAX attempted to increase its credit availability under its
$14.5 million revolving credit and term loan facility from Fleet National Bank
(the "CMAX Credit Facility"). The current availability under the CMAX Credit
Facility is $7.5 million, all of which has been borrowed by CMAX.
As a result of CMAX's lack of success in raising capital through the public
and private markets and CMAX's need for additional capital to continue its
growth, in early 1995 representatives of CMAX began having conversations with
several potential strategic investors. These discussions reached various stages,
ranging from preliminary discussions to initial due diligence, and were
discontinued for various reasons, such as lack of investor financing or low
valuations of CMAX's business.
In April 1995, representatives of CMAX met with representatives of ACS
Enterprises, Inc. ("ACS"), CAI Wireless Systems, Inc. ("CAI") and Gerard Klauer
Mattison & Co., L.L.C. ("GKM"). At the meeting, representatives of CAI expressed
an interest in acquiring the shares of CMAX Common Stock held by Charter
Wireless at a price of $8.50 per share of CMAX Common Stock, payable in the form
of a combination of cash and CAI common stock. Representatives of Bell Atlantic,
which has a significant investment in CAI and was interested in directly
investing in the wireless cable industry, then joined the discussions. As a
result of such discussions, in mid-May 1995, CAI discontinued its discussions
with CMAX and the proposed transaction was changed to an acquisition of all of
the shares of CMAX Common Stock by Bell Atlantic at a price of $7.75 per share
of CMAX Common Stock, with the consideration to be paid in shares of the Bell
Atlantic common stock. On May 24, 1995, CMAX signed a "no-shop" agreement with
Bell Atlantic pursuant to which CMAX discontinued its discussions with other
potential investors. Bell Atlantic commenced its due diligence and distributed a
first draft of a merger agreement during the week of June 12, 1995. The no-shop
agreement expired on July 7, 1995 and Bell Atlantic, citing a lack of interest
in directly investing in the wireless cable industry outside of its regional
service area, ultimately decided not to pursue the acquisition of CMAX and
discontinued negotiations with CMAX.
Soon after CMAX's discussions with Bell Atlantic ended, Heartland
approached CMAX with a proposal for a merger at a valuation of $8.50 per share
of CMAX Common Stock. On August 22, 1995, CMAX received an indication of
interest from Wireless Broadcasting Systems of America ("WBSA") in connection
with a possible business combination of WBSA (a privately held entity) with
CMAX. WBSA's proposal was subject to due diligence and WBSA's proposed relative
valuations of the respective companies was deemed unacceptable by the CMAX
Board. CMAX discontinued discussions with WBSA after choosing to accept the
Heartland proposal.
On August 24, 1995, CMAX signed a letter of intent with Heartland to merge
with Heartland at a valuation of $8.50 per share of CMAX Common Stock in an
all-stock merger. After approximately two weeks
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of due diligence and exchanging drafts of the agreement and schedules, the
definitive CMAX Merger Agreement was signed on September 11, 1995.
RECOMMENDATION OF THE CMAX BOARD; REASONS FOR THE CMAX MERGER
THE BOARD OF DIRECTORS OF CMAX (THE "CMAX BOARD") HAS UNANIMOUSLY
DETERMINED THAT THE CMAX MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF CMAX
AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE CMAX MERGER AND THE CMAX
MERGER AGREEMENT. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE CMAX MERGER AGREEMENT.
See "The CMAX Merger -- Background of the CMAX Merger" and "The CMAX
Merger -- Opinion of CMAX Advisor."
In reaching its unanimous determination that the CMAX Merger Agreement is
in the best interests of CMAX and its stockholders, the CMAX Board considered a
number of factors, including without limitation, the following, all of which
supported its determination:
(a) The presentation by Bear Stearns indicating that the CMAX Merger
compares favorably with the other comparable transactions reviewed by Bear
Stearns, and such advisor's written opinion that the CMAX Merger is fair to
CMAX stockholders from a financial point of view. See "The CMAX
Merger -- Opinion of CMAX Advisor."
(b) The relationship of the valuation of $8.50 per share of CMAX
Common Stock to the historical and current market prices for the CMAX
Common Stock preceding the announcement of the CMAX Merger, including the
fact that such valuation represents a premium of approximately 24% over the
$6.87 closing sale price of the CMAX Common Stock on September 11, 1995,
the last trading day before the announcement of the CMAX Merger. See
"Summary -- Merger of Heartland Affiliate with and into CMAX -- Comparative
Market Price Data."
(c) The belief of the CMAX Board and management that Heartland's
proposal was the most attractive alternative, as opposed to a break-up sale
or a continuation of CMAX as an independently held public company, based on
senior management's discussions with other potential strategic partners,
the limited availability of financing, the lack of access to digital
technology, CMAX's size and competition from other cable providers. See
"The CMAX Merger -- Background of the CMAX Merger" and "The CMAX
Merger -- Opinion of CMAX Advisor."
(d) The CMAX Board's review with its legal and financial advisors of
alternatives to the CMAX Merger, particularly the alternative of adhering
to CMAX's current business plans which provide for very limited growth.
(e) The relationship of the valuation of $8.50 per share of CMAX
Common Stock to the range of possible values obtainable by stockholders
through a strategy of independence, with due consideration given to the
timing and likelihood of actually receiving such values.
(f) The terms of the CMAX Merger Agreement as reviewed by the CMAX
Board with its legal and financial advisors (see "The CMAX Merger -- Terms
of the CMAX Merger Agreement", and "The CMAX Merger-Termination"),
including (i) the nature, adequacy and fairness of the consideration to be
received in the CMAX Merger, (ii) the ability of stockholders to receive
shares of Heartland which will give them the opportunity to participate in
the continuation of CMAX's business, (iii) the ability of CMAX to enter
into an agreement with another potential acquiror on terms which the CMAX
Board determines in its good faith judgment (based on the advice of
independent legal counsel) to be more favorable to CMAX's stockholders than
the CMAX Merger.
(g) The likelihood that the CMAX Merger would be consummated, based
upon the experience, reputation and financial capabilities of Heartland.
(h) Information relating to the financial condition, results of
operations, capital levels, asset quality and prospects of CMAX (see
"Information Concerning CMAX -- Selected Consolidated Financial Data"),
potential profitability and management's best estimates of the prospects of
CMAX.
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(i) The current and prospective environment in which CMAX operates,
including the competitive environment for wireless cable providers
generally, the availability of financing for wireless cable providers
generally, and the trend toward consolidation in the wireless cable
industry.
(j) The strategic and synergistic effect of a business combination
with Heartland, including (i) the access to additional capital, (ii) the
marketing and competitive advantages of the combination with Heartland, and
(iii) the compatibility of Heartland's business with CMAX's.
(k) The impact of the CMAX Merger on the general long-term interests,
prospects and objectives of CMAX, and the legal, social, economic, and
other effects of the CMAX Merger on CMAX's subscribers, employees,
suppliers and creditors and the communities in which CMAX operates.
The foregoing discussion of the information and factors discussed by the
CMAX Board is not meant to be exhaustive but is believed to include all material
factors considered by the CMAX Board. The CMAX Board did not quantify or attach
any particular weight to the various factors that it considered in reaching its
determination that the CMAX Merger is in the best interests of its stockholders.
OPINION OF CMAX ADVISOR
General. Bear Stearns was retained by CMAX to render an opinion to the CMAX
Board as to the fairness, from a financial point of view, to the stockholders of
the CMAX Common Stock of the transaction pursuant to the CMAX Merger Agreement,
based upon the consideration proposed by Heartland. Bear Stearns was selected to
be CMAX's financial advisor because of its substantial experience in mergers and
acquisitions and in securities valuations generally and because of its
experience in the wireless cable television industry and with CMAX in
particular. See "-- Prior Dealings Between Bear Stearns and CMAX."
On September 7, 1995, Bear Stearns delivered an oral opinion to the CMAX
Board to the effect that, as of such date and based upon the assumptions made,
matters considered and limits of review as set forth in such opinion, the
transaction is fair to the CMAX stockholders from a financial point of view.
Bear Stearns confirmed such oral opinion by delivery of a written opinion dated
November 13, 1995 (the "CMAX Fairness Opinion"). The CMAX Fairness Opinion is
substantially identical to the September 7, 1995 oral opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF BEAR STEARNS, DATED NOVEMBER 13,
1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
APPENDIX B AND INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. HOLDERS
OF CMAX COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION CAREFULLY AND
IN ITS ENTIRETY.
In rendering its opinion, Bear Stearns, among other things: (i) reviewed
drafts of this Proxy Statement/Prospectus; (ii) analyzed certain publicly
available financial statements and other business and financial information
relating to CMAX and Heartland; (iii) reviewed and discussed with
representatives of the senior management of CMAX and Heartland certain operating
and financial information, including projections, provided to Bear Stearns by
management of CMAX and Heartland relating to their respective projections,
businesses and prospects; (iv) conducted a discounted cash flow analysis; (v)
analyzed the historical stock prices and trading activity of CMAX and Heartland,
both separately and relative to each other and to various other comparable
stocks; (vi) visited CMAX's facilities in San Antonio, Austin, and
Temple/Killeen, Texas and met with additional members of CMAX's senior
management; (vii) reviewed publicly available financial data and stock market
performance data of companies which Bear Stearns deemed generally comparable to
CMAX and Heartland; (viii) reviewed the terms of recent acquisitions of
companies which Bear Stearns deemed generally comparable to CMAX; and (ix)
conducted such other studies, analyses, inquiries and investigations as Bear
Stearns deemed appropriate. CMAX imposed no limitation on the scope of Bear
Stearns' investigations.
In the course of its review, Bear Stearns has relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by CMAX and Heartland. With respect to CMAX's and
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Heartland's projected financial results, Bear Stearns has assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of CMAX and Heartland as to their
respective expected future performance. Bear Stearns has not assumed any
responsibility for the information or projections provided to it, and Bear
Stearns has further relied upon the assurances of the managements of CMAX and
Heartland that they are unaware of any facts that would make the information or
projections provided to Bear Stearns incomplete or misleading. In arriving at
its opinion, Bear Stearns has not performed or obtained any independent
appraisal of the assets of CMAX or Heartland. The opinion of Bear Stearns is
necessarily based on economic, market and other conditions, and the information
made available to it, as of the date of its opinion.
In preparing its opinion to CMAX's Board of Directors, Bear Stearns
performed a variety of financial and comparative analyses, including those
(which constitute the material analyses) described below. The summary of these
analyses does not purport to be a complete description of the analyses
underlying Bear Stearns's opinion.
Historical Stock Price and Premium Analysis. Bear Stearns reviewed the
performance of the per share daily closing market price of CMAX Common Stock and
Heartland Common Stock separately over the period from November 19, 1993 to
September 5, 1995, and compared the closing prices of such stocks on August 30,
1995 and their historical price ranges with the closing prices on August 30,
1995 and historical price ranges of certain other publicly traded wireless cable
companies. The companies included in the comparison were ACS Enterprises, Inc.
("ACS"), American Telecasting, Inc., CMAX, CAI, Heartland, People's Choice TV
Corp. ("PCTV"), and Preferred Entertainment, Inc. ("Preferred") (collectively
referred to as the "CMAX Industry Comparables"). Bear Stearns' analyses also
indicated that, assuming an exchange ratio ranging from .25 to .85 shares of
Heartland Common Stock per share of CMAX Common Stock in the CMAX Merger and a
value ranging from $10.00 to $34.00 per share of Heartland Common Stock, the
consideration to be received by holders of CMAX Common Stock pursuant to the
CMAX Merger represented a premium of approximately 23.6% over the closing price
of CMAX Common Stock on August 30, 1995 and 74.4% over the closing price of CMAX
Common Stock on February 28, 1995.
Comparable Public Company Analysis. Bear Stearns compared certain publicly
available financial and operating data of the CMAX Industry Comparables with
similar financial and operating data of CMAX and financial and operating data of
CMAX implied by the consideration to be paid to CMAX's stockholders.
Specifically, Bear Stearns compared (i) total market capitalization ("TMC");
(ii) TMC per unmarketed line-of-sight household ("LOS Household"); (iii) TMC per
LOS Household; and (iv) TMC per subscriber. Bear Stearns also compared (i) the
publicly reported last 12 months ("LTM") net revenues, and (ii) publicly
reported LTM earnings before interest, taxes, depreciation and amortization
("EBITDA"). For purposes of the above and foregoing calculations, TMC is the sum
of the market equity value plus the value of the preferred equity, if any, plus
the total debt plus the minority interest less cash less option proceeds and
"market equity value" is equal to the closing price per share on August 30, 1995
multiplied by the number of shares outstanding. The ranges for the foregoing
values were as follows: (1) TMC: $394.4 to $64.8 million (with an arithmetic
mean of $213.4 million); (ii) TMC per unmarketed LOS Household: $78.0 to $21.6
(with a harmonic mean of $34.8); (iii) TMC per LOS Household: $86.8 to $29.4
(with a harmonic mean of $44.2); (iv) TCM per subscriber: $7,925.0 to $1,798.5
(with a harmonic mean of $3,135.0); (v) net revenues: $35.0 to $6.9 million
(with an arithmetic mean of $16.4 million); and (vi) EBITDA: $0.9 to ($16.7)
million (with an arithmetic mean of ($5.7) million).
Comparable Acquisition Analysis. Bear Stearns reviewed certain publicly
available information regarding four selected acquisitions of wireless cable
operations announced since February 1995 (the "CMAX Acquisition Comparables").
The CMAX Acquisition Comparables and the respective dates on which such
transactions were announced are as follows: PCTV's acquisition of Preferred
(February 1995); Pacific Telesis's acquisition of certain of the properties of
Cross Country Wireless (April 1995); CAI's acquisition of ACS (March 1995); and
Bell Atlantic/NYNEX's investment in CAI (March 1995).
Based on a LOS Household valuation, which has become an industry standard,
Heartland's offer represents a valuation that is in the range of recent
comparable transactions. In reaching this conclusion, Bear
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Stearns compared the TMC per unmarketed LOS Household and the TMC per LOS
Household for each CMAX Acquisition Comparable. In both analyses, the CAI
acquisition of ACS was deemed to be an anomaly because of ACS's greater suburban
base, ACS's positive cash flow and ACS's strategic value, all of which led to
the payment of a significant premium for ACS. After disregarding the CAI
acquisition of ACS, the range of the TMC per unmarketed LOS Household was $48 to
$26, and the range of the TMC per LOS Household was $54 to $33. Based on the
implied value in the CMAX Merger, the TMC per unmarketed LOS Household was $44
and the TMC per LOS Household was $59.
Bear Stearns believes that the Comparable Public Company Analysis and the
Comparable Acquisition Analysis described above are standard analyses used in
the evaluation of merger and acquisition transactions such as the CMAX Merger.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash
flow analysis of the projected free cash flow of CMAX on a stand alone basis for
the fiscal years ending June 30, 1996 through 2000, based on financial
projections prepared by CMAX and assuming a discount rate of 12% and that CMAX
would be able to fund its negative free cash flow with additional bank
indebtedness. Although the magnitude of CMAX's negative free cash flow
diminished over time, it never became positive and ranged from ($19.0) million
in 1997 to ($1.4) million in 2000.
Other Factors. Bear Stearns noted other qualitative factors and industry
trends in its presentation, including among others: (i) Heartland's goals of
expanding beyond the region in which it currently operates; (ii) the competition
that CMAX faces from traditional hard-wire cable and direct broadcast satellite
services in a capital intensive industry; (iii) CMAX's smaller size which
results in few economies of scale in management, marketing, customer service and
programming purchases; (iv) CMAX's inability to access the financial markets to
fund its significant capital requirements on an attractive basis; (v) the
increased future liquidity of a combined company through a diversified and
larger shareholder base; (vi) the breadth of CMAX's discussions with each of its
most likely strategic buyers; and (vii) the attractiveness of the Heartland
offer in terms of price, liquidity and ability to close.
In arriving at the CMAX Fairness Opinion, Bear Stearns performed a variety
of financial analyses, the material portions of which are summarized above. The
summary set forth above does not purport to be a complete description of the
analyses performed by Bear Stearns. In addition, Bear Stearns believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all such
factors and analyses, could create a misleading view of the process underlying
its analyses set forth in its opinion. The matters considered by Bear Stearns in
arriving at its opinion that, as of the date of such opinion, the transaction is
fair to the holders of CMAX Common Stock from a financial point of view, are
based on numerous macroeconomic, operating and financial assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond CMAX's or Heartland's control. Any
estimates incorporated in the analyses performed by Bear Stearns are not
necessarily indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at which
businesses or companies may be sold in the future, and such estimates are
inherently subject to uncertainty. Arriving at a fairness opinion is a complex
process not necessarily susceptible to partial or summary description. No public
company utilized as a comparison is identical to CMAX, Heartland or the business
segment for which a comparison is being made and none of the CMAX Acquisition
Comparables is identical to the CMAX Merger. Accordingly, an analysis of
publicly traded comparable companies and comparable business combinations
resulting from the transactions is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies or company to which they are being
compared.
Prior Dealings Between Bear Stearns and CMAX.
In the past, Bear Stearns has performed certain investment banking services
for CMAX, including acting as a co-lead underwriter for the initial public
offering of shares of CMAX Common Stock (the "CMAX IPO") in November 1993,
acting as the lead underwriter for the attempted high yield debt offering of
CMAX,
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which was withdrawn in the fall of 1994 and acting as a private placement agent
for the proposed sale of convertible preferred stock of CMAX, which was not
completed. CMAX paid Bear Stearns underwriting fees in the connection with the
CMAX IPO of approximately $739,000 and did not pay Bear Stearns any fees in
connection with the attempted high yield debt offering or private placement.
Bear Stearns also provided a fairness opinion in connection with the
proposed merger of CMAX with and into a subsidiary of Bell Atlantic in June
1995, which merger was never consummated and for which no fees were paid. See
"The CMAX Merger -- Background of the CMAX Merger."
Fees. CMAX engaged Bear Stearns to provide a fairness opinion in connection
with the CMAX Merger. The engagement letter provides that Bear Stearns will be
paid a fee of $315,000 in connection with the rendering of an opinion as to the
fairness from a financial point of view of the transaction, such fee to be
payable in installments. In addition, CMAX will reimburse Bear Stearns for all
of its reasonable out-of-pocket expenses in connection with its engagement. CMAX
also agreed to provide customary indemnification and related obligations in
favor of Bear Stearns.
TERMS OF THE CMAX MERGER AGREEMENT
The CMAX Merger. On September 11, 1995, Heartland, CMAX Merger Sub and CMAX
executed the CMAX Merger Agreement. Subject to the terms of CMAX Merger
Agreement, at the CMAX Effective Time (as defined hereafter), (i) CMAX Merger
Sub will merge with and into CMAX, (ii) the separate existence of CMAX Merger
Sub will cease, (iii) CMAX will be the surviving corporation in the CMAX Merger
(the "CMAX Surviving Corporation"), and the internal corporate affairs of the
CMAX Surviving Corporation will continue to governed by the laws of the State of
Delaware.
Certificate of Incorporation and Bylaws. The CMAX Merger Agreement provides
that the Certificate of Incorporation and Bylaws of the CMAX Merger Sub as in
effect immediately prior to the CMAX Effective Time will become the Certificate
of Incorporation and Bylaws of the CMAX Surviving Corporation; provided,
however, that the provisions in such Certificate or Bylaws relating to director
and officer indemnification shall be substantially the same as the provisions
currently contained in the Certificate of Incorporation and Bylaws of CMAX.
Directors and Officers. The directors and officers of the CMAX Merger Sub
(certain of the directors and executive officers of Heartland) at the CMAX
Effective Time will become the directors and officers of the CMAX Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal.
Conversion of CMAX Common Stock in the CMAX Merger. At the CMAX Effective
Time, all of the issued and outstanding shares of CMAX Common Stock will be
converted into the right to receive a proportionate amount of that number of
newly issued publicly tradeable shares of Heartland Common Stock having an
aggregate exchange value of approximately $80.8 million for all the shares of
CMAX Common Stock (the "CMAX Merger Consideration") resulting in each share of
CMAX Common Stock, subject to adjustment, being converted into the right to
receive that portion of a share of Heartland Common Stock having an exchange
value of $8.50 per share. The exchange value of the Heartland Common Stock to be
issued pursuant to the CMAX Merger will be equal to the average closing price of
Heartland Common Stock as reported on the Nasdaq-NMS for the 20-trading-day
period ending on the fifth business day preceding the consummation of the CMAX
Merger (or February 15, 1996 based upon a contemplated closing date of February
23, 1996). IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON
STOCK AS REPORTED ON THE NASDAQ-NMS OVER THE 17 TRADING DAY PERIOD ENDING ON
FEBRUARY 12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, CMAX
STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL
MEETING TO ENABLE CMAX STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. See
"The CMAX Meeting -- Proxies" for information regarding the revocability of CMAX
proxies. If CMAX's Net Liabilities exceed its Permitted Net Liabilities (each as
defined in the CMAX Merger Agreement) (such excess being referred to as "CMAX
Excess Liabilities"), the CMAX Merger Consideration shall be reduced by the
amount of the CMAX Excess Liabilities. Further, Heartland, at its option, may
terminate the CMAX Merger Agreement if such average closing price is below
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$10 per share. Heartland currently intends to exercise such right, if
applicable. As a result, a maximum of 8,081,214 shares of Heartland Common Stock
are issuable in connection with the CMAX Merger. CMAX, at its option, may
terminate the CMAX Merger Agreement if such average closing price is above
$34.00 per share.
Fractional Shares. No fractional shares of Heartland Common Stock will be
issued in the CMAX Merger. Holders of CMAX Common Stock who would otherwise have
been entitled to a fractional share of Heartland Common Stock shall be entitled
to receive cash in lieu of such fractional share based upon its exchange value.
CMAX Sublease Agreement. In connection with the execution of the CMAX
Merger Agreement, CMAX entered into a Sublease and Purchase Agreement (the
"Sublease Agreement") with Heartland. Pursuant to the terms of the Sublease
Agreement, CMAX subleased to Heartland all of its wireless cable television
rights in the Additional Texas Systems and Heartland paid CMAX a $2.4 million
non-refundable deposit for such rights. If the CMAX Merger Agreement is
terminated as a result of a breach thereof by CMAX or as a result of the
acceptance by the Board of Directors of CMAX of a competing acquisition
proposal, Heartland will acquire such wireless cable television rights for
nominal additional consideration. If the CMAX Merger Agreement is terminated for
any other reason, Heartland shall acquire such wireless cable television rights
for an amount equal to the difference between the appraised value of such rights
and the $2.4 million previously paid by Heartland. CMAX has agreed to use the
non-refundable deposit from the Sublease Agreement solely for the purposes of
marketing, purchasing equipment or paying associated labor costs.
CMAX Loan. In connection with the CMAX Merger Agreement, Heartland has
agreed to loan to CMAX ("CMAX Loan") up to $1,000,000 of which (a) $500,000 was
advanced on December 29, 1995 to be used for working capital purposes, and (b)
$500,000 may be used for subscriber growth. The CMAX Loan will not increase the
amount of CMAX Excess Liabilities. Upon consummation of the CMAX Merger
Agreement, it is anticipated that the CMAX Loan will remain as an inter-company
obligation from CMAX to Heartland. In the event that the CMAX Merger Agreement
is not consummated, the CMAX Loan is payable August 29, 1996; provided, that if
the CMAX Merger Agreement is terminated as a result of a competing acquisition
proposal, then the CMAX Loan will be immediately due and payable.
Noncompetition Agreements. For a period of three years from and after the
date of the consummation of the CMAX Merger, Charterhouse Equity Partners, L.P.
("CEP"), an affiliate of Charter Wireless, and Tommy L. Gleason, the President
and Chief Executive Officer of CMAX, have agreed not to own or operate a
wireless cable television business within a fifty-mile radius of any wireless
television cable market acquired by Heartland from CMAX.
Sale of Salt Lake City System. Pursuant to the CMAX Merger Agreement, CMAX
has the right to solicit bids for and negotiate the sale of the Salt Lake City
System, provided that (i) CMAX shall keep Heartland fully informed regarding the
status of any negotiation regarding the sale of the Salt Lake City System; (ii)
Heartland has the right to approve, in its reasonable discretion, the terms of
any proposed disposition of the Salt Lake City System, and the execution of a
definitive agreement is subject to Heartland's approval; and (iii) the gross
proceeds of any such disposition shall be placed in an escrow account and shall
remain in such account through the closing of the CMAX Merger Agreement.
Options and Warrants. CMAX has agreed that any outstanding stock options
and warrants to purchase shares of CMAX Common Stock not exercised prior to the
CMAX Effective Time shall be terminated as of the CMAX Effective Time. As of
December 31, 1995, officers and other key employees of CMAX held a total of
117,500 outstanding stock options exercisable at a price of $12.00 per share,
which is in excess of the consideration of $8.50 per share, subject to
adjustment, to be received pursuant to the CMAX Merger.
EFFECTIVE TIME
Promptly following the receipt of all required governmental approvals and
satisfaction or waiver (where permissible) of the other conditions to the CMAX
Merger, the CMAX Merger will be consummated and will become effective at the
time at which the certificate of merger to be filed pursuant to the DGCL is
accepted for filing by the Secretary of State of Delaware or such later date and
time as may be specified in the
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certificate of merger (the "CMAX Effective Time"). See "The CMAX
Merger -- Conditions." It is currently anticipated that if all conditions under
the CMAX Merger Agreement have been met or (where applicable) waived, including
the approval and adoption of the CMAX Merger Agreement by the stockholders of
CMAX and Heartland, the CMAX Effective Time will occur on or after the later of
the CMAX Special Meeting or the Heartland Special Meeting.
EXCHANGE OF CERTIFICATES
Harris Trust Company of New York has been selected to act as the exchange
agent (the "Exchange Agent") pursuant to the terms of the Exchange Agent
Agreement ("CMAX Exchange Agreement") between Heartland and the Exchange Agent
(to be executed immediately prior to the CMAX Effective Time), for the purpose
of effectuating the delivery of the shares of Heartland Common Stock (or
proceeds thereof) to be issued in the CMAX Merger. Promptly after the CMAX
Effective Time, Heartland will cause the Exchange Agent to send to each holder
of CMAX Common Stock at the CMAX Effective Time a letter of transmittal ("Letter
of Transmittal") advising such holders of the terms of the exchange of CMAX
Common Stock and the procedures for surrendering CMAX stock certificates in
exchange for the consideration provided for in the CMAX Merger Agreement. Any
payment of cash in lieu of fractional shares of Heartland Common Stock will be
delivered to each former holder of CMAX Common Stock by check concurrent with
the delivery of such holder's portion of the CMAX Merger Consideration
represented by Heartland Common Stock. ELECTIONS BY CMAX STOCKHOLDERS MADE IN
THE LETTER OF TRANSMITTAL ARE IRREVOCABLE. CMAX STOCKHOLDERS ARE REQUESTED NOT
TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL AND INSTRUCTIONS FROM THE CMAX EXCHANGE AGENT.
At and after the CMAX Effective Time and until surrendered as provided
above, each certificate for CMAX Common Stock ("CMAX Stock Certificate") will be
deemed to represent the right to receive that number of whole shares of
Heartland Common Stock into which the shares of CMAX Common Stock formerly
represented by a CMAX Stock Certificate were converted in the CMAX Merger, and
through a cash payment in lieu of any fractional shares (based upon the exchange
value of the Heartland Common Stock). THE HOLDERS OF CMAX STOCK CERTIFICATES
WILL NOT BE ENTITLED TO RECEIVE DIVIDENDS OR ANY OTHER DISTRIBUTIONS FROM
HEARTLAND UNTIL SUCH CMAX STOCK CERTIFICATES ARE SO SURRENDERED. Upon the
surrender of a CMAX Stock Certificate, there will be paid to the person in whose
name such shares of Heartland Common Stock are issued any dividends or other
distributions which have a record date after the CMAX Effective Time and which
become payable prior to surrender with respect to such shares of Heartland
Common Stock. After such surrender, there will be paid to the person in whose
name such shares of Heartland Common Stock are issued any dividends or other
distributions on such shares which have a record date after the CMAX Effective
Time and prior to such surrender and a payment date after such surrender, and
such payment will be made on the payment date. 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 check or any certificate representing shares of Heartland Common
Stock is to be issued to any person other than registered holders of the shares
of CMAX Common Stock represented by the CMAX Stock Certificate or Certificates
surrendered in exchange therefor, it shall be a condition to such issuance that
the CMAX Stock Certificate or Certificates so surrendered shall be properly
endorsed and otherwise be in proper form for transfer and that the person
requesting such exchange pay any transfer or other taxes required by reason of
such issuance, or establish to the satisfaction of the Exchange Agent or
Heartland that such taxes have been paid or are not payable.
After the CMAX Effective Time, there will be no further registration or
transfer of shares of CMAX Common Stock. If, at or after the CMAX Effective
Time, a certificate representing such shares is presented it shall be cancelled
and exchanged for certificates representing shares of Heartland Common Stock and
cash, if applicable, pursuant to the CMAX Merger Agreement.
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Any certificates for shares of Heartland Common Stock and funds deposited
with the Exchange Agent with respect to the formerly outstanding shares of CMAX
Common Stock that remain unclaimed for six months after the CMAX Effective Time
will be delivered to Heartland upon demand and those holders of CMAX Stock
Certificates who have not surrendered their CMAX Stock Certificates shall look
only to Heartland or the CMAX Surviving Corporation for redemption and payment
with respect thereto. After such time, holders of CMAX Certificates may submit
such certificates to Heartland at 903 North Bowser, Suite 140, Richardson, Texas
75081, Attention: Chief Financial Officer.
Pursuant to the CMAX Exchange Agreement, the Exchange Agent will be
compensated for out-of-pocket expenses and Heartland will also indemnify the
Exchange Agent against certain liabilities.
REPRESENTATIONS AND WARRANTIES
The CMAX Merger Agreement contains certain representations, warranties and
agreements of CMAX, Heartland and CMAX Merger Sub. CMAX has made certain
representations and warranties regarding, without limitation, its organization
and qualification and the listing of its shares, subsidiaries, capitalization,
authority to enter into the CMAX Merger Agreement, absence of conflicts between
the CMAX Merger Agreement and other agreements and documents, financial
statements, absence of material adverse changes since June 30, 1995, taxes,
title to and condition of real and personal property, receivables, material
contracts, FCC matters, insurance, litigation, registration rights, insurance,
certain activities and services, governmental permits, compliance with laws,
environmental matters, intellectual property, encumbrances and liens on CMAX's
assets, regulatory compliance, interference issues, employee plans, finders'
fees, compliance with the Copyright Act, programming agreements, adequacy of
filings with the Commission, information regarding directors, officers and
employees, bank accounts, certain claims, site leases and site options,
affiliates for purposes of Rule 145 of the Securities Act, wireless cable
television systems and subscribers.
Each of Heartland and CMAX Merger Sub have made certain representations and
warranties regarding its organization and qualification, authority to enter into
the CMAX Merger Agreement, absence of conflicts between the CMAX Merger
Agreement and other agreements and documents, litigation, government consents
and approvals, capitalization, issuance of Heartland Common Stock, financial
statements, adequacy of filings with the Commission and finders' fees.
COVENANTS AND OBLIGATIONS
Covenants Pending the Earlier of the CMAX Effective Time and the
Abandonment or Termination of the CMAX Merger. The CMAX Merger Agreement sets
forth certain obligations of CMAX pending the earlier of the CMAX Effective Time
and the abandonment or termination of the CMAX Merger. See "The CMAX
Merger-Termination." CMAX has agreed that it will, and will cause its
subsidiaries, to do the following, among other things: (i) operate the business
of CMAX only in the ordinary course, (ii) use reasonable efforts to preserve its
business, properties and business relationships substantially intact, (iii)
comply with and perform in all material respects the provisions of all
franchises, permits, licenses, or similar authorizations relating to CMAX's
business and the payment of all obligations when due, (iv) not materially breach
or take any action which would materially breach any of the representations and
warranties of CMAX in the CMAX Merger Agreement and to limit CMAX's liabilities,
(v) keep in full force and effect all of the FCC licenses, channel leases, any
obligations with respect to signal interference, certifications and permits and
all other material agreements related to the foregoing, (vi) not terminate or
amend any of its material contracts and governmental permits, except in
accordance with the CMAX Merger Agreement, (vii) not make any distributions or
dividends of cash or securities, (viii) not cause its subsidiaries to sell any
assets, except in the ordinary course of business, (ix) pay salaries or
compensation only in the ordinary course of business, (x) not transfer any
interest in any subsidiary and (xi) maintain CMAX Common Stock as a Nasdaq-NMS
security.
Other Agreements of CMAX, Heartland and CMAX Merger Sub. Pursuant to the
CMAX Merger Agreement, each of Heartland and CMAX is obligated to call a special
meeting of its stockholders to consider and vote upon the adoption and approval
of the CMAX Merger Agreement. Subject to its fiduciary duty to stockholders, the
Board of Directors of each of CMAX is obligated to recommend to the stockholders
the
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adoption and approval of the CMAX Merger Agreement. In addition, CMAX will (i)
assist Heartland in obtaining estoppel certificates in connection with material
contracts and channel leases and certain accounts payable and (ii) timely file
or cause to be filed all required reports with the FCC.
NO SOLICITATION
CMAX has agreed that it will not, and it will not permit any of its
officers, employees, representatives or agents (collectively, "CMAX
Representatives") to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a CMAX
Acquisition Proposal (as hereafter defined) from any person or engage in any
discussion or negotiations relating thereto or accept any CMAX Acquisition
Proposal. For purposes of the CMAX Merger Agreement, the term "CMAX Acquisition
Proposal" means any proposal or offer considered by the Board of Directors of
CMAX to be bona fide, other than a proposal or offer by Heartland or any of its
affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving CMAX or any of its subsidiaries or any proposal
to acquire in any manner a substantial equity interest in (x) CMAX or any of its
subsidiaries, (y) any rights of CMAX or any of its subsidiaries to any wireless
cable channels or (z) any wireless cable television system held by CMAX.
Notwithstanding the foregoing, nothing in the CMAX Merger Agreement shall
prohibit the Board of Directors of CMAX from (i) furnishing information to or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited bona fide proposal with respect to a CMAX Acquisition Proposal,
if and only to the extent that, (A) the Board of Directors of CMAX determines in
good faith that such action is required for the Board of Directors of CMAX to
comply with its fiduciary duties to its stockholders, and (B) prior to
furnishing such information to, or entering into discussions with or
negotiations with, such person or entity, to the extent permitted by applicable
law, CMAX provides notice to Heartland to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, and (C) to the extent permitted by applicable law, CMAX keeps
Heartland informed, on a current basis, of the status of any such discussions or
negotiations; (ii) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a CMAX Acquisition Proposal; or (iii) soliciting or receiving
offers for, negotiating the sale of, or selling the Salt Lake City System. See
"The CMAX Merger -- Termination."
CMAX has agreed to promptly inform Heartland as to the fact that
information is to be provided in response to an unsolicited inquiry with respect
to a CMAX Acquisition Proposal or that an offer has been received and has agreed
to furnish to Heartland the identity of the recipient of such information or the
proponent of such offer, if applicable, and, if an offer has been received, a
description of the material terms thereof.
CMAX has also agreed to terminate all discussions heretofore held with
third parties regarding possible CMAX Acquisition Proposals. CMAX has covenanted
that it will use reasonable efforts to cause a person provided proprietary
information in accordance with the foregoing to enter into a confidentiality
agreement.
CONDITIONS
The respective obligations of the parties to consummate the CMAX Merger are
subject to the satisfaction or, where permissible, waiver of the following
conditions, among others: (i) effectiveness of the Registration Statement which
includes this Proxy Statement/Prospectus, filed in connection with the CMAX
Merger and the receipt of any required authorizations from state securities
agencies, (ii) the absence of any action or proceeding which is then in effect
and has the effect of prohibiting the CMAX Merger or any of the transactions
contemplated by the CMAX Merger Agreement or otherwise making the consummation
of the CMAX Merger or any of the transactions contemplated thereby illegal, and
(iii) receipt of required consents and approvals, including the termination of
all applicable waiting periods under the HSR Act.
The obligations of Heartland to consummate the CMAX Merger are also subject
to the satisfaction or, where permissible, waiver of the following conditions,
among others: (i) the requisite stockholder approval of the CMAX Merger by the
stockholders of Heartland, (ii) the accuracy in all material respects of the
representations and warranties of CMAX set forth in the CMAX Merger Agreement,
(iii) the delivery of
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certain documents, certificates and legal opinions by CMAX, (iv) the absence of
any material adverse change to the business of CMAX, (v) the receipt of a letter
from CMAX's accountants, (vi) the performance in all material respects by CMAX
of all obligations required to be performed by CMAX prior to the closing of the
CMAX Merger, (vii) the delivery of non-competition agreements by Mr. Gleason and
CEP, and (viii) the Closing Share Price of Heartland Common Stock (as defined in
the CMAX Merger Agreement) not being less than $10.00 per share.
The obligations of CMAX to consummate the CMAX Merger Agreement are subject
to the satisfaction or, where permissible, waiver of the following conditions,
among others: (i) the requisite stockholder approval of the CMAX Merger by the
stockholders of CMAX, (ii) the accuracy in all material respects of the
representations and warranties of Heartland and CMAX Merger Sub set forth in the
CMAX Merger Agreement, (iii) the delivery of certain documents, certificates and
legal opinions by Heartland and CMAX Merger Sub, (iv) the performance in all
material respects by Heartland and CMAX Merger Sub of all obligations required
to be performed by Heartland and CMAX Merger Sub prior to the closing of the
CMAX Merger, (v) the absence of any change in the business or affairs of
Heartland requiring an amendment or supplement to this Proxy
Statement/Prospectus and (vi) the Closing Share Price of Heartland Common Stock
(as defined in the CMAX Merger Agreement) not being greater than $34.00 per
share.
REGULATORY APPROVALS
In addition to the federal and state approvals required in connection with
the effectiveness of this Proxy Statement/Prospectus, the CMAX Merger requires
the early termination of or lapse of waiting periods under the HSR Act, which
early termination was received by Heartland and CMAX, effective as of October
26, 1995.
TERMINATION
The CMAX Merger Agreement may be terminated and the CMAX Merger may be
abandoned at any time prior to the filing of the Certificate of Merger, before
or after the approval by holders of CMAX Common Stock and Heartland Common
Stock, by the mutual consent of Heartland, CMAX Merger Sub and CMAX.
The CMAX Merger Agreement may be terminated and the CMAX Merger may be
abandoned by Heartland and CMAX Merger Sub if (a) the conditions to closing for
Heartland or CMAX Merger Sub have not been satisfied or where permissible,
waived on or before February 29, 1996, provided that if certain liabilities of
CMAX on the closing of the CMAX Merger Agreement exceed the permitted
liabilities allowed therein, Heartland shall not have the right to terminate the
CMAX Merger Agreement but may reduce the CMAX Merger Consideration by the CMAX
Excess Liabilities or (b) CMAX's stockholders do not approve the CMAX Merger and
the CMAX Merger Agreement at the CMAX Meeting.
The CMAX Merger Agreement may be terminated and the CMAX Merger may be
abandoned by CMAX if (a) Heartland or CMAX Merger Sub shall have failed to
satisfy the covenants or agreements contained in the CMAX Merger Agreement or
such covenants or agreements have not been waived on or before February 29,
1996, or (b) if the CMAX Board of Directors approves the execution of an
agreement relating to CMAX Acquisition Proposal or recommends to the CMAX
stockholders the acceptance of any CMAX Acquisition Proposal.
In the event that the CMAX Merger is terminated as a result of a CMAX
Acquisition Proposal by a third party to CMAX that is approved by the CMAX Board
or recommended to the CMAX stockholders by the CMAX Board, then CMAX shall
promptly pay to Heartland all amounts outstanding under the CMAX Loan and a fee
of $2 million as reimbursement to Heartland for all costs and expenses incurred
in connection with the CMAX Merger Agreement and the transactions contemplated
thereby. In the event of any other termination of the CMAX Merger Agreement, any
rights and remedies which any of the parties to the CMAX Merger Agreement may
have against any such other party by reason of such termination shall not be
affected thereby but shall be preserved and may be exercised in accordance in
applicable law.
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VOTING AGREEMENTS
In connection with the execution of the CMAX Merger Agreement, Charter
Wireless, the holder of approximately 52.7% of the outstanding shares of CMAX
Common Stock (or 5,010,900 shares of CMAX Common Stock) has agreed to vote all
shares held by it in favor of the CMAX Merger. ACCORDINGLY, STOCKHOLDER APPROVAL
OF THE CMAX MERGER IS ASSURED. The approval of a majority of outstanding shares
of CMAX Common Stock is required for the approval of the CMAX Merger Agreement.
INDEMNIFICATION
The CMAX Merger Agreement provides that Heartland shall, and shall cause
the CMAX Surviving Corporation to (i) not change, for three years after the
closing of the CMAX Merger Agreement, the provisions of its Certificate of
Incorporation and Bylaws in effect on the closing of the CMAX Merger Agreement,
in each case relating to indemnification of each present or former director and
officer of CMAX and its subsidiaries (together with any successor by operation
of law, individually an "Indemnified Party" and collectively the "Indemnified
Parties") in a manner which adversely affects the rights of such Indemnified
Party to indemnification thereunder and (ii) perform its obligations thereunder.
Notwithstanding the foregoing, nothing in the CMAX Merger Agreement shall
constitute a waiver of, or otherwise operate to adversely affect, the existing
rights of the Indemnified Parties under the Certificate of Incorporation or By-
laws of CMAX in effect on the date of execution of the CMAX Merger Agreement.
The CMAX Merger Agreement also provides that Heartland shall cause the CMAX
Surviving Corporation to maintain for a period of three years, directors' and
officers' liability insurance covering those persons who are currently covered
by CMAX's current directors' and officers' liability insurance policy ("D&O
Policy") on terms comparable to those now applicable to directors or officers of
CMAX, provided that Heartland may, in lieu of maintaining such existing D&O
Policy, cause comparable coverage to be provided under any other policy,
including without limitation a policy maintained for the benefit of Heartland or
any of its subsidiaries, so long as the material terms thereof are no less
advantageous to such covered persons than those of the existing D&O Policy or at
any time after September 11, 1996, elect to assume the obligations of such
covered persons of the insurance company under the D&O Policy (subject to
limits, deductions and exclusions of such D&O Policy) through the date which is
three years following the closing of the CMAX Merger Agreement.
RESALES; AFFILIATES; REGISTRATION RIGHTS
In connection with the CMAX Merger, Heartland will grant registration
rights to Charter Wireless Cable Holdings, L.L.C., the majority stockholder of
CMAX ("Charter Wireless"), with respect to shares to be issued to such
stockholder in connection with the CMAX Merger Agreement that are subject to the
restrictions on transfer contained in Rules 144 and 145 promulgated by the
Commission under the Securities Act.
ACCOUNTING TREATMENT
It is anticipated that the CMAX Merger will be accounted for by Heartland
under the "purchase method" of accounting in accordance with generally accepted
accounting principles.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material federal income tax consequences to
CMAX stockholders of the CMAX Merger is based on the opinion CMAX has received
from its counsel, Proskauer Rose Goetz & Mendelsohn LLP, which is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
thereunder, Internal Revenue Service ("Service") rulings and other promulgations
and judicial decisions, in effect as of the date hereof, all of which are
subject to change at any time, possibly with retroactive effect. The discussion
does not address all of the tax consequences that may be relevant to a holder of
CMAX Common Stock in light of such holder's particular circumstances or to
holders subject to special tax rules, such as dealers in securities, foreign
persons, financial institutions, tax-exempt organizations and
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insurance companies. In addition, it does not address the tax consequences to
holders of options under the CMAX Option Plan. It also does not address the
consequences of the CMAX Merger under state, local or foreign tax statutes.
This discussion is based on CMAX's understanding that Heartland has no
present intention to cause CMAX to dispose of its assets other than in the
ordinary course of business and except for the San Antonio system and its
wireless cable channel rights in Salt Lake City. However, the CMAX Merger
Agreement does not restrict Heartland, in any manner, from disposing of all or
any portion of the CMAX assets.
The CMAX Merger should constitute a "reorganization" within the meaning of
either Code section 368(a)(1)(A), by reason of Code section 368(a)(2)(E), or
Code section 368(a)(1)(B), although, as discussed below, the matter is not free
from doubt. If the CMAX Merger constitutes a reorganization, (a) no gain or loss
(other than with respect to cash received in lieu of a fractional share of
Heartland Common Stock) will be recognized by a holder of CMAX Common Stock upon
the receipt of Heartland Common Stock in exchange for the holder's CMAX Common
Stock, (b) the tax basis in the Heartland Common Stock (including a fractional
share) received by a holder of CMAX Common Stock will be the same as that
holder's tax basis in the CMAX Common Stock exchanged therefor, (c) the holding
period for Heartland Common Stock (including a fractional share) received will
include the holding period for the shares of CMAX Common Stock exchanged
therefor, and (d) a holder of CMAX Common Stock who received cash in lieu of a
fractional share of Heartland Common Stock will recognize capital gain or loss
in an amount equal to the difference between the amount of that cash and the
portion of that holder's tax basis in the shares of CMAX Common Stock that is
allocable to that fractional share (that gain or loss will be long-term or
short-term depending on the holding period for those shares of CMAX Common
Stock).
The reasons there is doubt as to whether the CMAX Merger will constitute a
reorganization are a lack of (a) any contractual requirement in the CMAX Merger
Agreement that Heartland retain any of the CMAX assets and (b) authority as to
how the continuity of shareholder interest requirement of a reorganization is to
be applied in the case of an acquired corporation the stock of which is publicly
traded. As to (a) , if Heartland were to dispose of most of the CMAX wireless
cable systems and those dispositions were treated for federal income tax
purposes as related to the CMAX Merger, that transaction might not satisfy the
continuity of business requirement of a reorganization. As to (b), prior to 1991
(when the Service ceased to issue private letter rulings with respect to
reorganizations) it was the Service's practice, in connection with the issuance
of private letter rulings with respect to reorganizations involving a publicly
traded acquired corporation, generally to treat shares of acquiring corporation
stock received by acquired corporation shareholders who owned less than 5% of
the acquired corporation stock as automatically constituting a continuing
shareholder interest, except to the extent that management was aware of a
current plan or intention on the part of such shareholders to sell the acquiring
corporation's stock. Based on that treatment, the CMAX Merger would satisfy the
continuity of shareholder interest requirement, despite the fact that Charter
Wireless (the owner of approximately 52.7% of the outstanding shares of CMAX
Common Stock) intends to sell as soon as possible after the consummation of the
CMAX Merger all the shares of Heartland Common Stock received by it, pursuant to
a registration rights agreement with Heartland to be executed at the closing of
the CMAX Merger. If, however, the Service took the position that the shares of
Heartland Common Stock received by the holders of the CMAX Common Stock other
than Charter Wireless do not automatically constitute a continuing shareholder
interest, and that position were upheld by the courts, the CMAX Merger might not
satisfy the continuity of shareholder interest requirement, and therefore not
constitute a reorganization.
If the CMAX Merger does not constitute a reorganization, each holder of
CMAX Common Stock will recognize capital gain or loss in an amount equal to the
difference between the fair market value of the shares of Heartland Common Stock
received by that holder and the holder's tax basis in the shares of CMAX Common
Stock exchanged therefor (the gain or loss will be long-term or short-term
depending on the holding period for those shares of CMAX Common Stock). Each
holder that recognizes gain will incur tax liability with respect to that gain
except to the extent the gain is offset by deductible losses.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY. BECAUSE
OF THE COMPLEXITY OF THE MATTERS DISCUSSED ABOVE AND BECAUSE THE
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TAX CONSEQUENCES OF THE CMAX MERGER MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCE OF EACH HOLDER OF CMAX COMMON STOCK, EACH SUCH HOLDER IS URGED TO
CONSULT WITH THE HOLDER'S OWN ADVISER TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO THE HOLDER OF THE CMAX MERGER (INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS).
DISSENTERS AND APPRAISAL RIGHTS
Under the General Corporation Law of the State of Delaware, dissenting
stockholders do not have appraisal rights for shares of any class of stock
which, at the record date fixed to determine the stockholders entitled to
receive notice of and vote at the meeting of stockholders to act upon the
agreement of merger, were designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc., so long as the holders of such stock are not required to accept in
exchange therefor anything except, among other things, shares of stock of any
corporation which at the CMAX Effective Time of the CMAX Merger are also so
designated. The shares of Heartland Common Stock to be received by CMAX
stockholders in the CMAX Merger are to be listed for trading on the Nasdaq-NMS.
Consequently, a CMAX stockholder who votes against the CMAX Merger Agreement
does not have a statutory right to demand payment of the fair value of his, her
or its shares of CMAX Common Stock.
INTERESTED PARTIES
Certain members of CMAX's management may receive economic benefits as a
result of the CMAX Merger and may have other interests in the CMAX Merger. The
Board of Directors was aware of these interests and considered them along with
the other matters described above under "The CMAX Merger -- Background of the
CMAX Merger" and "The CMAX Merger -- Recommendation of the CMAX Board; Reasons
for the CMAX Merger."
Certain employees and management of CMAX will receive severance payments
upon the termination or the closing of the CMAX Merger Agreement in the
aggregate amount of $330,000. James E. Bray, Executive Vice President and Chief
Operating Officer, Ralph G. Kelly, Vice President -- Chief Financial Officer and
Douglas E. Montandon, Vice President -- Marketing, will each receive $75,000
upon the closing of the CMAX Merger Agreement.
Share Ownership. As of December 31, 1995, officers of CMAX owned of record
or beneficially an aggregate of 11,600 shares of CMAX Common Stock (exclusive of
shares which could be acquired upon exercise of exercisable options pursuant to
the CMAX Option Plan since the exercise price of such options exceeds the price
per share of CMAX Common Stock to be received in the CMAX Merger) in the
individual amounts hereinafter stated under the caption "Information Concerning
CMAX -- Security Ownership of Principal Stockholders and Management," for which
they will receive the same consideration as other holders of CMAX Common Stock.
In the event the CMAX Merger is consummated, Tommy L. Gleason, President and
Chief Executive Officer, and Messrs. Bray, Kelly and Montandon, will receive a
combination of shares of Heartland Common Stock and cash equal to $63,750,
$17,000, $8,500 and $9,350, respectively, without giving any effect to any
option exercise under the CMAX Option Plan. See "The CMAX Merger -- Terms of the
CMAX Merger Agreement" and "Information Concerning CMAX -- Security Ownership of
Principal Stockholders and Management."
Stock Option Plan. The officers of CMAX held a total of 105,000 outstanding
stock options as of December 31, 1995 issued under the 1993 CableMaxx, Inc.
Stock Option Plan. Each of such options is exercisable at a price of $12.00 per
share which is in excess of the per share consideration to be received by the
CMAX stockholders in the CMAX Merger. Accordingly, none of such options will be
exercised in connection with the CMAX Merger and all of such options will
terminate upon the effectiveness of the CMAX Merger.
Directors' and Officers' Indemnification. The CMAX Merger Agreement
provides that for a period of three years from the CMAX Effective Time, the
current or former directors or officers of CMAX will continue to enjoy all
rights to indemnification and exculpation from liability for acts or omissions
occurring
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prior to the CMAX Effective Time existing in their favor as of the date of the
CMAX Merger Agreement as provided in the CMAX Certificate of Incorporation and
Bylaws. In addition, Heartland has agreed to cause to be maintained for a period
of three years from the CMAX Effective Time CMAX's D&O Policy or other policies
with comparable coverage or may at any time after September 11, 1996 elect to
assume the obligations under the D&O Policy through the date which is three
years following the closing of the CMAX Merger Agreement. See "The CMAX
Merger -- Indemnification."
MATERIAL CONTACTS
During 1994, CMAX and Heartland had preliminary discussions regarding
exchanging some of CMAX's wireless cable channel rights in some of its smaller
markets for wireless cable channel rights of Heartland and cash. Heartland later
expressed interest in possibly acquiring all of CMAX and a confidentiality
agreement was signed on February 3, 1995. Heartland discontinued its discussions
with CMAX while it pursued a high-yield debt offering. See also "The CMAX
Merger -- Background of the CMAX Merger."
CERTAIN EXPENSES
The CMAX Merger Agreement provides that each party will pay its own fees
and expenses incident to preparing for, entering into and carrying out the CMAX
Merger Agreement and the consummation of the CMAX Merger.
WIRELESS CABLE INDUSTRY
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 Federal
Communications Commission (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 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
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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. Heartland 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.
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 Heartland'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,
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including Heartland, 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 Heartland'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 Heartland, 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. Heartland 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 "Wireless Cable
Industry -- Competition -- Local Multi-Point Distribution Service."
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 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. Subsequent to the September 15, 1995 deadline, the FCC
announced that it would accept new ITFS station applications, and major ITFS
modification applications not filed on or before September 15, 1995, from
October 16 through October 20, 1995. Competing applications filed in the same
window would be processed under existing comparative criteria.
Recently the FCC adopted a competitive bidding (auction) mechanism for the
award of initial licenses for MDS channels to replace the lottery procedure.
Auctions to award initial MDS licenses began on November 13, 1995. Successful
bidders will receive a blanket authorization to serve entire "Basic Trading
Areas" or "BTAs" (as defined by Rand McNally) on all MDS channels. The blanket
authorization will be subject to the submission of applications for MDS channels
demonstrating interference protection to the 35-mile-radius protected service
areas of MDS and ITFS stations licensed, or for which there is an application
for a license pending as of September 15, 1995. A BTA license holder must show
coverage of at least two-thirds of the BTA within five years of receiving the
BTA authorization. Auctions for each of the 493 BTAs commenced on November 13,
1995 for qualified bidders that had filed initial "short-form" applications and
submitted appropriate upfront payments by specified deadlines. Under the
statutory auction authority enacted in 1993, ITFS licenses are exempt from the
auction process and applications for ITFS licenses are expected to continue to
be awarded according to the FCC's existing comparative criteria.
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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. Heartland's lease agreements with license holders
typically require the license holders, at Heartland's expense, to use their best
efforts, in cooperation with Heartland, to make various required filings with
the FCC in connection with the maintenance and renewal of licenses. Heartland
believes this reduces the likelihood that a license will be revoked, cancelled
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.
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 Heartland's
unlaunched markets, Heartland has filed or will be required to file applications
with the FCC to modify licenses for unbuilt stations. In applying for these
modifications, Heartland 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.
If such changes would cause Heartland's signal to cause interference in the
FCC-protected area of another wireless cable channel license holder, Heartland
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 Heartland's ability to serve the
affected market.
When the FCC implements competitive bidding in the awarding of initial MMDS
licenses, Heartland cannot predict whether any increase in costs of renewing its
leases will result from increased license costs to the initial licensee.
However, Heartland does not believe that any such increased costs would
materially affect Heartland'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.
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 hardwire 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. These and other
aspects of the FCC's rate regulation of traditional hard-wire cable subscriber
fees have and will continue to be met by challenges both in the courts and at
the FCC. The FCC has also adopted regulations implementing the Cable Act that
require traditional hard-wire cable operators to establish standardized levels
of customer service. Heartland is currently unable to predict what effect these
regulations may have on Heartland's price and service competitiveness.
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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 Heartland 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 Heartland's operating costs, make some
programming unavailable to Heartland and otherwise have a material adverse
effect on the wireless cable industry as a whole or Heartland 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. Heartland's costs to acquire satellite cable and broadcast
programming may be affected by the outcome of those challenges. See "Wireless
Cable Industry -- Availability of Programming." Other aspects of the Cable Act
that have been challenged, the outcome of which could adversely affect Heartland
and the wireless cable industry in general, are the Cable 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.
Legislation currently pending before Congress could materially impact
wireless cable ownership rules and the competitive environment in which
Heartland operates. The House and the Senate have passed bills, H.R. 1555 and
S.652, that, if enacted into law, would remove certain barriers to investment by
telephone companies in hard-wire cable companies. The proposed legislation would
lift the current statutory cross-ownership ban contained in the Communications
Act of 1934, as amended (the "Communications Act"), that prevents a telephone
company from using hard-wire facilities to provide cable television service to
the same community where it provides telephone service. The constitutionality of
this statutory cross-ownership ban is currently being considered by the U.S.
Supreme Court. This statutory ban has never been applied to a telephone
company's investment in wireless cable. If the pending legislation is enacted in
its current form or the U.S. Supreme Court determines that the cross-ownership
ban is unconstitutional, telephone companies operating in the markets serviced
by Heartland would be legally permitted to build, lease or purchase hard-wire
cable systems and become competitors of Heartland.
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 Heartland 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.
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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
Heartland 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 Heartland
are not currently directly owned by vertically integrated multiple cable system
operators and Heartland historically has not had difficulty in arranging
satisfactory contracts for these services. The basic programming package offered
in each of the Heartland 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 Heartland.
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 Heartland Existing Systems retransmit only a limited number
of broadcast channels, Heartland does not believe that the termination of the
compulsory copyright license would have a material adverse effect on Heartland.
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. Heartland
has obtained such consents in each of its Existing Systems where Heartland is
retransmitting on a wireless cable channel. Such consents will be required in
Heartland's other markets. There can be no assurance that Heartland will be able
to obtain such consents on terms satisfactory to Heartland, if at all.
PAY TELEVISION INDUSTRY TRENDS
Heartland's business will be affected by pay television industry trends
and, in order to maintain and increase its subscriber base in the years ahead,
Heartland 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, Heartland 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 Heartland could nonetheless be
substantial.
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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 3-to-1 to 10-to-1. Within 12 months, Heartland believes
compression technology, allowing six to 10 channels within one 6-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. Heartland
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 Heartland, 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. Heartland
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. Heartland 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, Heartland believes that commercial
viability of interactivity in Heartland's markets is at least several years
away.
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.
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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 Heartland will to some degree
compete with these systems in marketing its services.
DIRECT BROADCAST SATELLITE
DBS involves the transmission of an encoded signal direct from a satellite
to the home user. 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. In 1994,
Hughes Communications, Inc. began offering DBS services capable of delivering
approximately 150 channels of programming. DBS receiver equipment for a single
television set costs approximately $700 per customer, plus installation fees.
Each additional, independent outlet requires a separate descrambling device at
additional cost to the subscriber. Primestar is offering DBS service for a
monthly fee covering programming services and equipment financing and is capable
of providing approximately 70 channels of programming. DBS subscribers pay
monthly subscription fees.
SATELLITE MASTER ANTENNA TELEVISION
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") formerly
were 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 United States Senate and the United States
House of Representatives have each passed a bill which, if enacted into law,
could lift carriers 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.
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. Heartland has obtained such consents in the Existing Systems where
Heartland is retransmitting on a wireless cable
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channel. See "Risk Factors -- Government Regulation." The FCC also has recently
permitted broadcasters to acquire, subject to certain restrictions, ownership
interests in traditional hard-wire cable systems.
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.
COMPARISON OF RIGHTS OF HOLDERS OF HEARTLAND AND CMAX
The rights of the stockholders of CMAX are governed by the DGCL. Upon the
consummation of the CMAX Merger Agreement, the former CMAX stockholders will
become minority stockholders ("Minority Holders") of Heartland, a Delaware
corporation. As stockholders of Heartland, such Minority Holders' rights will
differ in certain respects from those presently held since their rights will
also be governed by the Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of CMAX's
shareholders and those of Heartland's stockholders are set forth below. This
summary is not intended to be relied upon as an exhaustive list of differences
or a detailed description and analysis of the provisions discussed and is
qualified in its entirety by the DGCL, the Heartland Certificate, the Heartland
Bylaws and the Certificate of Incorporation and Bylaws of CMAX.
GENERALLY
The Certificate of Incorporation of CMAX (the "CMAX Certificate")
authorizes an aggregate of 20,000,000 shares of CMAX Common Stock and an
aggregate of 5,000,000 shares of preferred stock, par value $.01 per share (the
"CMAX Preferred Stock"). As of December 31, 1995, 9,507,311 shares of CMAX
Common Stock have been issued by CMAX and no shares of CMAX Preferred Stock have
been issued.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock, and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Heartland Preferred Stock have been issued.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange of all or substantially all the corporation's assets prior to be
consummation.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held
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to approve such transaction, were either (i) held of record by more than 2,000
stockholders or (ii) listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the NASD.
Even if the shares of any class or series of stock meet the requirements of
clause (i) or (ii) above, appraisal rights are available for such class or
series if the holders thereof receive in the merger or consolidation anything
except: (a) shares of stock of the corporation surviving or resulting from such
merger or consolidation; (b) shares of stock of any other corporation which at
the effective date of the merger or consolidation will be either listed on a
national securities exchange or held of record by more than 2,000 stockholders
or designated as a national market system security on an inter-dealer quotation
system by the NASD; (c) cash in lieu of fractional shares of the corporations
described in clause (a) or (b) of this sentence; or (d) any combination of
shares of stock and cash in lieu of fractional shares described in the foregoing
clauses (a), (b) and (c).
The stockholders of Heartland and CMAX will not receive dissenters or
appraisal rights.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland and CMAX have not adopted an amendment to their Certificate of
Incorporation or Bylaws electing not to be governed by these provisions.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation requires
an affirmative vote of a majority of all shares outstanding and entitled to be
cast on the matter. If any such amendment would adversely affect the rights of
any holders of shares of a class or series of stock, the vote of the holders of
a majority of all outstanding shares of the class or series, voting as a class,
is also necessary to authorize such amendment.
Neither the Heartland Certificate nor the CMAX Certificate provides for
additional requirements regarding amendments to its Certificate of
Incorporation.
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AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws is
vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests it in the board of directors. The Heartland
Certificate and the CMAX Certificate each vest in their respective Boards of
Directors the power to adopt, alter, amend, or repeal Bylaws.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation.
Neither the Heartland Certificate nor the CMAX Certificate provide for
preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired.
The Heartland Certificate does not provide additional requirements
regarding the distribution of dividends.
The Certificate of Incorporation of CMAX provides that the shares of CMAX
Common Stock shall be entitled to receive a dividend only as declared from time
to time by the Board of Directors and only (i) after requirements with respect
to prior dividend rights of holders of CMAX Preferred Stock are met; (ii) after
requirements with respect to the setting aside of sums as sinking funds or
redemption or purchase accounts; and (iii) subject to any other conditions which
may be fixed by the Board of Directors.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid more than three years after
its date unless otherwise provided in the proxy. Neither the Heartland Bylaws
nor the CMAX Bylaws alter the effective period of a proxy.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted.
The Heartland Certificate and the CMAX Certificate do not provide
additional requirements regarding stockholder action by written consent.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of Heartland
Common Stock, to call a special meeting of stockholders for any purpose or
purposes.
The CMAX Bylaws provide that the Board of Directors or the Chairman of the
Board may call a special meeting of the shareholders. In addition, upon the
written request of a majority of the Board of Directors or of
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the holders of a majority of CMAX's issued and outstanding capital stock that is
entitled to vote, the President or Secretary is required to call a special
meeting of the stockholders.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. Neither the
Heartland Certificate nor the CMAX Certificate provides for cumulative voting
for the election of directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. Heartland's Certificate does not fix the number of
directors.
The CMAX Bylaws fix the number of directors at eight (8). The CMAX Bylaws
also provide that the number of Directors may be changed by either a majority of
the Board of Directors or by the stockholders.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Neither Heartland nor CMAX have established a classified
Board of Directors.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified board may
be removed only for cause, unless the Certificate of Incorporation provides
otherwise and (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against such director's removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
board of directors or of the class of directors of which such director is a
part.
The Heartland Certificate and the Heartland Bylaws provide that any
director may be removed, with or without cause, at any time by vote at an
election of directors or by the written consent of the stockholders.
Under the CMAX Bylaws, a director may be removed from office with or
without cause, by the vote of the stockholders.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or by Bylaws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filling of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements
regarding vacancies of directors.
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Under the CMAX Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the number of directors may
be filled for the unexpired portion of the term by a majority of the remaining
directors, even though that majority constitutes less than a quorum.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL. The CMAX Certificate
provides that such persons shall be indemnified to the full extent authorized by
the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland and CMAX to advance reasonable expenses to a
director or officer after such person provides an undertaking to repay the
corporation if it is determined that the required standard of conduct has not
been met. This indemnification and advancement of expenses is not exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS.
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
Each of the Heartland Certificate and the CMAX Certificate provides a
provision eliminating the personal liability for monetary damages of its
directors to the fullest extent permitted by the DGCL.
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EXPERTS
The consolidated financial statements and schedule of Heartland Wireless
Communications, Inc. as of December 31, 1994 and 1993, and for each of the years
in the three-year period ended December 31, 1994, have been included herein and
in the Registration Statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated balance sheets as of June 30, 1994 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows of
CMAX for the period December 18, 1992 to June 30, 1993 and the fiscal years
ended June 30, 1994 and 1995, and of the CMAX Predecessor for the period
commencing July 1, 1992 to December 17, 1992, included in this Proxy
Statement/Prospectus have been audited by Coopers & Lybrand L.L.P., independent
certified public accountants, as indicated in their report with respect thereto,
which includes an explanatory paragraph which states that specified
circumstances raise substantial doubt about CMAX's ability to continue as a
going concern, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Heartland Common Stock being offered hereby
is being passed upon for Heartland by Arter & Hadden, 1717 Main Street, Suite
4100, Dallas, Texas 75201. Certain federal income tax consequences of the CMAX
Merger will be passed upon for CMAX by Proskauer Rose Goetz & Mendelsohn LLP,
New York, New York.
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GLOSSARY
As used in this Proxy Statement/Prospectus, the following terms shall have
the meaning set forth below:
"AWS" means American Wireless Systems, Inc., a Delaware corporation.
"AWS Merger" means the merger of AWS Merger Sub into AWS pursuant to the
terms of the AWS Merger Agreement.
"AWS Merger Agreement" means the Amended and Restated Agreement and Plan of
Merger dated as of September 11, 1995 among AWS, AWS Merger Sub and Heartland.
"AWS Merger Sub" means Heartland Merger Sub, Inc., a Delaware corporation
and wholly owned subsidiary of Heartland.
"Charter Wireless" means Charter Wireless Cable Holdings, L.L.C., the
holder of approximately 52% of the outstanding shares of CMAX Common Stock.
"CMAX" means CableMaxx, Inc., a Delaware corporation.
"CMAX Merger" means the merger of CMAX Merger Sub into CMAX pursuant to the
terms of the CMAX Merger Agreement.
"CMAX Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger dated as of September 11, 1995 among CMAX, CMAX Merger Sub and
Heartland.
"CMAX Merger Sub" means Heartland Merger Sub 2, Inc., a Delaware
corporation and wholly owned subsidiary of Heartland.
"Combined Company" means the businesses and operations of Heartland
following the consummation, to the extent consummated, of the Transactions.
"FTW Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 4, 1995 between FTW Partnership and Heartland.
"FTW Partnership" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
"FTW Transaction" means the transactions contemplated by the FTW Agreement.
"FTW Venture" means the informal joint venture between FTW Partnership and
AWS that owns and operates a wireless cable television system in Fort Worth,
Texas.
"Heartland" means Heartland Wireless Communications, Inc., a Delaware
corporation.
"Heartland Disposition Assets" means those assets of Heartland, AWS, CMAX,
the FTW Venture, the Minneapolis L.L.C. and TSC that Heartland has determined to
dispose of prior to, following or contemporaneously with the consummation of the
Transactions.
"Minneapolis Agreement" means the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 between Heartland and Minneapolis
Partnership.
"Minneapolis LLC" means American Wireless System of Minneapolis, L.L.C., a
Delaware limited liability company that owns and operates a wireless cable
television system in Minneapolis, Minnesota, of which Minneapolis Partnership
owns a 75% equity interest and AWS owns a 25% membership interest.
"Minneapolis Partnership" means Wireless Cable TV Associates # 38, a
California general partnership.
"Minneapolis Transaction" means the transactions contemplated by the
Minneapolis Agreement.
"Other Transactions" shall mean all of the Transactions other than the CMAX
Merger.
"Technivision" means Technivision, Inc., a former subsidiary of TSC that
has been merged with TSC.
"Transactions" means the AWS Merger, CMAX Merger, FTW Transaction,
Minneapolis Transaction and TSC Transaction.
"TSC" means Three Sixty Corp., a New Jersey corporation.
"TSC Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 19, 1995 among Heartland, Technivision and TSC.
"TSC Transaction" means the transactions contemplated by the TSC Agreement.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Heartland Wireless Communications, Inc.:
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1992, 1993 and 1994 and for the nine months ended September 30, 1995
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-6
Notes to Consolidated Financial Statements.......................................... F-7
CableMaxx, Inc. and Supreme Cable Co., Inc. and Subsidiaries:
Report of Independent Accountants................................................... F-21
Consolidated Balance Sheets as of June 30, 1994 and 1995, and September 30, 1995
(unaudited)...................................................................... F-22
Consolidated Statements of Operations for the period of July 1, 1992 to December 17,
1992, the period of December 18, 1992 to June 30, 1993, the years ended June 30,
1994 and 1995, and the three month periods ended September 30, 1994 and 1995,
(unaudited)...................................................................... F-23
Consolidated Statements of Stockholders' Equity for the period of December 18, 1992
to June 30, 1993, the years ended June 30, 1994 and 1995, and the three month
period ended September 30, 1995, (unaudited)..................................... F-24
Consolidated Statements of Cash Flows for the period of July 1, 1992 to December 17,
1992, the period of December 18, 1992 to June 30, 1993, the years ended June 30,
1994 and 1995, and the three month periods ended September 30, 1994 and 1995,
(unaudited)...................................................................... F-25
Notes to Consolidated Financial Statements.......................................... F-26
Unaudited Pro Forma Financial Information:
Heartland Wireless Communications, Inc.:
Introduction to Unaudited Pro Forma Condensed Financial Statements for Consummated
Events........................................................................... F-36
Unaudited Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as
of September 30, 1995............................................................ F-37
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the year ended December 31, 1994...................................... F-38
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the nine months ended September 30, 1995.............................. F-39
Notes to Pro Forma Statements for Consummated Events................................ F-40
</TABLE>
F-1
<PAGE> 1286
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, 1993 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,
1994. 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, 1993 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, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 3, 1995, except as to note 11
which is as of March 27, 1995
F-2
<PAGE> 1287
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER
------------------------- 30,
1993 1994 1995
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 815,305 $11,985,953 $ 37,155,064
Restricted assets -- investments in debt
securities....................................... -- -- 11,669,874
Subscriber receivables, net of allowance for
doubtful accounts of $25,082 in 1993, $122,901 in
1994 and $551,866 in 1995........................ 74,560 219,287 1,407,830
Prepaid expenses and other.......................... 300,967 829,790 1,981,640
Note receivable (note 9)............................ -- 2,000,000 --
Assets held for sale (note 8)....................... -- 12,500,000 9,200,000
---------- ----------- ------------
Total current assets........................ 1,190,832 27,535,030 61,414,408
---------- ----------- ------------
Investment in joint venture (note 8).................. -- 12,044,392 --
Systems and equipment, net (notes 2 and 3)............ 3,036,226 16,765,179 46,027,017
Leased license investment, net of accumulated
amortization of $14,167 in 1993, $179,593 in 1994
and $785,362 in 1995 (note 8)....................... 4,286,867 16,740,139 64,726,389
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $80,815 in 1994
and $223,819 in 1995 (note 4)....................... -- 2,565,178 4,470,286
Restricted assets -- investment in debt securities.... -- -- 13,077,340
Other assets, net..................................... 151,141 2,271,610 10,435,034
---------- ----------- ------------
$8,665,066 $77,921,528 $200,150,474
========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 522,240 $ 3,840,744 $ 3,745,724
Accrued expenses and other liabilities.............. 329,783 1,062,253 6,498,639
Current portion of long-term debt (note 3).......... 338,851 19,918 616,610
---------- ----------- ------------
Total current liabilities................... 1,190,874 4,922,915 10,860,973
---------- ----------- ------------
Long-term debt, less current portion (note 3)......... 1,253,678 40,485,934 139,428,429
Deferred income taxes (note 6)........................ -- 1,045,959 1,287,560
Other long-term liabilities........................... 13,520 -- --
Minority interests in subsidiaries (note 4)........... 1,714,426 1,385,835 279,695
Stockholders' equity (note 5):
Common stock, $.001 par value; authorized 50,000,000
shares, issued 8,000,000 shares in 1993,
11,109,280 shares in 1994 and 12,476,393 shares
in 1995.......................................... 8,000 11,109 12,476
Additional paid-in capital.......................... 5,029,675 33,658,204 63,047,864
Accumulated deficit................................. (545,107) (3,588,428) (14,766,523)
---------- ----------- ------------
Total stockholders' equity.................. 4,492,568 30,080,885 48,293,817
---------- ----------- ------------
Commitments and contingencies (notes 7, 8 and 10) $8,665,066 $77,921,528 $200,150,474
========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 1288
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31 30
------------------------------------- ---------------------------
1992 1993 1994 1994 1995
-------- ---------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
-------- ---------- ----------- ---------- -----------
Operating expenses:
Systems operations.................... 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.................... -- 202,162 235,025 235,025 --
Selling, general and administrative... 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and amortization......... 34,919 138,560 1,097,668 418,960 3,966,120
-------- ---------- ----------- ---------- -----------
Total operating expenses...... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
-------- ---------- ----------- ---------- -----------
Operating loss................ (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Other income (expense):
Interest income....................... 1,185 9,610 379,654 189,308 2,044,092
Interest expense...................... (1,392) (82,916) (589,767) (128,789) (8,908,459)
Equity in losses of joint venture
(note 8)........................... -- -- (386,985) (163,119) (128,663)
Other expense (notes 3, 4 and 9)...... (37,109) (95,578) (227,204) (34,192) (475,146)
-------- ---------- ----------- ---------- -----------
Total other income
(expense)................... (37,316) (168,884) (824,302) (136,792) (7,468,176)
-------- ---------- ----------- ---------- -----------
Loss before income taxes...... (50,822) (406,101) (4,638,284) (1,863,404) (12,485,232)
Income tax benefit (note 6)............. -- -- 1,594,963 649,510 1,307,137
-------- ---------- ----------- ---------- -----------
Net loss...................... $(50,822) $ (406,101) $(3,043,321) $(1,213,894) $(11,178,095)
======== ========== =========== ========== ===========
Net loss per common share............... $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
======== ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 1289
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991.................. 8,000,000 $ 8,000 $ 253,593 $ (88,184) $ 173,409
Equity transactions of subsidiaries (note
4)........................................ -- -- 881,235 -- 881,235
Net loss.................................... -- -- -- (50,822) (50,822)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1992........ 8,000,000 8,000 1,134,828 (139,006) 1,003,822
Formation of Heartland Wireless
Communications, Inc. (note 1)............. -- -- 3,000,000 -- 3,000,000
Equity transactions of subsidiaries (note
4)........................................ -- -- 807,472 -- 807,472
Other (note 9).............................. -- -- 87,375 -- 87,375
Net loss.................................... -- -- -- (406,101) (406,101)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1993........ 8,000,000 8,000 5,029,675 (545,107) 4,492,568
Issuance of common stock pursuant to initial
public offering (note 5).................. 2,415,000 2,415 22,349,798 -- 22,352,213
Issuance of common stock for acquisitions
(note 4).................................. 694,280 694 6,278,731 -- 6,279,425
Net loss.................................... -- -- -- (3,043,321) (3,043,321)
---------- ------- ----------- ------------ -----------
Balance, December 31, 1994........ 11,109,280 11,109 33,658,204 (3,588,428) 30,080,885
Issuance of common stock, primarily for
minority interests and other acquisitions
(unaudited)............................... 1,367,113 1,367 29,389,660 -- 29,391,027
Net loss (unaudited)........................ -- -- -- (11,178,095) (11,178,095)
---------- ------- ----------- ------------ -----------
Balance, September 30, 1995
(unaudited)..................... 12,476,393 $12,476 $63,047,864 $(14,766,523) $48,293,817
========== ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 1290
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------------- --------------------------
1992 1993 1994 1994 1995
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (50,822) $ (406,101) $ (3,043,321) $(1,213,894) $(11,178,095)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 34,919 138,560 1,097,668 418,960 3,966,120
Deferred income tax benefit................... -- -- (1,594,963) (649,510) (1,307,137)
Accretion on convertible discount
notes....................................... -- -- 301,125 -- 3,156,858
Equity in losses of joint venture............. -- -- 386,985 163,119 128,663
Other......................................... 5,100 65,668 (16,205) 7,890 12,216
Changes in assets and liabilities:
Subscriber receivables...................... (6,123) (68,437) (57,362) (21,942) (1,160,242)
Inventories................................. -- (251,172) -- -- --
Prepaid expenses and other.................. (6,496) (395,300) (656,061) (308,385) (765,834)
Accounts payable, accrued expenses and other
liabilities.............................. 51,442 809,962 4,292,617 567,250 4,789,383
----------- ----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities............................. 28,020 (106,820) 710,483 (1,036,512) (2,358,068)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Investment in joint venture..................... -- -- (12,431,379) (11,649,908) (5,426,432)
Proceeds from assets held for sale.............. -- -- -- -- 3,323,250
Purchases of systems and equipment.............. (604,082) (2,072,937) (12,414,501) (4,011,480) (25,575,252)
Expenditures for leased licenses................ (797,655) (3,068,084) (3,354,471) (2,465,265) (1,592,024)
Restricted assets -- investment in debt
securities.................................... -- -- -- (7,283,777) (24,747,214)
Acquisitions.................................... -- -- (16,300,000) -- (11,422,814)
Issuance of note receivable..................... -- -- (2,000,000) -- --
Other........................................... -- -- -- -- (2,250,000)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities............................. (1,401,737) (5,141,021) (46,500,351) (25,410,430) (67,690,486)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......... -- 2,000,000 22,352,213 22,283,365 --
Proceeds from Units Offering.................... -- -- -- -- 100,000,000
Proceeds from minority interest owners.......... 1,430,900 1,553,355 -- -- --
Purchase of minority interests.................. -- -- (1,608,895) (1,408,858) --
Proceeds from short-term borrowings and notes
payable....................................... -- 2,992,364 10,408,542 10,408,542 3,070,070
Proceeds from convertible discount notes........ -- -- 40,150,000
Payments on short-term borrowings and notes
payable....................................... -- (399,835) (11,946,344) (2,001,071) (3,105,977)
Payments to stockholders and affiliates......... (523,493) (727,189) -- -- --
Proceeds from stockholders and affiliates....... 578,035 479,480 -- -- --
Debt issuance costs............................. -- -- (2,395,000) (495,000) (4,783,975)
Other........................................... -- -- -- -- 37,547
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities............................. 1,485,442 5,898,175 56,960,516 28,786,978 95,217,665
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 111,725 650,334 11,170,648 2,340,036 25,169,111
Cash and cash equivalents at beginning of
period.......................................... 53,246 164,971 815,305 815,305 11,985,953
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end of period........ $ 164,971 $ 815,305 $ 11,985,953 $ 3,155,341 $ 37,155,064
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 1291
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1994
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1994 AND 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and History
Heartland Wireless Communications, Inc. (the "Company") develops, owns and
operates wireless cable television systems. The Company has wireless cable
channel rights in various wireless cable television markets located primarily in
the central United States. The Company's first operational system, located in
Ada, Oklahoma, commenced operations in April 1992. Currently, the Company
provides service in fifteen markets located in Texas, Oklahoma, Kansas and
Louisiana. 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) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and costs associated with subscriber installations are
capitalized. Upon subscriber disconnect, the Company continues to depreciate the
full capitalized installation cost subsequent to the disconnection. Depreciation
and amortization are recorded on a straight-line basis for financial reporting
purposes over useful lives ranging from 6 to 10 years. Repair and maintenance
costs are charged to expense when incurred; renewals and betterments are
capitalized.
Equipment awaiting installation consists primarily of accessories, parts
and supplies for subscriber installations and is stated at the lower of average
cost or market.
(d) Leased License Investment
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Costs incurred to acquire 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, 1994, approximately $12,040,000 of the
leased license investment was not yet subject to amortization. The Company
continually reevaluates the propriety of the carrying amounts of the leased
license investment with respect to each market as well as the amortization
period based on
F-7
<PAGE> 1292
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management's estimate of the fair value of each market to determine whether
current events and circumstances warrant adjustments to the carrying amounts or
a revised estimate of the useful life.
(e) 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 ($237,730 in 1994 and $213,005 in 1993).
Installation fees are recognized upon origination of service to a subscriber to
the extent of costs incurred to obtain subscribers. Installation revenues in
excess of such costs will be deferred and amortized over six years.
(f) Systems Operations
Systems operations expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
(g) 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.
(h) Sales of Subsidiary Stock
Gains and losses from the sales of stock by the Company's majority-owned
subsidiaries are accounted for as equity transactions in consolidation.
(i) 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 8,000,000 for the years
ended December 31, 1992 and 1993, 10,041,000 for the year ended December 31,
1994 and 9,693,000 and 11,624,000 for the nine-month periods ended September 30,
1994 and 1995, respectively. The weighted average number of common shares
outstanding in each period gives retroactive effect to an 8,000-for-one split of
the Company's common stock (see note 5).
Shares issuable upon exercise of stock options and warrants 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.
(j) 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, 1992 and 1993, the Company had noncash
investing and financing activities. During 1992, an affiliate contributed
systems and equipment in the amount of $133,403 for preferred stock in a
subsidiary of the Company. During 1993, the Company acquired certain systems and
equipment by assuming notes payable in the amount of $388,017, 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 $114,511.
Cash paid during 1993 and 1994 for interest was $67,124 and $296,596,
respectively (none in 1992).
F-8
<PAGE> 1293
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial information of the Company contains all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of September 30, 1995, and the
results of operations and cash flows for the nine months ended September 30,
1994 and 1995. These results are not necessarily indicative of the results to be
expected for the full fiscal year.
(2) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
---------- ----------
<S> <C> <C>
Equipment awaiting installation............................. $ 336,920 $3,034,453
Subscriber premises equipment and installation costs........ 676,347 6,581,632
Transmission equipment and system construction costs........ 1,969,039 7,350,607
Office furniture and equipment.............................. 139,946 406,936
Buildings and leasehold improvements........................ 70,286 145,550
---------- ----------
3,192,538 17,519,178
Accumulated depreciation and amortization................... (156,312) (753,999)
---------- ----------
$3,036,226 $16,765,179
========== ==========
</TABLE>
As of December 31, 1994, equipment awaiting installation and approximately
$914,000 of transmission equipment and system construction costs were not yet
subject to depreciation.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Convertible subordinated discount notes..................... $ -- $40,451,125
Notes payable............................................... 1,592,529 54,727
---------- -----------
1,592,529 40,505,852
Less current portion........................................ 338,851 19,918
---------- -----------
$1,253,678 $40,485,934
========== ===========
</TABLE>
On November 30, 1994, the Company consummated the private placement of
$40,150,000 in gross proceeds of 9% Convertible Subordinated Discount Notes
("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. The Note Purchase Agreement contains 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.
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
F-9
<PAGE> 1294
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As the Convertible Notes have been outstanding
for only a short period of time, the carrying amounts of borrowings outstanding
at December 31, 1994 approximate estimated fair value.
On March 31, 1994, the Company entered into an agreement with a bank for a
$15,000,000 Revolving Credit Facility (the "Facility"). Outstanding borrowings
under the Facility will bear interest at the bank's corporate base rate plus
1.5% per annum or LIBOR plus 4.0% per annum, at the Company's option. The
Facility will be on a revolving basis for three years with all outstanding
borrowings at the end of the third year converting to a term loan payable in
equal quarterly installments over three years. The Company must pay an annual
commitment fee of 3/8% per annum on the unused portion of the Facility. The
total amount of borrowings under the Facility will be subject to certain
limitations. Borrowings under the Facility will be secured by substantially all
the Company's assets and the capital stock of the Company's subsidiaries. The
Facility contains certain restrictive covenants that, among other things,
require the Company to satisfy certain financial ratios, and limit the ability
of the Company and its subsidiaries to pay dividends, repurchase Company stock
and incur additional indebtedness. No amounts were outstanding under the
Facility at December 31, 1994. Prior to borrowing any funds under the Facility,
the Company would need to obtain a waiver from the bank of certain conditions
and covenants relating to the sale of the Convertible Notes. The Company does
not currently intend to borrow any funds under the Facility. The Company is
actively pursuing alternative bank financing on terms, including an increased
amount of a facility, which the Company believes are more favorable than those
under the Facility.
In 1994, the Company incurred a recapitalization charge of $205,575 that is
included in other expense in the accompanying statement of operations. This
charge related to costs incurred in connection with a rescinded offering of debt
securities.
Aggregate maturities of long-term debt as of December 31, 1994 for the five
years ending December 31, 1999 are as follows: 1995 -- $19,918; 1996 -- $21,054
and 1997 -- $13,755.
(4) MINORITY INTERESTS
In connection with the development of certain wireless cable television
markets, the Company has sold stock in certain of its subsidiary companies
principally for cash. Total consideration received from the sales of subsidiary
stock amounted to $1,430,900 in 1992 and $1,553,355 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. Minority ownership interests in
the outstanding common stock of such subsidiary companies range from 5% to
49.9999%.
As a result of the sales of subsidiary stock, the Company's investment in
majority-owned subsidiaries increased by $881,235 in 1992 and $807,472 in 1993.
Such increases have 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 increases since the Company
ultimately expects to recover its investments in the subsidiaries in a tax-free
manner.
Certain of the Company's subsidiaries have issued preferred stock, a
portion of which is held by outside third parties. Preferred stock owned by
outside third parties in the amounts of $453,935 at December 31, 1993 and 1994
has been reflected as minority interests in the accompanying consolidated
balance sheets. Dividends on the preferred stock accrue at 8% of the stated
value per share per year and are cumulative. Preferred stock dividends of the
subsidiaries with respect to the third party ownership were $14,006 in 1992,
$26,606 in 1993 and $36,315 in 1994 and are included in other expense in the
accompanying statements of operations.
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
F-10
<PAGE> 1295
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,609,000 in cash and 44,280 restricted shares of common stock.
The acquisitions of the minority ownership interests were accounted for as
purchases. For financial reporting purposes, the total purchase price was
approximately $7,882,000 and assumes a value per share of $8.93 to $10.75 for
the restricted shares. The excess (approximately $2,646,000) of the purchase
price over the fair value of the net identifiable assets acquired will be
amortized on a straight-line basis over 20 years. Pro forma disclosures that
include the effects of the acquisitions of the minority interests would not be
materially different from historical information and have not been presented.
In February 1995, the Company offered to exchange approximately 380,000
shares of its common stock for the minority interests in certain of its
subsidiaries (the "Minority Interest Exchange Offer"). The exchange ratio with
respect to each minority interest was determined by management of the Company
based upon the estimated fair market value of each respective subsidiary. The
Minority Interest Exchange Offer expired on March 15, 1995. On March 15, 1995,
Heartland issued an aggregate of 304,038 shares of common stock in exchange for
minority interests in 21 subsidiaries.
(5) STOCKHOLDERS' EQUITY
(a) Change in Capital Structure
On January 18, 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-one 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
On April 28, 1994, the Company completed an initial public offering of
2,100,000 shares of its common stock. On June 9, 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 $22.3 million. The net proceeds have been used to repay
indebtedness, construct operating systems, finance operating losses in certain
markets and corporate overhead, acquire certain minority interests in
subsidiaries, acquire or secure the Company's existing channel rights and fund a
portion of the acquisition of certain RuralVision Joint Venture assets.
(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 key 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 are 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
F-11
<PAGE> 1296
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1994 activity in stock options under
these plans:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE RANGE
--------- ----------------
<S> <C> <C>
Granted.................................................. 543,000 $10.50 - $11.125
Cancelled................................................ (130,000) $10.50
--------
Outstanding at December 31, 1994....................... 413,000 $10.50 - 11.125
========
Exercisable at December 31, 1994....................... 148,000 $10.50
========
</TABLE>
As of December 31, 1994, 587,000 shares were available for grant under the
stock option plans.
(6) INCOME TAXES
Income tax benefit of $1,594,963 for the year ended December 31, 1994
consists of a deferred tax benefit.
Income tax benefit for the years ended December 31, 1992, 1993 and 1994
differed from the amount computed by applying the U.S. federal income tax rate
of 34% to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- -----------
<S> <C> <C> <C>
Computed "expected" tax benefit................... $(17,299) $(138,074) $(1,577,017)
Amortization of goodwill.......................... -- -- 27,540
State tax benefit, net............................ -- -- (103,500)
Loss for which no tax benefit was recognized...... 17,299 138,074 58,014
-------- --------- -----------
$ -- $ -- $(1,594,963)
======== ========= ===========
</TABLE>
F-12
<PAGE> 1297
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts..................................... $ 8,528 $ 45,473
Basis differences between assigned values and tax bases
of stock of subsidiaries.............................. -- 791,453
Investment in joint venture.............................. -- 609,668
Accretion on Convertible Notes........................... -- 115,486
Leased license investment, principally due to start-up
costs not yet deductible for tax purposes............. 120,538 120,538
Net operating loss carryforwards......................... 136,359 1,082,567
--------- ----------
Total gross deferred tax assets.................. 265,425 2,765,185
Less valuation allowance................................. (183,295) (791,553)
--------- ----------
Net deferred tax assets.......................... 82,130 1,973,632
--------- ----------
Deferred tax liabilities:
Systems and equipment, principally due to differences in
depreciation.......................................... (82,130) (81,575)
Leased license investment................................ -- (2,938,016)
--------- ----------
Total gross deferred tax liabilities............. (82,130) (3,019,591)
--------- ----------
Net deferred tax liability....................... $ -- $1,045,959
========= ==========
</TABLE>
The net changes in the total valuation allowance for the years ended
December 31, 1994 and 1993 were increases of $183,295 and $791,553,
respectively. 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, 1994, the Company has approximately $2,926,000 of
federal income tax loss carryforwards which expire in years 2005 through 2009.
(7) LEASES
The Company leases from third parties channel rights licensed by the FCC.
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 the Company's channel leases range
from 5 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
provide for either a right of first refusal or automatic renewal of their terms
upon FCC renewal of the underlying license, grant the Company a right of first
refusal to purchase the channels after the expiration of the lease and/or
require the parties to negotiate renewal 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.
F-13
<PAGE> 1298
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payments under the channel rights lease agreements 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. Channel
rights lease expense was $1,000, $25,260 and $94,865 for the years ended
December 31, 1992, 1993 and 1994, respectively.
In connection with the purchase of certain assets on December 1, 1994 for
RuralVision Joint Venture as discussed in note 8, the Company is obligated under
channel rights lease agreements which require royalty payments upon grant of the
channel rights. Channel rights lease expense was $72,132 for year ended December
31, 1994.
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 $24,375, $41,761 and $205,210 for the years ended December
31, 1992, 1993 and 1994, respectively.
Future minimum lease payments due under channel rights leases for
operational systems and other noncancellable operating leases in effect at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
DECEMBER 31, LEASES LEASES
- ------------ --------- -------
<S> <C> <C>
1995........................................... $1,481,275 $25,941
1996........................................... 1,599,500 26,139
1997........................................... 1,650,000 25,573
1998........................................... 1,649,450 16,461
1999........................................... 1,629,100 1,212
</TABLE>
(8) RURALVISION ACQUISITION
On August 19, 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") have a 50% interest, purchased
certain assets (the "Rural Vision 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 $50.0 million for the RuralVision
Assets was comprised of a $46.0 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 have guaranteed the payment of the RuralVision Note.
As of December 31, 1994, the remaining balance outstanding under the RuralVision
Note was $8.0 million. The Company's investment in RuralVision Joint Venture has
been accounted for under the equity method of accounting.
On January 27, 1995, the Company, Cross Country and RuralVision entered
into 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 balance of the RuralVision Note, (ii) paid
$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 (iii) 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 with a carrying amount of approximately
$16.0 million. As part of this transaction, the Company granted to Cross Country
the right to "put" or sell certain remaining RuralVision Joint Venture assets to
the Company for $3.25 million (reduced dollar for dollar by the proceeds of any
prior partial sales of such assets) on May 17, 1995. Although the Company
remains a 50% partner in RuralVision Joint Venture, the Company, pursuant to the
Venture Distribution Agreement, has no economic interest in any remaining
RuralVision Joint Venture assets or liabilities other than certain immaterial
amounts
F-14
<PAGE> 1299
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of office furniture and equipment. As a result, subsequent to January 27, 1995,
the carrying amount of the Company's investment in RuralVision Joint Venture is
zero.
Summarized condensed financial information of RuralVision Joint Venture
follows:
BALANCE SHEET AS OF
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
Current assets, including assets to be sold of $20,000,000............ $20,969,043
Systems and equipment................................................. 6,118,015
Leased license investment............................................. 4,626,244
-----------
$31,713,302
===========
LIABILITIES AND VENTURERS' EQUITY
Current liabilities, including notes payable of $9,000,000............ $10,537,272
Venturers' equity..................................................... 21,176,030
-----------
$31,713,302
===========
</TABLE>
STATEMENT OF OPERATIONS FOR THE
PERIOD FROM AUGUST 19, 1994 (INCEPTION) TO
DECEMBER 31, 1994
<TABLE>
<S> <C>
Subscription revenues................................................. $ 1,269,184
Operating expenses.................................................... 2,043,154
-----------
Net loss.................................................... $ (773,970)
===========
</TABLE>
On December 1, 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 $14.0 million in cash. The Company
has allocated the purchase price on a preliminary basis to the assets acquired
and liabilities assumed based on the estimated fair values of such assets and
liabilities.
In connection with the Company's allocation of the purchase price of the
acquisition on December 1, 1994, the Company has identified wireless cable
channel rights in certain markets which management expects to sell and has
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. The assets held for sale as of December 31, 1994 represent
wireless cable channel rights in 26 markets.
Management's determination of the carrying amount of the assets held for
sale is based on a number of factors including the markets' stage of
development; the value of any channel rights lease agreements held by a market;
the potential number of households in the relevant market; the number of
channels available in the relevant market; the number of channel rights granted
or pending in the relevant market; the capital necessary to commence operations
in the relevant market; competitive factors; and the estimated rental payments
under channel rights lease agreements and certain other costs that will be
capitalized during the estimated holding period. The Company expects to sell
certain markets within one year from the date of acquisition from RuralVision
Joint Venture. Rental expense under channel rights lease agreements and other
costs associated with the assets held for sale amounting to approximately
$30,000 have been capitalized and included in assets held for sale. Since the
assets held for sale are nonoperating markets, no other operating profit or loss
has been
F-15
<PAGE> 1300
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excluded from the Company's 1994 consolidated statement of operations.
Additionally, any difference between the carrying amounts and the sale prices on
the ultimate disposition of the assets held for sale will be treated as an
adjustment of the original purchase price allocation.
Although the Company expects to sell the assets held for sale for $12.5
million ($21.5 million subsequent to the Venture Distribution Agreement) within
one year from the date of their acquisition from RuralVision Joint Venture,
there can be no assurance that any sales will be consummated. The Company has
entered into definitive agreements and letters of intent to sell certain of the
assets held for sale for $4.19 million comprised of $3.515 million of cash and a
$675,000 note receivable. In the event the Company is unable to dispose of the
assets held for sale within such time frame, the Company would fund
approximately $500,000 to $750,000 of rental payments and other costs related to
the assets held for sale through August 1995 from the Company's existing
available cash, proceeds from the sale of assets held for sale, or other sources
of financing, if secured. In addition, if the Company is unable to dispose of
certain of the assets held for sale the Company may be required, due to the
expiration of construction permits, to construct operating systems for certain
assets held for sale. The amount of such funding would approximate $3,000,000
for the period from the estimated date of disposition through December 31, 1995.
Should construction of operating systems of certain assets held for sale be
required, the Company believes that the value of the constructed systems would
be significantly enhanced. However, based on the estimated dates of disposition,
the Company currently does not anticipate that such construction will be
required during 1995. The amount and timing of the Company's obligations to fund
rental payments and other costs attributable to the assets held for sale will
depend upon a number of factors, many of which are not within the control of the
Company, including the timing of the disposition of the assets held for sale,
programming costs and equipment costs.
Unaudited consolidated condensed pro forma results of operations for 1993
and 1994, as if the December 1, 1994 acquisition of assets from RuralVision
Joint Venture discussed above had occurred at the beginning of the respective
periods, follow:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Subscription revenues...................................... $1,709,433 $ 3,087,379
========== ===========
Net loss................................................... $ (565,005) $(3,870,410)
========== ===========
Loss per common share...................................... $ (.07) $ (.35)
========== ===========
</TABLE>
(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 $68,743 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.
The Company paid $134,165 in 1992, $414,982 in 1993 and $74,559 in 1994 to
various affiliates for services performed in connection with the development of
wireless cable television systems, acquisition of wireless cable channel rights
and certain administrative services.
During 1993, an entity owned by a director of the Company was paid $40,660
for consulting services provided in connection with the acquisition of certain
wireless cable channel rights. Such amount has been included as part of the
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.
F-16
<PAGE> 1301
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$114,969 in exchange for forgiveness of advances of $172,132 to a formerly
affiliated installation company. The Company has reflected the settlement of
$57,163 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
$18,000 in 1992 and 1993 and $22,224 in 1994.
On December 15, 1994, the Company entered into an agreement with a
stockholder and its affiliate pursuant to which the Company loaned $2.0 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 bears interest at 12% per annum with
all accrued interest and the outstanding principal balance due on June 15, 1995.
In addition, on December 15, 1994, the affiliate granted to the Company an
option for the Company to acquire the Tulsa, Oklahoma wireless cable market. The
option is exercisable at any time after January 20, 1995 and continuing through
June 15, 1995. The purchase price to be paid upon any exercise of the option is
up to a maximum of $5.2 million, subject to adjustment based on the number of
granted channels. In addition, the affiliate has the right to obtain a release
of this option at any time prior to June 15, 1995, by payment of a $300,000
release price and payment in full of the loan.
(10) COMMITMENTS AND CONTINGENCIES
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1994
through 1998. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain minimums.
In connection with a $1,000,000 loan from a bank to a stockholder of the
Company, the Company has agreed to purchase such loan upon demand from the bank
for the aggregate amount of principal and interest thereon plus any other
amounts owed to the bank by the stockholder. The loan is secured by all of the
wireless cable assets of the stockholder relating to the Lubbock, Texas market,
including wireless cable channel rights, equipment and accounts receivable.
The Company is a party to a legal proceeding incidental to its business
which, in the opinion of management, is not expected to have a material adverse
effect on the Company's consolidated financial position or operating results.
(11) SUBSEQUENT EVENT
Pursuant to a loan agreement dated March 27, 1995 (the "Loan Agreement"),
two stockholders of the Company have agreed to loan the Company up to an
aggregate of $4.0 million ($2.0 million each) and a holder of the Convertible
Notes has agreed to loan to the Company, or to guarantee a bank loan to the
Company in the amount of, $2.0 million. Borrowings under the Loan Agreement may
be used solely for working capital. Borrowings under the Loan Agreement will
bear interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the Loan Agreement will be due and payable in
full on June 30, 1995, subject to prepayment upon the receipt by the Company of
cash proceeds from any financing, refinancing or sale of assets. Amounts
borrowed and repaid under the Loan Agreement may not be reborrowed. Borrowings
under the Loan Agreement will be secured by the capital stock and assets of two
of the Company's operating subsidiaries. As of March 27, 1995, the Company had
borrowed $2.0 million under the Loan Agreement, funded $1.0 million each by the
two stockholders.
F-17
<PAGE> 1302
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) OTHER SUBSEQUENT INFORMATION (UNAUDITED)
(a) Accounting Change
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 and to conform its accounting practices with those of other
companies in the wireless cable industry. 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 estimated average subscription term
(presently six years). 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. The Company periodically evaluates the estimated amortization
period and the recoverability of these costs to determine whether circumstances
warrant adjustments to the carrying amounts or revised estimates of the useful
life. An impairment loss would be recognized if the expected future operating
cash flows from subscribers in an individual market are less than the carrying
amount of subscriber installation costs in such market.
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 nine-month
period ended September 30, 1995 was to decrease net loss by approximately
$210,000 ($.02 per common share).
(b) Units Offering
On April 26, 1995, the Company consummated a private placement of 100,000
units (the "Units") consisting of $100.0 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 realized from the sale of the Units
into an escrow account and used approximately $3.0 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. As
of September 30, 1995, the Company had not caused such registration statement to
become effective within the 120-day period. 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 will increase by an
additional 0.50% per annum for each subsequent 90-day period until such
obligations are complied with, up to a maximum amount of additional interest of
2.00% per annum.
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 and the Transactions (as hereinafter defined) and
additionally amend certain definitions and covenants. The proposed amendments to
the indenture received
F-18
<PAGE> 1303
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approval of approximately 95.5% in aggregate principle 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.
The amounts placed in the escrow account have been invested in U.S.
Treasury Notes. As of September 30, 1995, $100.0 million aggregate principal
amount of the Senior Notes remain outstanding.
(c) Acquisitions of Minority Interests in Subsidiaries
On March 15, 1995, the Company consummated the Minority Interest Exchange
offer and 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). The
Company has used the purchase method to account for the acquisitions of these
minority interests. For financial statement 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 purchase price
over the fair value of net identifiable assets acquired and will be amortized
over a 20-year period.
Pro forma disclosures that include the effects of the acquisitions of the
minority interests are not materially different from historical information and
are not presented.
(d) Rural Vision Joint Venture
On May 17, 1995, Cross Country exercised its right to sell certain
remaining RuralVision Joint Venture assets to the Company and, as a consequence,
the Company acquired such 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.
In connection with the RuralVision Distribution and the Company's
acquisition of other wireless cable channel rights from RuralVision Joint
Venture in December 1994, the Company identified wireless cable channel rights
in certain markets which will be either sold, exchanged or conveyed. The
remaining balance at September 30, 1995 of $9.2 million of assets held for sale
represents assets that were sold or conveyed for cash subsequent to September
30, 1995.
(e) Other Acquisitions and Divestitures
In May 1995, the Company purchased an operating wireless cable system in
the Lubbock, Texas market and wireless cable channel rights in the Tulsa,
Oklahoma market for approximately $5.4 million (plus approximately $0.2 million
of acquisition-related costs) and $3.8 million (plus approximately $0.1 million
of acquisition-related costs) in cash, respectively (the "Lubbock and Tulsa
Acquisitions").
In May 1995, the Company sold certain wireless cable channel rights in five
markets to an unaffiliated entity for $2.7 million in cash. These assets
comprised a portion of the assets held for sale.
On July 18, 1995, the Company privately placed 1,029,707 shares of its
common stock to RuralVision Joint Venture in exchange for $20,000,000 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 $20,000,000 in cash (the
"Cross Country Acquisition").
Summarized below is the unaudited pro forma information for the nine months
ended September 30, 1994 and 1995 as if the Cross Country Acquisition and the
Lubbock and Tulsa Acquisitions had been consummated as of the beginning of 1994
and 1995. The pro forma information does not purport to represent
F-19
<PAGE> 1304
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1994 1995
----------- ------------
<S> <C> <C>
Revenues........................................ $ 3,075,000 $ 10,872,000
=========== ============
Net loss........................................ $(1,655,000) $(11,794,000)
=========== ============
Net loss per common share....................... $ (.54) $ (.93)
=========== ============
</TABLE>
(f) Wireless One
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 $10.0 million of notes. A portion of these assets comprise the
assets held for sale presented in the accompanying balance sheet. Wireless One
is a newly-formed corporation into which Wireless One Operating Company, a
privately-held wireless cable company, was merged. On October 18, 1995, Wireless
One completed an initial public offering of 3,000,000 shares of its common stock
and, concurrently therewith, consummated the sale of $150,000,000 in gross
proceeds of 13% Senior Notes due 2003. As a result and pursuant to the merger
agreement, Wireless One repaid the $10.0 million of notes from the proceeds of
the offerings.
In October 1995, the Company executed an agreement to sell wireless cable
channel rights in Flippin, Tennessee for $1.5 million in cash. The transaction
is subject to customary closing conditions, including each party's Board of
Directors and lender approvals, due diligence review and other conditions.
(g) Pending Acquisitions
In September 1995, the Company executed an agreement to acquire Cablemaxx,
Inc. ("Cablemaxx") for approximately $80.8 million in common stock of the
Company. The agreement provides for the conversion of the common stock of
Cablemaxx at a rate of $8.50 per share, subject to adjustment, into common stock
of the Company, with the exchange rate determined by the average price of the
Company's common stock preceding the closing date of the transaction.
In September 1995, the Company entered into agreements to acquire American
Wireless Cable Systems, Inc. ("AWS") and the assets of Wireless Cable TV
Associates #38 (the "Minneapolis Partnership") and Fort Worth Wireless Cable TV
Associates (the "Fort Worth Partnership") for an aggregate of approximately
$65.3 million of common stock of the Company.
In October 1995, the Company entered into a definitive agreement with
Technivision, Inc. ("Technivision") whereby the Company will acquire
substantially all of the assets of Technivision for approximately $36.75 million
of the Company's common stock, less an amount of assumed obligations which shall
not exceed $5.0 million.
These transactions (collectively, the "Transactions") are subject to
certain conditions, including, without limitation, approval by the shareholders
of each company.
The Company is also currently pursuing opportunities to dispose of certain
wireless cable channel rights, presently held by or sought to be acquired by the
Company pursuant to the Transactions, and expects to sell, contribute or
exchange such assets in one or more transactions.
F-20
<PAGE> 1305
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CableMaxx, Inc.
Supreme Cable, Inc.
We have audited the accompanying consolidated balance sheets of CableMaxx,
Inc. as of June 30, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period December 18, 1992
to June 30, 1993 and for the years ended June 30, 1994 and 1995. We have also
audited the consolidated statements of operations and cash flows of Supreme
Cable Co., Inc. and Subsidiaries (the "Predecessor") for the period from July 1,
1992 to December 17, 1992. These financial statements are the responsibility of
CableMaxx, Inc.'s and the Predecessor's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CableMaxx, Inc. as of June 30, 1994 and 1995, and the results of its operations
and its cash flows for the period from December 18, 1992 to June 30, 1993 and
the years ended June 30, 1994 and 1995, and the consolidated results of
operations and cash flows of the Predecessor for the period from July 1, 1992 to
December 17, 1992, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11, the Company
has entered into a merger agreement which is pending approval. However, the
Company's inability to generate through operations or borrow under its revolving
credit facility sufficient cash flows to fund operations, the Company's
expectation that it will not meet certain financial covenant requirements under
its revolving credit facility and the Company's inability to meet the debt
service requirements as currently exist under its revolving credit facility
raise substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustment
relating to the recoverability of asset carrying amounts or the amount of
liabilities that might result should the Company be unable to continue as a
going concern.
COOPERS & LYBRAND L.L.P.
Austin, Texas
August 25, 1995
F-21
<PAGE> 1306
CABLEMAXX, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- SEPTEMBER 30,
1994 1995 1995
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents........................... $ 875,963 $ 2,206,303 $ 786,392
Investments......................................... 13,682,358 -- --
Subscriber receivables, net of allowance for
doubtful accounts of approximately $211,000,
$64,000, and $86,000 (unaudited) as of June 30,
1994 and 1995 and September 30, 1995,
respectively...................................... 398,602 341,974 457,733
Prepaids and other.................................. 653,054 318,300 480,704
Systems and equipment, net.......................... 24,681,896 27,424,267 26,447,933
Intangible assets, net.............................. 12,910,798 21,663,254 21,271,892
----------- ------------ -------------
Total assets.............................. $53,202,671 $51,954,098 $ 49,444,654
=========== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities............ $5,131,799 $ 2,687,361 $ 2,851,680
Due to affiliates................................... 260,198 235,476 366,004
Subscriber deposits................................. 262,089 207,241 198,751
Deferred revenue.................................... 262,650 307,954 308,179
Notes payable....................................... 3,200,000 10,807,500 10,807,500
----------- ------------ -------------
Total liabilities......................... 9,116,736 14,245,532 14,532,114
----------- ------------ -------------
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding........ -- -- --
Common stock, $.01 par value; 20,000,000 shares
authorized, 8,600,000, 9,507,311, and 9,507,311
(unaudited) shares issued and outstanding as of
June 30, 1994 and 1995 and September 30, 1995,
respectively................................... 86,000 95,073 95,073
Additional paid-in capital........................ 53,274,159 57,670,727 57,670,727
Accumulated deficit............................... (9,274,224) (20,057,234) (22,853,260)
----------- ------------ -------------
Total stockholders' equity................ 44,085,935 37,708,566 34,912,540
----------- ------------ -------------
Total liabilities and stockholders'
equity.................................. $53,202,671 $51,954,098 $ 49,444,654
=========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 1307
CABLEMAXX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR
CONSOLIDATED
------------
PERIOD FROM PERIOD FROM
JULY 1, 1992 DECEMBER 18, THREE MONTHS ENDED
TO DECEMBER 1992 TO JUNE YEAR ENDED YEAR ENDED SEPTEMBER 30,
17, 30, JUNE 30, JUNE 30, -------------------------
1992 1993 1994 1995 1994 1995
------------ ------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 1,834,789 $ 2,276,602 $ 7,709,411 $ 13,463,076 $ 3,143,660 $ 3,633,462
------------ ------------ ----------- ------------ ----------- -----------
Operating expenses:
Systems operations............ 855,503 1,091,694 3,758,927 6,301,007 1,441,821 1,540,162
Selling, general and
administrative............. 1,028,220 1,335,557 7,125,701 9,051,185 2,188,320 2,080,532
Depreciation and
amortization............... 1,149,138 1,338,356 4,239,005 8,274,058 1,732,175 2,514,350
------------ ------------ ----------- ------------ ----------- -----------
Total operating
expenses............ 3,032,861 3,765,607 15,123,633 23,626,250 5,362,316 6,135,044
------------ ------------ ----------- ------------ ----------- -----------
Operating loss.................. (1,198,072) (1,489,005) (7,414,222) (10,163,174) (2,218,656) (2,501,582)
Interest expense................ (343,214) (288,320) (505,928) (875,109) (100,502) (311,169)
Other income.................... 505,488 2,073 421,178 255,273 81,569 16,725
------------ ------------ ----------- ------------ ----------- -----------
Net loss.............. $ (1,035,798) $ (1,775,252) $(7,498,972) $(10,783,010) $(2,237,589) $(2,796,026)
============ ============ =========== ============ =========== ===========
Net loss per share.............. $ (0.35) $ (1.05) $ (1.21) $ (0.26) $ (0.29)
============ =========== ============ =========== ===========
Weighted average number of
shares outstanding............ 5,100,000 7,141,667 8,902,437 8,600,000 9,507,311
============ =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 1308
CABLEMAXX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ --------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 18, 1992.... -- -- -- -- -- -- --
Issuance of common stock...... -- -- 5,100,000 $51,000 $15,199,000 -- $15,250,000
Net loss for period........... -- -- -- -- -- $ (1,775,252) (1,775,252)
------ ------ --------- ------- ----------- ----------- ----------
Balance, June 30, 1993........ -- -- 5,100,000 51,000 15,199,000 (1,775,252) 13,474,748
------ ------ --------- ------- ----------- ----------- ----------
Issuance of common stock...... -- -- 3,500,000 35,000 38,075,159 -- 38,110,159
Net loss for the year......... -- -- -- -- -- (7,498,972) (7,498,972)
------ ------ --------- ------- ----------- ----------- ----------
Balance, June 30, 1994........ -- -- 8,600,000 86,000 53,274,159 (9,274,224) 44,085,935
------ ------ --------- ------- ----------- ----------- ----------
Issuance of common stock...... -- -- 907,311 9,073 4,396,568 -- 4,405,641
Net loss for the year......... -- -- -- -- -- (10,783,010) (10,783,010)
------ ------ --------- ------- ----------- ----------- ----------
Balance, June 30, 1995........ -- -- 9,507,311 95,073 57,670,727 (20,057,234) 37,708,566
------ ------ --------- ------- ----------- ----------- ----------
Net loss, for the three months
ended September 30, 1995
(unaudited)................. -- -- -- -- -- (2,796,026) (2,796,026)
Balance September 30, 1995
(unaudited)................. -- -- 9,507,311 $95,073 $57,670,727 $(22,853,260) $34,912,540
====== ====== ========= ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 1309
CABLEMAXX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
CONSOLIDATED
------------
PERIOD FROM PERIOD FROM
JULY 1, DECEMBER 18, THREE MONTHS ENDED
1992 TO 1992 TO YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 17, JUNE 30, JUNE 30, JUNE 30, ---------------------------
1992 1993 1994 1995 1994 1995
----------- ------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(1,035,798) $ (1,775,252) $ (7,498,972) $(10,783,010) $ (2,237,589) $(2,796,026)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation and amortization... 1,149,138 1,338,356 4,239,005 8,274,058 1,732,175 2,514,350
Interest capitalized into notes
payable....................... -- -- 150,000 157,500 -- --
(Gain)/loss on sale of
short-term investments........ -- -- (100,164) 16,696 16,696 --
Accretion of discount on
short-term
investments................... -- -- (238,561) (76,567) (76,567) --
Changes in assets and
liabilities:
Subscriber receivables........ 200,353 (28,055) (259,539) 56,628 (129,824) (115,759)
Prepaids and other............ (200,973) (44,675) (571,390) 334,754 (63,829) (162,404)
Accounts payable and accrued
liabilities................. 652,411 1,154,420 735,938 (2,828,438) (3,004,028) (152,681)
Due to affiliates............. -- 203,629 56,569 (24,722) (223,495) 130,528
Subscriber deposits........... (28,455) (16,158) (78,080) (54,848) (9,822) (8,490)
Deferred revenue.............. -- -- 170,166 45,304 28,977 225
----------- ------------ ------------ ------------ ------------ -----------
Net cash provided by (used
in) operating
activities................ 736,676 832,265 (3,395,028) (4,882,645) (3,967,306) (590,257)
----------- ------------ ------------ ------------ ------------ -----------
Cash flows from investing
activities:
Acquisition of wireless cable
systems......................... -- (12,372,712) -- --
Purchases of systems and
equipment....................... (654,581) (3,175,684) (14,445,866) (9,414,480) (2,620,827) (804,667)
Purchases of rights/options....... (27,073) -- (3,248,830) (5,456,264) (19,497) (24,987)
Purchase of trademark/tradename... -- (10,000) -- -- -- --
Purchase of investments........... -- -- (69,470,839) -- -- --
Proceeds from sale of
investments..................... -- -- 56,127,206 13,742,229 13,742,229 --
----------- ------------ ------------ ------------ ------------ -----------
Net cash used in investing
activities................ (681,654) (15,558,396) (31,038,329) (1,128,515) 11,101,905 (829,654)
----------- ------------ ------------ ------------ ------------ -----------
Cash flows from financing
activities:
Proceeds from issuance of common
stock........................... -- 12,500,000 38,110,159 -- -- --
Proceeds from borrowings.......... 64,797 2,854,161 3,689,692 7,450,000 -- --
Repayments of borrowings.......... (577,778) (153,322) (6,490,531) -- -- --
Loan acquisition costs............ -- (474,708) -- (108,500) -- --
----------- ------------ ------------ ------------ ------------ -----------
Net cash provided by (used
in) financing
activities................ (512,981) 14,726,131 35,309,320 7,341,500 -- --
----------- ------------ ------------ ------------ ------------ -----------
Net increase (decrease) in cash..... (457,959) -- 875,963 1,330,340 7,134,599 (1,419,911)
Cash and cash equivalents, beginning
of period......................... 502,406 -- -- 875,963 875,963 2,206,303
----------- ------------ ------------ ------------ ------------ -----------
Cash and cash equivalents, end of
period............................ $ 44,447 $ -- $ 875,963 $ 2,206,303 $ 8,010,562 $ 786,392
=========== ============ ============ ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 1310
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following notes, insofar as they are applicable to the three month
periods ended September 30, 1994 and 1995, are not audited. In management's
opinion, all adjustments consisting of only normal recurring accruals considered
necessary for the fair presentation of such financial statements are included.
Interim results are not necessarily indicative of results for a full year.
(1) DESCRIPTION OF BUSINESS
CableMaxx, Inc. develops, owns and operates wireless cable television
systems and currently provides wireless cable television service to subscribers
in Austin, San Antonio, Temple/Killeen and Waco, Texas.
On December 18, 1992, Charter Cable Corporation and Charter Cable (San
Antonio), Inc. acquired the Austin and San Antonio wireless cable systems from
certain sellers (collectively, the "Predecessor"). These corporations were
wholly-owned by Charter Wireless Cable Holdings, L.L.C. ("Charter Holdings").
Charter Holdings is owned by an affiliate of Charterhouse Group International,
Inc. ("Charterhouse"), Galaxy Cablevision, L.P. ("Galaxy") and Galaxy
Management, Inc. CableMaxx, Inc. was capitalized with $12,500,000 cash,
$2,000,000 previously deposited with the Predecessor by Galaxy, and an ownership
interest in Charter Holdings valued at $750,000 which was conveyed to the
Predecessor in connection with the acquisition.
In September 1993, Charter Cable (San Antonio), Inc. was merged with and
into Charter Cable Corporation, which changed its name to CableMaxx, Inc. and
which simultaneously increased its authorized and outstanding shares of $.01 par
value Common Stock to 20,000,000 and 5,100,000 shares, respectively. This merger
and change in capital structure have been reflected in the financial statements
as of June 30, 1993. The Board of Directors is authorized to determine all
rights and privileges associated with the preferred stock, including dividend
and voting rights, redemption provisions and liquidation preferences.
In November 1993, CableMaxx, Inc. sold in an initial public offering
("IPO"), 3,500,000 shares of its common stock, par value $.01 per share ("Common
Stock"), at an initial price of $12.00 per share, resulting in net proceeds to
the Company of $38,110,159 after underwriting discounts and costs in connection
with the IPO.
In connection with the IPO, in November 1993, CableMaxx, Inc. granted to
one of the representatives of the Underwriters warrants to purchase an aggregate
of 100,000 shares of Common Stock (the "Warrants"). The consideration for the
Warrants was $10,000. The Warrants are exercisable from November 29, 1994
through November 28, 1998, at an exercise price of $14.40 per share of Common
Stock, subject to adjustment pursuant to the terms of the Warrants.
In December, 1994, in order to create a holding company structure to
facilitate CableMaxx, Inc.'s access to sources of financing, CM Newco, Inc., a
wholly-owned subsidiary of CableMaxx Holdings, Inc. ("Holdings"), was merged
with and into CableMaxx, Inc. As a result of such merger, (i) Holdings changed
its name to CableMaxx, Inc. (the "Company"), is now owned by the stockholders of
the former CableMaxx, Inc., immediately prior to such merger, and (ii)
CableMaxx, Inc., which changed its name to CableMaxx (Texas), Inc., is now a
wholly-owned subsidiary of the Company.
The accompanying balance sheets as of June 30, 1994 and 1995 and the
statements of operations and cash flows for the period December 18, 1992 to June
30, 1993 and for the years ended June 30, 1994 and 1995 include the consolidated
accounts of the Company. All significant intercompany balances and transactions
between the entities have been eliminated.
F-26
<PAGE> 1311
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) ACQUISITIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Acquisitions
On December 18, 1992, the Company acquired assets and assumed liabilities
related to the Austin and San Antonio wireless cable operations of the
Predecessor. The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the total acquisition cost has been allocated to
the net assets acquired based on the fair values of the assets and liabilities
at the date of acquisition. The results of operations of the Austin and San
Antonio wireless cable systems are included in the financial statements since
the date of acquisition. The acquisition included the following assets and
liabilities (amounts rounded):
<TABLE>
<CAPTION>
ACQUIRED PREDECESSOR COST
ASSETS AND OF ACQUIRED ASSETS
LIABILITIES AND LIABILITIES
---------- ------------------
<S> <C> <C>
Accounts receivable, net................................ $ 111,000 $ 111,000
Systems and equipment................................... 8,095,000 7,295,000
Intangible assets....................................... 10,397,000 224,000
Deposits................................................ 37,000 37,000
Subscriber deposits and deferred revenue................ (517,000) (517,000)
----------- -----------
Net assets acquired........................... $18,123,000 $7,150,000
=========== ===========
</TABLE>
The acquisition costs consisted of the following (amounts rounded):
<TABLE>
<S> <C> <C>
Cash paid to Predecessor and certain of their
affiliates............................................ $ 9,934,000
Amount previously deposited with Predecessor by
Galaxy................................................ 2,000,000
Subordinated seller note................................ 3,000,000
Ownership interest in Charter Holdings.................. 750,000
Acquisition costs....................................... 2,439,000
-----------
$18,123,000
===========
</TABLE>
The ownership interest in Charter Holdings was purchased from the
Predecessor by Galaxy for $750,000 in February 1993.
In connection with the acquisition, the Company also received options to
acquire wireless cable channel leases, tower leases and head-end sites in the
Sherman/Denison, Temple/Killeen, Waco, Lubbock, Athens and Amarillo, Texas
markets which did not constitute existing operating wireless cable systems. For
an aggregate price of approximately $1,133,000, the Company exercised these
options in April 1994, and reimbursed Galaxy approximately $217,000 for costs
necessary to maintain the options assets and properties during the option
period. Upon exercise of the options, the Company negotiated a settlement with a
third party totalling $500,000 to terminate all disputes and claims related to
channel rights in certain of the aforementioned markets. All such costs are
classified as "Intangible assets -- channel rights."
In February 1995, the Company completed the acquisition of wireless cable
channel rights in Salt Lake City, Utah for approximately $11 million, consisting
of cash in the amount of $6.6 million and the issuance of 907,311 shares of
common stock. These rights do not constitute an existing operating wireless
cable system. Under the Acquisition Agreement, the Company is obligated to
maintain the related licenses and perform all other obligations imposed under
each channel lease.
(b) Cash and Cash Equivalents
All investments including repurchase agreements purchased with remaining
maturities of three months or less are cash equivalents. Cash and cash
equivalents balances generally do not exceed FDIC coverage.
F-27
<PAGE> 1312
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Investments
At June 30, 1994, the Company's short-term investments consisted primarily
of U.S. Government instruments and were carried at the lower of amortized cost
or market, with cost approximating market at fiscal year end. Realized gains or
losses if any are determined on the specific identification method and are
reflected in income.
(d) Systems and Equipment
Systems and equipment is carried at cost and includes the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and outside contractor costs associated with subscriber
installations including successful and unsuccessful transmission reception
testing are capitalized. Upon subscriber disconnect, the Predecessor expensed
remaining unamortized installation labor and certain materials. The Company has
elected to depreciate the full capitalized installation cost subsequent to
disconnect. Capitalized installation costs are accounted for under the composite
method. Cost of maintenance and repairs is charged to expense as incurred. Upon
sale or retirement, the related cost and accumulated depreciation are removed
from their respective accounts, and any resulting gain or loss is credited or
charged to income.
Systems and equipment is depreciated as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------- ---------------------------------
METHOD TERM METHOD TERM
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Wireless cable systems:
Subscriber installations:
Material..................... Straight-line 5.5 to 7 years Straight-line 7 years
Outside contract labor....... Straight-line 3 years Straight-line 7 years
Head-end, tower and transmission
equipment.................... Straight-line 7 to 10 years Straight-line 7 to 20 years
Vehicles, furniture and
equipment....................... Straight-line 3 to 10 years Straight-line 5 years
Leasehold improvements............ Straight-line 10 years -- --
</TABLE>
During the fiscal years ended June 30, 1994 and 1995 the Company
transferred ownership of installation materials to independent contractors. As a
result, ownership of materials removed from disconnected homes remains with the
independent contractors. Accordingly, the lives for this equipment are shorter
than estimated in prior years. The Company has changed the useful lives for
installation materials to 5.5 years, effective July 1, 1994. The effect of this
change in estimate increased depreciation expense and increased net loss in the
year ended June 30, 1995 by approximately $543,000. The effect of this change
was not significant in the year ended June 30, 1994.
F-28
<PAGE> 1313
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Intangible Assets
Intangible assets are amortized as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-------------------------------- ------------------------------------
METHOD TERM METHOD TERM
-------------------- --------- -------------- -------------------
<S> <C> <C> <C> <C>
Channel rights and goodwill.... Straight-line 15 years Straight-line Original term of
channel lease -- 5
to 10 years
Trademark/tradename............ Straight-line 15 years Straight-line 10 years
Loan acquisition costs......... Straight-line which 6 years -- --
approximates
interest method
</TABLE>
Channel rights and goodwill include the allocation of the excess of
purchase price over the fair value of tangible assets and liabilities acquired.
