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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number 0-23694
HEARTLAND WIRELESS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 73-1435149
(State or other jurisdiction of incorporation (I.R.S. employer
or organization) identification no.)
903 North Bowser, Suite 140, Richardson, Texas 75081
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 479-9244
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is $282,640,199, based on the closing price of the Registrant's
Common Stock, $.001 par value per share (the "Common Stock"), on March 27, 1996,
as reported on the Nasdaq National Market.
The number of outstanding shares of Common Stock as of March 27 1996, was
19,358,021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held
on May 2, 1996, and to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, are incorporated by reference into Part III of this
Form 10-K. Portions of the registrant's Annual Report to Shareholders for the
year ended December 31, 1995, and filed as Exhibit 13 with this Form 10-K, are
incorporated by reference into Part II of this Form 10-K. With the exception
of such portions, the 1995 Annual Report is not deemed filed as a part of this
report.
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HEARTLAND WIRELESS COMMUNICATIONS, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business 3
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security-Holders 25
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 26
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 29
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PART I
ITEM 1. BUSINESS
OVERVIEW
Heartland Wireless Communications, Inc. (the "Company") develops, owns and
operates wireless cable television systems, primarily in small to mid-size
markets located in the central United States. At March 1, 1996, the Company had
wireless cable channel rights in 81 markets representing approximately 8.6
million households, approximately 7.1 million of which the Company believes can
be served by line-of-sight ("LOS") transmissions (which generally require a
direct, unobstructed transmission path from the central transmitting antenna to
the antenna located on the subscriber's premises).
The Company targets small to mid-size markets with significant numbers of
LOS households that are unpassed by traditional hard-wire cable. Many of these
households, particularly in rural areas, have limited access to local off-air
VHF/UHF channels (such as ABC, NBC, CBS and Fox), and typically do not have
access to pay television service except via satellite receivers. As a result,
the Company believes that its wireless cable television service is an
attractive alternative to existing choices for such households. The Company
estimates that within its 81 wireless cable markets, approximately 2.6 million
LOS households, or 36% of the Company's total LOS households, are unpassed by
traditional hard-wire cable systems, as compared to the 20 largest hard-wire
cable markets in the United States, in which only approximately 2% of all
households are unpassed by traditional hard-wire cable. The Company believes
that it will ultimately achieve a penetration rate of the unpassed LOS
households in its markets that is comparable to the average penetration rate
achieved by traditional hard-wire cable operators nationally, which Paul Kagan
Associates, Inc. estimates to be approximately 64% as of December 31, 1994.
At March 1, 1996, the Company's 81 markets included (i) 38 markets in
which the Company has systems in operation (the "Existing Systems"), (ii) nine
markets in which the Company's system is under construction and (iii) 34 future
launch markets, including 30 in which the Company has aggregated sufficient
wireless cable channel rights to commence construction of a system and four in
which the Company has leases with or options from applicants for channel
licenses that the Company expects to be granted by the Federal Communications
Commission (the "FCC"). At March 1, 1996, the 38 Existing Systems were
providing wireless cable service to approximately 132,000 subscribers.
Wireless cable programming is transmitted through the air via microwave
frequencies from a transmission facility to a small receiving antenna at each
subscriber's location, which generally requires a direct, unobstructed
line-of-sight from the transmission facility to the subscriber's receiving
antenna, by utilizing up to 200 MHZ of radio spectrum allocated by the FCC to
wireless cable operators. Traditional hard-wire cable systems also transmit
signals from a transmission facility, but deliver the signal to a subscriber's
location through an extensive network of coaxial cable and amplifiers. Since
wireless cable systems do not require such an extensive cable network, wireless
cable operators such as the Company can provide subscribers with a high quality
picture and a reliable signal resulting in fewer transmission disruptions at a
significantly lower system capital cost per installed subscriber than
traditional hard-wire cable systems. In addition, operating costs of wireless
cable systems are generally lower than those of comparable traditional
hard-wire systems due to lower network maintenance and depreciation expense.
Like traditional hard-wire operators, the Company can offer its
subscribers local off-air VHF/UHF channels, as well as HBO, Showtime, Disney,
ESPN, CNN, USA, WGN, WTBS, Discovery, the Nashville Network, A&E and other
programming services. The channels that the Company offers in each market will
vary depending upon the channel rights secured in such market at the time of
system launch. In addition, the available channels in a market will typically
change as the Company continues to acquire channel rights. See "Business --
Business Strategy."
The Company's founders, David E. Webb, the President and Chief Executive
Officer, and L. Allen Wheeler, Vice Chairman of the Board of Directors, began
acquiring licenses, leases and options to wireless cable channels in 1989, both
individually and through various controlled entities. In September 1990,
Messrs. Webb and Wheeler formed Wireless Communications, Inc., an Oklahoma
corporation ("WCI"), and contributed to it certain of their direct and indirect
wireless cable assets and liabilities. In October 1993, Hunt Capital, a
principal stockholder of the Company and affiliate of J.R. Holland, Jr., the
Chairman of the Board of the Company, acquired a $988,000 10% promissory note
due September 14, 1994 payable by WCI (the "Hunt Note") from an affiliate of
Hunt Capital, which had entered into a loan agreement with WCI in September
1993.
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The Company was incorporated in Delaware in October 1993 to succeed to the
wireless cable businesses previously conducted by Messrs. Webb and Wheeler,
directly and indirectly through various controlled entities, including WCI.
Messrs. Webb and Wheeler contributed all capital stock of entities engaged in
the wireless cable businesses owned by them to the Company for a 50% equity
interest. Hunt Capital contributed the Hunt Note, including accrued interest,
and $2.0 million to the Company for the remaining 50% equity interest. In
addition, Messrs. Webb and Wheeler leased all other wireless cable channel
license rights controlled, directly and indirectly, by them to the Company and
granted the Company an option to purchase such license rights at a nominal
price. In April and June 1994, the Company sold 2.4 million shares of Common
Stock in its initial public offering at a per share price of $10.50.
The executive offices of the Company are located at 903 North Bowser,
Suite 140, Richardson, Texas 75081, and the telephone number of the executive
offices is (214) 479-9244. The Company's operations and marketing headquarters
are based in Durant, Oklahoma.
Unless the context otherwise requires, all references in this Form 10-K to
the Company refer collectively to Heartland Wireless Communications, Inc., its
predecessors and its majority-owned subsidiaries.
CABLE INDUSTRY OVERVIEW
The cable television industry began in the late 1940s and 1950s to serve
the needs of residents in predominantly rural areas with limited access to
local off-air VHF/UHF broadcasts. The cable television industry expanded to
metropolitan areas due to, among other things, better reception and more
programming. Today, cable television systems offer various types of
programming, which generally include basic service, premium service and, in
some instances, pay-per-view service.
WIRELESS CABLE TECHNOLOGY
Initially, most cable systems were hard-wire systems, using coaxial cable
and amplifiers to transmit television signals. In 1983, the FCC allocated a
portion of the radio spectrum from 2500 to 2700 MHZ, which had previously been
allocated entirely for educational use, to commercial wireless cable operation.
Simultaneously, the FCC also modified its rules on the usage of the remaining
portion of such spectrum allocated for educational use. Nevertheless,
regulatory and other obstacles impeded the growth of the wireless cable
industry through the remainder of the 1980s. The FCC maintained burdensome
restrictions on the commercial use of educational channel capacity. In
addition, before the Cable Act passed by Congress on October 5, 1992 (the
"Cable Act") became effective, many program suppliers were unwilling to provide
programming to wireless cable operators on terms comparable to those offered to
traditional hard-wire cable operators, if at all. During the 1990s, several
factors have contributed to the growth of the wireless cable industry,
including (i) Congressional scrutiny of the rates and practices of the
traditional hard-wire cable industry, (ii) improved technology, particularly
signal encryption, (iii) regulatory reforms by the FCC to facilitate the growth
and competitive impact of the wireless cable industry, including permitting
channel aggregation, (iv) increased availability of programming for wireless
cable systems, (v) consumer demand for alternatives to traditional hard-wire
cable service, and (vi) increased availability of capital to wireless cable
operators in the public and private markets.
Like a traditional hard-wire cable system, wireless cable operates from a
head-end, consisting of satellite reception and other equipment necessary to
receive the desired programming. Programming is then transmitted by microwave
transmitters from an antenna located on a tower to a small receiving antenna
located on a subscriber's rooftop. At the subscriber's location, the microwave
signals are converted to frequencies that can pass through conventional coaxial
cable into an addressable descrambling converter located on top of a television
set. Wireless cable requires a clear line-of-sight, because the microwave
frequencies used will not pass through large trees, hills, tall buildings or
other obstructions. However, many signal blockages can be overcome with the use
of signal boosters which retransmit an otherwise blocked signal over a limited
area. The Company believes that its coverage will be further enhanced upon the
implementation of digital technology and/or cellularization. Because wireless
cable systems do not require an extensive network of coaxial cable and
amplifiers, wireless cable operators can provide subscribers with a high
quality picture and a reliable signal resulting in fewer transmission
disruptions at a significantly lower system capital cost per installed
subscriber than traditional hard-wire cable systems.
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TRADITIONAL HARD-WIRE CABLE TECHNOLOGY
Traditional hard-wire cable operators transmit signals from a head-end,
delivering local and satellite-delivered programming via a distribution network
consisting of coaxial cable, amplifiers and other components to subscribers. As
a direct result of the use of coaxial cable to deliver signals throughout a
service area, traditional hard-wire cable systems are susceptible to signal
problems. Signals can only be transmitted via coaxial cable a fixed distance
without amplification. Each time a television signal passes through an
amplifier, some measure of noise is added. A series of amplifiers between the
head-end and the viewer leads to progressively greater noise and, accordingly,
for some viewers a grainier picture. Also, an amplifier must be properly
balanced or the signal may be improperly amplified. Failure of any one
amplifier in the chain will black out all of the system drawing signal from
that point. Regular system maintenance is required due to water ingress,
temperature changes and other equipment problems, all of which may affect the
quality of signals delivered to subscribers. Some traditional hard-wire cable
companies have begun installing fiber optic cable networks. While this
technology will substantially improve the transmission and reception problems
currently experienced by traditional hard-wire cable systems, the high costs
associated with such technology may slow the conversion to all fiber optic
systems and further enhance the typical cost advantages of wireless cable.
REGULATORY ENVIRONMENT
General. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to issue,
revoke, modify and renew licenses within the spectrum available to wireless
cable; to approve the assignment and/or transfer of control of such licenses;
to approve the location of wireless cable systems; to regulate the kind,
configuration and operation of equipment used by wireless cable systems; and to
impose certain equal employment opportunity and other reporting requirements on
wireless cable operators.
In the 50 largest markets, 33 channels are available for wireless cable
(in addition to local off-air VHF/UHF broadcast channels that are not
retransmitted over the microwave channels). In the Company's markets, 32
channels are available for wireless cable (in addition to local off-air VHF/UHF
broadcast channels that are not retransmitted over the microwave channels), 12
of which can be owned by for-profit entities for full-time usage without
programming restrictions (MDS channels). Except in limited circumstances, the
other 20 wireless cable channels can generally only be owned by qualified
non-profit educational organizations, and, in general, each must be used a
minimum of 20 hours per week for educational programming (ITFS channels). The
remaining excess air time on an ITFS channel may be leased to wireless cable
operators for commercial use, without further restrictions (other than the
right of the ITFS license holder, at its option, to recapture up to an
additional 20 hours of air time per week per channel for educational
programming). Certain programs (e.g ., The Discovery Channel and A&E) qualify
as educational and thereby facilitate full-time usage of an ITFS channel by
commercial wireless cable operators. Additionally, a technique known as
"channel mapping" permits ITFS licensees to meet their minimum educational
programming requirements by transmitting educational programming over several
ITFS channels at different times, but the viewer sees the transmission as one
channel. In addition, lessees of ITFS excess air time, including the Company,
generally have the right to transmit to their subscribers the educational
programming provided by the lessor at no incremental cost. The remaining 12
wireless cable channels (commonly referred to as MDS or commercial channels)
available in most of the Company's operating and targeted markets are made
available by the FCC for full-time commercial usage without programming
restrictions. The FCC recently amended its rules to permit "channel loading."
Channel loading permits ITFS license holders to consolidate their educational
programming on one or more of their ITFS channels thereby providing wireless
cable operators leasing such channels, including the Company, with greater
flexibility in their use of ITFS channels. The FCC's allocation of frequencies
to wireless cable is subject to change and, in the future, the FCC might
propose to alter the present wireless cable allocation to provide a portion of
the spectrum for other emerging technologies. Recently, the FCC formally
inquired as to whether certain wireless cable frequencies should be reallocated
for new computer-based communications services. This inquiry is at a
preliminary stage, and it is uncertain whether any definitive action will be
taken with respect to this inquiry. The Company believes that if any such
action were taken to reallocate these channels, the FCC would allocate
substitute frequency rights to the wireless cable industry or provide other
concessions. See "Business -- Competition -- Local Multi-Point Distribution
Service."
The Company is dependent on leases with unaffiliated third parties for
most of its wireless cable channel rights. The Company has entered into leases
for substantially all of its wireless cable channel rights with channel license
holders, applicants for channel licenses and applicants that have had
previously-filed applications returned without prejudice by the FCC and which
will be refiled. The Company's channel leases typically cover four
instructional television fixed service ("ITFS") and/or one to four multi-point
distribution service ("MDS") wireless
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cable channels each. Generally, ITFS channels may only be owned by qualified
non-profit educational organizations and in general must use a minimum of 20
hours per week per channel for educational programming. The remaining excess
ITFS channel air time may be leased to wireless cable operators for commercial
use without further restriction. MDS channels may be owned by commercial
entities and allow full-time usage without programming restrictions. Under the
rules of the FCC, the term of an ITFS channel lease cannot exceed 10 years.
There is no such restriction for MDS channel leases. ITFS licenses generally
are granted for a term of 10 years and are subject to the renewal by the FCC.
MDS licenses generally will expire on May 1, 2001 unless renewed. The use of
such channels by the license holders is subject to regulation by the FCC and
the Company's ability to continue to enjoy the benefits of its leases with
channel license holders is dependent upon the continuing compliance by the
channel license holders with applicable regulations including the requirement
that ITFS license holders must meet certain educational use requirements in
order to lease transmission capacity to wireless cable operators. The remaining
initial terms of most of the Company's channel leases are approximately five to
10 years, although certain of the Company's channel leases have initial terms
expiring during the next several years. Most of the Company's leases grant the
Company a right of first refusal to purchase the channels after the expiration
of the lease if FCC rules and regulations so permit, provide for automatic
renewal of the lease term upon FCC renewal of the license and/or require the
parties to negotiate lease renewals in good faith. The termination of or
failure to renew a channel lease or termination of the channel license, or the
failure to grant an application for an extension of time to construct an
authorized station, would result in the Company being unable to deliver
television programming on such channel(s). Although the Company does not
believe that the termination of or failure to renew a single channel lease or
license would adversely affect the Company, several of such terminations or
failures in one or more markets that the Company actively serves could have a
material adverse effect on the Company. Additionally, FCC licenses also specify
construction deadlines, which, if not met, could result in the loss of the
license. Requests for additional time to construct may be filed and are subject
to review pursuant to FCC rules. Certain of the Company's channel rights are
subject to pending extension requests and it is anticipated that additional
extensions will be required. There can be no assurance that the FCC will grant
any particular extension request or license renewal request.
Applications for wireless cable licenses are subject to approval by the
FCC. Applicants with whom the Company has entered into leases have filed a
series of applications with the FCC for a number of wireless cable channels and
the Company has entered into leases for additional channels with applicants
that have had previously-filed applications returned without prejudice by the
FCC and which have been refiled. The vast majority of such leases are in the
form of lease agreements with qualified non-profit educational organizations
for ITFS channels. These ITFS applications are expected to undergo review by
the FCC's engineers and staff attorneys over the next several months. There is
no limit on the time that may elapse between filing the application with the
FCC for a modification or new license and action thereon by the FCC. Once the
FCC staff determines that the applications meet certain basic technical and
legal qualifications, the staff will then determine whether each application is
proximate to the transmit and receive-site locations of other applications.
