Exhibit 2.7
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
This Amendment No. 1 (this "Amendment"), dated as of February
22, 1996, is among CAI Wireless Systems, Inc., a Connecticut
corporation ("CAI"), Heartland Wireless Systems, Inc., a Delaware
corporation ("Heartland"), and CS Wireless Systems, Inc., a
Delaware Corporation ("CS").
R E C I T A L S:
A. CAI, Heartland and CS are parties to a Participation
Agreement dated as of December 12, 1995 (the "Participation
Agreement").
B. The parties to this Amendment wish to amend the
Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Defined Terms. Except as specifically amended in this
Amendment, all defined terms in the Participation Agreement shall
have the same meanings in this Amendment.
2. Amendment of Article I of the Agreement.
(a) The definition of "CAI Company" is amended and
restated in its entirety as follows:
" "CAI Company" means any of CAI, any of the CAI
Subsidiaries named on Schedule I hereto and any
Subsidiary of any such named Subsidiary."
(b) The definition of "CAI Nominal Value" is amended and
restated in its entirety as follows:
" "CAI Nominal Value" means $102,479,000, adjusted
as of the Closing Date as follows: (a) increased by
the amount (if any) by which the Net Asset Amount
for the CAI Assets is greater than $102,479,000,
(b) reduced by the amount (if any) by which the Net
Asset Amount for the CAI Assets is less than
$102,479,000, (c) increased by the product of
$1,500 and the amount (if any) by which the CAI
Subscriber Increase is greater than the Heartland
Subscriber Increase and (d) reduced by the product
of $1,500 and the amount (if any) by which the CAI
Subscriber Decrease is greater than the Heartland
Subscriber Decrease."
(c) The definition of "Channel Deficiency Adjustment" is
amended and restated in its entirety as follows:
" "Channel Deficiency Adjustment" means a dollar
amount determined only for each geographic market
which is not a BTA Market in which rights to
acquire Channels at the conclusion of the BTA
Auction are available conveyed to CS in which the
number of Channels actually conveyed to CS by the
CAI Companies or the Heartland Companies, as the
case may be, as part of the CAI Assets or the
Heartland Assets, on or before the True-Up Date, as
the case may be, and for which construction permits
have been granted, shall be less than 16, which
amount shall be computed separately for each of
Heartland and CAI by (1) multiplying (a) the amount
determined by multiplying (i) $60.00, by (ii) the
number of LOS Households in such geographic market
shown for that market under the heading "LOS
Households" in Exhibits 3.1(a) and 3.3(a) with
respect to Heartland and Exhibit 3.2(a) with
respect to CAI, by (b) the fraction, the numerator
of which is 16 minus the number of Channels in such
market actually conveyed to CS and for which
construction permits have been granted, and the
denominator of which is 16, and (2) aggregating the
total of such amounts for each of the Heartland
geographic markets and for each of the CAI
geographic markets, as the case may be; provided,
however, that no such adjustment shall be made
unless the total number of Channels actually
delivered, on or before the True-Up Date, to CS by
CAI or Heartland, as the case may be, in any
geographic market, and for which construction
permits have been granted, shall be less than 16."
(d) The definition of "Heartland Company" is amended and
restated in its entirety as follows:
" "Heartland Company" means any of Heartland or any
Heartland Subsidiary listed on Schedule II hereto."
(e) The definition of "Heartland Nominal Value" is amended
and restated in its entirety as follows:
" "Heartland Nominal Value" means $138,663,000,
adjusted as of the Closing Date as follows: (a)
increased by the amount (if any) by which the Net
Asset Amount for the Heartland Assets is greater
than $138,663,000, (b) reduced by the amount (if
any) by which the Net Asset Amount for the
Heartland Assets is less than $138,663,000, (c)
increased by the product of $1,500 and the amount
(if any) by which the Heartland Subscriber Increase
is greater than the CAI Subscriber Increase and (d)
reduced by the product of $1,500 and the amount (if
any) by which the Heartland Subscriber Decrease is
greater than the CAI Subscriber Decrease."