The Company reviews goodwill for impairment from time to time, measuring
impairment based upon expected future undiscounted cash flows from operations.
(f) Revenue Recognition
Revenues from subscribers are recognized in the month that the service is
provided. Installation fees are recognized as revenue upon origination of
service to subscribers to the extent of any costs incurred to obtain the
subscriber, which are expensed as incurred.
(g) Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between tax basis of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory 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.
(3) SYSTEMS AND EQUIPMENT
Systems and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Wireless cable systems.................................... $26,606,302 $35,805,422
Vehicles, furniture and equipment......................... 1,678,329 2,156,052
Building and leasehold improvements....................... 704,474 820,102
Land...................................................... 50,030 50,030
----------- -----------
29,039,135 38,831,606
Accumulated depreciation and amortization................. (4,357,239) (11,407,339)
----------- -----------
$24,681,896 $27,424,267
=========== ===========
</TABLE>
F-29
<PAGE> 1314
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Channel rights and goodwill............................... $13,645,276 $23,507,181
Loan acquisition costs.................................... 475,644 584,144
Trademark/tradename....................................... 10,000 10,000
----------- -----------
14,130,920 24,101,325
Accumulated amortization.................................. (1,220,122) (2,438,071)
----------- -----------
$12,910,798 $21,663,254
=========== ===========
</TABLE>
(5) NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1994 1995
---------- -----------
<S> <C> <C>
Revolving credit and term loan............................. $ 50,000 $ 7,500,000
Subordinated seller note................................... 3,150,000 3,307,500
---------- -----------
$3,200,000 $10,807,500
========== ===========
</TABLE>
On December 18, 1992, the Company entered into a revolving credit and term
loan agreement (the "Agreement") with Fleet National Bank allowing it to borrow
up to $14.5 million to fund up to $1 million of closing costs in connection with
the acquisition and for working capital and capital expenditures in connection
with the construction, ownership and operation of the existing wireless cable
systems.
Advances under the Agreement are subject to limits based on multiples of
the Company's annualized adjusted net operating income and certain other
performance factors. As a result of such limits, the Company's availability
under the Agreement will vary over time. Subject to certain mandatory payment
provisions as set forth in the Agreement, amounts borrowed are not required to
be repaid prior to December 31, 1995 at which time the outstanding amounts
borrowed convert to a term loan with quarterly repayments of principal due as
follows:
<TABLE>
<CAPTION>
ANNUAL
PERCENTAGE OF
OUTSTANDING
QUARTERLY DATES PRINCIPAL DUE
------------------------------------------------------------------------ -------------
<S> <C>
March 31, 1996 through December 31, 1996................................ 21%
March 31, 1997 through December 31, 1997................................ 37%
March 31, 1998 through December 31, 1998................................ 42%
</TABLE>
In addition to the specified quarterly principal repayments, the Agreement
provides for a mandatory repayment based upon excess cash flow, as defined, for
annual periods ending December 31, 1996 and after.
Interest on the revolving credit and term loan is due on the last day of
each quarter. The Company has the option to elect either a fixed rate or
floating rate based on prime or LIBOR plus applicable margin of interest from
time to time throughout the term of the loan. The interest rate in effect on
amounts borrowed under this Agreement was 11.58% at June 30, 1995. The Company
is also required to pay a commitment fee
F-30
<PAGE> 1315
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equal to one-half of one percent of the unused portion of the line of credit.
Amounts borrowed are collateralized by substantially all of the Company's
assets, including its interests in channel lease agreements.
The Agreement contains restrictions on capital expenditures and payments to
affiliates, as well as certain restrictive covenants that require the Company to
maintain specific financial ratios, minimum subscriber levels and minimum net
operating income, among other criteria, as defined by the Agreement. While the
Company has obtained a waiver of fiscal 1995 covenant violations, it expects to
violate certain of these restrictive financial covenants during fiscal 1996,
resulting in expected events of default under the existing terms of the
Agreement and leading to possible acceleration of indebtedness by the Lender.
The Company is currently seeking to amend the Agreement in order to resolve
these expected events of default. The Company obtained a waiver for a covenant
violation for the fiscal quarter ended September 30, 1995 (unaudited).
The current Agreement does not provide for any more advances to the
Company. Current cash reserves may not be sufficient to meet future operating
needs and liabilities. In connection with the proposed merger discussed in Note
11, the Company sold its channel rights in Sherman, Lubbock, Amarillo and Athens
for approximately $2.4 million (unaudited). In addition, the merger agreement
was amended to allow the Company to borrow, if necessary, up to $1,000,000
(unaudited). The Company expects that these funds will enable the Company to
continue operations through the proposed closing date of the merger. If the
merger is not completed, the Company will have to find additional funding for
operations. Management will continue to negotiate and seek to amend the current
revolving credit facility and also pursue other areas of financing.
The subordinated seller note is payable to the Predecessor as part of the
consideration for the Company's acquisition of the wireless cable systems. The
note is due December 18, 1998. Interest accrues on the note at the rate of 10%
per annum. Fifty percent of interest accrued for the preceding twelve-month
period as of each anniversary date is payable on the last day of the month of
the next anniversary date. The remaining accrued interest is payable at 10% per
annum on the note's due date. Obligations under this note are subordinated to
the Company's indebtedness under the Agreement, and are subject to acceleration
upon the occurrence of certain events.
As of June 30, 1995, the aggregate scheduled maturities of notes payable
due for each of the next five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------- ---------
<S> <C>
1996.............................................. $ 787,500
1997.............................................. 2,175,000
1998.............................................. 2,962,500
1999.............................................. 4,882,500
</TABLE>
(6) INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. The Company has a net operating loss
carryforward for income tax purposes of approximately $19,211,000, which expires
beginning in 2007. SFAS 109 requires that the tax benefit of net operating
losses be reported as an asset to the extent management assesses the utilization
of such net operating losses to be more likely than not. Since the Company has
had net losses since inception, a valuation allowance of approximately
$6,807,000 has been recorded to offset the deferred tax asset.
F-31
<PAGE> 1316
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. The source of these differences and tax effect of each is as
follows (amounts rounded):
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liability:
Excess book basis over tax basis........................ $ (559,000) --
Deferred tax assets:
Net operating loss carryforward...................... 3,491,000 $ 6,532,000
Deferred revenue..................................... 89,000 105,000
Allowance for doubtful accounts...................... 72,000 22,000
Accrued liabilities.................................. 51,000 23,000
Excess of tax over book basis........................ -- 125,000
----------- -----------
3,703,000 6,807,000
Valuation allowance....................................... (3,144,000) (6,807,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The valuation allowance adjustments of $2,541,000 and $3,663,000 for 1994
and 1995, respectively, offset the income tax benefit computed by applying the
U.S. Federal statutory tax rates to pretax loss.
(7) COMMITMENTS AND CONTINGENCIES
The Company and its Predecessor lease from third parties channel rights
licensed by the Federal Communication Commission ("FCC"). Under FCC rules, the
base term of each lease cannot exceed the term of the underlying FCC license.
FCC licenses for wireless cable frequencies range from five to ten years, and
there is no automatic renewal of such licenses. The use of such frequencies by
the third party lessors is subject to regulation by the FCC, and therefore the
Company's ability to enjoy the benefit of these leases is dependent upon the
third party lessors' continuing compliance with applicable regulations. The
remaining terms of the Company's leases range from approximately one year to
seven years. Most of the Company's leases provide for renewal of their terms
upon FCC renewal of the underlying license or require the parties to negotiate
renewal in good faith. Although the Company has no reason to believe that its
leases will not be renewed or that the underlying FCC licenses will be canceled
or not renewed, such event would prevent the Company from delivering programming
over the affected frequencies, which could have a material adverse effect on the
Company. Channel rights lease agreements generally require payments based on the
greater of specified minimums or amounts based upon various factors including
subscriber levels, subscriber revenues, the cost of transmission equipment and
facilities, and facility operating costs as specified in the agreements.
Payments under the leases 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. Channel rights lease expenses were
approximately $168,000, $539,000 and $875,000 for the period from December 18,
1992 to June 30, 1993 and for the years ended June 30, 1994 and 1995,
respectively, and $198,000 and $240,000 for the three months ended September 30,
1994 and 1995, (unaudited) respectively.
F-32
<PAGE> 1317
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments due under channel rights leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------- --------
<S> <C>
1996................................................ $516,400
1997................................................ 555,500
1998................................................ 560,500
1999................................................ 479,500
2000................................................ 360,000
</TABLE>
The Company and its Predecessor also have operating leases for office space
and equipment, land for head-ends, and transmission facilities. Rental expenses
incurred in connection with these leases approximated $64,000, $173,000 and
$408,000 for the period from December 18, 1992 to June 30, 1993 and for the
years ended June 30, 1994 and 1995, respectively, and $83,000 and $117,000 for
the three months ended September 30, 1994 and 1995, (unaudited) respectively.
Future minimum lease payments under such leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
- ----------- --------
<S> <C>
1996................................................ $434,100
1997................................................ 420,800
1998................................................ 427,600
1999................................................ 440,500
2000................................................ 361,200
</TABLE>
Wireless cable system equipment, excluding television-top converters which
are provided by the Company, site reception testing and installation are
provided through a third party contractor under three year agreement commencing
in fiscal year 1994, which establish rate structures for such equipment and
services by service area subject to periodic adjustment, specifying minimum
charges aggregating $28,400 per month.
(8) RELATED PARTY TRANSACTIONS
Prior to the IPO, the Company incurred management fees and expenses
pursuant to the terms of a management agreement with Galaxy Management, Inc., an
affiliate of Galaxy, under which it managed a significant portion of the
Company's business. In addition to reimbursing expenses, the Company paid a
management fee based on 3.5% of operating revenues as defined in the management
agreement. Subsequent to the IPO, Galaxy Management, Inc. ceased to manage the
Company's business, but continued to provide certain administrative services for
the Company for which it receives reimbursement for certain of its salaries and
expenses. Management fees and reimbursable expenses incurred in association with
these agreements approximated $269,000 for the period from December 18, 1992 to
June 30, 1993 and $523,000 and $320,000 for the years ended June 30, 1994 and
1995, respectively, and $88,000 and $47,000 for the three months ended September
30, 1994 and 1995, (unaudited) respectively. The Company's president and CEO who
receives an annual salary of $200,000 under provisions of a two-year employment
agreement is the principal stockholder and president of Galaxy Management, Inc.
The Company shares certain operational and administrative expenses and
facilities in Austin, Texas with Galaxy and its affiliates, and certain of its
customer service representatives and executive and administrative personnel also
provide such services for Galaxy. Shared expenses are allocated based upon the
Company subscribers to Galaxy subscribers in Austin, Texas. Total expenses
allocated to Galaxy for the period from December 18, 1992 to June 30, 1993 and
for the years ended June 30, 1994 and 1995 approximated $100,000,
F-33
<PAGE> 1318
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$12,000 and $0, respectively, and $0 and $0 for the three months ended September
30, 1994 and 1995, (unaudited) respectively.
Pursuant to the terms of a financial consulting agreement with
Charterhouse, the Company was charged a consulting fee at the rate of $400,000
per annum through the IPO closing date and at the rate of $280,000 per annum
thereafter. Expenses incurred in connection with this agreement approximated
$214,000 for the period December 18, 1992 to June 30, 1993, and $330,000 and
$280,000 for the years ended June 30, 1994 and 1995, respectively, and $70,000
and $70,000 for the three months ended September 30, 1994 and 1995, (unaudited)
respectively. Payments in connection with this agreement are subordinated under
the Company's revolving credit and term loan agreement. Certain directors of the
Company also serve as officers of Charterhouse. In addition, certain other
directors of the Company are also officers of Charter Communications.
Commencing after the IPO through October 1994, the Company was charged a
consulting fee of $10,000 per month under an agreement with Charter
Communications. Expenses incurred in connection with this agreement approximated
$70,000 and $40,000 for the years ended June 30, 1994 and 1995, respectively,
and $30,000 and $0 for the three months ended September 30, 1994 and 1995,
(unaudited) respectively.
Amounts related to the above arrangements are included in due to affiliates
as of June 30, 1994 and 1995.
In connection with negotiating and structuring the acquisition,
Charterhouse and Galaxy were paid fees of $330,000 and $500,000, respectively,
which have been included in the purchase price allocation.
(9) SUPPLEMENTAL CASH FLOWS DISCLOSURES
The Company and its Predecessor paid $119,000, $359,000 and $709,000 in
interest (net of amounts capitalized into principal on notes payable) for the
periods from December 18, 1992 to June 30, 1993 and for the years ended June 30,
1994 and 1995, respectively, and $20,000 and $148,000 for the three months ended
September 30, 1994 and 1995, (unaudited) respectively.
The Predecessor had noncash investing and financing activities related to
the acquisition and initial capitalization as disclosed in Notes 1 and 2. The
Company had obligations amounting to approximately $2,853,000 and $384,000
related to systems and equipment additions which are included in accounts
payable at June 30, 1994 and June 30, 1995, respectively, and $1,318,000 and
$317,000 for the three months ended September 30, 1994 and 1995, (unaudited)
respectively. Noncash financing activities included $150,000 and $157,500 of
interest capitalized into the principal balance of notes payable during the
years ended June 30, 1994 and June 30, 1995, respectively, and $0 and $0 for the
three months ended September 30, 1994 and 1995, (unaudited) respectively.
(10) STOCK OPTION PLAN
In December 1993, the Company adopted the CableMaxx, Inc. 1993 Stock Option
Plan (the "Plan"). The Plan, which is administered by a committee of the
Company's Board of Directors, provides for the grant of incentive stock options
and nonqualified stock options to key managerial employees and consultants of
the Company as determined by the committee. The Plan provides that the total
number of shares of Common Stock that may be subject to options shall be 250,000
shares. The exercise price of the options granted under the Plan shall be at
least 100% of the fair market value of the Common Stock on the date of grant. As
of June 30, 1995, options for 117,500 shares have been granted at an exercise
price of $12.00 per share, with one-third being exercisable.
F-34
<PAGE> 1319
CABLEMAXX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) SUBSEQUENT EVENTS (UNAUDITED)
In September 1995, the Company entered into a agreement (the "Merger
Agreement") to merge with a subsidiary of Heartland Wireless Communications,
Inc. ("Heartland"). The Merger Agreement provides for the conversion of the
common stock of the Company at value of $8.50 per share, subject to adjustment,
into Heartland common stock, with the exchange ratio determined by the average
price of Heartland stock preceding the transaction date. The transaction is
subject to approval by the shareholders' of each company and is subject, among
other things, to consent by the Heartland bondholders. Should the Merger
Agreement be terminated as a result of a third party acquisition proposal that
is approved by the Board of Directors of the Company or recommended to the
stockholders of the Company by the Board of Directors, a $2 million fee is
payable to Heartland.
In October 1995, the Company sold certain channel rights to Heartland for
approximately $2.4 million subject to adjustment to the appraised value of such
channel rights should the Merger Agreement be terminated for any reason other
than the Company's breach thereof or the Company's acceptance of a third party's
acquisition proposal.
In connection with the Merger Agreement on December 26, 1995, the Company
entered into a Loan Agreement (the "CMAX Loan") with Heartland for up to
$1,000,000 bearing interest at a published prime rate plus 2% of which (a)
$500,000 was advanced on December 29, 1995 to be used for working capital
purposes, and (b) $500,000 is to be used for subscriber growth funded at a rate
of $500 per additional subscriber. The CMAX Loan will not increase the amount of
CMAX Excess Liabilities as set forth in the Merger Agreement. Upon consummation
of the Merger Agreement, it is anticipated that the CMAX Loan will remain as an
inter-company obligation from the Company to Heartland. In the event that the
CMAX Merger Agreement is not consummated, the CMAX Loan is payable August 29,
1996; provided, that if the Merger Agreement is terminated as a result of a
competing acquisition proposal, then the CMAX Loan will be immediately due and
payable.
F-35
<PAGE> 1320
HEARTLAND WIRELESS COMMUNICATIONS, INC.
PRO FORMA FINANCIAL INFORMATION FOR CONSUMMATED EVENTS
The following Pro Forma Statements for Consummated Events present pro forma
financial information of the Company with respect to various events (other than
the Transactions). The Pro Forma Statements for Consummated Events are further
adjusted for the effects of the Transactions as set forth on pages 81 to 85 of
this Proxy Statement/Prospectus.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet for
Consummated Events as of September 30, 1995 gives effect to (i) the October 18,
1995 contribution of wireless cable systems located in Milano, Texas and Monroe,
Louisiana and wireless cable channel rights in other markets located in Texas,
Louisiana, Alabama, Georgia and Florida to Wireless One (the "Wireless One
Transaction"), (ii) the issuance of approximately 91,000 shares of Heartland
Common Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One, (iii) the issuance by Wireless One of the $10.0 million of
Wireless One notes as part of the Wireless One Transaction and the subsequent
repayment of such notes, and (iv) the increase in the Company's equity interest
in Wireless One as part of the Wireless One Transaction as if such events had
occurred on September 30, 1995. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 give effect to (i) the
issuance of 2,415,000 shares of Heartland Common Stock in the Company's initial
public offering in April 1994, (ii) the sale in November 1994 of the Convertible
Notes, (iii) the 1994 acquisitions of wireless cable systems in Milano, Texas
and Lindsay, Oklahoma, (iv) the 1995 acquisitions of wireless cable systems in
Shaw, Kansas, Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas and Sikeston,
Missouri and wireless cable channel rights in certain non-operating markets, (v)
the 1994 and 1995 purchases by and distribution to the Company of certain
non-operating markets previously owned by RuralVision Joint Venture, (vi) the
issuance of 998,318 shares of Heartland Common Stock in 1994 and 1995 in
exchange for minority interests in certain of the Company's subsidiaries, (vii)
the issuance in July 1995 of 1,029,707 shares of Heartland Common Stock to
RuralVision Joint Venture in exchange for $20,000,000 cash, (viii) the
elimination of historical revenues and expenses associated with the wireless
cable systems located in Milano, Texas and Monroe, Louisiana which were
contributed to Wireless One in connection with the Wireless One Transaction and
(ix) the Company's equity in pro forma losses of Wireless One, as if such events
had occurred on January 1, 1994.
The pro forma statements of operations financial information does not give
effect to the sale of the Notes by the Company in April 1995. Assuming the Notes
had been issued on January 1, 1994, interest expense, amortization of related
debt issuance costs and amortization of debt discount would have increased by
approximately $14 million and $4.6 million for the year ended December 31, 1994
and the nine months ended September 30, 1995, respectively.
The Pro Forma Statements for Consummated Events and accompanying notes
should be read in conjunction with the Company's consolidated financial
statements (including notes thereto) appearing elsewhere in the Prospectus. The
Pro Forma Statements for Consummated Events do not purport to represent what the
Company's results of operations or financial position actually would have been
had such events occurred on the dates specified, or to project the Company's
results of operations or financial position for any future period or date. The
pro forma adjustments are based upon available information and certain
adjustments that management believes are reasonable. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the Pro Forma Statements for Consummated Events.
F-36
<PAGE> 1321
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET FOR CONSUMMATED EVENTS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
WIRELESS
HISTORICAL ONE HEARTLAND
HEARTLAND TRANSACTION PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 37,155,064 $10,000,000(B) $ 47,155,064
Restricted investments....................... 11,669,874 -- 11,669,874
Net assets held for cash sale or exchange.... 9,200,000 (7,000,000)(B) 2,200,000
Other current assets......................... 3,389,470 (354,189)(A) 3,035,281
------------ ----------- ------------
Total current assets............... 61,414,408 2,645,811 64,060,219
Systems and equipment, net................... 46,027,017 (2,658,065)(A) 43,368,952
Leased license investment, net............... 64,726,389 (4,244,113)(A) 60,482,276
Investment in Wireless One................... -- 14,044,155(A) 14,602,442
10,000,000)(B)
2,000,000(C)
8,558,287(D)
Notes receivable............................. -- --
Excess of cost over fair value of net assets
acquired................................... 4,470,286 4,470,286
Restricted investments....................... 13,077,340 13,077,340
Net assets held for exchange................. -- --
Other assets , net........................... 10,435,034 10,435,034
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt............ $ 616,610 $ $ 616,610
Other current liabilities.................... 10,244,363 (113,732)(A) 10,130,631
------------ ----------- ------------
Total current
liabilities...................... 10,860,973 (113,732) 10,747,241
Long-term debt, less current portion......... 139,428,429 139,428,429
Deferred income taxes........................ 1,287,560 (98,480)(A) 1,189,080
Other liabilities............................ 279,695 279,695
Stockholders' equity......................... 48,293,817 2,000,000(C) 58,852,104
8,558,287(D)
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-37
<PAGE> 1322
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues.................................................... $ 2,229,494 $ 5,472,554(E) $ (111,225)(M) $ 7,590,823
---------- ------------ ----------- -----------
Operating expenses:
Systems operations.............................................. 762,501 2,362,388(E) (55,590)(M) 4,188,612
1,119,313(F)
Selling, general and administrative............................. 4,183,307 2,300,261(E) (105,599)(M) 6,377,969
Depreciation and amortization................................... 1,097,668 1,322,786(E) (44,931)(M) 3,263,717
68,778(G)
819,416(H)
---------- ------------ ----------- -----------
Total operating expenses.................................. 6,043,476 7,992,942 (206,120) 13,830,298
---------- ------------ ----------- -----------
Operating loss............................................ (3,813,982) (2,520,388) 94,895 (6,239,475)
Interest expense.................................................. (589,767) (3,595,266)(I) (4,185,033)
Equity in losses of investees..................................... (386,985) 386,985 (J) (1,004,594)(N) (1,004,594)
Interest income and other......................................... 152,450 -- 152,450
---------- ------------ ----------- -----------
Loss before income taxes.................................. (4,638,284) (5,728,669) (909,699) (11,276,652)
Income tax benefit................................................ 1,594,963 863,849 (K) 2,458,812
---------- ------------ ----------- -----------
Net loss.................................................. $(3,043,321) $ (4,864,820) $ (909,699) $(8,817,840)
=========== ============ =========== ===========
Net loss per share................................................ $ (0.30) $ (0.70)
=========== ===========
Weighted average shares outstanding............................... 10,041,000 2,407,412 (L) 93,032 (C) 12,541,444
=========== ============ =========== ===========
</TABLE>
See accompanying notes to pro forma statements.
F-38
<PAGE> 1323
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues................................................. $ 9,292,837 $1,283,545(O) $ (632,173) (M) $ 9,944,209
------------ ----------- ---------- ------------
Operating expenses:
Systems operations........................................... 2,894,074 627,144(O) (399,687) (M) 3,371,531
250,000(P)
Selling, general and administrative.......................... 7,449,699 587,774(O) (348,447) (M) 7,689,026
Depreciation and amortization................................ 3,966,120 350,966(O) (193,962) (M) 4,396,920
256,602(Q)
17,194(G)
------------ ----------- ---------- ------------
Total operating expenses............................... 14,309,893 2,089,680 (942,096) 15,457,477
------------ ----------- ---------- ------------
Operating loss......................................... (5,017,056) (806,135) 309,923 (5,513,268)
Interest expense............................................... (8,908,459) (8,908,459)
Equity in losses of investees.................................. (128,663) 128,663(J) (1,049,583) (N) (1,049,583)
Interest income and other...................................... 1,568,946 1,568,946
------------ ----------- ---------- ------------
Loss before income taxes............................... (12,485,232) (677,472) (739,660) (13,902,364)
Income tax benefit............................................. 1,307,137 (1,307,137)(K) --
------------ ----------- ---------- ------------
Net loss............................................... $(11,178,095) $(1,984,609) (739,660) $(13,902,364)
============ =========== ========== ============
Net loss per share............................................. $(0.96) $(1.10)
====== ======
Weighted average shares outstanding............................ 11,624,000 874,895(L) 93,032 (C) 12,591,927
============ =========== ========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-39
<PAGE> 1324
HEARTLAND WIRELESS COMMUNICATIONS, INC.
NOTES TO PRO FORMA STATEMENTS FOR CONSUMMATED EVENTS
(A) Reflects the contribution of wireless cable systems located in Milano, Texas
and Monroe, Louisiana and wireless cable channel rights in other markets
located in Texas, Louisiana, Alabama, Georgia and Florida to Wireless One.
(B) Reflects the issuance by Wireless One of the $10.0 million of Wireless One
notes as part of the Wireless One Transaction and subsequent repayment of
such notes.
(C) Reflects the issuance of approximately 93,000 shares of Heartland Common
Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One.
(D) Reflects the increase in Heartland's equity interest in Wireless One as part
of the Wireless One Transaction as if such event had occurred on September
30, 1995. Subsequent to the Wireless One Transaction, Heartland's equity
interest in Wireless One was approximately 26.6%.
(E) Reflects the historical revenues and expenses associated with the
acquisitions of wireless cable systems in Milano, Texas in December 1994,
Lindsay, Oklahoma in December 1994, Shaw, Kansas in January 1995, Lubbock,
Texas in May 1995, Lykens, Ohio in July 1995, Paragould, Arkansas in July
1995, and Sikeston, Missouri in July 1995, until the respective acquisition
dates of such systems.
(F) Reflects the incremental lease rental payments associated with the 1994 and
1995 purchases by and distribution to Heartland of certain non-operating
markets previously owned by RuralVision Joint Venture.
(G) Reflects incremental amortization of the excess purchase price over the fair
value of net identifiable assets acquired associated with the acquisitions
of certain minority interests. Amortization of the excess purchase price
over the fair value of net identifiable assets acquired is based on an
estimated useful life of 20 years.
(H) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Milano,
Texas, Lindsay, Oklahoma, Shaw, Kansas, Lubbock, Texas, Lykens, Ohio,
Paragould, Arkansas, and Sikeston, Missouri. The acquisition dates of each
respective system are set forth in note (E). Amortization of leased license
investment is calculated beginning with inception of service in each
respective market.
(I) Reflects incremental interest expense on $40 million of Convertible Notes
issued by Heartland in November 1994 at a rate of 9.0% and incremental
amortization of related debt issuance costs by the interest method over the
life of such notes.
(J) Reflects the reversal of equity in losses in RuralVision Joint Venture due
to the termination of such venture in January 1995 and acquisition of such
venture's markets by Heartland.
(K) Reflects the adjustment to income tax benefit related to pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable differences.
(L) Reflects the incremental increase in weighted average shares of Heartland
Common Stock outstanding related to the issuance of 2,415,000 shares in
Heartland's initial public offering in April 1994, the exchange of 694,280
and 304,038 shares for minority interests in certain of the Company's
subsidiaries in 1994 and 1995, respectively, and the issuance of 1,029,707
shares in July 1995 to RuralVision Joint Venture in exchange for
$20,000,000 cash.
(M) Reflects the elimination of historical revenues and expenses associated with
the wireless cable systems located in Milano, Texas and Monroe, Louisiana
which were contributed to Wireless One.
F-40
<PAGE> 1325
(N) Reflects Heartland's equity in pro forma losses of Wireless One as if the
Wireless One Transaction had occurred on January 1, 1994.
(O) Reflects the historical revenues and expenses associated with the wireless
cable systems in Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas, and
Sikeston, Missouri until their respective acquisition dates. The
acquisition dates of each respective system are set forth in note (E).
(P) Reflects the incremental lease rental payments associated with the 1995
purchases by and distribution to the Company of certain non-operating
markets previously owned by RuralVision Joint Venture.
(Q) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Lubbock,
Texas, Lykens, Ohio, Paragould, Arkansas, and Sikeston, Missouri. The
acquisition dates of each respective system are set forth in note (E).
Amortization of leased license investment is calculated beginning with
inception of service in each respective market.
F-41
<PAGE> 1326
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
<PAGE> 1327
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 11, 1995
BETWEEN
CABLEMAXX, INC.
(A DELAWARE CORPORATION)
AND
HEARTLAND MERGER SUB 2, INC.
(A DELAWARE CORPORATION)
AND
HEARTLAND WIRELESS COMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
<PAGE> 1328
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1. THE MERGER................................................................... 1
1.1 The Merger.................................................................. 1
1.2 Effect of the Merger........................................................ 1
1.3 Closing..................................................................... 4
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF CABLEMAXX.................................. 4
2.1 Organization; Good Standing; Listing........................................ 4
2.2 Subsidiaries................................................................ 4
2.3 Capitalization.............................................................. 5
2.4 Authority; Enforceability; Non-Contravention................................ 5
2.5 Financial Statements........................................................ 5
2.6 Taxes....................................................................... 6
2.7 Property.................................................................... 6
2.8 Receivables................................................................. 7
2.9 Contracts................................................................... 7
2.10 FCC Matters................................................................. 8
2.11 Insurance................................................................... 9
2.12 Litigation.................................................................. 10
2.13 Registration Rights......................................................... 10
2.14 Key-Person Insurance........................................................ 10
2.15 Certain Activities and Services............................................. 10
2.16 Governmental Permits........................................................ 10
2.17 Compliance With Laws........................................................ 10
2.18 Environmental Matters....................................................... 10
2.19 Intellectual Property....................................................... 10
2.20 Liens....................................................................... 11
2.21 Regulatory Compliance....................................................... 11
2.22 Interference................................................................ 11
2.23 Employee Plans.............................................................. 11
2.24 Finder's Fees............................................................... 12
2.25 Copyright Act............................................................... 12
2.26 Programming Agreements...................................................... 12
2.27 SEC Filings................................................................. 12
2.28 Directors, Officers and Employees........................................... 13
2.29 Bank Accounts, etc.......................................................... 13
2.30 Certain Claims.............................................................. 13
2.31 Site Leases and Site Options................................................ 13
2.32 Rule 145 Affiliates......................................................... 13
2.33 Wireless Cable Television Systems; Subscribers.............................. 13
2.34 Further Representation...................................................... 13
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MERGERSUB AND HEARTLAND....................
13
3.1 Organization and Good Standing.............................................. 13
3.2 Authority; Enforceability; Non-Contravention................................ 13
3.3 Litigation.................................................................. 14
3.4 Governmental Consents and Approvals......................................... 14
3.5 Capitalization.............................................................. 14
3.6 Financial Statements........................................................ 14
</TABLE>
A-i
<PAGE> 1329
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.7 SEC Filings................................................................. 15
3.8 Finder's Fees............................................................... 15
3.9 Further Representation...................................................... 15
ARTICLE 4. COVENANTS OF CABLEMAXX....................................................... 15
4.1 Operation Prior to the Closing Date......................................... 15
4.2 Estoppel Certificates....................................................... 16
4.3 Renewal or Extension of FCC Authorizations.................................. 16
4.4 No Solicitation............................................................. 17
ARTICLE 5. ADDITIONAL AGREEMENTS........................................................ 17
5.1 Shareholders Meeting........................................................ 17
5.2 Registration Statement and Proxy Statement; Listing of Heartland Common
Shares...................................................................... 18
5.3 Access...................................................................... 18
5.4 Compliance with Securities Act; Registration Rights Agreement............... 18
5.5 Stock Options............................................................... 19
5.6 Warrants.................................................................... 19
5.7 Reasonable Efforts.......................................................... 19
5.8 Public Announcements........................................................ 20
5.9 Notification of Certain Matters............................................. 20
5.10 Letters of CableMaxx's Accountants.......................................... 20
5.11 Hart-Scott-Rodino Act Filing................................................ 20
5.12 SEC Filings................................................................. 20
5.13 Termination of Certain Agreements........................................... 20
5.14 Sale of Salt Lake City Market............................................... 20
5.15 Exhibits.................................................................... 21
5.16 Use of Proceeds from Sublease/Option Agreement.............................. 21
5.17 Indemnification............................................................. 21
5.18 Repayment of Indebtedness................................................... 21
5.19 Net Liabilities............................................................. 22
5.20 Resignation of Directors of CableMaxx....................................... 22
5.21 Heartland Loan.............................................................. 22
5.22 Interference Resolution..................................................... 22
ARTICLE 6. CONDITIONS PRECEDENT TO MERGER............................................... 22
6.1 Registration Statement...................................................... 22
6.2 No Order.................................................................... 22
6.3 Other Approvals............................................................. 22
6.4 Lender's Consents........................................................... 22
6.5 Fairness Opinions........................................................... 22
ARTICLE 7. CONDITIONS PRECEDENT TO CLOSING BY HEARTLAND AND MERGERSUB...................
23
7.1 Stockholder Approval........................................................ 23
7.2 Representations and Warranties.............................................. 23
7.3 CableMaxx Documents......................................................... 23
7.4 No Material Adverse Change.................................................. 23
7.5 Dissenters' Rights.......................................................... 23
7.6 Accountant's Consent Letter................................................. 23
7.7 CableMaxx Obligations Performed............................................. 23
7.8 Satisfaction or Waiver of Conditions Precedent of CableMaxx................. 23
7.9 Non-Competition............................................................. 23
7.10 Terminal Price.............................................................. 23
7.11 Audit Results............................................................... 24
</TABLE>
A-ii
<PAGE> 1330
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY CABLEMAXX................................. 24
8.1 Stockholder Approval........................................................ 24
8.2 Representations and Warranties.............................................. 24
8.3 Heartland and/or MergerSub Documents........................................ 24
8.4 Satisfaction or Waiver of Conditions Precedent of Heartland and MergerSub... 24
8.5 Heartland and MergerSub Obligations Performed............................... 24
8.6 No Material Changes......................................................... 24
8.7 Terminal Price.............................................................. 25
ARTICLE 9. TERMINATION; ADJUSTMENTS TO MERGER CONSIDERATION............................. 24
9.1 Termination................................................................. 24
9.2 Termination by CableMaxx.................................................... 24
9.3 Termination by Heartland or MergerSub; Adjustment to Merger Consideration... 24
9.4 Termination Resulting from Acquisition Proposals............................ 25
9.5 Effect of Termination....................................................... 25
ARTICLE 10. DEFINITIONS................................................................. 25
10.2 Defined Terms............................................................... 31
ARTICLE 11. MISCELLANEOUS............................................................... 31
11.1 Expenses of the Transaction................................................. 31
11.2 Further Assurances.......................................................... 31
11.3 Notices..................................................................... 31
11.4 No Modification Except in Writing........................................... 32
11.5 Entire Agreement............................................................ 32
11.6 Severability................................................................ 32
11.7 Assignment.................................................................. 32
11.8 Publicity; Announcements.................................................... 32
11.9 Choice of Law............................................................... 32
11.10 Captions; Construction...................................................... 32
11.11 Schedules; Exhibits......................................................... 32
11.12 Counterparts................................................................ 32
11.13 No Survival................................................................. 32
</TABLE>
A-iii
<PAGE> 1331
AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
is made and entered into as of the 11th day of September, 1995, by and among
CABLEMAXX, INC., a Delaware corporation ("CableMaxx"), HEARTLAND MERGER SUB 2,
INC., a Delaware corporation ("MergerSub"), and HEARTLAND WIRELESS
COMMUNICATIONS, INC., a Delaware corporation ("Heartland").
WITNESSETH:
WHEREAS, the respective Boards of Directors of CableMaxx, MergerSub and
Heartland have approved the merger of MergerSub with and into CableMaxx pursuant
and subject to the terms and conditions of this Agreement, whereby each issued
and outstanding share of common stock, par value $.01 per share, of CableMaxx
("CableMaxx Common Share") will be converted into the right to receive the
Conversion Amount (as hereinafter defined);
WHEREAS, CableMaxx, MergerSub and Heartland have previously executed the
Agreement and Plan of Merger, also dated as of the date hereof ("Original
Agreement"), and desire to amend the Original Agreement to provide for the
extension of certain dates and a loan from Heartland to CableMaxx as further
provided herein;
WHEREAS, CableMaxx, MergerSub and Heartland desire to make certain
representations, warranties and agreements in connection with the Merger and
also to set forth the various conditions to the Merger;
WHEREAS, the Board of Directors of CableMaxx, MergerSub and Heartland have
adopted resolutions approving this Agreement;
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 10 hereof.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows: ARTICLE 1. THE MERGER
1.1 THE MERGER. At the Effective Time, MergerSub will merge with and into
CableMaxx (the "Merger") in accordance with the terms and conditions of this
Agreement. CableMaxx shall be the corporation surviving the Merger (the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware. The Merger shall have the effects specified under the DGCL.
1.2 EFFECT OF THE MERGER.
(A) EFFECTIVE TIME. At the Effective Time, subject in all instances to
each of the terms, conditions, provisions and limitations contained in this
Agreement, (i) MergerSub will merge with and into CableMaxx by the filing
with the Secretary of the State of Delaware of a Certificate of Merger;
(ii) each CableMaxx Common Share outstanding at the Effective Time, by said
occurrence and with no further action on the part of the holder thereof,
shall be transformed and converted into the right to receive, upon
surrender of a certificate representing such CableMaxx Common Share
("Certificate"), the Conversion Amount, without interest or any similar
payment thereon or with respect thereto; (iii) each share of common stock
of MergerSub outstanding prior to the Merger will, by said occurrence and
with no further action on the part of the holder thereof, be transformed
and converted into one share of common stock of the Surviving Corporation,
so that thereafter Heartland will be the sole and exclusive owner of equity
securities of the Surviving Corporation; and (iv) the Surviving Corporation
shall be the owner of all of the business, assets, rights and other
attributes thereto of, or held by, either CableMaxx or MergerSub.
(B) CONVERSION AMOUNT. On the Closing Date, each outstanding CableMaxx
Common Share shall be converted into the right to receive the number of
Heartland Common Shares (the "Conversion
A-1
<PAGE> 1332
Amount") equal to (i) Merger Consideration divided by (ii) the product of
(A) the number of CableMaxx Common Shares outstanding at the Effective
Time, multiplied by (B) the Closing Share Price; subject to each party's
respective right to terminate this Agreement as set forth in Section 9.2 or
9.3, as applicable, for the failure of the applicable condition precedent
to the Merger set forth in Section 7.13 or 8.7, as applicable, if the
Terminal Price is either greater than the Maximum Termination Price or less
than the Minimum Termination Price.
(C) CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
certificate of incorporation of the Surviving Corporation shall be the
certificate of incorporation of Merger Sub immediately prior to the
Effective Time; provided that the provisions in such certificate relating
to director and officer indemnification shall be substantially the same as
the provisions currently contained in the certificate of incorporation of
CableMaxx.
(D) BYLAWS OF THE SURVIVING CORPORATION. The bylaws of the Surviving
Corporation shall be the bylaws of MergerSub immediately prior to the
Effective Time; provided that the provisions in such bylaws relating to
director and officer indemnification shall be substantially the same as the
provisions currently contained in the bylaws of CableMaxx.
(E) BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
board of directors and officers of MergerSub immediately prior to the
Effective Time shall be the board of directors and the officers of the
Surviving Corporation, respectively, immediately upon the Effective Time,
and such persons shall serve in such positions for the respective terms
provided by law or in the bylaws of the Surviving Corporation and until
their respective successors are elected and qualified.
(F) HEARTLAND TO ESTABLISH ESCROW. Harris Trust Company of New York
shall act as exchange agent hereunder (the "Exchange Agent"). In the event
Harris Trust Company of New York is unable or unwilling to act as the
Exchange Agent, CableMaxx and Heartland shall, upon mutual agreement, seek
to select a comparable party to act as Exchange Agent. Heartland Common
Shares shall be held by the Exchange Agent pursuant to the terms of an
Exchange Agreement (the "Exchange Agreement") in the form attached hereto
as Exhibit 1.2(f) hereto. Immediately prior to the Effective Time,
Heartland shall deposit, or cause to be deposited, with the Exchange Agent,
in trust for the holders of CableMaxx Common Shares the aggregate
Conversion Amount (together with cash in an amount sufficient to be issued
in lieu of fractional shares) issuable pursuant to Section 1.2(b) in
exchange for outstanding CableMaxx Common Shares (the "Exchange Fund").
(G) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of CableMaxx
Common Shares a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon actual delivery of the Certificates to the Exchange Agent
and shall contain instructions for use in effecting the surrender of the
Certificates in exchange for the Conversion Amount). Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Certificate shall
receive in exchange therefor the Conversion Amount for the CableMaxx Shares
represented by such Certificate, and the Certificate so surrendered shall
forthwith be canceled. Until surrendered as contemplated by this Section
1.2(g), each Certificate shall, at and after the Effective Time, be deemed
to represent only the right to receive, upon surrender of such Certificate,
the Conversion Amount with respect to each CableMaxx Common Share
represented thereby in accordance with the terms of this Agreement.
(H) DIVIDENDS; TRANSFER TAXES. No dividends or other distributions
that are declared on or after the Effective Time on Heartland Common Shares
or are payable to the holders of record of Heartland Common Shares on or
after the Effective Time will be paid to persons entitled by reason of the
Merger to receive Heartland Common Shares until such persons surrender
their Certificates, as provided in this Article 1. Subject to the effect of
applicable law, there shall be paid to the record holder of Heartland
Common Shares (i) at the time of such surrender or as promptly as
practicable thereafter, the amount of any dividends or other distributions
theretofore paid with respect to whole Heartland Common Shares and having a
record date on or after the Effective Time and a payment date prior to such
surrender and
A-2
<PAGE> 1333
(ii) at the appropriate payment date or as promptly as practicable
thereafter, the amount of dividends or other distributions payable with
respect to Heartland Common Shares and having a record date on or after the
Effective Time but prior to surrender and a payment date subsequent to
surrender. In no event shall the person entitled to receive such dividends
or other distributions be entitled to receive interest on such dividends or
other distributions. If any dividends, cash in lieu of fractional shares or
Heartland Common Shares are 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
Exchange Agent any transfer or other taxes required by reason of the
issuance of Heartland Common Shares in a name other than that of the
registered holder of the Certificate surrendered or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(I) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional Heartland Common Shares shall be issued upon the surrender for
exchange of Certificates pursuant to this Article 1, and, except as
provided in this Section 1.2(i), no dividend or other distribution, stock
split or interest shall relate to any such fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder of Heartland. In lieu of any fractional
security, each holder of CableMaxx Common Shares who would otherwise have
been entitled to a fraction of a Heartland Common Share upon surrender of
Certificates for exchange pursuant to this Article 1 will be paid an amount
in cash (without interest) equal to the value of the fractional share based
upon the Closing Share Price. Any such payment of cash in lieu of
fractional Heartland Common Shares shall be delivered to each former holder
of CableMaxx Common Shares by check concurrent with the delivery of the
portion of the Conversion Amount represented by Heartland Common Shares.
(J) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Common Shares which
remain undistributed to the former holders of CableMaxx Common Shares for
six (6) months after the Effective Time shall be delivered to Heartland,
upon demand of Heartland, and any former holders of CableMaxx Common Shares
who have not theretofore complied with this Article 1 shall thereafter look
only to the Surviving Corporation and Heartland for payment of their claim
for the Conversion Amount into which such CableMaxx Common Shares are
convertible, any cash in lieu of fractional Heartland Common Shares, and
any dividends or distributions with respect to Heartland Common Shares.
(K) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All Heartland Common
Shares issued, and all cash paid pursuant to this Section 1.2, upon the
surrender for exchange of Certificates in accordance with the terms hereof,
shall be deemed to have been issued or paid, as the case may be, in full
satisfaction of all rights pertaining to the CableMaxx Common Shares.
(L) CLOSING OF CABLEMAXX TRANSFER BOOKS. At the Effective Time, the
stock transfer books of CableMaxx shall be closed and no transfer of
CableMaxx Common Shares shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall
be canceled and exchanged as provided in this Article 1.
(M) FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties
or assets of CableMaxx, or (ii) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors
or their designees shall be authorized to execute and deliver, in the name
and on behalf of each such corporation, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of each of
such corporations, all such other acts and things necessary, desirable or
proper to vest, perfect or confirm its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or
assets of such corporations and otherwise to carry out the purposes of this
Agreement.
A-3
<PAGE> 1334
(N) CERTAIN ADJUSTMENTS. The Closing Share Price, Terminal Price,
Maximum Termination Price, Minimum Termination Price, Conversion Amount
and/or number of Heartland Common Shares, as applicable, to be issued in
connection with the Merger shall be subject to appropriate adjustment in
the event of a stock split, stock dividend, cash dividend or distribution,
asset dividend or distribution or other corporate distribution,
reorganization or recapitalization subsequent to the date hereof on or
prior to the Effective Time.
1.3 CLOSING. The Closing of the Merger (the "Closing") shall take place at
10:00 a.m. on a date (the "Closing Date") to be specified by the parties, which
shall be no later than the fifth (5th) business day after the satisfaction or
waiver of the conditions set forth in Articles 6, 7 and 8 hereof, unless another
date or place is agreed to in writing by the parties hereto, at the offices of
Arter, Hadden, Johnson & Bromberg, Dallas, Texas, or some other mutually
agreeable location in Dallas, Texas; provided that the Closing Date shall occur
on or before February 29, 1996.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF CABLEMAXX.
CableMaxx hereby represents and warrants to Heartland and MergerSub that as
of the date hereof:
2.1 ORGANIZATION; GOOD STANDING; LISTING. CableMaxx is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. CableMaxx is qualified as a foreign corporation in all jurisdictions
in which it is required to qualify as a result of the conduct of its business or
ownership of its properties and where the failure to be so qualified would have
a Material Adverse Effect, which jurisdictions are set forth in Schedule 2.1.
The CableMaxx Common Shares are currently quoted and traded on the NASDAQ-NMS.
CableMaxx is in compliance with the NASDAQ-NMS listing standards as promulgated
by the National Association of Securities Dealers, Inc., and has not received
any notices and is not aware of any circumstances which may adversely affect
such listing.
2.2 SUBSIDIARIES. CableMaxx (Texas), Inc. ("CM Texas") is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware. CM Texas is qualified as a foreign corporation in all
jurisdictions in which it is required to qualify as a result of the conduct of
its business or ownership of its properties and where the failure to be so
qualified would have a Material Adverse Effect, which jurisdictions are set
forth in Schedule 2.2. Supreme Cable Metroplex, Inc. ("SCM") is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Texas. SCM is qualified as a foreign corporation in all jurisdictions
in which it is required to qualify as a result of the conduct of its business or
ownership of its properties and where the failure to be so qualified would have
a Material Adverse Effect, which jurisdictions are set forth in Schedule 2.2. CM
Texas and SCM are the only Subsidiaries of CableMaxx. CableMaxx owns directly,
free and clear of liens, all outstanding shares of CM Texas, and all such shares
are validly issued, fully paid, non-assessable and not subject to preemptive
rights, and CM Texas owns directly, free and clear of liens, all outstanding
shares of SCM, and all such shares are validly issued, fully paid,
non-assessable and not subject to preemptive rights. Except as set forth on
Schedule 2.2,there are no outstanding subscriptions, options, warrants, calls,
conversion or exchange rights, commitments or agreements of any character
obligating any Subsidiary to issue, deliver or sell additional shares of its
capital stock or equity interests of any class or any securities convertible
into or exchangeable for any such capital stock or equity interests, and there
are no rights of first refusal, transfer restrictions or similar rights or
obligations with respect to the ownership interests of CableMaxx in any
Subsidiary. Except as set forth on Schedule 2.2, CableMaxx does not own,
directly or indirectly, any shares of stock or any other equity or long-term
debt securities of any corporation or have any equity interest in any firm,
partnership, Joint Venture, association or other Person.
2.3 CAPITALIZATION. The authorized capital stock of CableMaxx as of the
date of this Agreement, consists of 20,000,000 shares of common stock, $.01 par
value per share, of which 9,507,311 are issued and outstanding, and 5,000,000
shares of preferred stock, $.01 par value per share, of which no shares have
been issued. Schedule 2.3 sets forth as of the date of this Agreement, a true
and correct list of all outstanding options, warrants, calls, puts, commitments
and other rights to purchase, or securities or other rights convertible or
exchangeable into, capital stock of CableMaxx indicating the record and, to the
Knowledge of
A-4
<PAGE> 1335
CableMaxx, the beneficial owner thereof, the exercise, conversion or exchange
price and period thereof, the term and any vesting or other conditions thereof.
All securities issued or issuable by CableMaxx or any Subsidiary have been paid
for and delivered in accordance with the terms of applicable agreements or
instruments, duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by reason of being such
holders; none of such securities were issued in violation of the preemptive
rights of any holder of any security of CableMaxx or any Subsidiary or any
similar rights granted by CableMaxx or any Subsidiary or applicable laws.
2.4 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. CableMaxx and each
Subsidiary have the corporate power and authority to conduct the business and
activities conducted by it or them and to own or lease the assets owned or
leased by it or them. CableMaxx has the corporate power and authority (subject
to shareholder approval as set forth in Section 8.1) to execute and deliver this
Agreement and all other documents required to be executed and delivered by
CableMaxx hereunder, to consummate the transactions hereby contemplated, and to
take all other actions required to be taken by CableMaxx pursuant to the
provisions hereof. This Agreement and all other documents required to be
executed and delivered by CableMaxx hereunder have been duly authorized by all
corporate action necessary on the part of CableMaxx (subject to shareholder
approval as set forth in Section 8.1) and have been duly or will when executed
and delivered be duly executed and delivered by CableMaxx and constitute the
legal, valid and binding obligations of CableMaxx, enforceable against CableMaxx
in accordance with their terms. Except as disclosed in Schedule 2.4, neither the
execution nor the delivery of this Agreement and all other documents required to
be executed and delivered by CableMaxx hereunder or the consummation of the
transactions hereby contemplated by CableMaxx (i) conflicts with or constitutes
any violation or breach of the Certificate of Incorporation or the Bylaws of
CableMaxx; (ii) constitutes any violation or breach of, or gives any other
Person any rights (including any right of acceleration, termination or
cancellation) under, any Material Contract, License, Channel Lease, Governmental
Permit, or other document or agreement to which CableMaxx or any Subsidiary is a
party; or (iii) constitutes a violation of any Order or Legal Requirement; or
(iv) will result in the creation of any Lien on any of the assets or properties
of CableMaxx or any Subsidiary.
2.5 FINANCIAL STATEMENTS. (A) Schedule 2.5 lists the audited financial
statements of CableMaxx as of, and for the fiscal years ending June 30, 1992,
1993 and 1994 and the unaudited financial statement for the fiscal year ending
June 30, 1995, including the balance sheets and related statements of income and
expense (collectively, the "Financial Statements"). The Financial Statements and
all notes thereto are complete and correct, in accordance with the books and
records of CableMaxx and each Subsidiary, fairly present the financial position
and results of operations of CableMaxx and each Subsidiary as of the date
thereof and for the periods referenced therein, all in accordance with GAAP, and
have been delivered to Heartland.
(B) Since June 30, 1995, except as set forth on Schedule 2.5, (i)
CableMaxx and the Subsidiaries have conducted its or their businesses in
the ordinary, regular course thereof; (ii) there has been no change in the
financial condition of CableMaxx or any Subsidiary which has had a Material
Adverse Effect, or any damage, destruction or loss, not covered by
insurance, which has had a Material Adverse Effect, or any change in the
nature, or in the condition, of the businesses of CableMaxx and the
Subsidiaries which has had a Material Adverse Effect; or any event,
condition or state of facts or any character whatsoever, the occurrence of
which has had a Material Adverse Effect; and (iii) except in the ordinary
and regular course of its or their businesses, neither CableMaxx nor any
Subsidiary has made any dispositions of any of assets; disposed of any
records relating to assets or properties; borrowed any funds; incurred,
assumed or become subject to any obligation or liability, indebtedness for
borrowed money, absolute or contingent; paid, discharged, or satisfied any
claim, liability or obligation, absolute, accrued, contingent or otherwise;
canceled any debts owed to it or them; waived any claims or rights of
value; granted or extended any power of attorney; or acted as any
guarantor.
(C) Neither CableMaxx nor any Subsidiary has any material Liabilities
or Severance Obligations, except as described in the Financial Statements
or otherwise set forth on Schedule 2.5. Except as set forth on Schedule
2.5, there has been no change in the business, financial condition,
operations or prospects of CableMaxx or any Subsidiary, any repurchase of
any capital stock of CableMaxx, any dividend declared
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or paid or any distribution made by CableMaxx with respect to such capital
stock, since June 30, 1995 which has had or reasonably could be anticipated
to have a Material Adverse Effect.
2.6 TAXES.
(A) All federal, state, county, local and foreign taxes, including
without limitation, income, excise, payroll, sales, use, unemployment,
social security, occupation, franchise, property, and other taxes, duties
or charges (collectively, "Taxes") levied, assessed, or imposed upon
CableMaxx or any Subsidiary or its or their businesses, assets or
properties as of such date have been duly and fully paid or have been
adequately provided for on the Balance Sheet of CableMaxx or any Subsidiary
as of June 30, 1995. In addition, all filings, returns, and reports with
respect to Taxes required by any foreign or domestic law or regulation to
be filed by CableMaxx or any Subsidiary on or prior to the date hereof have
been duly and timely filed. Except as set forth in Schedule 2.6, there are
no agreements, waivers or other arrangements (oral or written) providing
for extensions of time with respect to the assessment or collection of
unpaid Taxes, nor, except as set forth on Schedule 2.6, are there any
actions, suits, proceedings, inquiries, investigations or claims of any
nature or kind whatsoever now pending or, to the Knowledge of CableMaxx,
threatened, against CableMaxx or any Subsidiary with respect to any such
returns or reports, or any such Taxes, or any matters under discussion with
any federal, state, county, local or other authority relating to Taxes.
(B) Except as otherwise disclosed on Schedule 2.6, (i) CableMaxx and
each Subsidiary has made all payments of estimated Taxes required to be
made under Section 6655 of the Code and any comparable provisions of state,
local, federal or other law; (ii) all amounts of any Taxes, including
payroll and federal excise taxes, that are required to be collected or
withheld by CableMaxx or any Subsidiary have been duly collected or
withheld, and have been duly remitted or deposited in accordance with law;
(iii) no power of attorney has been granted by CableMaxx or any Subsidiary
that is currently in force with respect to any matter relating to Taxes;
(iv) none of CableMaxx nor any Subsidiary has any deferred gain or loss (A)
arising from deferred inter-company transactions, within the meaning of
Treas. Regs. Section 1.1502-13 or any successor regulations, or (B) with
respect to the stock or obligations of any member of the affiliated group
of which CableMaxx is the common parent, as described in Treas. Regs.
Section 1.1502-14; (v) no taxes relating to periods ending before June 30,
1994 were paid by or charged to any Subsidiary on or after such date; (vi)
neither CableMaxx nor any Subsidiary is required to include in income any
adjustment pursuant to Section 481(a) of the Code (or any similar provision
of law or regulations) by reason of a change in accounting method, nor is
the IRS or any other taxing authority considering any such change in
accounting method; (vii) neither CableMaxx nor any Subsidiary has disposed
of any property which has been accounted for Tax purposes under the
installment method; (viii) neither CableMaxx nor any Subsidiary owns any
interest in any entity which is characterized as a partnership for federal
income tax purposes; (ix) neither CableMaxx nor any Subsidiary would be
liable for any increase in Tax under Section 47 of the Code, were such
entity to dispose of all of its assets on the Closing Date; (x) neither
CableMaxx nor any Subsidiary will have any "non-recaptured net Section 1231
losses," within the meaning of Section 1231(c) of the Code on the Closing
Date; (xi) no election under Section 1504(d) of the Code has been made with
respect to any Subsidiary; and (xii) no claim or assertion has been made
against CableMaxx or any Subsidiary by any tax authority in any
jurisdiction in which no tax return has been filed by CableMaxx or said
Subsidiary that it may be subject to Tax in that jurisdiction or otherwise
is required to file a tax return.
(C) CableMaxx has a regular tax operating loss carryforward from its
last filed federal corporate income tax return for the year ending June 30,
1994, in the approximate amount of $9.5 million. CableMaxx represents that
it has not undergone a Section 382 ownership change which would limit the
ability to utilize these losses.
2.7 PROPERTY.
(A) Schedule 2.7(a) contains a general description, by category, as of
the date thereof, all of the Equipment, except small hand tools, office
equipment and supplies, and similar equipment.
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(B) Schedule 2.7(b) lists all Facilities, designating whether such
Facility is owned or leased, including whether there is any
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site.
(C) CableMaxx and each Subsidiary own and hold good title, free and
clear of any Liens, to all of the owned Equipment and owned Facilities,
except as set forth on Schedule 2.7(c) or 2.9, and all of such Equipment
and Facilities necessary to the conduct of the business of CableMaxx and
each Subsidiary at their present levels of operation is in serviceable
condition, conforms to or complies in all material respects with all
applicable Orders and Legal Requirements and constitutes all of the
Equipment and Facilities that are used, usable, held for use in or in
conjunction with or otherwise associated with, required or necessary to the
business operations of CableMaxx and each Subsidiary.
2.8 RECEIVABLES. All accounts receivable of CableMaxx and each Subsidiary
reflected in the Balance Sheet of CableMaxx or each Subsidiary, as applicable,
as of June 30, 1995, represent valid obligations arising from sales made in the
ordinary and regular course of the Business. The accounts receivable reflected
in the Balance Sheet of CableMaxx or each Subsidiary, as applicable, as of June
30, 1995, are net of reserves therefor, valid receivables that have arisen in
the ordinary course of the operations of CableMaxx and each Subsidiary and, are
net of reserves therefor, collectible and not subject to setoff or counterclaim,
nor to any agreement to reduce or discount.
2.9 CONTRACTS.
(A) Except as set forth elsewhere on Schedules 2.10, 2.11, 2.26 or
2.31, Schedule 2.9 sets forth a complete and correct list of the following
types of contracts to which CableMaxx or any Subsidiary is a party or is
otherwise bound (the "Material Contracts"):
(i) all contracts of a character required to be described in
CableMaxx's Annual Report on Form 10-K for the fiscal year ended June
30, 1994 or Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1995;
(ii) all Channel Leases;
(iii) all contracts or agreements of any kind with any director,
executive officer or other officer of CableMaxx or any Subsidiary;
(iv) any loan agreements, lease agreements, notes, mortgages,
indentures, guarantees, security agreements, letters of credit,
financing documents or other agreements for the borrowing or lending of
money by CableMaxx or any Subsidiary in excess of $25,000;
(v) all agreements relating to the acquisition of any Subsidiary;
(vi) all Joint Venture agreements;
(vii) all agreements involving an aggregate amount in excess of
$50,000 to provide goods or perform services or for the payment for
goods or services;
(viii) any commitment or agreement for any capital expenditure or
leasehold improvement in excess of $25,000;
(ix) any agreement, contract or commitment limiting or restraining
CableMaxx or any Subsidiary from engaging or competing in any manner or
in any business;
(x) all programming agreements;
(xi) all agreements with respect to resolution of interference
issues;
(xii) all collective bargaining agreements, employment agreements,
consulting agreements and severance agreements;
(xiii) all agreements for the offer or sale of securities;
(xiv) all agreements with investment bankers or brokers;
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(xv) all agreements under which either CableMaxx or any Subsidiary
is entitled to indemnification and under which the potential claims
subject to indemnification could reasonably be expected to exceed
$25,000;
(xvi) all agreements to which either CableMaxx or any Subsidiary is
a party and involving an aggregate amount in excess of $10,000 under
which, since January 1, 1994, either CableMaxx or any Subsidiary or the
other party to the agreement has, or has been alleged to have, breached,
failed to perform under or otherwise failed to comply with the terms of,
such agreement;
(xvii) any agreement with any Governmental Authority;
(xviii) any material agreement, contract or commitment not made in
the ordinary course of business; and
(xix) any agreements or other arrangements with any Affiliates of
CableMaxx or any Subsidiary (such agreements or arrangements to be
separately identified or described in such other Schedules or Schedule
2.9 as "Affiliate Agreements").
(B) True and correct copies of all the Material Contracts have been
delivered to Heartland by or on behalf of CableMaxx. Each of the Material
Contracts is valid and enforceable in accordance with its terms. Neither
CableMaxx nor any Subsidiary is in default in any material respect in the
performance, observance or fulfillment of any material obligation, covenant
or condition contained therein, and, to the Knowledge of CableMaxx, no
event has occurred which with or without the giving of notice or lapse of
time, or both, would constitute such a default thereunder.
2.10 FCC MATTERS.
(A) Schedule 2.10(a) is a true and correct list of all Channel Leases
setting forth (i) the lessor/licensee and lessee, (ii) the frequency rights
and/or Channels leased/call signal, (iii) the payments thereunder, (iv) the
term of the Channel Lease, (v) the number of Channels available for analog,
(vi) any material obligations continuing after the termination of the
Channel Lease, (vii) any material conditions that are unfulfilled under a
Channel Lease, and (viii) a summary of the obligations of the lessee under
the Channel Leases and restrictions on full time usage. Except as set forth
on Schedule 2.10(a), (i) CableMaxx and each Subsidiary have performed in
all material respects all obligations required to be performed by it under
each of the Channel Leases; (ii) all of the Channel Leases are legal, valid
and binding obligations enforceable against them in accordance with their
respective terms and in full force and effect, and there are no defaults
(or to the Knowledge of CableMaxx events which, with notice or lapse of
time or both, would constitute a default) by CableMaxx or any other party
to any such Channel Leases; (iii) Channel Leases set forth in the name of
Persons other than CableMaxx or a Subsidiary, as lessee, are identified on
Schedule 2.10(a) and have been duly and validly assigned with all requisite
consents and approvals of all parties thereto to CableMaxx or a Subsidiary,
and remain in full force and effect as if CableMaxx or a Subsidiary were
the initial "lessee" thereunder; (iv) since January 1, 1994, no default or
termination has been threatened in writing under any of the Channel Leases
by any party thereto; and (v) the Channel Leases comply in all material
respects with the Act and the FCC Rules, and each of the Channel Leases,
and all amendments thereto, to the extent required, have been filed with
and approved by the FCC.
(B) Listed in Schedule 2.10(b) are all of the Licenses and FCC
Permits, and all amendments or other pending filings thereto (except
Applications), held or leased by CableMaxx or any Subsidiary. No Licenses
or FCC Permits are held by CableMaxx or any Subsidiary, and except as set
forth on Schedule 2.10(b), no FCC Consents will be required in connection
with the Merger. All reports or other documents required to be filed with
respect to any such Licenses have been filed, except where the failure to
do so could not reasonable be anticipated to hinder the ability of
CableMaxx, any Subsidiary or the holder of any License to receive the
benefits thereof. The Licenses and the FCC Permits listed on Schedule
2.10(b), constitute all of the Authorizations held or leased by CableMaxx
and are all of the Authorizations used, useable, held for use in or in
conjunction with or otherwise associated with, required or necessary for
CableMaxx and Subsidiary to lawfully conduct its and their business
operations as
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currently conducted. Each of the Licenses and the FCC Permits, except as
otherwise expressly noted on Schedule 2.10(b), (i) is currently held by the
Person identified as the holder thereof on Schedule 2.10(b); (ii)
authorizes said holder to construct and operate a facility transmitting
video and audio programming on the Channels; (iii) is existing and in full
force and effect; and (iv) is not subject to any conditions other than such
conditions as are generally applicable to licenses and permits issued by
the FCC with respect to ITFS, MDS or MMDS Channels. There are no existing
or, to the Knowledge of CableMaxx, threatened investigations, inquiries or
proceedings by or before the FCC or other Governmental Entity which, if
adversely determined, could be reasonably anticipated to result in the
revocation, cancellation, suspension, forfeiture or material adverse
modification of any Authorization or Application.
(C) Schedule 2.10(c) indicates all Applications and all amendments or
other filings thereto. To the Knowledge of CableMaxx, the information
contained in each Application is true and correct in all material respects,
and each Person which is a signatory to an Application is authorized under
FCC rules to file such Application.
(D) Except as otherwise expressly noted on Schedule 2.10(d), CableMaxx
and each Subsidiary and, to the Knowledge of CableMaxx, the FCC Licensees
and the FCC Permittees have each submitted to the FCC, the FAA and all
other Governmental Authorities all notices, reports and other documents
which have been or are required by the Act, the FCC Rules, the FAA Rules
and other Legal Requirements, the Licenses and the FCC Permits except where
the failure to do so would not (i) have a Material Adverse Effect, or (ii)
hinder the ability of CableMaxx or any Subsidiary to fully perform its and
their material obligations under this Agreement. Except as otherwise
expressly noted on Schedule 2.10(d), no petitions to deny or, to the
Knowledge of CableMaxx, informal objections have been filed against any of
the amendments listed on Schedule 2.10(c). True and accurate copies of all
material amendments, notices, reports and other documents filed by
CableMaxx and, to the Knowledge of CableMaxx, the FCC Licensees and the FCC
Permittees with respect to the Licenses and the FCC Permits, with the FCC,
the FAA, the copyright office and other governmental authorities have been
either delivered to Heartland by CableMaxx or otherwise identified by
CableMaxx and made available for Heartland's review.
2.11 INSURANCE. Schedule 2.11 is a certificate of insurance which lists
all insurance policies held by CableMaxx and which are in full force and effect.
2.12 LITIGATION. Except as set forth on Schedule 2.12, there is no claim
or Proceeding, in each case domestic or foreign, pending or, to the Knowledge of
CableMaxx, threatened against, or involving the properties or business of
CableMaxx or any Subsidiary which (a) questions the validity of the issuance of
the capital stock of CableMaxx or any Subsidiary, this Agreement or any action
taken or to be taken by CableMaxx pursuant to or in connection with this
Agreement; (b) is required to be, and has not been so, disclosed in the filings
with the SEC by CableMaxx (and such proceedings are as summarized in such SEC
Filings accurately summarized in all material respects); (c) materially
adversely affects the Channel Leases or FCC Licenses or the operation of the
Channels and transmission facilities relating thereto and the Wireless Cable
Business; or (d) would otherwise have a Material Adverse Effect (such claims or
Proceedings being collectively referred to as the "Potential Claims").
2.13 REGISTRATION RIGHTS. Except as set forth on Schedule 2.13, no Person
has rights to the registration of any securities of CableMaxx or any Subsidiary.
2.14 KEY-PERSON INSURANCE. Neither CableMaxx nor any Subsidiary has any
key-person insurance on the life of any officer, director or employee of
CableMaxx or any Subsidiary.
2.15 CERTAIN ACTIVITIES AND SERVICES. Except as set forth on Schedule
2.15, neither CableMaxx nor any Subsidiary engages in any business other than
the Wireless Cable Business.
2.16 GOVERNMENTAL PERMITS. CableMaxx and each Subsidiary own, hold or
possess all material Governmental Permits which are necessary to entitle it to
own or lease, operate and use its assets and to carry on and conduct their
business as currently conducted, except with respect to Applications for which
Licenses have not been granted, if any.
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2.17 COMPLIANCE WITH LAWS. CableMaxx and each Subsidiary have complied in
all material respects with all applicable Legal Requirements and Orders of any
Governmental Authority having jurisdiction over it or them or its or their
operations, including, but not limited to, all material FCC Rules and any laws
(including Environmental Laws), rules or regulations regulating, if applicable,
zoning, fair and equal employment practices, the safety of the workplace, the
discharge of materials into the Environment or otherwise relating to the
protection of the Environment, antitrust, anti-monopoly or anti-competitive
activities, wages, hours, collective bargaining and the payment of withholding
and social security taxes. Except as set forth on Schedule 2.17, there are no
Orders outstanding and in effect against CableMaxx or any Subsidiary, its or
their assets, the transactions contemplated by this Agreement, or, to the
Knowledge of CableMaxx, any of the parties to Channel Leases, other than Orders
issued with respect to the wireless cable industry generally and in the normal
course of regulation, which would, individually or in the aggregate: (i) have a
Material Adverse Effect, or (ii) hinder in any material respect the ability of
CableMaxx or any Subsidiary to fully perform its or their material obligations
under this Agreement. Except as set forth in Schedule 2.17, CableMaxx has not
received any written notice or, to its Knowledge, oral notice from any Person to
the effect that, or otherwise been advised that, CableMaxx or any Subsidiary is
not in compliance with any applicable law, ordinance, regulation, building or
zoning law, and CableMaxx and each Subsidiary have no reason to reasonably
anticipate that any existing circumstances are likely to result in a violation
of any material law, statute, ordinance or regulation, the non-compliance or
partial compliance with which could reasonably be anticipated to have a Material
Adverse Effect.
2.18 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 2.18:
(A) Neither CableMaxx nor any Subsidiary, nor to the Knowledge of
CableMaxx, any predecessor thereof or anyone else, has Managed or Released
any Hazardous Substances at, on, in, to or from any property or business
now or previously owned, operated, leased, controlled, used, occupied or
conducted by CableMaxx or any Subsidiary, or any predecessor thereof in
quantities or concentrations which violate any applicable Environmental Law
such as to have a Material Adverse Effect.
(B) Neither CableMaxx nor any Subsidiary has received any request for
information, notice of claims, demand or notification that it is or may be
a potentially responsible party with respect to any investigation or
clean-up of any threatened or actual release of any Hazardous Substance,
and, to the Knowledge of CableMaxx, no environmental inspections, audits,
tests, reviews or other analysis are being conducted in relation to any
property now or previously owned, operated, leased, controlled, used,
occupied or conducted by CableMaxx or any Subsidiary.
(C) No written notification of a Release or threat of Release of a
Hazardous Substance has been filed by or on behalf of CableMaxx or any
Subsidiary in relation to any property or business now or, to the Knowledge
of CableMaxx, previously owned, operated, leased, controlled, used,
occupied or conducted by CableMaxx or any Subsidiary.
(D) There are no facts or circumstances related to environmental
matters concerning its properties or business now or previously owned,
operated, leased, controlled, used, occupied, or conducted by CableMaxx or
any Subsidiary, or any predecessor thereof, that reasonably could be
expected to lead to any future environmental claims, liabilities or
responsibilities against Heartland or against CableMaxx or any Subsidiary,
or any predecessor thereof that could reasonably be anticipated to have a
Material Adverse Effect.
2.19 INTELLECTUAL PROPERTY. Schedule 2.19 is a true and correct list of
all Intellectual Property owned or used by CableMaxx or any Subsidiary. No
person has any right to receive any royalty or similar payment arising from the
Intellectual Property. Except as set forth on Schedule 2.19, CableMaxx owns each
of said properties; has not granted to any other Person any interest in any of
said properties, as licensee or otherwise; and has filed all certificates,
affidavits and other documents, and taken all other actions, necessary to retain
its title to said properties and to keep the same in effect. None of said
properties is invalid and none infringes upon the personal or property rights of
any third party.
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2.20 LIENS. Except as set forth on Schedule 2.20, CableMaxx and each
Subsidiary have good and marketable title to all of its and their owned assets,
free and clear of all Liens, except for the lien, if any, of current Taxes not
yet due and payable and except for those assets disposed of in the ordinary
course of business.
2.21 REGULATORY COMPLIANCE. Except as otherwise expressly noted on the
Schedules attached hereto, CableMaxx and each Subsidiary, and to the Knowledge
of CableMaxx, the Licensees and the FCC Permittees, are in material compliance
with, and not in material default under or in material violation of, the Act,
the FCC Rules, the FAA Rules, the Copyright Act, the Copyright Rules, and other
Legal Requirements applicable to the Licenses or FCC Permits. Except as
otherwise expressly noted on the Schedules attached hereto, neither CableMaxx
nor any Subsidiary has received any notice of noncompliance with, default under
or violation of the Act, the FCC Rules, the FAA Rules, the Copyright Act, the
Copyright Rules, other Legal Requirements and the applicable Licenses or FCC
Permits. Except as set forth in Schedule 2.21, to the Knowledge of CableMaxx, no
condition exists or event has occurred with respect to CableMaxx or any
Subsidiary, the Licensees, the FCC Permittees, or any of the Licenses or FCC
Permits which, in itself or with giving of notice or the lapse of time or both,
would (i) constitute or result in a material violation of the Act, any FCC Rule,
any FAA Rule, the Copyright Act or the Copyright Rules; (ii) constitute a
material default in the due performance and observation of any term, covenant or
condition of any of the Licenses or FCC Permits, (iii) result in a forfeiture,
the denial, dismissal or rejection of any of the Schedule 2.10(c) or 2.10(d)
amendments, or the suspension, termination, revocation, material impairment,
material adverse modification or non-renewal of any License or FCC Permit, or
(iv) adversely affect any of the material rights of CableMaxx or any Subsidiary,
any FCC Licensee or FCC Permittee under any of the Licenses or FCC Permits.
2.22 INTERFERENCE. Except as set forth in Schedule 2.22, neither CableMaxx
nor any Subsidiary, nor to the Knowledge of CableMaxx, any other party to a
Channel Lease, has agreed to accept objectionable electrical interference to the
Channels from any source, has consented to the grant of any application filed
with the FCC that demonstrates any objectionable electrical interference to the
Channels, or has failed to timely petition to deny any application that proposes
facilities which demonstrate that they would cause objectionable electrical
interference to the Channels. Except as otherwise expressly noted on Schedule
2.22, neither CableMaxx nor any Subsidiary, nor, to the Knowledge of CableMaxx,
any FCC Licensee or FCC Permittee or any other party to a Channel Lease
Agreement, will experience interference which will materially and adversely
impact operation of the Facilities it has constructed and/or operated, or is
constructing once such Facilities are constructed and operated, or will create
interference which will materially and adversely impact the operation of other
facilities licensed by the FCC to other Persons; for purposes of this Section
2.22, interference shall be deemed to exist if within an FCC Licensee's
protected service area, the ratio of the desired signal to the undesired signal,
at the antenna input terminals of the affected receiver, is less than 45 dB,
unless frequency offset or other engineering solutions are employed.
2.23 EMPLOYEE PLANS.
(A) Schedule 2.23 sets forth a true and complete list of each
"employee benefit plan," as such term is defined in section 3(3) of the
ERISA, whether or not subject to ERISA, and each bonus, incentive or
deferred compensation, severance, termination, retention, change of
control, stock option, stock appreciation, stock purchase, phantom stock or
other equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former employee of
CableMaxx or any Subsidiary or the beneficiaries or dependents of any such
employee or former employee (such employees, former employees,
beneficiaries and dependents collectively, the "Employees") or under which
any Employee is or may become eligible to participate or derive a benefit
and that is or has been maintained or established by CableMaxx or to which
CableMaxx or any Subsidiary contributes or is or has been obligated or
required to contribute or with respect to which CableMaxx or any Subsidiary
may have any liability or obligation (collectively, the "Plans"). CableMaxx
has not communicated to any Employee any intention or commitment to modify
any Plan or to establish or implement any other employee or retiree benefit
or compensation arrangement.
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(B) All Plans conform (and at all times within the five years
preceding the date hereof have conformed) in all material respects to, and
are being administered and operated (and have at all times within the five
years preceding the date hereof been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable laws. All returns, reports and disclosure statements required to
be made under ERISA and the Code with respect to all Plans have been timely
filed or delivered. There have not been any "prohibited transactions," as
such term is defined in Section 4975 of the Code or Section 406 of ERISA
involving any of the Plans, that could subject CableMaxx or any Subsidiary
to any penalty or tax imposed under the Code or ERISA. Except as disclosed
in Schedule 2.23, neither CableMaxx nor any Subsidiary maintains or has
maintained any Plan qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code. Neither CableMaxx nor any
Subsidiary has any announced plan or legally binding commitment to create
any Plans or to materially amend or modify any existing Plan.
(C) There are no pending or, to the Knowledge of CableMaxx, threatened
claims asserted or instituted against (i) any Plans or its assets, (ii) any
fiduciary with respect to any such Plan or (iii) CableMaxx or any
Subsidiary or any of its officers, directors or employees under ERISA or
any other applicable laws and rules and regulations promulgated thereunder,
or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there any basis for such claim. To the
Knowledge of CableMaxx, the Plans are not the subject of any investigation,
audit or action by any governmental agency, including, but not limited to,
the IRS, the Department of Labor, the Equal Employment Opportunity
Commission or the Pension Benefit Guaranty Corporation ("PBGC").
2.24 FINDER'S FEES. Except as set forth on Schedule 2.24, neither
CableMaxx nor any Subsidiary has taken any action which would impose any
obligation or liability to any person for finder's fees, agent's commissions or
like payments in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
2.25 COPYRIGHT ACT. Except as set forth in Schedule 2.25, CableMaxx and
each Subsidiary have submitted all requisite notices (if any are required) under
the Copyright Act of 1976, as amended (together with all rules and regulations
thereunder, the "Copyright Act"), for the carriage of all broadcast stations as
currently carried over any of the Wireless Cable Television Systems. Except as
set forth in Schedule 2.25, CableMaxx and each Subsidiary have filed with the
Copyright Office all required documents, instruments and statements of account
and has remitted payments of all required royalty fees with respect to the
compulsory licenses provided for in Section 111 of the Copyright Act for the
carriage of broadcast signals in connection with the Wireless Cable Television
Systems. Except as set forth in Schedule 2.25, neither CableMaxx nor any
Subsidiary is liable to any Person for copyright infringement under the
Copyright Act as a result of its business operations. Except as set forth in
Schedule 2.25, there have been no unresolved inquiries received from the
Copyright Office, or, any other party, which questioned such statements of
account or any copyright royalty payments made by CableMaxx or any Subsidiary
with respect to the Wireless Cable Television Systems to which a response has
not been filed, and no claim, action or demand for copyright infringement or for
non-payment of royalties is pending or, to the Knowledge of CableMaxx,
threatened against CableMaxx or any Subsidiary with respect to the Wireless
Cable Television Systems.
2.26 PROGRAMMING AGREEMENTS. Schedule 2.26 sets forth a true and correct
list of all agreements for programming and for each programming agreement.
Except as set forth on Schedule 2.26, neither CableMaxx nor any Subsidiary is a
party to any agreements providing for the retransmission of any broadcast
signals.
2.27 SEC FILINGS. CableMaxx has previously delivered to Heartland the
CableMaxx SEC Filings. Each CableMaxx SEC Filing was timely filed with the SEC
and does not contain a misstatement of a material fact or an omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading as of the time such document was filed. Except as set
forth in Schedule 2.27, no other document or report required to have been be
filed by CableMaxx with the SEC has not been filed, and no event or transaction
has occurred prior to the date hereof which will hereafter be required to be
disclosed by CableMaxx in a Form 10-Q, Form 8-K or similar filing.
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2.28 DIRECTORS, OFFICERS AND EMPLOYEES. Schedule 2.28 sets forth a list of
all directors, officers or managers of CableMaxx and each Subsidiary. Except as
set forth on Schedule 2.28, neither CableMaxx nor any Subsidiary has any
outstanding loans or extension of credit to, or any contracts, agreements or
understandings with, any executive officer or director or member of their
immediate family or any person with which any such person has a material
relationship. Schedule 2.28 sets forth a list of (a) the names and positions of
each employee of CableMaxx and each Subsidiary who was paid an aggregate
compensation for the fiscal year ended June 30, 1995 in excess of $75,000,
together with the amount thereof; and (b) any agreements or arrangements with
any current or former employees, officers or directors that would entitle such
person to receive any compensation or other payments upon or arising from either
(i) the termination of such person's services as an employee, officer or
director or (ii) the consummation of the Merger, together with the amount
thereof (such aggregate amount referred to herein as "Severance Obligations").
CableMaxx has made available to Heartland a true and correct copy of the current
payroll which lists all employees of CableMaxx and each Subsidiary by category
of employment and salary.
2.29 BANK ACCOUNTS, ETC. Schedule 2.29 sets forth a list of all (i) bank
accounts of CableMaxx and each Subsidiary and the persons authorized to draw
thereon and the balances thereof as of July 31, 1995; (ii) safe deposit boxes of
CableMaxx and each Subsidiary and the persons who have access thereto; and (iii)
powers of attorney for tax purposes or otherwise and a summary of the terms
thereof.
2.30 CERTAIN CLAIMS. With respect to the Potential Claims listed on
Schedule 2.12, CableMaxx has previously delivered to Heartland a claim inventory
for each Potential Claim that contains copies of all material written
correspondence between CableMaxx, any Subsidiary, and the potential claimant,
and summaries of all material oral correspondence between such parties. Each
such claim inventory is true and correct in all material respects.
2.31 SITE LEASES AND SITE OPTIONS. Schedule 2.31 sets forth a true and
correct list of each Site Lease and Site Option which CableMaxx or any
Subsidiary is a party or is otherwise bound. Each Site Lease and Site Option
allows for the use and operation on the leased property of transmitters, antenna
structures, antennas and other associated facilities, and permits the
transmissions from the property of signals containing video and audio
programming.
2.32 RULE 145 AFFILIATES. The only Person deemed to be an "Affiliate" of
CableMaxx or any Subsidiary as such term is defined under Paragraphs (c) and (d)
of Rule 145 of the Securities Act (a "Rule 145 Affiliate") is Charter Wireless
Cable Holdings, L.L.C. ("CWCH").
2.33 WIRELESS CABLE TELEVISION SYSTEMS; SUBSCRIBERS. The Wireless Cable
Television Systems constitute all of the wireless cable channel rights or
pending applications to acquire wireless cable channel rights of CableMaxx.
Schedule 2.33 sets forth a true and correct list of the number of subscribers
for each Wireless Cable Television System as of August 31, 1995.
2.34 FURTHER REPRESENTATION. No representation or warranty of CableMaxx
contained in this Agreement contains any untrue statement of, or omits to state,
a material fact necessary in order to make the statements made herein, in light
of the circumstances under which they are made, not misleading. Copies of all
documents listed in the Schedules and furnished or given by CableMaxx to
Heartland or Heartland's agents are true, complete and genuine.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF MERGERSUB AND HEARTLAND.
Heartland and MergerSub each hereby represent and warrant to CableMaxx and
to the shareholders of CableMaxx, the following:
3.1 ORGANIZATION AND GOOD STANDING. Heartland is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MergerSub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it.
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Heartland has corporate power and authority (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 6.4 and 7.1) to execute and
deliver this Agreement and all other documents required to be executed by
Heartland hereunder, to consummate the transactions hereby contemplated, and to
take all other actions required to be taken by Heartland pursuant to the
provisions hereof. This Agreement and all other documents required to be
executed and delivered by Heartland hereunder have been duly authorized by all
corporate action necessary on the part of Heartland (subject to shareholder
approval and obtaining lenders' Consents as set forth in Sections 6.4 and 7.1)
and have been duly or will when executed and delivered be duly executed and
delivered by Heartland, and constitute the legal, valid and binding obligations
of Heartland enforceable against Heartland in accordance with their terms.
Neither the execution nor the delivery of this Agreement and all the documents
required to be executed and delivered by Heartland hereunder or the consummation
of the transactions hereby contemplated by Heartland conflict with or constitute
(i) any violation or breach of the Certificate of Incorporation or the Bylaws of
Heartland or (ii) subject to lender approval as set forth in Section 6.4, any
material violation or breach of any contract or agreement of Heartland, the
result of which would have a Material Adverse Effect. MergerSub has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. MergerSub has
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 6.4 and 7.1) to execute and deliver
this Agreement and all other documents required to be executed by MergerSub, to
consummate the transactions hereby contemplated, and to take all other actions
required to be taken by MergerSub pursuant to the provisions hereof. This
Agreement and all other documents required to be executed and delivered by
MergerSub hereunder have been duly authorized by all corporate action necessary
on the part of MergerSub (subject to shareholder approval and obtaining lenders'
Consents as set forth in Sections 6.4 and 7.1) and have been duly or will when
executed and delivered be duly executed and delivered by MergerSub, and
constitute the legal, valid and binding obligations of MergerSub enforceable
against MergerSub in accordance with their terms. Neither the execution nor
delivery of this Agreement and all other documents required to be executed and
delivered by MergerSub hereunder or the consummation of the transactions hereby
contemplated by MergerSub conflict with or constitute a violation or breach of
the Certificate of Incorporation or the Bylaws of MergerSub.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby. There is no Proceeding pending or, to MergerSub's
Knowledge, threatened against or affecting MergerSub that could reasonably be
expected to result in issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the transactions
contemplated hereby. Except as described in Heartland's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1995, Heartland is not a party to any
Proceeding, the adverse resolution of which is reasonably anticipated to have a
Material Adverse Effect.
3.4 GOVERNMENTAL CONSENTS AND APPROVALS. Other than any filings required
under the HSR Act, FCC Consents (if any) or the filing of the Registration
Statement, no consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Authority is required on behalf of Heartland
or MergerSub in connection with the execution, delivery or performance of this
Agreement and all documents contemplated hereby or the transactions contemplated
hereby.
3.5 CAPITALIZATION. The authorized capital stock of Heartland as of the
date hereof consists of 50,000,000 shares of common stock, par value $.001 per
share, and 10,000,000 of preferred stock, par value $.01 per share, of which
12,476,393 shares of Heartland common stock are issued and outstanding and no
shares of preferred stock have been issued. Heartland Common Shares to be issued
pursuant to this Agreement will be, upon issuance, validly issued, fully paid
and non-assessable.
3.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the dates thereof and for
the periods referenced therein, all in accordance with GAAP.
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3.7 SEC FILINGS. Heartland has previously delivered to CableMaxx copies of
(i) its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form
10-Q for the three (3) month periods ended March 31, 1995 and June 30, 1995,
(iii) its Registration Statement on Form S-3 (File No. 33-94838) declared
effective by the SEC on August 4, 1995, and (iv) all Form 8-Ks filed with the
SEC after June 30, 1995 and prior to the date of this Agreement ("Heartland SEC
Filings"). Each such filing was timely filed with the SEC, and did not contain
any misstatement of material fact or an omission of a material fact required to
be stated therein necessary to make the statements therein not misleading as of
the time such document was filed. Heartland has filed all documents required to
be filed with the SEC. As of their respective dates, such reports complied in
all material respects with the applicable requirements of the Securities Act or
Exchange Act, as applicable. No other document or report required to have been
filed by Heartland with the SEC has not been filed, and no event or transaction
has occurred prior to the date hereof that will hereafter be required to be
disclosed by Heartland in a Form 10-Q, Form 8-K or similar filing.
3.8 FINDER'S FEES. Heartland has not taken any action which would impose
upon CableMaxx any obligation or liability to any person for finder's fees,
agent's commissions or like payments in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
3.9 FURTHER REPRESENTATION. No representation or warranty of MergerSub or
Heartland contained in this Agreement contains or will contain any untrue
statement of, or omit to state, a material fact necessary in order to make the
statements made herein, in light of the circumstances under which they are made,
not misleading. Copies of all documents specified herein to have been delivered
by Heartland to CableMaxx or CableMaxx's agents, are true, complete and genuine.
ARTICLE 4. COVENANTS OF CABLEMAXX.
CableMaxx hereby agrees to perform as follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. Subject to the provisions of
Sections 4.4 and 5.14, from the date hereof through the Closing Date:
(A) Neither CableMaxx nor any of its Subsidiaries shall engage in any
practice, take any action or enter into any transaction other than in the
customary and ordinary course of business without the consent of Heartland.
(B) CableMaxx shall, and shall cause each Subsidiary to, use its best
efforts to keep its business, properties and business relationships
substantially intact.
(C) CableMaxx shall and shall cause each Subsidiary to (i) pay and
perform all of its debts, liabilities and obligations as and when due,
except to the extent being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been established, (ii)
perform its material obligations under all Authorizations and Material
Contracts, and (iii) comply in all material respects with all Governmental
Rules.
(D) CableMaxx shall (i) not take any action, and shall endeavor in
good faith not to permit any event to occur, which would cause or
constitute a material breach, or would, if such action or event had
occurred prior to the date of this Agreement, have caused or constituted a
material breach, of any of the representations and warranties set forth in
Article 2 hereof; (ii) in the event of, and promptly after the occurrence
of, or promptly after becoming aware of the occurrence of or the impending
or threatened occurrence of, any event which would cause or constitute a
material breach or would, if it had occurred immediately prior to the date
hereof, have caused or constituted a material breach of any of the
representations and warranties set forth in Article 2, give notice thereof
to Heartland; (iii) endeavor in good faith not take any action which would
result in the aggregate Net Liabilities of CableMaxx and its Subsidiaries
on the Closing Date to exceed $13.635 million (such amount, subject to
adjustment as provided in Section 5.22, being the "Permitted Net
Liabilities"); and (iv) use its best efforts to prevent or promptly to
remedy such breach.
(E) CableMaxx and each of its Subsidiaries shall use their best
efforts to preserve, protect and maintain their rights and interests in the
Channel Leases, FCC Licenses, and Material Contracts,
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including, but not limited to, filing or requesting that licensees or
permittees file with the FCC any and all reports, applications or other
documents necessary to preserve the FCC Licenses in full force and effect.
(F) CableMaxx shall not, and shall not cause any of its Subsidiaries
to enter into, amend or terminate, or agree to enter into, amend or
terminate, except to comply with this Agreement, any Channel Lease,
License, Permit, Application or Material Contract.
(G) CableMaxx shall not repurchase, declare or pay any dividends, or
make any other distributions consisting of cash or marketable securities or
any contribution thereof, nor shall CableMaxx or any of its Subsidiaries
issue, sell or agree to sell any shares of its capital stock, or any
securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe for, any shares of its capital stock.
(H) CableMaxx shall not, and shall not cause any of its Subsidiaries
to sell, lease, transfer or otherwise dispose of any of its assets, except
as provided for by, or contemplated in, this Agreement, or in the ordinary
course of business.
(I) CableMaxx shall not, and shall not cause any of its Subsidiaries
to, increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of its directors,
officers or employees, pay bonuses to any such director, officer of
employee, or pay any salaries except in the ordinary course of business,
except as required under any existing written employment agreement with any
officer, director or employee of CableMaxx or any Subsidiary.
(J) CableMaxx shall not transfer any interest in any Subsidiary.
(K) CableMaxx shall maintain, and shall not take any action that may
jeopardize, the designation of the CableMaxx Common Shares as a NASDAQ-NMS
security.
4.2 ESTOPPEL CERTIFICATES. Upon request of Heartland, CableMaxx shall
assist Heartland to obtain from each of the other respective parties to each
Channel Lease and Material Contract estoppel certificates in the form of Exhibit
4.2 ("Estoppel Certificates"), certifying that CableMaxx or the Subsidiaries, as
applicable, is not in breach or violation of or in default under any of such
Channel Leases or Material Contracts or arrangements and that it would not be by
virtue of the transaction contemplated hereby. In addition to the other Estoppel
Certificates to be obtained pursuant to this Section 4.2, CableMaxx shall obtain
either (i) estoppel certificates or (ii) other evidence of amounts owed
reasonably satisfactory to Heartland, dated no more than fifteen (15) days prior
to the Closing Date, from each Person (other than the State of Texas or parties
to programming agreements) that will be owed, or is anticipated to be owed, in
excess of $100,000 on the Closing Date, certifying the amount then owed to such
Person and amount anticipated to be owing to such Person by CableMaxx or any
Subsidiary as of the Closing Date ("Account Estoppels").
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. CableMaxx shall, and shall
cause each Subsidiary to:
(A) timely file, or cause to be filed, all material applications,
reports and other submissions in such form and with such information as may
be required by the FCC, including but not limited to renewal applications,
applications for extensions of time to complete construction and Annual FCC
Reports, to assure that all Channels licensed or authorized to either
CableMaxx or any Subsidiary remain in full force and effect without
material adverse alteration or modification, except to the extent that such
alteration or modification results from changes in the FCC's rules or
policies of general applicability. After the applications, if any, are
filed for FCC consent to the transfer of control of the FCC Licenses for
said Channels to Heartland or an affiliate of Heartland, CableMaxx shall
file, or cause to be filed, at the request of and as an accommodation to
Heartland, such applications for modification of their outstanding
construction Permits or Licenses as are reasonably required to implement
the Merger. CableMaxx shall utilize its best efforts to diligently
prosecute in good faith all applications, reports and submissions submitted
in accordance with this Section 4.3.
(B) use its best efforts to assure that the licensees or permittees
under the Channel Leases timely file all applications, reports, and other
submissions in such form and with such information as may be required by
the FCC, including, but not limited to, renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that such FCC Licenses remain in full
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force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's rules or policies of general applicability. CableMaxx
shall use its reasonable efforts to assure that the licensees or permittees
under the Channel Leases diligently prosecute in good faith all such
applications, reports and submissions. CableMaxx shall promptly disclose to
Heartland any information it receives regarding any conditions or
circumstances that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. Subject to the provisions of Section 5.14 (regarding
the proposed sale of the Salt Lake City Market), from and after the date hereof,
CableMaxx will not, and will not authorize or permit any of its officers,
directors, employees, agents and other representatives or those of any
Subsidiary (collectively, "CableMaxx Representatives") to directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, an Acquisition Proposal (as defined
herein) from any Person or engage in any discussion or negotiations relating
thereto or accept any Acquisition Proposal. CableMaxx shall immediately cease
and cause to be terminated any existing solicitation, discussion or negotiation
with any parties conducted heretofore by CableMaxx or any CableMaxx
Representatives with respect to any of the foregoing. To the extent permitted by
applicable law, CableMaxx will promptly notify Heartland of any such discussion
or negotiations, requests for such information or the receipt of any Acquisition
Proposal, including (a) the identity of the person or group engaging in such
discussions or negotiations, requesting such information or making such
Acquisition Proposal and (b) the material terms and conditions of any
Acquisition Proposal. As used in this Agreement, "Acquisition Proposal" shall
mean any proposal or offer considered by the Board of Directors of CableMaxx to
be bona fide, other than a proposal or offer by Heartland or any of its
Affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving CableMaxx or any Subsidiary or any proposal to
acquire in any manner a substantial equity interest in (x) CableMaxx or any
Subsidiary, (y) any rights of CableMaxx or any Subsidiary to any Channels or (z)
any Wireless Cable Television System. Notwithstanding the foregoing, nothing in
this Section 4.4 shall prohibit the Board of Directors of CableMaxx from (i)
furnishing information to or entering into discussions or negotiations with, any
person or entity that makes an unsolicited bona fide proposal to acquire
CableMaxx or any Subsidiary pursuant to a merger, consolidation, share exchange,
purchase of a substantial portion of the assets, business combination or some
other transaction, if, and only to the extent that (A) the Board of Directors
determines in good faith that such action is required for the Board of Directors
to comply with its fiduciary duty to its stockholders, (B) prior to furnishing
such information to, or entering into discussions with or negotiations with,
such person or entity, to the extent permitted by applicable law, CableMaxx
provides notice to Heartland to the effect that it is furnishing information to,
or entering into discussions or negotiations with, such person or entity, and
(C) to the extent permitted by applicable law, CableMaxx keeps Heartland
informed, on a current basis, of the status of any such discussions or
negotiations; (ii) complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal and (iii) soliciting or receiving offers
for, negotiating the sale of, or selling the Salt Lake City Market in accordance
with Section 5.14. CableMaxx will use reasonable efforts to cause a Person
provided proprietary information in accordance with the foregoing to enter into
a confidentiality agreement.
ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS MEETING. CableMaxx and Heartland shall each take all
action necessary in accordance with applicable law and in accordance with their
respective certificates of incorporation and bylaws to convene a meeting of
their respective stockholders as promptly as practicable after the Registration
Statement is declared effective by the SEC, to consider and vote upon the
approval of this Agreement. CableMaxx (subject to the provisions of Sections 4.4
and Section 9.4) and Heartland each, through its board of directors, shall
recommend to its stockholders (and, if applicable, its lenders) approval of this
Agreement and shall use reasonable efforts to obtain approval and adoption of
this Agreement by such stockholders and lenders. CableMaxx acknowledges that the
consummation of the transactions contemplated by this Agreement by MergerSub and
Heartland requires (and therefore is subject to) the approval of the holders of
the Senior
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Notes and Heartland agrees to seek to obtain the written approval of such
holders on or before October 9, 1995.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT; LISTING OF HEARTLAND
COMMON SHARES.
(A) Heartland shall prepare and file with the SEC as soon as
practicable a Registration Statement on Form S-4 ("Registration Statement")
with respect to the Heartland Common Shares issuable in the Merger, a
portion of which shall also serve as the joint proxy statement/prospectus
with respect to the meetings of the stockholders of Heartland and CableMaxx
to approve the Merger, and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as soon as
practicable. Heartland shall also take any action required to be taken
under blue sky or securities laws in connection with Heartland Common
Shares prior to the Closing. CableMaxx shall furnish Heartland all
information concerning CableMaxx and its Subsidiaries and the holders of
its common stock required for use in the Registration Statement, and
CableMaxx shall take such other actions as Heartland may reasonably request
in connection with the preparation of such Registration Statement and the
actions to be taken by CableMaxx pursuant to this Section 5.2. None of the
information furnished by or on behalf of CableMaxx for use in the
Registration Statement shall contain any material misstatement of fact or
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(B) CableMaxx shall prepare and file with the SEC as soon as
practicable a proxy statement that will be the same proxy
statement/prospectus contained in the Registration Statement and a form of
proxy, in connection with the vote of CableMaxx's stockholders with respect
to the consummation of the transactions set forth in this Agreement (such
proxy statement/prospectus, together with any amendments thereof or
supplements thereto, in any case in the form or forms mailed to CableMaxx's
stockholders, is herein called the "Proxy Statement"). Heartland shall
furnish CableMaxx all information concerning Heartland and MergerSub
required for use in the Proxy Statement, and Heartland shall take such
other action as CableMaxx may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by or
on behalf of Heartland for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or any
fact necessary to make the statements contained therein not misleading.
(C) Within a reasonable period of time after the Closing Date,
Heartland shall file with the National Association of Securities Dealer,
Inc. a Nasdaq National Market Notification Form for Listing Additional
Shares and Notification Pursuant to SEC Rule 10b-17 with regard to the
Heartland Common Shares to be issued in the Merger.
5.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours be permitted reasonable access to the Facilities and
CableMaxx's corporate offices; will be permitted to make copies of or abstracts
from all of the books and records, financial and operating data and other
information of CableMaxx and each Subsidiary; and will be permitted to discuss
the affairs and accounts of CableMaxx and each Subsidiary with the directors,
officers, employees, counsel, and accountants of CableMaxx and each Subsidiary.
Such investigation shall not, however, affect the representations and warranties
of CableMaxx set forth in Article 2 hereof. In the event the transactions
contemplated hereby should not close for any reason, Heartland agrees that it
will promptly return to CableMaxx all such documents (including copies thereof)
furnished by or on behalf of CableMaxx and/or each Subsidiary to Heartland and
its representatives and Heartland shall hold in confidence and shall not use or
disclose to any third party any information concerning CableMaxx and/or each
Subsidiary obtained from such documents or otherwise in connection with the
transactions contemplated by this Agreement unless (a) such information was at
the time of its use or disclosure to any third party by Heartland in the public
domain other than as a result of any breach of this provision by Heartland or
(b) such disclosure is required by law.
5.4 COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS AGREEMENT. Prior
to the Closing Date, CableMaxx shall cause to be prepared and delivered to
Heartland and MergerSub an updated list (reasonably satisfactory to counsel for
Heartland) identifying all persons in addition to CWCH who at the time of
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CableMaxx's shareholder meeting may be deemed to be a Rule 145 Affiliate. On the
Closing Date, Heartland and CWCH shall execute a Registration Rights Agreement
in the form attached as Exhibit 5.4 providing for the registration of the sale
of the Heartland Common Shares to be received by CWCH in the Merger, as further
provided therein.
5.5 STOCK OPTIONS.
(A) All options and stock appreciation rights previously granted, if
any, under any CableMaxx stock option plan for its directors or employees
or the directors or employees of any Subsidiary (the "CableMaxx Stock
Option Plans") that are unexercised, whether or not then exercisable (the
"CableMaxx Stock Options"), shall be, on or prior to the Effective time,
immediately exercisable. CableMaxx will permit all of the CableMaxx Stock
Options to be exercised by the tender to CableMaxx of any of (i) cash in
the amount of the exercise price, (ii) shares of Common Stock of CableMaxx
with a fair market value (as such term is defined in the CableMaxx Stock
Option Plans) equal to the exercise price, or (iii) the withholding by
CableMaxx of whole shares of Common Stock of CableMaxx having a fair market
value equal to the exercise price from the shares issued upon the exercise
of the CableMaxx Stock Options. Holders of the CableMaxx Stock Options who
so exercise such Stock Options prior to the Effective Time shall be
entitled to exchange the shares of CableMaxx Common Stock subject to such
Stock Options for the Conversion Amount on the same basis as the other
shareholders of CableMaxx Common Stock. Any Stock Options remaining
unexercised at the Effective Time shall be terminated. All CableMaxx Stock
Option Plans shall terminate as of the Effective Time and the provisions in
any other plan, program or arrangement providing for the issuance or grant
of any other interest in respect of the capital stock of CableMaxx or any
Subsidiary shall be deleted as of the Effective Time. CableMaxx shall take
all action necessary to ensure that following the Effective Time no
participant in any CableMaxx Stock Option Plan or other plans, programs or
arrangements shall have any right thereunder to acquire equity securities
of CableMaxx, the Surviving Corporation or any subsidiary thereof, and to
terminate all such rights.
(B) No employee of CableMaxx or any Subsidiary who held options for
CableMaxx Common Stock prior to the Effective Time shall have any right to
participate in Heartland's stock option plan with respect to all or any
portion of any calendar year unless expressly so provided in any agreement
between Heartland and such employee.
(C) The proceeds received by CableMaxx upon the exercise of any option
from the date hereof through the Closing Date shall be placed in a separate
escrow account and shall remain in such account through the Closing Date.
5.6 WARRANTS. CableMaxx shall cause each holder of warrants to acquire
CableMaxx Common Shares (whether or not then exercisable) to consent to either
(i) the cancellation of such warrants to take effect on or prior to the
Effective Time in consideration of the payment to such holder of the Conversion
Amount for each share of CableMaxx Common Shares subject to such warrant, upon
the payment by such holder of the applicable warrant exercise price or (ii) the
termination thereof. Cancellation of such warrants in exchange for the
consideration set forth in this Section 5.6 shall be deemed a release of any and
all rights the holder had or may have had in the warrant or the CableMaxx Common
Stock in respect of such warrant. Any warrants remaining unexercised at the
Effective Time shall be terminated. The proceeds received by CableMaxx upon the
exercise of any warrant from the date hereof through the Closing Date shall be
placed in a separate escrow account and shall remain in such account through the
Closing Date.
5.7 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Authorities and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by any
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Governmental Entity; (b) the obtaining of all necessary consents, approvals or
waivers from third parties; (c) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed; and (d) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by this Agreement.
5.8 PUBLIC ANNOUNCEMENTS. Heartland and MergerSub, on the one hand, and
CableMaxx, on the other hand, will consult with each other before issuing any
press release with respect to the transactions contemplated by this Agreement,
and shall not issue any such press release prior to such consultation, unless
otherwise required under applicable law.
5.9 NOTIFICATION OF CERTAIN MATTERS. CableMaxx shall give to Heartland
prompt notice of: (i) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the date of this Agreement and prior to the
Effective Time under any note, license, agreement or other instrument or
obligation other than in respect of defaults which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect;
and (ii) any Material Adverse Effect or the occurrence of any event which, so
far as reasonably can be foreseen at the time of its occurrence, is reasonably
likely to result in a Material Adverse Effect. Heartland shall give CableMaxx
(a) from and after the date of this Agreement, prompt notice of the occurrence
of any event that would require Heartland to file a current report on Form 8-K
or issue a press release under applicable securities laws, and (b) from and
after the date of the mailing of the Proxy Statement, prompt notice of the
occurrence of any event that would require the information regarding Heartland
contained in the Proxy Statement to be amended or supplemented under applicable
securities laws. Each party shall give the other prompt notice of any written
notice or other written communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement.
5.10 LETTERS OF CABLEMAXX'S ACCOUNTANTS. CableMaxx shall use reasonable
efforts to deliver to Heartland a letter of Coopers & Lybrand, L.L.P.,
CableMaxx's independent auditors, dated a date within two business days before
the date on which the Registration Statement shall become effective and
addressed to Heartland, in form and substance reasonably satisfactory to
Heartland and customary in scope and substance for consent letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement ("Accountant's Consent Letter").
5.11 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the HSR Act, and will use their
respective best efforts to obtain an early termination of the applicable waiting
period, and will make any further filings pursuant thereto that may be
necessary, proper, or advisable.
5.12 SEC FILINGS. CableMaxx and Heartland shall cause to be filed all
periodic and current reports required to be filed with the SEC for all periods
after the execution of this Agreement through the Closing Date.
5.13 TERMINATION OF CERTAIN AGREEMENTS. On or prior to the Closing Date
and at the request of Heartland, CableMaxx shall terminate all Affiliate
Agreements without compensation and employment or other management agreements
without compensation except as set forth in Schedule 2.28, as designated by
Heartland.
5.14 SALE OF SALT LAKE CITY MARKET. Notwithstanding any provisions
contained herein to the contrary, CableMaxx shall have the right to solicit bids
for and negotiate the sale of the Wireless Cable Television System and related
assets servicing the Salt Lake City, Utah Standard Metropolitan Area
(collectively, such assets are referred to as the "Salt Lake City Market");
provided that (i) CableMaxx shall keep Heartland fully informed regarding the
status of any negotiations regarding the sale of Salt Lake City Market or offers
therefor, including without limitation, the identity of the proposed purchaser
and the consideration offered or
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requested, (ii) Heartland shall have the right to approve, in its reasonable
discretion, the terms of any proposed disposition of the Salt Lake City Market,
and CableMaxx (or any Subsidiary) shall not execute a definitive agreement to
dispose of the Salt Lake City Market without Heartland's written approval, and
(iii) the gross proceeds of any such disposition shall be placed in an escrow
account and shall remain in such account through the Closing Date.
5.15 EXHIBITS. Heartland and CableMaxx agree that any Exhibits not
attached hereto on the date hereof shall be prepared and attached on or before
December 29, 1995, and agree to cooperate and negotiate in good faith in the
preparation of such Exhibits.
5.16 USE OF PROCEEDS FROM SUBLEASE/OPTION AGREEMENT. CableMaxx and
Heartland have entered into a Sublease Agreement with Option to Purchase
("Sublease/Option Agreement") with regard to certain wireless cable markets
identified therein. CableMaxx hereby covenants and agrees that any proceeds
received by CableMaxx from Heartland ("Sublease Proceeds") (whether in the form
of lease or sublease rentals, payments of option or purchase amounts, or
otherwise) shall be used by CableMaxx solely for the purposes of marketing,
purchasing transmission equipment, set top converters, home antennae and masts,
or paying labor costs associated with the installation thereof ("Permitted
Subscriber Expenditures"). CableMaxx shall, upon written request of Heartland,
furnish written evidence reasonably satisfactory to Heartland that such Sublease
Proceeds were used in accordance with the provisions of this Section 5.16, which
shall include copies of third party receipts and invoices and evidence of the
payment thereof.
5.17 INDEMNIFICATION.
(A) SURVIVING CORPORATION INDEMNIFICATION PROVISIONS. Heartland agrees
to cause the Surviving Corporation (i) not to change, for three years after
the Closing Date, the provisions of its certificate of incorporation and
bylaws in effect on the Closing date in each case relating to
indemnification of each present or former director and officer of CableMaxx
and its Subsidiaries (together with any successor by operation of law,
individually an "Indemnified party" and collectively the "Indemnified
Parties") in a manner which adversely affects the rights of such
Indemnified Party to indemnification thereunder and (ii) to perform its
obligations thereunder. Notwithstanding the foregoing, nothing in this
Agreement shall constitute a waiver of, or otherwise operate to adversely
affect, the existing rights of the Indemnified Parties under the
certificate of incorporation or bylaws of CableMaxx in effect on the date
hereof.
(B) D&O INSURANCE. Heartland will cause the Surviving Corporation to
maintain in effect for a period of three (3) years, directors' and
officers' liability insurance covering those persons ("Covered Persons")
who are currently covered by CableMaxx's current directors' and officers'
liability insurance policy (a copy of which has heretofore been delivered
to Heartland) ("D&O Policy") on terms comparable to those now applicable to
directors or officers of CableMaxx, provided, that Heartland may, in lieu
of maintaining such existing directors' and officers' liability insurance,
either (i) cause comparable coverage to be provided for such period under
any other policy, including, without limitation, a policy maintained for
the benefit of Heartland or any of its Subsidiaries, so long as the
material terms thereof are no less advantageous to the Covered Persons than
those of the D&O Policy, or (ii) at any time after one year from the date
hereof, elect to assume the obligations to the Covered Persons of the
insurance company under the D&O Policy (subject to limits, deductibles and
exclusions of such D&O Policy) through the date which is three (3) years
following the Closing Date.
(C) EFFECT OF SUBSECTIONS (A) AND (B). The provisions of Subsections
(a) and (b) of this Section 5.17 shall survive the Closing Date, are
intended to benefit each of the Indemnified Parties and Covered Parties, as
applicable (each of whom shall be entitled to enforce such subsections
against the Surviving Corporation or Heartland, as the case may be).
5.18 REPAYMENT OF INDEBTEDNESS. Immediately prior to Closing, Heartland
shall advance to CableMaxx sufficient funds to enable CableMaxx to repay and
discharge, and CableMaxx upon receiving such advance shall so repay and
discharge, the indebtedness ("Subordinated Indebtedness") evidenced by that
certain Subordinated Non-Negotiable Note, dated December 18, 1992, by Charter
Cable Corporation and Charter Cable (San Antonio), Inc., predecessors to a
Subsidiary of CableMaxx, to Supreme Cable Co., Inc.
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5.19 NET LIABILITIES. Within fifteen (15) days prior to the Closing Date,
but no later than ten (10) days prior to the Closing Date, CableMaxx shall
deliver to Heartland an estimate of the Net Liabilities anticipated at the
Closing, with reasonable detail showing the calculation of such amount.
Heartland shall be entitled to discuss the information used to calculate the Net
Liabilities with any officers, attorneys, accountants, representatives, agents,
contractors or lenders of CableMaxx or its Subsidiaries to verify the
calculation of such amount, and CableMaxx shall cooperate in good faith in
assisting Heartland to verify the Net Liabilities and providing Heartland and
its representatives access to information necessary to verify such calculation.
5.20 RESIGNATION OF DIRECTORS OF CABLEMAXX. CableMaxx shall deliver to
Heartland, except as otherwise requested by Heartland, the written resignation
of all directors of CableMaxx and each Subsidiary.
5.21 HEARTLAND LOAN. On December 26, 1995, Heartland and CableMaxx shall
enter into the Loan Agreement attached as Exhibit 5.21 (the "Heartland Loan").
For purposes of determining the Net Liabilities of CableMaxx, (a) the obligation
of CableMaxx to repay the Heartland Loan shall be excluded as a liability, and
(b) the amount of the unspent proceeds of the Heartland Loan shall be subtracted
from the cash or cash equivalents of CableMaxx (which amount would otherwise
reduce the amount of Net Liabilities).
5.22 INTERFERENCE RESOLUTION. Notwithstanding any of the covenants to the
contrary contained herein, CableMaxx may pay up to $75,000 (the amount of such
payment being referred to as the "Interference Resolution Amount") to resolve
certain disclosed channel interference arising from Provo, Utah, and the
Permitted Net Liabilities shall be increased by the Interference Resolution
Amount.
5.23 PAYMENT OF APPROVED EXPENSES. At Closing, Heartland shall pay all
expenses owed to the parties listed on Schedule 5.23, provided that such parties
deliver to Heartland any of the following: (i) Estoppel Certificates, (ii)
Account Estoppels or (iii) similar evidence of the amounts owed reasonably
satisfactory to Heartland; provided further that the aggregate amount of such
payments shall not exceed the Permitted Net Liabilities.
ARTICLE 6. CONDITIONS PRECEDENT TO MERGER.
The obligation of the parties hereto to consummate the Merger is subject to
fulfillment, or written waiver signed by all parties hereto, of each of the
following conditions precedent on or prior to the Closing Date or the date
specified therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received.
6.2 NO ORDER. No Governmental Authority or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting the Merger or any of the transactions contemplated hereby or
otherwise making the consummation of the Merger or any of the transactions
contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated and all
filings required to be made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be obtained prior to the
Effective Time from, any Governmental Authority in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby by CableMaxx, Heartland and MergerSub, shall have been made
or obtained (as the case may be) without restrictions.
6.4 LENDER'S CONSENTS. Heartland shall have delivered to CableMaxx written
notice ("Approval Notice") that the merger has been approved or consented to by
the holders of the Senior Notes of Heartland relative to the transactions
contemplated by this Agreement on or before October 9, 1995.
6.5 FAIRNESS OPINIONS. CableMaxx shall have delivered to Heartland and
MergerSub on or before the tenth (10th) day following the date of this
Agreement, an opinion of the CableMaxx Advisor as to the fairness of the Merger
to the stockholders of CableMaxx from a financial point of view (the "Fairness
Opinion"). The Fairness Opinion shall be satisfactory in form and substance to
CableMaxx.
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ARTICLE 7. CONDITIONS PRECEDENT TO CLOSING BY HEARTLAND AND MERGERSUB.
The obligations of Heartland and MergerSub to consummate the Merger are
subject to fulfillment, or written waiver signed by Heartland and MergerSub, of
each of the following conditions precedent on or prior to the Closing Date.
7.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of Heartland Common Shares in accordance with
applicable law and its Certificate of Incorporation and Bylaws.
7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by CableMaxx shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
7.3 CABLEMAXX DOCUMENTS. CableMaxx shall have delivered the following to
Heartland in form and substance reasonably satisfactory to Heartland and its
counsel:
(A) A certificate signed by the chief executive officer of CableMaxx,
on behalf of and in his capacity as an officer of CableMaxx, confirming, on
and as of the Closing Date, that each of the representations and warranties
set forth in Section 2 hereof was true and correct in all material respects
on the date made and are true and correct in all material respects on and
as of the Closing Date and that CableMaxx is in compliance in all material
respects with the applicable covenants set forth in Articles 4, 5 and 6.
(B) An opinion of special counsel to CableMaxx and an opinion of FCC
counsel to CableMaxx and each Subsidiary in the forms attached hereto as
Exhibit 7-3(c).1 and Exhibit 7-3(c).2, respectively.
(C) The minute books, bylaws, certificate of incorporation of
CableMaxx and each Subsidiary and the stock books and stock ledgers of each
Subsidiary.
(D) Substantially all of the Estoppel Certificates and all of the
Account Estoppels; provided that, if CableMaxx is unable to obtain
substantially all of the Estoppel Certificates to be delivered hereunder on
or prior to the Closing Date, CableMaxx shall have the right to provide in
lieu thereof, and Heartland shall accept, any of (i) evidence reasonably
satisfactory to Heartland that all payments under the contract which is the
subject of such non-delivered Estoppel Certificate have been made during
the preceding twelve (12) months, (ii) copies of all correspondence, if
any, received from the other party to such contract during the preceding
twelve (12) months (none of which shall indicate any default or dispute has
arisen thereunder) or (iii) evidence reasonably satisfactory to Heartland
(such as an invoice or other billing statement) of the amount owed to such
creditor, vendor, supplier or third party.
7.4 NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect
to CableMaxx or any Subsidiary, or their respective assets from the date hereof
through the Closing Date which would have a Material Adverse Effect.
7.5 DISSENTERS' RIGHTS. The shareholders of CableMaxx Common Stock shall
not be entitled to exercise any appraisal remedies or other dissenter's rights
under DGCL in connection with the Merger.
7.6 ACCOUNTANT'S CONSENT LETTER. Heartland shall have received from
CableMaxx the Accountant's Consent Letter.
7.7 CABLEMAXX OBLIGATIONS PERFORMED. All obligations of CableMaxx to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
7.8 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF CABLEMAXX. Each of
the conditions precedent to the obligations of CableMaxx set forth in Article 6
or 8 shall have been satisfied or waived by CableMaxx, except for the provisions
of Section 8.1, which shall be satisfied and may not be waived by CableMaxx.
7.9 NON-COMPETITION. The persons identified on Schedule 7.9 shall have
executed a Non-Competition Agreement in the form attached hereto as Exhibit 7.9.
7.10 TERMINAL PRICE. The Terminal Price shall not be less than the Minimum
Termination Price.
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7.11 AUDIT RESULTS. The information contained in the audited financial
statement of CableMaxx and its Subsidiaries for the fiscal year ended June 30,
1995 shall conform in all material respects to the information contained in the
unaudited financial statement delivered to Heartland on or prior to the date
hereof for such fiscal year.
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY CABLEMAXX.
The obligation of CableMaxx to consummate the Merger is subject to
fulfillment, or written waiver signed by CableMaxx, of each of the following
conditions precedent on or prior to the Closing Date.
8.1 STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of the holders of the CableMaxx Common Shares in accordance with
applicable law and its Certificate of Incorporation and Bylaws.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland and/or MergerSub shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as if originally made on and as of the Closing Date.
8.3 HEARTLAND AND/OR MERGERSUB DOCUMENTS. Heartland and/or MergerSub, as
the applicable case may be, shall have executed and delivered to CableMaxx in
form and substance reasonably satisfactory to CableMaxx and to counsel:
(A) A certificate of the chief executive officer of Heartland and
MergerSub, on behalf of and in his respective capacity as an officer of
Heartland or Merger Sub, confirming, on and as of the Closing Date, that
each of the representations and warranties set forth in Section 4 hereof
was true and correct in all material respects on the date made and are true
and correct in all material respects on and as of the Closing Date.
(B) An opinion of counsel to Heartland and/or MergerSub in the form
attached hereto as Exhibit 8.3.
(C) The Registration Rights Agreement, executed by Heartland.
8.4 SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF HEARTLAND AND
MERGERSUB. Each of the conditions precedent to the obligations of Heartland and
MergerSub set forth in Article 8 shall have been satisfied or otherwise waived
by Heartland and MergerSub.
8.5 HEARTLAND AND MERGERSUB OBLIGATIONS PERFORMED. All obligations of
Heartland and MergerSub to be performed hereunder through and including the
Closing Date shall have been performed in all material respects.
8.6 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the Proxy Statement to be
amended or supplemented under applicable securities laws.
8.7 TERMINAL PRICE. The Terminal Price shall not be greater than the
Maximum Termination Price.
ARTICLE 9. TERMINATION; ADJUSTMENTS TO MERGER CONSIDERATION.
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the shareholders of CableMaxx and Heartland, by
the mutual consent of Heartland, MergerSub and CableMaxx.
9.2 TERMINATION BY CABLEMAXX. This Agreement may be terminated and the
Merger may be abandoned by CableMaxx if the closing conditions set forth in
Articles 6 and 8 shall not have been satisfied in full or waived on or before
February 29, 1996 or the date specified therein.
9.3 TERMINATION BY HEARTLAND OR MERGERSUB; ADJUSTMENT TO MERGER
CONSIDERATION. This Agreement may be terminated and the Merger may be abandoned
by Heartland or MergerSub if the closing conditions set forth in Articles 6 and
7 shall not have been satisfied in full or waived on or before February 29, 1996
or the date specified therein; provided that if on the Closing Date the Net
Liabilities exceed the Permitted Net
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Liabilities (such excess being referred to as "Excess Net Liabilities"), (i)
Heartland shall not have the right to terminate this Agreement or abandon the
Merger, and (ii) the Merger Consideration shall be automatically reduced by the
amount of the Excess Net Liabilities.
9.4 TERMINATION RESULTING FROM ACQUISITION PROPOSALS. In the event that
any Person shall have made an Acquisition Proposal and the Board of Directors of
CableMaxx either approves the execution of an agreement relating thereto or
recommends to the CableMaxx stockholders the acceptance of any Acquisition
Proposal, then CableMaxx shall promptly, but in no event later than two days
after the date of such Board approval or recommendation, (a) pay Heartland a fee
of Two Million Dollars ($2,000,000) and (b) prepay all principal and accrued
interest outstanding under the Heartland Loan, by wire transfer of same day
funds as liquidated damages, this Agreement shall terminate and the parties
shall have no further liability or obligations hereunder. CableMaxx acknowledges
that the agreements contained in this Section 9.4 are integral parts of the
transactions contemplated in this Agreement, and that, without these agreements,
Heartland and MergerSub would not enter into this Agreement; accordingly, if
CableMaxx fails to promptly pay the amount due and pursuant to Section 9.4, and,
in order to obtain such payment, Heartland or MergerSub commences a suit which
results in a judgment against CableMaxx for the fee set forth in this Section
9.4, the non-prevailing party shall pay the prevailing party its cost and
expenses (including attorneys' fees) in connection with such suit, together with
interest on such amounts at the interest rate applicable to the Heartland Loan.
9.5 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and abandonment of the Merger other than (i) as provided in Section
9.4 above, in which case the payment of the amount specified therein shall be
deemed to be liquidated damages for any claims under this Agreement arising from
a termination resulting from an Acquisition Proposal or (ii) by Heartland
arising from the failure of the condition precedent set forth in Section 6.4, in
which case this Agreement shall terminate and the parties shall have no
liabilities or obligations to each other hereunder, each party shall have all
rights at law or in equity against the other, if any.
ARTICLE 10. DEFINITIONS.
10.1 The terms used in this Agreement have the respective meanings
specified or referred to in this Article 12:
"ACCOUNT ESTOPPELS" shall have the meaning set forth in Section 4.2.
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in
Section 5.10.
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACT" means The Communication Act of 1934, as amended.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person.
"AFFILIATE AGREEMENTS" shall have the meaning set forth in Section
2.9.
"ANNUAL FCC REPORT" means the reports which a licensee in the MMDS
service is required to file annually with the FCC pursuant to Section
21.911 of the FCC Rules.
"APPLICATION" means a pending application by CableMaxx or Institution
or other Parties to the FCC for a License.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to CableMaxx
by a Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with the provision of wireless
cable services, including the licenses, permits, authorizations,
franchises, grants, registrations, certificates, consents and waivers
listed on Schedules 2.10(b) and 2.10(d).
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"CABLEMAXX ADVISOR" means Bear, Stearns & Co., Inc.
"CABLEMAXX COMMON SHARE" shall have the meaning set forth in the
Recitals.
"CABLEMAXX COMMON SHARES" shall mean all of the issued and outstanding
capital stock of CableMaxx immediately before the Merger.
"CABLEMAXX REPRESENTATIVES" shall have the meaning set forth in
Section 4.4.
"CABLEMAXX SEC FILINGS" means CableMaxx's Form 10-K filed for the
fiscal years ended June 30, 1993 and 1994, Form S-4 (File No. 33-82862)
filed with the SEC on October 20, 1994, Form 10-Qs filed for the fiscal
quarters ended September 30, 1994, December 31, 1994 and March 31, 1995,
and all intervening Form 10-Ks, 10-Qs, 8-Ks and proxy statements filed with
the SEC.
"CABLEMAXX STOCK OPTION PLANS" shall have the meaning set forth in
Section 4.5(a).
"CABLEMAXX STOCK OPTIONS" shall have the meaning set forth in Section
4.5(a).
"CERTIFICATES" shall have the meaning set forth in Section 1.2(a).
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the CableMaxx or Subsidiary.
"CLOSE" or "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.3.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.3.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Common
Shares the average of the closing prices of such stock as reported on the
NASDAQ NMS for the twenty (20) trading days ending on the fifth (5th)
business day prior to the Closing Date. In the event that the Heartland
Common Shares do not trade on any day during such twenty-day period, then
the closing price for such date shall be deemed to be the closing price for
the day preceding such date for purposes of determining the Closing Share
Price.
"CM TEXAS" means CableMaxx (Texas), Inc., a Delaware corporation.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSENTS" means the consents (including, without limitation, FCC
Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Material Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for Heartland to conduct the
operations currently conducted by CableMaxx after the Closing.
"CONVERSION AMOUNT" shall be the amount of consideration per share for
the acquisition of CableMaxx as provided for in Section 1.2(b).
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"COVERED PERSONS" shall have the meaning set forth in Section 5.17(b).
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<PAGE> 1357
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DGCL" means the Delaware General Corporation Law.
"D&O POLICY" shall have the meaning set forth in Section 5.17(b).
"EFFECTIVE TIME" shall mean the date and time of the filing of the
applicable certificate of merger in the State of Delaware.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section
2.23(a).
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all Legal Requirements of
courts and other Governmental Authorities pertaining to reporting,
licensing, permitting, investigation, remediation, and removal of,
emissions, discharges, releases or threatened releases of Hazardous
Substances, chemical substances, pesticides, petroleum or petroleum
products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, and
including electro-magnetic fields or discharges into the Environment, or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, which are now or may
hereafter be applicable to CableMaxx.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers, all other
equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESTOPPEL CERTIFICATE" shall have the meaning set forth in Section
4.2.