Those applications that would result in signal interference to other pending
applications ("Competing Applications") must then undergo a comparative
selection process. The FCC's ITFS application selection process is based on a
set of objective criteria that includes whether an applicant is located in the
community to be served and the number of students that will receive the
applicant's educational programming. Thus, the outcome of the selection process
when two or more qualified applicants are competing for the same channels lends
itself to a degree of predictability that varies according to the
circumstances. Most of the Company's lease agreements with applicants for
channel licenses involve channel licenses for which Competing Applications have
been filed. In each market, the Company has carefully considered the FCC's
selection criteria in choosing the educational entities with which it has
entered into lease agreements. However, because the FCC's application review
process does not lend itself to complete certainty, and given the considerable
number of applications involved, no assurance can be given as to the precise
number of applications that will be granted. A number of competing applicants
for channel licenses have filed with the FCC petitions to deny the applications
in which the Company has acquired channel rights, based upon alleged
substantive defects in the applicant or in technical or other aspects of the
application. The Company anticipates that the FCC will deny most of the
current petitions to deny the applications in which the Company has acquired
channel rights. However, no assurance can be given as to the precise number of
such petitions that will be denied. Although the Company does not believe that
any single award of a channel license to an applicant that has filed a
Competing Application or the granting of any single petition to deny an
application in which the Company has acquired channel rights would adversely
affect the Company, several of such awards or grants could have a material
adverse effect on the Company.
In 1985, the FCC established a lottery procedure for awarding MDS
licenses. In 1990, the FCC established a filing "window" system for new
multichannel MDS ("MMDS") applications. The FCC's selection among more than one
acceptable MMDS application filed during the same filing window was determined
by a lottery. Generally, once an MMDS application is selected by the FCC and
the applicant resolves any deficiencies identified by the FCC, a
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conditional license is issued, allowing construction of the station to
commence. Construction generally must be completed within one year of the date
of grant of the conditional license, in the case of MMDS channels, or 18
months, in the case of ITFS channels. ITFS and MMDS licenses generally have
terms of 10 years. Licenses must be renewed and may be revoked for cause in a
manner similar to other FCC licenses. FCC rules prohibit the sale for profit of
an MMDS conditional license or of a controlling interest in the conditional
license holder prior to construction of the station or, in certain instances,
prior to the completion of one year of operation. The FCC, however, does permit
the leasing of 100% of an MMDS license holder's spectrum capacity to a third
party and the granting of options to purchase a controlling interest in a
license once the required license holding period has lapsed and certain other
conditions are met.
In April 1992, the FCC imposed a freeze on the filing of applications and
amendments to applications for new MMDS channel licenses. In February 1993, the
FCC imposed a similar freeze on the filing of applications for new ITFS
licenses and for major ITFS modifications. The freezes were intended to allow
time for the FCC to update its wireless cable data base and to allow the FCC to
review and possibly modify its application rules related to these services. The
FCC subsequently lifted the freeze on the filing of applications for major ITFS
modifications, but indicated that it would accept such applications only until
September 15, 1995. In February 1995, the FCC amended its rules and established
"windows" for the filing of new ITFS applications or major modifications to
authorized ITFS facilities. The first filing "window" was October 16-20, 1995.
Where two or more ITFS applicants file applications for the same channels and
the proposed facilities could not be operated with Impermissible Interference,
the FCC employs a set of comparative criteria to select from among the
competing applicants.
The FCC is currently in the process of conducting an auction (the "BTA
Auction") of available commercial wireless cable spectrum in 487 basic trading
areas ("BTAs") and six additional BTA-like geographic areas around the country.
The winner of a BTA has the right to develop the vacant MMDS frequencies
throughout the BTA, consistent with certain specified interference criteria
that protects existing ITFS and MMDS channels. Existing ITFS and MMDS channel
rights holders also must protect the BTA winner's spectrum from interference
caused by power increases or tower relocations. The Company may not be the
winning bidder of the BTAs that encompass the Company's markets. The Company's
ability to increase power or relocate its transmission facilities in markets
where it is not the owner of the BTA may be limited, which could increase the
cost to the Company of, and extend the time for, developing a commercially
viable system.
In order to be eligible for the BTA Auction, the Company was required to
file, prior to the start of auction, applications and up-front payments. After
the BTA Auction, in any markets where the Company is the winning bidder, it
will have certain post-auction filing obligations, including, but not limited
to, applications that propose new transmission facilities, exhibits concerning
their involvement in bidding consortia, and their plans to build-out two-thirds
of the market over a five-year period. Due to the unique nature of the BTA
Auction, there is no prior regulatory history regarding the scope and nature of
the information the FCC will require, or how the FCC will treat the
information.
Application for renewal of MDS and ITFS licenses must be filed within a
certain period prior to expiration of the license term, and petitions to deny
applications for renewal may be filed during certain periods following the
filing of such applications. Licenses are subject to revocation or cancellation
for violations of the Communications Act or the FCC's rules and policies.
Conviction of certain criminal offenses may also render a licensee or applicant
unqualified to hold a license. The Company's lease agreements with license
holders typically require the license holders, at the Company's expense, to use
their best efforts, in cooperation with the Company, to make various required
filings with the FCC in connection with the maintenance and renewal of
licenses. The Company believes this reduces the likelihood that a license will
be revoked, canceled or not renewed by the FCC.
Wireless cable transmissions are governed by FCC regulations governing
interference and reception quality. These regulations specify important signal
characteristics such as modulation (i.e., AM/FM) or encoding formats (i.e.,
analog or digital). Current FCC regulations require wireless cable systems to
transmit only analog signals and those regulations will have to be modified,
either by rulemaking or by individual application, to permit the use of digital
transmissions. The Company is a party to a pending application for declaratory
ruling filed in July 1995 seeking adoption of interim regulations authorizing
digital transmission. The Company believes that the necessary FCC approvals
will be obtained to permit the use of digital compression by the time it
becomes commercially available; however, there can be no assurance that these
approvals will be forthcoming or timely. In addition, such modifications filed
with the FCC after the BTA Auction will be subject to the interference
protection rights of BTA Auction winners.
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The FCC also regulates transmitter locations and signal strength. The
operation of a wireless cable television system requires the collocation of a
commercially viable number of channels operating with common technical
characteristics. In order to commence operations in many of the Company's
unlaunched markets, the Company has filed or will be required to file
applications with the FCC to modify licenses for unbuilt stations. In applying
for these modifications, the Company must demonstrate that its proposed signal
does not violate interference standards in the FCC-protected area of another
wireless cable channel license holder. A wireless cable license holder
generally is protected from interference within 35 miles of the transmission
site. An ITFS license holder has protection to all of its receive sites, but
only a 35 mile protected service area during excess capacity use by a wireless
cable operator. In addition, modifications submitted after the BTA Auction
will be required to protect auction winners from interference. If such changes
would cause the Company's signal to cause interference in the FCC-protected
area of another wireless cable channel license holder, the Company would be
required to obtain the consent of such other license holder; however, there can
be no assurance that such consent would be received and the failure to receive
such consent could adversely affect the Company's ability to serve the affected
market.
When the FCC implements competitive bidding in the awarding of initial
MMDS licenses, the Company cannot predict whether any increase in costs of
renewing its leases will result from increased license costs to the initial
licensee. However, the Company does not believe that any such increased costs
would materially affect the Company's operations or financial condition.
The Cable Act. On October 5, 1992, Congress passed the Cable Act, which
imposes greater regulation on traditional hard-wire cable operators and permits
regulation of prices in areas in which there is no "effective competition." The
Cable Act, among other things, directs the FCC to adopt comprehensive new
federal standards for local regulation of certain rates charged by traditional
hard-wire cable operators. The legislation also provides for deregulation of
traditional hard-wire cable in a given market once other multi-channel video
providers serve, in the aggregate, at least 15% of the cable franchise area.
Rates charged by wireless cable operators, typically already lower than
traditional hard-wire cable rates, are not subject to regulation under the
Cable Act.
Under the retransmission consent provisions of the Cable Act and the FCC's
implementing regulations, all multi-channel video providers (including both
hard-wire and wireless cable) seeking to retransmit certain commercial
broadcast signals must first obtain the permission of the broadcast station.
Hard-wire cable systems, but not wireless cable systems, are required under the
Cable Act and the FCC's "must carry" rules to retransmit a specified number of
local commercial television or qualified low power television signals.
On May 3, 1993, the FCC issued new regulations implementing the rate
regulation provisions in the Cable Act. Traditional hard-wire cable operators
with rates above a price benchmark average for basic services were directed to
reduce their rates by approximately 10%. On February 22, 1994, the FCC
announced that it would require traditional hard-wire cable operators to
implement a further reduction in rates of another 7%. On November 18, 1994, the
FCC adopted some exceptions to its cable rate regulations which would allow
certain flow-through item rate increases and after rate flexibility. The FCC
has also adopted regulations implementing the Cable Act that require
traditional hard-wire cable operators to establish standardized levels of
customer service. The Company is currently unable to predict what effect these
regulations may have on the Company's price and service competitiveness.
In February 1996, the Telecommunications Act of 1996 was enacted.
Pursuant to the Telecommunications Act of 1996, all cable rate regulation will
be eliminated after three years, and for "small systems" as defined in the Act,
and under certain other circumstances, rate regulation will be eliminated
immediately. Until these sunset provisions go into effect, hard-wire cable
operators will continue to be subject to rate regulations.
While current FCC regulations are intended to promote the development of a
competitive pay television industry, the rules and regulations affecting the
wireless cable industry may change, and any future changes in FCC rules,
regulations, policies and procedures could have a material adverse effect on
the industry as a whole and on the Company in particular. In addition, a number
of legal challenges to the Cable Act and the regulations promulgated thereunder
have been filed, both in the courts and before the FCC. These challenges, if
successful, could substantially increase the Company's operating costs, make
some programming unavailable to the Company and otherwise have a material
adverse effect on the wireless cable industry as a whole or the Company in
particular. In particular, those sections of the Cable Act which prohibit
discriminatory or unfair practices in the sale of satellite cable and satellite
broadcast programming to competing multichannel video programming distributors
have been challenged. The Company's costs to acquire satellite cable and
broadcast programming may be affected by the outcome of those challenges. See
"Business -- Availability of Programming." Other aspects of the Cable Act that
have been challenged, the outcome of which could adversely affect the Company
and the wireless cable industry in general, are the Cable
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Act's provisions governing rate regulation and customer service standards to be
met by traditional hard-wire cable companies. The Cable Act empowered the FCC
to regulate the subscription rates charged by traditional hard-wire cable
operators. As described above, the FCC recently issued rules requiring such
cable operators, under certain circumstances, to reduce the rates charged for
basic services by 17%. The Cable Act also empowered the FCC to establish
certain minimum customer service standards to be maintained by traditional
hard-wire cable operators. These standards include prompt responses to customer
telephone inquiries, reliable and timely installations and repairs and readily
understandable billing practices. Should these provisions withstand court and
regulatory challenges, the extent to which wireless cable operators may
continue to maintain an advantage over traditional hard-wire cable operators in
price and customer service practices could be diminished.
The Telecommunications Act of 1996 removes certain barriers to investment
by telephone companies in hard-wire cable companies. The legislation lifts the
current statutory cross-ownership ban contained in the Communications Act,
which prevents a telephone company from using hard-wire facilities to provide
cable television service to the same community where it provides telephone
service. The statutory ban was never applied to a telephone company's
investment in wireless cable. Telephone companies operating in the markets
serviced by the Company were legally permitted to build, lease or purchase
hard-wire cable systems and become competitors of the Company.
Other Regulations. Since the vast complex of coaxial cable utilized by
traditional hard-wire cable operators requires a "right of way" to cross
municipal streets, such operators must acquire a municipal franchise and pay
municipal franchise fees. Since wireless cable uses FCC approved frequencies,
it does not require a municipal right of way. Accordingly, wireless cable
operators are not subject to those franchise fees. Traditional hard-wire cable
operators are also required to set aside public access channels for municipal
and local resident use. Wireless cable operators are not subject to these
requirements.
Wireless cable license holders are subject to regulation by the FAA with
respect to the construction of transmission towers and to certain local zoning
regulations affecting construction of towers and other facilities. There may
also be restrictions imposed by local authorities. There can be no assurance
that the Company will not be required to incur additional costs in complying
with such regulations and restrictions.
AVAILABILITY OF PROGRAMMING
Once a wireless cable operator has obtained the right to transmit
programming over specified frequencies, the operator must then obtain the right
to use the programming to be transmitted.
General. Currently, with the exception of the retransmission of local
off-air VHF/UHF broadcast signals, programming is made available in accordance
with contracts with program suppliers under which the system operator pays a
royalty based on the number of subscribers receiving service each month.
Individual program pricing varies from supplier to supplier; however, more
favorable pricing for programming is generally afforded to operators with
larger subscriber bases. The likelihood that program material will be
unavailable to the Company has been significantly mitigated by the Cable Act
and various FCC regulations issued thereunder which, among other things, impose
limits on exclusive programming contracts and prohibit cable programmers in
which a cable operator has an attributable interest from discriminating against
cable competitors with respect to the price, terms and conditions of
programming. Only a few of the major cable television programming services
carried by the Company are not currently directly owned by vertically
integrated multiple cable system operators and the Company historically has not
had difficulty in arranging satisfactory contracts for these services. The
basic programming package offered in each of the Existing Systems is comparable
to that offered by the local traditional hard-wire cable operators. However,
several of such local traditional hard-wire cable operators currently offer
more premium, pay-per-view and public access channels than the Company.
Copyright. Under the Federal copyright laws, permission from the
copyright holder generally must be secured before a video program may be
retransmitted. Under Section 111 of the Copyright Act, certain "cable systems"
are entitled to engage in the secondary transmission of programming without the
prior permission of the holders of copyrights in the programming. In order to
do so, a cable system must secure a compulsory copyright license. Such a
license may be obtained upon the filing of certain reports and the payment of
certain fees set by the Copyright Royalty Tribunal.
Wireless cable operators may rely on Section 111. The United States
Congress recently enacted legislation that confirmed the ability of wireless
cable operators to obtain the benefit of the compulsory copyright license.
Periodically, Congress has considered proposals to phase out the compulsory
license. Since the Existing Systems
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retransmit only a limited number of broadcast channels, the Company does not
believe that the termination of the compulsory copyright license would have a
material adverse effect on the Company.
Effective October 6, 1993, local broadcasters may require that cable
operators obtain their consent before retransmitting local off-air VHF/UHF
broadcasts. The FCC has exempted wireless cable operators from the
retransmission consent rules if the receive-site antenna is either owned by the
subscriber or within the subscriber's control and available for purchase by the
subscriber upon the termination of service. In all other cases, wireless cable
operators must obtain consent to retransmit local broadcast signals. The
Company has obtained such consents in each of its Existing Systems where the
Company is retransmitting on a wireless cable channel. Such consents will be
required in the Company's other markets. There can be no assurance that the
Company will be able to obtain such consents on terms satisfactory to the
Company, if at all.
PAY TELEVISION INDUSTRY TRENDS
The Company's business will be affected by pay television industry trends
and, in order to maintain and increase its subscriber base in the years ahead,
the Company will need to adapt rapidly to industry trends and modify its
practices to remain competitive. Due to the limited number of physical
components of the wireless transmission system, the Company believes it will be
less expensive for it to adapt to coming industry trends than for traditional
hard-wire cable operators. The cost of such adaptation by the Company could
nonetheless be substantial.
Compression. Several decoder manufacturing companies are developing
digital compression technology, which would allow several programs to be
carried in the amount of bandwidth where only one program is carried now.