(f) The definition of "Net Asset Amount" is amended and
restated in its entirety as follows:
" "Net Asset Amount" means
(i) for CAI, an amount equal to (A)
$102,479,000, plus (if a positive number) or
minus (if a negative number) (B) the CAI Net
Working Capital, plus (C) the original cost of
all equipment included in the CAI Assets at
the Effective Time and relating to any CAI
Operating System that has fewer than 500
Subscribers, minus (D) all Assumed CAI
Liabilities that constitute Funded
Indebtedness at the time of the Closing; and
(ii) for Heartland, an amount equal to (A)
$138,663,000, plus (if a positive number) or
minus (if a negative number) (B) the Heartland
Net Working Capital, plus (C) the original
cost of all equipment included in the
Heartland Assets at the Effective Time and
relating to any Heartland Operating System
that has fewer than 500 Subscribers, minus (D)
all Assumed Heartland Liabilities that
constitute Funded Indebtedness at the time of
the Closing.
(g) The following definitions are added to Article I, to be
placed in their correct alphabetical order:
" "Adjustment Note" means an unsecured promissory
note that evidences a payment obligation under
Sections 9.1, 9.3 or 9.6, payable to the order of
CS, with a maturity date five years following the
True-Up Date, with an interest rate equal to 10%
per annum and with provisions for (a) prepayment,
at the option of the payor, at any time, (b)
mandatory prepayment upon the receipt by the payor
of any proceeds, dividends or distributions
received by the payor in respect of its shares of
CS Common Stock (other than resulting from the
transfer of such shares to an affiliate of the
payor), such prepayment to be in an amount equal to
such proceeds, dividends or distributions, and (c)
all interest thereon to be payable in kind
(interest to accrue and be compounded annually
rather than to be payable currently), with interest
to become payable on the earlier to occur of the
maturity date or prepayment in full of such note.
"BTA Adjustment Date" means, as to either CAI or
Heartland and as to any BTA Market in which rights
to acquire Channels at the conclusion of the BTA
Auction are available, the later to occur of (a)
the Post-Closing Adjustment Date, (b) the date that
is 10 days after CAI or Heartland, as
the case may be, is given notice that it is not the
successful bidder in the BTA Auction for such BTA
Market and (c) if CAI or Heartland, as the case may
be, is given notice it is the successful bidder in
the BTA Auction for such BTA Market, 10 days after
CAI or Heartland, as the case may be, is granted by
the FCC rights to acquire the Channels related to
such BTA Market.
"CAI Subscriber Decrease" means, as of the
Effective Time, the amount (if any) by which the
aggregate number of Basic Subscribers for the CAI
Operating Systems is less than 35,766.
"Heartland Subscriber Decrease" means, as of the
Effective Time, the amount (if any) by which the
aggregate number of Basic Subscribers for the
Heartland Operating Systems is less than 19,734."
3. Amendment to Section 2.4. Section 2.4 of the Agreement
is amended and restated in its entirety as follows:
"2.4 Expenses. CS shall reimburse CAI and/or
Heartland in full for any payments made by either
of them in engaging in the BTA Auction, including
the expenses of FCC counsel."
4. Amendment to Section 5.1. Section 5.1(f)(ii) of the
Agreement is amended and restated in its entirety as follows:
"(ii) The stations listed in Exhibit 5.1(m) are
entitled to the Protected Service Areas subject to
FCC rules except for those instances where the
protected service areas are subject to contractual
obligations listed in Exhibit 5.1(f)(ii)."
5. Amendment to Section 5.2. Section 5.2(f)(ii) of the
Agreement is amended and restated in its entirety as follows:
"(ii) The stations listed in Exhibit 5.2(m) are
entitled to the Protected Service Areas subject to
FCC rules except for those instances where the
protected service areas are subject to contractual
obligations listed in Exhibit 5.2(c)(ii)."