"EXCHANGE ACT" means the Security Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.2(f).
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section
1.2(f).
"EXCHANGE FUND" shall have the meaning set forth in Section 1.2(f).
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means all of the plants, offices, broadcast towers,
antenna towers, head-ends, studios, control centers and other real property
interests and related facilities which are either owned by CableMaxx or
leased by or the use of which are leased by the CableMaxx.
"FAIRNESS OPINION" shall have the meaning set forth in Section 6.5.
"FCC" means the Federal Communications Commission.
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<PAGE> 1358
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America. The term "generally
accepted accounting principles" shall mean accounting principles which are
(a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles, and (b) such that a certified public accountant
would, insofar as the use of accounting principles is pertinent, be in a
position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government or any federal, state or local regulatory
authority.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Authority to CableMaxx or Subsidiary.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Authority; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated biphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials and including radon gas.
"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND COMMON SHARES" means shares of common stock, $.001 par
value per share, Heartland Wireless Communications, Inc.
"HEARTLAND LOAN" shall have the meaning set forth in Section 5.21.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"INDEMNIFIED PARTIES" shall have the meaning set forth in Section
5.17(a).
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with CableMaxx
or any Subsidiary.
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<PAGE> 1359
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of
CableMaxx or any Affiliate of CableMaxx which are used or available for use
in connection with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"JOINT VENTURE" means a joint venture, partnership, limited liability
company or other similar arrangement, whether in corporate, partnership or
other legal form; provided that in no event shall any corporate Subsidiary
of any Person be considered a Joint Venture to which such Person is a
party.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is aware or should
reasonably be aware, after due inquiry, of such fact or other matter; (b)
with respect to a Person (other than an individual) "knowledge" of a
particular fact or other matter if any individual who is serving as a
director or officer of such Person has "knowledge" of such fact or other
matter; and (c) with respect to the warranties made by CableMaxx that
CableMaxx, based upon a reasonable investigation, believes is true.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline applicable to or against
CableMaxx or Subsidiary.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals which are required to transmit
commercial programming, educational programming or any other use currently
authorized by law.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest or encumbrance against any assets or properties
of CableMaxx or its Subsidiaries.
"MANAGE OR MANAGEMENT" means the use, possession, processing,
generation, treatment, storage, disposal, recycling, transportation or
arranging for the transportation of any Hazardous Substance.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in or is reasonably likely to result in a material adverse change
in (i) the financial condition, business, operations, properties or
prospects of CableMaxx or any Subsidiary taken as a whole, other than
either general economic changes or regulatory or competitive changes that
affect the wireless cable television industry generally over which neither
CableMaxx nor any Subsidiary has no control; (ii) the ability of CableMaxx
or any Subsidiary prior to the Effective Time to perform its obligations
under this Agreement, or (iii) the validity or enforceability of this
Agreement.
"MATERIAL CONTRACTS" shall have the meaning set forth in Section 2.9.
"MAXIMUM TERMINATION PRICE" means $34.00 per share.
"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MINIMUM TERMINATION PRICE" means $10.00 per share.
"MERGER" means the merger described in Section 1.1.
"MERGER CONSIDERATION" means $80,812,143, as adjusted pursuant to
Section 9.3.
"MMDS" means the Multichannel Multipoint Distribution Service.
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<PAGE> 1360
"NASDAQ-NMS" means the National Association of Securities Dealers
Automated Quotation National Market System.
"NET LIABILITIES" means certain liabilities of CableMaxx (including,
without limitation, the Subordinated Indebtedness to be repaid at or prior
to Closing) less cash or cash equivalents (other than any escrowed proceeds
from the sale of the Salt Lake City Market), calculated as of the Closing
Date consistent with Schedule A.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Authority or by any arbitrator as to which CableMaxx or
Subsidiary is a party.
"PBGC" shall have the meaning set forth in Section 2.23(c).
PERMITTED SUBSCRIBER EXPENDITURES" shall have the meaning set forth in
Section 5.16.
"PERMITTED NET LIABILITIES" shall have the meaning set forth in
Section 4.1(d).
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental
Authority.
"POTENTIAL CLAIMS" shall have the meaning set forth in Section 2.12.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 5.2(b).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
5.2(a).
"RELEASE" means the releasing, spilling, leaking, discharging,
pumping, pouring, emitting, emptying, ejecting, leaching, dumping,
disposing or allowing to escape any Hazardous Substance.
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 2.32.
"SCM" means Supreme Cable Metroplex, Inc., a Texas corporation.
"SALT LAKE CITY MARKET" shall have the meaning set forth in Section
6.15.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR NOTES" means the $100 million of 13% Senior Notes due 2003 of
Heartland.
"SEVERANCE OBLIGATIONS" shall have the meaning set forth in Section
2.28.
"SITE" means a wireless cable television site with respect to which
CableMaxx is operating a Wireless Cable Business and transmitting
programming to subscribers in connection therewith.
"SITE LEASE" shall mean an agreement for the lease of real estate or
power space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"SUBORDINATED INDEBTEDNESS" shall have the meaning set forth in
Section 5.18.
"SUBSIDIARY" means CM Texas, SCM or any other entity in which
CableMaxx has the ability to direct the management or affairs.
"SURVIVING CORPORATION" shall have the meaning set forth in Section
1.1.
"TAX" OR "TAXES" shall have the meaning set forth in Section 2.6.
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<PAGE> 1361
"TERMINAL PRICE" means with respect to Heartland Common Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the five (5) trading days ending on the fifth (5th) business day prior
to the Closing Date. In the event that the Heartland Common Shares do not
trade on any day during such five-day period, then the closing price for
such date shall be deemed to be the closing price for the day preceding
such date for purposes of determining the Terminal Price.
"WIRELESS CABLE BUSINESS" means the business of transmitting
programming to subscribers through the use of MMDS, MDS or ITFS licenses.
"WIRELESS CABLE TELEVISION SYSTEMS" means the Austin, Texas; San
Antonio, Texas; Temple/Kileen, Texas; Waco, Texas; Salt Lake City, Utah;
Sherman/Denison, Texas; Amarillo, Texas; Lubbock, Texas; and Athens, Texas
wireless cable television systems and/or channel rights in such geographic
areas.
10.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
ARTICLE 11. MISCELLANEOUS.
11.1 EXPENSES OF THE TRANSACTION. Each of CableMaxx, Heartland and
MergerSub agrees to pay its own fees and expenses in connection with this
Agreement and the transactions hereby contemplated.
11.2 FURTHER ASSURANCES. Each of CableMaxx, Heartland and MergerSub agrees
that it will, at any time and from time to time after the Closing Date, upon the
request of the other party, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required from time to time in order to effectuate the provisions and
purposes of this Agreement.
11.3 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (a) when
delivered personally or by private courier, (b) when actually delivered by
registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to Heartland, to:
Heartland Wireless Communications, Inc.
902 N. Bowser, Suite 140
Richardson, Texas 75081
Attn: Mr. John R. Bailey
Phone: (214) 479-9244
Fax: (214) 479-1023
With copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75202
Attn: Victor B. Zanetti, Esq.
Phone: (214) 761-4475
Fax: (214) 741-7139
If to CableMaxx, to:
CableMaxx, Inc.
6850 Austin Center Blvd., Suite 320
Austin, Texas 78731
Attn: Mr. Tommy L. Gleason, Jr.
Phone: (512) 345-1001
Fax: (512) 345-2557
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<PAGE> 1362
With copy to:
Proskauer Rose Goetz & Mendelsohn, L.L.P.
1585 Broadway
New York, New York 10036
Attn: Stephen W. Rubin, Esq.
Phone: (212) 969-3000
Fax: (212) 969-2900
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
11.4 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
11.5 ENTIRE AGREEMENT. This Agreement, together with the Schedules and
Exhibits hereto, sets forth the entire agreement and understanding among the
parties as to the subject matter hereof.
11.6 SEVERABILITY. If any provision of this Agreement or the application
of any provision hereof to any person or in any circumstances is held invalid,
the remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected unless the provision held invalid
shall substantially impair the benefits of the remaining portions of this
Agreement.
11.7 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any party hereto except with the
prior written consent of the other parties. Any purported assignment contrary to
the terms of this Agreement shall be void.
11.8 PUBLICITY; ANNOUNCEMENTS. Except to the extent required by law, prior
to the Closing Date, all publicity related to the transactions contemplated
hereby shall be subject to the mutual approval of Heartland and CableMaxx;
provided, Heartland and CableMaxx shall be entitled to disclose the transactions
contemplated hereby without the prior approval of the other, but with prior
notice to the other, to the extent reasonably necessary for Heartland or
CableMaxx to comply with applicable securities laws.
11.9 CHOICE OF LAW. This Agreement shall be deemed to have been made in,
and shall be construed in accordance with the laws of the State of Delaware, and
its validity, construction, interpretation and legal effect shall be governed by
the laws of the State of Delaware applicable to contracts entered into and
performed entirely therein.
11.10 CAPTIONS; CONSTRUCTION. The captions appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
11.11 SCHEDULES; EXHIBITS. The Schedules referred to herein and delivered
to Heartland and/or MergerSub upon execution hereof are hereby made a part of
this Agreement. Subject to Section 5.15, all Exhibits referred to herein are
hereby made a part of this Agreement.
11.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original. This Agreement may also
be executed by facsimile signature.
11.13 NO SURVIVAL. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant to this Agreement (other than
the agreements contained or referred to in Sections 5.4 (registration rights
agreement), 5.17 (indemnification and insurance obligations), and 7.9
(non-competition) which shall continue for the periods specified therein) shall
be conditions to the Merger and shall not survive the Merger.
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<PAGE> 1363
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
CABLEMAXX:
CABLEMAXX, INC.
By: /s/ TOMMY L. GLEASON
Tommy L. Gleason
President
HEARTLAND:
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
John R. Bailey
Chief Financial Officer
HEARTLAND MERGER SUB 2, INC.:
By: /s/ JOHN R. BAILEY
John R. Bailey
Chief Financial Officer
A-33
<PAGE> 1364
APPENDIX B
CMAX FAIRNESS OPINION
<PAGE> 1365
[BEAR STEARNS LETTERHEAD]
November 13, 1995
CableMaxx, Inc.
6850 Austin Center Boulevard
Suite 320
Austin, TX 78731
Attention: The Board of Directors
Dear Sirs:
We understand that CableMaxx, Inc. ("CableMaxx") has entered into an
agreement and plan of merger (the "Agreement") with Heartland Wireless
Communications, Inc. ("Heartland") pursuant to which each outstanding CableMaxx
Common Share will be converted into a right to receive a number of Heartland
Common Shares equal to $8.50 divided by the average closing share price of
Heartland Common Shares for the twenty trading day period ending on the fifth
business day prior to the closing of the transaction subject to adjustment as
described in the Agreement (the "Transaction"). You have provided us with the
proxy statement, which includes the Agreement, in substantially the form to be
sent to the shareholders of CableMaxx (the "Proxy Statement").
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to the shareholders of CableMaxx.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed CableMaxx's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the fiscal years ended June 30, 1994 and 1995, and its
Quarterly Reports on Form 10-Q for the period ended September 30, 1995;
3. reviewed Heartland's Annual Report to Shareholders and Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, its Quarterly
Reports on Form 10-Q for the periods ended March 31, June 30, and
September 30, 1995, its prospectus for a Units Offering dated April 26,
1995, and its prospectus for a Secondary Common Stock Offering dated
August 4, 1995;
4. reviewed certain operating and financial information, including
projections, provided to us by management of CableMaxx and Heartland
relating to their respective businesses;
5. met with management of CableMaxx and Heartland to review their
respective prospects;
6. visited CableMaxx's facilities in San Antonio, Austin and
Temple-Killeen, Texas; reviewed the historical prices and trading volume
of the common shares of CableMaxx and Heartland;
7. reviewed publicly available financial data and stock market performance
data of companies which we deemed generally comparable to CableMaxx and
Heartland;
8. reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to CableMaxx; and
9. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us by
CableMaxx and Heartland. With respect to CableMaxx's and Heartland's projected
financial results, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of CableMaxx and
B-1
<PAGE> 1366
Heartland as to their respective expected future performance. We have not
assumed any responsibility for the information or projections provided to us and
we have further relied upon the assurances of the managements of CableMaxx and
Heartland that they are unaware of any facts that would make the information or
projections provided to us incomplete or misleading. In arriving at our opinion,
we have not performed or obtained any independent appraisal of the assets of
CableMaxx or Heartland. Our opinion is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof.
Based on the foregoing, it is our opinion that the Transaction is fair,
from a financial point of view, to the shareholders of CableMaxx.
We hereby consent to the mention of our name in the Registration Statement
on Form S-4 of Heartland and the inclusion of this opinion in its entirety in
the Prospectus and Proxy Statement of Heartland and CableMaxx constituting a
part thereof.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ BEAR, STEARNS & CO. INC.
B-2
<PAGE> 1367
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION -- DATED JANUARY 25, 1996
PROXY STATEMENT
FOR
THREE SIXTY CORP.
120 FLORAL AVENUE
NEW PROVIDENCE, NEW JERSEY 07974
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 22, 1996
PROSPECTUS
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UP TO 2,515,625 SHARES OF COMMON STOCK
---------------------
This Proxy Statement/Prospectus and the accompanying appendices and other
materials are being furnished in connection with the solicitation of proxies by
the Board of Directors of Three Sixty Corp., a New Jersey corporation ("TSC"),
to be used at a Special Meeting of Stockholders of TSC to be held on February
22, 1996 (the "TSC Meeting") to approve the Amended and Restated Asset Purchase
Agreement, dated as of October 19, 1995 (the "TSC Agreement"), by and among TSC,
Technivision, Inc. ("Technivision") and Heartland Wireless Communications, Inc.
("Heartland").
The proxies solicited hereby for the TSC Meeting may be revoked, subject to
the procedures described herein, at any time up to and including the date of the
TSC Meeting.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN
IMPORTANT FACTORS THAT SHOULD BE CONSIDERED IN ADDITION TO THE OTHER INFORMATION
HEREIN, BEFORE VOTING UPON THE VARIOUS TRANSACTIONS TO BE CONSIDERED AT THE TSC
MEETING.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/ PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
All undefined capitalized terms used in this Proxy Statement/Prospectus
shall have the meanings set forth in the Glossary beginning on page 145 of this
Proxy Statement/Prospectus.
This Proxy Statement/Prospectus and the accompanying appendices and Proxy
Card are first being mailed to the stockholders of TSC on or about January 26,
1996.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JANUARY 26, 1996.
<PAGE> 1368
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................. 2
SUMMARY................................................................................ 3
The Industry......................................................................... 3
The Parties.......................................................................... 3
The TSC Meeting...................................................................... 6
The TSC Transaction.................................................................. 7
Certain Information Regarding Other Transactions..................................... 11
The Combined Company................................................................. 11
RISK FACTORS........................................................................... 16
Factors Associated with Heartland.................................................... 16
Factors Associated with TSC.......................................................... 26
INFORMATION CONCERNING HEARTLAND....................................................... 28
The Business......................................................................... 28
Recent Transactions.................................................................. 38
Dividends on and Market Prices of Heartland Common Stock............................. 40
Calculation and Listing of Shares to be Issued in Connection with the Transactions... 41
Management........................................................................... 44
Security Ownership of Principal Stockholders and Management.......................... 51
Certain Transactions................................................................. 52
INFORMATION CONCERNING TSC............................................................. 55
Business of TSC...................................................................... 55
Dividends on and Market Value of TSC Common Stock.................................... 62
Security Ownership of Principal Stockholders of TSC.................................. 62
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS....................................... 63
THE COMBINED COMPANY................................................................... 65
Business of the Combined Company After the Transactions.............................. 65
Management of the Combined Company................................................... 70
Principal Holders.................................................................... 70
Planned Divestitures................................................................. 71
Reasons for the Transactions......................................................... 74
PRO FORMA FINANCIAL INFORMATION RELATIVE TO THE TRANSACTIONS........................... 76
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND............................... 101
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 103
SELECTED HISTORICAL FINANCIAL INFORMATION OF TSC....................................... 114
TSC -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 115
THE TSC MEETING........................................................................ 116
Time, Place and Date of TSC Meeting.................................................. 116
Purpose of the TSC Meeting........................................................... 116
Record Date; Voting Rights........................................................... 117
Vote Required........................................................................ 117
Solicitation of Proxies and Expenses................................................. 117
Proxies.............................................................................. 117
Other Matters to be Considered....................................................... 118
THE TSC TRANSACTION.................................................................... 119
Background of the TSC Transaction.................................................... 119
Recommendation of the TSC Board; Reasons for the TSC Transaction..................... 120
Financial Advisor.................................................................... 121
Terms of the TSC Agreement........................................................... 122
Distribution of TSC Shares........................................................... 123
</TABLE>
i
<PAGE> 1369
<TABLE>
<S> <C>
Other Assets......................................................................... 124
Representations and Warranties....................................................... 124
Covenants and Obligations............................................................ 124
No Solicitation...................................................................... 125
Conditions........................................................................... 125
Regulatory Approvals................................................................. 125
Termination.......................................................................... 125
Indemnification...................................................................... 126
Accounting Treatment................................................................. 126
Certain Federal Income Tax Consequences.............................................. 126
Appraisal Rights..................................................................... 127
Interested Parties................................................................... 128
WIRELESS CABLE INDUSTRY................................................................ 128
Cable Industry Overview.............................................................. 128
Wireless Cable Technology............................................................ 129
Traditional Hard-Wire Cable Technology............................................... 129
Regulatory Environment............................................................... 130
Availability of Programming.......................................................... 133
Pay Television Industry Trends....................................................... 134
Competition.......................................................................... 135
COMPARISON OF RIGHTS OF HOLDERS OF HEARTLAND AND TSC................................... 137
EXPERTS................................................................................ 145
LEGAL MATTERS.......................................................................... 145
GLOSSARY............................................................................... 145
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION.......................................................................... F-1
APPENDICES
Appendix A -- Amended and Restated TSC Asset Purchase Agreement
Appendix B -- TSC Escrow Agreement
Appendix C -- TSC Liquidation Plan
Appendix D -- Notice of Appraisal Rights Applicable to TSC Stockholders
</TABLE>
ii
<PAGE> 1370
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR CONSENTS OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HEARTLAND, TSC OR ANY OTHER
PERSON OR ENTITY. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, OR THE SOLICITATION
OF A PROXY OR CONSENT, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF HEARTLAND OR TSC SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
AVAILABLE INFORMATION
Heartland is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC" or "Commission"). The reports,
proxy statements and other information filed by Heartland with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission at Seven World Trade
Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621. The common stock of
Heartland is listed on the Nasdaq Stock Market's National Market ("Nasdaq-NMS").
Reports, proxy statements and other information concerning Heartland can also be
inspected at the offices of The National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006.
Heartland has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities to be issued pursuant to the transactions
described herein and certain other transactions to be consummated
contemporaneously with the transactions described herein. As permitted by the
rules and regulations of the Commission, this Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement. In
particular, certain information relating to Other Transactions is omitted from
this Proxy Statement/Prospectus. Copies of the Registration Statement containing
such omitted information are available from the Commission upon payment of
certain fees prescribed by the Commission, or without charge from Heartland as
described below. Statements contained in this Proxy Statement/Prospectus or in
any document incorporated by reference in this Proxy Statement/Prospectus as to
the contents of any contract or other document referred to herein are not
necessarily complete. In each instance, reference is hereby made to the copy of
such contract or other document filed as an appendix and/or exhibit to the
Registration Statement or such other document and each such statement is
qualified in all respects by such reference.
TO OBTAIN, WITHOUT CHARGE, COPIES OF THOSE PORTIONS OF THE REGISTRATION
STATEMENT OMITTED FROM THIS PROXY STATEMENT/PROSPECTUS, PLEASE CONTACT HEARTLAND
AT 903 N. BOWSER, SUITE 140, RICHARDSON, TEXAS 75081, TELEPHONE NUMBER (214)
479-9244.
The term "Heartland" when used herein shall mean Heartland Wireless
Communications, Inc. and its subsidiaries and affiliates through which it
conducts business, unless the context indicates otherwise.
2
<PAGE> 1371
SUMMARY
The following is a summary of information contained elsewhere in this Proxy
Statement/Prospectus. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Proxy Statement/Prospectus, the Appendices hereto and the material incorporated
by reference, all of which should be carefully reviewed. The information
contained herein with respect to Heartland, and TSC has been supplied by each
such respective entity. Additionally, the information contained herein with
respect to the TSC Transaction is qualified by reference to the TSC Agreement
attached hereto as Appendix A and incorporated herein by reference. Unless
otherwise indicated, year-end financial and other information referencing a
particular year with respect to Heartland is as of or for the fiscal year ended
December 31, and with respect to TSC is as of or for the fiscal year ended May
31. Cross-references in this Summary refer to indicated captions or portions of
this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus is one of four proxy statements or
prospectuses that are contained in the Registration Statement of which this
Proxy Statement/Prospectus constitutes a part. Each proxy statement/prospectus,
including this Proxy Statement/Prospectus, describes one or more of five
separate but related transactions pursuant to which Heartland proposes to (i)
cause a wholly owned subsidiary to merge with and into AWS, (ii) cause a wholly
owned subsidiary to merge with and into CMAX, (iii) acquire FTW Partnership's
79.99% joint venture interest in and to the joint venture that owns and operates
the wireless cable television system in Fort Worth, Texas, (iv) acquire the
Minneapolis Partnership's 75% membership interest in and to American Wireless
System of Minneapolis, L.L.C., a limited liability company that owns and
operates the wireless cable television system in Minneapolis, Minnesota, and (v)
acquire substantially all of the assets formerly held by Technivision
(collectively the "Transactions"). To obtain, without charge, copies of any
other proxy statement or prospectus contained therein, see "Additional
Information." For a summary discussion of the transactions that are the subject
of such other proxy statement or prospectus ("Other Transactions"), see "Certain
Information Regarding Other Transactions."
THE TSC TRANSACTION (AS HEREINAFTER DEFINED) INVOLVES SUBSTANTIAL RISK. SEE
"RISK FACTORS."
THE INDUSTRY
Wireless cable is an alternative to traditional hard-wire cable television
systems that offers various types of programming including local off-air VHF/UHF
channels (such as ABC, CBS, NBC and Fox) and premium channels (such as HBO,
Showtime, Disney, MTV, etc.). Like traditional hard-wire cable, 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. Generally, this requires that
subscribers 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). See "Wireless
Cable Industry."
THE PARTIES
HEARTLAND WIRELESS COMMUNICATIONS, INC.
General. Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), develops, owns and operates wireless cable television systems
primarily in small to mid-size markets located in the central United States. As
of November 30, 1995, Heartland had wireless cable channel rights in 79 existing
markets representing approximately 8.2 million households, approximately 6.7
million of which Heartland estimates are serviceable by LOS transmissions.
Heartland currently operates wireless cable television systems in 32 markets,
representing approximately 3.4 million households, approximately 2.9 million of
which Heartland estimates are serviceable by LOS transmissions. On November 30,
1995, Heartland's existing wireless cable television systems provided service to
approximately 80,600 subscribers.
3
<PAGE> 1372
Certain of the wireless cable assets presently held by or sought to be
acquired by Heartland pursuant to the Transactions are not included in the
discussion of Heartland's business because such assets are not part of
Heartland's current long-term business plan (the excluded assets being
collectively referred to as the "Heartland Disposition Assets"). Heartland is
currently pursuing opportunities to dispose of the Heartland Disposition Assets
and expects to sell, contribute or exchange such assets in one or more
transactions. See "Summary -- The Combined Company -- Planned Divestitures."
Although no assurance can be given that any or all of the Heartland Disposition
Assets will be disposed of on terms acceptable to Heartland or when such
transactions might be consummated, if such dispositions are consummated,
Heartland will have acquired pursuant to the Transactions wireless cable channel
rights in nine markets representing an aggregate of approximately 1.3 million
households, approximately 1.0 million of which can be served by LOS
transmissions, and four operating systems serving an aggregate of approximately
37,940 subscribers as of November 30, 1995. Assuming the Transactions are
consummated and the Heartland Disposition Assets are sold, contributed or
exchanged, Heartland would hold wireless cable channel rights in 79 markets (33
operating markets serving approximately 117,000 subscribers) representing
approximately 8.2 million households, approximately 6.8 million of which
Heartland estimates are serviceable by LOS transmission. See "The Combined
Company -- Business of the Combined Company After the Transactions."
Heartland estimates that, within the 79 wireless cable markets following
the consummation of the Transactions and the proposed divestitures,
approximately 2.4 million LOS households, or approximately 36% of Heartland'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 executive offices of Heartland are located at 903 N. Bowser, Suite 140,
Richardson, Texas 75081, and its telephone number is (214) 479-9244. See
"Information Concerning Heartland."
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Heartland. The data was
derived from the more detailed information and the consolidated financial
statements of Heartland appearing elsewhere in this Proxy Statement/Prospectus.
The data should be read in conjunction with "Selected Consolidated Financial
Information of Heartland," "Heartland -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) of Heartland contained elsewhere in
this Proxy Statement/Prospectus. See "Index to Consolidated Financial Statements
and Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- ---------------------------
1992 1993 1994 1994 1995
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................................... $ 205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
Total operating expenses......................... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss................................... (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income (expense), net................... (207) (73,306) (210,113) 60,519 (6,864,367)
Income tax benefit............................... -- -- 1,594,963 649,510 1,307,137
Net loss......................................... (50,822) (406,101) (3,043,321) (1,213,894) (11,178,095)
Net loss per common share........................ $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
Weighted average shares outstanding................ 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
Operating and Other Financial Data:
EBITDA(1)........................................ $ 21,413 $ (98,657) $(2,716,314) $(1,307,652) $ (1,050,936)
Capital expenditures(2).......................... 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
Number of systems in operation (at end of
period).......................................... 1 5 13 8 30
Estimated LOS households in systems in operation
(at end of period)............................... 24,319 371,652 1,108,230 843,904 2,723,365
Subscribers (at end of period)..................... 1,076 2,731 19,838 8,040 64,357
</TABLE>
4
<PAGE> 1373
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995
---------- ----------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted
investments..................................... $ 815,305 $11,985,953 $ 37,155,064
Restricted investments............................ -- -- 24,747,214
Total assets...................................... 8,665,066 77,921,528 200,150,474
Long-term debt, including current portion......... 1,592,529 40,505,852 140,045,039
Total stockholders' equity........................ 4,492,568 30,080,885 48,293,817
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the year ended December 31, 1992 were comprised of
$604,082 for purchases of systems and equipment and $797,655 of expenditures
for leased licenses; for the year ended December 31, 1993, $2,072,937 for
purchases of systems and equipment and $3,068,084 for expenditures for
leased licenses; for the year ended December 31, 1994, $12,414,501 for
purchases of systems and equipment, $3,354,471 for expenditures of leased
licenses, $12,431,379 for the investment in Rural Vision Joint Venture and
$16,300,000 for the purchase of certain assets from Rural Vision Joint
Venture and the acquisition of the Lindsay, Oklahoma system; for the nine
months ended September 30, 1994, $4,011,480 for systems and equipment and
$2,465,265 for leased licenses and $11,649,908 for the investment in
RuralVision Joint Venture; and for the nine months ended September 30, 1995,
$25,575,252 for purchases of system and equipment, $1,592,024 for
expenditures for leased licenses, $5,426,432 for the investment in Rural
Vision Joint Venture and $11,422,814 for the acquisition of wireless cable
television systems in Lubbock, Texas and Tulsa, Oklahoma and the acquisition
of certain additional assets from Rural Vision Joint Venture.
THREE SIXTY CORP.
General. Three Sixty Corp., a New Jersey corporation ("TSC"), is the former
parent of TechniVision, Inc., a Texas corporation ("Technivision"). Technivision
was merged into TSC in January 1996 in order to facilitate the TSC Transaction.
Prior to its merger into TSC, Technivision developed, owned and operated
wireless cable television systems in Corpus Christi, Texas and Dayton, Ohio. In
addition, Technivision owned the rights to develop and operate a wireless cable
television system with 27 channels in El Paso, Texas (collectively with the
Corpus Christi system and the Dayton system, the "TSC Systems"). Technivision
management estimates that the Corpus Christi, El Paso and Dayton markets have
approximately 795,000 households of which 588,000 are serviceable by LOS
transmissions. The Corpus Christi system, which was launched in April 1990,
provides 31 channels of service, including six off-air local television
stations, to approximately 15,468 subscribers as of November 30, 1995. The
Dayton system, which was launched in November 1993, provides 31 channels of
service, including five off-air local television stations, to approximately
3,242 subscribers as of November 30, 1995.
In addition to the TSC Systems, TSC owns and operates two SMATV systems in
New Jersey and engages in certain other business activities. See "The TSC
Transaction -- Other Assets." Because the TSC Transaction relates only to the
TSC Systems, no description of the other business activities of TSC is contained
in this Proxy Statement/Prospectus. Unless the context otherwise requires,
references herein to TSC relate to TSC as successor to Technivision.
The executive offices of TSC are located at 120 Floral Avenue, New
Providence, New Jersey and its telephone number is (908) 665-0094. See
"Information Concerning TSC."
5
<PAGE> 1374
Summary Historical Financial Information. The following table sets forth
summary historical financial and operating data for Technivision. The data was
derived from the more detailed information and the financial statements of
Technivision appearing elsewhere in this Proxy Statement/Prospectus. The data
should be read in conjunction with Selected Financial Information of TSC,"
"TSC -- Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements (including the notes thereto) of
Technivision contained elsewhere in this Proxy Statement/Prospectus. See "Index
to Consolidated Financial Statements and Unaudited Pro Forma Financial
Information."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
-------------------------------------- ------------------------
1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................................ $3,903,922 $5,439,575 $6,756,133 $3,371,705 $3,332,351
Total operating expenses........................ 5,304,204 8,027,539 9,069,832 4,548,518 4,413,488
Operating loss.................................. (1,400,282) (2,587,964) (2,313,699) (1,176,813) (1,081,137)
Interest expense, net........................... (1,063,620) (959,647) (1,338,292) (543,326) (674,295)
Net loss........................................ (2,463,902) (3,652,611) (289,761) (1,720,139) (1,502,080)
Other Financial Data:
EBITDA(1)....................................... $ 577,070 $ (216,073) $ 310,037 $ 146,849 $ 218,466
Capital expenditures(2)......................... $1,255,104 $4,645,998 $1,678,178 $ 501,726 $ 603,216
</TABLE>
<TABLE>
<CAPTION>
MAY 31,
------------------------ NOVEMBER 30,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................................ $ 3,197 $ 51,637 $ 78,124
Total assets............................................................. 14,358,235 14,877,585 14,551,185
Long-term debt, including current portion................................ 19,053,522 17,242,089 18,338,157
Total stockholders' deficit.............................................. (8,342,640) (6,882,947) (8,385,027)
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the fiscal year ended May 31, 1993 were comprised
of $1,225,104 for purchases of systems and equipment; for the fiscal year
ended May 31, 1994 were comprised of $4,506,900 for purchases of systems and
equipment and $139,098 for expenditures for leased licenses; for the fiscal
year ended May 31, 1995 were comprised of $1,514,822 for purchases of
systems and equipment and $163,354 for expenditures for leased licenses; for
the six months ended November 30, 1994 were comprised of $501,726 for
purchases of systems and equipment; and for the six months ended November
30, 1995 were comprised of $603,216 for purchases of systems and equipment.
THE TSC MEETING
Time, Place and Date. A Special Meeting of Stockholders of TSC (the "TSC
Meeting") is scheduled to be held on February 22, 1996 at 120 Floral Avenue, New
Providence, New Jersey 07974, commencing at 10:00 a.m. local time.
Record Date; Shares Entitled to Vote. Holders of record of TSC common
stock, no par value ("TSC Common Stock"), at the close of business on January
17, 1996 (the "TSC Record Date") will be entitled to notice of, and to vote at,
the TSC Meeting. At the close of business on the TSC Record Date, 6,976 shares
of TSC Common Stock were issued and outstanding. Each outstanding share of TSC
Common Stock is entitled to one vote with respect to each matter to be voted on
at the TSC Meeting.
Purpose. At the TSC Meeting, TSC's stockholders will consider and vote upon
a proposal to approve the Amended and Restated Asset Purchase Agreement, dated
as of October 19, 1995 ("TSC Agreement"), by and among Heartland, TSC and
Technivision, Inc., formerly a subsidiary of TSC that has been merged with and
into TSC ("Technivision"), pursuant to which (a) TSC will sell to Heartland
substantially all of the assets formerly held by Technivision, consisting of
wireless cable television assets in Dayton, Ohio, Corpus Christi, Texas and El
Paso, Texas, and (b) Heartland will issue to TSC that number of newly issued
publicly
6
<PAGE> 1375
tradeable shares ("TSC Shares") of Heartland Common Stock, par value $.001 per
share ("Heartland Common Stock"), having an aggregate exchange value of (i)
$36.75 million plus (ii) $1,200 for each wireless cable television subscriber on
the fifth business day preceding the consummation of the TSC Agreement (or
February 15, 1996 based upon a contemplated closing date of February 23, 1996)
in excess of amounts specified in the TSC Agreement (currently estimated to be
$1.5 million, provided that the aggregate of such additional subscriber
consideration will not exceed $3.5 million), minus (iii) the amount of any
obligations assumed by Heartland (not to exceed $5 million, and anticipated to
be $5 million), minus (d) if the wireless cable television assets relative to
the Dayton, Ohio market are sold prior to the consummation of the TSC Agreement,
certain proceeds thereof to be retained by TSC. As a part of the approval of the
TSC Agreement, the TSC stockholders will be asked to approve the liquidation and
dissolution of TSC (the "TSC Liquidation") in accordance with the terms and
conditions of the Agreement and Plan of Liquidation attached as Appendix C to
this Proxy Statement/Prospectus (the "TSC Liquidation Plan"); pursuant to which
the Heartland shares (and the remaining assets of TSC) will be distributed. See
"The TSC Transaction -- Other Assets."
Vote Required. The affirmative vote of a majority of the votes cast by the
holders of the TSC Common Stock is necessary to approve the TSC Agreement and
the TSC Transaction. Abstentions and broker non-votes will have no effect on the
approval of the TSC Transaction (assuming a majority of the shares of TSC Common
Stock is present at the Special Meeting.) The percentage of currently
outstanding shares of TSC Common Stock entitled to vote by TSC directors,
executive officers and their affiliates, (assuming exercise in full of options
to purchase TSC Common Stock held by such persons) is 50%, or 3,757 shares of
TSC Common Stock. Pursuant to the New Jersey Business Corporation ("NJBCA") Act,
holders of TSC Common Stock who vote against the TSC Transaction and comply with
the detailed provisions contained in Chapter 11 of the NJBCA will be entitled to
dissent from the TSC Transaction and to seek payment of the fair value of the
TSC Common Stock. A copy of Chapter 11 of the NJBCA is reproduced as Appendix D
hereto. AT THE TSC SPECIAL MEETING, THE TSC STOCKHOLDERS WILL BE ASKED TO
APPROVE AND ADOPT THE TSC AGREEMENT, THE TSC LIQUIDATION PLAN AND THE
TRANSACTIONS RELATED THERETO AS A PART OF ONE APPROVAL. THE TSC STOCKHOLDERS ARE
NOT BEING REQUESTED, AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT
THE TSC AGREEMENT, TSC LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
BECAUSE AN EXECUTED PROXY CARD WILL BE VOTED "FOR" THE TSC TRANSACTION UNLESS
OTHERWISE SPECIFIED, A STOCKHOLDER RETURNING A SIGNED BUT UNMARKED PROXY CARD
WILL WAIVE HIS OR HER RIGHT TO DISSENT TO THE TSC TRANSACTION.
THE TSC TRANSACTION
Asset Purchase; Consideration. Pursuant to the TSC Agreement, TSC will sell
to Heartland substantially all of the assets formerly held by Technivision,
consisting of wireless cable television assets in Dayton, Ohio, Corpus Christi,
Texas and El Paso, Texas, and Heartland will issue to TSC the TSC Shares having
an aggregate exchange value of (a) $36.75 million plus (b) $1,200 for each
wireless cable television subscriber on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996) in excess of amounts specified
in the TSC Agreement (currently estimated to be $1.5 million, provided that the
aggregate of such additional subscriber consideration shall not exceed $3.5
million) minus (c) the amount of any obligations assumed by Heartland (not to
exceed $5 million and currently estimated to be $5 million), minus (d) if the
wireless cable television assets relative to the Dayton, Ohio market are sold
prior to the consummation of the TSC Agreement, certain proceeds thereof to be
retained by TSC. Pursuant to the terms of the TSC Agreement, TSC Shares having
an aggregate exchange value of $5 million will be held in escrow for a period of
approximately 18 months to satisfy certain indemnification obligations of TSC to
Heartland, and TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be held in a separate escrow
for up to six months (subject to extension) to secure the performance of certain
post-closing covenants of TSC. The exchange value for the shares of Heartland
Common Stock to be issued in the TSC Transaction will be equal to the average
closing price of the Heartland Common Stock as reported on the Nasdaq-NMS over
the 20-trading-day period ending on the fifth business day preceding the
consummation of the TSC Agreement (or
7
<PAGE> 1376
February 15, 1996 based upon a contemplated closing date of February 23, 1996).
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS
REPORTED ON THE NASDAQ-NMS OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY 12,
1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED
CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, TSC STOCKHOLDERS WILL
BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE TSC
STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. SEE "THE TSC
MEETING -- PROXIES" FOR INFORMATION REGARDING THE REVOCABILITY OF TSC PROXIES.
Heartland, at its option, may terminate the TSC Agreement if such average
closing price is below $16 per share. Heartland currently intends to exercise
such right, if applicable. As a result, a maximum of 2,515,625 shares of
Heartland Common Stock (assuming $3.5 million in additional subscriber
consideration and the assumption of no liabilities at closing) are issuable in
connection with the TSC Transaction. See "The TSC Transaction -- Terms of the
TSC Agreement." Please see "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions" for the
calculation of the maximum and anticipated number of shares of Heartland Common
Stock issuable at various closing averages in connection with the Transactions.
Distribution, Dissolution and Liquidation. As a part of the approval of the
TSC Agreement, the TSC stockholders will be asked to approve the TSC Liquidation
Plan, pursuant to which the TSC Shares (and the remaining assets of TSC) will be
distributed. See "The TSC Transaction -- Other Assets." To facilitate the
distribution of the TSC Shares, Harris Trust Company of New York has been
selected to act as an exchange agent (the "Exchange Agent") for the purpose of
effectuating the delivery of the TSC Shares. Pursuant to the terms of the TSC
Agreement and the Exchange Agent Agreement ("TSC Exchange Agreement"), among
Heartland, TSC and the Exchange Agent (to be executed concurrently with the
closing of the TSC Transaction), Heartland will deliver to the Exchange Agent
the TSC Shares for distribution on behalf of TSC in accordance with the terms of
the TSC Liquidation Plan. The Board of Directors of TSC anticipates that upon
the consummation of the TSC Transaction, TSC Shares having an aggregate exchange
value of approximately $20 million (or approximately $2,865 per share of TSC
Common Stock) will be delivered as directed by TSC or sold (in the open market
or as otherwise directed by the TSC Board) to satisfy the known and contingent
claims against TSC, and the remaining TSC Shares, less TSC Shares to be escrowed
(currently estimated to have an aggregate exchange value of $13.25 million or
$1,900 per share of TSC Common Stock assuming (i) TSC elects to cause Heartland
to assume $5 million of liabilities at closing, (ii) additional subscriber
consideration of $1.5 million and (iii) the Dayton System is not sold prior to
closing) will be available for distribution to the TSC stockholders. Pursuant to
the terms of the TSC Agreement and the TSC Exchange Agreement, TSC Shares having
an aggregate exchange value of $5 million will be placed in escrow for
approximately 18 months to satisfy certain indemnification obligations of TSC to
Heartland, and TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be placed in escrow for up
to six months (subject to extension) to satisfy certain post-closing obligations
of TSC to Heartland regarding third party consents to the transfer of certain
assets to Heartland. Promptly after the closing under the TSC Agreement,
Heartland will cause the Exchange Agent to send to each TSC Stockholder a Letter
of Transmittal advising such holder of the terms of the exchange and the
procedures for surrendering TSC Stock Certificates in exchange for the
consideration provided for in the TSC Agreement. ELECTIONS BY TSC STOCKHOLDERS
MADE IN THE LETTER OF TRANSMITTAL ARE IRREVOCABLE. TSC STOCKHOLDERS ARE
REQUESTED NOT TO SURRENDER THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER
OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE AGENT. SEE "THE TSC
TRANSACTION -- TERMS OF THE TSC AGREEMENT."
Recommendation of the TSC Board of Directors; Reasons for the TSC Transaction.
The TSC Board has approved the TSC Agreement and believes the transactions
contemplated thereby are fair to, and in the best interests of, the stockholders
of TSC. Accordingly, the TSC Board unanimously recommends that the stockholders
of TSC vote FOR approval of the TSC Agreement and TSC Transaction.
8
<PAGE> 1377
For a discussion of the background of the TSC Agreement and the factors
considered by the TSC Board in reaching its decision to approve the TSC
Agreement. See "The TSC Transaction -- Background of the TSC Transaction" and
"-- Recommendation of the TSC Board; Reasons for the TSC Transaction."
TSC Financial Advisor. TSC has retained Gerard Klauer Mattison & Co.,
L.L.C. ("GKM") to advise TSC with respect to the sale of Technivision's wireless
cable television assets. However, TSC did not request that GKM render an opinion
regarding the fairness of the consideration to be received by the stockholders
of TSC pursuant to the TSC Agreement. See "The TSC Transaction -- Fairness
Opinion."
Risk Factors. The TSC Transaction involves substantial risk. Among the risk
factors which should be carefully considered by the TSC stockholders, together
with the other information appearing in this Proxy Statement/Prospectus, in
light of their particular investment objectives and financial circumstances,
prior to determining how to vote are: (i) the risks regarding Heartland, (ii)
the financial condition and status of TSC, (iii) the rights of certain creditors
of TSC, (iv) risks relating to the implementation of the TSC Liquidation Plan,
(v) financial and managerial requirements of TSC if it were to continue as a
stand-alone entity, (vi) risks associated with the potential volatility in the
market of the Heartland Common Stock upon the consummation of the Transactions
and subsequent liquidation of shares of Heartland Common Stock to satisfy
certain obligations of the parties to the Transactions, and the potential
adverse effect on the ability of TSC to fulfill its liquidating obligations from
the proceeds of the TSC Shares anticipated to be liquidated pursuant to the TSC
Liquidation Plan, (vii) simultaneously with the TSC Transaction, Heartland
proposes to enter into several other transactions the result of which, if
consummated, will be to substantially increase the number of shares of Heartland
Common Stock outstanding, and (viii) the fact that a substantial number of
shares of Heartland Common Stock will be held in escrow for a substantial period
of time following the consummation of the TSC Agreement to secure certain
obligations of TSC under the TSC Agreement and ultimately may be returned to
Heartland under certain circumstances. See "Risk Factors."
Certain Federal Income Tax Consequences. The TSC Transaction is intended to
be a tax free reorganization pursuant to Section 368(a)(1)(C) of the Internal
Revenue Code. Thus, each TSC stockholder is not anticipated to recognize any
gain or loss on the receipt of the Heartland Common Stock upon dissolution of
TSC and should obtain a basis in the Heartland Common Stock received equal to
the basis in his or her TSC Common Stock. However, notwithstanding Heartland and
TSC's intent to treat the TSC Transaction as a tax free reorganization, no
ruling from the Internal Revenue Service, or tax opinion from counsel, will be
received by either Heartland or TSC concerning such treatment. If the TSC
Transaction is a taxable transaction, TSC would recognize gain or loss as if it
had sold its assets in a fully taxable exchange. Additionally, the TSC Common
Stock holders would recognize gain or loss upon the exchange of TSC Common Stock
for Heartland Common Stock pursuant to the TSC Liquidation Plan. See "The TSC
Transaction -- Certain Federal Income Tax Consequences," "Risk
Factors -- Factors Associated With TSC -- Potential Tax Consequences of the TSC
Transaction."
Accounting Treatment. The TSC Transaction will be accounted for by
Heartland under the "purchase method" of accounting in accordance with generally
accepted accounting principles. See "The TSC Transaction -- Accounting
Treatment."
Dissenters Rights. Pursuant to the New Jersey Business Corporation Act
("NJBCA"), holders of TSC Common Stock who vote against the TSC Transaction and
comply with the detailed provisions contained in Chapter 11 of the NJBCA will be
entitled to dissent from the TSC Transaction and to seek payment of the fair
value of their TSC Common Stock. A copy of Chapter 11 of the NJBCA is reproduced
as Appendix D hereto. See "The TSC Transaction -- Appraisal Rights."
Conditions to Consummation of the TSC Transaction. The consummation of the
TSC Agreement is conditioned upon the fulfillment or waiver (where permissible)
of certain conditions set forth in the TSC Agreement. For a detailed description
of the conditions to the TSC Transactions, see the "TSC Agreement --
Conditions."
Regulatory Approvals. In addition to the federal and state approvals
required in connection with the effectiveness of the Registration Statement of
which this Proxy Statement/Prospectus forms a part, Heartland
9
<PAGE> 1378
and TSC have made or expect to make certain regulatory filings with (1) the FCC
for the transfer of TSC's commercial wireless cable television licenses to
Heartland and (2) the Federal Trade Commission and the Antitrust Division of the
Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). The TSC Agreement is conditioned upon
the notification of expiration of the waiting period under the HSR Act. See "The
TSC Transaction -- Regulatory Approvals."
Termination of the TSC Agreement. The TSC Agreement may be terminated (i)
by mutual consent of Heartland and TSC, (ii) by either Heartland or TSC if the
TSC Agreement has not been consummated by February 29, 1996, and (iii) under
certain other circumstances. See "The TSC Transaction -- Termination."
Comparative Per Share Data. The following table sets forth for the
Heartland Common Stock and the TSC Common Stock certain historical pro forma and
equivalent pro forma per share financial information as of December 31, 1994 and
the year then ended and as of September 30, 1995 and for the nine months then
ended. All such information is presented on a per share basis. Neither Heartland
nor TSC has paid any cash dividends. The pro forma amounts included in the table
below are based on the purchase method of accounting and a preliminary
allocation of the purchase price. The following information should be read in
conjunction with and is qualified in its entirety by reference to the historical
consolidated financial statements and accompanying notes to Heartland and
Technivision and "Pro Forma Financial Information Relative to the Transactions"
and other pro forma financial information included elsewhere in this Proxy
Statement/ Prospectus.
<TABLE>
<CAPTION>
HEARTLAND TSC(2)
--------- ----------
<S> <C> <C>
Book Value Per Share as of
December 31, 1994 (November 30, 1994 for TSC)............... $ 2.71 $(1,332.26)
September 30, 1995 (November 30, 1995 for TSC).............. $ 3.87 $(1,201.98)
Pro Forma Equivalent Book Value Per Share as of September 30,
1995(1)..................................................... $ 12.66 $ 2,041.94
Net Loss Per Share
for the year ended December 31, 1994 (November 30, 1994 for
TSC)..................................................... $ (.30) $ (596.38)
for the nine months ended September 30, 1995 (November 30,
1995 for TSC)............................................ $ (.96) $ (314.12)
Pro Forma Equivalent Net Loss Per Share(1)
for the year ended December 31, 1994........................ $ (.71) $ (114.52)
for the nine months ended September 30, 1995................ $ (.74) $ (119.35)
</TABLE>
- ---------------
(1) The pro forma information for TSC reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Heartland
by the exchange ratio, assuming that (i) 1,133,929 shares of Heartland
Common Stock are issued upon consummation of the TSC Transaction, resulting
in an exchange ratio of one Heartland share for .0062 TSC shares
outstanding, (ii) the closing average and the closing price of Heartland
Common Stock on the closing date of the TSC Transaction is $28, (iii) no
additional subscriber consideration and the assumption by Heartland of $5
million of liabilities, and (iv) all of the Transactions are consummated.
(2) The computations of historical and equivalent per share data for the TSC
Transaction were made using the number of shares of TSC outstanding (6,976
shares), not that of Technivision. Management of TSC believes that the use
of the TSC shares outstanding provides more meaningful data because
Technivision is a wholly owned subsidiary of TSC and represents the only TSC
interests being sold to Heartland.
Comparative Market Price Data. The Heartland Common Stock is listed on the
Nasdaq-NMS under the symbol "HART." The TSC Common Stock is not listed on any
public exchange or automated quotation system, and, as a result, no market price
is available for September 11, 1995.
On September 11, 1995, the last full trading day preceding the public
announcement of Heartland's intent to pursue the TSC Agreement, the closing sale
price per share of Heartland Common Stock was $21.50. As of January 22, 1996,
the closing sale price per share of Heartland Common Stock was $29.25.
Stockholders of TSC are urged to obtain current market quotations for Heartland
Common Stock.
10
<PAGE> 1379
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS
Contemporaneously with the TSC Transaction described in this Proxy
Statement/Prospectus, Heartland proposes to consummate the following
transactions (collectively, the "Other Transactions" and together with the TSC
Transaction the "Transactions") (i) the merger of AWS Merger Sub into AWS
pursuant to the terms of the AWS Merger Agreement; (ii) the acquisition of a
79.99% venture interest in the FTW Venture pursuant to the terms of the FTW
Agreement and other transactions contemplated thereby; (iii) the acquisition of
a 75% interest in the Minneapolis LLC pursuant to the terms of the Minneapolis
Agreement and other transactions contemplated thereby; and (iv) the merger of
CMAX Merger Sub pursuant to the terms of the CMAX Merger Agreement. This Proxy
Statement/Prospectus is one of four proxy statements or prospectuses that are
contained in the Registration Statement of which this Proxy Statement/Prospectus
forms a part. To obtain, without charge, copies of any other proxy statement or
prospectus contained therein, see "Additional Information." For a summary
discussion of the Other Transactions that are the subject of such other proxy
statements or prospectuses, See "Certain Information Regarding Other
Transactions." There can be no assurance that any or all of the Other
Transactions will be consummated.
THE COMBINED COMPANY
Generally. Following the consummation of the Transactions and the
disposition of the Heartland Disposition Assets, if this should occur,
Heartland, together with the combined operations and businesses of one or more
of AWS, CMAX, FTW Venture, Minneapolis LLC and TSC (collectively, the "Combined
Company") will be in the business of developing, owning and operating wireless
cable television systems in primarily small and mid-sized markets within the
central United States. The Combined Company will continue to build out its
existing markets substantially in accordance with the business plan adopted by
the management of Heartland and described herein. Management of Heartland does
not currently anticipate material changes in the Combined Company's business
strategy or market focus, although the Combined Company expects to respond as
its management deems appropriate to changes in its markets or competitive
environment. The Combined Company will continue to aggregate wireless cable
channel rights and locate operations in geographic clusters of small to
mid-sized markets that have a substantial number of households not currently
passed by traditional hard-wire cable. The Combined Company will also continue
its strategy of launching most markets with only 12 channels of programming,
focusing on areas with limited access to local off-air VHF/UHF broadcast
channels. No assurance can be given that any of the Transactions will be
consummated and, if consummated, no assurance can be given that the businesses
combined thereby can be successfully integrated. See "The Combined
Company -- Business of the Combined Company After the Transactions."
Management of the Combined Company. The Combined Company will be managed
after consummation of the Transactions by Heartland's existing management, and
has entered into a noncompetition and consulting agreement with Steven G.
Johnson, the President of AWS. The Combined Company does not expect to retain
executive officers (other than Mr. Johnson under a consulting and noncompetition
agreement) or any significant numbers of management personnel from AWS or CMAX.
No management personnel will be hired from TSC, Minneapolis Partnership or FTW
Partnership. To the extent necessary to maintain customer service and system
launch schedules, the Combined Company may retain certain other employees of
AWS, CMAX or TSC. No member of the Board of Directors of AWS, CMAX or TSC will
continue to serve as a member of the Board of Directors of the Combined Company
following the consummation of the Transactions.
11
<PAGE> 1380
Principal Holders. The following table sets forth (a) the effect of the
Transactions (assuming the consummation of all of the Transactions and an
average closing price during the relevant periods of $28 per share (the
approximate closing average of the Heartland Common Stock over the ten- and
20-day trading periods preceding the date hereof) or $17 per share (the closing
average at which the maximum number of shares of Heartland Common Stock are
issuable pursuant to the Transactions) of Heartland Common Stock and certain
other assumptions as noted) on the amount and percentage of present holdings of
shares of Heartland Common Stock owned beneficially by each holder of five
percent (5%) or more of the shares of Heartland Common Stock and (b) persons
that will beneficially own five percent (5%) or more of the outstanding shares
of Heartland Common Stock outstanding immediately following the Transactions.
See "Information Concerning Heartland -- Calculation and Listing of Shares to be
Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72 4,000,000 17.14 4,000,000 20.65
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, and (iv) CMAX's net liabilities do not exceed specified
amounts. See "Information Concerning Heartland -- Calculation and Listing of
Shares to be Issued in Connection with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other items indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the owner of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
12
<PAGE> 1381
Markets. The following table sets forth certain information with respect to
the markets to be acquired by Heartland in the Transactions.
<TABLE>
<CAPTION>
CURRENT
ESTIMATED CHANNELS NUMBER OF
ESTIMATED LINE-OF- (INCLUDING SUBSCRIBERS AT
TOTAL SIGHT OFF-AIR NOVEMBER 30,
TRANSACTION MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS) 1995
- -------------- -------------------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CMAX Salt Lake City, UT*....... 454,000 434,000 27(2) --
Amarillo, TX(1)(5)........ 90,000 80,000 9(3) --
Athens, TX(1)(5).......... 90,000 60,000 7(3) --
Austin, TX................ 360,000 250,000 31 12,299
Lubbock, TX(1)(5)......... 110,000 100,000 12(4) --
San Antonio, TX*.......... 550,000 440,000 37 11,805
Sherman/Denison, TX(5).... 100,000 90,000 31(6) --
Temple/Killeen, TX........ 110,000 80,000 35 6,312
Waco, TX.................. 100,000 80,000 35 3,860
--------- --------- ------
1,964,000 1,614,000 34,276
--------- --------- ------
AWS Los Angeles, CA*.......... 3,029,500 2,726,500 9(7) --
Minneapolis, MN(8)*....... 958,900 882,200 29 2,744
Fort Worth, TX(8)*........ 539,700 442,500 35(9) 1,554
Dallas, TX*............... 981,500 872,400 16(7) --
Memphis, TN*.............. 376,900 350,600 22(7) --
--------- --------- ------
5,886,500 5,274,200 4,298
--------- --------- ------
TSC Dayton, OH*............... 460,000 300,000 31 3,242
Corpus Christi, TX........ 135,000 108,000 31 15,468
El Paso, TX............... 200,000 180,000 27 --
--------- --------- ------
795,000 588,000 18,710
--------- --------- ------
8,645,500 7,476,200 57,284
========= ========= ======
</TABLE>
- ---------------
* Constitutes part of the Heartland Disposition Assets.
(1) Heartland currently has an operating system in Lubbock, Texas and certain
wireless cable channel rights in the Amarillo and Corsicana/Athens, Texas
markets.
(2) Of these channels, 7 are the subject of pending applications.
(3) Of these channels, an application relating to 4 channels has been dismissed
and is the subject of a reinstatement petition.
(4) Of these channels, 4 are the subject of an appeal by an unsuccessful
applicant for the frequencies.
(5) Currently subleased by Heartland pursuant to a Sublease Agreement with CMAX.
(6) Of these channels, 8 are the subject of uncontested application proceedings.
(7) These systems are not in operation and do not include off-air channels.
(8) Includes acquisition of assets from the FTW Partnership and the Minneapolis
Partnership in the FTW Transaction and Minneapolis Transaction, as the case
may be.
(9) Includes 8 channels which must be co-located at AWS's headend transmission
facility before programming may be effected on these channels.
Planned Divestitures. The Board of Directors of Heartland has identified
the Maysville and Sweet Springs, Missouri, Grand Rapids/Moline Michigan, Bloom
Center/Napoleon, Indiana and Flippin, Tennessee markets currently owned by
Heartland, and the Los Angeles, California, Dallas, Fort Worth and San Antonio,
Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake City, Utah and Minneapolis,
Minnesota markets to be acquired in the Transactions (collectively, the
"Heartland Disposition Assets") as being markets for which Heartland should seek
one or more disposition opportunities for cash, promissory notes, retained
equity interests or a combination thereof. Notwithstanding its determination to
seek the sale, exchange or other disposition of the Heartland Disposition
Assets, Heartland believes that some or all of such markets, properly developed
and operated, offer attractive opportunities to participate in the wireless
cable television industry.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets. Heartland expects to sell the
Flippin market to TruVision for $1.5 million contemporane-
13
<PAGE> 1382
ously with the sale to TruVision by AWS of the Memphis market for $3.9 million
(collectively, the "Memphis Transaction"). Heartland will not retain a direct or
indirect interest in these markets.
Effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or its contributing
subsidiaries) will receive (i) shares of Newco common stock (the "Newco Common
Stock") constituting approximately 39.76% of the outstanding shares of Newco
Common Stock at the closing, (ii) approximately $28.3 million in cash payable by
Newco at the closing, (iii) a promissory note in the principal sum of $25
million payable nine (9) months from the closing and secured by proceeds of a
contemplated issuance by Newco of $125 million of senior discount notes (the
"Newco Financing") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing, and prepayable from asset sales and certain other
events. Within six months of closing, CAI and Heartland will complete certain so
called 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 Newco for each market, increase
or decrease in the number of subscribers in each contributed system from the
number of subscribers stated in the Participation Agreement and related factors.
Following the completion of these calculations, an increase or decrease will
occur in the principal amounts of the promissory notes received by Heartland
from Newco, and CAI will either contribute to or be entitled to a distribution
of cash from Newco, depending upon such calculations.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland); (ii) up to three members designated by Heartland
(provided that at least one of whom may not be an affiliate of either CAI or
Heartland); (iii) the Chief Executive Officer of Newco; and (iv) the Chief
Financial Officer of Newco. The Stockholders Agreement and Newco's Bylaws
further provide that certain major transactions will require the affirmative
approval of at least 70% (or 7 of 9) of the Directors of Newco.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
14
<PAGE> 1383
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "The Combined Company -- Business of the
Combined Company After the Transactions," "-- Planned Divestitures" and
"-- Reasons for the Transactions."
Summary Pro Forma Financial Information. The following table sets forth
summary pro forma financial data of Heartland. The summary unaudited pro forma
statement of operations data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
January 1, 1994, as if such events had occurred on January 1, 1994. The summary
unaudited balance sheet data gives effect to (i) the Transactions and (ii)
various other transactions previously consummated by Heartland subsequent to
September 30, 1995, as if such events had occurred on September 30, 1995. The
information contained in this table should be read in conjunction with "Pro
Forma Financial Information Relative to the Transactions" and other pro forma
financial information appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Statement of Operations Data:
Total revenues................................................ $ 20,091,635 $ 20,757,529
Total operating expenses...................................... 34,716,226 33,264,971
Operating loss................................................ (14,624,591) (12,507,442)
Interest expense, net......................................... 5,303,165 8,789,219
Income tax benefit............................................ 7,282,895 7,839,079
Net loss...................................................... (13,649,455) (14,253,813)
Net loss per common share..................................... $ (.71) $ (.74)
Weighted average shares outstanding........................... 19,230,083 19,280,566
Other financial data:
EBITDA(1)..................................................... $ (3,449,980) $ (783,996)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
1995
-------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents, excluding restricted investments.................. $ 68,613,369
Restricted investments....................................................... 24,747,214
Total assets................................................................. 428,093,782
Long-term debt, including current portion.................................... 141,407,486
Total stockholders' equity................................................... 244,133,989
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
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<PAGE> 1384
RISK FACTORS
In addition to the other information in this Proxy Statement/Prospectus,
all of the risk factors listed below should be considered carefully by the
stockholders of TSC. These factors should be considered in conjunction with the
other information included or incorporated by reference in this Proxy
Statement/Prospectus.
FACTORS ASSOCIATED WITH HEARTLAND
LIMITED OPERATING HISTORY; NET LOSSES SINCE INCEPTION
Although Heartland's business commenced in 1990, it did not generate any
revenues until April 1992. As of September 30, 1995, Heartland has recorded net
losses of approximately $14.8 million since inception, due primarily to interest
expense and charges for depreciation and amortization of capital expenditures to
develop its wireless cable systems. Until such time as the Combined Company
substantially increases its subscriber base, resulting in higher subscription
fee revenues, it will continue to experience losses. Because of the costs
associated with launching a wireless cable television system and expanding its
subscriber base, continued growth by the Combined Company will tend to reduce
net income, if any, or increase net losses. As a result, Heartland expects to
continue to experience net losses whether or not the Transactions are
consummated and for an indefinite period thereafter while it develops and
expands its wireless cable systems even if mature individual systems of the
Combined Company are profitable.
SUBSTANTIAL INDEBTEDNESS OF THE COMBINED COMPANY; INSUFFICIENCY OF EARNINGS TO
COVER FIXED CHARGES
The Combined Company will have a high level of indebtedness. As of
September 30, 1995, on a pro forma basis after giving effect to the consummation
of the Transactions, the Combined Company would have had approximately $158.6
million of long-term debt and other liabilities ($8.8 million of which is
attributable to the Transactions) including the current portion of the long-term
debt of $2.0 million. For the years ended December 31, 1992, 1993 and 1994, and
for the nine months ended September 30, 1994 and 1995, Heartland's earnings were
insufficient to cover fixed charges by $50,822, $406,101, $4,638,284, $1,863,404
and $12,485,232, respectively. The ability of the Combined Company to make
payments of principal and interest on its indebtedness will be largely dependent
upon its future financial performance. Many factors, some of which will be
beyond the Combined Company's control (such as prevailing economic conditions),
will affect its financial performance. There can be no assurance that the
Combined Company will be able to generate sufficient cash flow to cover required
interest and principal payments. If the Combined Company is unable to meet
interest and principal payments in the future, it may, depending upon the
circumstances which then exist, seek additional equity or debt financing,
attempt to refinance its existing indebtedness or sell all or part of its
business or assets to raise funds to repay its indebtedness. There can be no
assurance that sufficient equity or debt financing will be available, or, if
available, that it will be on terms acceptable to the Combined Company, that the
Combined Company will be able to refinance its existing indebtedness or that
sufficient funds could be raised through asset sales. The Combined Company's
high level of indebtedness has several important consequences, including, but
not limited to: (i) significant interest expense and principal repayment
obligations resulting in substantial annual fixed charges; (ii) significant
limitations on the Combined Company's ability to obtain financing, make capital
expenditures and acquisitions and take advantage of other business opportunities
that may arise; and (iii) increased vulnerability to adverse general economic
and industry conditions. There can be no assurance that the Combined Company
will be profitable in the future.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
Heartland has experienced rapid growth in the number of its employees and
the scope of its operating and financial systems. This growth has resulted in an
increased level of responsibility for both existing and new management
personnel. The consummation of the Transactions will result in additional
significant growth of Heartland's operations, particularly if the planned
divestiture of assets by Heartland is not consummated. To manage its growth
effectively, Heartland will be required to implement and improve its operating
and financial
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<PAGE> 1385
systems and controls and to expand, train and manage its employee base. In
addition, Heartland may be required to integrate into its business one or more
of the businesses acquired from CMAX, AWS, FTW Venture, the Minneapolis LLC and
TSC, although Heartland anticipates disposing of all of the business acquired
through AWS, the FTW Venture and the Minneapolis LLC. Heartland currently has no
plans for the Combined Company to retain any of the executive officers of AWS,
CMAX or TSC, other than Steven G. Johnson, the President of AWS, with whom
Heartland has entered into a consulting and non-competition agreement. As a
result, the Combined Company will be dependent upon the existing management of
Heartland to assume and perform the management functions formerly performed by
management of each of the parties to the Transactions. To the extent that
Heartland's existing management is unable to assume or perform these combined
duties, the Combined Company could be adversely affected. There can be no
assurance that the management, systems and controls currently in place or any
steps taken to improve such management, systems and controls will be adequate in
the future, whether or not Heartland consummates one or more of the
Transactions.
In addition, promptly following the consummation of the Transactions,
management of the Combined Company will be required to make and implement a
number of strategic and operational decisions regarding the integration of the
entity's various operations and the exploitation of its assets and businesses.
The timing and manner of the implementation of decisions made with respect to
the ongoing business of the Combined Company following the consummation of the
Transactions will materially affect the operations of the Combined Company.
Given the range of potential outcomes arising from such decisions, and the
interrelationships among decisions to be made, it is difficult to quantify with
precision the composition of the Combined Company. There can also be no
assurance that any acquired businesses will be integrated successfully into
Heartland's business.
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of the Combined Company's business requires substantial
investment on a continuing basis to finance capital expenditures and expenses
related to subscriber growth and system development. Although Heartland believes
that its cash and cash equivalent assets will be sufficient to fund the Combined
Company's operations and expansion through at least the end of 1996, there is no
assurance that additional funds will not be necessary to complete the launch,
build-out and expansion of all of the Combined Company's wireless cable systems
and to bring such systems to a mature state or that any such required additional
funds would be available on satisfactory terms and conditions, if at all. In
addition, the Combined Company's capital needs will depend in part upon the
success of Heartland's and the Combined Company's efforts to sell or otherwise
dispose of the Heartland Disposition Assets and the nature of any consideration
received as a result of such dispositions. To the extent assets and markets
designated for disposition are not sold, or are not sold for cash, the Combined
Company's requirements for additional funds will be increased. There is also no
assurance that the Combined Company will not pursue, from time to time, other
opportunities to acquire additional wireless cable channel rights and businesses
that may utilize the capital currently expected to be available for its current
markets. The amount and timing of the Combined Company's future capital
requirements, if any, will depend upon a number of factors, including
programming costs, equipment costs, marketing expenses, staffing levels,
subscriber growth and competitive conditions, and any purchases or dispositions
of assets, many of which are not within the Combined Company's control. Failure
to obtain any required additional financing could materially adversely affect
the growth, cash flow or earnings of the Combined Company.
POTENTIAL SIGNIFICANT INDUSTRY TRANSACTIONS
Significant industry transactions such as acquisitions and dispositions of
channel rights, joint ventures and other business transactions between and among
participants in the wireless cable television industry have occurred with some
frequency in the past, and Heartland's management expects this trend to continue
in the foreseeable future. Although Heartland regularly engages in discussions
concerning such industry transactions with other industry participants,
Heartland is not currently subject to any material definitive agreements in such
regard except as disclosed herein or in those documents incorporated herein by
reference. Whether Heartland proceeds with any of these discussions and whether
the Combined Company ultimately negotiates
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<PAGE> 1386
and/or consummates any additional significant industry transactions will depend,
among other things, upon the business and prospects of the Combined Company,
industry conditions, investment and growth opportunities available to the
Combined Company, stock market conditions, availability and suitability of
financing for such transactions, regulatory and legal considerations, and other
plans and requirements of the Combined Company. No assurance can be given that,
if consummated, any such significant industry transactions could be successfully
integrated into the Combined Company's business.
INVESTMENT IN NEWCO
Pursuant to the Newco Transaction, Heartland shall contribute or sell the
Heartland Disposition Assets, other than the Memphis and Flippin, Tennessee
markets to be disposed of in the Memphis Transaction, and the Los Angeles
channel rights (which Heartland will seek to sell directly to a third party), to
Newco in exchange for cash, promissory notes and a retained equity interest. The
Stockholders Agreement provides that Heartland will have the right to appoint
less than a majority of the directors of Newco. Therefore, the Combined Company
will not control the management of Newco, and it will be dependent upon the
skill, expertise and managerial efforts of the management of Newco to achieve a
return on this proposed substantial investment. To the extent that Newco proves
unsuccessful in its business, the value of the Combined Company's investment
therein will be adversely affected. Further, consummation of the Newco
Transaction is subject to significant customary closing conditions. No assurance
can be given that such conditions will be satisfied. See "The Combined
Company -- Business of the Combined Company After the Transactions" and
"-- Planned Divestitures."
DEPENDENCE ON EXISTING MANAGEMENT; KEY EMPLOYEES
Heartland is dependent in large part on the experience and knowledge of
existing management. Heartland has not entered into any employment agreements
with, or obtained key-man life insurance for, any of its executive officers and
there can be no assurance that any of such persons will remain in Heartland's
employ in the future. The Combined Company's success is also dependent upon its
ability to attract and retain qualified employees to develop and operate its
wireless cable systems.
COMPETITION
The pay television industry is highly competitive. Wireless cable
television systems face or may face competition from several sources, such as
traditional hard-wire cable companies, satellite master antenna television
systems, direct broadcast satellites and other alternative methods of
distributing and receiving television transmissions. Further, premium movie
services offered by cable television systems have encountered significant
competition from the home video cassette industry. In areas where several local
off-air VHF/UHF broadcast signals can be received without the benefit of
subscription television, cable television systems also have experienced
competition from the availability of broadcast signals generally and have found
market penetration to be more difficult. In addition, within each market, the
Combined Company initially must compete with others to acquire, from the limited
number of channel licenses issued, rights to a minimum number of channels needed
to establish a viable system. Legislative, regulatory and technological
developments may result in additional and significant competition, including
competition from local telephone companies, from a proposed new wireless service
known as local multi-point distribution and from emerging trends and
technologies. Heartland has targeted its marketing in its Existing Systems (as
hereafter defined) to households that are unpassed by traditional hard-wire
cable and that have limited access to local off-air VHF/UHF broadcast channels.
Accordingly, to date Heartland has not encountered significant direct
competition from traditional hard-wire cable companies. It is likely, given the
markets involved in the Transactions, that the Combined Company will face
significant direct competition from traditional hard-wire cable companies in the
future, especially in the urban markets acquired in the Transactions if the
planned divestiture of such markets described herein is not consummated. The
basic programming package offered in each of Heartland's existing systems is
comparable to that offered by the local traditional hard-wire cable operators.
However, certain of such local traditional hard-wire cable operators currently
offer more premium, pay-per-view and public access channels than Heartland. In
addition, as the telecommunications industry
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<PAGE> 1387
continues to evolve, the Combined Company may face additional competition from
new providers of entertainment and data services. In particular, there are a
rapidly growing number of information and data service providers serving
consumers via informal communications networks, such as the Internet and World
Wide Web. Although the Combined Company is unaware of any such provider
delivering programming like that available over wireless cable television, there
can be no assurance that continuing advances in technology will not make such
delivery possible. Even if such direct competition does not exist in the future,
however, the Combined Company's services will compete, indirectly, with
entertainment services generally, including those provided by operators using
evolving technology. Many actual and potential competitors have greater
financial, marketing and other resources than Heartland. No assurance can be
given that the Combined Company will compete successfully in any or all of its
markets.
GOVERNMENT REGULATION
The right to transmit on wireless cable channels is regulated by the
Federal Communications Commission (the "FCC") and the copyright for the
retransmission of local off-air VHF/UHF broadcasts is regulated by the United
States Copyright Office pursuant to the Copyright Act of 1976, as amended (the
"Copyright Act").
Cable Act. Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992, as amended (the "Cable Act"), the FCC adopted rate
regulations exclusively for traditional hard-wire cable systems. Heartland
cannot predict precisely what effect these regulations or other governmental
regulations may have on traditional hard-wire cable operators as to price and
service. 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 an adverse effect on the
industry as a whole and on Heartland in particular.
Copyright Act. Secondary transmission of a broadcast signal is permissible
only if approved by the copyright holder or if subject to compulsory licensing
under the Copyright Act. The United States Congress recently adopted legislation
extending the compulsory copyright licensing system to include wireless cable
systems. As a result of this action, wireless cable operators may engage in
secondary transmissions of distant programming without the copyright holder's
approval, provided that such operators file certain reports and pay certain fees
set by the Copyright Royalty Tribunal. See "Risk Factors -- Factors Associated
With Heartland -- Dependence on Program Material Agreements."
Regulation of Retransmission. 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 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. Heartland has obtained such
consents in each of its Existing Systems where Heartland is retransmitting on a
wireless cable channel. Such consents will be required in Heartland's other
markets. There can be no assurance that the Combined Company will be able to
obtain such consents on terms satisfactory to the Combined Company.
Other Regulations. Wireless cable operators are also subject to regulation
by the Federal Aviation Administration (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
Combined Company will not be required to incur additional costs in complying
with such regulations and restrictions. No assurance can be given that new
regulations will not be imposed or that existing regulations will not be
changed. Any such new or modified regulations could have a material adverse
effect on the wireless cable industry as a whole and on Heartland and the
Combined Company in particular.
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<PAGE> 1388
DEPENDENCE ON CHANNEL LEASES; LOSS OF LICENSES BY LESSORS
Heartland is dependent, and the Combined Company will be dependent, on
leases with unaffiliated third parties for most of its wireless cable channel
rights. Heartland 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. Heartland's channel
leases typically cover four instructional television fixed service ("ITFS")
and/or one to four multi-point distribution service ("MDS") wireless 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. See
"Wireless Cable Industry -- Regulatory Environment." Under the rules of the FCC,
the term of an ITFS channel lease cannot exceed ten years. There is no such
restriction for MDS channel leases. ITFS licenses generally are granted for a
term of ten 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 Heartland'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
Heartland's channel leases are approximately 5 to 10 years, although certain of
Heartland's channel leases have initial terms expiring during the next several
years. Most of Heartland's leases grant Heartland 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
Heartland being unable to deliver television programming on such channel(s).
Although Heartland does not believe that the termination of or failure to renew
a single channel lease or license would adversely affect the Combined Company,
several of such terminations or failures in one or more markets that Heartland
actively serves could have a material adverse effect on the Combined 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 Heartland'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.
UNCERTAINTY OF GRANT OF PENDING APPLICATIONS
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom Heartland has entered into leases have filed a series
of applications with the FCC for a number of wireless cable channels and
Heartland 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
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<PAGE> 1389
Heartland's lease agreements with applicants for channel licenses involve
channel licenses for which Competing Applications have been filed. In each
market, Heartland 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 Heartland has
acquired channel rights, based upon alleged substantive defects in the applicant
or in technical or other aspects of the application. Heartland anticipates that
the FCC will deny most of the current petitions to deny the applications in
which Heartland has acquired channel rights. However, no assurance can be given
as to the precise number of such petitions that will be denied. Although
Heartland 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 Heartland has acquired channel rights
would adversely affect Heartland, several of such awards or grants could have a
material adverse effect on Heartland.
UNCERTAINTY OF ABILITY TO OBTAIN FCC AUTHORIZATIONS
Wireless cable systems transmit programming over wireless cable channels
that are licensed by the FCC. Generally, Heartland believes that a minimum of
twelve wireless cable channels are necessary to offer a commercially viable
wireless cable system in most rural markets and that more channels are required
in more competitive markets, such as those well served by traditional cable
television systems. In some of its long-term launch markets, Heartland does not
currently have the right to operate twelve channels from the same transmitter
site. In those markets, Heartland is dependent upon (i) the grant of pending
applications for modification of existing licenses for unbuilt ITFS stations,
(ii) the grant of such license modification applications which have not been
filed and/or (iii) the grant of applications for new ITFS licenses, some of
which have not been filed. There can be no assurance that any or all of the
modification applications and new license applications actually made or
anticipated to be made by Heartland will be granted by the FCC. Although
Heartland does not believe that the denial of any single modification or new
license application will adversely affect it, the denial of several such
applications, particularly if concentrated in one or a few of Heartland's
markets, could have a material adverse effect on its growth. See "Wireless Cable
Industry -- Cable Industry Overview" and "-- Regulatory Environment."
INTERFERENCE ISSUES
Under current FCC regulations, a wireless cable operator may install
receive-site equipment and serve any point where its signal can be received,
subject to the interference protection rights of certain other wireless cable
systems. Interference from other wireless cable systems can limit the ability of
a wireless cable system to serve particular points, in the same manner that
interference from one television station limits the ability of a viewer to
receive another television station broadcasting on the same frequency. In
licensing ITFS and multi-point distribution service stations, a primary concern
of the FCC is avoiding situations where proposed stations are predicted to cause
interference to the reception of existing station signals. Pursuant to current
FCC regulations, a wireless cable license holder is generally protected from
interference within 35 miles of the transmission site. Heartland's business plan
involves moving the authorized transmitter site of various of its MDS and ITFS
licensed stations and obtaining the grant of licenses to new stations that
Heartland will use in its wireless cable systems. The FCC interference
protection standards may make one or more of those proposed relocations or new
grants unavailable. In any such event, it may be necessary to negotiate
interference agreements with the licensees of stations which would otherwise
block such relocations or new grants. There can be no assurance that the
Combined Company will be able to negotiate any required interference agreements
on terms acceptable to Heartland. In the event that the Combined Company cannot
obtain interference agreements required to implement its plans for a given
market, the Combined Company may have to curtail or modify operations in that
market. Any substantial modification or curtailment of the Combined Company's
operations in its markets could have a material adverse effect on its growth or
financial performance. In addition, while the Combined Company's leases with MDS
and ITFS licensees require their
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<PAGE> 1390
cooperation, it is possible that one or more of the Combined Company's channel
lessors may hinder or delay the Combined Company's efforts to use the channels
in accordance with its plans for a particular market.
AUCTION OF BASIC TRADING AREAS
As a result of legislation authorizing the FCC to utilize competitive
bidding (auctions) for the award of initial licenses or construction permits for
certain commercial services when mutually exclusive applications have been
filed, on June 15, 1995 the FCC adopted new rules replacing lottery procedures
with auctions for the awarding of commercial licenses where two or more parties
have filed applications for the same frequencies. Auctions under the new rules
began November 13, 1995 for the award of initial commercial licenses for "Basic
Trading Areas" or "BTA's" (as defined by Rand McNally); however, the new auction
rules do not apply when a license is to be renewed. The new rules are effective
although pleadings have been filed which might result in changes in the rules,
and any auctions conducted pursuant thereto. License holders that obtain an MDS
license via an auction must provide interference protection to the 35-mile
protected service area of existing license holders. Under the statutory auction
authority enacted in 1993, ITFS licenses are exempt from the auction process and
applications for ITFS licenses are expected to continue to be awarded according
to the FCC's objective criteria.
DEPENDENCE ON PROGRAM MATERIAL AGREEMENTS
In connection with its distribution of television programming, Heartland is
dependent, and the Combined Company will be dependent, on fixed-term contracts
with various program suppliers. Generally, the terms of such contracts are for
periods of one to five years and began to expire in 1995. Although Heartland has
no reason to believe that any such contracts will be cancelled or will not be
renewed upon expiration, if such contracts are cancelled or not renewed, the
Combined Company will have to seek program material from other sources. There is
no assurance that other program material will be available to the Combined
Company on acceptable terms or at all or, if so available, that such material
will be acceptable to the Combined Company's subscribers. The likelihood that
program material will be unavailable to the Combined Company is significantly
mitigated by the Cable Act and various FCC regulations issued thereunder, which,
among other things, impose limits on exclusive programming contracts and
generally prohibit cable programmers in which a cable operator has an
attributable interest from discriminating against cable competitors with respect
to the price and terms and conditions of sale of programming. Only a few of the
major cable television programming services carried by Heartland are not
currently directly owned by a vertically integrated cable operator, and
Heartland historically has not had difficulty in arranging satisfactory
contracts for these services. The Cable Act is the subject of various legal
challenges and if it were found to be unconstitutional, program suppliers might
raise their prices or make their program material unavailable to the Combined
Company.
PHYSICAL LIMITATIONS OF WIRELESS CABLE TRANSMISSION
Wireless cable programming is transmitted via microwave frequencies from a
transmission facility to a small receiving antenna at each subscriber's
location, which generally requires a direct, unobstructed line-of-sight from the
transmission facility to the subscriber's receiving antenna. Therefore, in
communities with tall trees, hilly terrain, tall buildings or other obstructions
in the transmission path, wireless cable transmission can be difficult or
impossible to receive at certain locations without the use of signal boosters.
Consequently, the Combined Company may not be able to supply services to certain
potential subscribers. In addition, in limited circumstances, extremely adverse
weather can damage transmission and receiving antennas as well as transmit site
equipment.
DIFFICULTIES AND UNCERTAINTIES OF A NEW INDUSTRY
While wireless cable television is not a new technology, it is a relatively
new industry with a short operating history. Potential investors should be aware
of the difficulties and uncertainties that are normally associated with new
industries, such as lack of consumer acceptance, difficulty in obtaining
financing, increasing competition, advances in technology and changes in laws
and regulations. There can be no assurance that the wireless cable industry will
develop or continue as a viable or profitable industry.
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<PAGE> 1391
POSSIBLE ADDITIONAL CAPITAL EXPENDITURES FOR HEARTLAND DISPOSITION ASSETS
No assurance can be given that the planned disposition of the Heartland
Disposition Assets will be consummated. Consummation of such planned disposition
may require, among other items, consents of CAI's lenders to the Newco
Transaction, financing secured by Newco on terms acceptable to CAI and
Heartland, and consents of the licensees to the assignment of channel leases to
Newco, and of the Flippin and Memphis channel rights to TruVision. Accordingly,
Heartland may be required to expend a substantial amount of additional capital
to maintain certain assets and/or fund lease payments attributable to the
Heartland Disposition Assets. Further, no assurance can be given that the
disposition of the Heartland Disposition Assets will have the desired impact on
the Combined Company's business or financial affairs.
POSSIBLE ADVERSE TAX CONSEQUENCES ATTRIBUTABLE TO HEARTLAND DISPOSITION ASSETS
The cash and promissory note portion of the consideration received by
Heartland and/or its subsidiaries from consummation of the Memphis Transaction
and Newco Transaction may result in the recognition of gain for federal income
tax purposes. The amount of any tax liability attributable thereto will depend
upon numerous factors, including the tax basis of the assets conveyed, the net
operating losses available to Heartland and other factors. Certain of these
factors will depend upon the tax attributes of CMAX, AWS and TCS as of the
closing of the Transactions. There can be no assurance that sufficient tax bases
and net operating losses will exist to defray a material amount of any such
gain, thereby requiring Heartland to pay certain tax liabilities to federal
and/or state authorities. Any such payments would negatively impact the Combined
Company's cash flow.
ASSIGNABILITY OF HEARTLAND DISPOSITION ASSETS CHANNEL LEASES
Substantially all of the channel leases associated with the Heartland
Disposition Assets require the consents of the licensees prior to the assignment
thereof. No assurance can be given that such consents will be obtained to the
assignment of such channel leases to Newco in the Newco Transaction. The failure
to obtain any such consents may prevent the Newco Transaction from being
consummated, which could have a material adverse effect on the Combined
Company's business or financial affairs. See "Risk Factors -- Factors Associated
with to Heartland -- Possible Additional Capital Expenditures for Heartland
Disposition Assets." Further, the consent of the FCC is required prior to the
assignment of any MDS channels associated with the Heartland Disposition Assets.
Heartland will take appropriate action to obtain such consents with respect to
such MDS channels to be acquired by Heartland and thereafter conveyed to Newco
as part of any Newco Transaction. Such consents are generally received three to
five months after application is made with the FCC. Although Heartland expects
to lease any acquired MDS channels to Newco as part of any Newco Transaction
pending receipt of server approval, there can be no assurance that the FCC will
consent to the assignment of such licenses to Heartland or Newco.
CERTAIN SUBSIDIARIES NOT WHOLLY OWNED
Heartland generally conducts its business through subsidiaries. Heartland's
subsidiaries include non-operating subsidiaries that hold interests in channels,
subsidiaries that operate systems and subsidiaries that do both. Heartland also
has an operating subsidiary that installs wireless cable systems in various
markets served by Heartland and its subsidiaries. Certain of Heartland's
subsidiaries are not wholly owned and most subsidiaries are indirectly owned by
Heartland as a result of its majority ownership of other entities. Although
Heartland has a sufficient interest in its subsidiaries to be able to exercise
control over them, Heartland may owe a fiduciary duty to the holders of various
minority interests in its subsidiaries. Accordingly, Heartland may not exercise
unfettered control over such subsidiaries and may be required to deal with such
subsidiaries on terms no less favorable to such subsidiaries than could be
obtained from unaffiliated third parties. Heartland believes that all of its
dealings with its subsidiaries have been on such terms. In addition, dividends
or other distributions paid or made by such subsidiaries must be paid or made on
a pro rata basis to all stockholders.
Further, Heartland owns approximately 27% of the outstanding common stock
of Wireless One, Inc., a Delaware corporation ("Wireless One"). Although David
E. Webb and J. R. Holland, Jr., Directors of Heartland, serve as Directors of
Wireless One, Heartland cannot exercise unfettered control over this
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<PAGE> 1392
substantial investment. Similarly, upon consummation of the Newco Transaction,
Heartland will own approximately 39.76% (prior to dilution) of the outstanding
common stock of Newco. Although David E. Webb and J.R. Holland, Jr., Directors
of Heartland, are expected to serve as Directors of Newco, Heartland will not be
able to exercise unfettered control over this proposed substantial investment.
CONTROL BY PRINCIPAL STOCKHOLDERS; AGREEMENT TO VOTE FOR BOARD DESIGNEE OF
JUPITER; CO-SALE-RIGHT
David E. Webb, the President and Chief Executive Officer of Heartland, L.
Allen Wheeler, a member of the Board of Directors of Heartland and Hunt Capital
Group, L.L.C. ("Hunt Capital"), a principal stockholder of Heartland and
affiliate of J. R. Holland, Jr., the Chairman of the Board of Heartland,
collectively own approximately 62.68% of the outstanding Heartland Common Stock
and, if they act together, will be able to control the election of the members
of Heartland's Board of Directors and generally to exercise control over
Heartland's affairs. Assuming consummation of each of the Transactions and an
average closing price of Heartland's Common Stock of $28, such parties will own
approximately 40.81% (33.87% if the maximum number of shares are issued) of the
outstanding common stock of the Combined Company. Accordingly, following
consummation of the Transactions, such persons acting together will not be able
to totally control the election of the members of Heartland's Board of
Directors. Pursuant to the terms of a Stockholders' Agreement (the
"Stockholders' Agreement"), entered into in connection with the private
placement of $40.2 million of 9% Convertible Subordinated Discount Notes due
2004 (the "Convertible Notes"), each of Hunt Capital, David E. Webb and L. Allen
Wheeler, have agreed to vote their shares of Heartland Common Stock (i) in favor
of the election to Heartland's Board of Directors of one designee of the
purchaser of the Convertible Notes ("Jupiter") and (ii) in favor of Heartland's
Board of Directors consisting of at least three and not more than seven members
for so long as Jupiter retains a 25% interest in the Convertible Notes
originally purchased by it and/or the shares of Heartland Common Stock issued or
issuable upon conversion thereof (the "Conversion Shares") originally issuable
to it. The agreement of such stockholders to elect Jupiter's designee to the
Board of Directors may restrict the ability of such stockholders to elect their
preferred slate of directors to manage Heartland, which may result in a member
of the Board of Directors having interests that conflict with those of the other
stockholders of Heartland. In addition, under the terms of the Stockholders'
Agreement, each of Hunt Capital, David E. Webb and L. Allen Wheeler have agreed
that, for so long as Jupiter holds such 25% interest, in the event of any
proposed sale or series of sales of Heartland Common Stock by any such
stockholder to a non-affiliate for aggregate consideration greater than $15
million or representing in excess of 5% of the outstanding Heartland Common
Stock at such time, such stockholder shall not effect such sale unless Jupiter
is permitted to participate in such sale on a pro rata basis with such
stockholder. The co-sale right may reduce the likelihood of a change in control
of Heartland because any potential purchaser of stock held by the controlling
stockholders may also be required to purchase shares owned by Jupiter.
LIMITED TRADING VOLUME AND POSSIBLE VOLATILITY OF HEARTLAND COMMON STOCK
During 1994 and for the first nine months of 1995, the average trading
volume of shares of Heartland Common Stock on Nasdaq-NMS was approximately
22,800 and 34,200 shares per day, respectively. As of December 31, 1995,
approximately 12,611,132 shares of the Heartland Common Stock were issued and
outstanding, including 8,106,825 (including 190,600 shares subject to
exercisable options) shares held by executive officers, directors and their
affiliates. In connection with the Transactions, Heartland may issue up to an
additional 10,721,302 shares (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common Stock
are issuable -- see "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions"), or 6,763,949
shares (based upon a closing average of $28 per share, the approximate closing
average of the Heartland Common Stock over the preceding ten- and 20-day trading
periods) of Heartland Common Stock, some or all of which will be liquidated by
FTW Associates, the Minneapolis Partnership and TSC in connection with their
respective plans of liquidation. In addition, some recipients of Heartland
Common Stock in the Transactions can be expected to immediately dispose of such
shares to meet tax or other obligations. There can be no assurance, given the
relatively low volume of trading typically exhibited by the Heartland Common
Stock that all of those holders seeking to dispose of Heartland Common Stock
will be able to do so
24
<PAGE> 1393
or at what price such shares will be sold if dispositions are made. It is also
possible that there will be much greater volatility in the price of the
Heartland Common Stock during the period immediately preceding the Transactions
and for some time thereafter. Finally, the market price of the Heartland Common
Stock could fluctuate substantially in the future for a variety of reasons,
including performance of the Combined Company, investor expectations for the
Combined Company and the wireless cable television industry, general economic
conditions and fluctuations in the overall stock market. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
NO HEARTLAND COMMON STOCK DIVIDENDS
Heartland has not paid dividends on Heartland Common Stock since its
inception and does not anticipate paying any dividends in the foreseeable
future. In addition, provisions relating to Heartland's indebtedness prohibit
the payment or accrual of dividends or any other distribution with respect to
Heartland's Common Stock until such debt is paid in full. See "Information
Concerning Heartland -- Dividends on and Market Prices of Heartland Common
Stock."
POSSIBLE FUTURE ACQUISITIONS
Heartland has in the past and is in the process of making a number of
acquisitions and may in the future make additional acquisitions. The Combined
Company can be expected to seek to acquire additional channel rights, both in
its existing markets and in other markets, both directly and indirectly by
acquiring other wireless cable television providers. Such acquisitions may be in
geographic areas or markets outside of Heartland's traditional focus of small to
mid sized markets in the central United States. In addition, it is possible that
the Combined Company might make one or more acquisitions outside of the business
of providing wireless cable television services. Any such acquisitions may be
made for cash, securities, including Heartland Common Stock, or combinations
thereof. Under applicable law and regulations, in many circumstances, approval
by the Combined Company's stockholders of any such acquisitions may not be
required. The Combined Company may pay for such acquisitions in cash or by
issuing equity or debt securities. The issuance of equity to effect or finance
such acquisitions would have the effect of reducing the percentage ownership of
the Combined Company held by each pre-acquisition stockholder and the incurrence
of indebtedness in connection with such acquisitions could adversely affect the
liquidity, results of operations and financial condition of the Combined
Company.
RESCISSION RIGHTS OF PARTNERS OF MINNEAPOLIS PARTNERSHIP AND FTW PARTNERSHIP
Prior to the date hereof, American Wireless Systems, Inc., a California
corporation and a predecessor of AWS ("Wireless California"), through an
affiliate, participated in the offer and sale of approximately $29 million of
general partnership interests in three general partnerships, including FTW
Partnership and Minneapolis Partnership, without registration under any federal
or state securities laws. Following an 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 five percent of AWS common stock, without admitting or denying
any wrongdoing, consented to an SEC order to cease and desist from committing or
causing any violation and any future violations of the securities registration
provisions of the Securities Act and the broker-dealer registration provisions
of the Exchange Act. In addition, securities administrators in 22 states also
have 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 rescission 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 interests 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
25
<PAGE> 1394
approximately $566,000, plus interest from the time of investment. AWS has
advised the Arizona Corporation Commission that it does not intend to make such
offer to purchase pending consummation of the transactions described herein.
On September 29, 1995, AWS and the third general partnership in which
interests were sold (the "Pittsburgh Partnership") jointly sold (the "Pittsburgh
Sale") their respective interest in the joint venture operating the wireless
cable television system in Pittsburgh, Pennsylvania to CAI Wireless Systems,
Inc. ("CAI"). General partners holding approximately 72% of the general
partnership interests in the Pittsburgh Partnership (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. There can be no assurance that the
Minneapolis Partners and the FTW Partners who do 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 Heartland, 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 Combined Company based on
a number of theories involving successor liability. The institution of legal
action against the Combined Company arising out of the offer and sale of general
partnership interests by AWS' predecessors could result in substantial defense
costs to the Combined Company and the diversion of efforts by the Combined
Company's management, and the imposition of liabilities against the Combined
Company could have an adverse effect on the Combined Company.
FACTORS ASSOCIATED WITH TSC
HIGHLY LEVERAGED CONDITION; HISTORICAL OPERATING LOSSES; GOING CONCERN OPINION
TSC has assumed significant amounts of indebtedness incurred by
Technivision relative to its shareholders equity in order to fund the capital
expenditures necessary to develop and operate the Technivision systems. At May
31, 1995 after giving effect to the merger of Technivision into TSC, TSC had
approximately $27.1 million of outstanding debt. As a result of the highly
leveraged nature of its operations, TSC has had substantial operating losses
during the five-year period ended May 31, 1995. In addition, at May 31, 1995,
TSC had negative stockholders' equity of approximately $7.8 million. As
described below under "Rights of Creditors," in the event that TSC does not
repay or refinance amounts owed to its major creditor, Philips Credit Corp.
("Philips"), prior to April 30, 1996, Philips has the right to take possession
and control of Technivision's assets. Furthermore, under the terms of a consent
order (the "Consent") entered in connection with the settlement of an
enforcement action brought by the Commission against Greg Parker and certain
related entities, TSC is required to sell the TSC systems and pay to a trust
established by the Commission (the "Trust") $7 million on or before December 31,
1996 (of which approximately $1 million has been paid). In their report on
Technivision's financial statements as of May 31, 1995, KPMG Peat Marwick LLP,
Technivision's independent accountants, have included an explanatory paragraph
that describes factors raising substantial doubt about Technivision's ability to
continue as a going concern. As a result of the merger of Technivision into TSC,
those factors are also applicable to TSC. In the event that the TSC Transaction
is not consummated, TSC may be unable to continue as a going concern.
RIGHTS OF CREDITORS
Pursuant to the terms of a Forbearance Agreement, dated February 27, 1995
and an amendment thereto (amended, as the "Forbearance Agreement"), between
Technivision and Philips, TSC is required to sell the TSC systems on or before
April 30, 1996 and to use the proceeds thereof to repay amounts owed to Philips.
In the event that TSC fails to meet the deadlines established in the Forbearance
Agreement or certain other events of default occur thereunder, Philips has the
right, after April 30, 1996 and pursuant to the terms of applicable security and
other agreements executed by Technivision, to take possession of and to operate
and sell the Technivision systems. In addition, pursuant to the terms of the
Consent, TSC is required to liquidate
26
<PAGE> 1395
the TSC systems on or prior to December 31, 1996. Pursuant to other arrangements
with certain of the creditors of Technivision, those creditors also have the
right to take action to foreclose on certain assets of TSC in the event that
certain amounts are not paid to such creditors when due. The consent of Philips,
the Trust and certain of TSC's other creditors will be required for the
consummation of the TSC Transaction. Because the TSC Liquidation Plan provides
that such parties will receive shares of Heartland Common Stock in satisfaction
of their claims, there can be no assurance that TSC will be able to obtain such
consents. In the event that the TSC Transaction is not consummated, there is a
substantial likelihood that one or more of TSC's creditors will take action to
foreclose upon or otherwise realize upon the value of the TSC systems. See
"Information Concerning TSC -- Business of TSC -- SEC Consent; Arrangements with
Philips Credit Corp."
RISKS RELATING TO TSC LIQUIDATION PLAN
Pursuant to the TSC Liquidation Plan, the assets of TSC (including the
Heartland Common Stock to be received pursuant to the TSC Transaction) will be
used to satisfy the claims of creditors of TSC (or held in a reserve for such
purpose) before any distribution of the remaining assets will be made to TSC
stockholders. No such distribution will be made until all such claims have been
paid or duly provided for. Pursuant to the provisions of the NJBCA, TSC is
required to publish notice of the proposed liquidation to give potential
creditors an opportunity to make their claims against TSC. Although TSC believes
that it has identified and properly accounted for all of the material
liabilities of TSC, there can be no assurance that potential claimants will not
seek to assert claims against the assets of TSC in amounts in excess of the
liabilities recorded on TSC's financial statements. In addition, TSC may be
required to institute litigation to determine the amount of certain claims prior
to making any distribution to TSC stockholders. Accordingly, there can be no
assurance as to the amounts that will ultimately be distributable to TSC
stockholders, if any, or as to the timing of any such distribution. In the event
that TSC makes a distribution to TSC stockholders prior to the final resolution
of all claims against TSC, in certain circumstances creditors of TSC would have
the right to proceed against individual TSC stockholders to recover the amounts
so distributed to such stockholders. TSC currently estimates that approximately
$13.25 million (including amounts which initially will be held in escrow) will
be distributed to TSC stockholders pursuant to the TSC Liquidation Plan,
(assuming (i) TSC elects to cause Heartland to assume $5.0 million of
liabilities at closing, (ii) $1.5 million of additional subscriber consideration
and (iii) the Dayton System is not sold prior to closing) which constitutes less
than all of the shares of Heartland Common Stock to be received by TSC pursuant
to the TSC Transactions. See Appendix C: TSC Liquidation Plan.
POTENTIAL TAX CONSEQUENCES OF THE TSC TRANSACTION
Although the TSC Transaction has been structured so that the consideration
to be received by TSC stockholders is expected to be tax free for federal income
tax purposes (except to the extent that stockholders receive cash in lieu of
fractional share interests), TSC and Heartland do not intend to seek a ruling to
that effect from the Internal Revenue Service (the "IRS"). Furthermore, the TSC
Transaction is not conditioned upon the receipt of an opinion of counsel that
the TSC Transaction will be tax free to TSC stockholders as described above and
no opinion of counsel has been sought. There can be no assurance that the IRS
will not seek to recharacterize the TSC Transaction so as to make the TSC
Transaction taxable to TSC and/or the TSC stockholders. In such circumstances,
TSC might be required to use certain proceeds of the TSC Transaction to satisfy
tax liabilities and/or TSC stockholders would be required to recognize any gain
from the sale of their TSC stock pursuant to the TSC Transaction. See "The TSC
Transaction -- Certain Federal Income Tax Consequences."
FINANCING AND OPERATIONAL REQUIREMENTS
In the event that the TSC Transaction is not consummated, TSC will require
substantial amounts of financing to repay its existing creditors and to finance
the capital expenditures and related expenses necessary for system development
and subscriber growth. Although TSC's future capital requirements would depend
on a number of factors, including subscriber growth, marketing expenses and
staffing costs, as well as other factors not within TSC's control, such as
competitive conditions, programming costs and the status of the capital markets
generally, based on TSC's experiences to date, TSC does not believe that the
required
27
<PAGE> 1396
amounts would be available on terms which would be acceptable to TSC. In
addition, TSC believes that its ability to raise additional equity would be
severely limited because of the cash flow needs of its operating systems and the
large amount of debt currently carried by TSC. Accordingly, there can be no
assurance that TSC would be able to obtain the financing it would require to
continue its operations if the TSC Transaction is not consummated. In the event
that the TSC Transaction is not consummated, TSC will seek to sell the TSC
systems to one or more third parties. Any such sale could result in
substantially lower net proceeds to the TSC stockholders than is currently
contemplated by the TSC Transaction.
TSC's wireless cable television assets also require substantial investments
in the staffing necessary to assure proper management and operations of the
systems. TSC has previously determined to liquidate and wind up its affairs.
Accordingly, during the past two years TSC has concentrated on streamlining its
operations and has eliminated personnel that would be necessary to operate the
TSC systems on a long-term basis. As a result, in the event that the TSC
Transaction is not consummated, TSC would be required to incur substantial costs
to build the infra-structure necessary to operate the systems. There can be no
assurance that TSC would be able to build and maintain the management
infrastructure necessary to operate the TSC systems.
DILUTION OF NEW STOCKHOLDERS
At September 30, 1995, the net tangible book value per share of the
Heartland Common Stock was $(2.09). "Net tangible book value per share of
Heartland Common Stock" represents the amount of total tangible assets less
total liabilities (excluding deferred income taxes) divided by the number of
shares of Heartland Common Stock outstanding. The issuance of the shares of
Heartland Common Stock in connection with the Transactions will result in a pro
forma net tangible book value per share of Heartland Common Stock of $6.58 at
September 30, 1995 assuming 6,688,639 shares of Heartland Common Stock are
issued in the Transactions (based upon the number of shares assumed to be issued
for purposes of the Pro Forma Statements and a closing price of $28 per share).
Thus, TSC stockholders will suffer dilution equal to approximately $21.48 per
share of Heartland Common Stock if all of the Transactions are consummated.
INFORMATION CONCERNING HEARTLAND
THE BUSINESS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems,
primarily in small to mid-size markets located in the central United States.
Heartland has wireless cable channel rights in 79 markets representing
approximately 8.2 million households, approximately 6.7 million of which
Heartland 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).
Heartland 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,
Heartland believes that its wireless cable television service is an attractive
alternative to existing choices for such households. Heartland estimates that
within its 79 wireless cable markets, approximately 2.4 million LOS households,
or 36% of Heartland'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.
Heartland's 79 markets include (i) 32 markets in which Heartland has
systems in operation (the "Heartland Existing Systems"), (ii) nine markets in
which Heartland's system is under construction, (iii) 23 near-term launch
markets in which Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and (iv) 15 long-term launch
markets, including 11 in which Heartland has aggregated sufficient wireless
cable channel rights to commence construction of a system and four in which
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be
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<PAGE> 1397
granted by the FCC within the next 24 months. As of November 30, 1995, Heartland
was providing wireless cable service to an aggregate of approximately 80,600
subscribers through 32 operational systems located in seven states.
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 Heartland 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, Heartland 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 Heartland 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 Heartland
continues to acquire channel rights. See "Information Concerning
Heartland -- The Business -- Business Strategy."
Substantially all of Heartland's subscribers have set-top converters that
are fully "impulse addressable," which will allow its subscribers to receive
impulse pay-per-view programming. Only approximately 35% of traditional
hard-wire cable operators use addressability and approximately 5% use impulse
addressability.
BUSINESS STRATEGY
Heartland's primary business objective is to develop, own and operate
wireless cable television systems in markets in which Heartland 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. Heartland 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. Heartland 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. Heartland attempts to manage system launch
and subscriber growth in order to contain system launch costs and to achieve
positive cash flow rapidly. Typically, Heartland's operating systems achieve
positive monthly operating cash flow upon obtaining an average of approximately
1,500 subscribers. Within a system, Heartland initially directs its marketing at
unpassed households, which typically have limited access to local off-air
VHF/UHF broadcast channels. Accordingly, Heartland 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, Heartland will expand the channel offering and add
subscribers while increasing such system's positive operating cash flow. As of
November 30, 1995, 17 of Heartland'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
1,500 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, Heartland estimates that each additional wireless cable
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<PAGE> 1398
subscriber currently requires an incremental capital expenditure by Heartland 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, Heartland 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, Heartland can further contain
costs by taking advantage of economies of scale in management, sales and
customer service.
Acquisition of ITFS Channel Rights. Because Heartland believes it can
launch service successfully in its markets with as few as 12 channels of
programming, Heartland focuses on development of the 20 available ITFS channels.
See "Wireless Cable Industry -- Regulatory Environment -- General." In most of
Heartland's markets, few, if any, licenses for ITFS channels had been granted by
the FCC to any non-profit educational organizations prior to Heartland's initial
development of such markets. Heartland cooperates with many non-profit
educational organizations in obtaining ITFS licenses from the FCC. Once
Heartland has secured rights to at least 12 ITFS channels in a market, Heartland
believes it can launch a commercially viable system in such market. Heartland
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.
PLANNED DIVESTITURES
Certain of the wireless cable assets currently held by Heartland and
certain of the assets sought to be acquired by Heartland in the Transactions are
not part of Heartland's current long-term business plan, either because they
were inconsistent with Heartland's focus on small to mid-sized markets with a
significant number of LOS households unpassed by traditional hard-wired cable or
because the Heartland Board felt that the consideration to be received in a
disposition thereof might be attractive when compared to developing and
operating a wireless cable system in the market. For example, Heartland will
seek to sell AWS's channel rights in Los Angeles to a third party. Also,
Heartland and AWS have agreed to sell the Flippin and Memphis, Tennessee markets
to TruVision for $1.5 million and $3.9 million, respectively. Further, Heartland
has entered into the Participation Agreement with CAI pursuant to which
Heartland shall convey and sell to Newco the Maysville and Sweet Springs,
Missouri, Grand Rapids/Moline, Michigan, Napoleon/Bloom Center, Indiana, Dallas,
Ft. Worth and San Antonio, Texas, Dayton, Ohio, Salt Lake City, Utah and
Minneapolis, Minnesota markets to Newco for approximately $28.3 million of cash,
$40 million of promissory notes and a retained equity interest of approximately
39.76 percent. Each of these proposed dispositions is subject to significant
customary closing conditions, and no assurance can be given that all or any of
such assets will be disposed of on such terms. In addition, sales of certain
assets to Newco are dependent upon the consummation by Newco of certain
financing transactions. If the divestiture of any of such assets is not effected
as currently anticipated by the Heartland Board, the assets not disposed of will
be held by Heartland until other strategic uses can be found therefor. See "The
Combined Company -- Planned Divestitures."
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<PAGE> 1399
HEARTLAND EXISTING SYSTEMS AND HEARTLAND'S MARKETS
The table below provides information regarding the 79 existing markets in
which Heartland currently has wireless cable channel rights, unless otherwise
noted, as of November 30, 1995.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED NUMBER OF
TOTAL LINE-OF-SIGHT CURRENT SUBSCRIBERS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) CHANNELS(2) NOVEMBER 30, 1995
- ------------------------------------- ---------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
EXISTING SYSTEMS
Ada, OK............................ 30,399 24,319 32 6,508
Wichita Falls, TX.................. 78,290 74,376 28 6,093
Midland, TX........................ 120,037 114,035 26 5,017
Abilene, TX........................ 86,676 82,344 23 4,020
Lawton, OK......................... 97,023 92,172 27 6,334
Laredo, TX......................... 313,406(3) 297,736(3) 27 5,420
Enid, OK........................... 76,602 72,772 21 3,694
Lindsay, OK........................ 51,041 40,833 32 3,267
Ardmore, OK........................ 60,192 51,163 20 3,233
Mt. Pleasant, TX................... 33,589 26,871 16 1,684
Lufkin, TX......................... 117,534 88,150 12 --(4)
Shaw, KS........................... 47,223 42,763 30 3,961
Texarkana, TX...................... 118,204 94,563 20 1,997
Stillwater, OK..................... 54,562 40,922 20 5,428
Lubbock, TX........................ 123,934 105,323 34(5) 5,934
McLeansboro, IL.................... 80,136 60,102 34 859
Vandalia, IL....................... 73,593 55,195 20 1,365
Olney, IL.......................... 67,812 50,859 20 1,195
Lykens, OH......................... 210,800 168,640 20 700
Paragould, AR...................... 77,523 58,500 21 2,157
Sikeston, MO....................... 69,837 52,378 24 2,163
Taylorville, IL.................... 159,596 119,697 20 1,336
Peoria, IL......................... 276,446 248,801 19 762
Manhattan, KS...................... 56,473 42,355 20 945
O'Donnell, TX...................... 68,940 65,493 27 1,053
Olton, TX.......................... 32,548 30,921 28 933
Monroe City/Lakenan, MO............ 46,376 34,782 27 978
Grand Rapids/Moline, MI(6)......... 458,455 343,841 22 216
Sweet Springs, MO(6)............... 64,113 48,085 28 588
Maysville, MO(6)................... 69,307 51,980 25 557
Paris, TX.......................... 55,445 41,584 20 79
Champaign, IL(7)................... 164,992 148,493 23 2,120
--------- --------- ------
Total -- Existing Systems.......... 3,441,104 2,870,048 80,596
========= ========= ======
</TABLE>
31
<PAGE> 1400
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------------- ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION
Corsicana/Athens, TX(9)........................... 69,161 62,245 23(10)
Harper/Freeport, IL............................... 125,269 93,952 20
Hamilton, TX...................................... 28,551 21,413 20
Peaksville, MO.................................... 48,157 36,118 15
Marion, KS........................................ 53,881 40,411 19
Sherman/Denison, TX(12)........................... 100,000 90,000 31(13)
Sterling, KS...................................... 45,213 38,431 24
Strawn/Ranger, TX................................. 34,488 25,866 20
Walnut Grove, IL.................................. 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction....... 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(14)
Adairsville, GA(11)............................... 205,662 154,247 16
Amarillo, TX...................................... 106,670 101,337 26(15)
Anthony, KS....................................... 15,798 11,845 16
Bellflower, MO.................................... 63,384 57,046 20
Bloom Center/Napoleon, IN(6)...................... 140,749 112,599 20
Bluffs, IL........................................ 46,389 34,792 20
Columbia, MO...................................... 149,622 127,179 18
Forrest City, AR.................................. 55,642 41,732 21
Flippin, TN(16)................................... 104,980 83,984 24
Holdenville, OK................................... 50,637 45,573 16
Kossuth, TX....................................... 52,490 39,368 20
Lenapah, OK....................................... 51,921 38,941 12
Mayfield, KY...................................... 175,948 155,972 21
Muskogee, OK...................................... 66,510 53,208 18
Powers Crossroads, GA(11)......................... 135,037 101,278 20
Purdin, MO........................................ 25,001 18,751 20
Rutledge, GA(11).................................. 141,370 106,028 16
Shreveport, LA.................................... 214,315 182,168 24
Springfield, MO................................... 139,706 118,750 16
Tulsa, OK......................................... 321,922 273,634 16
Tyler, TX......................................... 233,416 186,734 14
Weatherford, OK................................... 31,445 29,873 16
Wick, OH.......................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets......... 2,864,712 2,343,917
--------- ---------
LONG-TERM LAUNCH MARKETS(17)
Altus, OK......................................... 30,653 29,120 16
Burnet, TX........................................ 24,917 18,688 16
Charlotte, TX..................................... 32,771 24,578 16
Crow, TX.......................................... 71,421 57,137 12
Des Moines, IA.................................... 267,279 240,551 16
El Dorado, AR..................................... 54,727 38,310 16
Elk City, OK...................................... 26,379 21,103 17
Fischer, TX....................................... 317,039 237,779 20
Henryetta, OK..................................... 31,968 25,574 16
Ingram, TX........................................ 26,235 19,676 20
McAlester, OK..................................... 36,475 25,533 16
Miami, OK......................................... 70,820 60,197 15
</TABLE>
32
<PAGE> 1401
<TABLE>
<CAPTION>
ESTIMATED EXPECTED
ESTIMATED TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDS HOUSEHOLDS(1) LAUNCH(2)(8)
- ---------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Seminole, OK...................................... 42,204 35,873 19
Sabinal, TX....................................... 15,795 11,846 20
Topeka, KS........................................ 211,762 190,586 16
--------- ---------
Total -- Long Term Launch Markets......... 1,260,445 1,036,551
--------- ---------
TOTAL -- ALL COMPANY MARKETS........................ 8,155,207 6,722,122
========= =========
</TABLE>
- ---------------
(1) Estimated Line-of-Sight Households for each market represents Heartland's
estimate of the total number of households within the service area of the
primary transmitter in each market that can receive an unobstructed signal
based on topographical and engineering analysis and other relevant factors.
(2) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(3) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(4) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(5) Includes additional channels subleased pursuant to a Sublease Agreement
with CMAX. Channel capacity has been increased by 12 channels in the
Lubbock System, of which four are the subject of an appeal by an
unsuccessful applicant for the frequencies.
(6) These markets are included in the Heartland Disposition Assets. See "The
Combined Company -- Planned Divestitures."
(7) Heartland consummated the acquisition of the system in Champaign, Illinois
on January 16, 1996.
(8) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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 include channels with respect to which
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(9) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(10) Heartland currently subleases 7 of these channels from CMAX pursuant to a
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(11) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(12) Heartland currently subleases the wireless channel rights in the
Sherman/Denison System pursuant to a Sublease Agreement with CMAX.
(13) Of these channels, 8 are the subject of uncontested application
proceedings.
(14) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(15) Heartland currently subleases 9 of these channels from CMAX pursuant to a
Sublease Agreement, of which an application relating to 4 channels has been
dismissed and is the subject of a reinstatement petition.
(16) Heartland is currently a party to an agreement relating to the disposition
of this market. See "The Combined Company -- Planned Divestitures."
(17) Such markets include six markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC within the
next 24 months. See "Risk Factors -- Factors Associated with
Heartland -- Uncertainty of Grant of Pending Applications."
Existing Systems. Heartland currently has 32 Existing Systems. Heartland
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 Heartland'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 Heartland Existing Systems lease all of their wireless cable channels. The
terms of such leases typically expire 10 years from the license grant date,
ranging
33
<PAGE> 1402
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 Heartland 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. Heartland currently has nine additional systems
under construction, which are located in Corsicana/Athens, Texas (certain
channels of which were subleased from CMAX pursuant to the Sublease Agreement),
Harper/Freeport, Illinois, Hamilton, Texas, Peaksville, Missouri, Marion,
Kansas, Sherman/Denison, Texas (which was subleased from CMAX pursuant to the
Sublease Agreement), Sterling, Kansas, Strawn/Ranger, Texas and Walnut Grove,
Illinois. In each of the systems under construction, Heartland has ordered
equipment to commence construction necessary to transmit on its channels in such
markets.
Generally, Heartland'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.
Near-term and Long-term Launch Markets. In these markets, Heartland has
aggregated or is aggregating additional wireless cable channel rights. In the
near-term launch markets, Heartland has aggregated sufficient wireless cable
channel rights to commence construction of a system. In six of the long-term
launch markets, Heartland has aggregated sufficient wireless cable channel
rights to commence construction of a system and in four of such markets,
Heartland has leases with or options from applicants for channel licenses that
Heartland expects to be granted by the FCC within the next 24 months. The vast
majority of Heartland's channel rights in the long-term 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
Heartland's lease agreements with applicants for channel licenses involve
channel licenses for which Competing Applications have been filed and Competing
Applications may be filed with respect to the applications to be refiled. In
each market, Heartland has carefully considered the FCC's selection criteria in
choosing the educational entities with which it has entered into lease
agreements. Heartland therefore anticipates that a substantial number of the
pending applications and applications to be refiled will be granted by the FCC
over the next 24 months. 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. See "Risk Factors -- Factors Associated with
Heartland -- Dependence on Channel Leases" and "Risk Factors -- Factors
Associated with Heartland -- Uncertainty of Grant of Pending Applications."
Heartland currently plans to finish construction of all systems currently
under construction during the first quarter of 1996. In addition, Heartland
currently expects to construct 20 to 25 additional systems through the end of
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 Heartland to launch wireless cable service
in such markets. Heartland 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.
34
<PAGE> 1403
SYSTEM COSTS
Traditional hard-wire cable systems typically cost significantly more to
build than wireless cable systems. Heartland 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 Heartland 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. Heartland estimates
that each additional wireless cable subscriber currently requires an incremental
capital expenditure by Heartland 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. Heartland 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, Heartland
can further contain costs by taking advantage of economies of scale in
management, sales and customer service. Each of the Heartland'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
Heartland markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
pay-television alternatives: (1) picture quality and reliability, (2) customer
service, (3) programming features and (4) price.
Picture Quality and Reliability. Heartland's transmission facilities use
the latest available technology. Heartland 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 Heartland Existing
Systems. Wireless cable subscribers enjoy substantially outage-free, highly
reliable picture quality because there is no coaxial cable, amplifiers or
processing 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 Heartland Existing Systems, the picture quality of Heartland'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 Heartland's head-end and the
subscriber. See "Risk Factors -- Factors Associated with Heartland -- Physical
Limitations of Wireless Cable Transmission."
Customer Service. Heartland has established the goal of maintaining high
levels of customer satisfaction. In furtherance of that goal, Heartland
emphasizes responsiveness and convenient installation scheduling. Heartland has
established customer retention and referral programs in an effort to obtain and
retain new subscribers. Heartland 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 as
high levels of customer service as Heartland provides. The regulations
authorized under the Cable Act will require traditional hard-wire cable
35
<PAGE> 1404
companies to provide improved customer service which may decrease Heartland's
competitive advantage in this area.
Programming Features. In the Heartland Existing Systems (other than the
Lufkin, Texas System) and markets under construction, Heartland 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, Heartland has the capacity to offer pay-per-view
programming and impulse addressability not currently widely offered by
traditional hard-wire cable operators. Heartland'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 Heartland'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. Heartland offers its subscribers a programming package consisting of
basic service and premium programs. Heartland 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. Heartland 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, Heartland believes it will continue
to be price competitive with traditional hard-wire cable operators with respect
to comparable programming. Heartland'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, Heartland offers a combination package consisting of basic service,
rental of the receive-site equipment and two premium channels for $29.95 per
month.
LEGAL PROCEEDINGS
On June 21, 1995, TruVision Cable, Inc. ("TruVision") filed a lawsuit in
the Circuit Court of Rankin County, Mississippi naming Heartland 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
Heartland interfered with by entering into negotiations and an alleged agreement
with AWS. In its original pleadings, TruVision alleged that Heartland 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 Heartland and actions related thereto. TruVision is also seeking
$20,000,000 in punitive damages. On July 26, 1995, Heartland filed a Motion to
Dismiss this litigation for lack of personal jurisdiction. Heartland intends to
vigorously defend this lawsuit. On November 7, 1995, Heartland and TruVision
entered into an Asset Purchase Agreement providing for the sale by Heartland 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
Heartland shall have the right to raise all defenses and counterclaims
associated therewith.
Certain subsidiaries of Heartland are named as defendants in a lawsuit in
the United States District Court, Western Division of Louisiana, Monroe
Division, commenced on May 15, 1995 by TCG of Monroe, Inc. On May 18, 1995, a
subsidiary of Heartland acquired for $100,000 cash all of the outstanding
capital
36
<PAGE> 1405
stock of Cotton Country Cable, Inc. ("Cotton Country") which held certain
wireless cable channel rights in the Monroe, Louisiana market. Cotton Country
owes its former shareholders $500,000, which sum is subject to offset for any
damages suffered by Cotton Country or Heartland as a result of this lawsuit.
These former shareholders are also named as defendants in the lawsuit. The
plaintiff has requested, among other items, declaratory relief and specific
performance to enforce an alleged prior contract of sale of these cable rights
to it from Cotton Country. Further, the plaintiff sought injunctive relief,
which was denied on August 8, 1995. Heartland believes all claims against its
subsidiaries are without merit and intends to vigorously defend the lawsuit. In
addition, Heartland believes that an adverse outcome, if any, would not have a
material adverse effect on Heartland. In connection with consummation of the
Wireless One Transaction (as hereinafter defined), Heartland conveyed its rights
in the Monroe, Louisiana wireless cable market to Wireless One, and agreed to
indemnify, defend and hold harmless Wireless One from and against this lawsuit.
Heartland is a party, from time to time, to routine litigation or
employment litigation incident to its business. No provision has been reflected
in the Heartland financial statements for any litigation. It is the opinion of
management that no pending litigation matter will have a material adverse effect
on Heartland's financial condition, results of operations or properties.
EMPLOYEES
As of December 31, 1995, Heartland had approximately 790 employees. None of
Heartland's employees is subject to a collective bargaining agreement. Heartland
has experienced no work stoppages and believes that it has good relations with
its employees. Heartland also presently utilizes the services of independent
contractors to build and install certain of its wireless cable systems and
market its services.
PROPERTIES
Heartland leases approximately 5,500 square feet of office space for its
executive offices in Richardson, Texas under a lease that expires September 30,
1998. Heartland pays approximately $35,000 per annum rent for such space.
Heartland 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. Heartland pays $18,000 per annum rent for such space
and the utilities are provided by the owner of the building. Heartland leases
approximately an additional 5,000 square feet of office space in Durant,
Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease that
expires March 1, 2000 subject to a 5-year renewal option. Heartland pays $29,004
per annum rent for such space. Heartland leases approximately an additional
1,126 square feet from an affiliate of Messrs. Webb and Wheeler under a lease
that expires on May 31, 2000. Heartland pays $8,448 per annum rent for such
space and the utilities are provided by the owner of the building. Heartland
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. Heartland pays $16,000 per annum rent for such
space. See "-- Certain Transactions." Heartland 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. Heartland leases
office space for the Heartland Existing Systems and will, in the future,
purchase or lease additional office space in other locations where it launches
other wireless cable systems. Heartland also owns transmission towers or leases
space on transmission towers located in its markets. The current capacity range
of Heartland's transmission facilities is from 10 to 50 watts, capable of
generating a signal over a 35 to 50 mile range. Heartland believes that office
space and space on transmission towers currently is readily available on
acceptable terms in the markets where Heartland intends to operate wireless
cable system.
37
<PAGE> 1406
RECENT TRANSACTIONS
CONSENT SOLICITATION
Between September 12, 1995 and September 29, 1995, Heartland 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 Heartland to consummate the Wireless One Transaction (as
hereinafter defined) and the Transactions and (ii) additionally amend certain
definitions and covenants in the Original Indenture, which imposed restrictions
on Heartland's ability to pursue certain additional acquisition, divestiture,
financing and other opportunities that Heartland believed were necessary to
enhance the value of Heartland. The amendments referred to in (i) and (ii) above
and sought by Heartland in the Consent Solicitation are referred to herein as
the "Proposed Amendments."
In the Original Indenture Heartland 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 Heartland to consummate the Transactions and to
facilitate Heartland's ability to pursue such additional opportunities, if and
when they arise, Heartland engaged in the Consent Solicitation.
The Proposed 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
Proposed 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
Proposed Amendments. Promptly after the effectiveness of the supplemental
indenture including the Proposed Amendments, Heartland 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. Heartland paid an aggregate of
$955,000 to the holders of the Senior Notes in this regard.
EXCHANGE OFFER OF SENIOR NOTES
In connection with the issuance and sale of the Senior Notes, Heartland
agreed (i) to file within 30 days after the date of issuance of the Senior Notes
(the "Issue Date"), and to cause to become effective within 120 days after the
Issue Date (August 24, 1995), a registration statement (the "Exchange Offer
Registration Statement") with respect to a registered offer (the "Exchange
Offer") to exchange the Senior Notes for exchange notes which will have terms
identical in all material respects to the Senior Notes (the "Exchange Notes"),
except that the Exchange Notes will not contain terms with respect to transfer
restrictions, and (ii) upon the Exchange Offer Registration Statement being
declared effective, to offer the Exchange Notes in exchange for surrender of the
Senior Notes. Heartland filed the Exchange Offer Registration Statement with the
Commission on May 5, 1995, but the Exchange Offer Registration Statement has not
yet been declared effective. Since Heartland has not complied with its
registration obligations in a timely manner, it will be 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. The amount of the additional interest will
increase by an additional 0.50% per annum for each subsequent 90-day period
until such obligations are complied with, up to a maximum amount of additional
interest of 2% per annum.
THE WIRELESS ONE TRANSACTION
Effective October 24, 1995, Heartland and certain affiliates of Wireless
One, Inc., a newly formed Delaware corporation ("Wireless One") consummated a
transaction (the "Wireless One Transaction") pursuant to which Heartland 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. Heartland contributed assets
relating to 28 markets, including 16 of which were either previously held for
sale or were markets in which Heartland had not yet aggregated sufficient
wireless cable channel rights to launch a commercially viable wireless cable
system. As a result of the Wireless One
38
<PAGE> 1407
Transaction, and after giving effect to the initial public offering of its
common stock contemporaneously therewith, Heartland became the beneficial owner
of approximately 26% (after exercise of its over-allotment) of the outstanding
common stock of Wireless One.
In connection with the Wireless One Transaction, Heartland granted Wireless
One the option to purchase the wireless cable channel rights of Heartland and
its subsidiaries in certain additional markets located in Florida, for either
Wireless One Common Stock or cash, at Wireless One's option. Further, following
consummation of the Wireless One Transaction, Heartland and Wireless One entered
into a letter of intent providing Wireless One an option, exercisable prior to
February 29, 1996, to purchase the wireless cable channel rights of Heartland in
three markets in Georgia for aggregate consideration of approximately $7.2
million, payable in cash.