Manufacturers have projected varying compression ratios for future equipment,
with more conservative estimates ranging from three-to-one to 10-to-one. Within
12 months, the Company believes compression technology, allowing six to 10
channels within one six-MHZ bandwidth, will be available. It is generally
expected that the intended use for this expanded channel capacity would be for
pay-per-view video services. Wireless cable will be able to immediately use
digital compression technology when it becomes available, through existing and
upgraded set-top converters. The Company believes traditional hard-wire cable
companies will be required to expend significant funds on upgrading current
systems in order to utilize digitally-compressed signals.
Addressability and Pay-Per-View. "Addressability" means the ability to
implement specific orders from or send other communications to each subscriber
without having to modify a subscriber's equipment. "Impulse" addressability
allows a subscriber to select specialized programming, such as pay-per-view, on
an immediate basis simply through the remote control. While the Company, like
many wireless cable operators, uses impulse addressable set-top converters,
only approximately 35% of traditional hard-wire cable operators use
addressability and approximately 5% use impulse addressability. Without
addressability, a traditional hard-wire cable customer not subscribing to a
premium channel must make two trips to the traditional hard-wire cable
operator's offices, once to obtain the descrambling device and once to return
it. A customer subscribing to a premium channel must telephone the traditional
hard-wire cable operator in advance. The Company believes this lack of
convenience has hindered pay-per-view sales. Pay-per-view is expected to become
more popular as additional exclusive events become available for distribution
on pay-per-view. Compression technology will greatly expand the channel
capacity available for such programming. The Company believes that it will then
have an additional advantage over most traditional hard-wire cable operators
because its impulse addressable converters provide greater convenience for its
subscribers. Traditional hard-wire cable operators will incur significant
expenditures to upgrade their systems to be able to offer impulse
addressability.
Advertising. Until recently, most advertising on cable has been sold by
program suppliers, who sell national advertising time as part of the signal
they deliver to cable operators. Recently, however, advertisers have begun
placing advertisements on channels dedicated exclusively to advertising, as
well as in local available time (typically, two minutes each hour) set aside by
program suppliers for local insertions in their programming of advertisements
sold by cable operators. Use of local available time requires automatic spot
insertion equipment, which is readily available today at a minimal capital
cost.
Interactivity. Certain traditional hard-wire cable operators have
announced their intentions to develop interactive features for use by their
subscribers. Interactivity would allow subscribers to utilize their televisions
for two-way communications such as video games and home shopping. Wireless
cable operators will be able to utilize a frequency which the FCC has made
available for interactive communications. At this time, the Company believes
that commercial viability of interactivity in the Company's markets is at least
several years away.
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COMPETITION
In addition to competition from established traditional hard-wire cable
television systems, wireless cable television operators face competition from a
number of other sources, including potential competition from emerging trends
and technologies in the pay television industry, some of which are described
below.
Satellite Receivers. Satellite receivers are generally seven to 12 foot
dishes mounted in the yards of homes to receive television signals from
orbiting satellites. Until the implementation of encryption, these dishes
enabled reception of any and all signals without payment of fees. Having to
purchase decoders and pay for programming has reduced their popularity,
although the Company will to some degree compete with these systems in
marketing its services.
Direct Broadcast Satellite ("DBS"). DBS involves the transmission of an
encoded signal direct from a satellite to the customer's home. Because the
signal is at a higher power level and frequency than most satellite transmitted
signals, its reception can be accomplished with a relatively small (18 inch)
dish mounted on a rooftop or in the yard. DBS cannot, for technical and legal
reasons, provide local VHF/UHF broadcast channels as part of its service,
although many DBS subscribers receive such channels via standard over-air
receive antennas. Moreover, DBS may provide subscribers with access to
broadcast network distant signals only when such subscribers reside in areas
unserved by any broadcast station. The cost to a DBS subscriber for equipment
and service is generally substantially higher than the cost to wireless cable
subscribers. Three DBS services currently are available nationwide, and two
more are expected to commence service in 1996. AT&T Corp. has announced plans
to invest $137.5 million in DirecTv, Inc., a leading provider of DBS service,
and MCI Communications Corp. has announced that it has entered into a DBS joint
venture arrangement with News Corp., using a license that MCI won at a FCC
auction for which it is paying a reported $682.5 million. DBS currently has
approximately 2.3 million subscribers nationwide. At present, the Company does
not believe that in the near-term DBS will constitute competition in the
markets in which the Company operates due primarily to its cost and failure to
provide local VHF/UHF broadcast channels.
Satellite Master Antenna Television ("SMATV"). SMATV is a multi-channel
television service offered through a wired plant very similar to a traditional
hard-wire cable system, except that it operates without a franchise from a
local authority. SMATV operates under an agreement with a private landowner to
service a specific multiple-dwelling unit. The FCC has recently amended its
rules to provide point-to-point delivery of video programming by SMATV
operators and other video delivery systems in the 18 gigahertz band.
Telephone Companies. Under the Communications Act, local exchange
carriers ("LECs") are currently prohibited from providing video programming
directly to subscribers in their respective telephone service areas. The FCC
has recently ruled, however, that LECs may acquire wireless cable channel
operations. Moreover, certain U.S. District Courts and Courts of Appeal have
held that the "telco-cable cross-ownership ban" abridges the First Amendment
rights of LECs to free expression under the U.S. Constitution. Such rulings are
currently under appeal or are expected to be appealed. The Telecommunications
Act of 1996 lifts barriers to the provision of cable television service by
telephone companies. The FCC already permits LECs to provide "video dial-tone"
service, thereby allowing such carriers to make available to multiple service
providers, on a nondiscriminatory common carrier basis, a basic platform that
will permit end users to access video program services provided by others.
While the competitive effect of the entry of telephone companies into the
video programming business is still uncertain, the Company believes that
wireless cable systems will continue to maintain a cost advantage over video
dialtone service and fiber optic distribution technologies.
Video Stores. Retail stores rent VCRs and/or video tapes, and are a major
participant in the television program delivery industry. According to Paul
Kagan Associates, Inc., there are over 75.5 million households with VCRs now in
use in the United States.
Local Off-Air VHF/UHF Broadcasts. Local off-air VHF/UHF broadcasts (such
as ABC, NBC, CBS and Fox) provide a free programming alternative to the public.
Previously, wireless cable systems could retransmit these broadcast signals
without permission. However, effective October 6, 1993, pursuant to the Cable
Act, local broadcasters may require that cable operators obtain their consent
before retransmitting local off-air VHF/UHF broadcasts. The Company has
obtained such consents in the Existing Systems where the Company is
retransmitting on a wireless cable channel. The FCC also has recently permitted
broadcasters to acquire, subject to certain restrictions, ownership interests
in traditional hard-wire cable systems.
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Local Multi-Point Distribution Service. In 1993, the FCC proposed to
redesignate the 28 gigahertz band to create a new video programming delivery
service referred to as local multipoint distribution service ("LMDS"). In July
1995, the FCC proposed to award licenses in each of 493 BTAs pursuant to
auctions. Sufficient spectrum for up to 49 analog channels has been designated
for the LMDS service. The FCC has not determined how many licenses it will
award in each BTA. Final rules for LMDS have not been established. Auctions are
not expected to begin until later in 1996.
Low Power Television ("LPTV"). Low Power Television ("LPTV") utilizes a
limited portion of the spectrum allocated by the FCC for local off-air VHF/UHF
broadcasts, but LPTV utilizes lower power transmission equipment than local
off-air VHF/UHF broadcasts and its signal may be encrypted. LPTV typically has
only a 15 to 20 mile signal range. LPTV requires a separate transmitter for
each channel and a standard antenna at the receiving site.
BUSINESS STRATEGY
The Company's primary business objective is to develop, own and operate
wireless cable television systems in markets in which the Company believes it
can achieve positive cash flow and operating income rapidly after system launch
and then expand such system while increasing such system's operating income.
Rural Market Focus. The Company aggregates wireless cable channel rights
and locates operations in geographic clusters of small to mid-size markets that
have a substantial number of households not currently passed by traditional
hard-wire cable. The Company believes that this size market typically has a
stable economic base, less competition from alternative forms of entertainment
and terrain and other conditions conducive to wireless cable transmissions.
Managed Subscriber Penetration. The Company attempts to manage system
launch and subscriber growth in order to contain system launch costs and to
achieve positive cash flow rapidly. Typically, the Company's operating systems
achieve positive monthly operating cash flow upon obtaining an average of
approximately 1,200 to 1,500 subscribers. Within a system, the Company
initially directs its marketing at unpassed households, which typically have
limited access to local off-air VHF/UHF broadcast channels. Accordingly, the
Company believes it can launch service successfully in most of its markets with
only 12 channels of programming, allowing it to contain system launch costs and
achieve positive cash flow with a lower number of subscribers. Generally, once
a system achieves positive cash flow, the Company will expand the channel
offering and add subscribers while increasing such system's positive operating
cash flow. As of March 1, 1996, 29 of the Company's operating systems were
generating positive monthly operating cash flow. The remaining operating
systems that were not generating positive monthly operating cash flow had not
reached an average of 1,200 to 1,500 subscribers.
Low Cost Structure. Wireless cable systems typically cost significantly
less to build and operate than traditional hard-wire cable systems for several
reasons. First, while both traditional hard-wire cable operators and wireless
cable operators must construct a head-end, traditional hard-wire cable
operators must also install an extensive network of coaxial cable and
amplifiers in order to transmit signals from the head-end to subscribers. Once
the head-end is constructed, the Company estimates that each additional
wireless cable subscriber currently requires an incremental capital expenditure
by the Company of approximately $395 to $435, consisting of, on average, $275
to $300 of material, $95 to $105 of installation labor and overhead charges and
$25 to $30 of direct commission. Such incremental capital expenditures are
variable costs and are partially offset by installation fees paid by
subscribers. Second, without an extensive cable network, wireless cable
operators typically incur lower system maintenance costs and depreciation
expense. Third, programming is generally available to traditional hard-wire and
wireless cable operators on comparable terms, although operators that have a
smaller number of subscribers often are required to pay higher per subscriber
fees. Fourth, the Company currently experiences a low rate of subscriber
turnover of on average approximately 1.5% per month, as compared to the "churn"
rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Reduced subscriber turnover reduces installation and
marketing expenses. Finally, by locating its operations in geographic clusters,
the Company can further contain costs by taking advantage of economies of scale
in management, sales and customer service.
Acquisition of ITFS Channel Rights. Because the Company believes it can
launch service successfully in its markets with as few as 12 channels of
programming, the Company focuses on development of the 20 available ITFS
channels. See "Business -- Regulatory Environment -- General." The Company
cooperates with many non-profit educational organizations in obtaining ITFS
licenses from the FCC. Once the Company has secured rights to at least 12 ITFS
channels in a market, the Company believes it can launch a commercially viable
system in such market. The
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Company believes that its strategy of first developing the ITFS channels, in
lieu of the MDS channels, has resulted in aggregate leased license expense in
its operating systems that is less than the industry-wide average leased
license expense.
EXISTING SYSTEMS AND THE COMPANY'S MARKETS
The table below provides information regarding the 81 markets in which the
Company has wireless cable channel rights that it intended to retain and
develop as of March 1, 1996.
ESTIMATED NUMBER OF
ESTIMATED LINE-OF- SUBSCRIBERS AT
TOTAL SIGHT CURRENT MARCH 1,
HOUSEHOLDS HOUSEHOLDS CHANNELS (1) 1996
---------- ---------- ------------ --------------
EXISTING SYSTEMS
Ada, OK 27,950 20,693 32 5,680
Wichita Falls, TX 78,290 74,376 28 5,956
Midland, TX 120,037 114,035 26 4,865
Abilene, TX 86,676 82,344 23 3,674
Lawton, OK 97,023 92,172 27 7,260
Laredo, TX 313,406(2) 297,736(2) 27 6,126
Enid, OK 76,602 72,772 21 4,142
Lindsay, OK 52,266 42,646 32 3,453
Ardmore, OK 61,416 52,976 20 3,353
Mt. Pleasant, TX 33,589 26,871 16 2,110
Lufkin, TX 117,534 88,150 12 --(3)
Shaw, KS 47,223 42,763 30 3,881
Texarkana, TX 118,204 94,563 20 2,033
Stillwater, OK 54,562 40,922 20 6,365
Lubbock, TX 123,934 105,323 34 5,665
McLeansboro, IL 80,136 60,102 18 1,266
Vandalia, IL 73,593 55,195 20 1,899
Olney, IL 67,812 50,859 20 1,728
Lykens, OH 210,800 168,640 24 697
Paragould, AR 77,523 58,500 21 2,557
Sikeston, MO 69,837 52,378 24 3,008
Taylorville, IL 159,596 119,697 20 1,836
Peoria, IL 276,446 248,801 22 1,046
Manhattan, KS 56,473 42,335 20 1,336
O'Donnell, TX 68,940 65,493 20 1,568
Olton, TX 32,548 30,921 20 1,380
Monroe City / Lakenan, MO 46,376 34,782 27 1,674
Paris, TX 55,445 41,584 20 1,200
Sherman / Denison, TX 100,000 90,000 31 4,478
Harper / Freeport, IL 125,269 93,952 20 504
Corsicana / Athens, TX 69,161 62,245 23 165
Strawn / Ranger, TX 34,488 25,866 20 239
Hamilton, TX 28,551 21,413 20 --(4)
Champaign, IL 164,992 148,493 23 2,061
Austin, TX 360,000 250,000 31 12,453
Temple / Killeen, TX 110,000 80,000 35 6,737
Waco, TX 100,000 80,000 35 4,289
Corpus Christi, TX 135,000 108,000 31 15,392
--------- --------- -------
Total -- Existing Systems 3,911,698 3,237,618 132,076
========= ========= =======
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ESTIMATED EXPECTED
ESTIMATED LINE-OF- CHANNELS AT
TOTAL SIGHT LAUNCH
HOUSEHOLDS HOUSEHOLDS (1) (5)
---------- ---------- -----------
SYSTEMS UNDER CONSTRUCTION (6)
Anthony, KS 15,798 11,845 16
Forrest City, AR 55,642 41,732 21
Marion, KS 53,881 40,411 19
Peaksville, MO 48,157 36,118 15
Purdin, MO 25,001 18,751 20
Sterling, KS 45,213 38,431 24
Stromsberg, NE 34,813 29,591 20
Tulsa, OK 321,922 273,634 16
Walnut Grove, IL 84,226 63,170 20
--------- ---------
Total -- Systems Under
Construction 684,653 553,683
========= =========
FUTURE LAUNCH MARKETS (7)
Adairsville, GA 205,662 154,247 16
Altus, OK 30,653 29,120 16
Amarillo, TX 106,670 101,337 26
Bellflower, MO 63,384 57,046 20
Bluffs, IL 46,389 34,792 20
Burnet, TX 24,917 18,688 16
Charlotte, TX 32,771 24,578 16
Columbia, MO 149,622 127,179 18
Crow, TX 71,421 57,137 12
Des Moines, IA 267,279 240,551 16
El Dorado, AR 54,727 38,310 16
El Paso, TX 200,000 180,000 27
Elk City, OK 26,379 21,103 16
Fischer, TX 317,039 237,779 20
Henryetta, OK 31,968 25,574 16
Holdenville, OK 50,637 45,573 20
Ingram, TX 26,235 19,676 20
Kossuth, TX 52,490 39,368 20
Lenapah, OK 51,921 38,941 12
Mayfield, KY 175,948 155,972 21
McAlester, OK 36,475 25,533 20
Miami, OK 70,820 60,197 15
Muskogee, OK 66,510 53,208 20
Portsmouth, NH 384,389 288,292 27
Powers Crossroads, GA 135,037 101,278 20
Rutledge, GA 141,370 106,028 16
Sabinal, TX 15,795 11,846 20
Seminole, OK 42,204 35,873 19
Shreveport. LA 214,315 182,168 24
Springfield, MO 139,706 118,750 16
Topeka, KS 211,762 190,586 16
Tyler, TX 233,416 186,734 14
Weatherford, OK 31,445 29,873 16
Wick, OH 336,098 268,878 20
--------- ---------
Total -- Future Launch Markets 4,045,454 3,306,215
--------- ---------
TOTAL -- ALL COMPANY MARKETS 8,641,805 7,097,516
========= =========
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- -------------
(1) Includes local off-air VHF/UHF channels, some of which are retransmitted
by the Company over wireless cable channels.