6. Addition of Section 6.7. The following Section 6.7 shall
be added to the Agreement:
"6.7. Preservation of Subleasing Entity. Each of
Heartland and CAI agree, with respect to any entity
controlled by Heartland or CAI, which is a lessor
under any Channel Lease relating to a Channel that
is being subleased by such entity to CS after the
Closing Date (each, a "Subleasing Subsidiary"), not
to sell, or permit any Encumbrance (other than as
disclosed on Exhibit 5.1(a) or 5.2(a)) to exist
against, the stock or other ownership interest in
such Subleasing Subsidiary held by CAI or Heartland
from the Closing Date to the earlier of (i) the
True-Up Date or (ii) the date on which the lessor's
rights under such Channel Lease are assigned to
CS."
7. Addition of Section 6.8. The following Section 6.8 shall
be added to the Agreement:
"6.8. CS Initial Public Offering. CS agrees that
so long as any amount remains outstanding under the
Long Note, CS shall not consummate an initial
public offering of CS Common Stock unless the
proceeds of such initial public offering shall be
used to prepay the Long Note to the extent required
pursuant to the terms thereof."
8. Amendment to Sections 9.1 through 9.4 of the Agreement.
Section 9.1 through 9.4 of the Agreement are amended and restated
in their entirety as follows:
"9.1. Indemnities of the Heartland
Companies. Each Heartland Company hereby jointly
and severally agrees to indemnify and hold harmless
each of CS and the CAI Companies and their
respective successors and assigns against and in
respect of any and all claims, demands,
liabilities, obligations, actions, suits,
proceedings, losses, damages, costs, expenses,
assessments, judgments, recoveries and
deficiencies, including interest, penalties and
reasonably attorneys' fees, of every kind and
description, contingent or otherwise, suffered by
CS and the CAI Companies (without duplication) and
occasioned by, arising out of resulting from (a)
any breach by any Heartland Company of any material
obligation under this Agreement, (b) any breach by
an Acquired Company of any material obligation
applicable to the Heartland Companies and Heartland
Assets under Sections 6.1, 6.4 and 6.5 (excluding,
however, any such breaches disclosed to CAI in the
Officers' Certificate delivered by Heartland
pursuant to Section 6.1(h)), (c) any representation
or warranty of any Heartland Company being false or
misleading in any material respect or (d) any and
all litigation on Schedule 5.1(w) (the foregoing
hereinafter collectively referred to as "Heartland
Damages"); provided however, that (i) Heartland
Damages
shall not include any amounts that would be
included in the calculation of the True-Up
Adjustment pursuant to Section 9.6 hereto, (ii)
Heartland shall not be required to make any
indemnification payment under this Section 9.1 for
any portion of the initial $500,000 of all
Heartland Damages; and (iii) in no event shall the
aggregate Heartland Damages exceed 50% of the
aggregate of the Heartland Share Consideration
(valued for this purpose as provided below) and the
Purchase Consideration. Subject to the foregoing
limitations, Heartland may, at its option, pay all
Heartland Damages payable to CS through either (I)
a combination of (A) the assignment to CS of that
number of shares of CS Common Stock whose value is
equal to 50% of the amount of the Heartland Damages
and (B) through the payment in cash (or by reducing
the principal amount of the Long Note and
thereafter, to the extent necessary, the Short
Note) or delivery of an Adjustment Note in an
amount which aggregates 50% of the amount of the
Heartland Damages; or (II) entirely as provided in
clause (B) above. Subject to the foregoing
limitations, Heartland may, at its option, pay all
Heartland Damages payable to CAI through either (I)
a combination of (A) the assignment to CAI of that
number of shares of CS Common Stock whose value is
equal to 50% of the amount of the Heartland Damages
and (B) through the payment in cash or delivery of
an Adjustment Note in an amount which aggregates
50% of the amount of the Heartland Damages; or (II)
entirely as provided in clause (B) above. For
purposes of clause (A) of each of the immediately
preceding two sentences and clause (iii) of the
next preceding sentence, the per share value of CS
Common Stock shall be determined by dividing (i)
the total number of shares of CS Common held by CAI
and Heartland immediately after the Closing into
(ii) the sum of (A) the CAI Estimated Value and (B)
the Heartland Estimated Value, less (C) the
Purchase Consideration.