Heartland and certain of the Old 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 Heartland
(at least one of whom cannot be an affiliate of Wireless One or Heartland), up
to three of whom will be designated by the Old Wireless One Stockholders who are
parties to the Wireless One Stockholders 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, Heartland 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 Heartland and its affiliates cease to own at least
five percent (5%) of the outstanding Wireless One Common Stock, Heartland 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
Heartland 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 Heartland and its affiliates cease
to own at least five percent (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, Heartland 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").
Heartland agreed to such amendments in connection with Jupiter's agreement to
consent, pursuant to the terms of the Note Purchase Agreement, to the CMAX
Merger. Such amendments included the following:
(a) Heartland'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 Heartland previously
owned or leased 16 or more channels or a lease of channel rights in any
wireless cable market where Heartland 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 Heartland 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;
39
<PAGE> 1408
(c) Heartland'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
Heartland serving as a member of the Compensation Committee of Heartland.
NEWCO TRANSACTION
Effective December 12, 1995, Heartland, CAI and CS Wireless Systems, Inc.,
a Delaware corporation and wholly owned subsidiary of CAI ("Newco"), entered
into a Participation Agreement, pursuant to which Heartland or its subsidiaries
will contribute or sell to Newco the wireless cable assets and all related
liabilities of certain specified Heartland Disposition Assets. Simultaneous with
Heartland's contribution and sale of these assets to Newco, CAI or its
subsidiaries will contribute to Newco all of the outstanding capital stock of
certain of its subsidiaries. See "The Combined Company -- Planned Divestitures."
DIVIDENDS ON AND MARKET PRICES OF HEARTLAND COMMON STOCK
Heartland Common Stock has been traded on the Nasdaq-NMS under the symbol
"HART" since April 28, 1994. On December 31, 1995, there were approximately 92
holders of record of Heartland Common Stock.
The following table sets forth the high and low closing sales prices per
share of Heartland Common Stock as reported on the Nasdaq-NMS for the periods
indicated.
<TABLE>
<CAPTION>
HEARTLAND
COMMON STOCK PRICES
---------------------
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR YEAR 1994:
2nd Quarter*................................................. $ 11.50 $ 10.00
3rd Quarter.................................................. $ 15.50 $ 9.50
4th Quarter.................................................. $ 15.75 $ 11.00
CALENDAR YEAR 1995:
1st Quarter.................................................. $ 17.25 $ 11.75
2nd Quarter.................................................. $ 24.25 $ 15.50
3rd Quarter.................................................. $ 25.75 $ 19.50
4th Quarter.................................................. $ 31.50 $ 27.00
CALENDAR YEAR 1996:
1st Quarter (through January 22, 1996)....................... $ 29.75 $ 28.75
</TABLE>
- ---------------
* From April 28, 1994.
The market quotations in the chart above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. RECIPIENTS OF THIS PROXY STATEMENT/PROSPECTUS ARE
ENCOURAGED TO CHECK THE MOST RECENT MARKET PRICES OF THE HEARTLAND COMMON STOCK.
40
<PAGE> 1409
No dividends have ever been paid or declared on the Heartland Common Stock.
Heartland does not expect to declare any dividends on Heartland Common Stock in
the foreseeable future. In addition, provisions relating to Heartland's
indebtedness prohibit the payment or accrual of dividends or any other
distribution with respect to Heartland's Common Stock until such debt is paid in
full.
On September 11, 1995, the last full trading day prior to the public
announcement of the Transactions, the closing price per share of Heartland
Common Stock as reported on the Nasdaq-NMS was $21.50. On January 22, 1996 the
closing price per share of Heartland Common Stock as reported on the Nasdaq-NMS
was $29.25.
CALCULATION AND LISTING OF SHARES
TO BE ISSUED IN CONNECTION WITH THE TRANSACTIONS
CALCULATION
Generally. The exact number of shares of Heartland Common Stock ultimately
issued in each of the five Transactions will not be determined until the
consummation thereof. In general, and subject to certain maximums and minimums,
the number of shares of Heartland Common Stock to be issued will be determined
by dividing, in the case of each Transaction, a particular dollar amount by the
average trading price of such stock during a period preceding consummation. See
"Certain Information Regarding Other Transactions" and "The TSC
Transaction -- Terms of the TSC Agreement."
Assumptions for Purposes of Calculating Maximum Shares. In determining the
maximum aggregate number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 4,500 wireless cable television subscribers to the Minneapolis
system on the relevant date based upon the capital costs of adding each
additional subscriber and the limited capital resources available, (b) the TSC
Transaction, Heartland has assumed that (i) the aggregate exchange value will
include the maximum additional subscriber consideration attributable to the TSC
Transaction of $3.5 million, (ii) Heartland will not assume any liabilities of
TSC and (iii) the Dayton system will not be sold prior to closing, and (c) the
CMAX Merger, Heartland has assumed that the CMAX net liabilities will not exceed
specified amounts.
41
<PAGE> 1410
The chart below sets forth the maximum number of shares of Heartland Common
Stock issuable in connection with the Transactions, subject to the foregoing
assumptions and assuming that Heartland elects to exercise its right to
terminate each transaction if the relevant closing average is less than the
respective specified amount. Because the number of shares of Heartland Common
Stock issuable in each Transaction either decreases or remains fixed as the
relevant closing average increases, the chart below shows the maximum number of
shares issuable at each price at which Heartland has such a termination right
($10 in the CMAX Merger, $16 in the TSC Transaction, and $17 in the Minneapolis
and FTW Transactions). At closing averages above $17 per share, the aggregate
number of shares issuable in connection with the Transactions begins to decrease
and therefore closing averages above $17 are not relevant to determining the
maximum number of shares of Heartland Common Stock issuable in connection with
the Transactions. As shown below, the maximum aggregate number of shares of
Heartland Common Stock issuable in connection with the Transactions is
10,721,302 shares, based upon a closing average of $17 per share for each
Transaction.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
-----------------------------------
$10 $16 $17
-------- -------- ---------
<S> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate.............................................. (B) 1,700,000 1,700,000
Per Share.............................................. (B) .2978 .2978
FTW Transaction(C)
Aggregate.............................................. (D) (D) 782,353
Per Unit............................................... (D) (D) 536.2255
Minneapolis Transaction(E)
Aggregate.............................................. (D) (D) 1,117,647
Per Unit............................................... (D) (D) 537.5887
CMAX Merger(F)
Aggregate.............................................. 8,081,214 5,050,759 4,753,655
Per Share.............................................. .85 .5313 .5
TSC Transaction(G)
Aggregate.............................................. (D) 2,515,625 2,367,647
Per Share.............................................. (D) 360.6114 339.3989
========= ========= ==========
Total.................................................... 8,081,214 9,266,384 10,721,302
Percent of Outstanding Shares(H)......................... 39.05 42.36 45.95
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on fifth business day preceding the consummation of the CMAX Merger
or TSC Agreement, as applicable (which date is contemplated to be February
15, 1996 based upon a contemplated closing date of February 23, 1996). The
closing average for the AWS Merger, FTW Transaction and Minneapolis
Transaction is the closing price of the Heartland Common Stock over the
ten-trading day period ending on fifth business day preceding the
consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement, as
applicable (which date is contemplated to be February 15, 1996 based upon a
contemplated closing date of February 23, 1996).
(B) Calculation is based upon a merger consideration of $34 million divided by
the exchange price for the AWS Merger (equal to $20 per share for closing
averages less than $20 per share, subject to the right of AWS to terminate
the AWS Merger if such closing average is less than $12 per share). AWS
intends to exercise its termination right, upon which such Transaction will
be abandoned. Accordingly, if the exchange price is less than $20 per share
but not less than $12 per share, the aggregate merger consideration to which
AWS stockholders will be entitled will be correspondingly less than
$34,000,000. Per share calculation based upon 5,709,187 shares of AWS Common
Stock outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 1,459 general
partnership units outstanding.
(D) Heartland intends to exercise its termination right, upon which such
Transaction will be abandoned.
(E) Based upon an acquisition consideration of $19 million divided by an
exchange price (equal to the closing average if the closing average is less
than $23 per share). Per unit calculation based upon 2,079 general
partnership units outstanding.
(F) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
(G) Based upon an acquisition consideration of $40.25 million divided by the
exchange price (equal to the closing average). Per share calculation based
upon 6,976 shares of TSC Common Stock outstanding.
(H) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
42
<PAGE> 1411
Assumptions for Purposes of Calculating Anticipated Shares. In determining
the anticipated number of shares of Heartland Common Stock issuable in
connection with (a) the Minneapolis Transaction, Heartland has assumed that
there will be 3,500 wireless cable television subscribers to the Minneapolis
system on the relevant date, (b) the TSC Transaction, Heartland has assumed (i)
the aggregate exchange value will include the additional subscriber
consideration attributable to the TSC Transaction of $1.5 million, (ii)
Heartland will assume $5 million of liabilities of TSC and (iii) the Dayton
system will not be sold prior to closing, and (c) the CMAX Merger, Heartland has
assumed that CMAX net liabilities will not exceed specified amounts. Because
Heartland and the various parties to the Agreements anticipate that such
assumptions in the relevant Transactions will be true at the closing of each
Transaction, the calculation of the anticipated number of shares of Heartland
Common Stock issuable in connection with the Transactions reflects these
assumptions. Notwithstanding the stated assumptions for determining the
anticipated number of shares of Heartland Common Stock issuable in connection
with the Transactions, no assurance can be given that such assumptions will be
correct on the relevant closing dates. Set forth below is a chart indicating the
anticipated number of shares issuable in connection with each Transaction at
various closing averages, subject to the assumptions set forth above.
<TABLE>
<CAPTION>
CLOSING AVERAGE(A)
---------------------------------------------------------------
$23 $26 $28 $30 $32 $34
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION
AWS Merger(B)
Aggregate..................... 1,478,281 1,307,692 1,307,692 1,307,692 1,307,692 1,307,692
Per Share..................... .2589 .2291 .2291 .2291 .2291 .2291
FTW Transaction(C)
Aggregate..................... 578,261 578,261 578,261 578,261 578,261 578,261
Per Unit...................... 396.3406 396.3406 396.3406 396.3406 396.3406 396.3406
Minneapolis Transaction(D)
Aggregate..................... 804,348 804,348 804,348 804,348 754,076 709,719
Per Unit...................... 386,892 386.892 386.892 386.892 362.711 341.375
CMAX Merger(E)
Aggregate..................... 3,513,571 3,108,159 2,886,148 2,693,738 2,525,379 2,376,828
Per Share..................... .3696 .3269 .3036 .2833 .2656 .25
TSC Transaction(F)
Aggregate..................... 1,445,652 1,278,846 1,187,500 1,108,333 1,039,063 977,941
Per Share..................... 207.2323 183.321 170.226 158.878 148.948 140.1865
========= ========= ========= ========= ========= =========
Total........................... 7,820,093 7,077,306 6,763,949 6,492,372 6,204,471 5,950,441
Percent of Outstanding
Shares(G) ..................... 38.28 35.95 34.91 33.99 32.98 32.06
</TABLE>
- ---------------
(A) The closing average for the TSC Transaction and CMAX Merger is the average
closing price of the Heartland Common Stock over the 20-trading day period
ending on fifth business day preceding the consummation of the CMAX Merger
or TSC Agreement, as applicable (which date is contemplated to be February
15, 1996 based upon a contemplated closing date of February 23, 1996). The
closing average for the AWS Merger, FTW Transaction and Minneapolis
Transaction is the closing price of the Heartland Common Stock over the
ten-trading day period ending on fifth business day preceding the
consummation of the AWS Merger, FTW Agreement or Minneapolis Agreement, as
applicable (which date is contemplated to be February 15, 1996 based upon a
contemplated closing date of February 23, 1996).
(B) Based upon a merger consideration of $34 million divided by the AWS exchange
price (equal to the lesser of the closing average or $26 if the closing
average is equal to or in excess of $20, subject to the right of Heartland
to terminate the AWS Merger if such closing is more than $32 per share).
Accordingly, if the exchange price is more than $26 per share but not more
than $32 per share, the aggregate merger consideration to which AWS
stockholders will be entitled will be correspondingly more than $34,000,000.
Per share calculation based upon 5,709,187 shares of AWS Common Stock
outstanding.
(C) Based upon an acquisition consideration of $13.3 million divided by the
exchange price (equal $23 if the closing average is in excess of $23). Per
unit calculation based upon 1,459 general partnership units outstanding.
(D) Based upon an acquisition consideration of $18.5 million divided by the
exchange price (equal to (i) $23 if the closing average is greater than $23
and less than or equal to $30, and (ii) the closing average times $23,
divided by $30 if the closing average is in excess of $30). Per unit
calculation based upon 2,079 general partnership units outstanding.
(E) Based upon a merger consideration of $80,812,143 divided by the exchange
price (equal to the closing average). Per share calculation based upon
9,507,311 shares of CMAX Common Stock outstanding.
43
<PAGE> 1412
(F) Based upon an acquisition consideration of $33.25 million (assumes $1.5
million of additional subscriber consideration and the assumption of $5.0
million of liabilities) divided by the exchange price (equal to the closing
average). Per share calculation based upon 6,976 shares of TSC Common Stock
outstanding.
(G) Based upon 12,611,132 shares outstanding as of December 31, 1995.
LISTING
The shares of Heartland Common Stock to be issued in connection with the
Transactions will be tradeable on the Nasdaq-NMS. Heartland intends to file the
appropriate Nasdaq National Market Notification Form for Listing of Additional
Shares and notification pursuant to SEC Rule 10b-17 immediately upon closing of
the Transactions and calculation of the exact number of shares of Heartland
Common Stock issuable in connection therewith.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of the date of this
Proxy Statement/Prospectus with respect to each person who is an executive
officer or director of Heartland:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
J.R. Holland, Jr.(1)............... 52 Chairman of the Board
David E. Webb...................... 49 President, Chief Executive Officer and
Director
John R. Bailey..................... 42 Senior Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary
Randy R. Hendrix................... 35 Senior Vice President -- Marketing
Thomas W. Dixon.................... 48 Senior Vice President -- Operations
Robert R. Story.................... 40 Senior Vice President -- Installations
David D. Hagey..................... 35 Vice President, Controller and Assistant
Secretary
Alvin H. Lane, Jr.(2).............. 53 Director
Dennis M. O'Rourke(1).............. 53 Director
John A. Sprague.................... 43 Director
Wes W. Watkins(2).................. 57 Director
L. Allen Wheeler(1)(2)............. 63 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
J. R. Holland, Jr., began advising Heartland as a consultant in October
1992 and became Chairman of the Board of Directors in October 1993. Mr. Holland
has been employed as President of Unity Hunt Resources, Inc. since September
1991. Unity Hunt Resources is a large international, private holding company
with interests in entertainment, cable television, retail, investments, real
estate, natural resources and energy businesses. Mr. Holland is also the
President of Hunt Capital. See "Information Concerning Heartland -- Security
Ownership of Principal Stockholders and Management." From November 1988 to
September 1991, Mr. Holland was Chairman of the Board and Chief Executive
Officer of Nedinco, Inc., a large diversified, international holding company.
Prior to that, Mr. Holland was President and a director of KSA Industries, Inc.,
a private, diversified company involved in entertainment, retail, transportation
and energy businesses, and President and a director of Western Services
International, Inc., a company involved in energy services, equipment and
chemicals. Mr. Holland began his career with Booz-Allen & Hamilton, Inc., a
major management consulting firm. In addition, Mr. Holland is currently a
director of Placid Refining Company, Optical Securities Group, Inc. and Wireless
One, Inc.
David E. Webb, co-founder of Heartland, has been President and Chief
Executive Officer and a director of Heartland since its formation in September
1990. During 1989 and 1990, Mr. Webb began acquiring rights
44
<PAGE> 1413
to wireless cable channels. From 1979 to January 1989, Mr. Webb was a
shareholder, director and manager of Durant Cablevision, Inc. and its
predecessor, a traditional hard-wire cable system company. Mr. Webb has been a
shareholder and director of several media/communications companies involved in
network and independent television stations, AM and FM radio stations, paging
and telephony. Mr. Webb is also a director of Wireless One, Inc.
John R. Bailey, began advising Heartland as a financial consultant in July
1992 and joined Heartland in September 1993 as Vice President -- Finance, Chief
Financial Officer, Treasurer and Secretary. Mr. Bailey was named Senior Vice
President -- Finance, Chief Financial Officer, Treasurer and Secretary in August
1994. From 1988 to September 1993, Mr. Bailey was the founder and Managing
Director of Berkshire Partners, Inc., a private investment bank focusing upon
private placements and mergers and acquisitions for communications clients. From
February 1991 to February 1992, Mr. Bailey was a Senior Vice President and Chief
Financial Officer of Comstock Resources, Inc., an energy company. From October
1989 to February 1991 and from 1980 to September 1985, Mr. Bailey was employed
by Eppler, Guerin & Turner, Inc., an investment bank, as Vice
President -- Corporate Finance. Prior to 1988, Mr. Bailey was employed by Bear,
Stearns & Co., Inc. as an Associate Director and Kidder, Peabody & Co.
Incorporated as a Vice President in Corporate Finance.
Randy R. Hendrix began advising Heartland as a marketing consultant in
January 1991 and joined Heartland as Vice President -- Marketing in September
1993. Mr. Hendrix was named Senior Vice President -- Marketing in August 1994.
From 1986 to January 1991, Mr. Hendrix was employed as a Registered
Representative for the Equitable Life Assurance Society. Prior to that, Mr.
Hendrix served as Marketing Director -- Franchise Development for Curtis Mathis
Corporation, a manufacturer and retailer of electronic appliances.
Thomas W. Dixon began advising Heartland as an operations consultant in
March 1992 and joined Heartland as Vice President -- Operations in September
1993. Mr. Dixon was named Senior Vice President -- Operations in August 1994.
From 1985 to March 1992, Mr. Dixon was employed as a Vice President of Long
Distance Savers, Inc., a long distance telephone company. Mr. Dixon's
responsibilities included opening, staffing and training new company offices, as
well as sales and marketing in the Louisiana-Texas-Oklahoma tri-state area.
Robert R. Story has been an adviser to Heartland since its formation on
construction, installations and related technical matters. Mr. Story also
assisted Heartland with numerous strategic acquisitions. Previously, Mr. Story
was President of United States Wireless Cable, Inc., an Austin, Texas based
wireless cable operator. In connection with Heartland's purchase of the Lubbock
operating system in May 1995, Mr. Story was named Senior Vice
President -- Installations. Mr. Story is responsible for the development of all
residential receive sites, special application installations and the training of
Heartland personnel for these installations. Mr. Story has been a shareholder
and officer of Clear-Vue TV, Inc., Durant Cablevision, Inc. and Green Country
Radio, Inc.
David D. Hagey joined Heartland in June 1994 as Vice President, Controller
and Assistant Secretary. Prior to joining Heartland, Mr. Hagey was employed by
KPMG Peat Marwick LLP for 11 years, most recently as Senior Manager.
Alvin H. Lane, Jr., became a director of Heartland in January 1994. In
1983, Mr. Lane founded, and since then has been the President of, Lane and
Associates, a management consulting firm. Since October 1993, Mr. Lane has been
the President of AHL Finance Company, L.L.C. From 1972 to 1983, Mr. Lane was the
Chief Financial Officer and Secretary of the Dr Pepper Company. Mr. Lane is also
Chairman of the Board of Love Bottling Company, a soft drink bottling franchise.
Dennis M. O'Rourke became a director of Heartland in January 1994. In 1985,
Mr. O'Rourke founded, and since then has been the Chairman of the Board and
Chief Executive Officer of, O'Rourke Companies Inc., a human resources
consulting firm. Prior to that, Mr. O'Rourke was employed in various capacities
by Boise Cascade Corporation, American Hospital Supply Corporation and General
Motors Corporation.
45
<PAGE> 1414
John A. Sprague became a director of Heartland in January 1995. Since March
1994, Mr. Sprague has been the managing partner of Jupiter Partners L.P., an
investment firm. From January 1993 until February 1994, Mr. Sprague was an
independent investor. Prior to that, Mr. Sprague served as a General Partner of
Forstmann Little & Co., an investment firm. Mr. Sprague is also a director of
Insignia Financial Group, Inc.
Wes W. Watkins became a director of Heartland in January 1994. Since
January 1991, Mr. Watkins has been the President of World Export Services, Inc.,
a company that invests in telecommunications, real estate and oil production.
Mr. Watkins is also the Secretary and Representative for international trade for
the State of Oklahoma. From January 1991 until December 1993, Mr. Watkins was
the President of Global Communications, Inc., a wireless cable and satellite
telecommunications consulting corporation. Prior to that, Mr. Watkins served for
14 years as a member of the House of Representatives of the United States
Congress from the State of Oklahoma, serving on the Banking, Finance and Urban
Affairs Committee and the House Appropriations Committee.
L. Allen Wheeler, co-founder of Heartland, has served as a director of
Heartland since its formation in September 1990. Mr. Wheeler has owned and
managed diversified investments through Allen Wheeler Management, Inc., a
personal holding company, for over 20 years. Mr. Wheeler's investments have
emphasized the media/communications industries. Mr. Wheeler has been a
shareholder, director and officer of several media/communications companies
involved in network and independent television stations, AM and FM radio
stations, paging and telephony. Mr. Wheeler is currently Chairman and Chief
Executive Officer of Green Country Radio, Inc., which owns and operates one AM
and one FM radio station and a television station.
Executive officers serve at the discretion of the Board of Directors. All
directors serve on the Board of Directors of Heartland until the next annual
meeting of stockholders of Heartland and until their successors are elected and
qualified. Non-employee directors receive an annual fee of $5,000 and a meeting
fee of $500 per meeting attended, plus reimbursement of out-of-pocket expenses,
for their services as directors of Heartland. In addition, each non-employee
director of Heartland (other than Mr. Wheeler) is entitled to receive stock
options under Heartland's Stock Option Plan for Non-Employee Directors for his
services as a director. See "Information Concerning
Heartland -- Management -- Stock Option Plans." Directors who are also employees
do not receive any additional compensation for their services as directors.
The Board of Directors has established two committees. The Compensation
Committee is comprised of Messrs. Holland, O'Rourke, Wheeler and Sprague and
makes recommendations to the Board with respect to general compensation and
benefit levels, determines the compensation and benefits for Heartland's
executive officers and administers Heartland's Employee Stock Option Plan. The
Audit Committee is comprised of Messrs. Lane, Watkins and Wheeler and oversees
the activities of Heartland's independent auditors and internal accounting
controls.
46
<PAGE> 1415
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation of Heartland's
Chief Executive Officer and each other executive officer of Heartland who earned
in excess of $100,000 in annual salary and bonus during Heartland's fiscal year
ended December 31, 1994 (collectively, the "Named Executive Officers"), for
services rendered in all capacities to Heartland during Heartland's fiscal years
ended December 31, 1994 and 1993, respectively.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
TERM
COMPEN-
SATION
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------ SECURITIES
OTHER UNDERLYING ALL
ANNUAL OPTIONS/ OTHER
SALARY BONUS COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)
- --------------------------------------------- ---- -------- ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb................................ 1994 $120,000 $ -- $7,306 -- $ 13,228(2)
President and Chief Executive Officer 1993 60,750(3) -- -- -- 2,250(2)
John R. Bailey............................... 1994 90,000 45,000 4,200 100,000 --
Senior Vice President -- Finance, Chief 1993 94,850(3) -- -- -- --
Financial Officer, Treasurer and Secretary
Randy R. Hendrix............................. 1994 90,000 45,000 6,668 130,000 --
Senior Vice President -- Marketing 1993 59,782(3) -- -- -- --
Thomas W. Dixon.............................. 1994 81,000 45,000 4,200 50,000 --
Senior Vice President -- Operations........ 1993 30,000(3) -- -- -- --
</TABLE>
- ---------------
(1) Other annual compensation is comprised of car allowances.
(2) Rental income paid by Heartland for its operating offices. See "Information
Concerning Heartland -- The Business -- Properties" and "Information
Concerning Heartland -- Certain Transactions."
(3) Paid by Heartland in the form of consulting fees.
Since April 1994, Mr. Holland's annual base compensation for the fiscal
year ended December 31, 1994, was $120,000. Such compensation is paid to Mr.
Holland by Unity Hunt Resources, Inc., an affiliate of Hunt Capital, which
receives a management fee equal to such amount from Heartland for the provision
of Mr. Holland's services. Mr. Holland devotes approximately 20 hours per week
to Heartland. See "Information Concerning Heartland -- Certain Transactions."
The following table sets forth, for the fiscal year ended December 31,
1994, the number of individual grants of stock options made during such fiscal
year to each of the Named Executive Officers. All options granted during the
last fiscal year were granted pursuant to the 1994 Employee Stock Option Plan
(the "Employee Option Plan") at an exercise price equal to the fair market value
on the date of grant.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL PRICE APPRECIATION FOR
OPTIONS/ OPTIONS/SARS EXERCISE OPTION TERM(1)
SARS GRANTED TO OR BASE ----------------------
GRANTED(2) EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ----------------------- ---------- ------------ -------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David E. Webb.......... 0 N/A N/A N/A N/A N/A
John R. Bailey......... 100,000 18.8% $10.50 April 21, 2001 $427,500 $ 996,200
Randy R. Hendrix....... 130,000 24.5% $10.50 April 21, 2001 $555,700 $1,295,000
Thomas W. Dixon........ 50,000 9.4% $10.50 April 21, 2001 $213,700 $ 498,100
</TABLE>
47
<PAGE> 1416
- ---------------
(1) Potential realizable value is based on the assumption that the price of
Heartland Common Stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the seven-year option
term. The values are calculated in accordance with rules promulgated by the
Commission and do not reflect Heartland's estimate of future stock price
appreciation.
(2) All options granted are non-qualified options granted at an exercise price
equal to fair market value on the date of grant, are 40% vested and will
continue to vest at a rate of 20% per year, subject to acceleration upon
the death of the optionee or termination of the optionee following a Change
of Control (as defined in the option agreements), and have a term of seven
years.
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1994, by each of the
Named Executive Officers and the number of options held at fiscal year end and
the aggregate value of in-the-money options held at fiscal year end.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED OPTION/SARS AT OPTION/SARS AT
ON VALUE FISCAL-YEAR-END FISCAL-YEAR-END
EXERCISE REALIZED (#) ($)
(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David E. Webb.................. 0 N/A N/A N/A
John R. Bailey................. -- -- 40,000/60,000 $ 90,000/$135,000
Randy R. Hendrix............... -- -- 52,000/78,000 $117,000/$175,000
Thomas W. Dixon................ -- -- 20,000/30,000 $ 45,000/$ 67,500
</TABLE>
NONCOMPETITION AGREEMENTS
Heartland has entered into noncompetition agreements with Messrs. Holland,
Webb, Bailey, Hendrix, Dixon and Wheeler. The noncompetition agreements provide
that none of such persons will engage in competitive activities during the term
of their service with Heartland and for a period of one year thereafter. In
addition, Steven G. Johnson's consulting agreement with Heartland following the
AWS Merger also contains certain noncompetition agreements associated with the
markets acquired by Heartland through the AWS Merger.
STOCK OPTION PLANS
Employee Stock Option Plan. Heartland adopted, effective upon Heartland's
initial public offering on April 28, 1994 ("the Initial Public Offering"), the
Employee Option Plan which provides for the grant to officers and employees of
both "incentive stock options" within the meaning of Section 422 of the Code and
stock options that are non-qualified for Federal income tax purposes. The total
number of shares of Heartland Common Stock for which options may be granted
pursuant to the Employee Option Plan is 950,000. The Employee Option Plan will
terminate on the tenth anniversary of the consummation of the Initial Public
Offering, and is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines which of Heartland's officers
and employees receive options, the time when options are granted, whether the
options are incentive stock options or non-qualified stock options, the terms of
such options, the exercise date of any options and the number of shares subject
to options. Members of the Compensation Committee (including Mr. Holland) are
not eligible to receive options under the Employee Option Plan. Mr. Webb is not
eligible to receive options under the Employee Option Plan. Directors who are
also employees (other than Mr. Webb) are eligible to receive options under the
Employee Option Plan. Non-employee directors are not eligible to receive options
under the Employee Option Plan.
The exercise price of incentive stock options granted under the Employee
Option Plan may not be less than 100% of the fair market value of the Heartland
Common Stock at the time of grant and the term of any
48
<PAGE> 1417
option may not exceed 10 years. With respect to any employee who owns stock
representing more than 10% of the voting power of the outstanding capital stock
of Heartland, the exercise price of any incentive stock option may not be less
than 110% of the fair market value of such shares at the time of grant and the
term of such option may not exceed five years.
The exercise price of a non-qualified stock option is determined by the
Compensation Committee on the date the option is granted. However, the exercise
price of a non-qualified stock option may not be less than 100% of the fair
market value of the Heartland Common Stock at the time of grant.
Options granted under the Employee Option Plan are nontransferable and,
with certain exceptions in the event of the death or disability of an optionee,
may be exercised by the optionee only during employment. Options granted under
the Employee Option Plan typically vest over a five-year period, although
options granted to certain employees (including Messrs. Bailey, Dixon and
Hendrix) are 40% vested upon grant and vest an additional 20% per year over a
three-year period. Upon the death of an optionee or the termination of the
optionee following a Change of Control (as defined in the option agreements),
the vesting of an option accelerates. Options granted under the Employee Option
Plan expire after seven years, unless terminated earlier.
Heartland has granted options to purchase an aggregate of 772,000 shares of
Heartland Common Stock to eighteen employees, including 160,000, 154,000,
130,000, 65,000 and 20,000 shares, respectively, to each of Messrs. Bailey,
Hendrix, Dixon, Story and Hagey, at a weighted average exercise price per share
equal to $13.52 per share. Options to purchase 130,000 shares of Heartland
Common Stock have been cancelled.
Stock Option Plan for Non-Employee Directors. Heartland adopted, effective
upon consummation of the Initial Public Offering, the 1994 Stock Option Plan for
Non-Employee Directors (the "Non-Employee Directors Plan"). The purpose of the
Non-Employee Directors Plan is to attract and retain the services of experienced
and knowledgeable independent directors of Heartland for the benefit of
Heartland and its stockholders and to provide additional incentive for such
directors to continue to work for the best interests of Heartland and its
stockholders through continuing ownership of Heartland Common Stock. A total of
50,000 shares of Heartland Common Stock may be issued through the exercise of
options granted pursuant to the Non-Employee Directors Plan. No option may be
granted under the Non-Employee Directors Plan after 10 years following
consummation of the Initial Public Offering.
The Non-Employee Directors Plan is administered by the Board of Directors.
Subject to the terms of the Non-Employee Directors Plan, the Board of Directors
has the sole authority to determine questions arising under, and to adopt rules
for the administration of, the Non-Employee Directors Plan. The Non-Employee
Directors Plan may be terminated at any time by the Board of Directors, but such
action will not affect options previously granted pursuant thereto.
Directors of Heartland who are not, and who have not been during the
immediately preceding 12-month period, employees of Heartland or any subsidiary
of Heartland (each, a "Non-Employee Director") are automatically participants in
the Non-Employee Directors Plan. There are currently four directors, Messrs.
Lane, O'Rourke, Sprague and Watkins, who are eligible to receive options under
the Non-Employee Directors Plan. Mr. Wheeler is excluded from participating in
the Non-Employee Directors Plan. More than one option may be granted to any one
person and be outstanding at any time.
Each Non-Employee Director who was in office on the consummation of the
Initial Public Offering (Messrs. Lane, O'Rourke and Watkins) was, upon such
consummation, automatically granted an option to acquire 4,000 shares of
Heartland Common Stock at an exercise price per share equal to $10.50. Each Non-
Employee Director who is in office on November 15 of any year (commencing with
November 15, 1995) will, on the immediately succeeding January 1, automatically
be granted an option to acquire 2,000 shares of Heartland Common Stock. The
price of shares that may be purchased upon exercise of an option is the fair
market value of the Heartland Common Stock on the date of grant, as evidenced by
the average of the high and low sales prices of Heartland Common Stock on such
date as reported on the Nasdaq-NMS. The price of shares that may be purchased
upon exercise of an option granted upon the consummation of the Initial Public
Offering is the initial public offering price. Options granted pursuant to the
Non-Employee Directors Plan,
49
<PAGE> 1418
except as discussed below, are exercisable in installments of 25% upon each
anniversary of the date of grant. The term of each option, except as discussed
below, is for a period not exceeding seven years from the date of grant. Options
may not be assigned or transferred except by will or by operation of the laws of
descent and distribution.
In the event of a Change in Control of Heartland (as defined below), an
option granted to a Non-Employee Director will become fully exercisable if,
within one year of such Change in Control, such Non-Employee Director ceases for
any reason to be a member of the Board of Directors. A Change in Control will be
deemed to have occurred if (a) there is consummated (i) any consolidation or
merger of Heartland in which Heartland is not the continuing or surviving
corporation or pursuant to which shares of Common Stock are converted into cash,
securities or other property, other than a merger of Heartland in which the
holders of Heartland Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of Heartland; (b) the shareholders approve any plan or proposal
for the liquidation or dissolution of Heartland; (c) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of the outstanding Heartland Common Stock; or (d) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by Heartland's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Any exercise of an option permitted in the event of a Change of Control
must be made within 180 days of the relevant Non-Employee Director's termination
as a director of Heartland.
50
<PAGE> 1419
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth (a) certain information regarding the
ownership of the Heartland Common Stock as of December 31, 1995 with respect to
(i) each person known by Heartland to own beneficially more than 5% of the
outstanding shares of Heartland Common Stock, (ii) each of Heartland's
directors, (iii) the Named Executive Officers and (iv) all directors and
officers as a group, and (b) the effect of the Transactions (assuming the
consummation of all of the Transactions and an average closing price during the
relevant periods of $28 per share, the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof, or $17 per share, the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions,
of Heartland Common Stock, as noted) on the amount and percentage (5%) of
current holdings of shares of Heartland Common Stock owned beneficially by each
of such persons. See "Information Concerning Heartland -- Calculation and
Listing of Shares to be Issued in Connection with the Transactions." Except as
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned. Unless otherwise indicated,
the address for each stockholder is c/o Heartland Wireless Communications, Inc.,
903 North Bowser, Suite 140, Richardson, Texas 75081.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRO FORMA BENEFICIAL OWNERSHIP
BEFORE THE AFTER THE TRANSACTIONS
TRANSACTIONS(1) -----------------------------------------------
-------------------- PERCENT(2) PERCENT(3)
NO. PERCENT NO. ($17 PER SHARE) ($28 PER SHARE)
--------- ------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Hunt Capital Group, L.L.C.......... 4,000,000 31.72% 4,000,000 17.14% 20.65%
David E. Webb...................... 1,900,425 15.07 1,900,425 8.14 9.81
L. Allen Wheeler................... 2,004,800 15.90 2,004,800 8.59 10.35
Jupiter Partners, L.P.(4).......... 2,837,688 18.37 2,837,688 10.84 12.78
J. R. Holland, Jr.(5).............. -- --
Alvin H. Lane, Jr.(6).............. 5,000 * 5,000 * *
Dennis M. O'Rourke(7).............. 1,000 * 1,000 * *
John A. Sprague(8)................. -- --
Wes W. Watkins(9).................. 1,000 * 1,000 * *
John R. Bailey(10)................. 49,700 * 49,700 * *
Randy R. Hendrix(11)............... 87,600 * 87,600 * *
Thomas W. Dixon(12)................ 55,300 * 55,300 * *
All officers and directors as a
group
(11 persons)(5)(6)(7)(8)(9)
(10)(11)(12)(13)................. 4,106,825 32.08 4,106,825 17.46 20.99
</TABLE>
- ---------------
* Less than 1%.
(1) Based upon 12,611,132 shares of Heartland Common Stock outstanding on
December 31, 1995.
(2) Percentage based on 23,332,434 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $17 per share, the
closing average at which the maximum number of shares of Heartland Common
Stock are issuable -- see "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions"),
assuming (i) that there will be 4,500 subscribers to the Minneapolis system
on the relevant date, (ii) additional subscriber consideration of $3.5
million will be paid in the TSC Transaction, (iii) assumption of no
liabilities in the TSC Transaction and (iv) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(3) Percentage based on 19,375,081 shares of Heartland Common Stock outstanding
after the Transactions (based upon a closing average of $28 per share, the
approximate closing average of the Heartland Common Stock over the
preceding ten- and 20-day trading periods), assuming (i) that there will be
3,500 subscribers to the Minneapolis system on the relevant date, (ii)
additional subscriber consideration of $1.5 million will be paid in the TSC
Transaction, (iii) assumption of $5 million of liabilities in the TSC
Transaction and (iv) CMAX's net liabilities do not exceed specified
amounts. See "Information Concerning Heartland -- Calculation and Listing
of Shares to be Issued in Connection with the Transactions."
(4) Address is 30 Rockefeller Plaza, Suite 4525, New York, N.Y. 10112. Jupiter
Partners, L.P. ("Jupiter") is the holder of $40.0 million gross proceeds of
Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the
51
<PAGE> 1420
principal amount of the Convertible Note (after taking into account
accretions in value) by (ii) the Conversion Price (as defined in the
Convertible Notes) then in effect. The current Conversion Price is $15.34
per share.
(5) Address is 1962 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas 75201.
Mr. Holland is the sole director, Manager and President of Hunt Capital.
Hunt Capital is owned by trusts, of which Mr. Holland serves as a trustee.
Mr. Holland disclaims beneficial ownership of the shares of Heartland
Common Stock owned by Hunt Capital.
(6) Includes 1,000 options granted to Mr. Lane under the Non-Employee Directors
Plan, which are presently exercisable. Does not include 3,000 options
granted to Mr. Lane under the Non-Employee Directors Plan, which are not
presently exercisable.
(7) Includes 1,000 options granted to Mr. O'Rourke under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. O'Rourke under the Non-Employee Directors Plan,
which are not presently exercisable.
(8) Mr. Sprague is indirectly a controlling general partner of Jupiter.
Accordingly, Mr. Sprague may be deemed to be a beneficial owner of the
shares issuable to Jupiter on conversion of the Convertible Notes. Mr.
Sprague shares voting and investment power as to shares issuable to Jupiter
on conversion of the Convertible Notes with Terry J. Blumer. Mr. Sprague
disclaims beneficial ownership of such shares.
(9) Includes 1,000 options granted to Mr. Watkins under the Non-Employee
Directors Plan, which are presently exercisable. Does not include 3,000
options granted to Mr. Watkins under the Non-Employee Directors Plan, which
are not presently exercisable.
(10) Includes 44,000 shares issuable upon the exercise of presently exercisable
options. Excludes 76,000 shares issuable upon the exercise of options that
are not presently exercisable.
(11) Includes 87,600 shares issuable upon the exercise of presently exercisable
options. Excludes 66,400 shares issuable upon the exercise of options that
are not presently exercisable.
(12) Includes 54,000 shares issuable upon the exercise of presently exercisable
options. Excludes 56,000 shares issuable upon the exercise of options that
are not presently exercisable.
(13) Includes 2,000 shares issuable upon the exercise of presently exercisable
options issued to David D. Hagey, for a total of 190,600 shares issuable
upon the exercise of presently exercisable options held by officers and
directors. Excludes 18,000 shares issuable upon the exercise of options
issued to Mr. Hagey that are not presently exercisable.
CERTAIN TRANSACTIONS
Heartland's founders, David E. Webb, the President and Chief Executive
Officer, and L. Allen Wheeler, a member 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 assets in exchange for capital stock of
WCI. In September 1993, WCI issued the Hunt Note to Unity Hunt, Inc. ("Unity
Hunt"), an affiliate of Hunt Capital, pursuant to a loan agreement that provided
for a one-year term loan in the principal amount of $988,000, to bear interest
at the rate of 10% per annum, which was secured by substantially all of the
assets of WCI. The proceeds of this loan were used primarily by WCI to acquire
wireless cable channel rights. In October 1993, Hunt Capital, a principal
stockholder of Heartland and affiliate of J. R. Holland, Jr., the Chairman of
the Board of Heartland, purchased the Hunt Note from Unity Hunt in connection
with an internal restructuring that included the dissolution of Unity Hunt. Hunt
Capital purchased the Hunt Note for $996,390 (representing the outstanding
principal balance plus accrued and unpaid interest through the date of
transfer).
Heartland 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 Heartland and Hunt Capital
contributed the Hunt Note, including accrued interest, and approximately
$2,000,000 in cash to Heartland. In exchange therefor, Messrs. Webb and Wheeler
were each issued 2,000,000 shares of Heartland Common Stock by Heartland and
Hunt Capital was issued 4,000,000 shares. In addition, Messrs. Webb and Wheeler
leased all other wireless cable channel license rights controlled, directly and
indirectly, by them to Heartland for a nominal amount and granted to Heartland
an option to purchase such license rights at a nominal price. Finally, the net
amount (approximately $68,740) of all advances made to Heartland's predecessors
by, and all advances made from Heartland's predecessors to, Messrs. Webb and
Wheeler and certain entities controlled by them engaged in the wireless cable
business was contributed to Heartland. Such advances, in the form of
non-interest-bearing cash transfers, generally arose as a result of borrowings
made or services rendered, and included various amounts loaned by a wholly-owned
subsidiary of Heartland to Reed's Rail Service, Inc., an affiliate of Messrs.
Webb
52
<PAGE> 1421
and Wheeler, to fund such entity's railroad repair operations and the purchase
of equipment; the outstanding balance of such indebtedness at December 31, 1992
was $117,284. Also included in such advances are various amounts loaned by
Preferred Capital Corporation, an affiliate of Messrs. Webb and Wheeler, to a
wholly-owned subsidiary of Heartland for general corporate purposes; the
outstanding balance of such indebtedness at December 31, 1992 was $42,235.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $52,078, $116,315, $376,206 and $24,000, respectively, to various entities
controlled by Messrs. Webb and Wheeler for services performed in connection with
the development of wireless cable systems or the acquisition of wireless cable
channel rights. Such payments included $52,800 during the year ended December
31, 1992 and $258,555 during the year ended December 31, 1993 to Green Country
Radio, an affiliate of Mr. Wheeler, for engineering and consulting services.
Heartland has not retained the services of such entities since the Initial
Public Offering, and does not intend to do so in the future. During the year
ended December 31, 1993, Mr. Robert R. Story was a director, officer and
minority shareholder of Green Country. Mr. Story is currently the Senior Vice
President -- Installations of Heartland.
During the years ended December 31, 1991, 1992, 1993 and 1994, Heartland
paid $2,034, $17,850, $38,776 and $50,559, respectively, to an accounting firm
controlled by Mr. Webb for services rendered to Heartland.
During the year ended December 31, 1993, Heartland paid $40,600 to World
Export Services, Inc., an entity controlled by Wes W. Watkins, a director of
Heartland, for consulting services provided in connection with the acquisition
of certain wireless cable channel rights. In June 1993, World Export Services,
Inc. purchased approximately 10% and 5% minority interests, respectively, in two
of Heartland's subsidiaries for an aggregate of $45,000. Pursuant to a public
exchange offer made by Heartland pursuant to a prospectus dated February 13,
1995 wherein Heartland offered to exchange up to an aggregate of 380,000 shares
of Heartland Common Stock for the minority interests in 23 of Heartland's
subsidiaries (the "Minority Interests Exchange Offer"), World Export Services,
Inc. was issued an aggregate of 4,526 shares of Heartland Common Stock in
exchange for such minority interests.
Heartland leases approximately 2,400 square feet for its operating offices
in Durant, Oklahoma from an affiliate of Messrs. Webb and Wheeler for which the
expense amounted to approximately $18,000 annually for the years ended December
31, 1991, 1992, 1993 and 1994. Heartland also leases an aggregate of
approximately an additional 6,126 square feet of office space in Durant,
Oklahoma from affiliates of Messrs. Webb and Wheeler for which the expense
amounted to approximately $4,000 for the year ended December 31, 1994. See
"Information Concerning Heartland -- The Business -- Properties."
Messrs. Webb and Wheeler pledged certain personal assets to secure, and
personally guaranteed, notes payable by Heartland to a bank totaling $970,000.
Such notes were due in March 1995 and bore interest at variable and fixed rates
ranging from 6% to 8% at December 31, 1994. Heartland repaid such notes from the
net proceeds of its Initial Public Offering.
Mr. Holland's annual base compensation for 1994 was $120,000, which was
paid to him by Unity Hunt Resources, Inc., an affiliate of Hunt Capital of which
Mr. Holland is President, which receives a management fee equal to such amount
from Heartland for the provision of Mr. Holland's services. Mr. Holland's base
compensation for 1995 will be $120,000.
In connection with a $1.0 million principal amount loan to United States
Wireless Cable, Inc. ("U.S. Wireless") by First National Bank of Durant ("First
National"), Heartland agreed to purchase such loan upon demand from First
National for the aggregate amount of principal and interest thereon plus any
other amounts owed to First National by U.S. Wireless. U.S. Wireless is a
stockholder of Heartland. The loan was paid in full upon the consummation by
Heartland's acquisition of the Lubbock market. In addition, on December 15,
1994, Heartland (i) loaned $2.0 million to U.S. Wireless, which loan was secured
by 300,000 shares of Heartland's Common Stock owned by U.S. Wireless and all of
the rights of U.S. Wireless in and to the Tulsa, Oklahoma wireless cable market,
(ii) acquired the rights of U.S. Wireless in the Amarillo, Texas market and
(iii) was granted an option to acquire the Tulsa, Oklahoma market. In May 1995,
Heartland exercised its option on the Tulsa market and closed the acquisition of
the Tulsa market. U.S. Wireless and a
53
<PAGE> 1422
subsidiary to U.S. Wireless ("USWS") repaid the $2.0 million loan in full upon
the consummation of the acquisition of the Tulsa market.
On May 3, 1995, Heartland acquired from Robert R. Story, a former affiliate
of USWS and U.S. Wireless and current officer of Heartland, all of the issued
and outstanding capital stock of Robert R. Story, Inc., which owns and operates
the Lubbock System, for $5.4 million in cash. Immediately prior to the
consummation of the acquisition of the Lubbock market, Robert R. Story, Inc.
acquired from USWS all of USWS's rights in the Lubbock system. Upon the
consummation of the Lubbock Acquisition, the $1,000,000 principal amount loan to
U.S. Wireless by First National was paid in full.
Pursuant to an interim loan arrangement, Hunt Capital and Mr. Wheeler
agreed to loan Heartland up to an aggregate of $4.0 million ($2.0 million each)
and Jupiter agreed to loan to Heartland, or to guarantee a bank loan to
Heartland in the amount of, $2.0 million. Borrowings under the loan agreement
could be used solely for working capital. Borrowings under the loan agreement
bore interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the loan agreement would have been due and
payable in full on June 30, 1995, subject to prepayment upon the receipt by
Heartland of cash proceeds from any financing, refinancing or sale of assets.
Amounts borrowed and repaid under the loan agreement could not be reborrowed.
Borrowings under the loan agreement were secured by the capital stock and assets
of Heartland's subsidiaries operating the Lindsay and Shaw systems. Heartland
borrowed $2.0 million under the loan agreement, funded $1.0 million each by Hunt
Capital and Mr. Wheeler. Heartland used a portion of the net proceeds of the
sale of the 100,000 Units (the "Units"), consisting of $100 million 13% Senior
Notes due 2003 and 600,000 warrants to purchase an equal number of shares of
Heartland Common Stock, to repay all amounts owed under the loan agreement on
April 26, 1995.
Pursuant to a Chemical Bank Loan arrangement (the "Chemical Bank Loan"),
Chemical Bank agreed to loan Heartland up to an aggregate of $2.0 million.
Borrowings under the Chemical Bank Loan bore interest at the prime rate plus 1%
per annum. All accrued interest on, and the principal amount of, all borrowings
under the Chemical Bank Loan would have been due and payable on demand, but in
any event not later than June 30, 1995. Heartland paid Chemical Bank a facility
fee of $5,000. Amounts borrowed and repaid under the Chemical Bank Loan could
not be reborrowed. Borrowings under the Chemical Bank Loan were guaranteed by
Jupiter and Mr. Sprague. Heartland borrowed $1.0 million under the Chemical Bank
Loan. Heartland used a portion of the net proceeds of the sale of the Units to
repay all amounts owed under the Chemical Bank Loan on April 26, 1995.
The terms of the transactions described above were determined by the
parties thereto, and Heartland believes that such transactions involving
affiliates were on terms no less favorable to Heartland than could have been
obtained from unaffiliated third parties. All future transactions between
Heartland and its officers, directors, principal stockholders and affiliates
will be on terms no less favorable to Heartland than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Board of Directors of Heartland.
54
<PAGE> 1423
INFORMATION CONCERNING TSC
BUSINESS OF TSC
Technivision has developed, owned and operated wireless cable television
systems in Corpus Christi, Texas and Dayton, Ohio. In addition, Technivision
owned the rights to develop and operate a wireless cable television system with
27 channels in El Paso, Texas. Management estimates that the Corpus Christi, El
Paso and Dayton markets have approximately 795,000 households of which 588,000
are serviceable by LOS transmissions. The Corpus Christi system, which was
launched in April 1990, provides 31 channels of service, including six off-air
local television stations, to approximately 15,468 subscribers as of November
30, 1995. The Dayton system, which was launched in November 1993, provides 31
channels of service, including five off-air local television stations, to
approximately 3,242 subscribers as of November 30, 1995.
In January 1996, Technivision was merged into its parent corporation, TSC,
in order to facilitate the TSC Transaction. In addition to the Technivision
systems, TSC owns and operates SMATV systems in New Jersey and engages in
certain other business activities. Because the TSC Transaction relates only to
the Technivision systems, no description of the other business activities of TSC
is contained in this Proxy Statement/Prospectus. Unless the context otherwise
requires, references herein to TSC relate to TSC as successor to the
Technivision assets.
The executive offices of TSC are located at 120 Floral Avenue, New
Providence, New Jersey and its telephone number is (908) 665-0094.
SEC CONSENT; ARRANGEMENTS WITH PHILIPS CREDIT CORP.
Technivision acquired the right to build wireless cable television systems
in Corpus Christi, Texas, El Paso, Texas, Dayton, Ohio and Salt Lake City, Utah
in 1989. Following the acquisition, Technivision sought to raise the funds
necessary to finance the construction and operations of the TSC systems.
Technivision received a proposal from Philips to provide sufficient financing
for that purpose. Unfortunately, Technivision ultimately received only a portion
of the funds needed due to adverse conditions in the credit markets generally.
With the reduced level of funding made available by Philips, Technivision began
to build the system in Corpus Christi because management believed that it was
the closest to being ready to launch. In April 1990, the system in Corpus
Christi commenced commercial operation.
The construction and operation of the Corpus Christi system required
significant amounts of capital. By April 1991, the funds provided by Philips had
been fully employed to acquire the necessary equipment, obtain licensing and
programming rights, and build the installed base of subscribers for the system.
Thereafter, Technivision began to seek additional funding for its operations
from new sources of capital. Representatives of Technivision met with potential
sources of funding over a period that stretched from the fall of 1990 through
the fall of 1992, but were unable to obtain any financing commitments.
Commencing in November 1992, representatives of Technivision began
negotiations with a group led by Mr. Greg Parker regarding a proposed equity
infusion. Ultimately, on January 8, 1993 Technivision entered into certain
financing arrangements with an entity formed by Mr. Parker. Pursuant to those
arrangements, Mr. Parker agreed to cause certain entities to be formed which
would raise money from investors to invest in joint ventures to be formed by Mr.
Parker. In exchange, Technivision would contribute its wireless cable television
rights to those joint ventures. However, according to a complaint subsequently
filed by the Commission against Mr. Parker and his associates, Mr. Parker raised
the money to be invested in the joint ventures through the illegal sale of
securities to the public. Although the proposed transfers of the Technivision
systems never took place because Technivision was unable to procure Philips'
consent thereto, Technivision ultimately received approximately $7 million from
the entities formed by Mr. Parker which were used to finance the expansion of
the Corpus Christi system and the construction of the Dayton system. In
addition, in September 1994, Technivision sold the rights to the Salt Lake City
system to CMAX for $10.2 million, a portion of which was ultimately paid to the
Parker group.
Upon becoming aware of the nature of Mr. Parker's conduct, Technivision
sought to terminate all ties with him. In order to avoid the potential adverse
effects of protracted proceedings regarding Mr. Parker's
55
<PAGE> 1424
activities, Technivision entered into the Consent pursuant to which Technivision
agreed to repay all amounts it had received from the entities formed by Parker
to the Trust. Pursuant to the Consent, Technivision is required to sell the TSC
systems on or prior to December 31, 1996 and to pay the Trust $7 million out of
the proceeds of such sale. As a result of the liquidation of certain other
assets, Technivision had reduced the amount owed to the Trust to approximately
$6 million as of November 1, 1995. Upon the merger of Technivision into TSC, TSC
succeeded to Technivision's obligations under the Consent.
In connection with the negotiation of the Consent, Technivision also
entered into discussions with Philips regarding the terms and conditions of the
repayment of Technivision's loan. Pursuant to the terms of the Forbearance
Agreement, Technivision agreed to sell the TSC systems under a specified time
schedule. In exchange, Philips agreed to refrain from exercising certain
remedies available to it as a result of Technivision's default in the terms of
its loan. In addition, Philips agreed that if its loan was repaid on or prior to
March 31, 1996, Philips would forego its right to share in the proceeds of the
sale of the TSC systems. In the event that Technivision does not repay Philips
by March 31, 1996, or upon the occurrence of certain other events, under the
terms of the Forbearance Agreement, Technivision will not be entitled to the
benefits described above and Philips will have the right after April 30, 1996 to
obtain possession of the TSC systems through an instrument of peaceful
possession delivered by Technivision at the time the Forbearance Agreement was
executed. Upon the merger of Technivision into TSC, TSC succeeded to
Technivision's obligations to Philips and under the Forbearance Agreement.
INDUSTRY OVERVIEW
Wireless cable television programming is transmitted through the air via
microwave frequencies in a direct line-of-sight from the transmission facility
to an antenna located at the subscriber's location by utilizing up to 200 MHz of
radio spectrum allocated by the FCC for wireless cable operations. Wireless
cable technology eliminates the extensive networks of cable and amplifiers
utilized by traditional hard-wire cable operators which substantially reduces
the cost to build, operate and maintain a television distribution system. Unlike
a traditional hard-wire cable system, a significant portion of the capital costs
of a wireless cable system are not incurred until shortly before a subscriber
has been added and is about to generate revenue for TSC. Management believes
that the Technivision systems provide customers with (i) an equivalent or higher
quality picture, (ii) a more reliable signal resulting in fewer transmission
disruptions and (iii) lower average monthly rates, compared to those generally
provided by traditional hard-wire cable operators. The estimated 1994 national
average monthly service revenue per subscriber for comparable services for
traditional hard-wire cable operators was $28.24 according to Paul Kagan
Associates, Inc., a national media research firm. Management believes that
Technivision's average monthly service revenue per subscriber is comparable to
that of traditional hard-wire cable operators primarily as a result of the
relatively high number of customers of the Technivision systems who pay for
premium service and multiple television outlets. Like traditional hard-wire
cable operators, the Technivision systems offer a full range of basic and
premium programming including local off-air channels, A&E, CNN, The Disney
Channel, HBO, MTV, USA Network and WTBS. All of Technivision's set-top
converters are addressable, allowing its subscribers to receive pay-per-view
programming.
BUSINESS STRATEGY
Technivision's business strategy had been to acquire the rights to operate
wireless cable television systems in geographic areas where a combination of
appropriate topography and population density made the proposed systems
economically viable. In pursuit of this strategy, Technivision acquired the
rights to construct and operate wireless cable television systems in Corpus
Christi, Texas, El Paso Texas, Dayton, Ohio and Salt Lake City, Utah (which was
sold in September 1994 to CMAX). As described above, the Corpus system was
launched in April 1990. The Dayton system became operational in November 1993.
The marketing strategy for the Technivision systems is to attract potential
subscribers in the following priority: (i) households in geographical areas not
passed by traditional hard-wire cable systems; (ii) commercial establishments
which are currently not passed by traditional hard-wire cable systems;
56
<PAGE> 1425
(iii) households which are passed by, but currently do not subscribe to,
traditional hard-wire cable systems; and (iv) households subscribing to
traditional hard-wire cable systems.
To differentiate their product offering from other subscription television
providers, the Technivision systems use marketing themes of dependability,
price, popular programming, picture quality and customer service.
- Dependability. Subscribers of the Technivision systems enjoy a
substantially higher level of signal reliability compared to traditional
hard-wire cable subscribers. This higher level of dependability is the result of
the elimination of the extensive network of coaxial cables, amplifiers and
processing equipment between the head-end/transmission facility and the
subscriber's location. In addition, back-up power systems and redundant
components have been installed in all of the head-end/transmission facilities of
the Technivision systems which virtually eliminate the potential for system
outages due to power or component failures. Traditional hard-wire cable systems
on the other hand are subject to failure due to multiple components in their
networks of coaxial cable and amplifiers. If a failure does occur in a
Technivision system, it is generally easier to diagnose and repair due to the
smaller number of system components.
- Price. Customers of the Technivision systems receive attractive priced
program packages which management believes are generally lower than those for
comparable programming offered by traditional hard-wire cable competitors. A key
component of the product offering of the Technivision systems is the inclusion
of The Disney Channel as part of their basic plus subscription package. Certain
competitors currently charge an additional fee for this channel. Management
believes including The Disney Channel as part of the basic plus service of the
Technivision systems makes their service more attractive to families.
- Popular Programming. The Technivision systems offer a full range of basic
and premium programming featuring the most popular channels. The Technivision
systems also offer instructional programming in conjunction with educational
institution partners. In addition, all of their set-top converters are fully
addressable, allowing subscribers to receive pay-per-view programming which
provides subscribers with access to movies, special sporting events and
concerts.
- Picture Quality. Technivision emphasizes that wireless picture
transmission generally offers an equivalent or higher quality picture than
traditional hard-wire cable because there is less opportunity for signal
degradation between its head-end and the subscriber's location. In contrast, in
a traditional hard-wire cable system, each time a television signal passes
through an amplifier, some measure of signal noise is added which can result in
a grainier picture.
- Customer Service. Each Technivision system has established the goal of
maintaining high levels of customer satisfaction. To this end, each Technivision
system seeks to provide superior customer service through extended daily
customer service hours (8a.m. to 6p.m.), flexible installation scheduling,
responsiveness to customer inquiries and well-trained uniformed field personnel.
MARKETS
The following table outlines the markets in which the Technivision systems
are operating or in which TSC holds or has the right to acquire wireless cable
channel rights as of November 30, 1995:
<TABLE>
<CAPTION>
DMA AVAILABLE SERVED
MARKET RANK(1) CHANNELS(2) SPECTRUM LAUNCH DATE SUBSCRIBERS HOUSEHOLDS BY CABLE
- --------------------------------- ------- ----------- --------- -------------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Corpus Christi................... 128 37 186 April 1990 15,468 135,000 60,000
Dayton........................... 53 36 186 November 1993 3,242 460,000 235,000
El Paso.......................... 100 27 162 (3) -- 200,000 100,000
Total.................... -- -- -- -- 18,710 795,000 395,000
====== ======= =======
</TABLE>
- ---------------
(1) DMA rank is the Designated Market Areas ranking of television homes among
United States markets as determined by the Nielsen Media Research Company
for the 1994/1995 television season.
(2) Includes 6 off-air channels in Corpus Christi and 5 off-air channels in
Dayton, respectively.
(3) At this time, TSC has no plans to launch this system.
57
<PAGE> 1426
Technivision, as a whole, has experienced negative cash flow from
operations in each year since its formation due to its system development,
expansion and acquisition activities. Until sufficient cash flow is generated
from operations external sources of funding will have to be utilized to satisfy
the working capital needs of the Technivision systems. Accordingly, in order to
conserve cash pending the availability of external funding, Technivision has,
since June 30, 1994, reduced the rate of growth of new subscribers. Management
estimates that between 3,000 and 5,000 subscribers are needed to generate
operating cash flow in any of the Technivision markets. Operating cash flow is
revenue less costs of sales other than depreciation and other non-cash charges.
The Corpus Christi system is presently generating positive operating cash flow
while the Dayton system has experienced negative cash flow.
CORPUS CHRISTI
Corpus Christi. Corpus Christi is the sixth largest port in the United
States (in terms of tonnage). According to the 1990 census, the Corpus Christi
metropolitan area had a total population of approximately 350,000 which grew
approximately 7.3% from 1980 to 1990. Corpus Christi has experienced job growth
of approximately 4.1% over the past five years. Corpus Christi is the seventh
largest metropolitan area in Texas and its DMA ranking as reported by the
Nielsen Media Research Company for 1994/1995 is 128th nationally in the number
of television households.
The following table sets forth a description of the programming currently
offered by the Corpus system:
CORPUS CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
2 C-SPAN 17 TBS-Superstation Atlanta
3 KIII (ABC) 18 HBO
4 The Weather Channel 19 Home Shopping Club/Preview Guide
5 USA Network 20 The Nashville Network
6 KRIS (NBC) 21 The Disney Channel
7 Turner Classic Movies 22 ESPN
8 Arts & Entertainment 23 Cinemax
9 WGN (Chicago) 24 Discovery
10 KZTV (CBS) 25 MTV
11 Sci-Fi Channel 26 Del Mar College/The Learning Channel
12 Turner Network Television 27 Catholic Community Network
13 KDF (Fox) 28 KORO
14 Headline News 29 CNN
15 Nickelodeon 30 The Family Channel
16 KEDT (PBS) 31 Pay Per View
32 Galavision
</TABLE>
Dayton. According to the 1990 census, the Dayton metropolitan area had a
total population of approximately 574,000 which grew approximately 1.0% from
1980 to 1990. Dayton is the sixth largest metropolitan area in Ohio and its DMA
ranking as reported by the Nielsen Media Research Company for 1994/1995 is 53rd
nationally in the number of television households.
58
<PAGE> 1427
The following table sets forth a description of the programming currently
offered by the Dayton system:
DAYTON CHANNEL OFFERINGS
<TABLE>
<CAPTION>
CHANNEL NETWORK CHANNEL NETWORK
- ------- ------------------------------------- ------- -------------------------------------
<C> <S> <C> <C>
2 WDTN (ABC) 28 USA Network
3 ESPN 29 The Learning Channel
4 Sci-Fi Channel 30 CNN
5 The Weather Channel 33 Sinclair College
6 Turner Network Television 21 The Disney Channel
7 WHIO (CBS) 34 Nickelodeon
8 FOX 35 The Nashville Network
9 WGN (Chicago) 37 Lifetime
14 WPTO -- Oxford 39 The Family Channel
16 Greater Dayton PBS 42 The Disney Channel
17 TBS-Superstation Atlanta 44 Cinemax
18 HBO 48 Discovery
22 WKEF (NBC) 50 Arts & Entertainment
24 Mind Extension University 51 MTV
25 Pay Per View 52 Headline News
54 QVC
</TABLE>
MARKETING
Marketing and sales operations are maintained in Corpus Christi and Dayton.
Each TSC system engages in television, direct mail, radio and print advertising
and special events promotions to generate leads for its marketing efforts.
Telemarketers then contact potential subscribers responding to those promotional
activities.
INSTALLATION
Subscriber installation in Corpus Christi is provided for various fixed
fees by independent contractors using equipment which the Corpus Christi system
purchases on an as-needed basis. In Dayton, installation is handled by in-house
personnel also using equipment owned by the Dayton system.
COMPETITION
Wireless cable television operators face competition from a number of other
sources, including potential competition from emerging trends and technologies
in the cable television industry, some of which are described below. Many
competitors of the TSC systems have far greater financial resources than either
TSC or Technivision.
Traditional Hard-Wire Cable. TSC believes that the primary competition for
the Technivision systems is from traditional hard-wire cable operators. Primary
traditional hard-wire competitors in Corpus Christi include Tele-Communications,
Inc. ("TCI") and Falcon and in Dayton include TimeWarner, TCI and Continental
Cablevision, all of which are significantly larger and have substantially
greater financial resources than TSC. Currently, these primary traditional
hard-wire cable competitors offer between 39 and 58 channels to their
subscribers compared to the 31 channels offered by the TSC systems. The
technology used by such operators is a coaxial cable system which transmits
signals from a head-end. delivering local and satellite-delivered programming
via a distribution network consisting of amplifiers, cable and other components
to subscribers.
Direct Broadcast Satellite ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the home user. 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 roof top or in the yard. DBS receiver equipment for a single television set
costs approximately $700 per customer,
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<PAGE> 1428
plus installation fees. In additional, each independent outlet requires a
separate de-scrambling device at additional cost to the subscriber.
Due to the cost of receiving equipment as well as the broader availability
of local programming offered by wireless cable systems, management believes that
wireless cable systems currently enjoy a comparative cost and local programming
advantage over DBS systems, although no assurance can be given that such
advantage will continue.
Telephone Companies. Under the Communications Act of 1934, as amended (the
"Communications Act"), local exchange carriers ("LECs") are currently prohibited
from providing video programming directly to subscribers in their respective
telephone service areas. Certain Federal Courts have recently ruled, however,
that this "teleco-cable cross-ownership ban" abridges the First Amendment rights
of LECs under the U.S. Constitution. These rulings are currently under appeal or
are expected to be appealed. Proposals to lift the teleco-cable cross-ownership
ban are also currently under review by the U.S. Congress. In light of these
court decisions, the FCC has indicated that it will look favorably on waivers of
the teleco-cable cross-ownership ban under certain circumstances. The FCC
already permits LECs to provide "video dialtone" service, thereby allowing such
carriers to make available to multiple service providers on a non discriminatory
common carrier bass, a basic platform that will permit end users to access video
program services provided by others. The FCC has ruled that the teleco-cable
cross-ownership ban does not apply to wireless cable.
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, only it operates without a franchise from a local
authority. SMATV operates under an agreement with a private landowner to service
one or more multiple dwelling units. 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 ("GHz") band.
Local Multi-Point Distribution Service. In 1993, the FCC proposed to
re-designate the 28 GHz band to create a new video programming delivery service
referred to as local multipoint distribution service ("LMDS"). As proposed by
the FCC, LMDS would provide two licensees up to 49 channels each for the
distribution of video programming in prescribed geographic areas. Numerous
satellite system operators, including, among others, the National Aeronautics
and Space Administration, Motorola Satellite Communications, Inc., Hughes Space
and Communications Co., Ameritech, and Loral Quilcomm Satellite Services, Inc.,
opposed in whole or in part, the redesignation of the 28 GHz band for video
distribution. The FCC recently proposed that the 28 GHz band be shared by
terrestrial and satellite services, that competitive bidding be used to award
LMDS and satellite authorizations, and that LMDS authorizations be based on 493
geographic areas known as basic training areas ("BTAs").
Satellite Receive Dishes. Satellite receive dishes are generally seven to
twelve foot dishes mounted in the yards of homes to receive television signals
from orbiting satellites. Until the implementation of scrambling, 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
TSC competes with these systems to some degree in marketing its services.
Off-Air Local Broadcasts. Off-air local broadcasts (e.g., ABC, NBC, CBS,
Fox and PBS) provide a free programming alterative to the public. Each TSC
system currently re-transmits certain off-air local broadcasts to its wireless
cable subscribers, but its ability to do so is generally dependent upon receipt
of re-transmission consent.
Video Stores. Retail stores rent video tapes and are a major participant in
the television program delivery industry. According to the Cable Television's
Fact Book, in 1994 there were approximately 76,312,700 households with video
cassette recorders in the United States.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to utilize specified
frequencies, the operator must then obtain the right to use the programming to
be transmitted over those frequencies.
60
<PAGE> 1429
General. Currently, with the exception of the re-transmission of off-air
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 TSC systems has been
significantly mitigated by the Cable Act and various FCC regulations promulgated
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 and terms and conditions of sale of programming. Of the major cable
television programming services carried by the TSC systems, only ESPN, USA
Network and A&E are not currently directly owned by vertically integrated
multiple cable system operators, and the Technivision systems historically have
not had difficulty in arranging satisfactory contracts for these services.
Copyright. Under the federal copyright laws, permission from the copyright
holder generally must be secured before a video program may be re-transmitted.
Under Section III of the Copyright Act, as amended, certain cable systems and
wireless 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 with and the payment of certain fees to the U.S. Copyright Office.
Certain FCC rules require wireless and traditional hard-wire cable
operators to secure the consent of certain local commercial television broadcast
stations in order to re-transmit their signals. However, wireless cable systems,
unlike traditional hard-wire cable systems, are not required under the FCC's
"must carry" rules to re-transmit a specified number of local commercial
television or qualified low power television signals. Although there can be no
assurances that the TSC systems will be able to obtain requisite broadcaster
consents, management believes in most cases the TSC systems will be able to do
so for little or no additional cost.
EMPLOYEES
As of November 1, 1995, the Technivision systems had a total of 61
employees, 43 of whom were located in Corpus Christi, and 18 of whom were
located in Dayton. Of such employees, 21 provide technical services, 24 are
office personnel and customer service representatives, eight are marketing and
sales staff and eight are executive and administrative personnel. None of such
employees is subject to a collective bargaining agreement. The TSC systems have
experienced no work stoppages and Management believes that relations with such
employees are good.
PROPERTY
The Technivision systems lease approximately 7,360 square feet in Corpus
Christi and approximately 6,400 square feet in Dayton for their customer service
and warehouse needs. Such leases run through March 2000 and June 1998,
respectively. Management believes that space meeting the physical and cost
requirements of the Technivision systems is readily available in each of these
locations at market rates. In addition to office space, the Technivision systems
lease land on which their head-ends and transmission towers are constructed in
Corpus Christi, Dayton and El Paso. Management believes that office space and
space for head-ends and transmission towers are readily available on acceptable
terms in the markets where the Technivision systems are located.
LEGAL PROCEEDINGS
TSC is not currently a party to any litigation that would have an adverse
effect on its business. See "-- SEC Consent; Arrangements with Philips Credit
Corp."
61
<PAGE> 1430
DIVIDENDS ON AND MARKET VALUE OF TSC COMMON STOCK
The TSC Common Stock is not listed on any exchange or traded or quoted in
any established securities market. TSC has never declared or paid any cash
dividends and does not expect to declare any such dividends for the foreseeable
future. Payment of any future dividends will depend upon earnings and capital
requirements of TSC, TSC's credit facilities and other factors TSC's Board of
Directors considers appropriate. TSC currently intends to retain earnings, if
any, to support continuing growth and expansion. TSC is prevented from paying
any dividends to its shareholders under the terms of TSC's indebtedness.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS OF TSC
The following table presents certain information regarding the beneficial
ownership as of November 1, 1995 of (i) each director, (ii) the executive
officers of TSC, (iii) all directors and executive officers of TSC as a group,
and (iv) each person who, to the knowledge of TSC, is a beneficial owner of 5%
or more of the outstanding shares of TSC Common Stock. The business address of
each person listed below is 120 Floral Avenue, New Providence, New Jersey 07974.
All persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES(1) PERCENTAGE OF OUTSTANDING
- -------------------------------------------------- ------------------- -------------------------
<S> <C> <C>
Walter J. Mecleary................................ 1,168(2) 16.2%
Three Sixty Associates............................ 790 11.0
Salvatore Lamarca................................. 790(3) 11.0
Richard G. Nowalk................................. 790(4) 11.0
Roy D. Tartaglia.................................. 762(5)(6) 10.9
Richard A. Thomas................................. 630(5) 9.0
Waterville Partners, L.P. ........................ 575 8.1
Robert D. Bilodeau................................ 543(7) 7.7
Earnest H. Manuwald............................... 495(8) 7.0
Barry Weshnak..................................... 399(9) 5.7
Rand Capital Corp. ............................... 400 5.7
Robert H. Greenwood............................... 230 3.3
All directors and executive
officers as a group (9 persons)................. 3,217 50.0%
</TABLE>
- ---------------
(1) Includes shares issuable upon conversion of TSC's Convertible Debentures
(the "Debentures").
(2) Includes 595 shares owned by Three Sixty Associates ("Associates") plus 195
shares issuable upon the conversion of Debentures owned by Associates. Mr.
Mecleary is a General Partner of Associates and therefore is deemed to have
beneficial ownership of all shares held by Associates. Mr. Mecleary
disclaims beneficial ownership of all of such shares except to the extent of
his pecuniary interest therein.
(3) Consists of 595 shares owned by Associates plus 195 shares issuable upon the
conversion of Debentures owned by Associates. Mr. Lamarca is a General
Partner of Associates and therefore is deemed to have beneficial ownership
of all shares held by Associates. Mr. Lamarca disclaims beneficial ownership
of all of such shares except to the extent of his pecuniary interest
therein.
(4) Consists of 595 shares owned by Associates plus 195 shares issuable upon the
conversion of Debentures owned by Associates. Mr. Nowalk is a General
Partner of Associates and therefore is deemed to have beneficial ownership
of all shares held by Associates. Mr. Nowalk disclaims beneficial ownership
of all of such shares except to the extent of his pecuniary interest
therein.
(5) Includes 470 shares held by RTK Corporation ("RTK"). Mr. Tartaglia and Mr.
Thomas jointly control RTK and therefore are deemed to share beneficial
ownership of all shares held by RTK.
(6) Includes 132 shares held by Mr. Tartaglia's spouse.
(7) Includes 140 shares held by Mr. Bilodeau's spouse and 20 shares issuable to
Mr. Bilodeau's spouse upon conversion of the Debentures.
(8) Includes 120 shares held by Mr. Manuwald's spouse and 40 shares issuable to
Mr. Manuwald's spouse upon conversion of the Debentures.
(9) Includes 69 shares held in trust for Mr. Weshnak's children for which Mr.
Weshnak act as trustee and 5 shares issuable to the trust upon conversion of
the Debentures.
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<PAGE> 1431
CERTAIN INFORMATION REGARDING OTHER TRANSACTIONS
In addition to the TSC Agreement, Heartland has entered into various other
agreements that may be consummated contemporaneously with the TSC Agreement.
These agreements, and the transactions contemplated thereby ("Other
Transactions"), are described below.
THE AWS MERGER
Pursuant to the terms of the AWS Merger Agreement, AWS Merger Sub will
merge with and into AWS, AWS will become a wholly owned subsidiary of Heartland,
and Heartland will issue to the holders of AWS common stock, $.01 par value per
share ("AWS Common Stock"), that number of newly issued publicly tradeable
shares of Heartland common stock, $.001 par value per share ("Heartland Common
Stock"), having an aggregate exchange value of $34 million (subject to certain
reductions and the escrow requirements discussed below). If the AWS Merger
Agreement is consummated, each share of AWS Common Stock issued and outstanding
immediately prior to the AWS Merger, subject to certain adjustments provided
therein, will be converted into shares of Heartland Common Stock having an
exchange value of approximately $5.90, of which approximately $0.56 will be held
in the escrow described below. The exchange value of the Heartland Common Stock
to be issued in the AWS Merger will be equal to the average closing price of the
Heartland Common Stock as reported on Nasdaq Stock Market's National Market over
the ten-trading-day period ending on the fifth business day preceding the
consummation of the AWS Merger (or February 15, 1996 based upon a contemplated
closing date of February 23, 1996), provided, however, that if such average is
less than $20 or more than $26 per share, then the number of shares of Heartland
Common Stock to be issued in connection with the AWS Merger will be based upon
an exchange value of $20 or $26 per share, as applicable. Pursuant to the AWS
Merger Agreement, shares of Heartland Common Stock having an aggregate exchange
value of up to $3.25 million (subject to reduction upon the resolution of
certain claims against AWS) will be held in escrow for a period of approximately
twelve (12) months to satisfy certain indemnification obligations of AWS to
Heartland.
THE FTW TRANSACTION
Pursuant to the terms of the FTW Agreement, (i) FTW Partnership will assign
to Heartland substantially all of its assets, consisting of the 79.99% interest
in the FTW Venture, (ii) FTW Partnership and the FTW Partners approving the FTW
Transaction will either assign to Heartland or release the certain claims
against AWS and certain related parties, (iii) Heartland will assume up to
$570,000 of certain types of liabilities (including disputed liabilities) of FTW
Partnership to AWS, and (iv) Heartland will issue to FTW Partnership newly
issued freely tradeable shares of Heartland Common Stock having an aggregate
exchange value of $13.3 million. The exchange value for the shares of Heartland
Common Stock to be issued in connection with the FTW Agreement will be equal to
the average closing price of the Heartland Common Stock as quoted on the
Nasdaq-NMS over the ten-trading-day period ending on the fifth business day
preceding the consummation of the FTW Agreement (or February 15, 1996 based upon
a contemplated closing date of February 23, 1996); provided that if such average
closing price is in excess of $23 per share, the exchange value shall be $23 per
share.
THE MINNEAPOLIS TRANSACTION
Pursuant to the terms of the Minneapolis Agreement, (i) Minneapolis
Partnership will sell to Heartland substantially all of its assets, consisting
of a 75% membership interest in and to Delaware limited liability company that
owns and operates a wireless cable television system in the Minneapolis LLC,
(ii) Heartland will issue to Minneapolis Partnership that number of newly issued
publicly tradeable shares Heartland Common Stock having an aggregate exchange
value equal to the sum of (A) $18.0 million plus (B) $500 for each wireless
cable television subscriber in excess of 2,500 ("Additional Subscribers") as of
the fifth business day preceding the consummation of the Minneapolis Agreement
(or February 15, 1996 based upon a contemplated closing date of February 23,
1996) (currently estimated to be 1,000 Additional Subscribers, and not
anticipated to exceed 2,000 Additional Subscribers), (iii) Heartland will assume
up to $2.2 million of liabilities of Minneapolis Partnership to AWS, and (iv)
Minneapolis Partnership and the Minneapolis
63
<PAGE> 1432
Partners approving the Minneapolis Agreement will assign to Heartland certain
claims against AWS, its predecessors and their respective affiliates. The
exchange value of the Minneapolis Shares will be equal to either (a) the lesser
of $23 per share and the average closing price of Heartland Common Stock as
reported on the Nasdaq Stock Market's National Market over the ten-trading-day
period ending on the fifth business day preceding the consummation of the
Minneapolis Agreement (or February 15, 1996 based upon a contemplated closing
date of February 23, 1996) or (b) if such closing average is equal to or in
excess of $30 per share, then (i) the product of the closing average multiplied
by $23, divided by (ii) $30.
THE CMAX MERGER
Pursuant to the terms of the CMAX Merger Agreement, CMAX Merger Sub will be
merged with and into CMAX and CMAX will become a wholly owned subsidiary of
Heartland. If the CMAX Merger Agreement is approved and the CMAX Merger is
consummated, each outstanding share of common stock, par value $.01 per share,
of CMAX ("CMAX Common Stock") will be converted into the right to receive that
portion of a newly issued publicly tradeable share of Heartland Common Stock
having an exchange value of $8.50 per share of CMAX Common Stock for an
aggregate exchange value for all shares of CMAX Common Stock of approximately
$80.8 million, subject to reduction by the amount of certain excess liabilities.
The exchange value of the Heartland Common Stock to be issued in the CMAX Merger
will be equal to the average closing price of the Heartland Common Stock as
reported on the Nasdaq Stock Market's National Market over the 20-trading-day
period ending on the fifth business day preceding the consummation of the CMAX
Merger (or February 15, 1996 based upon a contemplated closing date of February
23, 1996).
64
<PAGE> 1433
THE COMBINED COMPANY
BUSINESS OF THE COMBINED COMPANY AFTER THE TRANSACTIONS
Following the consummation of the Transactions, but prior to any
dispositions of Heartland Disposition Assets consummated in connection therewith
or thereafter, Heartland, directly or through one or more subsidiaries, will
acquire all the assets and liabilities and succeed to the businesses of AWS and
CMAX and acquire substantially all of the assets and certain of the liabilities
and succeed to all of the businesses of FTW Venture, Minneapolis LLC and TSC
formerly conducted through Technivision (as operated by Heartland following
consummation of the Transactions, such businesses, assets and liabilities,
together with the current business, assets and liabilities of Heartland, are
hereinafter referred to collectively as the "Combined Company"). To the extent
that any of the AWS Merger, the CMAX Merger, the FTW Transaction, the
Minneapolis Transaction or the TSC Transaction are not consummated, the assets
and liabilities of AWS, CMAX, FTW Partnership, Minneapolis Partnership or TSC,
respectively, will not constitute a part of the Combined Company. In addition,
to the extent that any of the Heartland Disposition Assets are not sold or
otherwise disposed of by Heartland, such assets will continue to be owned and
operated by the Combined Company, but held for disposition.
The Combined Company will be in the business of developing, owning and
operating wireless cable television systems in primarily small to mid-sized
markets within the central United States. The Combined Company expects to
continue targeting small to mid-sized markets with significant numbers of LOS
households that are unpassed by traditional hard-wire cable and to otherwise
pursue the business strategy employed by Heartland to date. Assuming the
consummation of each of the Transactions and the disposition of all of the
assets constituting Heartland Disposition Assets, the Combined Company will have
wireless cable channel rights in 79 markets, representing approximately 8.2
million households, approximately 6.8 million of which Heartland estimates will
be serviceable by LOS transmissions. Heartland further estimates that within
these markets, approximately 2.4 million LOS households, or approximately 36% of
the Combined Company's total LOS households, are currently unpassed by
traditional hard-wire cable systems. The Combined Company's 79 markets will
include (i) approximately 33 markets in which the Combined Company will have
wireless cable television systems in operation, (ii) nine markets in which the
Combined Company will have wireless cable television systems under construction,
(iii) 21 near-term launch markets in which the Combined Company will have
aggregated sufficient wireless cable channel rights to commence construction of
a system and (iv) 16 long-term launch markets, including 11 in which the
Combined Company will have aggregated sufficient wireless cable channel rights
to commence construction of a system and five in which the Combined Company will
have leases with or options from applicants for channel licenses that Heartland
expects to be granted by the FCC. Assuming consummation of the Transactions and
disposition of the Heartland Disposition Assets, as of November 30, 1995, the 33
systems which Heartland anticipates the Combined Company will operate were
providing wireless cable service to approximately 117,000 subscribers. Although
management of Heartland is currently performing an ongoing evaluation regarding
the nature and scope of the operations of the Combined Company following the
consummation of the Transactions, various short- and long-term strategic
considerations will need to be addressed following such consummation with regard
to the integration and consolidation of the various businesses comprising the
Combined Company. Many of the operational and strategic decisions with respect
to the business of the Combined Company have not been made and may not be made
prior to the consummation of the Transactions. Significant uncertainties and
risks relating to the businesses and operations of the Combined Company and the
integration of its various businesses and assets exist as of the date hereof and
can be expected to continue to exist following consummation of the Transactions.
The quality, timing and manner of decisions made by management of the Combined
Company with respect to the integration and operation of its various businesses
and assets following the consummation of the Transactions will materially affect
the operations of the Combined Company and its financial results. See "Risk
Factors -- Factors Associated with Heartland" and "The Combined Company Planned
Divestitures."
In addition to developing, owning and operating wireless cable television
systems in small to mid-sized markets located in the central United States, the
Combined Company will have an equity investment in
65
<PAGE> 1434
Wireless One which it currently proposes to hold indefinitely. Assuming
consummation of a Newco Transaction, the Combined Company will also have an
equity interest in Newco which it currently intends to hold indefinitely. The
Wireless One and Newco investments will permit Heartland to participate,
indirectly as an equity owner, in the ownership, development and operation of
wireless cable television systems in markets outside of Heartland's traditional
demographic and geographic focus. No assurance can be given that the Combined
Company will experience an increase in value or return on its investment, if
any, in Newco. Heartland does not anticipate receiving any cash dividends from
its investment in Wireless One or Newco, if the Newco Transaction is
consummated, in the foreseeable future. Heartland is not obligated to fund the
future capital requirements of Wireless One, and will not be required to fund
the capital requirements of Newco. Because the Combined Company is expected to
hold its investment in Wireless One and its proposed investment in Newco
indefinitely, and because neither Wireless One nor Newco is expected to pay cash
dividends in the foreseeable future, neither investment should materially affect
the liquidity of the Combined Company. There can be no assurance that a market
for the Combined Company's investment in Wireless One or Newco will exist in the
future or to what extent such investments will affect the liquidity and capital
resources of the Combined Company. See "Information Concerning Heartland -- The
Business -- Recent Transaction."
The Combined Company will continue to be subject to all of the liabilities
of Heartland, AWS and CMAX and certain of the liabilities, as discussed herein,
of FTW Partnership, the Minneapolis Partnership and TSC. Included among these
liabilities will be litigation to which Heartland, AWS and CMAX are parties.
Pursuant to the terms of the TSC Agreement, the FTW Agreement and the
Minneapolis Agreement, Heartland will only assume known liabilities. Although
Heartland anticipates that the Combined Company will continue to operate AWS and
CMAX as wholly owned subsidiaries, litigation or other liabilities affecting
those entities may still materially affect the Combined Company. For a
discussion of certain liabilities of AWS under federal and state securities laws
and certain litigation to which AWS is a party, see "Risk Factors -- Factors
Associated with Heartland -- Recession Rights of Partners of Minneapolis
Partnership and ATW Partnership."
The summary pro forma financial information for the Combined Company
indicates pro forma annual revenues of approximately $20.1 million and operating
loss of approximately $14.6 million for the prior pro forma fiscal year. The pro
forma balance sheet for the Combined Company reflects cash of approximately
$68.6 million, working capital of approximately $99.5 million and a current
ratio of 6.18-to-one as of September 30, 1995. Management of Heartland believes
that, subject to consummation of each of the Transactions and disposition of all
of the Heartland Disposition Assets, the Combined Company will experience a
reduction in annual operating costs as a result of the elimination of
duplicative public company expenses such as investor relations, regulatory
filings and related legal and accounting costs, and as a result of the
elimination of duplicative executive officers and related staffing. See "Pro
Forma Financial Information Relative to the Transactions."
66
<PAGE> 1435
The table below provides information regarding the 79 markets (excluding
Heartland Disposition Assets) in which Heartland has or, upon consummation of
the Transactions, will have wireless cable channel rights that it currently
intends to retain and develop.
<TABLE>
<CAPTION>
NUMBER OF
ESTIMATED ESTIMATED SUBSCRIBERS AT
TOTAL LINE-OF-SIGHT CURRENT NOVEMBER 30,
MARKET HOUSEHOLDS HOUSEHOLDS CHANNELS(1) 1995
- --------------------------------------------- ---------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Existing Systems
Ada, OK.................................... 30,399 24,319 32 6,508
Wichita Falls, TX.......................... 78,290 74,376 28 6,093
Midland, TX................................ 120,037 114,035 26 5,017
Abilene, TX................................ 86,676 82,344 23 4,020
Lawton, OK................................. 97,023 92,172 27 6,334
Laredo, TX................................. 313,406(2) 297,736(2) 27 5,420
Enid, OK................................... 76,602 72,772 21 3,694
Lindsay, OK................................ 51,041 40,833 32 3,267
Ardmore, OK................................ 60,192 51,163 20 3,233
Mt. Pleasant, TX........................... 33,589 26,871 16 1,684
Lufkin, TX................................. 117,534 88,150 12 --(3)
Shaw, KS................................... 47,223 42,763 30 3,961
Texarkana, TX.............................. 118,204 94,563 20 1,997
Stillwater, OK............................. 54,562 40,922 20 5,428
Lubbock, TX................................ 123,934 105,323 34(4) 5,934
McLeansboro, IL............................ 80,136 60,102 18 859
Vandalia, IL............................... 73,593 55,195 20 1,365
Olney, IL.................................. 67,812 50,859 20 1,195
Lykens, OH................................. 210,800 168,640 24 700
Paragould, AR.............................. 77,523 58,500 21 2,157
Sikeston, MO............................... 69,837 52,378 24 2,163
Taylorville, IL............................ 159,596 119,697 20 1,336
Peoria, IL................................. 276,446 248,801 22 762
Manhattan, KS.............................. 56,473 42,355 20 945
O'Donnell, TX.............................. 68,940 65,493 20 1,053
Olton, TX.................................. 32,548 30,921 20 933
Monroe City/Lakenan, MO.................... 46,376 34,782 27 978
Paris, TX.................................. 55,445 41,584 20 79
Champaign, IL(5)........................... 164,992 148,493 23 2,120
Austin, TX(6).............................. 360,000 250,000 31 12,299
Temple/Killeen, TX(6)...................... 110,000 80,000 35 6,312
Waco, TX(6)................................ 100,000 80,000 35 3,860
Corpus Christi, TX(6)...................... 135,000 108,000 31 15,468
--------- --------- --------
Total -- Existing Systems.......... 3,554,229 2,944,142 117,174
========= ========= ========
</TABLE>
67
<PAGE> 1436
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
SYSTEMS UNDER CONSTRUCTION(8)
Corsicana/Athens, TX............................... 69,161 62,245 23(9)
Hamilton, TX....................................... 28,551 21,413 20
Harper/Freeport, IL................................ 125,269 93,952 20
Marion, KS......................................... 53,881 40,411 19
Peaksville, MO..................................... 48,157 36,118 15
Sherman/Denison, TX................................ 100,000 90,000 31(11)
Sterling, KS....................................... 45,213 38,431 24
Strawn/Ranger, TX.................................. 34,488 25,866 20
Walnut Grove, IL................................... 84,226 63,170 20
--------- ---------
Total -- Systems Under Construction........ 588,946 471,606
--------- ---------
NEAR-TERM LAUNCH MARKETS(12)
Adairsville, GA(10)................................ 205,662 154,247 16
Amarillo, TX....................................... 106,670 101,337 26(13)
Anthony, KS........................................ 15,798 11,845 16
Bellflower, MO..................................... 63,384 57,046 20
Bluffs, IL......................................... 46,389 34,792 20
Columbia, MO....................................... 149,622 127,179 18
Forrest City, AR................................... 55,642 41,732 21
Holdenville, OK.................................... 50,637 45,573 16
Kossuth, TX........................................ 52,490 39,368 20
Lenapah, OK........................................ 51,921 38,941 12
Mayfield, KY....................................... 175,948 155,972 21
Muskogee, OK....................................... 66,510 53,208 18
Powers Crossroads, GA(10).......................... 135,037 101,278 20
Purdin, MO......................................... 25,001 18,751 20
Rutledge, GA(10)................................... 141,370 106,028 16
Shreveport, LA..................................... 214,315 182,168 24
Springfield, MO.................................... 139,706 118,750 16
Tulsa, OK.......................................... 321,922 273,634 16
Tyler, TX.......................................... 233,416 186,734 14
Weatherford, OK.................................... 31,445 29,873 16
Wick, OH........................................... 336,098 268,878 21
--------- ---------
Total -- Near-Term Launch Markets.......... 2,618,983 2,147,334
--------- ---------
</TABLE>
68
<PAGE> 1437
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED EXPECTED
TOTAL LINE-OF-SIGHT CHANNELS AT
MARKET HOUSEHOLDERS HOUSEHOLDS LAUNCH(1)(7)
- ----------------------------------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
LONG-TERM LAUNCH MARKETS(14)
Altus, OK.......................................... 30,653 29,120 16
Burnet, TX......................................... 24,917 18,688 16
Charlotte, TX...................................... 32,771 24,578 16
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(6)..................................... 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
Ingram, TX......................................... 26,235 19,676 20
McAlester, OK...................................... 36,475 25,533 16
Miami, OK.......................................... 70,820 60,197 15
Sabinal, TX........................................ 15,795 11,846 20
Seminole, OK....................................... 42,204 35,873 19
Topeka, KS......................................... 211,762 190,586 16
--------- ---------
Total -- Long-Term Launch Markets.......... 1,460,445 1,216,551
--------- ---------
Total -- All Company Markets............... 8,222,603 6,779,633
========= =========
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
the Combined Company over wireless cable channels.
(2) Includes households located in Mexico, to which Heartland would be
permitted to provide service in conjunction with a Mexican-owned company.
(3) Construction of the Lufkin System was completed in December 1994. Heartland
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 Heartland.
(4) Includes additional channels acquired pursuant to a Sublease Agreement with
CMAX. Channel capacity has been increased by 12 channels in the Lubbock
System, of these channels, 4 are the subject of an appeal by an
unsuccessful applicant for the frequencies.
(5) Heartland acquired the system in Champaign, Illinois on January 16, 1996.
(6) Heartland will acquire the Austin, Temple/Killeen, Waco, Corpus Christi and
El Paso, Texas markets upon the consummation of the Transactions.
(7) Heartland's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although Heartland has no current
intention to launch any market with less than 12 channels, Heartland 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
Heartland 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, Heartland has rights to additional wireless
cable channels but does not expect to utilize such channels upon system
launch.
(8) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
Heartland has a lease with or an option from a channel license holder or an
applicant for a channel license.
(9) Includes additional channels acquired pursuant to a Sublease Agreement with
CMAX. Channel capacity has been increased by 7 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(10) Wireless One has the option to purchase these markets through February 28,
1996 for $7.2 million.
(11) Channels acquired pursuant to a Sublease Agreement with CMAX. Of these
channels, eight are the subject of uncontested application proceedings.
(12) Heartland has aggregated sufficient wireless cable channel rights in such
markets to commence construction of a system.
(13) Includes additional channels acquired pursuant to a Sublease Agreement with
CMAX. Channel capacity has been increased by 9 channels, of which an
application relating to 4 channels has been dismissed and is the subject of
a reinstatement position.
(14) Such markets include seven markets with respect to which Heartland has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which Heartland
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. Heartland expects a
substantial number of such licenses to be granted by the FCC.
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<PAGE> 1438
MANAGEMENT OF THE COMBINED COMPANY
Following the consummation of the Transactions, management of Heartland
will manage the Combined Company and the Board of Directors of the Combined
Company will consist entirely of the Board of Directors of Heartland. Although
Heartland has entered into a consulting and noncompetition agreement with Steven
G. Johnson, the President of AWS, management of Heartland does not otherwise
expect to retain executive officers or significant numbers of other management
personnel of AWS or CMAX or to enter into employment relationships with
executive officers or management personnel of TSC, the Minneapolis Partnership
or FTW Partnership. To the extent necessary to maintain customer service and
system launch schedules, the Combined Company may retain certain nonmanagerial
employees of AWS, CMAX or TSC. Mr. Johnson has entered into a consulting and
noncompetition agreement with Heartland pursuant to which Mr. Johnson, following
consummation of the AWS Merger, will provide consulting and transition services
to the Combined Company with regard to AWS and its assets and will refrain from
competing with the Combined Company or any of its transferees in any wireless
cable television market owned or operated by AWS as of October 31, 1995 for a
period of three years. In exchange for entering into the consulting and
noncompetition agreement, Mr. Johnson will receive a total of $700,000 payable
over a two-year period. No member of the Board of Directors of AWS or CMAX will
continue to serve as a member of the Board of Directors or as an executive
officer of the Combined Company or of AWS or CMAX, respectively. No member of
the Board of Directors of TSC or of the management committees of either the
Minneapolis Partnership or FTW Partnership will serve as a member of the Board
of Directors or as an executive officer of the Combined Company or any of its
subsidiaries following the consummation of the TSC Transaction, the FTW
Transaction or the Minneapolis Transaction. See "Information Concerning
Heartland -- Management."
PRINCIPAL HOLDERS
The following table sets forth (a) the effect of the Transactions (assuming
the consummation of all of the Transactions, an average closing price during the
relevant periods of $28 per share (the approximate closing average of the
Heartland Common Stock over the ten- and 20-day trading periods preceding the
date hereof) or $17 per share (the closing average at which the maximum number
of shares of Heartland Common Stock are issuable pursuant to the Transactions)
of Heartland Common Stock and certain other assumptions, as noted) on the amount
and percentage of present holdings of shares of Heartland Common Stock owned
beneficially by each holder of five percent or more of the shares of Heartland
Common Stock; and (b) persons that will beneficially own five percent or more of
the outstanding shares of Heartland Common Stock outstanding immediately
following the Transactions. See "Information Concerning Heartland -- Calculation
and Listing of Shares to be Issued in Connection with the Transactions."
<TABLE>
<CAPTION>
HEARTLAND COMMON STOCK HEARTLAND COMMON STOCK
HEARTLAND COMMON STOCK OWNED AFTER THE OWNED AFTER THE
OWNED BEFORE THE TRANSACTIONS TRANSACTIONS
TRANSACTIONS (AT $17 PER SHARE)(1) (AT $28 PER SHARE)(2)
----------------------- ------------------------ ------------------------
NAME NUMBER PERCENT(3) NUMBER PERCENT(4) NUMBER PERCENT(5)
- ------------------------- -------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hunt Capital Group,
L.L.C.................. 4,000,000 31.72% 4,000,000 17.14% 4,000,000 20.65%
David E. Webb............ 1,900,425 15.07 1,900,425 8.14 1,900,425 9.81
L. Allen Wheeler......... 2,004,800 15.90 2,004,800 8.59 2,004,800 10.35
Jupiter Partners,
L.P.(6)................ 2,837,688 18.37 2,837,688 10.84 2,837,688 12.78
Charter Wireless Cable
Holdings, L.L.C........ 0 0 2,505,450 10.74 1,521,167 7.85
Three Sixty Corp.(7)..... 0 0 2,073,529 8.89 1,187,500 6.13
</TABLE>
- ---------------
(1) Assumes (i) there will be 4,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $3.5 million will
be paid in the TSC Transaction, (iii) assumption of no liabilities in the
TSC Transaction, (iv) the Dayton System will not be sold prior to the
consummation of the Transactions and (v) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
(2) Assumes (i) there will be 3,500 subscribers to the Minneapolis system on the
relevant date, (ii) additional subscriber consideration of $1.5 million will
be paid in the TSC Transaction, (iii) assumption of $5 million of
liabilities in the TSC Transaction, and (iv) CMAX's net liabilities do not
exceed specified amounts. See "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions."
70
<PAGE> 1439
(3) Based upon 12,611,132 shares of Heartland Common Stock outstanding as of
December 31, 1995.
(4) Based on 23,332,434 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$17 per share, the closing average at which the maximum number of shares of
Heartland Common Stock are issuable -- see "Information Concerning
Heartland -- Calculation and Listing of Shares to be Issued in Connection
with the Transactions").
(5) Based on 19,375,081 shares of Heartland Common Stock outstanding after the
Transactions (assuming, among other things indicated, a closing average of
$28 per share, the approximate closing average of the Heartland Common Stock
over the preceding ten- and 20-day trading periods).
(6) Jupiter Partners, L.P. is the current owner of $40.0 million gross proceeds
of Heartland's 9% Convertible Subordinated Discount Notes due 2004 (the
"Convertible Notes"). Each Convertible Note is convertible into the number
of shares of Heartland Common Stock computed by dividing (i) the principal
amount of the Convertible Note (after taking into account accretions in
value) by (ii) the Conversion Price (as defined in the Convertible Notes)
then in effect. The current Conversion Price is $15.34 per share.
(7) Reflects ownership prior to the distribution of the Heartland Common Stock
in accordance with the TSC Liquidation Plan. See "Information Concerning
Heartland -- Security Ownership of Principal Stockholders and Management."
PLANNED DIVESTITURES
In connection with approving the Transactions, Heartland's Board determined
that certain of the markets currently held by Heartland and certain of those to
be acquired in the Transactions should be disposed of, either because their
demographics are inconsistent with Heartland's focus on small to mid-sized
markets with a significant number of LOS households unpassed by traditional
hard-wired cable or because the Heartland Board felt that the consideration to
be received in a disposition thereof might be attractive when compared to
developing and operating a wireless cable system in the market. In particular,
the Heartland Board identified the Maysville and Sweet Springs, Missouri, Grand
Rapids/Moline Michigan, Napoleon/Bloom Center, Indiana and Flippin, Tennessee
markets currently owned by Heartland, and the Los Angeles, California, Dallas,
Ft. Worth and San Antonio, Texas, Memphis, Tennessee, Dayton, Ohio, Salt Lake
City, Utah and Minneapolis, Minnesota markets to be acquired in the Transactions
as being markets for which Heartland's management should seek one or more
disposition opportunities for cash, promissory notes, retained equity interests
or a combination thereof. Notwithstanding its determination to seek the sale,
exchange or other disposition of the Heartland Disposition Assets, the Heartland
Board felt that some or all of such markets, properly developed and operated,
offered attractive opportunities to participate in the wireless cable television
industry. As a result, the Heartland Board further directed Heartland's
management to seek one or more opportunities to dispose of the Heartland
Disposition Markets which might offer Heartland the ability to retain an equity
interest, directly or indirectly, in the disposed of markets.
Heartland is currently a party to an agreement relating to the disposition
of the Memphis and Flippin, Tennessee markets, of which Flippin, Tennessee is
currently owned by Heartland. Heartland will sell the Flippin market to
TruVision for $1.5 million contemporaneously with the sale to TruVision by AWS
of the Memphis market for $3.9 million (collectively, the "Memphis
Transaction"). Heartland will not retain a direct or indirect interest in these
markets.
After substantial discussions and certain limited agreements regarding the
conduct of their respective businesses during the pending of such negotiations,
effective December 12, 1995, Heartland, CAI Wireless Systems, Inc., a
Connecticut corporation ("CAI"), and CS Wireless Systems, Inc., a Delaware
corporation and a wholly-owned subsidiary of CAI ("Newco"), entered into a
Participation Agreement (the "Participation Agreement"), pursuant to which
Heartland or its subsidiaries will contribute or sell to Newco the wireless
cable assets and all related liabilities of the Heartland Disposition Assets,
other than the assets to be sold to TruVision as part of the Memphis Transaction
and the Los Angeles, California channel rights of AWS (which Heartland will seek
to sell directly to a third party). Simultaneous with Heartland's contribution
and sale of these assets to Newco, CAI or its subsidiaries will contribute to
Newco all of the outstanding capital stock of certain subsidiaries of CAI, which
will retain all of their assets and liabilities related to the wireless cable
markets of Bakersfield, California, Charlotte, North Carolina, Cleveland, Ohio
and Stockton/Modesto, California. Subject to certain conditions, Heartland or
CAI may sell certain of these assets prior to the closing or contribute cash to
Newco in lieu thereof (such transactions collectively being referred to as the
"Newco Transaction"). Heartland contemplates that the Newco Transaction will
close contemporaneously with or immediately following consummation of the
Transactions.
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<PAGE> 1440
The combination of these assets in Newco will create a company with
approximately 5.7 million LOS households and 54,700 subscribers. CAI is a
publicly held wireless cable company headquartered in Albany, New York whose
common stock is publicly traded on NASDAQ:CAWS.
In connection with the Newco Transaction, Heartland (or one or more of its
subsidiaries) will receive (i) shares of Newco common stock, $.001 par value per
share (the "Newco Common Stock"), constituting approximately 39.76% of the
outstanding shares of Newco Common Stock at the closing, (ii) approximately
$28.3 million in cash payable by Newco at the closing, (iii) a promissory note
in the principal sum of $25 million payable nine (9) months from the closing
(the "First Note") and (iv) a promissory note in the sum $15 million payable ten
(10) years from the closing (the "Second Note"). The First Note will (i) require
that all of the net proceeds received by Newco from the sale of assets
(including any proceeds received prior to consummation of the Newco Transaction
from the sale of any of the assets to be contributed to Newco) shall be applied
immediately to the repayment of a portion of the First Note; (ii) require that
30% (or such higher percentage as is deemed reasonable by the underwriter for
Newco's Common Stock) of the net proceeds of any initial public offering of the
Newco Common Stock shall be applied to the repayment of the First Note; (iii)
provide assurances, satisfactory to Heartland, that, to the extent not otherwise
repaid, the First Note will be payable from $25 million of the net proceeds of
$125 million of proceeds of senior discount notes contemplated to be issued by
Newco (the "Newco Financing"), which is a condition to consummation of the Newco
Transaction, which will be appropriately secured for such purpose; and (iv) bear
interest at the effective rate of interest received by Newco from the investment
of the $25 million of the net proceeds of the Newco Financing which are security
for repayment of the First Note. The Second Note will (i) bear interest at the
annual rate of 10%, subject to adjustment as described below; (ii) require that
all of the net proceeds received by Newco from the sale of assets (including any
proceeds received prior to consummation of the Newco Transaction from the sale
of any of the assets to be contributed to Newco) shall, to the extent available
after repayment of the First Note, be applied by Newco to the repayment of a
portion of the Second Note; (iii) require that 30% (or such higher percentage as
is deemed reasonable by the underwriter for the Newco Common Stock) of the net
proceeds of any initial public offering of the Newco Common Stock shall be
applied, to the extent available after the repayment of the First Note, to the
repayment of the Second Note; (iv) provide that, if the Second Note is not paid
in full within one year of the consummation of the Newco Transaction, the annual
interest rate on the Second Note shall increase to 15% from and after the first
anniversary of the closing; and (v) provide that all interest on the Second Note
shall be payable in kind (interest computed rather than payable currently) to
the first interest payment date after the Newco senior discount notes to be
issued as part of the contemplated Newco Financing have been paid in full. The
equity interests of Heartland and CAI in Newco will be subject to dilution for
the issuance of (i) Newco Common Stock or warrants to acquire Newco Common Stock
which may be issued as a part of the Newco Financing; (ii) options to acquire
Newco Common Stock which may be issued to Newco's management; and (iii) warrants
or options to acquire up to 10% of Newco's Common Stock (prior to the issuance
of any warrants as part of the Newco Financing or options to Newco's management)
to BANX, a partnership comprised of Bell Atlantic Corporation and NYNEX
Corporation, which is a substantial investor in CAI. Within six months of
closing, CAI and Heartland will complete certain post-closing net working
capital calculations. Components of such calculations will 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 Newco for each market, increase or decrease in the number of
subscribers in each contributed system from the number of subscribers stated in
the Participation Agreement and related factors. Following such calculations, an
increase or decrease will occur in the principal amount of the promissory notes
to be received by Heartland from Newco, and CAI will either contribute or be
entitled to a distribution of cash from Newco, depending upon such calculations.
Pursuant to an agreement dated October 10, 1995, each of CAI and Heartland
agreed to cooperate in the filing of applications for continuing participation
in the public auctions for available spectrums in the multipoint and/or
multichannel distribution service in 487 basic trading areas ("BTAs") and six
(6) additional BTA-like geographic areas. The auctions were commenced by the FCC
on or about November 13, 1995 with respect to certain markets, including markets
which are expected to be conveyed to Newco. In the
72
<PAGE> 1441
event of the award of any such licenses to either CAI or Heartland, Newco shall
reimburse such entity for the amounts paid by such party upon conveyance of the
applicable licenses to Newco.
In connection with the closing of the Newco Transaction, CAI, Heartland and
Newco will enter into a stockholders agreement (the "Stockholders Agreement").
The Stockholders Agreement will provide, among other things, that Heartland and
CAI will agree to vote their shares of Newco Common Stock in favor of a Board of
Directors of Newco having nine (9) 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 Heartland and that CAI has not disposed of more than one-half of
the Newco Common Stock it held on the effective date of such agreement); (ii) up
to three members designated by Heartland (provided that at least one of whom may
not be an affiliate of either CAI or Heartland and that Heartland has not
disposed of more than one-half of Newco Common Stock it held on the effective
date of such agreement); (iii) the Chief Executive Officer of Newco; and (iv)
the Chief Financial Officer of Newco. The Stockholders Agreement and Newco's
Bylaws further provide that certain transactions will require the affirmative
approval of at least 70% (7 of 9) of the Directors of Newco. Such transactions
include (i) the participation of Newco in a merger or consolidation, or the
sale, lease, exchange or other disposition of all or any substantial part of the
assets of Newco, or the liquidation of all or a substantial part of Newco; (ii)
the issuance or sale by Newco of any capital stock of Newco, including the type
and amount to be issued or sold, except for the options and warrants
contemplated as part of the transaction; (iii) the taking of any action by Newco
in its capacity as a stockholder of any subsidiary of Newco similar to the
foregoing; (iv) any increase or decrease in the total number of directorships of
Newco; (v) engaging in any business other than the designated business of Newco
(transmitting video, voice or data, inclusive of related activities and
services, including the use of wireless channels for any commercial purpose
permitted by the FCC); (vi) establishing any executive or other committee of the
Board of Newco; (vii) the creation, incurrence, assumption or guaranty of or in
any manner becoming liable by Newco or any of its subsidiaries upon any
obligation for money borrowed in excess of $10 million in the aggregate
principal amount at any time outstanding or the incurrence of any obligation in
excess of such amount in connection with the acquisition of property; (viii) the
making of or having outstanding any loans or advances to any of Newco's past or
present officers, directors or stockholders or to any member of their immediate
family; (ix) the entering into, directly or indirectly, of any arrangement,
contract or agreement not in the ordinary course of business with a monetary
value in excess of $10 million; (x) the sale or other disposal (including
contribution) of assets or capital stock (by merger or otherwise) of Newco or
any of its subsidiaries, the value of which exceeds $10 million in either
original cost or appraised value within any one-year period; (xi) the
acquisition of securities or assets by Newco or any of its subsidiaries, the
value of which exceeds $10 million in appraised value within any one year
period; (xii) any change in the business of Newco from its stated business; or
(xiii) replacement of the Chief Executive Officer or the Chief Financial Officer
of Newco.
Further, the Participation Agreement and Stockholders Agreement provide
that Newco may actively engage in discussions and activities with the goal of
(i) acquiring additional geographic markets and assets related to its business;
(ii) selling or otherwise disposing of some or all of its assets (including a
sale of all or a portion of the Newco Common Stock by merger or otherwise); and
(iii) creating one or more joint ventures or other joint operations which may
involve, among other matters, contributing all or a portion of Newco's assets to
such joint venture or operation in exchange for an equity interest therein,
cash, notes or other suitable consideration; provided, however, that (A) no such
activity shall be undertaken unless the Newco Board determines that each such
activity is in the best interest of Newco and (B) with respect to the activities
described in clauses (ii) and (iii) above, (i) such sales, contributions and
dispositions shall be limited to the markets contributed by Heartland and CAI to
Newco; (ii) if any such sales are agreed to or consummated prior to the
consummation of the Newco Transaction, the initial purchaser of the Newco
Financing shall give its written consent thereto prior to effecting the Newco
Financing; (iii) the proposed underwriter mutually selected by CAI and Heartland
for an initial public offering, if any, of the Newco Common Stock proposed to be
initiated during the first year after the closing shall state in writing that
any such proposed sale, disposition or joint venture would not have a negative
impact on said initial public offering; and (iv) Newco shall not sell,
contribute or otherwise dispose of any of its assets (or shares of Newco Common
Stock by merger or otherwise) having a value in excess of $10 million in either
original cost or appraised value unless the consideration received by Newco
shall approximate the greater of (I) the then fair market value of such asset;
73
<PAGE> 1442
or (II) an amount equal to the aggregate of (x) the valuation given to such
assets at the time of contribution to Newco by Heartland and CAI, as the case
may be, plus (y) the amount of any cash investments made by Newco with respect
to such assets (such as new subscriber or head-end equipment) plus (z) the full
effective after tax cost to Newco of that portion of the Newco Financing
(including without limitation the interest rate, initial purchaser's discount,
cost of complying with the requirements of the Newco Financing documents and, if
applicable, cost of warrants, prepayment penalties and/or change in control
premiums) equal to the net proceeds to be received from such sale, contribution
or disposition. So long as such transaction is reasonably likely to be
consummated within one year after the date of the Participation Agreement and if
each of the above requirements are met, CAI and Heartland have each agreed to
take any and all actions (on a timely basis) necessary to effect said
transaction, including without limitation voting (or causing the vote of) all of
the shares of Newco Common Stock held by Heartland and CAI in favor of such
transaction.
If (i) the Newco Transaction is terminated without the closing having
occurred, following satisfaction of all material conditions to the closing by
Heartland specified in the Participation Agreement; (ii) CAI has not undertaken
any action reasonably calculated to prevent the closing; and (iii) Heartland has
not at any time prior to the termination of the Participation Agreement, or
within one year after such termination, engaged in a transaction involving the
sale, transfer or other disposition of at least two of the three markets of
Dallas-Fort Worth, Texas (counted as one market), Salt Lake City, Utah and
Minneapolis, Minnesota, Heartland shall pay to CAI a break-up fee equal to $3
million, which shall be payable immediately upon the consummation of such
transaction as the sole and exclusive remedy to CAI and Newco for Heartland's
failure to close the Newco Transaction in breach of the Participation Agreement.
CAI is required to pay a break-up fee of $3 million to Heartland if it fails to
consummate the Newco Transaction following satisfaction of all material
conditions to closing by CAI and it engages in a transaction involving the sale,
transfer or other disposition of the Cleveland, Ohio market prior to or within
one year following termination of the Participation Agreement, which shall be
Heartland's sole and exclusive remedy for CAI's failure to close the Newco
Transaction.
Pursuant to the Participation Agreement, all representations and warranties
of CAI and Heartland survive closing of the Newco Transaction for a period of
four months. Each party indemnifies the other from and against all damages
resulting from a breach of such representations and warranties; provided,
however, that no indemnification payment is made for any portion of the initial
$500,000 of damages claimed. Either party may reimburse the other for such
damages through a combination of cash (or, in the case of Heartland, reduction
of the First Note and Second Note) or the assignment of Newco Common Stock not
to exceed 50% of the amount of said damages, with shares thereof valued at the
values agreed upon by Heartland and CAI as of the consummation of the Newco
Transaction.
Consummation of the Newco Transaction is expected contemporaneously with or
immediately following consummation of the Transactions and is subject to
significant customary closing conditions, including, without limitation,
consummation of the Transactions, receipt of certain consents (including consent
of the holders of CAI's outstanding debt securities), consummation of the Newco
Financing on terms acceptable to Heartland and CAI, acceptable partition or
interference agreements with respect to certain markets adjacent to the Newco
markets, certain regulatory approvals, and satisfactory due diligence review by
each party of the assets to be contributed to Newco. Such conditions may be
waived in certain circumstances. No assurance can be given that such conditions
will be satisfied. If such closing conditions are not satisfied, Heartland will
actively seek one or more disposition opportunities for this portion of the
Heartland Disposition Assets for cash, promissory notes, retained equity
interests or a combination thereof. See "The Combined Company -- Business of the
Combined Company After the Transactions," "-- Planned Divestitures" and
"-- Reasons for the Transactions."
REASONS FOR THE TRANSACTIONS
The AWS Merger. The Board of Directors of Heartland (the "Heartland Board")
has approved and adopted the AWS Merger Agreement. The Heartland Board believes
that the AWS Merger is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the AWS Merger would provide
Heartland with wireless cable television systems and channel rights targeted for
disposition on terms and conditions favorable to Heartland in comparison with
the cost of their acquisition. Further, if the planned
74
<PAGE> 1443
disposition of all of AWS's channel rights is not consummated, the Heartland
Board believes that the AWS Merger would increase Heartland's competitive
position in the industry by increasing the aggregate number and size of its
wireless cable television systems and channel rights at favorable acquisition
costs. Such systems would then be held for disposition or strategic exchange for
other systems and channel rights which the Heartland Board believes would
enhance Heartland's competitive position.
The FTW Transaction. The Heartland Board has approved and adopted the FTW
Agreement. The Heartland Board believes that the FTW Transaction is fair to and
in the best interest of Heartland and its stockholders. The Heartland Board
believes that the FTW Transaction will provide Heartland with a wireless cable
television system targeted for disposition on terms and conditions favorable to
Heartland in comparison with the cost of its acquisition. Further, if the
planned disposition of certain channel rights (including the FTW Interest) is
not consummated, the Heartland Board believes the FTW Transaction would increase
Heartland's competitive position in the Fort Worth, Texas and Dallas, Texas
markets (coupled with the consummation of the AWS Merger) by consolidating the
wireless cable television markets of Fort Worth, Texas and Dallas, Texas. Such
markets would substantially add to Heartland's geographic cluster of markets in
the northern regions of the State of Texas. Such systems would then be held for
disposition or strategic exchange for other systems and channel rights, which
the Heartland Board believes would enhance Heartland's competitive position.
The Minneapolis Transaction. The Heartland Board has approved and adopted
the Minneapolis Agreement. The Heartland Board believes that the Minneapolis
Transaction is fair to and in the best interest of Heartland and its
stockholders. The Heartland Board believes that the Minneapolis Transaction will
provide Heartland with a wireless cable television system targeted for
disposition on terms and conditions favorable to Heartland in comparison with
the cost of its acquisition. Further, if the planned disposition of certain
channel rights (including rights held by the Minneapolis Partnership in the
Minneapolis LLC) is not consummated, the Minneapolis system would then be held
for disposition or strategic exchange for other systems and channel rights which
the Heartland Board believes would enhance Heartland's competitive position.
The CMAX Merger. The Heartland Board has approved and adopted the CMAX
Merger and the CMAX Merger Agreement. The Heartland Board believes that the CMAX
Merger is fair to and in the best interest of Heartland and its stockholders.
The Heartland Board believes that the CMAX Merger will provide Heartland with
(i) additional wireless cable television systems and channel rights consistent
with Heartland's rural market focus (Amarillo, Athens, Austin, Lubbock,
Sherman/Denison, Temple/Killeen and Waco, Texas) strategically located with
Heartland's existing wireless cable television systems in the State of Texas and
(ii) wireless cable television systems and channel rights targeted for
disposition (Salt Lake City, Utah and San Antonio, Texas) on terms and
conditions favorable to Heartland in comparison with their cost of acquisition.
If the planned disposition is not consummated, the San Antonio and Salt Lake
City systems would then be held for disposition or strategic exchange for other
systems and channel rights which the Heartland Board believes would enhance
Heartland's competitive position.
The TSC Transaction. The Heartland Board has approved and adopted the TSC
Agreement. The Heartland Board believes that the TSC Transaction is fair to and
in the best interest of Heartland and its stockholders. The Heartland Board
believes that the TSC Transaction would provide Heartland with (i) additional
wireless cable television systems and channel rights consistent with Heartland's
rural market focus (El Paso and Corpus Christi, Texas) strategically located
with Heartland's existing wireless cable television systems in the State of
Texas and (ii) wireless cable television systems targeted for disposition
(Dayton, Ohio) on terms and conditions favorable to Heartland in comparison with
its cost of acquisition. If the planned disposition is not consummated, the
Dayton system would then be held for disposition or strategic exchange for other
systems and channel rights which the Heartland Board believes would enhance
Heartland's competitive position.
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<PAGE> 1444
PRO FORMA FINANCIAL INFORMATION
RELATIVE TO THE TRANSACTIONS
The following unaudited pro forma condensed consolidated financial
information presents pro forma financial information of Heartland in three sets
of pro forma financial statements. The pro forma financial information consists
of (1) an Unaudited Pro Forma Condensed Combined Balance Sheet for the
Transactions as of September 30, 1995 and the related Unaudited Pro Forma
Condensed Combined Statements of Operations for the Transactions for the year
ended December 31, 1994 and the nine months ended September 30, 1995,
(collectively, the "Combined Pro Forma Statements for the Transactions"), (2) an
Unaudited Pro Forma Condensed Balance Sheet for each of the Transactions as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for each of the Transactions for the year ended
December 31, 1994 and the nine months ended September 30, 1995 (collectively,
the "Individual Pro Forma Statements for the Transactions") and (3) an Unaudited
Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as of
September 30, 1995 and the related Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 (collectively, the "Pro Forma
Statements for Consummated Events") (all such pro forma financial information
together, the "Pro Forma Statements"). The Pro Forma Statements for the
Transactions and the Individual Pro Forma Statements for the Transactions follow
on pages 77 to 100 of this Proxy Statement/Prospectus. The Pro Forma Statements
for Consummated Events have been included on pages F-31 to F-36 of the Proxy
Statement/Prospectus.
The Pro Forma Statements for the Transactions adjust the Pro Forma
Statements for Consummated Events to give effect to the Transactions as if the
Transactions had occurred on September 30, 1995 for balance sheet information
and January 1, 1994 for statement of operations information. The Pro Forma
Statements for the Transactions assume that all the Transactions and the
proposed Heartland Disposition Assets will be consummated by Heartland. However,
because there can be no certainty regarding which of the Transactions, if any,
will be consummated and because, correspondingly, it is impossible to precisely
determine the ultimate plan of disposition (some assets from each of the
Transactions will potentially be disposed of by Heartland or its predecessors),
a large number of other potential pro forma outcomes are possible. As a result,
Heartland has presented the Individual Pro Forma Statements for the Transactions
which include pro forma adjustments related to each separate Transaction and
associated disposition. This method of presentation provides readers with all of
the information necessary to recalculate, should they so desire, Heartland's pro
forma financial information under any possible scenario that might arise from
the acquisition and disposition plans described in this Proxy
Statement/Prospectus.
The Transactions will be accounted for by the purchase method of
accounting. With respect to the Transactions, the purchase price has been
allocated on a preliminary basis to the assets and liabilities acquired based on
the estimated fair values of such assets and liabilities.
The Pro Forma Statements and accompanying notes should be read in
conjunction with Heartland's consolidated financial statements (including notes
thereto) appearing elsewhere in the Proxy Statement/Prospectus. The Pro Forma
Statements do not purport to represent what Heartland's results of operations or
financial position actually would have been had such transactions or events
occurred on the dates specified, or to project Heartland's results of operations
or financial position for any future period or date. The pro forma adjustments
are based upon available information and certain adjustments that Heartland's
management believes are reasonable. In the opinion of Heartland's management,
all adjustments have been made that are necessary to present fairly the Pro
Forma Statements.