(2) Includes households located in Mexico, to which the Company would be
permitted to provide service in conjunction with a Mexican-owned company.
(3) Construction of the Lufkin System was completed in December 1994. The
Company is not actively marketing its service in the Lufkin System because
it is awaiting action by the FCC to grant licenses, which would increase
the number of wireless cable channels available to the Company.
(4) The Hamilton System was launched on February 27, 1996.
(5) The Company's business strategy is generally to launch a market with
approximately 12 wireless cable channels. Although the Company has no
current intention to launch any market with less than 12 channels, the
Company will launch certain markets with more than 12 channels and may, at
some point in the future, launch one or more markets with less than 12
channels due to FCC construction deadlines or competitive considerations
in such markets. Expected channels at launch includes channels with
respect to which the Company has a lease with or an option from a channel
license holder, an applicant for a channel license or an entity that has
had an application for a channel license returned without prejudice by the
FCC and which will be refiled. In certain markets, the Company has rights
to additional wireless cable channels but does not expect to utilize such
channels upon system launch.
(6) Systems in which the system head-end is under construction. Expected
channels at launch for such systems include channels with respect to which
the Company has a lease with or an option from a channel license holder or
an applicant for a channel license.
(7) Such markets include 30 markets with respect to which the Company has
aggregated sufficient wireless cable channel rights to commence
construction of a system and four markets with respect to which the
Company has a lease with or an option from an applicant for a channel
license or an entity that has had an application for a channel license
returned without prejudice by the FCC and which will be refiled. The
Company expects a substantial number of such licenses to be granted by the
FCC.
Existing Systems. At March 1, 1996, the Company had 38 Existing Systems.
The Company generally offers 16 to 24 basic cable channels, one to three
premium channels (HBO, Showtime and Cinemax) and one pay-per-view channel.
Local off-air channels are received by the subscriber along with the Company's
wireless channels, thereby adding an average of three to six channels to the
basic channels offered, resulting in aggregate offerings of approximately 18 to
32 channels. Generally, the Company's Existing Systems lease all of their
wireless cable channels. The terms of such leases typically expire 10 years
from the license grant date, ranging from years 1998 to 2005, and such leases
provide for either a right of first refusal or two automatic five-year renewal
periods or one 10-year renewal period. The Existing Systems transmit at 10 to
50 watts of power from a transmission tower that generally has a signal pattern
covering a radius of 35 to 50 miles.
Systems Under Construction. At March 1, 1996, the Company had nine
additional systems under construction, which are located in Anthony, Marion and
Sterling, Kansas, Forrest City, Arkansas, Peaksville and Purdin, Missouri,
Stromsberg, Nebraska, Tulsa, Oklahoma and Walnut Grove, Illinois. In each of
the systems under construction, the Company has ordered equipment to commence
construction necessary to transmit on its channels in such markets.
Generally, the Company's systems under construction lease all of their
wireless cable channels. The terms of such leases typically expire 10 years
from the license grant date, ranging from years 2001 to 2005, and such leases
provide for either a right of first refusal or two automatic five-year renewal
periods or one 10-year renewal period. The systems under construction transmit
at 10 to 50 watts of power from a transmission tower that generally has a
signal pattern covering a radius of 35 to 50 miles.
Future Launch Markets. In these markets, the Company has aggregated or is
aggregating additional wireless cable channel rights. In 30 of the future
launch markets, the Company has aggregated sufficient wireless cable channel
rights to commence construction of a system and in four of such markets, the
Company has leases with or options from applicants for channel licenses that
the Company expects to be granted by the FCC. The vast majority of the
Company's channel rights in the future launch markets are in the form of lease
agreements with educational entities that have pending applications for ITFS
channels or that have had applications returned without prejudice by the FCC
which will be refiled. These ITFS applications are expected to undergo review
by the FCC's engineers and staff attorneys over the next 24 months. Once the
FCC staff determines that the applications meet certain basic technical and
legal qualifications, the staff will then determine whether each application is
proximate to the transmit and receive-site locations of other applications.
Those applications that would result in signal interference to other pending
applications must then undergo a comparative selection process. The FCC's ITFS
application selection process is based on a set of objective criteria that
includes whether an applicant is located in the community to be served and the
number of students that will receive the applicant's educational programming.
Thus, the outcome of the selection process when two or more qualified
applicants are competing for the same channels lends itself to a degree of
predictability that varies according to the circumstances. Most of the
Company's lease agreements with applicants for channel licenses involve channel
licenses for which Competing Applications have been filed and Competing
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Applications may be filed with respect to the applications to be refiled. In
each market, the Company has carefully considered the FCC's selection criteria
in choosing the educational entities with which it has entered into lease
agreements. The Company therefore anticipates that a substantial number of the
pending applications and applications to be refiled will be granted by the FCC.
However, because the FCC's application review process does not lend itself to
complete certainty, and given the considerable number of applications involved,
no assurance can be given as to the precise number of applications that will be
granted.
The Company currently plans to finish construction of all systems
currently under construction during the second quarter of 1996 and the Company
currently expects to construct approximately 25 to 30 systems during 1996.
Construction will entail the construction of a transmission building near a
transmission tower and the installation of transmission equipment and, in
certain cases, the construction of the transmission tower. The construction of
the transmission facility will enable the Company to launch wireless cable
service in such markets. The Company is analyzing the appropriate construction
schedule for its additional markets. This analysis is being performed based
upon multiple factors, including, but not limited to, the expiration dates of
leases and FCC construction permits, the number of potential subscribers in
each market, the availability of capital and the proximity of a market to its
existing systems or other markets ready for construction.
SYSTEM COSTS
Traditional hard-wire cable systems typically cost significantly more to
build than wireless cable systems. The Company estimates that the current cost
per market for transmission (or head-end) equipment for its wireless cable
systems will average approximately $750,000 to $900,000 depending upon the type
and sophistication of the equipment and whether the Company is required to
construct a transmission tower. Although traditional hard-wire cable operators
must also construct a transmission (or head-end) facility, hard-wire systems
must also install a network of coaxial cable and amplifiers in order to deliver
signals to their subscribers. This considerable cost is not incurred by
wireless cable operators and is only partially offset by the cost a wireless
cable operator incurs to purchase and install the wireless frequency receiving
antenna and related equipment necessary for each subscriber's location. The
Company estimates that each additional wireless cable subscriber currently
requires an incremental capital expenditure by the Company of approximately
$395 to $435, consisting of, on average, $275 to $300 of material, $95 to $105
of installation labor and overhead charges and $25 to $30 of direct commission.
Such incremental capital expenditures are variable costs and are partially
offset by installation fees paid by subscribers.
The system operating costs for wireless cable systems also are generally
lower than those for comparable traditional hard-wire systems. This is
attributable to lower system network maintenance and depreciation expense.
Programming is generally available to traditional hard-wire and wireless cable
operators on comparable terms, although operators that have a smaller number of
subscribers often are required to pay higher per subscriber fees. Accordingly,
operators in the initial operating stage generally pay higher programming fees
on a per subscriber basis. The Company currently experiences a low rate of
subscriber turnover of approximately 1.5% per month, as compared to the "churn"
rate of approximately 3% per month typically experienced by traditional
hard-wire cable operators. Reduced subscriber turnover reduces installation and
marketing expenses. By locating its operations in geographic clusters, the
Company can further contain costs by taking advantage of economies of scale in
management, sales and customer service. Each of the Company's operating systems
or system clusters is managed by a general manager who reports directly to a
regional manager. General managers are responsible for the day-to-day
operations of their respective systems. Each operating system is staffed with
customer service and sales representatives and service technicians. All other
functions, including engineering, marketing, billing, and finance and
administration, are centralized.
MARKETING AND CUSTOMER SERVICE
The Company markets its wireless cable service by highlighting four major
competitive advantages over traditional hard-wire cable services and other
pay-television alternatives: (i) picture quality and reliability, (ii) customer
service, (iii) programming features and (iv) price.
Picture Quality and Reliability. The Company's transmission facilities
use the latest available technology. The Company believes that it is
positioning itself as a reliable alternative to traditional hard-wire cable by
delivering a high quality signal throughout the entire signal area of the
Existing Systems. Wireless cable subscribers enjoy substantially outage-free,
highly reliable picture quality because there is no coaxial cable,
amplifiers or processing
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and filtering equipment between the head-end and the subscriber's household, as
in the case of traditional hard-wire cable. Within the signal range of the
Existing Systems, the picture quality of the Company's service is at least as
good as that typically received by traditional hard-wire cable subscribers
because, absent any line-of-sight obstruction, there is less opportunity for
signal degradation between the Company's head-end and the subscriber.
Customer Service. The Company has established the goal of maintaining
high levels of customer satisfaction. In furtherance of that goal, the Company
emphasizes responsiveness and convenient installation scheduling. The Company
has established customer retention and referral programs in an effort to obtain
and retain new subscribers. The Company plans to expand its customer service
operations and management information systems as its systems in operation
expand. Because municipal franchises created virtual monopolies for traditional
hard-wire cable companies, in the past, few have had an incentive to provide a
level of customer service as high as the Company provides. The regulations
authorized under the Cable Act will require traditional hard-wire cable
companies to provide improved customer service which may decrease the Company's
competitive advantage in this area.
Programming Features. In the Existing Systems (other than the Lufkin,
Texas System) and markets under construction, the Company believes that it has
assembled sufficient channel rights and programming agreements to provide a
programming package competitive with those offered by traditional hard-wire
cable operators. Additionally, the Company has the capacity to offer
pay-per-view programming and impulse addressability not currently widely
offered by traditional hard-wire cable operators. The Company's typical channel
offering includes between 16 and 24 basic cable channels, one to three premium
channels (HBO, Showtime or Cinemax) and one pay-per-view channel on an
event-by-event basis. Specific programming packages vary according to
particular market demand. Local off-air channels are received by the subscriber
along with the Company's wireless channels, thereby adding an average of three
to six channels to the basic channels offered and resulting in aggregate
offerings of approximately 18 to 32 channels.
Price. The Company offers its subscribers a programming package
consisting of basic service and premium programs. The Company can offer a price
to its subscribers for basic service that is competitive with traditional
hard-wire cable operators because of lower capital and operating costs. The
Company is unable to predict precisely what effect FCC regulations enacted
pursuant to the Cable Act will have on the rates charged by traditional
hard-wire cable operators. Notwithstanding the regulations, the Company
believes it will continue to be price competitive with traditional hard-wire
cable operators with respect to comparable programming. The Company's typical
pricing structure is $17.95 to $19.95 for basic service and $5.95 to $9.95 for
one premium service channel or $14.95 for a combination premium service.
Depending on market demand and competition, the Company offers a combination
package consisting of basic service, rental of the receive-site equipment and
two premium channels for $29.95 per month.
EMPLOYEES
As of March 1, 1996, the Company had approximately 1,040 employees. None
of the Company's employees is subject to a collective bargaining agreement. The
Company has experienced no work stoppages and believes that it has good
relations with its employees. The Company also presently utilizes the services
of independent contractors to build and install certain of its wireless cable
systems and market its services.
ACQUISITIONS, DIVESTITURES AND RECENT TRANSACTIONS
RuralVision Joint Venture. On August 19, 1994, RuralVision Joint Venture,
a newly-formed general partnership in which each of the Company and Cross
Country Wireless, Inc. ("Cross Country") had a 50% interest, purchased
substantially all of the assets (the "RuralVision Assets"), including five
operating wireless cable systems and channel rights in approximately 100
markets, from RuralVision Central, Inc. and RuralVision South, Inc.
(collectively, "RuralVision"). The aggregate purchase price of approximately
$50 million for the RuralVision Assets was comprised of a $46 million note
bearing interest at the rate of 8% per annum (the "RuralVision Note") and
approximately $4.0 million of acquisition-related costs paid primarily by the
Company and Cross Country. The Company and Cross Country guaranteed the
payment of the RuralVision Note.
On December 1, 1994, the Company purchased the wireless cable system
located in Milano, Texas and additional wireless cable channel rights acquired
from RuralVision in 37 other markets (collectively, the "RuralVision Purchased
Assets") from RuralVision Joint Venture for $14.0 million.
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On January 27, 1995, the Company, Cross Country and RuralVision entered
into agreements (collectively, the "Venture Distribution Agreement"), as a
result of which the Company (i) paid an additional $4.32 million (including
accrued interest of $320,000) in satisfaction of 50% of the remaining
RuralVision Note, $513,000 (including accrued interest of $13,000) in
satisfaction of 50% of the remaining balance of certain liabilities which
RuralVision Joint Venture had assumed and transaction costs of $592,000
(collectively, the "Distribution Agreement Payments") and (ii) received a
distribution (the "RuralVision Distribution") from RuralVision Joint Venture of
an operating wireless cable system and wireless cable channel rights in 36
other markets (the "RuralVision Distributed Assets") with a carrying amount of
approximately $17.4 million. As part of the transaction, the Company granted
to Cross Country the right to sell 14 non-operating markets (the "Put Markets")
remaining in RuralVision Joint Venture to the Company for $3.25 million
(reduced dollar for dollar by the proceeds of any partial sales to third
parties of any such assets) on May 17, 1995. Cross Country exercised this
right and as a consequence the Company acquired the Put Markets. In addition,
on May 17, 1995, the Company assigned its remaining interest in RuralVision
Joint Venture to an unrelated third party in exchange for nominal consideration
and, as a result, ceased to be a joint venturer thereof on such date.
At March 1, 1996, the Company's 81 markets included 37 wireless cable
markets acquired by or distributed to the Company from RuralVision joint
venture that it currently intends to retain, own and develop (the "RuralVision
Retained Assets"). Approximately 52 wireless cable markets (the "RuralVision
Sale Assets") acquired by or distributed to the Company from RuralVision Joint
Venture are not included in the discussion of the Company's business because
the Company has disposed of 32 markets included in the RuralVision Sale Assets
and the remaining RuralVision Sale Assets comprising 20 markets are not a part
of the Company's long-term business plan.
In total, the Company expended, through contributions to RuralVision Joint
Venture, payment of the Distribution Agreement Payments, the acquisition of the
RuralVision Purchased Assets and the acquisition of the Put Markets, an
aggregate of approximately $35 million. The Company has disposed of certain
RuralVision Sale Assets with respect to 34 wireless cable markets for aggregate
consideration of approximately $49 million plus two wireless cable markets
comprising approximately 2,040 subscribers and 267,000 line-of-sight
households. The net result of the RuralVision acquisitions, dispositions and
trades, excluding proceeds from the planned disposition of the remaining
RuralVision Sale Assets, is that the Company acquired wireless cable channel
rights in 39 markets representing an aggregate of approximately 2.3 million LOS
households and 5,600 subscribers (as of the date of acquisition) for a nominal
cost.
Acquisitions of Minority Interests in Subsidiaries. During February 1995,
the Company offered minority shareholders in 23 subsidiaries the opportunity to
exchange their minority interests for shares of Common Stock. The exchange
offer was consummated on March 15, 1995 and the Company issued an aggregate of
304,038 shares of common stock in exchange for minority interests in 21
subsidiaries (18 of which are now wholly-owned).
Unit Offering. On April 26, 1995, the Company consummated a private
placement of 100,000 units (the "Units") consisting of $100 million aggregate
principal amount of 13% Senior Notes due 2003 ("Senior Notes") and 600,000
warrants to purchase an equal number of shares of Common Stock at an exercise
price of $19.525 per share to the initial purchasers. The Company placed
approximately $24.1 million of the approximately $95.3 million net proceeds
from the sale of the Units into an escrow account and used approximately $3
million of such proceeds to repay indebtedness. In connection with the
issuance of the Senior Notes, the Company agreed, among other things, to file
within 30 days of the issue date a registration statement with the Securities
and Exchange Commission (the "Commission") with respect to an offer to exchange
new notes registered under the Securities Act of 1933 for the Senior Notes,
which new notes will be identical in all respects to the Senior Notes, except
that the new notes will not contain terms with respect to transfer restrictions
and to cause such registration statement to become effective within 120 days of
the issue date. See "Business -- Acquisitions, Divestitures and Recent
Transactions -- Exchange Offer of Senior Notes."