9.2 Delivery of Notice to Heartland. If CS
or any CAI Company is of the opinion that any
Heartland Damages have occurred or will or may
occur, it shall deliver a notice to Heartland, and
each such notice shall specify the amount and the
circumstances of such asserted Heartland Damages.
If a claim is made against a party to be
indemnified by the Heartland Companies under
Section 9.1 above, or in the event Heartland
Damages otherwise occur, the indemnitee shall
promptly (and in any event within 30 days) after
the assertion of a claim or the discovery of any
fact upon which such indemnitee intends to base a
claim for indemnification under Section 9.1 of this
Agreement (the "Claim") notify the Heartland
Companies from whom indemnification is sought (the
"Indemnitor") of such Claim. In the event of any
Claim from a third party, the Indemnitor, at its
option, may assume (with legal counsel
reasonably acceptable to the indemnitee) the
defense of any claim, demand, lawsuit or other
proceeding in connection with the indemnitee's
Claim, and may assert any defense of the indemnitee
or the Indemnitor; provided that the indemnitee
shall have the right at its own expense to
participate jointly with the Indemnitor in the
defense of any claim, demand, lawsuit or other
proceeding in connection with the indemnitee's
Claim. In the event that the Indemnitor elects to
undertake the defense of a Claim hereunder, the
indemnitee will cooperate with the Indemnitor to
the fullest extent reasonably possible with regard
to all matters relating to the Claim (including,
without limitation, corrective actions required by
applicable law, assertion of defenses and the
determination, mitigation, negotiation and
settlement of all amounts, costs, actions,
penalties, damages and the like related thereto) so
as to make the Indemnitor's management of the same
with regard to the amount of damages payable by the
Indemnitor hereunder. The Indemnitor shall have
the right to settle any Claim, and the indemnitee
shall reasonably cooperate in furtherance of such
determination by the Indemnitor; provided that the
Indemnitor shall not, without the prior written
consent of the indemnitee, settle any Claim which
does not contain a complete release of the
indemnitee from the Claim in question or which does
not involve solely the payment of money for which
the indemnitee is actually indemnified.
9.3 Indemnities of the CAI Companies. Each
CAI Company hereby jointly and severally agrees to
indemnify and hold harmless CS and the Heartland
Companies and their respective successors and
assign against and in respect of any and all
claims, demands, liabilities, obligations, actions,
suit, proceedings, losses, damages, costs,
expenses, assessments, judgments, recoveries and
deficiencies, including interest, penalties and
reasonable attorneys' fees, of every kind and
description, contingent or otherwise, suffered by
CS and the Heartland Companies (without
duplication) and occasioned by, arising out of or
resulting from (a) any breach by any CAI Company of
any material obligation under this Agreement, (b)
any representation or warranty of any CAI Company
being false or misleading in any material respect
or (c) any and all litigation listed on Schedule
5.2(w) (the foregoing hereinafter collectively
referred to as "CAI Damages"); provided, however,
that CAI Damages (i) shall not include any amounts
that would be included in the calculation of the
True-Up adjustment pursuant to Section 9.6 hereto,
(ii) CAI shall not be required to make any
indemnification payment under this Section 9.3 for
any portion of the initial $500,000 of all CAI
Damages; and (iii) in no event shall the aggregate
CAI Damages exceed 50% of the CAI Share
Consideration (valued for this purpose as provided
below). Subject
to the foregoing limitations, CAI may, at its
election, pay all CAI Damages either (I) in cash or
by delivering to Heartland or CS, as the case may
be, an Adjustment Note; or (II) through a
combination of (A) the payment in cash or an
Adjustment Note and (B) the assignment to Heartland
or CS, as the case may be, of that number of shares
of CS Common Stock whose value is equal to 50% of
the amount of the CAI Damages. For purposes of the
two immediately preceding sentences, the per share
value of CS Common Stock shall be determined by
dividing (i) the total number of shares of CS
Common Stock held by CAI and Heartland immediately
after the Closing into (ii) the sum of (A) the CAI
Estimated Value and (B) the Heartland Estimated
Value, less (C) the Purchase Consideration.