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<PAGE> 1445
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET FOR THE TRANSACTIONS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................. $47,155,064 $ 786,392 $ 5,082,653 $ --
Restricted investments..................................... 11,669,874 -- -- --
Net assets held for cash sale or exchange.................. 2,200,000 -- 7,250,000 --
Note receivable............................................ -- -- -- --
Other current assets....................................... 3,035,281 673,913 89,724 --
----------- ----------- ------------ ------------
Total current assets....................................... 64,060,219 1,460,305 12,422,377 --
Systems and equipment, net................................. 43,368,952 17,035,351 218,404 --
Leased license investment, net............................. 60,482,276 32,556,597 -- --
Investment in Wireless One................................. 14,602,442 -- -- --
Investment in CS Wireless.................................. -- -- -- --
Excess of cost over fair value of net assets acquired...... 4,470,286 8,549,540 9,015,248 --
Net assets held for exchange............................... -- 43,610,341 27,498,434 16,191,304
Restricted investments..................................... 13,077,340 -- -- --
Note receivable............................................ -- -- -- --
Other assets, net.......................................... 10,435,034 -- 77,179 --
------------ ------------ ------------ -----------
$210,496,549 $103,212,134 $49,231,642 $16,191,304
============ ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.......................... $ 616,610 $ 787,500 $ 99,442 $ --
Other current liabilities.................................. 10,130,631 3,042,950 1,468,523 --
------------ ------------ ----------- -----------
Total current liabilities.................................. 10,747,241 3,830,450 1,567,965 --
Long-term debt, less current portion....................... 139,428,429 10,020,000 1,800,000 --
Deferred income taxes...................................... 1,189,080 8,549,540 9,015,248 --
Other liabilities.......................................... 279,695 -- 233,044 --
Stockholders' equity....................................... 58,852,104 80,812,144 36,615,385 16,191,304
------------ ------------ ----------- -----------
$210,496,549 $103,212,134 $49,231,642 $16,191,304
============ ============ =========== ===========
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................. $ -- $ 56,297 $ (10,807,500)(G) $ 68,613,369
(2,000,000)(H)
28,340,463 (I)
Restricted investments..................................... -- -- 11,669,874
Net assets held for cash sale or exchange.................. -- -- 9,450,000
Note receivable............................................ -- -- 25,000,000 (I) 25,000,000
Other current assets....................................... -- 281,895 (74,316)(I) 4,006,497
----------- ---------- ------------ -----------
Total current assets....................................... -- 338,192 40,458,647 118,739,740
Systems and equipment, net................................. -- 6,151,964 (2,038,608)(I) 64,736,063
Leased license investment, net............................. -- 18,687,753 (2,482,706)(I) 109,243,920
Investment in Wireless One................................. -- -- 14,602,442
Investment in CS Wireless.................................. -- -- 55,875,666 (I) 55,875,666
Excess of cost over fair value of net assets acquired...... -- 6,066,024 28,101,098
Net assets held for exchange............................... 21,913,052 10,720,791 (119,933,922)(I) --
Restricted investments..................................... -- -- 13,077,340
Note receivable............................................ -- -- 15,000,000 (I) 15,000,000
Other assets, net.......................................... -- 5,300 (1,800,000)(G) 8,717,513
----------- ----------- ------------- ------------
$21,913,052 $41,970,024 $ (14,920,923) $428,093,782
=========== =========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.......................... $ -- $ 1,263,005 $ (787,500)(G) $ 1,979,057
Other current liabilities.................................. -- 2,890,995 (313,423)(I) 17,219,676
---------- ----------- ------------ -----------
Total current liabilities.................................. -- 4,154,000 (1,100,923) 19,198,733
Long-term debt, less current portion....................... -- -- (11,820,000)(G) 139,428,429
Deferred income taxes...................................... -- 6,066,024 24,819,892
Other liabilities.......................................... -- -- 512,739
Stockholders' equity....................................... 21,913,052 31,750,000 (2,000,000)(H) 244,133,989
----------- ----------- ----------- ------------
$21,913,052 $41,970,024 $ (14,920,923) $428,093,782
=========== =========== ============= ============
</TABLE>
See accompanying notes to Pro Forma Statements
77
<PAGE> 1446
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues...................... $ 7,590,823 $ 6,765,741 $ -- $ --
------------ ------------ ------------ -----------
Operating expenses:
Systems operations................. 4,188,612 3,270,598 -- --
Selling, general and
administrative................... 6,377,969 5,229,087 -- --
Depreciation and
amortization..................... 3,263,717 4,934,844 -- --
------------ ------------ ------------ -----------
Total operating
expenses..................... 13,830,298 13,434,529 -- --
------------ ------------ ------------ -----------
Operating loss............... (6,239,475) (6,668,788) -- --
Interest expense..................... (4,185,033) (459,536) -- --
Equity in losses of investment....... (1,004,594) -- -- --
Interest income and other............ 152,450 577,217 -- --
------------ ------------ ------------ -----------
Loss before income
taxes....................... (11,276,652) (6,551,107) -- --
Income tax benefit................... 2,458,812 2,265,743 -- --
------------ ------------ ------------ -----------
Net loss....................... $ (8,817,840) $ (4,285,364) $ -- $ --
============ ============ ============ ===========
Net loss per share................... $ (0.70) $ -- $ -- $ --
============ ============ ============ ===========
Weighted average shares
outstanding........................ 12,541,444 2,886,148 1,307,692 578,261
============ ============ ============ ===========
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenues...................... $ -- $ 5,735,071 $ -- $ 20,091,635
------------ ------------ ----------- -------------
Operating expenses:
Systems operations................. -- 2,662,495 10,121,705
Selling, general and
administrative................... -- 1,812,854 13,419,910
Depreciation and
amortization..................... -- 2,976,050 11,174,611
------------ ------------- ----------- -------------
Total operating
expenses..................... -- 7,451,399 -- 34,716,226
------------ ------------- ----------- -------------
Operating loss............... -- (1,716,328) (14,624,591)
Interest expense..................... -- (1,388,263) (6,032,832)
Equity in losses of investment....... -- -- (1,004,594)
Interest income and other............ -- -- 729,667
------------ ------------- ----------- -------------
Loss before income
taxes....................... -- (3,104,591) -- (20,932,350)
Income tax benefit................... -- 1,148,699 1,409,641(J) 7,282,895
------------ ------------- ----------- -------------
Net loss....................... $ -- $ (1,955,892) $1,409,641 $ (13,649,455)
============ ============= =========== =============
Net loss per share................... $ -- $ -- $ -- $ (0.71)
============ ============= =========== =============
Weighted average shares 782,609 1,133,929 -- 19,230,083
outstanding........................ ============ ============= =========== =============
</TABLE>
See accompanying notes to Pro Forma Statements
78
<PAGE> 1447
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TRANSACTIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
FTW
HEARTLAND CMAX AWS PARTNERSHIP
PRO FORMA(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total revenues.................................. $ 9,944,209 $ 6,674,530 $ -- $ --
----------- ----------- ---------- --------
Operating expenses:
Systems operations............................ 3,371,531 2,973,011 -- --
Selling, general and administrative........... 7,689,026 4,294,351 -- --
Depreciation and amortization.................. 4,396,920 5,210,043 -- --
------------ ----------- ---------- --------
Total operating expenses................... 15,457,477 12,477,405 -- --
------------ ----------- ---------- --------
Operating loss................................. (5,513,268) (5,802,875) -- --
Interest expense................................ (8,908,459) (945,475) -- --
Equity in losses of investees................... (1,049,583) -- -- --
Interest income and other....................... 1,568,946 121,497 -- --
------------ ----------- ---------- --------
Loss before income taxes.................. (13,902,364) (6,626,853) -- --
Income tax benefit.............................. -- 2,333,311 -- --
------------ ----------- ---------- --------
Net loss.................................. $(13,902,364) $(4,293,542) $ -- $ --
============ =========== ========== ========
Net loss per share.............................. $ (1.10) $ -- $ -- $ --
============ =========== ========== ========
Weighted average shares outstanding............. 12,591,927 2,886,148 1,307,692 578,261
============ =========== ========== ========
<CAPTION>
MINNEAPOLIS
PARTNERSHIP TECHNIVISION PRO FORMA
PRO FORMA(E) PRO FORMA(F) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenues.................................. $ -- $ 4,138,790 $ -- $ 20,757,529
-------- ----------- ---------- ------------
Operating expenses:
Systems operations............................ -- 2,056,387 8,400,929
Selling, general and administrative........... -- 1,157,219 13,140,596
Depreciation and amortization.................. -- 2,116,483 11,723,446
-------- ----------- ---------- ------------
Total operating expenses................... -- 5,330,089 -- 33,264,971
-------- ----------- ---------- ------------
Operating loss................................. -- (1,191,299) -- (12,507,442)
Interest expense................................ -- (625,728) (10,479,662)
Equity in losses of investees................... -- -- (1,049,583)
Interest income and other....................... -- 253,352 1,943,795
-------- ----------- ---------- ------------
Loss before income taxes.................. -- (1,563,675) -- (22,092,892)
Income tax benefit.............................. -- 494,394 5,011,374(J) 7,839,079
-------- ----------- ---------- ------------
Net loss.................................. $ -- $(1,069,281) $5,011,374 $(14,253,813)
======== =========== ========== ============
Net loss per share.............................. $ -- $ -- $ -- $ (0.74)
======== =========== ========== ============
Weighted average shares outstanding............. 782,609 1,133,929 -- 19,280,566
======== =========== ========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
79
<PAGE> 1448
NOTES TO COMBINED PRO FORMA STATEMENTS FOR THE TRANSACTIONS
(A) Reflects pro forma information for events previously consummated by
Heartland. See pages F-31 to F-36 for detailed pro forma adjustments
related to events previously consummated by Heartland.
(B) Reflects pro forma information for the CMAX Merger. See pages 81 to 84 for
detailed pro forma adjustments relating to the CMAX Merger.
(C) Reflects pro forma information for the AWS Merger. See pages 85 to 88 for
detailed pro forma adjustments relating to the AWS Merger.
(D) Reflects pro forma information for the FTW Transaction. See pages 89 to 92
for detailed pro forma adjustments relating to the FTW Transaction.
(E) Reflects pro forma information for the Minneapolis Transaction. See pages
93 to 96 for detailed pro forma adjustments relating to the Minneapolis
Transaction.
(F) Reflects pro forma information for the TSC Transaction. See pages 97 to 100
for detailed pro forma adjustments relating to the TSC Transaction.
(G) Reflects the repayment of certain indebtedness of CMAX by Heartland upon
consummation of the CMAX Merger and the elimination of Heartland's $1.8
million note receivable from AWS. Any differences between historical
interest expense recognized by CMAX on the retired indebtedness and
interest expense which would be recognized by Heartland on a pro forma
basis is not material.
(H) Reflects estimated costs to be incurred in connection with the issuance of
Heartland's Common Stock upon consummation of the Transactions.
(I) Reflects Heartland's contribution to Newco of the Heartland Disposition
Assets and the receipt by Heartland of (i) 39.76% of the outstanding common
shares of Newco, (ii) approximately $28.3 million in cash payable by Newco
at the closing, (iii) a $25 million promissory note payable 9 months from
closing and (iv) a $15 million promissory note payable 10 years from the
closing of the Participation Agreement.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
80
<PAGE> 1449
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 786,392 $ $ 786,392 $ $ 786,392
Other current assets.............. 938,437 938,437 (264,524)(D) 673,913
----------- ------------ ------------ ------------ ------------
Total current assets.... 1,724,829 -- 1,724,829 (264,524) 1,460,305
Systems and equipment, net........ 26,447,933 26,447,933 (9,412,582)(D) 17,035,351
Leased license investment, net.... 21,271,892 45,899,604(B) 67,171,496 (34,614,899)(D) 32,556,597
Excess of cost over fair value of
net assets acquired............. -- 8,549,540(C) 8,549,540 8,549,540
Net assets held for exchange...... -- -- 43,610,341(D) 43,610,341
----------- ------------ ------------ ------------ ------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
=========== ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt............................ $ 787,500 $ $ 787,500 $ $ 787,500
Other current liabilities......... 3,724,614 3,724,614 (681,664)(D) 3,042,950
----------- ------------ ------------ ------------ ------------
Total current
liabilities........... 4,512,114 -- 4,512,114 (681,664) 3,830,450
Long-term debt, less current
portion......................... 10,020,000 10,020,000 10,020,000
Deferred income taxes............. -- 8,549,540(C) 8,549,540 8,549,540
Stockholders' equity.............. 34,912,540 80,812,144(A) 80,812,144 80,812,144
(34,912,540)(A)
----------- ------------ ------------ ------------ ------------
$49,444,654 $ 54,449,144 $103,893,798 $ (681,664) $103,212,134
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to Pro Forma Statements
81
<PAGE> 1450
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues........................ $11,283,709 $ -- $11,283,709 $(4,517,968)(D) $ 6,765,741
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations.................. 5,310,478 5,310,478 (2,039,880)(D) 3,270,598
Selling, general and
administrative................... 9,027,094 (1,382,000)(E) 7,645,094 (2,416,007)(D) 5,229,087
Depreciation and amortization....... 6,106,007 1,385,643(F) 7,919,127 (2,984,283)(D) 4,934,844
427,477(G)
----------- ----------- ----------- ----------- -----------
Total operating expenses....... 20,443,579 431,120 20,874,699 (7,440,170) 13,434,529
----------- ----------- ----------- ----------- -----------
Operating loss.............. (9,159,870) (431,120) (9,590,990) 2,922,202 (6,668,788)
Interest expense...................... (459,536) (459,536) (459,536)
Interest income and other............. 577,217 577,217 577,217
----------- ----------- ----------- ----------- -----------
Loss before income taxes....... (9,042,189) (431,120) (9,473,309) 2,922,202 (6,551,107)
Income tax benefit.................... -- 3,346,958(H) 3,346,958 (1,081,215)(D) 2,265,743
----------- ----------- ----------- ----------- -----------
Net loss....................... $(9,042,189) $ 2,915,838 $(6,126,351) $ 1,840,987 $(4,285,364)
=========== =========== =========== =========== ===========
Net loss per share.................... $ (2.12) $ (1.48)
=========== ===========
Weighted average shares outstanding... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
82
<PAGE> 1451
HEARTLAND WIRELESS COMMUNICATIONS, INC.
CMAX UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION CMAX
CMAX ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues.................. $10,621,647 $ -- $10,621,647 $(3,947,117)(D) $ 6,674,530
----------- ----------- ----------- ----------- -----------
Operating expenses:
Systems operations............ 4,937,148 4,937,148 (1,964,137)(D) 2,973,011
Selling, general and
Administrative............. 6,829,999 (1,364,926)(E) 5,465,073 (1,170,722)(D) 4,294,351
Depreciation and
amortization............... 7,251,068 607,918(F) 8,179,594 (2,969,551)(D) 5,210,043
320,608(G)
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 19,018,215 (436,400) 18,581,815 (6,104,410) 12,477,405
----------- ----------- ----------- ----------- -----------
Operating loss........ (8,396,568) 436,400 (7,960,168) 2,157,293 (5,802,875)
Interest expense................ (945,475) (945,475) (945,475)
Interest income and other....... 121,497 121,497 121,497
----------- ----------- ----------- ----------- -----------
Loss before income
taxes................. (9,220,546) 436,400 (8,784,146) 2,157,293 (6,626,853)
Income tax benefit.............. -- 3,131,509(H) 3,131,509 (798,198)(D) 2,333,311
----------- ----------- ----------- ----------- -----------
Net loss................. $(9,220,546) $ 3,567,909 $(5,652,637) $ 1,359,095 $(4,293,542)
=========== =========== =========== =========== ===========
Net loss per share.............. $ (1.96) $ (1.49)
=========== ===========
Weighted average shares
outstanding................... 2,886,148(A) 2,886,148 2,886,148
=========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
83
<PAGE> 1452
NOTES TO PRO FORMA STATEMENTS FOR THE CMAX MERGER
The CMAX historical statement of operations for the year ended December 31,
1994 has been derived utilizing CMAX's historical audited statement of
operations for the year ended June 30, 1994 and unaudited statements of
operations for the six months ended December 31, 1993 and 1994. The CMAX
historical statement of operations for the nine months ended September 30, 1995
has been derived utilizing CMAX's historical audited statement of operations for
the year ended June 30, 1995 and unaudited statements of operations for the six
months ended December 31, 1994 and three months ended September 30, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of CMAX's historical equity and the issuance of
2,886,148 shares of Heartland Common Stock at an estimated average closing
price of $28 per share in exchange for all outstanding shares of CMAX
Common Stock. In addition, subsequent to September 30, 1995, Heartland paid
CMAX a $2.4 million deposit with respect to the sublease of certain
wireless cable channel rights in various Texas markets and agreed to loan
CMAX up to $1,000,000. With respect to the $1,000,000 loan, $500,000 was
advanced on December 29, 1995 to be used for working capital purposes and
$500,000 may be used for subscriber growth.
(B) Reflects the fair value of approximately $67.2 million assigned to leased
license investment for the acquisition of CMAX, net of historical leased
license investment. Historical balances of working capital are assumed to
approximate their fair values. Heartland has evaluated the propriety of the
carrying amounts of leased license investment with respect to each market
based on management's estimate of the fair value of each market and
expected future operating cash flows from subscribers in an individual
market, and believes such amounts to be recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the CMAX
net assets acquired. The related increase in excess purchase price over the
fair value of net identifiable assets acquired will be amortized over an
estimated useful life of 20 years. Heartland has evaluated the propriety of
the carrying amount of excess cost over fair value of net assets acquired
based on management's estimate of the fair value of Heartland's markets and
expected future operating cash flows from subscribers, and believes such
amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the CMAX Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from the
pro forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of CMAX that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel and professional fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the CMAX Merger. Amortization of leased license
investment is calculated beginning with inception of service in each
respective market over an estimated useful life of 20 years. For purposes
of the Pro Forma Statements for the CMAX Merger, additional amortization of
leased license investment has been calculated from January 1, 1994 since
all current operating systems (except for Waco and Temple/Kileen, Texas
systems) began service prior to such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the CMAX Merger.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
84
<PAGE> 1453
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........ $1,182,653 $ 3,900,000(B) $ 5,082,653 $ $ 5,082,653
Net assets held for cash sale or
exchange....................... -- -- 7,250,000(E) 7,250,000
Other current assets............. 89,724 89,724 89,724
---------- ----------- ----------- ------------ -----------
Total current assets... 1,272,377 3,900,000 5,172,377 7,250,000 12,422,377
Systems and equipment, net....... 218,404 218,404 218,404
Leased license investment, net... 2,987,940 23,478,317(B) 23,396,257 (23,396,257)(E) --
(3,900,000)(B)
830,000(D)
Investment in joint ventures..... 2,998,398 8,353,779(B) 11,352,177 (11,352,177)(E) --
Excess of cost over fair value of
net assets acquired............ -- 9,015,248(C) 9,015,248 9,015,248
Net assets held for exchange..... -- 27,498,434(E) 27,498,434
Other assets, net................ 77,179 77,179 77,179
---------- ----------- ----------- ------------ -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt........................... $ 99,442 $ $ 99,442 $ $ 99,442
Other current liabilities........ 638,523 830,000(D) 1,468,523 1,468,523
---------- ----------- ----------- ------------ -----------
Total current
liabilities.......... 737,965 830,000 1,567,965 -- 1,567,965
Long-term debt, less current
portion........................ 1,800,000 1,800,000 1,800,000
Deferred income taxes............ -- 9,015,248(C) 9,015,248 9,015,248
Other liabilities................ 233,044 233,044 233,044
Stockholders' equity............. 4,783,289 36,615,385(A) 36,615,385 36,615,385
(4,783,289)(A)
---------- ----------- ----------- ------------ -----------
$7,554,298 $41,677,344 $49,231,642 $ -- $49,231,642
========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
85
<PAGE> 1454
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 83,333 $ -- $ 83,333 $ (83,333)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations.............. --
Selling, general and
administrative............... 3,521,413 (960,001)(F) 2,911,412 (2,911,412)(E) --
350,000(G)
Depreciation and amortization... 637,049 450,762(I) 1,087,811 (1,087,811)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 4,158,462 (159,239) 3,999,223 (3,999,223) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (4,075,129) 159,239 (3,915,890) 3,915,890 --
Interest expense.................. (976,867) (976,867) 976,867(E) --
Equity in losses of investees..... (200,436) (281,439)(H) (481,875) 481,875(E) --
Interest income and other......... (474,348) (474,348) 474,348(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (5,726,780) (122,200) (5,848,980) 5,848,980 --
Income tax benefit................ -- 1,997,341(J) 1,997,341 (1,997,341)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $(5,726,780) $ 1,875,141 $(3,851,639) $ 3,851,639 --
=========== =========== =========== =========== ==========
Net loss per share................ $ (2.95) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
86
<PAGE> 1455
HEARTLAND WIRELESS COMMUNICATIONS, INC.
AWS UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION AWS
AWS ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 75,000 $ -- $ 75,000 $ (75,000)(E) $ --
----------- ----------- ----------- ----------- ----------
Operating expenses:
Systems operations..............
Selling, general and
administrative............... 1,533,152 (315,035)(F) 1,480,617 (1,480,617)(E) --
262,500(G)
Depreciation and amortization... 66,079 338,072(I) 404,151 (404,151)(E) --
----------- ----------- ----------- ----------- ----------
Total operating expenses... 1,599,231 285,537 1,884,768 (1,884,768) --
----------- ----------- ----------- ----------- ----------
Operating loss.......... (1,524,231) (285,537) (1,809,768) 1,809,768 --
Interest expense.................. (126,119) (126,119) 126,119(E) --
Equity in losses of investees..... (136,298) (196,338)(H) (332,636) 332,636(E) --
Interest income and other......... 802,078 802,078 (802,078)(E) --
----------- ----------- ----------- ----------- ----------
Loss before income taxes... (984,570) (481,875) (1,466,445) 1,466,455 --
Income tax benefit................ -- 417,498(J) 417,498 (417,498)(E) --
----------- ----------- ----------- ----------- ----------
Net loss................... $ (984,570) $ (64,377) $(1,048,947) $ 1,048,947 $ --
=========== =========== =========== =========== ==========
Net loss per share................ $ (0.80) $ --
=========== ==========
Weighted average shares
outstanding..................... 1,307,692(A) 1,307,692 1,307,692
=========== =========== ==========
</TABLE>
See accompanying notes to Pro Forma Statements
87
<PAGE> 1456
NOTES TO PRO FORMA STATEMENTS FOR THE AWS MERGER
(A) Reflects the elimination of AWS's historical equity and the issuance of
1,307,692 shares of Heartland Common Stock at an estimated market price of
$28 per share in exchange for all outstanding shares of AWS Common Stock.
Pursuant to the terms of the AWS Merger Agreement and AWS Exchange
Agreement, shares of Heartland Common Stock having an aggregate exchange
value of $3.25 million ($2.75 million if certain litigation pending against
AWS is resolved prior to the AWS Effective Time) will be placed in escrow
for approximately one year to satisfy certain indemnification obligations
of AWS to Heartland.
(B) Reflects the fair values of approximately $23.4 million and $11.4 million
assigned to leased license investment and investment in the Fort Worth and
Minneapolis joint ventures, respectively, net of historical balances. The
sale by AWS of the Memphis market for cash of $3.9 million has also been
reflected in the pro forma balance sheet. Historical balances of working
capital are assumed to approximate their fair values. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the AWS
net assets acquired. The related increase in excess purchase price over the
fair value of net identifiable assets acquired will be amortized over an
estimated useful life of 20 years. Heartland has evaluated the propriety of
the carrying amount of excess cost over fair value of net assets acquired
based on management's estimate of the fair value of Heartland's markets and
expected future operating cash flows from subscribers, and believes such
amount to be recoverable.
(D) Reflects the recognition of liabilities for severance payments to certain
executive officers of AWS.
(E) Reflects the reclassification of certain assets and liabilities acquired in
the AWS Merger to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets have been eliminated from the
pro forma statements of operations.
(F) Reflects the elimination of certain historical corporate general and
administrative expenses of AWS that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees, salaries of officers and other duplicative
corporate personnel, directors and officers insurance and professional
fees.
(G) Reflects the additional expense from the non-competition and consulting
agreement with an AWS executive officer.
(H) Reflects AWS's portion of the additional losses of the Fort Worth and
Minneapolis joint ventures.
(I) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the AWS Merger.
(J) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
88
<PAGE> 1457
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 25,014 $ $ 25,014 $ (25,014)(C) $ --
Other current assets............ 62,456 62,456 (62,456)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 87,470 -- 87,470 (87,470) --
Systems and equipment, net...... 1,001,027 1,001,027 (1,001,027)(C) --
Leased license investment,
net........................... 2,178,002 17,542,631(B) 19,720,633 (19,720,633)(C) --
Net assets held for exchange.... -- 16,191,304(C) 16,191,304
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ -- $ $ -- $ $ --
Other current liabilities....... 1,207,311 (637,311)(B) 570,000 (570,000)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 1,207,311 (637,311) 570,000 (570,000) --
Minority interest............... 99,742 3,948,084(B) 4,047,826 (4,047,826)(C) --
Stockholders' equity............ 1,959,446 16,191,304(A) 16,191,304 16,191,304
(1,959,446)(A)
----------- ----------- ----------- ------------ -----------
$ 3,266,499 $17,542,631 $20,809,130 $ (4,617,826) $16,191,304
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
89
<PAGE> 1458
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 667,260 $ -- $ 667,260 $ (667,260)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 567,461 567,461 (567,461)(C) --
Selling, general and
administrative................ 695,990 (100,000)(D) 595,990 (595,990)(C) --
Depreciation and amortization.... 786,572 535,809(E) 1,322,381 (1,322,381)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,050,023 435,809 2,485,832 (2,485,832) --
----------- --------- ----------- ----------- ---------
Operating loss........... (1,382,763) (435,809) (1,818,572) 1,818,572 --
Interest income and other.......... 62,281 87,161(F) 149,442 (149,442)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,320,482) (348,648) (1,669,130) 1,669,130 --
Income tax benefit................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss...................... $(1,320,482) $(348,648) $(1,669,130) $ 1,669,130 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (2.89) $ --
=========== =========
Weighted average shares
outstanding...................... 578,261(A) 578,261 578,261
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
90
<PAGE> 1459
HEARTLAND WIRELESS COMMUNICATIONS, INC.
FTW PARTNERSHIP UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE FTW
FTW ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues...................... $ 451,581 $ -- $ 451,581 $ (451,581)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations................ 396,302 396,302 (396,302)(C) --
Selling, general and
administrative................. 503,910 (75,000)(D) 428,910 (428,910)(C) --
Depreciation and amortization..... 581,451 408,612(E) 990,063 (990,063)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses..... 1,481,663 333,612 1,815,275 (1,815,275) --
----------- --------- ----------- ----------- ---------
Operating loss............ (1,030,082) (333,612) (1,363,694) 1,363,694 --
Interest income and other........... 44,048 66,722(F) 110,770 (110,770)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes..... (986,034) (266,890) (1,252,924) 1,252,924 --
Income tax benefit.................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss..................... $ (986,034) $(266,890) $(1,252,924) $ 1,252,924 $ --
=========== ========= =========== =========== =========
Net loss per share.................. $ (2.17) $ --
=========== =========
Weighted average shares
outstanding....................... 578,261(A) 578,261 578,261
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
91
<PAGE> 1460
NOTES TO PRO FORMA STATEMENTS FOR THE FTW TRANSACTION
(A) Reflects the elimination of FTW Partnership's historical equity and the
issuance of 578,261 shares of Heartland Common Stock at an estimated market
price of $28 per share to FTW Partnership. In addition, subsequent to
September 30, 1995, Heartland had deposited in escrow $265,000 on behalf of
the FTW Partnership and agreed to make cash loans of $500,000 to the FTW
Partnership.
(B) Reflects the fair values of approximately $19.7 million and $4.0 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Under terms of the FTW Agreement, total liabilities to
be assumed by Heartland will not exceed $570,000 of certain types of
liabilities (including disputed liabilities). Heartland has evaluated the
propriety of the carrying amounts of leased license investment with respect
to each market based on management's estimate of the fair value of each
market and expected future operating cash flows from subscribers in an
individual market, and believes such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the FTW Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of FTW Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental depreciation and amortization of leased license
investment associated with the FTW Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the FTW Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Fort Worth systems began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
92
<PAGE> 1461
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 177,941 $ $ 177,941 $ (177,941)(C) $ --
Other current assets............ 223,218 223,218 (223,218)(C) --
----------- ----------- ----------- ------------ -----------
Total current
assets.............. 401,159 -- 401,159 (401,159) --
Systems and equipment, net...... 1,480,218 1,480,218 (1,480,218)(C) --
Leased license investment,
net........................... 4,603,199 25,543,892(B) 30,147,091 (30,147,091)(C) --
Net assets held for exchange.... 21,913,052(C) 21,913,052
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 (10,115,416) $21,913,052
=========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 2,000,000 (B) 2,000,000 (2,000,000)(C) $ --
Other current liabilities....... 811,065 811,065 (811,065)(C) --
----------- ----------- ----------- ------------ -----------
Total current
liabilities......... 2,811,065 -- 2,811,065 (2,811,065) --
Minority interest............... 289,737 7,014,614(B) 7,304,351 (7,304,351)(C) --
Stockholders' equity............ 3,383,774 21,913,052(A) 21,913,052 21,913,052
(3,383,774)(A)
----------- ----------- ----------- ------------ -----------
$ 6,484,576 $25,543,892 $32,028,468 $(10,115,416) $21,913,052
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to Pro Forma Statements
93
<PAGE> 1462
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 535,046 $ -- $ 535,046 $ (535,046)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,187,795 1,187,795 (1,187,795)(C) --
Selling, general and
administrative................ 463,156 (83,333)(D) 379,823 (379,823)(C) --
Depreciation and amortization.... 977,471 860,445(E) 1,837,916 (1,837,916)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,628,422 777,112 3,405,534 (3,405,534) --
----------- --------- ----------- ----------- ---------
Operating loss........... (2,093,376) (777,112) (2,870,488) 2,870,488 --
Interest income and other.......... 138,155 194,278(F) 332,433 (332,433)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,955,221) (582,834) (2,538,055) 2,538,055 --
Income tax benefit................. -- -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,955,221) $(582,834) $(2,538,055) $ 2,538,055 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (3.24) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
94
<PAGE> 1463
HEARTLAND WIRELESS COMMUNICATIONS, INC.
MINNEAPOLIS PARTNERSHIP UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PURCHASE MINNEAPOLIS
MINNEAPOLIS ACCOUNTING DISPOSITION PARTNERSHIP
PARTNERSHIP ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues..................... $ 740,595 $ -- $ 740,595 $ (740,595)(C) $ --
----------- --------- ----------- ----------- ---------
Operating expenses:
Systems operations............... 1,092,248 1,092,248 (1,092,248)(C) --
Selling, general and
administrative................ 373,069 (75,000)(D) 298,069 (298,069)(C) --
Depreciation and amortization.... 799,154 593,465(E) 1,392,619 (1,392,619)(C) --
----------- --------- ----------- ----------- ---------
Total operating expenses.... 2,264,471 518,465 2,782,936 (2,782,936) --
----------- --------- ----------- ----------- ---------
Operating loss........... (1,523,876) (518,465) (2,042,341) 2,042,341 --
Interest income and other.......... 90,628 129,616(F) 220,244 (220,244)(C) --
----------- --------- ----------- ----------- ---------
Loss before income taxes.... (1,433,248) (388,849) (1,822,095) 1,822,095 --
Income tax benefit................. -- -- --
----------- --------- ----------- ----------- ---------
Net loss.................... $(1,433,248) $(388,849) $(1,822,095) $ 1,822,095 $ --
=========== ========= =========== =========== =========
Net loss per share................. $ (2.33) $ --
=========== =========
Weighted average shares
outstanding...................... 782,609(A) 782,609 782,609
========= =========== =========
</TABLE>
See accompanying notes to Pro Forma Statements
95
<PAGE> 1464
NOTES TO PRO FORMA STATEMENTS FOR THE MINNEAPOLIS TRANSACTION
(A) Reflects the elimination of Minneapolis Partnership historical equity and
the issuance of 782,609 shares of Heartland Common Stock at an estimated
market price of $28 per share to Minneapolis Partnership. The Pro Forma
Statements for the Minneapolis Transaction do not assume the issuance of
any additional shares of Heartland Common Stock for additional subscribers
added by the Minneapolis Partnership. In addition, subsequent to September
30, 1995, Heartland made cash loans to the Minneapolis LLC in the amount of
$1,059,000.
(B) Reflects the fair values of approximately $30.1 million and $7.3 million
assigned to leased license investment and AWS's minority interest in the
Fort Worth and Minneapolis joint ventures, respectively, net of historical
balances. Historical balances of working capital are assumed to approximate
their fair values. Heartland has evaluated the propriety of the carrying
amounts of leased license investment with respect to each market based on
management's estimate of the fair value of each market and expected future
operating cash flows from subscribers in an individual market, and believes
such amounts to be recoverable.
(C) Reflects the reclassification of certain assets and liabilities acquired in
the Minneapolis Transaction to net assets held for exchange based on
management's expectations with respect to such net assets. Accordingly,
historical operating results relating to such net assets are eliminated
from the pro forma statements of operations.
(D) Reflects the elimination of certain historical corporate general and
administrative expenses of Minneapolis Partnership that, in the opinion of
Heartland management, will not be incurred by Heartland. Such expenses
consist primarily of management fees.
(E) Reflects incremental amortization of leased license investment associated
with the Minneapolis Transaction. Amortization of leased license investment
is calculated beginning with inception of service in each respective market
over an estimated useful life of 20 years. For purposes of the Pro Forma
Statements for the Minneapolis Transaction, additional amortization of
leased license investment has been calculated from January 1, 1994 since
the Minneapolis System began service prior to such date.
(F) Reflects the adjustment of minority interest for AWS's portion of the
additional losses of the Fort Worth and Minneapolis joint ventures.
96
<PAGE> 1465
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....... $ 78,124 $ $ 78,124 $ (21,827)(D) $ 56,297
Other current assets............ 477,325 477,325 (195,430)(D) 281,895
------------ ------------ ----------- ----------- ------------
Total current
assets.............. 555,449 -- 555,449 (217,257) 338,192
Systems and equipment, net...... 9,001,797 9,001,797 (2,849,833)(D) 6,151,964
Leased license investment,
net........................... 3,552,846 23,634,608(B) 27,187,454 (8,499,701)(D) 18,687,753
Excess of cost over fair value
of net assets acquired........ -- 6,066,024(C) 6,066,024 6,066,024
Net assets held for exchange.... -- 10,720,791(D) 10,720,791
Other assets, net............... 1,441,093 (1,435,793)(B) 5,300 5,300
------------ ------------ ----------- ----------- ------------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term
debt.......................... $ 13,232,882 $(11,874,953)(B) 1,357,929 (94,924)(D) 1,263,005
Other current liabilities....... 3,642,071 3,642,071 (751,076)(D) 2,890,995
------------ ------------ ----------- ----------- ------------
Total current
liabilities......... 16,874,953 (11,874,953) 5,000,000 (846,000) 4,154,000
Long-term debt, less current
portion....................... 6,061,259 (6,061,259)(B) -- --
Deferred income taxes........... -- 6,066,024(C) 6,066,024 6,066,024
Stockholders' equity............ (8,385,027) 31,750,000(A) 31,750,000 31,750,000
8,385,027(A)
------------ ------------ ----------- ----------- ------------
$ 14,551,185 $ 28,264,839 $42,816,024 $ (846,000) $ 41,970,024
============ ============ =========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
97
<PAGE> 1466
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues................... $ 6,587,547 $ -- $ 6,587,547 $ (852,476)(D) $ 5,735,071
------------ ----------- ----------- ----------- ------------
Operating expenses:
Systems operations............. 3,726,212 3,726,212 (1,063,717)(D) 2,662,495
Selling, general and
administrative.............. 2,977,792 (270,000)(E) 2,707,792 (894,938)(D) 1,812,854
Depreciation and
amortization................ 2,552,134 864,668(F) 3,718,634 (742,584)(D) 2,976,050
301,832(G)
------------ ----------- ----------- ----------- ------------
Total operating
expenses............... 9,256,138 896,500 10,152,638 (2,701,239) 7,451,399
------------ ----------- ----------- ----------- ------------
Operating loss......... (2,668,591) (896,500) (3,565,091) 1,848,763 (1,716,328)
Interest expense................. (1,491,725) (1,491,725) 103,462(D) (1,388,263)
------------ ----------- ----------- ----------- ------------
Loss before income
taxes.................. (4,160,316) (896,500) (5,056,816) 1,952,225 (3,104,591)
Income tax benefit............... -- 1,759,344(H) 1,759,344 (610,645)(D) 1,148,699
------------ ----------- ----------- ----------- ------------
Net loss.................. $ (4,160,316) $ 862,844 $(3,297,472) $ 1,341,580 $ (1,955,892)
============ =========== =========== =========== ============
Net loss per share............... $ (2.91) $ (1.72)
=========== ============
Weighted average shares
outstanding.................... 1,133,929(A) 1,133,929 1,133,929
=========== =========== ============
</TABLE>
See accompanying notes to Pro Forma Statements
98
<PAGE> 1467
HEARTLAND WIRELESS COMMUNICATIONS, INC.
TECHNIVISION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL ACCOUNTING DISPOSITION TECHNIVISION
TECHNIVISION ADJUSTMENTS SUB-TOTAL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Total revenues.................... $ 5,029,037 $ -- $ 5,029,037 $ (890,247)(D) $ 4,138,790
Operating expenses:
Systems operations.............. 2,675,570 2,675,570 (619,183)(D) 2,056,387
Selling, general and
administrative............... 1,777,721 (202,500)(E) 1,575,221 (418,002)(D) 1,157,219
Depreciation and amortization... 2,311,943 576,755(F) 3,116,174 (999,691)(D) 2,116,483
227,476(G)
------------ ----------- ----------- ----------- ------------
Total operating expenses... 6,765,234 601,731 7,366,965 (2,036,876) 5,330,089
------------ ----------- ----------- ----------- ------------
Operating loss.......... (1,736,197) (601,731) (2,337,928) 1,146,629 (1,191,299)
Interest expense.................. (708,446) (708,446) 82,718(D) (625,728)
Interest income and other......... 253,352 253,352 253,352
------------ ----------- ----------- ----------- ------------
Income before income
taxes................... (2,191,291) (601,731) (2,793,022) 1,229,347 (1,563,675)
Income tax benefit................ -- 949,252(H) 949,252(H) (454,858) 494,394
------------ ----------- ----------- ----------- ------------
Net income................. $ (2,191,291) $ (601,731) $(1,843,770) $ 774,489 $ (1,069,281)
============ =========== =========== =========== ============
Net income per share.............. $ (1.63) $ (.94)
=========== ============
Weighted average shares
outstanding..................... 1,133,929(A) 1,133,929 1,133,929
========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Statements
99
<PAGE> 1468
NOTES TO PRO FORMA STATEMENTS FOR THE TSC TRANSACTION
The Technivision Unaudited Pro Forma Condensed Balance Sheet as of
September 30, 1995 and Unaudited Pro Forma Condensed Statements of Operations
for the year ended December 31, 1994 and nine months ended September 30, 1995
have been determined utilizing the historical unaudited balance sheet of
Technivision as of November 30, 1995 and unaudited statements of operations for
the year ended November 30, 1994 and nine months ended November 30, 1995. The
Technivision historical statement of operations for the year ended November 30,
1994 has been derived utilizing Technivision's historical audited statement of
operations for the year ended May 31, 1995 and unaudited statements of
operations for the six months ended May 31, 1994 and 1995. The Technivision
historical statement of operations for the nine months ended November 30, 1995
has been derived utilizing Technivision's historical statement of operations for
the six months ended November 30, 1995 and three months ended May 31, 1995. No
material adjustments were recorded in determining such amounts.
(A) Reflects the elimination of Technivision historical equity and the issuance
of 1,133,929 shares of Heartland Common Stock at an estimated market price
of $28 per share to Technivision. The Pro Forma Statements for the TSC
Transaction do not assume the issuance of any additional shares of
Heartland Common Stock for additional subscribers added by Technivision.
Pursuant to the terms of the TSC Agreement and the TSC Exchange Agreement,
TSC Shares having an aggregate exchange value of $5 million will be placed
in escrow for approximately 18 months to satisfy certain indemnification
obligations of TSC to Heartland, and TSC Shares having an aggregate
exchange value of up to $3.6 million (currently estimated to be $1 million)
will be placed in escrow for up to six months (subject to extension) to
satisfy certain post-closing obligations of TSC to Heartland regarding
third party consents to the transfer of certain assets to Heartland.
(B) Reflects the fair value of approximately $27.2 million assigned to leased
license investment for the acquisition of Technivision, net of historical
leased license investment. Historical balances of working capital are
assumed to approximate their fair values. In addition, under terms of the
TSC Agreement, certain marketable securities of Technivision will not be
acquired by Heartland and total liabilities to be assumed by Heartland will
not exceed $5 million of liabilities of Technivision. Heartland has
evaluated the propriety of the carrying amounts of leased license
investment with respect to each market based on management's estimate of
the fair value of each market and expected future operating cash flows from
subscribers in an individual market, and believes such amounts to be
recoverable.
(C) Reflects the recognition of deferred income taxes at an estimated 37%
effective tax rate on excess book value over tax basis relating to the
Technivision net assets acquired. The related increase in excess purchase
price over the fair value of net identifiable assets acquired will be
amortized over an estimated useful life of 20 years. Heartland has
evaluated the propriety of the carrying amount of excess cost over fair
value of net assets acquired based on management's estimate of the fair
value of Heartland's markets and expected future operating cash flows from
subscribers, and believes such amount to be recoverable.
(D) Reflects the reclassification of certain assets and liabilities acquired in
the TSC Transaction to net assets held for exchange based on management's
expectations with respect to such net assets. Accordingly, historical
operating results relating to such net assets are eliminated from the pro
forma statements of operations.
(E) Reflects the elimination of certain historical corporate general and
administrative expenses of TechniVision that, in the opinion of Heartland
management, will not be incurred by Heartland. Such expenses consist
primarily of management fees.
(F) Reflects incremental depreciation and amortization of leased license
investment associated with the TSC Transaction. Amortization of leased
license investment is calculated beginning with inception of service in
each respective market over an estimated useful life of 20 years. For
purposes of the Pro Forma Statements for the TSC Transaction, additional
amortization of leased license investment has been calculated from January
1, 1994 since the Corpus Christi and Dayton systems began service prior to
such date.
(G) Reflects incremental amortization of excess purchase price over the fair
value of net identifiable assets acquired in the TSC Transaction.
(H) Reflects the adjustment to income tax benefit related to the pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable temporary differences.
100
<PAGE> 1469
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEARTLAND
The selected consolidated statement of operations and balance sheet data
presented below as of December 31, 1993 and 1994 and for the years ended
December 31, 1992, 1993 and 1994 were derived from the consolidated financial
statements of Heartland, which were audited by KPMG Peat Marwick LLP,
independent certified public accountants, and which are included elsewhere in
this Proxy Statement/Prospectus. The selected consolidated statement of
operations and balance sheet data presented below as of December 31, 1990, 1991
and 1992, and for the period from September 1, 1990 (inception of Wireless
Communications, Inc., Heartland's predecessor in interest) to December 31, 1990
and the year ended December 31, 1991 were derived from the consolidated
financial statements of Heartland, which were audited by KPMG Peat Marwick LLP,
but which are not included in this Proxy Statement/Prospectus. The selected
consolidated statement of operations and balance sheet data presented below as
of September 30, 1995 and for the nine months ended September 30, 1994 and 1995
were derived from the unaudited consolidated financial statements of Heartland,
which are included elsewhere in this Proxy Statement/Prospectus and which, in
the opinion of management of Heartland, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of such unaudited interim periods. The statement of operations data for
interim periods are not necessarily indicative of results for subsequent periods
or for the full year. This selected consolidated financial data should be read
in conjunction with "Heartland -- Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements (including the notes thereto) of Heartland contained elsewhere in
this Proxy Statement/Prospectus. See "Index to Consolidated Financial Statements
and Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1,
1990 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------------------------------------- -------------------------
1990 1991 1992 1993 1994 1994 1995
-------------- -------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ 205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
-------------- -------- ---------- --------- ----------- ----------- ------------
Operating expenses:
Systems operations.... -- -- 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.... -- -- -- 202,162 235,025 235,025 --
Selling, general and
administrative...... 21,026 64,158 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and
amortization........ 1,000 2,000 34,919 138,560 1,097,668 418,960 3,966,120
-------------- -------- ---------- --------- ----------- ----------- ------------
Total operating
expenses........ 22,026 66,158 218,888 1,105,982 6,043,476 3,016,138 14,309,893
Operating loss.......... (22,026) (66,158) (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Interest income
(expense), net........ -- -- (207) (73,306) (210,113) 60,519 (6,864,367)
Equity in losses of
joint venture......... -- -- -- -- (386,985) (163,119) (128,663)
Other income
(expense)............. -- -- (37,109) (95,578) (227,204) (34,192) (475,146)
Income tax benefit...... -- -- -- -- 1,594,963 649,510 1,307,137
-------------- -------- ---------- --------- ----------- ----------- ------------
Net loss.......... $(22,026) $(66,158) $ (50,822) $(406,101) $(3,043,321) $(1,213,894) $(11,178,095)
============ ======== ========== ========= =========== =========== ============
Net loss per common
share................... -- $ (.01) $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
============ ======== ========== ========= =========== =========== ============
Weighted average shares
outstanding............. 8,000,000 8,000,000 8,000,000 8,000,000 10,041,000 9,693,000 11,624,000
=========== ========= ========= ========= =========== ========== ============
Other Financial Data:
EBITDA(1)............... $(21,026) $(64,158) $ 21,413 $ (98,657) (2,716,314) $(1,307,652) $(1,050,936)
Capital
expenditures(2)....... 42,065 306,484 1,401,737 5,141,021 44,500,351 18,126,653 44,016,522
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------- SEPTEMBER 30,
1990 1991 1992 1993 1994 1995
------- -------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents,
excluding restricted
investments............. $ 8,399 $ 53,246 $ 164,971 $ 815,305 $11,985,953 $37,155,064
Restricted investments.... -- -- -- -- -- 24,747,214
Total assets.............. 49,514 426,771 2,267,500 8,665,066 77,921,528 200,150,474
Long-term debt, including
current portion......... -- -- -- 1,592,529 40,505,852 140,045,039
Total stockholders'
equity.................. 6,357 173,409 1,003,882 4,492,568 30,080,885 48,293,817
</TABLE>
101
<PAGE> 1470
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the period from September 1, 1990 (inception) to
December 31, 1990 were comprised of $10,000 for purchases of systems and
equipment and $32,065 for expenditures for leased licenses; for the year
ended December 31, 1991 were comprised of $25,000 for purchases of systems
and equipment and $281,484 for expenditures for leased licenses; for the
year ended December 31, 1992 were comprised of $604,082 for purchases of
systems and equipment and $797,655 of expenditures for leased licenses; for
the year ended December 31, 1993, $2,072,937 for purchases of systems and
equipment and $3,068,084 for expenditures for leased licenses; for the year
ended December 31, 1994, $12,414,501 for purchases of systems and equipment,
$3,354,471 for expenditures for leased licenses, $12,431,379 for the
investment in Rural Vision Joint Venture and $16,300,000 for the purchase of
certain assets from Rural Vision Joint Venture and the acquisition of the
Lindsay system; for the nine months ended September 30, 1994, $4,011,480 for
systems and equipment, $2,465,265 for leased licenses and $11,649,908 for
the investment in Rural Vision Joint Venture; and for the nine months ended
September 30, 1995, $25,575,252 for purchases of systems and equipment,
$1,592,024 of expenditures for leased licenses, $5,426,432 for the
investment in Rural Vision Joint Venture and $11,422,814 for the acquisition
of wireless cable television systems in Lubbock, Texas and Tulsa, Oklahoma
and the acquisition of certain additional assets from Rural Vision Joint
Venture.
102
<PAGE> 1471
HEARTLAND -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Heartland develops, owns and operates wireless cable television systems.
Heartland has wireless cable channel rights in small to mid-size wireless cable
television markets, located principally in the central United States, with a
significant number of households not currently passed by traditional hard-wire
cable systems. Wireless Communications, Inc., a wholly owned subsidiary of
Heartland and its predecessor in interest ("WCI"), launched its first system,
located in Ada, Oklahoma, in April 1992. Subsequently, WCI or Heartland have
also launched service in Wichita Falls, Texas; Midland, Texas; Abilene, Texas;
Lawton, Oklahoma; Laredo, Texas; Enid, Oklahoma; Monroe, Louisiana; Ardmore,
Oklahoma; Mt. Pleasant, Texas; Lufkin, Texas; Texarkana, Texas; and Stillwater,
Oklahoma. On December 1, 1994, Heartland purchased the Milano System from
RuralVision Joint Venture. On December 29, 1994, Heartland acquired the Lindsay
System, for approximately $2.3 million. In addition, Heartland received the
distribution of the Shaw System from RuralVision Joint Venture on January 27,
1995. On May 3, 1995, Heartland acquired the Lubbock System for approximately
$5.4 million. The systems described in this paragraph are referred to in this
Management's Discussion as the "Heartland Existing Systems" or "Existing
Systems."
Heartland was incorporated in Delaware in October 1993 to succeed to the
wireless cable businesses previously conducted by WCI. David E. Webb, the
President and Chief Executive Officer and a principal stockholder of Heartland
and L. Allen Wheeler, a director and principal stockholder of Heartland were the
founders of WCI. Heartland's primary business strategy is to develop, own and
operate wireless cable television systems in markets in which Heartland believes
it can achieve positive cash flow and operating income in a particular market
rapidly after system launch and then expand such system while increasing such
system's operating income. Heartland executes this strategy by developing
wireless cable channel rights and locating operations in geographic clusters of
small to mid-size markets with a significant number of households not currently
passed by traditional hard-wire cable. Heartland's strategy allows it to contain
system launch costs because Heartland can launch its service with fewer channels
of programming and initially utilize lower power transmission equipment. In
addition, by developing wireless cable channel rights and locating its
operations in geographic clusters, Heartland can further contain costs by taking
advantage of economies of scale in management, sales and customer service.
Although Heartland has recorded net losses since inception, four operating
markets had positive cash flow in their first year of operations. None of the
other Systems had achieved positive cash flow or generated operating income,
primarily as a result of their early stages of development and number of
subscribers.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Management believes that period-to-period comparisons of Heartland's
consolidated financial results to date are not necessarily meaningful and should
not be relied upon as an indication of future performance due to Heartland's
historically high growth rate and system launches during the periods presented.
The table below sets forth for each of the Existing Systems the launch or
acquisition date, the current channel offering and the approximate number of
subscribers at December 31, 1994:
<TABLE>
<CAPTION>
APPROXIMATE
LAUNCH OR CURRENT SUBSCRIBERS AT
ACQUISITION CHANNEL DECEMBER 31,
MARKET DATE OFFERING(1) 1994
-------------------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Ada, Oklahoma............................... April 1992 32 5,020
Wichita Falls, Texas........................ October 1993 26 2,690
Midland, Texas.............................. December 1993 26 1,420
Abilene, Texas.............................. February 1994 23 2,020
Lawton, Oklahoma............................ August 1994 27 3,150
Other Existing Systems:
Laredo, Texas............................. September 1994 27 1,110
Enid, Oklahoma(2)......................... October 1994 21 970
</TABLE>
103
<PAGE> 1472
<TABLE>
<CAPTION>
APPROXIMATE
LAUNCH OR CURRENT SUBSCRIBERS AT
ACQUISITION CHANNEL DECEMBER 31,
MARKET DATE OFFERING(1) 1994
-------------------------------------------- --------------- ----------- --------------
<S> <C> <C> <C>
Monroe, Louisiana(3)........................ N/A 10 200
Lindsay, Oklahoma(4)........................ December 1994 32 1,410
Ardmore, Oklahoma........................... December 1994 20 170
Mt. Pleasant, Texas(5)...................... December 1994 16 --
Lufkin, Texas(6)............................ N/A 12 --
Milano, Texas(7)............................ December 1994 26 1,680
Shaw, Kansas(8)............................. January 1995 30 3,520
</TABLE>
- ---------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted by
Heartland over wireless cable channels.
(2) Construction of the Enid System was completed in February 1993. However,
Heartland did not begin actively marketing its service in the Enid System
until October 1994 when it achieved an increase in its channel offering.
(3) Construction of the Monroe System was completed in March 1993. Heartland is
not actively marketing its service in the Monroe System because it is
awaiting action by the FCC to grant licenses, which would increase the
number of wireless cable channels available to Heartland.
(4) Heartland acquired the Lindsay System on December 29, 1994.
(5) Heartland launched the Mt. Pleasant System in December 1994.
(6) Heartland completed construction of the Lufkin System in December 1994.
Heartland 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 channels available to Heartland.
(7) Heartland acquired the Milano System on December 1, 1994.
(8) Heartland acquired the Shaw System on January 27, 1995.
Revenues
Heartland's first system, the Ada System, was launched in April 1992 and
Heartland had no revenues prior to 1992. Heartland's revenues were generated
from the following sources for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
-------- -------- ----------
<S> <C> <C> <C>
Subscription revenues:
Ada System........................................ $170,457 $591,741 $ 893,126
Wichita Falls System.............................. -- 15,861 313,729
Midland System.................................... -- 3,516 164,816
Abilene System.................................... -- -- 171,830
Lawton System..................................... -- -- 154,424
Other Existing Systems............................ -- 14,343 155,929
Installation and service revenues................... 34,925 243,304 375,640
-------- -------- ----------
Total..................................... $205,382 $868,765 $2,229,494
======== ======== ==========
</TABLE>
The following table sets forth the number of subscribers in the Heartland
Existing Systems on the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1992 1992 1992 1993 1993 1993 1993 1994 1994 1994 1994
-------- --------- -------- ---------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ada
System... 475 760 1,075 1,460 1,540 1,970 2,110 2,235 2,275 3,440 5,020
Wichita
Falls
System... -- -- -- -- -- -- 315 475 710 1,530 2,690
Midland
System... -- -- -- -- -- -- 130 370 450 690 1,420
Abilene
System... -- -- -- -- -- -- -- 140 330 1,230 2,020
Lawton
System... -- -- -- -- -- -- -- -- -- 790 3,150
Other
Existing
Systems... -- -- -- -- 10 120 180 205 220 360 5,540
</TABLE>
Historically, Heartland's subscribers have been located predominantly in
single-family homes. In the fiscal year ended December 31, 1994, the number of
subscribers located in multiple-dwelling units in the Heartland Existing Systems
(including the Shaw System) increased as a percentage of total subscribers to
approximately 9.6%. Multiple-dwelling unit subscribers typically generate lower
per-subscriber revenue than single-family units due to discounted programs
offered to these subscribers.
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<PAGE> 1473
Subscription Revenues from Ada System. Revenues from the Ada System consist
principally of television subscription revenues. The increase in television
subscription revenues from $170,457 for 1992 to $591,741 for 1993 (a 247%
increase) and to $893,126 for 1994 (a 51% increase) is principally attributable
to an increase in the number of subscribers. The Ada System was not yet
operational on December 31, 1991. The Ada System had approximately 1,075
subscribers on December 31, 1992, approximately 2,110 subscribers on December
31, 1993 and approximately 5,020 subscribers on December 31, 1994, of which
approximately 1,580 subscribers (or 46%) were added in the last quarter of 1994.
Television subscription revenues consist of monthly fees paid by
subscribers for the Ada System's basic programming package, for premium
programming services and for equipment rental. The average monthly television
subscription revenue per Ada System subscriber in 1992, 1993 and 1994 was
$27.90, $30.27 (a 9% increase) and $26.98 (a 10% decrease), respectively. The
increase in average monthly subscription revenue per subscriber in 1993 as
compared to 1992 was primarily due to the increase in the percentage (from 61%
to 80%, respectively) of customers that rented, rather than purchased, the
receive-site equipment. The decrease in average monthly subscription revenue per
subscriber in 1994 as compared to 1993 was primarily due to the number of
subscribers added during the fourth quarter of 1994 who live in
multiple-dwelling units, which typically generate lower per-subscriber revenue
than single-family units, and certain promotional offerings of premium channel
units. During 1994, the standard charge for the basic Ada System programming
package of 29 channels (including one local off-air VHF/UHF channel) was $17.95
per month, $9.95 per month for each premium programming service and $6.00 per
month for rental of the basic receive-site equipment package. The Ada System had
approximately 5,020 subscribers on December 31, 1994, in excess of 80% of whom
rented, rather than purchased, the receive-site equipment. Heartland initiated
pay-per-view programming in the Ada System on April 1, 1995.
Subscription Revenues from Wichita Falls System. The Wichita Falls System
was launched in October 1993 with 24 channels (including four local off-air
VHF/UHF channels). The Wichita Falls System had approximately 315 subscribers on
December 31, 1993 and approximately 2,690 subscribers on December 31, 1994. The
Wichita Falls System currently offers 26 channels (including two local off-air
VHF/UHF channels which are being retransmitted). The average monthly television
subscription revenue per Wichita Falls System subscriber for 1994 was $26.46,
which consisted of the standard charge of $17.95 per month for the basic Wichita
Falls System programming package, $9.95, $8.95 and $2.95 per month,
respectively, for certain premium programming services and $6.85 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Wichita Falls System.
Subscription Revenues from Midland System. The Midland System was launched
in December 1993 with 24 channels (including four local off-air VHF/UHF
channels). The Midland System had approximately 130 subscribers on December 31,
1993 and approximately 1,420 subscribers on December 31, 1994. The average
monthly television subscription revenue per Midland System subscriber for 1994
was $23.54, which consisted of the standard charge of $19.95 per month for the
basic Midland System programming package, $9.95 for premium programming services
and $9.85 per month for rental of the basic receive-site equipment package.
Substantially all subscribers rent the receive-site equipment in the Midland
System.
Subscription Revenues from Abilene System. The Abilene System was launched
in February 1994 with 23 channels (including three local off-air VHF/UHF
channels). The Abilene System had approximately 2,020 subscribers on December
31, 1994. The average monthly television subscription revenue per Abilene System
subscribers in 1994 was $23.20, which consisted of the standard charge of $18.95
per month for the basic Abilene System programming package, $10.95 and $2.95 per
month, respectively, for premium programming services and $8.90 per month for
rental of the basic receive-site equipment package. Substantially all
subscribers rent the receive-site equipment in the Abilene System.
Subscription Revenues from Lawton System. The Lawton System was launched in
August 1994 with 19 channels (including seven local off-air VHF/UHF channels).
The Lawton System had approximately 3,150 subscribers on December 31, 1994. The
average monthly television subscription revenue per Lawton System subscribers
was $26.65 in 1994, which consisted of the standard charge of $17.95 per month
for the basic Lawton System programming package, $9.95 per month for a premium
programming service and $8.00 per
105
<PAGE> 1474
month for rental of the basic receive-site equipment package. Substantially all
single-family unit subscribers in the Lawton System rent the receive-site
equipment. Multiple-dwelling unit subscribers in the Lawton System
(approximately one-third of the total number of subscribers) do not pay a fee to
rent the receive-site equipment.
Subscription Revenues from Other Existing Systems. Television subscription
revenues from Existing Systems other than the Ada System, the Wichita Falls
System, the Midland System, the Abilene System and the Lawton System were
$155,929 in 1994 compared to $14,343 in 1993. This increase is attributable to
the increase in subscriber base related to these systems, the number of systems
launched in 1994 and the acquisition in December 1994 of one of these systems.
The Laredo System was launched in September 1994 with 23 channels
(including three local off-air VHF/UHF channels). The Laredo System had
approximately 1,110 subscribers on December 31, 1994.
Heartland completed construction of the Enid System in February 1993 in
anticipation of action by the FCC to grant licenses which would increase the
number of wireless cable channel rights available to Heartland. Initially,
subscribers were obtained without active marketing efforts by Heartland. An
increase in the Enid System channel offering was achieved in September 1994 and
Heartland began actively marketing its service in the Enid System in October
1994. The Enid System currently offers 21 channels (including two local off-air
VHF/UHF channels). The Enid System had approximately 970 subscribers on December
31, 1994.
Heartland completed construction of the Monroe System, which currently
offers 10 channels (including five local off-air VHF/UHF channels), in March
1993. The Monroe System had approximately 160 subscribers on December 31, 1994.
The Monroe System was constructed in anticipation of action by the FCC to grant
licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Monroe market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
Heartland acquired the Lindsay System on December 29, 1994. The Lindsay
System currently offers 32 channels (including 10 local off-air VHF/UHF
channels). The Lindsay System had approximately 1,410 subscribers on December
31, 1994.
The Ardmore System was launched in December 1994 with 20 channels
(including four local off-air VHF/UHF channels). The Ardmore System had
approximately 170 subscribers on December 31, 1994.
The Mt. Pleasant System was launched in December 1994 with 14 channels
(including four local off-air VHF/UHF channels). The Mt. Pleasant System had no
subscribers on December 31, 1994.
Heartland completed construction of the Lufkin System, which currently
offers 12 channels (including four local off-air VHF/UHF channels), in December
1994. The Lufkin System was constructed in anticipation of action by the FCC to
grant licenses which would increase the number of wireless cable channel rights
available to Heartland. However, such action has not yet been taken by the FCC.
Accordingly, Heartland is not actively marketing, and does not currently intend
to actively market, its service in the Lufkin market until an increase in its
channel offering is achieved, which Heartland expects to occur within the next
12 months.
The Milano System was acquired on December 1, 1994 from RuralVision Joint
Venture. The Milano System currently offers 26 channels (including six local
off-air VHF/UHF channels). The Milano System had approximately 1,680 subscribers
on December 31, 1994.
The Shaw System was acquired on January 27, 1995, in accordance with the
terms of the Venture Distribution Agreement. The Shaw System currently offers 30
channels (including four local off-air VHF/UHF channels). The Shaw System had
approximately 3,520 subscribers on December 31, 1994.
Installation and Service Revenues. Installation and service revenues
represent installation fees charged by Heartland to certain new subscribers,
sales of receive-site equipment to certain subscribers and service
106
<PAGE> 1475
income. Installation fees are recognized upon origination of service to a
customer to the extent of subscriber acquisition costs incurred to obtain
subscribers. Revenue from the sale of receive-site equipment to subscribers is
recognized upon delivery of such equipment to a subscriber. Installation
revenues included installation fees of $34,925 in 1992, $27,289 in 1993 and
$107,803 in 1994. Installation fees declined as a percentage of revenues in 1994
due to selected promotional campaigns in several of Heartland's markets during
the period from August 1994 to December 1994 and a higher level of revenues.
Sales of receive-site equipment to subscribers were $213,005 for 1993 and
$237,730 for 1994, respectively. Through September 1993, installations and sales
of receive-site equipment were performed by a formerly affiliated installation
company. Subsequent to this period, such installations and sales have been
conducted through two subsidiaries of Heartland that were merged together in
December 1994. Additionally, Heartland recorded service income of $30,107 in
1994, a 900% increase from $3,010 in 1993.
In order to conserve its capital, upon system launch, Heartland initially
required the purchase (rather than the rental) of its receive-site equipment by
subscribers. Upon system launch in 1992, a new Ada System subscriber was
required to purchase the receive-site equipment for approximately $325, but no
installation fee was charged. Since September 1992, Heartland has offered
potential subscribers in the Ada System the option of purchasing the
receive-site equipment or renting such equipment for a monthly charge of
approximately $6. In the Ada System, an installation fee of $25 and a deposit of
$25 (designed to encourage the return of receive-site equipment) is currently
charged to subscribers selecting the monthly rental option. Additional fees are
charged for various other installation services. Heartland believes that
charging an up-front installation fee better qualifies potential subscribers,
reducing subscriber turnover. Reduced subscriber turnover reduces installation
and marketing expenses incurred by Heartland. Heartland currently experiences a
low rate of subscriber turnover of approximately 1.5% per month, as compared to
the rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Currently, approximately 80% of the subscribers in
the Ada System rent the receive-site equipment. Through April 1994, the other
Existing Systems required a new subscriber to purchase the receive-site
equipment. In order to accelerate system expansion after Heartland's initial
public offering in April 1994 ("Initial Public Offering"), Heartland began
offering new subscribers the option to rent receive-site equipment. Typically,
an installation fee of $50 is currently charged to subscribers selecting the
monthly rental option in the Existing Systems other than the Ada System. From
time to time, Heartland offers no-fee installation on a promotional basis.
Systems Operations and Cost of Goods Sold. 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.
Prior to 1992, Heartland had no operations and therefore no systems operations
expense. Heartland incurred $36,042 of systems operations expense in 1992 (all
related to the Ada System). For 1993, Heartland incurred systems operations
expense of $118,649 (a 229% increase). The increase is attributable primarily to
the 96% increase in the number of subscribers during 1993 as compared to 1992.
Systems operations for 1994 increased 345% from 1993 to $527,476. The increase
was attributable primarily to the 240% increase in the average number of
subscribers for 1994 compared to 1993.
Cost of goods sold includes the cost of receive-site equipment sold to
subscribers. Such costs amounted to $202,162 in 1993 and $235,025 in 1994.
Through September 1993, receive-site equipment was sold to subscribers by a
formerly affiliated installation company. Subsequent to this period, such sales
have been conducted through two subsidiaries of Heartland that were merged
together in December 1994. Subsequent to the Initial Public Offering, sales of
receive-site equipment have been nominal.
Selling, General and Administrative Expenses. Heartland 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 sales
commissions relating to the increasing number of subscribers and additional
compensation expense. SG&A increased from $147,927 for 1992 to $646,611 for 1993
(a 337% increase). During 1992, the Ada System was launched and SG&A increased
significantly due to the expense incurred in launching such system and
additional accounting and support costs and sales
107
<PAGE> 1476
commissions relating to the increasing number of subscribers. These factors and
the expense incurred in launching two more systems and constructing two other
systems caused the increase in SG&A for 1993 as compared to 1992. SG&A increased
547% to $4,183,307 in 1994 compared to $646,611 in 1993, principally due to the
commencement of the direct payment of compensation to certain of Heartland's
executive officers who had previously served as consultants and the addition of
personnel, and, to a lesser extent, increased sales commissions relating to the
increasing number of subscribers, 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 channel
rights and the excess of cost over fair value of net assets acquired.
Depreciation and amortization relating to the Ada System equipment and channel
rights began in 1992 and totaled $34,920. Depreciation and amortization expense
for the year ended December 31, 1993 included depreciation on the equipment in
the Ada, Enid, Monroe and Midland Systems as well as amortization of channel
rights for such systems and totaled $138,560, a 297% increase over the same
period in 1992 during which only the Ada System was operational. Depreciation
and amortization expense for 1994 increased 692% to $1,097,668 compared to
$138,560 in 1993. The increase was due to additional systems and equipment in
connection with systems launched throughout 1994, and increased amortization
expense on leased license investment of systems in operation and excess of cost
over fair value of net assets acquired related to the acquisition of U.S.
Wireless and the acquisition of minority interests in certain other subsidiaries
of Heartland. Heartland anticipates that depreciation and amortization expense
will increase as a result of such acquisition of minority interests in March
1995 and as additional systems are launched and more subscribers continue to
rent, rather than purchase, the receive-site equipment.
Interest Expense. In 1993, Heartland incurred interest expense of $82,916
compared to $1,392 in 1992 due to an increase in borrowed funds. In 1994,
Heartland incurred interest expense of $589,767, which included non-cash
interest of $301,125 related to one month's interest on the Heartland's 9%
Convertible Subordinated Discount Notes due 2004 (the "Convertible Notes"). The
remaining interest expense is principally related to (i) that bridge loan
provided by Internationale Nederlanden (U.S.) Capital Corporation ("ING") in the
original amount of approximately $10.0 million which closed during July 1994
(the "ING Bridge Loan") that was used by RuralVision Joint Venture to acquire
certain RuralVision Assets that Heartland expects to retain and (ii) interest
expense on short-term borrowings that were repaid in connection with Heartland's
initial public offering in April 1994.
Interest Income. Interest income for the year ended December 31, 1994
relates to interest earned on Heartland's cash equivalents since the Initial
Public Offering.
Other Expenses. Other expenses are comprised primarily of other
non-operating expenses. In 1992, Heartland incurred $18,003 of other
non-operating expenses. For the year ended December 31, 1993, Heartland incurred
$60,467 of other non-operating expenses, which included a charge of $57,163
relating to a settlement with a formerly affiliated installation company (see
Note 9 of Notes to Consolidated Financial Statements appearing as pages F-16 to
F-17 elsewhere in this Proxy Statement/Prospectus). In 1994, Heartland incurred
a recapitalization charge of $205,575. This charge related to costs incurred in
connection with a rescinded offering of securities.
Minority Interests. In connection with the development of certain wireless
cable markets, Heartland has sold stock in certain of its subsidiaries
principally for cash. 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 such systems. Minority
ownership interests in such subsidiaries range from 5% to 49.9999% (other than
(i) Northern Oklahoma Wireless Cable, Inc., serving the Enid, Oklahoma area, in
which minority interest holders own 18% of the outstanding common stock and 100%
of the outstanding preferred stock; and (ii) Central Oklahoma Wireless Cable,
Inc., serving the Ada, Oklahoma area, in which minority interest holders own 50%
of the outstanding preferred stock). Minority interests in earnings of
subsidiaries of $19,106 and $35,111 for the years ended December 31, 1992 and
1993, respectively, relate to the minority interest owners' share of net
earnings from the Ada System and net losses from the Enid System subsidiaries
and dividends on preferred stock of the Ada and Enid System subsidiaries. The
increase in the
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<PAGE> 1477
minority interests in earnings of subsidiaries during these periods is related
to increased earnings in the Ada System, offset partially by losses during 1993
in the Enid System. Minority interests in losses of subsidiaries of $20,108 for
the year ended December 31, 1994 relate to the minority interest owners' share
of net earnings from the Ada System subsidiary through April 1994, losses of the
Enid System subsidiary and dividends on preferred stock issued by the Ada System
($16,715) and Enid System ($19,600) subsidiaries. On March 15, 1995, Heartland
issued an aggregate of 304,038 shares of common stock in exchange for minority
interests in 21 subsidiaries.
Income Tax Benefit. Income tax benefit of $1,594,963 for the year ended
December 31, 1994 represents the tax benefit related to Heartland's net
operating losses incurred during the period April 28, 1994 through December 31,
1994. Heartland has recognized such tax benefit to the extent of future
reversals of existing taxable temporary differences.
Net Loss. During 1991, Heartland had no revenues and incurred a loss of
$66,158, primarily due to SG&A. During 1992, Heartland's Ada System was launched
and generated operating income of $71,071 on total revenues of $205,382, which
substantially offset Heartland's expenses. Heartland incurred a net loss of
$50,822 for the year ended December 31, 1992, primarily due to the increase in
SG&A at the corporate level, the increase in other non-operating expenses and
accrued dividends on preferred stock of subsidiaries. For 1993, Heartland's Ada
System generated operating income of $256,856 on total revenues of $602,837.
Nonetheless, due to increased SG&A related to the development of Heartland's
other wireless cable markets and increased other expenses (including a
settlement charge of $57,163), Heartland incurred a net loss of $406,101. As a
result of the above factors, for the year ended December 31, 1994, Heartland
incurred a net loss of $3,043,321 as compared to a net loss of $406,101 for the
same period in 1993. Heartland expects to continue to incur net operating losses
at least through the end of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30,
1995 COMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1994
Revenues consist principally of subscription revenues, installation fees
(for 1994 periods) and sales of receive-site equipment to subscribers.
Subscription revenues principally consist of monthly fees paid by subscribers
for the basic programming package and for premium programming services.
Subscription revenues for the nine-month period ended September 30, 1995
increased to $9,292,837 from $984,299 for the same period in 1994, an increase
of 944%. Subscription revenues for the three-month period ended September 30,
1995 increased to $4,176,855 from $359,595 for the same period in 1994, an
increase of 1,062%. The increase in subscription revenues is principally
attributable to a 891% increase in the average number of subscribers for the
first nine months of 1995 compared to the same period in 1994. The increase in
subscribers is due to Heartland launching two systems in the third quarter of
1994 (Lawton, Oklahoma and Laredo, Texas) and two systems in the fourth quarter
of 1994 (Ardmore, Oklahoma and Mt. Pleasant, Texas); the acquisition of two
operating systems in the fourth quarter of 1994 (Lindsay, Oklahoma and Milano,
Texas); the acquisition of one system (Shaw, Kansas) in the first quarter of
1995; the launching of the system in Texarkana, Texas in the first quarter of
1995; the acquisition of one system (Lubbock, Texas) and the launching of five
systems in Illinois (McLeansboro, Vandalia, Olney and Taylorville) and
Stillwater, Oklahoma in the second quarter of 1995; the launching of the systems
in Peoria, Illinois, Manhattan, Kansas, Olton and O'Donnell, Texas, Grand
Rapids, Michigan, and Monroe City, Missouri in the third quarter of 1995; and
the acquisition of the operating systems in Bucyrus, Ohio, Paragould, Arkansas
and Sikeston, Missouri in the third quarter of 1995. The number of subscribers
in Heartland's wireless cable systems increased to 64,350 at September 30, 1995
compared to 43,500 at June 30, 1995.
On a "same system" basis (comparing systems that were operational for all
of each of the three-month periods ended September 30, 1994 and 1995),
subscription revenues increased $1,102,038 or 301%, to $1,468,157 as compared to
$380,648 for the three-month period ended September 30, 1994. Same systems
during this period consisted of Heartland's Ada, Wichita Falls, Midland, Abilene
and Enid systems. The average number of subscribers in these systems increased
approximately 331% during the three months ended September 30, 1995 as compared
to the same period in 1994.
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For the three and nine months ended September 30, 1994, revenues included
installation fees of $54,530 and $100,159, respectively. Installation fees for
the three and nine months ended September 30, 1995 of $63,355 and $452,853,
respectively, were offset against direct costs of subscriber installations (See
note 2 to consolidated condensed financial statements regarding change in
accounting method). Sales of receive-site equipment to subscribers were $205,068
in 1994 (none in 1995). The increase in installation fees is due to the
increased number of installations during the three- and nine-month periods ended
September 30, 1995, partially offset by lower per subscriber installation
charges in certain systems, compared to the same period of 1994. Installation
fees vary widely by system based on local market conditions. Recently, Heartland
has waived installation charges as part of selected promotional campaigns. Since
Heartland's initial public offering in April 1994 (the "Initial Public
Offering"), predominately all new subscribers rent, rather than purchase,
receive-site equipment, resulting in decreased revenues from the sale of
receive-site equipment during the nine-month period ended September 30, 1995
compared to the nine-month period ended September 30, 1994.
Systems operations expenses include programming costs, channel lease
payments, transmitter site and tower rentals, cost of program guides and repairs
and maintenance expenditures. Programming costs, cost of program guides and
channel lease payments (with the exception of minimum payments) are variable
expenses which increase as the number of subscribers increases. Systems
operations expenses for the three- and six-month periods ended September 30,
1995 increased 775% to $1,326,358 from $151,499 and 804% to $2,894,074 from
$320,029 compared to the same periods in 1994. This increase is attributable
primarily to the 416% and 700% increases, respectively, in the average number of
subscribers for such periods in 1995 compared to such periods in 1994 and rental
expense under channel rights lease agreements of $977,241 related to
non-operational systems.
Costs of goods sold include the cost of receive-site equipment sold to
subscribers. The decrease in costs of goods sold of $65,808 and $235,025 for the
three- and nine-month periods ended September 30, 1995 from the same periods in
1994 is related to the corresponding decrease in sales of receive-site
equipment.
SG&A increased 139% to $2,796,889 from $1,169,598 and 265% to $7,449,699
from $2,042,124, respectively, for the three- and nine-month periods ended
September 30, 1995 and 1994, respectively. Heartland has experienced increasing
SG&A 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 sales
commissions relating to the increasing number of subscribers. Additionally, SG&A
increased during the first half of 1995 as compared to the corresponding period
in 1994 due to the implementation of a group health insurance plan in August
1994 and investor relations expenses.
Depreciation and amortization expense for the nine-month period ended
September 30, 1995 increased 847% to $3,966,120 from $418,960 for the
corresponding period in 1994. Additionally, depreciation and amortization
expense for the three-month period ended September 30, 1995 increased 764% to
$1,948,576 from $229,055 for the corresponding period in 1994. The increase is
due to additional systems and equipment related to systems launched and acquired
in 1994 and 1995 and additional amortization expense on leased license
investment of systems in operation and excess of costs over the fair value of
assets acquired due to acquisitions of minority interests. Heartland anticipates
that depreciation and amortization expense will increase as a result of the
minority interests exchange offer in March 1995 and as additional systems are
launched and more subscribers continue to rent, rather than purchase, the
receive-site equipment.
Interest expense increased to $8,908,459 for the nine-month period ended
September 30, 1995 from $128,789 for the corresponding period in the preceding
year. Interest expense increased to $4,516,446 for the three-month period ended
September 30, 1995 from $72,089 for the corresponding period in the preceding
year. The increase is principally due to the accretion on the Convertible Notes
that were issued in the fourth quarter of 1994 and the interest on Heartland's
13% Senior Notes due 2003 that were issued on April 26, 1995.
Interest income increased to $1,034,441 from $91,130 and $2,044,092 from
$189,308, respectively, for the three and nine-month periods ended September 30,
1995 compared to the same periods in 1994, principally due to interest earned on
the increase in Heartland's cash equivalents since the initial public offering
in April 1994 and Heartland's debt offerings in November 1994 and April 1995.
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Equity in losses of RuralVision Joint Venture for the nine-month period
ended September 30, 1995, relates to the Heartland's 50% share of losses related
to the joint venture for the period January 1, 1995 through January 27, 1995.
Income tax benefit increased to $1,307,137 from $649,510 for the nine-month
period ended September 30, 1995 compared to the same period in 1994. Income tax
benefit has been recognized to the extent deferred tax assets can be realized
through future reversals of existing taxable temporary differences.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Since inception, Heartland has expended funds to lease or otherwise acquire
channel rights in various markets and systems in operation, to construct or
acquire operating systems in more than 30 markets, to commence construction of
the systems under construction, to install equipment in new subscribers' homes
and to finance initial operating losses and other working capital requirements.
Heartland intends to expand the Existing Systems and launch additional wireless
cable systems and may require funds therefore in excess of the funds currently
available to it.
Heartland's capital expenditures during the years ended December 31, 1992,
1993 and 1994 were approximately $1.4 million, $5.1 million, and $44.5 million,
respectively. For the nine months ended September 30, 1994 and 1995, Heartland's
capital expenditures were approximately $18.1 million and $44.0 million,
respectively. Such expenditures were primarily for the construction and
expansion of Heartland's wireless cable systems installation of equipment in new
subscribers' homes and the acquisition of operating systems and channel rights
in other markets.
Heartland 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 $350,000 to $500,000 for wireless cable
system transmission equipment and tower construction and incremental
installation costs of approximately $395 to $435 per subscriber for equipment,
labor and overhead charges and direct commissions. 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 $400,000, but may vary depending upon the power of the
transmission equipment.
Heartland expects that under its current plans it will have capital
expenditures of approximately $13 million during the fourth quarter of 1995 and
$60.0 million in 1996 for system construction, development, launch and expansion
activities associated with its current operating systems, systems under
construction, near-term launch markets and certain long-term launch markets.
Heartland currently expects to launch an aggregate of approximately 20, and as
many as 25, systems during the period from November 1995 through the end of
1996. Heartland does not anticipate any other material capital requirements,
except as set forth below with regard to certain assets to be acquired in
connection with the Transactions by Heartland. Heartland expects to continue to
incur significant capital expenditures in 1997 and subsequent years in
connection with system construction, development, launch and expansion
activities.
Under Heartland's existing debt structure, no material principal or
interest payment obligations are required (other than accrued interest due under
the Senior Notes which has been escrowed through April 1997) until October 1997.
Commencing in October 1997 and every six months thereafter through April 2003,
semi-annual accrued interest of $6.5 million under the Senior Notes is due and
payable.
On April 26, 1995, Heartland sold 100,000 Units (the "Units") consisting of
$100 million 13% Senior Notes due 2003 and 600,000 warrants to purchase an equal
number of shares of Heartland Common Stock. Heartland placed approximately $24.1
million of the approximately $95.3 million net proceeds realized from the sale
of the Units into an escrow account and used approximately $3.0 million of such
proceeds to repay indebtedness. Additionally, Heartland has used approximately
$9.5 million in connection with acquisitions for operating systems in Lubbock,
Texas and wireless cable channel rights in Tulsa, Oklahoma. During the second
and third quarter of 1995, Heartland has sold certain wireless cable channel
rights in 12 markets for
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approximately $3.3 million in cash and a $562,500 note receivable, plus
additional contingent consideration of up to $280,000 in cash. Additionally,
Heartland has contributed other wireless cable markets for consideration
consisting of approximately 35% of the outstanding common stock of Wireless One
and approximately $10 million in notes which was paid upon consummation of an
equity and debt offering by Wireless One and in November 1995, Heartland entered
into an agreement to sell its wireless cable channel rights in Flippin,
Tennessee for $1.5 million in cash. Heartland intends to use the balance of the
net proceeds of the sale of the Units, together with cash on hand and cash
generated from operations or sale of assets, for system construction,
development, launch and expansion activities, to provide working capital and for
other general corporate purposes. Subject to certain limitations set forth in
the indenture relating to the Notes (the "Indenture"), Heartland may use a
portion of such net proceeds to acquire additional wireless cable channel
rights, including the purchase of MDS and multichannel MDS ("MMDS") wireless
cable channel rights in the December 1995 BTA auction.
Upon consummation of the Transactions, Heartland, directly or through its
ownership of AWS and CMAX, will be required to pay between $15 million and $20
million of liabilities associated with the assets acquired in the Transactions.
Such liabilities include bank indebtedness, payables, severance obligations and
similar liabilities which will be due and owing upon, or shortly following,
consummation of the Transactions. As a result of consummating the Transactions,
Heartland expects that it will incur additional capital expenditures of
approximately $15.0 million in 1996 for system construction, development, launch
and expansion activities associated with the acquired operating systems and
other acquired markets that it expects to launch in 1996. All of the operating
markets to be acquired and retained are currently generating positive monthly
operating cash flow which will supplement Heartland's capital needs in 1996.
In connection with the Newco Transaction, Heartland expects to receive
$28.3 million in cash payable by Newco at the closing and a promissory note in
the principal sum of $25 million payable nine (9) months from the closing.
Heartland expects that the remaining proceeds from the sale of the Units and the
proceeds from the Newco Transaction, together with cash on hand and cash
generated from operations, will be sufficient to satisfy Heartland's capital
needs through at least the end of 1996. In order to accelerate its growth rate,
to respond to competitive pressures or regulatory changes and, subject to
certain limitations set forth in the Indenture, to finance the acquisition of
additional wireless cable channel rights and businesses, general corporate
activities and the launch or build-out of additional systems, Heartland may,
subject to the provisions of the note purchase agreement relating to the
Convertible Notes (the "Note Purchase Agreement") and the Indenture, supplement
its existing sources of funds with financing arrangements at the operating
system level, or through additional borrowings, the sale of debt or equity
securities, joint ventures or other arrangements. Heartland is presently in the
initial stages of locating and negotiating for a suitable revolving credit
facility consistent with the terms of the Indenture and Note Purchase Agreement
with one or more third parties. Assuming such financing can be secured on
acceptable terms, management of Heartland currently intends to draw down funds
under such facility upon consummation of the Transactions to repay certain of
the obligations incurred or assumed in the Transactions. No assurance can be
given that Heartland will locate such an acceptable credit facility. As a
further capital resource, subject to the terms of the Note Purchase Agreement
and the Indenture, Heartland may sell or lease certain wireless cable channel
rights as appropriate opportunities become available.
As an alternative source of financing, Heartland believes a primary factor
in obtaining debt financing at the operating system level is the generation of
positive operating cash flow. As of November 30, 1995, 17 of Heartland's
operating systems are generating positive monthly cash flow. Heartland expects
that the other Existing Systems and the wireless cable systems anticipated to be
launched will generate positive monthly operating cash flow, typically within
six months from commencement of operations and after attaining 1,500
subscribers, thereby making further bank debt financing available at the
operating system level. There can be no assurance, however, that such positive
operating cash flow will be generated or will be maintained or that debt
financing will be available.
Although Heartland believes that its cash and cash equivalent assets will
be sufficient to fund the Combined Company's operations and expansion through at
least the end of 1996, there is no assurance that additional funds will not be
necessary to complete the launch, build-out and expansion of all of the Combined
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Company's wireless cable systems and to bring such systems to a mature state or
that any such required additional funds would be available on satisfactory terms
and conditions, if at all. In addition, the Combined Company's capital needs
will depend in part upon the success of Heartland's and the Combined Company's
efforts to sell or otherwise dispose of the Heartland Disposition Assets and the
nature of any consideration received as a result of such dispositions. To the
extent assets and markets designated for disposition are not sold, or are not
sold for cash, the Combined Company's requirements for additional funds will be
increased. There is also no assurance that the Combined Company will not pursue,
from time to time, other opportunities to acquire additional wireless cable
channel rights and businesses that may utilize the capital currently expected to
be available for its current markets. The amount and timing of the Combined
Company's future capital requirements, if any, will depend upon a number of
factors, including programming costs, equipment costs, marketing expenses,
staffing levels, subscriber growth and competitive conditions, and any purchases
or dispositions of assets, many of which are not within the Combined Company's
control. Failure to obtain any required additional financing could materially
adversely affect the growth, cash flow or earnings of the Combined Company.
INCOME TAX MATTERS
Heartland and certain of its subsidiaries will file a consolidated Federal
tax return. Subsidiaries in which Heartland owns less than 80% of the voting
stock will file separate Federal tax returns. Heartland has had no material
state or Federal income tax expense since inception. As of December 31, 1994,
Heartland had approximately $2.9 million in net operating losses for tax
purposes, expiring in years 2005 through 2009. The Internal Revenue Code of
1986, as amended (the "Code"), limits the amount of loss carryforwards that a
company can use to offset future income upon the occurrence of certain changes
in ownership. As a result of the investment in Heartland by Hunt Capital and the
Initial Public Offering, Heartland has undergone more than a 50% change in
ownership and will therefore be limited in its utilization of its tax loss
carryforwards.
INFLATION
Heartland's management does not believe that inflation has had or is likely
to have any significant impact on Heartland's operations. Management believes
that Heartland will be able to increase subscriber rates, if necessary, to keep
pace with inflationary increases in costs.
OTHER
Heartland does not provide post-retirement or post-employment benefits
requiring charges under Statements of Financial Accounting Standards Nos. 106
and 112.
Heartland currently intends to adopt Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" in 1996 with respect
to its financial statement disclosure. Heartland does not intend to change its
accounting method with regard to this statement.
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SELECTED HISTORICAL FINANCIAL INFORMATION OF TSC
The selected statement of operations and balance sheet data presented below
as of May 31, 1994 and 1995 and for the years ended May 31, 1993, 1994 and 1995
were derived from the financial statements of TechniVision, which were audited
by KPMG Peat Marwick LLP, independent certified public accountants, and which
are included elsewhere in this Proxy Statement/Prospectus. The selected
statement of operations and balance sheet data presented below as of May 31,
1991, 1992 and 1993, and for the years ended May 31, 1991 and 1992 were derived
from the financial statements of TechniVision, but which are not included in
this Proxy Statement/Prospectus. The selected statement of operations and
balance sheet data presented below as of November 30, 1995 and for the six
months ended November 30, 1994 and 1995 were derived from the unaudited
financial statements of TechniVision, which are included elsewhere in this Proxy
Statement/Prospectus and which, in the opinion of management of TechniVision,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for such unaudited interim
periods. The statement of operations data for interim periods are not
necessarily indicative of results for subsequent periods or for the full year.
This selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements (including the notes thereto) of TechniVision contained
elsewhere in this Proxy Statement/Prospectus. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.................. $ 2,360,694 $ 2,086,528 $ 3,903,922 $ 5,439,575 $ 6,756,133 $ 3,371,705 $ 3,332,351
Operating expenses:
Systems operations...... 1,054,109 1,743,387 1,709,254 2,991,486 3,642,681 2,086,496 1,749,605
Selling, general and
administrative........ 1,074,606 1,562,002 1,617,598 2,664,162 2,803,415 1,138,360 1,364,880
Depreciation and
amortization.......... 879,242 1,600,147 1,977,352 2,371,891 2,623,736 1,323,662 1,299,603
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 3,007,957 4,905,536 5,304,204 8,027,539 9,069,832 4,548,518 4,413,488
Operating loss............ (647,263) (2,819,008) (1,400,282) (2,587,964) (2,313,699) (1,176,813) (1,081,137)
Interest expense, net..... (746,271) (1,061,354) (1,063,620) (959,647) (1,338,292) (543,326) (674,295)
Other income (expense).... (536,759) -- -- (105,000) 3,362,230 -- 253,352
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss............ $(1,930,266) $(3,880,362) $(2,463,902) $(3,652,611) $ (289,761) $(1,720,139) $(1,502,080)
=========== =========== =========== =========== =========== =========== ===========
Net loss per common share... $ (64.34) $ (124,34) $ (82.13) $ (121.75) $ (9.66) $ (57.34) $ (50.07)
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding............... 30,000 30,000 30,000 30,000 30,000 30,000 30,000
=========== =========== =========== =========== =========== =========== ===========
Other Financial Data:
EBITDA(1)................. $ 231,979 $(1,218,861) $ 577,070 $ (216,073) $ 310,037 $ 146,849 $ 218,466
Capital expenditures(2)... $ 6,850,043 $ 171,266 $ 1,255,104 $ 4,645,998 $ 1,678,188 $ 501,726 $ 603,216
</TABLE>
<TABLE>
<CAPTION>
MAY 31, NOVEMBER
------------------------------------------------------------------ 30,
1991 1992 1993 1994 1995 1995
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............. $ 57,471 $ 1,749 $ 1,500 $ 3,197 $ 51,637 $ 78,124
Total assets........................... 13,104,004 10,668,693 9,998,929 14,358,235 14,877,585 14,551,185
Long-term debt, including current
portion.............................. 10,059,494 10,999,402 11,941,820 19,053,522 17,242,089 18,338,157
Total stockholders' equity (deficit)... 33,249 (3,695,253) (4,975,811) (8,342,640) (6,882,947) (8,385,027)
</TABLE>
- ---------------
(1) "EBITDA" represents operating income (loss) before depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
However, EBITDA is not a financial measure determined under generally
accepted accounting principles and should not be considered as an
alternative to net income as a measure of operating results or to cash flows
as a measure of funds available for discretionary or other liquidity
purposes.
(2) Capital expenditures for the fiscal year ended May 31, 1991 were comprised
of $6,796,147 for purchase of systems and equipment and $53,896 of
expenditures for leased licenses; for the fiscal year ended May 31, 1992
were comprised of $171,266 for purchases of systems and equipment; for the
fiscal year ended May 31, 1993 were comprised of $1,225,104 for the purchase
of system and equipment; for the fiscal year ended May 31, 1994 were
comprised of $4,506,900 for purchases of system and equipment and $139,098
for expenditures for leased licenses; for the fiscal year ended May 31, 1995
were comprised of $1,514,822 for purchases of system and equipment and
$163,354 for expenditures for leased licenses; for the six months ended
November 30, 1994 were comprised of $501,726 for purchase of systems and
equipment and for the six months ended November 30, 1995 $603,216 for the
purchase of systems and equipment.
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TSC -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenue Analysis. Total revenues for Technivision increased 39.4% or
$1,535,653 from fiscal 1993 to 1994 and 24.2% or $1,316,558 from fiscal 1994 to
1995. Revenues increased primarily due to the increase in the average number of
subscribers and an increase in the number of premium subscription units sold to
subscribers during such periods.
Basic Revenue. Basic Revenue increased 38.1% or $946,076 from fiscal 1993
to fiscal 1994 and increased 33.8% or $1,159,777 from fiscal 1994 to fiscal
1995. The increase from fiscal 1993 to fiscal 1994 was primarily the result of
an increase in the average number of subscribers in the Corpus system and the
addition of subscribers in the Dayton system which commenced operations in
November 1993. The increase from fiscal 1994 to fiscal 1995 was primarily the
result of an increase in the average number of subscribers in the Corpus and
Dayton systems.
Premium and Pay-Per-View Revenue. Premium and pay-per-view revenue
increased 9.8% or $125,820 from fiscal 1993 to fiscal 1994, and increased 13.3%
or $188,342 from fiscal 1994 to fiscal 1995. The increase in premium and
pay-per-view revenue was primarily due to the increase in subscribers discussed
above. Technivision's ratio of premium units to basic subscribers for fiscal
1995 was 63%, which is slightly below the estimated national ratio for the
traditional hard-wire cable industry in 1995 of 73% according to Paul Kagan
Associates, Inc. Technivision offers The Disney Channel, previously a premium
channel, as part of its basic service package at its systems.
Other Revenue. Other revenue is comprised primarily of service and
installation revenue, fees for additional outlets and late fees. Other revenue
was 11.0% of total revenues in fiscal 1994 and 8.4% of total revenues in fiscal
1995. The decrease from fiscal 1994 to fiscal 1995 primarily resulted from the
increase in basic and premium revenues as they relate to the total revenue.
Operating Expense Analysis. Total operating expenses increased 51.3% or
$2,723,335 from fiscal 1993 to fiscal 1994 and 13.0% or $1,042,293 from fiscal
1994 to fiscal 1995. The increase in operating expenses was primarily due to the
expansion of Technivision's Corpus and Dayton operations. Further increases in
operating expenses were due to an increase in the average number of subscribers
during such periods. Operating expenses are comprised of the following: systems
operations; selling, general and administrative; and depreciation and
amortization.
Systems Operations. Systems operations expenses increased 75.0% or
$1,282,232 from fiscal 1993 to fiscal 1994 and 21.8% or $651,195 from fiscal
1994 to fiscal 1995. Systems operations expenses are comprised primarily of
programming (which is the largest component); channel leases; and technical and
maintenance costs. Programming expenses increased from fiscal 1993 to fiscal
1994 and from fiscal 1994 to fiscal 1995 primarily as a result of increases in
the number of subscribers, contractual rate increases and increases in the
average number of channels available for programming. Channel leasing costs are
a function of the number of subscribers and total revenues, and such costs have
increased as the number of systems, subscribers and corresponding revenue have
increased.
Selling, General and Administrative. Selling, general and administrative
expenses increased 64.7% or $1,046,564 from fiscal 1993 to fiscal 1994 and
increased 5.2% or $139,253 from fiscal 1994 to fiscal 1995. Selling, general and
administrative expenses are comprised primarily of the following expenses:
administrative salaries and management fees; advertising and marketing; bad debt
expense; insurance; copyright; and facilities expense. Salaries and management
fees increased from fiscal 1993 to fiscal 1994 primarily as a result of
increases in the subscriber base and the launching of the Dayton system.
Increases in selling, general and administrative expenses from fiscal 1994 to
fiscal 1995 are primarily the result of the continued increase of the subscriber
base in the Corpus and Dayton systems.
Depreciation and Amortization. Depreciation and amortization increased
19.9% or $394,539 from fiscal 1993 to fiscal 1994 and 10.6% or $251,845 from
fiscal 1994 to fiscal 1995. The increase from fiscal 1993 to
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fiscal 1994 and from fiscal 1994 to fiscal 1995 is due to increased depreciation
associated with the increased base of property and equipment installed to serve
Technivision's larger subscriber base.
Interest Expense Analysis. Interest expense decreased 9.8% or $103,973 from
fiscal 1993 to fiscal 1994 due to reductions in interest rate levels. Interest
expense increased 39.5% or $378,645 from fiscal 1994 to fiscal 1995 due to the
increase in debt levels accruing interest.
Other Income Analysis. Other income consists primarily of the gain on sale
of assets in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television business is a capital intensive business.
Cash flow generated from Technivision's operations has not been sufficient to
fund the cost of operations, the cost of expanding the Corpus and Dayton systems
and servicing existing indebtedness, and the Company expects this trend to
continue as it expands and develops the systems. In fiscal years 1993, 1994 and
1995, net cash used in operations and investing activities approximated $2.0
million, $6.5 million and $.5 million, respectively. Included in those amounts
are capital expenditures of approximately $1.2 million, $4.9 million and $1.5
million, respectively.
During the period through May 31, 1995, Technivision financed its
subscriber additions in its systems primarily from advances from its parent and
investors. Approximately $7 million was lent by investors during this period and
$3 million was advanced from the parent.
Technivision believes that the development of its markets will require
significant ongoing capital investment. The incremental capital costs associated
with adding a new subscriber are estimated to be between $360 and $600,
depending on the amount of installation materials and number and type of set-top
converter utilized. Utilizing refurbished subscriber equipment removed from
former customers, however, significantly reduces the cost of adding an
additional subscriber by $100 to $200, depending upon the amount of installation
materials and type of set-top converter utilized
The operation of the TSC systems requires substantial investment on a
continuing basis to finance capital expenditures and related expenses for
operations, expansion of the subscriber base and system development. In
addition, as described under "Risk Factors" above, significant amounts of
additional financing would be necessary to repay amounts owed to creditors of
TSC. Management believes that TSC's existing cash and cash equivalents will not
be sufficient to fund the presently foreseeable needs of the TSC systems. In
addition, management believes that it is unlikely that alternative sources of
funding will be available on satisfactory terms and conditions, if at all.
Accordingly, if the TSC Transaction is not consummated, TSC may be unable to
continue as a going concern. See "Risk Factors."
THE TSC MEETING
TIME, PLACE AND DATE OF TSC MEETING
This Proxy Statement/Prospectus is being furnished to the holders of TSC
Common Stock in connection with the solicitation of proxies by and on behalf of
the TSC Board for use at the Special Meeting of Stockholders of TSC (together
with any adjournments or postponements thereof, the "TSC Meeting") to be held at
10:00 a.m. on February 22, 1996 at 120 Floral Avenue, New Providence, New Jersey
07974.
PURPOSE OF THE TSC MEETING
At the TSC Meeting, holders of TSC Common Stock are being asked to approve
and adopt the TSC Agreement, attached as Appendix A and the related TSC
Transactions. See "The TSC Transaction -- Recommendation of the TSC Board;
Reasons for the TSC Transaction."
THE TSC SPECIAL MEETING, THE TSC STOCKHOLDERS WILL BE ASKED TO APPROVE AND
ADOPT THE TSC AGREEMENT, TSC LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO
AS A PART OF ONE APPROVAL. THE TSC STOCKHOLDERS ARE NOT
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BEING REQUESTED, AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE
TSC AGREEMENT, TSC LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
THE TSC BOARD OF DIRECTORS HAS APPROVED THE TSC TRANSACTION AND RECOMMENDS A
VOTE FOR APPROVAL AND ADOPTION OF THE TSC TRANSACTION.
RECORD DATE; VOTING RIGHTS
Only the holders of shares of TSC Common Stock of record at the close of
business on January 17, 1996 (the "TSC Record Date") are entitled to notice of,
and to vote at, the TSC Meeting regarding the approval and adoption of the TSC
Transaction and upon each other matter properly submitted at the TSC Meeting. On
the TSC Record Date there were outstanding and entitled to vote 6,976 shares of
TSC Common Stock, owned by approximately 50 holders of record. Each share of TSC
Common Stock is entitled to one vote upon the approval and adoption of the TSC
Transaction and any other matter properly submitted at the TSC Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of stockholders holding a majority of
the outstanding shares of TSC Common Stock entitled to vote will constitute a
quorum at the TSC Meeting. The affirmative vote of a majority of the votes cast
by the holders of the TSC Common Stock is necessary to approve the TSC
Transaction. As of December 31, 1995, the directors and executive officers of
TSC and their affiliates beneficially owned an aggregate of 3,757 shares (50%)
of TSC Common Stock; such persons have informed TSC of their intention to vote
their shares of TSC Common Stock in favor of the TSC Transaction. See
"Information Concerning TSC -- Security Ownership of Principal Stockholders and
Management."
Abstentions and broker non-votes (which occur when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power at that time and has not
received instructions from the beneficial owner) are counted for the purposes of
determining the presence or absence of a quorum at the TSC Meeting. Abstentions
and broker non-votes will have no effect on the approval of the TSC Transaction
(assuming a majority of the shares of TSC Common Stock is present at the TSC
Meeting).
Holders of TSC Common Stock who vote against the TSC Transaction and comply
with the detailed provisions contained in Chapter 11 of the NJBCA will be
entitled to dissent from the TSC Transaction and to seek payment of the fair
value of their TSC Common Stock. Because an executed Proxy Card will be voted
FOR the TSC Transaction unless otherwise specified, a stockholder returning a
signed but unmarked Proxy Card will waive his or her right to dissent from the
TSC Transaction. A copy of Chapter 11 of the NJBCA is reproduced as Appendix D
to the attached Proxy Statement/Prospectus. TSC stockholders wishing to dissent
from the TSC Transaction should read such materials carefully. See "The TSC
Transaction -- Appraisal Rights."
SOLICITATION OF PROXIES AND EXPENSES
This Proxy Statement/Prospectus, the accompanying notice and proxy are
being mailed on or about January 26, 1996 to holders of TSC Common Stock
entitled to notice of, and to vote at, the TSC Meeting. The cost of preparing,
assembling, printing, filing and mailing the Proxy Statement/Prospectus will be
borne jointly by TSC and Heartland. Certain officers, directors and employees of
TSC may solicit proxies by telephone or personal contact. Such officers,
directors and employees will not be additionally compensated for such
solicitation (other than their regular salaries), but will be reimbursed by TSC
for out-of-pocket expenses incurred by them in the course of such solicitation.
PROXIES
Holders of TSC Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope. Shares
of TSC Common Stock represented by properly executed proxies received by TSC and
not revoked will be voted at the TSC Meeting in accordance with the instructions
contained therein. If instructions are not contained therein, proxies will be
voted FOR approval and adoption of the TSC Transaction. In addition, proxies
will be voted in the discretion of the holders of the
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proxy with respect to any other procedural matters incident to the conduct of
the TSC Meeting that may properly come before the TSC Meeting.
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ-NMS OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY
12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED
CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, TSC STOCKHOLDERS WILL
BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE TSC
STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. IN THE EVENT OF THE
OCCURRENCE OF ANY MATERIAL EVENT NOT DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS, TSC WILL PROMPTLY PROVIDE YOU WITH APPROPRIATE DISCLOSURE
RELATING THERETO.
Any proxy signed and returned by a holder of TSC Common Stock may be
revoked by such holder at any time before it is voted either by giving due
written notice of such revocation to the secretary of the TSC Meeting, or by
signing and duly delivering a proxy bearing a later date, or by attending the
TSC Meeting and voting in person. Signed but unmarked proxies returned by a
holder of TSC Common Stock will be voted FOR approval and adoption of the TSC
Transaction and otherwise in the discretion of the proxies designated therein.
Attendance at the TSC Meeting will not in and of itself constitute a revocation
of a proxy.
OTHER MATTERS TO BE CONSIDERED
It is not anticipated that any matter other than those discussed in this
Proxy Statement/Prospectus will be brought before the TSC Meeting. If other
matters are presented, proxies for TSC Common Stock will be voted in accordance
with the best judgment of the proxy holders.
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THE TSC TRANSACTION
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT
TO THE TSC AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE
TEXT OF THE TSC AGREEMENT ATTACHED HERETO AS APPENDIX A WHICH IS INCORPORATED
HEREIN BY REFERENCE.
BACKGROUND OF THE TSC TRANSACTION
Pursuant to the terms of the Forbearance Agreement, dated February 27,
1995, and an amendment thereto (as amended, the "Forbearance Agreement"),
between Technivision and Philips Credit Corp. ("Philips") and the consent order
(the "Consent") entered in connection with the settlement of the enforcement
action brought by the Commission described under "Risk Factors -- Factors
Associated with TSC," in March 1995 Technivision began to market its wireless
cable television assets in Corpus Christi, Texas, Dayton, Ohio and El Paso,
Texas. In mid-1995, Technivision retained Gerard Klauer Mattison & Co., LLC
("GKM") to assist it in marketing and selling the TSC Systems. In connection
with that engagement, GKM prepared a descriptive memorandum (the "Descriptive
Memorandum") describing the business and prospects of Technivision. The
Descriptive Memorandum was sent to a number of possible purchasers of the TSC
systems, including Heartland.
In connection with this marketing effort, the Board of Directors of
Technivision had considered whether the TSC systems should be sold separately or
together. Although the Board of Directors put no restrictions on GKM,
Technivision preferred a sale of all of the TSC systems to one purchaser because
it felt that a sale of any one system would not yield sufficient net proceeds to
pay the trust established by the Commission pursuant to the Consent (the
"Trust"), Philips and its other creditors in full. Furthermore, the Board of
Directors recognized that further developing and operating the TSC systems would
require substantial additional financing. In addition, because TSC had
previously determined to wind up its operations, the Board of Directors
recognized that Technivision did not and would not have the personnel required
to operate the TSC systems on a long-term basis.
During the course of the next several months, representatives of
Technivision provided information to, and held exploratory discussions with, a
number of potential purchasers. Substantially all of such potential purchasers
were owners and operators of other wireless cable television systems. Based on
these preliminary discussions, Technivision concluded that Heartland provided
the best opportunity to realize the greatest value from the sale of the TSC
systems.
In July 1995, Technivision began detailed negotiations with Heartland
regarding the terms of a proposed sale of the TSC systems. During the next
several weeks, Richard G. Nowalk, a certified public accountant and the
Technivision treasurer, together with representatives of GKM, held a number of
discussions with John F. Bailey, Heartland's Senior Vice President -- Finance,
regarding the price and structure of a potential transaction.
On September 5, 1995, the Board of Directors of Technivision approved the
terms of a letter of intent describing the basic terms of a proposed transaction
with Heartland. Subsequently, representatives of Technivision had numerous
discussions with representatives of Heartland regarding the terms and conditions
of the TSC Agreement. During the course of those discussions, the parties agreed
that in order to preserve certain tax benefits, the transaction should be
structured as a combination of Technivision and TSC and a sale by TSC of the
assets of Technivision.
On October 9, 1995, the Board of Directors of TSC approved the terms of the
TSC Agreement and authorized the officers of TSC to finalize and execute a
definitive agreement. On October 19, 1995, TSC and Technivision executed and
delivered the TSC Agreement.
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RECOMMENDATION OF THE TSC BOARD; REASONS FOR THE TSC TRANSACTION
In determining to approve the TSC Agreement, the Board of Directors of TSC
considered, among others, the following factors (all of which favored approval
of the TSC Transaction):
(i) The Financial and Other Terms of the TSC Agreement. The Board of
Directors of TSC considered the terms of the TSC Agreement and the
transactions contemplated thereby, especially the number of shares of
Heartland Common Stock to be received by shareholders of TSC, which would
be established shortly before the TSC Effective Date thereby minimizing the
risks of fluctuations in the per share price of the Heartland Common Stock.
The Board of Directors also considered the fact that the TSC Agreement
allows TSC to terminate the TSC Agreement in the event that the per share
price for Heartland Common Stock increases beyond a specified level. In
addition, the Board of Directors considered the fact that the terms of the
TSC Agreement provided a higher price for the TSC systems than any other
indication of interest Technivision had received. The Board of Directors
also considered the proposed timing of the TSC Agreement, which allowed
Technivision to meet the September 30 deadline (subsequently extended)
established in the Forbearance Agreement for the execution of a definitive
sale agreement and which contemplated a closing date as close as possible
to the closing deadline set by Philips and to meet the December 31, 1996
deadline established by the Commission. See "Risk Factors -- Factors
Associated with TSC." Finally, the TSC Board considered that the sale of
the TSC systems to Heartland would result in TSC stockholders receiving
shares of stock in a public company when previously they have held an
illiquid investment.
(ii) Opportunity to Participate in Industry Growth. The TSC Board of
Directors considered that by combining with a larger entity that will have
the critical mass to fund the development and operation of wireless cable
television systems, stockholders of TSC will continue to participate in the
favorable dynamics currently being experienced by the wireless cable
television industry.
(iii) Ability to Pay Creditors. As described above, the TSC Board
considered the terms and conditions of the arrangements entered into with
the Commission and Philips. In the event that the TSC Agreement was not
executed and delivered by the date set forth in the Forbearance Agreement,
Philips had the right to take possession of the TSC systems and to
liquidate them to pay Technivision's debt. In addition, under its
arrangements with the SEC, Technivision was required to sell the
Technivision systems by no later than December 31, 1996. The Board also
considered the fact that the Forbearance Agreement provides Technivision
with substantial benefits if the TSC systems are sold on or before January
2, 1996.
(iv) Certain Financial and Other Information Concerning Heartland. The
TSC Board analyzed the historical financial results of Heartland and the
expected future impact of the Transactions on those results. The TSC Board
also considered Heartland's record as an owner and operator of other
wireless cable television systems.
(v) Other Market Transactions. The TSC Board considered the valuation
ascribed to the TSC systems in the TSC Agreement and compared that
valuation to other recent sales of wireless cable television assets.
(vi) Expected Tax Treatment of the TSC Transaction. The TSC Board
considered that the TSC Transaction is expected to be tax-free (other than
with respect to cash paid in lieu of fractional shares) to TSC stockholders
for federal income tax purposes. See "-- Certain Federal Income Tax
Considerations."
(vii) Regulatory and Other Approvals. The TSC Board considered the
nature of, and likelihood of obtaining, the regulatory and other approvals
that would be required with respect to the TSC Transaction. See
"-- Regulatory Approvals."
(viii) Economic and Competitive Environment. The TSC Board considered
the current and prospective economic and competitive environment facing the
wireless cable television industry generally and TSC and Heartland in
particular.
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(ix) Alternatives to the TSC Transaction. The TSC Board considered the
effect on stockholder value of Technivision continuing as a stand-alone
entity or selling its assets to other potential purchasers (including those
entities with whom Technivision had engaged in exploratory discussions),
compared to the effect of entering into the TSC Agreement and determining
that the TSC Transaction presented the best opportunity for maximizing
stockholder value given Technivision unique circumstances and prospects.
After deliberating with respect to the TSC Agreement and the TSC
Transaction, and after considering the other alternatives thereto, the TSC
Board, by the unanimous vote of the directors present, approved the TSC
Agreement and the TSC Transaction as being in the best interests of TSC and its
stockholders. In reaching its determination to approve the TSC Agreement, the
TSC Board of Directors did not assign any relative or specific weights to the
various factors considered by it, and individual directors may have given
differing weights to different factors. The foregoing discussion of the
information and factors considered by the TSC Board is not intended to be
exhaustive but includes all material factors considered by the TSC Board.
For the reasons described above, the TSC Board approved the TSC Agreement
and believes that the TSC Transaction is fair to, and in the best interest of,
its stockholders. Accordingly, the TSC Board unanimously recommends that TSC
stockholders vote "FOR" approval of the TSC Agreement. For certain information
regarding Heartland's reasons for pursuing the TSC Transaction and the Other
Transactions, see "The Combined Company -- Reasons for the Transactions."
FINANCIAL ADVISOR
GKM was retained by TSC to assist it in marketing and selling the TSC
systems and to provide financial advice and assistance in connection with any
sale of the TSC systems. Although GKM provided advice to TSC in connection with
the structuring and negotiation of the TSC Transaction (including the
consideration to be paid by Heartland for the TSC systems), TSC did not ask for,
and GKM did not provide, an opinion regarding the fairness of the TSC
Transaction to the TSC stockholders. TSC did not seek a fairness opinion from
GKM with respect to the TSC Transaction for several reasons, including the
following: (i) TSC is privately held by a relatively small number of
sophisticated investors, many of whom are familiar with the wireless cable
television industry, (ii) TSC's Board of Directors includes individuals
possessing specialized knowledge regarding the wireless cable television
industry, (iii) Heartland's offer exceeded the price offered by any other
potential purchaser of the TSC systems identified during TSC's marketing
process, (iv) no other potential purchaser could meet TSC's time schedule, and
(v) the cost of obtaining such an opinion.
GKM is a nationally recognized investment banking firm and was selected by
TSC based on the firm's reputation and experience in investment banking in
general, its recognized expertise in the valuation of wireless cable television
businesses and because of its familiarity with, and prior work for, TSC. GKM, as
part of its investment banking business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Prior to the merger of Technivision into TSC, GKM
owned approximately 1% of Technivision.
For the services rendered by it in connection with the TSC Transaction, TSC
has agreed to pay GKM approximately $750,000 (subject to upward adjustment in
certain circumstances) in the event that the TSC Transaction is consummated. TSC
has also agreed to pay GKM its out-of-pocket expenses, including the fees and
disbursements of its counsel, and to indemnify GKM against certain liabilities,
including certain liabilities arising under the federal securities laws. GKM has
provided certain investment banking and advisory services to TSC from time to
time, including having prepared a memorandum in connection with a proposed
private placement in 1990. In addition, GKM has provided, and may provide in the
future, certain investment banking services to Heartland and CMAX for which it
received, and will receive, customary compensation. Except as described herein,
TSC has not paid GKM for any investment banking or advisory services since
January 1, 1993.
As of December 31, 1995, GKM owned 87 shares of TSC Common Stock.
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TERMS OF THE TSC AGREEMENT
Acquisition; Consideration. On October 19, 1995, Heartland, TSC and
Technivision executed the TSC Agreement. Upon the consummation of and pursuant
to the TSC Agreement, TSC will sell to Heartland substantially all of its
assets, consisting of the wireless cable television assets in Dayton, Ohio,
Corpus Christi, Texas, and El Paso, Texas ("TSC Markets"), and Heartland will
issue to TSC (subject to the escrow requirements described below) that number of
shares of Heartland Common Stock ("TSC Shares") having an aggregate exchange
value of (a) $36.75 million plus (b) $1,200 for each wireless cable television
subscriber on the fifth business day preceding the consummation of the TSC
Agreement (or February 15, 1996 based upon a contemplated closing date of
February 23, 1996) in excess of amounts specified in the TSC Agreement
(currently estimated to be $1.5 million, provided that the aggregate of such
additional subscriber consideration shall not exceed $3.5 million) minus (c) the
amount of certain obligations to be assumed by Heartland (not to exceed $5
million and currently anticipated to be $5 million), minus (d) certain proceeds
to be retained by TSC from any sale of the Dayton, Ohio wireless cable
television system prior to the consummation of the TSC Agreement (collectively,
the "TSC Consideration"). The exchange value ("Exchange Value") for the shares
of Heartland Common Stock to be issued in the TSC Transaction will be equal to
the average closing price of the Heartland Common Stock as reported on the
Nasdaq-NMS of the 20-day-trading period ending on the fifth business day
preceding the consummation of the TSC Agreement (or February 15, 1996 based upon
a contemplated closing date of February 23, 1996). Heartland, at its option, may
terminate the TSC Agreement if such average closing price is below $16 per
share. Heartland currently intends to exercise such right, if applicable. As a
result, a maximum of 2,515,625 shares of Heartland Common Stock are issuable in
connection with the TSC Transaction. IN THE EVENT THAT THE AVERAGE CLOSING PRICE
OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ-NMS OVER THE 17 TRADING
DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST 17 DAYS TO BE
INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN
$23, TSC STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE
SPECIAL MEETING TO ENABLE TSC STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR
VOTE.
Indemnity Escrow; Consent Escrow. Upon the consummation of the TSC
Agreement, Heartland will deliver to the Exchange Agent TSC Shares having an
aggregate exchange value of $5 million ("Indemnity Shares") to be held in escrow
pursuant to the TSC Exchange Agreement for a period of up to 18 months to
satisfy the indemnification obligations to TSC to Heartland under the TSC
Agreement, and TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be held in escrow pursuant
to the TSC Escrow Agreement (attached as Appendix B to the Proxy
Statement/Prospectus) pending TSC's delivery of specified FCC consents and other
approvals that are not delivered on the date the TSC Agreement is consummated
("Consent Shares"). Pursuant to the terms of the TSC Escrow Agreement, (a) the
Indemnity Shares will be held in escrow for up to 18 months ("Indemnity
Period"), during which period Heartland will have the right to submit claims for
indemnification to the Exchange Agent subject to certain minimum amounts, and,
following a claims procedure, recover Indemnity Shares or the proceeds thereof
for any claims for which indemnity is proper pursuant to the terms of the TSC
Agreement, and (b) the Consent Shares will be held in escrow for a period of up
to six (6) months (subject to extension) ("Consent Period"), during which period
TSC is to deliver to Heartland specified FCC consents and other approvals
required under the TSC Agreement ("Required Consents"). Any remaining Consent
Shares at the expiration of the Consent Period shall be released to Heartland.
Noncompetition. In connection with the TSC Agreement, TSC has agreed that
for a period of five (5) years following the consummation of the TSC Agreement,
it will not engage in a competing business within a 100-mile radius of the TSC
Markets.
Sale of Dayton Market. Pursuant to the TSC Agreement and subject to the
consent of certain creditors of TSC, TSC and Heartland have the right to solicit
bids for the sale of the wireless cable television assets servicing the Dayton,
Ohio market ("Dayton Market"). In the event that the sale of the Dayton Market
occurs prior to the consummation of the TSC Agreement, then TSC will be entitled
to retain up to $11.7 million ("Dayton Proceeds") of such proceeds, plus $1,200
for each wireless cable television subscriber
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in the Dayton Market in excess of 3,050, and Heartland will be entitled to
receive any proceeds in excess thereof ("Excess Dayton Proceeds"). Upon the sale
of the Dayton Market prior to the closing under the TSC Agreement, the TSC
Consideration will be reduced by the amount of the Dayton Proceeds.
Assumption of Liabilities. Pursuant to the TSC Agreement, Heartland has
agreed to assume and pay up to $5 million of liabilities of TSC at closing, and
any liabilities so assumed shall reduce the TSC Consideration.
DISTRIBUTION OF TSC SHARES
As a part of the approval of the TSC Agreement, the stockholders of TSC
("TSC Stockholders") are being asked to approve the liquidation and dissolution
of TSC ("TSC Liquidation") in accordance with the terms and conditions of the
Agreement and Plan of Liquidation attached as Appendix C (the "TSC Liquidation
Plan"), pursuant to which the TSC Shares (and the remaining assets of TSC) will
be distributed. See "-- Other Assets." To facilitate the distribution of the TSC
Shares, the Exchange Agent has been selected to effectuate the delivery of the
TSC Shares. Pursuant to the shares of the Exchange Agent Agreement ("TSC
Exchange Agreement") between TSC, Heartland and the Exchange Agent, Heartland
will deliver to the Exchange Agent the TSC Shares for sale or distribution in
accordance with the terms of the TSC Liquidation Plan. Pursuant to the TSC
Agreement and the TSC Exchange Agreement, the TSC Shares will be delivered to
the Exchange Agent in accordance with the TSC Liquidation Plan, and the
Indemnity Shares and Consent Shares will be held in the escrows created pursuant
to the TSC Escrow Agreement to be distributed in accordance therewith. The TSC
Board anticipates that upon the consummation of the TSC Transaction, TSC Shares
having an aggregate exchange value of approximately $20 million (or
approximately $2,865 per share of TSC Common Stock) ("TSC Liquidated Shares")
will be delivered to certain creditors of TSC or sold in the open market or
other transaction approved by the TSC Board, to satisfy the known and contingent
claims against TSC. The remaining TSC Shares, other than the Indemnity Shares,
Consent Shares and TSC Liquidated Shares (the "TSC Distributable Shares"), will
be available for distribution to the TSC Stockholders. The number of TSC
Distributable Shares to be received by each TSC Stockholder will be rounded down
to the nearest whole share, and any fractional shares will be added to the TSC
Liquidated Shares, with the proceeds thereof to be distributed to the TSC
Liquidation Plan. Upon the completion of the TSC Liquidation, any remaining TSC
Shares (or proceeds thereof) will be distributed among the TSC Stockholders.
Promptly after the consummation of the TSC Agreement and the TSC
Stockholders' approval of the TSC Liquidation Plan, Heartland will cause the
Exchange Agent to send to each TSC stockholder a letter of transmittal ("Letter
of Transmittal") containing instructions regarding procedures for each TSC
Stockholder to receive his or her respective portion of the TSC Shares (or
proceeds thereof). Upon the consummation of the TSC Agreement, each TSC
Stockholder shall be entitled to receive, upon return of a duly executed Letter
of Transmittal, such stockholder's pro rata interest in (i) TSC Distributable
Shares, (ii) the remaining proceeds, if any, of the TSC Liquidated Shares after
satisfaction of TSC's claims and obligations, (iii) any Consent Shares to be
distributed pursuant to the Consent Escrow, and (iv) any remaining Indemnity
Shares upon the expiration of the Indemnity Period, or earlier release of the
Indemnity Shares from the Indemnity Escrow. As contemplated by the TSC
Liquidation Plan, until the Letter of Transmittal is executed and returned to
the Exchange Agent along with the Certificate representing the TSC Common Stock
("TSC Certificate"), each TSC Certificate shall, upon the consummation of the
TSC Transaction, be deemed to represent only the right to receive such TSC
Stockholder's pro rata interest in (i) the TSC Distributable Shares, (ii) the
remaining proceeds, if any, of the TSC Liquidated Shares, (iii) any TSC Consent
Shares to be distributed to the TSC Stockholders, and (iv) any remaining TSC
Indemnity Shares.
Any dividends or other distributions declared on or after the closing date
on shares of Heartland Common Stock or payable to the holders of record of
Heartland Common Stock on or after the TSC Closing Date will be paid to the
person(s) entitled to receive such shares. In no event shall the person entitled
to receive such dividends or other distributions be entitled to receive interest
on such dividends or distributions. If any dividends, cash attributable to
fractional shares or shares of Heartland Common Stock are to be paid or issued
in a name other than that of the person entitled thereto as indicated on TSC's
books and records, it shall be a
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condition of such exchange that the person requesting the exchange pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance of
the Heartland Common Stock in a name other than that of the person so entitled
or to establish to the satisfaction of the Exchange Agent and Heartland that
such tax has been paid or is not applicable.
OTHER ASSETS
In addition to the Technivision systems, TSC currently owns certain other
assets which are not being sold to Heartland pursuant to the TSC Transaction.
Such assets are comprised of (i) two SMATV systems in New Jersey operated by
TSC's subsidiary, Clearview Inc., (ii) two notes payable from third parties and
(iii) certain investment securities. Certain of these assets have been pledged
to creditors of TSC. In addition, the marketability and/or ultimate
collectibility of certain of these assets is in doubt. TSC is currently in the
process of seeking one or more purchasers for these assets. Pursuant to the TSC
Liquidation Plan, in the event that such assets are not sold prior to
distribution date established pursuant to the TSC Liquidation Plan, such assets
may be distributed in kind to the TSC stockholders pro rata in accordance with
their interests.
REPRESENTATIONS AND WARRANTIES
Generally, the representations and warranties of TSC (and its predecessor,
Technivision) relate to (i) corporate organization and qualification, (ii)
ownership and outstanding rights to assets, (iii) capitalization, (iv) the
authority and enforceability of the TSC Agreement and non-contravention of the
TSC Agreement with other agreements, laws or organizational documents, (v) the
accuracy of the financial statements of TSC, (vi) assets, liabilities and
contracts, (vii) regulatory matters, (viii) compliance with laws, (ix)
litigation and tax matters, (x) consents and approvals required in connection
with the TSC Agreement, and (xi) the accuracy of information to be included in
the Proxy Statement/Prospectus and the Registration Statement. Generally, the
representations and warranties of Heartland relate to (i) its corporate
organization and standing, (ii) authorization and enforceability of the TSC
Agreement and noncontravention of the TSC Agreement with its charter documents,
(iii) the absence of pending or threatened litigation, (iv) consents and
approvals required in connection with the TSC Agreement, (v) capitalization,
(vi) the accuracy of Heartland's financial statements and securities filings and
(vii) the accuracy of information to be included in the Proxy
Statement/Prospectus and the Registration Statement.
COVENANTS AND OBLIGATIONS
Covenants Pending the Consummation or Termination of the TSC Agreement. TSC
has agreed, among other things, that prior to the consummation of the TSC
Agreement or earlier termination thereof and with respect to the TSC Markets,
except as contemplated by the TSC Agreement, TSC will (i) not engage in any
practice or take any action other than in the ordinary course of business, (ii)
use reasonable efforts to keep its business, properties and business
relationships substantially in tact, (iii) pay and perform all of its debts and
obligations except to the extent being contested in good faith and as to which
adequate reserves have been established, (iv) perform its material obligations
under its governmental authorizations and contracts, (v) comply in all material
respects with all governmental rules, (vi) not take any action that would cause
a material breach of the TSC Agreement, (vii) use reasonable efforts to
preserve, protect and maintain its rights in channel leases, FCC licenses and
other agreements, (viii) not enter into, amend or terminate any channel lease,
FCC license, permit, application or contract, (ix) not make any distributions to
the TSC stockholders or sell any equity interest or options or rights with
respect thereto, (x) not sell, lease, transfer or otherwise dispose of any
assets except as contemplated in the TSC Agreement, (xi) enter into any new
compensation arrangements with its employees or pay any salaries other than in
the ordinary course of business, and (xii) not take any action that would cause
the transactions contemplated by the TSC Agreement to be subject to Subpart 900
of Regulation S-K, promulgated under the Securities Act and Exchange Act
("Roll-up Rules").
Other Agreements. TSC has agreed to (a) use reasonable efforts to obtain
any required consents for the transfer of wireless cable television channel
rights to Heartland, (b) provide estoppel certificates from specified parties
certifying that TSC is not in default under the relevant agreements and that the
transactions
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contemplated by the TSC Agreement would not cause a default thereunder, and (c)
not take any action that would cause the net operating losses of TSC to be less
than $9.5 million or deny Heartland the ability to use such losses following the
close of the TSC Agreement.
NO SOLICITATION
Pursuant to the TSC Agreement, TSC has agreed that neither it nor any of
its officers, directors or other representatives will solicit, initiate, or
encourage any discussions or negotiations with any third party concerning any
tender offer, exchange offer, merger, consolidation or other business
combination involving TSC or any proposal to acquire a substantial equity in, or
a substantial portion in the assets of, TSC, other than transactions
contemplated by the TSC Agreement.
CONDITIONS
The respective obligations of the parties to consummate the TSC Agreement
are subject to the satisfaction of or, where permissible, waiver of the
following conditions: (i) the effectiveness of the Registration
Statement/Prospectus, filed in connection with the TSC Transaction and the
receipt of any required authorizations from state securities agencies, (ii) the
absence of any action or proceeding which is then in effect that has the effect
of prohibiting the TSC Agreement or the TSC Transaction or otherwise making
consummation of the TSC Transaction or any other transactions contemplated
thereby illegal, (iii) the receipt of all required consents and approvals,
including the termination of all applicable waiting periods under the HSR Act,
and (iv) the approval of the TSC Transaction by certain lenders of Heartland and
TSC.
The obligations of Heartland to consummate the TSC Transaction are also
subject to the satisfaction or, where permissible, waiver of the following
conditions: (i) required stockholder approval of the TSC Transaction by the
stockholders of Heartland, (ii) the accuracy in all material respects of the
representations and warranties of TSC set forth in the TSC Agreement, (iii) the
delivery of certain documents, certificates and legal opinions of TSC, (iv) the
absence of any material adverse change with regard to TSC, (v) the execution of
a noncompetition agreement by TSC, (vi) the performance by TSC in all material
respects of its obligations under the TSC Agreement, (vii) the exchange value
not being less than $16 per share of Heartland Common Stock.
The obligations of TSC to consummate the TSC Transaction are also subject
to the satisfaction or, where permissible, waiver of the following conditions:
(i) the approval of the TSC Stockholders of the TSC Agreement, (ii) the accuracy
in all material respects of the representations and warranties of Heartland,
(iii) the delivery of certain documents, certificates and legal opinions by
Heartland, (iv) the performance by Heartland, in all material respects of their
respective obligations under the TSC Agreement, (v) the absence of any change in
the business or affairs of Heartland acquiring amendment or supplement to this
Proxy Statement/Prospectus, and (vi) the exchange value shall not be greater
than $40 per share of Heartland Common Stock.
REGULATORY APPROVALS
In addition to the federal and state approvals required in connection with
the effectiveness of the Registration Statement of which this Proxy
Statement/Prospectus forms a part, Heartland and TSC have made or expect to make
certain regulatory filings with (1) the FCC for the transfer of TSC's commercial
wireless cable television licenses to Heartland and (2) the Federal Trade
Commission and the Antitrust Division of the Department of Justice pursuant to
the HSR Act. The TSC Agreement is conditioned upon notification of expiration of
the waiting period under the HSR Act.
TERMINATION
The TSC Agreement may be terminated and abandoned at any time prior to
closing, before or after the approval of the stockholders of TSC and Heartland,
by the mutual consent of Heartland and TSC. The TSC Agreement may be terminated
by TSC if the conditions to closing for TSC have not been satisfied in full or,
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where permissible, waived on or before February 29, 1996. The TSC Agreement may
be terminated by Heartland (i) if the closing conditions for the performance by
Heartland have not been satisfied or, where permissible, waived on or before
February 29, 1996, or earlier date set forth therein, and (ii) in connection
with TSC's delivery of a supplemental schedule containing material changes from
any prior disclosure to Heartland, adverse to Heartland.
In the event that the TSC Agreement is terminated as a result of the
failure of TSC to receive the required consents of certain creditors to the TSC
transaction, TSC has agreed to pay Heartland the sum of $350,000 as liquidated
damages.
INDEMNIFICATION
TSC has agreed to indemnify, defend and hold harmless Heartland from and
against any damages incurred by Heartland arising out of (i) a breach of a
representation or warranty under the TSC Agreement, (ii) any failure by TSC to
perform any of its obligations under the TSC Agreement, (iii) any liabilities of
TSC, other than liabilities assumed by Heartland, and (iv) the operations and
activities of TSC and its affiliates, including activities relating to the
assets to be acquired by Heartland, prior to the consummation of the TSC
Agreement. Pursuant to the terms of the TSC Agreement, the indemnification
obligations of TSC continue for the duration of the Indemnity Period
(approximately 18 months). Heartland and TSC have agreed to the measure of
damages for breaches involving (i) the amount of net operating losses to
transfer with the assets to be acquired by Heartland, (ii) the number of
channels to which TSC has secured channel rights in each TSC Market, and (iii)
the number of subscribers in each TSC Market.
Heartland has agreed to indemnify, defend and hold TSC harmless from and
against damages incurred by TSC arising out of (i) any breach of any
representation or warranty of Heartland contained in the TSC Agreement, (ii) any
obligations assumed by Heartland, or (iii) any failure by Heartland to perform
its obligations under the TSC Agreement.
ACCOUNTING TREATMENT
As required by generally accepted accounting principles, the TSC
Transaction will be accounted for as a purchase. Under purchase accounting
principles, the assets of TSC to be purchased by Heartland and the liabilities
of TSC to be assumed by Heartland will be recorded at their fair market value on
the books and records of Heartland. Any purchase price in excess of such fair
market value will be recorded as an intangible asset (goodwill) and amortized
over its estimated useful life.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The TSC Transaction is intended to be a tax free reorganization pursuant to
Section 368(a)(1)(C) of the Internal Revenue Code. Thus, each TSC stockholder
will not recognize any gain or loss on the receipt of the Heartland Common Stock
upon dissolution of TSC and will obtain tax basis in the Heartland Common Stock
received equal to the tax basis in his or her TSC Common Stock. However,
notwithstanding Heartland and TSC's intent to treat the TSC Transaction as a tax
free reorganization. TSC and Heartland do not intend to seek a ruling to that
effect from the IRS. Furthermore, the TSC Transaction is not conditioned upon
the receipt of an opinion of counsel that the TSC Transaction will be tax free
to TSC stockholders as described above and no opinion has been sought. There can
be no assurance that the IRS will not seek to recharacterize the TSC Transaction
so as to make the TSC Transaction taxable to TSC and/or the TSC stockholders.
If it is ultimately determined that the TSC Transaction may not be treated
as a tax free reorganization, then the TSC Transaction would be treated as a
fully taxable sale of all the assets of TSC. As a result, TSC would recognize
taxable gain or loss and would incur income tax liability as if it had exchanged
all of its assets for the Heartland Common Stock.
In addition, each TSC shareholder would recognize taxable gain or loss upon
the TSC Liquidation equal to the difference between the value of any property
distributed and their tax basis in the TSC shares surrendered. The character of
any gain or loss recognized by a holder of TSC Common Stock would depend upon a
TSC Common Stock holder's individual circumstances. If the TSC Common Stock
surrendered in the TSC Liquidation was a capital asset in the hands of the
holder, any gain or loss would be treated as capital gain or loss for that
holder. The capital gain or loss would be short-term if the TSC Common Stock had
been
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held for one year or less as of the TSC Liquidation, and long term if the TSC
Common Stock had been held for more than one year as of the TSC Liquidation.
Each holder of TSC Common Stock should consult with the holder's tax advisor
regarding whether the holder's TSC Common Stock is a capital asset and the
differences in tax treatment between long term and short term capital gains and
losses.
APPRAISAL RIGHTS
Holders of TSC Common Stock will have the right to dissent and exercise
appraisal rights with respect to the TSC Transaction under the NJBCA. Pursuant
to Chapter 11 of the NJBCA, holders of record of TSC Common Stock who object to
the TSC Transaction and who follow the procedures prescribed by Chapter 11 of
the NJBCA will be entitled to receive a cash payment equal to the "fair value"
of the shares of TSC Common Stock held by them in lieu of receiving the
consideration proposed under the TSC Agreement. Set forth below is a summary of
the procedures holders of TSC Common Stock must follow in order to exercise
appraisal rights under the NJBCA. This summary does not purport to be complete
and is qualified in its entirety by reference to Chapter 11 of the NJBCA (a copy
of which, as of the date hereof, is attached to this Proxy Statement/Prospectus
as Appendix D) and to any amendments to, or modifications of, such provisions as
may be adopted after the date hereof.
Any holder of TSC Common Stock contemplating the possibility of objecting
to the TSC Transaction should carefully review the text of Appendix D
(particularly the specified procedural steps required to perfect their appraisal
rights) and should consult as appropriate with such holder's legal counsel.
Appraisal rights will be lost if the procedural requirements of Chapter 11 of
the NJBCA are not fully and precisely satisfied.
Under Chapter 11 of the NJBCA, any holder of TSC Common Stock who files
with TSC, prior to the taking of the vote with respect to the TSC Agreement at
the TSC Meeting, written notice of such holder's intent to demand the fair value
for such holder's shares of TSC Common Stock if the TSC Transaction is
consummated and who complies with the other applicable procedural requirements
of Chapter 11, shall be entitled, if the TSC Transaction is consummated, to
receive a cash payment of the fair value of such shares. However, a holder of
TSC Common Stock who votes such holder's TSC Common Stock against approval of
the TSC Agreement will not, solely by virtue of such vote, satisfy the notice
requirement referred to above. Moreover, because an executed Proxy Card will be
voted FOR the TSC Transaction unless otherwise specified, a stockholder
returning a signed but unmarked Proxy Card will waive his or her right to
dissent from the TSC Transaction.
Written notices of the intent to exercise dissenters' appraisal rights must
be sent to TSC at 120 Floral Avenue, New Providence, New Jersey 07974.
Attention: Corporate Secretary, prior to the taking of the vote at the TSC
Meeting. A holder of TSC Common Stock who does not satisfy each of the
requirements of Chapter 11 of the NJBCA will not be entitled to appraisal rights
under the provisions of the NJBCA and will be bound by the terms of the TSC
Agreement.
Within ten days after consummation of the TSC Transaction, TSC must send
written notice of such consummation by certified mail to all holders of TSC
Common Stock who have given proper written notice of their intent to exercise
appraisal rights (and who have not otherwise voted any TSC Common Stock in favor
of approval of the TSC Agreement) as described above. Any such holder who wishes
to exercise such appraisal rights must make a written demand on TSC for the
payment of the fair value of such TSC Common Stock within 20 days after the
mailing of such notice by TSC. Not later than 20 days making such written
demand, the holder of TSC Common Stock shall submit to TSC the certificate or
certificates representing such holder's shares of TSC Common Stock for notation
thereon that such demand has been made. Upon making a demand to receive fair
value, a holder of TSC Common Stock shall have no rights in TSC or Heartland by
virtue of holding such shares of TSC Common Stock, other than the right to
receive fair value for such shares.
Every notice or other communication required to be given or made by TSC to
any holder of TSC Common Stock with respect to the exercise of appraisal rights
will specify the relevant dates as of which action must be taken in order for
such holder to perfect such holder's rights as a dissenting stockholder under
the NJBCA.
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Not later than ten days after the expiration of the period within which
holders of TSC Common Stock may make a written demand on TSC to be paid the fair
value of their shares, TSC must mail to each holder that has properly exercised
appraisal rights under Chapter 11 of the NJBCA (each, a "dissenting holder")
certain financial statements of TSC. TSC may accompany such mailing with a
written offer to pay each dissenting holder an amount deemed by TSC to be the
fair value of the shares of TSC Common Stock held by such holder. Such offer
much be made at that same price per share to all dissenting holders. If TSC and
any dissenting holder agree upon the fair value of the shares of TSC Common
Stock held within 30 days after the expiration of the ten-day period in which
TSC must mail financial statements as discussed above, TSC shall pay the agreed
upon amount of that dissenting holder upon surrender to TSC of the certificate
or certificates representing such TSC Common Stock.
If TSC and any dissenting holder fail to agree upon a fair value within the
specified 30 day period, each such dissenting holder shall have an additional 30
days in which to demand that TSC commence an action in New Jersey Superior Court
for the determination of the fair value of the shares. TSC shall have 30 days
after receipt of such demand in which to institute the action. If TSC fails or
refuses to institute the action within such latter 30-day period, the dissenting
holder may commence the action in TSC's name, but not later than 60 days after
the expiration of the time within which TSC was required to commence the action.
The costs and expenses of any judicial proceeding to determine fair value shall
be apportioned and assessed upon the parties of any of them in the manner the
court may find equitable.
The term "fair value" as used in Chapter 11 of the NJBCA will be determined
as of the day prior to the day of the TSC Meeting and will exclude any
appreciation or depreciation resulting from the TSC Transaction.
Dissenting holders may not withdraw their election to exercise appraisal
rights unless TSC consents in writing to such withdrawal. Holders of TSC Common
Stock who do not follow the procedures set forth in Chapter 11 of the NJBCA
within the time limits specified therein will lose their right to dissent and to
receive fair value for their shares. Such holders will, however, be entitled to
receive, in exchange for their shares of TSC Common Stock, shares of Heartland
Common Stock as provided in the TSC Agreement. See "Description of Heartland
Capital Stock -- Common Stock."
Except as provided herein with respect to the holders of TSC Common Stock,
no other holders of TSC securities will be entitled to appraisal rights in
connection with the TSC Transaction.
INTERESTED PARTIES
Certain of the directors and executive officers of TSC have interests in
one or more creditors of TSC. To the extent that the TSC Transaction will result
in the payment of such creditors in full, those directors and executive officers
may be deemed to have an interest in the TSC Transaction. Except as described
above, to the knowledge of TSC, no director or executive officer of TSC has a
substantial interest, direct or indirect, in the TSC Transaction, other than any
interest arising from the ownership of securities of TSC.
WIRELESS CABLE INDUSTRY
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.
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WIRELESS CABLE TECHNOLOGY
Initially, most cable systems were hard-wire systems, using coaxial cable
and amplifiers to transmit television signals. In 1983, the Federal
Communications Commission (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 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. Heartland 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.
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.
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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 Heartland'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 Heartland, 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 Heartland'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 Heartland, 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. Heartland 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 "Wireless Cable
Industry -- Competition -- Local Multi-Point Distribution Service."
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 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
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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. Subsequent to the September 15, 1995 deadline, the FCC
announced that it would accept new ITFS station applications, and major ITFS
modification applications not filed on or before September 15, 1995, from
October 16 through October 20, 1995. Competing applications filed in the same
window would be processed under existing comparative criteria.
Recently the FCC adopted a competitive bidding (auction) mechanism for the
award of initial licenses for MDS channels to replace the lottery procedure.
Auctions to award initial MDS licenses began on November 13, 1995. Successful
bidders will receive a blanket authorization to serve entire "Basic Trading
Areas" or "BTAs" (as defined by Rand McNally) on all MDS channels. The blanket
authorization will be subject to the submission of applications for MDS channels
demonstrating interference protection to the 35-mile-radius protected service
areas of MDS and ITFS stations licensed, or for which there is an application
for a license pending as of September 15, 1995. A BTA license holder must show
coverage of at least two-thirds of the BTA within five years of receiving the
BTA authorization. Auctions for each of the 493 BTAs commenced on November 13,
1995 for qualified bidders that had filed initial "short-form" applications and
submitted appropriate upfront payments by specified deadlines. Under the
statutory auction authority enacted in 1993, ITFS licenses are exempt from the
auction process and applications for ITFS licenses are expected to continue to
be awarded according to the FCC's existing comparative criteria.
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. Heartland's lease agreements with license holders
typically require the license holders, at Heartland's expense, to use their best
efforts, in cooperation with Heartland, to make various required filings with
the FCC in connection with the maintenance and renewal of licenses. Heartland
believes this reduces the likelihood that a license will be revoked, cancelled
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.
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 Heartland's
unlaunched markets, Heartland has filed or will be required to file applications
with the FCC to modify licenses for unbuilt stations. In applying for these
modifications, Heartland 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.
If such changes would cause Heartland's signal to cause interference in the
FCC-protected area of another wireless cable channel license holder, Heartland
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 Heartland's ability to serve the
affected market.
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When the FCC implements competitive bidding in the awarding of initial MMDS
licenses, Heartland cannot predict whether any increase in costs of renewing its
leases will result from increased license costs to the initial licensee.
However, Heartland does not believe that any such increased costs would
materially affect Heartland'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.
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 hardwire 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. These and other
aspects of the FCC's rate regulation of traditional hard-wire cable subscriber
fees have and will continue to be met by challenges both in the courts and at
the FCC. The FCC has also adopted regulations implementing the Cable Act that
require traditional hard-wire cable operators to establish standardized levels
of customer service. Heartland is currently unable to predict what effect these
regulations may have on Heartland's price and service competitiveness.
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 Heartland 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 Heartland's operating costs, make some
programming unavailable to Heartland and otherwise have a material adverse
effect on the wireless cable industry as a whole or Heartland 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. Heartland's costs to acquire satellite cable and broadcast
programming may be affected by the outcome of those challenges. See "Wireless
Cable Industry -- Availability of Programming." Other aspects of the Cable Act
that have been challenged, the outcome of which could adversely affect Heartland
and the wireless cable industry in general, are the Cable 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.
Legislation currently pending before Congress could materially impact
wireless cable ownership rules and the competitive environment in which
Heartland operates. The House and the Senate have passed bills, H.R. 1555 and
S.652, that, if enacted into law, would remove certain barriers to investment by
telephone companies in hard-wire cable companies. The proposed legislation would
lift the current statutory cross-ownership ban contained in the Communications
Act of 1934, as amended (the "Communications Act"), that
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prevents a telephone company from using hard-wire facilities to provide cable
television service to the same community where it provides telephone service.
The constitutionality of this statutory cross-ownership ban is currently being
considered by the U.S. Supreme Court. This statutory ban has never been applied
to a telephone company's investment in wireless cable. If the pending
legislation is enacted in its current form or the U.S. Supreme Court determines
that the cross-ownership ban is unconstitutional, telephone companies operating
in the markets serviced by Heartland would be legally permitted to build, lease
or purchase hard-wire cable systems and become competitors of Heartland.
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 Heartland 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
Heartland 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 Heartland
are not currently directly owned by vertically integrated multiple cable system
operators and Heartland historically has not had difficulty in arranging
satisfactory contracts for these services. The basic programming package offered
in each of the Heartland 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 Heartland.
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.
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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 Heartland Existing Systems retransmit only a limited number
of broadcast channels, Heartland does not believe that the termination of the
compulsory copyright license would have a material adverse effect on Heartland.
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. Heartland
has obtained such consents in each of its Existing Systems where Heartland is
retransmitting on a wireless cable channel. Such consents will be required in
Heartland's other markets. There can be no assurance that Heartland will be able
to obtain such consents on terms satisfactory to Heartland, if at all.
PAY TELEVISION INDUSTRY TRENDS
Heartland's business will be affected by pay television industry trends
and, in order to maintain and increase its subscriber base in the years ahead,
Heartland 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, Heartland 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 Heartland 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 3-to-1 to 10-to-1. Within 12 months, Heartland believes
compression technology, allowing six to 10 channels within one 6-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. Heartland
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 Heartland, 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. Heartland
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. Heartland 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.
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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, Heartland believes that commercial
viability of interactivity in Heartland's markets is at least several years
away.
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 Heartland will to some degree
compete with these systems in marketing its services.
DIRECT BROADCAST SATELLITE
DBS involves the transmission of an encoded signal direct from a satellite
to the home user. 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. In 1994,
Hughes Communications, Inc. began offering DBS services capable of delivering
approximately 150 channels of programming. DBS receiver equipment for a single
television set costs approximately $700 per customer, plus installation fees.
Each additional, independent outlet requires a separate descrambling device at
additional cost to the subscriber. Primestar is offering DBS service for a
monthly fee covering programming services and equipment financing and is capable
of providing approximately 70 channels of programming. DBS subscribers pay
monthly subscription fees.
SATELLITE MASTER ANTENNA TELEVISION
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") formerly
were 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
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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 United States Senate and the United States
House of Representatives have each passed a bill which, if enacted into law,
could lift carriers 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.
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. Heartland has obtained such consents in the Existing Systems where
Heartland is retransmitting on a wireless cable channel. See "Risk
Factors -- Factors Associated with Heartland -- Government Regulation." The FCC
also has recently permitted broadcasters to acquire, subject to certain
restrictions, ownership interests in traditional hard-wire cable systems.
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.
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COMPARISON OF RIGHTS OF SECURITY HOLDERS OF HEARTLAND AND TSC
The rights of the stockholders of TSC are governed by the NJBCA. Upon the
tender and acceptance of their shares of Heartland Common Stock and the
consummation of the TSC Agreement, the former TSC stockholders will become
minority stockholders ("Minority Holders") of Heartland, a Delaware corporation.
As stockholders of Heartland, such Minority Holders rights will differ in
certain respects from those presently held since their rights will also be
governed by the Heartland Certificate and Heartland Bylaws.
Certain differences and similarities between the rights of TSC's
stockholders and those of Heartland's stockholders are set forth below. This
summary is not intended to be relied upon as an exhaustive list of differences
or a detailed description and analysis of the provisions discussed and is
qualified in its entirety by the DGCL, the NJBCA, the Heartland Certificate, the
Heartland Bylaws and the Certificate of Incorporation and Bylaws of TSC.
GENERALLY
The Certificate of Incorporation of TSC (the "TSC Certificate"), as amended
by the Certificate of Amendment to the Certificate of Incorporation of TSC,
dated June 2, 1987, authorizes an aggregate of 12,000 shares of common stock, no
par value (the "TSC Common Stock"). As of December 31, 1995, 6,976 shares of TSC
Common Stock have been issued.
The Heartland Certificate authorizes an aggregate of 60,000,000 shares of
capital stock, consisting of 50,000,000 shares of Heartland Common Stock and
10,000,000 shares of Heartland Preferred Stock. As of December 31, 1995,
12,611,132 shares of the Heartland Common Stock were issued and outstanding and
no shares of the Preferred Stock have been issued.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange, of all or substantially all the corporation's assets to be
consummated.
Under the NJBCA, approvals of mergers and consolidations and of sales of
all or substantially all of the assets of the corporation, other than in the
ordinary course of the business of such corporation, requires the approval of a
majority of the outstanding shares of the corporation, except that no vote of
stockholders of the corporation surviving a merger (unless its Certificate of
Incorporation provides otherwise) is necessary if: (i) the plan of merger does
not amend the certificate of incorporation of the surviving corporation which is
required by the provisions of the NJBCA to be approved by the shareholders; (ii)
each shareholder of the surviving corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations, and rights,
immediately after; (iii) the number of voting shares outstanding immediately
after the merger, plus the number of voting shares issuable on conversion of
other securities or on exercise of rights and warrants issued pursuant to the
merger, will not exceed by more than 40% the total number of voting shares of
the surviving corporation outstanding immediately before the merger; and (iv)
the number of participating shares outstanding immediately after the merger,
plus the number of participating shares issuable on conversion of other
securities or on exercise of rights and warrants issued pursuant to the merger,
will not exceed by more than 40% the total number of participating shares of the
surviving corporation outstanding immediately before the merger. The TSC
Certificate does not provide additional requirements regarding business
combinations.
DISSENTERS RIGHTS
Under the DGCL, stockholders generally have the right to demand and receive
payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a national securities
exchange or, only under the DGCL, designated as a national market system
security on an
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inter-dealer quotation system by the NASD. Even if the shares of any class or
series of stock meet the requirements of clause (i) or (ii) above, appraisal
rights are available for such class or series if the holders thereof receive in
the merger or consolidation anything except: (a) shares of stock of the
corporation surviving or resulting from such merger or consolidation; (b) shares
of stock of any other corporation which at the effective date of the merger or
consolidation will be either listed on a national securities exchange or held of
record by more than 2,000 stockholders or, only under the DGCL, designated as a
national market system security on an inter-dealer quotation system by the NASD;
(c) cash in lieu of fractional shares of the corporations described in clause
(a) or (b) of this sentence; or (d) any combination of shares of stock and cash
in lieu of fractional shares described in the foregoing clauses (a), (b) and
(c). The stockholders of Heartland will not receive dissenters or appraisal
rights in connection with the Transaction.
Under the NJBCA, stockholders generally have the right to demand and
receive payment of the fair value of their stock in the event of a sale, lease,
exchange or other disposition of all or substantially all of the assets of a
corporation not in the usual or regular course of business as conducted by such
corporation, provided that, unless the Certificate of Incorporation otherwise
provides, the stockholder shall not have the right to dissent (i) with respect
to shares of a class or series which, at the record date fixed to determine the
shareholders entitled to vote upon such transaction, is listed on a national
securities exchange or is held of record by not less than 1,000 holders; or (ii)
from a transaction pursuant to a plan of dissolution of a corporation which
provides for distribution of substantially all of its net assets to shareholders
in accordance with their respective interests within one year after the date of
such transaction, where such transaction is wholly for (a) cash or (b) shares,
obligations or other securities which, upon consummation or the plan of
dissolution will either be listed on a national securities exchange or held of
record by not less than 1,000 holders; or (c) cash and other such securities; or
(iii) from a sale pursuant to an order of a court having jurisdiction.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate market
value equal to 10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock (except for certain
pro rata and other issuances); and (iv) disproportionate benefits from the
corporation (including loans and guarantees)) between a Delaware corporation and
any interested stockholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of the
corporation) for a period of three years after the date on which the interested
stockholder became an interested stockholder. These restrictions do not apply,
however, (a) if, prior to such date, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
such stockholder's becoming an interested stockholder; (b) if, upon consummation
of the transaction resulting in such stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of the
corporation); (c) if, on or subsequent to such date, the business combination is
approved by the board of directors and the holders of at least two-thirds ( 2/3)
of the shares not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed by
Section 203 of the DGCL if, in addition to any other vote required by law, such
amendment is approved by the affirmative vote of a majority of the shares
entitled to vote. Such amendment will not, however, be effective until 12 months
after such stockholder vote and will not apply to any business combination with
an interested stockholder who was such on or prior to the effective date of such
amendment.
Heartland has not adopted an amendment to its Certificate of Incorporation
or Bylaws electing not to be governed by these provisions.
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Under the NJBCA, section 14A:10A-4 provides, among other things, that no
resident domestic corporation may engage in any business combination with any
"interested stockholder" of such corporation (defined as a holder of 10% or more
of stock) for a period of five years unless that business combination is
approved by the Board of Directors prior to the date on which the interested
stockholder made its stock acquisition. In addition to the restrictions stated
in the preceding sentence, no such corporation may engage in a business
combination with an interested stockholder other than one in which (i) the Board
of Directors has approved such business combination prior to such interested
stockholder's stock acquisition date; (ii) such business combination is approved
by the affirmative vote of the holders of two-thirds ( 2/3) of the voting stock
not beneficially owned by that interested stockholder at a meeting called for
such purpose; or (iii) the aggregate amount of cash and the market value, as of
the consummation date, of consideration to be received per share by holders of
outstanding shares of common stock in the business combination is at least equal
to a certain "fair price" as determined by various criteria set forth in the
statute, subject to certain provisions.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate requires an affirmative
vote of a majority of all shares outstanding and entitled to be cast on the
matter. If any such amendment would adversely affect the rights of any holders
of shares of a class or series of stock, the vote of the holders of a majority
of all outstanding shares of the class or series, voting as a class, is also
necessary to authorize such amendment. The Heartland Certificate does not
provide additional requirements regarding amendments to its Certificate of
Incorporation.
Under the NJBCA, amendments to the Certificates of Incorporation must be
approved by the Board of Directors, adopted and approved by the affirmative vote
of holders of a majority of all shares entitled to vote thereon and in addition,
if any class or series of shares is entitled to vote thereon, a majority of the
votes cast in each class vote; except that if the Certificate of Incorporation
requires the vote of a greater proportion of all or any class of the
stockholders than is required by the NJBCA to effect such amendment, such
provision shall control and may not be amended, altered or repealed except by
such greater vote. The TSC Certificate does not provide additional requirements
regarding amendments to its Certificate of Incorporation.
AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws is
vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests it in the board of directors. The Heartland
Certificate vests in its Board of Directors the power to adopt, alter, amend, or
repeal Bylaws.
Under the NJBCA, the power to adopt, alter, amend and appeal the Bylaws is
vested exclusively in the board of directors, unless such power is reserved to
the shareholders in the Certificate of Incorporation, but Bylaws made by the
board of directors may be altered or repealed, and new Bylaws made by the
shareholders. The shareholders may prescribe in the Bylaws that any bylaw made
by them shall not be altered or repealed by the board of directors. Pursuant to
the Bylaws of TSC (the "TSC Bylaws"), the TSC Bylaws may be altered, amended or
repealed by the shareholders or the Board of Directors; provided that any Bylaw
adopted, amended or repealed by the shareholders may be amended or repealed by
the Board of Directors, unless the resolution of the shareholders adopting such
Bylaw expressly reserves to the shareholders the right to amend or repeal it.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
Heartland Certificate does not provide for preemptive rights.
Under the NJBCA, a stockholder does not possess preemptive rights unless
its rights are specifically granted in the Certificate of Incorporation.
Pursuant to the Certificate of Amendment to the Certificate of Incorporation of
TSC, dated November 30, 1988, a resolution by the shareholders gave the
stockholders of TSC Common Stock preemptive rights, exercisable by written
notice to TSC given within 30 days after receipt of notice from TSC to such
stockholders, to acquire ratably, (i) any shares of TSC Common Stock
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hereafter issued or sold; (ii) any warrants, options or rights hereafter issued
or sold to subscribe for, purchase, or otherwise acquire shares of TSC Common
Stock; and (iii) any securities hereafter issued or sold which are exchanged for
or convertible into shares of TSC Common Stock; but in any case only at such
prices, and upon such terms and conditions, as may be determined from time to
time by the Board of Directors. However, no preemptive rights shall exist with
respect to the issuance of (a) securities of TSC issued upon exercise,
conversation or exchange of any warrant, option or rider security which itself
was, when issued, subject to the provisions of the provision or (b) securities
of TSC issued with respect to any stock rights outstanding as of June 3, 1987,
specifically and including all 8% convertible debentures issued in connection
with the private placement memorandum of June 26, 1986, and all additional stock
rights provided for in connection with such offering.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus or (ii) if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution out
of net profits is permitted, however, if the corporation's capital is less than
the amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, until such
deficiency has been repaired. The Heartland Certificate does not provide
additional requirements regarding the distribution of dividends.
Under the NJBCA, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation; provided, however, that a corporation may not make
a distribution if, after giving effect thereto, either (i) the corporation would
be unable to pay its debts as they become due in the usual course of its
business; or (ii) the corporation's total assets would be less than its total
liabilities. The corporation may pay dividends on its shares in cash, in its own
shares, in its bonds or in other property, including the shares or bonds of
other corporations. The TSC Certificate does not provide additional requirements
regarding the distribution of dividends.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid for more than three years
after its date unless otherwise provided in the proxy. The Heartland Bylaws do
not alter the effective period of a proxy.
Under the NJBCA, no proxy is valid for more than eleven months, unless a
longer period is expressly provided in the proxy. The TSC Bylaws do not alter
the effective period of a proxy.
STOCKHOLDER ACTION
Action requiring the vote of stockholders may be taken without a meeting,
without prior notice and without a vote, by the written consent of stockholders
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which all shares entitled to vote thereon were
present and acted. The Heartland Certificate does not provide additional
requirements regarding stockholder action by written consent.
Action requiring the vote of stockholders may be taken without a meeting,
by the written consent of stockholders having not less than the minimum number
of votes that would be necessary to take such action at a meeting at which all
shares entitled to vote thereon were present and voting, except that written
consent for the annual election of directors must be unanimous. The TSC Bylaws
provide that the shareholders may act without a meeting, if, prior or subsequent
to such action, each shareholder who would have been entitled to vote upon such
action shall consent in writing to such action. Such written consent or consents
shall be filed in the minute book of TSC. Owners of non-voting shares must
either consent or be notified in the case of mergers, consolidations or sales of
substantially all assets.
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<PAGE> 1509
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
Certificate of Incorporation or by the Bylaws. The Heartland Bylaws permit the
Board of Directors, the Chairman of the Board, the President or the record
holders of at least a majority of the issued and outstanding shares of Heartland
Common Stock, to call a special meeting of stockholders for any purpose or
purposes.
Under the NJBCA, special meetings may be called by the President, the
Chairman of the Board, a majority of the directors, stockholders of not less
than 10% of the shares entitled to vote at the meeting (unless the Articles of
Incorporation or Bylaws provide for a smaller percentage) or such other officers
or persons as may be provided in the Articles of Incorporation or Bylaws.
However, if a corporation fails to hold its annual meeting within a period of 30
days after the date designated therefor, or if no date has been designated for a
period of 13 months after its last annual meeting, the Superior Court may, upon
the application of any shareholder, summarily order the meeting. The TSC Bylaws
provide that a special meeting of the shareholders may be called for any purpose
by the President or the Board of Directors.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The Heartland
Certificate does not provide for cumulative voting for the election of
directors.
The NJBCA permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The TSC
Certificate does not provide for cumulative voting for the election of
directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of directors.
However, if the Certificate of Incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
Certificate of Incorporation. Heartland's Certificate does not fix the number of
directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that directors
be divided into one, two or three classes. The term of office of one class of
directors shall expire each year with the terms of office of no two classes
expiring the same year. Heartland has not established a classified board of
directors or managers.
Under the NJBCA, the Board of Directors of a corporation shall consist of
one or more members. Subject to any provisions contained in the Certificate of
Incorporation, the Bylaws shall specify the number of directors, or that the
number of directors shall not be less than a stated minimum nor more than a
stated maximum, with the actual number to be determined in the manner prescribed
in the Bylaws, except as to the number constituting the first board. Pursuant to
the TSC Bylaws, the number of board members shall not be fewer than three (3),
but shall not be greater than twenty-five (25). The Certificate of Amendment to
the Certificate of Incorporation of TSC, dated May 15, 1985, fixed the number of
board members at 16.
Under the NJBCA, a corporation may provide in its Certificate of
Incorporation for the classification of its directors in respect to the time for
which they shall severally hold office, but no class of directors shall hold
office for a term shorter than one year or longer than five years, and the term
of office of at least one class shall expire in each year. No classification of
directors shall be effective prior to the first annual meeting of shareholders.
TSC has not established a classified board.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that (i) members of a classified
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<PAGE> 1510
board may be removed only for cause, unless the Certificate of Incorporation
provides otherwise and (ii) in the case of a corporation having cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against such director's removal would be
sufficient to elect such director if then cumulatively voted at an election of
the entire board of directors or of the class of directors of which such
director is a part. The Heartland Certificate and the Heartland Bylaws provide
that any director may be removed, with or without cause, at any time by vote at
an election of directors or by the written consent of the stockholders.
Under the NJBCA, one or more or all the directors of a corporation may be
removed for cause, or, unless otherwise provided in the Certificate of
Incorporation, without cause by the shareholders by the affirmative vote of the
majority of the votes cast by the holders of shares entitled to vote for the
election of directors, except that (i) in any case where cumulative voting is
authorized, if less than the total number of directors then serving on the board
of directors is to be removed by the shareholders, no one of the directors may
be so removed if the votes cast again his removal would be sufficient to elect
him if then voted cumulatively at the election of the entire board or, if there
are classes of directors, at an election of the class of directors of which he
is part; (ii) a director elected by a class vote, as authorized by section
14A:6-4(2) of the NJBCA, may be removed only by a class vote of the holders of
shares entitled to vote for his election; (iii) if the Certificate of
Incorporation requires a greater vote than a plurality of the votes cast for the
election of directors, no director may be removed except by the greater vote
required to elect him, and (iv) shareholders of a corporation whose board of
directors is classified as provided in section 14A:6-4(1) of the NJBCA shall not
be entitled to remove directors without cause. The Certificate of Incorporation
or a Bylaw adopted by the shareholders may provide that the board of directors
shall have the power to remove directors for cause and to suspend directors
pending a final determination that cause exists for removal. The TSC Bylaws do
not provide additional requirements regarding the removal of directors.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the board of directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created directorships may
be filled by a majority of the directors elected by such class, or by the sole
remaining director so elected. In the case of a classified board, directors
elected to fill vacancies or newly created directorships shall hold office until
the next election of the class for which such directors have been chosen, and
until their successors have been duly elected and qualified. In addition, if, at
the time of the filling of any such vacancy or newly created directorship, the
directors in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of outstanding shares entitled to vote for such
directors, summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in office.
The Heartland Certificate does not provide additional requirements regarding
vacancies of directors.
Under the NJBCA, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, any directorship not filled at the annual meeting,
any vacancy, however caused, occurring in the board, and newly created
directorships resulting from an increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the remaining directors
even though less than a quorum of the board, or by a sole remaining director. A
director so elected by the board shall hold office until the next succeeding
annual meeting of shareholders and until his successor shall have been elected
and qualified. Unless otherwise provided in the Certificate of Incorporation or
Bylaws when one or more directors shall resign from the board effective at a
future date, a majority of the directors, then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations have become
effective, and each director so chosen shall hold office as herein provided in
the filling of other vacancies. Any directorship not filled by the board may be
filled by the shareholders at any annual meeting or at a special meeting of
shareholders called for that purpose. If by reason of death,
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<PAGE> 1511
resignation or other cause a corporation has no directors in office, any
shareholder or the executor or administrator of a deceased shareholder may call
a special meeting of shareholders for the election of directors. The TSC Bylaws
provide that any vacancy in the board, including a vacancy caused by an increase
in the number of directors, may be filled by the affirmative vote of a majority
of the remaining directors, even though less than a quorum of the board, or by a
sole remaining director.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. The Heartland Bylaws provide that such persons shall be
indemnified to the full extent authorized by the DGCL.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the DGCL's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be made only upon a
determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The DGCL requires Heartland to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or persons controlling Heartland pursuant to the
foregoing provisions, Heartland has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Under the NJBCA, a corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the New Jersey
Superior Court determines that, in view of all the circumstances
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<PAGE> 1512
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. The TSC Bylaws do not provide any
additional provisions with respect to indemnification of directors.
A director, officer, employee or agent who is successful, on the merits or
otherwise, in defense of any proceeding subject to the NJBCA's (as the case may
be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The NJBCA
states that any indemnification, unless ordered by a court, shall be made only
upon a determination that a director or officer has met the required standard of
conduct before the director or officer may be indemnified. The determination may
be made (i) by a majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel; or
(iii) by the stockholders.
The NJBCA requires TSC to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if it
is determined that the required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS.
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a fiduciary
duty as a director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law; (iii)
violation of certain provisions of the DGCL; (iv) any transaction from which the
director derived an improper personal benefit; or (v) any act or omission prior
to the adoption of such a provision in the Certificate of Incorporation.
The Heartland Certificate provides a provision eliminating the personal
liability for monetary damages of its directors to the fullest extent permitted
under the DGCL.
The NJBCA provides that a director of a corporation who votes for, or
concurs in for any of the following corporate actions shall be jointly and
severally liable to the corporation for the benefit of its creditors or
shareholders, to the extent of any injuries suffered by such persons, as a
result of such action: (i) the declaration of any dividend or any distribution
of assets to shareholders contrary to the provisions of this act or contrary to
any restrictions contained in the Certificate of Incorporation; (ii) the
purchase of the shares of the corporation contrary to the provisions of this act
or contrary to any restrictions contained in the Certificate of Incorporation;
(iii) the distribution of assets to shareholders during or after dissolution of
the corporation without paying, or adequately providing for, all known debts,
obligations and liabilities of the corporation, except that directors shall be
liable only to the extent of the value of assets so distributed and to the
extent that such debts, obligations and liabilities of the corporation are not
thereafter paid, discharged, or barred by statute or otherwise; (iv) the
complete liquidation of the corporation and distribution of all of its assets to
its shareholders without dissolving or providing for the dissolution of the
corporation and the payment of all fees, taxes and other expenses incidental
thereto, except that the director shall be liable only to the extent of the
value of the assets so distributed and to the extent that such fees, taxes and
other expenses incidental to dissolution are not thereafter paid; and (v) the
making of any loan to an officer, director or employee of the corporation or of
any subsidiary thereof contrary to the provisions of this act. Any director
against whom a claim is successfully asserted under the NJBCA shall be entitled
to contribution from the other directors who voted for, or concurred in, the
action upon which the claim is asserted. The TSC Certificate does not provide
any additional provisions with respect to limitations of personal liability of
directors.
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EXPERTS
The consolidated financial statements and schedule of Heartland Wireless
Communications, Inc. as of December 31, 1994 and 1993, and for each of the years
in the three-year period ended December 31, 1994, have been included herein and
in the registration statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Technivision as of December 31, 1994 and 1993,
and for each of the years in the three-year period ended December 31, 1994, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1994, financial statements contains an explanatory paragraph that
states that the Company's recurring losses from operations and excess of current
liabilities over current assets raise substantial doubt about the entity's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of that uncertainty.
LEGAL MATTERS
The validity of the shares of Heartland Common Stock being offered hereby
is being passed upon for Heartland by Arter & Hadden, 1717 Main Street, Suite
4100, Dallas, Texas 75201.
GLOSSARY
As used in this Proxy Statement/Prospectus, the following terms shall have
the meaning set forth below:
"AWS" means American Wireless Systems, Inc., a Delaware corporation.
"AWS Merger" means the merger of AWS Merger Sub into AWS pursuant to the
terms of the AWS Merger Agreement.
"AWS Merger Agreement" means the Amended and Restated Agreement and Plan of
Merger dated as of September 11, 1995 among AWS, AWS Merger Sub and Heartland.
"AWS Merger Sub" means Heartland Merger Sub, Inc., a Delaware corporation
and wholly owned subsidiary of Heartland.
"CMAX" means CableMaxx, Inc., a Delaware corporation.
"CMAX Merger" means the merger of CMAX Merger Sub into CMAX pursuant to the
terms of the CMAX Merger Agreement.
"CMAX Merger Agreement" means the Amended and Restated Agreement and Plan
of Merger dated as of September 11, 1995 among CMAX, CMAX Merger Sub and
Heartland.
"CMAX Merger Sub" means Heartland Merger Sub 2, Inc., a Delaware
corporation and wholly owned subsidiary of Heartland.
"Combined Company" means the businesses and operations of Heartland
following the consummation, to the extent consummated, of the Transactions.
"FTW Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 4, 1995 between FTW Partnership and Heartland.
"FTW Partnership" means Fort Worth Wireless Cable T.V. Associates, a
California general partnership.
"FTW Transaction" means the transactions contemplated by the FTW Agreement.
"FTW Venture" means the informal joint venture between FTW Partnership and
AWS that owns and operates a wireless cable television system in Fort Worth,
Texas.
"Heartland" means Heartland Wireless Communications, Inc., a Delaware
corporation.
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"Heartland Disposition Assets" means those assets of Heartland, AWS, CMAX,
the FTW Venture, the Minneapolis LLC and TSC that Heartland has determined to
dispose of prior to, following or contemporaneously with the consummation of the
Transactions.
"Minneapolis Agreement" means the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 between Heartland and Minneapolis
Partnership.
"Minneapolis LLC" means American Wireless System of Minneapolis, L.L.C., a
Delaware limited liability company that owns and operates a wireless cable
television system in Minneapolis, Minnesota, of which Minneapolis Partnership
owns a 75% equity interest and AWS owns a 25% membership interest.
"Minneapolis Partnership" means Wireless Cable TV Associates #38, a
California general partnership.
"Minneapolis Transaction" means the transactions contemplated by the
Minneapolis Agreement.
"Other Transactions" means all Transactions other than the TSC Transaction.
"Technivision" means Technivision, Inc., a former subsidiary of TSC that
has been merged with TSC.
"Transactions" means the AWS Merger, the CMAX Merger, the FTW Transaction,
the Minneapolis Transaction and the TSC Transaction.
"TSC" means Three Sixty Corp., a New Jersey corporation.
"TSC Agreement" means the Amended and Restated Asset Purchase Agreement
dated as of October 19, 1995 among Heartland, Technivision and TSC.
"TSC Transaction" means the transactions contemplated by the TSC Agreement.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Financial Statements: PAGE
----
<S> <C>
Heartland Wireless Communications, Inc.:
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 and September 30, 1995
(unaudited)...................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1992, 1993 and 1994 and for the nine months ended September 30, 1995
(unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993
and 1994 and for the nine months ended September 30, 1994 and 1995 (unaudited)... F-6
Notes to Consolidated Financial Statements.......................................... F-7
TechniVision, Inc.
Independent Auditors' Report........................................................ F-21
Balance Sheets as of May 31, 1994 and 1995 and November 30, 1995 (unaudited)........ F-22
Statements of Operations for the years ended May 31, 1993, 1994 and 1995 and for the
six months ended November 30, 1994 and 1995 (unaudited).......................... F-23
Statements of Stockholders' Deficit for the years ended May 31, 1993, 1994 and 1995
and for the six months ended November 30, 1995 (unaudited)....................... F-24
Statements of Cash Flows for the years ended May 31, 1993, 1994 and 1995 and for the
six months ended November 30, 1994 and 1995 (unaudited).......................... F-25
Notes to Financial Statements....................................................... F-26
Unaudited Pro Forma Financial Information:
Heartland Wireless Communications, Inc.:
Introduction to Unaudited Pro Forma Condensed Financial Statements for Consummated
Events........................................................................... F-31
Unaudited Pro Forma Condensed Consolidated Balance Sheet for Consummated Events as
of September 30, 1995............................................................ F-32
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the year ended December 31, 1994...................................... F-33
Unaudited Pro Forma Condensed Consolidated Statement of Operations for Consummated
Events for the nine months ended September 30, 1995.............................. F-34
Notes to Pro Forma Statements for Consummated Events................................ F-35
</TABLE>
F-1
<PAGE> 1516
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, 1993 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,
1994. 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, 1993 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, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 3, 1995, except as to note 11
which is as of March 27, 1995
F-2
<PAGE> 1517
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER
------------------------- 30,
1993 1994 1995
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 815,305 $11,985,953 $ 37,155,064
Restricted assets -- investments in debt
securities....................................... -- -- 11,669,874
Subscriber receivables, net of allowance for
doubtful accounts of $25,082 in 1993, $122,901 in
1994 and $551,866 in 1995........................ 74,560 219,287 1,407,830
Prepaid expenses and other.......................... 300,967 829,790 1,981,640
Note receivable (note 9)............................ -- 2,000,000 --
Assets held for sale (note 8)....................... -- 12,500,000 9,200,000
---------- ----------- ------------
Total current assets........................ 1,190,832 27,535,030 61,414,408
---------- ----------- ------------
Investment in joint venture (note 8).................. -- 12,044,392 --
Systems and equipment, net (notes 2 and 3)............ 3,036,226 16,765,179 46,027,017
Leased license investment, net of accumulated
amortization of $14,167 in 1993, $179,593 in 1994
and $785,362 in 1995 (note 8)....................... 4,286,867 16,740,139 64,726,389
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $80,815 in 1994
and $223,819 in 1995 (note 4)....................... -- 2,565,178 4,470,286
Restricted assets -- investment in debt securities.... -- -- 13,077,340
Other assets, net..................................... 151,141 2,271,610 10,435,034
---------- ----------- ------------
$8,665,066 $77,921,528 $200,150,474
========== -========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 522,240 $ 3,840,744 $ 3,745,724
Accrued expenses and other liabilities.............. 329,783 1,062,253 6,498,639
Current portion of long-term debt (note 3).......... 338,851 19,918 616,610
---------- ----------- ------------
Total current liabilities................... 1,190,874 4,922,915 10,860,973
---------- ----------- ------------
Long-term debt, less current portion (note 3)......... 1,253,678 40,485,934 139,428,429
Deferred income taxes (note 6)........................ -- 1,045,959 1,287,560
Other long-term liabilities........................... 13,520 -- --
Minority interests in subsidiaries (note 4)........... 1,714,426 1,385,835 279,695
Stockholders' equity (note 5):
Common stock, $.001 par value; authorized 50,000,000
shares, issued 8,000,000 shares in 1993,
11,109,280 shares in 1994 and 12,476,393 shares
in 1995.......................................... 8,000 11,109 12,476
Additional paid-in capital.......................... 5,029,675 33,658,204 63,047,864
Accumulated deficit................................. (545,107) (3,588,428) (14,766,523)
---------- ----------- ------------
Total stockholders' equity.................. 4,492,568 30,080,885 48,293,817
---------- ----------- ------------
Commitments and contingencies (notes 7, 8 and 10) $8,665,066 $77,921,528 $200,150,474
========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 1518
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31 30
------------------------------------- ---------------------------
1992 1993 1994 1994 1995
-------- ---------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $205,382 $ 868,765 $ 2,229,494 $ 1,289,526 $ 9,292,837
-------- ---------- ----------- ---------- -----------
Operating expenses:
Systems operations.................... 36,042 118,649 527,476 320,029 2,894,074
Cost of goods sold.................... -- 202,162 235,025 235,025 --
Selling, general and administrative... 147,927 646,611 4,183,307 2,042,124 7,449,699
Depreciation and amortization......... 34,919 138,560 1,097,668 418,960 3,966,120
-------- ---------- ----------- ---------- -----------
Total operating expenses...... 218,888 1,105,982 6,043,476 3,016,138 14,309,893
-------- ---------- ----------- ---------- -----------
Operating loss................ (13,506) (237,217) (3,813,982) (1,726,612) (5,017,056)
Other income (expense):
Interest income....................... 1,185 9,610 379,654 189,308 2,044,092
Interest expense...................... (1,392) (82,916) (589,767) (128,789) (8,908,459)
Equity in losses of joint venture
(note 8)........................... -- -- (386,985) (163,119) (128,663)
Other expense (notes 3, 4 and 9)...... (37,109) (95,578) (227,204) (34,192) (475,146)
-------- ---------- ----------- ---------- -----------
Total other income
(expense)................... (37,316) (168,884) (824,302) (136,792) (7,468,176)
-------- ---------- ----------- ---------- -----------
Loss before income taxes...... (50,822) (406,101) (4,638,284) (1,863,404) (12,485,232)
Income tax benefit (note 6)............. -- -- 1,594,963 649,510 1,307,137
-------- ---------- ----------- ---------- -----------
Net loss...................... $(50,822) $ (406,101) $(3,043,321) $(1,213,894) $(11,178,095)
======== ========== =========== ========== ===========
Net loss per common share............... $ (.01) $ (.05) $ (.30) $ (.13) $ (.96)
======== ========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 1519
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991.................. 8,000,000 $ 8,000 $ 253,593 $ (88,184) $ 173,409
Equity transactions of subsidiaries (note
4)........................................ -- -- 881,235 -- 881,235
Net loss.................................... -- -- -- (50,822) (50,822)
---------- ------- ----------- ----------- -----------
Balance, December 31, 1992........ 8,000,000 8,000 1,134,828 (139,006) 1,003,822
Formation of Heartland Wireless
Communications, Inc. (note 1)............. -- -- 3,000,000 -- 3,000,000
Equity transactions of subsidiaries (note
4)........................................ -- -- 807,472 -- 807,472
Other (note 9).............................. -- -- 87,375 -- 87,375
Net loss.................................... -- -- -- (406,101) (406,101)
---------- ------- ----------- ----------- -----------
Balance, December 31, 1993........ 8,000,000 8,000 5,029,675 (545,107) 4,492,568
Issuance of common stock pursuant to initial
public offering (note 5).................. 2,415,000 2,415 22,349,798 -- 22,352,213
Issuance of common stock for acquisitions
(note 4).................................. 694,280 694 6,278,731 -- 6,279,425
Net loss.................................... -- -- -- (3,043,321) (3,043,321)
---------- ------- ----------- ----------- -----------
Balance, December 31, 1994........ 11,109,280 11,109 33,658,204 (3,588,428) 30,080,885
Issuance of common stock, primarily for
minority interests and other acquisitions
(unaudited)............................... 1,367,113 1,367 29,389,660 -- 29,391,027
Net loss (unaudited)........................ -- -- -- (11,178,095) (11,178,095)
---------- ------- ----------- ----------- -----------
Balance, September 30, 1995
(unaudited)..................... 12,476,393 $12,476 $63,047,864 $(14,766,523) $48,293,817
========== ======= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 1520
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
---------------------------------------- --------------------------
1992 1993 1994 1994 1995
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (50,822) $ (406,101) $ (3,043,321) $(1,213,894) $(11,178,095)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 34,919..... 138,560 1,097,668 418,960 3,966,120
Deferred income tax benefit................... -- -- (1,594,963) (649,510) (1,307,137)
Accretion on convertible discount
notes....................................... -- -- 301,125 -- 3,156,858
Equity in losses of joint venture............. -- -- 386,985 163,119 128,663
Other......................................... 5,100 65,668 (16,205) 7,890 12,216
Changes in assets and liabilities:
Subscriber receivables...................... (6,123) (68,437) (57,362) (21,942) (1,160,242)
Inventories................................. -- (251,172) -- -- --
Prepaid expenses and other.................. (6,496) (395,300) (656,061) (308,385) (765,834)
Accounts payable, accrued expenses and other
liabilities.............................. 51,442 809,962 4,292,617 567,250 4,789,383
----------- ----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities............................. 28,020 (106,820) 710,483 (1,036,512) (2,358,068)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Investment in joint venture..................... -- -- (12,431,379) (11,649,908) (5,426,432)
Proceeds from assets held for sale.............. -- -- -- -- 3,323,250
Purchases of systems and equipment.............. (604,082) (2,072,937) (12,414,501) (4,011,480) (25,575,252)
Expenditures for leased licenses................ (797,655) (3,068,084) (3,354,471) (2,465,265) (1,592,024)
Restricted assets -- investment in debt
securities.................................... -- -- -- (7,283,777) (24,747,214)
Acquisitions.................................... -- -- (16,300,000) -- (11,422,814)
Issuance of note receivable..................... -- -- (2,000,000) -- --
Other........................................... -- -- -- -- (2,250,000)
----------- ----------- ------------ ----------- ------------
Net cash used in investing
activities............................. (1,401,737) (5,141,021) (46,500,351) (25,410,430) (67,690,486)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock.......... -- 2,000,000 22,352,213 22,283,365 --
Proceeds from Units Offering.................... -- -- -- -- 100,000,000
Proceeds from minority interest owners.......... 1,430,900 1,553,355 -- -- --
Purchase of minority interests.................. -- -- (1,608,895) (1,408,858) --
Proceeds from short-term borrowings and notes
payable....................................... -- 2,992,364 10,408,542 10,408,542 3,070,070
Proceeds from convertible discount notes........ -- -- 40,150,000
Payments on short-term borrowings and notes
payable....................................... -- (399,835) (11,946,344) (2,001,071) (3,105,977)
Payments to stockholders and affiliates......... (523,493) (727,189) -- -- --
Proceeds from stockholders and affiliates....... 578,035 479,480 -- -- --
Debt issuance costs............................. -- -- (2,395,000) (495,000) (4,783,975)
Other........................................... -- -- -- -- 37,547
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities............................. 1,485,442 5,898,175 56,960,516 28,786,978 95,217,665
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 111,725 650,334 11,170,648 2,340,036 25,169,111
Cash and cash equivalents at beginning of
period.......................................... 53,246 164,971 815,305 815,305 11,985,953
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end of period........ $ 164,971 $ 815,305 $ 11,985,953 $ 3,155,341 $ 37,155,064
=========== =========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 1521
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1994
(INFORMATION AS OF SEPTEMBER 30, 1995 AND FOR THE NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1994 AND 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and History
Heartland Wireless Communications, Inc. (the "Company") develops, owns and
operates wireless cable television systems. The Company has wireless cable
channel rights in various wireless cable television markets located primarily in
the central United States. The Company's first operational system, located in
Ada, Oklahoma, commenced operations in April 1992. Currently, the Company
provides service in fifteen markets located in Texas, Oklahoma, Kansas and
Louisiana. 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) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and costs associated with subscriber installations are
capitalized. Upon subscriber disconnect, the Company continues to depreciate the
full capitalized installation cost subsequent to the disconnection. Depreciation
and amortization are recorded on a straight-line basis for financial reporting
purposes over useful lives ranging from 6 to 10 years. Repair and maintenance
costs are charged to expense when incurred; renewals and betterments are
capitalized.
Equipment awaiting installation consists primarily of accessories, parts
and supplies for subscriber installations and is stated at the lower of average
cost or market.
(d) Leased License Investment
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Costs incurred to acquire 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, 1994, approximately $12,040,000 of the
leased license investment was not yet subject to amortization. The Company
continually reevaluates the propriety of the carrying amounts of the leased
license investment with respect to each market as well as the amortization
period based on
F-7
<PAGE> 1522
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management's estimate of the fair value of each market to determine whether
current events and circumstances warrant adjustments to the carrying amounts or
a revised estimate of the useful life.
(e) 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 ($237,730 in 1994 and $213,005 in 1993).
Installation fees are recognized upon origination of service to a subscriber to
the extent of costs incurred to obtain subscribers. Installation revenues in
excess of such costs will be deferred and amortized over six years.
(f) Systems Operations
Systems operations expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
(g) 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.
(h) Sales of Subsidiary Stock
Gains and losses from the sales of stock by the Company's majority-owned
subsidiaries are accounted for as equity transactions in consolidation.
(i) 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 8,000,000 for the years
ended December 31, 1992 and 1993, 10,041,000 for the year ended December 31,
1994 and 9,693,000 and 11,624,000 for the nine-month periods ended September 30,
1994 and 1995, respectively. The weighted average number of common shares
outstanding in each period gives retroactive effect to an 8,000-for-one split of
the Company's common stock (see note 5).
Shares issuable upon exercise of stock options and warrants 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.
(j) 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, 1992 and 1993, the Company had noncash
investing and financing activities. During 1992, an affiliate contributed
systems and equipment in the amount of $133,403 for preferred stock in a
subsidiary of the Company. During 1993, the Company acquired certain systems and
equipment by assuming notes payable in the amount of $388,017, 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 $114,511.
Cash paid during 1993 and 1994 for interest was $67,124 and $296,596,
respectively (none in 1992).
F-8
<PAGE> 1523
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial information of the Company contains all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of September 30, 1995, and the
results of operations and cash flows for the nine months ended September 30,
1994 and 1995. These results are not necessarily indicative of the results to be
expected for the full fiscal year.
(2) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Equipment awaiting installation............................. $ 336,920 $3,034,453
Subscriber premises equipment and installation costs........ 676,347 6,581,632
Transmission equipment and system construction costs........ 1,969,039 7,350,607
Office furniture and equipment.............................. 139,946 406,936
Buildings and leasehold improvements........................ 70,286 145,550
---------- ----------
3,192,538 17,519,178
Accumulated depreciation and amortization................... (156,312) (753,999)
---------- ----------
$3,036,226 $16,765,179
========== ===========
</TABLE>
As of December 31, 1994, equipment awaiting installation and approximately
$914,000 of transmission equipment and system construction costs were not yet
subject to depreciation.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Convertible subordinated discount notes..................... $ -- $40,451,125
Notes payable............................................... 1,592,529 54,727
---------- -----------
1,592,529 40,505,852
Less current portion........................................ 338,851 19,918
---------- -----------
$1,253,678 $40,485,934
========== ===========
</TABLE>
On November 30, 1994, the Company consummated the private placement of
$40,150,000 in gross proceeds of 9% Convertible Subordinated Discount Notes
("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. The Note Purchase Agreement contains 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.
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
F-9
<PAGE> 1524
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As the Convertible Notes have been outstanding
for only a short period of time, the carrying amounts of borrowings outstanding
at December 31, 1994 approximate estimated fair value.
On March 31, 1994, the Company entered into an agreement with a bank for a
$15,000,000 Revolving Credit Facility (the "Facility"). Outstanding borrowings
under the Facility will bear interest at the bank's corporate base rate plus
1.5% per annum or LIBOR plus 4.0% per annum, at the Company's option. The
Facility will be on a revolving basis for three years with all outstanding
borrowings at the end of the third year converting to a term loan payable in
equal quarterly installments over three years. The Company must pay an annual
commitment fee of 3/8% per annum on the unused portion of the Facility. The
total amount of borrowings under the Facility will be subject to certain
limitations. Borrowings under the Facility will be secured by substantially all
the Company's assets and the capital stock of the Company's subsidiaries. The
Facility contains certain restrictive covenants that, among other things,
require the Company to satisfy certain financial ratios, and limit the ability
of the Company and its subsidiaries to pay dividends, repurchase Company stock
and incur additional indebtedness. No amounts were outstanding under the
Facility at December 31, 1994. Prior to borrowing any funds under the Facility,
the Company would need to obtain a waiver from the bank of certain conditions
and covenants relating to the sale of the Convertible Notes. The Company does
not currently intend to borrow any funds under the Facility. The Company is
actively pursuing alternative bank financing on terms, including an increased
amount of a facility, which the Company believes are more favorable than those
under the Facility.
In 1994, the Company incurred a recapitalization charge of $205,575 that is
included in other expense in the accompanying statement of operations. This
charge related to costs incurred in connection with a rescinded offering of debt
securities.
Aggregate maturities of long-term debt as of December 31, 1994 for the five
years ending December 31, 1999 are as follows: 1995 -- $19,918; 1996 -- $21,054
and 1997 -- $13,755.
(4) MINORITY INTERESTS
In connection with the development of certain wireless cable television
markets, the Company has sold stock in certain of its subsidiary companies
principally for cash. Total consideration received from the sales of subsidiary
stock amounted to $1,430,900 in 1992 and $1,553,355 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. Minority ownership interests in
the outstanding common stock of such subsidiary companies range from 5% to
49.9999%.
As a result of the sales of subsidiary stock, the Company's investment in
majority-owned subsidiaries increased by $881,235 in 1992 and $807,472 in 1993.
Such increases have 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 increases since the Company
ultimately expects to recover its investments in the subsidiaries in a tax-free
manner.
Certain of the Company's subsidiaries have issued preferred stock, a
portion of which is held by outside third parties. Preferred stock owned by
outside third parties in the amounts of $453,935 at December 31, 1993 and 1994
has been reflected as minority interests in the accompanying consolidated
balance sheets. Dividends on the preferred stock accrue at 8% of the stated
value per share per year and are cumulative. Preferred stock dividends of the
subsidiaries with respect to the third party ownership were $14,006 in 1992,
$26,606 in 1993 and $36,315 in 1994 and are included in other expense in the
accompanying statements of operations.
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
F-10
<PAGE> 1525
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,609,000 in cash and 44,280 restricted shares of common stock.
The acquisitions of the minority ownership interests were accounted for as
purchases. For financial reporting purposes, the total purchase price was
approximately $7,882,000 and assumes a value per share of $8.93 to $10.75 for
the restricted shares. The excess (approximately $2,646,000) of the purchase
price over the fair value of the net identifiable assets acquired will be
amortized on a straight-line basis over 20 years. Pro forma disclosures that
include the effects of the acquisitions of the minority interests would not be
materially different from historical information and have not been presented.
In February 1995, the Company offered to exchange approximately 380,000
shares of its common stock for the minority interests in certain of its
subsidiaries (the "Minority Interest Exchange Offer"). The exchange ratio with
respect to each minority interest was determined by management of the Company
based upon the estimated fair market value of each respective subsidiary. The
Minority Interest Exchange Offer expired on March 15, 1995. On March 15, 1995,
Heartland issued an aggregate of 304,038 shares of common stock in exchange for
minority interests in 21 subsidiaries.
(5) STOCKHOLDERS' EQUITY
(a) Change in Capital Structure
On January 18, 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-one 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
On April 28, 1994, the Company completed an initial public offering of
2,100,000 shares of its common stock. On June 9, 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 $22.3 million. The net proceeds have been used to repay
indebtedness, construct operating systems, finance operating losses in certain
markets and corporate overhead, acquire certain minority interests in
subsidiaries, acquire or secure the Company's existing channel rights and fund a
portion of the acquisition of certain RuralVision Joint Venture assets.
(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 key 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 are 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
F-11
<PAGE> 1526
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1994 activity in stock options under
these plans:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE RANGE
--------- ----------------
<S> <C> <C>
Granted.................................................. 543,000 $10.50 - $11.125
Cancelled................................................ (130,000) $10.50
--------
Outstanding at December 31, 1994....................... 413,000 $10.50 - 11.125
========
Exercisable at December 31, 1994....................... 148,000 $10.50
========
</TABLE>
As of December 31, 1994, 587,000 shares were available for grant under the
stock option plans.
(6) INCOME TAXES
Income tax benefit of $1,594,963 for the year ended December 31, 1994
consists of a deferred tax benefit.
Income tax benefit for the years ended December 31, 1992, 1993 and 1994
differed from the amount computed by applying the U.S. federal income tax rate
of 34% to loss before income taxes as a result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
-------- --------- -----------
<S> <C> <C> <C>
Computed "expected" tax benefit................... $(17,299) $(138,074) $(1,577,017)
Amortization of goodwill.......................... -- -- 27,540
State tax benefit, net............................ -- -- (103,500)
Loss for which no tax benefit was recognized...... 17,299 138,074 58,014
-------- --------- -----------
$ -- $ -- $(1,594,963)
======== ========= ===========
</TABLE>
F-12
<PAGE> 1527
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts..................................... $ 8,528 $ 45,473
Basis differences between assigned values and tax bases
of stock of subsidiaries.............................. -- 791,453
Investment in joint venture.............................. -- 609,668
Accretion on Convertible Notes........................... -- 115,486
Leased license investment, principally due to start-up
costs not yet deductible for tax purposes............. 120,538 120,538
Net operating loss carryforwards......................... 136,359 1,082,567
--------- ----------
Total gross deferred tax assets.................. 265,425 2,765,185
Less valuation allowance................................. (183,295) (791,553)
--------- ----------
Net deferred tax assets.......................... 82,130 1,973,632
--------- ----------
Deferred tax liabilities:
Systems and equipment, principally due to differences in
depreciation.......................................... (82,130) (81,575)
Leased license investment................................ -- (2,938,016)
--------- ----------
Total gross deferred tax liabilities............. (82,130) (3,019,591)
--------- ----------
Net deferred tax liability....................... $ -- $1,045,959
========= ==========
</TABLE>
The net changes in the total valuation allowance for the years ended
December 31, 1994 and 1993 were increases of $183,295 and $791,553,
respectively. 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, 1994, the Company has approximately $2,926,000 of
federal income tax loss carryforwards which expire in years 2005 through 2009.
(7) LEASES
The Company leases from third parties channel rights licensed by the FCC.
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 the Company's channel leases range
from 5 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
provide for either a right of first refusal or automatic renewal of their terms
upon FCC renewal of the underlying license, grant the Company a right of first
refusal to purchase the channels after the expiration of the lease and/or
require the parties to negotiate renewal 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.
F-13
<PAGE> 1528
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payments under the channel rights lease agreements 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. Channel
rights lease expense was $1,000, $25,260 and $94,865 for the years ended
December 31, 1992, 1993 and 1994, respectively.
In connection with the purchase of certain assets on December 1, 1994 for
RuralVision Joint Venture as discussed in note 8, the Company is obligated under
channel rights lease agreements which require royalty payments upon grant of the
channel rights. Channel rights lease expense was $72,132 for year ended December
31, 1994.
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 $24,375, $41,761 and $205,210 for the years ended December
31, 1992, 1993 and 1994, respectively.
Future minimum lease payments due under channel rights leases for
operational systems and other noncancellable operating leases in effect at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
DECEMBER 31, LEASES LEASES
- ------------ ---------- -------
<S> <C> <C>
1995........................................... $1,481,275 $25,941
1996........................................... 1,599,500 26,139
1997........................................... 1,650,000 25,573
1998........................................... 1,649,450 16,461
1999........................................... 1,629,100 1,212
</TABLE>
(8) RURALVISION ACQUISITION
On August 19, 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") have a 50% interest, purchased
certain assets (the "Rural Vision 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 $50.0 million for the RuralVision
Assets was comprised of a $46.0 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 have guaranteed the payment of the RuralVision Note.
As of December 31, 1994, the remaining balance outstanding under the RuralVision
Note was $8.0 million. The Company's investment in RuralVision Joint Venture has
been accounted for under the equity method of accounting.
On January 27, 1995, the Company, Cross Country and RuralVision entered
into 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 balance of the RuralVision Note, (ii) paid
$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 (iii) 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 with a carrying amount of approximately
$16.0 million. As part of this transaction, the Company granted to Cross Country
the right to "put" or sell certain remaining RuralVision Joint Venture assets to
the Company for $3.25 million (reduced dollar for dollar by the proceeds of any
prior partial sales of such assets) on May 17, 1995. Although the Company
remains a 50% partner in RuralVision Joint Venture, the Company, pursuant to the
Venture Distribution Agreement, has no economic interest in any remaining
RuralVision Joint Venture assets or liabilities other than certain immaterial
amounts
F-14
<PAGE> 1529
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of office furniture and equipment. As a result, subsequent to January 27, 1995,
the carrying amount of the Company's investment in RuralVision Joint Venture is
zero.
Summarized condensed financial information of RuralVision Joint Venture
follows:
BALANCE SHEET AS OF
DECEMBER 31, 1994
ASSETS
<TABLE>
<S> <C>
Current assets, including assets to be sold of $20,000,000............ $20,969,043
Systems and equipment................................................. 6,118,015
Leased license investment............................................. 4,626,244
-----------
$31,713,302
===========
LIABILITIES AND VENTURERS' EQUITY
Current liabilities, including notes payable of $9,000,000............ $10,537,272
Venturers' equity..................................................... 21,176,030
-----------
$31,713,302
===========
</TABLE>
STATEMENT OF OPERATIONS FOR THE
PERIOD FROM AUGUST 19, 1994 (INCEPTION) TO
DECEMBER 31, 1994
<TABLE>
<S> <C>
Subscription revenues................................................. $ 1,269,184
Operating expenses.................................................... 2,043,154
-----------
Net loss.................................................... $ (773,970)
===========
</TABLE>
On December 1, 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 $14.0 million in cash. The Company
has allocated the purchase price on a preliminary basis to the assets acquired
and liabilities assumed based on the estimated fair values of such assets and
liabilities.
In connection with the Company's allocation of the purchase price of the
acquisition on December 1, 1994, the Company has identified wireless cable
channel rights in certain markets which management expects to sell and has
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. The assets held for sale as of December 31, 1994 represent
wireless cable channel rights in 26 markets.
Management's determination of the carrying amount of the assets held for
sale is based on a number of factors including the markets' stage of
development; the value of any channel rights lease agreements held by a market;
the potential number of households in the relevant market; the number of
channels available in the relevant market; the number of channel rights granted
or pending in the relevant market; the capital necessary to commence operations
in the relevant market; competitive factors; and the estimated rental payments
under channel rights lease agreements and certain other costs that will be
capitalized during the estimated holding period. The Company expects to sell
certain markets within one year from the date of acquisition from RuralVision
Joint Venture. Rental expense under channel rights lease agreements and other
costs associated with the assets held for sale amounting to approximately
$30,000 have been capitalized and included in assets held for sale. Since the
assets held for sale are nonoperating markets, no other operating profit or loss
has been
F-15
<PAGE> 1530
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excluded from the Company's 1994 consolidated statement of operations.
Additionally, any difference between the carrying amounts and the sale prices on
the ultimate disposition of the assets held for sale will be treated as an
adjustment of the original purchase price allocation.
Although the Company expects to sell the assets held for sale for $12.5
million ($21.5 million subsequent to the Venture Distribution Agreement) within
one year from the date of their acquisition from RuralVision Joint Venture,
there can be no assurance that any sales will be consummated. The Company has
entered into definitive agreements and letters of intent to sell certain of the
assets held for sale for $4.19 million comprised of $3.515 million of cash and a
$675,000 note receivable. In the event the Company is unable to dispose of the
assets held for sale within such time frame, the Company would fund
approximately $500,000 to $750,000 of rental payments and other costs related to
the assets held for sale through August 1995 from the Company's existing
available cash, proceeds from the sale of assets held for sale, or other sources
of financing, if secured. In addition, if the Company is unable to dispose of
certain of the assets held for sale the Company may be required, due to the
expiration of construction permits, to construct operating systems for certain
assets held for sale. The amount of such funding would approximate $3,000,000
for the period from the estimated date of disposition through December 31, 1995.
Should construction of operating systems of certain assets held for sale be
required, the Company believes that the value of the constructed systems would
be significantly enhanced. However, based on the estimated dates of disposition,
the Company currently does not anticipate that such construction will be
required during 1995. The amount and timing of the Company's obligations to fund
rental payments and other costs attributable to the assets held for sale will
depend upon a number of factors, many of which are not within the control of the
Company, including the timing of the disposition of the assets held for sale,
programming costs and equipment costs.
Unaudited consolidated condensed pro forma results of operations for 1993
and 1994, as if the December 1, 1994 acquisition of assets from RuralVision
Joint Venture discussed above had occurred at the beginning of the respective
periods, follow:
<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Subscription revenues...................................... $1,709,433 $ 3,087,379
========== ===========
Net loss................................................... $ (565,005) $(3,870,410)
========== ===========
Loss per common share...................................... $ (.07) $ (.35)
========== ===========
</TABLE>
(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 $68,743 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.
The Company paid $134,165 in 1992, $414,982 in 1993 and $74,559 in 1994 to
various affiliates for services performed in connection with the development of
wireless cable television systems, acquisition of wireless cable channel rights
and certain administrative services.
During 1993, an entity owned by a director of the Company was paid $40,660
for consulting services provided in connection with the acquisition of certain
wireless cable channel rights. Such amount has been included as part of the
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.
F-16
<PAGE> 1531
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
$114,969 in exchange for forgiveness of advances of $172,132 to a formerly
affiliated installation company. The Company has reflected the settlement of
$57,163 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
$18,000 in 1992 and 1993 and $22,224 in 1994.
On December 15, 1994, the Company entered into an agreement with a
stockholder and its affiliate pursuant to which the Company loaned $2.0 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 bears interest at 12% per annum with
all accrued interest and the outstanding principal balance due on June 15, 1995.
In addition, on December 15, 1994, the affiliate granted to the Company an
option for the Company to acquire the Tulsa, Oklahoma wireless cable market. The
option is exercisable at any time after January 20, 1995 and continuing through
June 15, 1995. The purchase price to be paid upon any exercise of the option is
up to a maximum of $5.2 million, subject to adjustment based on the number of
granted channels. In addition, the affiliate has the right to obtain a release
of this option at any time prior to June 15, 1995, by payment of a $300,000
release price and payment in full of the loan.
(10) COMMITMENTS AND CONTINGENCIES
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1994
through 1998. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain minimums.
In connection with a $1,000,000 loan from a bank to a stockholder of the
Company, the Company has agreed to purchase such loan upon demand from the bank
for the aggregate amount of principal and interest thereon plus any other
amounts owed to the bank by the stockholder. The loan is secured by all of the
wireless cable assets of the stockholder relating to the Lubbock, Texas market,
including wireless cable channel rights, equipment and accounts receivable.
The Company is a party to a legal proceeding incidental to its business
which, in the opinion of management, is not expected to have a material adverse
effect on the Company's consolidated financial position or operating results.
(11) SUBSEQUENT EVENT
Pursuant to a loan agreement dated March 27, 1995 (the "Loan Agreement"),
two stockholders of the Company have agreed to loan the Company up to an
aggregate of $4.0 million ($2.0 million each) and a holder of the Convertible
Notes has agreed to loan to the Company, or to guarantee a bank loan to the
Company in the amount of, $2.0 million. Borrowings under the Loan Agreement may
be used solely for working capital. Borrowings under the Loan Agreement will
bear interest at 11% per annum. All accrued interest on, and the principal
amount of, all borrowings under the Loan Agreement will be due and payable in
full on June 30, 1995, subject to prepayment upon the receipt by the Company of
cash proceeds from any financing, refinancing or sale of assets. Amounts
borrowed and repaid under the Loan Agreement may not be reborrowed. Borrowings
under the Loan Agreement will be secured by the capital stock and assets of two
of the Company's operating subsidiaries. As of March 27, 1995, the Company had
borrowed $2.0 million under the Loan Agreement, funded $1.0 million each by the
two stockholders.
F-17
<PAGE> 1532
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) OTHER SUBSEQUENT INFORMATION (UNAUDITED)
(a) Accounting Change
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 and to conform its accounting practices with those of other
companies in the wireless cable industry. 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 estimated average subscription term
(presently six years). 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. The Company periodically evaluates the estimated amortization
period and the recoverability of these costs to determine whether circumstances
warrant adjustments to the carrying amounts or revised estimates of the useful
life. An impairment loss would be recognized if the expected future operating
cash flows from subscribers in an individual market are less than the carrying
amount of subscriber installation costs in such market.
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 nine-month
period ended September 30, 1995 was to decrease net loss by approximately
$210,000 ($.02 per common share).
(b) Units Offering
On April 26, 1995, the Company consummated a private placement of 100,000
units (the "Units") consisting of $100.0 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 realized from the sale of the Units
into an escrow account and used approximately $3.0 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. As
of September 30, 1995, the Company had not caused such registration statement to
become effective within the 120-day period. 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 will increase by an
additional 0.50% per annum for each subsequent 90-day period until such
obligations are complied with, up to a maximum amount of additional interest of
2.00% per annum.
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 and the Transactions (as hereinafter defined) and
additionally amend certain definitions and covenants. The proposed amendments to
the indenture received
F-18
<PAGE> 1533
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approval of approximately 95.5% in aggregate principle 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.
The amounts placed in the escrow account have been invested in U.S.
Treasury Notes. As of September 30, 1995, $100.0 million aggregate principal
amount of the Senior Notes remain outstanding.
(c) Acquisitions of Minority Interests in Subsidiaries
On March 15, 1995, the Company consummated the Minority Interest Exchange
offer and 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). The
Company has used the purchase method to account for the acquisitions of these
minority interests. For financial statement 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 purchase price
over the fair value of net identifiable assets acquired and will be amortized
over a 20-year period.
Pro forma disclosures that include the effects of the acquisitions of the
minority interests are not materially different from historical information and
are not presented.
(d) Rural Vision Joint Venture
On May 17, 1995, Cross Country exercised its right to sell certain
remaining RuralVision Joint Venture assets to the Company and, as a consequence,
the Company acquired such 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.
In connection with the RuralVision Distribution and the Company's
acquisition of other wireless cable channel rights from RuralVision Joint
Venture in December 1994, the Company identified wireless cable channel rights
in certain markets which will be either sold, exchanged or conveyed. The
remaining balance at September 30, 1995 of $9.2 million of assets held for sale
represents assets that were sold or conveyed for cash subsequent to September
30, 1995.
(e) Other Acquisitions and Divestitures
In May 1995, the Company purchased an operating wireless cable system in
the Lubbock, Texas market and wireless cable channel rights in the Tulsa,
Oklahoma market for approximately $5.4 million (plus approximately $0.2 million
of acquisition-related costs) and $3.8 million (plus approximately $0.1 million
of acquisition-related costs) in cash, respectively (the "Lubbock and Tulsa
Acquisitions").
In May 1995, the Company sold certain wireless cable channel rights in five
markets to an unaffiliated entity for $2.7 million in cash. These assets
comprised a portion of the assets held for sale.
On July 18, 1995, the Company privately placed 1,029,707 shares of its
common stock to RuralVision Joint Venture in exchange for $20,000,000 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 $20,000,000 in cash (the
"Cross Country Acquisition").
Summarized below is the unaudited pro forma information for the nine months
ended September 30, 1994 and 1995 as if the Cross Country Acquisition and the
Lubbock and Tulsa Acquisitions had been consummated as of the beginning of 1994
and 1995. The pro forma information does not purport to represent
F-19
<PAGE> 1534
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1994 1995
----------- ------------
<S> <C> <C>
Revenues........................................ $ 3,075,000 $ 10,872,000
=========== ============
Net loss........................................ $(1,655,000) $(11,794,000)
=========== ============
Net loss per common share....................... $ (.54) $ (.93)
=========== ============
</TABLE>
(f) Wireless One
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 $10.0 million of notes. A portion of these assets comprise the
assets held for sale presented in the accompanying balance sheet. Wireless One
is a newly-formed corporation into which Wireless One Operating Company, a
privately-held wireless cable company, was merged. On October 18, 1995, Wireless
One completed an initial public offering of 3,000,000 shares of its common stock
and, concurrently therewith, consummated the sale of $150,000,000 in gross
proceeds of 13% Senior Notes due 2003. As a result and pursuant to the merger
agreement, Wireless One repaid the $10.0 million of notes from the proceeds of
the offerings.
In October 1995, the Company executed an agreement to sell wireless cable
channel rights in Flippen, Tennessee for $1.5 million in cash. The transaction
is subject to customary closing conditions, including each party's Board of
Directors and lender approvals, due diligence review and other conditions.
(g) Pending Acquisitions
In September 1995, the Company executed an agreement to acquire Cablemaxx,
Inc. ("Cablemaxx") for approximately $80.8 million in common stock of the
Company. The agreement provides for the conversion of the common stock of
Cablemaxx at a rate of $8.50 per share, subject to adjustment, into common stock
of the Company, with the exchange rate determined by the average price of the
Company's common stock preceding the closing date of the transaction.
In September 1995, the Company entered into agreements to acquire American
Wireless Cable Systems, Inc. ("AWS") and the assets of Wireless Cable TV
Associates #38 (the "Minneapolis Partnership") and Fort Worth Wireless Cable TV
Associates (the "Fort Worth Partnership") for an aggregate of approximately
$65.3 million of common stock of the Company.
In October 1995, the Company entered into a definitive agreement with
Technivision, Inc. ("Technivision") whereby the Company will acquire
substantially all of the assets of Technivision for approximately $36.75 million
of the Company's common stock, less an amount of assumed obligations which shall
not exceed $5.0 million.
These transactions (collectively, the "Transactions") are subject to
certain conditions, including, without limitation, approval by the shareholders
of each company.
The Company is also currently pursuing opportunities to dispose of certain
wireless cable channel rights, presently held by or sought to be acquired by the
Company pursuant to the Transactions, and expects to sell, contribute or
exchange such assets in one or more transactions.
F-20
<PAGE> 1535
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TechniVision, Inc.:
We have audited the accompanying balance sheets of TechniVision, Inc. as of
May 31, 1994 and 1995, and the related statements of operations, stockholders'
deficit and cash flows for each of the years in the three-year period ended May
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TechniVision, Inc. as of May
31, 1994 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended May 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has incurred cumulative losses since inception
of $14,870,712 through May 31, 1995, and as of that date current liabilities
exceeded current assets by $15,086,000. Additional capital or financing is
needed to enable the Company to meet its debt service requirements in fiscal
year 1996. These factors, as more fully discussed in note 2, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
Dallas, Texas
October 25, 1995
F-21
<PAGE> 1536
TECHNIVISION, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOVEMBER
30,
MAY 31, MAY 31, 1995
1994 1995 -----------
----------- ----------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 3,197 $ 51,637 $ 78,124
Subscriber receivables, net of allowance for
doubtful accounts of $48,996 in 1994 and
$80,715 in 1995............................... 349,702 386,390 324,281
Prepaid expenses and other....................... 51,287 38,147 153,044
------------ ------------ ------------
Total current assets..................... 404,186 476,174 555,449
Investment in equity security (note 6)............. -- 1,638,629 1,134,473
Systems and equipment, net (notes 3 and 4)......... 10,310,235 9,401,638 9,001,797
Leased license investment, net of accumulated
amortization of $668,739 in 1994 and $863,504 in
1995............................................. 3,238,648 3,144,649 3,552,846
Other assets, net.................................. 405,166 216,495 306,620
------------ ------------ ------------
$14,358,235 $14,877,585 $14,551,185
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................. $ 1,909,767 $ 1,990,880 $ 2,676,813
Accounts payable -- affiliates................... 63,312 468,886 158,905
Accrued expenses and other liabilities........... 1,185,073 1,642,771 806,353
Current portion of long-term debt (note 4)....... 11,875,980 11,043,590 12,276,898
Note payable -- affiliates....................... 489,201 415,906 955,984
------------ ------------ ------------
Total current liabilities................ 15,523,333 15,562,033 16,874,953
Long-term debt, less current portion (note 4)...... 7,177,542 6,198,499 6,061,259
Stockholders' deficit:
Common stock, $1 par value; authorized 30,000
shares, issued 30,000 shares in 1994 and
1995.......................................... 30,000 30,000 30,000
Paid-in capital.................................. 6,208,311 7,957,765 7,957,765
Accumulated deficit.............................. (14,580,951) (14,870,712) (16,372,792)
------------ ------------ ------------
Total stockholders' deficit.............. (8,342,640) (6,882,947) (8,385,027)
Commitments (notes 5 and 8)
------------ ------------ ------------
$14,358,235 $14,877,585 $14,551,185
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 1537
TECHNIVISION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MAY 31 NOVEMBER 30
----------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription......................... $ 3,796,172 $ 5,214,508 $ 6,663,988 $3,330,288 $3,268,823
Installation......................... 107,750 225,067 92,145 41,417 63,528
----------- ----------- ----------- ---------- ----------
Total revenues............... 3,903,922 5,439,575 6,756,133 3,371,705 3,332,351
----------- ----------- ----------- ---------- ----------
Operating expenses:
Systems operations................... 1,709,254 2,991,486 3,642,681 2,086,496 1,749,005
Selling, general and
administrative.................... 1,617,598 2,664,162 2,803,415 1,138,360 1,364,880
Depreciation and amortization........ 1,977,352 2,371,891 2,623,736 1,323,662 1,299,603
----------- ----------- ----------- ---------- ----------
Total operating expenses..... 5,304,204 8,027,539 9,069,832 4,548,518 4,413,488
----------- ----------- ----------- ---------- ----------
Operating loss............... (1,400,282) (2,587,964) (2,313,699) (1,176,813) (1,081,137)
----------- ----------- ----------- ---------- ----------
Other income (expense):
Gain on sale of assets (note 6)...... -- -- 3,362,230 -- 253,352
Interest expense..................... (1,063,620) (959,647) (1,338,292) (543,326) (674,295)
Other expense........................ -- (105,000) -- -- --
----------- ----------- ----------- ---------- ----------
Total other income
(expense).................. (1,063,620) (1,064,647) 2,023,938 (543,326) (420,943)
----------- ----------- ----------- ---------- ----------
Net loss..................... $(2,463,902) $(3,652,611) $ (289,761) (1,720,139) (1,502,080)
=========== =========== =========== ========== ==========
Net loss per common share.............. $ (82.13) $ (121.75) $ (9.66) $ (57.34) (50.07)
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 1538
TECHNIVISION, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1992............... 30,000 $30,000 $4,739,185 $(8,464,438) $(3,695,253)
Net investment by parent............ -- -- 1,183,344 -- 1,183,344
Net loss............................ -- -- -- (2,463,902) (2,463,902)
------ ------- ---------- ------------ -----------
Balance, May 31, 1993............... 30,000 30,000 5,922,529 (10,928,340) (4,975,811)
Net investment by parent............ -- -- 285,782 -- 285,782
Net loss............................ -- -- -- (3,652,611) (3,652,611)
------ ------- ---------- ------------ -----------
Balance, May 31, 1994............... 30,000 30,000 6,208,311 (14,580,951) (8,342,640)
Net investment by parent............ -- -- 1,749,454 -- 1,749,454
Net loss............................ -- -- -- (289,761) (289,761)
------ ------- ---------- ------------ -----------
Balance, May 31, 1995............... 30,000 30,000 7,957,765 (14,870,712) (6,882,947)
Net loss (unaudited)................ -- -- -- (1,502,080) (1,502,080)
------ ------- ---------- ------------ -----------
Balance, November 30, 1995
(unaudited)....................... 30,000 $30,000 $7,957,765 $(16,372,792) $(8,385,027)
====== ======= ========== ============ ===========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 1539
TECHNIVISION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MAY 31, NOVEMBER 30,
-------------------------------------- ------------------------
1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(2,463,902) $(3,652,611) $ (289,761) $(1,720,139) $(1,502,080)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization.... 1,977,352 2,371,891 2,623,736 1,323,662 1,299,603
Gain on sale of assets........... -- -- (3,362,230) -- (253,352)
Changes in assets and
liabilities:
Subscriber receivables......... (35,566) (176,261) (36,688) (146,225) (62,109)
Prepaid expenses and other..... (45,088) (139,846) 23,875 (57,090) (114,897)
Accounts payable, accrued
expenses and other
liabilities................. (220,915) 128,918 944,385 544,053 8,425
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities................ (788,119) (1,467,909) (96,683) (55,739) (624,410)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets........ -- -- 1,958,575 -- 757,508
Purchases of systems and
equipment........................ (1,225,104) (4,506,900) (1,514,824) (501,726) (603,216)
Expenditures for leased licenses.... -- (139,098) (163,354) (81,677) --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in)
investing activities...... (1,225,104) (4,645,998) 280,397 (583,403) 154,292
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net investment by parent............ 1,183,344 285,782 1,749,454 988,824 --
Advances from investors............. 1,124,000 5,876,000 -- -- --
Proceeds (payments) on notes
payable.......................... (294,370) (46,178) (1,884,728) (309,728) 496,605
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities................ 2,012,974 6,115,604 (135,274) 679,096 496,605
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash....... (249) 1,697 48,440 39,954 26,487
Cash at beginning of period........... 1,749 1,500 3,197 3,197 51,637
----------- ----------- ----------- ----------- -----------
Cash at end of period................. $ 1,500 $ 3,197 $ 51,637 $ 43,151 $ 78,124
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 1540
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED MAY 31, 1995
(INFORMATION AS OF NOVEMBER 30, 1995 AND FOR THE SIX-MONTH PERIODS
ENDED NOVEMBER 30, 1994 AND 1995 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
TechniVision, Inc. ("TechniVision" or the "Company") develops, owns and
operates wireless cable television systems. The Company currently has wireless
cable channel rights in three markets (Dayton, Ohio and El Paso and Corpus
Christi, Texas) and has operational systems in the Dayton and Corpus Christi
markets. The Company is a majority-owned subsidiary of Three Sixty Corp. ("Three
Sixty").
(b) Investment in Equity Security
The Company's investment in equity security is stated at cost and earnings
are realized as dividends are received.
(c) Systems and Equipment
Systems and equipment are stated at cost and include the cost of
transmission equipment as well as subscriber installations. Reception equipment
on subscriber premises and costs associated with initial subscriber
installations are capitalized. Upon subscriber disconnect, the Company continues
to depreciate the full capitalized installation cost subsequent to the
disconnection. Depreciation and amortization are recorded on a straight-line
basis for financial reporting purposes over useful lives ranging from 3 to 10
years. Repair and maintenance costs are charged to expense when incurred;
renewals and betterments are capitalized.
Equipment awaiting installation consists primarily of accessories, parts
and supplies for subscriber installations and is stated at the lower of average
cost or market.
(d) Intangible Assets
Leased license investment includes costs incurred to acquire wireless cable
channel rights. Costs incurred to acquire channel rights issued by the Federal
Communications Commission ("FCC") are deferred and amortized ratably over an
estimated useful life of 20 years beginning with inception of service in each
respective market. As of May 31, 1994 and 1995, approximately $276,567 and
$184,155 of the leased license investment was not yet subject to amortization.
The Company continually reevaluates the propriety of the carrying amounts of the
leased license investment based on undiscounted future cash flows with respect
to each market as well as the amortization period to determine whether current
events or circumstances warrant adjustments to the carrying amounts or a revised
estimate of the useful life.
(e) Revenue Recognition
Revenues from subscribers are recognized in the period that the service is
provided. Installation fees are recognized upon origination of service to a
subscriber to the extent of costs incurred to obtain subscribers. Installation
revenues in excess of such costs will be deferred and amortized over six years.
(f) Systems Operations
Systems operations expenses consist principally of programming fees,
channel lease costs, tower rental and other costs of providing services.
F-26
<PAGE> 1541
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Income Taxes
The Company is included in the consolidated federal income tax return of
Three Sixty. Total current and deferred tax expense is allocated to the Company
as if such taxes were calculated on a separate return basis under the asset and
liability method prescribed by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." For the three years ended May 31, 1995, no
tax benefit or expense was recorded by the Company as a result of losses
incurred by the Company.
(h) Statements of Cash Flows
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Cash paid for interest during 1993, 1994 and 1995 was $1,049,926, $780,570
and $1,334,496, respectively.
(i) Interim Financial Information
In the opinion of management, the accompanying unaudited condensed
financial information of the Company contains all adjustments, consisting only
of those of a recurring nature, necessary to present fairly the Company's
financial position as of November 30, 1995, and the results of its operations
and its cash flows for the six-month periods ended November 30, 1994 and 1995.
These results are not necessarily indicative of the results to be expected for
the full fiscal year.
(2) REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. As shown on the accompanying balance sheet, the
Company's current liabilities exceeded its current assets by $15,086,000 at May
31, 1995. In addition, the Company has sustained losses through May 31, 1995 of
$14,780,712. In order for the Company to meet its debt service requirements in
fiscal year 1996, the Company must obtain additional capital or financing. Given
these facts, the ability of the Company to continue as a going concern and the
recoverability of a major portion of its recorded asset amounts is dependent
upon its ability to meet its financing requirements on a continuing basis.
The Company and its stockholders have been exploring financing and
capitalization alternatives, including the possibility of a sale of the Company
or its assets. As a result, in October 1995, the Company entered into a
definitive agreement with Heartland Wireless Communications, Inc. ("Heartland")
whereby Heartland will acquire substantially all of the assets of the Company
for approximately $36.75 million of Heartland common stock, less an amount of
assumed obligations which shall not exceed $5.0 million. This transaction is
subject to certain conditions and there can be no assurance that the Company
will be able to consummate such transaction. The financial statements do not
include any adjustments relating to the recoverability of recorded asset amounts
or amounts of liabilities that might be necessary depending upon the outcome of
these uncertainties.
F-27
<PAGE> 1542
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) SYSTEMS AND EQUIPMENT
Systems and equipment consists of the following at May 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Equipment awaiting installation........................... $ 497,757 $ 385,596
Subscriber premises equipment and installation costs...... 10,865,123 11,762,796
Transmission equipment and system construction costs...... 3,384,604 3,922,033
Office furniture and equipment............................ 1,063,133 1,200,060
Buildings and leasehold improvements...................... 342,199 342,199
----------- -----------
16,152,816 17,612,684
Accumulated depreciation and amortization................. (5,842,581) (8,211,046)
----------- -----------
$10,310,235 $9,401,638
=========== ===========
</TABLE>
As of May 31, 1994 and 1995, equipment awaiting installation and
approximately $285,435 and $230,481 of transmission equipment and system
construction costs were not yet subject to depreciation.
(4) LONG-TERM DEBT
Long-term debt at May 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Philips Credit Corporation................................ $10,000,000 $ 9,326,358
Addison Group............................................. 1,660,000 1,600,000
Investor advances/UCL Disgorgement Fund................... 7,000,000 6,000,000
Other..................................................... 393,522 315,731
----------- -----------
19,053,522 17,242,089
Less current portion...................................... 11,875,980 11,043,590
----------- -----------
$ 7,177,542 $ 6,198,499
=========== ===========
</TABLE>
In 1990, TechniVision and Philips Credit Corporation ("PCC") entered into a
credit agreement, as amended, whereby the Company could borrow a maximum of
$10.0 million to finance principally the construction of and initial operational
costs for the wireless cable system located in Corpus Christi. As of May 31,
1995, outstanding borrowings under the credit agreement amounted to $9,326,000.
The note is secured by an interest in certain assets of the Company and bears
interest at a rate floating at prime (9.00% at May 31, 1995) plus 1.85%.
The Company has failed to make payments to PCC in accordance with the
credit agreement and has failed to comply with certain financial and other
covenants. As a result, on March 27, 1995, PCC and the Company entered into a
forbearance agreement which, among other things, extended the due date of the
note to January 2, 1996, contingent upon the Company entering into an agreement
by September 30, 1995 to sell the assets of the Company.
In connection with Three Sixty's acquisition of TechniVision in October
1989, the Company entered into a compensation agreement with the seller that
provided for additional payments during the first five years after launching a
market based on the number of subscribers added or a payment of $750,000 for
each market sold during such period. Amounts paid under the compensation
agreement with respect to additional subscribers are recorded as additional
leased license investment. As of May 31, 1995, the Company has remaining
obligations of $1,600,000 relating to the Dayton and Corpus Christi systems. The
notes are secured by security interests in certain assets of the Company and
bear interest at rates ranging from 8% to 10%. The obligations are currently
due, and the lenders may, at their option, give notice that the amounts
outstanding are
F-28
<PAGE> 1543
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
immediately payable. As discussed in note 2, the Company and its stockholders
have been exploring financing and capitalization alternatives, including the
possibility of a sale of the Company or its assets. If the sale of the Company
to Heartland is consummated, an additional $750,000 will be payable to the
seller related to the El Paso market.
During 1993, the Company entered into a series of agreements with certain
third parties for the purpose of raising capital for the development of the
Dayton, Corpus Christi, El Paso and Salt Lake City systems. The third parties
were to receive interests in such systems in consideration for raising the
agreed upon capital. Solely as a result of having received funds derived from
securities laws violations committed by others, the Company was named as a
relief defendant by the Securities and Exchange Commission ("SEC"). As a result,
in February 1995, the Company voluntarily entered into an agreement with the SEC
to disgorge the sum of $7.0 million, representing the proceeds it received from
securities laws violations committed by others. The note is noninterest-bearing
and is payable in full on December 31, 1996 or upon the sale of TechniVision. In
April 1995, the Company paid $1.0 million on the note out of the proceeds from
the sale of the Salt Lake City market (see note 6).
(5) LEASES
The Company leases from third parties channel rights licensed by the FCC.
Under FCC policy, the base term of most of these leases cannot exceed ten years
from the time the lessee begins using the leased channel rights. FCC licenses
for wireless cable channels range from five to ten years, and there is no
automatic renewal of such licenses. The use of such channels by third parties is
subject to regulation by the FCC and, therefore, the Company's ability to
continue to enjoy the benefits of these leases is dependent upon the third party
lessor's continuing compliance with applicable regulations. The remaining terms
of the Company's channel leases range from less than one year to 10 years. Most
of the Company's leases provide for automatic renewal of their terms upon FCC
renewal of the underlying license, grant the Company a right of first refusal
and/or require the parties to negotiate renewal in good faith. Although the
Company does not believe that the termination of or failure to renew a single
channel lease could adversely affect the Company, several of such terminations
or failures in one or more markets that the Company actively serves could have a
material adverse effect on the Company. Channel rights lease agreements
generally require payments based on the greater of specified minimums or amounts
based upon various factors, such as subscriber levels or subscriber revenues.
Payments under the channel rights lease agreements 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. Channel
rights lease expense was $61,190, $123,510 and $169,964 for the years ended May
31, 1993, 1994 and 1995, respectively.
The Company also has certain operating leases for office space and
transmission tower space. Rent expense incurred in connection with other
operating leases was $90,059, $142,326 and $159,383 for the years ended May 31,
1993, 1994 and 1995, respectively.
Future minimum lease payments due under channel rights leases for
operational systems and other noncancellable operating leases in effect at May
31, 1995 are as follows:
<TABLE>
<CAPTION>
CHANNEL OTHER
YEAR ENDING RIGHTS OPERATING
MAY 31, LEASES LEASES
- ----------- -------- --------
<S> <C> <C>
1996............................................ $307,889 $148,770
1997............................................ 307,889 158,970
1998............................................ 325,889 163,170
1999............................................ 361,889 116,000
2000............................................ 361,889 99,600
</TABLE>
F-29
<PAGE> 1544
TECHNIVISION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) SETTLEMENT AGREEMENT/SALE OF SALT LAKE CITY MARKET
In February 1995, the Company sold its wireless cable channel rights in the
Salt Lake City market to CableMaxx, Inc. ("CableMaxx"). The sales price
consisted of cash of $5.85 million and 907,311 restricted shares of CableMaxx
common stock. In April 1995, the Company entered into a settlement agreement
with various third parties with respect to certain claims and disputes which
arose in connection with the development of the Dayton, Corpus Christi, El Paso
and Salt Lake City systems (see note 4). The settlement agreement provided for,
among other things, the dismissal of certain actions and mutual releases of
claims among the parties and the manner of distribution among the parties to the
settlement agreement of the cash and CableMaxx common stock from the sale of the
Salt Lake City wireless cable channel rights. As a result of the sale of the
channel rights and the settlement agreement, the Company received 50% of the
proceeds from the sale and recorded a gain from the sale of the Salt Lake City
channel rights of $3,362,000 during the year ended May 31, 1995.
(7) RELATED PARTY TRANSACTIONS
The Company paid $305,496 in 1993, $1,055,029 in 1994 and $632,130 in 1995
to various affiliates for services performed in connection with the development
of wireless cable television systems and certain administrative services.
(8) COMMITMENTS
The Company has entered into a series of noncancellable agreements to
purchase entertainment programming for retransmission which expire in 1994
through 1997. The agreements generally require monthly payments based upon the
number of subscribers to the Company's systems, subject to certain minimums.
F-30
<PAGE> 1545
HEARTLAND WIRELESS COMMUNICATIONS, INC.
PRO FORMA FINANCIAL INFORMATION FOR CONSUMMATED EVENTS
The following Pro Forma Statements for Consummated Events present pro forma
financial information of the Company with respect to various events (other than
the Transactions). The Pro Forma Statements for Consummated Events are further
adjusted for the effects of the Transactions as set forth on pages 77 to 100 of
this Proxy Statement/Prospectus.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet for
Consummated Events as of September 30, 1995 gives effect to (i) the October 18,
1995 contribution of wireless cable systems located in Milano, Texas and Monroe,
Louisiana and wireless cable channel rights in other markets located in Texas,
Louisiana, Alabama, Georgia and Florida to Wireless One (the "Wireless One
Transaction"), (ii) the issuance of approximately 91,000 shares of Heartland
Common Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One, (iii) the issuance by Wireless One of the $10.0 million of
Wireless One notes as part of the Wireless One Transaction and the subsequent
repayment of such notes, and (iv) the increase in the Company's equity interest
in Wireless One as part of the Wireless One Transaction as if such events had
occurred on September 30, 1995. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations for Consummated Events for the year ended December 31,
1994 and the nine months ended September 30, 1995 give effect to (i) the
issuance of 2,415,000 shares of Heartland Common Stock in the Company's initial
public offering in April 1994, (ii) the sale in November 1994 of the Convertible
Notes, (iii) the 1994 acquisitions of wireless cable systems in Milano, Texas
and Lindsay, Oklahoma, (iv) the 1995 acquisitions of wireless cable systems in
Shaw, Kansas, Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas and Sikeston,
Missouri and wireless cable channel rights in certain non-operating markets, (v)
the 1994 and 1995 purchases by and distribution to the Company of certain
non-operating markets previously owned by RuralVision Joint Venture, (vi) the
issuance of 998,318 shares of Heartland Common Stock in 1994 and 1995 in
exchange for minority interests in certain of the Company's subsidiaries, (vii)
the issuance in July 1995 of 1,029,707 shares of Heartland Common Stock to
RuralVision Joint Venture in exchange for $20,000,000 cash, (viii) the
elimination of historical revenues and expenses associated with the wireless
cable systems located in Milano, Texas and Monroe, Louisiana which were
contributed to Wireless One in connection with the Wireless One Transaction and
(ix) the Company's equity in pro forma losses of Wireless One, as if such events
had occurred on January 1, 1994.
The pro forma statements of operations financial information does not give
effect to the sale of the Notes by the Company in April 1995. Assuming the Notes
had been issued on January 1, 1994, interest expense, amortization of related
debt issuance costs and amortization of debt discount would have increased by
approximately $14 million and $4.6 million for the year ended December 31, 1994
and the nine months ended September 30, 1995, respectively.
The Pro Forma Statements for Consummated Events and accompanying notes
should be read in conjunction with the Company's consolidated financial
statements (including notes thereto) appearing elsewhere in the Prospectus. The
Pro Forma Statements for Consummated Events do not purport to represent what the
Company's results of operations or financial position actually would have been
had such events occurred on the dates specified, or to project the Company's
results of operations or financial position for any future period or date. The
pro forma adjustments are based upon available information and certain
adjustments that management believes are reasonable. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the Pro Forma Statements for Consummated Events.
F-31
<PAGE> 1546
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET FOR CONSUMMATED EVENTS
SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
WIRELESS
HISTORICAL ONE HEARTLAND
HEARTLAND TRANSACTION PRO FORMA
------------ ----------- ------------
<S> <C> <C> <C>
Cash and cash equivalents.................... $ 37,155,064 $10,000,000(B) $ 47,155,064
Restricted investments....................... 11,669,874 -- 11,669,874
Net assets held for cash sale or exchange.... 9,200,000 (7,000,000)(B) 2,200,000
Other current assets......................... 3,389,470 (354,189)(A) 3,035,281
------------ ----------- ------------
Total current assets............... 61,414,408 2,645,811 64,060,219
Systems and equipment, net................... 46,027,017 (2,658,065)(A) 43,368,952
Leased license investment, net............... 64,726,389 (4,244,113)(A) 60,482,276
Investment in Wireless One................... -- 14,044,155(A) 14,602,442
10,000,000)(B)
2,000,000(C)
8,558,287(D)
Notes receivable............................. -- --
Excess of cost over fair value of net assets
acquired................................... 4,470,286 4,470,286
Restricted investments....................... 13,077,340 13,077,340
Net assets held for exchange................. -- --
Other assets , net........................... 10,435,034 10,435,034
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt............ $ 616,610 $ $ 616,610
Other current liabilities.................... 10,244,363 (113,732)(A) 10,130,631
------------ ----------- ------------
Total current
liabilities...................... 10,860,973 (113,732) 10,747,241
Long-term debt, less current portion......... 139,428,429 139,428,429
Deferred income taxes........................ 1,287,560 (98,480)(A) 1,189,080
Other liabilities............................ 279,695 279,695
Stockholders' equity......................... 48,293,817 2,000,000(C) v58,852,104
8,558,287(D)
------------ ----------- ------------
$200,150,474 $10,346,075 $210,496,549
============ =========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-32
<PAGE> 1547
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Total revenues.................................................... $2,229,494 $5,472,554(E) $ (111,225)(M) $ 7,590,823
----------- ---------- ----------- -----------
Operating expenses:
Systems operations.............................................. 762,501 2,362,388(E) (55,590)(M) 4,188,612
1,119,313(F)
Selling, general and administrative............................. 4,183,307 2,300,261(E) (105,599)(M) 6,377,969
Depreciation and amortization................................... 1,097,668 1,322,786(E) (44,931)(M) 3,263,717
68,778(G)
819,416(H)
----------- ---------- ----------- -----------
Total operating expenses.................................. 6,043,476 7,992,942 (206,120) 13,830,298
----------- ---------- ----------- -----------
Operating loss............................................ (3,813,982) (2,520,388) 94,895 (6,239,475)
Interest expense.................................................. (589,767) (3,595,266)(I) (4,185,033)
Equity in losses of investees..................................... (386,985) 386,985(J) (1,004,594)(N) (1,004,594)
Interest income and other......................................... 152,450 -- 152,450
----------- ---------- ----------- -----------
Loss before income taxes.................................. (4,638,284) (5,728,669) (909,699) (11,276,652)
Income tax benefit................................................ 1,594,963 863,849(K) 2,458,812
----------- ---------- ----------- -----------
Net loss.................................................. $(3,043,321) $(4,864,820) $ (909,699) $(8,817,840)
=========== ========== =========== ===========
Net loss per share................................................ $ (0.30) $ (0.70)
===========
Weighted average shares outstanding............................... 10,041,000 2,407,412(L) 93,032(C) 12,541,444
=========== ========== =========== ===========
</TABLE>
See accompanying notes to pro forma statements.
F-33
<PAGE> 1548
HEARTLAND WIRELESS COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR CONSUMMATED EVENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
WIRELESS
HISTORICAL ACQUISITIONS ONE HEARTLAND
HEARTLAND AND OTHER TRANSACTION PRO FORMA
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenues................................................. $ 9,292,837 $1,283,545(O) $ (632,173)(M) $ 9,944,209
------------ ----------- ----------- ------------
Operating expenses:
Systems operations........................................... 2,894,074 627,144(O) (399,687)(M) 3,371,531
250,000(P)
Selling, general and administrative.......................... 7,449,699 587,774(O) (348,447)(M) 7,689,026
Depreciation and amortization................................ 3,966,120 350,966(O) (193,962)(M) 4,396,920
256,602(Q)
17,194(G)
------------ ----------- ----------- ------------
Total operating expenses............................... 14,309,893 2,089,680 (942,096) 15,457,477
------------ ----------- ----------- ------------
Operating loss......................................... (5,017,056) (806,135) 309,923 (5,513,268)
Interest expense............................................... (8,908,459) (8,908,459)
Equity in losses of investees.................................. (128,663) 128,663(J) (1,049,583)(N) (1,049,583)
Interest income and other...................................... 1,568,946 1,568,946
------------ ----------- ----------- ------------
Loss before income taxes............................... (12,485,232) (677,472) (739,660) (13,902,364)
Income tax benefit............................................. 1,307,137 (1,307,137)(K) --
------------ ----------- ----------- ------------
Net loss............................................... $(11,178,095) $(1,984,609) (739,660) $(13,902,364)
============ =========== =========== ============
Net loss per share............................................. $(0.96) $(1.10)
====== ======
Weighted average shares outstanding............................ 11,624,000 874,895(L) 93,032 (C) 12,591,927
============ =========== =========== ============
</TABLE>
See accompanying notes to pro forma statements.
F-34
<PAGE> 1549
HEARTLAND WIRELESS COMMUNICATIONS, INC.
NOTES TO PRO FORMA STATEMENTS FOR CONSUMMATED EVENTS
(A) Reflects the contribution of wireless cable systems located in Milano,
Texas and Monroe, Louisiana and wireless cable channel rights in other
markets located in Texas, Louisiana, Alabama, Georgia and Florida to
Wireless One.
(B) Reflects the issuance by Wireless One of the $10.0 million of Wireless One
notes as part of the Wireless One Transaction and subsequent repayment of
such notes.
(C) Reflects the issuance of approximately 93,000 shares of Heartland Common
Stock related to the acquisition of wireless cable channel rights in a
non-operating Alabama market and the contribution of such channel rights to
Wireless One.
(D) Reflects the increase in Heartland's equity interest in Wireless One as
part of the Wireless One Transaction as if such event had occurred on
September 30, 1995. Subsequent to the Wireless One Transaction, Heartland's
equity interest in Wireless One was approximately 26.6%.
(E) Reflects the historical revenues and expenses associated with the
acquisitions of wireless cable systems in Milano, Texas in December 1994,
Lindsay, Oklahoma in December 1994, Shaw, Kansas in January 1995, Lubbock,
Texas in May 1995, Lykens, Ohio in July 1995, Paragould, Arkansas in July
1995, and Sikeston, Missouri in July 1995, until the respective acquisition
dates of such systems.
(F) Reflects the incremental lease rental payments associated with the 1994 and
1995 purchases by and distribution to Heartland of certain non-operating
markets previously owned by RuralVision Joint Venture.
(G) Reflects incremental amortization of the excess purchase price over
the fair value of net identifiable assets acquired associated with the
acquisitions of certain minority interests. Amortization of the excess
purchase price over the fair value of net identifiable assets acquired is
based on an estimated useful life of 20 years.
(H) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Milano,
Texas, Lindsay, Oklahoma, Shaw, Kansas, Lubbock, Texas, Lykens, Ohio,
Paragould, Arkansas, and Sikeston, Missouri. The acquisition dates of each
respective system are set forth in note (E). Amortization of leased license
investment is calculated beginning with inception of service in each
respective market.
(I) Reflects incremental interest expense on $40 million of Convertible Notes
issued by Heartland in November 1994 at a rate of 9.0% and incremental
amortization of related debt issuance costs by the interest method over the
life of such notes.
(J) Reflects the reversal of equity in losses in RuralVision Joint Venture due
to the termination of such venture in January 1995 and acquisition of such
venture's markets by Heartland.
(K) Reflects the adjustment to income tax benefit related to pro forma
adjustments. Income tax benefit reflects the recognition of deferred tax
assets to the extent such assets can be realized through reversals of
existing taxable differences.
(L) Reflects the incremental increase in weighted average shares of Heartland
Common Stock outstanding related to the issuance of 2,415,000 shares in
Heartland's initial public offering in April 1994, the exchange of 694,280
and 304,038 shares for minority interests in certain of the Company's
subsidiaries in 1994 and 1995, respectively, and the issuance of 1,029,707
shares in July 1995 to RuralVision Joint Venture in exchange for
$20,000,000 cash.
(M) Reflects the elimination of historical revenues and expenses associated
with the wireless cable systems located in Milano, Texas and Monroe,
Louisiana which were contributed to Wireless One.
F-35
<PAGE> 1550
(N) Reflects Heartland's equity in pro forma losses of Wireless One as if the
Wireless One Transaction had occurred on January 1, 1994.
(O) Reflects the historical revenues and expenses associated with the wireless
cable systems in Lubbock, Texas, Lykens, Ohio, Paragould, Arkansas, and
Sikeston, Missouri until their respective acquisition dates. The
acquisition dates of each respective system are set forth in note (E).
(P) Reflects the incremental lease rental payments associated with the 1995
purchases by and distribution to the Company of certain non-operating
markets previously owned by RuralVision Joint Venture.
(Q) Reflects the incremental amortization of leased license investment
associated with the acquisitions of wireless cable systems in Lubbock,
Texas, Lykens, Ohio, Paragould, Arkansas, and Sikeston, Missouri. The
acquisition dates of each respective system are set forth in note (E).
Amortization of leased license investment is calculated beginning with
inception of service in each respective market.
F-36
<PAGE> 1551
A
APPENDIX A
AMENDED AND RESTATED
TSC ASSET PURCHASE AGREEMENT
<PAGE> 1552
A
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
BY AND AMONG
THREE SIXTY CORP.,
TECHNIVISION, INC.,
AND
HEARTLAND WIRELESS COMMUNICATIONS, INC.
OCTOBER 19, 1995
<PAGE> 1553
A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1. CLOSING; EXCHANGE........................................................... A-2
1.1 Purchase and Sale of Assets............................................ A-2
1.2 Acquisition Consideration.............................................. A-2
1.3 Liquidation of Seller; Creation of Escrows: Distribution of Shares..... A-2
1.4 Prorations............................................................. A-4
1.5 Further Assurances..................................................... A-5
1.6 Closing, Closing Time, Date and Place.................................. A-5
1.7 Allocation of Acquisition Consideration................................ A-5
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER.................................... A-5
2.1 Organization; Qualification............................................ A-5
2.2 Title to Assets; Outstanding Rights.................................... A-5
2.3 Capitalization......................................................... A-5
2.4 Authority; Enforceability; Non-Contravention........................... A-6
2.5 Financial Statements................................................... A-6
2.6 Property............................................................... A-7
2.7 Receivables............................................................ A-7
2.8 Contracts.............................................................. A-7
2.9 FCC Matters............................................................ A-8
2.10 Insurance.............................................................. A-9
2.11 Litigation............................................................. A-9
2.12 Governmental Permits................................................... A-9
2.13 Compliance With Laws................................................... A-9
2.14 Environmental Matters.................................................. A-9
2.15 Intellectual Property.................................................. A-9
2.16 Taxes and Fees......................................................... A-10
2.17 Regulatory Compliance.................................................. A-10
2.18 Interference........................................................... A-11
2.19 Employees.............................................................. A-11
2.20 Finder's Fees.......................................................... A-11
2.21 Programming and Retransmission Agreements.............................. A-11
2.22 Certain Activities..................................................... A-12
2.23 Subscribers............................................................ A-12
2.24 Others Approvals....................................................... A-12
2.25 Further Representation................................................. A-12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND................................. A-12
3.1 Organization; Qualification............................................ A-12
3.2 Authority; Enforceability; Non-Contravention........................... A-12
3.3 Litigation............................................................. A-12
3.4 Consents and Approvals................................................. A-12
3.5 Capitalization......................................................... A-12
3.6 Financial Statements................................................... A-13
3.7 SEC Filings............................................................ A-13
3.8 ....................................................................... A-13
3.9 ....................................................................... A-13
3.10 Finder's Fees.......................................................... A-13
3.11 Further Representation................................................. A-13
</TABLE>
A-i
<PAGE> 1554
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 4. COVENANTS OF SELLER......................................................... A-13
4.1 Operation Prior to the Closing Date.................................... A-13
4.2 Consents............................................................... A-14
4.3 Renewal or Extension of FCC Authorizations............................. A-14
4.4 No Solicitation........................................................ A-15
4.5 Audit of Financial Statements.......................................... A-15
4.6 Reorganization......................................................... A-15
4.7 NOLs................................................................... A-15
ARTICLE 5. ADDITIONAL AGREEMENTS....................................................... A-16
5.1 Shareholders Meeting................................................... A-16
5.2 Registration Statement and Proxy Statement............................. A-16
5.3 Access................................................................. A-17
5.4 Compliance with the Securities Act..................................... A-17
5.5 Reasonable Efforts..................................................... A-17
5.6 Public Announcements................................................... A-18
5.7 Notification of Certain Matters........................................ A-18
5.8 Hart-Scott-Rodino Act Filing........................................... A-18
5.9 Employees.............................................................. A-18
5.10 Exhibits and Schedules................................................. A-18
5.11 Sale of Dayton, Ohio Market............................................ A-18
5.12 Noncompetition......................................................... A-19
5.13 Excess Consents........................................................ A-19
5.14 Updated Schedules...................................................... A-19
5.15 Lender Arrangements.................................................... A-20
ARTICLE 6. GENERAL CONDITIONS TO CLOSING............................................... A-21
6.1 Registration Statement................................................. A-21
6.2 No Order............................................................... A-21
6.3 Other Approvals........................................................ A-21
6.4 Heartland Lenders' Consents............................................ A-21
6.5 Seller Creditors' Consents............................................. A-21
6.6 Lender Arrangements.................................................... A-21
6.7 Exhibits............................................................... A-21
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING........................................... A-21
7.1 Heartland Approval..................................................... A-21
7.2 Representations and Warranties......................................... A-22
7.3 Seller's Documents..................................................... A-22
7.4 No Material Adverse Change............................................. A-22
7.5 Non-Competition........................................................ A-22
7.6 Seller's Obligations Performed......................................... A-22
7.7 Heartland's Investigation.............................................. A-22
7.8 Closing Share Price.................................................... A-23
7.9 Minimum Consents....................................................... A-23
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.............................................. A-23
8.1 Stockholder Approval................................................... A-23
8.2 Representations and Warranties......................................... A-23
8.3 Heartland's Documents.................................................. A-23
8.4 Heartland Obligations Performed........................................ A-23
8.5 No Material Changes.................................................... A-23
8.6 Closing Share Price.................................................... A-23
</TABLE>
A-ii
<PAGE> 1555
A
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 9. INDEMNIFICATION............................................................. A-23
9.1 Provisions Regarding Representations and Warranties.................... A-23
9.2 Indemnification by Seller.............................................. A-24
9.3 Limitation on Claims of Heartland...................................... A-24
9.4 Indemnification by Heartland........................................... A-24
9.5 Limitation on Claims of Seller......................................... A-24
9.6 Notice of Claims....................................................... A-25
9.7 Third Party Claims..................................................... A-25
ARTICLE 10. TERMINATION................................................................ A-25
10.1 Termination............................................................ A-25
10.2 Termination by Seller.................................................. A-25
10.3 Termination by Heartland............................................... A-25
10.4 Effect of Termination.................................................. A-26
ARTICLE 11. DEFINITIONS................................................................ A-26
11.1 Definitions............................................................ A-26
11.2 Defined Terms.......................................................... A-33
ARTICLE 12. GENERAL PROVISIONS AND OTHER AGREEMENTS.................................... A-34
12.1 Notices................................................................ A-34
12.2 Fees and Expenses...................................................... A-34
12.3 Interpretation......................................................... A-34
12.4 Counterparts........................................................... A-34
12.5 Miscellaneous.......................................................... A-35
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.2 Form of Assumption Agreement
Exhibit 1.3(a) Form of Exchange Agreement
Exhibit 1.3(c) Three Sixty Liquidation Plan
Exhibit 4.3 Form of Estoppel Certificate
Exhibit 5.4 Lock-Up Agreement for Rule 145 Affiliates
Exhibit 5.13 Form of Management/Option Agreement
Exhibit 7.3(a) Form of Bill of Sale
Exhibit 7.3(e)-1 Form of Seller Legal Opinion
Exhibit 7.3(e)-2 Form of Seller FCC Opinion
Exhibit 7.5 Form of Non-Competition Agreement
Exhibit 8.3 Form of Heartland Legal Opinion
</TABLE>
A-iii
<PAGE> 1556
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 Excluded Assets
Schedule 2.2 Exceptions to Title; Outstanding Rights
Schedule 2.3 Three Sixty Stockholders and Holders of Certain Rights
Schedule 2.4 Adverse Disclosure Regarding Non-Contravention
Schedule 2.5 Financial Statements
Schedule 2.6(a) Equipment
Schedule 2.6(b) Facilities
Schedule 2.6(c) Non-owned Property
Schedule 2.7 Accounts Receivable
Schedule 2.8 Contracts
Schedule 2.9(a) Channel Leases
Schedule 2.9(b) Licenses and FCC Permits
Schedule 2.9(c) Applications
Schedule 2.9(d) Adverse FCC Disclosures
Schedule 2.10 Insurance
Schedule 2.11 Litigation
Schedule 2.13 Adverse Disclosures Regarding Compliance with Laws
Schedule 2.14 Adverse Disclosures Regarding Environmental Matters
Schedule 2.15 Intellectual Property
Schedule 2.16 Adverse Disclosures Regarding Taxes
Schedule 2.16(c) NOLs as of May 31, 1995
Schedule 2.17 Adverse Disclosures Regarding Regulatory Compliance
Schedule 2.18 Interference
Schedule 2.19 Employees
Schedule 2.21 Programming and Retransmission Agreements
Schedule 2.22 Certain Activities
Schedule 2.23 Subscribers
Schedule 5.13 Required Consents; Stipulated Consent Amounts
Schedule 7.5 Persons to Execute Non-Competition Agreement
</TABLE>
A-iv
<PAGE> 1557
A
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this "Agreement"), is
made and entered into as of the 19th day of October, 1995, by and between THREE
SIXTY CORP., a New Jersey corporation ("Seller"), TECHNIVISION, INC., a Texas
corporation ("Technivision"), and HEARTLAND WIRELESS COMMUNICATIONS, INC., a
Delaware corporation ("Heartland").
RECITALS OF THE PARTIES:
WHEREAS, Seller owns substantially all of the Common Stock of Technivision;
WHEREAS, Technivision is the owner of certain wireless cable television
assets necessary and appropriate to provide wireless cable television service in
the metropolitan areas of Corpus Christi, Texas, El Paso, Texas and Dayton, Ohio
(collectively, the "Markets") and is so providing such service in the Corpus
Christi, Texas and Dayton, Ohio Markets;
WHEREAS, Seller has agreed, prior to the Effective Date, to cause
Technivision to be merged with and into Seller ("Reorganization"), in connection
with which Seller will be the surviving corporation and succeed by operation of
law to the assets and liabilities of Technivision;
WHEREAS, Seller desires to sell, and Heartland desires to purchase,
substantially all of the assets and certain of the liabilities of Technivision
relating to the Markets, in accordance with the terms and conditions set forth
herein;
WHEREAS, pursuant to this Agreement, Seller and Heartland intend to effect
a tax-free reorganization under Sections 354 and 368(a)(1)(C) of the Code,
whereby Seller will transfer to Heartland the Assets;
WHEREAS, within one year following the Closing Date and pursuant to a plan
of reorganization, Seller will dissolve (the "Dissolution") and, pursuant to the
Dissolution, will distribute Heartland's Shares and any other assets of Seller
as of such time to the Three Sixty Stockholders, subject to the arrangements
that provide for the payment of, or reserving for, all contingent and other
liabilities of Seller (other than the Assumed Liabilities);
WHEREAS, this Agreement, together with the authorizations of the Board of
Directors of Seller and the Three Sixty Stockholders are intended to constitute
the plan of reorganization pursuant to which the reorganization under Sections
354 and 368(a)(1)(C) of the Code will be effected;
WHEREAS, Seller, Technivision, Heartland and a wholly owned subsidiary of
Heartland ("Hartacq") have previously entered into an Asset Purchase Agreement
("Original Agreement") dated as of the date hereof, pursuant to which the Assets
(as defined herein) would be acquired by Hartacq;
WHEREAS, Seller, Technivision and Heartland have agreed that the Assets
will be acquired by Heartland directly, and have agreed to amend and restate the
Original Agreement to so provide and to extend certain dates contained therein;
and
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11 hereto.
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the representations and warranties, conditions and promises herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby adopt the above recitals and agree as follows:
A-1
<PAGE> 1558
AGREEMENTS:
ARTICLE 1. CLOSING; EXCHANGE.
1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of the
Operative Documents, the parties hereto agree that, at the Closing Time and at
the Closing Place, Seller shall sell, transfer, assign, convey and deliver to
Heartland and Heartland shall purchase from Seller, all of Seller's right,
title, and interest in and to any and all assets, real, personal and mixed,
tangible and intangible, used in the conduct of the Business (including, but not
limited to, all Contracts, Governmental Permits (to the extent assignable),
Licenses (to the extent assignable), Equipment, Documents, Facilities (to the
extent assignable), Prepaid Subscriber Fees, Causes of Action, Intellectual
Property (to the extent assignable), Customer Data, Real Property, supplier
data, accounts, accounts receivable, credits, prepaid expenses, advance
payments, security deposits, prepaid items, goodwill and other intangible assets
of the Business (general and specific), and any other real, personal, tangible
or intangible property or rights of Seller used or held for use in the conduct
of the Business) (collectively, the "Assets") free and clear of all Liens, other
than the Permitted Encumbrances. Notwithstanding those assets listed in this
Section 1.1, the foregoing definition of Assets shall exclude those items
specifically identified on Schedule 1.1 hereto (the "Excluded Assets"); provided
that, to the extent the Excluded Assets purport to exclude cash or deposit
accounts, the parties agree that any cash or deposit accounts representing
Prepaid Subscriber Fees shall, subject to Section 1.4, constitute a portion of
the Assets. Seller, Technivision and Heartland acknowledge and agree that (a)
substantially all of the Assets are currently owned by Technivision, (b) prior
to the Effective Date, Seller shall have succeeded to the ownership of the
Assets by operation of law pursuant to the Reorganization, and (c) the
description of the Assets is intended to include all assets (other than Excluded
Assets) currently held by either Technivision or Seller, which Assets shall be
held by Seller as of the Closing Date.
1.2 ACQUISITION CONSIDERATION. As consideration for the sale of the Assets
by Seller, upon the Closing, Heartland shall (a) assume the Assumed Liabilities
pursuant to the terms of an Assumption Agreement, the form of which is attached
as Exhibit 1.2 hereto ("Assumption Agreement") and (b) deliver to the Exchange
Agent that number of Heartland Shares ("Acquisition Shares") equal to (i) the
Acquisition Consideration divided by (ii) the Closing Share Price, subject to
each party's right to terminate this Agreement as set forth in Section 10.2 or
10.3, as applicable, if the Closing Share Price is either greater than the
Maximum Termination Price or less than the Minimum Termination Price. As used
herein, the term "Acquisition Consideration" shall mean the sum of (A) Thirty
Six Million Seven Hundred Fifty Thousand Dollars ($36,750,000) plus (B) the
Additional Subscriber Consideration, minus (C) the amount of Permitted GAAP
Liabilities minus (D) any Dayton Proceeds other than Additional Dayton
Consideration. On or prior to the Closing Date, Seller shall designate those
GAAP Liabilities (and the amounts thereof) which shall constitute Permitted GAAP
Liabilities (and thereby Assumed Liabilities) hereunder.
1.3 LIQUIDATION OF SELLER; CREATION OF ESCROWS: DISTRIBUTION OF SHARES.
(a) EXCHANGE FUND. At the Closing, Heartland shall deposit the Acquisition
Shares with Harris Trust Company of New York as exchange agent (the "Exchange
Agent") to be held thereby pursuant to the terms of that Exchange Agreement
attached as Exhibit 1.3(a) hereto (the "Exchange Agreement") as part of the
pending liquidation of Seller and subsequent distribution of such Acquisition
Shares pursuant to the Three Sixty Liquidation Plan (as defined below). In the
event Harris Trust Company of New York is unable or unwilling to act as Exchange
Agent, Heartland and the Sellers shall, upon mutual agreement, seek to select a
comparable party to act as Exchange Agent. The Acquisition Shares deposited with
the Escrow Agent and any dividends thereon or proceeds thereof shall be referred
to herein as the "Exchange Fund."
(b) ESCROW SHARES. The Exchange Agent shall hold a number of Acquisition
Shares equal to (i) $5,000,000 divided by the Closing Share Price ("Escrow
Shares") in escrow ("Escrow") for a period of up to eighteen (18) months
following the Closing Date ("Escrow Period"), in accordance with the terms of
the Exchange Agreement, for the purpose of satisfying the post-closing
indemnification obligations of Seller to Heartland under this Agreement and (ii)
the aggregate of the "Stipulated Consent Amounts" for the Excess Consents that
have not been obtained prior to the Closing Date divided by the Closing Share
Price ("Consent
A-2
<PAGE> 1559
A
Shares") in escrow ("Consent Escrow") for a period of up to six (6) months
following the Closing Date ("Consent Period"), in accordance with the terms of
the Exchange Agreement. The Acquisition Shares, other than the Escrow Shares and
Consent Shares, shall be referred to herein as the "Initial Shares."
(c) DISTRIBUTION OF SHARES.
(I) The Acquisition Shares shall be held by the Exchange Agent pending
their distribution or liquidation pursuant to the terms of the Exchange
Agreement and the Agreement and Plan of Liquidation attached as Exhibit 1.3(c)
hereto (the "Three Sixty Liquidation Plan") which provides, among other things,
for the disposition of the Seller's assets (including specifically the Initial
Shares and, upon release from the escrows created pursuant to the Exchange
Agreement, any Escrow Shares and Consent Shares), satisfaction of, or reserve
for, Seller's liabilities, and subsequent termination of existence of Seller.
(II) In accordance with the terms and provisions of the Three Sixty
Liquidation Plan and Section 1.3(c)(i) hereunder, Seller hereby undertakes to
prepare as soon as practicable after the execution of this Agreement, a proxy
statement/prospectus and a form of proxy, in connection with the solicitation by
the Board of Directors of Seller respecting the Three Sixty Liquidation Plan and
the other transactions set forth in this Agreement to be included in the
Registration Statement to be filed by Heartland with the SEC (such proxy
statement/prospectus, together with any amendments thereof or supplements
thereto, herein called the "Proxy Statement"). Thereafter, on the basis of such
Registration Statement and subject to the provisions of the Exchange Agreement
and the requirements of applicable law, the Exchange Agent (on behalf of and at
the direction of Seller) (a) shall deliver to Seller or the Three Sixty
Stockholders, as applicable, on the Closing Date, a number of Acquisition Shares
("Distributable Shares") equal to the number of Initial Shares minus that number
of Heartland Shares having an aggregate Closing Share Price equal to the sum of
(i) the Excluded GAAP Liabilities and (ii) an amount determined by the Board of
Directors of Seller in its discretion as necessary and appropriate to satisfy
Seller's contingent liabilities (including, without limitation, any Dissenters'
Payments), (b) pursuant to the terms of the Three Sixty Liquidation Plan, either
deliver a portion of the Acquisition Shares to certain Creditors (as defined in
Section 5.1) or, in connection with resales to be made by Seller to the public
pursuant to the Registration Statement, deliver the remaining Initial Shares
(collectively, the "Liquidated Shares") for the benefit of Seller, (c) shall
hold during the Consent Period the Consent Shares and shall deliver to Heartland
any Consent Shares that have not been distributed pursuant to the terms of the
Exchange Agreement to Seller or the Three Sixty Stockholders upon the expiration
of the Consent Period, and (d) shall hold during the Escrow Period the Escrow
Shares (other than Escrow Shares that are to be released prior to the expiration
of the Escrow Period) and shall distribute any Escrow Shares that have not been
delivered to Heartland or previously distributed to the Three Sixty Stockholders
pursuant to the terms of the Exchange Agreement upon the expiration of the
Escrow Period, all in completing the winding-up and liquidation of Seller
pursuant to the terms of the Three Sixty Liquidation Plan. Fractional Heartland
Shares will not be issued in connection with the delivery of the Distributable
Shares, but shall be added to the Liquidated Shares and the remaining proceeds
thereof shall be distributed in accordance with the Three Sixty Liquidation
Plan. After Seller's receipt of the requisite Three Sixty Stockholders' approval
of the Three Sixty Liquidation Plan, Seller will not engage in any business
activity except as expressly contemplated hereby or as appropriate to wind up
and liquidate its business and affairs. The Board of Directors of Seller shall
establish a record date for the purposes of determining the Three Sixty
Stockholders entitled to receive the Distributable Shares, any remaining
proceeds of the Liquidated Shares and/or any remaining Escrow Shares or Consent
Shares ("Distribution Record Date"). In the discretion of the Board of Directors
of Seller such record date may, but shall not be required to be, the Closing
Date but in no event shall the Distribution Record Date be later than the
Closing Date. Seller shall (i) certify to Heartland a list of Three Sixty
Stockholders, as shown on Seller's books and records, on each of the date
hereof, the date of the mailing of the Proxy Statement, and the Closing Date and
(ii) shall indemnify and hold Heartland and the Exchange Agent harmless from any
inaccuracies in such lists.
(D) DISTRIBUTION PROCEDURES. At the time of the mailing of the Proxy
Statement, the Exchange Agent shall mail to each Three Sixty Stockholder a
letter of transmittal which shall contain instructions regarding each such Three
Sixty Stockholder's receipt of their respective portion of (i) the Distributable
Shares, (ii) the
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proceeds of the Liquidated Shares after satisfaction of the Seller's claims and
obligations, if any, (iii) any Consent Shares to be distributed to the Three
Sixty Stockholders, and/or (iv) any remaining Escrow Shares upon the expiration
of the Escrow Period, or earlier release of Escrow Shares from the Escrow. Upon
the return of the duly executed letter of transmittal, each Three Sixty
Stockholder shall be entitled to receive (i) the number of Distributable Shares
equal to such Three Sixty Stockholder's percentage ownership interest of Seller
multiplied by the number of Distributable Shares, (ii) upon the completion of
the dissolution and winding up of Seller, such Three Sixty Stockholder's pro
rata interest in the remaining proceeds, if any, of the Liquidated Shares, (iii)
upon the distribution of Consent Shares from the Consent Escrow, such Three
Sixty Stockholder's pro rata interest in such Consent Shares and (iv) upon the
expiration of the Escrow Period or earlier release of Escrow Shares from the
Escrow, such Three Sixty Stockholder's pro rata interest in the remaining Escrow
Shares, if any. As contemplated by the Three Sixty Liquidation Plan, until the
letter of transmittal is executed and returned to the Exchange Agent by a Three
Sixty Stockholder and surrendered as contemplated by this Section 1.3(d), each
Three Sixty Stockholder's interest in the Seller shall, at and after the Closing
Date, be deemed to represent only the right to receive such Three Sixty
Stockholder's pro rata interest in (i) the Distributable Shares, (ii) the
remaining proceeds, if any, of the Liquidated Shares, (iii) any Consent Shares
to be distributed to the Three Sixty Stockholders, and (iv) any remaining Escrow
Shares.
(E) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and any
dividends or distributions with respect to Heartland Shares which remain
undistributed for three (3) months after the expiration of the Escrow Period
shall be delivered to Seller, and any Three Sixty Stockholders who have not
theretofore complied with the distribution procedures of Section 1.3(d) above
shall thereafter look only to Seller for their portion of the Acquisition Shares
(or proceeds thereof).
(F) CERTAIN ADJUSTMENTS. The Closing Share Price, Maximum Termination
Price, Minimum Termination Price, and/or number of Heartland Shares to be issued
in connection with this Agreement, as applicable, shall be subject to
appropriate adjustment in the event of a stock split, stock dividend, cash
dividend or distribution, asset dividend or distribution or other corporate
distribution, reorganization, or recapitalization subsequent to the date hereof
on or prior to the Closing Date.
(G) DIVIDEND; TRANSFER TAXES. Any dividends or other distributions that are
declared on or after the Closing Date on Heartland Shares or payable to the
holders of record of Heartland Shares upon or after the Closing Date will be
paid to the person(s) entitled to receive such Heartland Shares. In no event
shall the person entitled to receive such distributions or other distributions
be entitled to receive interest on such dividends or other distributions. If any
dividends, cash in lieu of fractional shares or Heartland Shares are to be paid
or issued in a name other than that of the person entitled thereto as indicated
on Seller's books and records, it shall be a condition of such exchange that the
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of Heartland Shares in a name
other than that of the person so entitled or shall establish to the satisfaction
of the Exchange Agent that such tax has been paid or is not applicable.
(H) DISSENTERS' AND APPRAISAL RIGHTS. TSC shall be responsible for the
payment of any amounts payable in connection with the exercise of dissenters' or
appraisal rights by any Three Sixty Stockholder arising in connection with this
Agreement (such payments being collectively referred to herein as "Dissenters'
Payments").
1.4 PRORATIONS. Seller and Heartland shall each pay their respective pro
rata portion of all 1995 ad valorem or similar personal property taxes under any
property or lease included in the Assets. Seller shall pay to Heartland at the
Closing (or designate as Permitted GAAP Liabilities) estimated ad valorem or
similar personal property taxes for the current year (based on the prior year's
taxes) pro rated to the Closing Date. Seller shall make available to Heartland
copies of all statements and assessments reflecting such prior year's taxes.
Heartland shall pay such sum and any additional amounts required to pay such
taxes in full to the appropriate taxing authorities when due, prior to becoming
delinquent. Heartland shall promptly forward to Seller, after receipt by
Heartland, copies of all 1995 tax assessments under any such property or lease.
If the 1995 taxes are greater than the prior year's taxes, Seller shall pay (or
designate as Permitted GAAP Liabilities) its pro rata share of any difference
promptly upon notice of such taxes having been paid by
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Heartland. If such 1995 taxes are less than the prior year's taxes, Heartland
shall refund to Seller its pro rata share of such reduction upon payment by
Heartland. Except as provided in this Section 1.4, Heartland shall have no other
liability for Taxes payable by Seller (including income Taxes) relating to the
operations or business of Seller or the transactions contemplated by this
Agreement. Subscriber fees (cash) shall be prorated for the month of Closing.
1.5 FURTHER ASSURANCES. If at any time after the Closing Date Heartland
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in Heartland, Seller's right,
title or interest in, to or under any of the Assets, or (b) to carry out the
purposes of this Agreement, Seller shall promptly undertake such actions as
requested by either in writing. If at any time after the Closing Date, Seller
shall consider or be advised that any agreements, assurances or any other acts
or things are necessary, desirable or proper to (y) confirm Heartland's
assumption of the Assumed Liabilities or (z) to carry out the purposes of this
Agreement, Heartland shall promptly undertake such actions as requested by
Seller in writing.
1.6 CLOSING, CLOSING TIME, DATE AND PLACE. The closing (the "Closing") of
the transactions set forth herein shall take place at 10:00 a.m., Dallas, Texas
time, following satisfaction of the closing conditions set forth in Articles 6,
7 and 8 at the offices of Arter, Hadden, Johnson & Bromberg, 1717 Main Street,
Suite 4100, Dallas, Texas 75201, or at such other time and/or at such other
place as Heartland and Seller may agree, but no later than February 29, 1996.
(Hereinafter, such date is referred to as the "Closing Date", such time on the
Closing Date is referred to as the "Closing Time", and such offices are referred
to as the "Closing Place".)
1.7 ALLOCATION OF ACQUISITION CONSIDERATION. Prior to the Closing Date,
Seller and Heartland shall mutually agree on the allocation of the Acquisition
Consideration among the Assets.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND TECHNIVISION.
Seller and Technivision, jointly and severally, hereby represent and
warrant to Heartland the following:
2.1 ORGANIZATION; QUALIFICATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey.
Seller is qualified as a foreign corporation in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure so to qualify
would not have a Material Adverse Effect. Technivision is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. Technivision is qualified as a foreign corporation in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure so to qualify would not have a Material Adverse Effect.
2.2 TITLE TO ASSETS; OUTSTANDING RIGHTS. Except as set forth on Schedule
2.2, (a) Seller or Technivision, as applicable, has good, marketable and
indefeasible title to the Assets and such Assets are free and clear of any and
all Liens, except the Permitted Encumbrances; (b) there are no rights of first
refusal, transfer restrictions (other than restrictions generally imposed under
applicable securities laws) or similar rights or obligations with respect to the
Assets; and (c) there are no outstanding subscription rights, options,
conversion or exchange rights, commitments or agreements of any character
relating to the Business or the Assets. Except for the Excluded Assets, neither
Seller nor Technivision owns, or otherwise has any rights to, any assets other
than the Assets.
2.3 CAPITALIZATION. The authorized capital stock of Seller consists of
12,000 shares of common stock, no par value per share, of which 6,976 shares are
issued and outstanding as of October 11, 1995. Schedule 2.3 hereto contains a
complete and accurate list of the holders of any class or series of capital
stock of Seller (including, without limitation, the Three Sixty Stockholders) as
of the date hereof. Seller is the owner and holder of substantially all of the
issued and outstanding capital stock of Technivision, and there are no
outstanding options, warrants, calls, puts, commitments or other rights to
purchase, or securities or other rights convertible or exchangeable into,
capital stock of Technivision. Schedule 2.3 sets forth, as of the date hereof, a
complete and accurate list of all outstanding options, warrants, calls, puts,
commitments and other rights to
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purchase, or securities or other rights convertible or exchangeable into,
capital stock of Seller indicating the record and, to the Knowledge of Seller or
Technivision (as applicable) the beneficial owner thereof, the exercise,
conversion or exchange price and period thereof, the term and any vesting or
other conditions thereof. All securities issued or issuable by Seller have been
paid for and delivered in accordance with the terms of applicable agreements
instruments and Legal Requirements, are duly authorized and validly issued and
are fully paid and nonassessable; the holders thereof have no rights of
rescission with respect thereto; none of such securities were issued in
violation of the preemptive rights of any holder of any security of Seller or
any similar rights granted by Seller or applicable laws.
2.4 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Seller or Technivision,
as applicable, has corporate power and authority to conduct the business and
activities conducted by it (including without limitation the Business) and to
own or lease all of the Assets owned or leased by it. Seller or Technivision, as
applicable, has the corporate power and authority (subject to shareholders
approval and obtaining lenders' consent to the sale of the Assets and/or
proposed Recapitalization as set forth in Sections 8.1 and 6.5) to execute and
deliver this Agreement and all other documents required to be executed and
delivered by Seller or Technivision, as applicable, hereunder, to consummate the
transactions hereby contemplated, and to take all other actions required to be
taken by Seller or Technivision, as applicable, pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Seller or Technivision, as applicable, hereunder have been duly
authorized by all corporate action necessary on the part of Seller or
Technivision, as applicable (subject to shareholders approval and obtaining
lenders' consent to the sale of the Assets and/or proposed Recapitalization as
set forth in Sections 8.1 and 6.5) and have been duly or will be duly executed
and delivered by Seller or Technivision, as applicable, and constitute, or when
executed and delivered will constitute, the legal, valid and binding obligations
of Seller or Technivision, as applicable, enforceable against Seller or
Technivision, as applicable, in accordance with their terms. Except as set forth
in Schedule 2.4, neither the execution nor delivery of this Agreement or any of
the other Operative Documents to be executed and delivered by Seller or
Technivision, as applicable, or the consummation of the transactions hereby
contemplated by Seller or Technivision (including, without limitation, the
Reorganization) will (subject to shareholders approval and obtaining lenders'
consent to the sale of the Assets and/or proposed Recapitalization as set forth
in Sections 8.1 and 6.5) (i) conflict with or constitute any violation or breach
of the Certificate of Incorporation or Bylaws of Seller or Technivision, as
applicable, (ii) constitute any violation or breach of, or give any other Person
any rights (including any right of acceleration, termination or cancellation)
under, any Contract, License, Governmental Permit, or similar document to which
Seller or Technivision, as applicable, is a party or is bound, either which
constitute a portion of the Assets or by which the Assets may be affected, (iii)
constitute a violation of any Order or Legal Requirement, or (iv) result in the
creation of any Lien on any of the Assets.
2.5 FINANCIAL STATEMENTS. (a) Schedule 2.5 lists the consolidated financial
statements of Seller as of, and for the period(s) ending May 31, 1995, including
the balance sheets and related statements of income and expense (collectively,
the "Financial Statements"). The Financial Statements have been prepared in
accordance with the books and records of Seller; are complete and correct;
fairly present the financial position and results of operations of Seller as of
the date and for the periods covered thereby; are in accordance with GAAP; and
have been delivered to Heartland.
(B) Since the date of the Financial Statements, except as set forth on
Schedule 2.5, (i) Seller or Technivision, as applicable, has conducted its
business (including, without limitation, the Business) in the ordinary and
regular course thereof; (ii) there has been no change in the business of Seller
or Technivision (including, without limitation, the Business) or, in the
condition, financial or otherwise, of Seller or Technivision or assets or
liabilities reflected in the Financial Statements which have had a Material
Adverse Effect on Seller or Technivision; or any damage, destruction or loss,
whether or not covered by insurance, which has had a Material Adverse Effect on
Seller or Technivision or which is substantial in amount; or any change in the
nature, or in the condition, of the business of Seller or Technivision which has
had a Material Adverse Effect on Seller or Technivision; or any event, condition
or state of facts of any character whatsoever, the occurrence of which has had a
Material Adverse Effect on Seller or Technivision, other than the general
economic conditions and events, conditions or states of facts affecting the
wireless cable television industry
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generally; (iii) except in the ordinary and regular course of its business,
neither Seller nor Technivision has made any dispositions of any of the Assets;
disposed of any records relating to the Assets; borrowed any funds; become
subject to any obligation or liability, indebtedness for borrowed money,
absolute or contingent; paid, discharged, or satisfied any claim, liability or
obligation, absolute, accrued, contingent or otherwise; cancelled any debts owed
to it; waived any claims or rights of value; granted or extended any power of
attorney; or acted as any guarantor, all with respect to or as it may relate to
the Assets; and (iv) neither Technivision nor Seller has done any act or
permitted to be done any act or omitted to perform any act which has or will
cause the breach of any representation or warranty of Technivision or Seller set
forth in this Agreement.
(C) Neither Seller nor Technivision has any material Liabilities
attributable to Seller, Technivision, the Business or the Assets, except as
disclosed in the Financial Statements or set forth on Schedule 2.5 attached
hereto.
2.6 PROPERTY. Schedule 2.6(a) contains a general description, by category,
as of the date thereof, of all of the Equipment, except small hand tools and
similar equipment. Schedule 2.6(b) lists all Facilities, designating whether
such Facility is owned or leased, including whether there is any
construction-in-progress of any towers, fixtures, vaults or pedestals
attributable to any Site. Such Equipment and Facilities are in serviceable
condition; conform to or comply in all material respects with all applicable
Orders and Legal Requirements; and constitute all of the Equipment and
Facilities that are used or held for use in the Business. Schedule 2.6(c) sets
forth a description of all real and personal property currently leased or
otherwise occupied, used or exploited by Seller or Technivision in the Business
but not owned by Seller or Technivision.
2.7 RECEIVABLES. Schedule 2.7 contains a complete and accurate list of all
accounts receivable (including aged accounts receivables, loan receivables and
advances) of the Business as of May 31, 1995 which represent bona fide
obligations arising from sales made in the ordinary and regular course of the
Business in the Markets. Except as set forth on Schedule 2.7, the accounts
receivable (net of reserves therefor) are collectible and not subject to setoff
or counterclaim, nor to any agreement to reduce or discount.
2.8 CONTRACTS. (A) Schedule 2.8 is a complete and accurate list of all
Contracts to which Seller or Technivision is a party or is otherwise bound other
than (i) policies of insurance which are listed in Schedule 2.10, (ii)
programming agreements which are listed on Schedule 2.21, (iii) Channel Leases
which are listed in Schedule 2.9(a), and (iv) Contracts under which the
liability or aggregate payments of Seller or Technivision, as applicable, during
any twelve-month period from and after the date hereof is reasonably anticipated
to be less than $10,000.
(B) Except as set forth on Schedule 2.8, Seller or Technivision has
performed in all material respects all obligations required to be performed by
it under each of the Contracts. Except as set forth on Schedule 2.8, all of the
Contracts are legal, valid and binding obligations of Seller or Technivision
enforceable in accordance with their respective terms and in full force and
effect and there are no defaults (or events which, with notice or lapse of time
or both, would constitute a default) by the Seller or Technivision or, to the
Knowledge of Seller or Technivision, any other party to any such Contract.
Except as otherwise set forth in Schedule 2.8, no default under any of the
Contracts will be caused by the consummation of the transactions contemplated
hereby, and Seller or Technivision shall have performed and discharged all
obligations due or accrued under each Contract relating to periods prior to and
including the Closing Date. Except as set forth and separately identified on
Schedule 2.8, there exists no management or related agreements between Seller or
Technivision and any of their respective Affiliates with respect to the Assets
which would require Heartland to make any payment whatsoever in the form of
management fees or related payments to Seller or its Affiliates with respect to
the Assets or Business following the Closing.
(C) Each Site Lease and Site Option allows for the use and operation on the
leased property of transmitters, antenna structures, antennas and other
associated facilities and permits the transmission from the property of signals
containing video and audio programming.
(D) True, complete and accurate copies of all Contracts have been delivered
to Heartland by Seller.
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2.9 FCC MATTERS.
(A) Schedule 2.9(a) is a complete and accurate list of all Channel Leases
and, except as set forth on Schedule 2.9(a), (i) Seller or Technivision has
performed, in all respects, all obligations required to be performed by it under
each of the Channel Leases; (ii) all of the Channel Leases are legal, valid and
binding obligations enforceable in accordance with their respective terms and in
full force and effect and there are no defaults (or, to the Knowledge of Seller
or Technivision (as applicable) events which, with notice or lapse of time or
both, would constitute a default) by Seller or Technivision, or any other party
to any such Channel Leases; (iii) no default under any of the Channel Leases
will be caused by the consummation of the transactions contemplated hereby; (iv)
Channel Leases set forth in the name of Persons other than Seller or
Technivision, as lessee, have been duly and validly assigned with all requisite
consents and approvals of all parties thereto to Seller or Technivision, and
remain in full force and effect as if Seller or Technivision were the initial
"lessee" thereunder; (v) no default or termination has been threatened in
writing under any of the Channel Leases by any party thereto; and (vi) the
Channel Leases comply in all material respects with the Act and the FCC Rules
and, each of the Channel Leases, and all amendments thereto, have been filed
with and approved by the FCC.
(B) Schedule 2.9(b) is a complete and accurate list of all of the Licenses
and FCC Permits held or leased by Seller or Technivision; all Licenses and FCC
Permits are in the name of the Person set forth in Schedule 2.9(b). Except as
set forth in Schedule 2.9(b), all reports or other documents required to be
filed with respect to any such License have been timely filed; and the Licenses
and the FCC Permits listed on Schedule 2.9(b)attached hereto constitute all of
the Authorizations held or leased by the Seller and are all of the
Authorizations used, useable, held for use in or in conjunction with or
otherwise associated with, required or necessary for Seller or Technivision to
lawfully conduct its business operations as currently conducted. Except as
otherwise expressly noted on Schedule 2.9(b), each of the Licenses and the FCC
Permits (i) is currently held by the Person identified as the holder thereof on
Schedule 2.9(b), (ii) authorizes said holder to construct and operate a facility
transmitting video and audio programming on the Channels, and (iii) is in full
force and effect, and (iv) is not subject to any conditions other than such
conditions as are generally applicable to licenses and permits issued by the FCC
with respect to ITFS, MDS or MMDS Channels. Except as set forth in Schedule
2.9(b), there are no existing or, to the Knowledge of Seller, or Technivision
(as applicable) threatened investigations, inquiries or proceedings by or before
the FCC or other Governmental Body which could result in the revocation,
cancellation, suspension, forfeiture or material adverse modification of any
Authorization or Application.
(C) Schedule 2.9(c) is a complete and accurate list of all Applications and
all amendments or other filings thereto. To the Knowledge of Seller or
Technivision (as applicable) the information contained in each Application is
materially true and correct, and each Person which is a signatory to an
Application is authorized under FCC rules to file such Application.
(D) Except as otherwise expressly noted on Schedule 2.9(d), Seller or
Technivision, as applicable, and, to the Knowledge of Seller or Technivision (as
applicable), the FCC Licensees and the FCC Permittees have each timely submitted
to the FCC, the FAA and all other Governmental Bodies all notices, reports and
other documents which have been or are required by the Act, the FCC Rules, the
FAA Rules and other Legal Requirements, the Licenses and the FCC Permits except
where the failure to do so would not (i) have a Material Adverse Effect on the
business of Seller or Technivision, as applicable, or (ii) hinder the ability or
Seller or Technivision, as applicable, to fully perform its material obligations
under this Agreement. Except as otherwise expressly noted on Schedule 2.9(d), no
petitions to deny or informal objections have been filed against any of the
amendments listed on Schedule 2.9(c). True, complete and accurate copies of all
amendments, notices, reports and other documents filed by the Seller or
Technivision, as applicable, and, to the Knowledge of Seller or Technivision (as
applicable), the FCC Licensees and the FCC Permittees with respect to the
Licenses and the FCC Permits with the FCC, the FAA, the Copyright Office and
other Governmental Bodies have been delivered to Heartland.
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2.10 INSURANCE. Schedule 2.10 contains a complete and accurate list and
brief description of all insurance policies currently held by the Seller or
Technivision, as applicable, related to the Assets, all of which are in full
force and effect as of the date hereof.
2.11 LITIGATION. Except as set forth in Schedule 2.11, there is no
Proceeding pending, or to Seller's Knowledge threatened, against Seller or
Technivision, as applicable, relating to the Assets or the propriety or validity
of the transactions contemplated hereby. Except as set forth in said Schedule
2.11, (a) neither Seller nor Technivision is subject to or in default under or
with respect to any Order, (b) there are no judgments of any court which in any
way may currently constitute a Lien or at some future time may be perfected into
a Lien upon or against any portion of the Assets, and (c) there is no Proceeding
pending or, to the Knowledge of Seller or Technivision (as applicable),
threatened against, relating to or affecting any portion of the Assets.
2.12 GOVERNMENTAL PERMITS. Seller or Technivision, as applicable, owns,
holds or possesses all material Governmental Permits which are necessary to
entitle it to own or lease, operate and use its Assets and to carry on and
conduct its business as currently conducted except with respect to Applications
for which Licenses have not been granted, if any.
2.13 COMPLIANCE WITH LAWS. Seller or Technivision, as applicable, has
complied in all material respects with all applicable Legal Requirements and
Orders of any Governmental Body having jurisdiction over it or its operations,
including, but not limited to, all material FCC Rules and any laws, rules or
regulations regulating, if applicable, zoning, fair and equal employment
practices, the safety of the workplace, antitrust, antimonopoly or
anticompetitive activities, wages, hours, collective bargaining and the payment
of withholding and social security taxes. Except as set forth in Schedule 2.13,
there are no Orders outstanding and in effect against or relating to Seller,
Technivision, the Assets, the transactions contemplated by this Agreement, or,
to the Knowledge of Seller or Technivision (as applicable) any of the parties to
the Channel Leases, other than Orders issued with respect to the wireless cable
industry generally and in the normal course of regulation, which could,
individually or in the aggregate, (i) have a Material Adverse Effect, or (ii)
hinder in any material respect the ability of Seller or Technivision to fully
perform their respective material obligations under this Agreement. Except as
set forth on Schedule 2.13 neither Seller nor Technivision has received any
notice (written or otherwise) from any Person to the effect that, or otherwise
been advised that, either Seller or Technivision is not in compliance with any
applicable law, ordinance, regulation, building or zoning law relating to the
Assets or the Business, and neither Seller nor Technivision has any reason to
anticipate that any presently existing circumstances are likely to result in a
violation of any such law, statute, ordinance or regulation, the non-compliance
or partial compliance with which could reasonably be anticipated to have a
Material Adverse Effect.
2.14 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 2.14,
(A) Neither Seller nor Technivision has used, generated, manufactured,
refined, transported, treated, stored, leaked, poured, emitted, emptied,
released, discharged, disposed, spilled or handled Hazardous Substances in
violation of any Environmental Law with respect to the property under Seller's
control at any Facility.
(B) Neither Seller nor Technivision has any Knowledge of any prior owner,
occupant, tenant or user of any Facility that has ever used, generated,
manufactured, refined, transported, treated, stored, leached, leaked, poured,
emitted, emptied, released, discharged, disposed, spilled or handled Hazardous
Substances in violation of any Environmental Law, at, on or from the property
under control of Seller or Technivision at any Facility.
(C) Neither Seller nor Technivision has received notice of any pending or
threatened Proceeding, Order or citizen suit instituted by any private party,
employee or Governmental Body arising out of the conduct or the operations of
its business, in connection with Environmental Laws, or as a result of any
Environmental Condition relating to the property under control of Seller or
Technivision at any Facility.
2.15 INTELLECTUAL PROPERTY. Schedule 2.15 contains a complete and accurate
list of all Intellectual Property owned or used by the Seller or Technivision in
the Business. No person has any right to receive any royalty or similar payment
arising from the Intellectual Property. Except as set forth on said Schedule
2.15,
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either Seller or Technivision owns each of said properties; and has filed all
certificates, affidavits and other documents, and taken all other actions,
necessary to retain its title to said properties and to keep the same in effect.
Except as set forth on Schedule 2.15, neither Seller nor Technivision has
granted to any other Person any interest in any of said properties, as licensee
or otherwise. None of said properties is invalid and none infringes upon the
personal or property rights of any third party.
2.16 TAXES AND FEES.
(A) All federal, state, county, local and foreign taxes, including, without
limitation, income, excise, payroll, sales, use, unemployment, social security,
occupation, franchise, property and other taxes, duties or charges
(collectively, the "Taxes") levied, assessed, or imposed upon Seller or
Technivision or their respective businesses, assets or properties as of such
date have been duly and fully paid or have been adequately provided for on the
consolidated balance sheet of Seller as of May 31, 1995 constituting a part of
the Financial Statements. In addition, all filings, returns or reports with
respect to Taxes required by any foreign or domestic law or regulation to be
filed by Seller or Technivision on or prior to the date hereof have been duly
and timely filed. There are no agreements, waivers or other arrangements (oral
or written) providing for extensions of time with respect to the assessment or
collection of unpaid Taxes, nor, except as set forth on Schedule 2.16, are there
any actions, suits, proceedings, inquiries, investigations or claims of any
nature or any kind whatsoever now pending or, to the Knowledge of Seller or
Technivision, threatened, against Seller or Technivision with respect to any
such returns or reports, or any such Taxes or any matters under discussion with
any federal, state, county, local or other authorities relating to Taxes.
(B) Except as otherwise disclosed on Schedule 2.16, (i) Seller or
Technivision, as applicable, has made all payments of estimated Taxes required
to be made under Section 6655 of the Code and any comparable provisions of
state, local, federal or other law; (ii) all amounts of any Taxes, including
payroll and federal excise taxes, that are required to be collected or withheld
by Seller or Technivision have been duly collected or withheld, and have been
duly remitted or deposited in accordance with law; (iii) no power of attorney
has been granted by Seller or Technivision that is currently in force with
respect to any matter relating to Taxes; (iv) neither Seller nor Technivision,
as applicable, has had any deferred gain or loss (A) arising from deferred
inter-company transactions, within the meaning of Treas. Regs. Section 1.1502-13
or any successor regulations, or (B) with respect to the stock or obligations of
any member of the affiliated group of Seller of which Seller is the common
parent, as described in Treas. Regs. Section 1.1502-14; (v) no taxes relating to
periods ending before May 31, 1995 were paid by or charged to any subsidiary of
Seller on or after such date; (vi) neither Seller nor Technivision is required
to include in income any adjustment pursuant to Section 481(a) of the Code (or
any similar provision of law or regulation) by reason of a change in accounting
method, nor is the IRS or any other taxing authority considering any such change
in accounting method; (vii) neither Seller nor Technivision has disposed of any
property which has been accounted for Tax purposes under the installment method;
(viii) neither Seller nor Technivision owns any interest in any entity which is
characterized as a partnership for federal income tax purposes; (ix) neither
Seller nor Technivision is liable for any increase in Tax under Section 47 of
the Code, were such entity to dispose of all of its assets on the Closing Date;
(x) neither Seller nor Technivision will have any "non-recaptured net Section
1231 losses," within the meaning of Section 1231(c) of the Code on the Closing
Date; (xi) no election under Section 1504(d) of the Code has been made with
respect to any subsidiary; and (xii) no claim or assertion has been made against
Seller or Technivision, as applicable, by any tax authority in any jurisdiction
in which no tax return has been filed by Seller or Technivision, as applicable,
that it may be subject to Tax in that jurisdiction or otherwise is required to
file a tax return.
(C) Seller has regular tax operating loss carryforward from its last filed
federal corporate income tax return for the year ending May 31, 1995, in the
approximate amount set forth in Schedule 2.16(c). Seller represents that it has
not undergone a Section 382 ownership change which would limit the ability to
utilize these losses.
2.17 REGULATORY COMPLIANCE. Except as otherwise expressly set forth on
Schedule 2.17, Seller or Technivision, as applicable, and, to the Knowledge of
Seller or Technivision (as applicable), the FCC Licensees and FCC Permittees are
in material compliance with, and not in default under or in violation of, the
Act, the FCC Rules, the FAA Rules, the Copyright Act, the Copyright Rules and
other Legal Requirements
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applicable to the Licenses or FCC Permits. Except as otherwise expressly noted
on the Schedules attached hereto, neither Seller nor Technivision has any no
Knowledge and has received no notice of noncompliance with, default under or
violation of the Act, the FCC Rules, the FAA Rules, the Copyright Act, the
Copyright Rules, other Legal Requirements and the applicable Licenses or FCC
Permits. No condition exists or event has occurred with respect to Seller, the
Licensees, the FCC Permittees, or any of the Licenses or FCC Permits which, in
itself or with giving of notice or the lapse of time or both, would (i)
constitute or result in a material violation of the Act, any FCC Rule, any FAA
Rule, the Copyright Act or the Copyright Rules, (ii) constitute a material
default in the due performance and observation of any term, covenant or
condition of any of the Licenses or FCC Permits, (iii) result in a forfeiture,
the denial, dismissal or rejection of any of the Schedule 2.9(c) or 2.9(d)
amendments, or the suspension, termination, revocation, material impairment,
material adverse modification or nonrenewal of any License or FCC Permit, or
(iv) adversely affect any of the material rights of Seller, any FCC Licensee or
FCC Permittee under any of the Licenses or FCC Permits.
2.18 INTERFERENCE. Neither Seller, Technivision nor, to the Knowledge of
Seller, or Technivision (as applicable), any party to a Channel Lease, has
accepted the electrical interference to the Channels from any source, has
consented to the grant of any application involved with the FCC that is likely
to result in any electrical interference to the Channels, or has failed to
timely petition to deny any application that proposes facilities that could
reasonably be anticipated to cause objectionable electrical interference to the
Channels. Except as otherwise expressly noted on Schedule 2.18 attached hereto,
neither Seller nor Technivision nor, to the Knowledge of Seller or technivision
(as applicable), any FCC Licensee or FCC Permittee or any other party to a
Channel Lease, is likely to experience interference which will adversely impact
operation of the Facilities it has constructed and/or operated, or is
constructing once such Facilities are constructed and operated, or is likely to
create interference which will adversely impact the operation of other
facilities licensed by the FCC to other Persons; for purposes of this Section
2.18, interference shall be deemed to exist if within an FCC Licensee's
protected service area, the ratio of the desired signal to the undesired signal,
at the antenna input terminals of the affected receiver, is less than 45 dB,
unless frequency offset or other engineering solutions are employed.
2.19 EMPLOYEES. The employees listed on Schedule 2.19 are the only
employees of Seller or Technivision associated with the Markets. Except as set
forth on Schedule 2.19 hereof, neither Technivision nor Seller has any bonus,
deferred compensation, incentive compensation, severance or termination pay,
hospitalization or other medical, stock purchase, stock option, pension, life or
other insurance, profit sharing or retirement plan, agreement or arrangement, or
other employee benefit plan or arrangement, whether formal or informal, and
whether legally binding or not, maintained or contributed to by Seller or
Technivision, as applicable ("Benefit Plan"), and neither Seller nor
Technivision has any continuing unfulfilled obligations under any similar
benefit plans that may have been terminated prior to the date hereof. Neither
Seller nor Technivision has been a party to a "multiemployer plan" as that term
is defined in Section 3(37) of the Employee Retirement Income Security Act of
1974, as amended. With respect to the Benefit Plans listed on Schedule 2.19
hereof, (i) all payments due from Seller or Technivision, as applicable, to date
for the employees with respect to such Benefit Plans have been made and all
amounts properly accrued to date as Liabilities of Seller or Technivision, as
applicable, are set forth on Schedule 2.19 hereof; and (ii) all reports and
information relating to such Benefit Plan required to be filed with any
governmental entity have been filed. Neither Technivision nor Seller has (i)
experienced any material labor disputes or work stoppages, or (ii) received any
notice that there is any unfair labor practice, charge or complaint pending or
threatened, except as is already set out herein.
2.20 FINDER'S FEES. Neither Technivision nor Seller has taken any action
which would impose upon Heartland any obligation or liability to any person for
finder's fees, agent's commissions or like payments in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. Subject to the provisions of Section 12.2, Seller shall be
solely responsible for any costs for any broker fee payable to Gerard Klauer
Mattison & Co., Inc. (or any other party engaged by Seller or Technivision).
2.21 PROGRAMMING AND RETRANSMISSION AGREEMENTS. Schedule 2.21 sets forth a
true and complete list of all agreements (a) for programming and (b) providing
for the retransmission of any broadcast signals.
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2.22 CERTAIN ACTIVITIES. Except as set forth on Schedule 2.22, neither
Technivision nor Seller engages in any business other than the Business in the
Markets.
2.23 SUBSCRIBERS. Schedule 2.23 sets forth a true and correct list of the
number of Bona Fide Subscribers in each Market as of the date hereof.
2.24 OTHER APPROVALS. No filings shall be required under the HSR Act with
respect to the acquisition by TSC of the Acquisition Shares in accordance with
the terms of this Agreement.
2.25 FURTHER REPRESENTATION. No representation or warranty of Seller
contained in this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to or state a material fact necessary in
order to make the statements made herein, in light of the circumstances under
which they are made, not misleading. All books, statements, documents, schedules
and records furnished or given by it to Heartland or its agents during the
negotiation of or preparatory to the execution of this Agreement or the
consummation of the transactions contemplated hereby, are, as of their
respective dates, true, complete and genuine and contain no material
misrepresentations or omissions of material facts.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HEARTLAND.
Heartland hereby represents and warrants to Seller and Technivision, and to
each of them, the following :
3.1 ORGANIZATION; QUALIFICATION. Heartland is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2 AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. Heartland has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. Heartland has the
corporate power and authority (subject to shareholder approval and obtaining
lenders' Consents as set forth in Sections 7.1 and 6.4) to execute and deliver
this Agreement and all other documents required to be executed by Heartland
hereunder, to consummate the transactions hereby contemplated, and to take all
other actions required to be taken by Heartland pursuant to the provisions
hereof. This Agreement and all other documents required to be executed and
delivered by Heartland hereunder have been duly authorized by all corporate
action necessary on the part of Heartland (subject to shareholder approval and
obtaining lenders' Consents as set forth in Sections 7.1 and 6.4) and have been
duly or will when executed and delivered be duly executed and delivered by
Heartland, and constitute the legal, valid and binding obligations of Heartland
enforceable against Heartland in accordance with their terms. Neither the
execution nor the delivery of this Agreement and all the documents required to
be executed and delivered by Heartland hereunder or the consummation of the
transactions hereby contemplated by Heartland conflict with or constitute (i)
any violation or breach of the Certificate of Incorporation or the Bylaws of
Heartland or (ii) subject to lender approval as set forth in Section 6.4, any
material violation or breach of any contract or agreement of Heartland, the
result of which would have a Material Adverse Effect.
3.3 LITIGATION. There is no Proceeding pending or, to Heartland's
Knowledge, threatened against or affecting Heartland that could reasonably be
expected to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated hereby. Except as described in Heartland's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1995, Heartland is not
a party to any Proceedings, the adverse resolution of which is reasonably
anticipated to have a Material Adverse Effect.
3.4 CONSENTS AND APPROVALS. Other than any filings required under the HSR
Act, FCC Consents (if any), or the filing of the Registration Statement, no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Body is required on behalf of Heartland in connection
with the execution, delivery or performance of this Agreement and all documents
contemplated hereby or the transactions contemplated hereby.
3.5 CAPITALIZATION. Heartland is authorized to issue 50,000,000 shares of
Common Stock, par value $.001 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share. As of August 31, 1995, 12,476,393 shares of
Heartland Common Stock are issued and outstanding and no shares of preferred
stock
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have been issued. The Acquisition Shares to be issued pursuant to this Agreement
will be, upon issuance, validly issued, fully paid and non-assessable, and
subject to no pre-emptive or other subscription rights.
3.6 FINANCIAL STATEMENTS. The financial statements contained in the
Heartland SEC Filings are correct and complete and fairly present the financial
position and results of operations of Heartland as of the date thereof and for
the periods referenced therein, all in accordance with GAAP.
3.7 SEC FILINGS. Heartland has previously delivered to Seller copies of (i)
its Form 10-K for the fiscal year ended December 31, 1994, (ii) its Form 10-Q
for the three month periods ended March 31, 1995 and June 30, 1995, (iii) its
Form S-3 Registration Statement (33-94838) declared effective by the SEC on
August 4, 1995 and (iv) all Form 8-Ks filed with the SEC after December 31, 1994
and prior to the date of this Agreement ("Heartland SEC Filings"). Each such
filing was timely filed with the SEC, and did not contain any misstatement of
material fact or an omission of a material fact required to be stated therein
necessary to make the statements therein not misleading as of the time such
document was filed. Heartland has filed all documents required to be filed with
the SEC. As of their respective dates, such reports complied in all material
respects with the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). No other document or report required to
have been filed by Heartland with the SEC has not been filed, and no event or
transaction has occurred prior to the date hereof that will hereafter be
required to be disclosed by Heartland in a Form 10-Q, Form 8-K or similar
filing.
3.8 Intentionally omitted.
3.9 Intentionally omitted.
3.10 FINDER'S FEES. No person is or will be entitled to a broker's,
finder's, investment banker's, financial adviser's or similar fee from Heartland
or any of its subsidiaries in connection with this Agreement or any of the
transactions contemplated hereby.
3.11 FURTHER REPRESENTATION. No representation or warranty of Heartland
contained in this Agreement contains or will contain any untrue statements of
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances under
which they are made, not misleading.
ARTICLE 4. COVENANTS OF SELLER.
Prior to the Closing Date or the termination of this Agreement as provided
herein, Seller or Technivision, as applicable, hereby agrees to perform as
follows:
4.1 OPERATION PRIOR TO THE CLOSING DATE. From the date hereof through the
Closing Date, except as expressly disclosed or set forth in this Agreement,
Technivision shall, and Seller, with respect to the Assets or the Business,
shall:
(A) not engage in any practice, take any action or enter into any
transaction other than in the customary and ordinary course of business
without the consent of Heartland;
(B) use reasonable efforts to keep the business, properties and
business relationships substantially intact;
(C) (i) pay and perform all of its debts, liabilities and obligations
as and when due, except to the extent being contested in good faith and as
to which adequate reserves (determined in accordance with GAAP) have been
established, (ii) perform its material obligations under all Authorizations
and Contracts, and (iii) comply in all material respects with all
Governmental Rules;
(D) (i) not take any action, and will endeavor in good faith not to
permit any event to occur, which would cause or constitute a material
breach of this Agreement; (ii) in the event of, and promptly after the
occurrence of, or promptly after becoming aware of the occurrence of or the
impending or threatened occurrence of, any event which would cause or
constitute a material breach or would, if it had occurred immediately prior
to the date hereof, have caused or constituted a material breach of any of
the
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representations and warranties set forth in Article 2 hereof, give notice
thereof to Heartland; and (iii) use its best efforts to prevent or promptly
to remedy such breach;
(E) use reasonable efforts to preserve, protect and maintain its
rights and interests in the Channel Leases, FCC Licenses, and Contracts,
including, but not limited to, filing or having licensees or permittees
file with the FCC any and all reports, applications or other documents
necessary to preserve the FCC Licenses in full force and effect;
(F) not, enter into, amend or terminate, or agree to enter into,
amend, except to comply with this Agreement, or terminate any Channel
Lease, License, Permit, Application or Contract;
(G) not make any distributions to the Three Sixty Stockholders nor
shall Seller issue, sell or agree to sell any equity interests or options
or rights with respect thereto;
(H) not sell, lease, transfer or otherwise dispose of any Assets
except as provided for by, or contemplated in, this Agreement;
(I) except in the ordinary course of business, not pay any salaries
to, increase in any manner the base compensation of, or enter into any new
bonus or incentive agreement or arrangement with, any of its managers,
officers or employees; or pay bonuses to any such manager, officer or
employee;
(J) not take any actions which would cause the transactions
contemplated hereby to be subject to Subpart 900 of Regulation S-K,
promulgated under the Securities Act and the Exchange Act (the "Roll-up
Rules").
4.2 CONSENTS. Except as otherwise provided herein (including, without
limitation, Section 5.13), Seller or Technivision, as applicable, shall, at its
sole cost and expense, use reasonable efforts to obtain or cause to be made, all
Consents, governmental authorizations, approvals and filings as may be necessary
by virtue of the transactions contemplated by this Agreement (including, without
limitation, the Reorganization) on or before the Closing Date, so as to ensure
that Heartland will continue to enjoy following the Closing all of the rights
and privileges currently held by Seller or Technivision, as applicable, under
each of the Channel Leases, Licenses and Contracts. Upon request of Heartland,
Seller or Technivision, as applicable, shall assist Heartland to obtain from
each of the other respective parties to each of such Channel Leases or Contracts
estoppel certificates in the form attached as Exhibit 4.3 ("Estoppel
Certificates") certifying that neither Technivision nor Seller, as applicable,
is in breach or violation of or in default under any of such Channel Leases or
Contracts and that it would not be by virtue of the transactions contemplated
hereby. At the request of Heartland, Seller or Technivision shall use reasonable
efforts to obtain with each Consent an Estoppel Certificate. Seller or
Technivision shall seek any appropriate amendments, modifications or changes to
each of such Channel Leases and Contracts so as to ensure that the licensees,
permittees or other parties thereto notify Heartland directly in the event of a
breach or violation of or default under any such Channel Lease or Contract.
4.3 RENEWAL OR EXTENSION OF FCC AUTHORIZATIONS. Seller or Technivision, as
applicable, shall:
(A) timely file, or cause to be filed, all applications, reports and
other submissions in such form and with such information as may be required
by the FCC, including but not limited to renewal applications, applications
for extensions of time to complete construction and Annual FCC Reports, to
assure that all Channels licensed or authorized to the Seller remain in
full force and effect without material adverse alteration or modification,
except to the extent that such alteration or modification result from
changes in the FCC's Rules or policies of general applicability. After the
applications are filed for FCC consent to the transfer of control of the
FCC Licenses for said Channels to Heartland or an Affiliate of Heartland,
Seller or Technivision, as applicable, shall file, at the request of and as
an accommodation to Heartland such applications for modification of their
outstanding construction permits or licenses to implement the purposes
contemplated hereunder. Seller or Technivision, as applicable, shall
utilize its best efforts to diligently and properly prosecute in good faith
all applications, reports and submissions submitted in accordance with this
Section 4.3.
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(B) assure that the licensees or permittees under the Channel Leases
timely file all applications reports, and other submissions in such form
and with such information as may be required by the FCC, including, but not
limited to, renewal applications, applications for extensions of time to
complete construction and Annual FCC Reports, to assure that such FCC
Licenses remain in full force and effect without material adverse
alteration or modification, except to the extent that such alteration or
modification result from changes in the FCC's rules or policies of general
applicability. Seller or Technivision, as applicable, shall use its best
efforts to assure that the licensees or permittees under the Channel Leases
diligently prosecute in good faith all such applications, reports and
submissions. Seller or Technivision, as applicable, shall promptly disclose
to Heartland any information it receives regarding any condition or
circumstance that would cause, or might cause, the FCC to decline to issue
such authorizations as may be necessary or desirable to keep the Licenses
in full force and effect.
4.4 NO SOLICITATION. Subject only to the provisions of Section 5.11
hereunder (regarding the proposed sale of the Dayton, Ohio Market), from and
after the date hereof, neither Seller nor Technivision will, or will authorize
or permit any of their respective officers, employees, agents and other
representatives (collectively, "Seller Representatives") to solicit, initiate or
encourage (including by way of furnishing information) any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to, an Acquisition Proposal (as defined herein) from any person, or engage in
any discussion or negotiations relating thereto or accept any Acquisition
Proposal. Seller or Technivision, as applicable, shall immediately cease and
cause to be terminated any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any parties conducted heretofore by
Seller or Technivision, as applicable, or any Seller Representatives with
respect to any of the foregoing. Seller or Technivision, as applicable, will
promptly notify Heartland of any such discussion or negotiations, requests for
such information or the receipt of any Acquisition Proposal, including the
identity of the person or group engaging in such discussions or negotiations,
requesting such information or making such Acquisition Proposal and the material
terms and conditions of any Acquisition Proposal. As used in this Agreement
"Acquisition Proposal" shall mean any proposal or offer, other than a proposal
or offer by Heartland or any of its Affiliates, for a tender or exchange offer,
a merger, consolidation or other business combination involving Seller or
Technivision, as applicable, or any proposal to acquire in any manner a
substantial equity interest in, a substantial portion of the assets of, or any
rights to any Channels or Licenses of, Seller or Technivision, as applicable.
4.5 AUDIT OF FINANCIAL STATEMENTS. Prior to the filing of the Registration
Statement, Seller shall have audits conducted and completed by an accounting
firm of national reputation, reasonably acceptable to Heartland so that Seller
can provide audited financial statements of Seller as of, and for the period
ending, May 31, 1995, including the balance sheets and related statements of
income and expense, and any other periods required by Regulation 3-05 of
Regulation S-X.
4.6 REORGANIZATION. On or prior to the Effective Date, Seller shall cause
the Reorganization to occur, Seller shall be the surviving corporation of the
Reorganization, and the certificate of incorporation for the surviving
corporation shall be that of Seller. At the time of such Reorganization, Seller
and Technivision shall have obtained all necessary Consents so that Seller shall
succeed to all rights of Technivision in the Assets held by Technivision
immediately prior to the Reorganization, and no continuing default under any
Contract, License or other Asset shall be caused thereby. Upon the consummation
of the Reorganization, Seller shall succeed to all obligations and liabilities
of Technivision for the covenants, representations and warranties of
Technivision contained herein, as if such representations and warranties were
made by Seller as of the date hereof and such covenant was made directly by
Seller to Purchaser hereunder. On the Closing Date, Seller shall remake all
representations or warranties of Technivision contained herein, subject to
Section 5.14, and shall be responsible for the performance of all covenants of
Technivision hereunder.
4.7 NOLS. Neither Seller nor Technivision shall take any action, other than
the sale of the Dayton Market as contemplated in Section 5.11, which would cause
the net operating losses of Seller on the Closing Date to be less than $9.5
million or deny Heartland the ability to use the full amount of such net
operating losses after the Closing Date.
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ARTICLE 5. ADDITIONAL AGREEMENTS.
5.1 SHAREHOLDERS MEETING. Seller shall take all action necessary in
accordance with applicable law and its Certificate of Incorporation and Bylaws
to convene a meeting of the Three Sixty Stockholders promptly after the
Registration Statement is declared effective by the SEC to consider and vote
upon the approval of this Agreement, the Three Sixty Liquidation Plan and the
other transactions contemplated hereby. Seller shall, through its Board of
Directors, recommend to the Three Sixty Stockholders approval of all such action
and shall use reasonable efforts to obtain approval and adoption by such Three
Sixty Stockholders. Seller acknowledges that the consummation of the
transactions contemplated by this Agreement by Heartland requires (and therefore
is subject to), among other things, (a) the approval of certain lenders of
Heartland, and (b) the approval of the holders of the Heartland Shares of the
issuance of a block of Heartland Shares, certain (but not all) of which are
issuable pursuant to the terms hereof. Heartland shall take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
Bylaws and to convene a meeting of its stockholders promptly after the
Registration Statement is declared effective by the SEC to consider and vote
upon the issuance of the Acquisition Shares. Heartland shall, through its Board
of Directors, recommend to the Heartland stockholders the approval of such
action and shall use reasonable efforts to obtain the approval and adoption by
such Heartland stockholders. Heartland shall use reasonable efforts to obtain
the written approval of its lenders on or before December 1, 1995. Heartland
acknowledges that the consummation of the transactions contemplated by this
Agreement (including, without limitation, the Three Sixty Liquidation Plan) by
Seller requires (and therefore is subject to), among other things, the approval
of (a) the stockholders of Three Sixty, (b) the UCL Disgorgement Trust (the
"Trust"), (c) Philips Credit Corporation ("Philips"), (d) Howard Addison,
Charles Lowe and Bruce Davis (collectively, the "Addison Group"), and (e)
certain other creditors of Seller (collectively, the Trust, Phillips and the
Addison Group are referred to as the "Creditors"). Seller shall use reasonable
efforts to obtain the written approval of the Creditors within ten (10) days of
the Effective Date.
5.2 REGISTRATION STATEMENT AND PROXY STATEMENT.
(A) Heartland shall prepare and file with the SEC as soon as practicable
after the execution of this Agreement a Registration Statement on Form S-4 (the
"Registration Statement") in connection with the registration under the
Securities Act of the offer and sale of the Acquisition Shares. Heartland shall
include the Proxy Statement as part of the joint proxy statement/prospectus
required in the Registration Statement. Heartland shall use all reasonable
efforts to have the Registration Statement declared effective by the SEC as soon
as practicable after the filing thereof. Heartland shall also take any action
required to be taken under applicable "blue sky" or state securities laws in
connection with the Heartland Shares to be registered thereby prior to the
Closing. Seller shall furnish Heartland all information concerning Seller or
Technivision, as applicable, and the Three Sixty Stockholders required for use
in the Registration Statement, and Seller shall take such other actions as
Heartland may reasonably request in connection with the preparation of such
Registration Statement and the actions to be taken by Seller pursuant to this
Section 5.2. None of the information furnished by or on behalf of Seller for use
in the Registration Statement or Proxy Statement, and neither the Registration
Statement when declared effective nor the Proxy Statement when mailed to the
Three Sixty Stockholders (or any supplement or amendment thereto) shall contain
any material misstatement of fact or omit to state a material fact or any fact
necessary to make the statements contained therein not misleading. All documents
which Seller or Technivision are responsible for filing with the SEC and any
regulatory authority in connections with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable law.
(B) Heartland shall furnish Seller all information concerning (i) Heartland
and (ii) the other entities to be acquired by Heartland required for use in the
Proxy Statement ("Heartland Information"), and Heartland shall take such other
action as Seller may reasonably request in connection with the preparation of
the Proxy Statement. None of the Heartland Information, and neither the
Registration Statement when declared effective nor the Proxy Statement when
mailed to the Three Sixty Stockholders (or any supplement or amendment thereto),
shall contain any material misstatement of fact or omit to state a material fact
or any fact necessary to make the statements contained therein not misleading.
All documents which Heartland is
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responsible for filing with the SEC and any regulatory authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law.
(C) Heartland will bear all costs and expenses (including its legal,
accounting and printing costs and filing fees payable to the SEC and other
Governmental Bodies but excluding attorneys' fees and accounting fees of Sellers
and costs and expenses associated with the solicitation of proxies from the
Three Sixty Stockholders) related to the preparation and filing of the
Registration Statement.
(D) Within a reasonable period of time after the Closing Date, Heartland
shall file with the National Association of Securities Dealers, Inc. a Nasdaq
National Market Notification Form for Listing of Additional Shares and
Notification Pursuant to SEC Rule 10b-17 with regard to the Heartland Shares to
be issued in connection with this Agreement.
5.3 ACCESS. Heartland and its officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times during
regular business hours upon reasonable notice be permitted reasonable access to
the Facilities and the offices of Seller and Technivision, will be permitted to
make copies of or abstracts from all of the books and records, financial and
operating data and other information of Seller and Technivision relating solely
to the Business and the Assets and will be permitted to discuss the affairs, and
accounts of Seller and Technivision relating solely to the Business and the
Assets with the Board of Directors, officers, employees, counsel, and
accountants of Seller and Technivision. Such investigation shall not, however,
affect the representations and warranties of Seller and Technivision set forth
in Article 2 hereof. All such information shall be subject to the terms of the
Confidentiality Agreement between Heartland and Technivision dated September 5,
1995 ("Confidentiality Agreement").
5.4 COMPLIANCE WITH THE SECURITIES ACT. Seller has caused to be prepared
and delivered to Heartland a list identifying all persons who, as of the date
hereof, may be deemed to be "Affiliates" of Seller as that term is defined under
Paragraphs (c) and (d) of Rule 145 of the Securities Act ("Rule 145
Affiliates"), and prior to the Closing Date, Seller shall cause to be prepared
and delivered to Heartland an updated list (reasonably satisfactory to counsel
for Heartland) identifying all persons who at the time of Seller's stockholders
meeting may be deemed to be a Rule 145 Affiliate. Seller shall use all
reasonable efforts to cause each person who is identified as a Rule 145
Affiliate in such updated list to deliver to Heartland on or prior to the
Closing Date a written agreement, in the form attached hereto as Exhibit 5.4,
that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise
dispose of any Distributable Shares, Consent Shares or Escrow Shares issued to
such Rule 145 Affiliate pursuant to this Agreement, except pursuant to the
effective Registration Statement or in compliance with Rule 145 or an exemption
from the registration requirements of the Securities Act.
5.5 REASONABLE EFFORTS. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement,
including (a) the obtaining of all necessary actions or non-actions, waivers,
consents and approvals from Governmental Bodies and the making of all necessary
registrations and filings (including filings with Governmental Bodies) and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any Governmental Body, (b)
the obtaining of all necessary consents, approvals or waivers from third
parties, (c) the defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement or the consummation of
the transactions contemplated hereby including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Body
vacated or reversed, (d) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement and (e) not to take, commit, or agree in writing or otherwise to take,
any action which would make any representation or warranty of such party
contained in this Agreement untrue or incorrect in any material respect as of
the date when made or as of a future date.
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5.6 PUBLIC ANNOUNCEMENTS. Heartland, on the one hand, and Seller and
Technivision, on the other hand, will consult with each other before issuing any
press release or other communication with respect to the transactions
contemplated by this Agreement and shall not issue any such press release prior
to such consultation and the consent of such other party, provided, however,
that if either of such parties has a duty to disclose such information under the
Securities Act, the Exchange Act or other Legal Requirement such party may upon
prior notice to the other party and its legal counsel as set forth herein,
disclose such information; provided, further, that if the timing of any required
disclosure renders consultation with the other party impractical and the failure
to timely disclose could be deemed a material violation of applicable law,
consultation is not required hereunder provided notice is given to the other
party as soon as reasonably practical.
5.7 NOTIFICATION OF CERTAIN MATTERS. Seller shall give Heartland prompt
notice of: (i) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received subsequent to the date of this Agreement under any note, license,
agreement or other instrument or obligation, and (ii) any Material Adverse
Effect or the occurrence of any event which, so far as reasonably can be
foreseen at the time of its occurrence, is reasonably likely to result in a
Material Adverse Effect on such party. Heartland shall give Seller (a) from and
after the date of this Agreement, prompt notice of the occurrence of any event
that would require Heartland to file a current report on Form 8-K or issue a
press release under applicable securities laws, and (b) from and after the date
of the mailing of the Proxy Statement, prompt notice of the occurrence of any
event that would require the Heartland Information contained in the Proxy
Statement to be amended or supplemented under applicable securities laws. Each
party shall give the other prompt notice the receipt of any written notice or
other written communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement.
5.8 HART-SCOTT-RODINO ACT FILING. The parties will cooperate in preparing
and filing any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and will use their respective reasonable
efforts to obtain an early termination of the applicable waiting period, and
will make any further filings pursuant thereto that may be necessary, proper, or
advisable; provided, however, that no party hereto shall be required to respond
to a "second request" in connection therewith.
5.9 EMPLOYEES. From and after the date hereof through the Closing Date or
earlier termination of this Agreement, Heartland shall have the right to contact
any employees of Seller or Technivision involved in the Business regarding the
potential employment of such persons following the Closing Date. Any such
employees hired by Heartland shall be considered newly hired and Heartland shall
not be liable to or responsible for any benefits to such employees arising prior
to the Closing Date.
5.10 EXHIBITS AND SCHEDULES. Heartland and Seller agree that (a) any
Exhibits not attached hereto on the date hereof shall be prepared and attached
on or before December 29, 1995, and agree to cooperate and negotiate in good
faith in the preparation of such Exhibits, (b) any Schedules not attached hereto
on the date hereof may be attached on or before December 20, 1995; provided that
Purchaser shall have the absolute right to terminate this Agreement without
liability within ten (10) days after the initial delivery of any such Schedule,
as further provided in Section 10.3.
5.11 SALE OF DAYTON, OHIO MARKET. Subject to the consent of Philips, the
Trust and the Addison Group, notwithstanding any provisions contained herein to
the contrary, Seller or Technivision, as applicable, and Heartland shall have
the right to solicit bids for and negotiate the sale of wireless cable
television assets held for the purpose of servicing the Market located in
Dayton, Ohio (collectively, such assets are referred to as the "Dayton Market");
provided that (i) Seller or Technivision, as applicable and Heartland shall keep
each other fully informed regarding the status of any negotiations regarding the
sale of the Dayton Market or offers therefor, including without limitation, the
identity of the proposed purchaser and the consideration offered or requested,
(ii) Heartland shall have the right to approve, in its sole discretion, the
terms of any proposed disposition of the Dayton Market, and neither Seller nor
Technivision shall execute a definitive agreement to
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dispose of the Dayton Market without such written approval by Heartland, and
(iii) the gross proceeds of the sale of the Dayton Market (less reasonable
transaction costs, but excluding any taxes or brokerage fees payable to Gerard
Klauer Mattison & Co.) (the "Dayton Consideration") shall be payable as follows:
(I) $11.7 million plus the Additional Dayton Consideration (collectively, the
"Dayton Proceeds") shall be paid to Seller and shall constitute an Excluded
Asset, and (II) the excess, if any, of the Dayton Consideration over the Dayton
Proceeds ("Excess Dayton Proceeds") shall be paid to Heartland upon such
disposition (in cash to the extent the gross proceeds from such disposition
consist of cash) as compensation to Heartland for services rendered in
connection with such disposition. To the extent that the Dayton Consideration is
payable other than in cash or instruments in a stated amount, Seller and
Heartland shall mutually agree to the valuation of such assets. Other than
Gerard Klauer Mattison & Co., neither party currently has any arrangements with
any brokers regarding the sale of the Dayton Market, and neither party shall
enter into any such arrangement without the approval of the other.
5.12 NONCOMPETITION. Seller agrees that if the transactions contemplated by
this Agreement are consummated, the Seller shall not, for a period of five (5)
years after the Closing Date, directly or indirectly, alone or with others,
Engage in any Competing Business within a one hundred (100) mile radius of any
Market. For purposes of this Agreement, (a) "Engage" means that the Seller is or
becomes an owner or operator or, directly or indirectly, a shareholder, lender,
borrower, consultant, partner, joint venturer, or participant in any other
capacity whatsoever in any business enterprise (regardless of whether it is a
corporation, partnership, sole proprietorship or business association);
provided, however, that Seller may own up to five percent (5%) of the voting
securities of any company engaged in a Competing Business solely as a passive
investor and (b) a "Competing Business" shall mean any business enterprise which
is engaged in the business of owning, leasing or operating ITFS, MDS or MMDS
Channels.
5.13 EXCESS CONSENTS. If Seller or Technivision, as applicable, fails to
deliver any of the Primary Consents or Secondary Consents (collectively, "Excess
Consents") prior to the Closing Date, then the Consent Shares attributable to
such Excess Consents shall be held in the Consent Escrow for the Consent Period
in accordance with the terms of the Exchange Agreement. In the event Seller or
Technivision, as applicable, is unable to obtain an Excess Consent prior to the
Closing Date, using reasonable efforts, then the Contract or License that is the
subject of such Excess Consent shall remain in the name of Seller or
Technivision, as applicable, and Seller or Technivision, as applicable, shall
retain title to such Contract or License for Heartland's account pending the
obtaining of such Excess Consent (with an Estoppel Certificate containing no
adverse disclosures). Revenue therefrom, if any, shall be the property of
Heartland. In the event that any FCC Consent is not obtained prior to the
Closing Date with regard to any MDS or MMDS Channels, such Channels shall be
subleased to Heartland pending Seller's obtaining such Consent pursuant to the
terms of a management/option agreement in the form attached hereto as Exhibit
5.13. If any Excess Consent which is not obtained prior to the Closing is
obtained prior to the expiration of the Consent Period, Seller shall have the
right to direct the Exchange Agent to release Consent Shares having an aggregate
Closing Share Price equal to the Stipulated Consent Amount related to such
Excess Consent to Seller or as Seller otherwise directs, without offset or
deduction of any kind or nature whatsoever in accordance with the terms of the
Exchange Agreement. If an Excess Consent is not obtained on or before the
expiration of the Consent Period, Seller shall, at its option upon written
notice to Heartland and Exchange Agent, either extend the Consent Period pending
the receipt of an Excess Consent, or forfeit the Stipulated Consent Amount
related to such Excess Consent and direct the Exchange Agent to pay such amount
to Heartland or as Heartland otherwise directs, without offset or deduction of
any kind or nature whatsoever. Any such Consent Shares held by the Exchange
Agent shall not be deemed to be part of the Escrow Shares for any purpose
hereunder.
5.14 UPDATED SCHEDULES. Seller shall have the right to update the Schedules
to be delivered hereunder at any time prior to (a) December 20, 1995 without the
consent or approval of Heartland, and (b) after December 20, 1995 but prior to
the tenth (10th) day preceding the Closing Date without the prior consent or
approval of Heartland; provided that if the disclosure in such updated or
supplemented Schedule represents a material change from any disclosure to
Heartland on or prior to December 20, 1995, adverse to Heartland, Heartland
shall, within five (5) days of Seller's delivery of such supplemental Schedule,
deliver to Seller written notice of any objection to such supplemental Schedule,
and if Seller does not deliver to Heartland
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written notice that Seller has elected to withdraw its supplemental Schedule
within five (5) days thereafter, then Heartland shall have the right to
terminate this Agreement within fifteen (15) days of their receipt of such
updated or supplemented Schedule, as further provided in Section 10.3, in which
case Seller's delivery of such supplemental Schedule shall be deemed to be a
breach of this Agreement ("Schedule Breach"). If Heartland does not terminate
this Agreement as provided herein and proceeds to Close under this Agreement,
then, except as provided below with respect to Adverse Subscriber Disclosure or
Adverse Channel Disclosure, Heartland shall be deemed to have accepted such
supplemental Schedule and waived the Schedule Breach; provided further that
Seller shall not have the right to supplement any Schedule within ten (10) days
prior to the Closing Date.
In addition to and not in limitation of Heartland's right to terminate this
Agreement as provided above, in the event that the final updated Schedules
delivered by Seller or Technivision, as the case may be, disclose that the
number of Bona Fide Subscribers in (x) the Corpus Market ("Corpus Subscribers")
is less than 15,300 or (y) in the Dayton Market ("Dayton Subscribers") is less
than 3,050 (such Schedule constituting an "Adverse Subscriber Disclosure"), then
Heartland shall have the right to Close under this Agreement without waiving its
claim for Damages arising from such Schedule Breach, and shall be entitled to
indemnification from the Escrow Shares for Damages in an amount equal to $1,200
times the sum of (A)(i) 15,300 minus (ii) the actual number of Corpus
Subscribers and (B)(i) 3,050 minus (ii) the actual number of Dayton Subscribers
("Subscriber Damages"); provided, however, that the provisions of this sentence
relating to the Dayton Market shall not apply in the event that the Dayton
Market is sold pursuant to Section 5.11 prior to Closing.
In addition to and not in limitation of Heartland's right to terminate this
Agreement as provided above, in the event that the final updated Schedules
delivered by Seller or Technivision, as the case may be, disclose that the
number of Channels leased by Seller or Technivision in (x) the Corpus Market
(the "Corpus Channels") is less than 31 (the "Corpus Denominator"), (y) the
Dayton Market (the "Dayton Channels") is less than 31 (the "Dayton
Denominator"), or (z) in the El Paso Market (the "El Paso Channels") is less
than 27 (the "El Paso Denominator) (such Schedule constituting an "Adverse
Channel Disclosure"), then Heartland shall have the right to Close under this
Agreement without waiving its claim for Damages arising from such Schedule
Breach, and shall be entitled to indemnification from the Escrow Shares for
Damages in the following amounts (collectively, "Channel Damages"):
(x) with respect to the Corpus Market, an amount equal to the product
of (A) $20,050,000 and (B) one minus a fraction, the numerator of which is
the Corpus Channels and the denominator of which is the Corpus Denominator;
(y) with respect to the Dayton Market, an amount equal to the product
of (A) $11,700,000 and (B) one minus a fraction, the numerator of which is
the Dayton Channels and the denominator of which is the Dayton Denominator;
(z) with respect to the El Paso Market, an amount equal to the product
of (A) $5,000,000 and (B) one minus a fraction, the numerator of which is
the El Paso Channels and the denominator of which is the El Paso
Denominator;
provided, however, that the provisions of this sentence relating to the
Dayton Market shall not apply in the event that the Dayton Market is sold
pursuant to Section 5.11 prior to Closing. Heartland and Seller acknowledge
and agree that the Subscriber Damages and Channel Damages are reasonable
estimates of the Damages attributed to the relevant Schedule Breach and
shall constitute liquidated damages hereunder.
5.15 LENDER ARRANGEMENTS. Heartland and Seller acknowledge that it is their
mutual intention that the Creditors shall receive Acquisition Shares at the
Closing, whether resulting from the recapitalization of the indebtedness held by
the Creditors ("Recapitalization") or otherwise, pursuant to the Three Sixty
Liquidation Plan in satisfaction of any amounts owed to them so that (i) such
Acquisition Shares will be freely transferrable by the Creditors and (ii)
neither Heartland nor Seller will recognize any gain for federal income tax
purposes in connection with the delivery of such shares to the Creditors or the
disposition of those shares
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by the Creditors. In accordance with the foregoing, the parties agree to
negotiate in good faith to structure the transactions contemplated hereby so
that the intent of the parties described in the preceding sentence is realized;
provided that Heartland shall not have any obligation to grant to such Creditors
any registration rights or file additional registration statements relative to
the Acquisition Shares to be received by such Creditors.
ARTICLE 6. GENERAL CONDITIONS TO CLOSING.
The obligation of the parties hereto to consummate the transactions
contemplated by this Agreement is subject to fulfillment, or written waiver
signed by all parties hereto, of each of the following conditions precedent on
or prior to the Closing Date or the date set forth therein.
6.1 REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect. All necessary state securities or blue
sky authorizations shall have been received and shall be in full force and
effect.
6.2 NO ORDER. No Governmental Body or court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of prohibiting the transactions contemplated by this Agreement or otherwise
making the consummation of the transactions contemplated hereby illegal.
6.3 OTHER APPROVALS. The waiting period applicable to the consummation of
the transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated and all filings required to be made with, and all,
subject to Section 5.13, consents, approvals, permits and authorizations
required to be obtained from, any Governmental Body in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by any of the parties hereto shall have been
made or obtained (as the case may be) without restrictions.
6.4 HEARTLAND LENDERS' CONSENTS. The transactions contemplated by this
Agreement shall have been approved or consented to by Jupiter Partners, L.P. and
the holders of the $100,000,000 of 13% Senior Notes due 2003 of Heartland on or
before December 1, 1995, and Heartland shall have delivered to Seller written
notice of the same ("Heartland Approval Notice").
6.5 SELLER CREDITORS' CONSENTS. The transactions contemplated by this
Agreement and the Recapitalization or other transaction agreed to by the parties
pursuant to Section 5.15 shall have been approved or consented to by the
Creditors within ten (10) days after the Effective Date, and Seller shall have
delivered to Heartland on or prior to such date written notice of the same
("Seller's Approval Notice").
6.6 LENDER ARRANGEMENTS. Heartland and Seller shall have reached a mutual
agreement on the structure of the transactions described in Section 5.15 on or
before December 1, 1995.
6.7 EXHIBITS. Seller and Heartland shall have agreed on the form of all
exhibits hereto, and such exhibits shall be attached hereto, on or before
December 29, 1995.
ARTICLE 7. HEARTLAND'S CONDITIONS TO CLOSING.
The obligation of Heartland to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, or written waiver signed by
Heartland, of each of the following conditions precedent on or prior to the
Closing Date or the date specified therein.
7.1 HEARTLAND APPROVAL. The transactions contemplated by this Agreement
shall have been approved by the requisite votes of the holders of Heartland
Shares in accordance with applicable law, its Certificate of Incorporation and
Bylaws.
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7.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Seller or Technivision shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as if initially made on and as of the Closing Date.
7.3 SELLER'S DOCUMENTS. Seller shall have executed and/or delivered the
following to Heartland in form and substance reasonably satisfactory to
Heartland and its counsel:
(A) Bill of Sale in the form attached as Exhibit 7.3(a).
(B) Intentionally omitted.
(C) A certificate signed by the President of Seller (i) confirming, on
and as of the Closing Date, that each representation and warranty set forth
in Section 2 hereof was true and correct in all material respects on the
date made and, subject to the provisions of Section 5.14, is true and
correct in all material respects on and as of the Closing Date, (ii) that
Seller is in compliance in all material respects with the applicable
covenants set forth in Articles 4, 5 and 6 hereof and (iii) confirming that
the copies of the resolutions duly adopted by the Board of Directors of
Seller and Technivision, as applicable, and Three Sixty Stockholders
approving the execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby are true and correct
in all respects and have not been superseded or amended in any way.
(D) Subject to Section 5.13, evidence that Channel Leases are in place
for the Channels and that such agreements shall be effective and fully
enforceable.
(E) An opinion of special counsel to Seller and an opinion of FCC
counsel to Seller substantially to the effect set forth in Exhibit 7.3(e)-1
and Exhibit 7.3(e)-2, respectively.
(F) Certified copies of the Certificate of Incorporation, Bylaws,
minute books, transfer ledgers and any other organizational documents of
Seller.
(G) Subject to Section 5.13, all necessary and appropriate
governmental and third party Consents, approvals and clearances for
consummation of the transactions contemplated herein, including, but not
limited to, a "final" order by the FCC approving, without any materially
adverse or onerous conditions, Heartland (or a commonly owned entity) as
licensee of the owned FCC Licenses. For purposes of this Section, the term
"final" shall mean an order of the FCC which has not been stayed and, by
lapse of time or otherwise, is no longer subject to administrative or
judicial reconsideration, review, appeal or stay.
(H) Possession or constructive possession of the Assets.
7.4 NO MATERIAL ADVERSE CHANGE. No change shall have occurred with respect
to Seller, the Assets, the Business or prospects of any thereof from the date
hereof through the Closing Date which would have a Material Adverse Effect.
7.5 NON-COMPETITION. The persons identified on Schedule 7.5 shall have
executed non-competition agreements in the form attached hereto as Exhibit 7.5.
7.6 SELLER'S OBLIGATIONS PERFORMED. All obligations of Seller to be
performed to the Closing Date shall have been performed in all material
respects.
7.7 HEARTLAND'S INVESTIGATION. The investigation by Heartland and its
representatives in connection with the transactions contemplated by this
Agreement shall not have caused Heartland, or its respective representatives to
become aware of any facts or circumstances which relate to the business,
operations, assets, properties, liabilities, financial conditions, results of
operation or affairs of Seller that, in the good faith business judgment of
Heartland represents a material adverse change or a state of facts that could
reasonably be expected to result in a material adverse change in the Business,
operations, Assets, properties or prospects of Seller or Technivision, as
applicable. Heartland shall deliver, based upon its review of the Schedules and
other information delivered on or prior to December 20, 1995, to Seller a
written notice (the "Due Diligence Notice") that Heartland are satisfied with
the results of their due diligence investigations of Seller or prior to
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December 29, 1995. Heartland's failure to deliver the Due Diligence Notice on or
prior to December 29, 1995 shall constitute a waiver of this condition by
Heartland.
7.8 CLOSING SHARE PRICE. The Closing Share Price shall not be less than the
Minimum Termination Price.
7.9 MINIMUM CONSENTS. Seller shall have delivered to Heartland the Minimum
Consents required for each Market in a form reasonably acceptable to Heartland.
ARTICLE 8. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to fulfillment, or written waiver signed by Seller, of
each of the following conditions precedent on or prior to the Closing Date or
the date specified therein.
8.1 STOCKHOLDER APPROVAL. The transactions contemplated by this Agreement
shall have been approved by the requisite votes of the Three Sixty Stockholders
in accordance with applicable law and its Certificate of Incorporation and
Bylaws.
8.2 REPRESENTATIONS AND WARRANTIES. Each and every representation and
warranty made by Heartland shall be true and correct in all material respects
when made and shall be true and correct in all material respects as if
originally made on and as of the Closing Date.
8.3 HEARTLAND'S DOCUMENTS. Heartland shall have executed and/or delivered
to Seller in form and substance reasonably satisfactory to Seller and its
counsel:
(A) Assumption Agreement.
(B) A certificate signed by an executive officer of Heartland (i)
confirming, on and as of the Closing Date, that each of the representations
and warranties set forth in Section 3 hereof was true and correct in all
material respects on the date made and is true and correct in all material
respects on and as of the Closing Date, (ii) that Heartland is in material
compliance with the applicable covenants set forth in Articles 5 and 6
hereof and (iii) confirming that the resolutions adopted by the Board of
Directors of Heartland approving the execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby is
true and correct in all respects and has not been amended or superseded in
any way.
(C) An opinion of counsel to Heartland addressed to Seller
substantially to the effect set forth in Exhibit 8.3.
(D) The Exchange Agreement, executed by Heartland and the Exchange
Agent.
8.4 HEARTLAND OBLIGATIONS PERFORMED. All obligations of Heartland to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.5 NO MATERIAL CHANGES. No event shall have occurred that would require
the information regarding Heartland contained in the Proxy Statement to be
amended or supplemented under applicable securities laws.
8.6 CLOSING SHARE PRICE. The Closing Share Price shall not be greater than
the Maximum Termination Price.
ARTICLE 9. INDEMNIFICATION.
9.1 PROVISIONS REGARDING REPRESENTATIONS AND WARRANTIES. All statements,
certifications, representations and warranties made by the parties hereto in
this Agreement, in any Schedule, or in any Exhibit, certificate or other
instrument delivered pursuant to this Agreement shall survive the Closing until
the expiration of the Escrow Period. All covenants, agreements and
indemnifications made by the parties hereto in this Agreement, in any Schedule
or in any Exhibit, certificate or other instrument delivered pursuant to this
Agreement shall survive the Closing until the expiration of the Escrow Period.
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9.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend and hold
harmless Heartland from and against, and shall reimburse Heartland with respect
to, any and all Damages incurred by Heartland by reason of or arising out of or
in connection with:
(A) any breach of any representation or warranty of Seller contained
or referred to herein, in any Schedule hereto, or in any certificate or
other instrument executed by Seller in connection with this Agreement;
(B) any failure by Seller to perform any of its agreements, covenants
or other obligations herein or in any other document executed by it in
connection with this Agreement;
(C) the Excluded Liabilities; or
(D) the operations and activities of Seller and its Affiliates,
including the Assets, prior to and including the Closing Date; provided
that Heartland shall not make any claims until the aggregate of such claims
exceeds $100,000, and then Heartland shall only have the right to make
claims hereunder to the extent such claims do not exceed the value of the
Escrow Shares, except that Heartland shall be entitled to seek up to the
full amount of the Acquisition Consideration with respect to the breach of
Section 2.2 (Title to Assets; Outstanding Rights) hereunder; provided
further that if a claim is asserted by Heartland for a breach of the
covenant contained in Section 4.7, the parties agree that the Damages
arising therefrom shall be equal to the product of (a) the difference
between $9.5 million (as reduced in connection with any sale of the Dayton
Market as provided in Section 5.11) minus the actual net operating losses
of Seller to which Acquisition will succeed on the Closing Date multiplied
by (b) thirty-five percent (35%); provided further that if a claim is
asserted by Heartland relative to a Schedule Breach arising from an Adverse
Subscriber Disclosure or Adverse Channel Disclosure, the parties agree that
Heartland shall be entitled to indemnification from Escrow Shares for the
amount of the Subscriber Damages or Channel Damages, as applicable, as
further provided in Section 5.14. The provisions of this Section 9.2 shall
constitute the sole and exclusive remedy of Heartland for any breach of the
representations, warranties, covenants and agreements of Seller or
Technivision hereunder.
9.3 LIMITATION ON CLAIMS OF HEARTLAND. Notwithstanding anything in Section
9.2 hereof to the contrary, Heartland shall not have any claim against Seller
pursuant to Section 9.2 hereof to the extent that Heartland receives payment
with regard to such claim from any third party provided that Heartland need not
pursue or exhaust remedies, if any, against such third party. If, at any time
after Seller has made an indemnifying payment to Heartland with respect to a
claim hereunder, Heartland receives (or has a right to receive) payment with
respect to such claim from a third party, Heartland will promptly refund Seller
the aggregate amount of such third party payments or will assign to Seller the
rights of Heartland to receive such third party payment (provided, however, that
Seller shall not be entitled to receive from Heartland, whether by way of
payment from Heartland or by way of collection pursuant to rights assigned by
Heartland, or any combination thereof, an aggregate amount greater than the
aggregate amount of the indemnifying payments made by Seller to Heartland with
respect to such claim).
9.4 INDEMNIFICATION BY HEARTLAND. Heartland shall indemnify, defend and
hold harmless Seller from and against, and shall reimburse Seller for, any and
all Damages incurred by it by reason of or arising out of or in connection with:
(A) any breach of any representation or warranty of Heartland
contained or referred to herein, or in any certificate, or other instrument
executed by it in connection with this Agreement;
(B) any Assumed Obligations; or
(C) any failure by purchasers to perform any of its agreements,
covenants or other obligations herein or in any other document executed by
it in connection with this Agreement.
9.5 LIMITATION ON CLAIMS OF SELLER. Notwithstanding anything in Section 9.4
hereof to the contrary, Seller shall not have any claim against Heartland
pursuant to Section 9.4 hereof to the extent that Seller receives payment with
regard to such claim from any third party provided that Seller need not pursue
or exhaust remedies, if any, against such third party. If, at any time after
Heartland has made an indemnifying
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payment to Seller with respect to a claim hereunder, Seller receives (or has a
right to receive) payment with respect to such claim from a third party, Seller
will promptly refund Heartland the aggregate amount of such third party payments
or will assign to Heartland the rights of Seller to receive such third party
payment (provided, however, that Heartland shall not be entitled to receive from
Seller, whether by way of payment from Seller or by way of collection pursuant
to rights assigned by Seller, or any combination thereof, an aggregate amount
greater than the aggregate amount of the indemnifying payments made by Heartland
to Seller with respect to such claim).
9.6 NOTICE OF CLAIMS. In the event Seller shall seek indemnification
hereunder, Seller shall give to Heartland a notice (a "Seller Claim Notice")
describing in reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such Seller Claim Notice (if then
known) the amount or the method of computation of the amount of such claim, and
a reference to the provision of this Agreement or any other agreement, document
or instrument executed hereunder or in connection herewith upon which such claim
is based. In the event Heartland shall seek indemnification hereunder, Heartland
shall comply with the indemnification claim procedure set forth in the Exchange
Agreement.
9.7 THIRD PARTY CLAIMS. In the event of any third party claim, deficiency
or demand asserted or any action commenced or notice given of any audit,
administrative or other proceeding against Seller (a "Seller Claim"), as to
which indemnification may be sought from Heartland, as applicable, Seller shall
promptly deliver a Seller Claim Notice to Heartland; provided, however, that the
failure by Seller to give such prompt notice shall not release Heartland of its
indemnification obligations hereunder, except to the extent such failure
materially prejudices Heartland. Heartland shall have the right to defend and
direct the defense against any such Seller Claim, in its name or in the name of
Seller, as the case may be, at the expense of Heartland and with counsel
selected by Heartland and reasonably satisfactory to Seller unless (i) such
Seller Claim seeks an order, injunction or other equitable relief against
Seller, or (ii) Seller shall have reasonably concluded that (x) there is a
conflict of interest between the Seller and Heartland in the conduct of the
defense of such Seller Claim or (y) Seller has one or more defenses not
available to Heartland. Seller shall have the right to participate in the
defense of any Seller Claim with counsel employed at its own expense; provided,
however, that in the case of any Seller Claim described in clause (i) or (ii) of
the preceding sentence or as to which Heartland has not in fact employed counsel
to assume the defense of such Seller Claim within fifteen (15) days after
receipt of such Seller Claim Notice that Heartland is required, pursuant to this
Article 9 to indemnify Seller for the full amount of such Seller Claim, the
reasonable fees and disbursements of such counsel shall be at the expense of
Heartland. In any case, Heartland may not settle or compromise any such Seller
Claim without the prior written consent of Seller, which in the case of a
settlement solely involving monetary damages shall not be unreasonably withheld.
In the event of any third party claim, deficiency or demand asserted or any
action commenced or notice given of any audit, administrative or other
proceeding against Heartland as to which indemnification may be sought from
Seller, Heartland shall proceed in accordance with the claims procedures set
forth in the Exchange Agreement.
ARTICLE 10. TERMINATION.
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
may be abandoned at any time prior to the Closing Date, before or after the
respective meetings of the stockholders of Seller and Heartland, by the mutual
consent of the parties.
10.2 TERMINATION BY SELLER. This Agreement may be terminated by Seller (a)
if the Closing conditions set forth in Articles 6 and 8 shall not have been
satisfied in full or waived on or before February 29, 1996 or the date specified
therein, (b) at any time on or prior to December 29, 1995 upon written notice to
Heartland upon the failure of the Closing conditions set forth in Sections 6.4,
6.6, or 6.7, or (c) upon the failure of the Closing condition set forth in
Section 6.5.
10.3 TERMINATION BY HEARTLAND. This Agreement may be terminated by
Heartland if the Closing conditions set forth in Articles 6 and 7 shall not have
been satisfied in full or waived on or before February 29, 1996 or the date
specified therein, or (b) at any time on or prior to December 29, 1995 upon
written notice to Seller (i) in accordance with Section 5.10(b) or (ii) upon the
failure of the Closing conditions set forth in
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Sections 6.4, 6.6, 6.7 or 7.7, (c) in accordance with Section 5.14(b), or (d)
upon the failure of the Closing condition set forth in Section 6.5; provided
that Heartland shall not have the right to terminate this Agreement arising from
a breach of the covenant set forth in Section 4.7, the Damages from which shall
be calculated in accordance with Section 9.2 and administered pursuant to the
terms of the Exchange Agreement.
10.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided herein, this Agreement shall become wholly void and have
no further force and effect except as hereinafter provided; there shall be no
continuing obligations on the part of Heartland, Acquisition, Technivision or
Seller (or their respective officers or directors) except to comply with the
provisions of the Confidentiality Agreement; Section 12.2 (Fees and Expenses)
and except as otherwise provided herein. Nothing contained herein shall relieve
any party from liability for its breach of this Agreement; provided that the
parties hereby agree that upon a termination (a) by Seller or Heartland pursuant
to Sections 10.2(b) or 10.3(b), as applicable, neither party shall have any
liability to the other under this Agreement, (b) by Seller or Heartland pursuant
to Sections 10.2(c) or 10.3(d), as applicable, Seller shall pay to Heartland
Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00), which the parties
agree is a reasonable estimate of the expenses to be incurred by Heartland
hereunder.
ARTICLE 11. DEFINITIONS.
11.1 DEFINITIONS. The terms used in this Agreement have the respective
meanings specified or referred to in this Article 11:
"ACQUISITION CONSIDERATION" shall have the meaning set forth in
Section 1.2
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.4.
"ACQUISITION SHARES" shall have the meaning set forth in Section 1.2.
"ACT" means The Communication Act of 1934, as amended.
"ADDISON GROUP" shall have the meaning set forth in Section 5.1.
"ADDITIONAL DAYTON CONSIDERATION" means the aggregate number of Bona
Fide Subscribers on the date that the Dayton Market is sold, if at all, in
accordance with Section 5.11, in excess of 3,050, multiplied by $1,200;
provided that in no event shall the Additional Dayton Consideration exceed
$3,500,000.
"ADDITIONAL SUBSCRIBER CONSIDERATION" means the lesser of (i) $1,200
multiplied by each Additional Subscriber; and (ii) an amount equal to
$3,500,000 minus the Additional Dayton Consideration (if the Dayton Market
is sold prior to Closing).
"ADDITIONAL SUBSCRIBERS" means the aggregate number of Bona Fide
Subscribers on the fifth (5th) business day prior to the Closing Date equal
to the sum of (i) the number of Bona Fide Subscribers being served by the
Corpus Christi, Texas Market in excess of 15,300 and (ii) the number of
Bona Fide Subscribers being served by the Dayton Market in excess of 3,050;
provided that, if the Dayton Market is sold prior to Closing, then any
Additional Subscribers attributable to the Dayton Market shall be excluded
from the calculation of the Additional Subscriber Consideration.
"AFFILIATE" means with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control
with such Person, and any other Person who or which, directly or
indirectly, has any equity interest in such Person, is a director, officer
or employee of such Person, or a member of the immediate family of any of
the foregoing Persons, whether or not living under the same roof with such
Person.
"AGREEMENT" shall mean this Asset Purchase Agreement, as amended, if
at all.
"APPLICATION" means a pending application by Seller, Technivision, or
any Institution or other Parties to the FCC for a License related to the
Markets.
"ASSETS" shall have the meaning set forth in Section 1.1.
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"ASSUMPTION AGREEMENT" shall mean an executed Assumption Agreement in
the form of Exhibit 1.2 hereto.
"ASSUMED LIABILITIES" means (i) Permitted GAAP Liabilities, (ii) the
obligations of Seller under the Contracts and Licenses arising from and
attributable to periods occurring after the Closing Date, (iii)
counterclaims arising from Causes of Action (to the extent and any to the
extent that the amount of such counterclaim does not exceed the amount
being asserted in the Cause of Action), (iv) ad valorem or similar Taxes to
be prorated pursuant to Section 1.4 and (v) all liabilities and obligations
arising from the operation of the Business for periods commencing after the
Closing.
"AUTHORIZATION" means any license, permit, authorization, franchise,
grant, registration, certificate, consent and waiver awarded to Seller or
Technivision, as applicable, by a Governmental Body which is used, useable
or held for use in or in conjunction with or otherwise associated with any
of the Markets and the provision thereon of wireless cable services in and
around any Market, including the licenses, permits, authorizations,
franchises, grants, registrations, certificates, consents and waivers
listed on Schedule 2.9.
"BENEFIT PLAN" shall have the meaning set forth in Section 2.19.
"BILL OF SALE" shall mean a Bill of Sale in the form of Exhibit
7.3(a).
"BONA FIDE SUBSCRIBERS" means a customer or subscriber receiving and
paying for regular monthly basic wireless cable television services in a
Market who has paid for at least one (1) full month of basic service in
full without discount, whose service rates are not less 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
services provided more than sixty (60) days before the date of
determination.
"BUSINESS" means the business of transmitting programming to
subscribers in the Markets through the use of MMDS, MDS or ITFS licenses as
conducted by Seller or Technivision on the date hereof.
"CAUSES OF ACTION" means all causes of action, lawsuits, litigation
files, demands, judgments, and claims of any nature available to or being
pursued by Seller or Technivision with respect or relating to the Business
or the ownership, use, function, or value of any Asset, whether arising by
way of counterclaim or otherwise.
"CHANNEL" means a frequency band which may be licensed by the FCC to
an eligible Person for the provision of ITFS, MDS or MMDS service.
"CHANNEL LEASE" means an agreement pursuant to which authority under
an Authorization has been leased to the Seller or Technivision, as
applicable, in the Markets.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.6.
"CLOSING DATE" means the date on which the Closing shall occur as
provided for in Section 1.6.
"CLOSING PLACE" means the offices where the Closing shall take place
on the Closing Date as provided for in Section 1.6.
"CLOSING SHARE PRICE" shall mean with respect to Heartland Shares the
average of the closing prices of such stock as reported on the NASDAQ NMS
for the twenty (20) trading days ending on the fifth (5th) business day
prior to the Closing Date. In the event that the Heartland Shares do not
trade on any date within such twenty-day period, then the closing price for
such date shall be deemed to be the closing price for the day preceding
such date on which such trading took place for purposes of determining the
Closing Share Price.
"CLOSING TIME" means the time on the Closing Date that the Closing
shall take place as provided for in Section 1.6.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COMPETING BUSINESS" shall have the meaning set forth in Section 5.12.
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in
Section 5.3.
"CONSENT" means any and all consents (including, without limitation,
FCC Consents), approvals, authorizations, and waivers of any public,
government, or regulatory body, authority, agency, or unit and any and all
consents, approvals, authorizations and waivers from parties to any of the
Contracts or any other Person that are (i) required for the lawful
consummation of this Agreement and/or any other transaction contemplated by
this Agreement, or (ii) necessary or desirable for the Business to be
conducted or the Assets to be used or available for use in the conduct of
the Business after the Closing Date substantially in the manner as before
the Closing Date.
"CONSENT ESCROW" shall have the meaning set forth in Section 1.3(b).
"CONSENT PERIOD" shall have the meaning set forth in Section 1.3(b).
"CONSENT SHARES" shall have the meaning set forth in Section 1.3(b).
"CONTRACTS" means all Channel Leases, Site Leases, Site Options,
leasehold interests in and to ITFS lease agreements, subscriber contracts,
programming agreements, tower and equipment leases, management agreements,
joint venture agreements, notes, guaranties, covenants not to compete,
employment agreements, consulting agreements, permits, participation
agreements, policies, purchase and sale orders, quotations and other
executed or executory commitments understandings and instruments with
respect to the Business to which Seller or Technivision is a party, or of
which Seller or Technivision is to receive the benefit or by which any of
the Assets of Seller or Technivision is bound relating to the Markets or
Business, whether written or oral and whether originally entered into by
Seller or Technivision or another party.
"COPYRIGHT ACT" means the Copyright Act of 1976, as amended.
"COPYRIGHT OFFICE" means the United States Copyright Office of the
Library of Congress.
"COPYRIGHT RULES" means the rules and regulations promulgated by the
Copyright Office under authority of the Copyright Act, as set forth in Part
201, Volume 37 of the Code of Federal Regulations.
"CREDITORS" shall have the meaning set forth in Section 5.1.
"CUSTOMER DATA" means all of the customer lists, records, databases,
lists of potential customers, sales and service records, telephone numbers
and other customer data (including credit data) of Seller or Technivision
relating to the Business.
"DAMAGES" means all losses, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies, court
costs, costs of arbitration or administrative proceedings, attorneys' fees
and other reasonable expenses and costs.
"DAYTON MARKET" shall have the meaning set forth in Section 5.11.
"DAYTON PROCEEDS" shall have the meaning set forth in Section 5.11.
"DISSENTERS' PAYMENTS" shall have the meaning set forth in Section
1.3(h).
"DISTRIBUTABLE SHARES" shall have the meaning set forth in Section
1.3(c).
"DISTRIBUTION RECORD DATE" shall have the meaning set forth in Section
1.3(c).
"DOCUMENTS" means, with respect to the Business or the Assets, all
applications, engineering or market or other studies, reports, and analysis
or memoranda, or records and other documents or data related to the
Business or the Assets which are in the possession or under the control of
Seller or Technivision whether or not any such document is reproduced or
maintained on paper or stored or retained in or on audio or video tapes or
computer hardware disks or by other electronic, magnetic or other means or
methods.
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"DUE DILIGENCE NOTICE" shall have the meaning set forth in Section
7.7.
"EFFECTIVE DATE" shall mean the time and date that the Registration
Statement is declared effective by the SEC.
"ENGAGE" shall have the meaning set forth in Section 5.12.
"ENVIRONMENT" means the soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on or off the Site, whether yet discovered, which could or does
result in Damages, including any condition resulting from the operations of
Seller or Technivision.
"ENVIRONMENTAL LAWS" means all Legal Requirements relating to injury
to, or the protection of, real or personal property or human health or the
Environment, including, without limitation, all Legal Requirements of
courts and other Governmental Bodies pertaining to reporting, licensing,
permitting, investigation, remediation, and removal of, emissions,
discharges, releases or threatened releases of Hazardous Substances,
chemical substances, pesticides, petroleum or petroleum products,
pollutants, contaminants or hazardous or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, and including
electro-magnetic fields or discharges into the Environment, or relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, which are now or may hereafter be
applicable to Seller, Technivision or any Assets.
"EQUIPMENT" means all of the furniture, fixtures, furnishings,
machinery, computer hardware, antennas, transmitters, amplifiers,
waveguides, combiners and related items, subscriber receive equipment, all
other equipment associated with receiving and distributing signals at the
head-end site and all other antenna and all electronic equipment, satellite
receivers, modulators, earth stations and associated equipment, head-end
amplifiers and associated equipment, distribution plant, programming signal
descramblers for service which has commenced scrambling, subscriber's
devices, converters, local origination equipment, test equipment,
machinery, spare equipment and parts inventory, equipment inventory,
supplies, and all other tangible personal property and goods owned by
Seller or Technivision and used or held for use in the Business.
"ESCROW" shall have the meaning set forth in Section 1.3(b).
"ESCROW PERIOD" shall have the meaning set forth in Section 1.3(b).
"ESCROW SHARES" shall have the meaning set forth in Section 1.3(b).
"ESTOPPEL CERTIFICATES" shall have the meaning set forth in Section
4.3.
"EXCESS CONSENTS" shall mean the Primary Consents and Secondary
Consents.
"EXCESS DAYTON PROCEEDS" shall have the meaning set forth in Section
5.11.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" shall have the meaning set forth in Section 1.3(a).
"EXCHANGE AGREEMENT" shall mean an executed Exchange Agreement in the
form of Exhibit 1.3(a) hereto.
"EXCHANGE FUND" shall have the meaning set forth in Section 1.3(a).
"EXCLUDED ASSETS" shall have the meaning set forth in Section 1.1.
"EXCLUDED GAAP LIABILITIES" shall mean any GAAP Liabilities of Seller
on the Closing Date other than Permitted GAAP Liabilities.
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"EXCLUDED LIABILITIES" shall mean any Liabilities of Seller other than
the Assumed Liabilities.
"FAA" means the Federal Aviation Administration or any successor
agency(ies) with jurisdiction over towers and other antenna structures.
"FAA RULES" means the rules promulgated by the FAA and applicable to
antenna towers and other structures.
"FACILITIES" means, with respect to the Business or the Assets, all of
the plants, offices, broadcast towers, antenna towers, head-ends, studios,
control centers, leasehold improvements, and other real property interests
and related facilities which are either owned by the Seller or
Technivision, as applicable, or leased by or the use of which are leased by
Seller or Technivision, as applicable.
"FCC" means the Federal Communications Commission.
"FCC CONSENT" shall mean the consent of the FCC to the transfer of
control or assignment of any MDS and MMDS License or Application.
"FCC LICENSEE" shall mean a person who holds a License authorized by
the FCC.
"FCC PERMIT" shall mean a permit issued by the FCC to any Party to
construct a facility to transmit signals over one or more ITFS, MDS or MMDS
Channels.
"FCC PERMITTEE" shall mean a person who holds an FCC Permit as
authorized by the FCC.
"FCC PROCEEDING" means a Proceeding relating to Applications or
Licenses.
"FCC RULES" means the rules and regulations promulgated by the FCC
under authority of the Act, as set forth in Volume 47 of the Code of
Federal Regulations.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are (a)
consistent with the principles promulgated and adopted by the Financial
Accounting Standards Board and its predecessors as generally accepted
accounting principles, and (b) such that a certified public accountant
would, insofar as the use of accounting principles is pertinent, be in a
position to deliver an unqualified opinion as to financial statements in
which such principles have been properly applied.
"GAAP LIABILITIES" means Liabilities on the Closing Date that would be
properly reportable on a balance sheet for Seller as of the Closing Date
prepared in accordance with GAAP.
"GOVERNMENTAL BODY" means any federal, state, local, municipal,
foreign or other government.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises,
permits, privileges, immunities, approvals, certificates and other
authorizations from a Governmental Body.
"HAZARDOUS SUBSTANCES" means any substance: (a) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (b) which is defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any applicable Environmental Law or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act
("RCRA") (42 U.S.C. Section 6901 et seq.), the Clean Air Act, (42 U.S.C.
sec. 7401 et seq.) and any Environmental Law applicable to any jurisdiction
in which any Site(s) are located; (c) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is regulated by any Governmental Body; (d) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds; (e) without limitation, which
contains polychlorinated byphenyls (PCBs) or asbestos or urea formaldehyde
foam insulation; or (f) without limitation, which contains or emits
radioactive particles, waves or materials, including radon gas and
electro-magnetic fields.
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"HEARTLAND" shall have the meaning set forth in the Recitals.
"HEARTLAND APPROVAL NOTICE" shall have the meaning set forth in
Section 6.4.
"HEARTLAND SEC FILINGS" shall have the meaning set forth in Section
3.7.
"HEARTLAND SHARES" shall mean shares of common stock, $.001 par value
per share, of Heartland.
"HSR ACT" shall have the meaning set forth in Section 5.8.
"INITIAL SHARES" shall have the meaning set forth in Section 1.3(b).
"INSTITUTION" shall mean an accredited institution or a governmental
organization engaged in the formal education of enrolled students, or a
non-profit organization whose purposes are educational, which is a
qualified applicant for and has entered into a Channel Lease with Seller,
or any of it Affiliates.
"INTELLECTUAL PROPERTY" means all patents, trademarks, service marks,
tradenames, copyrights, licenses, formulas, computer software, advertising,
technology, advertising slogans, advertising techniques, operating
procedures, know-how, data and other intellectual property rights of Seller
or any Affiliate of Seller which are used or held for use in connection
with the Business.
"IRS" means the Internal Revenue Service.
"ITFS" means Instructional Television Fixed Service.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is aware or should
reasonably be aware, after due inquiry, of such fact or other matter; (b)
with respect to a Person (other than an individual) "knowledge" of a
particular fact or other matter if any individual who is serving as a
director or executive officer of such Person has "knowledge" of such fact
or other matter; and (c) with respect to warranties made by Seller or
Technivision, as applicable, that Seller or Technivision, as applicable,
based upon a reasonable investigation, believes the warranty is true.
"LEGAL REQUIREMENT" means any federal, state, local, municipal,
foreign or other law, statute, legislation, act, constitution, ordinance,
code, treaty, rule, regulation or FCC guideline.
"LIABILITIES" means damages, obligations, claims, demands, judgments
or settlements of any nature or kind, known or unknown, fixed, accrued,
absolute or contingent, liquidated or unliquidated, including all costs and
expenses (legal, accounting or otherwise).
"LICENSES" means all FCC licenses, conditional licenses, construction
permits, authorizations and approvals necessary or required to transmit
commercial programming, educational programming or any other use currently
authorized by law, including, without limitation, all rights, title and
interest in and to all MDS and MMDS commercial channel licenses associated
with the Markets.
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed
of trust, security interest, or encumbrance of any kind.
"LIQUIDATED SHARES" shall have the meaning set forth in Section
1.3(c).
"MARKETS" shall collectively refer to the metropolitan areas of Corpus
Christi, Texas, El Paso, Texas and Dayton, Ohio and "MARKET" shall refer to
one of such markets as the context of the provision shall note.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which
results in, or is reasonably likely to result in, a material adverse change
in the business, operations, assets, properties or prospects of the
specified entity, or would affect, in any material respect, such entity's
ability to perform its obligations under this Agreement.
"MAXIMUM TERMINATION PRICE" shall mean $40.00 per share.
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"MDS" shall mean a Multipoint Distribution Service, including (unless
otherwise specified), the former Operational Fixed Service ("OFS")
H-channels.
"MINIMUM CONSENTS" shall mean (a) with respect to the Dayton Market
and Corpus Christi Market, Consents for the transfer to Heartland of the
rights of Seller (i) broadcast or head-end facilities in each Market and
(ii) 23 Channels in each Market, and (b) with respect to the El Paso
Market, Consents for the transfer to Heartland of the rights of Seller in
(i) the broadcast or head-end facilities in such Market and (ii) 20
Channels in such Market.
"MINIMUM TERMINATION PRICE" shall mean $16.00 per share.
"MMDS" means the Multichannel Multipoint Distribution Service.
"NASDAQ-NMS" shall mean the Nasdaq Stock Market's National Market.
"OPERATIVE DOCUMENTS" shall mean this Agreement, the Assumption
Agreement, the Bill of Sale, the Exchange Agreement, the Three Sixty
Liquidation Plan and all other agreements, instruments, documents and
certificates executed and delivered by or on behalf of the parties hereto
at or prior to the Closing pursuant to this Agreement.
"ORDER" means any order, judgment, injunction, or FCC ruling issued,
made, entered or rendered by any court, administrative agency or other
Governmental Body or by any arbitrator.
"PARTIES" shall mean all parties to Contracts other than Seller or
Technivision from which Consents are required.
"PERMITTED ENCUMBRANCES" means deposits under Workmen's Compensation,
Unemployment Insurance or Social Security laws, or to secure statutory
obligations or surety or other similar bonds; government charges or other
governmental levies which are not yet due and payable, or being contested
in good faith by appropriate proceedings with adequate reserves in
conformity with generally accepted accounting principles; statutory liens
imposed by law incurred in the ordinary course of business or obligations
not yet due to carriers, warehousemen, laborers or materialmen; easements
and restrictions of record relative to the Real Property that do not affect
title thereto or interfere with or prohibit the current use of such Real
Property by Seller or Technivision; liens or encumbrances arising from any
Assumed Liabilities; and the interest or title of any lessor in property
pursuant to a lease of that property.
"PERMITTED GAAP LIABILITIES" means GAAP Liabilities as of the Closing
Date, to the extent and only to the extent such GAAP Liabilities, in the
aggregate, do not exceed $5.0 million.
"PERSON" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other
enterprise, association, organization or other entity or Governmental Body.
"PHILIPS" shall have the meaning set forth in Section 5.1.
"PREPAID SUBSCRIBER FEES" means all amounts received by Seller or
Technivision from customers or subscribers in the Markets (whether held as
cash, cash equivalents or otherwise) for periods of service from and after
the Closing Date.
"PRIMARY CONSENT" shall mean a Consent to the transfer of the rights
of Seller to Heartland in the first four Channels in a Market in excess of
Channels subject to Minimum Consents in the Market.
"PROCEEDING" means any suit, litigation, arbitration, proceeding
(including any civil, criminal, administrative, investigative or appellate
proceeding or FCC Proceeding).
"PROXY STATEMENT" shall have the meaning set forth in Section 1.3(c).
"REAL PROPERTY" shall mean include tower locations and related real
property rights.
"RECAPITALIZATION" shall have the meaning set forth in Section 5.15.
"REORGANIZATION" shall have the meaning set forth in the Recitals.
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"REGISTRATION STATEMENT" shall have the meaning set forth in Section
5.2.
"REQUIRED CONSENTS" shall have the meaning set forth in Section 5.13.
"ROLL-UP RULES" shall have the meaning set forth in Section 4.1(j).
"RULE 145 AFFILIATE" shall have the meaning set forth in Section 5.4.
"SEC" means the Securities and Exchange Commission.
"SECONDARY CONSENT" shall mean a Consent to the transfer of the rights
of Seller to Heartland in up to three Channels in a Market in excess of
Channels subject to Minimum Consents and Primary Consents in a Market.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER" shall have the meaning set forth in the Recitals.
"SELLER CLAIM" shall have the meaning set forth in Section 9.7.
"SELLER CLAIM NOTICE" shall have the meaning set forth in Section 9.6.
"SELLER'S APPROVAL NOTICE" shall have the meaning set forth in Section
6.5.
"SELLER'S REPRESENTATIVES" shall have the meaning set forth in Section
4.4.
"SITE" means a wireless cable television site with respect to which
Seller or Technivision is operating the Business or any part thereof and
transmitting programming to subscribers in connection therewith.
"SITE LEASE" shall mean a Contract for the lease of real estate or
tower space permitting the construction of a transmitter on a Site.
"SITE OPTION" shall mean an option or right to obtain a Site Lease.
"STIPULATED CONSENT AMOUNT" shall mean with respect to any Primary
Consent, $225,000 per Channel subject to a Primary Consent, and with
respect to any Secondary Consent, $100,000, per Channel subject to a
Secondary Consent.
"TAXES" shall mean any federal, state, local or foreign income, sales,
excise, real or personal property or other taxes, assessments, fees,
levies, imposts, duties, deductions or other charges of any nature
whatsoever (including, without limitation, interests and penalties) imposed
by any Legal Requirement.
"TECHNIVISION" shall have the meaning set forth in the Recitals.
"THREE SIXTY COMMON STOCK" shall mean all of the issued and
outstanding shares of common stock, no par value, of Seller.
"THREE SIXTY LIQUIDATION PLAN" shall have the meaning set forth in
Section 1.3(c).
"THREE SIXTY STOCKHOLDERS" shall mean the holders of the Three Sixty
Common Stock.
"TRUST" shall have the meaning set forth in Section 5.1.
11.2 DEFINED TERMS. In this Agreement, all definitions shall be equally
applicable to both the singular and the plural forms.
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ARTICLE 12. GENERAL PROVISIONS AND OTHER AGREEMENTS
12.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if and when delivered personally or
transmitted by telex, telecopy (receipt confirmed) or telegram, mailed by
registered or certified mail (return receipt requested) or sent by a recognized
next business day courier to the following persons at the following addresses
(or at such other address for a party as shall be specified by like notice):
(A) If to Heartland:
Heartland Wireless Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Attention: John R. Bailey
Telecopy: (214) 479-1023
with a copy to:
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, Texas 75201
Attention: Victor B. Zanetti, Esq.
Telecopy: (214) 741-7139
(B) If to Seller:
Technivision, Inc.
c/o Nowalk & Associates
Constitution Center
880 Route 130 North
Cranbury, New Jersey 08512
Attention: Mr. Richard Nowalk
Telecopy: (609) 655-5271
with a copy to:
Young Dimero & Sayovitz
414 Eagle Rock Avenue
West Orange, New Jersey 07052
Attention: Bob Greenwood, Esq.
Telecopy: (201) 669-8149
12.2 FEES AND EXPENSES. Except as otherwise expressly set forth herein,
each of the parties hereto shall pay their own costs, fees and expenses,
including, but not limited to, costs and expenses associated with legal counsel,
accountants and other advisers. Seller shall be solely responsible for any costs
(i) for any broker fee payable to Gerard Klauer Mattison & Co., Inc. (or any
other party engaged by Seller) and (ii) associated with securing necessary
consents or approvals for the assignment of the Assets to Heartland. Seller
shall have the right to designate all such fees and expenses, including fees and
disbursements of counsel and other advisors, as Permitted GAAP Liabilities to be
paid by Heartland at the Closing.
12.3 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
12.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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12.5 MISCELLANEOUS. This Agreement (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof;
(b) is not intended to and shall not confer upon any other person any rights or
remedies hereunder or otherwise with respect to the subject matter hereof,
except for rights that may expressly arise as a consequence of the Transaction;
(c) may not be assigned by operation of law or otherwise; (d) has been drafted
by all of the parties to this Agreement and should not be construed against any
of the parties hereto; (e) shall be governed in all respects, including
validity, interpretation and effect by the substantive laws of the State of
Delaware without regard to conflict of law provisions; and (f) shall be binding
upon and inure to the benefit of each party's successors and assigns.
[The remainder of this page has intentionally been left blank]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed by their duly authorized officer.
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By: /s/ JOHN R. BAILEY
Name: John R. Bailey
Title:
TECHNIVISION, INC.
By: /s/ ROBERT BILODEAU
Name: Robert Bilodeau
Title: President
THREE SIXTY CORP.
By: /s/ ROBERT BILODEAU
Name: Robert Bilodeau
Title: President
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B
APPENDIX B
TSC INDEMNITY ESCROW AGREEMENT
<PAGE> 1594
B
ESCROW AGREEMENT
[To be attached to Exchange Agreement]
THIS ESCROW AGREEMENT (the "Agreement") is made as of , 1996
by and among THREE SIXTY CORPORATION, a New Jersey corporation ("TSC"),
HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware corporation ("Heartland"),
and HARRIS TRUST COMPANY OF NEW YORK (the "Escrow Agent"). Capitalized terms
used but not defined herein shall have the meanings given to them in that
certain Amended and Restated Asset Purchase Agreement (the "Purchase
Agreement"), dated as of October 19, 1995, among Heartland, TSC and
Technivision, Inc., a Texas corporation ("Technivision").
RECITALS:
WHEREAS, TSC, Technivision and Heartland have entered into the Purchase
Agreement in order to provide for the sale by TSC to Heartland of substantially
all of the assets and certain of the liabilities formerly held by Technivision
(subsequently merged with and into TSC), as set forth in the Purchase Agreement
(the "Purchase"); and
WHEREAS, the Closing of the Purchase is taking place as of the date hereof;
and
WHEREAS, Heartland has relied upon the representations, warranties and
covenants of TSC and Technivision provided in the Purchase Agreement and in
schedules, certificates and other documents delivered pursuant to the Purchase
Agreement; and
WHEREAS, pursuant to Article 9 of the Purchase Agreement, TSC has agreed to
indemnify and hold Heartland harmless from and against certain losses,
obligations, liabilities and damages, as further provided therein and, in
connection therewith, the parties to the Purchase Agreement have agreed,
pursuant to Section 1.3(b) thereof, to establish an escrow for the purpose of
satisfying such indemnification obligations (the "Indemnity Escrow"); and
WHEREAS, pursuant to Section 5.13 of the Purchase Agreement, TSC and
Technivision have agreed to deliver to Heartland the Excess Consents and, in
connection with such agreement, the parties to the Purchase Agreement have
agreed, pursuant to Section 1.3(b) thereof, to establish an escrow for the
purpose of ensuring the obtaining of such consents (the "Consent Escrow");
NOW, THEREFORE, to induce Heartland to proceed with the Closing of the
Purchase, and in consideration of such Closing and in further consideration of
the mutual covenants and agreements contained herein and in the Purchase
Agreement, and intending to be legally bound, the parties hereto do hereby agree
as follows:
ARTICLE 1. TSC AS REPRESENTATIVE; APPOINTMENT OF ESCROW AGENT
1.1 TSC AS REPRESENTATIVE OF THREE SIXTY STOCKHOLDERS.
TSC shall act as the representative of the persons entitled to receive
(subject to the terms hereof and the Purchase Agreement) the Escrow Shares and
the Consent Shares, in accordance with this Escrow Agreement. No bond shall be
required of TSC, and TSC shall not receive compensation for services hereunder.
The Escrow Agent is hereby relieved from any liability for any acts done by it
in accordance with any resolution, action, decision, consent or instruction of
TSC.
1.2 APPOINTMENT OF ESCROW AGENT; EXCHANGE VALUE.
(A) Heartland and TSC hereby appoint the Escrow Agent, and the Escrow Agent
hereby agrees to act, as the agent of such parties in performing the duties of
the Escrow Agent provided herein. As compensation for Escrow Agent's services
hereunder, Escrow Agent shall receive compensation of $1,500 payable within ten
(10) days from the date hereof, $1,000 upon the last to occur of the termination
of the Consent Escrow and
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the Indemnity Escrow, and the reimbursement of all other Administrative Costs
(as such term is defined in Section 4.2).
(B) For purposes of this Agreement, each Heartland Share constituting
Escrow Shares or Consent Shares shall have a value equal to $ (the
"Exchange Value") and such valuation shall apply throughout the duration of this
Agreement.
ARTICLE 2. INDEMNITY ESCROW
2.1 INDEMNITY ESCROW.
(A) On the date hereof, Heartland shall cause to be deposited with the
Escrow Agent the Escrow Shares, such deposit, together with any dividends or
other distributions paid thereon properly allocable to the Escrow Shares in
accordance with the Purchase Agreement, to constitute an escrow fund (the
"Indemnity Fund") to be governed by the terms set forth herein. Upon full
compliance with all of the terms hereof, Heartland shall be entitled to receive
payment from the Indemnity Fund for all claims ("Claims") for which Heartland is
entitled to indemnification under Article 9 of the Purchase Agreement.
(B) The Escrow Agent shall hold, safeguard and dispose of the Indemnity
Fund in accordance with the terms hereof, and shall treat such fund as a trust
fund in accordance with the terms hereof and not as the property of TSC, the
Three Sixty Stockholders or Heartland.
(C) The Indemnity Fund created hereby shall remain in existence until the
date all of the Escrow Shares and other assets in the Indemnity Fund have been
distributed in accordance herewith (such period being referred to herein as the
"Indemnity Period").
2.2 CLAIM SUBMISSION PERIOD. In order to assert a Claim against the Indemnity
Fund, Heartland shall deliver (in accordance with Section 5.1 below) to TSC and
the Escrow Agent within eighteen (18) months from the date hereof (as such
period may be extended for certain Third Party Claims pursuant to Section 2.3(b)
below, the "Claim Submission Period"), a certificate signed by an executive
officer of Heartland ("Officer's Certificate"):
(I) stating that Heartland has paid, suffered or properly accrued, or
Heartland in good faith reasonably anticipates that Heartland will have to
pay, suffer or accrue, Damages in an aggregate stated amount (including,
without limitation, any anticipated professional and other fees and costs
associated therewith) ; and further stating that Heartland is entitled to
indemnification out of the Indemnity Fund pursuant to this Agreement and
the Purchase Agreement; and
(II) specifying in reasonable detail (A) the individual items of
Damages included in the amount so stated, (B) the date each such item was
paid or properly accrued or the basis for such anticipated liability, and
(C) the nature of the liability, misrepresentation, breach of warranty or
covenant or other matter to which such items is related.
Upon the Escrow Agent's and TSC's receipt of the Officer's Certificate, such
Claim shall be administered by the Escrow Agent pursuant to Section 2.4 below.
2.3 THIRD PARTY CLAIMS.
(A) Within 15 days after receipt by Heartland of notice ("Third Party Claim
Notice") of any Claim by a third party ("Third Party Claim"), Heartland shall
deliver to TSC written notice thereof; provided that the omission to so notify
TSC will not affect Heartland's right of recourse to the Indemnity Fund
hereunder so long as TSC is not prejudiced thereby. TSC shall have the right to
defend and direct the defense against any such Third Party Claim, at the expense
of TSC and with counsel selected by TSC and reasonably satisfactory to Heartland
unless (i) such Third Party Claim seeks an order, injunction or other equitable
relief against Heartland, or (ii) Heartland shall have reasonably concluded that
(x) there is a conflict of interest between TSC and Heartland in the conduct of
the defense of such Third Party Claim or (y) Heartland has one or more defenses
not available to TSC. Heartland shall have the right to participate in the
defense of any Third Party
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B
Claim with counsel employed at its own expense; provided, however, that in the
case of any Third Party Claim described in clause (i) or (ii) of the preceding
sentence or as to which TSC has not in fact employed counsel to assume the
defense of such Third Party Claim within fifteen (15) days after receipt of such
Third Party Claim Notice that TSC is required, pursuant to Article 9 of the
Purchase Agreement, to indemnify Heartland, the reasonable fees and
disbursements of such counsel shall be at the expense of TSC. In any case, TSC
may not settle or compromise any such Third Party Claim without the prior
written consent of Heartland, which in the case of a settlement solely involving
monetary damages shall not be unreasonably withheld.
(B) If Heartland has delivered to TSC and Escrow Agent a Third Party Claim
Notice within eighteen (18) months from the date of this Agreement and the Claim
that is the subject of such notice has not been resolved within such 18-month
period, then the Claim Submission Period with respect to each such Third Party
Claim shall be extended until the final resolution of such Claim.
2.4 ADMINISTRATION OF CLAIMS.
(A) ACCEPTED AND REJECTED CLAIMS. TSC shall have a period of ten (10)
business days from its receipt of an Officer's Certificate ("Rejection Period")
to review the Officer's Certificate and deliver to Heartland and Escrow Agent
written notice of its rejection of all or a portion of the Claim referenced
therein ("Rejection Notice"). During the Rejection Period, Heartland shall, upon
written request from TSC, make available or provide any records reasonably
requested by TSC relevant to such Claim, and such Rejection Period shall be
tolled until five business days following the receipt by TSC of such records. If
no Rejection Notice is received by Heartland and Escrow Agent within the
Rejection Period, then such Claim shall become an "Accepted Claim."
(B) ADMINISTRATION OF REJECTED CLAIMS. For any Claim which is the subject
of a Rejection Notice (a "Rejected Claim"), TSC and Heartland shall attempt in
good faith to agree upon the rights of the respective parties with respect to
such Claim. If TSC and Heartland so agree, a memorandum setting forth such
agreement shall be prepared and signed by Heartland and TSC and shall be
furnished to the Escrow Agent and such Rejected Claim shall become an "Accepted
Claim."