Lubbock, Texas and Tulsa, Oklahoma Acquisitions. In May 1995, the Company
purchased an operating wireless cable system in the Lubbock, Texas market for
approximately $5.4 million and wireless cable channel rights in the Tulsa,
Oklahoma market for approximately $2.0 million and the forgiveness of a $2.0
million note receivable.
Sale of Markets. In May 1995, the Company sold certain wireless cable
channel rights in five markets to an unaffiliated entity for $2.7 million in
cash. In July 1995, the Company sold certain wireless cable channel
rights in five markets in New Mexico to an unaffiliated entity for $637,500 in
cash and a $562,500 note receivable.
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Cross Country Acquisition. On July 18, 1995, the Company privately placed
1,029,707 shares of Common Stock to RuralVision Joint Venture in exchange for
$20 million in cash. Immediately subsequent to the issuance of the shares to
RuralVision Joint Venture, the Company acquired substantially all of the
remaining assets of RuralVision Joint Venture, consisting primarily of wireless
cable systems located in Lykens, Ohio; Paragould, Arkansas; Sikeston, Missouri
and channel rights in additional markets located in five states for $20 million
in cash (the "Cross Country Acquisition").
Consent Solicitation. Between September 12, 1995 and September 29, 1995,
the Company engaged in the solicitation of consents (the "Consent
Solicitation") of the holders of its 13% Senior Notes due 2003 (the "Senior
Notes") to (i) amend certain provisions of the indenture then in effect
governing the Senior Notes (the "Original Indenture") to permit the Company to
consummate the Wireless One Transaction (as hereinafter defined), the
CableMaxx, AWS and Technivision Acquisitions (as hereinafter defined) and the
CS Wireless Transaction (as hereinafter defined) and (ii) additionally amend
certain definitions and covenants in the Original Indenture, which imposed
restrictions on the Company's ability to pursue certain additional acquisition,
divestiture, financing and other opportunities that the Company believed were
necessary to enhance the value of the Company. The amendments referred to in
(i) and (ii) above and sought by the Company in the Consent Solicitation are
referred to herein as the "Amendments."
In the Original Indenture, the Company agreed, among other things, to
certain restrictions on its and its subsidiaries' ability to make certain
investments, to incur certain indebtedness and to consummate certain asset
sales. Accordingly, in order to enable the Company to consummate the CableMaxx,
AWS and Technivision Acquisitions and to facilitate the Company's ability to
pursue such additional opportunities, if and when they arise, the Company
engaged in the Consent Solicitation.
The Amendments required the approval of at least a majority in aggregate
principal amount of the Senior Notes that were outstanding on or prior to
September 29, 1995, the expiration date of the Consent Solicitation. The
Amendments received approval of approximately 95.5% in aggregate principal
amount of the Senior Notes and, accordingly, became effective as of October 2,
1995 upon the execution of a supplemental indenture embodying such Amendments.
Promptly after the effectiveness of the supplemental indenture including the
Amendments, the Company paid to each holder of the Senior Notes who delivered a
properly completed and executed consent form $10 in cash for each $1,000
principal amount of Senior Notes for which such consent form was delivered by
such holder. The Company paid an aggregate of $955,000 to the holders of the
Senior Notes in this regard.
The Wireless One Transaction. Effective October 24, 1995, the Company and
certain affiliates of Wireless One, Inc., a newly formed Delaware corporation
("Wireless One"), consummated a transaction (the "Wireless One Transaction")
pursuant to which the Company and such affiliates contributed all of their
respective wireless cable assets in various markets in Alabama, Florida,
Georgia, Louisiana and Texas in exchange for $10 million and common stock of
Wireless One. The Company contributed assets relating to 28 markets, including
16 of which were either previously held for sale or were markets in which the
Company had not yet aggregated sufficient wireless cable channel rights to
launch a commercially viable wireless cable system. As a result of the Wireless
One Transaction, and after giving effect to the initial public offering of its
common stock contemporaneously therewith, the Company became the beneficial
owner of approximately 26% (after exercise of the over-allotment option granted
to the underwriter of such initial public offering) of the outstanding common
stock of Wireless One (the "Wireless One Common Stock").
In connection with the Wireless One Transaction, the Company granted
Wireless One the option to purchase the wireless cable channel rights of the
Company and its subsidiaries in certain additional markets located in Florida,
for either Wireless One Common Stock or cash, at Wireless One's option.
The Company and certain of the other Wireless One stockholders, who
beneficially own in the aggregate 57.3% of the outstanding Wireless One Common
Stock, are parties to a stockholders agreement (the "Wireless One Stockholders
Agreement") whereby, among other things, they agreed to vote their shares of
Wireless One Common Stock so that the Board of Directors of Wireless One will
have up to seven members, up to three of whom will be designated by the Company
(at least one of whom cannot be an affiliate of Wireless One or the Company),
up to three of whom will be designated by the other Wireless One stockholders
who are parties to the Wireless One Stockholders
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Agreement, including Chase Manhattan Capital Company ("CMCC") (at least one of
whom must be independent of Wireless One and such stockholders), and one of
whom will be designated by CMCC.
In addition, the Company has agreed that with certain exceptions, from and
after the closing until the earlier to occur of the (i) third anniversary of
the closing and (ii) time when the Company and its affiliates cease to own at
least 5% of the outstanding Wireless One Common Stock, the Company will not,
and will cause each of its subsidiaries to not, engage in the wireless cable
television business or acquire wireless cable television assets or related
rights in any market in any of the states of Alabama, Georgia, Florida,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina or Tennessee,
except for the Memphis, Tennessee market and certain existing markets owned by
the Company in these states as of the date of consummation of the Wireless One
Transaction. Wireless One has agreed that, also subject to certain exceptions,
from and after the closing until the earlier to occur of the (i) third
anniversary of the closing and (ii) time when the Company and its affiliates
cease to own at least 5% of the outstanding Wireless One Common Stock, Wireless
One will not, and will cause each of its subsidiaries to not, engage in the
wireless cable television business or acquire wireless cable television assets
or related rights in any market in any of the states of Arizona, Arkansas,
Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Missouri, New Hampshire,
Oklahoma, Ohio, Texas and Wyoming, except for certain existing wireless cable
markets owned by Wireless One in these states as of the closing of the Wireless
One Transaction.
Amendment to Note Purchase Agreement. On October 3, 1995, the Company and
Jupiter entered into that certain Second Amendment to Note Purchase Agreement
(the "Second Amendment") to the Note Purchase Agreement for the Convertible
Notes (the "Note Purchase Agreement"). The Company agreed to such amendments in
connection with Jupiter's agreement to consent, pursuant to the terms of the
Note Purchase Agreement, to the merger with CableMaxx, Inc. Such amendments
included the following:
(a) The Company's agreement that Jupiter's consent would be required
for all acquisitions prior to December 31, 1997, except the acquisition of
channel rights in any wireless cable market where the Company previously
owned or leased 16 or more channels or a lease of channel rights in any
wireless cable market where the Company previously owned or leased 12 or
more channels, in each case subject to maximum aggregate consideration of
$900,000 in cash and 100,000 shares of restricted Common Stock, without
registration rights;
(b) The parties clarification that an acquisition of channel rights
for purposes of the foregoing restriction would include any loan made in
connection with an agreement to enter into a purchase transaction,
including any option agreement;
(c) The Company's agreement that Permitted Dispositions (as defined
in the Note Purchase Agreement) would be limited to dispositions for cash,
with Jupiter approval required for any non-cash dispositions and the
contribution of assets to any non-wholly owned entity.
(d) The definition of a Change of Control (as defined in the Note
Purchase Agreement) being amended to include a series of transactions
consummated prior to December 31, 1997, culminating in a Change of
Control;
(e) The period for which a Change of Control triggers a Material
Default (as defined in the Note Purchase Agreement) being extended until
December 31, 1997;
(f) The definition of a Material Default being clarified to confirm
that a Change of Control is a Material Default, whether or not the
transaction resulting in a Change of Control is approved by Jupiter; and
(g) The Jupiter nominee which is elected to the Board of Directors of
the Company serving as a member of the Compensation Committee of the
Company.
Exchange Offer of Senior Notes. Pursuant to a prospectus dated February
12, 1996, forming part of a Registration Statement on Form S-4 declared
effective by the Commission on February 12, 1996, the Company offered to
exchange $1,000 principal amount of exchange notes which have terms identical
in all material respects to the Senior Notes, except that the exchange notes do
not contain terms with respect to transfer restrictions, for each $1,000
principal amount of Senior Notes outstanding. Since the Company did not comply
with its registration
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obligations with respect to the Senior Notes in a timely manner, it was
required to pay additional interest (in addition to the scheduled payment of
interest) during the first 90 day period of such default in an amount equal to
0.50% per annum at the end of such 90-day period and additional interest of 1%
per annum during the subsequent period ending February 12, 1996.
CableMaxx, AWS and Technivision Acquisitions. Effective February 23,
1996, the Company, directly or through one or more subsidiaries, acquired all
the assets and liabilities and succeeded to the businesses of American Wireless
Systems, Inc. ("AWS") and CableMaxx, Inc. ("CableMaxx") and acquired
substantially all of the assets and certain of the liabilities and succeeded to
all of the businesses of Fort Worth Wireless Cable T.V. Associates (the "FTW
Partnership"), Wireless Cable TV Associates #38 (the "Minneapolis Partnership")
and Three Sixty Corp. ("TSC"), the successor to Technivision, Inc.
("Technivision"), (the aforementioned five transactions collectively referred
to herein as the "CableMaxx, AWS and Technivision Acquisitions"). The
CableMaxx, AWS and Technivision Acquisitions are discussed below:
The AWS Merger. On February 23, 1996, the Company consummated the merger
of Heartland Merger Sub., Inc., a wholly owned subsidiary of the Company
("Merger Sub"), with and into AWS pursuant to the Amended and Restated
Agreement and Plan of Merger dated as of September 11, 1995 ("AWS Merger
Agreement") by and among the Company, Merger Sub and AWS. Pursuant to the
terms of the AWS Merger Agreement, Merger Sub was merged with and into AWS
whereupon AWS became a wholly owned subsidiary of the Company. Under the terms
of the AWS Merger Agreement, stockholders of AWS are entitled to receive, in
the aggregate, approximately 1,310,000 shares of the Company's Common Stock
having an aggregate value as of February 23, 1996 of approximately $35.0
million, of which approximately 125,000 shares having an aggregate value of
approximately $3.3 million are being held in an escrow established pursuant to
the AWS Merger Agreement to satisfy certain indemnification obligations of AWS
to the Company. As of March 1, 1996 options and warrants to purchase
approximately 574,566 shares of AWS Common Stock were outstanding that convert
by their terms into the right to purchase shares of the Company's Common Stock,
subject to certain adjustments. Pursuant to the AWS Merger Agreement, AWS has
agreed to use reasonable efforts to cause the holders of such options and
warrants to exercise, terminate or cancel such options or warrants. The assets
previously held by AWS included minority interests in the wireless cable
television systems of Minneapolis, Minnesota and Fort Worth, Texas (the
remaining interests being held by the FTW Partnership and Minneapolis
Partnership, respectively) and certain additional rights and properties held in
connection with wireless cable television markets located in Dallas, Texas, Los
Angeles, California and Memphis, Tennessee (collectively, the "AWS Assets").
The Company will seek to sell directly to a third party the Los Angeles,
California market. The Memphis, Tennessee market is subject to a pending
contract of sale to TruVision Cable, Inc. ("TruVision"). The Dallas, Texas
market, and AWS' interest in the Fort Worth, Texas and Minneapolis, Minnesota
markets were contributed by the Company to CS Wireless Systems, Inc. ("CS
Wireless") pursuant to the terms of a Participation Agreement dated December
12, 1995, as amended by Amendment No. 1 to Participation Agreement dated
February 22, 1996, by and among the Company, CAI Wireless Systems, Inc. ("CAI")
and CS Wireless (the "CS Wireless Participation Agreement"). See "Business --
Acquisitions, Divestitures and Recent Transactions -- CS Wireless Transaction."
The FTW Transaction. On February 23, 1996, the Company consummated the
acquisition of substantially all of the assets of the FTW Partnership pursuant
to the Amended and Restated Asset Purchase Agreement dated as of October 4,
1995 ("FTW Agreement") by and between the Company and FTW Partnership.
Pursuant to the terms of the FTW Agreement, the Company acquired from the FTW
Partnership substantially all of the assets of the FTW Partnership, consisting
of an approximate 80.0% interest in a joint venture that owned and operating
the wireless cable television system in Fort Worth, Texas (the "FTW Venture
Interest"). Under the terms of the FTW Agreement, the Company issued
approximately 580,000 shares of the Company's Common Stock having an aggregate
value as of February 23, 1996 of approximately $15.5 million to the FTW
Partnership. As the owner of the FTW Venture Interest, the Company caused the
contribution, together with AWS, of the Fort Worth, Texas market to CS Wireless
pursuant to the terms of the CS Wireless Participation Agreement. See
"Business -- Acquisitions, Divestitures and Recent Transactions -- CS Wireless
Transaction."
The Minneapolis Transaction. On February 23, 1996, the Company
consummated the acquisition of substantially all of the assets of the
Minneapolis Partnership pursuant to the Amended and Restated Asset Purchase
Agreement dated as of October 4, 1995 ("Minneapolis Agreement") by and between
the Company and Minneapolis Partnership. Pursuant to the terms of the
Minneapolis Agreement, the Company acquired from the
Minneapolis Partnership substantially all of the assets of the Minneapolis
Partnership, consisting of a 75.0% membership interest
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in and to American Wireless Systems of Minneapolis, L.L.C., a limited liability
company that owned and operated the wireless cable television system in
Minneapolis, Minnesota (the "LLC Interest"). Under the terms of the
Minneapolis Agreement, the Company issued approximately 810,000 shares of the
Company's Common Stock having an aggregate value as of February 23, 1996 of
approximately $21.7 million to the Minneapolis Partnership. As the owner of
the LLC Interest, the Company caused the contribution, together with AWS, of
the Minneapolis, Minnesota market to CS Wireless pursuant to the terms of the
CS Wireless Participation Agreement. See "Business -- Acquisitions,
Divestitures and Recent Transactions -- CS Wireless Transaction." 7,496 shares
of the Company's Common Stock issued to the FTW Partnership and 2,756 shares of
the Company's Common Stock issued to the Minneapolis Partnership are expected
to be distributed to AWS in its capacity as a partner in each of the
aforementioned Partnerships. Accordingly, the Company has classified those
shares of the Company's Common Stock as treasury shares.
The CableMaxx Merger. On February 23, 1996, the Company consummated the
merger of Heartland Merger Sub 2, Inc., a wholly owned subsidiary of the
Company ("Merger Sub 2") with and into CableMaxx pursuant to the Amended and
Restated Agreement and Plan of Merger dated as of September 11, 1995
("CableMaxx Merger Agreement") by and among the Company, Merger Sub 2 and
CableMaxx. Pursuant to the terms of the CableMaxx Merger Agreement, Merger Sub
2 was merged with and into CableMaxx whereupon CableMaxx became a wholly owned
subsidiary of the Company. Under the terms of the CableMaxx Merger Agreement,
the stockholders of CableMaxx are entitled to receive, in the aggregate,
approximately 2,880,000 shares of the Company's Common Stock having an
aggregate value as of February 23, 1996 of approximately $77.0 million. The
assets previously held by CableMaxx included certain rights and properties held
in connection with certain wireless cable television markets throughout Texas
and in Salt Lake City, Utah (collectively, the "CableMaxx Assets"). With the
exception of the San Antonio, Texas and the Salt Lake City, Utah markets, which
the Company contributed to CS Wireless pursuant to the terms of the CS Wireless
Participation Agreement (see "Business -- Acquisitions, Divestitures and
Recent Transactions -- CS Wireless Transaction"), the CableMaxx Assets will
continue to be used and operated by the Company in connection with its wireless
cable television business.