9.4 Delivery of Notice to CAI. If CS or any
Heartland Company is of the opinion that any CAI
Damages have occurred or will or may occur, it
shall deliver a notice to CAI, and each such notice
shall specify the amount and the circumstances of
such asserted CAI Damages. If a claim is made
against a party to be indemnified by the CAI
Companies under Section 9.3 above, or in the event
CAI Damages otherwise occur, the indemnitee shall
promptly (and in any event within 30 days) after
the assertion of a claim or the discovery of any
fact upon which such indemnitee intends to base a
claim for indemnification under Section 9.3 of this
Agreement (the "Claim") notify the CAI Companies
form whom indemnification is sought (the
"Indemnitor") of such Claim. In the event of any
Claim from a third party, the Indemnitor, at its
option, may assume (with legal counsel reasonably
acceptable to the indemnitee) the defense of any
claim, demand, lawsuit or other proceeding in
connection with the indemnitee's Claim, and may
assert any defense of the indemnitee or the
Indemnitor; provided that the indemnitee shall have
the right at its own expense to participate jointly
with the Indemnitor in the defense of any claim,
demand, lawsuit or other proceeding in connection
with the indemnitee's Claim. In the event that the
Indemnitor elects to undertake the defense of a
Claim hereunder, the indemnitee will cooperate with
the Indemnitor to the fullest extent reasonably
possible with regard to all matters relating to the
Claim (including, without limitation, corrective
actions required by applicable law, assertion of
defenses and the determination, mitigation,
negotiation and settlement of all amounts, costs,
actions, penalties, damages and the like related
thereto) so as to make the Indemnitor's management
of the same with regard to the amount of damages
payable by the Indemnitor hereunder. The
Indemnitor shall have the right to settle any
Claim, and the indemnitee shall reasonably
cooperate in furtherance of such determination by
the Indemnitor;
provided that the Indemnitor shall not, without the
prior written consent of the indemnitee, settle any
Claim which does not contain a complete release of
the indemnitee from the Claim in question or which
does not involve solely the payment of money for
which the indemnitee is actually indemnified."
9. Amendment of Section 9.5 of the Agreement. Section 9.5
of the Agreement is amended and restated in its entirety as
follows:
"9.5 Termination of Indemnification Claims.
The obligations of the Heartland Companies under
Section 9.1 relating to clause (d) thereof and the
obligations of the CAI Companies under Section 9.3
relating to clause (d) thereof shall terminate on
the second anniversary of the Closing Date. No
other obligations under Sections 9.1 and 9.3 hereof
shall apply to any matters occurring subsequent to
the Post-Closing Adjustment Date, except to the
extent that the Indemnitor has acted in bad faith
to prevent the indemnitee from becoming aware of a
fact in existence on the Post-Closing Adjustment
Date which would give rise to Heartland Damages or
CAI Damages, as the case may be."
10. Amendment of Section 9.6 of the Agreement. Section 9.6
of the Agreement is amended and restated in its entirety as
follows:
"9.6 True-Up Adjustments.
(a) On the date that is 60 days after the Closing
Date (the "First True-Up Date"), (i) CS shall pay
to CAI the amount of (a) the CAI Adjustment
Increase, if any, plus (b) the amount of the
Heartland Adjustment Decrease, if any, and (ii) CS
shall pay to Heartland the amount of (a) the
Heartland Adjustment Increase, if any, plus (b) the
amount of the CAI Adjustment Decrease, if any. The
amount payable pursuant to this Section 9.6(a)
shall be paid in cash.
(b) On the True-Up Date, each of CAI and Heartland
shall pay to CS the amount of their respective
Channel Deficiency Adjustments, if any. Such
payment shall be made, at the option of the paying
party, either (i) in a cash payment (or, in the
case of Heartland, by reducing the principal amount
of the Long Note and thereafter, to the extent
necessary, the Short Note), (ii) an Adjustment
Note, (iii) the assignment to CS of shares of CS
Common Stock owned by the paying party, valued as
set forth in the final sentences of Sections 9.1
and 9.3 or (iv) any combination of such manners of
payment; provided, however, that CAI may assign no
more
shares of CS Common Stock pursuant to clause (iii)
than would result in CAI owning, after giving
effect to such assignment, at least ten percent
more of the outstanding shares of CS Common Stock
than is then owned by the next largest holder of
shares of CS Common Stock.