(C) RESOLUTION OF DISPUTES. If no such agreement between TSC and Heartland
can be reached with respect to a Rejected Claim after good faith negotiation
within thirty (30) days of Heartland's receipt of a Rejection Notice, Heartland
and TSC shall mutually select an independent third party (the "Designated
Party") whose determination of the Rejected Claim and the amount of Damage (if
any) associated therewith shall be final, nonappealable and binding. The
Designated Party shall be a person knowledgeable regarding the wireless cable
television business and the value of related assets, and shall be generally
knowledgeable with regard to business and financial matters. In the event
Heartland and TSC fail to agree upon the Designated Party within forty (40) days
after Heartland's receipt of a Rejection Notice, the Designated Party shall be
the managing partner of the offices of an independent "Big Six"
accounting firm other than KPMG Peat Marwick, L.L.P., as selected jointly by TSC
and Heartland, and in the absence of said joint election, as selected by the
managing partner of the office of KPMG Peat Marwick, L.L.P. or
his designee. Upon the determination of the Designated Party in accordance
herewith with respect to a Rejected Claim, the determination of the value of
such Claim, if any, by the Designated Party shall become an "Accepted Claim."
All determinations by a Designated Party hereunder shall be made in accordance
with the expedited commercial rules of the American Arbitration Association.
(D) PAYMENT OF CLAIMS. Subject to Section 9.2 of the Purchase Agreement,
once a Claim has become an Accepted Claim in accordance with the terms of this
Agreement, the Escrow Agent shall, within five (5) business days of the written
request of Heartland, deliver to Heartland Escrow Shares having an aggregate
Exchange Value equal to the amount of the Claim for which Heartland is entitled
to indemnification, rounded down to the nearest whole share.
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ARTICLE 3. CONSENT ESCROW
3.1 CONSENT ESCROW.
(A) On the date hereof, Heartland shall cause to be deposited with the
Escrow Agent the Consent Shares, such deposit, together with any dividends or
other distributions paid thereon properly allocable to the Consent Shares in
accordance with the Purchase Agreement, to constitute an escrow fund (the
"Consent Fund") to be governed by the terms set forth herein. Upon compliance
with the terms hereof, TSC shall be entitled to receive disbursement of the
Consent Shares from the Consent Fund for disbursement to the Three Sixty
Stockholders.
(B) The Escrow Agent shall hold, safeguard and dispose of the Consent Fund
in accordance with the terms hereof, and shall treat such fund as a trust fund
in accordance with the terms hereof and not as the property of TSC, the Three
Sixty Stockholders or Heartland.
(C) The Consent Escrow created hereby shall remain in existence for six (6)
months from the date of this Agreement or earlier termination of the Consent
Escrow; provided, however, that TSC shall have the right to extend the Consent
Escrow for two additional six-month periods upon written notice to Heartland and
the Escrow Agent (such period as it may be extended pursuant to the terms
hereof) being referred to herein as the "Consent Period").
3.2 ADMINISTRATION OF CONSENT FUND.
(A) During the Consent Period, TSC may deliver to the Escrow Agent and
Heartland copies of Excess Consents received by it together with written
instructions to the Escrow Agent requesting the Escrow Agent to deliver to TSC
Consent Shares having an aggregate Exchange Value equal to the Stipulated
Consent Amounts specified for the Excess Consent covered thereby (the
"Instructions"). If the Escrow Agent receives Contrary Instructions (as defined
in subparagraph (c) of this Section 3.2) from Heartland within fifteen (15)
calendar days after the receipt of the Instructions by Heartland, the Escrow
Agent shall promptly deliver a copy of such Contrary Instructions to TSC and
shall take no action with respect to the Consent Fund as to the amount in
dispute with respect to such Instructions, but shall continue to hold the
affected portion of the Consent Fund until jointly directed by Heartland and TSC
or until such dispute is resolved in accordance with Section 3.2(d) below. If
the Escrow Agent does not receive Contrary Instructions from Heartland within
such fifteen (15) day period or if such Contrary Instructions apply only to a
portion of the Excess Consents covered thereby, Consent Shares having an
aggregate Exchange Value equal to the sum of the Stipulated Consent Amounts
relating to the Consent(s) set forth in the Instructions as to which there is no
dispute, rounded to the nearest whole share (with fractional shares equal to or
greater than .5 being rounded up), shall be released from the Consent Escrow
("Released Consent Shares") and shall be disbursed in accordance with the Three
Sixty Liquidation Plan, as directed in writing by TSC, within five business days
thereafter.
(B) Instructions (i) shall be in writing, addressed to the Escrow Agent,
dated currently, and signed on behalf of TSC by officers thereof, (ii) shall
refer to this Agreement, (iii) shall identify the Excess Consent as a Primary
Consent or Secondary Consent, and (iv) shall be accompanied by a copy of each
such Consent (the original of which shall be delivered to Heartland by TSC).
(C) "Contrary Instructions" shall mean the filing of a notice with the
Escrow Agent by Heartland (which Heartland shall concurrently send to TSC)
stating that the Instructions delivered by TSC are inaccurate (with a reasonably
detailed description setting forth the basis of such inaccuracy) and that all or
a portion of the Consent Fund should not be disbursed in connection with such
Instructions until the resolution of such dispute in accordance with Section
3.2(d) below.
(D) In the event that Contrary Instructions are filed with the Escrow Agent
by Heartland and Heartland and TSC do not execute mutual instructions to the
Escrow Agent regarding the resolution of such dispute within ten business days
of Heartland's delivery of Contrary Instructions, then the Designated Party
(selected in accordance with Section 2.4(c) hereof) shall determine whether the
Instructions and Excess Consent that is the subject thereof are sufficient for
purposes of this Agreement and the Purchase Agreement, and the
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determination of the Designated Party shall be final, not appealable and
binding. All determinations by a Designated Party hereunder shall be made in
accordance with the expedited commercial rules of the American Arbitration
Association.
ARTICLE 4. EXPIRATION OF ESCROWS; COSTS; CERTAIN RESPONSIBILITIES
4.1 EXPIRATION OF ESCROW PERIODS.
(A) Subject to the provisions of Section 4(d) below regarding the early
release of Escrow Shares from the Indemnity Fund, upon resolution of each Claim
that is the subject of a properly submitted Officer's Certificate within the
Claim Submission Period, any Escrow Shares remaining in the Indemnity Fund and
any dividends or distributions paid with respect thereto shall be delivered in
accordance with the Three Sixty Liquidation Plan, as directed in writing by TSC.
Any fractional shares remaining in the Indemnity Fund shall be repurchased by
Heartland for the aggregate Exchange Value for such Escrow Shares and the
proceeds thereof shall be distributed on the basis set forth in the preceding
sentence.
(B) Upon the expiration of the Consent Period, the Escrow Agent shall
deliver to Heartland any Consent Shares remaining in the Consent Fund after
delivery of the Released Consent Shares pursuant to Section 3.2(a) above.
(C) Following the expiration of the Indemnity Period and the Consent Period
and distribution in accordance herewith of the Indemnity Fund and the Consent
Fund, the escrows created hereby and this Agreement, other than the provisions
of Section 4.6 shall terminate.
(D) If, upon the date which is one year from the date hereof, Heartland has
not submitted Officer's Certificates relating to Claims that, in the aggregate,
exceed $500,000, then Escrow Agent shall, within five business days of such
date, release from the Indemnity Fund and deliver, in accordance with the Three
Sixty Liquidation Plan (as directed in writing by TSC), Escrow Shares having an
aggregate Exchange Value of $1.3 million. If, upon the date which is one (1)
year from the date hereof, Heartland has submitted Officer's Certificates
relating to Claims that, in the aggregate, exceed $500,000, then Escrow Agent
shall, within five (5) business days of such date, release from the Indemnity
Fund and deliver, in accordance with the Three Sixty Liquidation Plan (as
directed in writing by TSC), Escrow Shares having an aggregate Exchange Value
equal to the difference between (a) $1.3 million minus (b) a product of .26
multiplied by the aggregate amount of such Claims. If, on the date which is
eighteen months from the date hereof, there are any outstanding Rejected Claims
or Third Party Claims for which Heartland has delivered Third Party Claim
Notices, the Escrow Agent shall release from the Indemnity Fund all Escrow
Shares other than Disputed Escrow Shares. As used herein, the term "Disputed
Escrow Shares" means Escrow Shares that are the subject of an unresolved
Rejected Claim or Third Party Claim Notice on the date which is eighteen months
from the date hereof having an aggregate Exchange Value equal to the maximum
amount of Damages set forth in such Officer's Certificate or Third Party Claim
Notice (or in the absence of a specified amount, an amount agreed to in writing
by Heartland and TSC).
4.2 ADMINISTRATIVE COSTS AND INDEMNIFICATION.
All costs and expenses of administering this Agreement (including, without
limitation, fees and expenses of the Escrow Agent and any Designated Party)
("Administrative Costs") shall be borne equally by the Indemnity Fund and
Heartland. The Escrow Agent shall from time to time invoice such costs and
expenses in accordance with its standard practice and provide copies thereof to
TSC and Heartland. Within fifteen (15) business days after Heartland's receipt
of an invoice from the Escrow Agent, Heartland shall pay to the Escrow Agent the
amount of such invoice for use by the Escrow Agent in paying or reimbursing such
costs and expenses and the Escrow Agent shall thereupon deliver to Heartland
Escrow Shares having an aggregate Exchange Value equal to 50% of the amount of
the related invoice rounded down to the nearest whole share. The Escrow Agent
shall be indemnified and saved harmless by TSC and Heartland from and against
any and all liability, including all expenses reasonably incurred in its
defense, to which the Escrow Agent shall be
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subject by reason of any action taken or omitted or any investment or
disbursement of any part of the Escrow Funds made by the Escrow Agent pursuant
to this Escrow Agreement, unless caused by the gross negligence or willful
misconduct of the Escrow Agent. The costs and expenses of enforcing this right
of indemnification shall also be paid by TSC and Heartland. This right of
indemnification shall survive the termination of this Agreement and/or the
resignation or removal of the Escrow Agent.
4.3 VOTING.
(A) The Escrow Agent shall invest any cash held in either Escrow Fund in an
interest-bearing account or money market instruments in accordance with written
instructions from TSC. Any interest payable on the funds shall be added to the
appropriate Escrow Fund and become a part thereof. The parties acknowledge that
the Escrow Agent shall not be liable for any diminution in the Escrow Fund due
to losses resulting from investments made pursuant to this Escrow Agreement.
(B) The Escrow Shares and the Consent Shares shall be issued and held in
the name of the Escrow Agent, and the Escrow Agent hereby grants to TSC an
irrevocable proxy to vote the Escrow Shares and the Consent Shares. TSC shall
have voting rights with respect to the Escrow Shares and the Consent Shares (and
on any voting securities added to the respective escrow funds) held by the
Escrow Agent so long as such Escrow Shares or Consent Shares or other voting
securities are held in the Escrow Fund. The Escrow Agent shall execute and
deliver to TSC upon request all such proxies, forms for election or other
instruments which it receives as may be required with respect to the Escrow
Shares and the Consent Shares in order to give effect to the foregoing.
4.4 TSC'S RESPONSIBILITIES HEREUNDER.
TSC is vested with the authority, duty and responsibility to represent the
interests of the Three Sixty Stockholders in the escrow funds as set forth
herein, and TSC agrees to manage and discharge its duties and responsibilities
as agent in accordance with the terms hereof. The resolution, action, decision,
consent or instruction of TSC shall be final, conclusive and absolutely binding
upon each of the Three Sixty Stockholders, and Heartland and the Escrow Agent
may rely upon any such resolution, action, decision, consent or instruction of
TSC as being the resolution, action, decision, consent or instruction of each
and all of the Three Sixty Stockholders.
4.5 ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES.
To induce the Escrow Agent to act hereunder, it is further agreed that:
(A) The Escrow Agent shall not be under any duty to give the property
held hereunder any greater degree of care than it gives its own similar
property. The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Escrow Agreement, and the Escrow Agent shall
not be liable except for the performance of such duties as are specifically
set forth in this Agreement, and no implied covenants or obligations shall
be read into this Agreement against the Escrow Agent.
(B) The Escrow Agent may act upon advice of counsel in reference to
any matter connected herewith and shall not be liable for any acts or
omissions while acting in good faith and exercising reasonable judgment.
(C) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(D) The Escrow Agent shall not be liable for the outlawing of any
rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(E) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any
court. In case
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B
the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person by reason of such compliance, notwithstanding
any such order, judgment or decree being subsequently reversed, modified,
annulled, set aside, vacated or found to have been entered without
jurisdiction.
(F) The Escrow Agent is authorized to rely on the written instructions
of TSC as being the act of all of the Three Sixty Stockholders and the
written instructions of the President or any executive officer of Heartland
as being the act of Heartland.
(G) This Agreement sets forth the exclusive duties of the Escrow Agent
with respect to any and all matters pertinent hereto and no implied duties
or obligations of the Escrow Agent shall be read into this Agreement.
(H) The Escrow Agent shall not be called upon to advise any party as
to its rights and obligations hereunder.
(I) The Escrow Agent shall be deemed to have fully complied with its
obligations hereunder to transfer the Escrow Shares and Consent Shares by
delivery to the transfer agent of Heartland (the "Transfer Agent") of the
Escrow Shares and Consent Shares, all in form satisfactory to such Transfer
Agent, of certificates properly endorsed for transfer with instructions to
the Transfer Agent to issue in the name of and deliver to the person to
whom such transfer is to be made a certificate or certificates for the
required number of shares. Transfer taxes, if any, applicable to such
transfer shall be payable by the person whom the Escrow Shares and Consent
Shares, as the case may be, are being transferred.
(J) The Escrow Agent shall be fully protected in acting in accordance
with any instructions given to it hereunder and believed by it to have been
executed by the proper parties. The Escrow Agent's duties shall be
determined only with reference to this Agreement and applicable laws and is
not charged with any duties or responsibilities in connection with any
other document or agreement.
4.6 RECORDS; FINAL ACCOUNTING.
The Escrow Agent shall maintain a record of all Claims against the
Indemnity Fund filed with it pursuant to Sections 2.2 and 2.3, a record of all
such Claims which shall become payable claims as provided in Section 2.3 and a
record of all payments or distributions from the Indemnity Fund and the Consent
Fund. Upon the termination or resignation of the Escrow Agent or termination or
expiration of this Agreement, the Escrow Agent shall within ten (10) business
days deliver to Heartland and TSC a full and final accounting with regard to the
Indemnity Fund and the Consent Fund.
4.7 RESIGNATION OF ESCROW AGENT.
The Escrow Agent, or any successor, may resign as Escrow Agent hereunder by
giving written notice thereof to Heartland and TSC. Such resignation shall
become effective following such written notice upon the earlier of the
appointment by Heartland and TSC of a successor Escrow Agent that accepts the
appointment and agrees to be bound by the provisions of this Agreement or the
expiration of 60 days thereafter. Upon the effectiveness of such resignation,
all duties of the Escrow Agent so resigning shall cease, other than the duty to
account in accordance with Section 4.6. Heartland and TSC shall have the right
to terminate the appointment of the Escrow Agent hereunder by giving written
notice thereof to the Escrow Agent, specifying the date upon which such
termination shall take effect. A condition precedent to such termination shall
be the designation of a successor Escrow Agent that has accepted the appointment
and agreed to be bound by the provisions of this Agreement, or an agreement
executed by Heartland and TSC directing the release or payment of the remaining
Escrow Shares or amounts in the Indemnity Fund. In event of such termination,
the Escrow Agent shall turn over and deliver to such successor Escrow Agent the
Indemnity Fund, the Consent Fund, and any other sums and the records and
instruments held by it under this Agreement and render the accounting required
by Section 4.6.
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ARTICLE 5. MISCELLANEOUS
5.1 NOTICES.
All notices and other communications pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally, sent by nationally
recognized, overnight courier, or mailed by registered or certified mail (return
receipt requested), postage prepaid, or sent by facsimile (followed by a copy
sent by courier or registered or certified mail) to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
hereunder):
To Heartland:
John R. Bailey
903 N. Bowser, Suite 104
Richardson, TX 75081
Telefax: 214/479-1023
with a copy to:
Victor B. Zanetti, Esq.
Arter, Hadden, Johnson & Bromberg
1717 Main Street, Suite 4100
Dallas, TX 75201
Telefax: 214/741-7139
To TSC:
c/o Nowalk & Associates
Constitution Center
880 Route 130 North
Cranbury, New Jersey 08512
Attn: Mr. Richard Nowalk
Telefax: (609) 655-5271
with a copy to:
Young, Dimero & Sayovitz
414 Eagle Rock Avenue
West Orange, New Jersey 07052
Attn: Bob Greenwood, Esq.
Telefax: (201) 669-8149
To the Escrow Agent:
Harris Trust Company of New York
--------------------------------
--------------------------------
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery or by a nationally recognized
overnight courier, on the date of such delivery, (b) in the case of mailing, on
the date received, and (c) in the case of a facsimile, when the party receiving
such facsimile shall have confirmed receipt of the communication.
5.2 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto.
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5.3 GOVERNING LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely in Delaware.
5.4 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
when so executed shall constitute an original hereof, but all of which together
shall constitute one agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
HEARTLAND WIRELESS
COMMUNICATIONS, INC.
By:
--------------------------------
Title:
------------------------------
THREE SIXTY CORPORATION
By:
--------------------------------
Title:
------------------------------
HARRIS TRUST COMPANY OF NEW YORK
By:
--------------------------------
Title:
------------------------------
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C
APPENDIX C
TSC LIQUIDATION PLAN
<PAGE> 1604
C
PLAN OF LIQUIDATION OF THREE SIXTY CORP.
WHEREAS, the Corporation is about to sell substantially all of its assets
in exchange for the stock of Heartland Wireless Communications, Inc., a Delaware
corporation ("Heartland"), in an exchange governed by Sections 354 and
368(a)(1)(C) of the Internal Revenue Code, as amended (the "Code") pursuant to
an Agreement among Heartland, Technivision, Inc. and Three Sixty Corp.
("Corporation") dated October 19, 1995 (the "Heartland Agreement") and
WHEREAS, in accordance with such section of the Code, the Corporation must
liquidate as soon as reasonably practical, therefore it is
RESOLVED, that this Board of Directors hereby adopts the following plan of
liquidation of the assets of the Corporation:
1. The following plan of liquidation is adopted for the assembling and
marshaling of the assets of the Corporation, the paying of all known debts
and liabilities or the making of adequate provisions of the creditors and
debtors of the Corporation, and the distribution of the remaining assets
among the shareholders according to their respective rights and interests.
2. The Heartland Agreement is hereby ratified and approved. The
Corporation shall sell substantially all of its assets pursuant to the
Heartland Agreement, subject to the assumption by Heartland of certain of
its business liabilities.
3. Ancillary to the Heartland Agreement, the Corporation shall enter
into an agreement (the "TSC Exchange Agreement") among Heartland, the
Corporation and Harris Trust Company of New York (the "Exchange Agent") for
the purpose of effecting the delivery of the Heartland shares to be
received by the Corporation pursuant to the Heartland Agreement. The
Exchange Agent shall participate in the liquidation and distribution of the
assets of the Corporation as described in Section 1.3 of the Heartland
Agreement and under the TSC Exchange Agreement.
4. All liabilities and obligations of the Corporation will be paid or
discharged, or adequate provision will be made for any remaining
liabilities and obligations of the Corporation including federal and state
tax liabilities. Such payments shall be made from the Heartland shares
delivered to the Exchange Agent or otherwise from the assets of the
Corporation. In particular, obligations to Philips Credit Corp. and the SEC
shall be satisfied immediately upon closing of the Heartland Agreement.
5. The officers of the Corporation are authorized to sell (or to
request the Exchange Agent or others to sell with respect to the Heartland
shares) any or all corporate assets on the terms and conditions, and for
the consideration, that the officers deem reasonable or expedient, and to
execute any instruments necessary to transfer title to these assets.
6. After the provision for, or the payment of, the known debts and
liabilities of the Corporation, and the creation of any reserves deemed
reasonable by the officers, the officers of the Corporation are authorized
and directed to distribute the remaining assets of the Corporation to the
shareholders of record of the Corporation on the date of closing of the
Heartland Agreement (or such earlier date as the Board may hereafter
determine) in the following manner:
a. with respect to any cash held by the Corporation, by
distributing to each shareholder of record an amount of cash equal to
the proportion that the shares owned by the shareholder bears to the
total issued and outstanding shares of the Corporation;
b. with respect to assets consisting of shares of stock in any
other corporation, by distributing to each shareholder of record the
number of shares of any such stock that results from dividing the number
of such shares by the number of shares of the Corporation issued and
outstanding, the manner of distributing fractional shares to be left to
the discretion of the Corporation's officers; such shares of stock to be
distributed to include (but not be limited to) potentially, shares of
stock of Heartland Communications, Inc., CableMaxx, Inc., Transworld
Telecommunications, Inc., Dom's
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Tele Cable, Inc., and any subsidiary of the Corporation, including
Clearview Cable, Inc. and Three Sixty Delaware, Inc.;
c. with respect to any other assets, by distributing to each
shareholder of record an undivided interest in each of the assets equal
to the proportion that the shares of the Corporation owned by each
shareholder bears to the total issued and outstanding shares of the
Corporation; and
d. at the time that the officers and directors determine that all
liabilities of the Corporation have been paid or adequately provided for
and there is no further need for a reserve fund, the balance in the
reserve fund, if any, shall be distributed as provided above.
To the extent that the direct distribution to the shareholders of the
Corporation of any non-cash assets of the Corporation is impossible or
impractical, the officers are hereby authorized to establish such
liquidating trust or trusts as they deem necessary or desirable for the
prompt effectuation of the plan of liquidation. The Board may, but need
not, make one or more interim distributions, provided it is satisfied that
any such distribution shall not interfere with the ability of the
corporation to pay in full all actual or contingent claims of creditors.
7. The distribution of the assets shall be made to the shareholders of
the Corporation on the following conditions:
a. that each shareholder properly endorse and surrender the
certificate or certificates evidencing that shareholder's ownership of
shares of the Corporation;
b. that the distribution shall be in complete satisfaction of the
rights of each shareholder of the Corporation upon distribution and
liquidation of assets; and
c. that this plan of liquidation and distribution be approved by
the shareholders.
8. The officers of the Corporation are authorized and directed to take
appropriate measures to obtain the shareholders' approval of the plan of
liquidation authorized in these resolutions, including soliciting approval
at a shareholders meeting pursuant to a joint proxy statement-prospectus
filed as part of a Registration Statement on Form S-4 by Heartland.
9. The officers of the Corporation are authorized to do whatever acts
and to take whatever steps that may be necessary or convenient to effect
these resolutions, including, but not limited to, the execution of any
instruments required to vest title to the assets of the Corporation in the
shareholders (or in any liquidating trust).
10. The Board is authorized:
(a) to continue the employment of officers and other employees to
the extent reasonably necessary to carry out the provisions of this plan
and to retain counsel, accountants, and other experts to assist it in
effecting the dissolution and liquidation of the corporation in an
orderly, expeditious, and economical fashion;
(b) to cause the corporation to establish reserves, to provide for
the administration of the reserves, and to purchase insurance to provide
for the payment of pending contested, contingent, known or unknown
liabilities that might be asserted in the future; and
(c) to cause the corporation to take the steps necessary to notify
creditors to present their claims in writing and to bar such claims if
not presented within the times prescribed by law.
11. The Corporation shall not undertake any new business activities
after the closing of the Heartland transaction, but it shall fulfill its
existing contractual obligations.
12. The Corporation shall be dissolved, as proposed by the Board and
approved by the shareholders. The officers and directors shall take all
steps necessary to effect the formal dissolution of the Corporation by
filing a certificate of dissolution with the Secretary of State of New
Jersey. The certificate shall be filed
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C
at whatever time the Board deems appropriate, taking into account the
nature of the winding up business activities of the Corporation and
relevant, legal, tax and regulatory requirements.
13. The current members of the Board and the current officers shall
remain the same, notwithstanding the dissolution of the corporation,
subject to their removal or replacement as provided in the by-laws of the
Corporation and by law.
14. The only business activities of the Corporation following
dissolution shall be those necessary or desirable for the purpose of
winding up the affairs of the Corporation, as determined by the board in
its business judgment.
15. The officers and directors of the Corporation are authorized and
directed to take any action necessary or proper to carry out, perform,
implement, and consummate this plan of liquidation and distribution and to
wind up corporate affairs as soon as feasible following the closing of the
sale of substantially all of the assets of the Corporation to Heartland, in
exchange for its stock pursuant to the Heartland Agreement.
16. This plan may be amended from time to time by the Board of
Directors. Any amendment, however, that would permit the Corporation to
engage in new business activities or cause the Corporation to engage in its
existing business activities for longer than one year from the date of
adoption of this plan must be approved by the shareholders.
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D
APPENDIX D
NOTICE OF APPRAISAL RIGHTS
APPLICABLE TO TSC STOCKHOLDERS
<PAGE> 1608
D
CHAPTER 11. RIGHTS OF DISSENTING SHAREHOLDERS
14A:11-1 RIGHT OF SHAREHOLDERS TO DISSENT. -- (1) Any shareholder of a
domestic corporation shall have the right to dissent from any of the following
corporate actions:
(a) Any plan of merger or consolidation to which the corporation is a
party, provided that, unless the certificate of incorporation otherwise provides
(i) a shareholder shall not have the right to dissent from any plan of
merger or consolidation with respect to shares
(A) of a class or series which is listed on a national securities exchange
or is held of record by not less than 1,000 holders on the record date fixed to
determine the shareholders entitled to vote upon the plan of merger or
consolidation; or
(B) for which, pursuant to the plan of merger or consolidation, he will
receive (x) cash, (y) shares, obligations or other securities which, upon
consummation of the merger or consolidation, will either be listed on a national
securities exchange or held of record by not less than 1,000 holders, or (z)
cash and such securities;
(ii) a shareholder of a surviving corporation shall not have the right to
dissent from a plan of merger, if the merger did not require for its approval
the vote of such shareholders as provided in section 14A:10-5.1 or in
subsections 14A:10-3(4), 14A:10-7(2) or 14A:10-7(4); or
(b) Any sale, lease, exchange or other disposition of all or substantially
all of the assets of a corporation not in the usual or regular course of
business as conducted by such corporation, provided that, unless the certificate
of incorporation otherwise provides, the shareholder shall not have the right to
dissent
(i) with respect to shares of a class or series which, at the record date
fixed to determine the shareholders entitled to vote upon such transaction, is
listed on a national securities exchange or is held of record by no less than
1,000 holders; or
(ii) from a transaction pursuant to a plan of dissolution of the
corporation which provides for distribution of substantially all of its net
assets to shareholders in accordance with their respective interests within 1
year after the date of such transaction, where such transaction is wholly for
(A) cash; or
(B) shares, obligations or other securities which, upon consummation of the
plan of dissolution will either be listed on a national securities exchange or
held of record by not less than 1,000 holders; or
(C) cash and such securities; or
(iii) from a sale pursuant to an order of a court having jurisdiction.
(2) Any shareholder of a domestic corporation shall have the right to
dissent with respect to any shares owned by him which are to be acquired
pursuant to section 14A:10-9.
(3) A shareholder may not dissent as to less than all of the shares owned
beneficially by him and with respect to which a right of dissent exists. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner with respect to which the right of
dissent exists.
(4) A corporation may provide in its certificate of incorporation that
holders of all its shares, or of a particular class or series thereof, shall
have the right to dissent from specified corporate actions in addition to those
enumerated in subsection 14A:11-1(1), in which case the exercise of such right
of dissent shall be governed by the provisions of this Chapter.
14A:11-2 NOTICE OF DISSENT; DEMAND FOR PAYMENT; ENDORSEMENT OF
CERTIFICATES. -- (1) Whenever a vote is to be taken, either at a meeting of
shareholders or upon written consents in lieu of a meeting pursuant to section
14A:5-6, upon a proposed corporate action from which a shareholder may dissent
under section 14A:11-1, any shareholder electing to dissent from such action
shall file with the
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<PAGE> 1609
corporation before the taking of the vote of the shareholders on such corporate
action, or within the time specified in paragraphs 14A:5-6(2)(b) or
14A:5-6(2)(c), as the case may be, if no meeting of shareholders is to be held,
a written notice of such dissent stating that he intends to demand payment for
his shares if the action is taken.
(2) Within 10 days after the date on which such corporate action takes
effect, the corporation, or, in the case of a merger or consolidation, the
surviving or new corporation, shall give written notice of the effective date of
such corporate action, by certified mail to each shareholder who filed written
notice of dissent pursuant to subsection 14A:11-2(1), except any who voted for
or consented in writing to the proposed action.
(3) Within 20 days after the mailing of such notice, any shareholder to
whom the corporation was required to give such notice and who has filed a
written notice of dissent pursuant to this section may make written demand on
the corporation, or, in the case of a merger or consolidation, on the surviving
or new corporation, for the payment of the fair value of his shares.
(4) Whenever a corporation is to be merged pursuant to section 14A:10-5.1
or subsection 14A:10-7(4) and shareholder approval is not required under
subsections 14A:10-5.1(5) and 14A:10-5.1(6), a shareholder who has the right to
dissent pursuant to section 14A:11-1 may, not later than 20 days after a copy or
summary of the plan of such merger and the statement required by subsection
14A:10-5.1(2) is mailed to such shareholder, make written demand on the
corporation or on the surviving corporation, for the payment of the fair value
of his shares.
(5) Whenever all the shares, or all the shares of a class or series, are to
be acquired by another corporation pursuant to section 14A:10-9, a shareholder
of the corporation whose shares are to be acquired may, not later than 20 days
after the mailing of notice by the acquiring corporation pursuant to paragraph
14A:10-9(3)(b), make written demand on the acquiring corporation for the payment
of the fair value of his shares.
(6) Not later than 20 days after demanding payment for his shares pursuant
to his section, the shareholder shall submit the certificate or certificates
representing his shares to the corporation upon which such demand has been made
for notation thereon that such demand has been made, whereupon such certificate
or certificates shall be returned to him. If shares represented by a certificate
on which notation has been made shall be transferred, each new certificate
issued therefor shall bear similar notation, together with the name of the
original dissenting holder of such shares, and a transferee of such shares shall
acquire by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making a demand for payment of the
fair value thereof.
(7) Every notice or other communication required to be given or made by a
corporation to any shareholder pursuant to this Chapter shall inform such
shareholder of all dates prior to which action must betaken by such shareholder
in order to perfect his rights as a dissenting shareholder under this Chapter.
14A:11-3 "DISSENTING SHAREHOLDER" DEFINED; DATE FOR DETERMINATION OF FAIR
VALUE. -- (1) A shareholder who has made demand for the payment of his shares in
the manner prescribed by subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) is
hereafter in this Chapter referred to as a "dissenting shareholder".
(2) Upon making such demand, the dissenting shareholder shall cease to have
any of the rights of a shareholder except the right to be paid the fair value of
his shares and any other rights of a dissenting shareholder under this Chapter.
(3) "Fair value" as used in this Chapter shall be determined.
(a) As of the day prior to the day of the meeting of shareholders at which
the proposed action was approved or as of the day prior to the day specified by
the corporation for the tabulation of consents to such action if no meeting of
shareholders was held; or
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D
(b) In the case of a merger pursuant to section 14A:10-5.1 or subsection
14A:10-7(4) in which shareholder approval is not required, as of the day prior
to the day on which the board of directors approved the plan of merger; or
(c) In the case of an acquisition of all the shares or all the shares of a
class or series by another corporation pursuant to section 14A:10-9, as of the
day prior to the day on which the board of directors of the acquiring
corporation authorized the acquisition, or, if a shareholder vote was taken
pursuant to section 14A:10-12, as of the day provided in paragraph
14A:11-3(3)(a).
In all cases, "fair value" shall exclude any appreciation or depreciation
resulting from the proposed action.
14A:11-4 TERMINATION OF RIGHT OF SHAREHOLDER TO BE PAID THE FAIR VALUE OF
HIS SHARES. -- (1) The right of a dissenting shareholder to be paid the fair
value of his shares under this Chapter shall cease if
(a) he has failed to present his certificates for notation as provided by
subsection 14A:11-2(6), unless a court having jurisdiction, for good and
sufficient cause shown, shall otherwise direct;
(b) his demand for payment is withdrawn with the written consent of the
corporation;
(c) the fair value of the share is not agreed upon as provided in this
Chapter and no action for the determination of fair value by the Superior Court
is commenced within the time provided in this Chapter;
(d) the Superior Court determines that the shareholder is not entitled to
payment for his shares;
(e) the proposed corporate action is abandoned or rescinded; or
(f) a court having jurisdiction permanently enjoins or sets aside the
corporate action.
(2) In any case provided for in subsection 14A:11-4(1), the rights of the
dissenting shareholder as a shareholder shall be reinstated as of the date of
the making of a demand for payment pursuant to subsections 14A:11-2(3),
14A:11-2(4) or 14A:11-2(5) without prejudice to any corporate action which has
taken place during the interim period. In such event, he shall be entitled to
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution, or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the board, the fair value thereof in cash as of the time of
such expiration or completion.
14A:11-5 RIGHTS OF DISSENTING SHAREHOLDER. -- (1) A dissenting shareholder
may not withdraw his demand for payment of the fair value of his shares without
the written consent of the corporation.
(2) The enforcement by a dissenting shareholder of his right to receive
payment for his shares shall exclude the enforcement by such dissenting
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in subsection 14A:11-4(2) and except that
this subsection shall not exclude the right of such dissenting shareholder to
bring or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is ultra vires, unlawful or fraudulent as to such
dissenting shareholder.
14A:11-6 DETERMINATION OF FAIR VALUE BY AGREEMENT. -- (1) Not later than 10
days after the expiration of the period within which shareholders may make
written demand to be paid the fair value of their shares, the corporation upon
which such demand has been made pursuant to subsections 14A:11-2(3), 14A:11-2(4)
or 14A:11-2(5) shall mail to each dissenting shareholder the balance sheet and
the surplus statement of the corporation whose shares he holds, as of the latest
available date which shall not be earlier than 12 months prior to the making of
such offer and a profit and loss statement or statements for not less than a
12-month period ended on the date of such balance sheet, or, if the corporation
was not in existence for such 12-month period, for the portion thereof during
which it was in existence. The corporation may accompany such mailing with a
written offer to pay each dissenting shareholder for his shares a specified
price deemed by such corporation to be the fair value thereof. Such offer shall
be made a the same price per share to all dissenting shareholders of the same
class, or, if divided into series, of the same series.
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(2) If, not later than 30 days after the expiration of the 10-day period
limited by subsection 14A:11-6(1), the fair value of the shares is agreed upon
between any dissenting shareholder and the corporation, payment therefor shall
be made upon surrender of the certificate or certificates representing such
shares.
14A:11-7 PROCEDURE ON FAILURE TO AGREE UPON FAIR VALUE; COMMENCEMENT OF
ACTION TO DETERMINE FAIR VALUE. -- (1) If the fair value of the shares is not
agreed upon within the 30-day period limited by subsection 14A:11-6(2), the
dissenting shareholder may serve upon the corporation upon which such demand had
been made pursuant to subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) a
written demand that it commence an action in the Superior Court for the
determination of the fair value of the shares. Such demand shall be served not
later than 30 days after the expiration of the 30-day period so limited and such
action shall be commenced by the corporation no later than 30 days after receipt
by the corporation of such demand, but nothing herein shall prevent the
corporation from commencing such action at any earlier time.
(2) If a corporation fails to commence the action as provided in subsection
14A:11-7(1), a dissenting shareholder may do so in the name of the corporation,
not later than 60 days after the expiration of the time limited by subsection
14A:11-7(1) in which the corporation may commence such an action.
14A:11-8 ACTION TO DETERMINE FAIR VALUE; JURISDICTION OF COURT; APPOINTMENT
OF APPRAISER. -- In any action to determine the fair value of shares pursuant to
this Chapter:
(a) The Superior Court shall have jurisdiction and may proceed in the
action in a summary manner or otherwise;
(b) All dissenting shareholders, wherever residing, except those who have
agreed with the corporation upon the price to be paid for their shares, shall be
made parties thereto as an action against their shares quasi in rem;
(c) The court in its discretion may appoint an appraiser to receive
evidence and report to the court on the question of fair value, who shall have
such power and authority as shall be specified in the order of his appointment;
and
(d) The court shall render judgment against the corporation and in favor of
each shareholder who is party to the action for the amount of the fair value of
his shares.
14A:11-9 JUDGMENT IN ACTION TO DETERMINE FAIR VALUE. -- (1) A judgment for
the payment of the fair value of shares shall be payable upon surrender to the
corporation of the certificate or certificates representing such shares.
(2) The judgment shall include an allowance for interest at such rate as
the court finds to be equitable, from the date of the dissenting shareholder's
demand for payment under subsections 14A:11-2(3), 14A:11-2(4) or 14A:11-2(5) to
the day of payment. If the court finds that the refusal of any dissenting
shareholder to accept any offer of payment, made by the corporation under
section 14A:11-6, was arbitrary, vexatious or otherwise not in good faith, no
interest shall be allowed to him.
14A:11-10 COSTS AND EXPENSES OF ACTION. -- The costs and expenses of
bringing an action pursuant to section 14A:11-8 shall be determined by the court
and shall be apportioned and assessed as the court may find equitable upon the
parties or any of them. Such expenses shall include reasonable compensation for
and reasonable expenses of the appraiser, if any, but shall exclude the fees and
expenses of counsel for and experts employed by any party; but if the court
finds that the offer of payment made by the corporation under section 14A:11-6
was not made in good faith, or if no such offer was made, the court in its
discretion may award to any dissenting shareholder who is a party to the action
reasonable fees and expenses of his counsel and of any experts employed by the
dissenting shareholder.
14A:11-11 DISPOSITION OF SHARES ACQUIRED BY CORPORATION. -- (1) The shares
of a dissenting shareholder in a transition described in paragraph
14A:11-1(1)(b) and the shares of a dissenting shareholder of the surviving
corporation in a merger shall become reacquired by the corporation which issued
D-4
<PAGE> 1612
D
them upon the payment of the fair value of shares. Such shares shall be canceled
if reacquired out of stated capital or if the plan of merger so requires;
otherwise they shall become treasury shares.
(2) In a merger or consolidation, if the surviving or new corporation pays
out of surplus the fair value of the shares of dissenting shareholders of the
merged or constituent corporation, the shares of the surviving or new
corporation into which such shares would have been converted under the plan of
merger or consolidation shall become treasury shares of such corporation, unless
the plan shall provide otherwise.
(3) In an acquisition of shares pursuant to section 14A:10-9, the shares of
a dissenting shareholder shall become the property of the acquiring corporation
upon the payment by the acquiring corporation of the fair value of such shares.
Such payment may be made, with the consent of the acquiring corporation, by the
corporation which issued the shares, in which case the shares so paid for shall
become reacquired by the corporation which issued them and shall be canceled.
D-5
<PAGE> 1613
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article VI of the Registrant's Restated Certificate of Incorporation
(the "Certificate of Incorporation") eliminates the liability of the
Registrant's directors to the Registrant or its stockholders, except for
liabilities related to breach of duty of loyalty, actions not in good faith and
certain other liabilities.
Section 145 of the DGCL provides for indemnification by the Registrant of
its directors and officers. In addition, Article IX, Section 1 of the
Registrant's Restated By-Laws requires the Registrant to indemnify any current
or former director or officer to the fullest extent permitted by the DGCL. In
addition, the Registrant has entered into indemnity agreements with its
directors, which obligate the Registrant to indemnify such directors to the
fullest extent permitted by the DGCL. The Registrant has also obtained officers'
and directors' liability insurance which insures against liabilities that
officers and directors of the Registrant may incur in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------------------------------------------------------------------------------------------
<C> <S>
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 the Registrant and Choice
Television of Iowa, L.C. (filed as Exhibit 2.10 to the Form S-4 and
incorporated herein by reference)
</TABLE>
II-1
<PAGE> 1614
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------------------------------------------------------------------------------------------
<C> <S>
2.11 -- Asset Purchase Agreement between the 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 "Form 8-K"), and incorporated herein by
reference)
2.12 -- Agreement for Purchase and Sales of Assets between the 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 the 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 the 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 the 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 the 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 the 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 (previously filed as Exhibit 2.20 to the original
filing of this Registration Statement on Form S-4, File No.
33-65357, (the "Current S-4") and incorporated herein by reference)
2.21 -- Asset Purchase Agreement between United States Wireless Systems,
Inc. and Robert R. Story, Inc. (previously filed as Exhibit 2.21 to
the Current 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 (included as Appendix
C to the Heartland Proxy Statement forming a part of this
Registration Statement)
*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 (included as Appendix F to the Heartland Proxy Statement
forming a part of this Registration Statement)
*2.24 -- Amended and Restated Asset Purchase Agreement dated as of October
4, 1995 between Wireless Cable TV Associates #38 and the Registrant
(included as Appendix K to the Heartland Proxy Statement forming a
part of this Registration Statement)
</TABLE>
II-2
<PAGE> 1615
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------------------------------------------------------------------------------------------
<C> <S>
*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 (included as Appendix O to the Heartland
Proxy Statement forming a part of this Registration Statement)
*2.26 -- Amended and Restated Asset Purchase Agreement dated as of October
19, 1995, between Three Sixty Corp., Technivision, Inc. and the
Registrant (included as Appendix Q to the Heartland Proxy Statement
forming a part of this Registration Statement)
*2.27 -- AWS Escrow Agreement (included as Appendix D to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.28 -- FTW Claim Release (included as Appendix G to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.29 -- FTW Claim Assignment (included as Appendix H to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.30 -- FTW Liquidation Plan (included as Appendix I to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.31 -- Minneapolis Claim Assignment (included as Appendix L to the
Heartland Proxy Statement forming a part of this Registration
Statement)
*2.32 -- Minneapolis Liquidation Plan (included as Appendix M to the
Heartland Proxy Statement forming a part of this Registration
Statement)
*2.33 -- TSC Escrow Agreement (included as Appendix R to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.34 -- TSC Liquidation Plan (included as Appendix S to the Heartland Proxy
Statement forming a part of this Registration Statement)
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 (filed as Exhibit
4.1 to the Form S-1 and incorporated herein by reference)
4.2 -- Form of Nontransferable Incentive Stock Option Agreement under the
1994 Employee Stock Option Plan of the Registrant (filed as Exhibit
4.2 to the Form S-1 and incorporated herein by reference)
4.3 -- 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 Form S-1 and incorporated herein by reference)
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 the 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 the 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)
</TABLE>
II-3
<PAGE> 1616
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------------------------------------------------------------------------------------------
<C> <S>
4.9 -- Note Purchase Agreement among the Registrant, Jupiter Partners L.P.
and Thomas R. Haack (filed as Exhibit 4.9 to the Form S-4 and
incorporated herein by reference)
4.10 -- First Amendment to Note Purchase Agreement among the Registrant,
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 "Form 10-K"), and incorporated herein by reference)
4.11 -- Indenture between the Registrant and First Trust of New York,
National Association, as Trustee (the "Trustee") (filed as Exhibit
4.11 to the Registrants Registration Statement on Form S-4, File
No. 33-91930 (the "Exchange Offer S-4") and incorporated herein by
reference)
4.12 -- Registration Rights Agreement among the Registrant, BT Securities
Corporation ("BT Securities") and Lazard Freres & Co. LLC
("Lazard") (filed as Exhibit 4.12 to the Exchange Offer S-4 and
incorporated herein by reference)
4.13 -- Securityholders' and Registration Rights Agreement among the
Registrant, BT Securities and Lazard Freres & Co. LLC (filed as
Exhibit 4.13 to the Exchange Offer S-4 and incorporated herein by
reference)
4.14 -- Warrant Agreement between the Registrant and Bankers Trust Company,
as Warrant Agent (filed as Exhibit 4.14 to the Exchange Offer S-4
and incorporated herein by reference)
4.15 -- Unit Agreement among the Registrant, Bankers Trust Company, as Unit
Agent and Warrant Agent, and the Trustee (filed as Exhibit 4.15 to
the Exchange Offer S-4 and incorporated herein by reference)
*5 -- Opinion of Arter & Hadden (including the consent of such firm)
regarding legality of securities being offered
8.1 -- Opinion of Proskauer, Rose, Goetz & Mendelsohn LLP (including the
consent of such firm) regarding certain tax consequences
(previously filed as Exhibit 8.1 to the Current S-4 and
incorporated herein by reference)
10.1 -- Standard Form of MMDS License Agreement (filed as Exhibit 10.1 to
the Form S-1 and incorporated herein by reference)
10.2 -- Standard Form of ITFS License Agreement (filed as Exhibit 10.2 to
the Form S-1 and incorporated herein by reference)
10.3 -- 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)
10.4 -- 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)
10.5 -- Noncompetition Agreement between the Registrant and David E. Webb
(filed as Exhibit 10.5 to the Form S-1 and incorporated herein by
reference)
10.6 -- Noncompetition Agreement between the Registrant and John R. Bailey
(filed as Exhibit 10.6 to the Form S-1 and incorporated herein by
reference)
10.7 -- Noncompetition Agreement between the Registrant and Randy R.
Hendrix (filed as Exhibit 10.7 to the Form S-1 and incorporated
herein by reference)
10.8 -- Noncompetition Agreement between the Registrant and Thomas W. Dixon
(filed as Exhibit 10.8 to the Form S-1 and incorporated herein by
reference)
10.9 -- Noncompetition Agreement between the Registrant and L. Allen
Wheeler (filed as Exhibit 10.9 to the Form S-1 and incorporated
herein by reference)
10.10 -- Credit Agreement between the Registrant and Bank One, Texas, N.A.
(filed as Exhibit 10.10 to the November Form S-1 and incorporated
herein by reference)
</TABLE>
II-4
<PAGE> 1617
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------------------------------------------------------------------------------------------
<C> <S>
10.11 -- Credit Agreement between the Registrant and International
Nederlanden (U.S.) Capital Corporation (filed as Exhibit 10.11 to
the November Form S-1 and incorporated herein by reference)
10.12 -- 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)
10.13 -- Building Lease Agreement dated June 1, 1990, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as
Exhibit 10.13 to the Form 10-K and incorporated herein by
reference)
10.14 -- 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 Form 10-K and incorporated herein by reference)
10.15 -- Building Lease Agreement dated May 1, 1994, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as
Exhibit 10.15 to the Form 10-K and incorporated herein by
reference)
10.16 -- Loan Agreement dated March 27, 1995, among the Registrant, Hunt
Capital Group, L.L.C., Jupiter Partners L.P. and L. Allen Wheeler
(filed as Exhibit 10.16 to the Form 10-K and incorporated herein by
reference)
10.17 -- Purchase Agreement among the Registrant, BT Securities and Lazard
(filed as Exhibit 10.17 to the Exchange Offer S-4 and incorporated
herein by reference)
10.18 -- Escrow and Disbursement Agreement among the Registrant, Bankers
Trust Company as Escrow Agent and the Trustee (filed as Exhibit
10.18 to the Exchange Offer S-4 and incorporated herein by
reference)
21 -- List of Subsidiaries (previously filed as Exhibit 21 to the Current
S-4 and incorporated herein by reference)
*23.1 -- Consent of Arter & Hadden (included as part of its opinion filed as
Exhibit 5 hereto)
*23.2 -- Consent of KPMG Peat Marwick LLP, independent certified public
accountants (Registrant) (included on page S-2 hereto)
*23.3 -- Consent of Arthur Andersen LLP, independent certified public
accountants
*23.4 -- Consent of Coopers & Lybrand L.L.P. independent certified public
accountants
*23.5 -- Consent of KPMG Peat Marwick LLP, independent certified public
accountants (Technivision)
*23.6 -- Consent of Lazard Freres & Co. LLC
*23.7 -- Consent of Daniels & Associates, L.P. (included as part of its
opinion filed as Appendix C to the AWS Proxy Statement/Prospectus
forming a part of this Registration statement)
*23.8 -- Consent of Bear, Stearns & Co., Inc. (included as part of its
opinion filed as Appendix B to the CMAX Proxy Statement/Prospectus
forming a part of this Registration statement)
23.9 -- Consent of Proskauer, Rose, Goetz & Mendelsohn LLP (previously
included as part of its opinion filed as Exhibit 8.1 to the Current
S-4)
24 -- Powers of Attorney (previously included on page II-9 to the Current
S-4)
*99.1 -- Form of proxy for special meeting to be mailed to stockholders of
the Registrant
*99.2 -- Form of proxy for special meeting to be mailed to stockholders of
American Wireless Systems, Inc.
*99.3 -- Form of consent solicitation to be mailed to general partners of
Fort Worth Wireless Cable T.V. Associates
</TABLE>
II-5
<PAGE> 1618
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------------------------------------------------------------------------------------------
<C> <S>
*99.4 -- Form of consent solicitation to be mailed to general partners of
Wireless Cable TV Associates #38
*99.5 -- Form of proxy for special meeting to be mailed to stockholders of
CableMaxx, Inc.
*99.6 -- Form of proxy for special meeting to mailed to stockholders of
Three Sixty Corp.
*99.7 -- Letter dated January 26, 1996 from the Registrant to the
stockholders of the Registrant
*99.8 -- Letter dated January 26, 1996 from American Wireless Systems, Inc.
to the stockholders of American Wireless Systems, Inc.
*99.9 -- Letter dated January 26, 1996 from Wireless Cable TV Associates #38
to the general partners of Wireless Cable TV Associates #38
*99.10 -- Letter dated January 26, 1996 from CableMaxx, Inc. to the
stockholders of CableMaxx, Inc.
*99.11 -- Letter dated January 26, 1996 from Three Sixty Corp. to the
stockholders of Three Sixty Corp.
*99.12 -- Letter dated January 26, 1996 from Fort Worth Wireless Cable T.V.
Associates to the general partners of Fort Worth Wireless Cable
T.V. Associates
*99.13 -- Opinion of Lazard Freres & Co., LLC (included as Appendix A to the
Heartland Proxy Statement forming a part of this Registration
Statement)
*99.14 -- Opinion of Daniels & Associates, L.P. (included as Appendix C to
the AWS Proxy Statement/Prospectus forming a part of this
Registration Statement)
*99.15 -- Opinion of Bear, Stearns & Co., Inc. (included as Appendix B to the
CMAX Proxy Statement/Prospectus forming a part of this Registration
Statement)
</TABLE>
- ---------------
* Filed herewith.
The Registrant agrees to furnish supplementally a copy of any omitted
schedules (or similar attachments) to the Commission upon request.
(b) Financial Statement Schedules
The following financial statement schedules are included in this
Registration Statement.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Heartland Wireless Communications, Inc.
Independent Auditors' Report and Consent.................................... S-2
Valuation and Qualifying Accounts -- Three Years Ended December 31, 1994.... S-3
</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.
ITEM 22. UNDERTAKINGS.
(a) Rule 415 Offering.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
II-6
<PAGE> 1619
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Filings incorporating subsequent Exchange Act documents by
reference. The undersigned Registrant hereby undertakes that: for purposes
of determining any liability under the Securities Act, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(g) Registration on Form S-4.
The undersigned Registrant hereby undertakes that:
(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form;
(2) Every prospectus (i) that is filed pursuant to paragraph (g)(1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(h) Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and By-laws,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
II-7
<PAGE> 1620
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(z) Other. The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
The undersigned Registrant hereby further undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-8
<PAGE> 1621
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 23rd day of January, 1996.
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By * /s/ J. R. HOLLAND, JR.
J. R. Holland, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on the 23rd day of January, 1996, by
the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<C> <S>
* /s/ J. R. HOLLAND, JR. Chairman of the Board and Director
J. R. Holland, Jr.
* /s/ DAVID E. WEBB President, Chief Executive Officer and
David E. Webb Director (Principal Executive Officer)
/s/ JOHN R. BAILEY Senior Vice President -- Finance, Chief
John R. Bailey Financial Officer, Treasurer and Secretary
(Principal Financial Officer)
* /s/ DAVID D. HAGEY Vice President, Controller and Assistant
David D. Hagey Secretary (Principal Accounting Officer)
* /s/ ALVIN H. LANE, JR. Director
Alvin H. Lane, Jr.
Director
Dennis M. O'Rourke
Director
John A. Sprague
Director
Wes W. Watkins
* /s/ L. ALLEN WHEELER Director
L. Allen Wheeler
*By: /s/ JOHN R. BAILEY
John R. Bailey
Agent and Attorney-in-Fact
</TABLE>
II-9
<PAGE> 1622
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report and Consent............................................... S-2
Valuation and Qualifying Accounts -- Three years ended December 31, 1994............... S-3
</TABLE>
All other schedules are omitted as the required information is inapplicable or
presented in the consolidated financial statements or related notes.
S-1
<PAGE> 1623
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heartland Wireless Communications, Inc.:
Under date of March 3, 1995, except as to note 11 which is as of March 27,
1995, we reported on the consolidated balance sheets of Heartland Wireless
Communications, Inc. and subsidiaries as of December 31, 1993 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, 1994,
which are included in the 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
January 23, 1996
S-2
<PAGE> 1624
SCHEDULE II
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<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, 1992:
Allowance for doubtful accounts............ $ -- $ 501 $ -- $ -- $ 501
========= ======== ======== ======== =========
Valuation allowance for deferred tax
assets.................................. $ 29,982 $ -- $ 17,279(b) $ -- $ 47,261
========= ======== ======== ======== =========
Year ended December 31, 1993:
Allowance for doubtful accounts............ $ 501 $ 26,065 $ -- $ (1,484) $ 25,082
========= ======== ======== ======== =========
Valuation allowance for deferred tax
assets.................................. $ 47,261 $ -- $136,034(b) $ -- $ 183,295
========= ======== ======== ======== =========
Year ended December 31, 1994:
Allowance for doubtful accounts............ $ 25,082 $ 72,066 $ 25,753(a) $ -- $ 122,901
========= ======== ======== ======== =========
Valuation allowance for deferred tax
assets.................................. $ 183,295 $ -- $608,258(b) $ -- $ 791,553
========= ======== ======== ======== =========
</TABLE>
- ---------------
(a) Allocation of assets from the purchase of Milano System.
(b) Recognized as a component of federal income tax benefit.
S-3
<PAGE> 1625
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
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 the 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 the 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 "Form 8-K"), and incorporated herein by reference)
2.12 -- Agreement for Purchase and Sales of Assets between the 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 the 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 the 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 the 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 the 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)
</TABLE>
<PAGE> 1626
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
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 the 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 (previously filed as Exhibit 2.20 to the original
filing of this Registration Statement on Form S-4, File No. 33-65357,
(the "Current S-4") and incorporated herein by reference)
2.21 -- Asset Purchase Agreement between United States Wireless Systems, Inc.
and Robert R. Story, Inc. (previously filed as Exhibit 2.21 to the
Current 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 (included as Appendix C to the
Heartland Proxy Statement forming a part of this Registration
Statement)
*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 (included as Appendix F to the Heartland Proxy Statement
forming a part of this Registration Statement)
*2.24 -- Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 between Wireless Cable TV Associates #38 and the Registrant
(included as Appendix K to the Heartland Proxy Statement forming a
part of this Registration Statement)
*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 (included as Appendix O to the Heartland
Proxy Statement forming a part of this Registration Statement)
*2.26 -- Amended and Restated Asset Purchase Agreement dated as of October 19,
1995, between Three Sixty Corp., Technivision, Inc. and the
Registrant (included as Appendix Q to the Heartland Proxy Statement
forming a part of this Registration Statement)
*2.27 -- AWS Escrow Agreement (included as Appendix D to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.28 -- FTW Claim Release (included as Appendix G to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.29 -- FTW Claim Assignment (included as Appendix H to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.30 -- FTW Liquidation Plan (included as Appendix I to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.31 -- Minneapolis Claim Assignment (included as Appendix L to the Heartland
Proxy Statement forming a part of this Registration Statement)
*2.32 -- Minneapolis Liquidation Plan (included as Appendix M to the Heartland
Proxy Statement forming a part of this Registration Statement)
*2.33 -- TSC Escrow Agreement (included as Appendix R to the Heartland Proxy
Statement forming a part of this Registration Statement)
*2.34 -- TSC Liquidation Plan (included as Appendix S to the Heartland Proxy
Statement forming a part of this Registration Statement)
3.1 -- Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Form S-1 and incorporated herein by reference)
</TABLE>
<PAGE> 1627
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
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 (filed as Exhibit
4.1 to the Form S-1 and incorporated herein by reference)
4.2 -- Form of Nontransferable Incentive Stock Option Agreement under the
1994 Employee Stock Option Plan of the Registrant (filed as Exhibit
4.2 to the Form S-1 and incorporated herein by reference)
4.3 -- 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 Form S-1 and incorporated herein by reference)
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 the 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 the 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, Jupiter Partners L.P.
and Thomas R. Haack (filed as Exhibit 4.9 to the Form S-4 and
incorporated herein by reference)
4.10 -- First Amendment to Note Purchase Agreement among the Registrant,
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 "Form 10-K"), and incorporated herein by reference)
4.11 -- Indenture between the Registrant and First Trust of New York,
National Association, as Trustee (the "Trustee") (filed as Exhibit
4.11 to the Registrants Registration Statement on Form S-4, File No.
33-91930 (the "Exchange Offer S-4") and incorporated herein by
reference)
4.12 -- Registration Rights Agreement among the Registrant, BT Securities
Corporation ("BT Securities") and Lazard Freres & Co. LLC ("Lazard")
(filed as Exhibit 4.12 to the Exchange Offer S-4 and incorporated
herein by reference)
4.13 -- Securityholders' and Registration Rights Agreement among the
Registrant, BT Securities and Lazard Freres & Co. LLC (filed as
Exhibit 4.13 to the Exchange Offer S-4 and incorporated herein by
reference)
4.14 -- Warrant Agreement between the Registrant and Bankers Trust Company,
as Warrant Agent (filed as Exhibit 4.14 to the Exchange Offer S-4 and
incorporated herein by reference)
4.15 -- Unit Agreement among the Registrant, Bankers Trust Company, as Unit
Agent and Warrant Agent, and the Trustee (filed as Exhibit 4.15 to
the Exchange Offer S-4 and incorporated herein by reference)
*5 -- Opinion of Arter & Hadden (including the consent of such firm)
regarding legality of securities being offered
8.1 -- Opinion of Proskauer, Rose, Goetz & Mendelsohn LLP (including the
consent of such firm) regarding certain tax consequences (previously
filed as Exhibit 8.1 to the Current S-4 and incorporated herein by
reference)
10.1 -- Standard Form of MMDS License Agreement (filed as Exhibit 10.1 to the
Form S-1 and incorporated herein by reference)
10.2 -- Standard Form of ITFS License Agreement (filed as Exhibit 10.2 to the
Form S-1 and incorporated herein by reference)
</TABLE>
<PAGE> 1628
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.3 -- 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)
10.4 -- 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)
10.5 -- Noncompetition Agreement between the Registrant and David E. Webb
(filed as Exhibit 10.5 to the Form S-1 and incorporated herein by
reference)
10.6 -- Noncompetition Agreement between the Registrant and John R. Bailey
(filed as Exhibit 10.6 to the Form S-1 and incorporated herein by
reference)
10.7 -- Noncompetition Agreement between the Registrant and Randy R. Hendrix
(filed as Exhibit 10.7 to the Form S-1 and incorporated herein by
reference)
10.8 -- Noncompetition Agreement between the Registrant and Thomas W. Dixon
(filed as Exhibit 10.8 to the Form S-1 and incorporated herein by
reference)
10.9 -- Noncompetition Agreement between the Registrant and L. Allen Wheeler
(filed as Exhibit 10.9 to the Form S-1 and incorporated herein by
reference)
10.10 -- Credit Agreement between the Registrant and Bank One, Texas, N.A.
(filed as Exhibit 10.10 to the November Form S-1 and incorporated
herein by reference)
10.11 -- Credit Agreement between the Registrant and International Nederlanden
(U.S.) Capital Corporation (filed as Exhibit 10.11 to the November
Form S-1 and incorporated herein by reference)
10.12 -- 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)
10.13 -- Building Lease Agreement dated June 1, 1990, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.13 to the Form 10-K and incorporated herein by reference)
10.14 -- 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 Form 10-K and incorporated herein by reference)
10.15 -- Building Lease Agreement dated May 1, 1994, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.15 to the Form 10-K and incorporated herein by reference)
10.16 -- Loan Agreement dated March 27, 1995, among the Registrant, Hunt
Capital Group, L.L.C., Jupiter Partners L.P. and L. Allen Wheeler
(filed as Exhibit 10.16 to the Form 10-K and incorporated herein by
reference)
10.17 -- Purchase Agreement among the Registrant, BT Securities and Lazard
(filed as Exhibit 10.17 to the Exchange Offer S-4 and incorporated
herein by reference)
10.18 -- Escrow and Disbursement Agreement among the Registrant, Bankers Trust
Company as Escrow Agent and the Trustee (filed as Exhibit 10.18 to
the Exchange Offer S-4 and incorporated herein by reference)
21 -- List of Subsidiaries (previously filed as Exhibit 21 to the Current
S-4 and incorporated herein by reference)
*23.1 -- Consent of Arter & Hadden (included as part of its opinion filed as
Exhibit 5 hereto)
*23.2 -- Consent of KPMG Peat Marwick LLP, independent certified public
accountants (Registrant) (included on page S-2 hereto)
*23.3 -- Consent of Arthur Andersen LLP, independent certified public
accountants
*23.4 -- Consent of Coopers & Lybrand L.L.P. independent certified public
accountants
*23.5 -- Consent of KPMG Peat Marwick LLP, independent certified public
accountants (Technivision)
*23.6 -- Consent of Lazard Freres & Co. LLC
*23.7 -- Consent of Daniels & Associates, L.P. (included as part of its
opinion filed as Appendix C to the AWS Proxy Statement/Prospectus
forming a part of this Registration statement)
</TABLE>
<PAGE> 1629
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*23.8 -- Consent of Bear, Stearns & Co., Inc. (included as part of its opinion
filed as Appendix B to the CMAX Proxy Statement/Prospectus forming a
part of this Registration statement)
23.9 -- Consent of Proskauer, Rose, Goetz & Mendelsohn LLP (previously
included as part of its opinion filed as Exhibit 8.1 to the Current
S-4)
24 -- Powers of Attorney (previously included on page II-9 to the Current
S-4)
*99.1 -- Form of proxy for special meeting to be mailed to stockholders of the
Registrant
*99.2 -- Form of proxy for special meeting to be mailed to stockholders of
American Wireless Systems, Inc.
*99.3 -- Form of consent solicitation to be mailed to general partners of Fort
Worth Wireless Cable T.V. Associates
*99.4 -- Form of consent solicitation to be mailed to general partners of
Wireless Cable TV Associates #38
*99.5 -- Form of proxy for special meeting to be mailed to stockholders of
CableMaxx, Inc.
*99.6 -- Form of proxy for special meeting to mailed to stockholders of Three
Sixty Corp.
*99.7 -- Letter dated January 26, 1996 from the Registrant to the stockholders
of the Registrant
*99.8 -- Letter dated January 26, 1996 from American Wireless Systems, Inc. to
the stockholders of American Wireless Systems, Inc.
*99.9 -- Letter dated January 26, 1996 from Wireless Cable TV Associates #38
to the general partners of Wireless Cable TV Associates #38
*99.10 -- Letter dated January 26, 1996 from CableMaxx, Inc. to the
stockholders of CableMaxx, Inc.
*99.11 -- Letter dated January 26, 1996 from Three Sixty Corp. to the
stockholders of Three Sixty Corp.
*99.12 -- Letter dated January 26, 1996 from Fort Worth Wireless Cable T.V.
Associates to the general partners of Fort Worth Wireless Cable T.V.
Associates
*99.13 -- Opinion of Lazard Freres & Co., LLC (included as Appendix A to the
Heartland Proxy Statement forming a part of this Registration
Statement)
*99.14 -- Opinion of Daniels & Associates, L.P. (included as Appendix C to the
AWS Proxy Statement/Prospectus forming a part of this Registration
Statement)
*99.15 -- Opinion of Bear, Stearns & Co., Inc. (included as Appendix B to the
CMAX Proxy Statement/Prospectus forming a part of this Registration
Statement)
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 5
ARTER & HADDEN
1717 Main Street, Suite 4100
Dallas, Texas 75201-4605
Tel: (214) 761-2100
Facsimile: (214) 741-7139
January 23, 1996
Board of Directors
Heartland Wireless
Communications, Inc.
903 N. Bowser, Suite 140
Richardson, Texas 75081
Gentlemen:
On December 22, 1995, Heartland Wireless Communications, Inc., a
Delaware corporation (the "Company), filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 (Registration No. 33-65357)
under the Securities Act of 1933, as amended (the "Act"). The Registration
Statement was subsequently amended pursuant to Amendment No. 1 to the
Registration Statement filed on January 16, 1996 and Amendment No. 2 to the
Registration Statement to be filed on January 25, 1996. Such Registration
Statement on Form S-4, as amended (the "Registration Statement"), relates to
the offer and sale (the "Offering") by the Company of up to 10,721,357 shares
of common stock, par value $.001 per share of the Company ("Common Stock") to
be issued in connection with the following five separate transactions
(collectively, the "Transactions"): (i) up to 1,700,000 shares of Common Stock
issuable to the stockholders of American Wireless Systems, Inc. ("AWS") in
connection with the merger of a wholly owned subsidiary of the Company with and
into AWS pursuant to the terms of that Amended and Restated Agreement and Plan
of Merger, dated as of September 11, 1995 (the "AWS Merger Agreement"), (ii) up
to 8,081,214 shares of Common Stock issuable to the stockholders of CableMaxx,
Inc. ("CMAX") in connection with the merger of a wholly owned subsidiary of
the Company with and into CMAX pursuant to the terms of that Amended and
Restated Agreement and Plan of Merger, dated as of September 11, 1995 (the
"CMAX Merger Agreement"), (iii) up to 782,353 shares of Common Stock issuable
to Fort Worth Wireless Cable T.V. Associates ("FTW Partnership") in connection
with the acquisition of substantially all of the assets of the FTW Partnership
and the subsequent distribution by the FTW Partnership of such shares in
connection with the liquidation and dissolution thereof, pursuant to the terms
of that Amended and Restated Asset Purchase Agreement, dated as of October 4,
1995 (the "FTW Agreement"), (iv) up to 1,117,647 shares of Common Stock
issuable to Wireless Cable TV Associates #38 ("Minneapolis Partnership") in
connection with the acquisition of substantially all of the assets of the
Minneapolis Partnership and the subsequent distribution by the Minneapolis
Partnership of such shares in connection with the liquidation and dissolution
thereof, pursuant to the terms of that Amended and Restated Asset Purchase
Agreement,
<PAGE> 2
dated as of October 4, 1995 (the "Minneapolis Agreement") and (v) up to
2,515,625 shares of Common Stock issuable to Three Sixty Corp. ("TSC") in
connection with the acquisition of certain assets of TSC and the subsequent
distribution by TSC of such shares in connection with the liquidation and
dissolution thereof, pursuant to the terms of that Amended and Restated Asset
Purchase Agreement, dated as of October 19, 1995 (the "TSC Agreement"). (The
AWS Merger Agreement, CMAX Merger Agreement, FTW Agreement, Minneapolis
Agreement and TSC Agreement collectively are referred to herein as the
"Agreements"). This firm has acted as counsel to you in connection with the
preparation and filing of the Registration Statement and you have requested our
opinion with respect to certain legal aspects of the Offering.
In rendering our opinion, we have examined and relied upon the originals or
copies, certified to our satisfaction, of (i) the Certificate of Incorporation,
as amended and restated, and the Bylaws, as amended, of the Company; (ii)
copies of the resolutions of the Board of Directors of the Company authorizing
the Agreements, the Transactions and the related Offering; (iii) the
Registration Statement and exhibits thereto; (iv) the Agreements, all
amendments and ancillary documents thereto; and (v) such other documents and
instruments as we have deemed necessary. In making our examinations, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of
documents submitted to us as certified or photostatic copies. As to various
questions of fact material to the opinions expressed herein, we have relied, to
the extent we deem reasonably appropriate, upon representations or certificates
of officers or directors of the Company and others and upon documents, records
and instruments furnished to us by the Company, without independent check or
verification of their accuracy. Finally, in rendering our opinions, we have
assumed that the Transactions contemplated in the Agreements will be
consummated in accordance therewith, without modification or amendment and
without waiving material provisions thereof.
Based on the foregoing, we are of the opinion that, upon due
authorization of the Agreements and the Transactions related thereto by the
stockholders of the Company, the shares of Common Stock of the Company to be
issued pursuant to the Agreements and registered pursuant to the Registration
Statement, when issued in accordance with the Agreements, and upon actual
receipt by the Company of the consideration to be received thereby pursuant to
the terms of such Agreements, will be duly and validly issued, fully paid and
nonassessable.
This opinion is limited in all respects to the General Corporation Law
of the State of Delaware as in effect on the date hereof; however, we are not
members of the Bar of the State of Delaware and our knowledge of its General
Corporation Law is derived from a reading of the most recent compilation of
that statute available to us without consideration of any judicial or
administrative interpretations thereof.
<PAGE> 3
We bring to your attention the fact that this legal opinion is an
expression of professional judgment and not a guaranty of result. This opinion
is given as of the date hereof, and we assume no obligation to update or
supplement such opinion to reflect any facts or circumstances that may
hereafter come to our attention or any changes in laws or judicial decisions
that may hereafter occur.
This opinion is furnished to you solely in connection with the shares
of Common Stock to be offered and sold pursuant to the terms of the
Registration Statement and may not be relied upon or described or quoted from
by any other person, firm or entity without, in each instance, our prior
written consent. Notwithstanding the above, we hereby consent to the filing of
this opinion, or a copy thereof, as an exhibit to the Registration Statement
and to the statement made regarding our firm under the caption "Legal Matters"
in the various Proxy Statements and Proxy Statement/Prospectuses included in
the Registration Statement. In giving this consent, we do not thereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder or the category of persons included within
Section 11(a) of the Act.
Respectfully submitted,
/s/ ARTER & HADDEN
ARTER & HADDEN
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 23, 1996.
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Proxy/Prospectus contained in this
registration statement on Form S-4 of our report, which includes an explanatory
paragraph which states that specified circumstances raise substantial doubt
about the ability of CableMaxx, Inc. to continue as a going concern, dated
August 25, 1995, on our audits of the financial statements of CableMaxx, Inc.
and the financial statements of Supreme Cable Co., Inc. and Subsidiaries. We
also consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Austin, Texas
January 23, 1996
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TechniVision, Inc.:
We consent to the use of our report included herein and to the references
to our firm under the headings "Experts" and "TSC Selected Historical Financial
Information" in the prospectus.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
January 23, 1996
<PAGE> 1
EXHIBIT 23.6
[LAZARD FRERES & CO. LLC LETTERHEAD]
CONSENT OF LAZARD FRERES & CO. LLC
We hereby consent to the use of our name and to the description of our opinion
letters, each dated January 12, 1996, under the caption "Recommendations of the
Heartland Board; Opinions of Heartland's Advisor - Opinions of Heartland's
Advisor" in, and to the inclusion of such opinion letters as Appendix A to, the
Proxy Statement of Heartland Wireless Communications, Inc., which Proxy
Statement is part of the Registration Statement on Form S-4 of Heartland
Wireless Communications, Inc. By giving such consent we do not thereby admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "expert" as used in, or that we come within the
category of persons whose consent is required under, the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Lazard Freres & Co. LLC
By: /s/ MELVIN L. HERRERRA
--------------------------
Managing Director
New York, New York
January 23, 1996
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
HEARTLAND WIRELESS COMMUNICATIONS, INC.
903 NORTH BOWSER, SUITE 140
RICHARDSON, TEXAS 75081
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 22, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of HEARTLAND WIRELESS COMMUNICATIONS, INC.
("Heartland"), a Delaware corporation, hereby revokes all prior proxies given
with respect to the matters covered hereunder, acknowledges receipt of the
Notice of Special Meeting of Stockholders and Proxy Statement, each dated
January 26, 1996, and hereby appoints J.R. Holland, Jr. and David E. Webb, and
both of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Special Meeting of Stockholders of HEARTLAND to be held on
February 22, 1996, at 10:00 a.m., local time, at the Westin Hotel Galleria,
13340 Dallas Parkway, Dallas, Texas 75240 (214/934-9494), and at any
adjournments or postponements thereof, and to vote all shares of Common Stock
that the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS INDICATED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION OF EACH OF THE TRANSACTIONS
AND THE ISSUANCE OF UP TO 10,721,302 SHARES OF HEARTLAND COMMON STOCK IN
CONNECTION THEREWITH AND FOR SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING AS THE PROXYHOLDERS DEEM ADVISABLE.
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. Proposal to approve and adopt the following agreements and all of the
transactions contemplated thereby including the issuance of up to an
aggregate of 10,721,302 shares of Heartland common stock, par value $.001 per
share, in connection therewith:
A. The Amended and Restated Agreement and Plan of Merger, dated as of September
11, 1995 by and among American Wireless Systems, Inc., ("AWS") Heartland and
Heartland Merger Sub, Inc., a wholly owned subsidiary of Heartland ("AWS
Merger Sub"), a copy of which is included in the accompanying Proxy
Statement as Appendix C, pursuant to which AWS Merger Sub will be merged
with and into AWS and AWS will become a wholly owned subsidiary of
Heartland.
B. The Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 by and between Fort Worth Wireless Cable T.V. Associates ("FTW
Partnership") and Heartland, a copy of which is included in the accompanying
Proxy Statement as Appendix F, pursuant to which Heartland proposes to
acquire substantially all of the assets of the FTW Partnership.
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<PAGE> 2
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C. The Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 by and between Wireless Cable TV Associates #38 ("Minneapolis
Partnership") and Heartland, a copy of which is included in the accompanying
Proxy Statement as Appendix K, pursuant to which Heartland proposes to
acquire substantially all of the assets of the Minneapolis Partnership.
D. The Amended and Restated Agreement and Plan of Merger, dated as of
September 11, 1995 by and among CableMaxx, Inc. ("CMAX"), Heartland and
Heartland Merger Sub 2, Inc., a wholly owned subsidiary of Heartland ("CMAX
Merger Sub"), a copy of which is included in the accompanying Proxy
Statement as Appendix O, pursuant to which CMAX Merger Sub will be merged
with and into CMAX and CMAX will become a wholly owned subsidiary of
Heartland.
E. The Amended and Restated Asset Purchase Agreement, dated as of October 19,
1995 by and among Three Sixty Corp ("TSC") and Heartland, a copy of which
is included in the accompanying Proxy Statement as Appendix Q, pursuant to
which Heartland proposes to acquire substantially all of the assets of TSC.
/ / FOR / / AGAINST / / ABSTAIN
2. To vote or otherwise represent the shares on any and all other business which
may properly come before the meeting or any adjournments or postponements
thereof, according to their discretion.
/ / FOR / / AGAINST / / ABSTAIN
Please execute this proxy as your name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY USING THE
ENCLOSED ENVELOPE.
DATED: , 1996
--------------------
--------------------------------
Signature
--------------------------------
Signature If Held Jointly
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<PAGE> 1
EXHIBIT 99.2
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AMERICAN WIRELESS SYSTEMS, INC.
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of AMERICAN WIRELESS SYSTEMS, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus each dated January 26, 1996, and
hereby appoints Steven G. Johnson and Daniel A. Cartwright, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Special Meeting of Stockholders of AMERICAN WIRELESS SYSTEMS, INC. to be held on
February 22, 1996, at 10:00 a.m., local time, at the Westin Hotel Galleria,
13340 Dallas Parkway, Dallas, Texas, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
below:
APPROVAL OF THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
/ / FOR / / AGAINST / / ABSTAIN
and upon such matter or matters which may properly come before the meeting or
any adjournment or adjournments thereof.
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<PAGE> 2
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THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE APPROVAL OF THE AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING.
A majority of such attorneys or substitutes as shall be present and shall act at
said meeting or any adjournment or adjournments thereof (or if only one shall be
present and act, then that one) shall have and may exercise all of the powers of
said attorneys-in-fact hereunder.
Dated: , 1996
-------------------------------
Signature
-------------------------------
Signature
(This Proxy should be dated,
signed by the stockholder(s)
exactly as his or her name
appears hereon, and returned
promptly in the enclosed
envelope. Persons signing in a
fiduciary capacity should so
indicate. If shares are held by
joint tenants or as community
property, both stockholders
should sign.)
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<PAGE> 1
EXHIBIT 99.3
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FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
WRITTEN CONSENT OF PARTNER
SOLICITED BY THE MANAGEMENT COMMITTEE OF FTW PARTNERSHIP
AS A VOTE FOR APPROVAL OF THE ASSET PURCHASE AGREEMENT FOR
THE SALE OF THE ASSETS OF FTW PARTNERSHIP
The undersigned general partner of FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
(FTW Partnership), a California general partnership, hereby revokes all prior
consents given with respect to the matters covered hereunder, and acknowledges
receipt of the Disclosure Statement of FTW Partnership and the Proxy
Statement/Prospectus of Heartland Wireless Communications, Inc. (Heartland),
each dated January 26, 1996.
THE PARTNERSHIP UNIT(S) REPRESENTED BY THIS SIGNED CONSENT WILL BE TREATED
AS A VOTE IN ACCORDANCE WITH THE BOX YOU MARK BELOW. PLEASE MARK YOUR CONSENT BY
MARKING ONLY ONE BOX AND MARK THE BOX USING DARK INK.
Proposal to approve and adopt the execution and performance of the Amended
and Restated Asset Purchase Agreement dated as of October 4, 1995 by and between
FTW Partnership and Heartland, a copy of which is included in the accompanying
Proxy Statement/Prospectus as Appendix E, whereby FTW Partnership sells to
Heartland substantially all of the assets of FTW Partnership and to approve the
execution and performance of the FTW Claim Release (or FTW Claim Assignment, if
applicable), the FTW Liquidation Plan and the transactions related thereto all
as part of one approval (collectively, the FTW Transactions). The undersigned
general partner of FTW Partnership acknowledges that a vote FOR the FTW
Transactions shall, upon closing of the FTW Transactions, effectuate a mutual
release by the undersigned partner of any and all causes of action, demands,
rights, and claims of any nature available to or owned by FTW Partnership or the
undersigned partner against American Wireless Systems, Inc. and certain related
parties (as more particularly specified in the FTW Claim Release, a copy of
which is included as Appendix F to the accompanying Proxy Statement/Prospectus
of Heartland).
/ / FOR / / AGAINST / / ABSTAIN
(Continued and to be signed on reverse side)
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<PAGE> 2
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Please execute this consent as your name appears hereon. When the
Partnership Unit(s) are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the president
or other authorized officer. If a partnership, please sign in partnership name
by an authorized person.
Dated: , 1996
-------------------
-------------------------------
Signature
-------------------------------
Title or Authorization
(if signing in a representative
capacity)
-------------------------------
Signature of Co-owner if Held
Jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT USING THE ENCLOSED ENVELOPE.
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<PAGE> 1
EXHIBIT 99.4
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WIRELESS CABLE TELEVISION ASSOCIATES #38
C/O MANSFIELD & TANICK, P.A.
900 SECOND AVENUE SOUTH
SUITE 1560
MINNEAPOLIS, MINNESOTA 55402
CONSENT AND VOTE FOR APPROVAL OF THE AGREEMENT FOR THE SALE
OF THE ASSETS OF THE PARTNERSHIP
The undersigned general partner of WIRELESS CABLE TV ASSOCIATES #38 (WCTVA
#38), a California general partnership, hereby revokes all prior consents given
with respect to the matters covered hereunder, and acknowledges receipt of the
Notice of Special Meeting of General Partners and Proxy Statement/Prospectus,
each dated January 26, 1996.
THE PARTNERSHIP UNIT(S) REPRESENTED BY THIS SIGNED CONSENT WILL BE TREATED
AS AN AFFIRMATIVE VOTE IN ACCORDANCE WITH THE SPECIFICATIONS MADE.
PLEASE MARK YOUR CONSENT IN THE BOX USING DARK INK ONLY.
Proposal to approve and adopt the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 by and among WCTVA #38 and Heartland
Wireless Communications, Inc. ("Heartland") a copy of which is included in the
accompanying Proxy Statement/Prospectus as Appendix J, pursuant to which
Heartland proposes to acquire substantially all of the assets of WCTVA #38 and
to approve the Minneapolis Claim Assignment, the Minneapolis Liquidation Plan
and the transactions related thereto all as part of one approval.
/ / FOR / / AGAINST / / ABSTAIN
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<PAGE> 2
- --------------------------------------------------------------------------------
Your signature below will evidence your approval of the Amended and Restated
Purchase Agreement, the Minneapolis Claim Assignment, and the Minneapolis
Liquidation Plan.
Please execute this consent as your name appears hereon. When the
Partnership Unit(s) are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the president
or other authorized officer. If a partnership, please sign in partnership name
by an authorized person.
Dated: , 1996
-------------------------------
Signature
-------------------------------
Signature if Held Jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT USING THE ENCLOSED ENVELOPE.
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<PAGE> 1
EXHIBIT 99.5
- --------------------------------------------------------------------------------
PROXY CABLEMAXX, INC.
The undersigned hereby appoints A. LAWRENCE FAGAN, THOMAS C. DIRCKS and
TOMMY L. GLEASON, JR., and each of them, with full power of substitution, as
proxies to represent and to vote on behalf of the undersigned all of the shares
of Common Stock of CableMaxx, Inc. (the "Company") held of record by the
undersigned at the close of business on January 11, 1996 and which the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas on
February 22, 1996 and at any adjournment or adjournments thereof, hereby
revoking all proxies heretofore given with respect to such stock, upon the
following proposals more fully described in the notice of and proxy statement
for the meeting (receipt of which is hereby acknowledged).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS BELOW.
1. PROPOSAL TO APPROVE THE CMAX MERGER AGREEMENT.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting and any adjournments thereof.
(Continued and to be signed on reverse side)
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<PAGE> 2
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(Continued from reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER, IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1.
Please sign exactly as name
appears on your stock
certificate or broker's account
records. When shares are held by
joint tenants, both should sign.
When signing as attorney,
executor, administrator,
trustee, or guardian, please
give full title as such. If a
corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-------------------------------
Signature
-------------------------------
Signature if held jointly
Dated: , 1996
-------------------
Please return in the enclosed postage-paid envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
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<PAGE> 1
EXHIBIT 99.6
- --------------------------------------------------------------------------------
THREE SIXTY CORP.
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 22, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all prior proxies given with respect to the
matters covered by this proxy and hereby appoints Robert D. Bilodeau, Richard G.
Nowalk and Robert H. Greenwood and/or any of them, with full power of
substitution in each of them, to vote by proxy all shares of Common Stock, no
par value, of Three Sixty Corp. (the "Company") held by the undersigned at the
Special Meeting of Stockholders of the Company to be held on February 22, 1996
or any adjournments or postponements thereof, as fully as the undersigned might
do if personally present at the Special Meeting, on the following matters:
1. To approve the Amended and Restated Asset Purchase Agreement, dated as of
October 19, 1995, by and among the Company, Heartland Wireless
Communications, Inc. ("Heartland") and TechniVision, Inc. ("Technivision"),
which provides, among other things, for (i) the sale by the Company of
substantially all of the assets of Technivision to Heartland in exchange for
the assumption of certain liabilities of Technivision and shares of Heartland
Common Stock, par value $.001 per share, and (ii) the liquidation of the
Company pursuant to the related Agreement and Plan of Liquidation, all as
more fully described in the enclosed Proxy Statement/Prospectus, receipt of
which is hereby acknowledged.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" ITEM 1.
(Continued and to be signed and dated on the reverse side)
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<PAGE> 2
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. UNLESS OTHERWISE SPECIFIED, THIS PROXY
WILL BE VOTED "FOR" ITEM 1. THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE
PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR
ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
Please date and sign this proxy
exactly as your name appears
hereon. In the case of joint
owners, each joint owner should
sign. When signing in a
fiduciary or representative
capacity, please give your full
title. If this proxy is
submitted by a corporation or
partnership, it should be
executed in the full corporate
or partnership name by a duly
authorized person.
--------------------------------
Signature
--------------------------------
Signature (if held jointly)
--------------------------------
Capacity (if acting as attorney,
trustee, etc.)
DATED: , 1996
--------------------
PLEASE COMPLETE, SIGN, DATE AND MAIL YOUR PROXY CARD TODAY.
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<PAGE> 1
[HEARTLAND WIRELESS COMMUNICATIONS, INC. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of the stockholders
(the "Special Meeting") of HEARTLAND WIRELESS COMMUNICATIONS, INC., a Delaware
corporation ("Heartland"), which will be held on February 22, 1996 at 10:00
a.m., local time, at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas,
Texas 75240, (214) 934-9494.
At this important Special Meeting, you will be asked to approve and adopt
the following five (5) separate, but related, agreements (collectively, the
"Agreements") and the issuance of a maximum of 10,721,302 shares of common
stock, par value $.001 per share of Heartland (the "Heartland Common Stock") in
connection therewith or 45.95% of the total number of shares of Heartland Common
Stock then outstanding (collectively, the "Transactions"):
<TABLE>
<S> <C>
1. MERGER WITH AMERICAN The Amended and Restated Agreement and Plan of Merger,
WIRELESS SYSTEMS, INC. dated as of September 11, 1995 (the "AWS Merger
Agreement"), by and among American Wireless Systems,
Inc., a Delaware corporation ("AWS"), Heartland and
Heartland Merger Sub, Inc., a Delaware corporation and
wholly owned subsidiary of Heartland ("AWS Merger Sub").
THE AWS MERGER IS MORE COMPLETELY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT, AND A COPY OF THE AWS
MERGER AGREEMENT IS ATTACHED AS APPENDIX C THERETO.
2. ACQUISITION OF VENTURE The Amended and Restated Asset Purchase Agreement, dated
INTEREST IN FORT WORTH as of October 4, 1995 (the "FTW Agreement"), by and
MARKET between Heartland and Fort Worth Wireless Cable T.V.
Associates, a California general partnership ("FTW
Partnership").
THE FTW AGREEMENT AND THE TRANSACTIONS RELATED THERETO
(COLLECTIVELY, THE "FTW TRANSACTION") ARE MORE
COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT
AND A COPY OF THE FTW AGREEMENT IS ATTACHED AS APPENDIX
F THERETO.
3. ACQUISITION OF MEMBERSHIP The Amended and Restated Asset Purchase Agreement, dated
INTEREST IN MINNEAPOLIS MARKET as of October 4, 1995 (the "Minneapolis Agreement"), by
and between Heartland and Wireless Cable TV Associates
#38, a California general partnership ("Minneapolis
Partnership").
THE MINNEAPOLIS AGREEMENT AND THE TRANSACTIONS RELATED
THERETO (COLLECTIVELY, THE "MINNEAPOLIS TRANSACTION")
ARE MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT, AND A COPY OF THE MINNEAPOLIS AGREEMENT IS
ATTACHED AS APPENDIX K THERETO.
4. MERGER WITH The Amended and Restated Agreement and Plan of Merger,
CABLEMAXX, INC. dated as of September 11, 1995 (the "CMAX Merger
Agreement"), by and among Heartland, CableMaxx, Inc., a
Delaware corporation ("CMAX"), and Heartland Merger Sub
2, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("CMAX Merger Sub").
THE CMAX MERGER IS MORE COMPLETELY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT, AND A COPY OF THE CMAX
MERGER AGREEMENT IS ATTACHED AS APPENDIX O THERETO.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
5. ASSET PURCHASE FROM THREE SIXTY The Amended and Restated Asset Purchase Agreement, dated
CORP. (SUCCESSOR IN INTEREST TO as of October 19, 1995 (the "TSC Agreement"), by and
TECHNIVISION) among Heartland, Three Sixty Corp., a New Jersey
corporation ("TSC"), and Technivision, Inc., formerly a
subsidiary of TSC that has been merged with and into TSC
("Technivision").
THE TSC AGREEMENT AND THE TRANSACTIONS RELATED THERETO
(COLLECTIVELY, THE "TSC TRANSACTION") ARE MORE
COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT, AND A COPY OF THE TSC AGREEMENT IS ATTACHED
AS APPENDIX Q THERETO.
</TABLE>
At the Special Meeting, the stockholders of Heartland will be asked to
approve the issuance of additional shares as part of a single approval. THE
STOCKHOLDERS OF HEARTLAND ARE NOT BEING REQUESTED, AND WILL NOT BE ENTITLED, TO
SEPARATELY APPROVE AND ADOPT THE AFOREMENTIONED FIVE TRANSACTIONS.
Although the stockholders of Heartland will be approving the issuance of up
to 10,721,302 shares of Heartland Common Stock in connection with the
Transactions, management of the Company anticipates that the actual number of
shares to be issued will be less. Assuming, among other things, a closing
average of $28 per share of the Heartland Common Stock, the approximate closing
average of the Heartland Common Stock over the preceding ten and 20 day trading
periods, Heartland would issue approximately 6,763,949 shares of Heartland
Common Stock or 34.91% of the total number of shares of Heartland Common Stock
then outstanding in connection with the Transactions. See "Information
Concerning Heartland -- Calculation and Listing of Shares to be Issued in
Connection With the Transactions" in the accompanying Proxy Statement.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE TRANSACTIONS, THE
PARTICIPATING DIRECTORS OF HEARTLAND CAREFULLY CONSIDERED AND APPROVED THE TERMS
OF SUCH AGREEMENTS AND RELATED ISSUANCES OF SHARES OF HEARTLAND COMMON STOCK AS
BEING IN THE BEST INTERESTS OF HEARTLAND AND ITS STOCKHOLDERS. THE HEARTLAND
BOARD OF DIRECTORS RECOMMENDS THAT THE HEARTLAND STOCKHOLDERS VOTE FOR THE
APPROVAL OF EACH AGREEMENT AND THE RELATED ISSUANCE OF SHARES OF HEARTLAND
COMMON STOCK IN CONNECTION THEREWITH.
Pursuant to applicable Delaware law, the stockholders of Heartland who
object to the Agreements or related Transactions will not be afforded appraisal
rights or the right to receive cash for their shares of Heartland Common Stock.
The enclosed Proxy Statement sets forth information, including financial
data, relating to Heartland, AWS, FTW Partnership, Minneapolis Partnership, CMAX
and TSC and describes the terms and conditions of each of the Transactions. The
Board of Directors recognizes that this Proxy Statement is a lengthy document.
However, this document necessarily results from the complexity of the
Transactions and the need to furnish you with all appropriate information.
Accordingly, the Board of Directors of Heartland requests that you carefully
review these materials before completing the enclosed Proxy Card. SIGNED BUT
UNMARKED PROXY CARDS RETURNED BY A HEARTLAND STOCKHOLDER WILL BE DEEMED TO BE A
VOTE FOR THE APPROVAL AND ADOPTION OF EACH OF THE TRANSACTIONS.
Should you require assistance in completing your Proxy Card or if you have
any questions about the voting procedure or the accompanying Proxy Statement,
please feel free to contact Heartland at 903 N. Bowser, Suite 140, Richardson,
Texas 75081 (telephone (214) 479-9244).
Very truly yours,
LOGO
John R. Bailey
Senior Vice President -- Finance,
Chief Financial Officer,
Treasurer and Secretary
<PAGE> 1
[AMERICAN WIRELESS SYSTEMS, INC. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of AMERICAN WIRELESS SYSTEMS, INC., a Delaware
corporation ("AWS"), which will be held on February 22, 1996 at 10:00 a.m.,
local time at the Westin Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas
75240, (214) 934-9494.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Agreement and Plan of Merger
(the "AWS Merger Agreement"), dated as of September 11, 1995, by and among AWS,
Heartland Wireless Communications, Inc., a Delaware corporation ("Heartland"),
and Heartland Merger Sub, Inc., a Delaware corporation and wholly owned
subsidiary of Heartland ("AWS Merger Sub"), pursuant to which AWS Merger Sub
will be merged with and into AWS (the "AWS Merger"), AWS will become a wholly
owned subsidiary of Heartland, and Heartland will issue to the holders of AWS
common stock, $.01 par value per share ("AWS Common Stock"), that number of
newly issued publicly tradeable shares of Heartland common stock, $.001 par
value per share ("Heartland Common Stock"), having an aggregate exchange value
of $34 million (subject to certain reductions and escrow requirements). The
exchange value of the Heartland Common Stock to be issued in the AWS Merger will
be equal to the average closing price of the Heartland Common Stock as reported
on the Nasdaq Stock Market's National Market over the ten-trading-day period
ending on the fifth business day preceding the consummation of the AWS Merger
(or February 15, 1996 based upon a contemplated closing date of February 23,
1996), provided however that if such average is less than $20 or more than $26
per share, then the number of shares of Heartland Common Stock to be issued in
the AWS Merger will be based upon an exchange value of $20 or $26 per share, as
applicable. IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON
STOCK AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN
TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN
DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34
OR LESS THAN $23, AWS STOCKHOLDERS WILL BE PROVIDED WITH AN ADDITIONAL PROXY
CARD FOR THE SPECIAL MEETING TO ENABLE AWS STOCKHOLDERS WHO WISH TO DO SO TO
CHANGE THEIR VOTE. SEE "THE AWS MEETING -- PROXIES" OF THE ENCLOSED PROXY
STATEMENT/PROSPECTUS FOR INFORMATION REGARDING THE REVOCABILITY OF AWS PROXIES.
THE AWS MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE AWS MERGER AGREEMENT IS ATTACHED AS
APPENDIX A THERETO.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE AWS MERGER, THE DIRECTORS OF
AWS CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE TERMS OF THE AWS MERGER AS
BEING IN THE BEST INTERESTS OF AWS AND ITS STOCKHOLDERS. THE AWS BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
AWS MERGER AGREEMENT.
Daniels & Associates, L.P., AWS' financial advisor, has rendered an opinion
to the Board of Directors that the consideration to be received by the AWS
stockholders pursuant to the terms of the AWS Merger Agreement is fair to such
stockholders from a financial point of view as of the date of such opinion. The
analysis, support and limitations of this opinion are discussed in the enclosed
Proxy Statement/Prospectus with the opinion itself contained as Appendix C
thereto.
The AWS Merger is only one of five (5) separate, but related, transactions
(the "Transactions") which Heartland intends to consummate at or about the same
time. The shares of Heartland Common Stock to be issued in connection with each
of the Transactions are being registered on a single Registration Statement
consisting of multiple Proxy Statements/Prospectuses, of which the enclosed
Proxy Statement/Prospectus
<PAGE> 2
forms a part. The consummation of the AWS Merger is conditioned on, among other
things, the requisite approval by AWS and Heartland stockholders of the AWS
Merger Agreement, the AWS Merger and transactions related thereto. Additionally,
the AWS Merger is conditioned upon the consummation of the Amended and Restated
Asset Purchase Agreements between (a) Heartland and Fort Worth Wireless Cable
T.V. Associates and (b) Heartland and Wireless Cable TV Associates #38, which
agreements are further discussed in the accompanying Proxy Statement/Prospectus.
The affirmative vote of the holders of shares representing a majority of
the outstanding voting power of AWS Common Stock is necessary to approve the AWS
Merger Agreement and AWS Merger. The holders of approximately 37% of the
outstanding shares of AWS Common Stock have placed such shares in a voting trust
pursuant to which such stockholders will vote in favor of the AWS Merger
Agreement and AWS Merger.
Pursuant to applicable Delaware law, the stockholders of AWS who object to
the AWS Merger Agreement and AWS Merger and who vote against or abstain from
voting in favor thereof may be afforded certain appraisal rights, including the
right to receive cash for their shares of AWS Common Stock. Stockholders who
wish to exercise their appraisal rights must follow the procedures set forth in
Section 262 of the Delaware General Corporation Law. See "The AWS
Merger -- Appraisal Rights" in the Proxy Statement/Prospectus.
The enclosed Proxy Statement/Prospectus sets forth information, including
financial data, relating to Heartland, AWS and certain other parties involved in
the other transactions described in this Proxy Statement/Prospectus (the "Other
Transactions") and describes the terms and conditions of the AWS Merger and the
Other Transactions. The Board of Directors recognizes that this Proxy
Statement/Prospectus is a lengthy document. However, this document necessarily
results from the complexity of the AWS Merger and the Other Transactions and the
need to furnish you with all appropriate information. Accordingly, the Board of
Directors of AWS requests that you carefully review these materials before
completing the enclosed Proxy Card. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY
AN AWS STOCKHOLDER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL OF THE AWS
MERGER AGREEMENT AND AWS MERGER. ACCORDINGLY, AWS STOCKHOLDERS RETURNING SIGNED
BUT UNMARKED PROXY CARDS WILL WAIVE THEIR APPRAISAL RIGHTS.
Please do not send in your stock certificates with your proxy. If the
stockholders of AWS approve the AWS Merger Agreement and the AWS Merger is
consummated, you will receive a Letter of Transmittal with instructions for the
surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
questions about the voting procedure or the accompanying Proxy
Statement/Prospectus, please feel free to contact AWS at 7426 E. Stetson Drive,
Suite 220, Scottsdale, Arizona 85251 (telephone (602) 994-4301).
Very truly yours,
/s/ STEVEN G. JOHNSON
Steven G. Johnson
President and Chief Executive
Officer
<PAGE> 1
WIRELESS CABLE TV ASSOCIATES #38
C/O MANSFIELD & TANICK
1560 INTERNATIONAL CENTER
900 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
---------------------
January 26, 1996
Dear Partner:
You are cordially invited to attend the special meeting (the "Partners
Meeting") of general partners (the "Minneapolis Partners") of WIRELESS CABLE TV
ASSOCIATES #38, a California general partnership ("Minneapolis Partnership"),
which will be held on February 22, 1996 at 10:00 a.m., local time at the Westin
Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas 75240, (214) 934-9494.
At this important Partners Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Asset Purchase Agreement
attached as Appendix J to the accompanying Proxy Statement/Prospectus (the
"Minneapolis Agreement"), dated as of October 4, 1995, by and between
Minneapolis Partnership and Heartland Wireless Communications, Inc., a Delaware
corporation ("Heartland"), pursuant to which (i) Minneapolis Partnership will
sell to Heartland substantially all of its assets, consisting of a 75%
membership interest in and to American Wireless System of Minneapolis, L.L.C., a
Delaware limited liability company that owns and operates a wireless cable
television system in Minneapolis, Minnesota (the "Minneapolis LLC"), (ii)
Heartland will issue to Minneapolis Partnership that number of newly issued
publicly tradeable shares (the "Minneapolis Shares") of common stock, par value
$.001 per share, of Heartland ("Heartland Common Stock") having an aggregate
exchange value equal to the sum of (A) $18.0 million plus (B) $500 for each
wireless cable television subscriber in excess of 2,500 ("Additional
Subscribers") as of the fifth business day preceding the consummation of the
Minneapolis Agreement (or February 15, 1996 based upon a contemplated closing
date of February 23, 1996) (currently estimated to be 1,000 Additional
Subscribers, and not anticipated to exceed 2,000 Additional Subscribers), (iii)
Heartland will assume up to $2.2 million of liabilities of Minneapolis
Partnership to American Wireless Systems, Inc., a Delaware corporation ("AWS"),
and (iv) Minneapolis Partnership and the Minneapolis Partners approving the
Minneapolis Agreement will assign to Heartland certain claims (the "Minneapolis
Claims") against AWS, its predecessors and their respective affiliates (the
"Minneapolis Claim Assignment"). The exchange value of the Minneapolis Shares
will be equal to either (a) the lesser of $23 per share and the average closing
price of Heartland Common Stock as reported on the Nasdaq Stock Market's
National Market over the ten-trading-day period ending on the fifth business day
preceding the consummation of the Minneapolis Agreement (or February 15, 1996
based upon a contemplated closing date of February 23, 1996) or (b) if such
closing average is equal to or in excess of $30 per share, then (i) the product
of the closing average multiplied by $23, divided by (ii) $30. IN THE EVENT THAT
THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE
NASDAQ STOCK MARKET'S NATIONAL MARKET OVER THE SEVEN TRADING DAY PERIOD ENDING
ON FEBRUARY 12, 1996 (REPRESENTING THE FIRST SEVEN DAYS TO BE INCLUDED IN THE
ANTICIPATED CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, THE
MINNEAPOLIS PARTNERS WILL BE PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO
ENABLE SUCH MINNEAPOLIS PARTNERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. As a
part of the approval of the Minneapolis Agreement, the Minneapolis Partners will
also be asked to approve the liquidation and dissolution of Minneapolis
Partnership ("Minneapolis Liquidation") in accordance with the terms and
conditions of the Agreement and Plan of Liquidation attached as Appendix L to
the accompanying Proxy Statement/Prospectus (the "Minneapolis Liquidation
Plan"), pursuant to which the Minneapolis Shares will be distributed. The
transactions contemplated by the Minneapolis Agreement, the Minneapolis Claim
Assignment, the Minneapolis Liquidation Plan, and the consummation thereof, are
collectively referred to herein as the "Minneapolis Transaction."
THE MINNEAPOLIS TRANSACTION IS MORE COMPLETELY DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS AND COPIES OF THE MINNEAPOLIS AGREEMENT,
THE MINNEAPOLIS CLAIM ASSIGNMENT AND THE MINNEAPOLIS LIQUIDATION PLAN ARE
ATTACHED AS APPENDIX J, APPENDIX K AND APPENDIX L, RESPECTIVELY, THERETO.
<PAGE> 2
AT THE MEETING OF THE MANAGEMENT COMMITTEE OF MINNEAPOLIS PARTNERSHIP
("MINNEAPOLIS COMMITTEE") HELD TO CONSIDER THE MINNEAPOLIS TRANSACTION, THE
MINNEAPOLIS COMMITTEE CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE
MINNEAPOLIS TRANSACTION AS BEING IN THE BEST INTEREST OF MINNEAPOLIS PARTNERSHIP
AND THE MINNEAPOLIS PARTNERS. THE MINNEAPOLIS COMMITTEE RECOMMENDS THAT THE
MINNEAPOLIS PARTNERS VOTE FOR THE PROPOSAL TO APPROVE THE MINNEAPOLIS
TRANSACTION.
AT THE PARTNERS MEETING, THE MINNEAPOLIS PARTNERS WILL BE ASKED TO APPROVE
AND ADOPT THE MINNEAPOLIS AGREEMENT, THE MINNEAPOLIS CLAIM ASSIGNMENT, THE
MINNEAPOLIS LIQUIDATION PLAN AND THE TRANSACTIONS RELATED THERETO AS A PART OF
ONE APPROVAL. THE MINNEAPOLIS PARTNERS ARE NOT BEING REQUESTED, AND WILL NOT BE
ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE MINNEAPOLIS AGREEMENT, MINNEAPOLIS
CLAIM ASSIGNMENT, MINNEAPOLIS LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
Pursuant to the terms of the Minneapolis Agreement, the affirmative vote of
Minneapolis Partners representing two-thirds ( 2/3) of the outstanding
partnership interests in Minneapolis Partnership is necessary to approve the
Minneapolis Transaction.
Neither applicable California partnership law nor the partnership agreement
for Minneapolis Partnership provides for any dissenters or appraisal rights to
any Minneapolis Partner abstaining from or voting against the Minneapolis
Transaction.
The Minneapolis Transaction is only one of five (5) separate, but related,
transactions (collectively, the "Transactions") which Heartland intends to
consummate at or about the same time. The shares of Heartland Common Stock to be
issued in connection with each of the Transactions are being registered on a
single Registration Statement consisting of multiple Proxy
Statements/Prospectuses, of which the enclosed Proxy Statement/Prospectus forms
a part. The consummation of the Minneapolis Transaction is conditioned on, among
other things, the requisite approval by Heartland stockholders of the
Minneapolis Agreement and transactions related thereto. Additionally, the
consummation of the Minneapolis Transaction is conditioned upon the consummation
of an Amended and Restated Agreement and Plan of Merger between AWS and
Heartland, which agreement is further discussed in the accompanying Proxy
Statement/Prospectus.
The enclosed Proxy Statement/Prospectus sets forth information, including
financial data, relating to Heartland, Minneapolis Partnership and certain other
parties involved in the Transactions and describes the terms and conditions of
the Minneapolis Transaction and the other Transactions. The Minneapolis
Committee recognizes that this Proxy Statement/Prospectus is a lengthy document.
However, this document necessarily results from the complexity of the
Minneapolis Transaction and the other Transactions and the need to furnish you
with all appropriate information. Accordingly, the Minneapolis Committee
requests that you carefully review these materials before attending the Partners
Meeting and/or completing the enclosed Consent. SIGNED BUT UNMARKED CONSENTS
RETURNED BY A MINNEAPOLIS PARTNER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL
OF THE MINNEAPOLIS TRANSACTIONS.
Should you have any questions about the voting procedure completing your
Consent, or the accompanying Proxy Statement/Prospectus, please feel free to
contact Minneapolis Partnership at Mansfield & Tanick, 1560 International
Center, 900 Second Avenue South, Minneapolis, Minnesota, 55402 (telephone (612)
339-4295).
Very truly yours,
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 1
[CABLEMAXX, INC. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of CableMaxx, Inc., a Delaware corporation ("CMAX"),
which will be held on February 22, 1996 at 10:00 a.m., local time at the Westin
Hotel Galleria, 13340 Dallas Parkway, Dallas, Texas, 75240, (214) 934-9494.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Agreement and Plan of Merger
(the "CMAX Merger Agreement"), dated as of September 11, 1995, by and among
CMAX, Heartland Wireless Communications, Inc., a Delaware corporation
("Heartland"), and Heartland Merger Sub 2, Inc., a Delaware corporation and
wholly owned subsidiary of Heartland ("CMAX Merger Sub"), pursuant to which CMAX
Merger Sub will be merged with and into CMAX (the "CMAX Merger") and CMAX will
become a wholly owned subsidiary of Heartland. If the CMAX Merger Agreement is
approved and the CMAX Merger is consummated, each outstanding share of common
stock, par value $.01 per share, of CMAX ("CMAX Common Stock") will be converted
into the right to receive that portion of a newly issued publicly tradeable
share of common stock, par value $.001 per share, of Heartland ("Heartland
Common Stock") having an exchange value of $8.50 per share of CMAX Common Stock
for an aggregate exchange value for all shares of CMAX Common Stock of
approximately $80.8 million, subject to reduction by the amount that CMAX's Net
Liabilities exceed its Permitted Net Liabilities (each as defined in the CMAX
Merger Agreement). The exchange value of the Heartland Common Stock to be issued
in the CMAX Merger will be equal to the average closing price of the Heartland
Common Stock as reported on the Nasdaq Stock Market's National Market over the
20-trading-day period ending on the fifth business day preceding the
consummation of the CMAX Merger (or February 15, 1996 based upon a contemplated
closing date of February 23, 1996). IN THE EVENT THAT THE AVERAGE CLOSING PRICE
OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ STOCK MARKET'S NATIONAL
MARKET OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY 12, 1996 (REPRESENTING
THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED CALCULATION PERIOD) IS
GREATER THAN $34 OR LESS THAN $23, CMAX STOCKHOLDERS WILL BE PROVIDED WITH AN
ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE CMAX STOCKHOLDERS WHO
WISH TO DO SO TO CHANGE THEIR VOTE. See "The CMAX Meeting -- Proxies" of the
enclosed Proxy Statement/Prospectus for information regarding the revocability
of CMAX proxies.
THE CMAX MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE CMAX MERGER AGREEMENT IS ATTACHED AS
APPENDIX A THERETO.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE CMAX MERGER AGREEMENT AND
CMAX MERGER, THE DIRECTORS OF CMAX CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED
THE TERMS OF THE CMAX MERGER AGREEMENT AND CMAX MERGER AS BEING IN THE BEST
INTERESTS OF CMAX AND ITS STOCKHOLDERS. THE CMAX BOARD OF DIRECTORS RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE CMAX MERGER
AGREEMENT.
Bear, Stearns & Co., Inc., CMAX's financial advisor, has rendered an
opinion to the Board of Directors of CMAX that the transaction contemplated by
the CMAX Merger Agreement is fair to the CMAX stockholders from a financial
point of view as of the date of such opinion. The analysis, support and
limitations of this opinion are discussed in the enclosed Proxy
Statement/Prospectus with the opinion itself contained as Appendix B thereto.
The Board of Directors has fixed the close of business on January 11, 1996
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. The affirmative vote of a majority of the
outstanding shares of CMAX Common Stock is required to approve the CMAX Merger
<PAGE> 2
Agreement. Abstentions or broker non-votes will have the same effect as a vote
"against" the CMAX Merger Agreement.
Pursuant to applicable Delaware law, the stockholders of CMAX who object to
the CMAX Merger Agreement or CMAX Merger will not be afforded appraisal rights
or the right to receive cash for their shares of CMAX Common Stock.
The enclosed Proxy Statement/Prospectus sets forth information, including
financial data, relating to Heartland, CMAX and certain other parties involved
in the other transactions described in this Proxy Statement/Prospectus, (the
"Other Transactions") and describes the terms and conditions of the CMAX Merger
and the Other Transactions. The Board of Directors recognizes that this Proxy
Statement/Prospectus is a lengthy document. However, this document necessarily
results from the complexity of the CMAX Merger and the Other Transactions and
the need to furnish you with all appropriate information. Accordingly, the Board
of Directors of CMAX requests that you carefully review these materials before
completing the enclosed Proxy Card. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY
A CMAX STOCKHOLDER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL OF THE CMAX
MERGER AGREEMENT AND CMAX MERGER.
Please do not send in your stock certificates with your proxy. If the
stockholders of CMAX approve the CMAX Merger Agreement and the CMAX Merger is
consummated, you will receive a Letter of Transmittal with instructions for the
surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
questions about the voting procedure or the accompanying Proxy
Statement/Prospectus, please feel free to contact CMAX at 6850 Austin Center
Boulevard, Suite 320, Austin, Texas 78731 (telephone (512) 345-1001).
Very truly yours,
A. Lawrence Fagan,
Chairman of the Board
<PAGE> 1
[THREE SIXTY CORP. LETTERHEAD]
January 26, 1996
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of Three Sixty Corp., a New Jersey corporation ("TSC"),
which will be held on February 22, 1996, at 10:00 a.m., local time at 120 Floral
Avenue, New Providence, New Jersey 07974.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve the Amended and Restated Asset Purchase Agreement
(the "TSC Agreement"), dated as of October 19, 1995, by and among Heartland
Wireless Communications, Inc., a Delaware corporation ("Heartland"), TSC, and
Technivision, Inc., formerly a subsidiary of TSC that has been merged with and
into TSC ("Technivision"), pursuant to which (a) TSC will sell to Heartland
substantially all of the assets formerly held by Technivision, consisting of
wireless cable television assets in Dayton, Ohio, Corpus Christi, Texas and El
Paso, Texas, and (b) Heartland will issue to TSC that number of newly issued
publicly tradeable shares ("TSC Shares") of Heartland common stock, par value
$.001 per share ("Heartland Common Stock"), having an aggregate exchange value
of (i) $36.75 million plus (ii) $1,200 for each wireless cable television
subscriber on the fifth business day preceding the consummation of the TSC
Agreement (or February 15, 1996 based upon a contemplated closing date of
February 23, 1996) in excess of amounts specified in the TSC Agreement
(currently estimated to be $1.5 million, provided that the aggregate of such
additional subscriber consideration will not exceed $3.5 million), minus (iii)
the amount of any obligations assumed by Heartland (not to exceed $5 million,
and currently estimated to be $5 million), minus (iv) if the wireless cable
television assets relative to the Dayton, Ohio market are sold prior to the
consummation of the TSC Agreement, certain proceeds thereof to be retained by
TSC. The exchange value of the Heartland Common Stock to be issued pursuant to
the TSC Agreement will be equal to the average closing price of the Heartland
Common Stock on the Nasdaq Stock Market's National Market over the
20-trading-day period ending on the fifth business day preceding the
consummation of the TSC Agreement (or February 15, 1996 based upon a
contemplated closing date of February 23, 1996). IN THE EVENT THAT THE AVERAGE
CLOSING PRICE OF THE HEARTLAND COMMON STOCK AS REPORTED ON THE NASDAQ STOCK
MARKET'S NATIONAL MARKET OVER THE 17 TRADING DAY PERIOD ENDING ON FEBRUARY 12,
1996 (REPRESENTING THE FIRST 17 DAYS TO BE INCLUDED IN THE ANTICIPATED
CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, TSC STOCKHOLDERS WILL
BE PROVIDED WITH AN ADDITIONAL PROXY CARD FOR THE SPECIAL MEETING TO ENABLE TSC
STOCKHOLDERS WHO WISH TO DO SO TO CHANGE THEIR VOTE. As a part of the approval
of the TSC Agreement, the TSC stockholders will be asked to approve the
liquidation and dissolution of TSC (the "TSC Liquidation") in accordance with
the terms and conditions of the Agreement and Plan of Liquidation attached as
Appendix C to the accompanying Proxy Statement/Prospectus (the "TSC Liquidation
Plan"), pursuant to which the TSC Shares (and the remaining assets of TSC) will
be distributed. Pursuant to the terms of the TSC Agreement, TSC Shares having an
aggregate exchange value of $5 million will be held in escrow for a period of up
to 18 months to satisfy certain indemnification obligations of TSC to Heartland,
and additional TSC Shares having an aggregate exchange value of up to $3.6
million (currently estimated to be $1 million) will be held in a separate escrow
for up to six months (subject to extension) to secure the performance of certain
post-closing covenants of TSC. The transactions contemplated by the TSC
Agreement, TSC Liquidation Plan and the consummation thereof are collectively
referred to herein as the "TSC Transaction."
THE TSC TRANSACTION IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND A COPY OF THE TSC AGREEMENT AND TSC LIQUIDATION PLAN
ARE ATTACHED AS APPENDIX A AND APPENDIX C, RESPECTIVELY THERETO.
AT THE DIRECTORS MEETING HELD TO CONSIDER THE TSC TRANSACTION, THE
DIRECTORS OF TSC CAREFULLY CONSIDERED AND APPROVED THE TERMS OF THE TSC
TRANSACTION AS BEING IN THE BEST INTERESTS OF TSC AND ITS STOCKHOLDERS. THE
<PAGE> 2
TSC BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO
APPROVE THE TSC TRANSACTION.
AT THE SPECIAL MEETING, THE TSC STOCKHOLDERS WILL BE ASKED TO APPROVE AND
ADOPT THE TSC AGREEMENT, THE TSC LIQUIDATION PLAN AND THE TRANSACTIONS RELATED
THERETO AS A PART OF ONE APPROVAL. THE TSC STOCKHOLDERS ARE NOT BEING REQUESTED,
AND WILL NOT BE ENTITLED, TO SEPARATELY APPROVE AND ADOPT THE TSC AGREEMENT, TSC
LIQUIDATION PLAN AND TRANSACTIONS RELATED THERETO.
The TSC Transaction is only one of five (5) separate, but related,
transactions (collectively, the "Transactions") which Heartland intends to
consummate at or about the same time. The shares of Heartland Common Stock to be
issued in connection with each of the Transactions are being registered on a
single Registration Statement consisting of multiple Proxy
Statements/Prospectuses, of which the enclosed Proxy Statement/Prospectus forms
a part. Consummation of the TSC Transaction is conditioned upon, among other
things, the requisite approval by the Heartland stockholders of the TSC
Agreement and transactions contemplated thereby.
The affirmative vote of a majority of the votes cast by the holders of the
TSC Common Stock is necessary to approve the TSC Transaction. Abstentions and
broker non-votes will have no effect on the approval of the TSC Transaction
(assuming a majority of the shares of TSC Common Stock is present at the Special
Meeting).
Pursuant to the New Jersey Business Corporation Act ("NJBCA") holders of
TSC Common Stock who vote against the TSC Transaction and comply with the
detailed provisions contained in Chapter 11 of NJBCA will be entitled to dissent
from the TSC Transaction and to seek payment of the fair value of their TSC
Common Stock. A copy of Chapter 11 of the NJBCA is reproduced as Appendix D to
the attached Proxy Statement/Prospectus. TSC stockholders wishing to dissent
from the TSC Transaction should read such materials carefully.
The enclosed Proxy Statement/Prospectus sets forth, or incorporates by
reference, information, including financial data, relating to Heartland, TSC and
certain other parties involved in the Transactions and describes the terms and
conditions of the TSC Transaction and the other Transactions. The Board of
Directors recognizes that this Proxy Statement/Prospectus is a lengthy document.
However, this document necessarily results from the complexity of the TSC
Transaction and the other Transactions and the need to furnish you with all
appropriate information. Accordingly, the Board of Directors of TSC requests
that you carefully review these materials before completing the enclosed Proxy
Card. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY A TSC STOCKHOLDER WILL BE
DEEMED TO BE A VOTE FOR THE APPROVAL OF THE TSC AGREEMENT AND THE TSC
TRANSACTION. ACCORDINGLY, TSC STOCKHOLDERS RETURNING SIGNED BUT UNMARKED PROXY
CARDS WILL WAIVE THEIR APPRAISAL RIGHTS.
Please do not send in your stock certificates with your proxy. If the
stockholders of TSC approve the TSC Transaction, you will receive a Letter of
Transmittal with instructions for the surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
any questions about the voting procedure or the accompanying Proxy
Statement/Prospectus, please feel free to contact TSC c/o Nowalk & Associates,
2650 Route 130 North, Cranbury, New Jersey 08512, (telephone (609) 655-4100).
Very truly yours,
Robert D. Bilodeau
President
<PAGE> 1
EXHIBIT 99.12
FORT WORTH WIRELESS CABLE T.V. ASSOCIATES
C/O 300 CRESCENT COURT, SUITE 1400
DALLAS, TEXAS 75201-6929
January 26, 1996
Dear Partner:
Enclosed are the following materials that are being provided to you on
behalf of the Management Committee ("Management Committee") of Fort Worth
Wireless Cable T.V. Associates, a California general partnership (the
"Partnership"):
1. Written Consent of Partner card;
2. Disclosure Statement of Fort Worth Wireless Cable T.V. Associates; and
3. Proxy Statement/Prospectus of Heartland Wireless Communications, Inc.
As you know, the primary asset of the Partnership is a 79.99% interest in a
joint venture (with American Wireless Systems, Inc.) that owns and operates a
wireless cable television system in Fort Worth, Texas (the "Fort Worth
Venture"). By way of the enclosures, the Management Committee of the Partnership
is soliciting your approval for the sale of the Partnership's interest in the
Fort Worth Venture to Heartland Wireless Communications, Inc. ("Heartland").
In particular, these materials describe and ask you to consider and vote on
a single proposal to approve the execution of the Amended and Restated Asset
Purchase Agreement (the "Agreement"), dated as of October 4, 1995, by and
between the Partnership and Heartland, and the performance by the Partnership of
all of the transactions contemplated by the Agreement, including without
limitation the following:
(i) The sale of the Partnership's interest in the Fort Worth Venture to
Heartland in exchange for shares of common stock of Heartland (which
shares will be tradeable on the NASDAQ Stock Market) having an
aggregate exchange value equal to $13,300,000 (you are encouraged to
carefully review and consider the explanation and examples set forth on
page 8 of the Disclosure Statement and pages 56-58 of the Heartland
Prospectus [as defined below] for a more complete understanding of this
key aspect of the transaction);
(ii) The assumption by Heartland of up to $570,000 of certain potential
liabilities of the Partnership;
(iii) The release or assignment of certain claims by the Partnership (and
partners consenting thereto) against American Wireless Systems, Inc.
and certain related parties; and
(iv) The liquidation and dissolution of the Partnership and the winding
up of its affairs.
The foregoing events (and all other matters contemplated by the Agreement) are
referred to in this letter as the "Transactions".
The Transactions are more completely described in the accompanying
Disclosure Statement of the Partnership. The Disclosure Statement incorporates
by reference the enclosed Proxy Statement/Prospectus of Heartland (the
"Heartland Prospectus") and copies of the Agreement and other agreements related
to the Transactions (which documents are all included in the Heartland
Prospectus as Appendix E, Appendix F, Appendix G, and Appendix H).
The Management Committee has carefully considered and unanimously approved
the Transactions as being in the best interests of the Partnership and its
partners. The Management Committee recommends that the partners vote FOR the
proposal comprising the Transactions.
<PAGE> 2
By use of the Written Consent card, you are being asked to approve and
adopt the Transactions as a part of one approval. You are not being requested,
and will not be entitled, to separately approve the various events contemplated
by the Agreement. THE ENCLOSED WRITTEN CONSENT CARD PROVIDES INSTRUCTIONS FOR
EXERCISING YOUR VOTE REGARDING THE TRANSACTIONS.
Pursuant to the terms of the Agreement, the affirmative vote of partners of
the Partnership representing two-thirds (66 2/3%) of the outstanding partnership
units of the Partnership is necessary to approve the Transactions.
It is important to note that the Partnership is involved in only one of
five separate, but related, transactions which are noted in the Heartland
Prospectus. Parties to the other transactions with Heartland include American
Wireless Systems, Inc., CableMaxx, Inc., Three Sixty Corp., and Wireless Cable
TV Associates #38. Consummation of the Transactions with the Partnership are
conditioned on, among other things, the requisite approval of Heartland
stockholders of the transactions with all of those parties, as well as approval
of the Transactions with the Partnership. The Management Committee recognizes
that the Disclosure Statement and the Heartland Prospectus are lengthy
documents. However, the documents necessarily result from the complexity of the
transactions described therein and the need to furnish you with all appropriate
information. Accordingly, the Management Committee requests that you carefully
review all of these materials before completing the enclosed Written Consent
card.
Should you require assistance in completing your Written Consent card or if
you have any questions about the voting procedure or the enclosed materials, you
may contact Don McGee at (214) 717-3962, Mike Leo at (213) 964-1700, or Bill
Walker at (410) 987-0963, or any other member of the Management Committee.
In addition, the Management Committee has scheduled, and invites you to
attend, a meeting of the partners of the Partnership to be held as follows:
<TABLE>
<S> <C> <C>
FEBRUARY 17, 1996, SATURDAY, BEGINNING AT 10:00 A.M. CST
AT SHERATON GRAND HOTEL, HIGHWAY 114 AND ESTERS ROAD
(NORTH EXIT FROM DFW AIRPORT, TO DALLAS), DALLAS, TEXAS,
PHONE: (214) 929-8400 (TO MAKE ROOM RESERVATIONS)
</TABLE>
Please call (800) 663-4210 to let the Management Committee know you are coming.
THE MANAGEMENT COMMITTEE REQUESTS THAT YOU SEND YOUR EXECUTED WRITTEN CONSENT AS
SOON AS POSSIBLE AND NOT WAIT UNTIL THE MEETING; HOWEVER, THE CONSENT WILL BE
REVOCABLE PRIOR TO THE TIME THE PARTNERSHIP OBTAINS CONSENTS FROM PARTNERS
REPRESENTING TWO-THIRDS (66 2/3%) OF THE OUTSTANDING UNITS OF THE PARTNERSHIP,
AS SET FORTH IN THE DISCLOSURE STATEMENT AND THE HEARTLAND PROSPECTUS.
Representatives of the Management Committee will be present to discuss the
Transactions. The Management Committee also anticipates attendance by
representatives of Heartland who will be available to present information about
Heartland, the Transactions with the Partnership, and other transactions
described in the Heartland Prospectus.
<PAGE> 3
IN THE EVENT THAT THE AVERAGE CLOSING PRICE OF THE HEARTLAND COMMON STOCK
AS REPORTED ON THE NASDAQ-NMS OVER THE SIX TRADING DAY PERIOD ENDING FEBRUARY
12, 1996 (REPRESENTING THE FIRST SIX DAYS TO BE INCLUDED IN THE ANTICIPATED
CALCULATION PERIOD) IS GREATER THAN $34 OR LESS THAN $23, PARTNERS WILL BE
PROVIDED WITH AN ADDITIONAL WRITTEN CONSENT TO ENABLE THE PARTNERS WHO WISH TO
DO SO TO CHANGE THEIR VOTE.
VERY TRULY YOURS,
Members of the Management Committee of
Fort Worth Wireless Cable T.V. Associates
By: /s/ DONALD McGEE
-----------------------------
Donald McGee
Enclosures