The TSC Transaction. On February 23, 1996, the Company consummated the
acquisition of certain assets of TSC pursuant to the Amended and Restated Asset
Purchase Agreement dated as of October 19, 1995 ("TSC Agreement") by and among
the Company, TSC and Technivision, Inc., formerly a subsidiary of TSC that has
been merged with and into TSC ("Technivision"). Pursuant to the terms of the
TSC Agreement, the Company acquired certain assets from TSC representing
substantially all of the assets formerly held by Technivision. Under the terms
of the TSC Agreement, the Company issued to TSC approximately 1,180,000 shares
of the Company's Common Stock having an aggregate value as of February 23, 1996
of approximately $31.5 million, of which approximately 189,000 shares having an
aggregate value as of February 23, 1996 of $5.1 million are being held in
escrow established pursuant to the terms of the TSC Agreement to satisfy
certain indemnification obligations and secure certain post-closing covenants
of TSC to the Company. The assets previously held by TSC included certain
rights and properties held in connection with wireless cable television markets
in El Paso, Texas, Corpus Christi, Texas and Dayton, Ohio (collectively, the
"TSC Assets"). With the exception of the Dayton, Ohio market, which the
Company contributed to CS Wireless pursuant to the terms of the CS Wireless
Participation Agreement (see "Business -- Acquisitions, Divestitures and
Recent Transactions -- CS Wireless Transaction"), the TSC Assets will continue
to be used and operated by the Company in connection with its wireless cable
television business.
The net result of the CableMaxx, AWS and Technivision Acquisitions, the CS
Wireless Transaction (as hereinafter defined) and the planned disposition of
the Los Angeles, California and Memphis, Tennessee markets, is that the Company
acquired (i) operating wireless cable television systems in Austin, Corpus
Christi, Temple/Killeen and Waco, Texas, (ii) the wireless cable television
markets of El Paso and Sherman/Denison, Texas and (iii) wireless cable channel
rights in Amarillo, Corsicana/Athens and Lubbock, Texas for total net
consideration of approximately $58 million. The aforementioned markets
acquired by the Company represent approximately 1,000,000 LOS households and
38,900 subscribers.
CS Wireless Transaction. Effective February 23, 1996, immediately
following the closing of the CableMaxx, AWS and Technivision Acquisitions, the
Company, CAI and CS Wireless consummated the CS Wireless Participation
Agreement pursuant to which the Company (or certain of its subsidiaries)
contributed or sold to CS Wireless the wireless cable assets and all related
liabilities of the following wireless cable television markets (the "Heartland
Contributed Assets"):
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(1) Maysville, Missouri
(2) Sweet Springs, Missouri
(3) Grand Rapids/Moline, Michigan
(4) Bloom Center/Napoleon, Indiana
(5) Dallas, Texas
(6) Fort Worth, Texas
(7) San Antonio, Texas
(8) Dayton, Ohio
(9) Salt Lake City, Utah
(10) Minneapolis, Minnesota
Simultaneously with the contribution and sale of the Heartland Contributed
Assets to CS Wireless, CAI (or certain of its subsidiaries) contributed to CS
Wireless (directly or by contribution of stock of subsidiaries) the wireless
cable television assets associated with the following markets (the "CAI
Contributed Assets"):
(1) Stockton/Modesto, California
(2) Bakersfield, California
(3) Cleveland, Ohio
(4) Charlotte, North Carolina
The combination of the Heartland Contributed Assets and the CAI
Contributed Assets in CS Wireless (the "CS Wireless Transaction"), as of
February 29, 1996, created a company with approximately 5.7 million
line-of-sight households and approximately 58,500 subscribers.
In connection with the CS Wireless Transaction, the Company (or its
contributing subsidiaries) received (i) shares of CS Wireless common stock (the
"CS Wireless Common Stock") constituting approximately 40.0% of the outstanding
shares of CS Wireless Common Stock (35.4% following dilution for certain
additional stock issuances), (ii) approximately $28.3 million in cash paid at
the closing, (iii) a promissory note in the principal sum of $25 million
payable on or before nine months from the closing and secured by proceeds of a
contemplated issuance by CS Wireless of senior discount notes (which note has
been prepaid) and (iv) a promissory note in the sum of $15 million payable 10
years from closing and prepayable from asset sales and certain other events.
CAI and the Company are in the process of completing certain post-closing net
working capital calculations. Components of such calculations include the
relative accounts payable, accounts receivable and related working capital
assets of the contributed systems, the number of granted channels represented
and actually contributed to CS Wireless for each market, increase or decrease
in the number of subscribers in each contributed system from the number of
subscribers stated in the CS Wireless Participation Agreement and related
factors. Following the completion of these calculations, payments will be made
to or by the parties, depending upon such calculations.
In connection with the closing of the CS Wireless Transaction, CAI, the
Company and CS Wireless have entered into a stockholders' agreement (the "CS
Wireless Stockholders Agreement"). The CS Wireless Stockholders Agreement
provides, among other things, that the Company and CAI will agree to vote their
shares of CS Wireless Common Stock in favor of a Board of Directors of CS
Wireless having nine members consisting of (i) up to four members designated by
CAI (provided that at least one of whom may not be an affiliate of either CAI
or the Company); (ii) up to three members designated by the Company (provided
that at least one of whom may not be an affiliate of either CAI or the
Company); (iii) the Chief Executive Officer of CS Wireless; and (iv) the Chief
Operating Officer of CS Wireless. The Stockholders' Agreement and CS Wireless'
bylaws further provide that certain major transactions will require the
affirmative approval of at least 70% (seven of nine) of the Directors of CS
Wireless.
Series C Senior Note Offering. On March 28, 1996, the Company consummated
a private placement of $15 million aggregate principal amount of 13% Series C
Senior Notes due 2003 (the "Series C Senior Notes"). The Company placed
approximately $1.9 million of the $15.9 million net proceeds from the sale of
the Series C Senior Notes into an escrow account, representing funds sufficient
to pay interest on the Series C Senior Notes from April 15, 1996 through April
14, 1997. In connection with the issuance of the Series C Senior Notes, the
Company agreed, among other things, to file within 180 days of the issue date a
registration statement with the Commission with respect to an offer to exchange
new notes registered under the Securities Act of 1933 for the Series C Senior
Notes, which new notes will be identical in all respects to the Series C Senior
Notes, except that the new notes will not contain terms with respect to
transfer restrictions and to cause such registration statement to become
effective within 270 days of the issue date.
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ITEM 2. PROPERTIES
The Company leases approximately 5,500 square feet of office space for its
executive offices in Richardson, Texas under a lease that expires September 30,
1998. The Company pays approximately $35,000 per annum rent for such space. The
Company leases from an affiliate of Messrs. Webb and Wheeler approximately
2,400 square feet for its operating offices in Durant, Oklahoma under a lease
that expires May 31, 2000. The Company pays $18,000 per annum rent for such
space and the utilities are provided by the owner of the building. The Company
leases approximately an additional 5,000 square feet for its marketing offices
in Durant, Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease
that expires March 1, 2000 subject to a five-year renewal option. The Company
pays $29,004 per annum rent for such space. The Company leases approximately an
additional 1,126 square feet for its operating offices in Durant, Oklahoma from
an affiliate of Messrs. Webb and Wheeler under a lease that expires on May 31,
2000. The Company pays $8,448 per annum rent for such space and the utilities
are provided by the owner of the building. The Company leases approximately an
additional 1,987 square feet for its telemarketing offices in Durant, Oklahoma
from an affiliate of Messrs. Webb and Wheeler under a lease that expires May
31, 2000. The Company pays $23,844 per annum rent for such space and the
utilities are provided by the owner of the building. The Company leases
approximately an additional 10,000 square feet of warehouse space in Durant,
Oklahoma from an affiliate of Messrs. Webb and Wheeler under a lease that
expires on August 1, 2000. The Company pays $16,000 per annum rent for such
space. See "Certain Relationships and Related Transactions" The Company
believes that these facilities are adequate for the foreseeable future.
The principal physical assets of a wireless cable system consist of
satellite signal reception equipment, radio transmitters and transmission
antennae, as well as office space and transmission tower space. The Company
leases office space for the Existing Systems and will, in the future, purchase
or lease additional office space in other locations where it launches other
wireless cable systems. The Company also owns transmission towers or leases
space on transmission towers located in its markets. The current capacity range
of the Company's transmission facilities is from 10 to 50 watts, capable of
generating a signal over a 35 to 50 mile range. The Company believes that
office space and space on transmission towers currently is readily available on
acceptable terms in the markets where the Company intends to operate wireless
cable systems.
ITEM 3. LEGAL PROCEEDINGS
On June 21, 1995, TruVision filed a lawsuit in the Circuit Court of Rankin
County, Mississippi naming the Company and AWS as defendants. TruVision
asserted in its original pleadings that it had an agreement to purchase from
AWS certain wireless cable assets in Memphis, Tennessee ("Memphis Market") for
approximately $2,200,000 which agreement the Company interfered with by
entering into negotiations and an alleged agreement with AWS. In its original
pleadings, TruVision alleged that the Company entered into an agreement to
acquire AWS, which agreement is alleged to have valued AWS's assets relating to
the Memphis Market at $7,000,000. As a result, TruVision sought actual damages
of $4,800,000. Subsequently, on June 29, 1995, TruVision filed its First
Amended Complaint asserting that in addition to damages sought in its original
pleadings, TruVision was entitled to additional damages of an amount as yet
undetermined by TruVision, but estimated by TruVision to be $28,196,642, in
respect of diminution in the value of TruVision's assets outside of the Memphis
Market caused by the alleged agreement between AWS and the Company and actions
related thereto. TruVision is also seeking $20,000,000 in punitive damages. On
July 26, 1995, the Company filed a Motion to Dismiss this litigation for lack
of personal jurisdiction. The Company intends to vigorously defend this
lawsuit. On November 7, 1995, the Company and TruVision entered into an Asset
Purchase Agreement providing for the sale by the Company to TruVision of the
Flippin, Tennessee wireless cable market for $1.5 million in cash. On November
7, 1995, TruVision and AWS entered into an Asset Purchase Agreement providing
for the sale by AWS to TruVision of the Memphis, Tennessee wireless cable
market for $3,900,000 in cash, subject to adjustment. Consummation of each such
agreement is contingent upon the consummation of the other agreement. Further,
each agreement provides that, prior to closing, each party agrees that this
lawsuit would be stayed. Assuming consummation of each transaction, TruVision
agreed to dismiss such lawsuit with prejudice within five days of the closing,
and each party agreed to enter into a Settlement Agreement and Release in form
satisfactory to the other parties. If such closings do not occur, TruVision
shall have the right to prosecute the lawsuit, and AWS and the Company shall
have the right to raise all defenses and counterclaims associated therewith.
Prior to February 23, 1996, a predecessor of AWS, through an affiliate,
participated in the offer and sale of approximately $29 million of general
partnership interest in three general partnerships, including the FTW
Partnership and the Minneapolis Partnership, without registration under any
federal or state securities laws. Following an
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investigation by the Commission, AWS, Steven G. Johnson, a director and officer
of AWS, Jeffrey D. Howes, formerly a director and officer of AWS, and Dexter S.
Cohen and Kevin C. King, each of whom own greater than 5% of AWS common stock,
without admitting or denying any wrongdoing, consented to a Commission order to
cease and desist from committing or causing any violation and any future
violations of the securities registration provisions of the Securities Act of
1933, as amended, and the broker-dealer registration provisions of the
Securities Exchange Act of 1934, as amended. In addition, securities
administrators in 22 states have also investigated or are presently
investigating the activities related to the unregistered sale of the general
partnership interests described above. The actions taken by the various state
securities administrators range from no action taken to the issuance of 15
cease and desist orders and consent orders pursuant to which AWS, the issuing
general partnerships and Messrs. Johnson and Howes, as officers of AWS, were
required to cease selling general partnership interests without registration,
to offer recision to individuals who purchased general partnership interests
and, in certain cases, to pay administrative penalties. In certain cases, such
parties have entered into consent decrees with state regulatory authorities,
including an order in Arizona requiring AWS to offer to purchase such general
partnership interest sold to residents of Arizona or to pay the Arizona
Corporation Commission an amount equal to the amount of the investment made by
all general partners who are Arizona residents, or approximately $566,000, plus
interest from the time of the investment. AWS has advised the Arizona
Corporation Commission that it does not intent to make such offer to purchase.
On September 29, 1995, AWS and the Pittsburgh Partnership jointly sold
their respective interest in the joint venture operating the wireless cable
television system in Pittsburgh, Pennsylvania to CAI. The Pittsburgh Partners
executed and delivered written consents to such sale, each of which included a
release of AWS and certain related parties from certain contingent claims
including claims arising from the offer and sale of the general partnership
interests to the Pittsburgh Partners. General partners holding in excess of 88%
and 78%, respectively, of the partnership interests in the Minneapolis
Partnership and the FTW Partnership executed and delivered written consents to
the Minneapolis Transaction and the FTW Transaction, respectively, each of which
included a release of AWS and certain related parties from certain contingent
claims including claims arising from the offer and sale of the general
partnership interests to such partners. There can be no assurance that the
Minneapolis Partners and the FTW Partners who did not vote in favor of the
Minneapolis Transaction or the FTW Transaction, respectively, or the Pittsburgh
Partners who did not vote in favor of the Pittsburgh Sale, or any governmental
agency will not institute proceedings against AWS or the Company, as the
successor to AWS, based on a failure to register the general partnership
interests in connection with a public offering or for damages based on alleged
omissions or misrepresentations of material information in connection with the
sale of such interests. No assurance can be given that a successful claim
against the predecessors of AWS could not be asserted against the Company based
on a number of theories involving successor liability. The institution of legal
action against the Company arising out of the offer and sale of general
partnership interests by AWS's predecessors could result in substantial defense
costs to the Company and the diversion of efforts by the Company's management,
and the imposition of liabilities against the Company could have an adverse
effect on the Company.
AWS is also the subject of two threatened lawsuits. American Telecasting,
Inc. ("ATI") has sent letters to AWS claiming AWS breached a term sheet and
requesting payment of $1,800,000 as the alleged termination fee owed to ATI
under the term sheet, plus expenses. AWS has responded to ATI and disputes all
of ATI's claims.
By letter dated January 31, 1995, Laidlaw Holdings, Inc. ("Laidlaw"), the
underwriter of AWS' proposed public offering, claimed that AWS owes Laidlaw
$182,166 as accountable expenses under a Letter Agreement between the parties
dated November 20, 1994. A follow-up letter was sent to AWS on July 13, 1995.
By letter dated February 3, 1995 from AWS to Laidlaw, AWS asserted that Laidlaw
terminated the Letter Agreement. AWS believes that if a claim is filed by
Laidlaw, AWS has adequate grounds to successfully defend the claim.
The Company is a party, from time to time, to routine litigation or
employment litigation incidental to its business. No provision has been
reflected in the Company's financial statements for any litigation. It is the
opinion of management that no pending litigation matter will have a material
adverse effect on the Company's financial condition, results of operations or
properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
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PART II
The Company's Annual Report to Shareholders for the year ended December
31, 1995 (the "1995 Annual Report"), is filed as Exhibit 13 with the Form 10-K.
Information items 5,7 and 8, which are contained in the 1995 Annual Report,
are specifically incorporated by reference into this Form 10-K. With the
exception of such information items, the 1995 Annual Report is not deemed filed
as a part of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information called for by this item is incorporated herein by
reference to the section of the 1995 Annual Report captioned "Market Price of
Common Stock" on the back inside cover of the 1995 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data presented below as of December 31,
1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993 were
derived from the consolidated financial statements of the Company, which were
audited by KPMG Peat Marwick LLP, independent certified public accountants,
which appear in the 1995 Annual Report and are incorporated by reference into
this Form 10-K. The selected historical financial data presented below as of
December 31, 1993, 1992 and 1991 and for the years ended December 31, 1992 and
1991 were derived from consolidated financial statements of the Company, which
were audited by KPMG Peat Marwick LLP, but are not included the 1995 Annual
Report or in this Form 10-K. This selected consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements (including the notes thereto) included in the 1995 Annual Report and
incorporated by reference into this Form 10-K.
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------ ------ ------ ------
STATEMENT OF OPERATIONS DATA:
Revenues $15,300 $2,229 $869 $205 $--
Operating expenses:
Systems operations 4,893 762 321 36 --
Selling, general and administrative 11,887 4,183 647 148 64
Depreciation and amortization 6,234 1,098 138 35 2
------- ------ ------ ------ ------
Total operating expenses 23,014 6,043 1,106 219 66
------- ------ ------ ------ ------
Operating loss (7,714) (3,814) (237) (14) (66)
Interest expense, net (10,857) (210) (73) -- --
Equity in losses of affiliates (1,369) (387) -- -- --
Other expense (247) (227) (96) (37) --
Income tax benefit 4,285 1,595 -- -- --
Net loss (15,902) (3,043) (406) (51) (66)
======= ====== ====== ====== ======
Net loss per common share $(1.34) $(0.30) $(0.05) $(0.01) $(0.01)
======= ====== ====== ====== ======
Weighted average number of common
shares outstanding 11,866 10,041 8,000 8,000 8,000
(IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------ ------ ------ -----
BALANCE SHEET DATA:
Cash and cash equivalents $23,143 $11,986 $815 $165 $53
Total assets 205,405 77,921 8,665 2,268 427
Long-term debt, including current
portion 141,652 40,506 1,593 -- --
Total stockholders' equity 51,688 30,081 4,493 1,004 173
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is incorporated herein by reference
to the section of the 1995 Annual Report Captioned "Management's Discussion and
Analysis" on page 12.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS WHICH APPEAR IN THE 1995
ANNUAL REPORT ARE INCORPORATED BY REFERENCE:
Independent Auditors' Report -- Page 18
Consolidated Balance Sheets as of December 31, 1995 and 1994 -- Page 19
Consolidated Statements of Operations for the three years ended
December 31, 1995 -- Page 20
Consolidated Statements of Stockholders' EQuity for the three years ended
December 31, 1995 -- Page 21
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 -- Page 22
Notes to Consolidated Financial Statements -- Page 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with
the Commission not later than 120 days after the fiscal year end of December
31, 1995, and delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held May 2, 1996, captioned "Election of Directors,"
"Executive Officers" and "Disclosure Pursuant to Section 16 of the Exchange
Act."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with
the Commission not later than 120 days after the fiscal year end of December
31, 1995, and delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held May 2, 1996, captioned "Meetings of the Board of
Directors and Committees of the Board of Directors; Compensation of Directors"
and "Executive Compensation and Related Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by
reference to the section of the definitive Proxy Statement to be filed with the
Commission not later than 120 days after the fiscal year end of December 31,
1995, and delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held May 2, 1996, captioned "Security Ownership of Certain
Beneficial Owners, Directors and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with
the Commission not later than 120 days after the fiscal year end of December
31, 1995, and delivered to stockholders in connection with the Annual Meeting
of Stockholders to be held May 2, 1996, captioned "Certain Transactions and
Relationships."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Financial Statements of the Registrant are incorporated
by reference herein under Item 8 of this report.
2. Financial Statement Schedule
The following financial statement schedule is filed as part
of this Form 10-K:
Page
----
Independent Auditors' Report on Financial
Statement Schedule S-1
Schedule II -- Valuation and Qualifying
Accounts -- Three years ended December 31, 1995 S-2
Schedules other than the above have been omitted because
they are either not applicable or the required information
has been disclosed in the financial statements or notes
thereto.
3. Exhibits
2.1 Letter Agreement regarding formation of the Registrant (filed as Exhibit
2.1 to the Registrant's Registration Statement on Form S-1, File No.
33-74244 (the "Form S-1"), and incorporated herein by reference)
2.2 Supplement to Letter Agreement regarding formation of the Registrant
(filed as Exhibit 2.2 to the Form S-1 and incorporated herein by reference)
2.3 Asset Purchase Agreement among RuralVision Joint Venture, RuralVision
Central, Inc. and RuralVision South, Inc. (filed as Exhibit 2.3 to the
Registrant's Registration Statement on Form S-1, File No. 33-84408 (the
"November Form S-1") and incorporated herein by reference)
2.4 Supplemental Agreement to the Asset Purchase Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.4 to the November Form S-1 and incorporated herein by
reference)
2.5 Closing Agreement amending the Supplemental Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.5 to the November Form S-1 and incorporated herein by
reference)
2.6 Asset Purchase Agreement between RuralVision Joint Venture and Cable Equity
Partners, Inc. (filed as Exhibit 2.6 to the November Form S-1 and
incorporated herein by reference)
2.7 Letter Agreement amending Asset Purchase Agreement between RuralVision
Joint Venture and Cable Equity Partners, Inc. (filed as Exhibit 2.7 to the
November Form S-1 and incorporated herein by reference)
2.8 Letter Agreement between the Registrant and Cross Country Wireless, Inc.
(filed as Exhibit 2.8 to the November Form S-1 and incorporated herein by
reference)
2.9 Letter Agreement between the Registrant and Cable Equity Partners, Inc.
(filed as Exhibit 2.9 to the Registrant's Registration Statement on Form
S-4, File No. 33-87076 (the "Form S-4"), and incorporated herein by
reference)
2.10 Lease Purchase Agreement between Registrant and Choice Television of Iowa,
L.C. (filed as Exhibit 2.10 to the Form S-4 and incorporated herein by
reference)
2.11 Asset Purchase Agreement between Registrant and RuralVision Joint Venture
(filed as Exhibit 2.11 to the Form 8-K Current Report dated as of December
1, 1994 and filed with the Commission on December 14, 1994 (the "December
1994 Form 8-K"), and incorporated herein by reference)
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2.12 Agreement for Purchase and Sales of Assets between
Registrant and REC Services, Inc. (filed as Exhibit 2.12 to
the Form S-4 and incorporated herein by reference)
2.13 Letter Agreement among Registrant, United States Wireless
Cable, Inc. and United States Wireless Cable Systems, Inc.
(filed as Exhibit 2.13 to the Form S-4 and incorporated
herein by reference)
2.14 Letter Agreement among Registrant, Cross Country Wireless,
Inc. and RuralVision Joint Venture (filed as Exhibit 2.14 to
the Form S-4 and incorporated herein by reference)
2.15 Extension Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc. and Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.15 to the Form S-4 and incorporated herein by
reference)
2.16 Note Modification Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc., the Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc., the
Larry D. Hudson Trust and Jerri Hudson Bell (filed as
Exhibit 2.16 to the Form S-4 and incorporated herein by
reference)
2.17 Asset Purchase Agreement between Heartland Wireless Paducah,
Inc. and Cross Country Wireless, Inc. (filed as Exhibit 2.17
to the Form S-4 and incorporated herein by reference)
2.18 First Amendment to Joint Venture Agreement between the
Registrant and Cross Country Wireless, Inc. (filed as
Exhibit 2.18 to the Form S-4 and incorporated herein by
reference)
2.19 Venture Distribution Agreement between Registrant and
RuralVision Joint Venture (filed as Exhibit 2.19 to the Form
S-4 and incorporated herein by reference)
2.20 Stock Purchase Agreement between Wireless Communications,
Inc. and Robert R. Story (filed as Exhibit 2.20 to the
Registrant's Registration Statement on Form S-4, File No.
33-65357, (the "January Form S-4"), and incorporated herein
by reference)
2.21 Asset Purchase Agreement between United States Wireless
Systems, Inc. and Robert R. Story, Inc. (filed as Exhibit
2.21 to the January Form S-4 and incorporated herein by
reference)
2.22 Amended and restated Agreement and Plan of Merger dated as
of September 11, 1995, between American Wireless Systems,
Inc., Heartland Merger Sub, Inc. and the Registrant (filed
as Exhibit 2.22 to the January Form S-4 and incorporated
herein by reference)
2.23 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Fort Worth Wireless Cable T.V.
Associates and the Registrant (filed as Exhibit 2.23 to the
January Form S-4 and incorporated herein by reference)
2.24 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Wireless Cable TV Associates #38
and the Registrant (filed as Exhibit 2.24 to the January
Form S-4 and incorporated herein by reference)
2.25 Amended and Restated Agreement and Plan of Merger dated as
of September 11, 1995, between CableMaxx, Inc., Heartland
Merger Sub 2, Inc. and the Registrant (filed as Exhibit 2.25
to the January Form S-4 and incorporated herein by
reference)
2.26 Amended and Restated Assets Purchase Agreement dated as of
October 19, 1995, between Three Sixty Corp., Technivision,
Inc. and the Registrant (filed as Exhibit 2.26 to the
January Form S-4 and incorporated herein by reference)
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Form S-1 and incorporated
herein by reference)
3.2 Restated By-laws of the Registrant (filed as Exhibit 3.2 to
the Form S-1 and incorporated herein by reference)
*4.1 1994 Employee Stock Option Plan of the Registrant, as amended
4.2 Revised Form of Nontransferable Incentive Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.2 to the Registrant's
Registration Statement on Form S-4, File No. 33-91930 (the
"February Form S-4"), and incorporated herein by reference)
4.3 Revised Form of Nontransferable Non-Qualified Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.3 to the February Form S-4
and incorporated herein by reference)
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4.4 1994 Stock Option Plan for Non-Employee Directors of the
Registrant (filed as Exhibit 4.4 to the Form S-1 and incorporated
herein by reference)
4.5 Form of Stock Option Agreement under the 1994 Stock Option Plan
for Non-Employee Directors of the Registrant (filed as Exhibit 4.5
to the Form S-1 and incorporated herein by reference)
4.6 Warrant Agreement between the Registrant and Gerard Klauer Mattison & Co.,
Inc. (including form of warrant certificate) (filed as Exhibit 4.6 to the
Form S-1 and incorporated herein by reference)
4.7 Registration Rights Agreement among Registrant, Jupiter Partners L.P. and
Thomas R. Haack (filed as Exhibit 4.7 to the Form S-4 and incorporated
herein by reference)
4.8 Stockholders Agreement among Registrant, Hunt Capital Group,
L.L.C., David E. Webb, L. Allen Wheeler and Jupiter Partners L.P.
(filed as Exhibit 4.8 to the Form S-4 and incorporated herein by
reference)
4.9 Note Purchase Agreement among the Registrant and Jupiter Partners
L.P. and Thomas R. Haack (filed as Exhibit 4.9 to the Form S-4 and
incorporated by reference)
4.10 First Amendment to Note Purchase Agreement among the Registrant
and Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit
4.10 to the Form 10-K Annual Report filed with the Commission on
March 31, 1995 (the "1995 Form 10-K"), and incorporated herein by
reference)
4.11 Second Amendment to Note Purchase Agreement among the Registrant,
Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit 4.11
to the February Form S-4 and incorporated herein by reference)
4.12 Indenture between the Registrant and First Trust of New York,
National Association, as Trustee (the "Trustee") (filed as Exhibit
4.12 to the February Form S-4 and incorporated herein by
reference)
4.13 Supplemental Indenture dated October 2, 1995, between the
Registrant and the Trustee (filed as Exhibit 4.13 to the February
Form S-4 and incorporated herein by reference)
4.14 Registration Rights Agreement among the Registrant, BT Securities
Corporation ("BT Securities") and Lazard Freres & Co. ("Lazard") (filed as
Exhibit 4.14 to the February Form S-4 and incorporated herein by
reference)
4.15 Securityholders' and Registration Rights Agreement among the Registrant,
BT Securities and Lazard (filed as Exhibit 4.15 to the February Form S-4
and incorporated herein by reference)
4.16 Warrant Agreement between the Registrant and Bankers Trust Company, as
Warrant Agent (filed as Exhibit 4.16 to the February Form S-4 and
incorporated herein by reference)
4.17 Unit Agreement among the Registrant, Bankers Trust Company, as Unit Agent
and Warrant Agent, and the Trustee (filed as Exhibit 4.17 to the February
Form S-4 and incorporated herein by reference)
4.18 Escrow and Disbursement Agreement among the Registrant, Bankers Trust
Company, as Escrow Agent, and the Trustee (filed as Exhibit 4.18 to the
February Form S-4 and incorporated herein by reference)
10.1 Form of Indemnity Agreement between the Registrant and each of its
directors (filed as Exhibit 10.3 to the Form S-1 and incorporated herein
by reference)
10.2 Noncompetition Agreement between the Registrant and J. R. Holland, Jr.
(filed as Exhibit 10.4 to the Form S-1 and incorporated herein by
reference)
10.3 Noncompetition Agreement between the Registrant and David E. Webb (filed
as Exhibit 10.5 to the Form S-1 and incorporated herein by reference)
10.4 Noncompetition Agreement between the Registrant and John R. Bailey (filed
as Exhibit 10.6 to the Form S-1 and incorporated herein by reference)
10.5 Noncompetition Agreement between the Registrant and Randy R. Hendrix
(filed as Exhibit 10.7 to the Form S-1 and incorporated herein by
reference)
10.6 Noncompetition Agreement between the Registrant and L. Allen Wheeler
(filed as Exhibit 10.9 to the Form S-1 and incorporated herein by
reference)
10.7 Standard Commercial Lease between the Registrant and Tech Concepts Joint
Venture regarding the Registrant's Richardson, Texas office (filed as
Exhibit 10.12 to the November Form S-1 and incorporated herein by
reference)
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10.8 Building Lease Agreement dated June 1, 1990, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.13 to the 1995 Form 10-K and incorporated herein by reference)
10.9 Building Lease Agreement dated January 2, 1995, between the Registrant
and W&W Commercial Group, L.L.C. (filed as Exhibit 10.14 to the 1995 Form
10-K and incorporated herein by reference)
10.10 Building Lease Agreement dated May 1, 1994, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.15 to the 1995 Form 10-K and incorporated herein by reference)
10.11 Purchase Agreement among the Registrant, BT Securities and Lazard (filed
as Exhibit 10.17 to the Form S-4 and incorporated herein by reference)
10.12 Building Lease Agreement dated November 20, 1995, between the Registrant
and the Federal Building, Inc. (filed as Exhibit 10.18 to the February
Form S-4 and incorporated herein by reference)
10.13 Participation Agreement dated as of December 12, 1995, by and among the
Registrant, CAI Wireless Systems, Inc. and CS Wireless Systems, Inc. (the
"Participation Agreement") (without exhibits except Stockholders'
Agreement) (filed as Exhibit 2.6 to the Form 8-K Current Report dated as
of December 12, 1995 (the "December 1995 Form 8-K"), and incorporated
herein by reference)
10.14 Amendment No. 1 to Participation Agreement (filed as Exhibit 2.7 to the
December 1995 Form 8-K and incorporated herein by reference)
*10.15 Contribution Agreement and Agreement and Plan of Merger dated as of
October 18, 1995 by and among the Registrant, Wireless One, Inc.,
Wireless One Operating Company, Wireless One Merger Company and others
*13 Annual Report to Shareholders for the year ended December 31, 1995
submitted herewith but not "filed", except for those portions expressly
incorporated by reference herein
*21 List of Subsidiaries
*23 Consent of KPMG Peat Marwick LLP\
*27 Financial Data Schedule
- ----------
* Filed herewith.
(b) Reports on Form 8-K
During the fourth quarter of the year ended December 31, 1995, the Company
filed the following reports on Form 8-K:
(1) a Current Report on Form 8-K dated October 2, 1995, with
respect to the execution of a Supplemental Indenture dated October 2,
1995 by the holders of the Company's 13% Senior Notes due 2003.
(2) a Current Report on Form 8-K dated December 12, 1995, with respect to
the Company entering into a Participation Agreement with CAI Wireless
Systems, Inc. and CS Wireless Systems, Inc. to contribute or sell to
CS Wireless Systems, Inc. certain wireless cable assets and all
related liabilities.
- 32 -
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 28th day of
March, 1996.
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By /s/ John R. Bailey
-------------------------------------
John R. Bailey
Senior Vice President -- Finance,
Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on the 28th day of March, 1996, by the following persons
in the capacities indicated:
SIGNATURE TITLE
--------- -----
/s/ J. R. Holland, Jr. Chairman of the Board and Director
- -----------------------------------------------------
J. R. Holland, Jr.
/s/ L. Allen Wheeler Vice Chairman of the Board and Director
- -----------------------------------------------------
L. Allen Wheeler
/s/ David E. Webb President, Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
David E. Webb
/s/ John R. Bailey Senior Vice President -- Finance, Chief Financial
- ----------------------------------------------------- Officer, Treasurer and Secretary
John R. Bailey (Principal Financial Officer)
/s/ David D. Hagey Vice President, Controller and Assistant Secretary
- ----------------------------------------------------- (Principal Accounting Officer)
David D. Hagey
/s/ Alvin H. Lane, Jr. Director
- -----------------------------------------------------
Alvin H. Lane, Jr.
/s/ Dennis M. O' Rourke Director
- -----------------------------------------------------
Dennis M. O'Rourke
34
/s/ John A. Sprague Director
- -----------------------------------------------------
John A. Sprague
/s/ Wes W. Watkins Director
- -----------------------------------------------------
Wes W. Watkins
35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Heartland Wireless Communications, Inc.:
Under date of March 8, 1996, we reported on the consolidated balances sheets of
Heartland Wireless Communications, Inc. and subsidiaries as of December 31,
1995 and 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995, which are included in the Company's Annual
Report to Shareholders for the year ended December 31, 1995 and incorporated by
reference into the Company's annual report on Form 10-K. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Dallas, Texas
March 8, 1996
S-1
36
Schedule II
HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
----------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER DEDUCTIONS PERIOD
- ----------------------------- --------- ---------- ---------- ---------- ----------
Year ended December 31, 1995:
Allowance for doubtful
accounts $123 $838 $-- $-- $961
==== ==== ========= ==== ======
Valuation allowance for
deferred tax assets $791 $-- $3,190(b) $-- $3,981
==== ==== ========= ==== ======
Year ended December 31, 1994:
Allowance for doubtful
accounts $25 $72 $26(a) $-- $123
==== ==== ========= ==== ======
Valuation allowance for
deferred tax assets $183 $-- $608(b) $-- $791
==== ==== ========= ==== ======
Year ended December 31, 1993:
Allowance for doubtful
accounts $-- $26 $-- $(1) $25
==== ==== ========= ==== ======
Valuation allowance for
deferred tax assets $47 $-- $136(b) $-- $183
==== ==== ========= ==== ======
(a) Allocation of assets from the purchase of Milano System.
(b) Recognized as a component of federal income tax benefit.
S-2
37
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 1994 Employee Stock Option Plan of the Registrant, as amended
10.15 Contribution Agreement and Agreement and Plan of Merger dated as
of October 18, 1995 by and among the Registrant, Wireless One,
Inc., Wireless One Operating Company, Wireless One Merger
Company and others
13 Annual Report to Shareholders for the year ended December 31,
1995 submitted herewith but not "filed", except for those
portions expressly incorporated by reference herein
21 List of Subsidiaries
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
38
INDEX TO EXHIBITS
Exhibit
No. Description
- ----- -----------
2.1 Letter Agreement regarding formation of the Registrant (filed as Exhibit
2.1 to the Registrant's Registration Statement on Form S-1, File No.
33-74244 (the "Form S-1"), and incorporated herein by reference)
2.2 Supplement to Letter Agreement regarding formation of the Registrant
(filed as Exhibit 2.2 to the Form S-1 and incorporated herein by reference)
2.3 Asset Purchase Agreement among RuralVision Joint Venture, RuralVision
Central, Inc. and RuralVision South, Inc. (filed as Exhibit 2.3 to the
Registrant's Registration Statement on Form S-1, File No. 33-84408 (the
"November Form S-1") and incorporated herein by reference)
2.4 Supplemental Agreement to the Asset Purchase Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.4 to the November Form S-1 and incorporated herein by
reference)
2.5 Closing Agreement amending the Supplemental Agreement among RuralVision
Joint Venture, RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.5 to the November Form S-1 and incorporated herein by
reference)
2.6 Asset Purchase Agreement between RuralVision Joint Venture and Cable Equity
Partners, Inc. (filed as Exhibit 2.6 to the November Form S-1 and
incorporated herein by reference)
2.7 Letter Agreement amending Asset Purchase Agreement between RuralVision
Joint Venture and Cable Equity Partners, Inc. (filed as Exhibit 2.7 to the
November Form S-1 and incorporated herein by reference)
2.8 Letter Agreement between the Registrant and Cross Country Wireless, Inc.
(filed as Exhibit 2.8 to the November Form S-1 and incorporated herein by
reference)
2.9 Letter Agreement between the Registrant and Cable Equity Partners, Inc.
(filed as Exhibit 2.9 to the Registrant's Registration Statement on Form
S-4, File No. 33-87076 (the "Form S-4"), and incorporated herein by
reference)
2.10 Lease Purchase Agreement between Registrant and Choice Television of Iowa,
L.C. (filed as Exhibit 2.10 to the Form S-4 and incorporated herein by
reference)
2.11 Asset Purchase Agreement between Registrant and RuralVision Joint Venture
(filed as Exhibit 2.11 to the Form 8-K Current Report dated as of December
1, 1994 and filed with the Commission on December 14, 1994 (the "December
1994 Form 8-K"), and incorporated herein by reference)
39
2.12 Agreement for Purchase and Sales of Assets between
Registrant and REC Services, Inc. (filed as Exhibit 2.12 to
the Form S-4 and incorporated herein by reference)
2.13 Letter Agreement among Registrant, United States Wireless
Cable, Inc. and United States Wireless Cable Systems, Inc.
(filed as Exhibit 2.13 to the Form S-4 and incorporated
herein by reference)
2.14 Letter Agreement among Registrant, Cross Country Wireless,
Inc. and RuralVision Joint Venture (filed as Exhibit 2.14 to
the Form S-4 and incorporated herein by reference)
2.15 Extension Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc. and Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc. (filed
as Exhibit 2.15 to the Form S-4 and incorporated herein by
reference)
2.16 Note Modification Agreement among Registrant, Cross Country
Wireless, Inc., Cross Country Wireless Cable West, L.P.,
RuralVision Joint Venture, RuralVision Central, Inc.,
RuralVision South, Inc., the Selling Shareholders of
RuralVision Central, Inc. and RuralVision South, Inc., the
Larry D. Hudson Trust and Jerri Hudson Bell (filed as
Exhibit 2.16 to the Form S-4 and incorporated herein by
reference)
2.17 Asset Purchase Agreement between Heartland Wireless Paducah,
Inc. and Cross Country Wireless, Inc. (filed as Exhibit 2.17
to the Form S-4 and incorporated herein by reference)
2.18 First Amendment to Joint Venture Agreement between the
Registrant and Cross Country Wireless, Inc. (filed as
Exhibit 2.18 to the Form S-4 and incorporated herein by
reference)
2.19 Venture Distribution Agreement between Registrant and
RuralVision Joint Venture (filed as Exhibit 2.19 to the Form
S-4 and incorporated herein by reference)
2.20 Stock Purchase Agreement between Wireless Communications,
Inc. and Robert R. Story (filed as Exhibit 2.20 to the
Registrant's Registration Statement on Form S-4, File No.
33-65357, (the "January Form S-4"), and incorporated herein
by reference)
2.21 Asset Purchase Agreement between United States Wireless
Systems, Inc. and Robert R. Story, Inc. (filed as Exhibit
2.21 to the January Form S-4 and incorporated herein by
reference)
2.22 Amended and restated Agreement and Plan of Merger dated as
of September 11, 1995, between American Wireless Systems,
Inc., Heartland Merger Sub, Inc. and the Registrant (filed
as Exhibit 2.22 to the January Form S-4 and incorporated
herein by reference)
2.23 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Fort Worth Wireless Cable T.V.
Associates and the Registrant (filed as Exhibit 2.23 to the
January Form S-4 and incorporated herein by reference)
2.24 Amended and Restated Asset Purchase Agreement dated as of
October 4, 1995, between Wireless Cable TV Associates #38
and the Registrant (filed as Exhibit 2.24 to the January
Form S-4 and incorporated herein by reference)
2.25 Amended and Restated Agreement and Plan of Merger dated as
of September 11, 1995, between CableMaxx, Inc., Heartland
Merger Sub 2, Inc. and the Registrant (filed as Exhibit 2.25
to the January Form S-4 and incorporated herein by
reference)
2.26 Amended and Restated Assets Purchase Agreement dated as of
October 19, 1995, between Three Sixty Corp., Technivision,
Inc. and the Registrant (filed as Exhibit 2.26 to the
January Form S-4 and incorporated herein by reference)
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Form S-1 and incorporated
herein by reference)
3.2 Restated By-laws of the Registrant (filed as Exhibit 3.2 to
the Form S-1 and incorporated herein by reference)
*4.1 1994 Employee Stock Option Plan of the Registrant, as amended
4.2 Revised Form of Nontransferable Incentive Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.2 to the Registrant's
Registration Statement on Form S-4, File No. 33-91930 (the
"February Form S-4"), and incorporated herein by reference)
4.3 Revised Form of Nontransferable Non-Qualified Stock Option
Agreement under the 1994 Employee Stock Option Plan of the
Registrant (filed as Exhibit 4.3 to the February Form S-4
and incorporated herein by reference)
40
4.4 1994 Stock Option Plan for Non-Employee Directors of the
Registrant (filed as Exhibit 4.4 to the Form S-1 and incorporated
herein by reference)
4.5 Form of Stock Option Agreement under the 1994 Stock Option Plan
for Non-Employee Directors of the Registrant (filed as Exhibit 4.5
to the Form S-1 and incorporated herein by reference)
4.6 Warrant Agreement between the Registrant and Gerard Klauer Mattison & Co.,
Inc. (including form of warrant certificate) (filed as Exhibit 4.6 to the
Form S-1 and incorporated herein by reference)
4.7 Registration Rights Agreement among Registrant, Jupiter Partners L.P. and
Thomas R. Haack (filed as Exhibit 4.7 to the Form S-4 and incorporated
herein by reference)
4.8 Stockholders Agreement among Registrant, Hunt Capital Group,
L.L.C., David E. Webb, L. Allen Wheeler and Jupiter Partners L.P.
(filed as Exhibit 4.8 to the Form S-4 and incorporated herein by
reference)
4.9 Note Purchase Agreement among the Registrant and Jupiter Partners
L.P. and Thomas R. Haack (filed as Exhibit 4.9 to the Form S-4 and
incorporated by reference)
4.10 First Amendment to Note Purchase Agreement among the Registrant
and Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit
4.10 to the Form 10-K Annual Report filed with the Commission on
March 31, 1995 (the "1995 Form 10-K"), and incorporated herein by
reference)
4.11 Second Amendment to Note Purchase Agreement among the Registrant,
Jupiter Partners L.P. and Thomas R. Haack (filed as Exhibit 4.11
to the February Form S-4 and incorporated herein by reference)
4.12 Indenture between the Registrant and First Trust of New York,
National Association, as Trustee (the "Trustee") (filed as Exhibit
4.12 to the February Form S-4 and incorporated herein by
reference)
4.13 Supplemental Indenture dated October 2, 1995, between the
Registrant and the Trustee (filed as Exhibit 4.13 to the February
Form S-4 and incorporated herein by reference)
4.14 Registration Rights Agreement among the Registrant, BT Securities
Corporation ("BT Securities") and Lazard Freres & Co. ("Lazard") (filed as
Exhibit 4.14 to the February Form S-4 and incorporated herein by
reference)
4.15 Securityholders' and Registration Rights Agreement among the Registrant,
BT Securities and Lazard (filed as Exhibit 4.15 to the February Form S-4
and incorporated herein by reference)
4.16 Warrant Agreement between the Registrant and Bankers Trust Company, as
Warrant Agent (filed as Exhibit 4.16 to the February Form S-4 and
incorporated herein by reference)
4.17 Unit Agreement among the Registrant, Bankers Trust Company, as Unit Agent
and Warrant Agent, and the Trustee (filed as Exhibit 4.17 to the February
Form S-4 and incorporated herein by reference)
4.18 Escrow and Disbursement Agreement among the Registrant, Bankers Trust
Company, as Escrow Agent, and the Trustee (filed as Exhibit 4.18 to the
February Form S-4 and incorporated herein by reference)
10.1 Form of Indemnity Agreement between the Registrant and each of its
directors (filed as Exhibit 10.3 to the Form S-1 and incorporated herein
by reference)
10.2 Noncompetition Agreement between the Registrant and J. R. Holland, Jr.
(filed as Exhibit 10.4 to the Form S-1 and incorporated herein by
reference)
10.3 Noncompetition Agreement between the Registrant and David E. Webb (filed
as Exhibit 10.5 to the Form S-1 and incorporated herein by reference)
10.4 Noncompetition Agreement between the Registrant and John R. Bailey (filed
as Exhibit 10.6 to the Form S-1 and incorporated herein by reference)
10.5 Noncompetition Agreement between the Registrant and Randy R. Hendrix
(filed as Exhibit 10.7 to the Form S-1 and incorporated herein by
reference)
10.6 Noncompetition Agreement between the Registrant and L. Allen Wheeler
(filed as Exhibit 10.9 to the Form S-1 and incorporated herein by
reference)
10.7 Standard Commercial Lease between the Registrant and Tech Concepts Joint
Venture regarding the Registrant's Richardson, Texas office (filed as
Exhibit 10.12 to the November Form S-1 and incorporated herein by
reference)
41
10.8 Building Lease Agreement dated June 1, 1990, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.13 to the 1995 Form 10-K and incorporated herein by reference)
10.9 Building Lease Agreement dated January 2, 1995, between the Registrant
and W&W Commercial Group, L.L.C. (filed as Exhibit 10.14 to the 1995 Form
10-K and incorporated herein by reference)
10.10 Building Lease Agreement dated May 1, 1994, between Wireless
Communications, Inc. and The Federal Building, Inc. (filed as Exhibit
10.15 to the 1995 Form 10-K and incorporated herein by reference)
10.11 Purchase Agreement among the Registrant, BT Securities and Lazard (filed
as Exhibit 10.17 to the Form S-4 and incorporated herein by reference)
10.12 Building Lease Agreement dated November 20, 1995, between the Registrant
and the Federal Building, Inc. (filed as Exhibit 10.18 to the February
Form S-4 and incorporated herein by reference)
10.13 Participation Agreement dated as of December 12, 1995, by and among the
Registrant, CAI Wireless Systems, Inc. and CS Wireless Systems, Inc. (the
"Participation Agreement") (without exhibits except Stockholders'
Agreement) (filed as Exhibit 2.6 to the Form 8-K Current Report dated as
of December 12, 1995 (the "December 1995 Form 8-K"), and incorporated
herein by reference)
10.14 Amendment No. 1 to Participation Agreement (filed as Exhibit 2.7 to the
December 1995 Form 8-K and incorporated herein by reference)
*10.15 Contribution Agreement and Agreement and Plan of Merger dated as of
October 18, 1995 by and among the Registrant, Wireless One, Inc.,
Wireless One Operating Company, Wireless One Merger Company and others
*13 Annual Report to Shareholders for the year ended December 31, 1995
submitted herewith but not "filed", except for those portions expressly
incorporated by reference herein
*21 List of Subsidiaries
*23 Consent of KPMG Peat Marwick LLP\
*27 Financial Data Schedule
- ----------
* Filed herewith.