(c) All payments made pursuant to this Section 9.6
shall bear interest at the annual rate of 10% from
the Closing Date to, in the case of the payment due
under Section 9.6(a), the First True-Up Date, or
to, in the case of the payments or payments due
under Section 9.6(b), the True-Up Date. Except as
otherwise provided in Sections 9.1 and 9.3 hereof,
after the Closing Date there shall be no other
adjustments or indemnifications with respect to any
aspect of the transactions contemplated by the
Agreement."
11. Addition of Section 9.7. The following Section 9.7 shall
be added to the Agreement:
"9.7 BTA Market Adjustment. As to each BTA Market
in which rights to acquire Channels at the
conclusion of the BTA Auction are available, on the
later to occur of the BTA Adjustment Date or the
True-Up Date, if the number of Channels (the "BTA
Channel Number") equal to (a) the number of
Channels, relating to such BTA Market, actually
conveyed to CS by the CAI Companies or the
Heartland Companies, as the case may be, as part of
the CAI Assets or the Heartland Assets, on or
before the BTA Adjustment Date, and for which
construction permits have been granted, plus (b)
the number of Channels, relating to such BTA
Market, as to which any of the CAI Companies or any
of the Heartland Companies, as the case may be,
shall have been awarded rights to acquire such
Channels in the BTA Auction and documents
transferring such rights shall have been filed with
the FCC on or prior to the BTA Adjustment Date,
shall be less than 16, CAI or Heartland, as the
case may be, shall pay to CS an amount equal to (a)
the product of (i) the amount determined by
multiplying (x) $60.00, by (y) the number of LOS
Households in such BTA Market shown for such
market under the heading "LOS Households" in
Exhibits 3.1(a) and 3.3(a) with respect to
Heartland and Exhibit 3.2(a) with respect to CAI,
and (ii) the fraction, the numerator of which is 16
minus the BTA Channel Number, and the denominator
of which is 16. Such amount shall be paid as set
forth in the second sentence of Section 9.6(b)."
12. Amendment of Exhibit 2.8, Form of Stockholders'
Agreement. Exhibit 2.8 to the Agreement is amended by substituting
therefor the Form of Stockholders' Agreement that is appended to
this Amendment as Exhibit 2.8.
13. Technical Amendments. CS, CAI and Heartland agree to
substitute pages to the Agreement correcting certain technical
errors, as indicated on the marked pages attached hereto as Exhibit
A.
14. Effective Date. This Amendment shall become effective as
of the date hereof.
15. No Other Amendments. Except as expressly provided in
this Amendment and in the other instruments and agreements being
executed and delivered in connection herewith, all of the terms and
conditions of the Agreement shall remain unchanged and in full
force and effect. In the case of any inconsistency between this
Amendment and any prior version of the Agreement, the terms of this
Amendment shall govern.
16. Miscellaneous.
(a) This Amendment shall be deemed to be a contract
under the laws of the State of Delaware and for all purposes
shall be construed in accordance with and governed by the laws
of said State.
(b) This Amendment may be executed in any number of
counterparts and by each party on separate counterparts, each
of which shall be an original but all of which shall
constitute one instrument. In making proof of this Amendment,
it shall not be necessary to produce or account for more than
one counterpart signed by each of the parties hereto.
(c) This Amendment is intended to take effect as a
sealed instrument.
IN WITNESS WHEREOF, each of the parties has caused this
Amendment to be executed and delivered by its duly authorized
officer as of the date first written above.
CS WIRELESS SYSTEMS, INC.
By: /s/ Xxxx Xxxxxxxxxx
Name:
Title:
HEARTLAND WIRELESS COMMUNICATIONS, INC.
By: /s/ Xxxx X. Xxxxxx
Name:
Title:
CAI WIRELESS SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxxx
Name:
Title:
